Gordon Hunter - Chairman, President, and CEO Phil Franklin - Executive Vice President and CFO Meenal Sethna - SVP, Finance.

Christopher Glynn - Oppenheimer John Franzreb - Sidoti and Company Matt Sheerin - Stifel Tim Wojs - Baird Gary Prestopino - Barrington.

Good day, everyone. And welcome to the Littelfuse Incorporated Fourth Quarter 2015 Conference Call. Today’s call is being recorded. At this time, I would like to 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 2015 conference call. As always, joining me today is Phil Franklin, our Executive Vice President and Chief Financial Officer. Also here with me today is Meenal Sethna, Senior Vice President of Finance.

In our news release yesterday, we announced Phil’s planned retirement after 17 years with Littelfuse and the transition of his responsibilities to Meenal at the end of March. As most of you know, Phil has been instrumental in creating significant returns for our shareholders and in shaping our strong financial position.

He and Meenal have been working closely together for the past several months. I’m confident we have a very smooth transition. Meenal, welcome to the conference call team..

Thanks Gordon. I’ve met and talked with many of you already. I look forward to working with all of our analysts and investors, and discussing our results and strategies and answer any questions you may have about the company..

Now, let’s turn to the results for the fourth quarter, which was a strong finish to the year. Fourth quarter sales were up 10% in constant currency and adjusted EPS of $1.21 was $0.03 above the midpoint of our guidance.

As we mentioned previously, this year’s fourth quarter included an extra week which came in as we expected, adding approximately $9 million to revenues and about $0.02 to earnings per share. Sales increased in all three of our segments.

Electronics sales were strong in many of our key markets; automotive had a record quarter with double-digit sales increases in all three geographies in constant currency; electrical sales were also strong, especially in the solar market and custom products continued to improve.

2015 was a very good year for the Littelfuse overall with record revenues, adjusted earnings per share and cash flow. We executed on our growth strategies with organic revenue growth of 6% for the year excluding currency.

We also made significant progress on our M&A goals with the agreement to acquire the circuit protection business of TE Connectivity. Adjusted EBITDA operating margins improved 50 basis points for the year. And we believe we outperformed many in our peer group in what was a less than robust global economic environment.

So, I’ll discuss our fourth quarter and 2015 performance in more detail 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 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 2015 were $220 million, which was up 6% year-over-year and 10% excluding currency effects.

GAAP earnings for the fourth quarter of 2015 including $5.7 million of restructuring and acquisition costs were $1 per diluted share. Excluding these special items, earnings per share were $1.21 which was a 19% increase compared to the prior year quarter.

For the full year 2015, sales were $868 million, which was 2% growth over 2014 or 6% in constant currency. GAAP earnings for the full year of 2015 were $3.63 per diluted share. Adjusted earnings were $5.05 per diluted share, which was 6% growth over the prior year.

Cash provided by operating activities was a $166 million for 2015, which was an 8% increase compared to the prior year. So in summary, we closed 2015 with the solid quarter and for the full year delivered record performance for all key financial metrics. Now, I’ll turn it back to Gordon for more color on business performance and market trends..

Thanks, Phil. I’ll begin with the electronics segment which accounts for about 47% of total Littelfuse sales. Electronics sales were up 4% in the fourth quarter and 2% for the full year in constant currency.

Strong sales in both, Europe and China helped to offset continued adjustments in channel inventory and capacity constraints for our electronic sensor products as we continue to transfer production to the Philippines.

Electronics channels inventories were down slightly at the end of the fourth quarter, compared to the third quarter with the decrease primarily in North America. We now believe the channels have the appropriate levels of inventory. As we look at key geographies, European sales were up 8% in constant currency.

Much of this growth continues to come from green initiatives such as smart metering and LED lighting. As we mentioned last quarter, smart metering is a growth opportunity for us as Europe plans to replace 80% of its existing power meters or approximately 250 million units by the year 2020.

Also in Europe, we had strong sales of our TVS diodes that are used in many industrial, automotive electronics, aerospace and telecom and market applications. And in contrast to the headlines about the slowing Chinese economy, we continue to see solid growth.

