e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007 |
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission file number 0-20388
LITTELFUSE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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36-3795742 |
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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800 East Northwest Highway
Des Plaines, Illinois
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60016 |
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(Address of principal executive offices)
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(Zip Code) |
(847) 824-1188
Registrants telephone number, including area code:
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ
As of June 30, 2007, 22,355,469 shares of common stock, $.01 par value, of the Registrant were
outstanding.
LITTELFUSE, INC.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
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June 30, 2007 |
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December 30, 2006 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
49,240 |
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$ |
56,704 |
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Accounts receivable |
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84,343 |
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83,901 |
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Inventories |
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65,381 |
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65,961 |
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Deferred income taxes |
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16,199 |
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12,382 |
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Prepaid expenses and other current assets |
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10,667 |
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9,821 |
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Total current assets |
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225,830 |
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228,769 |
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Property, plant, and equipment: |
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Land |
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12,904 |
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10,916 |
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Buildings |
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46,177 |
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45,518 |
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Equipment |
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284,592 |
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285,758 |
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343,673 |
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342,192 |
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Accumulated depreciation |
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(215,814 |
) |
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(216,676 |
) |
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Net property, plant and equipment |
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127,859 |
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125,516 |
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Intangible assets, net of amortization: |
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Patents , licenses and software |
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9,664 |
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10,118 |
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Distribution network |
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14,500 |
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15,209 |
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Trademarks and tradenames |
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1,369 |
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1,321 |
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Goodwill |
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67,748 |
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67,500 |
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93,281 |
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94,148 |
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Investments |
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5,994 |
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5,231 |
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Long-term deferred tax asset |
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7,498 |
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9,746 |
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Other assets |
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3,640 |
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1,556 |
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Total assets |
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$ |
464,102 |
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$ |
464,966 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Accounts payable |
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$ |
24,248 |
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$ |
23,334 |
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Accrued payroll |
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14,673 |
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22,468 |
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Accrued expenses |
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11,296 |
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12,579 |
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Accrued severance |
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6,919 |
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10,670 |
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Accrued income taxes |
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708 |
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4,656 |
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Current portion of long-term debt |
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7,064 |
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24,328 |
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Total current liabilities |
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64,908 |
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98,035 |
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Long-term debt, less current portion |
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1,493 |
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1,785 |
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Accrued severance |
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22,256 |
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18,879 |
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Accrued post-retirement benefits |
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28,990 |
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27,971 |
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Other long-term liabilities |
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14,438 |
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14,488 |
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Minority interest |
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143 |
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143 |
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Shareholders equity |
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331,874 |
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303,665 |
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Total liabilities and shareholders equity |
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$ |
464,102 |
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$ |
464,966 |
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Common shares issued and outstanding
of 22,355,469 and 22,110,674,
at June 30, 2007, and December 30, 2006,
respectively |
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1
LITTELFUSE, INC.
Consolidated Statements of Income
(in thousands, except per share data, unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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July 1, |
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June 30, |
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July 1, |
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2007 |
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2006 |
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2007 |
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2006 |
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Net sales |
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$ |
129,149 |
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$ |
137,941 |
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$ |
260,963 |
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$ |
263,552 |
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Cost of sales |
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87,878 |
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106,652 |
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178,371 |
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187,463 |
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Gross profit |
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41,271 |
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31,289 |
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82,592 |
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76,089 |
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Selling, general and administrative
expenses |
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23,474 |
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28,599 |
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49,360 |
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54,421 |
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Research and development expenses |
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5,306 |
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4,790 |
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10,593 |
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9,465 |
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Amortization of intangibles |
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879 |
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591 |
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1,536 |
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1,111 |
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Operating income (loss) |
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11,612 |
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(2,691 |
) |
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21,103 |
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11,092 |
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Interest expense |
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368 |
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359 |
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830 |
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772 |
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Other income, net |
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(545 |
) |
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(939 |
) |
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(885 |
) |
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(1,510 |
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Earnings (loss) from continuing
operations before income taxes |
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11,789 |
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(2,111 |
) |
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21,158 |
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11,830 |
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Income taxes (benefit) |
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3,407 |
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(2,560 |
) |
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6,555 |
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2,598 |
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Earnings from continuing operations |
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8,382 |
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449 |
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14,603 |
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9,232 |
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Discontinued operations (net of tax) |
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588 |
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Net income |
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$ |
8,382 |
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$ |
449 |
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$ |
14,603 |
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$ |
9,820 |
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Net income per share: |
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Basic: |
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Continuing operations |
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$ |
0.38 |
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$ |
0.02 |
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$ |
0.66 |
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$ |
0.41 |
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Discontinued operations |
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$ |
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$ |
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$ |
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$ |
0.03 |
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Net income |
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$ |
0.38 |
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$ |
0.02 |
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$ |
0.66 |
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$ |
0.44 |
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Diluted: |
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Continuing operations |
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$ |
0.37 |
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$ |
0.02 |
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$ |
0.65 |
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$ |
0.41 |
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Discontinued operations |
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$ |
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$ |
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$ |
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$ |
0.03 |
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Net income |
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$ |
0.37 |
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$ |
0.02 |
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$ |
0.65 |
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$ |
0.44 |
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Weighted average shares and
equivalent shares outstanding: |
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Basic |
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22,294 |
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22,328 |
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22,229 |
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22,293 |
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Diluted |
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22,516 |
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22,693 |
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22,427 |
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22,612 |
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2
LITTELFUSE, INC.
Consolidated Statements of Cash Flows
(in thousands, unaudited)
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For the Six Months Ended |
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June 30, |
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July 1, |
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2007 |
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2006 |
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Operating activities: |
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Net income |
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$ |
14,603 |
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$ |
9,820 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation |
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12,145 |
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|
14,900 |
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Amortization of intangibles |
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1,536 |
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|
1,111 |
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Stock-based compensation |
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2,634 |
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|
2,704 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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1 |
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(10,622 |
) |
Inventories |
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1,177 |
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|
496 |
|
Accounts payable and accrued expenses |
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(8,412 |
) |
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|
21,566 |
|
Accrued taxes |
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|
(4,455 |
) |
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|
(1,048 |
) |
Prepaid expenses and other |
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(3,222 |
) |
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|
802 |
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Net cash provided by operating activities |
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|
16,007 |
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|
39,729 |
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Investing activities: |
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Purchases of property, plant, and equipment |
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(13,089 |
) |
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(9,400 |
) |
Purchases of businesses, net of cash acquired |
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|
12 |
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(31,526 |
) |
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Sale of business and property, plant and equipment |
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|
11,574 |
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Net cash used in investing activities |
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|
(13,077 |
) |
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|
(29,352 |
) |
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Financing activities: |
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Proceeds from debt |
|
|
30,500 |
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|
22,858 |
|
Payments of debt |
|
|
(48,025 |
) |
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|
(25,298 |
) |
Notes receivable, common stock |
|
|
|
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|
7 |
|
Proceeds from exercise of stock options |
|
|
6,064 |
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|
3,350 |
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|
|
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Net cash provided by (used in) financing activities |
|
|
(11,461 |
) |
|
|
917 |
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|
|
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|
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|
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Effect of exchange rate changes on cash |
|
|
1,067 |
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Increase (decrease) in cash and cash equivalents |
|
|
(7,464 |
) |
|
|
12,833 |
|
Cash and cash equivalents at beginning of period |
|
|
56,704 |
|
|
|
21,947 |
|
|
|
|
|
|
|
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Cash and cash equivalents at end of period |
|
$ |
49,240 |
|
|
$ |
34,780 |
|
|
|
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3
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2007
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, Des Plaines and Elk Grove, Illinois, Irving,
Texas, Ireland and Heinrich severance, accrued employee-related costs pursuant to contractual
obligations and income tax reserve reclassifications required under FIN 48, Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, Accounting for Income
Taxes, considered necessary for a fair presentation have been included. The December 30, 2006
balance of $8.0 million for uncertain income tax positions has been reclassified from accrued
income taxes to other long-term liabilities on the Consolidated Balance Sheets. Operating results
for the three and six months ended June 30, 2007 are not necessarily indicative of the results that
may be expected for the year ending December 29, 2007. For further information, refer to the
Companys consolidated financial statements and the notes thereto incorporated by reference in the
Companys Annual Report on Form 10-K for the year ended December 30, 2006.
