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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
July 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 July 3, 2004, 22,282,240 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
July 3, 2004, and January 3, 2004 (unaudited)............................... 1
Condensed Consolidated Statements of Income for the periods ended
July 3, 2004, and June 28, 2003 (unaudited)................................. 2
Condensed Consolidated Statements of Cash Flows for the periods ended
July 3, 2004, and June 28, 2003 (unaudited)................................. 3
Notes to the Condensed Consolidated Financial Statements (unaudited)........ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk ................. 15
Item 4. Controls and Procedures..................................................... 16
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders......................... 17
Item 6. Exhibits and Reports on Form 8-K............................................ 19
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
JULY 3, 2004 January 3, 2004
------------ ---------------
ASSETS:
Cash and cash equivalents ................................... $ 34,384 $ 22,128
Receivables ................................................. 81,766 52,149
Inventories ................................................. 73,681 52,598
Investments .................................................
Other current assets ........................................ 24,440 22,265
-------- --------
Total current assets ........................................ 214,271 149,140
Property, plant, and equipment .............................. 294,673 252,800
Accumulated depreciation .................................... (164,176) (154,321)
Property, plant, and equipment, net ......................... 130,497 98,479
Intangible assets, net ...................................... 19,565 11,943
Goodwill .................................................... 56,375 48,643
Investments ................................................. 7,408 2,543
Other assets ................................................ 793 822
-------- --------
Total assets $428,909 $311,570
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities excluding current portion
of long-term debt ....................................... $ 94,293 $ 64,892
Current portion of long-term debt ........................... 47,392 18,496
-------- --------
Total current liabilities ................................... 141,685 83,388
Long-term debt .............................................. 11,573 10,201
Accrued post-retirement benefits ............................ 17,780 4,564
Other long-term liabilities ................................. 6,131 1,072
Minority interest ........................................... 12,282 143
Shareholders' equity ........................................ 239,458 212,202
-------- --------
Total liabilities and shareholders' equity .................. $428,909 $311,570
======== ========
Shares issued and outstanding
of 22,282,240 and 22,063,943, at July 3, 2004 and
January 3, 2004, respectively
1
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
JULY 3, June 28, JULY 3, June 28,
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales ................................................ $ 128,759 $ 72,790 $ 240,177 $ 142,752
Cost of sales ............................................ 84,580 48,915 156,193 95,800
--------- --------- --------- ---------
Gross profit ............................................. 44,179 23,875 83,984 46,952
Selling, general and administrative
expenses ................................................. 23,572 15,500 44,115 31,222
Research and development expenses ........................ 4,156 1,861 7,337 3,794
Amortization of intangibles .............................. 470 191 809 383
--------- --------- --------- ---------
Operating income ......................................... 15,981 6,323 31,723 11,553
Interest expense ......................................... 492 514 918 1,050
Other income ............................................. (768) (209) (461) (551)
--------- --------- --------- ---------
Income before minority interest
and income taxes ......................................... 16,257 6,018 31,266 11,054
Minority interest ........................................ 60 - 60 -
Income taxes ............................................. 5,853 2,167 11,256 3,979
--------- --------- --------- ---------
Net income ............................................... $ 10,344 $ 3,851 $ 19,950 $ 7,075
