Good day, everyone, and welcome to the Littelfuse Inc. Second Quarter Fiscal 2013 Conference Call. Today's call is being recorded. At this time, I will turn the call over to Chairman, President and Chief Executive Officer, Mr. Gordon Hunter. Please go ahead, sir.

Thank you, and good morning. Welcome to the Littelfuse Second Quarter 2013 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, this was another solid quarter for Littelfuse. Sales and earnings were on track with our guidance and our 3 business units performed as we had anticipated. I'll discuss our second quarter performance and update you on the Hamlin acquisition in a few minutes. But first, I'll turn the call over to Phil, who will give the Safe Harbor statement and a brief summary of the news release.

Thanks, Gordon, and good morning. 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 second quarter of 2013 were $187.8 million, which was up 7% year-over-year and consistent with our most recent guidance. This included 1 month of sales for Hamlin, which was approximately $7 million. Excluding Hamlin, sales were up 3% year-over-year. GAAP earnings for the second quarter of 2013 were $1.18 per diluted share. This included a foreign exchange gain from balance sheet revaluation, partially offset by cost related to the Hamlin acquisition. These special items, when netted, added approximately $0.03 to earnings per share, so earnings before these items were $1.15 per share, which was consistent with our guidance. Gross margin improved in the second quarter due primarily to the strong performance of the electronics business. They've exited some unprofitable business, focused on higher margin niches and executed well operationally. On the other hand, margins in the electrical business declined to due to negative operating leverage and charges related to supplier quality problems and scrapped inventory resulting from flooding in our Mexico plant. While the negative operating leverage will continue to be an issue due to ongoing weakness in the mining sector, the quality and the inventory issues should be nonrecurring. Cash performance continues to be solid. Through 6 months, we had generated $39 million of cash from operations compared to $33 million in the prior year. Working capital continues under good control, with both account receivable days and inventory turns near target levels. As projected, capital expenditures have increased to $14 million for the first 6 months compared to $7 million last year. The increase in capital spending is related to several capacity expansion projects in support of our growth initiatives. Now, I will turn it back to Gordon for some color on business performance and market trends.

Thanks, Phil. And before I get into the review of the 3 business units, I'd like to make a few observations about the quarter. There's much discussion in the media about the continuing slowdown in the European economy and its impact on companies in a broad range of industries. But our experience in Europe has been quite different, with sales up nearly 24% in the second quarter and 18% for the first half of the year compared to the same periods last year. And much of this increase came from recent acquisitions, but nevertheless, our core business, in both automotive and electronics, is very healthy. Both business units benefited from design wins, as well as a strong customer base in the region. The electronics business was also helped by customer production moves from China to Eastern Europe. Another area of concern has been China, but we're also doing well there with increased sales in both businesses. In the electronics business, this is due to our broad range of customers and end markets. And in the automotive business, it reflects our solid position with the local Chinese manufacturers. So with that background, I'll begin the segment reports, starting with the electrical business unit. Electrical sales account for about 17% of total Littelfuse. Total electrical sales were $31.8 million in the second quarter, a decrease of 9%. There are 2 parts to our electrical business unit, one is the legacy fuse business that's been part of Littelfuse for many years, the second part is the Protection Relay and Custom Products business that we built through acquisitions, primarily the acquisition of Startco in 2008. The revenues from the 2 parts are about equal. The electrical fuse business had another very strong quarter, with second quarter sales up 11% year-over-year. However, Protection Relay and…

Thanks, Gordon. As we look at the third quarter, it's shaping up to be very similar to the second quarter with the only significant difference being that we will have a full quarter of Hamlin. So including Hamlin, our guidance for the third quarter is as follows: Sales are expected to be in the range of $195 million to $200 million. At the middle of this range, this represents 16% year-over-year growth. Earnings for the third quarter of 2013 are expected to be in the range of $1.12 to $1.27 per diluted share. This concludes our prepared remarks. Now, we'd like to open it up for questions.

