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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 MARCH 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -----------
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Commission file number 0-20388
LITTELFUSE, INC.
----------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3795742
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 EAST NORTHWEST HIGHWAY
DES PLAINES, ILLINOIS 60016
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(847) 824-1188
Registrant's telephone number, including area code:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of March 31, 2007, 22,229,570 shares of common stock, $.01 par value,
of the Registrant were outstanding.
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TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2007 and December 30, 2006 (unaudited)........................ 1
Consolidated Statements of Income for the periods ended
March 31, 2007 and April 1, 2006 (unaudited).............................................................. 2
Consolidated Statements of Cash Flows for the periods ended
March 31, 2007 and April 1, 2006 (unaudited).............................................................. 3
Notes to the Consolidated Financial Statements (unaudited)................................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................ 15
Item 4. Controls and Procedures................................................................................... 15
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............................................... 16
Item 6. Exhibits.................................................................................................. 17
LITTELFUSE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
MARCH 31, 2007 December 30, 2006
------------------ --------------------
Assets
Current assets:
Cash and cash equivalents............................................... $ 59,078 $ 56,704
Receivables............................................................. 84,247 83,901
Inventories............................................................. 65,772 65,961
Deferred income taxes................................................... 13,941 12,382
Prepaid expenses and other current assets............................... 9,894 9,821
------------------ --------------------
Total current assets.................................................... 232,932 228,769
Property, plant and equipment:
Land.................................................................... 10,984 10,916
Buildings............................................................... 45,849 45,518
Equipment............................................................... 291,865 285,758
------------------- -----------------------
348,698 342,192
Accumulated depreciation................................................ (223,281) (216,676)
------------------- ------------------------
Net property, plant and equipment....................................... 125,417 125,516
Intangibles, net of amortization:
Patents, licenses and software.......................................... 9,842 10,118
Distribution network.................................................... 14,811 15,209
Trademarks and tradenames............................................... 1,470 1,321
Goodwill................................................................ 67,583 67,500
------------------- -----------------------
93,706 94,148
Investments............................................................. 5,926 5,231
Deferred income taxes................................................... 8,836 9,746
Other assets............................................................ 3,609 1,556
------------------ --------------------
Total assets $ 470,426 $ 464,966
================== ====================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable........................................................ 21,686 23,334
Accrued payroll......................................................... 15,032 22,468
Accrued expenses........................................................ 11,932 12,579
Accrued severance....................................................... 8,440 10,670
Accrued income taxes.................................................... 2,043 4,656
Current portion of long-term debt....................................... 27,560 24,328
------------------ --------------------
Total current liabilities............................................... 86,693 98,035
Long-term debt, less current portion.................................... 1,624 1,785
Accrued post-retirement benefits........................................ 29,825 27,971
Other long-term liabilities............................................. 14,329 14,488
Accrued severance....................................................... 21,702 18,879
Minority interest....................................................... 143 143
Shareholders' equity.................................................... 316,110 303,665
------------------ --------------------
Total liabilities and shareholders' equity.............................. $ 470,426 $ 464,966
================== ====================
Common shares issued and outstanding
of 22,229,570 and 22,110,674, at
March 31, 2007, and December 30, 2006, respectively
1
LITTELFUSE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)
For the Three Months Ended
------------------------------------------------
MARCH 31, April 1,
2007 2006
------------------- ----------------
Net sales................................................................ $ 131,814 $ 125,611
Cost of sales............................................................ 90,493 80,811
------------------- ----------------
Gross profit............................................................. 41,321 44,800
Selling, general and administrative
expenses ................................................................ 25,886 25,822
Research and development expenses........................................ 5,287 4,675
Amortization of intangibles.............................................. 657 520
------------------- ----------------
Operating income......................................................... 9,491 13,783
Interest expense......................................................... 462 413
Other income............................................................. (340) (571)
------------------- -----------------
Earnings from continuing operations before
