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 2, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----------- ----------- Commission file number 0-20388 LITTELFUSE, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3795742 --------------------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 800 EAST NORTHWEST HIGHWAY DES PLAINES, ILLINOIS 60016 --------------------------------------- -------------- (Address of principal executive offices) (Zip Code) (847) 824-1188 Registrant's telephone number, including area code: Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] As of July 2, 2005, 22,453,183 shares of common stock, $.01 par value, of the Registrant were outstanding.
TABLE OF CONTENTS <TABLE> <CAPTION> PAGE <S> <C> <C> PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of July 2, 2005 and January 1, 2005 (unaudited)................................................................ 1 Condensed Consolidated Statements of Income for the periods ended July 2, 2005 and July 3, 2004 (unaudited)............................ 2 Condensed Consolidated Statements of Cash Flows for the periods ended July 2, 2005 and July 3, 2004 (unaudited)............................ 3 Notes to the Condensed Consolidated Financial Statements (unaudited)....... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk................. 14 Item 4. Controls and Procedures.................................................... 15 PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds................ 16 Item 4. Submission of Matters to a Vote of Security Holders........................ 16 Item 6. Exhibits................................................................... 17 </TABLE>
LITTELFUSE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, unaudited) <TABLE> <CAPTION> JULY 2, 2005 January 1, 2005 -------------- -------------- <S> <C> <C> ASSETS: Cash and cash equivalents................................ $ 32,647 $ 28,583 Receivables.............................................. 80,971 77,726 Inventories.............................................. 71,250 79,080 Deferred income taxes.................................... 20,448 17,056 Other current assets..................................... 8,575 6,804 -------------- -------------- Total current assets..................................... 213,891 209,249 Property, plant, and equipment, net...................... 139,314 136,465 Intangible assets, net................................... 17,760 19,052 Goodwill................................................. 54,534 55,249 Investments.............................................. 5,138 4,886 Other assets............................................. 410 408 -------------- -------------- Total assets $ 431,047 $ 425,309 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities excluding current portion of long-term debt.................................... $ 71,398 $ 82,196 Current portion of long-term debt........................ 42,959 32,958 -------------- -------------- Total current liabilities................................ 114,357 115,154 Long-term debt........................................... 1,544 1,364 Deferred income taxes.................................... 8,649 8,573 Accrued post-retirement benefits......................... 19,481 20,417 Other long-term liabilities.............................. 8,873 7,081 Minority interest........................................ 2,668 2,636 Shareholders' equity..................................... 275,475 270,084 -------------- -------------- Total liabilities and shareholders' equity............... $ 431,047 $ 425,309 ============== ============== Common shares issued and outstanding of 22,453,183 and 22,549,595, at July 2, 2005, and January 1, 2005, respectively </TABLE> 1
LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data, unaudited) <TABLE> <CAPTION> For the Three Months Ended For the Six Months Ended ---------------------------- --------------------------- JULY 2, July 3, JULY 2, July 3, 2005 2004 2005 2004 ----------- --------- ----------- ----------- <S> <C> <C> <C> <C> Net sales......................................... $ 123,867 $ 128,759 $ 245,555 $ 240,177 Cost of sales..................................... 86,212 84,580 168,209 156,193 ----------- --------- ----------- ----------- Gross profit...................................... 37,655 44,179 77,346 83,984 Selling, general and administrative expenses...... 25,435 23,572 52,549 44,115 Research and development expenses................. 4,705 4,156 9,443 7,337 Amortization of intangibles....................... 463 470 1,094 809 ----------- --------- ----------- ----------- Operating income.................................. 7,052 15,981 14,260 31,723 Interest expense.................................. 580 492 1,059 918 Other income...................................... (98) (768) (232) (461) ----------- --------- ----------- ----------- Income before minority interest and income taxes.. 6,570 16,257 13,433 31,266 Minority interest................................. (5) 60 2 60 Income taxes...................................... 2,318 5,853 4,735 11,256 ----------- --------- ----------- ----------- Net income........................................ $ 4,257 $ 10,344 $ 8,696 $ 19,950 =========== ========= =========== =========== Net income per share: Basic.......................................... $ 0.19 $ 0.47 $ 0.39 $ 0.90 =========== ========= =========== =========== Diluted........................................ $ 0.19 $ 0.46 $ 0.38 $ 0.89 =========== ========= =========== =========== Weighted average shares and equivalent shares outstanding: Basic.......................................... 22,423 22,180 22,453 22,107 =========== ========= =========== =========== Diluted........................................ 22,613 22,684 22,681 22,515 =========== ========= =========== =========== </TABLE> 2
LITTELFUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited) <TABLE> <CAPTION> For the Three Months Ended For the Six Months Ended -------------------------- ------------------------ ......................................................... JULY 2, July 3, JULY 2, July 3, ......................................................... 2005 2004 2005 2004 --------- -------- --------- --------- <S> <C> <C> <C> <C> Operating activities: Net income.............................................. $ 4,257 $ 10,344 $ 8,696 $ 19,950 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................ 7,511 6,177 14,152 11,816 Amortization........................................ 463 470 1,094 809 Changes in operating assets and liabilities: Accounts receivable................................. (4,908) (5,597) (6,435) (13,818) Inventories......................................... 4,006 1,137 4,951 (1,233) Accounts payable and accrued expenses............... (1,971) 2,189 (9,234) 1,779 Prepaid expenses and other.......................... 2,759 1,407 (1,014) (241) --------- ---------- --------- --------- Net cash provided by operating activities............... 12,117 16,127 12,210 19,062 Cash used in investing activities: Purchases of property, plant, and equipment............. (8,266) (6,059) (16,964) (9,051) Acquisitions, net of cash acquired...................... (991) (32,807) (1,019) (32,807) --------- -------- --------- --------- Net cash used in investing activities................... (9,257) (38,866) (17,983) (41,858) Cash provided by (used in) financing activities: Proceeds from long-term debt........................ 11,895 32,000 26,951 32,000 Payments of long-term debt.......................... (11,000) (3,008) (16,213) (3,047) Proceeds from repayment of notes receivable, common stock.......................................... 12 - 3,533 - Proceeds from exercise of stock options............. 214 6,425 675 8,309 Purchase of treasury stock.......................... - - (3,199) - --------- -------- --------- --------- Net cash provided by financing activities.............. 1,121 35,417 11,747 37,262 Effect of exchange rate changes on cash................ (724) (2,189) (1,910) (2,210) --------- -------- --------- --------- Increase in cash and cash equivalents.................. 3,257 10,489 4,064 12,256 Cash and cash equivalents at beginning of period....... 29,390 23,895 28,583 22,128 --------- -------- --------- --------- Cash and cash equivalents at end of period............. $ 32,647 $ 34,384 $ 32,647 $ 34,384 ========= ======== ========= ========= </TABLE> 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 2, 2005 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the period ended July 2, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 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 1, 2005. 2. BUSINESS SEGMENT INFORMATION The Company designs, manufactures and sells circuit protection devices throughout the world. The Company has three reportable geographic segments: Americas, Europe and Asia-Pacific. The circuit protection market in these geographical segments is categorized into three major product areas: electronic, automotive and electrical. The Company evaluates the performance of each geographic segment based on its sales and net income or loss. The Company accounts for intersegment sales as if the sales were to third parties. The Company's reportable segments are the geographical regions where the revenue is earned and expenses are incurred. The Company has subsidiaries in Americas, Europe and Asia-Pacific. Revenues from no single customer amounted to 10% or more of the Company's total revenues for the quarter ended July 2, 2005. Information concerning the operations in these geographic segments for the periods ended July 2, 2005, and July 3, 2004, is as follows (in thousands): <TABLE> <CAPTION> Three Months Three Months Six Months Six months Ended Ended Ended Ended July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004 --------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> NET SALES Americas $ 49,330 $ 55,631 $ 99,585 $ 108,808 Europe 31,906 42,181 66,395 79,519 Asia-Pacific 42,631 30,947 79,575 51,850 --------------- --------------- --------------- --------------- Combined total 123,867 128,759 245,555 240,177 Corporate - - - - --------------- --------------- --------------- --------------- Consolidated total $ 123,867 $ 128,759 $ 245,555 $ 240,177 INTERSEGMENT SALES Americas $ 42,079 $ 22,688 $ 80,772 $ 38,256 Europe 12,506 14,784 25,526 30,422 Asia-Pacific 16,342 7,421 26,145 13,622 --------------- --------------- --------------- --------------- Combined total 70,927 44,893 132,443 82,300 Corporate - - - - Eliminations (70,927) (44,893) (132,443) (82,300) ---------------- ---------------- ---------------- ---------------- Consolidated total $ - $ - $ - $ - </TABLE> 4
<TABLE> <CAPTION> Three Months Three Months Six Months Six months Ended Ended Ended Ended July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004 --------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> INTEREST EXPENSE Americas $ 531 $ 445 $ 992 $ 875 Europe 24 19 42 43 Asia-Pacific 25 28 25 - --------------- --------------- --------------- --------------- Combined total 580 492 1,059 918 Corporate - - - - --------------- --------------- --------------- --------------- Consolidated total $ 580 $ 492 $ 1,059 $ 918 DEPRECIATION AND AMORTIZATION Americas $ 3,916 $ 3,910 $ 7,751 $ 9,053 Europe 3,067 1,916 5,358 2,068 Asia-Pacific 528 351 1,043 695 --------------- --------------- --------------- --------------- Combined total 7,511 6,177 14,152 11,816 Corporate 463 470 1,094 809 --------------- --------------- --------------- --------------- Consolidated total $ 7,974 $ 6,647 $ 15,246 $ 12,625 OTHER (INCOME) EXPENSE Americas $ 270 $ (819) $ 182 $ (530) Europe (3) (167) (16) (435) Asia-Pacific (365) 218 (398) 504 ---------------- --------------- ---------------- --------------- Combined total (98) (768) (232) (461) Corporate - - - - --------------- --------------- --------------- --------------- Consolidated total $ (98) $ (768) $ (232) $ (461) INCOME TAXES Americas $ 823 $ 3,565 $ 954 $ 7,176 Europe 847 967 2,003 1,724 Asia-Pacific 648 1,321 1,778 2,356 --------------- --------------- --------------- --------------- Combined total 2,318 5,853 4,735 11,256 Corporate - - - - --------------- --------------- --------------- --------------- Consolidated total $ 2,318 $ 5,853 $ 4,735 $ 11,256 NET INCOME (LOSS) * Americas $ 2,060 $ 5,755 $ 2,305 $ 12,277 Europe (1,557) (26) (430) 87 Asia-Pacific 3,754 4,615 6,821 7,586 --------------- --------------- --------------- --------------- Combined total 4,257 10,344 8,696 19,950 Corporate - - - - --------------- --------------- --------------- --------------- Consolidated total $ 4,257 $ 10,344 $ 8,696 $ 19,950 NET SALES * Electronic $ 74,879 $ 83,439 $ 147,545 $ 157,966 Automotive 30,183 30,038 61,248 58,226 Electrical 18,805 15,282 36,762 23,985 --------------- --------------- --------------- --------------- Consolidated total $ 123,867 $ 128,759 $ 245,555 $ 240,177 </TABLE> * Certain prior year amounts have been reclassified to conform to the current year presentation. 5
IDENTIFIABLE ASSETS July 3, January 1, 2005 2005 --------------- --------------- Americas $ 327,917 $ 344,277 Europe 230,616 264,523 Asia-Pacific 77,960 64,828 --------------- --------------- Combined total 636,493 673,628 Eliminations (205,446) (248,319) ---------------- ---------------- Consolidated total $ 431,047 $ 425,309 =============== =============== 3. INVENTORIES The components of inventories are as follows (in thousands): July 2, January 1, 2005 2005 ------------ -------------- Raw material $ 15,229 $ 16,723 Work in process 21,979 23,780 Finished goods 34,042 38,577 ------------ -------------- Total $ 71,250 $ 79,080 ============ ============== 4. LONG-TERM OBLIGATIONS Total debt, including the current portion, at the end of the second quarter 2005 totaled $44.5 million and consisted of the following: (1) 6.16% private placement notes totaling $10.0 million, (2) foreign revolver borrowings totaling $6.5 million and (3) credit revolver borrowings totaling $28.0 million. Of this indebtedness, $43.0 million is considered to be current liabilities. The Company has a $50.0 million, three-year revolving bank credit agreement that expires on August 26, 2006. The bank credit agreement is subject to a maximum indebtedness calculation and other financial covenants. At July 2, 2005, the Company had available $22.0 million of borrowing capability under the revolving bank credit agreement. The revolving bank credit agreement has a floating interest rate of LIBOR plus 0.875% or prime. The Company also had $2.5 million in letters of credit outstanding at July 2, 2005. 6
5. PER SHARE DATA Net income per share amounts for the three months ended July 2, 2005, and July 3, 2004, 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): <TABLE> <CAPTION> Three months ended Six months ended ------------------ ---------------- July 2, July 3, July 2, July 3, 2005 2004 2005 2004 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net income $ 4,257 $ 10,344 $ 8,696 $ 19,950 ========= ========= ========= ========= Average shares outstanding - Basic 22,423 22,180 22,453 22,107 Net effect of dilutive stock options and restricted shares - Diluted 190 504 228 408 --------- --------- --------- --------- Average shares outstanding - Diluted 22,613 22,684 22,681 22,515 ========= ========= ========= ========= Net income per share - Basic $ 0.19 $ 0.47 $ 0.39 $ 0.90 ========== ========== ========== ========== - Diluted $ 0.19 $ 0.46 $ 0.38 $ 0.89 ========== ========== ========== ========== </TABLE> Options to purchase 538,600 and 286,286 shares of common stock were outstanding at July 2, 2005, and July 3, 2004 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. During the first six months of 2005 the Company issued 34,980 shares of common stock resulting from the exercising of stock options. 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 $47.1 million) in cash and acquisition costs of approximately $1.8 million. The Company purchased the controlling interest in Heinrich from its two largest shareholders and initiated a tender offer for the remaining shares of the publicly held company. The Company funded the acquisition with $17.5 million in cash and $32.0 million of borrowings on an existing revolving line of credit. Subsequent to May 6, 2004, the Company purchased additional shares of Heinrich stock for approximately $8.7 million, bringing the total ownership to 97.2% as of July 2, 2005. Heinrich is the holding company for the Wickmann Group of circuit protection products, which has three business units: electronic, automotive and electrical. Littelfuse has continued to operate Heinrich in such business units subsequent to the acquisition. The Heinrich acquisition expands the Company's product offering and strengthens the Company's position in the circuit protection industry. 7
The acquisition was accounted for using the purchase method of accounting and the operations of Heinrich are included in the Company's operations from the date of acquisition. The following table sets forth the purchase price allocation for the acquisition of Heinrich in accordance with the purchase method of accounting with adjustments to record the acquired assets and liabilities of Heinrich at their estimated fair market or net realizable values. Purchase price allocation (in thousands) - ----------------------------------------- Current assets $ 39,824 Property, plant and equipment 35,826 Patents, licenses and software 3,396 Distribution network 5,135 Trademarks and tradenames 788 Goodwill 7,651 Other assets 5,282 Current liabilities (30,778) Purchase accounting liabilities (7,281) Other long-term liabilities (16,580) Minority interest (1,602) ------------- $ 41,661 All goodwill and intangible assets are recorded in the European segment. Trademarks and tradenames have an average estimated useful life of five years. The distribution network