Methode Electronics, Inc. (NYSE: MEI), a global developer of custom
engineered and application specific products and solutions, today
announced operating results for the Fiscal 2010 third quarter ended
January 30, 2010.
Third-Quarter Fiscal 2010
Methode's third-quarter Fiscal 2010 net sales increased $8.3
million, or 10.3 percent, to $89.1 million from $80.8 million in
the third quarter of Fiscal 2009. Quarter over quarter, Automotive
segment net sales increased $7.0 million, or 19.1 percent,
Interconnect segment net sales improved $0.6 million, or 1.8
percent, and Power Products segment net sales increased $0.4
million, or 4.3 percent.
Net loss decreased $22.5 million to a loss of $4.5 million, or
$0.12 per share, in the third quarter of Fiscal 2010 compared to a
loss of $27.0 million, or $0.74 per share, in the same period of
Fiscal 2009. The decrease in net loss in the third quarter of
Fiscal 2010 compared to the third quarter of Fiscal 2009 was due to
no goodwill and intangible assets write-off charges in the Fiscal
2010 period compared to $32.7 million of write-offs in the Fiscal
2009 period, along with higher Fiscal 2010 third-quarter sales and
gross margins and lower Fiscal 2010 restructuring costs, partially
offset by higher Fiscal 2010 selling and administrative costs
related to the Delphi Automotive Systems ("Delphi") litigation.
Excluding restructuring charges in both periods and the impairment
of goodwill and intangible assets charge in the third quarter of
Fiscal 2009, Methode's net loss was $3.9 million, or $0.11 per
share, in the third quarter of Fiscal 2010 compared to a net loss
of $4.4 million, or $0.13 per share, in the same period of Fiscal
2009.
Methode recorded restructuring charges during the Fiscal 2010
third quarter of $0.6 million ($0.6 million after-tax), or $0.02
per share, and during the Fiscal 2009 third quarter of $3.8 million
($2.5 million after-tax), or $0.07 per share. The Company expects
to complete its restructuring activities during the fourth quarter
of Fiscal 2010 and estimates that it will record additional pre-tax
charges in Fiscal 2010 of between $0.5 million and $1.3
million.
Excluding the restructuring charges in both periods, and the
impairment of goodwill and intangible assets charge in the third
quarter of Fiscal 2009, the loss before income taxes was $1.5
million in the third quarter of Fiscal 2010 compared to a loss of
$3.8 million in the same period of Fiscal 2009, for an improvement
of $2.3 million on increased net sales of $8.3 million.
Consolidated cost of products sold increased $4.4 million, or
6.2 percent, to $74.9 million in the Fiscal 2010 third quarter,
compared to $70.5 million in the same period of Fiscal 2009.
Consolidated cost of products sold as a percentage of sales was
84.1 percent and 87.3 percent in the third quarters of Fiscal 2010
and 2009, respectively. This improvement was driven by higher sales
volumes and the benefit of the Company's restructuring efforts to
reduce costs and consolidate facilities.
Consolidated gross margins as a percentage of sales increased to
17.2 percent in the Fiscal 2010 third quarter from 13.7 percent in
the comparable period of Fiscal 2009, largely due to the
restructuring actions previously taken to reduce the Company's cost
structure.
Consolidated selling and administrative expenses increased $2.4
million, or 16.3 percent, to $17.1 million in the Fiscal 2010 third
quarter, as compared to $14.7 million in the prior-year period.
Selling and administrative expenses for the third quarter of Fiscal
2010 were unfavorable by $0.8 million in bonuses and professional
fees and $0.3 million in sales and marketing expenses, offset by
net favorable stock award and intangible assets amortization
expense of $1.1 million as compared to the third quarter of Fiscal
2009. Additionally, third-quarter Fiscal 2010 selling and
administrative expenses included $2.4 million in legal fees
relating to the Delphi supply agreement and intellectual property
litigation. Consequently, selling and administrative expenses as a
percentage of sales increased to 19.2 percent in the third quarter
of Fiscal 2010, compared to 18.2 percent in the same period of
Fiscal 2009.
Income taxes - expense/(benefit) increased $15.6 million to an
expense of $2.3 million for the third quarter of Fiscal 2010,
compared to a tax benefit of $13.3 million for the same period of
Fiscal 2009. The expense in the Fiscal 2010 third quarter includes
taxes on foreign profits of $0.6 million, book to income tax return
adjustments of $2.8 million and other adjustments of $1.6 million.