income taxes ............................................................ 9,369 13,941
Income taxes ............................................................ 3,148 5,158
------------------- ----------------
Earnings from continuing operations...................................... 6,221 8,783
Discontinued operations (net of tax)..................................... - 588
Net income............................................................... $ 6,221 $ 9,371
=================== =================
Net income per share:
Basic:
Continuing operations............................................... $ 0.28 $ 0.39
Discontinued operations............................................. - 0.03
------------------- -----------------
Net Income.......................................................... $ 0.28 $ 0.42
=================== =================
Diluted:
Continuing operations............................................... $ 0.28 $ 0.39
Discontinued operations............................................. - 0.03
------------------- -----------------
Diluted............................................................. $ 0.28 $ 0.42
=================== =================
Weighted average shares and equivalent shares outstanding:
Basic............................................................... 22,163 22,257
=================== ================
Diluted............................................................. 22,338 22,334
=================== ================
2
LITTELFUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
For the Three Months Ended
---------------------------------------
MARCH 31, April 1,
2007 2006
---------------- --------------
Operating activities:
Net income............................................................................ $ 6,221 $ 9,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation................................................................... 5,752 6,212
Amortization of intangibles.................................................... 657 520
Stock-based compensation....................................................... 1,410 1,453
Changes in operating assets and liabilities:
Accounts receivable............................................................ (210) (3,775)
Inventories.................................................................... 416 (3,559)
Accounts payable and accrued expenses.......................................... (7,820) 1,399
Accrued taxes.................................................................. (2,627) 1,378
Prepaid expenses and other..................................................... (2,798) 999
---------------- --------------
Net cash provided by operating activities............................................. 1,001 13,998
Cash provided by (used in) investing activities:
Purchases of property, plant, and equipment.................................... (5,125) (4,603)
Purchase of businesses, net of cash acquired.................................. - (2,701)
Sale of business and property, plant and equipment............................. - 9,428
---------------- --------------
Net cash provided by (used in) investing activities................................... (5,125) 2,124
Cash provided by (used in) financing activities:
Proceeds from debt............................................................. 18,000 6,358
Payments of debt............................................................... (14,886) (16,374)
Notes receivable, common stock................................................. - 7
Proceeds from exercise of stock options........................................ 2,689 1,834
---------------- --------------
Net cash provided by (used in) financing activities................................... 5,803 (8,175)
Effect of exchange rate changes on cash............................................... 695 556
--------------- --------------
Increase in cash and cash equivalents................................................. 2,374 8,503
Cash and cash equivalents at beginning of period...................................... 56,704 21,947
--------------- --------------
Cash and cash equivalents at end of period............................................ $ 59,078 $ 30,450
=============== ==============
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2007
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, Des Plaines and Elk Grove, Illinois severance, and
accrued employee-related costs pursuant to contractual obligations, considered
necessary for a fair presentation have been included. The December 30, 2006
balance of $8.0 million for uncertain income tax positions has been reclassified
from accrued income tax to other long-term liabilities on the Consolidated
Balance Sheets. Operating results for the period ended March 31, 2007 are not
necessarily indicative of the results that may be expected for the year ending
December 29, 2007. 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 30, 2006.
2. BUSINESS SEGMENT INFORMATION
The Company designs, manufactures and sells circuit protection devices
throughout the world. The Company has three reportable geographic segments:
Americas, Europe and Asia-Pacific. The circuit protection market in these
geographical segments is categorized into three major product areas: electronic,
automotive and electrical.
The Company evaluates the performance of each geographic segment based on its
sales and net income or loss. The Company accounts for intersegment sales as if
the sales were to third parties. The Company's reportable segments are the
geographical regions where the revenue is earned and expenses are incurred. The
Company has subsidiaries in the Americas, Europe and Asia-Pacific.
Export sales to Hong Kong were 16.7% and 12.5% of net sales for the first
quarter of 2007 and 2006, respectively. No other foreign country sales exceeded
10% for the first quarter of 2007 or 2006. Sales to Arrow Pemco Group were 10.1%
and 12.3% of net sales for the first quarter of 2007 and 2006, respectively. No
other single customer amounted to 10% or more of the Company's total revenues
for the first quarter of 2007 or 2006.
Information concerning the operations in these geographic segments for the
periods ended March 31, 2007, and April 1, 2006, is as follows (in thousands):
Three Months Three Months
Ended Ended
March 31, 2007 April 1, 2006
------------------------ ----------------------------
NET SALES
Americas $ 50,583 $ 54,294
Europe 30,716 28,079
Asia-Pacific 50,515 43,238
------------------------ ----------------------------
Consolidated total $ 131,814 $ 125,611
INTERSEGMENT SALES
