Good day, everyone, and welcome to the Littelfuse, Inc. Fourth Quarter 2014 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. And welcome to the Littelfuse Fourth Quarter 2014 conference call. As always, joining me today is Phil Franklin, our Senior Vice President and Chief Financial Officer. As you saw on the news release, earnings for the fourth quarter were a disappointment while sales met our expectations and cash flow continues to be outstanding. Notwithstanding the fourth quarter earnings shortfall, 2014 overall was a solid year for Littelfuse with double-digit sales growth, high single-digit earnings growth and 30% growth in operating cash flow. Now, I’ll turn the call over to Phil who will give the Safe Harbor statement and discuss the fourth quarter in more detail.

Thanks, 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 2014 were $207 million, which was up 4% year-over-year, up 7% excluding currency effects and in the middle of our guidance range. GAAP earnings for the fourth quarter were $0.86 per diluted share. Excluding special items, earnings for the fourth quarter were $1.02 per diluted share, which was below our guidance, as Gordon said. Even though sales and cash flow met our expectations for the fourth quarter, margins and earnings per share were below expectations. Currency, particularly the euro was a significant factor, as was a range of other issues that all seem to go the wrong direction. These included year-end true up for the certain reserves, timing of operating overhead expenses and performance issues hit a few of our plants. Some of these were isolated to the fourth quarter, other such as plant performance are being addressed. And Gordon will talk about specific actions we are taking, in a moment. Currency which only started to become an issue in the last few months is looking like a headwind we will have to deal with for the foreseeable future. Despite lower earnings in the fourth quarter, we continue to generate record levels of cash flow. Good working capital control, lower cash taxes and solid full year earnings resulted in 2014 cash flow of $153 million. This beat our previous best result by over $30 million. I think this indicates that in spite of the disappointing earnings result in the fourth quarter, we’re doing a lot of the right things to manage the business. Now, I’ll turn it back to Gordon for more color on business performance and market trends.

Thanks Phil. Let me start with some additional comments on the actions we are taking to improve performance. I’ll begin with the sensor business. In November, we announced the consolidation of our reed based sensor manufacturing from existing plants in Lake Mills, Wisconsin and Suzhou, China into a new plant located on the campus of our existing operations in the Philippines. The new 100,000 square foot facility should be completed by the end of the first quarter. And we will begin the transfer of manufacturing equipment during the second quarter. We expect to begin seeing cost improvements in late 2015 and to complete the consolidation by mid 2016 at which point you will achieve the full run rate savings of $5 million. The two existing locations for the reed based sensors are capacity constrained. The new facility has room for future expansion. So, after the move, we’ll be able to work on getting this product line on a growth track. With the strong focus on robust new product and process development for automotive sensors, we’ve had success in winning multiple new projects with significantly improved margins. Through the manufacturing consolidation and the significant growth of higher margins business in the automotive sector, we are gaining confidence in our ability to improve the operating margin of the sensor business to the mid-teens by the end of 2016. We’re also on track with the consolidation of SymCom’s relay and controls business in Baldwin’s New York into its facility in Rapid City, South Dakota which we announced in the second quarter of last year. The transfer is expected to result in annual savings of about $2 million. Savings are expected to begin in mid-2015 and reach the $2 million run-rate in the fourth quarter of this year when the project is completed. We’re…

Thanks Gordon. Sales for the first quarter of 2015 are expected to be in the range of $202 million to $212 million, which represents flat revenue at the midpoint and approximately 4% growth in constant currency. Earnings for the first quarter are expected to be in the range of $1 to $1.14 per share. This includes negative currency effects which we estimate will be approximately $0.10 per share compared to the prior year. For 2015, we expect to face substantial currency headwinds. With current exchange rates, sales would be negatively impacted by approximately $30 million and earnings by approximately $0.40 per share compared to 2014. Nevertheless, with planned improvements in the electrical, automotive sensor and commercial vehicle businesses and continued solid performance in the core automotive and electronics businesses, we believe we can achieve modest sales growth and earnings above $5 per share in 2015 excluding restructuring charges and other special items. This concludes our prepared remarks. Now, we’d like to open it up for questions.

