LFUS 10-Q Quarter ended June 27, 2015

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		June 27, 2015				December 27, 2014
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	311,915			$	297,571
Short-term investments			3,954				4,302
Accounts receivable, less allowances			151,283				135,356
Inventories			97,735				97,391
Deferred income taxes			17,378				17,481
Prepaid expenses and other current assets			15,357				13,904
Assets held for sale			5,500				5,500
Total current assets			603,122				571,505
Property, plant and equipment:
Land			5,542				5,697
Buildings			63,546				64,609
Equipment			389,026				370,179
			458,114				440,485
Accumulated depreciation			(291,735	)			(281,845	)
Net property, plant and equipment			166,379				158,640
Intangible assets, net of amortization:
Patents, licenses and software			21,449				23,640
Distribution network			17,813				19,428
Customer lists, trademarks and tradenames			58,018				60,605
Goodwill			192,947				196,256
Other investments			14,503				12,056
Deferred income taxes			5,604				5,393
Other assets			19,456				23,303
Total assets		$	1,099,291			$	1,070,826
Liabilities and Equity
Current liabilities:
Accounts payable		$	53,919			$	50,793
Accrued payroll			25,501				30,511
Accrued expenses			19,668				13,059
Accrued severance			2,033				790
Accrued income taxes			8,547				9,045
Current portion of accrued post-retirement benefits			11,768				11,768
Current portion of long-term debt			82,250				88,500
Total current liabilities			203,686				204,466
Long-term debt, less current portion			96,993				106,658
Deferred income taxes			11,173				11,076
Accrued post-retirement benefits			5,247				5,147
Other long-term liabilities			14,900				15,814
Total equity			767,292				727,665
Total liabilities and equity		$	1,099,291			$	1,070,826
Common shares issued and outstanding of 22,725,882 and 22,585 ,529, at June 27, 2015, and December 27, 2014, respectively.

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		For the Three Months Ended								For the Six Months Ended
		June 27, 2015				June 28, 2014				June 27, 2015				June 28, 2014
Net sales		$	222,021			$	220,908			$	432,334			$	427,767
Cost of sales			136,740				137,913				270,723				266,278
Gross profit			85,281				82,995				161,611				161,489
Selling, general and administrative expenses			38,772				38,328				75,117				72,499
Research and development expenses			7,361				7,810				14,745				15,384
Amortization of intangibles			2,977				3,138				6,030				6,297
			49,110				49,276				95,892				94,180
Operating income			36,171				33,719				65,719				67,309
Interest expense			948				1,228				2,099				2,444
Foreign exchange (gain) loss			(1,292	)			2,375				1,825				2,123
Other (income) expense, net			(1,202	)			(1,446	)			(2,328	)			(2,632	)
Income before income taxes			37,717				31,562				64,123				65,374
Income taxes			9,033				6,984				15,444				15,407
Net income		$	28,684			$	24,578			$	48,679			$	49,967
Net income per share (see Note 7):
Basic		$	1.26			$	1.09			$	2.15			$	2.22
Diluted		$	1.26			$	1.08			$	2.13			$	2.20
Weighted average shares and equivalent shares outstanding:
Basic			22,691				22,579				22,645				22,536
Diluted			22,835				22,750				22,810				22,738
Cash dividends paid per common share		$	0.25			$	0.22			$	0.50			$	0.44

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		For the Three Months Ended								For the Six Months Ended
		June 27, 2015				June 28, 2014				June 27, 2015				June 28, 2014
Net income		$	28,684			$	24,578			$	48,679			$	49,967
Other comprehensive income (loss):
Pension liability adjustments (net of tax of $385 and $67, for the three months ended 2015 and 2014, and $416 and $160 for the six months ended 2015 and 2014, respectively)			(198	)			39				(124	)			(5	)
Reclassification adjustments to expense, (net of tax of ($249) and $0, for the three months ended 2015 and 2014, and ($498) and $0 for the six months ended 2015 and 2014, respectively)			985				—				1,971				—
Unrealized gain on investments			1,380				2,276				3,336				3,584
Foreign currency translation adjustments			3,821				6,850				(10,153	)			(311	)
Comprehensive income		$	34,672			$	33,743			$	43,709			$	53,235

