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 June 29, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________ Commission file number 0-20388 LITTELFUSE, INC. (Exact name of registrant as specified in its charter) Delaware 36-3795742 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 800 East Northwest Highway Des Plaines, Illinois 60016 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 824-1188 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No As of June 29, 1996, 9,969,579 shares of common stock, $.01 par value, of the Registrant and warrants to purchase 2,093,734 shares of common stock, $.01 par value, of the Registrant were outstanding. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE Item 1. Consolidated Condensed (unaudited) Statements of Income, Financial Condition, and Cash Flows and Notes to the Consolidated Financial Statements ............1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................6 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders..........9 Item 6. Exhibits and Reports on Form 8-K..............................10 Part I - Financial Information Item 1. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited) For the Three For the Six Months Ended Months Ended June 29, June 30, June 29, June 30, 1996 1995 1996 1995 Net sales $ 60,843 $ 56,949 $119,921 $112,403 Cost of sales 35,996 33,724 70,962 66,416 Gross profit 24,847 23,225 48,959 45,987 Selling, administrative and general expenses 13,507 12,388 26,969 24,765 Amortization of intangibles 1,766 1,630 3,530 3,261 Operating income 9,574 9,207 18,460 17,961 Interest expense 1,185 1,083 2,164 2,257 Other income, net (105) (67) (362) (172) Income before income taxes 8,494 8,191 16,658 15,876 Income taxes 3,058 2,946 5,997 5,636 Net income $ 5,436 $ 5,245 $ 10,661 $ 10,240 Net income per share $ 0.46 $ 0.42 $ 0.88 $ 0.82 Weighted average number of common and common equivalent shares outstanding 11,894 12,498 12,155 12,439 1 CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (In thousands) June 29, Dec. 31, 1996 1995 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 1,891 $ 1,308 Accounts receivable 37,765 29,722 Inventories 30,337 30,076 Deferred income taxes 1,336 1,336 Prepaid expenses and other 2,528 2,581 Total current assets 73,857 65,023 Property, plant, and equipment, net 61,561 61,229 Reorganization value, net 46,543 48,056 Patents and other identifiable intangible assets, net 25,887 27,971 Prepaid pension cost and other assets 3,572 2,907 $211,420 $205,186 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 28,676 27,390 Accrued income taxes 10,900 8,362 Current portion of long-term debt 10,267 10,065 Total current liabilities 49,843 45,817 Long-term debt, less current portion 54,598 40,804 Deferred income taxes 4,637 4,615 Minority Interest 403 568 Shareholders' equity: Preferred stock, par value $.01 per share: 1,000,000 shares authorized; no shares issued and outstanding _ _ Common stock, par value $.01 per share: 19,000,000 shares authorized; 9,969,579 and 10,086,000 shares issued and outstanding 101 102 Cost of Treasury Stock, 1996 - 293,130 shares; 1995 - 110,000 shares (9,542) (3,533) Additional paid-in capital 56,762 72,364 Notes receivable - common stock (571) (571) Foreign translation adjustment (619) (120) Retained earnings 55,808 45,140 Total shareholders' equity $101,939 $113,382 $211,420 $205,186 2 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) <TABLE> For the Three For the Six Months Ended Months Ended June 29, June 30, June 29, June 30, 1996 1995 1996 1995 <S> <C> <C> <C> <C> Operating activities: Net income $ 5,436 $ 5,245 $ 10,661 $ 10,240 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,372 2,848 6,498 5,564 Amortization 1,746 1,631 3,530 3,262 Provision for bad debts 117 153 214 246 Deferred income taxes 22 - 22 - Minority interest (71) - (141) - Changes in operating assets and liabilities: Accounts receivable (2,293) (1,092) (8,586) (6,897) Inventories (302) 743 (568) 1,619 Accounts payable and accrued expenses 1,162 326 1,441 (271) Other, net 819 659 2,853 3,015 Net cash provided by operating activities 10,008 10,513 15,924 16,778 Cash used in investing activities: Purchases of property,plant, and equipment, net (4,336) (4,443) (7,004) (6,827) Cash used in financing activities: Proceeds/(payments) of long-term debt, net 11,987 (5,517) 13,957 (9,533) Proceeds from exercise of stock options 780 841 1,083 857 Purchase of common stock and warrants (16,731) - (22,740) - Other, net (654) (680) (654) (714) (4,618) (5,356) (8,354) (9,390) Effect of exchange rate changes on cash 27 (17) 17 64 Increase in cash and cash equivalents 1,081 697 583 625 Cash and cash equivalents at beginning of period 810 1,190 1,308 1,262 Cash and cash equivalents at end of period $1,891 $1,887 $1,891 $1,887 </TABLE> 3 Notes to Consolidated Condensed Financial Statements (Unaudited) June 29, 1996 1. Basis of Presentation Littelfuse, Inc. and its subsidiaries (the "Company") are the successors in interest to the components business previously conducted by subsidiaries of Tracor Holdings, Inc. ("Predecessor"). The Company acquired its business as a result of the Predecessor's reorganization activities concluded on December 27, 1991. 