========= ========= ========= =========
Net income per share:
Basic ................................................ $ 0.47 $ 0.18 $ 0.90 $ 0.32
========= ========= ========= =========
Diluted .............................................. $ 0.46 $ 0.18 $ 0.89 $ 0.32
========= ========= ========= =========
Weighted average shares and equivalent shares outstanding:
Basic ................................................ 22,180 21,789 22,107 21,780
========= ========= ========= =========
Diluted .............................................. 22,684 21,856 22,515 21,838
========= ========= ========= =========
2
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
JULY 3, June 28, JULY 3, June 28,
2004 2003 2004 2003
-------- -------- -------- --------
Operating activities:
Net income ..................................... $ 10,344 $ 3,851 $ 19,950 $ 7,075
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .............................. 6,177 4,292 11,816 8,634
Amortization ................................... 470 191 809 383
Changes in operating assets and liabilities:
Accounts receivable ....................... (5,597) 533 (13,818) (1,802)
Inventories ............................... 1,137 (224) (1,233) (2,721)
Accounts payable and accrued
expenses ................................ 2,189 (1,168) 1,779 (614)
Prepaid expenses and other ................ 1,407 500 (241) (2,374)
-------- -------- -------- --------
Net cash provided by operating
activities ..................................... 16,127 7,975 19,062 8,581
Cash provided (used in) investing activities:
Purchases of property, plant, and equipment .... (6,059) (2,162) (9,051) (4,789)
Acquisitions, net of cash acquired of $15,713 .. (32,807) - (32,807) -
Sale of property, plant & equipment ............ - - - 2,213
Sale of marketable securities, net ............. - 10,403 - 8,806
-------- -------- -------- --------
Net cash provided by (used in) in investing
activities ..................................... (38,866) 8,241 (41,858) 6,230
Cash provided by (used in) financing activities:
Proceeds from long-term debt .............. 32,000 3 32,000 -
Payments of long-term debt ................ (3,008) - (3,047) (1,441)
Proceeds from exercise of stock options ... 6,425 317 8,309 952
-------- -------- -------- --------
Net cash provided by (used in) financing
activities ................................ 35,417 320 37,262 (489)
Effect of exchange rate changes on cash ........ (2,189) 229 (2,210) 207
-------- -------- -------- --------
Increase in cash and cash
equivalents ............................... 10,489 16,765 12,256 14,529
Cash and cash equivalents at beginning
of period ................................. 23,895 25,514 22,128 27,750
-------- -------- -------- --------
Cash and cash equivalents at end of
period .................................... $ 34,384 $ 42,279 $ 34,384 $ 42,279
======== ======== ======== ========
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 3, 2004
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the periods ended July 3, 2004, and June
28, 2003 are not necessarily indicative of the results that may be expected for
the year ending January 1, 2005. For further information, refer to the Company's
consolidated financial statements and the notes thereto incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
January 3, 2004.
2. BUSINESS SEGMENT INFORMATION
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments:
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and electrical 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 geographical regions where the revenue
is earned and expenses are incurred. The Company has subsidiaries in Americas,
Europe and Asia-Pacific where each region is measured based on its sales and
operating income or loss.
Revenues from no single customer amounted to 10% or more of the Company's total
revenues for the quarter ended July 3, 2004.
Information concerning the operations in these geographic segments for the
periods ended July 3, 2004, and June 28, 2003, is as follows (in thousands):
Three Months Three months Six Months Six Months
Ended Ended Ended Ended
July 3, 2004 June 28, 2003 July 3, 2004 June 28, 2003
Net Sales
Americas 55,631 36,190 108,808 70,886
Europe 30,947 15,058 51,850 28,399
Asia-Pacific 42,181 21,542 79,519 43,467
4
Combined total 128,759 72,790 240,177 142,752
Corporate - - - -
Consolidated total 128,759 72,790 240,177 142,752
INTERSEGMENT SALES
Americas 22,688 17,207 38,256 35,271
Europe 14,784 13,288 30,422 25,306
Asia-Pacific 7,421 5,196 13,622 10,508
Combined total 44,893 35,691 82,300 71,085
