Littelfuse Inc (LFUS) 2005 Q4 法說會逐字稿

Thank you for standing by.

We're about to begin.

Good morning, and welcome to the Littelfuse Inc. fourth quarter earnings results conference call.

Today's call is being recorded.

At this time, I will now turn the call over to Mr. Gordon Hunter, CEO of Littelfuse Inc.

Please go ahead, sir.

Thank you and good morning and welcome to the Littelfuse fourth quarter 2005 conference call.

This is Gordon Hunter, CEO of Littelfuse, and with me today is Phil Franklin, CFO and Vice-president of Operations Support.

First, Phil will read our Safe Harbor Statement and then give a brief summary of our press release which was released earlier this morning.

This morning we plan to give an overview of our fourth quarter results, as well as some details on our end markets and how we're progressing on some of our key corporate initiatives.

We'll then open it up for some questions and we expect this call to last about 40 minutes.

I'll now hand you over to Phil.

Thanks, Gordon.

Let me start with the Safe Harbor.

Any forward-looking statements contained herein involve risks and uncertainties, including, but not limited to, product demand risks, the effect of economic conditions, the impact of competitive products and pricing, acquisition integration risk, commercialization and technological difficulties, capacity and supply constraints, exchange rate fluctuations, the effect of the Company's accounting policies, labor disputes, restructuring costs in excess of expectations, and other risks which may be detailed in the Company's SEC filings.

So in the fourth quarter financials there there were many moving pieces, as you've seen, which I'd like to walk you through, but the bottom line is for the quarter we performed in line with our guidance.

Our guidance called for sales to be down 5% to 6% sequentially, and we were down 5.6%.

Our EPS guidance was $0.24 to $0.26 before restructuring charges, and we were at $0.26 if you take the $0.23 reported number and add back $0.03 of restructuring charges.

Now, let me recap and walk you through some of the unusual items for the quarter.

First, we entered into an agreement to sell Efen during the quarter, the European electrical switch gear business that was acquired as part of Heinrich.

We had indicated previously this business would likely be sold as it was not as good a strategic fit as the Heinrich electronics and automotive businesses.

The proceeds from this sale will be about $14 million, which, it will result in a book gain of about $1.5 million.

The transaction is expected to close in the first quarter.

Thus in the fourth quarter and full year 2005 numbers, as well as the prior year comparisons, Efen is accounted for as a discontinued operation.

As such, all revenue and expenses related to Efen were removed from the individual line items in the income statement and balance sheet and collapsed into a single line item for after-tax earnings on the P & L and separate lines for assets and liables on the balance sheet.

Just one more comment on Efen before I move on.

When we first announced we were considering selling Efen, we indicated that Efen was about a break-even business.

While this was true at the time, we made some improvements to this business over the last year, which have made it modestly profitable, although not as profitable as the earnings numbers on the P & L might indicate.

When we carved out Efen from the Littelfuse numbers we were required to remove any allocations for corporate support, such as IT, accounting, insurance, et cetera, from the Efen financials and push these costs back on the Littelfuse continuing operations.

From the full year P & L you can see that Efen earned $1.1 million net of tax for 2005.

The fully allocated P & L would have indicated a number about half of this.

The second major item I wanted to comment on was the push-back of Ireland restructuring charges into the third quarter of 2005.

This was explained in some detail in the press release, but I wanted to emphasize two points.

First, the reason for doing this was a technical judgment by the Littelfuse accounting staff that it was more appropriate for these severance charges to be accounted for under FAS 112 than under FAS 146.

The end result being these charges needed to be recognized up front rather than amortized over several quarters.

Second, I wanted to point out that there was a revised third quarter 2005 P & L attached to the press release that incorporates the $3.3 million of additional severance charges, and the associated impact on the effective tax rate that got pushed back to the third quarter.

This revised third quarter P & L is what will be filed as part of the 2005 10-K.

The other unusual item I wanted to discuss is the effective tax rate.

Over the last several years, our effective tax rate has been in the 34% to 37% range.

For the full year 2005 the rate was 41%.

The two major drivers of this rate increase were the Ireland severance charges which provide only a minimal amount of tax shield and repatriation of foreign earnings from lower tax jurisdictions.

Going forward, we expect this rate to go back down.

In 2006, we believe the rate will be in the 35% to 37% range and in the future years we expect it to be below 35%.

So while we expect a general downward trend on our tax rate over the next few years, we will continue to see the rate bounce around quite a bit from quarter to quarter.