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		For the Six Months Ended
		June 27, 2015				June 28, 2014
Operating activities:
Net income		$	48,679			$	49,967
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			14,761				14,459
Amortization of intangibles			6,030				6,297
Stock-based compensation			5,764				5,229
Non-cash inventory charge			—				2,769
Excess tax benefit on share-based compensation			(1,470	)			(2,230	)
Loss on sale of assets			329				141
Changes in operating assets and liabilities:
Accounts receivable			(21,266	)			(17,871	)
Inventories			(1,199	)			410
Accounts payable			3,440				2,533
Accrued expenses (including post-retirement)			11,129				(7,578	)
Accrued payroll and severance			(3,652	)			(7,323	)
Accrued taxes			(3,003	)			(2,101	)
Prepaid expenses and other			2,422				(2,189	)
Net cash provided by operating activities			61,964				42,513
Investing activities:
Acquisition of business, net of cash acquired			—				(52,768	)
Purchases of property, plant, and equipment			(26,388	)			(13,132	)
Decrease in entrusted loan receivable			3,519				—
Proceeds from sale of assets			48				37
Net cash used in investing activities			(22,821	)			(65,863	)
FINANCING activities :
Proceeds from revolving credit facility			11,000				97,500
Payments of revolving credit facility			(21,000	)			(19,500	)
Payments of term loan			(2,500	)			(2,500	)
Payments of entrusted loan			(3,519	)			—
Debt issuance costs			(42	)			(108	)
Cash dividends paid			(11,296	)			(9,921	)
Purchases of common stock			—				(14,283	)
Proceeds from exercise of stock options			6,278				11,101
Excess tax benefit on share-based compensation			1,470				2,230
Net cash (used in) provided by financing activities			(19,609	)			64,519
Effect of exchange rate changes on cash and cash equivalents			(5,190	)			45
Increase in cash and cash equivalents			14,344				41,214
Cash and cash equivalents at beginning of period			297,571				305,192
Cash and cash equivalents at end of period		$	311,915			$	346,406

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1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Littelfuse, Inc. and its subsidiaries (the “company”) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, certain information and disclosures normally included in the consolidated balance sheet, statements of net income and comprehensive income and cash flows prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the period ended June 27, 2015 are not necessarily indicative of the results that may be expected for the year ending January 2, 2016. For further information, refer to the company’s consolidated financial statements and the notes thereto incorporated by reference in the company’s Annual Report on Form 10-K for the year ended December 27, 2014. The company evaluated subsequent events through the date of its financial statements when filed with the Securities and Exchange Commission (“SEC”).

2 . Acquisition of Business

SymCom, Inc.

On January 3, 2014, the company acquired 100% of SymCom, Inc. (“SymCom”) for $52.8 million net of cash acquired. Located in Rapid City, South Dakota, SymCom provides overload relays and pump controllers primarily to the industrial market. The acquisition allows the company to strengthen its position in the relay products market by adding new products and new customers within its Electrical business unit segment. The company funded the acquisition with available cash and proceeds from credit facilities .

The following table sets forth the final purchase price allocation for SymCom acquisition-date net assets, in accordance with the purchase method of accounting with adjustments to record the acquired net assets at their estimated fair values.

All SymCom goodwill and other assets and liabilities were recorded in the Electrical business unit segment and reflected in the Americas geographical area. The trademarks are being amortized over 15 to 20 years. The patents are being amortized over 16 to 17 years. The goodwill resulting from this acquisition consists largely of the company’s expected future product sales and synergies from combining SymCom’s products with the company’s existing electrical product offerings. Goodwill for the above acquisition is expected to be deductible for tax purposes.

As required by purchase accounting rules, the company initially recorded a $2.6 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. During the first quarter of 2014, as a portion of this inventory was sold, cost of goods sold included a $1.4 million non-cash charge for this step-up.

Pro forma financial information is not presented for the SymCom acquisition due to amounts not being materially different than actual results.