Corporate - - - -
Elimination (44,893) (35,691) (82,300) (71,085)
Consolidated total - - - -
INTEREST EXPENSE
Americas 445 495 875 1,008
Europe 19 3 43 4
Asia-Pacific 28 16 - 38
Combined total 492 514 918 1,050
Corporate - - - -
Consolidated total 492 514 918 1,050
DEPRECIATION AND AMORTIZATION
Americas 3,910 3,255 9,053 6,495
Europe 1,916 475 2,068 1,037
Asia-Pacific 351 562 695 1,102
Combined total 6,177 4,292 11,816 8,634
Corporate 470 191 809 383
Consolidated total 6,647 4,483 12,625 9,017
OTHER INCOME (EXPENSE)
Americas (819) (309) (530) (394)
Europe (167) 109 (435) 24
Asia-Pacific 218 (9) 504 (181)
Combined total (768) (209) (461) (551)
Corporate - - - -
Consolidated total (768) (209) (461) (551)
INCOME TAX EXPENSE
Americas 3,565 1,401 7,176 2,113
Europe 967 131 1,724 127
Asia-Pacific 1,321 635 2,356 1,739
Combined total 5,853 2,167 11,256 3,979
Corporate - - - -
Consolidated total 5,853 2,167 11,256 3,979
5
NET INCOME(LOSS)
Americas 5,755 2,327 12,881 3,566
Europe (26) (328) 87 (523)
Asia-Pacific 4,615 2,044 7,586 4,416
Combined total 10,344 4,043 20,554 7,459
Corporate - (192) (604) (384)
Consolidated total 10,344 3,851 19,950 7,075
NET SALES
Electronic 83,439 40,148 157,966 77,265
Automotive 30,038 24,265 58,226 48,889
Electrical 15,282 8,377 23,985 16,598
Consolidated total 128,759 72,790 240,177 142,752
Total assets
July 3, 2004 January 3, 2004
Americas 360,480 356,871
Europe 181,877 33,637
Asia-Pacific 59,267 47,798
Combined total 601,624 438,306
Reconciliation (172,715) (126,736)
Consolidated total 428,909 311,570
3. INVENTORIES
The components of inventories are as follows (in thousands):
July 3, January 3,
2004 2004
---- ----
Raw material $15,472 $11,783
Work in process 25,121 16,224
Finished goods 33,088 24,591
------- -------
Total $73,681 $52,598
======= =======
4. LONG-TERM OBLIGATIONS
Total debt including the current portion at the end of the second quarter 2004
totaled $59.0 million and consisted of the following: (1) 6.16% private
placement notes totaling $20.0 million, (2) foreign revolver borrowings totaling
$9.7 million and (3) notes payable relating to mortgages totaling $0.3 million
and (4) credit revolver borrowings totaling $29.0 million. Of this indebtedness,
$47.4 million is considered to be current liabilities. The Company has a $50.0
million, three-year revolving bank credit agreement that expires on August 26,
2006. The bank credit agreement is subject to a maximum indebtedness calculation
and other financial covenants. No revolver principal payments are required until
the agreement matures. At July 3, 2004, the Company had available $21.0 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%. The
Company also had $1.8 million in letters of credit outstanding at July 3, 2004.
6
5. PER SHARE DATA
Net income per share amounts for the three months and six months ended July 3,
2004, and June 28, 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 Six months ended
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
------- ------- ------- -------
Average shares outstanding 22,180 21,789 22,107 21,780
Net effect of dilutive stock options
and restricted shares
- Diluted 504 67 408 58
------- ------- ------- -------
Average shares outstanding
- Basic 22,180 21,789 22,107 21,780
======= ======= ======= =======
- Diluted 22,684 21,856 22,515 21,838
======= ======= ======= =======
Net income $10,344 $ 3,851 $19,950 $ 7,075
======= ======= ======= =======
Net income per share
- Basic $ 0.47 $ 0.18 $ 0.90 $ 0.32
======= ======= ======= =======
- Diluted $ 0.46 $ 0.18 $ 0.89 $ 0.32
======= ======= ======= =======
Options to purchase 286,286 and 1,602,995 shares of common stock were
outstanding at July 3, 2004, and June 28, 2003, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares
and, therefore, the effect would be anti dilutive.
6. HEINRICH ACQUISITION
On May 6, 2004, the Company acquired 82% of the common stock of Heinrich
Industrie AG ("Heinrich") for euro 39.5 million (approximately $47.7 million) in
cash and also incurred acquisition costs of euro 2.0 million (approximately $2.4
million). The Company purchased the controlling interest in Heinrich from the
company's two largest shareholders and initiated a tender offer for the
remaining shares of the publicly held company. The Company funded the
acquisition with $18.1 million in cash and $32.0 million of borrowings on an
existing revolving line of credit.
Heinrich is the holding company for the Wickmann Group of circuit protection
products, which has three business units: electronic, automotive and electrical.