Now, let me briefly address the fourth quarter results.

Sales for the quarter were up 1% versus the prior year quarter.

The areas of strength were Asia, where both electronics and automotive recorded solid sales growth, in North American electrical, which had another strong quarter and record year.

This was offset by weakness in electronics in both the North America and Europe, which were negatively impacted by the continued weakness in the traditional telecom infrastructure markets.

Automotive sales in North America and Europe were relatively flat.

We are making slow but steady progress in our margin improvement efforts.

Operating margin for the fourth quarter before structuring charges was 8.7%, which gives us confidence that we are well on our way to achieving our short-term goal of 10% operating margin.

We believe with the Heinrich integration savings and other cost reductions in the plans for 2006, and with the operating leverage resulting from higher sales, we can reach our 10% operating margin goal in 2006.

Now, let me turn it back to Gordon for some more detailed market commentary.

Thanks, Phil.

Now, I'd like to talk a little bit about some of the progress made in each of our three strategic business units during the last quarter.

First, our automotive business unit, which accounts for about a quarter of our revenues.

Our Q4 automotive revenues were flat with the same quarter last year on a flat global car build.

New business gains in Korea and China offset a small decline in European revenues due to currency changes.

The full year 2005 revenues were up 4.3% from 2004 on approximately 1% worldwide car build.

Revenue increases outpaced the car build growth in Europe and Asia with particular strength in Korea.

JD Power's current outlook on 2006 shows very modest car build increases in North America and Europe, less than 1.5%, with most of the growth in global vehicle production coming from 8% growth in Asia, and 7% growth in South America.

China, Korea, Southeast Asia, and even Japan, are all set to expand production driven both by domestic growth and export demand.

In South America both exports for VW and continued domestic market expansion will lead South American growth.

The majority of this is in the small compact car segment.

Globally JD Power forecasts about a 4% increase in global vehicle production.

With these trends we will continue to increase our focus on Asia.

We have particular focus on the emerging hybrid electric vehicle market in Japan, with steady car build increases in China, market share gains in a strong Korean market and the emerging India market.

In 2006, we will also increase our direct linkage with customers in Brazil to better penetrate this market.

2005 saw continued investment by the Company in resources needed to grow the business.

These investments continue to show very good results in the form of continued steady growth and new business opportunities.

The year finished with a robust target of identified new-business opportunities that can support high single-digit growth in the long term.

The division saw a steady growth in tracked projects throughout the year.

In 2006, we will continue to moderately increase investment in growth-oriented resources, and expect a continued strong showing in terms of NBOs, as well as top line improvements as our investments create results.

Q4 also saw the successful launch of the low-profile J-case fuse with General Motors on the GMT-900 SUV truck platform, which includes the recently released 2007 Tahoe, Escalade and Silverado.

The low-profile J-case is a lower height version of the Company's successful J-case cartridge fuse product family.

In total, the GMT-900 platform uses 16 low-profile J-cases, also between 56 and 70 standard MINI fuses and one MEGA fuse.

We've previously noted strong demand for battery cable protection products, such as Cable Pro and BF Inline, as well as strong demand for high current distribution products such as Master fuse.

And the last quarter saw no let up in terms of customer interest in these product categories.

Moving forward into 2006, we will begin our launch into the off-road truck and bus global market.

This market, previously not served by Littelfuse, shows strong opportunities for our core products and core technologies.

We expect the first quarter of 2006 to show a good growth, both sequentially and from the first quarter of 2005.

The sequential growth is related to the normal rebound from the seasonally low fourth quarter, and the year-over-year growth is related to gains in North America and Asia.

Now, let me talk about our electronics business.

Overall sales for electronics business were flat when compared to the fourth quarter of 2004, recall that during that period during 2004 we were just starting to see the initial weakening of the electronics end markets, especially the telecom market.

Electronics revenues were down 4% sequentially from Q3 2005.

This amount was significantly better than the historical negative seasonal pattern.

Q4 2005 ended very well with strong orders and shipping performance in December, which is continuing into Q1 '06.

We ended with a book-to-bill of 1.11 for the fourth quarter and running at 1.12 during this first quarter of 2006.

The weak telecom market impacted the end of 2004 and most of 2005 has gained strength, and is contributing to the overall stronger book-to-bill ratio we are now experiencing.

Let me say a few words about our regional performance.

Overall sales were up in Asia for Q4 2005 when compared to '04.

A strong overall consumer electronics market, as well as strong design end results in areas such as MP3 players and satellite radios.