In addition, a benefit of $2.7 million was recorded due to the
settlement of uncertain tax positions and related interest from
prior periods. For the third quarter of Fiscal 2010, the Company
has a loss before income taxes. Normally, a tax benefit is recorded
relating to the net loss before income taxes, but due to the
uncertainty of the future utilization of the tax benefit by the
Company's U.S.-based businesses, a valuation allowance was recorded
offsetting the tax benefit. The effective tax rates for the third
quarters of Fiscal 2010 and 2009 reflect utilization of foreign
investment tax credits and the effect of lower tax rates on income
of the Company's foreign operations and a higher percentage of
earnings at those foreign operations.
In the Automotive segment, net sales improved 19.1 percent to
$43.6 million in the third quarter of Fiscal 2010 from $36.6
million in the third quarter of Fiscal 2009, attributable to
stronger sales in the Company's European and Asian markets,
partially offset by lower sales attributable to the planned exit of
legacy automotive products, no sales to Delphi due to the
cancellation of a supply agreement by Delphi, and the continuing
instability of the global automotive market. Gross margins as a
percentage of sales increased to 8.0 percent in the Fiscal 2010
third quarter from 5.2 percent in the comparable period of Fiscal
2009. In the Fiscal 2010 third quarter, selling and administrative
expenses increased $2.5 million to $4.5 million from $2.0 million
in the same period of Fiscal 2009 primarily due to $2.4 million in
legal fees associated with the Delphi supply agreement and
intellectual property litigation.
In the Interconnect segment, net sales increased 1.8 percent to
$33.8 million in the Fiscal 2010 third quarter compared to the
Fiscal 2009 third quarter. Due primarily to the Company's
restructuring efforts in prior periods, cost of products sold
decreased 6.9 percent in the Fiscal 2010 third quarter compared to
the same period of Fiscal 2009, gross margins as a percentage of
sales improved to 28.1 percent in the third quarter of Fiscal 2010
from 21.4 percent in the same quarter of Fiscal 2009, and selling
and administrative expenses as a percent of sales decreased to 16.9
percent in the Fiscal 2010 third quarter compared to 20.5 percent
in the Fiscal 2009 third quarter.
In the Power Products segment, net sales in the third quarter of
Fiscal 2010 improved 4.3 percent over the same quarter of Fiscal
2009. Cost of products sold as a percent of sales decreased 12.5
percent, and gross margins increased 116.7 percent in the third
quarter of Fiscal 2010 over the third quarter of Fiscal 2009 due
mainly to the Company's restructuring efforts in prior periods.
Nine-Month Period Fiscal 2010
For the nine-month period ended January 30, 2010, net sales
decreased $59.2 million, or 17.6 percent, to $277.4 million from
$336.6 million for the nine-month period ended January 31, 2009.
Net loss decreased $17.5 million, or 87.9 percent, to $2.4 million,
or $0.07 per share, in the Fiscal 2010 nine-month period compared
to a loss of $19.9 million, or $0.54 per share, in the Fiscal 2009
nine-month period.
Net loss in the Fiscal 2010 nine months improved compared to the
Fiscal 2009 nine months due to no goodwill and intangible assets
write-off expenses in the Fiscal 2010 period compared with $32.7
million of write-offs in the 2009 period, and lower restructuring
charges, amortization expense and other expense in the Fiscal 2010
period, partially offset by lower sales and gross margins.
The Company recorded a restructuring charge during the
nine-month period of Fiscal 2010 of $7.3 million ($6.8 million
after-tax), or $0.18 per share, compared to $15.0 million ($9.8
million after-tax), or $0.27 per share, in the Fiscal 2009
nine-month period. Excluding restructuring charges in both periods,
a $1.7 million reversal of one-time pricing contingencies included
in net sales in the Fiscal 2010 second quarter and impairment of
goodwill and intangible assets charge in the Fiscal 2009 nine-month
period, Methode's net income was $3.2 million, or $0.09 per share,
in the first nine months of Fiscal 2010 compared to net income of
$12.5 million, or $0.34 per share, in the same period of Fiscal
2009.
Consolidated cost of products sold decreased $50.2 million, or
18.3 percent, to $223.6 million in the Fiscal 2010 nine-month
period, compared to $273.8 million in the same period of Fiscal
2009. The decrease is due to lower sales volumes and the benefit of
the Company's restructuring efforts to reduce costs. Cost of
products sold as a percentage of sales was 80.6 percent and 81.3
percent in the first nine months of Fiscal 2010 and 2009,
respectively.