New business in China in the fourth quarter included wins for our diode array products, for broadband telecom infrastructure applications and in protecting data lines and ports and new laptop, as well as a win for our PICO fuse in a Ground-Fault Circuit Interrupter application.

Next, I’d like to highlight some of our focused growth areas, starting with LED outdoor street lighting. Sales of the surge protection modules we developed for the LED outdoor street lighting market continue to grow at a fast pace, because they provide extra protection from lightening and power surges.

We won new LED street lighting business in Southern Europe in the fourth quarter and have also seen increased activity in Eastern Europe. Global sales of all of our LED related products totaled $15 million last year. The conversion to LED lighting in general is still in the early stages; it’s gaining momentum but has a long way to go.

So, we anticipate good growth opportunities in this market for some time to come. A targeted market for our thermally protected metal oxide varistor or TMOV is high end power conditioners. A leading North American power conditioning equipment manufacturer has replaced, both standard varistor and cutoff fuse with our single TMOV.

Utilizing fewer components in their design saves space and dramatically improves the safety of the equipment. We expect this win to generate $300,000 of revenue in 2016. Another growth area is our new custom electronic sensor product line that is used in a verity of industrial and commercial end products to detect position, flow and level.

A significant design win in Europe gave us an initial position with the leading supplier of single serve coffee makers, where our custom sensor will detect the level of water in the machine. The initial design win will add $300,000 of annualized revenue and is expected to grow as our sensors are designed into additional platforms.

It’s been some time since we discussed the TV markets where there have been some interesting developments. In contrast to many Korean manufacturers that reduced their output last year, the leading Chinese manufacturers have increased production and are designing our products into their next generation TVs.

Recent design wins in China will add $300,000 in revenue in 2016. The Internet of Things continues to generate a lot of interest and was a hot topic at the recent consumer electronics show.

Smart home applications include devices such as smoke and intrusion detectors, thermostats and window locks that can be networked and accessed remotely and require ESD protection. We recently won new business in China and Taiwan for our diode array products in smart product applications.

We expect these wins to develop into about $1.5 million in sales in 2016. The evolution of USB ports in computers and electronic devices is another area of opportunity. Our line of ultra-low capacitance diode arrays provides ESD protection for high speed USB 3.0, 3.1 and HDMI ports. USB 3.1 ports are in the initial stages of adoption.

They provide much greater power capacity and significantly faster data transfer speeds, as well as user friendly design enhancements. Of course more power and faster speeds require greater protection. We’ve received a number of reference designs for the new 3.1 ports and our diode arrays have a leading position in this market.

As part of our strategy to move more significantly in the power semiconductors for the industrial and automotive markets, we invested $3.5 million in Monolith Semiconductor, a start-up company located in Texas that is developing silicon carbide technology.

This technology enables power devices to operate at higher switching frequencies and temperatures than traditional silicon. This technology is one of the most promising advancements in the semiconductor market today. And we believe this could be an important tool for us in solving complex problems for our customers.

Two growing markets that fit well across all three of our business segments are electric vehicles and automotive electronics. The cooperation between our electronic and automotive teams and some of the technology that is part of our industrial fuse line enable us to meet a broad range of customer needs.

This in turn executes on our strategy to increase our total content per vehicle. We’ve been participating in the trend towards electric vehicles and hybrid electric vehicles for some time. And this market continues to grow. Electric vehicles present technical challenges that require protection systems with the higher level of reliability.

We had several good design wins in the fourth quarter for both on-vehicle power systems and off-vehicle charging stations. As the power density and efficiency of the battery packs in these vehicles continues to increase, so there is the need to carefully protect the battery cell monitoring systems.

Our most recent design win is with the battery maker in Korea. Initial production began in the fourth quarter and we expect revenues of $500,000 in 2016 for this one application alone. The charging stations for electric vehicles require circuit protection to meet local codes and safety standards.