[Operator Instructions] Our first question comes from Peter Lisnic from Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: First question on the electronics business. Phil, I guess, can you give us a sense as to what the driver of the incremental margin was in that business? If I look at the margins of 21 6 [ph], a significant improvement both sequentially and year-over-year on pretty relatively muted volume or top line growth, I should say. Can you give us a flavor for what drove that? And then does that -- would those factors carry through in the back half of the year into 2014?

Yes. Sure, Pete. So as we've indicated in the press release and also in some of my earlier comments, a lot of it just relates to execution. There's a little bit of operating leverage there that we benefited from, but the majority of it is just execution, execution both on the operations side. Our electronic plants, both in China and the Philippines, are operating very well. As I mentioned in my earlier remarks, too, we've also done a very nice job, and I think there's continued upside opportunity from really managing the product lines well, walking away from some lower or no margin business and focusing our efforts on some higher-value, higher-margin niches. I think the combination of those 2 things have really led to an uplift in the overall margin for the business. So it's -- I think there isn't any one thing that I can point to. Operating leverage is always important, but it's -- fundamentally, it's coming down to good product management and excellent performance from the operations in the plants and in the supply chain. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: And I would -- I mean, I guess I would classify that as being mostly structural in nature when you're talking about being able to execute at the plant level. Is there a way or maybe some productivity measures or something there that you can give us to give us a feel for plants did this in this quarter versus whatever the number would be or measure would be in a prior quarter?

Yes, I mean, there are a whole range of operations measures we look at, both on the supply chain side and the operations side. There are quality measures, there are productivity measures, and none of them individually, and they're different among the 4 different plants that we operate. But generally speaking, all the major measures are moving in the right direction. So I think in trying to get at your question of sustainability, I mean, I think the margin certainly is as high as we've ever seen in electronics. And I'm not going to guarantee that it's going to stay exactly up at those levels, but I think that overall, the general direction that we've seen the margins and the gains that we've been making over the last -- pretty steadily over the last year, I would say for the most part, those are sustainable. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right. And then just a couple of quick ones on the electrical business, I don't know if -- I may have missed it, but I don't know if you quantified just the impact from the, I guess from the Mexican facility issue, the inventory, et cetera, if you could do that. And then obviously, mining down, but I'm wondering if yesterday's news on just kind of the change in the potash cartel changes, how you think about the mining comparisons over the next, call it, 2 to 6 quarters when you're thinking about that impact.

Yes. First, in terms of quantifying the electrical -- a couple of the onetime issues I talked about, it's probably -- it's a little less than $1 million. It's probably in the neighborhood of that $800,000 between the 2 issues that -- and there were a couple of other things as well, but we view those as pretty much onetime. There may be a little bit of carryover of the supplier quality problem into Q3, but ultimately, those issues will be fixed and go away. So we will see an uplift. And I think even with the lower volumes that we're seeing in the mining sector, you should see over the next couple of quarters, you should see electrical margins move up closer to -- and probably approaching the 20% range, which is really where that business should be operating given the current makeup of sales in that segment. So expect a couple of hundred point uplift in operating margins over there, over the next couple of quarters. Related to your other question of mining, I'll let Gordon make some comments there as well. But I think generally speaking, it's a little bit too early to draw any great conclusions from some of the potash news that came out yesterday relative to the step-up of Russian potash production. At this point, I don't think it's really changed our view of anything that's going on in that market. We were expecting challenges in the potash mining part of that market already. I don't see this as really changing that. The -- and that's the reason that we're working so hard on trying to diversify that base. Gordon gave a lot of great examples of some of the things that we're working on and some of the successes we're beginning to have.

Our next question comes from Shawn Harrison from Longbow Research.

This is Gausia Chowdhury on behalf of Shawn. My first question was just about the growth in EBIT margin for Hamlin for the second quarter. Could you break that out? And then what's implied in the third quarter guidance? And also, what should we expect for the incremental interest expense for the third quarter?