has an average estimated useful life of nine years. Patents and licenses have an average estimated useful life of four years. Software has a useful life of three years. The weighted average estimated useful life for intangible assets is approximately seven years. Purchase accounting liabilities are estimated to be $7.3 million and are primarily for redundancy costs to be paid through 2006 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 2, 2005, $3.0 million has been paid related to these liabilities. Upon the future acquisition of the remaining minority interest in Heinrich, the Company may record additional liabilities in connection with this acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the acquisition had occurred at the beginning of fiscal 2004. Three Months Ended Six Months Ended ------------------ ---------------- July 3, 2004 July 3, 2004 (unaudited) (unaudited) Net sales $140,406 $272,873 Operating income 16,223 31,614 Net income 10,788 20,130 Diluted income per share $0.48 $0.89 These unaudited pro forma results are presented for comparative purposes only. The pro forma results are not necessarily indicative of what actual results would have been had the Heinrich acquisition been completed as of the beginning of the respective period, or of future results. 7. DERIVATIVES AND HEDGING On June 11, 2002, the Company entered into cross-currency rate swaps, with a notional amount of $11.6 million, as a cash flow hedge of the variability of Yen cash flows attributable to the USD/JPY exchange rate risk on forecasted 8
intercompany sales of inventory to a Japanese subsidiary. The cross-currency rate 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. At the inception of the hedge, both the foreign currency swap and the intercompany sales subject to the hedge were denominated in Japanese Yen. The swap agreements were accounted for as a cash flow hedge and reported at fair value. The notional amount outstanding at July 2, 2005 was $0.8 million and the fair value of the outstanding cross currency rate swap agreements was recognized as a $0.1 million liability in the accrued liabilities on the consolidated balance sheet. The change in the liability has been reflected as a charge to shareholders' equity in the consolidated balance sheet at July 2, 2005. The Company's hedges are considered effective and the net gain or loss from hedge ineffectiveness was not material. For the period from June 1, 2004, to September 30, 2005, Heinrich Industrie AG purchased Euro forward contracts that hedge the variability of U.S. 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 U.S. Dollar cash flows will be converted to Euro in the future. The forward agreements are reported at the fair value and recorded as an asset under Other Assets on the consolidated balance sheet at July 2, 2005. The gains since the date of the Heinrich acquisition were recognized in the income statement and were immaterial. 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 amount 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 months ended July 2, 2005, compared with the three months ended July 3, 2004, were (in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended Three Months Ended Six Months Ended -------------------------------------------------------------------------------- U.S. Pension Benefits Foreign Plans ----------------------------------------- -------------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 --------- --------- ---------- ---------- --------- --------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Service cost $ 775 $ 737 $ 1,550 $ 1,474 $ 329 $ 281 $ 658 $ 562 Interest cost 883 882 1,766 1,764 537 372 1,074 744 Expected return on plan assets (912) (907) (1,824) (1,814) (457) (384) (914) (768) Amortization of prior service cost 3 3 6 6 (3) (3) (6) (6) Amortization of transition asset - - - - (31) (23) (62) (46) Amortization of net (gain) loss 68 48 136 96 47 52 94 104 -------- -------- ---------- ---------- -------- -------- -------- -------- Total cost of the plan 817 763 1,634 1,526 422 295 844 590 Expected plan participants' contribution - - - - (107) (52) (214) (104) ------- ------- ---------- ---------- ------- ------- ------- ------- Net periodic benefit cost $ 817 $ 763 $ 1,634 $ 1,526 $ 315 $ 243 $ 630 $ 486 ------- ------- ---------- ---------- ------- ------- ------- ------- </TABLE> The expected rate of return on pension assets is 8.50% and 8.75% in 2005 and 2004, respectively. 9. COMPREHENSIVE INCOME 9
Total comprehensive income for the three months ended July 2, 2005, and July 3, 2004, was approximately $3.2 million and $9.7 million, respectively, and the six months ended July 2, 2005, and July 3, 2004, was approximately $4.0 million and $18.9 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 2, 2005, and July 3, 2004, and unrealized gains and losses on available-for-sale securities for the period ended July 2, 2005. 10. STOCK-BASED COMPENSATION The following table discloses the Company's pro forma net income and diluted net income per share had the valuation methods under SFAS 123 been used for the Company's stock option grants. The table also discloses the weighted average assumptions used in estimating the fair value using the Black-Scholes option pricing model. (in thousands, except per share amounts) <TABLE> <CAPTION> Three months ended Six months ended July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net income as reported $ 4,257 $ 10,344 $ 8,696 $ 19,950 Stock option compensation expense, net of tax (731) (674) (1,471) (1,312) ------------- ------------- ------------- ------------- Pro forma net income $ 3,526 $ 9,670 $ 7,225 $ 18,638 Basic net income per share As reported $ 0.19 $ 0.47 $ 0.39 $ 0.90 Pro forma $ 0.16 $ 0.44 $ 0.32 $ 0.84 Diluted net income per share As reported $ 0.19 $ 0.46 $ 0.38 $ 0.89 Pro forma $ 0.16 $ 0.43 $ 0.32 $ 0.83 Risk-free interest rate 3.97% 4.14% 3.97% 4.14% Expected dividend yield 0% 0% 0% 0% Expected stock price volatility 39.7% 44.0% 39.7% 44.0% Expected life of options 7 years 7 years 7 years 7 years </TABLE> 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. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R, "Share-Based Payment," replacing SFAS No. 123 and superseding Accounting Principles Board (APB) Opinion No. 25. SFAS 123R requires public companies to recognize compensation expense for the cost of awards of equity compensation. This compensation cost will be measured as the fair value of the award estimated using an option-pricing model on the grant date. Statement 123R is effective for registrants no later than the beginning of the first fiscal year after December 15, 2005. As permitted by Statement 123, the Company currently accounts for share-based payments to employees in accordance with APB No. 25, "Accounting for Stock Issued to Employees," using the intrinsic value method. The Company expects to adopt Statement 123R at the beginning of fiscal year 2006. The Company is currently evaluating the various transition provisions under provisions under SFAS 123R. The adoption of Statement 123R is expected to result in increased compensation expense in future periods. 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Sales by Geography and Market* (in millions) <TABLE> <CAPTION> SECOND QUARTER YEAR-TO-DATE 2005 2004 % CHANGE 2005 2004 % CHANGE ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> GEOGRAPHY Americas $ 49.4 $ 55.7 -11% $ 99.6 $ 108.9 -9% Europe 31.9 30.9 3% 66.4 51.8 28% Asia-Pacific 42.6 42.2 1% 79.6 79.5 -- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 123.9 $ 128.8 -4% $ 245.6 $ 240.2 2% ========== ========== ========== ========== ========== ========== </TABLE> <TABLE> <CAPTION> SECOND QUARTER YEAR-TO-DATE 2005 2004 % CHANGE 2005 2004 % CHANGE ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> MARKET Electronics $ 66.9 $ 77.5 -14% $ 130.2 $ 152.4 -15% Automotive 25.3 26.7 -5% 51.1 54.5 -6% Electrical 10.8 10.0 8% 20.8 18.7 11% ---------- ---------- ---------- ---------- ---------- ---------- Subtotal 103.0 114.2 -10% 202.1 225.6 -10% Heinrich 20.9 14.6 43% 43.5 14.6 198% ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 123.9 $ 128.8 -4% $ 245.6 $ 240.2 2% ========== ========== ========== ========== ========== ========== </TABLE> * Certain prior year amounts have been reclassified to conform to the current year presentation. Results of Operations Second Quarter, 2005 Sales decreased $4.9 million or 4% to $123.9 million in the second quarter of 2005, compared to $128.8 million in the second quarter of 2004 due to lower sales in the Americas and Europe partially offset by the acquisition of Heinrich. Excluding Heinrich, sales for the second quarter of 2005 decreased approximately 10% compared to the prior year quarter primarily due to a slowdown in the electronics business. On a geographic basis, sales in the Americas decreased $6.3 million or 11% in the second quarter of 2005, compared to the second quarter of last year. The electronics business was the main contributor to this decline as sales to North American distributors and telecom OEM accounts slowed during the current quarter. Heinrich contributed $1.1 million in the Americas for the quarter. Europe sales increased $1.0 million or 3% in the second quarter of 2005 compared to the second quarter of 2004. Heinrich contributed $16.0 million in Europe for the quarter. Excluding Heinrich, Europe sales decreased $4.2 million or 21% compared to the second quarter of 2004 primarily due to weakened electronic distributor sales. Asia-Pacific sales increased $0.4 million or 1% compared to the prior year second quarter. Excluding Heinrich, which contributed $3.8 million in the second quarter of 2005, Asia-Pacific sales decreased $0.3 million or 1% compared to the second quarter of 2004. This decrease was mainly due to lower electronic distributor sales and weaker demand in the China telecom market, partially offset by improving sales trends in Taiwan and Southeast Asia. Electronic sales, excluding Heinrich, decreased $10.6 million or 14% for the second quarter of 2005 compared to the prior year quarter due to lower distributor sales in North America and Europe and softening telecom end markets. Automotive sales, excluding Heinrich, decreased $1.4 million or 5% for the second quarter of 2005 compared to the prior year quarter. Automotive sales for the second quarter of 2005 were below the prior year quarter due to slightly lower car build in North America and the prior year quarter benefiting from incremental sales related to an OEM 11
recall program. Electrical sales, excluding Heinrich, increased $0.8 million or 8% in the second quarter of 2005 compared to the same quarter last year as the electrical markets benefited from increased industrial manufacturing activity and improved product pricing. Gross profit was $37.7 million or 30.4% of sales for the second quarter of 2005, compared to $44.2 million or 34.3% of sales in the same quarter last year. The decrease in gross margin was mainly attributable to reduced operating leverage from lower sales, $1.6 million of inventory write-downs and a $0.5 million charge related to an automotive quality charge. Total operating expense was $30.6 million or 24.7% of sales for the second quarter of 2005 compared to $28.2 million or 21.9% of sales for the same quarter in the prior year. The increase in operating expense reflects the acquisition of Heinrich, additions to sales and engineering staffs to support the Company's solution selling strategy and $0.7 million of severance charges in the current quarter related to staffing reductions, partially offset by lower bonus expense in the current year quarter. Operating income was $7.1 million or 5.7% of sales for the second quarter of 2005 compared to $16.0 million or 12.4% of sales for the same quarter of last year reflecting the lower sales and increased costs discussed above. Interest expense was $0.6 million in the second quarter of this