Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LFUS > SEC Filings for LFUS > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for LITTELFUSE INC /DE

Form 10-Q for LITTELFUSE INC /DE


2-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Littelfuse Overview

Littelfuse, Inc. and its subsidiaries (the "company" or "Littelfuse") is the worldwide leader in circuit protection offering the industry's broadest and deepest portfolio of circuit protection products and solutions. The company's devices protect products in virtually every market that uses electrical energy, from consumer electronics to automobiles to industrial equipment. The company's worldwide revenue in 2013 was $757.9 million and net earnings were $88.8 million. The company conducts its business through three reportable segments, which are defined by markets and consist of Electronics, Automotive, and Electrical. The company's customer base includes original equipment manufacturers, tier one automotive suppliers and distributors.

In addition to protecting and growing its core circuit protection business, Littelfuse has been investing in power control and sensing technologies. These newer platforms combined with the company's strong balance sheet and operating cash flow, provide opportunities for increased organic and acquisition growth. The company has set a target to grow revenue by 15% per year, 5% organically and 10% through acquisitions.

To maximize shareholder value, the company's primary strategic goals are to:

? Grow organically faster than its markets;

? Double the pace of acquisitions;

? Sustain high-teens operating margins;

? Improve return on investment; and

? Return excess cash to shareholders.

The company serves markets that are directly impacted by global economic trends with significant exposures to the consumer electronics, automotive, industrial and mining end markets. The company's results will be impacted positively or negatively by changes in these end markets.

Electronics Segment

The Electronics segment sells passive and semiconductor components and modules primarily into the global consumer electronics, general industrial and telecommunications markets. The core electronics markets are characterized by significant Asia competition and price erosion. As a result the company is focusing additional efforts on higher growth, less price sensitive niche markets (such as LED lighting) and higher-power industrial applications. The Hamlin acquisition expands the company's product offering into reed switches which are used in a wide variety of electronic products and utilize the same channels as the company's core electronics products.

Automotive Segment

The Automotive segment is comprised of passenger vehicle circuit protection, commercial vehicle products and sensors. The primary growth drivers for these businesses are increasing global demand for passenger and commercial vehicles and increasing content per vehicle for both circuit protection and sensing products. The move away from internal combustion engines to hybrid and electric drive systems that require more circuit protection is expected to be an additional growth driver. The Hamlin acquisition in 2013 significantly expanded the company's position in automotive sensors.

Electrical Segment

The Electrical segment derives its revenues from power fuses, protection relays and custom products selling primarily into the industrial, mining, solar and oil and gas markets. Custom products sales, after several years of strong growth, have declined due to several large Canadian potash mining projects nearing completion. The company intends to expand this business by moving into new markets such as non-potash mining and oil and gas. Protection relay sales have also slowed due to the general slowdown in the global mining market.


The following table is a summary of the company's net sales by business unit and geography:

Net Sales by Business Unit and Geography (in thousands, unaudited)



                            First Quarter
                  2014          2013        % Change
Business Unit
Electronics     $  95,722     $  79,415            21 %
Automotive         82,419        59,385            39 %
Electrical         28,718        32,118           (11 %)

Total           $ 206,859     $ 170,918            21 %




                           First Quarter
                 2014          2013         % Change
Geography(a)
Americas       $  89,151     $  77,824             15 %
Europe            43,927        31,386             40 %
Asia-Pacific      73,781        61,708             20 %

Total          $ 206,859     $ 170,918             21 %

(a) Sales by geography represent sales to customer or distributor locations.

Results of Operations - First Quarter, 2014 compared to 2013

The following table summarizes the company's consolidated results of operations for the periods presented. The results include incremental activity from the company's business acquisitions as described, where applicable, in the below analysis. There was also an additional $1.4 million accounting adjustment (expense) during the first quarter of 2014 for the write-off of stepped-up inventory valuation related to the SymCom acquisition as described in note 2.

(In thousands, unaudited)                First Quarter
                               2014          2013        % Change
Sales                        $ 206,859     $ 170,918            21 %
Gross Profit                    78,494        64,606            21 %
Operating expense               44,904        36,489            23 %
Operating income                33,590        28,117            19 %
Other income, net                1,438           909            58 %
Income before income taxes      33,812        17,972            88 %
Net income                   $  25,389     $  11,488           121 %

Net sales increased $35.9 million or 21% to $206.9 million in the first quarter of 2014 compared to $170.9 million in the first quarter of 2013 due primarily to an incremental $26.4 million from business acquisitions and strong organic growth in automotive and electronics, partially offset by lower electrical sales. The company also experienced $1.3 million in favorable foreign currency effects in the first quarter of 2014 as compared to the first quarter of 2013. The favorable foreign currency impact primarily resulted from sales denominated in the euro, partially offset by the unfavorable impact of the Canadian dollar and the Japanese yen. Excluding incremental sales from acquisitions and currency effects, net sales increased $8.2 million or 5% year-over-year.

