Methode Electronics, Inc. (NYSE: MEI), a global designer and
manufacturer of electro-mechanical devices, today announced
operating results for the fiscal 2010 second quarter ended October
31, 2009.
Second-Quarter Fiscal 2010
Methode's second-quarter fiscal 2010 net sales decreased $22.8
million, or 18.8 percent, to $98.5 million from $121.3 million in
the second quarter of fiscal 2009. Net income increased $1.9
million to $2.1 million, or $0.06 per share, in the second quarter
of fiscal 2010 compared to income of $0.2 million, or $0.01 per
share, in the same period of fiscal 2009.
In January 2008, Methode announced a restructuring of its
U.S.-based Automotive segment operations and the decision to
discontinue producing certain legacy products in the Interconnect
segment. In March 2009, Methode announced several additional
restructuring actions to further reduce its exposure to the North
American automotive industry, and to reduce costs by consolidating
facilities and migrating manufacturing to lower cost regions.
Methode recorded restructuring charges during the fiscal 2010
second quarter of $3.2 million ($2.6 million after-tax), or $0.07
per share, and during the fiscal 2009 second quarter of $6.3
million ($4.0 million after-tax), or $0.10 per share. The Company
expects to complete these restructuring activities during the
second half of fiscal 2010 and estimates that it will record
additional pre-tax charges in fiscal 2010 of between $1.0 million
and $2.2 million.
Net income in the fiscal 2010 second quarter benefitted by $1.7
million relating to a one-time reversal of pricing contingencies
which were accrued over several years and are no longer required,
as well as lower cost of products sold, restructuring costs and
selling, general and administrative expenses. These benefits were
offset by lower sales attributable to the planned exit of Chrysler
and Ford North American business, reduced sales to Delphi
Automotive Systems ("Delphi") due to the cancellation of a supply
arrangement by Delphi, and the continuing softness of the global
economic environment, especially the effect on the North American
automotive market. Excluding restructuring charges in both periods
and the $1.7 million reversal of one-time pricing contingencies
included in net sales in the Fiscal 2010 period, Methode's net
income was $3.5 million, or $0.10 per share, in the second quarter
of fiscal 2010 compared to net income of $4.2 million, or $0.11 per
share, in the same period of fiscal 2009.
Consolidated cost of products sold decreased $20.0 million, or
20.4 percent, to $77.8 million in the fiscal 2010 second quarter,
compared to $97.8 million in the same period of fiscal 2009. The
decrease is due to lower sales volumes and the benefit of the
Company's restructuring efforts to reduce costs. Included in the
cost of products sold in the Fiscal 2010 second quarter is $0.7
million of asset write-downs relating to the termination of the
Delphi supply arrangement. Consolidated cost of products sold as a
percentage of sales was 79.0 percent and 80.6 percent in the second
quarters of fiscal 2010 and 2009, respectively. Excluding the $0.7
million Delphi asset write-down and the $1.7 million reversal of
one-time pricing contingencies included in net sales, consolidated
cost of products sold as a percentage of sales was 79.6 percent for
the second quarter of fiscal 2010.
Consolidated gross margins as a percentage of sales increased to
22.1 percent in the fiscal 2010 second quarter from 20.2 percent in
the comparable period of fiscal 2009 despite an 18.8 percent drop
in sales, largely due to the restructuring actions previously taken
to reduce the cost structure, in part as a result of the sustained
change in the global economic environment. Excluding the $0.7
million Delphi asset write-down and the $1.7 million reversal of
one-time pricing contingencies included in net sales, consolidated
gross margins as a percentage of sales was 21.5 percent for the
second quarter of fiscal 2010.
In the Automotive segment, gross margins as a percentage of
sales increased to 23.1 percent in the fiscal 2010 second quarter
from 21.0 percent in the comparable period of fiscal 2009 despite a
25.3 percent drop in sales from period to period. Excluding the
$0.7 million Delphi asset write-down and the $1.7 million reversal
of one-time pricing contingencies included in net sales, Automotive
segment gross margins as a percentage of sales was 22.0 percent for
the second quarter of fiscal 2010. Additionally, the Interconnect
segment gross margins as a percentage of sales improved to 23.3
percent in the second quarter of fiscal 2010 from 22.8 percent in
the same quarter of fiscal 2009, notwithstanding a 4.7 percent
decrease in sales. Gross margins as a percentage of sales in the
Power Products segment increased to 22.3 percent in the second
quarter of fiscal 2010 from 18.1 percent from the same period of
fiscal 2009, notwithstanding a 19.0 percent decrease in sales
period over period.