Americas $ 49,277 $ 42,612
Europe 14,896 21,769
Asia-Pacific 30,786 24,736
------------------------ ----------------------------
Combined total 94,959 89,117
Eliminations (94,959) (89,117)
------------------------- ----------------------------
Consolidated total $ - $ -
INTEREST EXPENSE
4
Americas $ 447 $ 374
Europe 4 30
Asia-Pacific 11 9
---------------- ----------------
Consolidated total $ 462 $ 413
DEPRECIATION AND AMORTIZATION
Americas $ 3,641 $ 3,715
Europe 855 1,797
Asia-Pacific 1,913 1,220
---------------- ----------------
Consolidated total $ 6,409 $ 6,732
OTHER (INCOME) EXPENSE
Americas $ (135) $ (72)
Europe 68 (461)
Asia-Pacific (273) (38)
---------------- ----------------
Consolidated total $ (340) $ (571)
INCOME TAXES
Americas $ 294 $ 3,227
Europe 1,607 811
Asia-Pacific 1,247 1,120
---------------- ----------------
Consolidated total $ 3,148 $ 5,158
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS
Americas $ (1,462) $ 4,013
Europe 2,649 (433)
Asia-Pacific 5,034 5,203
---------------- ----------------
Consolidated total $ 6,221 $ 8,783
NET INCOME (LOSS)
Americas $ (1,462) $ 4,013
Europe 2,649 155
Asia-Pacific 5,034 5,203
---------------- ----------------
Consolidated total $ 6,221 $ 9,371
NET SALES
Electronic $ 86,082 $ 83,926
Automotive 33,718 31,026
Electrical 12,014 10,659
---------------- ----------------
Consolidated total $ 131,814 $ 125,611
March 31, 2007 December 30, 2006
---------------- -----------------
IDENTIFIABLE TANGIBLE ASSETS
Americas $ 231,059 $ 227,322
Europe 164,660 159,639
Asia-Pacific 145,992 148,526
---------------- -----------------
Combined total 541,711 535,487
Eliminations (170,917) (169,900)
---------------- -----------------
Consolidated total $ 370,794 $ 365,587
================ =================
5
3. INVENTORIES
The components of inventories are as follows (in thousands):
March 31, December 30,
2007 2006
------------ --------------
Raw material $ 17,246 $ 15,043
Work in process 17,515 15,838
Finished goods 31,011 35,080
------------ --------------
Total $ 65,772 $ 65,961
============ ==============
4. DEBT OBLIGATIONS
The Company has an unsecured domestic financing arrangement consisting of a
credit agreement with banks that provides a $75.0 million revolving credit
facility, with a potential increase of up to $125.0 million upon request of the
Company and agreement with the lenders, that expires on July 21, 2011. At March
31, 2007, the Company had $27.0 million outstanding on the revolving credit
facility, leaving $48.0 million of borrowing capability available under the
revolving credit facility at an interest rate of LIBOR plus 0.50% (5.87% as of
March 31, 2007). The Company also had $6.1 million in letters of credit
outstanding at March 31, 2007.
The Company has an unsecured bank line of credit in Japan that provides a Yen
0.9 billion (an equivalent of $7.6 million) revolving credit facility at an
interest rate of TIBOR plus 0.625% (1.29% as of March 31, 2007). The revolving
line of credit balance becomes due on July 21, 2011. At March 31, 2007, the
Company had no outstanding borrowings on the Yen facility.
The Company has an unsecured bank line of credit that provides a Taiwanese
Dollar 35.0 million (equivalent to $1.1 million) revolving credit facility at an
interest rate of two-years Time Deposit plus 0.145% (2.3% as of March 31, 2007).
The revolving line of credit becomes due on August 18, 2009. At March 31, 2007,
the Company had the equivalent of $0.9 million outstanding borrowings on the
Taiwanese Dollar facility.
The Company has various other foreign fixed rate loans outstanding at March 31,
2007, totaling $1.3 million with maturity dates through August 2013.
The domestic bank credit agreement contains covenants that, among other matters,
impose limitations on the incurrence of additional indebtedness, future mergers,
sales of assets, payment of dividends, and changes in control, as defined. In
addition, the Company is required to satisfy certain financial covenants and
tests relating to, among other matters, interest coverage, working capital,
leverage and net worth. At March 31, 2007, the Company was in compliance with
these covenants.
5. PER SHARE DATA
Net income per share amounts for the three months ended March 31, 2007, and
April 1, 2006, 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
-----------------------------------
March 31, April 1,
2007 2006
Net income $ 6,221 $ 9,371
================ ================
Average shares outstanding - Basic 22,163 22,257
Net effect of dilutive stock options
6
and restricted shares
- Diluted 175 77
---------------- ----------------
Average shares outstanding
- Diluted 22,338 22,334
================ ================
Net income per share
- Basic $ 0.28 $ 0.42
================ ================
- Diluted $ 0.28 $ 0.42
================ ================
Potential shares of common stock relating to stock options excluded from the EPS
calculation because their effect would be anti-dilutive were 861,978 and 517,066
for the three months ended March 31, 2007 and April 1, 2006, respectively.
6. ACQUISITIONS
On February 3, 2006, the Company acquired SurgX Corporation ("SurgX") for $2.5
million. All of the assets of SurgX were classified as patents in the Americas
segment with an average useful life of seven years. The SurgX acquisition
expands the Company's product offering and strengthens the Company's position in
the circuit protection industry. SurgX is included in the Company's financial
statements since the date of acquisition. Pro forma financial information is not
presented due to amounts not being materially different than actual results.
On May 30, 2006, the Company acquired all of the common stock of Concord
Semiconductor ("Concord") for $23.8 million in cash, net of cash acquired of
$1.2 million, and acquisition costs of approximately $0.2 million. The Company
funded the acquisition with $14.0 million in cash and $10.0 million of
borrowings on an existing revolving line of credit.
Littelfuse has continued to operate Concord's electronics business subsequent to
the acquisition. The Concord acquisition expands the Company's product offering
and strengthens the Company's position in the circuit protection industry.
The acquisition was accounted for using the purchase method of accounting and
the operations of Concord 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 Concord in accordance with the purchase method of accounting
with adjustments to record the acquired assets and liabilities of Concord at
their estimated fair market or net realizable values.