2. Business Segment Information
The Company designs, manufactures and sells circuit protection devices throughout the world. The
Company has three reportable geographic segments: Americas, Europe and Asia-Pacific. The circuit
protection market in these geographical segments is categorized into three major product areas:
electronic, automotive and electrical.
The Company evaluates the performance of each geographic segment based on its sales and net income
or loss. The Company accounts for intersegment sales as if the sales were to third parties. The
Companys reportable segments are the geographical regions where the revenue is earned and expenses
are incurred. The Company has subsidiaries in Americas, Europe and Asia-Pacific.
Sales to Hong Kong were 16% and 17% of consolidated sales for the three and six months ended June
30, 2007, respectively, and 14% and 15% of consolidated sales for the three and six months ended
July 1, 2006. No other foreign country sales exceeded 10% for the three and six months ended June
30, 2007. Sales to no single customer amounted to 10% or more of the Companys total revenues for
the three and six months ended June 30, 2007. Sales to Arrow Pemco Group were 11% and 12% for the
three and six months ended July 1, 2006.
Information concerning the operations in these geographic segments for the three and six months
ended June 30, 2007, and July 1, 2006, is as follows (in thousands):
|
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Three Months |
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Three Months |
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Six Months |
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Six months |
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Ended |
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|
Ended |
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|
Ended |
|
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Ended |
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|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Net Sales |
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|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
49,894 |
|
|
$ |
57,536 |
|
|
$ |
100,477 |
|
|
$ |
111,830 |
|
Europe |
|
|
29,471 |
|
|
|
29,398 |
|
|
|
60,187 |
|
|
|
57,477 |
|
Asia-Pacific |
|
|
49,784 |
|
|
|
51,007 |
|
|
|
100,299 |
|
|
|
94,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
129,149 |
|
|
$ |
137,941 |
|
|
$ |
260,963 |
|
|
$ |
263,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
47,463 |
|
|
$ |
53,942 |
|
|
$ |
96,740 |
|
|
$ |
96,554 |
|
Europe |
|
|
12,906 |
|
|
|
20,287 |
|
|
|
27,802 |
|
|
|
42,056 |
|
Asia-Pacific |
|
|
33,643 |
|
|
|
24,050 |
|
|
|
64,429 |
|
|
|
48,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total |
|
|
94,012 |
|
|
|
98,279 |
|
|
|
188,971 |
|
|
|
187,396 |
|
Eliminations |
|
|
(94,012 |
) |
|
|
(98,279 |
) |
|
|
(188,971 |
) |
|
|
(187,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
336 |
|
|
$ |
329 |
|
|
$ |
783 |
|
|
$ |
703 |
|
Europe |
|
|
19 |
|
|
|
15 |
|
|
|
23 |
|
|
|
45 |
|
Asia-Pacific |
|
|
13 |
|
|
|
15 |
|
|
|
24 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
368 |
|
|
$ |
359 |
|
|
$ |
830 |
|
|
$ |
772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
4,323 |
|
|
$ |
3,921 |
|
|
$ |
7,964 |
|
|
$ |
7,636 |
|
Europe |
|
|
956 |
|
|
|
4,574 |
|
|
|
1,811 |
|
|
|
6,371 |
|
Asia-Pacific |
|
|
1,993 |
|
|
|
784 |
|
|
|
3,906 |
|
|
|
2,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
7,272 |
|
|
$ |
9,279 |
|
|
$ |
13,681 |
|
|
$ |
16,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
(227 |
) |
|
$ |
(763 |
) |
|
$ |
(362 |
) |
|
$ |
(835 |
) |
Europe |
|
|
(298 |
) |
|
|
129 |
|
|
|
(230 |
) |
|
|
(332 |
) |
Asia-Pacific |
|
|
(20 |
) |
|
|
(305 |
) |
|
|
(293 |
) |
|
|
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
(545 |
) |
|
$ |
(939 |
) |
|
$ |
(885 |
) |
|
$ |
(1,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
1,876 |
|
|
$ |
(2,135 |
) |
|
$ |
2,170 |
|
|
$ |
1,092 |
|
Europe |
|
|
896 |
|
|
|
(1,515 |
) |
|
|
2,503 |
|
|
|
(704 |
) |
Asia-Pacific |
|
|
635 |
|
|
|
1,090 |
|
|
|
1,882 |
|
|
|
2,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
3,407 |
|
|
$ |
(2,560 |
) |
|
$ |
6,555 |
|
|
$ |
2,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
1,395 |
|
|
$ |
12,011 |
|
|
$ |
(67 |
) |
|
$ |
16,024 |
|
Europe |
|
|
3,116 |
|
|
|
(16,442 |
) |
|
|
5,765 |
|
|
|
(16,875 |
) |
Asia-Pacific |
|
|
3,871 |
|
|
|
4,880 |
|
|
|
8,905 |
|
|
|
10,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
8,382 |
|
|
$ |
449 |
|
|
$ |
14,603 |
|
|
$ |
9,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
1,395 |
|
|
$ |
12,011 |
|
|
$ |
(67 |
) |
|
$ |
16,024 |
|
Europe |
|
|
3,116 |
|
|
|
(16,442 |
) |
|
|
5,765 |
|
|
|
(16,287 |
) |
Asia-Pacific |
|
|
3,871 |
|
|
|
4,880 |
|
|
|
8,905 |
|
|
|
10,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
8,382 |
|
|
$ |
449 |
|
|
$ |
14,603 |
|
|
$ |
9,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic |
|
$ |
82,223 |
|
|
$ |
94,817 |
|
|
$ |
168,305 |
|
|
$ |
178,743 |
|
Automotive |
|
|
33,818 |
|
|
|
31,555 |
|
|
|
67,536 |
|
|
|
62,581 |
|
Electrical |
|
|
13,108 |
|
|
|
11,569 |
|
|
|
25,122 |
|
|
|
22,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
129,149 |
|
|
$ |
137,941 |
|
|
$ |
260,963 |
|
|
$ |
263,552 |
|
Identifiable assets
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
December 30, 2006 |
|
Americas |
|
$ |
203,308 |
|
|
$ |
227,322 |
|
Europe |
|
|
151,125 |
|
|
|
159,639 |
|
Asia-Pacific |
|
|
147,775 |
|
|
|
148,526 |
|
|
|
|
|
|
|
|
Combined total |
|
|
502,208 |
|
|
|
535,487 |
|
Eliminations |
|
|
(137,381 |
) |
|
|
(169,900 |
) |
|
|
|
|
|
|
|
Consolidated total |
|
$ |
364,827 |
|
|
$ |
365,587 |
|
|
|
|
|
|
|
|
5
3. Inventories
The components of inventories are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
December 30, 2006 |
|
Raw material |
|
$ |
17,407 |
|
|
$ |
15,043 |
|
Work in process |
|
|
16,315 |
|
|
|
15,838 |
|
Finished goods |
|
|
31,659 |
|
|
|
35,080 |
|
|
|
|
|
|
|
|
Total |
|
$ |
65,381 |
|
|
$ |
65,961 |
|
|
|
|
|
|
|
|
4. Debt Obligations