Selling and administrative expenses decreased $2.1 million, or
11.4 percent, to $16.4 million in the fiscal 2010 second quarter,
as compared to $18.5 million in the prior-year period. The decrease
relates to lower intangible asset amortization expense and lower
stock award amortization expense during the second quarter of
fiscal 2010, partially offset by higher selling and administrative
expenses from Hetronic, which was acquired in September 2008.
Additionally, the selling and administrative expenses for the
second quarter of fiscal 2010 included $1.5 million in legal fees
relating to the Delphi supply arrangement dispute. Due to the
significant drop in sales and increased legal fees experienced
during the quarter, selling and administrative expenses as a
percentage of sales increased to 16.6 percent in the second quarter
of fiscal 2010, compared to 15.3 percent in the same period of
fiscal 2009.
The effective income tax rate was an expense of 9.7 percent in
the second quarter of fiscal 2010 compared to a benefit of 168.3
percent in the same period of fiscal 2009. The higher effective tax
rate in the fiscal 2010 second quarter was due to the restructuring
charges and the slowing of business, causing a loss before income
tax for the Company's U.S.-based businesses. Normally, a tax
benefit is recorded relating to the net loss before income taxes,
but due to the uncertainty of the future utilization of the tax
benefit by the Company's U.S.-based businesses, a valuation
allowance was recorded offsetting the tax benefit. Additionally,
the tax rates for the second quarters of fiscal 2010 and fiscal
2009 reflect utilization of foreign investment tax credits and the
effect of lower tax rates on income of the Company's foreign
earnings and a higher percentage of earnings at those foreign
operations.
Six-Month Period Fiscal 2010
For the six-month period ended October 31, 2009, net sales
decreased $67.5 million, or 26.4 percent, to $188.3 million from
$255.8 million for the six-month period ended November 1, 2008. Net
income decreased $4.9 million, or 70.0 percent, to $2.1 million, or
$0.06 per share, in the fiscal 2010 six-month period compared to
$7.0 million, or $0.19 per share, in the fiscal 2009 six-month
period.
The decrease in net income is due mainly to lower sales, lower
interest income and increased income taxes partially offset by
lower restructuring expenses, lower other expense and lower costs
due to restructuring and consolidation efforts.
In the six-month period of fiscal 2010, Automotive segment net
sales were negatively impacted by lower sales to Delphi Corporation
due to the cancellation of the supply arrangement by Delphi,
planned lower Chrysler sales, and the softening of the global
economic environment, especially the effect on the North American
automotive industry, but were also favorably impacted by $1.7
million relating to a one-time reversal of pricing contingencies
which were accrued over several years and are no longer
required.
The Company recorded a restructuring charge during the six-month
period of fiscal year 2010 of $6.8 million ($6.2 million
after-tax), or $0.17 per share, compared to $11.2 million ($7.3
million after-tax), or $0.19 per share, in the fiscal 2009
six-month period. Excluding restructuring charges in both periods
and the $1.7 million reversal of one-time pricing contingencies
included in net sales in the Fiscal 2010 period, Methode's net
income was $7.1 million, or $0.19 per share, in the first six
months of fiscal 2010 compared to net income of $14.4 million, or
$0.38 per share, in the same period of fiscal 2009.
Consolidated cost of products sold decreased $54.5 million, or
26.8 percent, to $148.7 million in the fiscal 2010 six-month
period, compared to $203.2 million in the same period of fiscal
2009. The decrease is due to lower sales volumes and the benefit of
the Company's restructuring efforts to reduce costs. Cost of
products sold as a percentage of sales was 79.0 percent and 79.4
percent in the first six months of fiscal years 2010 and 2009,
respectively.