Well, the Hamlin -- let me give some characterization of what we expect from Hamlin. So we're looking at something probably a little north of $20 million per quarter for the next couple of quarters for Hamlin. So it's running at a little bit more than an $80 million run rate right now, and that should continue to ramp up. On the sales side, the margins are going to be probably a little bit depressed through the remainder of this year compared to what we ultimately expect. First of all, there's a pretty significant noncash charge coming through the Hamlin P&L, and ultimately, the Littelfuse P&L related to basically purchase accounting where we've had to step up the fixed assets, and we have additional depreciation from that step-up coming through the P&L as well. We have a pretty significant slug of amortization from the intangible assets that we acquired with that business. In total, between the depreciation step-up and the amortization, it's about $1.6 million per quarter of non-cash charges coming through the P&L. So that equates to about 7 or 8 points of margin -- 700, 800 basis points of margin. So with that, that's obviously going to be having an impact on margins from purely a GAAP standpoint. Of course, these are all noncash charges so we'll continue to highlight what those are. But excluding those noncash charges that I just mentioned, we would expect operating margins to be running, let's say, a little bit below where we ultimately think they can be. They're going to kind of be in the mid teens, in the maybe 14%, 15% range, whereas we think ultimately, as we get out into '14 and '15, those could be up into the higher teens and we hope ultimately closer to 20% margins. But it's -- we've got some integration costs that we're going to be incurring in the next couple of quarters that will keep that down as well. We've talked about some profit improvement initiatives, including the consolidation of the Romanian plant that Gordon mentioned, that will help margins once that's complete later this year. So I think that the margins there are going to be -- they're going to be a little bit dilutive to our overall margins for a while, but we think ultimately, they should come up very close to the corporate margins.

Great, that's very helpful. My second question is about the total company gross margin. It looks like it's about 41% implied. So given that the mining business is going to be weaker and then the onetime issues are going away with the electrical business, which other end markets are improving or going to most offset that weakness?

From a margin perspective, I think the biggest thing that we're going to see on margins, excluding Hamlin for a minute, is just the operating leverage. I mean, we're operating at -- gross margins is high as we've seen in the business right now. I would expect Q3, again excluding Hamlin, to be similar to what we saw in Q2. And it's really a function of just good execution on a lot of fronts, and we're starting to see our revenue come back in some of the businesses that have been depressed, like the electronics business, and that gives us operating leverage. We have seen nice growth in the automotive business. We get some operating leverage off that. So continue to expect that particularly in Q2 and Q3, where sales are at seasonally peak levels, seeing gross margins in the 40% range is -- we think that's sustainable.

Okay, great. And then just a real quick one, sorry. About the free cash flow goal for 2003 [ph] post Hamlin, is there an update to that goal?

No. I don't think Hamlin is going to have too much of an impact there. It may be a little bit. It will be slightly additive to the cash flow. But I think what we've talked about all along is still pretty much intact, that we expect cash flow from operations to be in the, probably in the $120 million or so range. Hamlin will probably add a little bit to that. And CapEx, roughly about $30 million. So free cash flow should be roughly $90 million or slightly better than that for the year.

The next question comes from Matt Sheerin from Stifel. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Just to get clarity on your revenue guidance, sort of flattish x the incremental revenue from Hamlin, is that -- typically, your sort of flat to down in the automotive business seasonally. Sounds like the electrical business will be down. Are you seeing some sequentials -- and correct me if I'm wrong, are you seeing then some sequential improvements in the electronics business or is it basically kind of flat across the board?

It's pretty flat. But your comments were right that the automotive business seasonally is typically down slightly in Q3. We don't expect much down. That'll be down a little bit. The electrical business, certainly, the relay and custom part of that, we're going to see another reasonable sequential drop there, as Gordon mentioned. However, we should see power fuse tick up in Q3, which is typically our strong quarter, and things are going well there with some of the new wins that Gordon mentioned. So that'll mostly offset the reduction in relay and custom, maybe not completely, but mostly. And then we expect some very modest uptick in the electronics business. We entered the quarter with only a book-to-bill just slightly over 1, as we said in the press release. Bookings have been a little bit stronger in July. So I think we've got some support from the bookings, but it's probably not going to be up much sequentially. It may be up a little bit, Q2 to Q3 for electronics. So overall, you're right. Excluding Hamlin, I would expect it, the down in automotive to be offset by the up in electronics, and the electrical business is going to be relatively flat. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay, Phil. And on the automotive, your operating margin was down modestly quarter-to-quarter despite, I think, 8% or 9% revenue uptick. And I know a chunk of that came from Hamlin. Was that sort of the differential -- the Hamlin impact of the lower margins on the margin degradation or were there other issues?