The Company has an unsecured domestic financing arrangement consisting of a credit agreement with
banks that provides a $75.0 million revolving credit facility, with a potential increase of up to
$125.0 million upon request of the Company and agreement with the lenders, that expires on July 21,
2011. At June 30, 2007, the Company had $6.5 million outstanding on the revolving credit facility,
leaving $68.5 million of borrowing capability available under the revolving credit facility at an
interest rate of LIBOR plus 0.50% (5.87% as of June 30, 2007). The Company also had $6.1 million
in letters of credit outstanding at June 30, 2007.
The Company has an unsecured bank line of credit in Japan that provides a Yen 0.9 billion (an
equivalent of $7.3 million) revolving credit facility at an interest rate of TIBOR plus 0.625%
(1.385% as of June 30, 2007). The revolving line of credit balance becomes due on July 21, 2011.
At June 30, 2007, the Company had no outstanding borrowings on the Yen facility.
The Company has an unsecured bank line of credit that provides a Taiwanese Dollar 35.0 million
(equivalent to $1.1 million) revolving credit facility at an interest rate of two-years Time
Deposit plus 0.145% (2.3% as of June 30, 2007). The revolving line of credit becomes due on August
18, 2009. At June 30, 2007, the Company had the equivalent of $0.8 million outstanding borrowings
on the Taiwanese Dollar facility.
The Company has various other foreign fixed rate loans outstanding at June 30, 2007, totaling $1.3
million with maturity dates through August 2013.
The domestic bank credit agreement contains covenants that, among other matters, impose limitations
on the incurrence of additional indebtedness, future mergers, sales of assets, payment of
dividends, and changes in control, as defined. In addition, the Company is required to satisfy
certain financial covenants and tests relating to, among other matters, interest coverage, working
capital, leverage and net worth. At June 30, 2007, the Company was in compliance with these
covenants.
5. Per Share Data
Net income per share amounts for the three and six months ended June 30, 2007, and July 1, 2006,
are based on the weighted average number of common and common equivalent shares outstanding during
the periods as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,382 |
|
|
$ |
449 |
|
|
$ |
14,603 |
|
|
$ |
9,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding Basic |
|
|
22,294 |
|
|
|
22,328 |
|
|
|
22,229 |
|
|
|
22,293 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of dilutive stock options
and restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
222 |
|
|
|
365 |
|
|
|
198 |
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
22,516 |
|
|
|
22,693 |
|
|
|
22,427 |
|
|
|
22,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.38 |
|
|
$ |
0.02 |
|
|
$ |
0.66 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.37 |
|
|
$ |
0.02 |
|
|
$ |
0.65 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares of common stock relating to stock options excluded from the EPS calculation
because their effect would be anti-dilutive were 803,489 and 797,410 for the three and six months
ended June 30, 2007 and 685,157 and 704,929 for the three and six months ended July 1, 2006,
respectively.
6. Acquisitions
On February 3, 2006, the Company acquired SurgX Corporation (SurgX) for $2.5 million. All of the
assets of SurgX were classified as patents in the Americas segment with an average useful life of
seven years. The SurgX acquisition expands the Companys product offering and strengthens the
Companys position in the circuit protection industry. SurgX is included in the Companys
financial statements since the date of acquisition. Pro forma financial information is not
presented due to amounts not being materially different than actual results.
On May 30, 2006, the Company acquired all of the common stock of Concord Semiconductor (Concord)
for $23.8 million in cash, net of cash acquired of $1.2 million, and acquisition costs of
approximately $0.2 million. The Company funded the acquisition with $14.0 million in cash and
$10.0 million of borrowings on an existing revolving line of credit.
Littelfuse has continued to operate Concords electronics business subsequent to the acquisition.
The Concord acquisition expands the Companys product offering and strengthens the Companys
position in the circuit protection industry.
The acquisition was accounted for using the purchase method of accounting and the operations of
Concord are included in the Companys operations from the date of acquisition. The following table
sets forth the purchase price allocation for the acquisition of Concord in accordance with the
purchase method of accounting with adjustments to record the acquired assets and liabilities of
Concord at their estimated fair market or net realizable values.
|
|
|
|
|
Purchase price allocation (in thousands) |
|
|
|
|
|
Current assets |
|
$ |
7,548 |
|
Property, plant and equipment |
|
|
7,903 |
|
Patents and licenses |
|
|
4,477 |
|
Distribution network |
|
|
6,906 |
|
Goodwill |
|
|
6,356 |
|
Current liabilities |
|
|
(2,975 |
) |
Deferred taxes |
|
|
(3,593 |
) |
Long-term debt |
|
|
(2,657 |
) |
|
|
|
$ |
23,965 |
|
|
All Concord goodwill and intangible assets are recorded in the Asia-Pacific segment. Patents and
licenses have an average estimated useful life of approximately four years. Pro forma financial
information is not presented due to amounts not being materially different than actual results.
On June 26, 2006, the Company acquired Catalina Performance Accessories, Inc. (Catalina) for $4.5
million. The Company acquired $0.4 million of accounts receivable, $0.5 million of inventory and a
$3.6 million distribution
7
network. The distribution network was reported in the Americas segment with a useful life of ten
years. The Catalina acquisition expands the Companys product offering and strengthens the
Companys position in the circuit protection industry. Catalina is included in the Companys
financial statements since the date of acquisition. Pro forma financial information is not
presented due to amounts not being materially different than actual results.