Consolidated gross margins as a percentage of sales increased to
22.4 percent in the fiscal 2010 six-month period from 21.2 percent
in the comparable period of fiscal 2009 despite a 26.4 percent drop
in sales, largely due to the restructuring actions previously taken
to reduce the cost structure as a result of the sustained change in
the global economic environment. Excluding the $0.7 million Delphi
asset write-down and the $1.7 million reversal of one-time pricing
contingencies included in net sales, consolidated gross margins as
a percentage of sales was 22.0 percent for the first six months of
fiscal 2010.
Selling and administrative expenses decreased $2.7 million, or
7.7 percent, to $32.3 million for the six months ended October 31,
2009, from $35.0 million for the six months ended November 1, 2008.
The decrease is due to lower intangible asset amortization expense
and lower stock award amortization expense during the first half of
fiscal 2010, partially offset by selling and administrative
expenses from Hetronic, acquired in September 2008. In addition,
the selling and administrative expenses for the first half of
fiscal 2010 included $1.9 million in legal fees relating to the
Delphi supply arrangement dispute. Selling and administrative
expenses as a percentage of net sales increased to 17.2 percent in
the six months ended October 31, 2009, from 13.7 percent for the
six months ended November 1, 2008.
Income tax expense was 19.8 percent in the first six months of
fiscal 2010 compared with 12.5 percent in the same period of fiscal
2009. The higher effective tax rate in the fiscal 2010 six-month
period was due to the restructuring charges and the slowing of
business, causing a loss before income tax for the Company's
U.S.-based businesses. Normally, a tax benefit is recorded relating
to the net loss before income taxes, but due to the uncertainty of
the future utilization of the tax benefit by the Company's
U.S.-based businesses, a valuation allowance was recorded
offsetting the tax benefit. The effective tax rates for the first
half of fiscal 2010 and 2009 reflect utilization of foreign
investment tax credits and the effect of lower tax rates on income
of the Company's foreign earnings and a higher percentage of
earnings at those foreign operations.
Delphi Litigation
Delphi terminated its supply arrangement with the Company
effective September 10, 2009. The Company is contesting Delphi's
right to terminate this long-term supply arrangement, and the
parties are engaged in litigation regarding this supply arrangement
and the Company's intellectual property. The Company ceased
supplying product to Delphi subsequent to September 10, 2009.
Management Comments
President and Chief Executive Officer Donald W. Duda said,
"Methode's performance in the second quarter of fiscal 2010 was
strong on a sequential basis for both our Automotive and
Interconnect segments, with sales up over the first quarter of
Fiscal 2010 in both segments. However, Automotive segment results
in the second quarter of fiscal 2010 were impacted positively by
pricing contingencies that are no longer needed, offset by a
decrease in sales to Delphi.
"Our third and fourth quarter Fiscal 2010 results for the
Automotive segment will continue to be impacted by the cancellation
of the Delphi supply agreement and associated litigation expense,
as well as expected continued volatility in all our business
segments."
Mr. Duda concluded, "Even though Methode's consolidated sales
were down quarter over quarter, our ability to improve
profitability remains strong through our exit of legacy automotive
business and our significant restructuring efforts. Throughout this
and the last fiscal year, we have taken actions to align our
expense levels with the expectation of a long challenging economic
environment, with our key objective to improve margins while
operating at significantly lower sales levels. Our results thus far
in Fiscal 2010 validate our strategy."
Conference Call
Today, 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. To
participate in the conference call, please dial (877) 407-8031
(domestic) or (201) 689-8031 (international) 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 December 24 by
dialing (877) 660-6853 (domestic) or (201) 612-7415 and providing
Account number 286 and Conference ID number 338766. 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;
(2) dependence on the automotive, appliance, computer and
communications industries; (3) seasonal and cyclical nature of some
of our businesses; (4) ability to protect our intellectual
property; (5) customary risks related to conducting global
operations; (6) ability to successfully benefit from acquisitions;
(7) ability to keep pace with rapid technological changes; (8)
ability to avoid design or manufacturing defects; (9) dependence on
the availability and price of raw materials; (10) oil prices could
affect our automotive customers future results; (11) incurrence of
additional restructuring charges, goodwill and other asset
impairments.
Methode Electronics, Inc.