Sales were down when compared to Q3 2005 due to normal seasonality, but not down as much as in previous years.

Sales were down in Europe and North America for Q4 when compared to a year ago mainly due to weaker telecom end market.

By technology, our silicon products sales, which consist largely of the Teccor products and some diode products, were down 25% compared to last year's Q4 due to the weaker telecom market.

This large drop in silicon sales highlights the dependence of this business on a healthy telecom market.

Sales for silicon products were only down 1% compared to the third quarter of 2005, which indicates that this telecom demand slump has bottomed out.

Silicon products book-to-bill ratio for the last four months has now been 1.12 and we feel this is a strong indication of a recovering telecom market for us.

Our traditional fuse product offering was up 17% compared to Q4 2004, reflecting overall healthier end markets in the digital, consumer and general electronics segments, but down 5% compared to the third quarter '05 due to normal seasonality.

Again, we've seen robust bookings and shipment's performance in December and into Q1 for the electronic fuse business.

In May 2005, as mentioned previously, we started to see a stronger order book for our electronics business.

During Q1 '06, we continue to see the stronger shipments and bookings continue.

We're seeing this strength in both the telecom market, favorably impacting our silicon business, and in the consumer electronics business, mainly impacting our traditional fuse business.

We are cautiously optimistic for the first quarter of '06 based on these trends and we expect to see sequential sales increases in the range of 5% to 10%.

As we've discussed in the past, there are many areas of excitement in the electronics market that look to have significant growth in the near future.

In the past, we've talked about many of these including the mobile phone market and our successes in that market segment due to our strong customer relationships, technical expertise, and broad product portfolio.

Most recently, we've also talked about niche areas of the telecom market segment, specifically in the customer premise equipment area and the voice over IP area.

These applications are both rich in circuit protection content, upwards of $1.50 per end product, and often need to have multiple circuit protection technologies, often needing their usage to be coordinated.

This quarter, we'd like to talk to you about the consumer electronics market.

As you probably read in trade publications, and the general press, the consumer electronics market will become more of the driving force in the electronics marketplace for the next several years.

We feel that Littelfuse is well positioned for similar success in this fast-growing market segment.

While consumer electronics only accounts for approximately 15% of the ESPU sales we feel much of the segment will have both strong and unit growth as well as higher circuit protection content within the end units.

MP3 players and satellite radios are just a few examples of high-growth areas of the consumer electronics market.

We're also seeing many of these devices becoming more feature-rich and as this happens, the need for circuit protection in these applications will also increase.

For example, MP3 players have grown from 50 million units in 2004, to 95 million units in '05.

Satellite radio players are expected to grow from 9 million units in '05 to 15 million units in '06, growth of 67%.

Each of these applications tend to use an overcurrent device, such as a fuse or a PTC, within the power circuit and a selection of varistors, diodes, and polymer ESD devices, for ESD protection on the variety of buttons and ports on the device.

Total circuit protection content in a device can vary from $0.05 to $0.60.

Our strong relationships with those OEMs and ODM customers in Japan, Korea, China, North America, as well as our ESD expertise position us well in this market segment.

Our recently announced purchase of SurgX Corporation certifies our position as market leader in polymer ESD protection.

As you're aware, the prices of LCD TVs have been going down at a rapid rate.

And as this happens the unit volumes rise quickly.

Circuit protection can vary on LCD TVs, one might find between $0.10 to $0.90 of circuit protection, with fuses and varistors used in power circuits, and some of our ESD offering used on higher end products, especially units with HDMI, the high definition, multimedia interface ports for the high definition TVs.

And LCD TV can have up to five circuit protection technologies within it.

This end market is expected to grow 54% in volume in 2006, growing from 20 million units last year to almost 31 million units.

Set-top boxes are another example of a high-growth application, coupled with strong circuit protection content.

Content can range between $0.15 to $0.90 in a set-top box, with fuses and varistors used in power circuits, some of our ESD offering on higher end products, some of our Teccor products, if the unit has a phone connection, and gas discharge tubes for some of the coax connections.

Set-top boxes can have up to seven circuit protection technologies.

The entire set-top box market is expected to grow 8% in 2006.

Much of this growth will be in the mid to high end products, as the basic set-top box market is maturing.

This growth will be driven by set-top box replacements and upgrades which enable consumer-defined richer multimedia experiences.

These boxes will have improved functionality including high-definition video, content storage in a PVR, and video-on-demand.

Delivery systems will include standard cable and satellite, as well as the new internet protocol television technology.