Several Chinese charging station manufacturers have selected our TVS diode and TMOV devices for circuit protection, our diode arrays for data line protection and also our cartridge fuses that are the smallest and easiest to install. The business we’ve already won will contribute $800,000 in 2016 and we anticipate additional orders beyond that.

As we look at our extensive electronics product portfolio as a whole, one of the many benefits it provides is the ability to participate in a wide range of applications with a diverse customer base. I mentioned a few of these applications today. Others range from dishwashers and medical appliances to equipment harnesses and robotics.

An individual design win may only add an extra 10,000 or 20,000 per year per application but when you spread this over thousands of applications, the combined value can exceed several million dollars. So to sum up 2015 for the electronics segment, we are participating in the global trend toward more products requiring circuit protection.

We are continuing to expand into broader, high margin electronics and light industrial markets. We are diversified geographically and among customers and end markets.

Our up and left strategy to develop new products that handle more power in smaller packages is helping us to build on our well-established reputation as the global leader in circuit protection. Next is our automotive segment, which had a record fourth quarter and accounts for approximately 40% of our total sales.

Automotive sales increased 16% in the fourth quarter and 11% for the full year, both in constant currency. Profit margins also continued to improve, increasing 170 basis points over last year.

Passenger car fuse sales were up 9% and automotive sensor sales increased 43% in the fourth quarter, while sales of commercial vehicle products were down slightly, all of these in constant currency. Passenger car fuse sales continued to outperform global car production, which was up 4% for the quarter.

Geographically, our strongest performer was North America where our fourth quarter passenger car product revenue grew over 10%. With gas prices remaining relatively low, sales have been strong for many brands of pickup trucks and SUVs where we have very high fuse content.

One of the biggest contributors this quarter was the ramp up of Masterfuse sales for the popular Ford F-150. We also saw an early strong ramp up of sales of the Chevrolet Cruze platform where we have two Masterfuse products per car.

In Europe, sales growth was led by the introduction and ramp up of Masterfuse and BF Inline fuses on the Audi A1, the Skoda Fabia and the VW Polo along with Masterfuse sales for the Opel Corsa and Mokka.

Other models that ramped up during the quarter include the Jaguar XE and the Land Rover Discovery Sport that we have both high and low current fuse content and the Volvo XC90 which is equipped with three Masterfuses. We also saw revenue growth in Asia, driven by content increases and then increase in overall car production.

Asia car builds grew nearly 8%, driven by a strong rebound in China. After a third quarter decline of 7%, China car build increased to 13% growth in the fourth quarter. This rebound was the result of tax incentives on fuel efficient cars. There was also a very good quarter in terms of new business.

During the fourth quarter, our focus on new products allowed us to win programs worth $6.1 million at peak. These global program wins were driven by high current Masterfuse products, medium current products and zero HEV electrical fuses. As we have discussed previously, Japan has been a weak spot for our passenger car sales.

And especially noteworthy win in the fourth quarter is with the Japanese OEM for our new medium current products that will generate $2 million in sales at peak. Our automotive sensor business continued its momentum with another strong quarter as new programs for SAIC Motors in Shanghai and GM ramped up.

We continue to win new business and launch new higher margin products, driven by the increasing demand for complex electronic systems in vehicles that help to improve environmental performance, passenger comfort and occupant safety.

New business booked in the fourth quarter will add $21.3 million in incremental revenues at peak for our core sensor products. New sensor technology introduced into our seatbelt buckle sensor product line drove significant wins for occupant safety sensors.

We also had good wins for pilot [ph] tailgate sensors, speed sensors, solar sensors, and sensors used in transmission boxes. In addition, we booked an additional $6 million in new business at peak from products developed by newly acquired sensor business in Italy.

This includes programs for urea heating, quality and level sensors, and water and fuel sensors. These wins complement our broader fluid level sensing strategy. We’re making good progress on our initiatives to improve sensor margins by growing the business and replacing poor margin legacy business with much more attractive new design wins.

The organic growth rate for the automotive sensor business was over 20% in 2015 and we surpassed the $100 million milestone in sales. As these numbers indicate, automotive sensors are proven to be a very successful business for us.