Financial Highlights
(In thousands, except per share data, unaudited)
Three Months Ended
October 31, November 1,
2009 2008
----------- -----------
Net sales $ 98,496 $ 121,304
Other income 1,072 959
Cost of products sold 77,784 97,815
Restructuring 3,156 6,284
Selling and administrative expenses 16,413 18,537
Income from operations 2,215 (373)
Interest income/(expense), net (45) 469
Other income/(expense), net 143 (610)
Income/(loss) before income taxes 2,313 (514)
Income tax expense/(benefit) 225 (865)
Net income 2,088 351
Less: Net income attributable to noncontrolling
interest (36) (113)
Net income attributable to Methode Electronics, Inc. 2,052 238
Basic earnings per common share $ 0.06 $ 0.01
Diluted earnings per common share $ 0.06 $ 0.01
Average Number of Common Shares Outstanding:
Basic 36,644 37,068
Diluted 36,868 37,551
Six Months Ended
October 31, November 1,
2009 2008
----------- -----------
Net sales $ 188,272 $ 255,818
Other income 2,459 1,692
Cost of products sold 148,693 203,245
Restructuring 6,767 11,201
Selling and administrative expenses 32,286 34,934
Income from operations 2,985 8,130
Interest income/(expense), net (147) 1,003
Other expense, net (252) (879)
Income before income taxes 2,586 8,254
Income tax expense 511 1,032
Net income 2,075 7,222
Less: Net income attributable to noncontrolling
interest (42) (168)
Net income attributable to Methode Electronics, Inc. 2,033 7,054
Basic earnings per common share $ 0.06 $ 0.19
Diluted earnings per common share $ 0.06 $ 0.19
Average Number of Common Shares Outstanding:
Basic 36,641 37,120
Diluted 36,823 37,584
Methode Electronics, Inc.
Summary Balance Sheets
(In thousands)
October 31,
2009 May 2, 2009
------------ ------------
(unaudited)
Cash $ 60,274 $ 54,030
Accounts receivable - net 71,837 60,406
Inventories 41,254 40,426
Other current assets 20,420 26,384
------------ ------------
Total Current Assets 193,785 181,246
Property, plant and equipment - net 68,350 69,917
Goodwill 11,771 11,771
Intangible assets - net 19,583 20,501
Other assets 22,722 21,853
------------ ------------
Total Assets $ 316,211 $ 305,288
============ ============
Accounts payable $ 31,075 $ 24,495
Other current liabilities 27,860 29,023
------------ ------------
Total Current Liabilities 58,935 53,518
Other liabilities 16,459 16,869
------------ ------------
Total Methode Electronics, Inc. shareholders'
equity 237,301 231,776
Noncontrolling interest 3,516 3,125
------------ ------------
Total shareholders' equity 240,817 234,901
------------ ------------
Total Liabilities and Shareholders' Equity $ 316,211 $ 305,288
============ ============
Methode Electronics, Inc.
Summary Statements of Cash Flow (unaudited)
(In thousands)
Six Months Ended
October 31, November 1,
2009 2008
----------- -----------
Operating Activities:
Net income $ 2,075 $ 7,222
Non-cash translation loss - 2,463
Provision for depreciation 10,118 12,489
Impairment of tangible assets 710 3,177
Amortization of intangible assets 1,123 3,052
Amortization of stock awards and stock options 507 1,605
Changes in operating assets and liabilities 1,044 (1,160)
Other 48 567
----------- -----------
Net Cash Provided by Operating Activities 15,625 29,415
Investing Activities:
Purchases of property, plant and equipment (5,821) (9,557)
Acquisitions of businesses - (56,785)
Acquisitions of businesses and technology (181) (225)
Other - (209)
----------- -----------
Net Cash Used in Investing Activities (6,002) (66,776)
Financing Activities:
Repurchase of common stock - (5,137)
Proceeds from exercise of stock options - 110
Tax benefit from stock options and awards - 46
Dividends (5,233) (4,528)
----------- -----------
Net Cash Used in Financing Activities (5,233) (9,509)
Effect of foreign exchange rate changes on cash 1,854 (4,629)
----------- -----------
Increase/(Decrease) in Cash and Cash Equivalents 6,244 (51,499)
Cash and Cash Equivalents at Beginning of Period 54,030 104,305
----------- -----------
Cash and Cash Equivalents at End of Period $ 60,274 $ 52,806
=========== ===========
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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