Littelfuse intends to operate Heinrich in such business units subsequent to the
acquisition. The Heinrich acquisition expands the Company's product offerings
and strengthens the Company's position in the circuit protection industry.
7
The acquisition was accounted for using the purchase method and the operations
of Heinrich are included in the Company's operations from the date of
acquisition. The following table sets forth the purchase price allocation for
the acquisition of Heinrich in accordance with the purchase method of accounting
with adjustments to record the acquired assets and liabilities of Heinrich at
their estimated fair market or net realizable values.
Purchase price allocation
Current assets $ 50,750
Property, plant and equipment 36,754
Intangible assets 8,374
Goodwill 3,815
Other assets 5,429
Current liabilities (20,443)
Purchase accounting liabilities (10,505)
Other long-term liabilities (14,319)
Minority interest (9,692)
--------
$ 50,163
========
The final purchase price allocation is subject to revision based upon receipt of
the independent appraisal of the property, equipment and intangible assets
acquired.
Purchase accounting liabilities are estimated to be $10,505 and are primarily
for redundancy costs to be paid through 2005 related to manufacturing operations
and selling, general and administrative functions. These liabilities are subject
to revision as the Company implements its plan. The Company began formulating
its plan to incur these costs as of the acquisition date. As of July 3, 2004, no
amounts have been paid related to these liabilities.
The following unaudited pro forma consolidated financial information for the
Company has been prepared assuming the acquisition had occurred on the first day
of the respective periods.
Three Months Ended Six Months Ended
------------------------------- -----------------------------
July 3, 2004 June 28, 2003 July 3, 2004 June 28, 2003
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues $ 138,110 $104,177 $290,521 $193,096
Income from operations 16,268 5,456 30,747 10,577
Net income 10,005 5,335 19,639 8,232
Diluted income per share $ 0.44 $ 0.24 $ 0.87 $ 0.38
8
7. DERIVATIVES AND HEDGING
On June 11, 2002, the Company, excluding Heinrich, 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
July 3, 2004, was $4.9 million and the fair value of the outstanding cross
currency rate swap agreements was recognized as a $0.7 million liability and as
a charge to accumulated other comprehensive loss in the Consolidated Balance
Sheet at July 3, 2004.
Between June 1, 2004 and September 30, 2005, Heinrich Industrie AG purchased
Euro forward contracts with a notional amount of $6.7 million as a cash flow
hedge of the variability of US Dollar cash attributable to the exchange rate
risk on forecasted intercompany sales to U.S. and Asian subsidiaries. These
forward contracts guarantee the rate at which the USD flows will be converted to
Euros in the future. The forward agreements were accounted for as a cash flow
hedge and reported at fair value. The notional amount outstanding at June 30,
2004 was $6.7 million and the fair value of the outstanding forward contracts
was recognized as a $0.4 million asset and as a credit to comprehensive income
in the Consolidated Balance Sheet at July 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.
8. PENSIONS
The components of net periodic benefit cost for the three and six months ended
2004 compared with the three and six months ended 2003 were:
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
------------------ ---------------- ------------------ ----------------
U.S. Pension Benefits Foreign Plans
2004 2003 2004 2003 2004 2003 2004 2003
------ ------ ------ ------ ------ ------ ------ ------
Service cost $ 737 $ 667 $ 1,474 $ 1,334 $ 281 $ 249 $ 562 $ 498
Interest cost 882 888 1,764 1,776 372 315 744 630
Expected return on plan
assets (907) (916) (1,814) (1,832) (384) (311) (768) (622)
Amortization of prior
service cost 3 3 6 6 (3) (3) (6) (6)
Amortization of transition
asset - - - - (23) (26) (46) (52)
Amortization of net (gain)
loss 48 28 96 56 52 - 104 -
Recognized actuarial loss - - - - - 63 - 126
------ ------ ------- ------- ------ ------ ------ ------
9
Total cost of the plan 763 670 1,526 1,340 295 287 590 574
Expected plan participants'
contribution - - - - (52) (52) (104) (104)
------ ------ ------ ------ ------ ------ ------ ------
Net periodic benefit cost $ 763 $ 670 $1,526 $1,340 $ 243 $ 235 $ 486 $ 470
------ ------ ------ ------ ------ ------ ------ ------
The expected rate of return on pension assets is 8.75% in 2004 and 2003.
9. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended July 3, 2004 and June 28,
2003 was approximately $9.7 million and $5.8 million, respectively, and the six
months ended July 3, 2004, and June 28, 2003, was $18.9 million and $9.3
million, respectively. The adjustment for comprehensive income consists of
deferred gains and losses from foreign currency translation adjustments and
qualified cash flow hedges for the periods ended July 3, 2004 and June 28, 2003,
and additionally unrealized gains and losses on available-for-sales securities
for the period ended June 28, 2003.
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.
10
(In thousands, except per share amounts)
Three months ended Six months ended
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income as reported $ 10,344 $ 3,851 $ 19,950 $ 7,075
Stock option compensation expense, net of tax (263) (267) (522) (514)
Pro forma net income $ 10,081 $ 3,584 $ 19,428 $ 6,561
Basic net income per share
As reported $ 0.47 $ 0.18 $ 0.90 $ 0.32
Pro forma $ 0.45 $ 0.16 $ 0.88 $ 0.30
Diluted net income per share
As reported $ 0.46 $ 0.18 $ 0.89 $ 0.32
Pro forma $ 0.44 $ 0.16 $ 0.86 $ 0.30
Risk-free interest rate 3.71% 4.31% 3.71% 4.31%
Expected dividend yield 0% 0% 0% 0%
Expected stock price volatility 42.7% 41.0% 42.7% 41.0%
Expected life of options 8 years 8 years 8 years 8 years
These pro forma amounts may not be representative of future disclosures because
the estimated fair value of the options is amortized to expense over the vesting
period and additional options may be granted in the future.
11. SUBSEQUENT EVENT
Subsequent to July 3, 2004, the Company acquired an additional 86,478 shares,
or 4.3%, of the Heinrich Stock.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sales by Market and Geography
(Dollars in Millions)
SECOND QUARTER YEAR-TO-DATE
------------------------- -------------------------
2004 2003 % CHANGE 2004 2003 % CHANGE
------ ------ -------- ------ ------ --------
MARKET
Electronics $ 77.1 $ 40.1 94% $151.6 $ 77.3 97%
Automotive 27.1 24.3 10% 55.3 48.9 12%
Electrical 10.0 8.4 19% 18.7 16.6 13%
------ ------ ------ ------ ------ ------
Subtotal 114.2 72.8 57% 225.6 142.8 58%
Heinrich 14.6 - - $ 14.6 - -
------ ------ ------ ------ ------ ------
TOTAL $128.8 $ 72.8 77% $240.2 $142.8 68%
====== ====== ====== ====== ====== ======
11
SECOND QUARTER YEAR-TO-DATE
------------------------- -------------------------
2004 2003 % CHANGE 2004 2003 % CHANGE
------ ------ -------- ------ ------ --------
GEOGRAPHY
Americas $ 55.7 $ 36.2 54% $108.8 $ 70.9 54%
Europe 30.9 15.1 105% 51.9 28.4 82%
Asia Pacific 42.2 21.5 96% 79.5 43.5 83%
------ ------ ------ ------ ------ ------
TOTAL $128.8 $ 72.8 77% $240.2 $142.8 68%
====== ====== ====== ====== ====== ======
Results of Operations
Second Quarter, 2004
On May 6, 2004, the Company acquired 82% of the common stock of Heinrich
Industrie AG ("Heinrich") for euro 39.5 million (approximately $47.7 million) in
cash and also incurred acquisition costs of euro 2.0 million (approximately $2.4
million). The Company purchased the controlling interest in Heinrich from the
company's two largest shareholders and initiated a tender offer for the
remaining shares of the publicly held company. The Company funded the
acquisition with $18.1 million in cash and $32.0 million of borrowings on an
existing revolving line of credit.
Heinrich is the holding company for the Wickmann Group of circuit protection
products, which has three business units: electronic, automotive and electrical.