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3. Inventories

The components of inventories at June 27, 2015 and December 27, 2014 are as follows (in thousands):

4 . Other Investments

The company’s other investments represent shares of Polytronics Technology Corporation Ltd. (“Polytronics”), a Taiwanese company. The Polytronics investment was acquired as part of the Heinrich Companies acquisition in 2004. The fair value of the Polytronics investment was €12.9million (approximately $14.5 million) at June 27, 2015 and €9.9 million (approximately $12.1 million) at December 27, 2014. Included in 2015 other comprehensive income is an unrealized gain of $3.4 million, due to the increase in fair market value of the Polytronics investment. The remaining movement was due to the impact of changes in exchange rates.

5. Debt

The carrying amounts of debt at June 27, 2015 and December 27, 2014 are as follows (in thousands):

The company currently has a credit agreement with J.P Morgan Securities LLC for up to $375.0 million which consists of an unsecured revolving credit facility of $275.0 million and an unsecured term loan of $100.0 million. The credit agreement, effective May 31, 2013, is for a five year period. The company incurred debt issuance costs of $0.1 million which will be amortized over the life of the existing credit agreement. As of June 27, 2015, the company had available $200.9 million of borrowing capacity under the revolving credit agreement at an interest rate of LIBOR plus 1.0% (1.19% as of June 27, 2015). At June 27, 2015, the company was in compliance with all covenants under the revolving credit facility.

Entrusted Loan

During the fourth quarter of 2014, the company entered into an entrusted loan arrangement (“Entrusted Loan”) of RMB 110.0 million (approximately $17.9 million) between two of its China legal entities, Littelfuse Semiconductor (Wuxi) Company (the “ Lender ”) and Suzhou Littelfuse OVS Ltd. (the “ Borrower ”), utilizing Bank of America, N.A., Shanghai Branch as agent. Direct borrowing and lending between two commonly owned commercial entities is strictly forbidden under China’s regulations requiring the use of a third party agent to enable loans between Chinese legal entities. As a result, the Entrusted Loan is reflected as both a long-term asset and long-term debt on the company’s Consolidated Balance Sheets and is reflected in the investing and financing activities in its Consolidated Statements of Cash Flows. Interest expense and interest income will be recorded between the lender and borrower with no net impact on the company’s Consolidated Statements of Income since the amounts will be offsetting. The loan interest rate per annum is 5.25%. The Entrusted Loan is used to finance the operation and working capital needs of the borrower and matures in November 2019.

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6 . Fair Value of Assets and Liabilities

In determining fair value, the company uses various valuation approaches within the fair value measurement framework. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability.

Applicable accounting literature establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Applicable accounting literature defines levels within the hierarchy based on the reliability of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets;

Level 2—Valuations based on quoted prices for similar assets or liabilities or identical assets or liabilities in less active markets, such as dealer or broker markets; and

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models, discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions.

Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy.

Investment in Polytronics

The company holds an investment in the equity securities of Polytronics as described in Note 4. Equity securities listed on a national market or exchange are valued at the last sales price. Such securities are classified within Level 1 of the valuation hierarchy.

There were no changes during the six months ended June 27, 2015 to the company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of June 27, 2015 and December 27, 2014 the company held no non-financial assets or liabilities that are required to be measured at fair value on a recurring basis.

The following table presents assets measured at fair value by classification within the fair value hierarchy as of June 27, 2015 (in thousands):

N otes to CONDENSED Consolidated Financial Statements (Unaudited)

6 . Fair Value of Assets and Liabilities , continued

The following table presents assets measured at fair value by classification within the fair value hierarchy as of December 27, 2014 (in thousands):

The company’s other financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and debt. The carrying amounts of cash and cash equivalents , short-term investments, accounts receivable, accounts payable and debt approximate their fair values. The company’s debt fair value approximates book value at June 27, 2015 and December 27, 2014, respectively, as the variable interest rates fluctuate along with market interest rates.

7 . Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for the periods ended June 27, 2015 and June 28, 2014 (in thousands except per share amounts).

Potential shares of common stock relating to stock options excluded from the earnings per share calculation because their effect would be anti-dilutive were113,878 and 46,190 for the three months ended June 27, 2015 and June 28, 2014 and 90,875 and 22,708 for the six months ended June 27 , 2015 and June 28 , 2014 , respectively.