On August 1, 2006 the Company acquired the gas discharge tube (GDT) assets of SRC Devices, Inc.
(SRC), for $6.0 million in cash, subject to post-closing purchase price adjustments. The Company
acquired $0.3 million of inventory, $0.9 million of fixed assets, and $2.2 million of
distribution network, with the excess purchase price of $2.6 million recorded as goodwill. The
distribution network was reported in the Americas segment with a useful life of nine years. The
SRC acquisition expands the Companys product offering and strengthens the Companys position in
the circuit protection industry. SRC is included in the Companys financial statements since the
date of acquisition. Pro forma financial information is not presented due to amounts not being
materially different than actual results. The Company has moved a portion of the production of the
GDT product line from the SRC manufacturing facility in Mexico to its existing operation in Suzhou,
China, with the remaining production expected to be moved during the third quarter of 2007.
On
July 31, 2007, the Company acquired the
assets of Song Long Electronics Co., Ltd. for approximately $5.5 million. This acquisition is expected to close
during the third quarter of 2007.
Goodwill for all of the above acquisitions is expected to be deductible for tax purposes.
7. Discontinued Operations
In February 2006, the Company sold the Efen business that consisted of production and sales
facilities in Uebigau and Eltville, Germany and Kaposvar, Hungary. The Company obtained Efen as
part of its acquisition of Heinrich in May 2004. Results of operations for Efen have been
reclassified and presented as discontinued operations for 2006. Efen is part of the European
segment for reporting purposes. Due to the Efen sale taking place in February 2006, the results of
Efen were no longer recorded in the Consolidated Statements of Income after the first quarter of
2006.
Efens results are summarized as follows for the periods ending (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
July 1, 2006* |
|
Net sales |
|
$ |
|
|
|
$ |
3,789 |
|
Income before taxes |
|
|
|
|
|
|
773 |
|
Income taxes |
|
|
|
|
|
|
324 |
|
|
Net income |
|
$ |
|
|
|
$ |
449 |
|
|
|
|
|
* |
|
Additionally, for the period ended December 30, 2006, discontinued operations in the Consolidated
Statements of Income includes a gain on the sale of assets of $139 (net of tax of $85) relating to
Efen. |
The Efen product line was sold for Euro 9.5 million (approximately $11.6 million) in February 2006.
In connection with the sale, a pretax loss of approximately $0.0 million was recognized, resulting
in an after tax gain of $0.1 million after recognizing a tax benefit on the sale of $0.1 million.
No assets or liabilities related to Efen existed on the Consolidated Balance Sheet at June 30, 2007
or December 31, 2006.
8. Restructuring
During 2005, the Company announced a downsizing of the European segments Ireland operation and
outsourcing of more of its varistor manufacturing to lower cost Asian subcontractors. A liability
of $4.9 million was recorded related to redundancy costs for the manufacturing operation associated
with this downsizing. This restructuring impacts approximately 35 associates in various production
and support related roles. These costs were paid in 2005 and 2006. In the second quarter of 2006,
an additional $17.1 million, consisting of $20.0 million of accrued severance less a statutory
rebate of $2.9 million recorded as a current asset, was recorded as part of cost of sales
8
related to the closure of the entire facility. During the second quarter of 2007 an additional
$0.2 million was recorded as part of cost of sales related to the accumulation of additional
severance benefits based upon current year service. This restructuring is part of the Companys
strategy to expand operations in Asia in order to be closer to current and potential customers and
take advantage of lower manufacturing costs. This portion of the restructuring impacts
approximately 131 employees. Restructuring charges are based upon each associates current salary
and length of service with the Company. These costs will be paid through 2008.
|
|
|
|
|
Ireland restructuring (in thousands) |
|
|
|
|
|
Balance at October 1, 2005 |
|
$ |
4,900 |
|
Additions |
|
|
|
|
Payments |
|
|
(897 |
) |
|
Balance at December 31, 2005 |
|
|
4,003 |
|
Additions |
|
|
20,019 |
|
Payments |
|
|
(1,414 |
) |
|
Balance at December 30, 2006 |
|
$ |
22,608 |
|
|
Additions |
|
|
|
|
Payments |
|
|
(201 |
) |
|
Balance at March 31, 2007 |
|
$ |
22,407 |
|
|
Additions |
|
|
179 |
|
Payments |
|
|
(1,309 |
) |
|
Balance at June 30, 2007 |
|
$ |
21,277 |
|
|
During the first quarter of 2006, the Company recorded a $2.1 million charge related to the
downsizing of the European segments Heinrich operations. Manufacturing related charges of $0.9
million are recorded as part of cost of sales and non-manufacturing related charges of $1.2 million
are recorded as part of selling, general and administrative expenses. During the second quarter of
2006 additional expense of $0.5 million was recognized primarily as part of selling, general and
administrative expenses. During the third quarter of 2006, additional expense of $2.4 million was
recorded. Manufacturing related charges of $1.4 million are recorded as part of cost of sales and
non-manufacturing related charges of $1.0 million are recorded as part of selling, general and
administrative expenses. During the first quarter of 2007, additional expense of $0.6 million was
recorded as part of cost of sales. These charges are primarily for redundancy costs to be paid
through 2007. Employees affected by this downsizing include technical, production, administrative
and support employees. A summary of activity of this liability is as follows:
|
|
|
|
|
Heinrich restructuring (in thousands) |
|
|
|
|
|
Balance at December 31, 2005 |
|
$ |
|
|
Additions |
|
|
4,995 |
|
Payments |
|
|
(632 |
) |
|
Balance at December 30, 2006 |
|
$ |
4,363 |
|
|
Additions |
|
|
629 |
|
Payments |
|
|
(3,243 |
) |
|
Balance at March 31, 2007 |
|
$ |
1,749 |
|
|
Additions |
|
|
|
|
Payments |
|
|
(536 |
) |
|
Balance at June 30, 2007 |
|
$ |
1,213 |
|
|
During December 2006 the Company announced the closure of its Americas segments Irving, Texas
facility and the transfer of its semiconductor wafer manufacturing from Irving, Texas to Wuxi,
China in a phased transition from 2007 to 2010. A liability of $1.9 million was recorded related
to redundancy costs for the manufacturing operation associated with this downsizing. This charge
was recorded as part of cost of sales. The total cost expected to be incurred through 2010 is $6.5
million. The amounts not yet recognized relate to retention costs that will be incurred over the
remaining closure period. This restructuring impacts approximately 180 associates in various
production
9
and support related roles and the costs relating to the restructuring will be paid over the period
2007 to 2010. A summary of activity of this liability is as follows:
|
|
|
|
|
Irving, Texas restructuring (in thousands) |
|
|
|
|
|
Balance at December 31, 2005 |
|
$ |
|
|
Additions |
|
|
1,890 |
|
Payments |
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
1,890 |
|
|
Additions |
|
|
318 |
|
Payments |
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
2,208 |
|
|
Additions |
|
|
392 |
|
Payments |
|
|
(78 |
) |
|
Balance at June 30, 2007 |
|
$ |
