Methode Electronics, Inc. (NYSE: MEI), a global designer and
manufacturer of electro-mechanical devices, today announced
operating results for the fiscal year 2009 third-quarter and
nine-month periods ended January 31, 2009. Due to the timing of the
Company's fiscal calendar, the three months ended January 31, 2009,
represent 13 weeks of results, while the three months ended
February 2, 2008, represent 14 weeks of results. In addition, the
nine months ended January 31, 2009, represent 39 weeks of results,
while the nine months ended February 2, 2008, represent 40 weeks of
results.
Third-Quarter Fiscal Year 2009
Methode's third-quarter fiscal year 2009 net sales decreased
$57.7 million, or 41.7 percent, to $80.8 million from $138.5
million in the third-quarter fiscal year 2008. Net income decreased
$36.8 million to a loss of $27.0 million, or $0.74 per share, in
the third-quarter fiscal year 2009 compared to income of $9.8
million, or $0.26 per share, in the third-quarter fiscal year
2008.
The decrease in net income in the fiscal year 2009 third quarter
is due to an impairment of goodwill and intangible assets charge of
$32.7 million ($20.1 million after-tax, or $0.54 per share),
restructuring charges of $3.8 million ($2.5 million after tax, or
$0.07 per share), lower sales attributable to the softening of the
global economic environment, especially the effect on the North
American auto market, and higher selling and administrative
expenses related to the Hetronic acquisition compared to the fiscal
year 2008 third quarter, which had no impairment charge and
restructuring charges of $0.5 million ($0.3 million after-tax, or
$0.01 per share).
Based on Methode's reduced market capitalization and general
business declines in the third quarter, the Company performed
goodwill impairment tests in accordance with SFAS No. 142 on the
reporting units that had goodwill as of November 1, 2008. Because
of these tests, it was determined that the fair value of the net
assets of these reporting units was less than the carrying value.
As a result, a goodwill impairment charge was recorded for $18.1
million in the third quarter of fiscal year 2009.
Also, in accordance with SFAS No. 144, the Company determined
that certain identifiable intangible assets of its TouchSensor
business were impaired based on the Company's future estimates of
the undiscounted cash flows, which resulted in an impairment charge
of $14.6 million during the third quarter of fiscal year 2009.
In the third quarter of fiscal year 2009, Automotive segment net
sales were negatively impacted by the continued softening of the
global economic environment, especially the effect on the North
American auto industry, and by negligible Chrysler sales volumes
due to the Company's decision to exit this business, compared to
$13.2 million of Chrysler revenues in the same period of fiscal
year 2008. The transfer of the Chrysler product was substantially
completed during the second quarter of fiscal year 2009.
In January 2008, Methode announced a restructuring of its
U.S.-based automotive operations and the decision to discontinue
producing certain legacy products in the Interconnect segment.
Excluding the restructuring and impairment of goodwill and
intangible assets charges, Methode's net loss was $4.4 million, or
$0.13 per share, in the third-quarter fiscal year 2009 compared to
net income of $10.0 million, or $0.27 per share, in the same period
of fiscal year 2008, excluding $0.5 million, in restructuring
charges. The Company expects to complete this restructuring during
fiscal year 2010.
Consolidated cost of products sold decreased $38.5 million, or
35.3 percent, to $70.5 million in the fiscal year 2009 third
quarter, compared to $109.0 million in the same period of fiscal
year 2008. The decrease is due to lower sales volumes. Cost of
products sold as a percentage of sales was 87.3 percent and 78.7
percent in the third-quarter fiscal years 2009 and 2008,
respectively. The increase in cost of products sold as a percentage
of net sales in the current period is due to manufacturing
inefficiencies caused by the inability to adjust overhead costs in
line with the significant, sudden drop in sales experienced in the
third quarter of fiscal year 2009.
Selling and administrative expenses decreased $3.0 million, or
16.9 percent, to $14.8 million for the third-quarter fiscal year
2009, compared to $17.8 million in the prior-year period. The
decrease relates to lower bonus and commission expenses relating to
lower sales and earnings. Because of the significant, sudden drop
in sales, selling and administrative expenses as a percentage of
sales increased to 18.3 percent in the third-quarter fiscal year
2009, compared to 12.9 percent in the same period of fiscal year
2008.