Purchase price allocation (in thousands)
---------------------------------------
Current assets $ 7,548
Property, plant and equipment 7,903
Patents and licenses 4,477
Distribution network 6,906
Goodwill 6,356
Current liabilities (2,975)
Deferred taxes (3,593)
Long-term debt (2,657)
---------
$ 23,965
---------
7
All Concord goodwill and intangible assets are recorded in the Asian segment.
Patents and licenses have an average estimated useful life of approximately four
years. Pro forma financial information is not presented due to amounts not being
materially different than actual results.
On June 26, 2006, the Company acquired Catalina Performance Accessories, Inc.
("Catalina") for $4.5 million. The Company acquired $0.4 million of accounts
receivable, $0.5 million of inventory and a $3.6 million distribution network.
The distribution network was reported in the Americas segment with a useful life
of ten years. The Catalina acquisition expands the Company's product offering
and strengthens the Company's position in the circuit protection industry.
Catalina is included in the Company's financial statements since the date of
acquisition. Pro forma financial information is not presented due to amounts not
being materially different than actual results.
On August 1, 2006 the Company acquired the gas discharge tube (GDT) assets of
SRC Devices, Inc. ("SRC"), for $6.0 million in cash, subject to post-closing
purchase price adjustments. The Company acquired $0.3 million of inventory, $0.9
million of fixed assets, and $2.2 million of distribution network, with the
excess purchase price of $2.6 million recorded as goodwill. The distribution
network was reported in the Americas segment with a useful life of nine years.
The fair values are estimates and subject to revision as the Company completes
its fair value analysis. The SRC acquisition expands the Company's product
offering and strengthens the Company's position in the circuit protection
industry. SRC is included in the Company's financial statements since the date
of acquisition. Pro forma financial information is not presented due to amounts
not being materially different than actual results. The Company plans to move
production of the GDT product line from the SRC manufacturing facility in Mexico
to its existing operation in Suzhou, China.
On June 21, 2006, the Company announced that it had signed a definitive
agreement to acquire the assets of Song Long Electronics Co., Ltd. for $5.5
million. This acquisition is expected to close during the second quarter of
2007.
Goodwill for all of the above acquisitions is expected to be deductible for tax
purposes.
7. DISCONTINUED OPERATIONS
In December 2005, the Company announced its plan to sell the Efen business that
consists of production and sales facilities in Uebigau and Eltville, Germany and
Kaposvar, Hungary. The Company obtained Efen as part of its acquisition of
Heinrich in May 2004. Results of operations for Efen have been reclassified and
presented as discontinued operations for 2006 and 2005. Efen is part of the
European segment for reporting purposes. Due to the Efen sale taking place in
February 2006, the results of Efen were no longer recorded in the Consolidated
Statements of Income after the first quarter of 2006.
Efen's results are summarized as follows for the periods ending (in thousands):
March 31, April 1,
2007 2006*
---------------- ----------------
Net sales $ - $ 3,789
Income before taxes - 773
Income taxes - 324
---------------- ----------------
Net income $ - $ 449
---------------- ----------------
*Additionally, for the period ended December 30, 2006, discontinued operations
in the Consolidated Statements of Income includes a gain on the sale of assets
of $139 (net of tax of $85).
The Efen product line was sold for Euro 9.5 million (approximately $11.6
million) in February 2006. In connection with the sale, a pretax loss of
approximately $0.0 million was recognized, resulting in an after tax gain of
$0.1 million after recognizing a tax benefit on the sale of $0.1 million. No
assets or liabilities related to Efen existed on the Consolidated Balance Sheet
at March 31, 2007 or December 31, 2006.
8
8. RESTRUCTURING
During 2005, the Company announced a downsizing of the European segment's
Ireland operation and outsourcing of more of its varistor manufacturing to lower
cost Asian subcontractors. A liability of $4.9 million was recorded related to
redundancy costs for the manufacturing operation associated with this
downsizing. This restructuring impacts approximately 35 associates in various
production and support related roles. These costs were paid in 2005 and 2006. In
the second quarter of 2006, an additional $17.1 million, consisting of $20.0
million of accrued severance less a statutory rebate of $2.9 million recorded as
a current asset, was recorded as part of cost of sales related to the closure of
the entire facility. This restructuring is part of the Company's strategy to
expand operations in Asia in order to be closer to current and potential
customers and take advantage of lower manufacturing costs. This portion of the
restructuring impacts approximately 131 employees. Restructuring charges are
based upon each associate's current salary and length of service with the
Company. These costs will be paid through 2008.
Ireland restructuring (in thousands)
-----------------------------------
Balance at October 1, 2005 $ 4,900
Additions --
Payments (897)
----------------
Balance at December 31, 2005 4,003
Additions 20,019
Payments (1,414)
----------------
Balance at December 30, 2006 $ 22,608
----------------
Additions --
Payments (201)
----------------
Balance at March 31, 2007 $ 22,407
----------------
During the first quarter of 2006, the Company recorded a $2.1 million charge
related to the downsizing of the European segment's Heinrich operations.