Consolidated gross margins as a percentage of sales improved to
20.7 percent in the Fiscal 2010 nine-month period from 19.4 percent
in the comparable period of Fiscal 2009 despite the 17.6 percent
decline in sales, largely due to higher other income in the
nine-month period of Fiscal 2010 as well as restructuring and
consolidation efforts that were undertaken in prior periods to
reduce the Company's cost structure.
Selling and administrative expenses decreased $0.1 million, or
0.2 percent, to $49.4 million for the nine months ended January 30,
2010, from $49.5 million for the nine months ended January 31,
2009. The decrease is due to lower intangible assets amortization
expense and lower stock award amortization expense during the first
nine months of Fiscal 2010, partially offset by $4.3 million in
legal fees relating to the Delphi supply agreement and intellectual
property litigation. Selling and administrative expenses as a
percentage of net sales increased to 17.8 percent in the nine
months of Fiscal 2010 from 14.7 percent for the nine months of
Fiscal 2009.
Income taxes - expense/(benefit) increased by $15.1 million to
an expense of $2.8 million for the nine months of Fiscal 2010,
compared to a tax benefit of $12.3 million for the same period of
Fiscal 2009. The $2.8 million expense for the Fiscal 2010 period
includes taxes on foreign profits of $1.1 million, book to income
tax return adjustments of $2.8 million and other adjustments of
$1.6 million. In addition, a benefit of $2.7 million was recorded
due to the settlement of uncertain tax positions and related
interest from prior periods. For the first nine months of Fiscal
2010, the Company has a loss before income taxes. Normally, a tax
benefit is recorded relating to the net loss before income taxes,
but due to the uncertainty of the future utilization of the tax
benefit by the Company's U.S.-based businesses, a valuation
allowance was recorded offsetting the tax benefit. The effective
tax rates for the nine-month periods of Fiscal 2010 and 2009
reflect utilization of foreign investment tax credits and the
effect of lower tax rates on income of the Company's foreign
operations and a higher percentage of earnings at those foreign
operations.
In the nine-month period of Fiscal 2010, the Automotive segment
net sales, which decreased 22.8 percent to $151.6 million from
$196.5 million in the nine-month period of Fiscal 2009, were
negatively impacted by lower sales to Delphi due to the
cancellation of the supply agreement by Delphi, planned lower
legacy automotive products sales, and the softening of the global
economic environment, but were also favorably impacted by $1.7
million relating to a one-time reversal of pricing contingencies
which were accrued over several years and are no longer required.
Interconnect segment net sales decreased $12.3 million, or 12.2
percent, to $88.5 million for the nine months of Fiscal 2010 from
$100.8 million for the nine months of Fiscal 2009. Net sales were
favorably impacted by the Hetronic acquisition in September 2008,
but offset by sales declines in North America and Asia. Power
Products segment net sales decreased $2.6 million, or 8.0 percent,
to $30.1 million for the Fiscal 2010 nine-month period compared to
$32.7 million for the same period of Fiscal 2009 driven mainly by
lower demand for busbar, flexible cabling and heat sink
products.
Delphi Litigation
Delphi terminated its supply agreement with the Company
effective September 10, 2009. The Company is contesting Delphi's
right to terminate this long-term supply agreement, and the parties
are engaged in litigation regarding this supply agreement and the
Company's intellectual property. The Company ceased supplying
product to Delphi subsequent to September 10, 2009.
Management Comments
President and Chief Executive Officer Donald W. Duda said,
"Although the general economic climate continues to be extremely
challenging, we executed relatively well in the third quarter in
what are still difficult end markets. Year over year, third-quarter
Fiscal 2010 consolidated sales increased just over 10 percent, with
improvement in each of our segments. More importantly,
third-quarter gross margins also improved in each of our segments
year over year due primarily to the impact of the significant
restructuring activities we undertook.
"Additionally, the Interconnect and Power Products segments were
profitable in this third quarter, as compared to losses in the same
period last year. While the Automotive segment incurred a loss in
the current third quarter, our strategy to exit legacy automotive
sales improved the results for this segment over last year's third
quarter."