These mid-and high end boxes tend to include higher circuit protection content to ensure long term reliability.

In 2005, 18 million mid and high end boxes shipped and this will grow to 25 million in 2006, a 39% increase.

As discussed, this past quarter had overall better than historical seasonal performance.

We are continuing to see these improving conditions in 2006, with a solid order book reflecting a stronger telecom and consumer electronics markets.

We're cautiously optimistic with strong end markets and continued successful execution of our solution strategy will drive strong performance in the first quarter of 2006.

We expect year-on-year performance comparisons for the quarter will be very favorable, as Q1 2005 was significantly negatively affected by overall end market slow down, especially in the telecom end market and a related distribution correction but started in the Q4 of 2004.

Now, let me switch and say a few words about our electrical business units.

This business, known as Powr-Gard Products, is a North American only business and represents about 9% of total Littelfuse sales.

This business unit was up 16% versus the same quarter a year ago, and 14% for the full year.

And as Phil mentioned earlier, had a record year and record earnings.

We continue to see new customer growth in the fourth quarter and general market dynamics were also positive.

The industrial sector was very strong.

The MRO replacement market for our fuses was strong based continued strength in overall manufacturing activity.

Shipments of OEM products using our fuses also showed continued positive year-over-year results.

In the non-residential construction market, overall activity for 2005 had been running below 2004 levels through the first three quarters of the year, but we saw an increase in activity in the fourth quarter.

We anticipate this positive fourth-quarter momentum in non-residential building to continue into 2006.

The electrical business continued to benefit from some price realization as a result of a first quarter price increase.

We saw several points of price realization benefit our bottom line as a result of strong price management.

Unfavorable PPV, purchase price variance, based primarily on higher copper prices continued to offset some of the favorable impact of our price realization.

We're hopeful that the unfavorable impact of commodity pricing will level off in 2006.

This business is continuing to operate at a strategic profit targets, its plant capacity is in very good shape, allowing us to quickly react to any upward changes in overall demand, and the final transfer of the manufacturing from central Illinois to a low-cost manufacturing site in Mexico has been concluded.

We continue to focus on our new product development process, with anticipation this will lead to more opportunities in the OEM market segments.

We continue to educate customers on the dangers associated with what is called an arc-flash event, a random dangerous short circuit event that can occur in an industrial setting.

Fuses, when properly applied, can help minimize the dangers associated with such an event.

We are convinced that the MRO segment customers perceive real value related to our effort to execute what we refer to as arc-flash hazard assessment, and this might afford us the opportunity to sell this service in the future.

Price increases for 2006 were actually in effect January 1, versus the March expectation, based on normal price increase announcements.

The effect of this was to inflate December 2005 demand as distributors attempted to get orders placed before the price increase.

We then experienced a slight shortfall in January bookings as a result of them getting pulled into December 2005.

February was stronger than January as it relates to our plan, and we should make up the January shortfall to plan if our demand continues at current level.

Let me add just a few closing comments from Kermit Baker, Chief Economist at the American Institute of Architects, who said we're expected to get close to a 5% real growth in non-residential construction activity this year.

After six years of recession-like conditions in the industry, 2006 is shaping up as a year that will launch a non-residential expansion taking up some of the slack from a cooling residential market.

We should see the best year for the sector since 1998 with growth evenly balanced between commercial, industrial and institutional sectors.

With that, we're very optimistic that our Powr-Gard business will continue to have another strong year in 2006.

With that, I'll hand you back to Phil.

Thanks, Gordon.

Let me now give you our latest view on the first quarter.

Based on the strong order rate in electronics and the positive overall momentum in our electrical business that Gordon just talked about, we expect first quarter consolidated sales to be up 5% to 10% sequentially compared to the fourth quarter of 2005.

With sequential sales growth in this range, we should be able to achieve a minimum of $0.30 per diluted share for the quarter, excluding any gain on the sale of Efen and excluding stock option expense recognized in accordance with FAS 123R.

Stock option expense for the first quarter will be approximately $0.03 per share.

And that concludes our prepared comments and we would be happy to take any questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll pause just a moment to let everyone assemble their questions.

Our first question comes from Reik Read of Robert Baird & Company.

Good morning.

Gordon, with your remarks you talked about some strengthening in the telecom space.

Could you maybe talk about, with the Teccor business, last quarter you talked about excess distributor inventory, you talked about China spending being somewhat weak, you talked about the conversion to VDSL slowing things down.