Littelfuse intends to operate Heinrich in such business units subsequent to the
acquisition. The Heinrich acquisition expands the Company's product offerings
and strengthens the Company's position in the circuit protection industry.
Sales increased $56 million or 77% to $128.8 million in the second quarter of
2004, compared to $72.8 million in the second quarter of 2003. The acquisitions
of Teccor Electronics (Teccor) and Heinrich, accounted for approximately $40
million of the increase from the prior year quarter. Excluding these
acquisitions, sales for the second quarter of 2004 increased approximately 22%
compared to the prior year quarter.
On a geographic basis, sales in the Americas increased 54% in the second quarter
of 2004, compared to the second quarter of last year due primarily to the Teccor
acquisition and strong organic growth in each of our three businesses:
electronic, automotive and electrical. Europe sales increased $15.8 million or
105% in the second quarter of 2004 compared to the second quarter of last year.
Heinrich, which was acquired on May 6, 2004, contributed $10.8 million of this
increase. Excluding Heinrich, sales decreased 38% compared to the second quarter
of 2003, due to improved demand for electronics products and favorable currency
effects. Asia sales increased $20.7 million or 96% compared to the prior year
second quarter. Excluding Heinrich, Asia sales increased 82% compared to the
prior year second quarter. This increase was largely due to increased demand in
the hand held consumer electronics market.
12
Electronic sales, excluding Heinrich, increased $37.4 million or 94% for the
second quarter of 2004 compared to the prior year quarter due to the Teccor
acquisition and continued strength across all electronic end markets.
Automotive sales excluding Heinrich, increased $2.4 million or 10% for the
second quarter of 2004, compared to the prior year due primarily to increased
U.S. OEM sales and favorable currency effects. Electrical sales excluding
Heinrich, increased $1.6 million or 19% in the second quarter of 2004 compared
to the same quarter last year as the electrical markets are benefiting from
increased industrial activity and the beginnings of a recovery in
non-residential construction.
Gross profit was $44.2 million or 34.3% of sales for the second quarter of 2004,
compared to $23.9 million or 32.8% in the same quarter last year. The increase
in gross margin is mainly attributable to operating leverage from higher sales
and cost reductions in excess of price erosion, partially offset by $1.3 million
of restructuring charges related to manufacturing transfers and plant downsizing
activities and the addition of lower margin Heinrich sales.
Total operating expense was $28.2 million or 21.9% of sales for the second
quarter of 2004 compared to $17.6 million or 24.1% of sales for the
same quarter in the prior year. The increase in operating expenses is largely
due to the additional expenses related to Teccor and Heinrich.
Operating income was $16.0 million or 12.4% of sales for the second quarter of
2004 compared to $6.3 million or 8.7% of sales for the same quarter of last
year. Excluding Heinrich, operating margin was 13.9% for the second quarter of
2004.
Interest expense was $0.5 million in the second quarter of this year compared to
$0.5 million in the second quarter of last year. Other income was $0.8 million
for the second quarter of 2004 compared to $0.2 million in the second quarter of
last year. The increase in other income primarily reflected rental income
related to Heinrich and more favorable foreign currency effects.
Income before income taxes and minority interest was $16.3 million for the
second quarter 2004 compared to $6.0 million for the second quarter of 2003.
Income taxes were $5.9 million with an effective tax rate of 36% for the second
quarter of 2004 compared to $2.2 million with an effective tax rate of 36% in
the second quarter of last year.
Net income for the second quarter 2004 was $10.3 million or $0.46 per diluted
share compared to $3.9 million or $0.18 per diluted share for the same quarter
of last year.
Six Months, 2004
Sales for the first six months of 2004 increased 68% to $240.2 million from
$142.8 million for the first six months last year. The acquisitions of Teccor
and Heinrich accounted for approximately $64 million of the increase from the
first six months of last year. On a geographic basis, sales in the Americas
increased 54% in the first half of 2004 compared to the prior year due primarily
to the Teccor acquisition and strong organic growth in each of the Company's
three businesses: electronic, automotive and electrical. Europe sales increased
82% in the first half of 2004 compared to the prior year due to the Heinrich and
Teccor acquisitions, improvement in the European electronics market and
favorable currency effects. Asia sales increased 83% compared to the prior year
due to the Teccor and Heinrich acquisitions and continued strength in the
digital consumer end markets.