year compared to $0.5 million in the second quarter of last year. Other income was $0.1 million for the second quarter of 2005 compared to other income of $0.8 million in the second quarter of last year, due to unfavorable currency effects. Income before income taxes and minority interest was $6.6 million for the second quarter 2005 compared to $16.3 million for the second quarter of 2004. Income taxes were $2.3 million with an effective tax rate of 35% for the second quarter of 2005 compared to $5.9 million with an effective tax rate of 36% in the second quarter of last year. Net income for the second quarter 2005 was $4.3 million or $0.19 per diluted share compared to $10.3 million or $0.46 per diluted share for the same quarter of last year. Six Months, 2005 Sales for the first six months of 2005 increased 2% to $245.6 million from $240.2 million for the first six months of last year. The acquisition of Heinrich accounted for approximately $28.9 million of the increase. On a geographic basis, sales in the Americas decreased $9.3 million or 9% in the first six months of 2005 compared to the prior year due primarily to lower electronic distributor sales, weaker telecommunications sales and lower automotive sales, partially offset by increased electrical sales. Heinrich contributed $2.6 million in the Americas for the first six months of 2005. Europe sales increased 28% in the first six months of 2005 compared to the prior year due to the Heinrich acquisition. Heinrich contributed $22.0 million in Europe for the first six months of 2005. Excluding Heinrich, Europe sales decreased $7.4 million or 18% compared to the same period in the prior year due to weakened distributor sales partially offset by favorable currency effects of $3.1 million. Asia-Pacific sales were unchanged for the first six months of 2005 compared to the same period in the prior year. Excluding Heinrich, Asia-Pacific sales decreased $4.9 million or 6% in the first six months of 2005 compared to the prior year primarily due to lower electronic distributor sales and weaker demand in the China telecom market. Electronic sales, excluding Heinrich, decreased $22.2 million or 15% for the first six months of 2005 compared to the first six months of the prior year due to lower distributor sales in North America and Europe and softening telecom end markets. Automotive sales, excluding Heinrich, decreased $3.4 million or 6% for the first six months of 2005 compared to the first six months of the prior year due to slightly lower car build in North America and the prior year benefiting from incremental sales related to an OEM recall program. Electrical sales, excluding Heinrich, increased $2.1 million or 11% for the first six months of 2005 compared to the first six months of the prior year due to increased industrial manufacturing activity and improved product pricing. Gross profit was $77.3 million or 31.5% of sales for the first six months of 2005 compared to $84.0 million or 35.0% of sales for the first six months of last year. The decrease in gross margin for the first six months as compared to the prior year was primarily due to reduced operating leverage from lower base business sales, inventory write-downs, restructuring charges related to manufacturing transfers and plant downsizing activities and the addition of lower margin Heinrich sales. Total operating expense was $63.1 million or 25.7% of sales for the first six months of 2005 compared to $52.3 million or 21.8% of sales last year. The increase in operating expenses was largely due to the additional expenses related to Heinrich, additions to sales and engineering staffs to support the Company's solution selling strategy and charges related to staff reductions. 12
Operating income for the first six months of 2005 was $14.3 million or 5.8% of sales compared to $31.7 million or 13.2% of sales for the prior year reflecting sales and margin declines discussed above. Interest expense was $1.1 million for the first six months of 2005 compared to $0.9 million last year. Other income was $0.2 million for the first six months of 2005 compared to $0.5 million for the same period last year. Income before taxes and minority interest was $13.4 million for the first six months of 2005 compared to $31.3 million the first six months of last year. Income taxes were $4.7 million the first six months of 2005 compared to $11.3 million for the first six months of last year. The effective tax rate was 35% for the first six months of 2005 compared to an effective tax rate of 36% for the first six months of 2004. Net income for the first six months of 2005 decreased to $8.7 million from $20.0 million for the same period last year. Earnings per share for the first six months of 2005 decreased to $0.38 per diluted share compared to $0.89 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 2005 year with $28.6 million of cash and cash equivalents. Net cash provided by operations was $12.2 million for the first six months. Net cash provided by operations includes net income of $8.7 million, depreciation of $14.1 million and amortization of $1.1 million in addition to various working capital and other items. Accounts receivable increased $6.4 million due primarily to changes in payment terms for certain customers. Inventory decreased $5.0 million due primarily to improved inventory management. Accounts payable, accrued expenses, prepaid expenses and other items unfavorably impacted net cash provided by operations by $10.3 million due primarily to payment of management bonuses and restructuring charges that were previously accrued. Net cash used in investing activities included $17.0 million in net purchases of property, plant and equipment and $1.0 million of acquisition related expenditures. In addition, net cash provided by financing activities included stock option exercises of $0.7 million along with net proceeds of long-term debt of $10.7 million, notes receivable payback of $3.5 million and the offsetting