Can you talk about each one of those categories and tell us where you think things are right now with respect to your comments on, maybe, bottoming out?

Yes, some of those, exactly the areas we really suffered from last year, one of those, for example, the big program with British Telecom that was really upgrading everything to DSL program, that really dramatic slow down for us in 2005, we see that now coming back and that impacts business at Tyco, our customer in Europe and also through China, because the Chinese OEM Huawei has won some of that business, so impact our sales into China, although, ultimately, ending up on on line cards in the U.K.

Also with ZTE, the other Chinese OEM, we see them starting to place orders now for business that is coming in in India, and even Lucent with the Singer program, business coming back in North America.

So some of it is business that was delayed.

Some of it was business that we--that we had that was put on hold, but we're seeing strength in different segments in Europe, Asia and even here.

And can you guys comment on, I guess, two things.

One, can you talk about the utilization rate with respect to the Teccor products and how you see that unfolding, and then what would be the overall utilization rate for--for the overall Company as you look into the remainder of the year?

Sure, Reik, I'll take that.

In terms of Teccor, as we talked about at the end of the third quarter, fairly low utilization rates, through most of 2005, and we're expecting that to even take a step down in the fourth quarter because of this hole that had been created in our production schedule, in part, due to some of the programs Gordon just mentioned that got pushed out on us that are now coming back, you know, that we're now moving forward on.

So the fourth quarter utilization was actually quite low.

It was--we did have some shutdowns during the fourth quarter, extended shutdowns for the holidays, and that kind of thing, and if you figured at all into the utilization number, we were probably a little bit above 50% in the FAB for the quarter.

In the first quarter, we would expect that rate to move up into the 60s, and if we continue to see the strength we're seeing, hopefully, it will continue going north of that.

Relative to the overall--overall utilization, in electronics, for some of the other products for the fuse categories and some of the other product lines, generally, we've moved up just a small amount from, you know, third and fourth quarter that we're probably in the 70-ish range, we're probably in the first quarter now, approaching, you know, mid-70s on utilization, on kind of the average of the non-silicon products and then automotive continues to run at pretty high utilization rates, in the 90s.

And so off of that, I mean, you've given some reasonably good guidance from a revenue perspective, sounds like you think that these utilization rates are starting to move in the right direction, your language last quarter, Phil, very similar to this quarter, is that you would expect that operating margin to reach 10% some time in '06, and not ask you to forecast when that will happen, but has your timeline changed just given the factors you've seen crop up here in the last couple of months?

Good question.

I think that, you know, the plan that we had going into 2005 that we've been talking about, that we talked to you about a quarter ago, most of the margin improvement there is going to be driven off Heinrich integration savings and some of the other cost reductions that we have, and just a little bit from some operating leverage on some of the new product and new business opportunities that we thought we would drive in what was presumed to be a relatively, you know, relatively flat market.

I think with the, you know, with the market certainly for electronics, deemed a little bit stronger than I think what we were planning on at this point in time, there is certainly opportunity to get there faster than we might have thought three months ago.

Great.

Thank you for the comments.

Thank you, sir.

Our next call comes from John Franzreb of Sidoti & Company.

Hi, guys.

You just touched on Heinrich a little bit, can you bring us up to speed on where you are in the consolidation process, what hurdles remain and, maybe, some general thoughts about new selling opportunities at Heinrich?

Well, I can talk a little bit about Heinrich integration, really no significant hurdles at this point.

We really crossed all those.

It is down to just, you know, nuts and bolts execution at this point.

We've--you know, we've been working hard as we've talked about over the last quarter or two in putting--getting SAP put into, across the Heinrich businesses, we have all--virtually all the Heinrich revenues and inventories up on SAP right now.

It will be--the remaining plant in Europe that will be a longterm plant for us, which is the automotive plant, we'll be putting that up on SAP in the first half of 2006.

So we're moving forward on that front.

The China transfer that we've been talking about for the electronics Heinrich business, the WICKMANN business is going on schedule.

That will be completed, essentially, by the end of 2006 at which point there will be no more electronics manufacturing in Germany.

It will have all been moved to China and certainly there are significant savings related to that, and then, obviously, the Efen sale makes us--gives us, I think, an opportunity to put more resources now on the automotive electronics business which should help us make sure that we hit the dates that we've set for those.

So everything is on track.

We don't see any major obstacles at this point in achieving our goals.

Have you identified any cross-selling opportunities?

Sorry, any new--

Cross-selling.

