Littelfuse, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011 (52 weeks). The filing is an annual report, not a standalone quarterly filing; fourth-quarter results are also summarized below. Littelfuse designs and manufactures circuit-protection products for electronics, automotive and electrical markets.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net sales | $665.0 million | $608.0 million |
| Gross profit / margin | $256.7 million / 38.6% | $233.9 million / 38.5% |
| Operating income / margin | $113.9 million / 17.1% | $107.6 million / 17.7% |
| Net income | $87.0 million | $78.7 million |
| Diluted EPS | $3.90 | $3.52 |
| Cash from operations | $120.8 million | $104.1 million |
| Capital expenditures | $17.6 million | $22.4 million |
Fourth-quarter 2011 sales were $147.2 million versus $142.6 million a year earlier; operating income was $18.1 million versus $24.3 million, and net income was $15.2 million versus $19.6 million. Quarterly figures are unaudited.
- FY sales rose 9%; excluding acquisitions and currency effects, sales declined 1%. Acquisitions contributed approximately $50.1 million and favorable currency approximately $10.4 million.
- Electronics sales fell 5% to $354.5 million amid weaker demand and distributor inventory reductions. Automotive sales rose 42% to $197.6 million, including $46.9 million from Cole Hersee; Electrical sales rose 18% to $112.9 million.
- Gross margin was nearly flat year over year. Excluding $4.1 million of acquisition-related inventory step-up charges, FY 2011 gross margin was 39.2%. Operating margin fell from 17.7% to 17.1%, reflecting higher operating expenses, including acquisition costs.
- Effective tax rate declined to 24.4% from 27.0%, primarily due to income mix in lower-tax jurisdictions and a deferred-tax-asset revaluation benefit. The fourth quarter included a $1.7 million tax benefit from a China tax-rate change.
Cash, debt and liquidity
- Year-end cash and equivalents were $164.0 million, up from $109.7 million; short-term investments were $14.0 million. Operating cash flow was $120.8 million. Cash from operations less capital expenditures was approximately $103.2 million.
- Cash and equivalents included $156.1 million held by foreign subsidiaries. The company said it generally expected to retain those funds abroad; approximately $38.0 million could be repatriated without tax consequences.
- Debt was $85.0 million under an unsecured revolving credit facility, with $64.4 million of additional borrowing capacity at year-end. The balance sheet classified all debt as current, although the facility is scheduled to terminate in June 2016. The company reported compliance with its covenants.
- Current ratio was 2.5x, down from 2.9x. The decline was attributed principally to higher current debt classification. Cash exceeded reported debt by $79.0 million, excluding short-term investments.
- FY financing included $37.1 million of share repurchases and $14.5 million of dividends. The board expanded the repurchase authorization to 1.5 million shares through April 30, 2012.
Outlook, risks and unusual items
- Management forecast 2012 revenue of $680–$720 million and capital expenditures of $32–$36 million, mainly for facility expansions in Canada, the Philippines and Mexico. The company expected to fund planned capital spending from operating cash flow.
- Management cited slowing electronics demand and supply-chain destocking; the March 2011 Japan disaster reduced sales by an estimated $3–$4 million. Backlog fell to $92.4 million from $107.5 million, with substantially all orders scheduled for 2012.
- Key risks include cyclical automotive and electronics end markets, customer and supplier disruption, intense price competition, manufacturing transfers, labor and supply interruptions, foreign-exchange and commodity volatility, and acquisition integration. About 66% of sales were outside the U.S., including approximately 22% to China.
- Commodity sensitivity: a 10% price change was estimated to affect annual pretax profit by approximately $2.0 million for copper, $0.6 million for zinc, $0.7 million for gold and $0.6 million for silver. Higher oil and electricity costs could also raise transportation and utility expense.
- Environmental and legacy exposures include remediation at an Ireland facility, for which the company has an indemnity from Harris, and German closed-coal-mine obligations accrued at $4.0 million. No material legal proceedings were reported; routine litigation is ongoing.
- FY unusual charges included $4.1 million of acquired-inventory step-up costs and $2.3 million of asset impairments tied to facility closures and lower property values. Annual goodwill testing found no impairment. The company acquired Selco for approximately $11.1 million and invested $6.0 million in Shocking Technologies preferred stock.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls; management also concluded disclosure controls and internal controls were effective.
Important facts for investors to verify
- Whether 2012 revenue guidance can be met given the electronics slowdown, lower backlog and acquisition contribution embedded in recent growth.
- The debt’s current classification and 2012 contractual-obligations presentation versus the revolver’s stated 2016 termination date.
- Availability and potential tax cost of foreign cash, especially the portion management does not expect to repatriate.
- Whether planned capital spending, repurchases and dividends remain supported by operating cash flow and covenant headroom.
- Changes in commodity costs, currency exposures, pension funding assumptions, and environmental or coal-mine remediation estimates.