No, no other issues there. I think the operating margin x Hamlin actually ticked up a little bit. So the entire degradation would be due to Hamlin. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And just lastly, it sounds like you're seeing some really significant encouraging signs on your sensor business as you've rolled up a couple of acquisitions here and cross-selling opportunities. And I know you've talked about looking at other areas to expand. What does the pipeline look like there, give us an idea of what you've been looking at?

We've talked about in the past, and it hasn't changed, that we have a pretty full funnel. A lot of things in there are not immediately actionable, but we think that there will be quite a few that will be over time. We're currently working on a couple of deals, and I think that we have some that, if everything goes well, could close in the next 6 to 9 months. So we're continuing to see a steady pace of new things coming in, a few things dropping out that we either decide aren't going work for one reason or another. But I would say, it's -- we're in a good position to execute on the 5-year target that we set. I think we've got a good start on that, and I think we have potentially some new things coming in, as I said, in the next 6 to 12 months. So we feel pretty good about the acquisition pipeline overall.

The next question comes from John Franzreb from Sidoti & Company. John Franzreb - Sidoti & Company, LLC: Phil, what's the [indiscernible] for getting that Hamlin margin from '14 to '15 to 18% to 20%?

We'll have to defer that, I think, for another quarter. We really need to get in and understand. We're in the process of putting together the integration plans where we need to understand a little bit better kind of the core margins on some of the new business that's coming in that we don't fully understand yet. So we'll give a clearer picture of that, I think, over the next quarter or 2. But it's not going to be in the short term. I think that certainly, we aren't going to see any improvement for the remainder of this year and probably not in the first half of '14 either. It's going to probably be out 1 year, I would guess, before we [indiscernible]. But we'll -- give us another quarter or 2 and we'll start to lay that out a little bit more clearly. John Franzreb - Sidoti & Company, LLC: Okay, that's fine. Could you just give us what the revenue allocation was in Hamlin? I know you split up between automotive and electronics. Where is it -- what does that look like now?

It's -- we had -- we put the numbers in one of the attachments on the press release. But it's -- I think it's between 50% and 55% automotive and the rest of it's in electronics. It's a little over half automotive. John Franzreb - Sidoti & Company, LLC: Okay. All right. And did I hear you correctly when you -- did you say that the new businesses that Gordon -- numerous business awards that Gordon kind of pointed out on the electrical side might be sufficient to offset the degradation you're seeing in the custom side?

Not necessarily new business awards, but it's -- we're-- Q3 is typically the strongest seasonal quarter for the electrical power fuse business. So the combination between the strongest seasonal quarter and we're on a pretty good growth trend, and we've had roughly 10% growth for about 4 or 5 quarters in a row there. The combination between that good growth trajectory and the strong seasonal quarter, I think, it may not fully offset the decline in custom and relay, but I think it'll mostly offset that. John Franzreb - Sidoti & Company, LLC: Okay, great. And one last question, just to help me understand. The book-to-bill last quarter is 1.18, but the legacy electronics revenue is only up 11%. I think that lead times are so long. What's -- I mean, it's a sizable disconnect. What's the disconnect there?

