Littelfuse, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 26, 2020 (52-week fiscal year). Littelfuse designs and manufactures circuit-protection, power-control and sensing products across Electronics, Automotive and Industrial segments.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $1,445.7 million | $1,503.9 million |
| Gross profit / margin | $501.2 million / 34.7% | $546.3 million / 36.3% |
| Operating income / margin | $162.4 million / 11.2% | $192.8 million / 12.8% |
| Net income | $130.0 million | $139.1 million |
| Diluted EPS | $5.29 | $5.60 |
| Operating cash flow | $258.0 million | $245.3 million |
| Capital expenditures | $56.2 million | $61.9 million |
| Cash and cash equivalents | $687.5 million | $531.1 million |
| Long-term debt, net of issuance costs | $687.0 million | $669.2 million |
Operating cash flow less capital expenditures was approximately $201.8 million. Year-end revolving-credit-facility borrowings were $130 million, with $383.5 million of additional borrowing capacity available. The company reported compliance with debt covenants. Its amended credit agreement matures April 2025; the effective rate on revolver borrowings was 1.65% at year-end. Cash held by non-U.S. subsidiaries totaled $352.8 million, some of which is subject to repatriation constraints or tax considerations.
Material changes versus FY2019
- Sales fell 3.9%, chiefly because COVID-19-related closures and customer shutdowns disrupted production in the first half. Demand and production improved in the second half; fourth-quarter sales were $400.7 million versus $338.5 million a year earlier.
- Automotive sales declined 7.6% to $395.8 million; Electronics declined 2.4% to $937.7 million; Industrial declined 1.9% to $112.2 million. Asia-Pacific sales rose 2.1%, while Americas and Europe sales fell 10.0% and 6.3%, respectively.
- Operating income decreased 15.8%. Lower volume and gross margin, along with a $33.8 million automotive-sensors goodwill impairment, outweighed lower operating expenses and cost reductions.
- Net income declined 6.5%, partly cushioned by a $14.9 million foreign-exchange gain in 2020 versus a $5.2 million loss in 2019. The effective tax rate rose to 19.4% from 16.2%.
- Operating cash flow increased 5.2%, supported by lower incentive payments and improved working capital. Cash rose $156.4 million during the year.
Outlook, commentary, risks and unusual items
- Management said COVID-19 may continue to affect business activity and that the extent and duration of disruption remain uncertain. In 2020, added PPE, staffing, transportation and freight costs, as well as manufacturing inefficiencies, weighed on results; government subsidies partly offset costs.
- No specific FY2021 revenue or earnings guidance is provided. Through economic cycles, management targets double-digit long-term sales growth, including 5–7% average annual organic growth and 5–7% growth from strategic acquisitions, operating margins of 17–19%, and double-digit EPS growth. These are long-term targets, not near-term guidance.
- Management planned to consolidate an Industrial manufacturing facility, expected to be completed in the first half of 2021, and anticipated savings from 2019–2020 restructuring. It expected elevated freight costs through much of 2021.
- A $33.8 million non-cash goodwill impairment was recorded for Automotive Sensors amid weaker forecasts and customer program delays/cancellation; $9.8 million of goodwill remained in that reporting unit at year-end. Total restructuring, impairment and other charges were $41.7 million.
- A U.K. pension annuity transaction is expected to reduce obligations by approximately $55 million; management estimated a one-time, non-cash settlement charge of $18–22 million in the second half of 2021. The final charge may differ.
- After year-end, Littelfuse acquired Hartland Controls for approximately $113 million cash; the business had annualized sales of approximately $70 million and will be included in Industrial.
- Key risks include COVID-19 and customer demand, automotive production, supply-chain constraints and freight costs, competition, currency and commodity movements, tariffs and geopolitical exposure, cybersecurity, environmental and legacy German coal-mine obligations, and acquisition integration. The company also noted a Canadian tax assessment estimated at approximately $3 million that it intends to appeal.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The filing reports no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the second-half demand recovery continued, particularly in Automotive and Electronics, and whether the substantial year-end backlog of $709.9 million converted into sales as scheduled.
- Progress and financial effects of restructuring, including the Industrial facility consolidation and any recurring cost savings.
- Automotive Sensors performance and goodwill assumptions, given the 2020 impairment and remaining goodwill.
- The final pension settlement charge and funding terms for the U.K. annuity transaction.
- Hartland Controls’ purchase accounting, integration, and contribution to Industrial results.
- Liquidity and debt capacity, including foreign-cash availability, covenant headroom, debt maturities and variable-rate exposure.
- Tax developments, including the China tax-holiday extension and the Canadian assessment appeal.