purchase of treasury stock for $3.2 million. The effects of exchange rate changes decreased cash by $1.9 million. The net cash provided by operations, less investing and financing activities plus the effects of exchange rate changes, resulted in a $4.0 million net increase. This left the Company with a cash balance of $32.6 million at July 2, 2005. The ratio of current assets to current liabilities was 1.9 to 1 at the end of the second quarter of 2005 compared to 2.3 to 1 at the end of the second quarter of 2004. The days sales in receivables was approximately 60 days at the end of the second quarter of 2005, compared to 57 days at the end of fiscal 2004 and 54 days at the end of the second quarter 2004. The increase in days sales in receivables from the second quarter of the prior year was due primarily to the elimination of early payment discounts for certain distributors. The days inventory outstanding was approximately 77 days at the end of the second quarter of 2005 compared to 92 days at the end of 2004 and 73 days at end of the second quarter of 2004. The decrease in days inventory outstanding from the end of 2004 resulted primarily from improved inventory management. The increase in days inventory outstanding from the second quarter of the prior year was due to lower sales in the second quarter of 2005. The Company's capital expenditures, net of cash from asset sales, were $8.3 million for the second quarter of 2005 compared to $6.1 million for the second quarter of 2004 due to spending in the most recent quarter related to manufacturing process improvements, new product introductions and future capacity expansions. Total debt, including the current portion, at the end of the second quarter 2005 totaled $44.5 million and consisted of the following: (1) 6.16% private placement notes totaling $10.0 million, (2) foreign revolver borrowings totaling $6.5 million and (3) credit revolver borrowings totaling $28.0 million. Of this indebtedness, $43.0 million is considered to be current liabilities. The Company has a $50.0 million, three-year revolving bank credit agreement that expires on August 26, 2006. The bank credit agreement is subject to a maximum indebtedness calculation and other financial covenants. At July 2, 2005, the Company had available $22.0 million of borrowing capability under 13
the revolving bank credit agreement. The revolving bank credit agreement has a floating interest rate of LIBOR plus 0.875% or prime. The Company also had $2.5 million in letters of credit outstanding at July 2, 2005. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995 The statements in this section and in the other sections of this report which are not historical facts contained in this report are forward-looking statements that involve risks and uncertainties, including, but not limited to, product demand and market acceptance, the effect of economic conditions, the impact of competitive products and pricing, the integration of acquisitions, product development and patent protection, commercialization and technological difficulties, capacity and supply constraints or difficulties, exchange rate fluctuations, actual purchases under agreements, the effect of the Company's accounting policies, labor disputes, restructuring costs in excess of expectations, costs related to former coal mining activities, pension plan asset returns less than expected, and other risks which may be detailed in the Company's Securities and Exchange Commission filings. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated or implied in the forward-looking statements. This report should be read in conjunction with information provided in the financial statements appearing in the Company's Annual Report on Form 10-K for the year ended January 1, 2005. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to market risk from changes in foreign exchange rates, commodities and, to a lesser extent, interest rates. Management believes that the Company's exposure to these risks is immaterial and not significant enough to warrant disclosure of quantitative information regarding market risk. The Company had $44.5 million of long-term debt outstanding at July 2, 2005, primarily in the form of senior notes and lines of credit. Approximately 22% of the Company's long-term debt is at fixed rates. A portion of the Company's operations consists of manufacturing and sales activities in foreign countries. The Company has foreign manufacturing facilities in Mexico, England, Ireland, China, Germany and the Philippines. Substantially all sales in Europe are denominated in Euro, U.S. Dollar and British Pound Sterling , and substantially all sales in the Asia-Pacific region are denominated in U.S. Dollar, Japanese Yen and South Korean Won. The Company's identifiable foreign exchange exposures result from the purchase and sale of products from affiliates, repayment of intercompany trade and loan amounts and translation of local currency amounts in consolidation of financial results. Changes in foreign currency exchange rates or weak economic conditions in the foreign countries in which it manufactures and distributes products could affect the Company's sales, accounts receivable values and financial results. The Company uses netting and offsetting intercompany account management techniques to reduce known foreign currency exposures deemed to be material. The Company utilizes derivative instruments as hedges of specific foreign currency cash flows when appropriate. The Company has entered into cross-currency rate swaps with a notional amount of $11.6 million. The cross-currency swaps convert $11.6 million of the Company's fixed rate 6.16% U.S. dollar debt to fixed rate 3.13% Japanese Yen debt. At the inception of the hedge, both the foreign currency swap and the intercompany sales subject to the hedge were denominated in Japanese Yen. The fair value of the rate swap agreements outstanding at July 2, 2005, which had a notional amount of $0.8 million, was recognized as a $0.1 million liability, and is reported in consolidated shareholders' equity as a component of other comprehensive income. For the period from June 1, 2004, to September 30, 2005, Heinrich Industrie AG purchased Euro forward contracts that hedge the variability of U.S. 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 U.S. Dollar cash flows will be converted to Euros in the future. The forward agreements are reported at the fair value and recorded as an asset under Other Assets on the consolidated balance sheet at July 2, 2005. The gains since the date of the Heinrich acquisition were recognized in the income statement and were immaterial. A risk management policy has been implemented by the Company that establishes the procedures and controls over derivative financial instruments. Under the policy, the Company does not use derivative financial instruments for 14