I don't know that there's -- I mean, we saw a similar thing happen last year, too, when the business is starting again with the stronger seasonal quarters and there gets to be a little bit more optimism or maybe less pessimism from our distributors, they tend to start placing orders further out is probably more the case than anything. So they're layering those orders in probably 3 and 4 months out as opposed to when things are tight and they're managing inventory very tightly, and it tends to be more 2 or 3 months. So I think it probably reflects more the orders being placed out into the future, and that's why the book-to-bill, at the end of Q2, was a little less robust than maybe what we would normally expect. Part of it was just the carryover from the strong orders that we had placed in Q1, most of which went out into Q3 and some even into Q4. John Franzreb - Sidoti & Company, LLC: Really? Okay. That makes perfect sense. But you would still expect Q4 to have the normal, whatever, it's 5% to 7% drop in electronics or...

I would expect it to have, yes, probably normal seasonality. I mean with the way we've seen orders get placed out there, if those orders don't get canceled, maybe we could do a little bit better than that. But so far, there's no real reason to think that'll be anything other than normal seasonality.

Our next question comes from Rob Crystal from Goldman Sachs.

My question was asked and answered.

Our next question comes from Garo Norian from Palisade Capital Management.

I just wanted to -- got a point of clarification. When you guys give your earnings guidance, is that a GAAP number or do you have other items in there?

It's essentially a GAAP number. The only difference would be if we have charges like impairment charges that we would book during the quarter, and typically we wouldn't know those ahead of time or we would've already booked them. Things like impairment charges, restructuring charges, we would take out of the numbers. So -- but we are not -- we don't pull out amortization. We don't -- there isn't anything that we regularly pull out of the numbers. So essentially, the number we gave is a GAAP number. But if, for example, we were to have a restructuring charge or an impairment charge, we'd be pulling that out and comparing the number that we actually do x those special items to the guidance that we have. Does that make sense?

Yes. I guess, so we shouldn't expect kind of any further Hamlin-specific, acquisition-related charges or -- and then I'm curious also on the foreign exchange gain. Is that something that's likely to repeat in some way?

So on the Hamlin side, in fact, there probably will be a little bit of additional Hamlin charge that comes through. We have this purchase accounting step-up of inventory that then rolls through the P&L, and that was part of the $2.7 million or $2.9 million that we took out of the numbers in Q2. We'll probably have a little bit more than that -- or a little bit more of that left in Q3. So that's one charge that probably won't come through that was not contemplated in the guidance. So it's not exactly GAAP, but we don't -- for example, we don't pull out, typically pull out amortization out of that number, or stock comp or anything else that some people typically do in their guidance. So it's...

Sure. And there's no expected gains that you know of today that would be in that number?

No, there are no expected gains in that number for sure. To answer your question on the FX gain that we had in Q2, in typical quarters, we have gains and losses on FX that we just don't call out because they're not that material. We felt -- and typically, we would not call those out, but this time, we thought it was such a big number that we felt like we needed to call that out and pull it out of the numbers. And so are we expecting that to reoccur? No. In fact, it could go back the other way in a quarter. And if it went back the other way in a big way, we'd call it out and pull it out of the numbers. If it's $300,000 or $400,000, which is more typical of what it is, we'd probably just absorb it and move on.

Okay. And then just a broad question. The overall kind of trends towards wireless as opposed to wired, connected type of devices, how is that likely to play through your business overall on a net basis?

Well, we've, over the years, studied that and thought that maybe the lack of connected wires in the, for example, the wired telephone network would actually decrease the production content. That really hasn't happened. There's been so much proliferation of devices that have increased the need for mobility protection, battery protection, ESD Protection. And then as I mentioned, the infrastructure buildout of the wireless network gives lots of product opportunities. So the growth of the overall market in wireless has actually been a positive for our business. And maybe 10 years ago, we might have been concerned about it. That just has not happened.

Okay. And then just last comment -- question on the non-res construction market you guys made a comment on. And I was just curious, do you have any real good confidence that the back half is going to be picking up there? Or is it more the signals suggest it might?

These are signals from publications that we're reading. I mean we have a very strong position there. It used to be a very significant part of our electrical fuse business. It's been down for several, several quarters now, and we've managed to make that up with great initiatives in all the OEM areas I mentioned. And it's never going to stay down forever, and we're starting to see some initial signs that it may start at the second half of the year. But that's just reading publications that give leading indicators of that.

But even if non-res were to pick up in the second half of the year, we wouldn't see any benefit of that until well out into 2014 because our stuff is some of the last stuff that goes into the building, so we're kind of late cycle on that. So the earliest we're going to see any benefit is probably a year from now, even if it starts picking up today.

The last question will come from John Lopez from Vertical Group.

Actually, I have a couple. Most of them are real quick. So if you don't mind, feel free to cut me off if you need to. The first question is last year, I believe, was just a stub period from Accel, and Terra was until September. So I'm just wondering if we were to take Hamlin, Terra and Accel out from this current quarter, were revenues up or down year-on-year?

They were roughly flat if you took out all acquisitions. It was within a percent of being flat.

Got you. The second one, I think someone asked this, but for calendar Q3, can you give us a feel for the interest expense assumption or burden requirement from the calendar Q2 debt and also the tax rate?

Yes, I mean the interest expense, we're at -- I mean you can do the math, we're -- we borrowed $145 million on Hamlin at about 1/3, 2/3 of the way through the second quarter. We're going to obviously have that for the full third quarter and we're paying LIBOR plus 125 on that. So you can add that interest expense into the quarter and figure it out. I don't have the number in front of me, but that would be how the math would work. On the tax rate, we think tax rate is going to be somewhere between 25% and 26%. So it could be a little bit higher than Q2, but it's not going to be a whole lot different than it has been for the first 2 quarters.

Got you. The third one -- could you just -- I don't know if you've quantified this historically, I think you've mostly qualitatively. But you did reference channel inventories went up a little bit. Can you just give us some metrics around that relative to, say, the calendar first quarter?

Yes, we track channel inventories very carefully and we track the sell-through, the POS, from all of our distribution channels. And there's a little more optimism. There's been a little pickup in distribution channels, but very consistent with the sell-through POS. So we're very comfortable that the channel inventories are at appropriate levels.

Okay. But like by half a week, a week, I mean is there anything you could tell us in terms of what it increased relative to the prior quarter?

It wasn't a lot. If it was a week, it probably wasn't any more than that.

Okay. Got you, got you. In the electronic segment, can you just quantify or give us a feel broadly, if you were to take the combination of PCs, smartphones and tablets, what do those 3 markets in combination comprise for the electronic segment?

So if we look at all of consumer electronics, that include the ones you mentioned plus TV, I guess you said TVs and game consoles and everything that would be, I guess, categorized as digital consumer, it's about 40% of electronics or about 20% of our total business.

Got you. And then just as it relates to the smartphone and the tablet markets, there's been some indications that the supply chain, like Taiwan Semiconductor for example of it, that there was some excess inventory staged through first half of the year. And that appears to be in the process of waning in the second half of the year. Is that broadly consistent with how you're contemplating calendar Q3 and calendar Q4 for that portion of your business where it would be relevant?

Yes, I think -- I mean, we've seen real weakness, and we commented on it, in places like Taiwan, in Korea, in large part because I think there has been some inventory and demand has not been great for some of the products you just mentioned. I think we're assuming some slight improvement in that, but it's not going to be that significant. So it's going to be modest uptick from the current low levels.

Got you. Makes sense. Two last quick ones, I'm sorry. On the China automotive stuff that you did detailed a little bit earlier. I'm curious, the one thing you didn't reference was there's a reasonable amount of speculation, I guess, maybe the right word, but the China CAM [ph] has come out and said this, there's a decent chance that the pollution curves will be expanded, I think, from 2 or 3 [indiscernible] now perhaps 8 in the second half of the year. Is that something that has any implication to your business to the extent that it's put in motion?

Not really.

I think we're going to have to cut it off here.

Yes. We're really out of time. Okay. All right. Thanks a lot. Well, thanks, everyone, for joining us. As I said at the beginning, the second quarter came in as anticipated. We're continuing to win new business and we're making very good progress on the integration of Hamlin into Littelfuse. And we look forward to giving you a much bigger update on that next time. Thank you.

Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.