Littelfuse, Inc. — Q3 2012 Form 10-Q
Business context and reporting period. Littelfuse designs and sells circuit-protection devices for electronics, automotive, and electrical markets. This unaudited report covers the quarter ended September 29, 2012 and the first nine months of 2012; comparisons are with the periods ended October 1, 2011.
Key financial results
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net sales | $172.7m | $174.0m | $509.1m | $517.8m |
| Gross profit / margin | $68.6m / 39.7% | $68.5m / 39.4% | $199.1m / 39.1% | $203.2m / 39.2% |
| Operating income | $30.9m | $29.6m | $88.9m | $95.8m |
| Net income | $24.0m | $24.9m | $65.5m | $71.8m |
| Diluted EPS | $1.08 | $1.12 | $2.96 | $3.19 |
| Operating cash flow | — | $76.1m | $84.0m |
Q3 operating margin was approximately 17.9%, versus 17.0% a year earlier; nine-month operating margin was approximately 17.5%, versus 18.5%. Q3 effective tax rate was 22.6% (19.7% in 2011); the nine-month rate was 26.2% (25.6%).
Liquidity, debt, and cash flow
- At September 29, cash and cash equivalents were $207.4m, with no short-term investments reported. Current assets were $429.7m and current liabilities $160.5m; management reported a 2.7:1 current ratio.
- Revolver borrowings were $88.5m, classified as current, with $61.9m of borrowing capacity available under the $150m facility. The interest rate was 1.46%; the company reported compliance with its covenants. A separate Swedish facility had approximately $0.3m available.
- Nine-month investing cash use was $43.1m, including $34.0m for acquisitions, $10.0m invested in Shocking Technologies, and $12.8m of capital spending. Financing provided $6.5m; dividends paid were $12.2m. Cash increased $43.4m during the period.
Material changes and operating drivers
- Q3 sales fell 1% year over year. Electronics sales declined 9%, mainly reflecting distributor inventory reductions against a prior-year channel build. Automotive sales rose 9% and electrical sales rose 10%; automotive growth included acquired sales.
- For the first nine months, sales fell 2%. Electronics declined 10%, while automotive grew 3% and electrical grew 18%. Management cited softer electronics demand and distributor inventory corrections, partially offset by electrical growth and acquisitions.
- Unfavorable currency effects were $3.7m in Q3 and $9.0m year to date. Q3 gross margin improved slightly on operating efficiencies and lower commodity costs, partly offset by currency. Nine-month operating income declined amid lower sales and acquisition-related expense.
- Acquisitions during 2012 included Accel AB, acquired in May for approximately $23.9m, and Terra Power, acquired in September for $10.6m. The company also invested a further $10m in Shocking Technologies, bringing its investment to $16m for an approximately 18% stake.
Outlook, risks, and unusual items
- Management said sales and order-rate momentum had slowed and end demand had softened in consumer electronics, commercial vehicles, and passenger vehicles. It expected a greater-than-seasonal Q4 decline in sales and earnings versus Q3. No specific revenue or earnings forecast was provided.
- Expected 2012 capital spending was reduced from $25m to less than $20m because several capacity projects were delayed. Management said operating cash flow and available credit should support operations and debt obligations.
- A $0.5m Q3 impairment charge related to a closed German facility; the Yangmei, Taiwan facility was reclassified as held for sale. The company said it did not expect significant additional costs from earlier restructuring programs.
- A retirement-plan amendment offered eligible participants a limited-time lump-sum or annuity election. Settlement accounting could result in a Q4 gain or loss; the amount was not yet estimable.
- Disclosed risks include demand and economic conditions, competition and pricing, product quality or recalls, supply and capacity constraints, foreign exchange and commodity-price changes, acquisition integration, pension returns, and restructuring or environmental matters. The filing reported no material change to the prior annual-report risk factors.
Important facts for investors to verify
- Whether Q4 demand and the expected greater-than-seasonal decline developed as management anticipated.
- How electronics channel inventories, currency movements, and segment trends affected subsequent sales and margins.
- Integration, acquired contributions, and final purchase accounting for Accel and Terra Power.
- Subsequent revolver balances, covenant headroom, cash deployment, and actual 2012 capital spending.
- The outcome and accounting effect of the pension buyout elections, and the status or proceeds of assets held for sale.