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 solely of normal recurring items, considered necessary for a fair presentation have been included. Operating results for the period ended June 29, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 1996. For further information, refer to the Company's consolidated financial statements and the notes thereto as of December 31, 1995, included in the Company's Annual Report on Form 10-K. Beginning in 1996, the Company changed its fiscal year end to the Saturday nearest December 31 and reports its quarterly interim financial information on the basis of periods of thirteen weeks. Previously the Company reported on a calendar year and quarter basis. The consolidated condensed statements of operations and cash flows for the three months ended June 29, 1996 are for the period from March 30, 1996 to June 29, 1996. 2. Inventories The components of inventories are as follows (in thousands): June 29, December 31, 1996 1995 Raw material $ 8,934 $ 8,823 Work in process 3,366 3,445 Finished goods 18,037 17,808 Total $30,337 $30,076 3. Per Share Data Net income per share amounts for the three months and six months ended June 29, 1996 and 1995 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): 4 Three months ended Six months ended June 29, June 30, June 29, June 30, 1996 1995 1996 1995 Average shares outstanding 9,946 10,121 9,974 10,106 Net effect of dilutive stock options and warrants - Primary 1,948 2,377 2,181 2,333 - Fully diluted 1,948 2,377 2,200 2,362 Average shares outstanding - Primary 11,894 12,498 12,155 12,439 - Fully diluted 11,894 12,498 12,174 12,468 Net income $ 5,436 $ 5,245 $10,661 $10,240 Net income per share $ .46 $ .42 $ .88 $ . 82 4. Long-term Debt The Company concluded a financing package on August 31, 1993. The package consists of $45,000,000 of Senior Notes issued pursuant to a Note Purchase Agreement which requires annual principal payments of $9,000,000 payable annually beginning August 31, 1996 through August 31, 2000. The package also includes a bank Credit Agreement which provides an open revolver line of credit of $65,000,000 less current borrowings subject to a maximum indebtedness calculation and other traditional covenants. No revolver principal payments are required until the line matures on August 31, 2000. At June 29, 1996 the Company had available $48.5 million of borrowing capability under the revolver facility. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Sales increased 7 percent the second quarter of 1996 compared to the second quarter of 1995. Sales were $60.8 million for the quarter or $3.9 million higher than the second quarter of last year. Operating income increased to $9.6 million for the quarter compared to $9.2 million the second quarter of last year. Net income was $5.4 million or $0.46 per share the second quarter of 1996 compared to $5.2 million or $0.42 per share the second quarter of 1995. Cash flow from operations was $10.0 million the second quarter of 1996. The Company repurchased 665,500 warrants for $16.7 million and made capital investments of $4.3 million the second quarter of 1996. As a result, long-term debt increased $12.0 million in the quarter. The total long-term debt to equity ratio was 0.64 to 1 at June 29, 1996 compared to 0.45 to 1 at year end 1995 and 0.52 to 1 at June 30, 1995. Second Quarter, 1996 Littelfuse enjoyed a sales increase of 7 percent to $60.8 million this year from $56.9 million last year. The gross margin was unchanged at 40.8 percent the second quarter of both years. Operating income decreased to 15.7 percent of sales the second quarter this year compared to 16.2 percent last year. Net income increased 4 percent or slightly less than sales to $5.4 million this year compared to $5.2 million last year. Earnings per share increased 10% or slightly more than sales to $0.46 compared to $0.42 due to fewer equivalent shares outstanding related to our share repurchase program. Second quarter 1996 sales grew $3.9 million compared to the same quarter last year. Very strong consumer electronics market sales spurred 27 percent sales growth in the Asia Pacific region. Sales grew 4 percent in local currency and declined 5 percent in dollars in the European Community with strong automotive OEM sales and slightly lower electronics sales. Currency changes reduced sales approximately $0.8 million compared to last year. Respectable automotive and power fuse sales spurred 4 percent sales growth in North America. Electronic sales grew to $28.4 million in the second quarter 1996 from $27.0 million the same quarter of last year for an increase of $1.4 million or 5 percent. Sales were particularly strong in consumer electronics in Asia Pacific although they were weaker in North America, Europe and personal computers market in Asia Pacific. Automotive sales grew to $23.8 million in the second quarter 1996 from $22.0 million the same quarter last year for an increase of $1.8 million or 8 percent. The European automotive OEM, the North American automotive OEM and aftermarket businesses were relatively strong though slower than the first quarter. Power fuse sales grew to $8.6 million in the second quarter 1996 from $8.0 million the same quarter last year for an increase of $0.6 million or 8 percent. The Company believes that its electrical business sales continue to grow faster than the electrical industry in general. 