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions]. And our first question here comes from Mr. Matt Sheerin from Stifel. Please go ahead.

Yes. Thank you. And good morning, guys. A couple of questions for me. First question, just regarding some of the performance issues in your plants in Q4. Could you drill down a little bit there? What divisions; was that automotive and/or electronics? And it sounds like those problems were continuing; you’re not going to see it this quarter but was there any overflow in terms of issues this quarter?

Yes, Matt. So, there were a number of plant issues and we’ve talked about some performance issues in the past, particularly in our Mexico plants and Gordon talked about some of the corrective actions that we’ve taken there. And we are expecting performance to improve going forward. We also had some -- I think some temporary kind of fourth quarter only related issues in a couple of other plants as well but we don’t see those extending past the fourth quarter.

Okay. And did that impact margin then in both automotive and electronics?

It would be a little bit in the automotive business and some in the electrical business which are really the two divisions where the Mexican plants served us, not so much in electronics. Although we did have some temporary issues in a few areas in our electronics business as well which I indicated should not carry past Q4.

Got you. And in terms of the guidance for a $5 or plus number for the year implies more back-end loaded and you should see some EPS growth in the back half of the year. Does that factor into some of the cost savings you’ve talked about? And Gordon went over some of the initiatives from integrating some of the acquisitions of the last year or two. Is that part of it or do you expect volumes to improve through the year ago leverage off of that?

Yes. And I think there is some expectation that volumes will pick up a little bit and they typically do seasonally. First quarter is seasonally weakest quarters if not the weakest. But it also does anticipate that we start to get some benefits later in the year from some of the improve efforts that Gordon described, both the sensor improve effort as we start to bring in a little bit more of our higher margin business that we’ve brought into the backlog more recently as well as we will start to see some of the savings from some of the consolidation initiatives late in the year. We mentioned the SymCom plant consolidation which should be approaching $2 million of savings as we exit the year but that will be again mostly in -- that improve mostly in the fourth quarter. And then we may see a little bit of savings, although won’t be significant form the consolidation into the Philippines, almost all of that is going to be out at 2016. So, as we look out -- as we get into 2016, a lot of these savings should be starting to have fairly significant impact. They’re only going to have minor impact in the 2015 timeframe.

Got you. And just lastly from me if I can just regarding FX. You talked about $0.40 impact to EPS and $30 million impact on the top line. Is that the more pronounced EPS impact because you’ve got more manufacturing outside of Europe versus sales, so you don’t have that natural hedge?

Yes. That’s the biggest issue, Matt. I think we have very little -- other than a plant in Lithuania, we don’t have anything else in Europe. Most of the products we sell in Europe, most of the electronics products and most of our automotive products are manufactured outside of Europe. So, the weaker euro, certainly it impacts sales. And while we have selling and administrative organizations in Europe, not that we still have a very significant long exposure to the euro.

Got you. Okay, thanks for taking the questions.

Sure.

Thank you. Our next question here comes from Christopher Glynn from Oppenheimer. Please go ahead.

Thank you. Good morning. I had a question Phil, about the accrual true-ups in the quarter. It sounds like it probably wasn’t anticipated in the guide. So, I’m just wondering if you need to take some corrective measures to how you accrue during the course of the year.

Yes. I mean some of it, Chris, were things that I think probably could or should have been anticipated. Some of our newer businesses, we found some -- as they came up on SAP, we found some inventory that we needed to reserve for us, so we got better visibility to it. It generally related to our newer businesses. There were also some things that would have been difficult to anticipate like pension and medical accruals that kind of come in from our plant administrators late year. And I’m not sure we could have anticipated those. I think it’s a mix. I would say that as we bring these newer businesses up on SAP which we’ve said we have a policy to do within the first 18 months that they’re in the business. And once they’re up on SAP, there should be no excuses to have misses on accruals or true-ups at the end of the year. Some of the other items that hit us would have been more difficult to anticipate but certainly we will make every effort to do so.

Okay. That’s helpful; it’s kind of integration related really.

Right.