13
Gross profit was $84.0 million or 35.0% of sales for the first six months of
2004 compared to $47.0 million or 32.9% of sales for the first six months of
last year. Improvement in gross margin for the first six months as compared to
the prior year is primarily due to operating leverage from higher sales and cost
reductions in excess of price erosion, partially offset by $1.3 million of
restructuring charges related to manufacturing transfers and plant downsizing
activities and the addition of lower margin Heinrich sales.
Total operating expense was $52.3 million or 21.8% of sales for the first six
months of 2004 compared to $35.4 million or 24.8% last year. The increase in
operating expenses is largely due to the additional expenses related to Teccor
and Heinrich.
Operating income for the first six months of 2004 was $31.7 million or 13.2% of
sales compared to $11.6 million or 8.1% of sales for the prior year.
Interest expense was $0.9 million for the first half 2004 compared to $1.1
million last year. Other income was $0.5 million for the first six months of
2004 compared to $0.6 million for the same period last year.
Income before taxes and minority interest was $31.3 million for the first half
of 2004 compared to $11.1 million the first half of last year. Income taxes were
$11.3 million the first six months 2004 compared to $4.0 million last year.
Net income for the first six months of 2004 increased to $20.0 million from $7.1
million for the same period last year. Earnings per share for the first six
months of 2004 increased to $0.89 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 2004 year with $22.1 million of cash. Net cash provided
by operations was $19.1 million for the first six months. Net cash used in
investing activities included $9.1 million in purchases of property, plant and
equipment and $32.8 million, net of cash acquired of $15.7 million, for the
purchase of Heinrich. In addition, net cash provided by financing activities
included stock option exercises of $8.3 million along with net proceeds of
long-term debt of $29.0 million. The effects of exchange rate changes decreased
cash by $2.2 million. The net cash provided by
14
operations, less investing and financing activities plus the effects of exchange
rate changes, resulted in a $12.3 million net increase in cash. This left the
Company with a cash balance of $34.4 million at July 3, 2004.
The ratio of current assets to current liabilities was 2.3 to 1 at the end of
the second quarter of 2004 compared to 2.6 to 1 at second quarter 2003. The days
sales in receivables was approximately 54 days at the end of the second quarter
of 2004, compared to 50 days at the end 2003, and 55 days at the end of the
second quarter 2003. The increase in days sales in receivables resulted
primarily from the addition of Heinrich whose days in receivables was higher
than that of the Company. The days inventory outstanding was approximately 73
days at the end of the second quarter of 2004 compared to 71 days at the end of
2003 and 88 days at end of the second quarter of 2003. The increase in days
inventory outstanding resulted primarily from the addition of Heinrich whose
days inventory outstanding is higher than that of the Company.
The Company's net capital expenditures were $6.1 million for the second quarter
of 2004 and $9.1 million for the first six months of 2004 compared to the prior
year periods of $2.1 million and $4.8 million respectively. The increase in
capital expenditures reflects the acquisitions of Teccor and Heinrich and
capacity additions for electronic and automotive products.
Total debt at the end of the second quarter 2004 totaled $59.0 million and
consisted of the following: (1) 6.16% private placement notes totaling $20.0
million, (2) foreign revolver borrowings totaling $9.7 million and (3) notes
payable relating to mortgages totaling $0.3 million and (4) credit revolver
borrowings totaling $29.0 million. Of this indebtedness, $47.4 million is
considered to be current liabilities. The Company has a $50.0 million,
three-year revolving bank credit agreement that expires on August 26, 2006. The
bank credit agreement is subject to a maximum indebtedness calculation and other
financial covenants. No revolver principal payments are required until the
agreement matures. At July 3, 2004, the Company had available $21.0 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%. The
Company also had $1.8 million in letters of credit outstanding at July 3, 2004.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this section, the letter to shareholders and in the other
sections of this report which are not historical facts contained in this report
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, product demand and market acceptance 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.