Sales in the commercial vehicle products group or CVP were down slightly in constant currency in the fourth quarter, but were up 3% for the year.

Solid fourth quarter shipments to our North American heavy-duty truck customers and shipments of power distribution modules for a large project with the leading global agriculture customer were offset by the general market weakness in construction, agriculture and the global mining industry.

CVP aftermarket sales increased during the quarter, as a result of the new sales channels added earlier in the year and the continued strong performance of our leading North American customers. As we saw this quarter, our focus on increasing our presence in the aftermarket can help to offset cyclical OEM sales.

So in summary, 2015 was another record year for our automotive segment. Growth in fuse content was driven by more sophisticated electronics and vehicles, and sales of our high current product, especially the Masterfuse line.

Our automotive sensor business had an excellent year with strong organic growth in sales and a significant improvement in margins. For the CVP business, the main contributor to sales was the North American heavy-duty truck market. Finally, we continue to win business for our differentiated new products with customers globally.

That brings us to the electrical segment, which accounts for about 14% of total Littelfuse sales. Going forward, we’ll now refer to this business as our industrial segment. We believe this better reflects our expanded product portfolio and our strategy to extend our capabilities over a broader global industrial footprint.

This was a solid quarter and year for this business with fourth quarter sales up 17% and full year sales up 9% in constant currency. Fuse sales had a fourth quarter record and we continue to see improvement in our custom business, while relay sales were down.

The increase in fuse sales was due to continuing strength in the solar market as well as distributor starting to buy again after working down inventories in response to weak end markets. We continued our momentum in the solar market with the fourth quarter design win with the U.S.

OEM for combiner box protection that will generate $400,000 in sales this year. We also continued to gain market share through distribution conversions, adding two new distributors in the fourth quarter with total annual sales of about $800,000. In the relay business, our strategy is to diversify into other markets besides mining, and oil and gas.

Last year, we entered the growing market of power control for data centers with the new energy efficient automatic transfer switch that generated sales of about $400,000 last year.

Within our custom business, we’ve started to diversify our portfolio beyond the potash market and have won business in E-Houses, which are used in heavy industrial and utility markets. So, to wrap up this section, 2015 was a good year for the industrial segment overall.

We saw a rebound in electrical fuse sales and margins with fuse sales into the solar market almost doubling. Organic growth in our custom products and relay businesses was relatively flat for the year due to continued challenges in the key end markets of mining, and oil and gas. That concludes the update on our three business segments.

Now, I’d like to cover several other topics. First is an update on our production transfers. The transfer of reed switch sensor production to the Philippines is on track and we expect to be up to our anticipated run rate by mid-year. This will ease the production capacity issues that we’ve been experiencing.

The consolidation of the SymCom production into our South Dakota site has been completed and we’re now able to ramp up production. In addition, the initiatives to improve operational performance at our plant in Piedras Negras, Mexico are generating results, and we expect continued progress going forward.

As we look to the year ahead, we will continue to watch the Chinese economy very closely. China is strategic for us in terms of customers, new product development, and manufacturing. We had good growth in China in 2015.

And while only a portion of the products manufactured in China that contain our devices are actually consumed in China, we do believe we stand the benefit over the long-term from the shift from an investment economy to a consumer economy. And while growth in China has slowed down from the past years, it remains a significant opportunity for us.

Next is an update on our acquisition of TE Connectivity’s circuit protection devices business or CPD which is on track to close by the end of the first quarter. CPD has a leading position in polymer-based resettable circuit protection devices that is an excellent fit with our existing circuit protection portfolio.

The acquisition expands our capabilities in the battery and automotive market, and increases our presence in Japan. The purchase price is $350 million in cash; sales for fiscal 2015 that ended in September were a $190 million with an EBITDA margin of approximately 20%. We expect cost synergies of at least $10 million annually, starting in mid 2017.

We’ve been focused on integration planning and are well-prepared to welcome this business into Littelfuse. We are very excited about the talented team of associates that will be joining Littelfuse and the many benefits the acquisition will bring to our customers and our Company.

