Littelfuse, Inc. — FY2014 Form 10-K Summary
Business context and reporting period. Littelfuse designs and manufactures circuit protection, sensing, switching and control products for electronics, automotive and electrical markets. This 10-K covers the 52-week fiscal year ended December 27, 2014; fourth quarter ended on that date. Fiscal 2013 ended December 28, 2013. Figures below are U.S. dollars.
Key financial results
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Net sales | $852.0 million | $757.9 million | +12% |
| Gross profit / margin | $324.4 million / 38.1% | $296.2 million / 39.1% | +10%; margin -1.0 pp |
| Operating income / margin | $133.8 million / 15.7% | $129.9 million / 17.1% | +3%; margin -1.4 pp |
| Net income | $99.4 million | $88.8 million | +12% |
| Diluted EPS | $4.37 | $3.94 | +11% |
| Operating cash flow | $153.1 million | $117.4 million | +30% |
| Capital expenditures | $32.3 million | $35.0 million | -8% |
Gross margin declined mainly because sensor sales, which carry lower margins than core products, were a larger part of the mix. Operating expenses rose 15% to $190.6 million, reflecting acquisitions and restructuring-related costs. Cash flow from operations less capital expenditures was approximately $120.9 million, calculated from the reported figures.
Fourth quarter: Sales were $206.6 million, up 4% year over year. Gross profit was $75.6 million (36.6% margin), operating income $26.4 million (12.8% margin), net income $19.5 million and diluted EPS $0.86. Compared with Q4 2013, operating income and net income declined from $32.8 million and $23.7 million, respectively; quarterly results included restructuring and other charges.
Segments and material changes
- Electronics: FY sales rose 12% to $410.1 million; operating income increased to $87.0 million from $69.6 million. Sales grew 7% excluding acquisitions and currency effects.
- Automotive: Sales rose 22% to $325.4 million; operating income increased to $45.1 million from $39.2 million. Sales grew 14% excluding acquisitions and currency effects, supported by vehicle content gains and commercial vehicle demand.
- Electrical: Sales fell 6% to $116.5 million; operating income declined to $10.7 million from $24.4 million. Excluding SymCom and currency effects, sales declined 21%, reflecting weakness in mining, solar and non-residential construction.
- Sales growth included approximately $56.1 million from acquisitions. Littelfuse acquired SymCom for $52.8 million net of cash in January 2014; Hamlin, acquired in 2013, also contributed to year-over-year growth.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $297.6 million, down from $305.2 million. Approximately $288.0 million was held by foreign subsidiaries; the company said it generally did not expect to repatriate these funds, except for about $18.7 million that could be repatriated with minimal tax consequences.
- Total debt was $195.2 million at year-end, compared with $219.8 million a year earlier. This includes $93.8 million term debt, $83.5 million revolver borrowings and a $17.9 million China entrusted loan. Cash exceeded reported debt by approximately $102.4 million.
- Available borrowing capacity under the credit agreement was $190.9 million; the company reported compliance with covenants. The current ratio was 2.8 to 1.
- Cash dividends paid were $21.2 million, or $0.94 per share. The company repurchased $14.3 million of shares and had 838,249 shares remaining under its authorization at year-end.
Outlook, commentary and risks
- For Q1 2015, management forecast sales of $202–$212 million and diluted EPS of $1.00–$1.14. The EPS forecast included an estimated $0.10 adverse currency effect year over year.
- For 2015, management expected modest sales growth and earnings, but estimated that exchange rates at then-current levels could reduce sales by about $30 million and earnings by about $0.40 per share versus 2014. Planned capital expenditures were $35–$40 million, expected to be funded from operating cash flow.
- Management’s longer-term strategic targets included 15% annual sales growth (5% organic and 10% acquisitions), high-teens operating margins, improved returns on investment and returning excess cash to shareholders. At the filing date, it reported annualized growth of 13% under the plan, split between 5% organic and 8% acquisitions.
- Key risks include currency and commodity volatility, cyclical demand in automotive and electronics, persistent mining and construction weakness, competitive pricing, supply or labor disruptions, acquisition integration, environmental liabilities and execution of manufacturing transfers. About 63% of FY2014 sales were outside the U.S., including approximately 22% to China.
- Unusual items included $2.8 million of SymCom inventory step-up expense, $3.2 million of severance charges, $2.2 million of legal-entity restructuring costs and $0.3 million of asset impairments in 2014. Foreign exchange was a $3.9 million loss versus a $3.3 million gain in 2013. The 2013 comparison included a $10.7 million Shocking Technologies impairment and a $6.1 million tax adjustment related to that investment.
- The company announced the planned 2016 transfer of Lake Mills, Wisconsin production to the Philippines. It also recorded an $11.8 million current liability associated with the planned termination of its U.S. defined-benefit pension plan, effective January 1, 2015. German closed-coal-mine remediation accrual was $2.4 million.
- A tax-accounting material weakness identified in 2013 was reported as remediated during 2014; management and the independent auditor concluded internal control over financial reporting was effective at year-end 2014. The auditor issued an unqualified opinion on the financial statements and controls. No material legal proceedings were reported.
Most important facts for investors to verify
- Whether 2015 sales and EPS guidance was achieved, particularly after currency effects and the estimated foreign-exchange headwind.
- Whether Electrical segment demand and profitability recovered, and whether planned improvements in sensors and commercial vehicles materialized.
- How much reported growth and margin performance depended on acquisitions, and whether acquired businesses delivered expected integration benefits.
- The availability and intended use of foreign-held cash, debt repayment needs, pension termination costs and compliance with credit covenants.
- Progress and costs associated with the Lake Mills production transfer, restructuring, and German coal-mine remediation.