15
The Company had long-term debt outstanding at July 3, 2004, in the form of
senior notes and foreign lines of credit at variable interest rates.
Approximately 34% of the Company's long-term debt is at fixed rates and
primarily consists of private placement notes.
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, Germany, Hungary and the
Philippines. Substantially all sales in Europe are denominated in British Pounds
Sterling, United States Dollars and Euros and substantially all sales in the
Asia-Pacific region are denominated in United States Dollars, Japanese Yen and
South Korean Won.
The Company's identifiable foreign exchange exposures result from the purchase
and sale of products from affiliates, repayment of intercompany trade and loan
amounts and translation of local currency amounts in consolidation of financial
results. Changes in foreign currency exchange rates or weak economic conditions
in the foreign countries in which it manufactures and distributes products could
affect the Company's sales and financial results. The Company primarily utilizes
netting and offsets to reduce known foreign currency exposures and, when
appropriate, derivative instruments as hedges of specific foreign currency cash
flows.
The Company, excluding Heinrich, 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
July 3, 2004, which had a notional amount of $4.9 million, was recognized as a
$0.7 million liability, and is reported in consolidated shareholders' equity as
a component of other comprehensive income.
Between June 1, 2004 and September 30, 2005, Heinrich Industrie AG purchased
Euro forward contracts with a notional amount of $6.7 million as a cash flow
hedge of the variability of US Dollar cash attributable to the exchange rate
risk on forecasted intercompany sales to U.S. and Asian subsidiaries. These
forward contracts guarantee the rate at which the USD flows will be converted to
Euros in the future. The forward agreements were accounted for as a cash flow
hedge and reported at fair value. The notional amount outstanding at June 30,
2004 was $6.7 million and the fair value of the outstanding forward contracts
was recognized as a $0.4 million asset and as a credit to comprehensive income
in the Consolidated Balance Sheet at June 3, 2004.
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 July 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 the Company's
Chief Executive Officer and Chief Financial Officer.
16
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of Littelfuse, Inc. was held on April
30, 2004. The following matters were voted upon at this annual meeting and
the results of such votes are provided below:
1. Election of seven nominees to the Board of Directors to serve terms
of one year or until their successors are elected:
(i) Howard B. Witt
Withhold Broker
For 19,288,852 Authority 1,191,277 Abstentions ___ Nonvotes ___
(ii) John Driscoll
Withhold Broker
For 20,171,042 Authority 309,037 Abstentions ___ Nonvotes ___
(iii) Anthony Grillo
Withhold Broker
For 18,856,364 Authority 1,623,715 Abstentions ___ Nonvotes ___
(iv) Bruce A. Karsh
Withhold Broker
For 19,609,536 Authority 870,543 Abstentions ___ Nonvotes ___
(v) John E. Major
Withhold Broker
For 18,881,702 Authority 1,598,377 Abstentions ___ Nonvotes ___
(vi) Gordon Hunter
Withhold Broker
For 19,646,619 Authority 833,460 Abstentions ___ Nonvotes ___
(vii) Ronald L. Schubel
Withhold Broker
For 19,418,500 Authority 1,061,579 Abstentions ___ Nonvotes ___
17
2. Approval and ratification of the Directors' appointment of Ernst &
Young, LLP as the Company's independent auditors for the year ending
January 1, 2005
Broker
For 18,541,342 Against 1,929,787 Abstentions 8,950 Nonvotes ___
18
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 G. Franklin, Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification Pursuant to Section 906 of the
Sarbaes-Oxley Act of 2002, 18 U.S.C Section
1350
(b) Reports on Form 8-K filed during the quarter ended July
3, 2004
A Current Report on Form 8-K (Items 5 and 7) filed on
April 28, 2004.
A Current Report on Form 8-K (Items 5 and 7) filed on
May 6, 2004.
A Current Report on From 8-K/A (Items 2 and 7) filed on
July 20, 2004.
A Current Report on From 8-K (Items 5 and 7) filed on
July 29, 2004.
19
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 July 3, 2004, to be signed on its behalf by the undersigned thereunto duly
authorized.
LITTELFUSE, INC.
Date: August 12, 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)
20