Electronics sales increased $16.3 million or 21% to $95.7 million in the first quarter of 2014 compared to $79.4 million in the first quarter of 2013 due primarily to strong growth for semiconductor products and an incremental $9.4 million from the addition of the Hamlin electronic sensor business. The electronics segment experienced $0.4 million in favorable currency effects in the first quarter of 2014 primarily from sales denominated in euro. Excluding incremental sales from acquisitions and currency effects, net sales increased $6.5 million or 8% year-over-year.


Automotive sales increased $23.0 million or 39% to $82.4 million in the first quarter of 2014 compared to $59.4 million in the first quarter of 2013 due to strong organic growth for passenger car fuses, commercial vehicle products and Accel sensors and an incremental $12.5 million from the acquisition of Hamlin. The automotive segment experienced $1.2 million in favorable currency effects in the first quarter of 2014 primarily due to sales denominated in euros. Excluding incremental sales from acquisitions and currency effects, net sales increased $9.3 million or 16% year-over-year.

Electrical sales decreased $3.4 million or 11% to $28.7 million in the first quarter of 2014 compared to $32.1 million in the first quarter of 2013 as the decline in sales into the mining market more than offset growth in electrical fuses and incremental sales of $4.5 million from the SymCom acquisition. The electrical segment experienced $0.3 million in unfavorable currency effects in the first quarter of 2014 primarily from sales denominated in Canadian dollars. Excluding incremental sales from SymCom and currency effects, net sales decreased $7.6 million or 24% year-over-year.

On a geographic basis, sales in the Americas increased $11.3 million or 15% to $89.2 million in the first quarter of 2014 compared to $77.8 million in the first quarter of 2013 due to incremental sales from business acquisitions of $14.7 million offset by $0.4 million in unfavorable currency effects from sales denominated in Canadian dollars. Excluding incremental sales and currency effects, the Americas sales declined $2.9 million or 4% primarily due to a decline in sales into the mining market partially offset by increased automotive and electronics sales.

Europe sales increased $12.5 million or 40% to $43.9 million in the first quarter of 2014 compared to $31.4 million in the first quarter of 2013 mainly due to strong demand for automotive and electronic products, incremental sales of $5.6 million from Hamlin and $1.7 million in favorable currency effects. Excluding sales from acquisitions and currency effects, Europe sales increased 17% year-over-year.

Asia-Pacific sales increased $12.1 million or 20% to $73.8 million in the first quarter of 2014 compared to $61.7 million in the first quarter of 2013 due to incremental sales of $6.1 million from Hamlin and strong demand for automotive and electronic products. Excluding sales from acquisitions and currency effects (which were negligible), Asia-Pacific sales increased 10% year-over-year.

Gross profit was $78.5 million or 38% of net sales for the first quarter of 2014 compared to $64.6 million or 38% of net sales in the same quarter last year. Gross profit for 2014 includes the write-off of $1.4 million of stepped-up inventory valuation from the SymCom acquisition. Excluding the impact of the inventory write-off, gross profit was $79.9 million or 39% of net sales for the first quarter of 2014. The increase in gross profit margin compared to the prior year was primarily attributable to operating leverage on higher sales.

Total operating expense was $44.9 million or 22% of net sales for the first quarter of 2014 compared to $36.5 million or 21% of net sales for the same quarter in 2013. The increase in operating expenses primarily reflects incremental operating expenses of $5.2 million from business acquisitions.

Operating income for the first quarter of 2014 was approximately $33.6 million compared to operating income of $28.1 million for the same quarter in 2013 primarily due to higher sales partially offset by slightly higher operating expenses as described above.

Interest expense was $1.2 million in the first quarter of 2014 compared to $0.4 million in the first quarter of 2013 due to higher acquisition-related borrowing in 2014.

The company fully impaired its investment and loan receivable in Shocking Technologies during the first quarter of 2013 as described in Note 6, resulting in impairment, loan loss and equity losses from the investment in and loan to Shocking Technologies of $10.7 million.

Foreign exchange (gain) loss, reflecting net gains and losses resulting from the effect of exchange rate changes on various foreign currency transactions worldwide, was approximately $0.3 million of income for the first quarter of 2014 and $0.3 million of expense for the first quarter of 2013 and primarily reflects fluctuations in the Philippine peso against the U.S. dollar.


Other (income) expense, net, consisting of interest income, royalties and non-operating income items was approximately $1.2 million of income for both the first quarter of 2014 and first quarter of 2013.

Income before income taxes was $33.8 million for the first quarter of 2014 compared to $18.0 million for the first quarter of 2013. Income tax expense was $8.4 million with an effective tax rate of 24.9% for the first quarter of 2014 compared to income tax expense of $6.5 million with an effective tax rate of 36.1% in the first quarter of 2013. The 2013 income tax expense was negatively impacted by the non-deductibility of the company's impairment of its investment in Shocking Technologies. The effective tax rates for both the first quarter of 2014 and 2013 are lower than the U.S. statutory tax rate primarily due to more income earned in low tax jurisdictions.

Net income for the first quarter of 2014 was $25.4 million or $1.12 per diluted share compared to net income of $11.5 million or $0.51 per diluted share for the same quarter of 2013.