And then on the acquisition pipeline, I think not long ago, you were maybe saying some of the other areas more focus than sensors, given relatively recent activity there. Is that platform sort of part of Littelfuse’s DNA now enough to revisit that area of the pipeline.

Yes, I think that’s a good characterization of it. I think we are fairly clear on our profit improvement plans and we’ve got active plans in place. And I mentioned we’ve got very solid top line growth projections in the automotive sensor business with improved margins. So, the new platforms that we’re going to have will be getting this business to a healthy place. And therefore it’s time to start looking in that area. But we’re also looking at other parts of the company. I think we’ve talked about CVP for example, a very fragmented market that we think there is a lot of interesting targets out there. But our electronics business which is also very healthy, we think there is room for expansion, maybe consolidation of some other products into our core circuit protection and power control business. So, there is quite a few areas of the company that we are looking at.

Thank you for that color.

Thank you. Our next question here comes from Mr. Tim Wojs from Baird. Please go ahead, sir.

Yes, hi guys. Good morning.

Good morning.

I guess just on cash flow, really good I guess 2014 in terms of just cash flow generation. And just curious is there anything within 2014 that might be one-time or non-repeatable going forward? I’m just trying to figure out how we should think about free cash flow next year either as a percentage of earnings or percentage of revenue or something like that.

Yes, good question Tim. I wouldn’t say there is anything that’s one-time we did have a significant increase in our payables as we undertook some initiatives to negotiate new terms with some of our suppliers and we’re putting a little more effort to that part of the working capital equation probably than we had in the past. We were able to move those payables out significantly during the year, a big chunk of that was in the fourth quarter. So I would not see a repeat of that happening. So, we did get I think $15 million of cash or so out of payables this year, probably not repeatable although sustainable. But on the other hand, we ended the year at a DSO that was probably a little bit higher than we’ve been at the last couple of quarters. We were about 60 days; we’ve had that as low as 56, 57 days in some recent quarters. So, I think there is some opportunity on the receivable side that would probably offset the payable. So, net-net, we should see cash flow that looks pretty similar to the 2014 number in 2015. We will have some restructuring charges related to some of these consolidations that will -- we will pull some of those charges out of the non-GAAP numbers but they’ll still obviously come through -- from a cash flow standpoint. But I would say when you take that all into consideration; I think you ought to be looking for a cash flow number that looks pretty similar to the record cash flow number in 2014.

Okay. That’s helpful, thanks.

We will have a little bit higher CapEx however and again related to some of these consolidation projects. So, CapEx will probably go from the lower 30s to the higher 30s, but again not that significant of a change from ‘14.

Yes, okay. I think bottom-line cash flow still pretty good as we look forward.

Yes, I think -- I mean if you look at what we’ve saidour targets are for cash flow, we were significantly better than those targets in ‘14, no reason to think that we would be in ‘15 as well.

Okay. And then I guess -- I think last quarter you mentioned the repatriation of about $90 million of cash from offshore. Did that happen this quarter? And I guess looking at the $300 million or so that is in cash today, how much of that is in the U.S. and how much of that is offshore now?

Yes. So, we did bring back approximately $90 million of cash in the fourth quarter as we indicated we would. We used that primarily to pay down debt. So, we still don’t have a lot of cash seating in the U.S. We just paid down the revolver with that. So, the majority, probably over 90% of our cash on our balance sheet is outside the U.S. at this point.

Okay. And I guess as you balance M&A and buybacks, is it possible that you actually put a little bit more on the revolver to buy back stock or how do you think about buybacks versus M&A as you get through 2015?

Good question. I think we indicated last quarter that if we continue to underachieve on our M&A target -- Gordon mentioned that we’re at about an 8% growth through two years on our M&A target versus a target of 10%. We’re working hard to improve that number. But if it looks like the number is going to be closer to 8% growth or so, that gives us a lot more room for stock buyback. And depending on kind of where the stock price settles out, I think you could assume that we may be more inclined to be more aggressive on stock buyback than maybe we have been over the last couple of years.

Okay. And then, just the last one for me; it said in the press release that you’re looking maybe to implement some select pricing increases. I guess how much of that pricing realization is already in the $5 plus of earnings and I guess how confident are you that you’ll be able to kind of push those prices through competitively?