We will keep you updated on our plans and the integration on future calls. Some of you who have asked how the CPD acquisition impacts our M&A appetite since we have quite a few key resources focused on integrating this business.

Although we clearly have the financial capacity to do more deals and still have a full pipeline of opportunities, we will be mindful of our internal resource constraints as we consider which future deals to pursue. 2015 was a third year of our five-year strategy to double our sales by the end of 2017.

Our plan is to grow sales by 15% each year, 5% organically and 10% through acquisition. We are on track with both organic growth and acquisition growth. We continue to believe our strategy is sound and that we can achieve our 2017 goal.

With that I’ll turn the call over to Phil, who will provide the first quarter outlook and then we’ll take your questions..

Sales are expected to be in the range of $213 million to $223 million; earnings for the first quarter are expected to be in the range of $1.21 to $1.35 per diluted share. We believe 2016 will be characterized by continuing macroeconomic challenges and volatility in currencies and commodities.

Notwithstanding these challenges, we believe we can grow revenue in the low to mid single digits and expand our operating margins by approximately 150 basis points, excluding the effects of depending CPD acquisition. We also expect to significantly reduce our effective tax rate to approximately 22% for 2016.

Assuming the CPD acquisition closes on schedule at the end of March, we will include the effects of CPD in our forward guidance with our first quarter earnings release. As we previously stated, we expect CPD to contribute approximately $1 to earnings per share once we have achieved the targeted $10 million of synergies and before amortization.

We expect to achieve full synergies by mid 2017. This concludes our prepared remarks. Now, we’d like to open it up for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Shawn Harrison from Longbow Research. Please go ahead..

This is [Indiscernible] on behalf of Shawn. So, with regard to the circuit protection deal, thank you for providing the 2015 metrics.

Just looking at 2016, what are you expecting as far as sales and what about the margins profile? You said 20% EBITDA, what does that imply for EBIT; any color would be helpful?.

At this point, we are not prepared to give any more information on that than what we’ve already given.

But I think we indicated earlier that initially sales could be down a little bit from $190 million run rate given some of the negative trends in Japan and a couple of the end markets that this Company serves; ultimately as we look forward into 2017, 2018 we would expect to see that business start to grow again.

In terms of the margins, what we said previously and said again here is that EBITDA margins in the neighborhood of about 20% that would imply something in kind of the lower mid-teens for EBIT margins..

And then, with regards to the automotive space, thank you for again giving some good growth numbers.

Can you give your expectations, where do you see the auto and heavy vehicle base for 2017? And then what is expected for as far as market growth in term such as auto production growth?.

For the passenger car, well the data that we have and we use shows that passenger car production is expected to grow by 4% for 2016. And obviously that varies by country, but with China expecting to have a strong 8% growth and North America 4%.

The much more fragmented CVP market, we expect still to be challenged by the weaknesses in mining and construction and agriculture, so probably not as strong segment in the CVP market..

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

On the top line, the low single digits to mid single digits suggestion for the full year and then looking at I guess 6% core, 4% for the first quarter, the full year tends to round down a little bit.

I guess anything specific there or just kind of a nod to the stickiness of the overall macro?.

Yes. Chris, I think that certainly we’re assuming some continuing macro challenges in headwinds. I mean the other thing that we’re expecting is -- we’ve had several years of tremendous growth in our automotive business and while as we look forward, we still believe over the next several years, there is still a very significant content play for us.

I think due to timing of some of the ramp up of some of the programs and the bleeding off of some of the low margin sensor business that we’ve talked about in the past, we would not expect to see automotive grow kind of like -- last year few years it’s been double-digit growth.

I think we’re looking at something closer to mid single digits, maybe with a little upside from that. So automotive will clearly be slower than it has been and in ‘16 and ‘17 we would expect that to return to more normal higher single-digit growth rates. But certainly I’ll let the electronics market -- the end markets continue to be somewhat soft.

