Littelfuse Inc. Reports Operating Results (10-Q)
Littelfuse Inc. has a market cap of $958.5 million; its shares were traded at around $43.85 with a P/E ratio of 17.9 and P/S ratio of 2.3. LFUS is in the portfolios of John Rogers of ARIEL CAPITAL MANAGEMENT LLC, Chuck Royce of Royce& Associates, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Columbia Wanger of Columbia Wanger Asset Management, Paul Tudor Jones of The Tudor Group, Mario Gabelli of GAMCO Investors, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: On a geographic basis, sales in the Americas increased $18.4 million or 42% to $61.7 million in the third quarter of 2010 compared to $43.3 million in the third quarter of 2009, due to increased sales in all three of the companys business segments. The Americas region also experienced $0.6 million in favorable foreign currency effects in the third quarter of 2010 as compared to the third quarter of 2009. This increase resulted primarily from sales denominated in Canadian dollars.
Income before income taxes was $33.8 million for the third quarter of 2010 compared to income before income taxes of $8.8 million for the third quarter of 2009. Income tax expense was $10.5 million with an effective tax rate of 31.0% for the third quarter of 2010 compared to income tax expense of $0.8 million with an effective tax rate of 8.7% in the third quarter of 2009. The 2009 effective tax rate was lower primarily due to an approximately $2.0 million decrease in income tax reserves due to lapsing of statutes of limitations on uncertain tax positions. The effective tax rate for the third quarter of 2010 increased to 31.0% from 29.0% in the second quarter of 2010 due to increased profitability in higher-tax-rate jurisdictions, particularly in the U.S. Improved U.S. profitability was primarily due to cost savings from closure of two semiconductor manufacturing sites in prior years.
Income before income taxes was $83.5 million for the nine months of 2010 compared to a loss before income taxes of $4.9 million for the first nine months of 2009. Income tax expense was $24.4 million with an effective tax rate of 29.2% for the first nine months of 2010 compared to income tax benefit of $2.6 million with an effective tax rate of 53.0% in the first nine months of 2009. The tax benefit recorded in 2009 relates to the mix of income or loss earned in various tax jurisdictions and approximately a $2.0 million decrease in income tax reserves due to lapsing of statutes of limitations due to uncertain tax positions. The change in effective tax rate is due to the mix of income or loss by jurisdiction.
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provided the company with a five-year term loan facility of $80.0 million for the purposes of (i) refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding capital expenditures and other lawful corporate purposes, including permitted acquisitions. Amortization on the term loan is $2.0 million per quarter for the first four years and $12.0 million per quarter in the fifth year. The Loan Agreement also contains an expansion feature, pursuant to which the company may from time to time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The company had $51.0 million outstanding under the Loan Agreement at October 2, 2010.
The company started 2010 with $70.4 million of cash and cash equivalents. Net cash provided by operating activities was $74.9 million for the first nine months of 2010 reflecting $59.1 million in net income and $30.2 million in non-cash adjustments (primarily $24.5 million in depreciation and amortization and $4.0 million in stock-based compensation) offset by $14.4 million in net changes to various operating assets and liabilities. Changes in various operating assets and liabilities (including short-term and long-term items) that impacted cash flows negatively for the first nine months of 2010 consisted of net increases in accounts receivables ($28.6 million) and inventory ($12.9 million) and decreases in accrued expenses (including post-retirement) ($4.9 million). Changes that had a positive impact on cash flows were increases in accrued payroll and severance ($0.3 million) accounts payable ($3.0 million), accrued income taxes ($19.9 million) and prepaid expenses and other ($8.7 million). The company also made a $6.0 million contribution to its domestic pension plan during the first nine months of 2010.
Net cash used in financing activities was approximately $15.4 million and included net payments of debt of $5.8 million and purchases of common stock of $22.3 million offset by proceeds from the exercise of stock options including tax benefits of $12.7 million. The effect of exchange rate changes on cash and cash equivalents was insignificant. The net cash provided by operating activities less net cash used in investing and financing activities resulted in a $48.6 million increase in cash, which left the company with a cash and cash equivalents balance of approximately $118.9 million at October 2, 2010.
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