I think that -- I’d say some of it is in that but I mentioned for example our sensor business and automotive business we acquired that had some very margin business when we acquired it that would eventually run its course to end of life and the new business. And the new products we’re introducing there are significant higher prices, much better products and bringing more features to our customers. So, that’s one area that’s active and I’d say that’s really build in. We also had some price increases in our CVP, our commercial vehicle business and we continue to look at more price increases, potentially in that area. In our electronics business, I’d say we haven’t really built it in but we’re looking particularly in the European area where I think probably a lot of electronic components companies are looking that with a dramatic drop in the euro the price increases across in Europe for our electronics product is one possibility where that has a much shorter designing cycle than the long projects that we have in the automotive business. So, I’d say some of it is build-in and some of it is to come.

Okay, great. Thanks for all the color.

Thank you.

Thank you. Our next question comes from Shawn Harrison from Longbow Research. Please go ahead, sir.

Hi, good morning everyone. I wanted to revisit I guess both the margin profiles long-term of where you think the sensors business should be as well as CVP. I think you said the sensors should be mid-teens post the restructuring, I think CVP is maybe below that right now. But where would you like those businesses to be within -- on a margin profile, let’s say exiting calendar ‘16 and do you have to do any further restructuring to get there?

Yes, good question. So, this CVP commercial vehicle business, we had indicated that business was low double-digits prior to 2014. And we saw those margins start to come up to a whole range of actions, some of them on kind of the operations and integration side, some of them on the pricing side, some of them on the new product side. Those margins today are up into the teens, probably a mid-teens 14%-15%. We think over the next year to two years that those can get closer to 20%. So, we’ve still got some room and some positive momentum there. The sensor business because we’ve owned less time, we’re further away, probably a little further away from seeing those margins really come up quickly. But as Gordon said, we had a relatively near-term target, near-term being by end of 2016 to get those margins up to the mid-teens. We think ultimately just based on where we see sensor margins in other companies that they could potentially be higher than that. I think we’ve talked about potentially higher teens or high-teens types of margins in that business. And just to put it in perspective, today those margins are slightly below 10%. So, we’ve got a lot of upward room to move there. It’s going to take a little bit longer on the sensor. But exiting 2016, we should see probably at least 500 basis points of margin improvement in that business.

Okay. It sounds like it’s both restructuring and cost reduction and mix change actions and things of that nature.

Yes, mix change. Gordon mentioned that the newer platforms that we’re winning there and with some of our newer products are at considerably higher margins than some of the products that we acquired in the backlog when we acquired the company a year and half or so ago. And we’re continuing to change that mix over time. With the lead time that it takes to win a platform and have it ramp up, it takes a few years for that to happen. But I think you’ll start to see some of that in 2015 and you’ll see that accelerate in 2016 and beyond.

Okay. And then as a follow-up, the manufacturing issues, I guess it was a second issue in 2014 which is -- at least in my tenure of coverage, pretty much unlike Littelfuse. Are you sure that the changes in management you’ve put in place and whatever else you’ve done has permanently moved these issues behind you?

Yes, I think so. I think the one particularly in Mexico, we were going through a transition of a plant from a poorer quality leased facility and moving that into our campus which is much more of a state-of-the-art campus that we have for our automotive manufacturing. So, moving our electrical business into there is clearly one of those things that we knew we would have to do at some stage and creating the leadership. So, I think we’ve really addressed that and we’re starting to see improvements. And I think there is a very big company focus on that in Mexico right now. As Phil mentioned, some of the other plant things were a few one-time things that were quite unusual for us. But we also had a couple of plant moves that we’ve announced, the New York to Rapid City and the moving of Lake Mills to Philippines. And think there is always an expectation that there is a little bit of lumpiness as you’re going through those transitions. But I think we’ve got good plans in place. It’s getting a lot of focus from us. And I think we’re confident that the challenges that we had in the fourth quarter are things that we got corrective actions in place for all of those.