So, we’re not expecting a lot of growth there. And then in electrical as well, we had a very good bounce back here in 2015 in the couple of our end markets there. But we still expect challenges in the mining, oil and gas markets and even parts of industrial.

We had some growth markets like solar that we expect to continue to do well, but overall the industrial segment will not grow as fast as it did in 2015 either..

And then on the margin, 150 basis points, certainly a testament to a lot of the work you’ve been doing. If we try to tier that, I’d expect -- I don’t know maybe automotive in line and electronics -- electrical maybe above electronics, below, I’ll let you maybe refine my speculation..

I think the biggest contributions are expected to be in the automotive business. We’ve been talking for a while about improving EBIT margins there and you saw some of that come through in 2015. We expect further improvement there in 2016.

A significant part of the improvement will be in the sensor business, as we’ve talked about with the -- we’ll get a little bit of benefit in automotive from the footprint consolidation to the Philippines, but the biggest piece there is going to be the favorable mix change, as we bleed off some of these very low margin programs, legacy programs that we inherited and we replace those with much higher margin programs.

And so, even though the growth will slowdown in automotive, we still expect meaningful margin expansion there. But we also expect to see more modest margin expansion in our other two businesses.

You’re going to see the electronics business is going to get the lion share, the benefit from the Philippines transfer related to the sensor products there and the reed switch products. So that’s going to have a meaningful impact on margins.

And then in the electrical space, we’ve seen some nice bounce back in margins in our legacy electrical fuse business; we expect that margin, modest margin improvement again in 2016 there. So, it’s going to be spread among the businesses, but you will probably see the biggest impacts in automotive..

Okay, thanks. And congratulations to Phil and Meenal on the milestones..

Thank you. Our next question comes from John Franzreb from Sidoti and Company. Please go ahead..

Can we just stick on the margin improvements on the legacy business? Can we talk a little bit about the timing of when you expect to realize those benefits? I know you mentioned the Philippines should be complete by mid-year but also how much do you need revenue growth to hit that 150-point milestone; if you were in a revenue neutral environment, what would the margin improvement look like?.

The 150 basis-point improvement assumes a less than mid single-digit sales growth, so something in the probably the 3% to 4% range. If we were flat that might take 30 or 40 bps off it I would guess. But we’re reasonably confident that we are going to be able to show at least a little bit of growth from the top line.

So, I think the other part of your question relates to the timing of the improvement. We are going to see some of that start to come through in the first quarter.

If we look at the first quarter on a year-over-year basis, as we have made good progress on two of the footprint consolidations that we’ve talked quite a bit about, the transfer of the reed switch production to the Philippines and the consolidation of the relay manufacturing into our South Dakota plant, start to see that show up in Q1.

It should be -- as you alluded to, it should be in full force by the end of Q2. So, you will see that margin improvement start to pick up; you will see some in Q1, will start to pick up in Q2 and we should be pretty much full forced by middle of the year..

And Gordon, you called out the solar market a couple times in your prepared remarks. I guess I have got two questions. One, how big is it, because I guess I would expect good solar sales this year given a lot of projects move forward because their concerns about the expiring tax credit.

So, can you give us a sense of context of the size of that business and I guess do you also assume good growth in 2016 because of that?.

Yes, we had a particularly good year in North America but it’s a global business. You might remember a few years ago, a lot of our growth was all driven in Europe and then it sort of switched this last year to North America. But we look at this as a global business that’s got good solid growth for the years ahead.

I think as the efficiency of solar panels and solar systems increases, the total cost of the systems come down, the payback period gets shorter because of that efficiency. So, I think we are still seeing good growth for that. What we have managed to do is be ahead with product development.

One of the ways of making the solar systems more efficient is moving up the voltage of the DC operating systems from where used to below 1,000 volts up to 1,200 to 1,500 volts. And we have a great line of products at those higher operating voltages. So, I think we’re in a very good position on that.

And we are quite confident about the growth in the future, although this was an exceptionally strong year for the reasons you mentioned..

So, how much was solar of total I guess the new industrial segment?.

$16 million..

$16 million, okay. And one last question on your share repurchases.