Well, we certainly have the strength that we have in electronics market in the power supply segment, with the product line particularly that came from WICKMANN, that's the leading fuse product in power supplies, and that certainly helped us in that market segment.

And then in the--in the automotive area with the Pudenz business in Germany, it really gives us a much stronger inroad into the OEMs in Europe, in Germany, in particular, where we're able to bring both our products and their products together with the relationship with OEMs that is very strong.

So, you know, in both areas it helps us have a, you know, a stronger portfolio and a deeper relationship and broader range of customers.

Gordon, you talked at great length about the opportunity in the electronics market.

I wonder if you could just discuss a little bit about the competitive climate in consumer products and what the pricing environment is like for you?

I know you have some experience in the automotive market with difficult pricing environments, could you just kind of talk a little bit about what it is like in consumer electronics?

Yes, it is a very competitive market.

That is why you need those segments with high-volume growth.

It's always going to be, you know, expectations every year of price reductions.

There is no doubt about that.

There is movement more and more to Asia.

Movement to the ODMs.

We've seen, typically, I would say in that segment it would be expected to be in the at least the high single digits for price erosion year-on-year which, you know, we have to work hard in our own cost-reduction plans.

Movement to low-cost manufacturing.

A movement to lean principles and, you know, of course the volume that is necessary to get in those segments.

So we expect that to be, and have a business model around, price erosion that will be, you know, most of those products in the I would say the high single digits.

From a competitive point of view, I don't see a lot of new competitors in terms of competitive companies, we're the leader in three of those technologies in the electronics segment that we talked about, and we intend to strengthen the other technology areas and, you know, I think having the broad product offering that we have and the application knowledge, while it doesn't give us any price premium, it gives us, I think, a deeper relationship with customers so that we have a broad product offering and I think that helps alleviate the price declines, but, you know, we absolutely expect to be seeing price erosion in the consumer segment for the future.

Great.

Thank you very much.

Thank you.

Thank you, sir.

Our next question will come from Jeff Rosenberg of William Blair.

Hi.

Hi, Jeff.

Just the first question I wanted to ask was, just in terms of the refining you're doing this morning with what you see happening in operating margins.

Are you saying you can do 10% for the full year in '06, or are you saying you feel like you can achieve 10% at some point during the year?

Well, we were purposely a little vague on that, Jeff.

I think that, you know, certainly if we we were to run our upside scenario, you know, we would be able to achieve 10% for the year, for sure.

You know, on our base case scenario it will be--we'll get to 10%, you know, some time, you know, maybe, you know, middle--middle year to third quarter, and I think achieve that going forward.

So it kind of depends on how strong--I mean, it will be highly dependent on how strong the revenue growth comes in, in the first half of the year, I think we have--we're pretty confident in our cost savings that we're going to be able to deliver in the back half of the year if we get a little bit more help from operating leverage in the first half of the year, than what we have previously planned, you know, is certainly we could achieve that for the full year.

And on the cost savings, could you separate for us the importance of the integration and executing to those plans versus, I think, you often talked about a dollar amount that you planned to pull out of costs during the course of the year and sometimes have even had the, what it was going to cost you to achieve those plans.

Can you maybe talk about that a little bit?

To give you an order of magnitude, the numbers we talked about on Heinrich which are still valid on the integration, you know, something in the $5 million to $7 million range, our total cost savings would be north of $20 million.

So if we think of the Heinrich savings maybe being a quarter to a third of the total, and then the other non-Heinrich ones, you know, it's a whole range of things from purchasing initiatives, to yield improvements, to movements of manufacturing from low-cost areas to high-cost--high-cost areas to low-cost areas we have a number of those going on, again, in 2006, you know, just to name a few.

It's, you know, it's the GET, I got discharge tube move, that is going to be completed about mid-year of this year that is moving from the U.K. to China.

There is, you know, we have just recently completed the power fuse move from Arcola, Illinois to Mexico, and we talked about the Heinrich electronics move from Germany in which--to China, which we've included in the Heinrich integration savings, but it's really related to a plant move more than anything.

And so we have a whole series of activities that are going on there that--you know, that are going to drive costs that are X the Heinrich integration that will get us up well into the 20s of millions.

Are the margins we're talking about net of what it will cost you to accomplish all those programs?

Or are we going to sort of see an expense number restructuring?

How do you plan to handle that?

That is a good question.

Certainly there are ongoing costs, you know, that we're going to have that are not going to be, you know, huge hits and probably won't even really be called out in a meaningful way to the P & L that are going to be going on in the first half related to a couple of projects I just--I just mentioned.