6 Gross profit was $24.8 million or 40.8 percent of sales for the second quarter 1996 compared to $23.2 million or 40.8 percent last year. North America gross margins improved compared to last year, while Europe declined slightly due to currency and Asia Pacific declined slightly due to the start up of the China operations and the assimilation of the Korean operations. Selling, general and administrative expenses were $13.5 million or 22.2 percent of sales for the second quarter 1996, compared to $12.4 million or 21.8 percent of sales for the same quarter last year. Selling expenses accounted for approximately two thirds of the expenses both quarters. The S,G&A expenses as a percent of sales increased only slightly despite greater investment in foreign sales effort and new system implementation activities. The amortization of the reorganization value and other intangibles was 2.9 percent of sales for the second quarter of both years. Total S,G&A expenses including intangibles amortization were 25.1 percent of sales the second quarter 1996 compared to 24.6 percent the same quarter last year. Operating income was $9.6 million or 15.7 percent of sales for the second quarter 1996 compared to $9.2 million or 16.2 percent last year. Interest expense was $1.2 million for the second quarter 1996 compared to $1.1 million last year due to the repurchasing of the Company's warrants. Other income, net was $0.1 million both quarters. Income before taxes was $8.5 million for the second quarter 1996 compared to $8.2 million last year. Income taxes were $3.1 million with an effective tax rate of 36 percent for the second quarter 1996 compared to $2.9 million with an effective tax rate of 36 percent the second quarter of last year. Net income for the second quarter 1996 was $5.4 million or $0.46 per share compared to $5.2 million or $0.42 per share last year. Six Months, 1996 Sales increased 7 percent for the first half of 1996 to $120.0 million from $112.4 million the first half of last year. Cash provided by operations before interest expense was $17.1 million and after interest expense was $15.9 million. The sales trend in automotive has been very strong the first two quarters of 1996. However, electronics sales were noticeably lower in the first half of this year compared to the first half of last year. First half electronic sales were up 4 percent at $55.5 million compared to $53.6 million last year. Asia Pacific Japan business has been very strong while the rest of Asia Pacific, North America and Europe have been noticeably weaker primarily due to lower production of personal computer and related electronics items. Automotive sales were up 11 percent at $47.9 million compared to $43.1 million last year. European auto sales growth has been slightly stronger than domestic auto sales growth so far this year. Power fuse sales were up 6 percent to $16.6 million from $15.6 million last year. This business has benefited from market share gains. 7 The gross profit was 40.8 percent for the first half 1996 compared to 40.9 percent the first half of last year. The slight decrease resulted from our European currency effects and Asia Pacific expansion in China and Korea. North America margins have improved this year due to favorable mix and tight operating expense control. Selling, general and administrative expenses were 22.5 percent of sales for the first half 1996 compared to 22.0 percent of sales last year. The increases are due to sales growth being slightly less than the planned S,G &A expense increases, since our plan assumed higher sales growth than we have actually achieved. The amortization of intangibles was 2.9 percent of sales for the first half of both years. Total S,G & A expenses including intangibles amortization were 25.4 percent of sales the first half 1996 compared to 24.9 percent of sales the first half of last year. Operating income was $18.5 million or 15.4 percent of sales the first half 1996 compared to $18.0 million or 16.0 percent last year. Interest expense was $2.2 million the first half 1996 compared to $2.3 million last year. Other income, net was $0.4 million the first half of 1996 and $0.2 million the first half of 1995. As a result, income before taxes was $16.7 million the first half 1996 compared to $15.9 million the first half of last year. Income taxes were $6.0 million the first half 1996 compared to $5.6 million last year. Net income the first half 1996 was $10.7 million or $.88 per share compared to $10.2 million or $.82 per 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 1996 year with $1.3 million of cash. Net cash provided by operations was $15.9 