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. Outlook Delphi Corporation, a significant customer of the Company, is having financial difficulties. The Company is actively monitoring this situation and assessing any financial impact this may have. Item 4. Controls and Procedures As of July 2, 2005, 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. The Company's management believes that the material weaknesses discussed in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2005 relating to the approval process over journal entries and lack of adequate controls over the accounting for foreign currency translations have been eliminated. 15
PART II - OTHER INFORMATION Item 2: Unregistered Sales of Equity Securities and Use of Proceeds (c) The table below provides information with respect to purchases by the Company of shares of its common stock during each fiscal month of the second quarter of fiscal 2005: <TABLE> <CAPTION> ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased as Part of Maximum Number of Shares Total Number of Average Price Publicly Announced that May Yet Be Purchased Period Shares Purchased Paid per Share Plans or Programs Under the Plans or Programs <S> <C> <C> <C> <C> April 2005 - - - 730,100 May 2005 - - - 1,000,000 June 2005 - - - 1,000,000 Total - - - 1,000,000 </TABLE> The Company's Board of Directors authorized the repurchase of up to 1,000,000 shares under a program for the period May 1, 2005 to April 30, 2006. Item 4: Submission of Matters to a Vote of Security Holders (a) The annual meeting of stockholders of Littelfuse, Inc. was held on May 6, 2005. (b) Howard B. Witt, John P. Driscoll, Anthony Grillo, Gordon Hunter, Bruce A. Karsh, John E. Major and Ronald L. Schubel were re-elected as directors at the meeting. (c) The following votes were taken in connection with the election of directors at the meeting: <Table> <Caption> Director Votes For Votes Withheld Abstentions Broker Non-Votes -------- --------- -------------- ----------- ---------------- <S> <C> <C> <C> <C> Howard B. Witt 20,884,528 546,025 - - John P. Driscoll 20,254,447 1,176,106 - - Anthony Grillo 20,886,941 543,612 - - Gordon Hunter 20,885,791 544,762 - - Bruce A. Karsh 19,950,723 1,499,830 - - John E. Major 20,827,995 602,558 - - Ronald L. Schubel 20,884,528 546,025 - - </Table> The proposal to ratify the Board of Director's appointment of Ernst &Young LLP as the Company's independent auditors for the fiscal year of the Company ending December 31, 2005 was approved. The following votes were taken in connection with this proposal: <Table> <Caption> Proposal Votes For Votes Against Votes Withheld Abstentions Broker Non-Votes -------- --------- ------------- -------------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Ratification of the 21,015,039 384,020 - 31,494 - Board of Director's appointment of Ernst & Young LLP as independent auditors for fiscal 2005 </Table> 16
The proposal to approve an amendment to the 1993 Stock Plan for Employees and Directors of Littelfuse Inc. (the "1993 Stock Plan") to increase the maximum aggregate number of shares of Common Stock as to which awards of options, restricted shares, units or rights may be made from time to time thereunder from 3,400,000 to 4,400,000 shares was not approved. The following votes were taken in connection with this proposal: <Table> <Caption> Proposal Votes For Votes Against Votes Withheld Abstentions Broker Non-Votes -------- --------- ------------- -------------- ----------- ---------------- <S> <C> <C> <C> <C> <C> 1993 Stock Plan Amendment 7,151,549 12,913,060 - 18,224 - </Table> The proposal to approve amendments to the Littelfuse Deferred Compensation Plan for Non-employee Directors (the "Non-employee Directors Plan") to (i) increase the maximum aggregate number of shares of Common Stock which may be issued under the Non-employee Directors Plan from 60,000 to 160,000 shares, (ii) provide that such shares shall be issued quarterly, and (iii) revise the Non-employee Directors Plan to satisfy the requirements of new Section 409A of the Internal Revenue Code of 1986, as amended, was approved. The following votes were taken in connection with this proposal: <Table> <Caption> Proposal Votes For Votes Against Votes Withheld Abstentions Broker Non-Votes -------- --------- ------------- -------------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Non-employee Directors 19,536,732 504,611 - 41,490 - Plan Amendments </Table> (d) Not applicable Item 6: Exhibits Exhibit Description 10.1 1993 Stock Plan for Employees and Directors of Littelfuse, Inc., as amended 10.2 Stock Plan for New Directors of Littelfuse, Inc., as amended 10.3 Stock Plan for Employees and Directors of Littelfuse, Inc., as amended 10.4 Littelfuse Deferred Compensation Plan for Non-employee Directors, as amended 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 17
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 2, 2005, to be signed on its behalf by the undersigned thereunto duly authorized. LITTELFUSE, INC. Date: August 11, 2005 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)