Manufacturing related charges of $0.9 million are recorded as part of cost of
sales and non-manufacturing related charges of $1.2 million are recorded as part
of selling, general and administrative expenses. During the second quarter of
2006 additional expense of $0.5 million was recognized primarily as part of
selling, general and administrative expenses. During the third quarter of 2006,
additional expense of $2.4 million was recorded. Manufacturing related charges
of $1.4 million are recorded as part of cost of sales and non-manufacturing
related charges of $1.0 million are recorded as part of selling, general and
administrative expenses. During the first quarter of 2007, additional expense of
$0.6 million was recorded as part of cost of sales. These charges are primarily
for redundancy costs to be paid through 2007. Employees affected by this
downsizing include technical, production, administrative and support employees.
A summary of activity of this liability is as follows:
Heinrich restructuring (in thousands)
------------------------------------
Balance at December 31, 2005 $ --
Additions 4,995
Payments (632)
----------------
Balance at December 30, 2006 $ 4,363
----------------
Additions 629
Payments (3,243)
----------------
Balance at March 31, 2007 $ 1,749
----------------
During December 2006 the Company announced the closure of its America's
segment's Irving, Texas facility and the transfer of its semiconductor wafer
manufacturing from Irving, Texas to Wuxi, China in a phased transition from 2007
to 2010. A liability of $1.9 million was recorded related to redundancy costs
for the manufacturing operation associated with this downsizing. This charge was
recorded as part of cost of sales. The total cost expected to be incurred
through 2010 is $6.5 million. The amounts not yet recognized relate to retention
costs that will be incurred over the remaining closure period. This
restructuring impacts approximately 180 associates in various production
9
and support related roles and the costs relating to the restructuring will be
paid over the period 2007 to 2010. A summary of activity of this liability is as
follows:
Irving, Texas restructuring (in thousands)
-----------------------------------------
Balance at December 31, 2005 $ --
Additions 1,890
Payments --
----------------
Balance at December 30, 2006 $ 1,890
----------------
Additions 318
Payments --
----------------
Balance at March 31, 2007 $ 2,208
----------------
During March 2007, the Company announced the closure of its America's segment's
Des Plaines and Elk Grove, Illinois facilities and the transfer of its
manufacturing from Des Plaines, Illinois to the Philippines and Mexico in a
phased transition from 2007 to 2009. A liability of $3.5 million was recorded
related to redundancy costs for the manufacturing and distribution operations
associated with this downsizing. Manufacturing related charges of $3.0 million
are recorded as part of cost of sales and non-manufacturing related charges of
$0.5 million are recorded as part of selling, general and administrative
expenses. The total cost expected to be incurred through 2009 is $7.1 million.
The amounts not yet recognized relate to retention costs that will be incurred
over the remaining closure period. This restructuring impacts approximately 307
associates in various production and support related roles and the costs
relating to the restructuring will be paid over the period 2007 to 2009. A
summary of activity of this liability is as follows:
Des Plaines and Elk Grove, Illinois (in thousands)
--------------------------------------------------
Balance at December 30, 2006 $ 102
Additions 3,458
Payments (70)
----------------
Balance at March 31, 2007 $ 3,490
----------------
9. PENSIONS
The components of net periodic benefit cost for the three months ended March 31,
2007, compared with the three months ended April 1, 2006, were (in thousands):
U.S. Pension Benefits Foreign Plans
---------------------- ----------------------
Three Months Ended Three Months Ended
---------------------- ----------------------
March 31, April 1, March 31, April 1,
2007 2006 2007 2006
-------- ------- -------- --------
Service cost $ 798 $ 839 $ 281 $ 361
Interest cost 950 943 511 495
Expected return on plan
assets (1,057) (960) (529) (496)
Amortization of prior
service cost 3 3 (3) (3)
Amortization of transition
asset - - (28) (27)
Amortization of net loss 14 105 77 74
-------- ------- -------- --------
Total cost of the plan 708 930 309 404
Expected plan participants'
contribution - - (81) (89)
-------- ------- -------- --------
Net periodic benefit cost $ 708 $ 930 $ 228 $ 315
-------- ------- -------- --------
The expected rate of return on pension assets is 8.5% and 8.5% in 2007 and 2006,
respectively.
10
10. INCOME TAXES
The effective tax rate for the first quarter of 2007 was 33.6% compared to an
effective tax rate of 37.0% in the first quarter of last year. The current
quarter effective tax rate was favorably impacted by income earned in lower tax
jurisdictions and less repatriation of cash from lower tax jurisdictions.
In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes
-- an interpretation of FASB Statement No. 109, Accounting for Income Taxes. The
interpretation addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, the Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. FIN 48 also provides guidance on derecognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of
the implementation of FIN 48, the Company had no adjustments to retained
earnings. The amount of unrecognized tax benefits at January 1, 2007 was
approximately $8.0 million. Of this total, approximately $5.2 million represents
the amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in future periods. The Company does not
expect significant increases or decreases in unrecognized tax benefits during
the next 12 months.