Can you give me a sense of what you finished the year with or the current share count and how much is left in authorization?.

The initial authorization was the $1 billion of which we had the 650 left on that. So, the almost share repurchase….

It was 1 million shares actually..

Of which we repurchased 350 in the third quarter and we didn’t report anything for the fourth quarter..

So, we would still have about 650 left on that authorization..

Thank you. Our last question comes from Matt Sheerin from Stifel. Please go ahead..

Just a few follow-up questions for me. On the electronics business Gordon, you talked about distribution inventory is coming down a bit. Is that an implication that this multi quarter inventory correction is sort of played out right now, and do you see the sell-through finally stabilizing? Obviously you’ve seen a lot of reports about U.S.

industrial continuing to be weakened.

But -- so what’s your sense of the this cycle and how you’re headed into the first half?.

Yes, it’s as you I described it. I think we’re quite comfortable with slight decrease but we’re seeing that book-to-bill is looking okay. We are not unduly worried about that the book-to-bill situations. I think the end markets are stable. It’s not great growth for sure. As Phil said, we are talking about low to mid single digit growth.

But we certainly think that distribution situation, the inventory levels are the comfortable level right now..

And the margin that erosion that saw in the quarter, that was just seasonal I guess on the lower volumes and also the fact that -- I imagine the end of the quarter was very weak and you had that extra week of costs.

And so you expect that margin to bounce back, as volumes come back in the March quarter, does that make sense?.

Yes, that’s right. I mean if you look at our margin, it was somewhat negatively impacted by the extra week, given how low the sales were in that extra week. If you look at it on a year-over-year basis, we’re still significantly better than last year’s fourth quarter.

So, I think that -- but to your point, I would expect if we get our normal ramp up in revenues towards the end of the first quarter that we would see meaningful improvement in Q1 on a sequential basis and then that would continue to improve into Q2 and Q3..

Okay. And then just a couple of other ones. You’ve talked about, Gordon, the relay business on the industrial side and you didn’t talk much about the data center. Well that sounds like in previous quarters, that kind of like an opportunity to take that technology and see some growth opportunities within the data center.

How is that going?.

We’re still optimistic about that. I think we’ve talked about it quite a lot in the past and just don’t want to get ahead of ourselves. The data center electrical architectures are still evolving. So for us, we’re working with a lot of customers on developing new products and really trying to help with the whole design of the data center.

So, we do look at that as a good opportunity for the future, but just don’t want to get ahead of ourselves too much on revenue in the short-term. But we think that’s a good long-term segment for us and we have good technology..

And just lastly, so on the tax rate, I saw the 22% guide for the year.

As you look at closing of the TEL deal, do you think that’s going to change the blended tax rate much, give or take?.

It’s something that we’re still looking at; we don’t believe it’s going to have much of an impact. We think that with the way we’re going to be structuring that acquisition that revenue and the earnings from that business should have relatively close to the same tax rate as the rest of Littelfuse. They’re still some work to be done there.

But I wouldn’t expect it to materially impact the tax rate, one way or the other..

Thank you. Our next question comes from Tim Wojs from Baird. Please go ahead..

I guess just a couple of housekeeping questions.

Curious what your thoughts around or how your thinking about price cost in ‘16?.

Well, I think on the cost side, I mean we’re getting some tailwinds there from both currencies and commodities. So with some of the emerging market currencies where we manufacture, Philippines, Mexico and even China, those currencies have weakened against the dollar. So that’s going to help our cost position some. Commodity is kind of the same story.

So, assuming current rates stay in place; that will be a tailwind for us..

Okay. Is there any way to kind of -- go ahead. Sorry..

Go ahead..

I was just going to ask just a follow-up on that.

Is there a way to kind of frame what percentage of cost are in low-cost Mexico, China, Philippines locations?.

Well, if you think about our manufacturing costs, the majority of the -- certainly the majority of the labor costs and overhead costs is in those local currencies, is in the three currencies I mentioned. If you think about the Philippines, China and Mexico, that makes up a pretty high percentage of our total manufacturing. So, it’s meaningful.