2,522 |
|
|
During March 2007, the Company announced the closure of its Americas segments Des Plaines and Elk
Grove, Illinois facilities and the transfer of its manufacturing from Des Plaines, Illinois to the
Philippines and Mexico in a phased transition from 2007 to 2009. A liability of $3.5 million was
recorded related to redundancy costs for the manufacturing and distribution operations associated
with this downsizing. Manufacturing related charges of $3.0 million are recorded as part of cost
of sales and non-manufacturing related charges of $0.5 million are recorded as part of selling,
general and administrative expenses. The total cost expected to be incurred through 2009 is $7.1
million. The amounts not yet recognized relate to retention costs that will be incurred over the
remaining closure period. This restructuring impacts approximately 307 associates in various
production and support related roles and the costs relating to the restructuring will be paid over
the period 2007 to 2009. A summary of activity of this liability is as follows:
|
|
|
|
|
Des Plaines and Elk Grove, Illinois (in thousands) |
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
102 |
|
Additions |
|
|
3,458 |
|
Payments |
|
|
(70 |
) |
|
Balance at March 31, 2007 |
|
$ |
3,490 |
|
|
Additions |
|
|
476 |
|
Payments |
|
|
|
|
|
Balance at June 30, 2007 |
|
$ |
3,966 |
|
|
9. Pensions
The components of net periodic benefit cost for the three and six months ended June 30, 2007,
compared with the three and six months ended July 1, 2006, were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
U.S. Pension Benefits |
|
|
Foreign Plans |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Service cost |
|
$ |
798 |
|
|
$ |
798 |
|
|
$ |
1,596 |
|
|
$ |
1,596 |
|
|
$ |
281 |
|
|
$ |
361 |
|
|
$ |
562 |
|
|
$ |
722 |
|
Interest cost |
|
|
950 |
|
|
|
950 |
|
|
|
1,900 |
|
|
|
1,900 |
|
|
|
511 |
|
|
|
495 |
|
|
|
1,022 |
|
|
|
990 |
|
Expected return on plan assets |
|
|
(1,057 |
) |
|
|
(1,037 |
) |
|
|
(2,114 |
) |
|
|
(2,074 |
) |
|
|
(529 |
) |
|
|
(496 |
) |
|
|
(1,059 |
) |
|
|
(992 |
) |
Amortization of prior service cost |
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
Amortization of transition asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
(27 |
) |
|
|
(57 |
) |
|
|
(54 |
) |
Amortization of net (gain) loss |
|
|
14 |
|
|
|
14 |
|
|
|
28 |
|
|
|
28 |
|
|
|
77 |
|
|
|
74 |
|
|
|
154 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of the plan |
|
|
708 |
|
|
|
727 |
|
|
|
1,415 |
|
|
|
1,454 |
|
|
|
309 |
|
|
|
404 |
|
|
|
615 |
|
|
|
808 |
|
Expected plan participants contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
(89 |
) |
|
|
(161 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
708 |
|
|
$ |
727 |
|
|
$ |
1,415 |
|
|
$ |
1,454 |
|
|
$ |
228 |
|
|
$ |
315 |
|
|
$ |
454 |
|
|
$ |
630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
The expected rate of return on U.S. pension assets is 8.50% and 8.50% in 2007 and 2006,
respectively. The expected rate of return on foreign pension assets is 6.70% and 6.70% in 2007 and
2006, respectively.
10. Income Taxes
The effective income tax rate for the second quarter of 2007 was 28.9% compared to an effective tax
rate of 34.0% in the second quarter of last year. The current quarter effective tax rate was
lower than the prior year quarter primarily due to income earned in lower tax jurisdictions and less repatriation of cash from
lower tax jurisdictions in the current year.
In
June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan interpretation
of FASB Statement No. 109, Accounting for Income Taxes. The interpretation addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent likelihood of being realized
upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest
and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company had no adjustments to retained earnings. The amount of unrecognized tax
benefits at January 1, 2007 was approximately $8.0 million. Of this total, approximately $5.2
million represents the amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in future periods. The Company does not expect significant
increases or decreases in unrecognized tax benefits during the next 12 months.
The U.S. federal statute of limitations remains open for 2003 onward. Foreign and U.S. state
statute of limitations generally range from 3 to 6 years. The Company is currently under
examination in several foreign jurisdictions.
The Company recognizes accrued interest and penalties associated with uncertain tax positions as
part of the income tax provision. As of January 1, 2007 the Company had approximately $1.1 million
of accrued interest and penalties.
11. Comprehensive Income
The following table sets forth the computation of comprehensive income for the three and six
months ended June 30, 2007 and July 1, 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
Net income |
|
$ |
8,382 |
|
|
$ |
449 |
|
|
$ |
14,603 |
|
|
$ |
9,820 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
2,284 |
|
|
|
1,711 |
|
|
|
3,349 |
|
|
|
4,809 |
|
Unrealized gain (loss) on
available-for-sale securities,
net of income taxes |
|
|
23 |
|
|
|
(440 |
) |
|
|
642 |
|
|
|
(596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
10,689 |
|
|
$ |
1,720 |
|
|
$ |
18,594 |
|
|
$ |
14,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
12. Subsequent Event
On July 3, 2007 the Company completed the sale of excess land in Ireland. The Company
received approximately $8.7 million in cash and recognized a pre-tax gain of $7.8 million in the third
quarter of 2007 related to this sale.
On
July 31, 2007, the Company acquired the assets of Song Long
Electronics Co., Ltd. for approximately $5.5 million.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Net Sales by Geography and Market*
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
Year-to-Date |
|
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAS |
|
$ |
51.1 |
|
|
$ |
57.9 |
|
|
|
(12 |
)% |
|
$ |
102.6 |
|
|
$ |
112.5 |
|
|
|
(9 |
)% |
EUROPE |
|
|
29.4 |
|
|
|
29.0 |
|
|
|
1 |
% |
|
|
60.6 |
|
|
|
56.8 |
|
|
|
7 |
% |
ASIA-PACIFIC |
|
|
48.6 |
|
|
|
51.0 |
|
|
|
(5 |
)% |
|
|
97.8 |
|
|
|
94.3 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129.1 |
|
|
$ |
137.9 |
|
|
|
(6 |
)% |
|
$ |
261.0 |
|
|
$ |
263.6 |
|
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
Year-to-Date |
|
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ELECTRONICS |
|
$ |
82.2 |
|
|
$ |
94.8 |
|
|
|
(13 |
)% |
|
$ |
168.3 |
|
|
$ |
178.8 |
|
|
|
(6 |
)% |
AUTOMOTIVE |
|
|
33.8 |
|
|
|
31.6 |
|
|
|
7 |
% |
|
|
67.6 |
|
|
|
62.6 |
|
|
|
8 |
% |
ELECTRICAL |
|
|
13.1 |
|
|
|
11.5 |
|
|
|
14 |
% |
|
|
25.1 |
|
|
|
22.2 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129.1 |
|
|
$ |
137.9 |
|
|
|
(6 |
)% |
|
$ |
261.0 |
|
|
$ |
263.6 |
|
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Sales by geography represent sales to customer or distributor locations. |
Results of Operations
Second Quarter, 2007
Sales decreased $8.8 million or 6% to $129.1 million in the second quarter of 2007, compared to
$137.9 million in the second quarter of 2006 due to lower sales in the Americas and Asia primarily
resulting from weakness in the sales of the Companys electronics products. Acquisitions
(including sales from Concord, SRC and Catalina) added approximately $4 million of incremental sales to the
second quarter of 2007 compared to the second quarter of 2006.