You know, the ones that, you know, that--the ones that are the most significant in terms of cost would be the, you know, the Ireland one, which we've really already reserved for, as we discussed in 2005, we've reserved for the downsizing that has been announced there, and then the Heinrich savings--Heinrich program, the integration, some of the consolidation, as it moves that we're making there and the move to China, we have, you know, we have reserve for the majority of that in purchase accounting.

So I think that, you know, the majority of the savings and then there will be some other programs like the, you know, the GDT move to China that will be ongoing and we'll have costs associated with those and we've been booking those along with the P & L because they're few hundred thousand dollars a quarter we don't even talk about those, and there are a number of those going on.

For all of those programs, those costs will flow through the P & L and won't show up in big lumps and probably we won't really even refer to them, or they've already been reserved for, not to say that there might not be some additional programs that we would launch in 2006, but would be over and above any of the ones I talked about that could result in some larger charges.

But for the ones we're talking about here, you know, those aren't going to show up in any big lumps in 2006.

Okay.

Does that help?

Yes, definitely.

And then switching to your order strength, I'm assuming from what you're saying about utilization there hasn't been much change in your lead time, but maybe you could comment whether on any parts of your business you've seen any of that, and do you feel like there is a fair amount of inventory replenishment happening here, or maybe some comment on point of sale through [INAUDIBLE], or something that kind of gives you a sense of what the sell-through is the strength you're seeing in your book-to-bill?

The book-to-bill has been strong, you know, right now with--with the capacity that we have available, we really haven't seen our lead times--we really haven't seen our lead times go out.

In fact, we have some major initiatives in 2006, joint initiatives between our supply chain team and our manufacturing team to actually drive our lead times down, from, you know, what they've been historically in a number of different areas of the business.

So that's an area that we're very focused on, that we're working on, but right now we don't--we don't have any--we don't have any major material shortages, we don't have any major bottlenecks that would cause us not to be able to ramp up and meet demand.

Do you have a sense that end market demand is in line with the increase you've seen in your bookings?

Or what's your feeling on that?

Let me try and answer that, Jeff, for example in the Teccor business where we have more visibility in the telecom segment, one of the programs I mentioned earlier, for example, like BT, there was a huge end user demand where British Telecom was buying product from the OEMs that were doing the build-out for British Telecom.

We actually could see that and we saw it all virtually get turned off in '05 while they redesigned a lot of that in '05, and we see that coming back in.

In some of the telecom areas we're able to see it through to the service provider who is putting the infrastructure in and their relationship with the OEM that we ultimately sell to, such as the developments in India that we're seeing now that ultimately we sell through China.

So I think with the telecom part we have better visibility and that sort of really depends in some areas of the, you know, the more fragmented sort of the general electronics, the industrial instrumentation area, that goes very much through distribution, I think we have less visibility, you know, and we start to see, you know, distributors, I think, reading the signals that the economy is picking up, and that--see that business demand picking up.

There is always the concern, and that's why we say we're cautiously optimistic with distribution, that they get a little ahead of themselves when they see the market picking up and they start placing a lot of orders that, you know, at some stage may slow down.

But we're trying to be very cautious on that, measuring our sell-through, measuring the POS, from that distribution, where we can, much more in North America, just harder as more and more business moves to Asia, into Taiwan and China in particular, to be able to measure that just as transparently as we can here.

But I think we'll try to be cautious on really understanding the end users and the demand, and it is not just channel filling in any place.

Okay.

That helps.

Thank you.

Thank you, sir.

Our next question will come from Todd Peters of American Century.

Hi, good morning.

Hi, Todd.

Can you disclose a range of your capital spending for this coming year in '06?

Sure, we are, right now our plan would call for spending in the neighborhood of about $25 million, which would be, you know, roughly about 5% of sales, which has been pretty close to our longterm trend.

If you look at where that--you know, where that is going to be spent, a pretty significant portion of that is going to relate to new product related activities, both in automotive, where we are putting in capacity for some new products as well as in--as well as in electronics where we're--we're doing some things to--to support some of our new product developments, particularly in some of the silicon areas.

So it's about $25 million, about half of which is related to related to new products or additional capacity for some other reason.

Will D&A be roughly about the 28 million level?

Yes, D&A, it will be close to $30 million.

Okay.

You're right, it will be, with Efen out of there it may be closer to $28 million.

I think that is right.

Okay.

Then, right, my next question was on Efen.