Income tax rate was a benefit of 33.1 percent in the third
quarter of fiscal year 2009 compared with an income tax expense of
14.0 percent in the same period of fiscal year 2008 due to
impairment and restructuring charges and the slowing of business,
which caused a loss before income taxes in fiscal year 2009. The
effective tax rates for the third quarters of fiscal years 2009 and
2008 reflect utilization of foreign investment tax credits and the
effect of lower tax rates on earnings of the Company's foreign
operations and a higher percentage of earnings at those foreign
operations.
Nine-Month Period Ended January 31, 2009
For the nine-month period ended January 31, 2009, net sales
decreased $60.1 million, or 15.1 percent, to $336.6 million from
$396.7 million for the nine-month period ended February 2, 2008.
Net income decreased $44.3 million to a loss of $17.5 million, or
$0.47 per share, in the fiscal year 2009 nine-month period compared
to income of $26.8 million, or $0.72 per share, in the fiscal year
2008 nine-month period.
The decrease in net income is due mainly to an impairment of
goodwill and intangible assets charge of $32.7 million ($20.1
million after-tax, or $0.54 per share), restructuring charges of
$15.0 million ($9.8 million after-tax, or $0.27 per share), and
lower sales attributable to the softening of the global economic
environment in the fiscal year 2009 nine-month period, partially
offset by favorable other income. In the fiscal year 2008
nine-month period, there was no impairment charge and restructuring
charges were $0.5 million ($0.3 million after-tax, or $0.01 per
share).
In the nine-month period of fiscal year 2009, Automotive segment
net sales were negatively impacted by the softening of the global
economic environment, especially the effect on the North American
automotive industry, and by planned lower Chrysler sales volume
($14.3 million in fiscal year 2009 compared to $40.3 million in
fiscal year 2008) due to the Company's decision to exit this
business.
Excluding the restructuring and impairment of goodwill and
intangible assets charges, Methode achieved net income of $12.5
million, or $0.34 per share, in the first nine months of fiscal
year 2009 compared to $27.1 million, or $0.72 per share, in the
same period of fiscal year 2008, excluding $0.5 million in
restructuring charges.
Consolidated cost of products sold decreased $39.5 million, or
12.6 percent, to $273.8 million in the fiscal year 2009 nine-month
period, compared to $313.3 million in the same period of fiscal
year 2008. The decrease is due to lower sales volumes. Cost of
products sold as a percentage of sales was 81.3 percent and 79.0
percent in the first nine months of fiscal years 2009 and 2008,
respectively.
Selling and administrative expenses decreased $0.1 million, or
0.2 percent, to $49.7 million for the nine months ended January 31,
2009, from $49.8 million for the nine months ended February 2,
2008. Higher selling and administrative expenses related to higher
amortization expense from the Hetronic, VEP and Touchsensor
acquisitions were offset by lower commission and bonus expense in
the first nine months of fiscal year 2009 compared to the same
period in 2008. As a percentage of sales, selling and
administrative expenses increased to 14.8 percent in the first nine
months fiscal year 2009, compared to 12.6 percent in the same
period of fiscal year 2008.
Income tax rate was a benefit of 41.3 percent in the first nine
months of fiscal year 2009 compared with an income tax expense of
20.7 percent in the same period of fiscal year 2008, as
restructuring charges and decreased earnings at the Company's
U.S.-based businesses caused a loss before income taxes in fiscal
year 2009. The effective tax rates for the first nine months of
fiscal years 2009 and 2008 reflect utilization of foreign
investment tax credits and the effect of lower tax rates on
earnings of the Company's foreign operations and a higher
percentage of earnings at those foreign operations.
Additional Restructuring
The Company announced today several additional restructuring
actions to further reduce its exposure to the North American
automotive industry and to migrate manufacturing to lower cost
regions to consolidate facilities and reduce costs. After these
actions Methode's principal manufacturing operations will be in
Mexico, Malta and China.
All Ford Motor Company production at Methode's Reynosa, Mexico,
facility will be moved to another supplier. This business
contributed a substantial portion of the third quarter operating
losses. TouchSensor manufacturing currently in west suburban
Chicago, Illinois, will be moved to Monterrey, Mexico.
Additionally, the Company's operations in Shanghai, China, will be
consolidated to two facilities from three. The addition of a plant
in Morocco has been put on indefinite hold. Power Product
manufacturing for European customers will now take place in
Methode's Malta facility. The Company was awarded grant monies by
the Maltese government to assist with this expansion.