The U.S. federal statute of limitations remains open for 2003 onward. Foreign
and U.S. state statute of limitations generally range from 3 to 6 years. The
Company is currently under examination in several foreign jurisdictions.
The Company recognizes accrued interest and penalties associated with uncertain
tax positions as part of the income tax provision. As of January 1, 2007 the
Company had approximately $1.1 million of accrued interest and penalties.
11. COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income for the
three months ended March 31, 2007 and April 1, 2006, respectively:
Three Months Ended
-----------------------------------
March 31, April 1,
2007 2006
---------------- ----------------
Net income $ 6,221 $ 9,371
Other comprehensive income:
Currency translation adjustments 1,065 3,098
Unrealized gain (loss) on available-for-sale
securities, net of income taxes 619 (156)
---------------- ----------------
Comprehensive income $ 7,905 $ 12,313
---------------- ----------------
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SALES BY GEOGRAPHY AND MARKET
(dollars in millions)
FIRST QUARTER
-----------------------------------
2007 2006 % CHANGE
---------- --------- -----
GEOGRAPHY*
Americas $ 51.4 $ 54.5 (5.6%)
Europe 31.2 27.8 12.4%
Asia-Pacific 49.2 43.3 13.5%
---------- --------- -----
TOTAL $ 131.8 $ 125.6 4.9%
========== ========= ======
FIRST QUARTER
-----------------------------------
2007 2006 % CHANGE
---------- --------- -----
MARKET
Electronics $ 86.1 $ 83.9 2.6%
Automotive 33.7 31.0 8.7%
Electrical 12.0 10.7 12.7%
---------- --------- -----
TOTAL $ 131.8 $ 125.6 4.9%
========== ========= ======
----------
* Sales are defined based upon shipped to destination. Segment reporting
reflects sales based upon origination.
Results of Operations
First Quarter, 2007
Sales increased $6.2 million or 5% to $131.8 million in the first quarter of
2007 compared to $125.6 million in the first quarter of 2006 reflecting
acquisitions of $5.4 million and favorable currency effects of $2.9 million,
partially offset by the impact of an inventory correction in the electronics
distribution channels.
On a geographic basis, sales in the Americas decreased $3.1 million or 6% in the
first quarter of 2007 compared to the first quarter of last year primarily due
to lower sales of electronics products. Europe sales increased $3.4 million or
12% to $31.2 million in the first quarter of 2007 compared to the first quarter
of last year mainly due to higher automotive sales and the effects of a strong
Euro. Asia-Pacific sales increased $5.9 million or 14% in the first quarter of
2007 compared to the prior year due to the acquisition of Concord Semiconductor
and growth in the electronics and automotive markets. The electronics business
experienced a sales increase of $2.2 million or 2.6% in the first quarter of
2007 compared to the first quarter of 2006 reflecting acquisitions and favorable
currency effects partially offset by the aforementioned inventory correction.
Automotive sales increased $2.7 million or 8.7% in the first quarter of 2007
compared to the first quarter of 2006 primarily due to favorable currency
effects and growth in Europe and Asia. Electrical sales increased $1.3 million
or 12.7% in the first quarter of 2007 compared to the first quarter of 2006
primarily due to price increases and improvements in non-residential
construction markets.
Gross profit was $41.3 million or 31.3% of sales for the first quarter of 2007,
compared to $44.8 million or 35.7% of sales in the same quarter last year. The
decrease in gross margin was mainly attributable to higher restructuring
charges, reduced plant fixed expense leverage due to lower production volumes
and higher costs related to plant transfer activities. The Company recorded $4.1
million of restructuring charges in the current year, $3.6 million of which is
in cost of sales, related to the closure of the Des Plaines, Illinois
manufacturing facility compared to restructuring charges of $1.2 million in the
prior year related to the Heinrich consolidation.
12
Total operating expense was $31.8 million or 24.1% of sales for the first
quarter of 2007 compared to $31.0 million or 24.7% of sales for the same quarter
in the prior year. The increase in operating expense reflects additional
research and development spending of $1.0 million to support the Company's
solution selling strategy and additional overhead expenses related to
acquisitions. The improvement in operating expenses as a percent of sales
reflects efficiencies related to the Heinrich consolidation.
Operating income was $9.4 million or 7.2% of sales for the first quarter of 2007
compared to $13.8 million or 11.0% of sales for the same quarter of last year as
a result of the reasons discussed above.
Interest expense was $0.5 million in the first quarter of 2007 and $0.4 million
for the first quarter of last year. Other income was $0.3 million for the first
quarter of 2007 compared to other income of $0.6 million in the first quarter of
last year. The increase in other income was mainly due to higher interest income
in the current year quarter reflecting a larger cash balance.
Earnings from continuing operations before income taxes was $9.4 million for the
first quarter of 2007 compared to $13.9 million for the first quarter of 2006.
Income taxes were $3.1 million with an effective tax rate of 33.6% for the first
quarter of 2007 compared to $5.2 million with an effective tax rate of 37.0% in
the first quarter of last year.