million for the first half. Cash used to invest in property, plant and equipment was $7.0 million. Cash used to repurchase stock and warrants was $22.7 million, proceeds of option exercises were $1.1 million, proceeds of bank debt were $13.9 and other long-term items were $0.7 million for net financing of $8.4 million use of cash. The net of cash provided by operations, less investing activities, less financing activities resulted in an increase in cash of $0.6 million. This left the Company with a cash balance of approximately $1.9 million at June 29, 1996. The ratio of current assets to current liabilities was 1.5 to 1 at the end of the second quarter 1996 compared to 1.4 to 1 at year end 1995 and 1.4 to 1 at the end of the second quarter 1995. The days sales in receivables was approximately 56 days at the end of the second quarter 1996 compared to 52 days at year end 1995 and 52 days at the end of the second quarter 1995. The 8 increase in days sales in receivables is primarily due to the strong foreign sales (which have longer payment terms) and higher sales the second half of the quarter. The inventory turnover rate was approximately 4.8 turns at the end of the second quarter 1996 compared to 4.1 turns at year end 1995 and 5.1 turns at the end of the second quarter 1995. The Company's capital expenditures were $7.0 million for the first half 1996. The Company expects that capital expenditures, which will be primarily for new machinery and equipment, will be approximately $17.5 million in 1996. The ratio of total long- term debt to equity was 0.64 to 1 at the end of the first half 1996 compared to 0.45 to 1 at year end 1995. The long-term debt at the end of the first half 1996 consists of four types totaling $64.9 million. They are as follows: (1) private placement notes totaling $45.0 million, (2) bank revolver facility totaling $16.5 million, (3) notes payable relating to income taxes and mortgages totaling $1.3 million, and (4) other long-term debt totaling $2.1 million. These four items are offset by $10.3 million of the bank revolver, tax notes and mortgage notes, which are considered to be current. This leaves net long-term debt totaling $54.6 million at June 29, 1996. The private placement notes carry an interest rate of 6.31 percent and the revolver debt carries an interest rate of prime or LIBOR plus 0.625%, which currently is approximately 6.2%. The Company had available at June 29, 1996, a revolver facility of $65.0 million of which $16.5 million was being used at June 29, 1996. The Company also has a $3.0 million letter of credit facility of which approximately $1.9 million was being used at June 29, 1996. Other Matters The Company and LaSalle National Bank, as Rights Agent, entered into a First Amendment to Littelfuse Rights Plan Agreement on August 1, 1996. The First Amendment (attached hereto as Exhibit 4.0) amends the definition of "Acquiring Person" in Section 1(a) of the Rights Plan by providing that, for purposes of calculating the threshold 15% of outstanding Common Shares, included in the total number of Common Shares shall be the number of Common Shares which may be purchased upon exercise of then outstanding Warrants. The Warrants to purchase Common Shares of the Company were issued pursuant to the Warrant Agreement dated December 20, 1991 between the Company and LaSalle National Trust, N.A., as Warrant Agent. PART II - OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security - Holders The annual meeting of stockholders of Littelfuse, Inc. (the "Company") was held on April 26, 1996. The following matters were voted upon at this annual meeting and the results of such vote are provided below: 9 1. Election of five nominees to the Board of Directors to serve terms of one year or until their successors are elected: (i) Howard B. Witt Withhold Broker For 7,936,804 Authority 46,086 Abstentions Nonvotes (ii) Anthony Grillo Withhold Broker For 7,937,404 Authority 45,486 Abstentions Nonvotes (iii) Bruce A. Karsh Withhold Broker For 7,937,504 Authority 45,386 Abstentions Nonvotes (iv) John E. Major Withhold Broker For 7,937,504 Authority 45,386 Abstentions Nonvotes (v) John J. Nevin Withhold Broker For 7,929,704 Authority 53,186 Abstentions Nonvotes 2. Approval and ratification of the Directors' appointment of Ernst & Young LLP as the Company's independent auditors for the year ending December 31, 1996 Broker For 7,972,015 Against 3,850 Abstentions 7,025 Nonvotes Item 6: Exhibits and Reports on Form 8-K (a) Exhibit 4.0 - First Amendment to Littelfuse Rights Plan Agreement (Littelfuse Rights Plan Agreement filed as Exhibit 1 to Form 8-A filed December 4,1996 (File No. 0-20388)) (b) There were no reports on Form 8-K during the quarter ended June 29, 1996. 10 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 June 29, 1996, to be signed on its behalf by the undersigned thereunto duly authorized. Littelfuse, Inc. Date: August 14, 1996 By /s/ James F. Brace James F. Brace Vice President, Treasurer, and Chief Financial Officer (As duly authorized officer and as the principal financial and accounting officer) 11