Littelfuse, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. FY2022 had 52 weeks; FY2021 had 53 weeks, which affects comparability. Amounts below are in U.S. dollars.
Business context and performance
Littelfuse designs and manufactures electronic components, modules and subassemblies across Electronics, Transportation and Industrial segments. Its products serve industrial, transportation and electronics markets, including electrification, renewable energy, power management and automation applications.
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $2,513.9 million | $2,079.9 million | +20.9% |
| Gross profit / margin | $1,006.9 million / 40.1% | $771.9 million / 37.1% | Margin +3.0 percentage points |
| Operating income / margin | $500.8 million / 19.9% | $385.6 million / 18.5% | +29.9%; margin +1.4 points |
| Net income | $373.3 million | $283.8 million | +31.5% |
| Diluted EPS | $14.94 | $11.38 | +31.3% |
| Cash from operations | $419.7 million | $373.3 million | +$46.4 million |
| Capital expenditures | $104.3 million | $90.6 million | +$13.8 million |
Operating cash flow less capital expenditures was approximately $315.4 million. The company reported cash and cash equivalents of $562.6 million at year-end, total debt of $1,001.5 million and shareholders’ equity of $2,211.4 million. Current assets were $1,511.8 million and current liabilities were $572.3 million. Cash and cash equivalents include $452.0 million held by non-U.S. subsidiaries; some foreign cash is subject to local restrictions or potential tax consequences.
Segments and material changes
| Segment | FY2022 sales | Year-over-year change | FY2022 operating income |
|---|---|---|---|
| Electronics | $1,492.8 million | +14.8% | $431.6 million |
| Transportation | $716.2 million | +35.6% | $63.5 million |
| Industrial | $304.9 million | +21.4% | $48.9 million |
Sales growth reflected higher volume and pricing, plus acquired revenue: Carling contributed $202.8 million in Transportation and C&K contributed $81.7 million in Electronics. Unfavorable foreign exchange reduced sales by $65.3 million. Transportation growth was acquisition-led; passenger-car and automotive-sensor sales declined amid currency effects, customer inventory adjustments and supply constraints. The Industrial segment benefited from demand, pricing and Hartland.
Gross margin improved primarily through volume leverage and pricing, partly offset by acquisition-related inventory step-up charges. Operating expenses rose 31.0% to $506.1 million, including higher selling and administrative, R&D, amortization and acquisition costs. Net income also reflected increased interest expense and foreign-exchange losses. FY2022 included $43.2 million in non-segment charges, including acquisition/integration costs, inventory step-up charges, restructuring and impairment charges. The company recorded $4.5 million of non-cash impairment charges, including $2.9 million for acquired technology and patents and $1.7 million for machinery and equipment.
Cash, debt and capital allocation
Investing activities used $636.4 million, including $532.7 million net cash paid for acquisitions and $104.3 million of capital expenditures. Financing activities provided $310.2 million, including a $300 million term loan and $100 million of senior notes; the company also repaid $25 million of notes and paid $55.9 million in dividends. No shares were repurchased in FY2022.
At year-end, revolving borrowings were $100.0 million and term-loan borrowings were $296.3 million. The company had $600 million of available revolving capacity and was in compliance with debt covenants. The credit agreement was amended, adding the term loan, moving to SOFR-based benchmarks and extending maturity to June 30, 2027. A $200 million interest-rate swap hedges part of floating-rate debt; management estimated a 100-basis-point rate increase would add about $2.0 million in annual interest expense on unhedged borrowings.
Management’s five-year strategic plan targets average annual organic sales growth of 5–7% and acquisition-driven sales growth of 5–7%. Other stated objectives include EPS growth faster than revenue, free cash flow approximating or exceeding net income, returning 40% of free cash flow to shareholders, and high-teens return on invested capital. These are strategic targets, not specific FY2023 earnings guidance. Management said supply availability was expected to improve further in 2023. It also declared a quarterly dividend of $0.60 per share in February 2023.
Outlook, risks and unusual items
- Supply-chain constraints, materials availability and transportation costs affected the business, especially in the first half of 2022; the company reported improvement in the second half and expected further improvement in 2023.
- Management described a volatile macroeconomic environment. The war in Ukraine had a modest direct impact, including altered shipping logistics and suspension of sales to and purchases from Russia, and affected some customers’ production.
- Principal risks include economic and end-market volatility, competition and pricing pressure, supply or manufacturing disruptions, commodity and currency fluctuations, acquisition execution and integration, cybersecurity, climate and regulatory changes, trade restrictions, tax changes, and environmental liabilities. China represented approximately 25% of FY2022 sales; Arrow Electronics represented 11.5% of consolidated sales.
- Backlog was approximately $1,646.1 million at year-end, compared with $1,657.1 million a year earlier; substantially all was scheduled for delivery in 2023. Backlog is not necessarily indicative of future sales.
- The company reported no material legal proceedings beyond routine litigation. It maintains an accrual for former German coal-mine remediation obligations; the recorded liability was $1.7 million at year-end.
- China tax holidays generated $10.1 million of FY2022 tax benefits, or $0.40 per diluted share. One subsidiary’s holiday expired at year-end 2022 and another is scheduled to expire at year-end 2023; extensions are not assured.
- On February 3, 2023, after year-end, Littelfuse acquired Western Automation for approximately $162 million in cash. Management did not expect a material impact on FY2023 results.
Investor verification priorities
- Assess how much sales and earnings growth came from acquisitions, pricing and underlying volume, and whether acquisition integration costs or purchase-accounting effects will persist.
- Check the trajectory of inventory, receivables and working capital, which absorbed cash as sales grew, alongside cash conversion and capital spending.
- Review debt maturities, interest-rate exposure and cash accessibility, including the foreign-cash restrictions and tax implications.
- Track 2023 demand, backlog conversion, supply-chain normalization, automotive customer inventory adjustments and foreign-exchange effects.
- Monitor tax-holiday renewals, uncertain tax positions and the company’s German mine-remediation obligations.
- Note that the financial statements received an unqualified audit opinion and management and the auditor reported effective internal control over financial reporting; the auditor’s control assessment excluded C&K, which represented about 3% of consolidated assets and revenue.