On a geographic basis, sales in the Americas decreased $6.8 million or 12% in the second quarter of
2007, compared to the second quarter of last year. Within the Americas, the electronics business
declined $9.0 million or 28% due to weaker demand from North American distributors reflecting
distributor inventory correction and weakness in the telecommunications-sector. Sales of
electrical products increased $1.5 million due to improved end-market demand and realization of
price increases. Automotive sales in the Americas increased $0.7 million primarily due to higher
sales to the aftermarket. Europe sales increased $0.4 million or 1% in the second quarter of 2007
compared to the second quarter of 2006 due to favorable currency effects partially offset by weaker
electronics sales. Asia-Pacific sales decreased $2.4 million or 5% compared to the prior year
second quarter. The decrease in Asia-Pacific sales was due to reduced demand for telecommunications
and channel inventory correction. Exchange rate changes increased sales by $2.3 million in the
second quarter of 2007 compared to the prior year, primarily due to changes in the euro rate.
12
Gross profit was $41.3 million or 32.0% of sales for the second quarter of 2007, compared to $31.3
million or 22.7% of sales in the same quarter last year. The second quarter of 2007 includes
severance and asset write-downs of $0.3 million. The second quarter of 2006 includes $17.1 million
of Ireland severance expense related to the plant closing. Gross profit for the second quarter of
2007 compared to the prior year quarter was negatively impacted by lower plant utilization, higher
commodity prices, and costs related to moving manufacturing
operations from Europe and the U.S. to Asia and Mexico, which
include retention bonuses, accelerated depreciation, equipment move costs and redundant overhead.
Total operating expense was $29.7 million or 23.0% of sales for the second quarter of 2007 compared
to $34.0 million or 24.6% of sales for the same quarter in the prior year. The decrease in
operating expense in the second quarter of 2007 compared to the prior year was due primarily to
lower bonus expense in 2007 and a $2.8 million write-down of German assets in the second quarter of
2006.
Operating income (loss) was $11.6 million or 9.0% of sales for the second quarter of 2007 compared
to ($2.7) million or (2.0)% of sales for the same quarter of last year. The increase in operating
income is due to the improvements in gross profit and operating expenses discussed above.
Interest expense was $0.4 million in the second quarter of 2007 and 2006 as average debt levels and
interest rates remained relatively constant during each quarter. Other income decreased $0.4
million to $0.5 million for the second quarter of 2007 compared to $0.9 million in the second
quarter of last year primarily due to lower royalty income in 2007 resulting from the expiration of
a royalty agreement.
Earnings (loss) from continuing operations before and income taxes was $11.8 million for the second
quarter 2007 compared to ($2.1) million for the second quarter of 2006. Income taxes were $3.4
million for the second quarter of 2007 compared to a benefit of $2.6 million in the second quarter
of last year. The 2006 income tax benefit includes a $2.8 million benefit related to the
recognition of certain previous years net operating losses from the Teccor acquisition partially
offset by $0.9 million of charges.
Net income for the second quarter of 2007 was $8.4 million or $0.37 per diluted share compared to
$0.4 million or $0.02 per diluted share for the same quarter of last year due to the factors
discussed above.
Six Months, 2007
Sales for the first six months of 2007 decreased 1% to $261.0 million from $263.6 million for the
first six months of last year. Acquisitions (including sales from Concord, SRC and Catalina) added
approximately $9 million of incremental sales to the first six months of 2007 compared to the
first six months of 2006. On a geographic basis, sales in the Americas decreased $9.9 million or
9% in the first six months of 2007 compared to the prior year due primarily to lower North American
electronic sales reflecting distributor inventory correction and weakness in the telecommunications
sector. Partially offsetting the lower North American electronic sales was an increase in
electrical sales of $2.9 million or 13.4% as a result of improved end-market demand and realization
of price increases. Europe sales increased $3.8 million or 7% in the first six months of 2007
compared to the prior year largely due to favorable currency effects. Asia-Pacific sales increased
$3.5 million or 4% for the first six months of 2007 compared to the same period in the prior year
primarily due to increased electronics sales throughout the region. Increases in automotive sales
of $0.5 million also contributed to the Asia-Pacific growth reflecting share gain in the growing
Asian markets outside of Japan. Changes in exchanges rates had the effect of increasing sales by
$5.2 million for the first six months of 2007 compared to the prior year mainly due to the change
in the euro rate.
Gross profit was $82.6 million or 31.6% of sales for the first six months of 2007 compared to $76.1
million or 28.9% of sales for the first six months of last year. The first six months of 2007
includes $3.9 million of expense primarily related to severance in Des Plaines, Illinois and
Germany. The second quarter of 2006 includes $17.1 million of Ireland severance expense related to
the plant closing and $0.9 million of severance for Germany. Gross profit for the first six
months of 2007 compared to the prior year period was negatively impacted by lower plant
utilization, higher commodity prices, and costs related to moving manufacturing operations from Europe and the U.S. to Asia
and Mexico, which include retention bonuses, accelerated depreciation, equipment move costs and
redundant overhead.
13
Total operating expense was $61.5 million or 23.6% of sales for the first six months of 2007
compared to $65.0 million or 24.7% of sales last year. The decrease in operating expense compared
to the prior year period was due primarily to lower bonus expense in 2007 and a $2.8 million
write-down of German assets in 2006.
Operating income for the first six months of 2007 was $21.1 million or 8.1% of sales compared to
$11.1 million or 4.2% of sales for the prior year. The increase in operating income was due to the
improvements in gross profit and operating expenses discussed above.
Interest expense was $0.8 million for the first six months of 2007 and 2006. Other income
decreased $0.6 million to $0.9 million for the first six months of 2007 compared to $1.5 million
for the first six months of 2006 primarily due to lower royalty income in 2007 resulting from the
expiration of a royalty agreement.
Earnings from continuing operations before income taxes was $21.2 million for the first six months
of 2007 compared to $11.8 million the first six months of last year. Income taxes were $6.6
million for the first six months of 2007 compared to $2.6 million for the first six months of last
year. Income taxes for the first six months of 2006 include a $2.8 million benefit related to the
recognition of certain previous years net operating losses from the Teccor acquisition partially
offset by $0.9 million of charges.