Net income for the first quarter of 2007 was $6.2 million or $0.28 per diluted
share compared to $9.4 million or $0.42 per diluted share for the same quarter
of last year.
Liquidity and Capital Resources
Assuming no material adverse changes in market conditions or interest rates,
management expects that the Company will have sufficient cash from operations to
support both its operations and its current debt obligations for the foreseeable
future.
The EFEN business, which was sold in February 2006 and is presented as a
discontinued operation, did not contribute significantly to cash from operations
for the first quarter of 2006.
Littelfuse started the 2007 year with $56.7 million of cash and cash
equivalents. Net cash provided by operations was $0.6 million for the first
quarter of 2007. Net cash provided by operations includes net income of $6.2
million, stock based compensation of $1.4 million, depreciation of $5.8 million
and amortization of $0.7 million in addition to various working capital and
other items. Inventory decreased $0.4 million partly due to improved inventory
management. Accounts receivable increased $0.2 million due to higher sales.
Accounts payable, accrued expenses, accrued taxes, prepaid expenses and other
items reduced cash flow by $13.3 million due primarily to higher cash payments
in the first quarter of 2007 for bonuses, severance and income taxes. Net cash
used in investing activities included $5.1 million in capital spending during
the first quarter of 2007. In addition, net cash provided by financing
activities included net proceeds of debt of $3.1 million and stock option
exercises of $2.7 million. The effects of exchange rate changes increased cash
by $0.7 million. The net cash provided by operations and financing activities
less investing activities plus the effects of exchange rate changes resulted in
a $2.4 million net increase in cash. This left the Company with a cash balance
of $59.1 million at March 31, 2007.
The ratio of current assets to current liabilities was 2.7 to 1 at the end of
the first quarter of 2007 compared to 2.3 to 1 at the end of fiscal 2006 and 2.5
to 1 at the end of the first quarter of 2006. The days sales in receivables were
approximately 58 days at the end of the first quarter of 2007, compared to 60
days at the end of fiscal 2006 and 63 days at the end of the first quarter 2006.
The days inventory outstanding were approximately 67 days at the end of the
first quarter of 2007 compared to 67 days at the end of 2006 and 76 days at end
of the first quarter of 2006.
The Company's capital expenditures were $5.1 million for the first quarter of
2007 compared to $4.6 million for the first quarter of 2006. Most of the
spending in 2007 relates to manufacturing process improvements, new product
introductions and capacity expansion.
13
The Company has an unsecured domestic financing arrangement consisting of a
credit agreement with banks that provides a $75.0 million revolving credit
facility, with a potential increase of up to $125.0 million upon request of the
Company and agreement with the lenders, that expires on July 21, 2011. At March
31, 2007, the Company had $27.0 million outstanding on the revolving credit
facility, leaving $48.0 million of borrowing capability available under the
revolving credit facility at an interest rate of LIBOR plus 0.50% (5.87% as of
March 31, 2007). The Company also had $6.1 million in letters of credit
outstanding at March 31, 2007.
The Company has an unsecured bank line of credit in Japan that provides a Yen
0.9 billion (an equivalent of $7.6 million) revolving credit facility at an
interest rate of TIBOR plus 0.625% (1.29% as of March 31, 2007). The revolving
line of credit balance becomes due on July 21, 2011. At March 31, 2007, the
Company had no outstanding borrowings on the Yen facility.
The Company has an unsecured bank line of credit that provides a Taiwanese
Dollar 35.0 million (equivalent to $1.1 million) revolving credit facility at an
interest rate of two-years Time Deposit plus 0.145% (2.3% as of March 31, 2007).
The revolving line of credit becomes due on August 18, 2009. At March 31, 2007,
the Company had the equivalent of $0.9 million outstanding borrowings on the
Taiwanese Dollar facility.
The Company has various other foreign fixed rate loans outstanding at March 31,
2007, totaling $1.3 million with maturity dates through August 2013.
The domestic bank credit agreement contains covenants that, among other matters,
impose limitations on the incurrence of additional indebtedness, future mergers,
sales of assets, payment of dividends, and changes in control, as defined. In
addition, the Company is required to satisfy certain financial covenants and
tests relating to, among other matters, interest coverage, working capital,
leverage and net worth. At March 31, 2007, the Company was in compliance with
these covenants.
Outlook
The Company believes its long-term growth strategy, which emphasizes development
of new circuit protection products, providing customers with solutions and
technical support in all major regions of the world and leveraging low cost
production facilities in Asia and Mexico will drive sales growth and reduce
costs in each of its segments. In addition, the fundamentals for the Company's
major markets appear to be neutral to moderately positive for 2007, although the
Company does expect to be negatively affected by an inventory correction in the
electronics channels in the first half of 2007.
The Company initiated a series of projects over the last several years to reduce
costs in its global manufacturing and distribution operations as well as reduce
the cost of purchased materials and transportation. These programs are expected
to generate significant cost savings in 2007 and future years. On the other
hand, the Company plans to continue to increase research and development
spending on new electronic and automotive products in 2007.