In total, this additional restructuring will affect
approximately 850 employees worldwide. The Company estimates that
it will record a pre-tax charge between $9.0 million and $18.0
million ($7.9 million and $15.1 million net of tax), or between
$0.21 and $0.40 per share, during fiscal years 2009 and 2010. The
cash portion of this charge will be between $7.0 million and $8.0
million.
Management Comments
President and Chief Executive Officer Donald W. Duda said, "The
increasingly challenging economic environment and the severe
downturn in the worldwide automotive industry have negatively
impacted our results in the third quarter of this fiscal year. In
response we have accelerated our strategy to reduce our exposure to
legacy automotive business, particularly with the Detroit
automakers. These actions, once completed, are expected to reduce
Methode's revenues derived from the automotive industry to less
than 40 percent of our overall revenue base by fiscal year 2011.
This is in stark contrast to automotive revenues of 75 percent in
fiscal year 2005."
Duda continued, "We will be exiting production for Ford at the
expiration of our manufacturing commitment at our facility in
Reynosa, Mexico, which should be completed by the end of July 2009.
Although these actions will reduce revenues in the short term, they
should improve our cash flow position and allow our management team
to concentrate on the strategic direction for Methode in fiscal
year 2010 and beyond."
Duda added, "Although the global recession will continue to
unfavorably impact the markets Methode serves in the near term, we
are taking the necessary steps to reduce our cost structure and
improve cash flow. Our long-term growth strategy continues to
emphasize developing and acquiring innovative and patented
technology, thereby providing our customers leading edge solutions
while improving Methode's overall margins. We remain optimistic
about the future of Methode, which has remained financially strong,
generating $9.0 million in operating cash flow in the third
quarter, and ending the third quarter with $54.4 million in cash
and no debt."
Conference Call
The Company will conduct a conference call and Webcast to review
financial and operational highlights led by its President and Chief
Executive Officer, Donald W. Duda, and Chief Financial Officer,
Douglas A. Koman, at 10:00 a.m. Central time today. To participate
in the conference call, please dial (877) 741-4244 (domestic) or
(719) 325-4767 (international) and provide passcode 4536039 at
least five minutes prior to the start of the event. A simultaneous
Webcast can be accessed through the Company's Web site,
www.methode.com, by selecting the Investor Relations page and then
clicking on the "Webcast" icon. A replay of the conference call, as
well as an MP3 download, will be available shortly after the call
through March 19 by dialing (888) 203-1112 (domestic) or (719)
457-0820 and providing pass code 4536039. On the Internet, a replay
will be available for seven days through the Company's Web site,
www.methode.com, by selecting the Investor Relations page and then
clicking on the "Webcast" icon.
About Methode Electronics, Inc.
Methode Electronics, Inc. (NYSE: MEI) is a global designer and
manufacturer of electro-mechanical devices with manufacturing,
design and testing facilities in the United States, Malta, Mexico,
the United Kingdom, Germany, the Czech Republic, China, Singapore,
the Philippines and India. We design, manufacture and market
devices employing electrical, electronic, wireless, radio remote
control, sensing and optical technologies to control and convey
signals through sensors, interconnections and controls. Our
business is managed on a segment basis, with those segments being
Automotive, Interconnect, Power Products and Other. Our components
are in the primary end markets of the automobile, computer,
information processing and networking equipment, voice and data
communication systems, consumer electronics, appliances, aerospace
vehicles and industrial equipment industries. Further information
can be found on Methode's Web site www.methode.com.
Forward-Looking Statements
This press release contains certain forward-looking statements,
which reflect management's expectations regarding future events and
operating performance and speak only as of the date hereof. These
forward-looking statements are subject to the safe harbor
protection, provided under the securities laws. Methode undertakes
no duty to update any forward-looking statement to conform the
statement to actual results or changes in Methode's expectations on
a quarterly basis or otherwise. The forward-looking statements in
this press release involve a number of risks and uncertainties. The
factors that could cause actual results to differ materially from
our expectations are detailed in Methode's filings with the
Securities and Exchange Commission, such as our annual and
quarterly reports. Such factors may include, without limitation,
the following: (1) dependence on a small number of large customers
within the automotive industry; (2) rising oil prices could affect
our automotive customers future results; (3) the seasonal and
cyclical nature of some of our businesses; (4) dependence on the
automotive industry; (5) dependence on the appliance, computer and
communications industries; (6) intense pricing pressures in the
automotive industry; (7) increases in raw materials prices; and (8)
customary risks related to conducting global operations.
Methode Electronics, Inc.