Net income for the first six months of 2007 was $14.6 million compared to $9.8 million for the same
period last year. Earnings per share for the first six months of 2007 was $0.65 per diluted share
compared to $0.44 per diluted share last year.
Liquidity and Capital Resources
Assuming no material adverse changes in market conditions or interest rates, management expects
that the Company will have sufficient cash from operations to support both its operations and its
current debt obligations for the foreseeable future.
The EFEN business, which is presented as a discontinued operation, did not contribute significantly
to cash from operations for the first six months of 2006.
Littelfuse started the 2007 year with $56.7 million of cash and cash equivalents. Net cash provided
by operations was $16.0 million for the first six months. Net cash provided by operations includes
net income of $14.6 million, stock based compensation of $2.6 million, depreciation of $12.1
million and amortization of $1.5 million in addition to various working capital and other items.
Inventory decreased $1.2 million due to improved inventory management. Accounts payable, accrued
expenses, prepaid expenses and other items reduced cash flow by $16.1 million, primarily due to
higher cash payments for bonuses, severance and income taxes in the first six months of 2007. Net
cash used in investing activities included $13.1 million in capital spending for the first six
months of 2007. In addition, net cash used in financing activities included net payments of debt
of $17.5 million offset by stock option exercises of $6.1 million. The effects of exchange rate
changes increased cash by $1.1 million. The net cash provided by operations and financing
activities less investing activities plus the effects of exchange rate changes resulted in a $7.5
million net decrease in cash. This left the Company with a cash balance of $49.2 million at June
30, 2007.
The days sales in receivables was approximately 59 days at the end of the second quarter of 2007,
compared to 60 days at the end of fiscal 2006 and 64 days at the end of the second quarter of 2006.
The days inventory outstanding was approximately 68 days at the end of the second quarter of 2007
compared to 67 days at the end of 2006 and 56 days at end of the second quarter of 2006.
The Companys capital expenditures were $8.0 million for the second quarter of 2007 compared to
$4.8 million for the second quarter of 2006. The increase in spending in 2007 relates primarily to
moving manufacturing operations from Europe and the U.S. to Asia and Mexico.
The Company has an unsecured domestic financing arrangement consisting of a credit agreement with
banks that provides a $75.0 million revolving credit facility, with a potential increase of up to
$125.0 million upon request of the Company and agreement with the lenders, that expires on July 21,
2011. At June 30, 2007, the Company had
14
available $68.5 million of borrowing capability under the revolving credit facility at an interest
rate of LIBOR plus 0.5% (5.87% as of June 30, 2007). The Company also had $6.1 million in letters
of credit outstanding at June 30, 2007
The domestic bank credit agreement contains covenants that, among other matters, impose limitations
on the incurrence of additional indebtedness, future mergers, sales of assets, payment of
dividends, and changes in control, as defined. In addition, the Company is required to satisfy
certain financial covenants and tests relating to, among other matters, interest coverage, working
capital, leverage and net worth. At June 30, 2007, the Company was in compliance with these
covenants.
The Company has an unsecured bank line of credit in Japan that provides a Yen 0.9 billion revolving
credit facility (an equivalent of $7.3 million) at an interest rate of TIBOR plus 0.625% (1.385% as
of March 31, 2007). The revolving line of credit balance becomes due on July 21, 2011. At June
30, 2007, the Company had no outstanding borrowings on the Yen facility.
The Company also has an unsecured bank line of credit that provides a Taiwanese Dollar 35.0 million
revolving credit facility (an equivalent of $1.1 million) at an interest rate of two-years Time
Deposit plus 0.145% (2.3% as of June 30, 2007). The revolving line of credit becomes due on August
18, 2009. At June 30, 2007, the Company had an equivalent $0.8 million outstanding on the
Taiwanese Dollar facility.
The Company also has various other fixed rate loans at June 30, 2007 totaling $1.3 million with
maturity dates through August 2013.
Outlook
The Company believes its long-term growth strategy, which emphasizes development of new circuit
protection products, providing customers with solutions and technical support in all major regions
of the world and leveraging low cost production facilities in Asia and Mexico will drive sales
growth and reduce costs in each of its segments. In addition, the fundamentals for the Companys
major markets appear to be neutral to moderately positive for 2007.
The Company initiated a series of projects over the last several years to reduce costs in its
global manufacturing and distribution operations as well as reduce the cost of purchased materials
and transportation. These programs are expected to generate significant cost savings in 2007 and
future years. On the other hand, the Company plans to continue to increase research and
development spending on new electronic and automotive products in 2007.
The Company is working to expand its share of the circuit protection market by leveraging new
products that it has recently acquired or developed as well as improved solution selling
capabilities. In the future, the Company will look for opportunities to add to its product
portfolio and technical expertise so that it can provide customers with the most complete circuit
protection solutions available in the marketplace.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements in this section and in the other sections of this report which are not historical
facts contained in this report are intended to be forward-looking statements that involve risks and
uncertainties, including, but not limited to, product demand and market acceptance, economic
conditions, the impact of competitive products and pricing, product quality problems or product
recalls, capacity and supply difficulties or constraints, coal mining exposures in excess of
reserves, failure of an indemnification for environmental liability, exchange rate fluctuations,
commodity price fluctuations, the effect of the Companys accounting policies, labor disputes,
restructuring costs in excess of expectations, pension plan asset returns less than assumed,
integration of acquisitions, and other risks which may be detailed in the Companys Securities and
Exchange Commission filings. Should one or more of these risks or uncertainties materialize or
should the underlying assumptions prove incorrect, actual results and outcomes may differ
materially from those indicated or implied in the forward-looking statements. This report should be
read in conjunction with information provided in the financial statements appearing in the
Companys Annual Report on Form 10-K for the year ended December 30, 2006.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates, foreign exchange rates,
customer solvency and commodities.
The Company had debt outstanding at June 30, 2007, in the form of a domestic revolving credit
facility and foreign lines of credit at variable rates. While 100% of this debt has variable
interest rates, the Companys interest expense is not materially sensitive to changes in interest
rate levels since debt levels and potential interest expense increases are small relative to
earnings.
A portion of the Companys operations consists of manufacturing and sales activities in foreign
countries. The Company has manufacturing facilities in Mexico, Ireland, Germany, China and the
Philippines. Substantially all sales in Europe are denominated in Euro, U.S. Dollar and British
Pound Sterling, and substantially all sales in the Asia-Pacific region are denominated in U.S.
Dollar, Japanese Yen and South Korean Won.
The Companys identifiable foreign exchange exposures result from the purchase and sale of products
from affiliates, repayment of intercompany trade and loan amounts and translation of local currency
amounts in consolidation of financial results. As international sales were more than half of total
sales, a significant portion of the resulting accounts receivable are denominated in foreign
currencies. Changes in foreign currency exchange rates or weak economic conditions in the foreign
countries in which it manufactures and distributes products could affect the Companys sales,
accounts receivable values and financial results. The Company uses netting and offsetting
intercompany account management techniques to reduce known foreign currency exposures where
possible.
The Company uses various metals in the production of its products, including zinc and copper. The
Companys earnings are exposed to fluctuations in the prices of these commodities. The Company does
not currently use derivative financial instruments to mitigate this commodity price risk. A 10%
increase in the price of zinc and copper would increase costs by approximately $1.1 million and
$1.3 million, respectively. A portion of these cost increases would be offset by customer
surcharges tied to the prices of these commodities.
The Company does not believe it has significant exposure to market risk from changes in interest
rates or foreign exchange rates.
Item 4. Controls and Procedures
As of June 30, 2007, the Chief Executive Officer and Chief Financial Officer of the Company
evaluated the effectiveness of the disclosure controls and procedures of the Company and concluded
that these disclosure controls and procedures are effective to ensure that material information
relating to the Company and its consolidated subsidiaries has been made known to them by the
employees of the Company and its consolidated subsidiaries during the period preceding the filing
of this Report. There were no significant changes in the Companys internal controls during the
period covered by this Report that could materially affect these controls or could reasonably be
expected to materially affect the Companys internal control reporting, disclosures and procedures
subsequent to the last day they were evaluated by the Companys Chief Executive Officer and Chief
Financial Officer.
16
PART II OTHER INFORMATION
Item 1A: Risk Factors
A detailed description of risks that could have a negative impact on our business,
revenues and performance results can be found under the caption Risk Factors in our
most recent Form 10-K, filed on February 27, 2007.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
|
(c) |
|
The table below provides information with respect to purchases by
the Company of shares of its common stock during each fiscal month of the second
quarter of fiscal 2007: |
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Be Purchased Under |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans or |
|
the Plans or |
Period |
|
Shares Purchased |
|
per Share |
|
Programs |
|
Programs |
April 2007 |
|
|
|
|
|
|
|
|
|
|
|
671,000 |
|
May 2007 |
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
June 2007 |
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
The Companys Board of Directors authorized the repurchase of up to 1,000,000 shares under a
program for the period May 1, 2007 to April 30, 2008.
Item 4: Submission of Matters to a Vote of Security Holders
|
(a) |
|
The annual meeting of stockholders of Littelfuse, Inc. was held on
April 27, 2007. |
|
|
(b) |
|
John P. Driscoll, Anthony Grillo, Gordon Hunter, John E. Major and
Ronald L. Schubel were reelected as directors at the meeting. William P. Noglows
was elected by the stockholders as a director at the meeting. |
|
|
(c) |
|
The following votes were taken in connection with the election of
directors at the meeting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
Votes For |
|
Votes Withheld |
|
Abstentions |
|
Broker Non-Votes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Driscoll |
|
|
18,895,978 |
|
|
|
129,008 |
|
|
|
|
|
|
|
|
|
|
Anthony Grillo |
|
|
18,465,297 |
|
|
|
559,689 |
|
|
|
|
|
|
|
|
|
|
Gordon Hunter |
|
|
18,479,997 |
|
|
|
544,989 |
|
|
|
|
|
|
|
|
|
|
John E. Major |
|
|
18,368,597 |
|
|
|
656,389 |
|
|
|
|
|
|
|
|
|
|
William P. Noglows |
|
|
18,895,608 |
|
|
|
129,378 |
|
|
|
|
|
|
|
|
|
|
Ronald L. Schubel |
|
|
17,886,803 |
|
|
|
1,138,183 |
|
|
|
|
|
|
|
|
|
17
The proposal to ratify the Board of Directors appointment of Ernst &Young LLP as the
Companys independent registered public accounting firm for the fiscal year of the Company ending
December 29, 2007 was approved. The following votes were taken in connection with this proposal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal |
|
Votes For |
|
Votes Against |
|
Votes Withheld |
|
Abstentions |
|
Broker Non-Votes |
|
Ratification of the Board of Directors
appointment of
Ernst & Young LLP
as independent
registered public
accounting firm for
fiscal 2007 |
|
|
18,237,306 |
|
|
|
770,482 |
|
|
|
|
|
|
|
17,198 |
|
|
|
|
|
The proposal to approve the amendment, restatement and renaming of the Littelfuse, Inc.
Outside Directors Stock Option Plan to the Littelfuse, Inc. Outside Directors Equity Plan, was
approved. The following votes were taken in connection with this proposal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal |
|
Votes For |
|
Votes Against |
|
Votes Withheld |
|
Abstentions |
|
Broker Non-Votes |
|
Outside Directors Equity Plan |
|
|
16,127,447 |
|
|
|
2,053,065 |
|
|
|
|
|
|
|
20,656 |
|
|
|
|
|
18
Item 6: Exhibits
|
|
|
|
|
Exhibit |
|
Description |
|
|
10.1 |
|
|
Littelfuse, Inc. Outside Directors Equity
Plan (incorporated herein by reference to Exhibit A to the Companys
Proxy Statement for Annual Meeting of Stockholders to be held on April
27, 2007) |
|
|
10.2 |
|
|
Littelfuse, Inc. Summary of Executive Officer
Compensation (incorporated herein by reference to Exhibit 99.2 to the
Companys Current Report on Form 8-K dated April 27, 2007) |
|
|
10.3 |
|
|
Form of Stock Option Agreement under the
Littelfuse, Inc. Equity Incentive Compensation Plan (incorporated
herein by reference to Exhibit 99.3 to the Companys Current Report on
Form 8-K dated April 27, 2007) |
|
|
10.4 |
|
|
Form of Performance Shares Agreement under
the Littelfuse, Inc. Equity Incentive Compensation Plan (incorporated
herein by reference to Exhibit 99.4 to the Companys Current Report on
Form 8-K dated April 27, 2007) |
|
|
10.5 |
|
|
Form of Stock Option Award Agreement under
the Littelfuse, Inc. Outside Directors Equity Plan (incorporated
herein by reference to Exhibit 99.5 to the Companys Current Report on
Form 8-K dated April 27, 2007) |
|
|
10.6 |
|
|
Form of Restricted Stock Unit Award
Agreement under the Littelfuse, Inc. Outside Directors Equity Plan
(incorporated herein by reference to Exhibit 99.6 to the Companys
Current Report on Form 8-K dated April 27, 2007) |
|
|
31.1 |
|
|
Certification of Gordon Hunter, Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2 |
|
|
Certification of Philip G. Franklin, Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32.1 |
|
|
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, to be signed on its behalf
by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Littelfuse, Inc.
|
|
Date: August 3, 2007 |
By |
/s/ Philip G. Franklin
|
|
|
|
Philip G. Franklin |
|
|
|
Vice President, Operations Support and
Chief Financial Officer
(As duly authorized officer and as
the principal financial and accounting
officer) |
|
|
19