The Company is working to expand its share of the circuit protection market by
leveraging new products that it has recently acquired or developed as well as
improved solution selling capabilities. In the future, the Company will look for
opportunities to add to its product portfolio and technical expertise so that it
can provide customers with the most complete circuit protection solutions
available in the marketplace.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this section and in the other sections of this report which
are not historical facts contained in this report are intended to be
forward-looking statements that involve risks and uncertainties, including, but
not limited to, product demand and market acceptance, economic conditions, the
impact of competitive products and pricing, product quality problems or product
recalls, capacity and supply difficulties or constraints, coal mining exposures
in excess of reserves, failure of an indemnification for environmental
liability, exchange rate fluctuations, commodity price fluctuations, the effect
of the Company's accounting policies, labor disputes, restructuring costs in
excess of expectations, pension plan asset returns less than assumed,
integration of 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
14
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 30, 2006.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates, foreign
exchange rates, customer solvency and commodities.
The Company had debt outstanding at March 31, 2007, in the form of a domestic
revolving credit facility and foreign lines of credit at variable rates. While
100% of this debt has variable interest rates, the Company's interest expense is
not materially sensitive to changes in interest rate levels since debt levels
and potential interest expense increases are small relative to earnings.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign countries. The Company has manufacturing facilities in
Mexico, Ireland, Germany, China and the Philippines. Substantially all sales in
Europe are denominated in Euro, U.S. Dollar and British Pound Sterling , and
substantially all sales in the Asia-Pacific region are denominated in U.S.
Dollar, Japanese Yen and South Korean Won.
The Company's identifiable foreign exchange exposures result from the purchase
and sale of products from affiliates, repayment of intercompany trade and loan
amounts and translation of local currency amounts in consolidation of financial
results. As international sales were more than half of total sales, a
significant portion of the resulting accounts receivable are denominated in
foreign currencies. Changes in foreign currency exchange rates or weak economic
conditions in the foreign countries in which it manufactures and distributes
products could affect the Company's sales, accounts receivable values and
financial results. The Company uses netting and offsetting intercompany account
management techniques to reduce known foreign currency exposures where possible.
The Company uses various metals in the production of its products, including
zinc and copper. The Company's earnings are exposed to fluctuations in the
prices of these commodities. The Company does not currently use derivative
financial instruments to mitigate this commodity price risk. A 10% increase in
the price of zinc and copper would increase costs by approximately $1.1 million
and $1.3 million, respectively. A portion of these cost increases would be
offset by customer surcharges tied to the prices of these commodities.
The Company does not believe it has significant exposure to market risk from
changes in interest rates, foreign exchange rates or commodity prices.
Item 4. Controls and Procedures
As of March 31, 2007, the Chief Executive Officer and Chief Financial Officer of
the Company evaluated the effectiveness of the disclosure controls and
procedures of the Company and concluded that these disclosure controls and
procedures are effective to ensure that material information relating to the
Company and its consolidated subsidiaries has been made known to them by the
employees of the Company and its consolidated subsidiaries during the period
preceding the filing of this Report. There were no significant changes in the
Company's internal controls during the period covered by this Report that could
materially affect these controls or could reasonably be expected to materially
affect the Company's internal control reporting, disclosures and procedures
subsequent to the last day they were evaluated by the Company's Chief Executive
Officer and Chief Financial Officer.
15
PART II - OTHER INFORMATION
Item 1A: Risk Factors
A detailed description of risks that could have a negative impact on
our business, revenues and performance results can be found under the
caption "Risk Factors" in our most recent Form 10-K, filed on February
27, 2007.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
(c) The table below provides information with respect to purchases by
the Company of shares of its common stock during each fiscal
month of the first quarter of fiscal 2007:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares Purchased
as Part of
Number of Average Publicly
Shares Price Paid Announced Plans Maximum Number of Shares that May Yet Be
Period Purchased per Share or Programs Purchased Under the Plans or Programs
January 2007 - - - 671,000
February 2007 - - - 671,000
March 2007 - - - 671,000
Total - - - 671,000
The Company's Board of Directors authorized the repurchase of up to 1,000,000
shares under a program for the period May 1, 2006 to April 30, 2007.
16
Item 6: Exhibits
Exhibit Description
------- -------------------------------------------------------------------------------------------------------------------
3(II) Littelfuse, Inc. Bylaws, as amended to date (incorporated by reference herein from the Company's Current Report on
Form 8-K dated February 2, 2007)
10.1 2007 Annual Incentive Plan (as described in the Company's Current Report on Form 8-K dated April 27, 2007, which is
incorporated by reference herein)
31.1 Certification of Gordon Hunter, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Philip G. Franklin, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended March 31, 2007, to be signed on its behalf by the undersigned thereunto
duly authorized.
LITTELFUSE, INC.
Date: May 3, 2007 By /s/ Philip G. Franklin
--------------------------------
Philip G. Franklin
Vice President, Operations Support and
Chief Financial Officer
(As duly authorized officer and as
the principal financial and accounting
officer)
17