Good day, ladies and gentlemen, and welcome to the Littelfuse Inc. Fourth Quarter 2011 Conference Call. Today's call is being recorded. At this time, I will turn the conference over to Chairman, President and Chief Executive Officer, Mr. Gordon Hunter. Please go ahead, sir.

Thank you and good morning, and welcome to the Littelfuse Fourth Quarter 2011 Conference Call. Joining me today is Phil Franklin, our Vice President of Operations Support and Chief Financial Officer. As you saw in the news release, our fourth quarter sales and earnings came in above the middle of the range we stated on our last call. These increases were driven by our Automotive and Electrical businesses, which performed very well. However, as we anticipated, the fourth quarter was challenging for the Electronics business due to the inventory correction in the distribution channel as reflected in the 16% decline in electronics sales for the quarter. In spite of a soft fourth quarter, the full year of 2011 was another excellent year for Littelfuse. Sales, earnings and cash flow all set new records for the second consecutive year. A number of factors contributed to the record performance. Our operating structure continues to provide greater efficiency at a lower cost. We saw increased sales of existing products and also introduced a number of innovative new products that leverage our expertise and provide solutions for our customers' circuit protection, safety and electrical challenges. And we made 2 strategic acquisitions that expand our automotive and electrical capabilities and provide additional opportunities for future growth. I'm going to cover both the fourth quarter and the full year in more detail in a few minutes. But first, I'll turn the call over to Phil Franklin, who will give the Safe Harbor statement and a brief summary of the news release.

Thank you, Gordon, and good morning, everyone. Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment as we currently see it, and as such, do include various risks and uncertainties. Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements. Sales for the fourth quarter of 2011 were $147 million, which was up 3% year-over-year due to continued organic growth in the electrical and automotive businesses, acquisitions of Cole Hersee and Selco, partially offset by lower electronic sales. Fourth quarter sales, excluding Cole Hersee and Selco, declined 6% year-over-year. GAAP earnings for the fourth quarter were $0.70 per diluted share, down from $0.88 in the fourth quarter of 2010. The decline in earnings reflects lower sales and production volumes in the base business, coupled with higher commodity prices. Non-GAAP earnings of $0.67 per share were consistent with our guidance of $0.60 to $0.70. We had another strong cash flow performance in the fourth quarter, with cash from operating activities coming at $36.8 million. For the full year, as Gordon said, we set records for all key financial metrics. Sales of $665 million were up 9% year-over-year, a strong organic growth in the electrical and automotive businesses and the addition of Cole Hersee and Selco more than offset a 5% decline in the Electronics business. Full-year GAAP earnings of $3.90 were up 11% from the prior year. Cash from operating activities of $121 million was up 15% year-over-year, and for the first time, free cash flow exceeded $100 million. Now I'll turn it back to Gordon for some color on market trends and business performance.

Thanks, Phil. Now let's move on to the review of our 3 business units, starting with automotive. This business contributed approximately 30% of total Littelfuse sales in 2011. This was a record year for our Automotive business, the second in a row, in fact. 2011 sales of $197.6 million increased 42% over 2010 sales. Excluding Cole Hersee, which we acquired in December 2010, the strong 2011 performance put us about 8% above last year's record sales of $139.1 million. Fourth quarter automotive sales of $45.6 million were up 37% year-over-year. Excluding Cole Hersee, automotive sales were up more than 4% over last year's fourth quarter. The continuing increases in demand in both Asia and the United States were the primary drivers behind the fourth quarter sales increases. The fourth quarter automotive sales were down about 4% from the third quarter, and this is typical for this business as comp production slows down over the Christmas vacation periods and new models are in the ramp-up phase. Our strongest geographic area was China, where we achieved a double-digit increase in fourth quarter sales compared to both the third quarter of 2011 and the fourth quarter of last year. This was mainly driven by increased comp production in preparation for strong September to December car sales that typically occur before the Chinese New Year. During the fourth quarter, we focused on strengthening strategic partnerships with our leading Tier 1 customers in the hybrid electric vehicle market. Last quarter, we presented our new high-performing fuse for the HEV market that now delivered samples to all of our major partners involved in green car initiatives. The feedback from them and OEMs on our technology approach and solution has been very positive, and we're now in the system test phase as specifications in this relatively new…

Thanks, Gordon. The following is our guidance for the first quarter of 2012. Sales are expected to be in the range of $148 million to $158 million and Earnings are expected to be in the range of $0.68 to $0.78 per diluted share. For the year 2012, capital spending is expected to be approximately $35 million. The increased spending, compared to the last 2 years, is primarily related to building expansions at our manufacturing sites in Canada, the Philippines and Mexico, in support of our growth initiatives. This concludes our prepared remarks. Now we'd like to open it up for questions.

[Operator Instructions] Your first question comes from the line of Josh Chan, Robert W. Baird.

You guys talked in the press release about book-to-bill in the electronics business being significantly above 1 in the first quarter so far. Would you characterize that as being above normal seasonal patterns? Or is that something you would expect at this juncture of the year?