If you look at the information you gave us here on the discontinued operations, and, obviously, you allocated some costs to that $1.1 million for '05.

Yes.

Versus 333 loss of a year ago.

Was there much D&A associated with that business?

With the Efen business?

Yes.

You know, I don't--I don't know the number off the top of my head, but I think it was in the neighborhood of a couple million dollars.

All right.

That would make sense.

So you're getting the 14--roughly--14 million you said on that?

$14 million would be the proceeds roughly, yes.

Okay.

Yes, that's all I need.

Thank you.

Thank you, Mr. Peters. [OPERATOR INSTRUCTIONS] Our next question will come from Alexander Paris of Barrington Research.

Good morning.

While you're on Efen, did you mention the amount of sales that that represented in the fourth quarter in the year?

It was--for the year I think it was about $32 million, $33 million.

For the quarter, I believe it was--it was in the neighborhood of about $8 million.

The fourth quarter sales X of them were, should have been, I think, a lot better than you expected, weren't they?

No, really in the range.

If we--you know, if we look at the sequential sales of Efen out of it, it was about 5.5% and the sequential--the decline is about 5.5%.

I think it would have been close to the same if we put Efen back in.

So sales were right about, for the quarter, were right about where we thought they were.

They started out--they started out weak early in the quarter and they accelerated as we got late in the quarter but net-net we're about where we thought.

Do you have offhand your option expense in 2005?

Yes, it's about $0.03 a quarter.

Or--I think in the neighborhood of around $0.12.

Okay.

And you mentioned in the auto segment looking forward, did you mention that you thought there would be 4% sequential growth?

In autos?

I thought I heard you say that.

In our revenues or in the car build?

No, in your revenues.

I think I covered that part.

I don't think I gave a number.

I said we did expect maybe strong sequential growth as we normally will expect in the first quarter.

Would that be--I see the estimates run in the auto industry, generally, at least in North America that they would pick up strongly in their first quarter just because the production was down for almost every quarter, every month during the quarter, and then, but then level off after that.

Are you looking for that sequential improvement just because of that--of that?

Or are there some internal things in your--in your performance there?

I think that's true.

I think that, you know, the overall year, I think, is expected only to be, the forecast from JD Power that we had was less than 4.5% for the whole year.

So I think you're right.

Generally, Alex, the first quarter would be--would almost always be an up quarter for automotive just because of the way the seasonality works there.

And then most of the growth that we would expect in automotive would come as a result of new products, new business opportunities and most of that would be in the back half of the year.

Do you have a big content and exposure to the General Motors 900 series, going from 800 to 900?

We, you know, I mentioned, specifically, that we have a very strong position there, you know, with this new product, the low-profile J-case, having approximately 16 of those on each of those SUVs, the Tahoe, the Silverado, Escalade, et cetera, and between 56 and 70 of our MINI fuses.

So it's a very high-content vehicle for us.

So those SUVs, you know, they're very good circuit protection content for Littelfuse, so we would like to see success for that platform.

In terms of [INAUDIBLE] I think I read somewhere where General Motors SUV's sales were down 42% in the fourth quarter plus they had the transition from 800s to 900s stretched out.

So do you see that as a good rebound for you in 2006?

Yes, I think we--in fact, I think I saw that in--the month of January I think it started the sales of the 900 quite strong, so I think people have been--we're looking for that new platform coming.

And okay, the Ireland, was that all just reducing, cutting it back, or was--because of demand?

I seem to recall you moved some of that business to Asia from Ireland.

Is that true?

Some of that business is moving from Ireland to Asia to subcontract, you know, subcontract--we are reducing subcontracting in Asia for that product category and we're just moving --we're moving a larger share of that to subcontract.

Just one other quick little one.

Your gross margin, was that significantly improved by getting rid of Efen?

Not--it wouldn't have a major impact on gross margin, no.

All right.

Thank you very much.

Yes.

Thank you, Mr. Paris.

At this time we have no further questions.

I would like to turn the call back over to Mr. Hunter and Mr. Franklin for any closing remarks.

Thank you very much.

Just in summary I think that, you know, as Phil said at the beginning, I think we met expectations in the quarter, although a quarter complicated with many moving parts, but certainly ended with a lot of optimism in our incoming order rates, particularly in electronics.

But I think in all three business units that we feel we're well positioned as we go into the first quarter.

So with that cautious, optimistic statement, I thank you all and look forward to talking to you one quarter from now.

Ladies and gentlemen, that does conclude our presentation for the day.

We do appreciate your participation.

At this time you may disconnect.