8 . Income Taxes

The effective tax rate for the second quarter of 2015 was 23.9% compared to an effective tax rate of 22.1% in the second quarter of 2014 . The effective tax rate for the six months ended June 27, 2015 was 24.1% as compared to an effective tax rate of 23.6% for the six months ended June 28, 2014. The effective tax rates for both the second quarter and six month periods of 2015 and 2014 are lower than the U.S. statutory tax rate primarily due to the result of more income earned in low tax jurisdictions.

Notes to CONDENSED Consolidated Financial Statements (Unaudited)

8. Income Taxes, continued

The company has restructured the legal ownership of its Mexican manufacturing operations as of June 28, 2015. Although the transaction was completed in the third quarter, the company considered the impact on the effective tax rate for the second quarter and determined such impact was not material.

9. Pensions

The components of net periodic benefit cost for the three and six months ended June 27, 2015, compared with the three and six months ended June 28, 2014, were (in thousands):

The expected rate of return assumption on domestic pension assets is 3.90% and 6.75% in 2015 and 2014, respectively. The expected return on foreign pension assets is 5.39% and 5.14% in 2015 and 2014, respectively.

Plan Termination

The company received approval from the IRS on April 14, 2015 on its Application for Determination for Terminating Plan to terminate the U.S. defined benefit pension plan, the Littelfuse Inc. Retirement Plan, effective July 30, 2014. The current liability balance of $11.8 million at June 27, 2015, represents the projected cost to settle the plan’s liability in conjunction with the upcoming plan termination. Settlement is expected to occur during the third quarter of 2015.

10 . Business Unit Segment Information

The company and its subsidiaries design, manufacture and sell circuit protection devices throughout the world. The company reports its operations by the following business unit segments: Electronics, Automotive, and Electrical. Each operating segment is directly responsible for sales, marketing and research and development. Manufacturing, purchasing, logistics, customer service, finance, information technology and human resources are shared functions that are allocated back to the three operating segments. The CEO allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes, but does not evaluate the operating segments using discrete balance sheet information.

Sales, marketing and research and development expenses are charged directly into each operating segment. All other functions are shared by the operating segments and expenses for these shared functions are allocated to the operating segments and included in the operating results reported below. The company does not report inter-segment revenue because the operating segments do not record it. The company does not allocate interest and other income, interest expense, or taxes to operating segments. Although the CEO uses operating income (loss) to evaluate the segments, operating costs included in one segment may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the company as a whole.

Notes to CONDENSED Consolidated Financial Statements (Unaudited)

10 . Business Unit Segment Information, continued

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the company’s President and Chief Executive Officer (“CEO”)

Business unit segment information for the three and six months ended June 27, 2015 and June 28, 2014 are summarized as follows (in thousands):

(1) For the three months ended June 27, 2015, “Other” consists of restructuring costs ($2.5 million), acquisition expenses ($0.2 million) and pension wind-up costs ($0.7 million). For the six months ended June 27, 2015, “Other” consist of restructuring costs ($4.8 million), acquisition expenses ($0.3 million) and pension wind-up costs ($1.3 million).

The company’s significant net sales by country for the three and six months ended June 27, 2015 and June 28, 2014 are summarized as follows (in thousands):

(a) Sales by country represent sales to customer or distributor locations.

Notes to CONDENSED Consolidated Financial Statements (Unaudited)

10 . Business Unit Segment Information, continued

The company’s significant long-lived assets and additions to long-lived assets by country as of June 27, 2015 and December 27, 2014 are summarized as follows (in thousands):

(b) Long-lived assets consists of net property, plant and equipment .

The company’s additions to long-lived assets for the six months ended June 27, 2015 and June 28, 2014 are summarized as follows (in thousands):

11. Accumulated Other Comprehensive Income (Loss) (AOCI)

The following table sets forth the changes in the components of AOCI by component (in thousands):

(a) Balances are net of tax of $12,055 and $12,857 for 2015 and 2014, respectively.

(b) Balances are net of tax of $0 and $0 for 2015 and 2014, respectively.

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