I mean, it's probably a little bit higher than we would normally expect, but some of that is just due to the slow start to the year and the early Chinese New Year as well. So our shipments were probably lower than normal for the beginning of the year and our orders were probably -- were more than our shipments. But I wouldn't take a significantly above 1 book-to-bill necessarily to be something that's extraordinary on the upside. It's consistent with what we would expect, though, and consistent with shipments that should be improving as the quarter goes on.

Okay. That makes sense. And then we switched over to the SG&A. Could you comment on the SG&A increase year-over-year? It seems like a fairly sizable increase, at least relative to the sales base.

Yes. I think if you really dissect that, I think what you'll find is, we added 2 acquisitions. The Cole Hersee at the beginning of the year, Selco in the middle of the year. And if you take those 2 acquisitions out, I think SG&A only went up about 2% to 3% for the year. So most of the increase is related to the acquisitions that we added. And right now, SG&A for both of those businesses, as a percent of sales, is higher than we would ultimately expect it to be. As we further integrate those businesses, as we leverage the top line for those businesses, that SG&A percentage should come down. But -- for example, with Cole Hersee, we're right in the process, as Gordon said, of putting them up on SAP. So we're spending money to do that. As we get into the back half of this year, we'll have SAP up and running and we'll have some opportunities to streamline our SG&A but it's going to take a while to do that.

Okay, that's great. And then last quarter, there was a comment about possibly growing earnings modestly in 2012. Is the headwind that you see in the first quarter potentially too large to overcome to hit that target for the full year?

I don't think so. I mean, we're obviously starting out well below last year in the first quarter, but we are expecting things to bounce back. We -- as we said, we think the inventory correction is nearing an end and we expect to see that inventory come into equilibrium sometime over the next few months. And -- so we think there's certainly an opportunity to see our Electronics business come back to more normal levels in either the second or third quarter, and with some of the growth opportunities we have in the electrical business and also automotive, I think there's still a reasonable chance we could increase earnings year-over-year.

Your next question comes from the line of Shawn Harrison with Longbow Research.

Just wanted to follow up on the commentary that things seem pretty normal right now. Coming out of Chinese New Year, are you're seeing any better demand patterns or is it pretty much in line with what you'd expect? And any commentary on where you're seeing, maybe more of the inventories? Is it still an Asia problem or it's still -- is it European focused?

I think the inventory problem has been kind of across the board. What's typical with that is that Asia usually adjust their inventory quicker. They usually carry less and they adjust quicker. The U.S. is usually slower to adjust. And so I would say, it's probably more in the U.S. and Europe, the amount that lingers at this point. But I think we certainly made a good dent in that inventory in the fourth quarter, and we're expecting it, as I said, to be in line as we come towards the end of the first quarter here. And I would -- yes, I'd say it's a little bit too early to say, coming out of Chinese New Year, how do we feel about it. We don't see anything particularly unusual, but it's a little bit too early to make a call there.

Okay, that's helpful. And then there's a -- 2 brief follow-ups. The Commercial Vehicle Business, what is the sales run rate of that business right now? Then also, what is the tax rate expectation for both the March quarter and 2012?

Yes. So the Cole Hersee business is -- I think it ran for the year at about a $46 million run rate. And as Gordon said, I think we -- we were expecting that to be a higher single-digit growth rate for 2012. So it should be somewhere in the $50 million run rate range. And regarding tax rate, we had an unusually low tax rate in 2011 for a number of reasons and we did have some favorable tax benefits that may not be reoccurring, probably won't be. We also had some pretty favorable mix of income skewed towards lower tax rate jurisdictions, particularly over in Asia. So I think for the -- at least, the first half of the year, I would expect tax rates to bounce back up to more typical rates, which are in the kind of the 28% range or so. I think as we've alluded to in prior calls, we're working on some things longer-term that we think could reduce the tax rate really down into the mid-20s but that probably isn't -- and we may start to see some of that in the back half of the year, but it's a little bit too early to make that call. So I've -- I would plan on a rate that's in the 28% range or so in the first half of the year and maybe, we'll inch down in the second half. But probably a conservative call would be to just assume 28% for the year.

Your next question comes from the line of Anthony Kure with KeyBanc.

Just wanted to clarify or make sure I understood the comment around the distribution sales out and your sales into distribution. Let me get that number right. I think you said sales to end customers, so that's sales out of distribution, were down 15%, but your sales into distribution were down 25%. Did I hear that correctly?

That's exactly correct.

Okay. And then if I look at the midpoint of your first quarter guidance, implies about 14.5% op margins from about, what -- 12.8% in the fourth quarter. So is it fair to say that the biggest driver for the uplift in margins will be electronics with the other 2 segments holding steady? Or maybe you can talk about sort of how the margin improvement is playing out among the segments for the first quarter?

Yes. I would say that's going to be the biggest driver. It's going to be a -- ramp-up in production rates were very, very low in the fourth quarter. I mean, not only were sales low, but we took about $7 million out of inventory as well during the quarter. So we would expect production rates to improve, which should help the margins in the first quarter and that'll be largely coming from the Electronics business.

Okay. And then from a sales perspective, do you expect sales to be down again still in the first quarter? Or see an uptick from the fourth quarter levels? I'm talking sequentially.