Okay. And last, a brief follow-up, if I may. Phil, what’s the tax rate you are forecasting for 2015? And I don’t know if you said that if I missed it. And then also, what are the revenues of the business that you guys bought from TE Connectivity?

Minimal revenues basically bought our product line. I think it was less than $2 million in revenue but it’s something that -- technology is something that it’s much better with our portfolio than with theirs. And we believe we can grow that business significantly over time.

Okay. And then the tax rate? I’m sorry.

The tax rate, yes. So, we’ve talked about programs and projects that we’ve done and are doing to bring the tax rate down. We had previously guided towards 23% to 24% tax rate for 2015. I think it’s possible but it could be a bit lower than that. But we’re very confident if the low end of that range, it could potentially be little bit lower than 23% for 2015 and going forward we could see lower than that we believe.

Okay, great, very helpful. Thanks Phil.

Okay. Take care.

[Operator Instructions]. We also have question here from Mr. Gary Prestopino - Barrington Research. Please go ahead.

Hi, good morning. Most have been answered but you mentioned on the currency impact, it was $2.1 million to operating income this quarter and if I tax effect that, I get between $0.06 and $0.07 and then for this year you’re saying about $0.40. So does your guidance imply you are looking for a continuing worsening situation here with the dollar-euro or am I missing something there?

So, if you look at the fourth quarter, Gary, the big drop in the euro really didn’t happen until December. So, it’s late in the quarter and so the average rate right now or where the rate is right now of the euro 1.12, 1.13 somewhere in that range is quite a bit below what the average rate was for Q4. So, the guidance we gave of $0.40 impact is assuming that rates basically stay where they are today.

Okay, thank you.

Yes.

We also have another question here from Christopher Glynn with Oppenheimer. Please go ahead, sir.

Thanks. Just wanted to follow up on your comments about pricing pressures at electrical; is that something that’s a little outside the ordinary course of business?

Yes, I think that’s a good point, Chris. I think we’ve generally had a very healthy pricing environment, but clearly the solar market is just that one segment that I was referring to for our electrical fuses that have usually been among our higher margin products. The solar market has become a very competitive market in the segments that we’re in. And we had a very strong growth a couple of years ago in Europe when the solar market was very healthy. And as that market in Europe has declined, we’ve seen much tougher pricing environment in the solar market. So yes, that’s unusual.

Okay. That makes sense. Got it.

Thank you.

We question also here from Mr. Garo Norian from Palisade Capital Management. Please go ahead, sir.

Hi. I just wanted to ask about the organic growth outlook for the year. I guess fourth quarter came in around 4% and the first quarter guide is around 4% and you highlighted how you’ve been doing 5% the last couple years. I realize it’s kind of splitting hairs but is -- any expectation that the organic growth improves as the year progresses?

Garo, I think the plan we had for organic growth prior to the euro drop was a little north of 5% but we’re going to be hit by about 300 -- if the euro stays where it is and currencies generally -- we also hit by the Canadian dollar where currencies stay where they are today it’s about 350 basis-point headwind to organic growth rate. So, I think it’s going to be challenging to get to 5% even with the currency headwinds that we face. Excluding currency, we would expect to do slightly better than 5%.

Okay. And then just related to the kind f impact of the euro, is there any business logic to over time resetting some of the manufacturing locations?

I don’t think so. I think we have -- I mean one thing that we’ve talked about in the past that quite makes sense is we do have a pretty good relatively low cost manufacturing facility in Lithuania which is I think going to the euro and their currency has been fairly closely linked to the euro, so their cost position has only got better there. We make some of our sensor products there and I think that would be a place as we grow our sensor business, and maybe acquire more sensor companies that would be even more attractive with euro where it is than maybe even it was historically. So, that would be an area of it. I don’t think there is anything else that we would necessarily look to bring into Europe.

Got it. Thank you.

Yes.

At this time, I’m showing no further questions. I would now like to turn the call back over to Mr. Hunter for closing remarks.

Thank you for joining us on today’s call. We had three strong quarters in 2014. And although the year did not end the way we would have liked, overall 2014 was another year of continued growth for Littelfuse. We look forward to further progress in 2015. Thank you and have a good day.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for your participation. And you may now disconnect.