Liquidity and Capital Resources

As of March 29, 2014, $310.3 million of the $319.8 million of the company's cash and cash equivalents was held by foreign subsidiaries. Of the $310.3 million held by foreign subsidiaries, approximately $17.0 million could be repatriated with minimal tax consequences. The company expects to maintain its foreign cash balances (other than the aforementioned $17.0 million) for local operating requirements, to provide funds for future capital expenditures and for potential acquisitions. The company does not expect to repatriate these funds to the U.S.

The company historically has financed capital expenditures through cash flows from operations. Management expects that cash flows from operations and available lines of credit will be sufficient to support both the company's operations and its debt obligations for the foreseeable future.

Revolving Credit Facilities

On May 31, 2013, the company entered into a new credit agreement with J.P. Morgan Securities LLC for up to $325.0 million which consists of an unsecured revolving credit facility of $225.0 million and an unsecured term loan of $100.0 million. The new credit agreement is for a five year period. On January 30, 2014, the company increased the unsecured revolving credit facility entered into on May 31, 2013, by $50.0 million thereby increasing the total revolver borrowing capacity from $225.0 million to $275.0 million. At March 29, 2014, the company had available $86.4 million of borrowing capacity under the revolving credit agreement at an interest rate of LIBOR plus 1.250% (1.400% as of March 29, 2014). The credit agreement replaces the company's previous credit agreement dated June 13, 2011 which was terminated on May 31, 2013.

This arrangement 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 the agreement. In addition, the company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage and leverage. At March 29, 2014, the company was in compliance with all covenants under the revolving credit facility.

The company also had $0.8 million outstanding in letters of credit at March 29, 2014. No amounts were drawn under these letters of credit at March 29, 2014.

Cash Flow

The company started 2014 with $305.2 million of cash and cash equivalents. Net cash provided by operating activities was approximately $11.5 million for the first three months of 2014 reflecting $25.4 million in net income and $12.1 million in non-cash adjustments (primarily $10.2 million in depreciation and amortization) offset by $26.0 million in net changes to various operating assets and liabilities.

Changes in operating assets and liabilities for the first three months of 2014 (including short-term and long-term items) that impacted cash flows negatively consisted of increases in accounts receivables ($6.5 million), inventory ($0.7 million), prepaid and other assets ($3.6 million) and decreases in accrued payroll and severance ($12.8 million) and accrued expenses (including post-retirement) ($6.5 million). The increase in accounts receivables was due to increased sales in the first quarter. The decrease in accrued payroll and severance was due primarily to payouts for the 2013 management incentive plan which occurred in the first quarter. The decrease in accrued expenses was due primarily to $9.9 million in pension contributions made during the first quarter. Other changes having a positive impact on cash flows were increases in accounts payable ($3.1 million) and accrued and deferred taxes ($1.2 million).


Net cash used in investing activities was approximately $58.4 million and included $6.4 million in capital spending, and $52.0 million for the acquisition of SymCom.

Net cash provided by financing activities was approximately $65.4 million and included $65.8 million in net proceeds from borrowing and $4.7 million from the exercise of stock options, including tax benefits, partially offset by cash dividends paid of $4.9 million. The effects of exchange rate changes decreased cash and cash equivalents by approximately $3.9 million. The net cash provided by operating activities combined with the effects of exchange rate changes less net cash used in investing and financing activities resulted in a $14.6 million increase in cash, which left the company with a cash and cash equivalents balance of $319.8 million at March 29, 2014.

The ratio of current assets to current liabilities was 2.2 at the end of the first quarter of 2014 compared to 2.7 at year-end 2013 and 3.0 at the end of the first quarter of 2013. Days sales outstanding in accounts receivable was approximately 60 days at the end of the first quarter of 2014 compared to 57 days at the end of the first quarter of 2013 and 59 days at year-end 2013. Days inventory outstanding was approximately 70 days at the end of the first quarter of 2014 compared to 70 days at the year-end 2013 and 61 days at end of the first quarter of 2013.

Outlook

Sales are expected to increase sequentially in the second quarter of 2014 due to normal seasonality and improving market conditions in the automotive and electronics segments. The mining sector is expected to remain weak at least through the remainder of this year. The company issued the following guidance for the second quarter of 2014:

? Sales are expected to be in the range of $216.0 million to $226.0 million which represents 18% year-over-year growth at the midpoint.

? Earnings for the second quarter are expected to be in the range of $1.23 to $1.37 per diluted share, excluding any special items.

Cautionary Statement Regarding Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995 ("PSLRA").

The statements in this section and the other sections of this report that are not historical facts are intended to constitute "forward-looking statements" entitled to the safe-harbor provisions of the PSLRA. These statements may involve risks and uncertainties, including, but not limited to, risks relating 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 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 other 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 December 28, 2013. For a further discussion of the risk factors of the company, please see Item 1A. "Risk Factors" to the company's Annual Report on Form 10-K for the year ended December 28, 2013.


  Add LFUS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LFUS - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.