Sequentially, well, the guidance we gave would imply a modest increase in sales from Q4 to Q1.

Right. And so even in electronics, it should increase?

Oh, in electronics, yes. I mean, in electronics, we should have some uplift. I mean, typically, first quarter is a pretty good quarter for Automotive as well. They would generally have a stronger Q1 than Q4. But Electronics, we also expect modest improvements in sales in the Electronics business.

Okay. And then could you just remind us how much you have left on the share repurchase that expires at the end of April? And it doesn't look like you bought any shares in the fourth quarter. Could you just confirm that?

No. We did not buy any shares in the fourth quarter. And just remind you that we do -- we have a lot of cash on the balance sheet. Obviously, we're looking at acquisitions -- is our first and best use of that cash, but also, most of that cash right now is overseas. So part of the consideration in buying back stock at this point is we'd have to probably borrow most of that off the revolver and we want to make sure that we keep our powder dry for some good acquisitions that we think could happen over the next 6 to 9 months. On the stock repurchase program, I think we have a -- we added another 0.5 million shares back last quarter to the 1 million that we had previously and I think we had purchased around and between 800,000 and 900,000 off that, so we have a little over 600,000 on the authorization at the moment.

And that expires end of April, is that correct?

Yes.

And then just a last question. Just given all the discussion around the different markets and the opportunities for the year. Do you still -- it sounds like, I mean, correct me if I'm wrong, but it sounds like electrical still has the best chance of being the fastest grower among your 3 segments in 2012. Would you say that's about right?

I think that's very true, Tony. The -- particularly, the strength of the mining opportunities that I talked about, the Protection Relay and the custom business has got tremendous momentum and we have pretty good visibility into a lot of those long-term capital investment programs in the mining area. And as I mentioned, we're really still gaining momentum in international markets. A lot of it in -- the North America position is very strong, but really getting our own resources more into places like South America and Australia and Asia that we are very confident that we're going to have a very strong year again in that segment.

[Operator Instructions] Your next question comes from the line of Alek Gasiel with Barrington.

I know you guys went through extensive detail, but just kind of give us a summary of looking out in fiscal '12 between -- are we assuming Electrical, mid-double digits; Automotive, single to mid-digits; and electronics, kind of flat to up single digits or low single digits?

Yes, that's -- I mean, we -- probably if you're going to take a stab at it at this point, those would be reasonable assumptions. I mean, it would be continuing on kind of trends that we've seen recently in the automotive and electrical business. And as we said, we expect some recovery in the Electronics business, but we most likely will be in negative territory for the first half of the year and we'll have -- if that business is going to grow for the year, it'll have to -- we'll have to make that up in the second half.

Okay. And then in the Automotive segment, you mentioned that Europe, you expect to be down 3%. Is Europe -- is that correct to say it's like 45% of your sales in auto is from Europe?

Yes. And just to clarify, what I said is the J.D. Power, that's the research company, have stated at the moment that given the concerns about Europe, that they expect to see car production down about 3%. We're not stating our own business necessarily down directly in line. We've got a lot of new programs, a lot of design wins, but it's -- obviously, we are impacted by global car production as we saw in the big downturn. And their projections of about -- I think it's 5.5% for growth there this year is slightly down from where they originally where. They did break that out into regions and they're concerned about Europe. And that -- I think that news changes everyday depending on the Greek crisis and getting resolution there. And I do feel that we have -- we were very concerned a year ago about production volumes in Europe, and it did not turn out to be negative. It did not turn out to be anywhere near as bad as was possible. And a lot of that was driven by exports of cars from Europe. So cars produced in Europe, but exported particularly to places like China and Russia and the Middle East. So I think that that's a pessimistic view from J.D. Power. We've got very good penetration. It is about 45%, or was about 45% of our passenger car business, but as we see the big bounce back in North America, and obviously, the very solid growth in China, that percentage is probably a little less than that. But we're still very bullish about the business we have there.

Also, we'll be likely be fighting a bit of a headwind from a weaker euro in Europe as well. So with car build down and the euro weaker, and then we'll have some offset from some of the good new programs that we have there, but that will be tough to grow that business much in 2012, I think.

Okay. And then just to touch on the solar business. What was revenue for 2011?

It would've been in the neighborhood of about $6 million, so down from 2010's revenue. I think it was between $7.5 million and $8 million. We think likely that we'll grow that business at least 50% in 2012.

Is that just going to be coming from the U.S., Asia? Or is there going to -- is Europe going to be part of that recovery?

It's -- probably most of it will be coming from the U.S. and Asia. Europe can't be much worse than it was in 2011, so we may get a little bit of help there. But I think that the confidence that we have in terms of growth opportunities, there's some big programs in the U.S. and we also have some Asian programs as well that would help us drive that.

There are no further questions at this time. And with no further questions, I would like to turn the conference back over to Mr. Gordon Hunter for further remarks.

Well, thank you for joining us in today's call and for your questions and comments. We believe 2012 is off to a good start and we're looking forward to building on all that we have accomplished over the past year. And as always, we appreciate your interest to Littelfuse and your support. Have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.