Financial Highlights
(In thousands, except per share data, unaudited)
Three Months Ended
January 31, February 2,
2009 2008
------------ ------------
Net sales $ 80,781 $ 138,465
Other income 751 313
Cost of products sold 70,512 109,032
Restructuring 3,796 450
Impairment of goodwill and intangible assets 32,678 -
Selling and administrative expenses 14,743 17,707
Income/(loss) from operations (40,197) 11,589
Interest, net 212 652
Other, net (346) (923)
Income/(loss) before income taxes (40,331) 11,318
Income taxes/(benefit) (13,346) 1,561
Net income/(loss) (26,985) 9,757
Basic and diluted earnings/(loss) per common
share $ (0.74) $ 0.26
Average Number of Common Shares Outstanding:
Basic 36,597 37,138
Diluted 36,597 37,492
Nine Months Ended
January 31, February 2,
2009 2008
------------ ------------
Net sales $ 336,599 $ 396,713
Other income 2,443 986
Cost of products sold 273,757 313,267
Restructuring 14,997 450
Impairment of goodwill and intangible assets 32,678 -
Selling and administrative expenses 49,846 49,778
Income/(loss) from operations (32,236) 34,204
Interest, net 1,215 1,699
Other, net 1,238 (2,084)
Income/(loss) before income taxes (29,783) 33,819
Income taxes/(benefit) (12,314) 6,984
Net income/(loss) (17,469) 26,835
Basic earnings/(loss) per common share $ (0.47) $ 0.72
Diluted earnings/(loss) per common share $ (0.47) $ 0.72
Average Number of Common Shares Outstanding:
Basic 36,964 37,066
Diluted 36,964 37,479
Methode Electronics, Inc.
Summary Balance Sheet
(In thousands)
January 31, May 3,
2009 2008
------------ ------------
Cash $ 54,427 $ 104,305
Accounts receivable - net 51,325 85,805
Inventories 62,957 55,949
Other current assets 14,359 14,758
------------ ------------
Total Current Assets 183,068 260,817
Property, plant and equipment - net 75,090 90,280
Goodwill - net 50,620 54,476
Intangible assets - net 37,920 41,282
Other assets 39,168 23,365
------------ ------------
Total Assets $ 385,866 $ 470,220
============ ============
Accounts payable $ 19,864 $ 42,810
Other current liabilities 21,604 33,902
------------ ------------
Total Current Liabilities 41,468 76,712
Other liabilities 17,988 20,723
Shareholders' equity 326,410 372,785
----------- -------------
Total Liabilities and Shareholders' Equity $ 385,866 $ 470,220
============ ============
Methode Electronics, Inc.
Summary Statement of Cash Flow
(In thousands)
Nine Months Ended
January 31, February 2,
2009 2008
------------ ------------
Operating Activities:
Net income/(loss) $ (17,469) $ 26,835
Provision for depreciation 19,937 16,332
Impairment of tangible assets 3,177 -
Impairment of goodwill and intangible
assets 32,678 -
Amortization of intangibles 5,408 4,227
Amortization of stock awards and stock
options 696 2,479
Changes in operating assets and
liabilities (6,844) 7,615
Other 798 77
------------ ------------
Net Cash Provided by Operating Activities 38,381 57,565
Investing Activities:
Purchases of property, plant and equipment (12,242) (16,702)
Proceeds from sale of building - 960
Acquisitions of businesses (58,360) (7,090)
Joint venture dividend - (1,000)
Other (425) (407)
------------ ------------
Net Cash Used in Investing Activities (71,027) (24,239)
Financing Activities:
Repurchase of common stock (5,137) -
Proceeds from exercise of stock options 110 1,268
Tax benefit from stock options and awards 46 291
Dividends (7,154) (5,680)
------------ ------------
Net Cash Used in Financing Activities (12,135) (4,121)
Effect of foreign exchange rate changes on
cash (5,097) 1,230
------------ ------------
Increase/Decrease in Cash and Cash
Equivalents (49,878) 30,435
Cash and Cash Equivalents at Beginning
of Period 104,305 60,091
------------ ------------
Cash and Cash Equivalents at End of Period $ 54,427 $ 90,526
============ ============
For Methode Electronics Inc. - Investor Contacts: Philip Kranz
Dresner Corporate Services 312-780-7240 pkranz@dresnerco.com
Kristine Walczak Dresner Corporate Services 312-780-7205
kwalczak@dresnerco.com
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