Some of the purchased items we buy would still be in U.S. dollars. But there is meaningful local content there. So, I’m not going to give a number, because I don’t have it off the top of my head, but it’s reasonably significant..

Okay..

On pricing, Tim, I think that one of the programs we’ve called out was our sensor business and trying to improve margins in our sensor business, both by cost reductions but also the sensor business, the second acquisition that we made in the automotive sensor world, the Hamlin business, we’ve mentioned few times came with quite a lot of legacy business at very low margins.

We’ve been gradually getting out of that business and we’ve been investing heavily in new product development and a lot of the applications I talked about, our newer products that have been custom designed and much better margins.

So, we are able to really improve the sensor business and make a very healthy business during the course of this coming year. For the electronics market, I think prices are going to be fairly stable.

I think there is sort of an equilibrium in that market; it’s not that I think that there is any extra pressures in the electronics the end markets that should cause us to have anything different in pricing environment this year..

And then just a question on free cash flow; historically it’s been a little bit higher than earnings.

Is there anything as we can kind of think about 2016 that would deviate from what we’ve seen historically in terms of free cash flow conversion?.

I can’t think of anything off the top of my head. You are going to see some modest working capital increases, just to support the higher sales levels. CapEx is going to be similar to maybe slightly lower than prior year. So, we should see cash flow increase probably pretty close to commensurate with net income..

Thank you. Our next question comes from Gary Prestopino from Barrington. Please go ahead..

Most of my questions have been answered, but Phil, could you quantify just how much of currencies impacted your EPS in 2015?.

No, I really can’t quantify it. We track it but it shows up in so many different ways and so many different parts of the P&L, their balance sheet impacts, their cash flow impacts. If you look at in the early part of the year, it was a headwind with the significant weakening of the euro that we saw.

As we got into the latter part of the year, we started to get some significant offsets to that as the Mexican peso or the Philippine peso and the RMB all weakened which were all favorable for us.

So, net-net on currency, I think we -- probably if you looked at it for the year, we were close to neutral and then we got some tailwind certainly from the commodity pricing..

And then net-net, what is your exposure to the euro?.

So, if you look at it, we do about -- 20% of our revenue is in Europe, the majority of that -- the vast majority of that is in euros. And we have some cost in euros but very little of our manufacturing cost is euro based. So, we have a pretty significant long position there.

But to get -- if you look at 20% of our revenue and we probably have maybe a third of that in euro based costs, that will give you approximate long euro position..

Thank you. [Operator Instructions] Our last question comes from Shawn Harrison from Longbow Research. Please go ahead..

Just two follow-ups for me. So, within the electrical space for the year, I understand you said there will be a good bounce back.

But just wondering what about the first quarter or the first half, given that 2015 the comp is pretty low, so how should we think about the first half of the year in particular?.

I don’t think that the first half is going to be that much different than the rest of the year. Yes, there may be some easier comps.

But if you kind of anchor a range off the fourth quarter and account for the fact that we had an extra week there, we would expect kind of a normal seasonal pattern through the year, which would be -- things would start to ramp up at the end of Q1 and continue to ramp well into the summer months and then start to tail off as we get into the last couple of months of the year.

So, I don’t see anything that would -- at this point that would look much different than our normal seasonal pattern..

And then within M&A, you said that you still have some in the pipeline.

Just curious if there is just -- what your focus would be in terms of incremental M&A, is there certain market or industry that you look at?.

It’s really pretty broad. We have opportunities in really all three of our segments. We have opportunities in our three major regions of the world. So, it’s pretty broad-based. And so, I wouldn’t bias it really towards one segment versus another at this point. We have a pretty full pipeline..

Thank you. We have no further questions at this time. I will now turn the call over to Mr. Gordon Hunter for closing remarks..

Thank you. This is Phil’s last conference call before he retires. Many of you worked with Phil over the years. And I know you join me in thanking him for his leadership and contributions to Littelfuse. So, thanks for joining us on today’s call. Have a good day..

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect..