Table of
Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
(Mark One)
x
|
|
Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
|
for the quarterly period
ended October 31, 2009
or
o
|
|
Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
|
Commission
file number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of registrant as specified in its
charter.)
Delaware
|
36-2090085
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
incorporation or organization)
|
Identification No.)
|
|
|
7401 West Wilson Avenue, Harwood Heights,
Illinois
|
60706-4548
|
(Address of principal executive offices)
|
(Zip Code)
|
(708) 867-6777
(Registrants telephone number, including
area code)
None
(Former
name, former address, former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or smaller reporting
company. See definitions of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
At December 8, 2009, registrant had 37,520,657
shares of common stock outstanding.
Table of Contents
METHODE
ELECTRONICS, INC.
FORM 10-Q
October 31,
2009
TABLE
OF CONTENTS
Table of Contents
PART I -
FINANCIAL INFORMATION
Item 1 - Financial
Statements
METHODE
ELECTRONICS, INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
As of
|
|
As of
|
|
|
|
October 31, 2009
|
|
May 2, 2009
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,274
|
|
$
|
54,030
|
|
Accounts receivable, net
|
|
71,837
|
|
60,406
|
|
Inventories:
|
|
|
|
|
|
Finished products
|
|
8,029
|
|
11,865
|
|
Work in process
|
|
16,018
|
|
10,765
|
|
Materials
|
|
17,207
|
|
17,796
|
|
|
|
41,254
|
|
40,426
|
|
Deferred income taxes
|
|
4,972
|
|
4,928
|
|
Refundable income taxes
|
|
9,073
|
|
14,764
|
|
Prepaid expenses and other current assets
|
|
6,375
|
|
6,692
|
|
TOTAL CURRENT ASSETS
|
|
193,785
|
|
181,246
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
297,484
|
|
289,084
|
|
Less allowances for depreciation
|
|
229,134
|
|
219,167
|
|
|
|
68,350
|
|
69,917
|
|
|
|
|
|
|
|
GOODWILL
|
|
11,771
|
|
11,771
|
|
INTANGIBLE ASSETS, net
|
|
19,583
|
|
20,501
|
|
OTHER ASSETS
|
|
22,722
|
|
21,853
|
|
|
|
54,076
|
|
54,125
|
|
TOTAL ASSETS
|
|
$
|
316,211
|
|
$
|
305,288
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
Accounts payable
|
|
$
|
31,075
|
|
$
|
24,495
|
|
Other current liabilities
|
|
27,860
|
|
29,023
|
|
TOTAL CURRENT LIABILITIES
|
|
58,935
|
|
53,518
|
|
|
|
|
|
|
|
OTHER LIABILITIES
|
|
14,154
|
|
13,561
|
|
DEFERRED COMPENSATION
|
|
2,305
|
|
3,308
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
Common stock, $0.50 par value, 100,000,000 shares
authorized, 38,315,225 and
38,290,776 shares issued as of October 31, 2009 and May 2,
2009, respectively
|
|
19,158
|
|
19,145
|
|
Unearned common stock issuances
|
|
(3,632
|
)
|
(3,632
|
)
|
Additional paid-in capital
|
|
69,001
|
|
68,506
|
|
Accumulated other comprehensive income
|
|
23,891
|
|
15,675
|
|
Treasury stock, 1,372,188 shares as of
October 31, 2009 and May 2, 2009
|
|
(11,495
|
)
|
(11,495
|
)
|
Retained earnings
|
|
140,378
|
|
143,577
|
|
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
|
|
See notes to condensed consolidated financial statements.
2
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands,
except per share data)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
November 1,
|
|
October 31,
|
|
November 1,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
98,496
|
|
$
|
121,304
|
|
$
|
188,272
|
|
$
|
255,818
|
|
Other
|
|
1,072
|
|
959
|
|
2,459
|
|
1,692
|
|
|
|
99,568
|
|
122,263
|
|
190,731
|
|
257,510
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
77,784
|
|
97,815
|
|
148,693
|
|
203,245
|
|
Restructuring
|
|
3,156
|
|
6,284
|
|
6,767
|
|
11,201
|
|
Selling
and administrative expenses
|
|
16,413
|
|
18,537
|
|
32,286
|
|
34,934
|
|
|
|
97,353
|
|
122,636
|
|
187,746
|
|
249,380
|
|
Income/(loss)
from operations
|
|
2,215
|
|
(373
|
)
|
2,985
|
|
8,130
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income/(expense), net
|
|
(45
|
)
|
469
|
|
(147
|
)
|
1,003
|
|
Other
income/(expense), net
|
|
143
|
|
(610
|
)
|
(252
|
)
|
(879
|
)
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
2,313
|
|
(514
|
)
|
2,586
|
|
8,254
|
|
Income
tax expense/(benefit)
|
|
225
|
|
(865
|
)
|
511
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
2,088
|
|
351
|
|
2,075
|
|
7,222
|
|
Less:
Net Income attributable to noncontrolling interest
|
|
(36
|
)
|
(113
|
)
|
(42
|
)
|
(168
|
)
|
NET
INCOME ATTRIBUTABLE TO METHODE ELECTRONICS, INC.
|
|
$
|
2,052
|
|
$
|
238
|
|
$
|
2,033
|
|
$
|
7,054
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
per common share attributable to Methode Electronics, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income
|
|
$
|
0.06
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.19
|
|
Diluted
net income
|
|
$
|
0.06
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends:
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
$
|
0.07
|
|
$
|
0.07
|
|
$
|
0.14
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Common Shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
36,644
|
|
37,068
|
|
36,641
|
|
37,120
|
|
Diluted
|
|
36,868
|
|
37,551
|
|
36,823
|
|
37,584
|
|
See notes to
condensed consolidated financial statements.
3
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
Six Months Ended
|
|
|
|
October 31, 2009
|
|
November 1, 2008
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
Net income
|
|
$
|
2,075
|
|
$
|
7,222
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
Non-cash translation loss
|
|
|
|
2,463
|
|
Provision for depreciation
|
|
10,118
|
|
12,489
|
|
Impairment of tangible assets
|
|
710
|
|
3,177
|
|
Amortization of intangibles
|
|
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
|
)
|
Acquisition of businesses
|
|
|
|
(56,785
|
)
|
Acquisition of technology licenses
|
|
(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
|
|
Cash dividends
|
|
(5,233
|
)
|
(4,528
|
)
|
NET CASH USED IN FINANCING
ACTIVITIES
|
|
|
(5,233
|
)
|
(9,509
|
)
|
|
|
|
|
|
|
Effect of foreign currency 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
|
|
See notes to condensed consolidated financial statements.
4
Table of Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
October 31, 2009
1.
BASIS OF PRESENTATION
Methode Electronics, Inc. was incorporated in 1946 as an Illinois
corporation and reincorporated in Delaware in 1966. As used herein, we, us,
our, the Company or Methode means Methode Electronics, Inc. and its
subsidiaries. The condensed consolidated financial statements and related
disclosures as of October 31, 2009 and results of operations for the three
months and six months ended October 31, 2009 and November 1, 2008 are
unaudited, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). The May 2, 2009 condensed consolidated
balance sheet was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America (U.S. GAAP). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted pursuant to such rules and
regulations. In our opinion, these financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary for the fair
statement of the results for the interim periods. These financial statements
should be read in conjunction with the financial statements included in our
latest Form 10-K for the year ended May 2, 2009 filed with the SEC on
July 2, 2009. Results may vary from quarter to quarter for reasons other
than seasonality.
2.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2009,
the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update 2009-13, Multiple-Deliverable Revenue Arrangements, which amends the
multiple-element arrangement guidance under Accounting Standards Codification
(ASC) No. 605, Revenue Recognition. This guidance amends the criteria
for separating consideration of products or services in multiple-deliverable
arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable, eliminates the residual method
of allocation, and requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method. In addition, this guidance significantly expands required
disclosures related to a vendors multiple-deliverable revenue arrangements. This
guidance is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010,
which is our fiscal year 2012, that begins May 1, 2011. The adoption of
this standard will not have a material impact on our financial statements.
In June 2009,
the FASB issued ASC No. 810, Consolidation (ASC No. 810). ASC No. 810
is intended to improve financial reporting by providing additional guidance to
companies involved with variable interest entities and by requiring additional
disclosures about a companys involvement in variable interest entities. This
standard is effective for interim and annual periods ending after November 15,
2009, which is our third quarter fiscal 2010, that ends on January 30,
2010. The adoption of this standard will not have a material impact on our
financial statements.
In June 2009,
the FASB issued ASC No. 860, Transfers and Servicing (ASC No. 860).
ASC No. 860 will require more information about transfers of financial
assets, including companies that have continuing exposure to the risk related
to transferred financial assets. It eliminates the concept of a qualifying
special purpose entity, changes the requirements for derecognizing financial
assets, and requires additional disclosure. This standard is effective for
interim and annual periods ending after November 15, 2009, which is our
third quarter fiscal 2010, that ends on January 30, 2010. The adoption of
this standard will not have a material impact on our financial statements.
3.
RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective October 31,
2009, we adopted ASC No. 105, Generally Accepted Accounting Principles,
the FASB Accounting Standards Codification (the Codification) and the Hierarchy
of Generally Accepted Accounting Principles. The Codification is now the single
source of authoritative GAAP for all non-governmental entities. The
Codification changes the referencing and organization of accounting guidance. The
issuance of ASC No. 105 will not change GAAP and therefore the adoption of
ASC No. 105 will only affect how specific references to GAAP literature
are disclosed in the notes to our consolidated financial statements.
5
Table of Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
3. RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS - Continued
In December 2007,
the FASB issued new guidance under ASC No. 810, Consolidation,, an
Amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements
(ASC No. 810). ASC No. 810 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. We adopted ASC No. 810
on May 3, 2009. As a result, we have reclassified financial statement line
items within our condensed consolidated balance sheet and statement of income
for the prior period to conform with this standard. Additionally, see Note 5
for disclosure reflecting the impact of ASC No. 810 on our reconciliation
of comprehensive income.
In June 2008,
the FASB issued ASC No. 260, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities (ASC No. 260).
ASC No. 260 was issued to clarify that unvested share-based payment awards
with a right to receive non-forfeitable dividends are participating securities.
This ASC also provides guidance on how to allocate earnings to participating
securities and compute basic earnings per share using the two-class method. We
adopted ASC No. 260 on May 3, 2009. The adoption did not have a
material impact on our earnings per share calculations.
In February 2008,
the FASB issued new guidance under ASC No. 820, Fair Value Measurements
and Disclosures, (FASB Staff Position No. 157-2), which delays the
effective date of SFAS No. 157 for non-financial assets and
liabilities, which are not measured at fair value on a recurring basis (at
least annually) until fiscal years beginning after November 15, 2008,
which is our fiscal year 2010 that began May 3, 2009. The adoption of ASC No. 820 for
non-financial assets and liabilities did not have a material impact on our
condensed consolidated financial statements.
On May 3,
2009, we adopted the provisions of ASC No. 805-10, Business Combinations
(ASC No. 805-10). ASC No. 805-10 establishes principles and
requirements on how an acquirer recognizes and measures in its financial
statements identifiable assets acquired, liabilities assumed, noncontrolling
interests in the acquiree, goodwill or gain from a bargain purchase and
accounting for transaction costs. Additionally, ASC No. 805-10 determines
what information must be disclosed to enable users of the financial statements
to evaluate the nature and financial effects of the business combination. The
adoption of ASC No. 805-10 did not have an impact on our consolidated
financial statements, but will have an impact on the accounting for future
business combinations.
In April 2009,
the FASB issued three FASB Staff Positions, (FSPs) related to fair value
measurements. The first, FSP ASC No. 820, Fair Value Measurements and
Disclosures, provides guidance on determining whether a market is inactive and
whether transactions in that market are distressed. The second FSP issued, ASC No. 320,
Investments Debt and Equity Securities, and EITF 99-20-2, Recognition and
Presentation of Other-Than-Temporary Impairments, provides guidance on how to
assess whether an asset has experienced an other-than-temporary impairment and,
if so, where the impairment should be recorded in the financial statements. The
third FSP issued, ASC No. 825, Financial Instruments, and ASC No. 270,
Interim Reporting, requires that disclosures currently required under ASC No. 825,
Disclosures about Fair Value of Financial Instruments, be presented for interim
periods as well as annual periods. The Company adopted these FSPs during the
first quarter of 2010. The adoption of these FSPs did not have a material
impact on the Companys consolidated financial statements.
In May 2009,
the FASB issued ASC No. 855, Subsequent Events (ASC No. 855). ASC
No. 855 establishes general standards of accounting for, and disclosure
of, events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. In particular, this
statement sets forth: (1) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, (2) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in the financial
statements and (3) the disclosure that an entity should make about events
or transactions that occurred after the balance sheet date. We adopted ASC No. 855
on August 1, 2009 and the adoption did not have a material impact on our
financial statements. We evaluated subsequent events through December 9,
2009, the time these financial statements were filed with the Securities and
Exchange Commission.
6
Table of Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
4.
RESTRUCTURING
March 2009 Restructuring
In
March 2009, we announced several additional restructuring actions to
further reduce our exposure to the North American automotive industry and to
consolidate manufacturing facilities in lower cost regions. The restructuring
is expected to be completed during the second half of fiscal 2010. We record
the expense in the restructuring section of our condensed consolidated
statement of income. As of October 31, 2009, we have recorded a total of
$12,182 of restructuring charges related to this restructuring. We estimate
that we will record additional pre-tax restructuring charges in the second half
of fiscal 2010 of between $500 and $1,200.
During
the three months ended October 31, 2009, we recorded a restructuring
charge of $2,978, which consisted of $1,819 for employee severance and $1,159
relating to other costs. During the six months ended October 31, 2009, we
recorded a restructuring charge of $4,919, which consisted of $3,490 for
employee severance and $1,429 relating to other costs. As of October 31,
2009, we had an accrued restructuring liability of $597 reflected in the
current liabilities section of our consolidated balance sheet. We expect this
liability to be paid out during fiscal 2010.
The table below reflects
the March 2009 restructuring activity for the first and second quarter of
fiscal 2010:
|
|
One-Time
|
|
|
|
|
|
|
|
|
|
Employee
|
|
Asset
|
|
Other
|
|
|
|
|
|
Severance
|
|
Write-Downs
|
|
Costs
|
|
Total
|
|
Accrued
balance at May 2, 2009
|
|
$
|
140
|
|
$
|
|
|
$
|
|
|
$
|
140
|
|
First
quarter fiscal 2010 restructuring charges
|
|
1,671
|
|
|
|
270
|
|
1,941
|
|
First
quarter 2010 payments and asset write-downs
|
|
(1,625
|
)
|
|
|
(270
|
)
|
(1,895
|
)
|
Accrued
balance at August 1, 2009
|
|
186
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
Second
quarter fiscal 2010 restructuring charges
|
|
1,819
|
|
|
|
1,159
|
|
2,978
|
|
Second
quarter 2010 payments and asset write-downs
|
|
(1,688
|
)
|
|
|
(879
|
)
|
(2,567
|
)
|
Accrued
balance at October 31, 2009
|
|
$
|
317
|
|
$
|
|
|
$
|
280
|
|
$
|
597
|
|
January 2008 Restructuring
In January 2008, we announced a restructuring of our U.S.-based
automotive operations and a decision to discontinue producing certain legacy
products in the Interconnect segment. The Automotive and Interconnect
restructuring is expected to be completed during the second half of fiscal
2010. We record the expense in the restructuring section of our condensed
consolidated statement of income. As of October 31, 2009, we have recorded
charges totaling $25,022 related to this restructuring. We estimate that we
will record additional pre-tax restructuring charges in fiscal 2010 of between
$500 and $1,000.
During
the three months ended October 31, 2009, we recorded a restructuring
charge of $178, which consisted of $88 for accelerated depreciation and $90
related to other costs. During the six months ended October 31, 2009, we
recorded a restructuring charge of $1,848, which consisted of $180 for employee
severance, $1,538 in impairments and accelerated depreciation and $130 relating
to other costs. As of October 31, 2009, we had an accrued restructuring
liability of $1,417 reflected in the current liabilities section of our
consolidated balance sheet.
7
Table of Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
4.
RESTRUCTURING -
Continued
The table below reflects the January 2008 restructuring activity
for the first and second quarter of fiscal 2010:
|
|
One-Time
|
|
|
|
|
|
|
|
|
|
Employee
|
|
Asset
|
|
Other
|
|
|
|
|
|
Severance
|
|
Write-Downs
|
|
Costs
|
|
Total
|
|
Accrued
balance at May 2, 2009
|
|
$
|
1,849
|
|
$
|
|
|
$
|
|
|
$
|
1,849
|
|
First
quarter fiscal 2010 restructuring charges
|
|
180
|
|
1,450
|
|
40
|
|
1,670
|
|
First
quarter 2010 payments and asset write-downs
|
|
(368
|
)
|
(1,450
|
)
|
(40
|
)
|
(1,858
|
)
|
Accrued
balance at August 1, 2009
|
|
1,661
|
|
|
|
|
|
1,661
|
|
|
|
|
|
|
|
|
|
|
|
Second
quarter fiscal 2010 restructuring charges
|
|
|
|
88
|
|
90
|
|
178
|
|
Second
quarter 2010 payments and asset write-downs
|
|
(244
|
)
|
(88
|
)
|
(90
|
)
|
(422
|
)
|
Accrued
balance at October 31, 2009
|
|
$
|
1,417
|
|
$
|
|
|
$
|
|
|
$
|
1,417
|
|
5.
COMPREHENSIVE INCOME/(LOSS)
The components of
our comprehensive income/(loss) for the three and six months ended October 31,
2009 and November 1, 2008 include net income and adjustments to
stockholders equity for foreign currency translations. The foreign currency
translation adjustment was due to exchange rate fluctuations in our foreign
affiliates local currency versus the U.S. dollar.
The following table presents details of our comprehensive income/(loss)
(unaudited):
|
|
Three Months Ended October 31, 2009
|
|
Six Months Ended October 31, 2009
|
|
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,088
|
|
$
|
2,052
|
|
$
|
36
|
|
$
|
2,075
|
|
$
|
2,033
|
|
$
|
42
|
|
Translation adjustment
|
|
3,208
|
|
3,192
|
|
16
|
|
8,216
|
|
7,867
|
|
349
|
|
Total comprehensive income
|
|
$
|
5,296
|
|
$
|
5,244
|
|
$
|
52
|
|
$
|
10,291
|
|
$
|
9,900
|
|
$
|
391
|
|
|
|
Three Months Ended November 1, 2008
|
|
Six Months Ended November 1, 2008
|
|
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
351
|
|
$
|
238
|
|
$
|
113
|
|
$
|
7,222
|
|
$
|
7,054
|
|
$
|
168
|
|
Translation adjustment
|
|
(16,181
|
)
|
(15,431
|
)
|
(750
|
)
|
(14,446
|
)
|
(13,922
|
)
|
(524
|
)
|
Total comprehensive loss
|
|
$
|
(15,830
|
)
|
$
|
(15,193
|
)
|
$
|
(637
|
)
|
$
|
(7,224
|
)
|
$
|
(6,868
|
)
|
$
|
(356
|
)
|
6.
GOODWILL AND INTANGIBLE ASSETS
We review our goodwill and other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of these assets may not be recoverable, and we also review our goodwill
annually in accordance with ASC No. 350, Intangibles Goodwill and Other.
The values assigned to goodwill and intangible assets are normally based on
estimates and judgments regarding expectations for the success and life cycle
of products and technologies acquired. A severe decline in expectations could
result in significant impairment charges, which could have a material adverse
effect on our financial condition and results of operations. We did not perform
impairment testing on our goodwill and intangible assets during the second
quarter of fiscal 2010 because there were no additional indicators of
impairment.
8
Table of Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
6.
GOODWILL AND INTANGIBLE ASSETS - Continued
The following tables present details of
the Companys intangible assets:
|
|
As of October 31, 2009
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Accumulated
|
|
|
|
Amortization
|
|
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Periods (Years)
|
|
Customer
relationships and agreements
|
|
$
|
14,995
|
|
$
|
12,889
|
|
$
|
2,106
|
|
14.2
|
|
Patents
and technology licenses
|
|
23,449
|
|
6,096
|
|
17,353
|
|
13.2
|
|
Covenants
not to compete
|
|
480
|
|
356
|
|
124
|
|
2.3
|
|
Total
|
|
$
|
38,924
|
|
$
|
19,341
|
|
$
|
19,583
|
|
|
|
|
|
As of May 2, 2009
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Accumulated
|
|
|
|
Amortization
|
|
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Periods (Years)
|
|
Customer
relationships and agreements
|
|
$
|
14,995
|
|
$
|
12,718
|
|
$
|
2,277
|
|
14.7
|
|
Patents
and technology licenses
|
|
23,244
|
|
5,169
|
|
18,075
|
|
13.4
|
|
Covenants
not to compete
|
|
480
|
|
331
|
|
149
|
|
2.8
|
|
Total
|
|
$
|
38,719
|
|
$
|
18,218
|
|
$
|
20,501
|
|
|
|
The estimated aggregate amortization expense
for fiscal 2010 and each of the four succeeding fiscal years is as follows:
2010
|
|
$
|
2,240
|
|
2011
|
|
2,197
|
|
2012
|
|
1,685
|
|
2013
|
|
1,308
|
|
2014
|
|
1,195
|
|
As of October 31, 2009, the patents and technology licenses include
$2,400 of trade names that are not subject to amortization.
7.
ACQUISITIONS
On September 30, 2008, we acquired certain assets of Hetronic LLC
(Hetronic) for $53,639 in cash. We also incurred $2,447 in transaction costs. Hetronic
is a global leader in industrial safety radio remote controls with locations in
the U.S., Malta, the Philippines and Germany. Hetronic is represented in 45
countries by direct sales associates, licensed partners, distributors and
representatives. Hetronic provides application specific and standard controls
to many different industries, such as agriculture, construction, material
handling, military, mining and transportation.
Based
in part on a third-party valuation report, management determined that the
tangible net assets acquired had a fair value of $20,533. The fair values
assigned to intangible assets acquired were $12,170 for customer relationships,
$2,700 for the trade name and trademarks, $1,450 for technology valuation, and
$170 for non-competes, resulting in $19,063 of goodwill. The customer
relationships, technology valuation and non-compete agreements will be amortized
over 5 to approximately 12 years. The trade name and trademarks are not subject
to amortization but will be subject to periodic impairment testing. The
accounts and transactions of Hetronic have been included in the Interconnect
segment in the consolidated financial statements from the effective date of the
acquisition.
9
Table of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share
data)
7.
ACQUISITIONS - Continued
At
the end of fiscal 2009, in accordance with ASC No. 350, Intangibles
Goodwill and Other and ASC No. 360, Property, Plant, and Equipment, it
was determined that the goodwill and intangible assets for Hetronic were
impaired. Therefore, in the fourth
quarter of fiscal 2009, we recorded an impairment charge of $19,063 and $11,587
for goodwill and intangible assets, respectively.
8.
INCOME TAXES
At
October 31, 2009, we had valuation allowances against our deferred tax
assets of $53,152. In accordance with
ASC No. 740, Income Taxes, a valuation allowance is required to be
recorded when it is more likely than not that deferred tax assets will not be
realized. Future realization depends on
the existence of sufficient taxable income within the carry-forward period
available under the tax law. Sources of
future taxable income include future reversals of taxable temporary
differences, future taxable income exclusive of reversing taxable differences,
taxable income in carry-back years and tax planning strategies. These sources of positive evidence of
realizability must be weighed against negative evidence, such as cumulative
losses in recent years.
In
forming a judgment about the future realization of our deferred tax assets, we considered
both the positive and negative evidence of realizability and gave significant
weight to the negative evidence from our recent cumulative loss. We will continue to assess this situation and
make appropriate adjustments to the valuation allowance based on our evaluation
of the positive and negative evidence existing at the time. We are currently unable to forecast when
there will be sufficient positive evidence for us to reverse the valuation
allowances that we have recorded.
The
valuation allowance is associated with the deferred tax assets for the
differences between book and tax that result from net operating losses (NOLs),
foreign investment tax credits with unlimited carryovers generated in the
current and prior years and temporary differences which become deductible when
the related asset is recovered or related liability is settled.
We recognize interest and penalties accrued related to the unrecognized
tax benefits in the provision for income taxes.
During the three months ended October 31, 2009, we recognized $42
in interest and zero in penalties. We
had approximately $1,020 accrued at October 31, 2009 for the payment of
interest. The total unrecognized tax
benefit as of October 31, 2009 was $6,126.
We believe that it is reasonably possible that the total amount of
unrecognized tax benefits will change within the next twelve months. We have certain tax return years subject to
statutes of limitation, which will close within twelve months of the end of the
quarter. Unless challenged by tax
authorities, the closure of those statutes of limitation is expected to result
in the recognition of uncertain tax positions in the range of between $500 and
$2,500.
The Company and all of its domestic subsidiaries file income tax
returns in the U.S. federal jurisdiction and various states. Our foreign subsidiaries file income tax
returns in certain foreign jurisdictions since they have operations outside the
U.S. The Company and its subsidiaries
are generally no longer subject to U.S. federal, state and local examinations
by tax authorities for years before fiscal 2006.
10
Table
of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
9.
COMMON STOCK AND STOCK-BASED
COMPENSATION
The
following table sets forth the changes in the number of issued shares of common
stock during the six-month period presented:
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Balance
at the beginning of the period
|
|
38,290,776
|
|
38,225,379
|
|
Options
exercised
|
|
|
|
19,089
|
|
Restricted
stock awards vested
|
|
24,449
|
|
38,607
|
|
Balance
at the end of the period
|
|
38,315,225
|
|
38,283,075
|
|
We
paid quarterly dividends of $2,616 on July 31, 2009 and October 30,
2009. We intend to retain the remainder
of our earnings not used for dividend payments to provide funds for the operation
and expansion of our business. Our Board
of Directors approved a stock repurchase plan on September 18, 2008 to
repurchase up to 3,000,000 shares. The
plan expires at the end of fiscal 2010.
There were no shares purchased during the first or second quarter of
fiscal 2010.
Stock Options Granted
Under the 2000 and 2004 Stock Plans
There
are 589,909 stock options that were granted in previous years under the 2000
and 2004 stock plans that are outstanding and exercisable as of October 31,
2009. There were 30,128 options that
expired and 5,596 options were forfeited during the first half of fiscal
2010. There was no remaining
compensation expense relating to these options in the first half of fiscal
2010.
The
following tables summarize the stock option activity and related information
for the stock options granted under the 2000 and 2004 stock plans for the six
months ended October 31, 2009:
|
|
Summary of Option Activity
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
Shares
|
|
Exercise Price
|
|
Outstanding
at May 2, 2009
|
|
625,633
|
|
$
|
10.26
|
|
Exercised
|
|
|
|
|
|
Forfeited
and Expired
|
|
(35,724
|
)
|
8.58
|
|
Outstanding
at October 31, 2009
|
|
589,909
|
|
$
|
10.47
|
|
Options Outstanding and
Exercisable at October 31, 2009
|
|
|
|
|
|
Wtd. Avg.
|
|
Avg.
|
|
Range
of
|
|
|
|
Exercise
|
|
Remaining
|
|
Exercise
Prices
|
|
Shares
|
|
Price
|
|
Life (Years)
|
|
$5.72
- $7.69
|
|
154,125
|
|
$
|
6.68
|
|
1.8
|
|
$8.53
- $11.44
|
|
303,085
|
|
10.86
|
|
1.8
|
|
$12.11
- $17.66
|
|
132,699
|
|
14.00
|
|
0.8
|
|
|
|
589,909
|
|
$
|
10.47
|
|
|
|
The
options outstanding had an intrinsic value of $100 at October 31,
2009. The intrinsic value represents the
total pre-tax intrinsic value (the difference between the Companys closing
stock price on the last trading day of the second quarter of fiscal 2010 and
the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders exercised
their options on October 31, 2009.
11
Table of
Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
9.
COMMON STOCK AND STOCK-BASED
COMPENSATION - Continued
Stock Options Granted
Under the 2007 Stock Plan
In
March 2009, the Compensation Committee approved the grant of 285,000 stock
options to our executive officers under the 2007 Stock Plan. The March 2009 stock options vest on the
third anniversary of the date of grant.
In July 2009, the Compensation Committee approved the grant of
275,000 stock options to our executive officers and other members of management
under the same plan. The July 2009
stock options vest one-third per year on each anniversary of the date of
grant. Both the March 2009 and July 2009
stock option grants have a ten-year term.
The
following tables summarize the stock option activity and related information
for the stock options granted under the 2007 stock plan for the six months
ended October 31, 2009:
|
|
Summary of Option Activity
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
Shares
|
|
Exercise Price
|
|
Outstanding
at May 2, 2009
|
|
285,000
|
|
$
|
2.72
|
|
Granted
|
|
275,000
|
|
6.46
|
|
Exercised
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
Outstanding
at October 31, 2009
|
|
560,000
|
|
$
|
4.56
|
|
Options Outstanding
at October 31, 2009
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
Remaining
|
|
Exercise Price
|
|
Shares
|
|
Life (Years)
|
|
$
|
2.72
|
|
285,000
|
|
9.3
|
|
$
|
6.46
|
|
275,000
|
|
9.7
|
|
We
estimated the fair value of our employee stock options on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
|
|
Fiscal 2009
|
|
Fiscal 2010
|
|
|
|
Grants
|
|
Grants
|
|
|
|
|
|
|
|
Average
expected volatility
|
|
69.58
|
%
|
87.31
|
%
|
Average
risk-free interest rate
|
|
1.39
|
%
|
1.46
|
%
|
Dividend
yield
|
|
2.26
|
%
|
2.66
|
%
|
Expected
life of options
|
|
6.87 years
|
|
6.87 years
|
|
Weighted-average
grant-date fair value
|
|
$
|
1.46
|
|
$
|
3.97
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards and Restricted Stock Units
In April 2007, 225,000 shares of common
stock subject to performance-based Restricted Stock Awards (RSAs) granted to
our CEO in fiscal 2006 and 2007 were converted to Restricted Stock Units
(RSUs). The RSUs are subject to the same
vesting schedule and other major provisions of the RSAs they replaced, except
the RSUs are not payable until the earlier of: (1) thirty days after the
CEOs date of termination of employment with the Company and all of its
subsidiaries and affiliates; or (2) the last day of our fiscal year in
which the payment of common stock in satisfaction of the RSUs becomes
deductible to the Company under Section 162(m) of the Internal
Revenue Code.
12
Table of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
9.
COMMON STOCK AND STOCK-BASED
COMPENSATION - Continued
At the end of fiscal 2009, 100,000 RSUs
were cancelled due to the company not meeting specific revenue and performance
goals. All further discussion of RSAs
in this report includes the RSUs described above.
At May 3, 2009, the beginning of fiscal
2010, there were 578,287 performance-based and time-based RSAs
outstanding. The time-based RSAs vest in
three equal annual installments from the grant date. All RSAs awarded to senior management are
performance-based and vest after three years if the recipient remains employed
by the Company until that date and we have met certain revenue growth and
return on invested capital targets. As
of October 31, 2009, it was determined that based on the current economic
environment, the performance-based shares granted in fiscal years 2008 and 2009
are not expected to meet the revenue growth and return on invested capital
targets. All of the unvested RSAs are entitled
to voting rights and to payment of dividends.
During the six months ended October 31, 2009, we awarded 24,000
restricted shares to our independent directors, all of which vested immediately
upon grant.
We
recognized pre-tax compensation expense for RSAs of $81 and $811 in the three
months ended October 31, 2009 and November 1, 2008,
respectively. We recognized pre-tax
compensation expense for RSAs of $316 and $1,603 in the six months ended October 31,
2009 and November 1, 2008, respectively.
We record the expense in the selling and administrative section of our
condensed consolidated statement of income.
The following table
summarizes the RSA activity for the six months ended October 31, 2009:
|
|
Shares
|
|
Unvested
at May 2, 2009
|
|
578,287
|
|
Awarded
|
|
24,000
|
|
Vested
|
|
(24,667
|
)
|
Forfeited
|
|
|
|
Unvested
at October 31, 2009
|
|
577,620
|
|
The table below shows the
Companys unvested RSAs at October 31, 2009:
|
|
|
|
|
|
|
|
Probable
|
|
Target
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
Unearned
|
|
Grant
|
|
|
|
|
|
Weighted
|
|
Compensation
|
|
Compensation
|
|
Fiscal
|
|
|
|
|
|
Average
|
|
Expense at
|
|
Expense at
|
|
Year
|
|
RSAs
|
|
Vesting Period
|
|
Value
|
|
October 31, 2009
|
|
October 31, 2009
|
|
2006
|
|
125,000
|
|
3-year cliff
performanced-based
|
|
$
|
12.42
|
|
$
|
|
|
$
|
|
|
2007
|
|
834
|
|
3-year equal annual
installments
|
|
11.07
|
|
|
|
|
|
2008
|
|
17,793
|
|
3-year equal annual
installments
|
|
14.89
|
|
46
|
|
46
|
|
2008
|
|
149,730
|
|
3-year cliff
performanced-based
|
|
15.14
|
|
|
|
467
|
|
2009
|
|
49,724
|
|
3-year equal annual
installments
|
|
10.64
|
|
206
|
|
206
|
|
2009
|
|
234,539
|
|
3-year cliff
performanced-based
|
|
11.35
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At October 31, 2009,
the aggregate unvested RSAs had a grant date weighted average fair value of
$12.61 and a weighted average vesting period of approximately 10.5 months.
13
Table of
Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share
data)
10.
EARNINGS
PER SHARE
Basic earnings per
share (EPS) is calculated by dividing net earnings by the weighted average
number of common shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the
numerator and the denominator of the basic EPS calculation for the effect of
all potentially dilutive common shares outstanding during the period.
The following table sets
forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
November 1,
|
|
October 31,
|
|
November 1,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Numerator
- net income attributable to Methode Electronics, Inc.
|
|
$
|
2,052
|
|
$
|
238
|
|
$
|
2,033
|
|
$
|
7,054
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share-weighted average shares
|
|
36,644
|
|
37,068
|
|
36,641
|
|
37,120
|
|
Dilutive
potential common shares-employee stock options
|
|
224
|
|
483
|
|
182
|
|
465
|
|
Denominator
for diluted earnings per share adjusted weighted average shares and assumed
conversions
|
|
36,868
|
|
37,551
|
|
36,823
|
|
37,585
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.19
|
|
Diluted
|
|
$
|
0.06
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.19
|
|
Options to purchase
445,784 shares of common stock at a weighted-average exercise price of $11.72 per
share were outstanding as of October 31, 2009 and options to purchase
304,522 shares of common stock at a weighted-average exercise price of $12.54
were outstanding as of November 1, 2008, but were not included in the
computation of diluted earnings per share because the exercise prices were
greater than the average market price of the common stock and, therefore, the
effect would be antidilutive.
11.
SEGMENT INFORMATION
We
are a global manufacturer of component and subsystem devices. We design, manufacture and market devices
employing electrical, electronic, wireless, sensing and optical
technologies. Our components are found
in the primary end markets of the automotive, appliance, communications
(including information processing and storage, networking equipment, wireless
and terrestrial voice/data systems), aerospace, rail and other transportation
industries; and the consumer and industrial equipment markets.
ASC
No. 280, Segment Reporting (ASC No. 280), establishes annual
and interim reporting standards for an enterprises operating segments and
related disclosures about its products, services, geographic areas and major
customers. An operating segment is defined as a component of an enterprise that
engages in business activities from which it may earn revenues and incur
expenses, and about which separate financial information is regularly evaluated
by the Chief Operating Decision Maker (CODM) in deciding how to allocate
resources. The CODM, as defined by
ASC No. 280, is the Companys President and Chief Executive Officer.
The Automotive segment supplies
electronic and electromechanical devices and related products to automobile
OEMs, either directly or through their tiered suppliers, including control
switches for electrical power and signals, connectors for electrical devices,
integrated control components, switches and sensors that monitor the operation
or status of a component or system, and packaging of electrical components.
14
Table of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share
data)
11.
SEGMENT INFORMATION - Continued
The Interconnect segment provides a
variety of copper and fiber-optic interconnect and interface solutions for the
appliance, computer, networking, telecommunications, storage, medical,
military, aerospace, commercial, consumer markets and industrial equipment
markets. Solutions include solid-state
field effect interface panels, wireless optical and copper transceivers,
terminators, connectors, custom cable assemblies and conductive polymer and thick
film inks. Services include the design
and installation of fiber optic and copper infrastructure systems, and
manufacture of active and passive optical components.
The
Power Products segment manufactures current-carrying devices, including custom
power-product assemblies, laminated and powder coated bus bars, braided
flexible cables and high-current low voltage flexible power cabling systems
that are used in various markets and applications, including
telecommunications, computers, transportation, industrial and power conversion,
insulated gate bipolar transistor solutions, aerospace and military.
The
Other segment includes a designer and manufacturer of magnetic torque sensing
products, and independent laboratories that provide services for qualification
testing and certification, and analysis of electronic and optical components.
The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. See Note 1 in our Form 10-K
for the fiscal year ended May 2, 2009 for more information regarding
significant accounting policies. We
allocate resources to and evaluate performance of segments based on operating
income. Transfers between segments are recorded using internal transfer prices set by the Company.
15
Table of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share
data)
11
.
SEGMENT INFORMATION - Continued
|
|
Three Months Ended October 31, 2009
|
|
|
|
Automotive
|
|
Interconnect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
56,193
|
|
$
|
30,605
|
|
$
|
9,412
|
|
$
|
2,419
|
|
$
|
133
|
|
$
|
98,496
|
|
Transfers between segments
|
|
|
|
(76
|
)
|
(30
|
)
|
(27
|
)
|
(133
|
)
|
|
|
Net sales to unaffiliated customers
|
|
$
|
56,193
|
|
$
|
30,529
|
|
$
|
9,382
|
|
$
|
2,392
|
|
$
|
|
|
$
|
98,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before restructuring charge
|
|
$
|
7,953
|
|
$
|
1,616
|
|
$
|
611
|
|
$
|
(749
|
)
|
$
|
|
|
$
|
9,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(2,339
|
)
|
(676
|
)
|
(141
|
)
|
|
|
|
|
(3,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) including restructuring
charge
|
|
$
|
5,614
|
|
$
|
940
|
|
$
|
470
|
|
$
|
(749
|
)
|
$
|
|
|
$
|
6,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(3,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,313
|
|
|
|
Three Months Ended November 1, 2008
|
|
|
|
Automotive
|
|
Interconnect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
75,207
|
|
$
|
32,146
|
|
$
|
11,676
|
|
$
|
2,556
|
|
$
|
281
|
|
$
|
121,304
|
|
Transfers between segments
|
|
|
|
(143
|
)
|
(112
|
)
|
(26
|
)
|
(281
|
)
|
|
|
Net sales to unaffiliated customers
|
|
$
|
75,207
|
|
$
|
32,003
|
|
$
|
11,564
|
|
$
|
2,530
|
|
$
|
|
|
$
|
121,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before restructuring charge
|
|
$
|
10,528
|
|
$
|
(638
|
)
|
$
|
482
|
|
$
|
(750
|
)
|
$
|
|
|
$
|
9,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(4,351
|
)
|
(1,933
|
)
|
|
|
|
|
|
|
(6,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) including restructuring
charge
|
|
$
|
6,177
|
|
$
|
(2,571
|
)
|
$
|
482
|
|
$
|
(750
|
)
|
$
|
|
|
$
|
3,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(3,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(514
|
)
|
16
Table of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share
data)
11
.
SEGMENT INFORMATION - Continued
|
|
Six Months Ended October 31, 2009
|
|
|
|
Automotive
|
|
Interconnect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
107,392
|
|
$
|
55,345
|
|
$
|
20,827
|
|
$
|
5,126
|
|
$
|
418
|
|
$
|
188,272
|
|
Transfers between segments
|
|
|
|
(127
|
)
|
(254
|
)
|
(37
|
)
|
(418
|
)
|
|
|
Net sales to unaffiliated customers
|
|
$
|
107,392
|
|
$
|
55,218
|
|
$
|
20,573
|
|
$
|
5,089
|
|
$
|
|
|
$
|
188,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before restructuring charge
|
|
$
|
13,463
|
|
$
|
2,645
|
|
$
|
1,464
|
|
$
|
(1,329
|
)
|
$
|
|
|
$
|
16,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(4,958
|
)
|
(1,446
|
)
|
(363
|
)
|
|
|
|
|
(6,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) including restructuring
charge
|
|
$
|
8,505
|
|
$
|
1,199
|
|
$
|
1,101
|
|
$
|
(1,329
|
)
|
$
|
|
|
$
|
9,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(6,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,586
|
|
|
|
Six Months Ended November 1, 2008
|
|
|
|
Automotive
|
|
Interconnect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
159,940
|
|
$
|
67,865
|
|
$
|
23,810
|
|
$
|
4,778
|
|
$
|
575
|
|
$
|
255,818
|
|
Transfers between segments
|
|
|
|
(275
|
)
|
(245
|
)
|
(55
|
)
|
(575
|
)
|
|
|
Net sales to unaffiliated customers
|
|
$
|
159,940
|
|
$
|
67,590
|
|
$
|
23,565
|
|
$
|
4,723
|
|
$
|
|
|
$
|
255,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before restructuring charge
|
|
$
|
24,126
|
|
$
|
1,536
|
|
$
|
1,284
|
|
$
|
(1,332
|
)
|
$
|
|
|
$
|
25,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(7,514
|
)
|
(3,687
|
)
|
|
|
|
|
|
|
(11,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) including restructuring
charge
|
|
$
|
16,612
|
|
$
|
(2,151
|
)
|
$
|
1,284
|
|
$
|
(1,332
|
)
|
$
|
|
|
$
|
14,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(6,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,254
|
|
17
Table
of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
12.
CONTINGENCIES
Certain
litigation arising in the normal course of business is pending against us. We are from time to time subject to various
legal actions and claims incidental to our business, including those arising
out of alleged defects, breach of contracts, employment-related matters and
environmental matters. We consider
insurance coverage and third-party indemnification when determining required
accruals for pending litigation and claims.
Although the outcome of potential legal actions and claims cannot be
determined, it is our opinion, based on the information available, that we have
adequate reserves for these liabilities.
Legal Proceedings in this Form 10-Q, the ultimate resolution of
these matters will not have a material adverse effect on our consolidated
financial statements.
13.
PRE-PRODUCTION
COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS
We incur pre-production tooling costs related
to certain products produced for our customers under long-term supply
agreements. We had $8,425 and $3,182 as
of October 31, 2009 and May 2, 2009, respectively, of pre-production
tooling costs related to customer-owned tools for which reimbursement is
contractually guaranteed by the customer or for which the customer has provided
a non-cancelable right to use the tooling.
These amounts are included in our work-in-process inventory in the
condensed consolidated balance sheets.
Net revenues and costs on projects are deferred and recognized over the
life of the related long-term supply agreement.
14.
FAIR
VALUE MEASUREMENTS
ASC
No. 820, Fair
Value Measurements and Disclosures (ASC No. 820)
defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants.
ASC No. 820
also specifies a fair value hierarchy based upon the observation of inputs in
valuation techniques. Observable inputs
(highest level) reflect market data obtained from independent sources, while
unobservable inputs (lowest level) reflect internally developed market
assumptions. In accordance with ASC No. 820,
fair value measurements are classified under the following hierarchy:
·
Level 1 Quoted prices in active markets for identical assets and
liabilities.
·
Level 2 Quoted prices in active markets for similar assets and
liabilities, or other inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial
instrument.
·
Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets and
liabilities. This includes certain
pricing models, discounted cash flow methodologies and similar techniques that
use significant unobservable inputs.
Assets and
liabilities recorded at fair value are valued using quoted market prices or
under a market approach using other relevant information generated by market
transactions involving identical or comparable instruments and included in a
table below that summarizes the fair value of assets and liabilities as of October 31,
2009:
18
Table
of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in
thousands, except share data)
14.
FAIR
VALUE MEASUREMENTS - Continued
|
|
Fair Value Measurement Used
|
|
|
|
|
|
Quoted prices
|
|
Quoted prices
|
|
|
|
|
|
|
|
in active
|
|
in active
|
|
|
|
|
|
|
|
markets for
|
|
markets for
|
|
Other
|
|
|
|
|
|
identical
|
|
similar
|
|
unobservable
|
|
|
|
Recorded
|
|
instruments
|
|
instruments
|
|
inputs
|
|
|
|
Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1)
|
|
$
|
60,274
|
|
$
|
60,274
|
|
$
|
|
|
$
|
|
|
Assets related to deferred compensation plan
|
|
$
|
2,842
|
|
$
|
|
|
$
|
2,842
|
|
$
|
|
|
Total assets at fair value
|
|
$
|
63,116
|
|
$
|
60,274
|
|
$
|
2,842
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Liabilities related to deferred compensation plan
|
|
$
|
2,796
|
|
$
|
2,796
|
|
$
|
|
|
$
|
|
|
Total liabilities at fair value
|
|
$
|
2,796
|
|
$
|
2,796
|
|
$
|
|
|
$
|
|
|
(1) Includes
cash, money-market investments and certificates of deposit.
Fair Value of
Other Financial Instruments. The carrying values of our short-term financial
instruments, including cash and cash
equivalents, accounts receivable and accounts payable
approximate their fair values because of the short maturity of these
instruments.
19
Table
of Contents
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Cautionary
Statement
Certain statements in this report are
forward-looking statements that are subject to certain risks and
uncertainties. We undertake no duty to
update any such forward-looking statements to conform to actual results or
changes in our expectations. Our results
will be subject to many of the same risks that apply to the automotive,
appliance, computer and telecommunications industries, such as general economic
conditions, interest rates, credit availability, consumer spending patterns and
technological changes. Other factors,
which may result in materially different results for future periods, include
the following risk factors. These risk
factors should be considered in connection with evaluating the forward-looking
statements contained in this report because these factors could cause our
actual results and condition to differ materially from those projected in
forward-looking statements. The
forward-looking statements in this report are subject to the safe harbor
protection provided under the securities laws.
·
We depend on a small number of large customers. If we were to lose any of these customers or any of these customers decreased the number of orders it placed, our future results could be adversely affected.
·
Because we derive a substantial portion of our revenues from customers in the automotive, appliance, computer and communications industries, and construction, industrial safety radio remote control markets, we are susceptible to trends and factors affecting those industries.
·
Our business is cyclical and seasonal in nature and further downturns in the automotive industry could reduce the sales and profitability of our business.
·
If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another persons intellectual property, our business, financial condition and operating results could be materially adversely affected.
·
We face
risks relating to our international operations, including fluctuations in the
U.S. dollar.
·
We cannot assure that the newly-acquired Hetronic business will be
successful or that we can implement and profit from new applications of the
acquired technology.
·
Our
technology-based businesses and the markets in which we operate are highly
competitive. If we are unable to compete
effectively, our sales will decline.
·
We may
acquire businesses or divest of various business operations. These transactions
may pose significant risks and may materially adversely affect our business,
financial condition and operating results.
·
We may
be unable to keep pace with rapid technological changes, which would adversely
affect our business.
·
Products
we manufacture may contain design or manufacturing defects that could result in
reduced demand for our products or services and liability claims against us.
·
We are dependent on the availability and price of raw materials.
·
Because
we currently derive approximately 57% of our revenues from the automotive
segment, oil prices could adversely affect future results.
·
We have and may
continue to incur additional significant restructuring charges that will
adversely affect our results of operations.
·
If sales and
earnings worsen, we could incur additional goodwill and other asset
impairments.
20
Any such forward-looking statements are not
guarantees of future performance and actual results, developments and business
decisions may differ materially from those foreseen in such forward-looking
statements. These forward-looking
statements speak only as of the date of the report, press release, statement,
document, webcast or oral discussion in which they are made. We do not intend to update any forward-looking
statements, all of which are expressly qualified by the foregoing. See Part I Item 1A, Risk Factors of
our latest Form 10-K for the fiscal year ended May 2, 2009, for a
further discussion regarding some of the reasons that actual results may be
materially different from those we anticipate.
Overview
We
are a global manufacturer of component and subsystem devices with
manufacturing, design and testing facilities in China, Czech Republic, Germany,
India, Malta, Mexico, the Philippines, Singapore, the United Kingdom and the
United States. We are a global designer
and manufacturer of electro-mechanical devices.
We design, manufacture and market devices employing electrical, radio
remote control, electronic, wireless, sensing and optical technologies. Our business is managed on a segment basis,
with those segments being Automotive, Interconnect, Power Products and
Other. For more information regarding
the business and products of these segments, see Item 1. Business of our Form 10-K
for the fiscal year ended May 2, 2009.
Our components are
found in the primary end markets of the aerospace, appliance, automotive,
consumer and industrial equipment markets, communications (including
information processing and storage, networking equipment, wireless and
terrestrial voice/data systems), rail and other transportation industries. Recent trends in the industries that we serve
include:
·
Automotive
industry sales volume in the United States and European markets declined
suddenly and substantially in fiscal 2009 and continues at historically low
levels into the first half of fiscal 2010.
·
The
deteriorating condition of certain of our customers and the uncertainty as they
undergo restructuring initiatives, including in some cases, reorganization
under bankruptcy laws.
·
Decline in demand for new houses and the
over-supply of new and existing houses.
·
Demand for construction and material handling
equipment is cyclical and has been impacted by the weakness of the economy,
availability of credit and higher interest rates.
Our business has been and
will likely continue to be materially adversely affected by the current
economic environment. The disruptions in
global financial and credit markets have significantly impacted global economic
activity and led to an economic recession.
As a result of these disruptions, our customers and markets have been
adversely affected. We have recently
experienced and continue to experience a drop in sales throughout all of our
businesses. If we continue to experience
reduced demand because of these disruptions in the macroeconomic environment or
other factors, our business, results of operations and financial condition
could be materially adversely affected.
If we are unable to successfully anticipate changing economic and
financial conditions, we may be unable to effectively plan for and respond to
these changes and our business could be adversely affected.
On September 4,
2008, Methode and Delphi Automotive Systems LLC (Delphi) entered into a
supply agreement pursuant to which Methode was to supply all of Delphis
requirements for the silicone bladders used in Delphis occupant restraint
system from October 1, 2008 through September 30, 2011. On August 26, 2009, Delphi notified us
that effective September 10, 2009, our supply arrangement was
terminated. We are contesting Delphis
right to terminate this long-term supply arrangement and the parties are engaged
in litigation regarding this supply arrangement and our related intellectual
property.
On September 30,
2008, we acquired certain assets of Hetronic LLC (Hetronic) for $53.6 million
in cash. We also incurred $2.4 million
in transaction costs related to the purchase.
Hetronic is a global leader in industrial safety radio remote controls
with locations in the U.S., Malta, the Philippines and Germany. Hetronic is represented in 45 countries by
direct sales associates, licensed partners, distributors and
representatives. Hetronic provides
application specific and standard controls to many different industries, such
as material handling, transportation, mining, military, agriculture and
construction.
21
Table of Contents
In March 2009,
we announced several additional restructuring actions to further reduce our
exposure to the North American automotive industry and to consolidate
manufacturing facilities in lower cost regions.
After these actions, our principal manufacturing operations will be in
China, Malta and Mexico. In addition, we
reached an agreement with GM to have certain programs, scheduled for future
production at our Shanghai, China facility, transferred to an unrelated
GM-directed supplier and we reached agreement with Ford Motor Company to have
all production from our Reynosa, Mexico facility transferred to an unrelated
Ford-directed supplier. TouchSensor
manufacturing, currently in west suburban Chicago, Illinois is in the process
of moving to Monterrey, Mexico, and expects to complete the move by the end of
the third quarter of fiscal 2010.
Additionally, during the first quarter of fiscal 2010, our operations in
Shanghai, China were consolidated from three facilities to two. We expect to complete the restructuring
actions during the second half of fiscal 2010.
In March 2009,
the total pre-tax charges were estimated to be between $16.0 million and $25.0
million. As of October 31, 2009, we
have recorded a total of $12.2 million of the charges. We estimate that we will record additional
pre-tax restructuring charges in fiscal 2010 of between $0.5 million and $1.2
million.
Business
Outlook
We remain very
cautious about fiscal 2010. The continuing effect of financial sector crisis
and stagnant global economic conditions has caused uncertainty in the markets
in every geographic region we serve. We expect the unprecedented global
economic environment to continue to affect near-term results and to create
difficult business conditions. Sales of
Automotive segment products are expected to decline, as the effects of the Cash
for Clunkers programs both in the United States and Europe diminish. Delphi
recently notified us that our long-term supply arrangement has been terminated
effective September 10, 2009 and we ceased manufacturing on that
date. We are contesting Delphis right
to terminate this long-term supply arrangement and the parties are engaged in
litigation regarding this supply arrangement and our related intellectual
property. The early termination of this agreement will adversely affect sales,
profits and cash flow going forward.
In the
Interconnect and Power Products segments visibility is low and forecasting is
very challenging. We expect continued volatility in these segments for the
balance of the fiscal year. In our
Interconnect segment, sales from our Hetronic acquisition will be offset by
sales lost due to our decision in fiscal 2008 and 2009 to exit certain
unprofitable or marginally profitable North American Interconnect segment
legacy businesses.
While we have
taken steps to restructure our businesses, ongoing operating margin improvement
may not be realized or sustainable until economic conditions begin to improve
in the markets we serve.
22
Table of Contents
Results of Operations for the Three Months Ended October 31,
2009 as Compared to the Three Months Ended November 1, 2008.
Consolidated
Results
Below is a table
summarizing results for the three months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
98.5
|
|
$
|
121.3
|
|
$
|
(22.8
|
)
|
-18.8
|
%
|
Other
income
|
|
1.1
|
|
1.0
|
|
0.1
|
|
10.0
|
%
|
|
|
99.6
|
|
122.3
|
|
(22.7
|
)
|
-18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
77.8
|
|
97.8
|
|
(20.0
|
)
|
-20.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins (including other income)
|
|
21.8
|
|
24.5
|
|
(2.7
|
)
|
-11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
3.2
|
|
6.3
|
|
(3.1
|
)
|
-49.2
|
%
|
Selling
and administrative expenses
|
|
16.4
|
|
18.5
|
|
(2.1
|
)
|
-11.4
|
%
|
Interest
income, net
|
|
|
|
0.4
|
|
(0.4
|
)
|
-100.0
|
%
|
Other
income/(expense), net
|
|
0.1
|
|
(0.6
|
)
|
0.7
|
|
-116.7
|
%
|
Income
taxes - expense/(benefit)
|
|
0.2
|
|
(0.9
|
)
|
1.1
|
|
-122.2
|
%
|
Net
income attributable to noncontrolling interest
|
|
|
|
0.2
|
|
(0.2
|
)
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Methode Electronics, Inc.
|
|
$
|
2.1
|
|
$
|
0.2
|
|
$
|
1.9
|
|
950.0
|
%
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other
income
|
|
1.1
|
%
|
0.8
|
%
|
|
|
|
|
Cost
of products sold
|
|
79.0
|
%
|
80.6
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
22.1
|
%
|
20.2
|
%
|
|
|
|
|
Restructuring
|
|
3.2
|
%
|
5.2
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
16.6
|
%
|
15.3
|
%
|
|
|
|
|
Interest
income, net
|
|
0.0
|
%
|
0.3
|
%
|
|
|
|
|
Other
income/(expense), net
|
|
0.1
|
%
|
-0.5
|
%
|
|
|
|
|
Income
taxes - expense/(benefit)
|
|
0.2
|
%
|
-0.7
|
%
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
0.0
|
%
|
0.2
|
%
|
|
|
|
|
Net
income attributable to Methode Electronics, Inc.
|
|
2.1
|
%
|
0.2
|
%
|
|
|
|
|
Net Sales
. Consolidated net sales decreased $22.8
million, or 18.8%, to $98.5 million for the three months ended October 31,
2009 from $121.3 million for the three months ended November 1, 2008. The Automotive segment net sales declined $19.0
million, or 25.3%, to $56.2 million for second quarter of fiscal 2010 from
$75.2 million for the second quarter of fiscal 2009. The decline is primarily attributable to
lower sales to Delphi and Chrysler in the Automotive segment and the continued
softening of the global economic environment.
Net sales benefited by $1.7 million for the three months ended October 31,
2009 relating to a one-time reversal of pricing contingencies which were
accrued over several years and are no longer required. The Interconnect segment net sales decreased
$1.5 million, or 4.7%, to $30.5 million for the second quarter of fiscal 2010
as compared to $32.0 million for the second quarter of fiscal 2009. The Power Products segment net sales
decreased $2.2 million, or 19.0%, to $9.4 million for the second quarter of
fiscal 2010 as compared to $11.6 million for the second quarter of fiscal
2009. The Other segment net sales
decreased $0.1 million, or 4.0%, to $2.4 million for the second quarter of
fiscal 2010, as compared to $2.5 million in the second quarter of fiscal
2009. Translation of foreign operations
net sales in the
23
Table
of Contents
three months ended October 31,
2009 increased reported net sales by $0.3 million or 0.3% due to currency rate
fluctuations.
Other
Income
. Other income
increased $0.1 million, or 10.0%, to $1.1 million for the three months ended October 31,
2009 from $1.0 million for three months ended November 1, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
The increase relates to engineering design fees in our European
automotive market.
Cost of
Products Sold
.
Consolidated cost of products sold decreased $20.0 million, or 20.4%, to
$77.8 million for the three months ended October 31, 2009 compared to
$97.8 million for the three months ended November 1, 2008. The decrease is due to the lower sales
volumes. Included in the cost of
products sold for the three months ended October 31, 2009 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 were 79.0% in the second quarter of fiscal 2010, compared
to 80.6% in the second quarter of fiscal 2009.
Excluding the Delphi asset write-down and the $1.7 million reversal of
pricing contingencies included in net sales, consolidated cost of products sold
as a percentage of sales were 79.6% for the second quarter of fiscal 2010. The decrease relates to restructuring and
consolidation efforts that occurred in prior periods.
Gross
Margins (including other income).
Consolidated
gross margins (including other income) decreased $2.7 million, or 11.0%, to
$21.8 million for the three months ended October 31, 2009 as compared to
$24.5 million for the three months ended November 1, 2008. Gross margins (including other income) as a
percentage of net sales were 22.1% for the three months ended October 31,
2009 as compared to 20.2% for the three months ended November 1,
2008. Excluding the Delphi asset
write-down in cost of products sold and the $1.7 million reversal of pricing
contingencies included in net sales, consolidated gross margins (including
other income) as a percentage of sales were 21.5% for the second quarter of
fiscal 2010. The increase relates to
higher other income in the second quarter of fiscal 2010 as well as
restructuring and consolidation efforts that occurred in prior periods.
Restructuring
. In March 2009, we announced additional
restructuring actions to further reduce our exposure to the North American
automotive industry and to consolidate
manufacturing facilities in lower cost regions. During the fiscal quarter ended October 31,
2009, we recorded a restructuring charge of $3.0 million related to this
restructuring initiative, which consisted of $1.8 million for employee severance
and $1.2 million relating to other costs.
We expect the March 2009 restructuring to be completed in the
second half of fiscal 2010.
In January 2008,
we announced a restructuring of our U.S.-based automotive operations and the
decision to discontinue producing certain legacy products in the Interconnect
segment. During the fiscal quarter ended
October 31, 2009, we recorded a restructuring charge of $0.2 million
related to this restructuring initiative, which consisted of $0.1 million for
accelerated depreciation and $0.1 million relating to other costs. During the fiscal quarter ended November 1,
2008, we recorded a restructuring charge of $6.3 million, which consisted of
$1.6 million for employee severance, $4.4 million for impairment and accelerated
depreciation, and $0.3 million relating to other costs. We expect the January 2008 restructuring
to be completed in the second half of fiscal 2010.
Selling
and Administrative Expenses
.
Selling and administrative expenses decreased $2.1 million, or 11.4%, to
$16.4 million for the three months ended October 31, 2009 compared to
$18.5 million for the three months ended November 1, 2008. The decrease is due to lower intangible asset
amortization expense and lower stock award amortization expense during the
second quarter of fiscal 2010, partially offset by selling and administrative
expenses from Hetronic, LLC, acquired in September 2008. In
addition, 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. Selling and
administrative expenses as a percentage of net sales increased to 16.6% in the
three months ended October 31, 2009 from 15.3% for the three months ended November 1,
2008.
Interest
Income, Net
. Interest
income, net decreased $0.4 million, or 100.0%, in the three months ended October 31,
2009 to no interest income, net as compared to $0.4 million in the three months
ended November 1, 2008. The average
cash balance was $63.8 million during the three months ended October 31,
2009 as compared to $94.6 million during the three months ended November 1,
2008. The decrease in cash relates
primarily to the Hetronic acquisition in the second quarter of fiscal
2009. The average interest rate earned
for the three months
24
Table
of Contents
ended October 31,
2009 was 0.48% compared to 2.38% in the three months ended November 1,
2008. Interest expense was $0.1 million
for both the three months ended October 31, 2009 and November 1,
2008.
Other
Income/(Expense), Net
.
Other income/(expense), net increased $0.7 million, or 116.7% to income
of $0.1 million for the three months ended October 31, 2009 as compared to
an expense of $0.9 million for the three months ended November 1,
2008. The three months ended October 31,
2009 included a $0.4 million gain recorded from life insurance policies owned
by the Company in connection with an employee deferred compensation plan. In addition,
we recorded a gain of $0.3 million related to an enhanced cash fund (described
below), in the second quarter of fiscal 2010, compared to a loss of $0.5
million in the second quarter of fiscal 2009.
During the second quarter of fiscal 2009, we recorded $2.5 million of
unrealized currency exchange losses arising from an intercompany loan between
our corporate headquarters and one of our foreign subsidiaries in conjunction
with the acquisition of Hetronic. The
functional currencies of these operations are the British pound, Chinese yuan,
Czech koruna, Euro, Indian Rupee, Mexican peso and Singapore dollar. Some foreign operations have transactions
denominated in currencies other than their functional currencies, primarily
sales in U.S. dollars and Euros, creating exchange rate sensitivities.
At August 1, 2009,
approximately $2.4 million was invested in an enhanced cash fund sold as
an alternative to traditional money-market funds. We have historically invested
a portion of our on hand cash balances in this fund. These investments are
subject to credit, liquidity, market and interest rate risk. In December 2007,
the
fund was overwhelmed
with withdrawal requests from investors and was closed with a restriction
placed upon the cash redemption ability of its holders.
In September, we received our remaining
principal in the fund. The balance in the fund as of October 31, 2009 was
zero.
During the second quarter
of fiscal 2010, we recorded a gain of $0.3 million, of which $0.3 million was
from a realized loss on redemptions of $2.4 million, offset by a realized gain
of $0.6 million.
Income
Taxes Expense/(Benefit).
The effective income tax rate was 9.7% in the second quarter of fiscal
2010 compared with a benefit of 168.3% in the second quarter of fiscal
2009. For the three months ended October 31,
2009, we have a loss before income taxes in our 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 our U.S.-based businesses, a valuation
allowance was recorded offsetting the tax benefit in accordance with ASC No. 740
Income Taxes in the U.S. See note 8
for additional information. The
effective tax rates for both the second quarter of fiscal 2010 and 2009 reflect
utilization of foreign investment tax credits and the effect of lower tax rates
on income of the Companys foreign operations and a higher percentage of
earnings at those foreign operations.
Net
Income Attributable to Methode Electronics, Inc.
Net income attributable to Methode
Electronics, Inc. increased $1.9 million, to $2.1 million for the three
months ended October 31, 2009 as compared to $0.2 million for the three
months ended November 1, 2008 due to the reversal of pricing contingencies
included in net sales, lower restructuring expenses, lower other expenses,
lower costs due to prior restructuring and consolidation efforts, partially
offset by lower sales and increased income taxes.
25
Table of Contents
Operating
Segments
Automotive
Segment Results
Below is a table
summarizing results for the three months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
56.2
|
|
$
|
75.2
|
|
$
|
(19.0
|
)
|
-25.3
|
%
|
Other
income
|
|
1.0
|
|
0.8
|
|
0.2
|
|
25.0
|
%
|
|
|
57.2
|
|
76.0
|
|
(18.8
|
)
|
-24.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
44.2
|
|
60.2
|
|
(16.0
|
)
|
-26.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins (including other income)
|
|
13.0
|
|
15.8
|
|
(2.8
|
)
|
-17.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
2.3
|
|
4.4
|
|
(2.1
|
)
|
-47.7
|
%
|
Selling
and administrative expenses
|
|
4.5
|
|
5.0
|
|
(0.5
|
)
|
-10.0
|
%
|
Interest
income, net
|
|
|
|
0.2
|
|
(0.2
|
)
|
-100.0
|
%
|
Other
expense, net
|
|
(0.6
|
)
|
(0.4
|
)
|
(0.2
|
)
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
5.6
|
|
$
|
6.2
|
|
$
|
(0.6
|
)
|
-9.7
|
%
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other
income
|
|
1.8
|
%
|
1.1
|
%
|
|
|
|
|
Cost
of products sold
|
|
78.6
|
%
|
80.1
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
23.1
|
%
|
21.0
|
%
|
|
|
|
|
Restructuring
|
|
4.1
|
%
|
5.9
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
8.0
|
%
|
6.6
|
%
|
|
|
|
|
Interest
income, net
|
|
0.0
|
%
|
0.3
|
%
|
|
|
|
|
Other
expense, net
|
|
-1.1
|
%
|
-0.5
|
%
|
|
|
|
|
Income
before income taxes
|
|
10.0
|
%
|
8.2
|
%
|
|
|
|
|
Net Sales
. Automotive segment net sales decreased $19.0
million, or 25.3%, to $56.2 million for the three months ended October 31,
2009 from $75.2 million for the three months ended November 1, 2008. Net sales to Delphi Corporation decreased
$6.8 million, or 50.9%, to $6.6 million in the second quarter of 2010 as
compared to the second quarter of fiscal 2009 due to lower sales volumes and
the cancellation of the supply arrangement on September 10, 2009. The Automotive segment net sales were also
negatively impacted by planned lower Chrysler sales volumes of $0.4 million in
the second quarter of fiscal 2010, compared to $5.8 million in the second
quarter of fiscal 2009. In addition, the
decline is attributable to the softening of the global economic environment,
especially the effect on the North American automotive industry. Net sales benefited by $1.7 million for the
three months ended October 31, 2009 relating to a one-time reversal of
pricing contingencies which were accrued for over several years and are no
longer required. Net sales have
declined by 49.3% in North America and net sales have increased by 3.0% in
Europe and 29.4% in Asia in the second quarter of fiscal 2010 as compared to
fiscal 2009. Translation of foreign
operations net sales in the three months ended October 31, 2009 increased
reported net sales by $0.3 million, or 0.5%, due to currency rate fluctuations.
Other
Income
. Other income
increased $0.2 million, or 25.0%, to $1.0 million for the three months ended October 31,
2009 from $0.8 million for three months ended November 1, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
The increase relates to engineering design fees in our European
automotive market.
26
Table of Contents
Cost of
Products Sold
.
Automotive segment cost of products sold decreased $16.0 million, or
26.6%, to $44.2 million for the three months ended October 31, 2009 from
$60.2 million for the three months ended November 1, 2008. The decrease primarily relates to lower sales
volumes. Included in the cost of products
sold for the three months ended October 31, 2009 is $0.7 million of asset
write-downs relating to the termination of the Delphi supply arrangement. The Automotive segment cost of products sold
as a percentage of sales were 78.6% in the second quarter of fiscal 2010,
compared to 80.1% in the second quarter of fiscal 2009. Excluding the Delphi asset write-down and the
$1.7 million reversal of pricing contingencies included in net sales,
consolidated cost of products sold as a percentage of sales were 79.8% for the
second quarter of fiscal 2010. The
decrease relates to restructuring and consolidation efforts that occurred in
prior periods.
Gross
Margins (including other income).
Automotive
segment gross margins (including other income) decreased $2.8 million, or
17.7%, to $13.0 million for the three months ended October 31, 2009 as
compared to $15.8 million for the three months ended November 1,
2008. The Automotive segment gross
margins (including other income) as a percentage of net sales were 23.1% for
the three months ended October 31, 2009 as compared to 21.0% for the three
months ended November 1, 2008.
Excluding the Delphi asset write-down in cost of products sold and the
$1.7 million reversal of pricing contingencies included in net sales, the Automotive
segment gross margins (including other income) as a percentage of sales were
22.0% for the second quarter of fiscal 2010.
The increase relates to higher other income in the second quarter of
fiscal 2010 as well as restructuring and consolidation efforts that occurred in
prior periods.
Restructuring
. In March 2009, we announced additional
restructuring actions to further reduce our exposure to the North American
automotive industry and to consolidate
manufacturing facilities in lower cost regions. During the fiscal quarter ended October 31,
2009, we recorded a restructuring charge of $2.2 million related to this
restructuring initiative, which consisted of $1.7 million for employee
severance and $0.5 million relating to other costs. We expect the March 2009 restructuring
to be completed during the second half of fiscal 2010.
In January 2008,
we announced a restructuring of our U.S.-based automotive operations. During the fiscal quarter ended October 31,
2009, the Automotive segment recorded a restructuring charge of $0.1 million
for this restructuring initiative for accelerated depreciation. During the fiscal quarter ended November 1,
2008, the Automotive segment recorded a restructuring charge of $4.4 million
for this restructuring initiative, which consisted of $1.1 million for employee
severance, $3.0 million for impairment and accelerated depreciation and $0.3
million for other costs. We expect the January 2008
restructuring to be completed during the second half of fiscal 2010.
Selling and
Administrative Expenses
.
Selling and administrative expenses decreased $0.5 million, or 10.0%, to
$4.5 million for the three months ended October 31, 2009 compared to $5.0
million for the three months ended November 1, 2008. Selling and administrative expenses decreased
in the second quarter of fiscal 2010 compared to the second quarter of fiscal
2009 due to restructuring and consolidations efforts, however, the second
quarter of fiscal 2010 includes $1.5 million of legal fees associated with the
Delphi supply arrangement termination dispute.
Selling and administrative expenses as a percentage of net sales were
8.0% for the three months ended October 31, 2009 and 6.6% for the three
months ended November 1, 2008.
Interest
Income, Net
. Net
interest income was zero in the three months ended October 1, 2009
compared to $0.2 million in the three months ended November 1, 2008.
Other
Expense, Net
. Other
expense, net was $0.6 million for the three months ended October 31, 2009
as compared to $0.4 million for the three months ended November 1,
2008. During the second quarter of
fiscal 2009, we recorded $2.5 million of unrealized currency exchange losses
arising from an intercompany loan between our corporate headquarters and one of
our foreign subsidiaries in conjunction with the acquisition of Hetronic. The functional currencies of these operations
are the British pound, Chinese yuan, Euro and the Mexican peso. Some foreign operations have transactions
denominated in currencies other than their functional currencies, primarily
sales in U.S. dollars and Euros, creating exchange rate sensitivities.
Income
Before Income Taxes.
Automotive
segment income before income taxes decreased $0.6 million, or 9.7%, to $5.6
million for the three months ended October 31, 2009 compared to $6.2
million for the three months ended November 1, 2008 due to lower sales
volumes, the asset write-down and legal fees relating to the termination
27
Table of Contents
of the Delphi
arrangement, offset by lower currency exchange losses, the reversal of one-time
pricing contingencies included in net sales, lower costs relating to
restructuring and consolidation efforts and lower restructuring costs.
Interconnect
Segment Results
Below is a table
summarizing results for the three months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
30.5
|
|
$
|
32.0
|
|
$
|
(1.5
|
)
|
-4.7
|
%
|
Other
income
|
|
|
|
0.1
|
|
(0.1
|
)
|
-100.0
|
%
|
|
|
30.5
|
|
32.1
|
|
(1.6
|
)
|
-5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
23.4
|
|
24.8
|
|
(1.4
|
)
|
-5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins (including other income)
|
|
7.1
|
|
7.3
|
|
(0.2
|
)
|
-2.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
0.7
|
|
1.9
|
|
(1.2
|
)
|
-63.2
|
%
|
Selling
and administrative expenses
|
|
5.7
|
|
8.4
|
|
(2.7
|
)
|
-32.1
|
%
|
Interest
income
|
|
0.1
|
|
0.1
|
|
|
|
0.0
|
%
|
Other
income, net
|
|
0.1
|
|
0.4
|
|
(0.3
|
)
|
-75.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
$
|
0.9
|
|
$
|
(2.5
|
)
|
$
|
3.4
|
|
-136.0
|
%
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other
income
|
|
0.0
|
%
|
0.3
|
%
|
|
|
|
|
Cost
of products sold
|
|
76.7
|
%
|
77.5
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
23.3
|
%
|
22.8
|
%
|
|
|
|
|
Restructuring
|
|
2.3
|
%
|
5.9
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
18.7
|
%
|
26.3
|
%
|
|
|
|
|
Interest
income
|
|
0.3
|
%
|
0.3
|
%
|
|
|
|
|
Other
income, net
|
|
0.3
|
%
|
1.3
|
%
|
|
|
|
|
Income/(loss)
before income taxes
|
|
3.0
|
%
|
-7.8
|
%
|
|
|
|
|
Net Sales
. Interconnect segment net sales decreased $1.5
million, or 4.7%, to $30.5 million for the three months ended October 31,
2009 from $32.0 million for the three months ended November 1, 2008. Net sales were favorably impacted by the
Hetronic acquisition on September 30, 2008. Excluding Hetronic, North American net sales
declined 5.2%, Europe declined 36.7% and Asia declined 28.6% in the second
quarter of fiscal 2010 as compared to the second quarter of fiscal 2009. The net sales decline was primarily due to
the softening of the global economy and restructuring of our Connector and Duel
businesses during the fourth quarter of fiscal 2008 and the first quarter of
fiscal 2009.
Other
Income
. Other income
was zero for the three months ended October 31, 2009, compared to $0.1
million for the three months ended November 1, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
Cost of
Products Sold
.
Interconnect segment cost of products sold decreased $1.4 million, or
5.6%, to $23.4 million for the three months ended October 31, 2009
compared to $24.8 million for the three months ended November 1,
2008. Interconnect segment cost of
products sold as a percentage of net sales decreased to 76.7% for
28
Table of Contents
the three months
ended October 31, 2009 compared to 77.5% for the three months ended November 1,
2008. The decrease in cost of products
sold as a percentage of net sales primarily relates to restructuring efforts in
previous periods, partially offset by lower sales volumes in the second quarter
of fiscal 2010 as compared to the second quarter of fiscal 2009.
Gross
Margins (including other income).
Interconnect
segment gross margins (including other income) decreased $0.2 million, or 2.7%,
to $7.1 million for the three months ended October 31, 2009 as compared to
$7.3 million for the three months ended November 1, 2008. Gross margins (including other income) as a
percentage of net sales increased to 23.3% for the three months ended October 31,
2009 from 22.8% for the three months ended November 1, 2008. The increase in gross margins (including
other income) as a percentage of net sales primarily relates to restructuring
efforts in previous periods, partially offset by lower sales volumes and lower
other income in the second quarter of fiscal 2010 as compared to the second
quarter of fiscal 2009.
Restructuring
. In March 2009, we announced additional
restructuring actions to consolidate
manufacturing facilities. During
the fiscal quarter ended October 31, 2009, the Interconnect segment
recorded a restructuring charge of $0.6 million related to this restructuring
initiative, which consisted of $0.2 million for employee severance and $0.4
million for other costs. We expect the March 2009
restructuring to be completed during the second half of fiscal 2010.
In January 2008,
we announced our decision to discontinue producing certain legacy products in
the Interconnect segment. During the
fiscal quarter ended October 31, 2009, the Interconnect segment recorded a
restructuring charge of $0.1 million related to this restructuring initiative
for accelerated depreciation costs.
During the fiscal quarter ended November 1, 2008, the Interconnect
segment recorded a restructuring charge of $1.9 million related to this
restructuring initiative, which consisted of $0.6 million for employee
severance and $1.3 million for impairment and accelerated depreciation. We expect the January 2008 restructuring
to be completed during the second half of fiscal 2010.
Selling
and Administrative Expenses
.
Selling and administrative expenses decreased $2.7 million, or 32.1%, to
$5.7 million for the three months ended October 31, 2009 compared to $8.4
million for the three months ended November 1, 2008. Selling and administrative expenses are lower
due to reduced intangible asset amortization expenses, partially offset by
higher selling and administrative expenses due to the Hetronic acquisition. In addition, selling and administrative
expenses (not including Hetronic) were lower due to the restructuring efforts
undertaken in the first and second quarters of fiscal 2009. Selling and administrative expenses as a
percentage of net sales decreased to 18.7% in the three months ended October 31,
2009 from 26.3% for the three months ended November 1, 2008.
Interest
Income, Net
. Interest
income, net was $0.1 million for both the three months ended October 31,
2009 and November 1, 2008.
Other
Income, Net
. Other
income, net was $0.1 million for the three months ended October 31, 2009,
compared to $0.4 million for the three months ended November 1, 2008. The functional currencies of these operations
are the British pound, Czech koruna, Euro and Singapore dollar. Some foreign operations have transactions
denominated in currencies other than their functional currencies, primarily
sales in U.S. dollars and Euros, creating exchange rate sensitivities.
Income/(Loss)
Before Income Taxes.
Interconnect
income/(loss) before income taxes increased $3.4 million to income of $0.9
million for the three months ended October 31, 2009 compared to a loss of
$2.5 million for the three months ended November 1, 2008 due to lower
intangible asset amortization expenses, lower cost selling and administrative
expenses due to restructuring efforts, lower restructuring expenses, partially
offset by lower sales volumes and other income.
29
Table of Contents
Power
Products Segment Results
Below is a table
summarizing results for the three months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
9.4
|
|
$
|
11.6
|
|
$
|
(2.2
|
)
|
-19.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
7.3
|
|
9.5
|
|
(2.2
|
)
|
-23.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins
|
|
2.1
|
|
2.1
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
0.1
|
|
|
|
0.1
|
|
0.0
|
%
|
Selling
and administrative expenses
|
|
1.5
|
|
1.5
|
|
|
|
0.0
|
%
|
Other
- expense
|
|
|
|
(0.1
|
)
|
0.1
|
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost
of products sold
|
|
77.7
|
%
|
81.9
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
22.3
|
%
|
18.1
|
%
|
|
|
|
|
Restructuring
|
|
1.1
|
%
|
0.0
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
16.0
|
%
|
12.9
|
%
|
|
|
|
|
Other
- expense
|
|
0.0
|
%
|
-0.9
|
%
|
|
|
|
|
Income
before income taxes
|
|
5.3
|
%
|
4.3
|
%
|
|
|
|
|
Net Sales
. Power Products segment net sales decreased
$2.2 million, or 19.0% to $9.4 million for the three months ended October 31,
2009 compared to $11.6 million for the three months ended November 1,
2008. Net sales have declined in the
second quarter of fiscal 2010 as compared to the second quarter of fiscal 2009
by 26.6% in North America and 5.6% in Asia.
The decline was driven by lower demand for our busbar, flexible cabling
and heat sink products.
Cost of
Products Sold
. Power
Products segment cost of products sold decreased $2.2 million, or 23.2%, to
$7.3 million for the three months ended October 31, 2009 compared to $9.5
million for the three months ended November 1, 2008. The Power Products segment cost of products
sold as a percentage of sales decreased to 77.7% for the three months ended October 31,
2009 from 81.9% for the three months ended November 1, 2008. The decrease is due to restructuring and
consolidation efforts for our Power Products businesses in the U.S. during the
fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.
Gross
Margins.
Power
Products segment gross margins were $2.1 million for both the three months
ended October 31, 2009 and November 1, 2008. Gross margins as a
percentage of net sales increased to 22.3% for the three months ended October 31,
2009 from 18.1% for the three months ended November 1, 2008. The increase is due to restructuring and
consolidation efforts for our Power Products businesses in the U.S. during the
fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.
Restructuring
. In March 2009, we announced
restructuring actions to consolidate
manufacturing facilities. During
the fiscal quarter ended October 31, 2009, the Power Products segment
recorded a restructuring charge of $0.1 million for other costs.
Selling
and Administrative Expenses
.
Selling and administrative expenses was $1.5 million for both the three
months ended October 31, 2009 and November 1, 2008. Selling and administrative expenses as a
percentage of net sales increased to 16.0% in the three months ended October 31,
2009 from 12.9% for the three months ended November 1, 2008.
30
Table of Contents
Other Expense.
Other expense was zero for the three months
ended October 31, 2009, compared to $0.1 million for the three months
ended November 1, 2008.
Income
Before Income Taxes.
Power
Products income before income taxes was $0.5 million for both the three months
ended October 31, 2009 and November 1, 2008 due to lower sales
volumes, offset by lower costs due to prior restructuring and consolidation
efforts.
Other
Segment Results
Below is a table
summarizing results for the three months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
2.4
|
|
$
|
2.5
|
|
$
|
(0.1
|
)
|
-4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
2.3
|
|
2.6
|
|
(0.3
|
)
|
-11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins
|
|
0.1
|
|
(0.1
|
)
|
0.2
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
0.8
|
|
0.7
|
|
0.1
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
$
|
(0.7
|
)
|
$
|
(0.8
|
)
|
$
|
0.1
|
|
-12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost
of products sold
|
|
95.8
|
%
|
104.0
|
%
|
|
|
|
|
Gross
margins
|
|
4.2
|
%
|
-4.0
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
33.3
|
%
|
28.0
|
%
|
|
|
|
|
Loss
before income taxes
|
|
-29.2
|
%
|
-32.0
|
%
|
|
|
|
|
Net Sales
. The Other segment net sales decreased $0.1
million, or 4.0%, to $2.4 million for the three months ended October 31, 2009,
compared to $2.5 million for the three months ended November 1, 2008. Net sales from our torque-sensing business
increased 7.6% in the second quarter of fiscal 2010 compared to the second
quarter of fiscal 2009. Net sales from
our testing facilities decreased 11.1% in the second quarter of fiscal 2010
compared to the second quarter of fiscal 2009.
Cost of
Products Sold
. Other
segment cost of products sold decreased $0.3 million to $2.3 million for the
three months ended October 31, 2009 compared to $2.6 million for the three
months ended November 1, 2008. The
decrease is due to a decrease in prototypes in our torque-sensing business in
the second quarter of fiscal 2010 compared to the second quarter of fiscal
2009. Cost of products sold as a
percentage of sales decreased to 95.8% in the second quarter of fiscal 2010
compared to 104.0% in the second quarter of fiscal 2009.
Gross
Margins.
The Other
segment gross margins were $0.1 million for the three months ended October 31,
2009, compared to a loss of $0.1 million for the three months ended November 1,
2008. The decrease in net sales were
offset by a decrease in prototypes in our torque-sensing business in the second
quarter of fiscal 2010 compared to the second quarter of fiscal 2010.
Selling
and Administrative Expenses
.
Selling and administrative expenses increased $0.1 million, or 14.3%, to
$0.8 million for the three months ended October 31, 2009, compared to $0.7
million for the three months ended November 1, 2008. Selling and administrative expenses as a
percentage of net sales increased to 33.3% in the three months ended October 31,
2009 from 28.0% for the three months ended November 1, 2008.
31
Table of Contents
Loss
Before Income Taxes.
The
Other segment loss before income taxes decreased $0.1 to $0.7 million for the
three months ended October 31, 2009, compared to $0.8 million for the
three months ended November 1, 2008.
The decrease in net sales was offset by the lower cost of products sold
for prototypes. Selling and
administrative expenses increased in the second quarter of fiscal 2010 compared
to the second quarter of fiscal 2009.
Results of Operations for the Six Months Ended October 31,
2009 as Compared to the Six Months Ended November 1, 2008.
Consolidated
Results
Below is a table
summarizing results for the six months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
188.3
|
|
$
|
255.8
|
|
$
|
(67.5
|
)
|
-26.4
|
%
|
Other
income
|
|
2.5
|
|
1.7
|
|
0.8
|
|
47.1
|
%
|
|
|
190.8
|
|
257.5
|
|
(66.7
|
)
|
-25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
148.7
|
|
203.2
|
|
(54.5
|
)
|
-26.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins (including other income)
|
|
42.1
|
|
54.3
|
|
(12.2
|
)
|
-22.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
6.8
|
|
11.2
|
|
(4.4
|
)
|
-39.3
|
%
|
Selling
and administrative expenses
|
|
32.3
|
|
35.0
|
|
(2.7
|
)
|
-7.7
|
%
|
Interest
income/(expense), net
|
|
(0.1
|
)
|
1.0
|
|
(1.1
|
)
|
-110.0
|
%
|
Other
expense, net
|
|
(0.3
|
)
|
(0.9
|
)
|
0.6
|
|
-66.7
|
%
|
Income
taxes - expense
|
|
0.5
|
|
1.0
|
|
(0.5
|
)
|
-50.0
|
%
|
Net
income attributable to noncontrolling interest
|
|
|
|
0.2
|
|
(0.2
|
)
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Methode Electronics, Inc.
|
|
$
|
2.1
|
|
$
|
7.0
|
|
$
|
(4.9
|
)
|
-70.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other
income
|
|
1.3
|
%
|
0.7
|
%
|
|
|
|
|
Cost
of products sold
|
|
79.0
|
%
|
79.4
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
22.4
|
%
|
21.2
|
%
|
|
|
|
|
Restructuring
|
|
3.6
|
%
|
4.4
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
17.2
|
%
|
13.7
|
%
|
|
|
|
|
Interest
income/(expense), net
|
|
-0.1
|
%
|
0.4
|
%
|
|
|
|
|
Other
expense, net
|
|
-0.2
|
%
|
-0.4
|
%
|
|
|
|
|
Income
taxes - expense
|
|
0.3
|
%
|
0.4
|
%
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
0.0
|
%
|
0.1
|
%
|
|
|
|
|
Net
income attributable to Methode Electronics, Inc.
|
|
1.1
|
%
|
2.7
|
%
|
|
|
|
|
Net Sales
. Consolidated net sales decreased $67.5
million, or 26.4%, to $188.3 million for the six months ended October 31,
2009 from $255.8 million for six months ended November 1, 2008. The Automotive segment net sales declined
$52.5 million or 32.8% to $107.4 million for first half of fiscal 2010 from
$159.9 million for the first half of fiscal 2009. The decline is primarily attributable to
lower sales to Delphi and Chrysler in the Automotive segment and the continued
softening of the global economic environment.
The Interconnect segment net sales decreased $12.4 million, or 18.3% to
$55.2 million for the first half of fiscal 2010 as compared to $67.6 million
for the first half of fiscal 2009. The
Power Products segment net sales decreased $3.0 million, or 12.7% to $20.6
32
Table of Contents
million for the first
half of fiscal 2010 as compared to $23.6 million for the first half of fiscal
2009. The Other segment net sales
increased $0.4 million to $5.1 million for the first half of fiscal 2010, as
compared to $4.7 million in the first half of fiscal 2009. Translation of foreign operations net sales
in the six months ended October 31, 2009 decreased reported net sales by
$1.6 million or 0.8% due to currency rate fluctuations.
Other
Income
. Other income
increased $0.8 million, or 47.1%, to $2.5 million for the six months ended October 31,
2009 from $1.7 million for the six months ended November 1, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
The increase relates to engineering design fees in our European
automotive market.
Cost of
Products Sold
.
Consolidated cost of products sold decreased $54.5 million, or 26.8%, to
$148.7 million for the six months ended October 31, 2009 compared to
$203.2 million for the six months ended November 1, 2008. The decrease is due to the lower sales
volumes. Consolidated cost of products
sold as a percentage of sales were 79.0% in the first half of fiscal 2010,
compared to 79.4% in the first half of fiscal 2009. The decrease relates to restructuring and
consolidation efforts that occurred in prior periods.
Gross
Margins (including other income).
Consolidated
gross margins (including other income) decreased $12.2 million, or 22.5%, to
$42.1 million for the six months ended October 31, 2009 as compared to
$54.3 million for the six months ended November 1, 2008. Gross margins (including other income) as a
percentage of net sales were 22.4% for the six months ended October 31,
2009 as compared to 21.2% for the six months ended November 1, 2008. The increase relates to higher other income
in the second quarter of fiscal 2010 as well as restructuring and consolidation
efforts that occurred in prior periods.
Restructuring
. In March 2009, we announced additional
restructuring actions to further reduce our exposure to the North American
automotive industry and to consolidate
manufacturing facilities in lower cost regions. During the first half of fiscal 2010, we
recorded a restructuring charge of $5.0 million related to this restructuring
initiative, which consisted of $3.5 million for employee severance and $1.5
million relating to other costs. We
expect the March 2009 restructuring to be completed in the second half of
fiscal 2010.
In January 2008,
we announced a restructuring of our U.S.-based automotive operations and the
decision to discontinue producing certain legacy products in the Interconnect
segment. During the first half of fiscal
2010, we recorded a restructuring charge of $1.8 million related to this
restructuring, which consisted of $0.2 million for employee severance, $1.5
million for the impairment and accelerated depreciation and $0.1 million
relating to other costs. During the
first half of fiscal 2009, we recorded a restructuring charge of $11.2 million,
which consisted of $4.4 million for employee severance, $5.9 million for
impairment and accelerated depreciation, $0.2 million for inventory write-downs
and $0.7 million relating to other costs.
We expect the January 2008 restructuring to be completed in the
second half of fiscal 2010.
Selling and
Administrative Expenses
.
Selling and administrative expenses decreased $2.7 million, or 7.7%, to
$32.3 million for the six months ended October 31, 2009 compared to $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, LLC, 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% in the
six months ended October 31, 2009 from 13.7% for the six months ended November 1,
2008.
Interest
Income/(Expense), Net
.
Net interest income decreased $1.1 million, or 110.0%, in the six months
ended October 31, 2009 to an expense of $0.1 million as compared to income
of $1.0 million in the six months ended November 1, 2008. The average cash balance was $62.4 million
during the six months ended October 31, 2009 as compared to $105.3 million
during the six months ended November 1, 2008. The decrease in cash relates primarily to the
Hetronic acquisition in the second quarter of fiscal 2009. The average interest rate earned for the six
months ended October 31, 2009 was 0.44% compared to 2.14% in the six
months ended November 1, 2008.
Interest expense was $0.3 million and $0.1 million for the six months
ended October 31, 2009 and November 1, 2008, respectively. The interest expense in the first half of
fiscal 2010 included $0.1 million of fees related to the amendment of our bank
agreement.
33
Table of Contents
Other
Expense, Net
. Other
expense, net was $0.3 million for the six months ended October 31, 2009 as
compared to $0.6 million for the six months ended November 1, 2008. The increase is primarily due to the
weakening of the U.S. dollar versus the Euro and Czech koruna during the first
half of fiscal 2010 as compared to the first half of fiscal 2009. The six months ended October 31, 2009
included a $0.4 million gain recorded from life insurance policies owned by the
Company in connection with an employee deferred compensation plan. In addition, we recorded a gain of $0.6
million related to an enhanced cash fund (described below), in the first half of
fiscal 2010, compared to a loss of $0.5
million in the first half of fiscal 2009. During the second half of fiscal 2009, we
recorded $2.5 million of unrealized currency exchange losses arising from an
intercompany loan between our corporate headquarters and one of our foreign
subsidiaries in conjunction with the acquisition of Hetronic, partially offset
by currency exchange gains recorded in the same period. The functional currencies of these operations
are the British pound, Chinese yuan, Czech koruna, Euro, Indian Rupee, Mexican
peso and Singapore dollar. Some foreign
operations have transactions denominated in currencies other than their
functional currencies, primarily sales in U.S. dollars and Euros, creating
exchange rate sensitivities.
At August 1, 2009,
approximately $2.4 million was invested in an enhanced cash fund sold as
an alternative to traditional money-market funds. We have historically invested
a portion of our on hand cash balances in this fund. These investments are
subject to credit, liquidity, market and interest rate risk. In December 2007,
the
fund was overwhelmed
with withdrawal requests from investors and was closed with a restriction
placed upon the cash redemption ability of its holders.
In September, we received our remaining principal
in the fund. The balance in the fund as of October 31, 2009 was zero.
For the first six months
of fiscal 2010, we recorded a gain of $0.6 million, of which $0.4 million was
from a realized loss on redemptions of $3.5 million, offset by a realized gain
of $1.0 million.
Income
Taxes - Expense.
The
effective income tax rate was 19.8% for the first half of fiscal 2010 compared
with 12.5% for the first half of fiscal 2009.
For the six months ended October 31, 2009, we have a loss before
income taxes in our 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 our U.S.-based businesses, a valuation allowance was recorded offsetting
the tax benefit in accordance with ASC No. 740 Income Taxes in the
U.S. See note 8 for additional
information. The effective tax rates for
both 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
Companys foreign operations and a higher percentage of earnings at those
foreign operations.
Net
Income.
Net income
decreased $4.9 million, or 70.0%, to $2.1 million for the six months ended October 31,
2009, compared to $7.0 million for the six months ended November 1, 2008,
due to lower restructuring expenses, lower costs due to prior restructuring and
consolidation efforts, partially offset by lower sales, lower other expenses,
lower interest income and increased income taxes.
34
Table of Contents
Operating
Segments
Automotive
Segment Results
Below is a table
summarizing results for the six months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
107.4
|
|
$
|
159.9
|
|
$
|
(52.5
|
)
|
-32.8
|
%
|
Other
income
|
|
2.3
|
|
1.3
|
|
1.0
|
|
76.9
|
%
|
|
|
109.7
|
|
161.2
|
|
(51.5
|
)
|
-31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
86.0
|
|
127.8
|
|
(41.8
|
)
|
-32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins (including other income)
|
|
23.7
|
|
33.4
|
|
(9.7
|
)
|
-29.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
5.0
|
|
7.5
|
|
(2.5
|
)
|
-33.3
|
%
|
Selling
and administrative expenses
|
|
9.0
|
|
9.1
|
|
(0.1
|
)
|
-1.1
|
%
|
Interest
income, net
|
|
|
|
0.3
|
|
(0.3
|
)
|
-100.0
|
%
|
Other
expense, net
|
|
(1.2
|
)
|
(0.5
|
)
|
(0.7
|
)
|
140.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
8.5
|
|
$
|
16.6
|
|
$
|
(8.1
|
)
|
-48.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other
income
|
|
2.1
|
%
|
0.8
|
%
|
|
|
|
|
Cost
of products sold
|
|
80.1
|
%
|
79.9
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
22.1
|
%
|
20.9
|
%
|
|
|
|
|
Restructuring
|
|
4.7
|
%
|
4.7
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
8.4
|
%
|
5.7
|
%
|
|
|
|
|
Interest
income, net
|
|
0.0
|
%
|
0.2
|
%
|
|
|
|
|
Other
expense, net
|
|
-1.1
|
%
|
-0.3
|
%
|
|
|
|
|
Income
before income taxes
|
|
7.9
|
%
|
10.4
|
%
|
|
|
|
|
Net Sales
. Automotive segment net sales decreased $52.5
million, or 32.8%, to $107.4 million for the six months ended October 31,
2009 from $159.9 million for the six months ended November 1, 2008. Net sales to Delphi Corporation decreased
$9.8 million, or 41.0%, to $14.1 million in the first half of fiscal 2010 as
compared to the first half fiscal 2009 due to lower sales volumes and the
cancellation of the supply arrangement on September 10, 2009. The Automotive segment net sales were also
negatively impacted by planned lower Chrysler sales volumes of $1.0 million in
the first half of fiscal 2010, compared to $16.1 million in the first half of
fiscal 2009. In addition, the decline is
attributable to the softening of the global economic environment, especially
the effect on the North American automotive industry. Net sales benefited by $1.7 million for the
three months ended October 31, 2009 relating to a one-time reversal of
pricing contingencies which were accrued over several years and are no longer
required. Net sales have declined by
48.5% in North America and 15.2% in Europe, and net sales have increased by
15.2% in Asia in the first half of fiscal 2010 as compared to the first half of
fiscal 2009. Translation of foreign
operations net sales in the three months ended October 31, 2009 decreased
reported net sales by $1.3 million, or 1.2%, due to currency rate fluctuations.
Other
Income
. Other income
increased $1.0 million, or 76.9%, to $2.3 million for the six months ended October 31,
2009 from $1.3 million for six months ended November 1, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
The increase relates to engineering design fees in our European
automotive market.
35
Table of Contents
Cost of
Products Sold
.
Automotive segment cost of products sold decreased $41.8 million, or
32.7%, to $86.0 million for the six months ended October 31, 2009 from
$127.8 million for the six months ended November 1, 2008. The decrease primarily relates to lower sales
volumes. Included in the cost of
products sold for the six months ended October 31, 2009 is $0.7 million of
asset write-downs relating to the termination of the Delphi supply
arrangement. The Automotive segment cost
of products sold as a percentage of sales were 80.1% in the first half of
fiscal 2010, compared to 79.9% in the second first half of fiscal 2009. Excluding the Delphi asset write-down in cost
of products sold and the $1.7 million reversal of pricing contingencies
included in net sales, consolidated cost of products sold as a percentage of
sales were 80.7% for the first half of fiscal 2010. The increase reflects inefficiencies caused
by automotive manufacturers extending plant shut-downs during the first quarter
of fiscal 2010, partially offset by restructuring and consolidation efforts.
Gross
Margins (including other income).
Automotive
segment gross margins (including other income) decreased $9.7 million, or
29.0%, to $23.7 million for the six months ended October 31, 2009 as
compared to $33.4 million for the six months ended November 1, 2008. Gross margins (including other income) as a
percentage of net sales increased to 22.1% for the six months ended October 31,
2009 from 20.9% for the six months ended November 1, 2008. Excluding the Delphi asset write-down in cost
of products sold and the $1.7 million reversal of pricing contingencies
included in net sales, the Automotive segment gross margins (including other
income) as a percentage of sales were 21.5% for the first half of fiscal
2010. The increase relates to higher
other income in the first half of fiscal 2010 as well as restructuring and consolidation
efforts that occurred in prior periods, partially offset by inefficiencies
caused by automotive manufacturers extending plant shut-downs during the first
quarter of fiscal 2010.
Restructuring
. In March 2009, we announced additional
restructuring actions to further reduce our exposure to the North American
automotive industry and to consolidate
manufacturing facilities in lower cost regions. During the first half of fiscal 2010, we
recorded a restructuring charge of $3.2 million related to this restructuring
initiative, which consisted of $2.7 million for employee severance and $0.5
million relating to other costs. We
expect the March 2009 restructuring to be completed during the second half
of fiscal 2010.
In January 2008,
we announced a restructuring of our U.S.-based automotive operations. During the first half of fiscal 2010, the
Automotive segment recorded a restructuring charge of $1.8 million for this
restructuring initiative, which consisted of $0.2 million for employee
severance, $1.5 million for the impairment and accelerated depreciation and
$0.1 in other costs. During the first
half of fiscal 2009, the Automotive segment recorded a restructuring charge of
$7.5 million for this restructuring initiative, which consisted of $3.2 million
for employee severance, $3.7 million for impairment and accelerated
depreciation and $0.6 million for other costs.
We expect the January 2008 restructuring to be completed during the
second half of fiscal 2010.
Selling
and Administrative Expenses
.
Selling and administrative expenses decreased $0.1 million, or 1.1%, to
$9.0 million for the six months ended October 31, 2009 compared to $9.1
million for the six months ended November 1, 2008. Selling and Administrative expenses decreased
slightly in the first half of fiscal 2010 compared to the first half of fiscal
2009 due to restructuring and consolidation efforts, however, the first half of
fiscal 2010 includes $1.9 million of legal fees associated with the Delphi
supply arrangement termination dispute.
Selling and administrative expenses as a percentage of net sales were
8.4% for the six months ended October 31, 2009 and 5.7% for the six months
ended November 1, 2008.
Interest
Income, Net
. Net
interest income was zero in the first half of fiscal 2010, compared to $0.3
million in the first half of fiscal 2009.
Other
Expense, Net
. Other
expense, net increased $0.7 million, or 140.0%, to $1.2 million in the first
half of fiscal 2010, compared to $0.5 million in the first half of fiscal
2009. The increase is primarily due to
the weakening of the U.S. dollar versus the Euro during the first half of
fiscal 2010 as compared to the first half of fiscal 2009. The functional currencies of these operations
are the British pound, Chinese yuan, Euro and the Mexican peso. Some foreign operations have transactions
denominated in currencies other than their functional currencies, primarily
sales in U.S. dollars and Euros, creating exchange rate sensitivities.
Income
Before Income Taxes.
Automotive
segment income before income taxes decreased $8.1 million, or 48.8%, to $8.5
million for the six months ended October 31, 2009 compared to $16.6
million for the six months
36
Table of Contents
ended November 1,
2008 due to lower sales volumes, the asset write-down and legal fees relating
to the termination of the Delphi arrangement, offset by the reversal of
one-time pricing contingencies, lower costs relating to prior restructuring and
consolidation efforts and lower restructuring costs.
Interconnect
Segment Results
Below is a table
summarizing results for the six months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
55.2
|
|
$
|
67.6
|
|
$
|
(12.4
|
)
|
-18.3
|
%
|
Other
income
|
|
0.1
|
|
0.1
|
|
|
|
0.0
|
%
|
|
|
55.3
|
|
67.7
|
|
(12.4
|
)
|
-18.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
41.9
|
|
51.4
|
|
(9.5
|
)
|
-18.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins (including other income)
|
|
13.4
|
|
16.3
|
|
(2.9
|
)
|
-17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
1.4
|
|
3.7
|
|
(2.3
|
)
|
-62.2
|
%
|
Selling
and administrative expenses
|
|
10.9
|
|
15.3
|
|
(4.4
|
)
|
-28.8
|
%
|
Interest
income
|
|
0.1
|
|
0.2
|
|
(0.1
|
)
|
-50.0
|
%
|
Other
expense, net
|
|
|
|
0.3
|
|
(0.3
|
)
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
$
|
1.2
|
|
$
|
(2.2
|
)
|
$
|
3.4
|
|
-154.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other
income
|
|
0.2
|
%
|
0.1
|
%
|
|
|
|
|
Cost
of products sold
|
|
75.9
|
%
|
76.0
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
24.3
|
%
|
24.1
|
%
|
|
|
|
|
Restructuring
|
|
2.5
|
%
|
5.5
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
19.7
|
%
|
22.6
|
%
|
|
|
|
|
Interest
income
|
|
0.2
|
%
|
0.3
|
%
|
|
|
|
|
Other
expense, net
|
|
0.0
|
%
|
0.4
|
%
|
|
|
|
|
Income/(loss)
before income taxes
|
|
2.2
|
%
|
-3.3
|
%
|
|
|
|
|
Net Sales
. Interconnect segment net sales decreased
$12.4 million, or 18.3%, to $55.2 million for the six months ended October 31,
2009 from $67.6 million for the six months ended November 1, 2008. Net sales were favorably impacted by the
Hetronic acquisition on September 30, 2008. Excluding Hetronic, North American net sales
declined 26.1%, Europe declined 34.8% and Asia declined 43.0% in the first half
of fiscal 2010 as compared to the first half of fiscal 2009. The net sales decline was primarily due to the
softening of the global economy and restructuring of our Connector and Duel
businesses during the fourth quarter of fiscal 2008 and the first quarter of fiscal
2009. Translation of foreign operations
net sales in the six months ended October 31, 2009 decreased reported net
sales by $0.3 million, or 0.5%, due to currency rate fluctuations.
Other
Income
. Other income
was $0.1 million for both the six months ended October 31, 2009 and November 1,
2008. Other income consisted primarily
of earnings from engineering design fees and royalties.
Cost of
Products Sold
.
Interconnect segment cost of products sold decreased $9.5 million, or
18.5%, to $41.9 million for the six months ended October 31, 2009 compared
to $51.4 million for the six months ended November 1, 2008. Interconnect segment cost of products sold as
a percentage of net sales decreased to 75.9% for
37
Table of Contents
the six months
ended October 31, 2009 compared to 76.0% for the six months ended November 1,
2008. The decrease in cost of products
sold as a percentage of net sales primarily relates to restructuring efforts in
previous periods, partially offset by lower sales volumes in the first half of
fiscal 2010 as compared to the first half of fiscal 2009.
Gross
Margins (including other income).
Interconnect
segment gross margins (including other income) decreased $2.9 million, or
17.8%, to $13.4 million for the six months ended October 31, 2009 as compared
to $16.3 million for the six months ended November 1, 2008. Gross margins (including other income) as a
percentage of net sales increased to 24.3% for the six months ended October 31,
2009 from 24.1% for the six months ended November 1, 2008. The increase in gross margins (including
other income) as a percentage of net sales primarily relates to restructuring
efforts in previous periods, partially offset by lower sales volumes in the
first half of fiscal 2010 as compared to the first half of fiscal 2009.
Restructuring
. In March 2009, we announced additional
restructuring actions to consolidate
manufacturing facilities to reduce costs. During the first half of fiscal 2010, the
Interconnect segment recorded a restructuring charge of $1.3 million related to
this restructuring initiative, which consisted of $0.4 million for employee
severance and $0.9 million for other costs.
We expect the March 2009 restructuring to be completed during the
second half of fiscal 2010.
In January 2008,
we announced our decision to discontinue producing certain legacy products in
the Interconnect segment. During the
first half of fiscal 2010, the Interconnect segment recorded a restructuring
charge of $0.1 million for accelerated depreciation. During the fiscal first half of fiscal 2009,
we recorded a restructuring charge of $3.7 million, which consisted of $1.2
million for employee severance, $2.2 million for impairment and accelerated
depreciation for buildings, building improvements and machinery and equipment,
$0.2 million for inventory write-downs and $0.1 relating to professional
fees. We expect the January 2008
restructuring to be completed during the second half of fiscal 2010.
Selling
and Administrative Expenses
.
Selling and administrative expenses decreased $4.4 million, or 28.8%, to
$10.9 million for the six months ended October 31, 2009 compared to $15.3
million for the six months ended November 1, 2008. Selling and administrative expenses are lower
due to reduced intangible asset amortization expenses, partially offset by
higher selling and administrative expenses due to the Hetronic
acquisition. In addition, selling and
administrative expenses (not including Hetronic) were lower due to the
restructuring efforts undertaken in the first and second quarters of fiscal
2009. Selling and administrative
expenses as a percentage of net sales decreased to 19.7% in the six months
ended October 31, 2009 from 22.6% for the six months ended November 1,
2008.
Interest
Income, Net
. Interest
income, net decreased $0.1 million, or 50%, to $0.1 million for the six months
ended October 31, 2009, compared to $0.2 million for the six months ended November 1,
2008.
Other
Expense, Net
. Other
expense, net was zero for the six months ended October 31, 2009, compared
to income of $0.3 for the six months ended November 1, 2008. The functional currencies of these operations
are the British pound, Czech koruna, Euro and Singapore dollar. Some foreign operations have transactions
denominated in currencies other than their functional currencies, primarily
sales in U.S. dollars and Euros, creating exchange rate sensitivities.
Income/(Loss)
Before Income Taxes.
Interconnect
income/(loss) before income taxes increased $3.4 million, or 154.5%, to income
of $1.2 million for the six months ended October 31, 2009 compared to a
loss of $2.2 million for the six months ended November 1, 2008 due to
lower intangible asset amortization expenses, lower selling and administrative
expenses due to prior restructuring efforts, lower restructuring expenses,
partially offset by lower sales volumes.
38
Table of Contents
Power
Products Segment Results
Below is a table
summarizing results for the six months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
20.6
|
|
$
|
23.6
|
|
$
|
(3.0
|
)
|
-12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
16.1
|
|
19.2
|
|
(3.1
|
)
|
-16.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins
|
|
4.5
|
|
4.4
|
|
0.1
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
0.4
|
|
|
|
0.4
|
|
0.0
|
%
|
Selling
and administrative expenses
|
|
3.0
|
|
2.9
|
|
0.1
|
|
3.4
|
%
|
Other
- expense
|
|
|
|
(0.2
|
)
|
0.2
|
|
-100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
1.1
|
|
$
|
1.3
|
|
$
|
(0.2
|
)
|
-15.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost
of products sold
|
|
78.2
|
%
|
81.4
|
%
|
|
|
|
|
Gross
margins (including other income)
|
|
21.8
|
%
|
18.6
|
%
|
|
|
|
|
Restructuring
|
|
1.9
|
%
|
0.0
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
14.6
|
%
|
12.3
|
%
|
|
|
|
|
Other
- expense
|
|
0.0
|
%
|
-0.8
|
%
|
|
|
|
|
Income
before income taxes
|
|
5.3
|
%
|
5.5
|
%
|
|
|
|
|
Net Sales
. Power Products segment net sales decreased
$3.0 million, or 12.7% to $20.6 million for the six months ended October 31,
2009 compared to $23.6 million for the six months ended November 1,
2008. Net sales have declined in the
first half of fiscal 2010 as compared to the first half of fiscal 2009 by 18.8%
in North America and 8.3% in Asia. The
decline was driven by lower demand for our busbar, flexible cabling and heat
sink products.
Cost of
Products Sold
. Power
Products segment cost of products sold decreased $3.1 million, or 16.1%, to
$16.1 million for the six months ended October 31, 2009 compared to $19.2
million for the six months ended November 1, 2008. The Power Products segment cost of products
sold as a percentage of sales decreased to 78.2% for the six months ended October 31,
2009 from 81.4% for the six months ended November 1, 2008. The decrease is due to restructuring and consolidation
efforts for our Power Products businesses in the U.S. during the fourth quarter
of fiscal 2009 and the first quarter of fiscal 2010.
Gross
Margins.
Power
Products segment gross margins increased $0.1 million, or 2.3%, to $4.5 million
for the six months ended October 31, 2009, compared to $4.4 million for
the six months ended November 1, 2008. Gross margins as a percentage of
net sales increased to 21.8% for the six months ended October 31, 2009
from 18.6% for the six months ended November 1, 2008. The increase is due to restructuring and
consolidation efforts for our Power Products businesses in the U.S. during the
fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.
Restructuring
. In March 2009, we announced
restructuring actions to consolidate
manufacturing facilities. During
the first half of fiscal 2010, the Power Products segment recorded a
restructuring charge of $0.4 million, which consisted of $0.1 million for
employee severance and $0.3 million relating to other costs.
Selling
and Administrative Expenses
.
Selling and administrative expenses increased $0.1 million, or 3.4%, to
$3.0 million for the six months ended October 31, 2009 compared to $2.9
million for the six months ended November 1, 2008. Selling and administrative expenses increased
due to slightly higher professional services fees during the first half of
fiscal 2010 as compared to the first half of fiscal 2009. Selling and administrative expenses
39
Table of Contents
as a percentage of
net sales increased to 14.6% in the six months ended October 31, 2009 from
12.3% for the six months ended November 1, 2008.
Other
Expense.
Other expense
was zero for the six months ended October 31, 2009, compared to $0.2
million for the six months ended November 1, 2008.
Income
Before Income Taxes.
Power
Products income before income taxes decreased $0.2 million, or 11.6%, to $1.1
million for the six months ended October 31, 2009, compared to $1.3
million for the six months ended November 1, 2008 due to lower sales
volumes, higher restructuring expenses, and higher professional fees, partially
offset by lower cost of products sold due to prior restructuring and
consolidation efforts.
Other
Segment Results
Below is a table
summarizing results for the six months ended:
(in millions)
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net
sales
|
|
$
|
5.1
|
|
$
|
4.7
|
|
$
|
0.4
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
4.9
|
|
4.6
|
|
0.3
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross
margins
|
|
0.2
|
|
0.1
|
|
0.1
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
1.5
|
|
1.4
|
|
0.1
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
$
|
(1.3
|
)
|
$
|
(1.3
|
)
|
$
|
(0.0
|
)
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
November 1,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost
of products sold
|
|
96.1
|
%
|
97.9
|
%
|
|
|
|
|
Gross
margins
|
|
3.9
|
%
|
2.1
|
%
|
|
|
|
|
Selling
and administrative expenses
|
|
29.4
|
%
|
29.8
|
%
|
|
|
|
|
Loss
before income taxes
|
|
-25.5
|
%
|
-27.7
|
%
|
|
|
|
|
Net Sales
. The Other segment net sales increased $0.4
million, or 8.5%, to $5.1 million for the six months ended October 31,
2009, compared to $4.7 million for the six months ended November 1,
2008. Net sales from our torque-sensing
business increased 28.6% in the first half of fiscal 2010 compared to the first
half of fiscal 2009. Net sales from our
testing facilities were flat in the first half of fiscal 2010 compared to the
first half of fiscal 2009.
Cost of
Products Sold
. Other segment
cost of products sold increased $0.3 million, or 6.5%, to $4.9 million for the
six months ended October 31, 2009 compared to $4.6 million for the six
months ended November 1, 2008. The
increase is due to an increase in prototypes in our torque-sensing business in
the first half of fiscal 2010 compared to the first half of fiscal 2009. Cost of products sold as a percentage of
sales decreased to 96.1% in the first half of fiscal 2010 compared to 97.9% in
the first half of fiscal 2009.
Gross
Margins.
The Other
segment gross margins increased $0.1 million, or 100.0%, to $0.2 million for
the six months ended October 31, 2009, compared to $0.1 million for the
six months ended November 1, 2008.
The increase in net sales was offset by an increase in cost of products
sold in the first half of fiscal 2010.
Selling
and Administrative Expenses
.
Selling and administrative expenses increased $0.1 million, or 7.1%, to
$1.5 million for the six months ended October 31, 2009, compared to $1.4
million for the six months ended
40
Table of Contents
November 1,
2008. Selling and administrative
expenses as a percentage of net sales decreased to 29.4% for the six months
ended October 31, 2009 from 29.8% for the three months ended November 1,
2008.
Loss
Before Income Taxes.
The
Other segment loss before income taxes was $1.3 million for both the six months
ended October 31, 2009 and November 1, 2008. The increase in net sales was offset by the
increase in cost of products sold in the first half of fiscal 2010 compared to
the first half of fiscal 2009.
Liquidity
and Capital Resources
We
have historically financed our cash requirements through cash flows from
operations. Our future capital
requirements will depend on a number of factors, including our future net sales
and the timing and rate of expansion of our business. We believe our current cash balances together
with the cash flow expected to be generated from future domestic and foreign
operations will be sufficient to support current operations.
We
have an agreement with our primary bank for a revolving credit facility to
provide up to $75.0 million of ready financing for general corporate purposes,
including acquisition opportunities that may become available. The bank credit agreement, which expires on January 31,
2011, requires maintenance of certain financial ratios and a minimum net worth
level. At October 31, 2009, we were in compliance with these covenants and
had no borrowings against this credit facility.
At August 1, 2009,
approximately $2.4 million was invested in an enhanced cash fund sold as
an alternative to traditional money-market funds. We have historically invested
a portion of our on hand cash balances in this fund. These investments are
subject to credit, liquidity, market and interest rate risk. In December 2007,
the
fund was overwhelmed
with withdrawal requests from investors and was closed with a restriction
placed upon the cash redemption ability of its holders.
In September, we received our remaining
principal in the fund. The balance in the fund as of October 31, 2009 was
zero.
During the second quarter
of fiscal 2010, we recorded a gain of $0.3 million, of which $0.3 million was
from a realized loss on redemptions of $2.4 million, offset by a realized gain
of $0.6 million. For the first six months of fiscal 2010, we recorded a gain of
$0.6 million, of which $0.4 million was from a realized loss on redemptions of $3.5
million, offset by a realized gain of $1.0 million.
Net
cash provided by operating activities decreased $13.8 million, or 46.9%, to
$15.6 million for the first half of fiscal 2010 compared to $29.4 million in
the first half of fiscal 2009. The decrease
was due to our net income decreasing $4.8 million to $2.2 million for the first
half of fiscal 2010, compared to net income of $7.0 million in the first half
of fiscal 2009. In addition, non-cash
charge add-backs were unfavorable, due to lower depreciation and amortization
expenses and non-cash translation expense, partially offset by favorable
changes in assets and liabilities in the first half of fiscal 2010 compared to
the first half of fiscal 2009. The primary
factor in the Companys ability to generate cash from operations is our net
income. Additionally, cash flows from operations exceed net income because
non-cash charges (depreciation, amortization of intangibles, restricted stock
awards, and stock options) negatively impact net income but do not result in
the use of cash. Similarly, non-cash
credits such as deferred income tax benefits increase net income but do not
provide cash. Additional contributors or
offsets to cash flows from operations are working capital requirements.
Net cash used in investing activities decreased $60.8 million to $6.0
million for the first half of fiscal 2010, compared to $66.8 million for the
first half of fiscal 2009. Purchases of
plant and equipment decreased $3.8 million, to $5.8 million for the first half
of fiscal 2010, compared to $9.6 million for the first half of fiscal
2009. In the first half of fiscal 2009,
we acquired certain assets of Hetronic LLC (Hetronic) for $53.6 million in
cash. We also incurred $2.4 million in
transaction costs related to the purchase.
Also in the first six months of fiscal 2009, we made a contingent
payment of $0.8 million related to the VEP acquisition.
Net cash used in financing activities was $5.2
million for the first half of fiscal 2010, compared to $9.5 million for the
first half of fiscal 2009. We paid cash
dividends of $5.2 million in the first half of fiscal 2010, compared to $4.5
million in the first half of fiscal 2009.
Our board of directors approved a stock repurchase plan in September 2008
to purchase up to 3,000,000 shares. The
plan expires May 1, 2010. In the
first half of fiscal 2009, we purchased 639,880 shares for $5.1 million. There were no shares purchased in the first
half of fiscal 2010.
41
Table of Contents
Off-Balance Sheet Arrangements
We
do not have any off-balance sheet arrangements, other than operating leases and
purchase obligations entered into in the normal course of business.
Item 3. Quantitative
And Qualitative Disclosures About Market Risk
Certain
of our foreign operations enter into transactions in currencies other than
their functional currency, primarily the U.S. dollar and the Euro. A 10% change in foreign currency exchange
rates from balance sheet date levels could impact our income before income
taxes by $3.2 million and $2.8 million for periods ended October 31, 2009
and May 2, 2009, respectively. We
also have foreign currency exposure arising from the translation of our net
equity investment in our foreign operations to U.S. dollars. We generally view our investments in foreign
operations with functional currencies other than the U.S. dollar as long-term. The currencies to which we are exposed are
the British pound, Chinese yuan, Czech koruna, Euro, Indian Rupee, Mexican
peso, and Singapore dollar. A 10% change
in foreign currency exchange rates from balance sheet date levels could impact
our net foreign investments by $11.9 million at October 31, 2009 and $10.8
million at May 2, 2009.
Item 4. Controls And Procedures
As of the end of the period covered by this quarterly
report on Form 10-Q, we performed an evaluation under the supervision and
with the participation of the Companys management, including our Chief
Executive Officer and our Chief Financial Officer, of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934). The Companys disclosure controls
and procedures are designed to ensure that the information required to be
disclosed by the Company in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions
applicable rules and forms. As a result of this evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of the period covered by this report, the Companys disclosure controls
and procedures were effective.
There
have been no changes in our internal control over financial reporting during
the quarter ended October 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
42
Table of Contents
PART II. OTHER
INFORMATION
Item 1. Legal Proceedings.
On September 4,
2008, Methode and Delphi Automotive Systems LLC (Delphi) entered into a
supply arrangement pursuant to which Methode was to supply all of Delphis
requirements for the silicone bladders used in Delphis occupant restraint
system from October 1, 2008 through September 30, 2011. Since October 23, 2008, we have been
involved in ongoing legal proceedings with Delphi, in Oakland County, Michigan,
Circuit Court. Delphi originally
sought possession of certain Methode tooling drawings related to the sensor pads.
In a letter dated August 26, 2009,
Delphi provided us with a notice of termination of all purchase orders and the
entire three-year agreement, effective September 10, 2009. Because of these recent actions and
consistent with our continuing evaluation of the legal proceedings to which we
are a party, we have determined that our litigation with Delphi is now
material.
Item 4. Submission
Of Matters To A Vote Of Security Holders
(a)
The 2009 Annual Stockholders
Meeting of the Company was held on September 17, 2009.
(c)
At
the Annual Stockholders Meeting, the common stockholders voted on the following
uncontested matters.
1.
Election
of the below named nominees to the Board of Directors of the Company:
|
|
For
|
|
Withheld
|
|
Aspatore, Walter J.
|
|
31,814,204
|
|
3,310,549
|
|
Batts, Warren L.
|
|
34,948,437
|
|
176,316
|
|
Colgate, J. Edward
|
|
35,949,327
|
|
175,426
|
|
Dawson, Darren M.
|
|
34,688,288
|
|
436,465
|
|
Duda, Donald W.
|
|
34,672,536
|
|
452,217
|
|
Goossen, Isabelle C.
|
|
33,180,244
|
|
1,944,509
|
|
Hornung, Christopher J.
|
|
34,942,799
|
|
181,954
|
|
Shelton, Paul G.
|
|
32,962,524
|
|
2,162,229
|
|
Skatoff, Lawrence B.
|
|
33,183,904
|
|
1,940,849
|
|
2.
Ratification of
Ernst & Young LLP to serve as the Companys independent registered
public accounting firm for the fiscal year ending May 1, 2010:
For
|
|
Against
|
|
Abstain
|
|
33,138,233
|
|
1,926,893
|
|
59,627
|
|
43
Table
of Contents
Item 6. Exhibits
Exhibit
Number
|
|
Description
|
10.25
|
|
Amendment to Credit Agreement dated as of
November 2005 among Methode Electronics, Inc. as the Borrower, Bank
of America, N.A., as Administrative Agent and L/C Issuer, and The Other
Lenders Party Thereto (1)
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal
Executive Officer
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of
Principal Financial Officer
|
32
|
|
Certification of Periodic Financial Report Pursuant to
18 U.S.C. Section 1350
|
(1)
|
|
Previously
filed with Registrants Form 10-Q the three months ended October 31,
2005. Referenced in this Form 10-Q
to correct a typographical error in our fiscal 2009 Form 10-K.
|
44
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
METHODE ELECTRONICS, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Douglas A. Koman
|
|
|
Douglas
A. Koman
|
|
|
Chief
Financial Officer
|
|
|
(principal
financial officer)
|
|
|
|
Dated:
|
December 8, 2009
|
|
|
|
|
|
|
|
|
45
Table of Contents
INDEX TO
EXHIBITS
Exhibit
Number
|
|
Description
|
10.25
|
|
Amendment to Credit Agreement dated as of
November 2005 among Methode Electronics, Inc. as the Borrower, Bank
of America, N.A., as Administrative Agent and L/C Issuer, and The Other Lenders
Party Thereto (1)
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of
Principal Executive Officer
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of
Principal Financial Officer
|
32
|
|
Certification of Periodic Financial Report Pursuant to
18 U.S.C. Section 1350
|
(1)
|
|
Previously
filed with Registrants Form 10-Q the three months ended October 31,
2005. Referenced in this Form 10-Q
to correct a typographical error in our fiscal 2009 Form 10-K.
|
46
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