Mr. Duda continued, "On a sequential basis, comparing the Fiscal
2010 third quarter and the second quarter, we saw solid improvement
in sales and strong improvement in gross margins in the
Interconnect and Power Products segments. However, as anticipated,
third quarter Automotive segment sales declined from the second
quarter. This decrease was largely driven by lower sales to Delphi
of $6.6 million, $3.4 million in reduced sales to Ford Motor
Company as a result of the transfer of all production at Methode's
Reynosa, Mexico, facility to another Ford designated supplier, and
approximately $2.6 million primarily related to programs going end
of life as anticipated. Third-quarter gross margins in the
Automotive segment were likewise affected by the significantly
reduced volumes and associated overhead coverage, as well as
expenses associated with the sales and engineering efforts to book
and launch new programs to return Methode's North American
automotive business to profitability.
"The end markets related to some of our business units are
undergoing some recovery, which can be seen in the improved
sequential results in our Interconnect and Power Products segments
from the second to the third quarter of Fiscal 2010. However, while
I feel confident about our long-term ability to capitalize on our
plans, the near-term is less certain, and we remain guarded in our
business outlook."
Mr. Duda concluded, "During the nine months of Fiscal 2010,
we've seen the beginning of the rebuilding of each of our business
segments' sales streams, as well as improving margins due to our
extensive restructuring efforts. We believe the benefit of these
actions will build over time as we continue to win new business and
gain market share. With our strong cash position of over $57
million and positive operating cash flow of $15.9 million for the
first nine months of Fiscal 2010, we remain in a strong financial
position to execute our strategy."
Conference Call
Today, the Company will conduct a conference call and Webcast to
review financial and operational highlights led by its President
and Chief Executive Officer, Donald W. Duda, and Chief Financial
Officer, Douglas A. Koman, at 10:00 a.m. Central time.
To participate in the conference call, please dial (877)
407-9210 (domestic) or (201) 689-8049 (international) at least five
minutes prior to the start of the event. A simultaneous Webcast can
be accessed through the Company's Web site, www.methode.com, by
selecting the Investor Relations page, and then clicking on the
"Webcast" icon.
A replay of the conference call, as well as an MP3 download,
will be available shortly after the call through March 18 by
dialing (877) 660-6853 (domestic) or (201) 612-7415 (international)
and providing Account number: 286 and Conference ID number: 344842.
On the Internet, a replay will be available for 30 days through the
Company's Web site, www.methode.com, by selecting the Investor
Relations page and then clicking on the "Webcast" icon.
About Methode Electronics, Inc.
Methode Electronics, Inc. (NYSE: MEI) is a global developer of
custom engineered and application specific products and solutions
with manufacturing, design and testing facilities in the United
States, Malta, Mexico, the United Kingdom, Germany, the Czech
Republic, China, Singapore, the Philippines and India. We design,
manufacture and market devices employing electrical, electronic,
wireless, radio remote control, sensing and optical technologies to
control and convey signals through sensors, interconnections and
controls. Our business is managed on a segment basis, with those
segments being Automotive, Interconnect, Power Products and Other.
Our components are in the primary end markets of the automobile,
computer, information processing and networking equipment, voice
and data communication systems, consumer electronics, appliances,
aerospace vehicles and industrial equipment industries. Further
information can be found on Methode's Web site www.methode.com.
Forward-Looking Statements
This press release contains certain forward-looking statements,
which reflect management's expectations regarding future events and
operating performance and speak only as of the date hereof. These
forward-looking statements are subject to the safe harbor
protection provided under the securities laws. Methode undertakes
no duty to update any forward-looking statement to conform the
statement to actual results or changes in Methode's expectations on
a quarterly basis or otherwise. The forward-looking statements in
this press release involve a number of risks and uncertainties. The
factors that could cause actual results to differ materially from
our expectations are detailed in Methode's filings with the
Securities and Exchange Commission, such as our annual and
quarterly reports. Such factors may include, without limitation,
the following: (1) dependence on a small number of large customers;
(2) dependence on the automotive, appliance, computer and
communications industries and construction, industrial safety radio
remote control markets; (3) seasonal and cyclical nature of some of
our businesses; (4) ability to protect our intellectual property or
if we infringe, or are alleged to infringe, on another person's
intellectual property; (5) customary risks related to conducting
global operations; (6) ability to avoid design or manufacturing
defects; (7) ability to successfully benefit from acquisitions and
acquired technology; (8)ability to compete effectively in our
technology-based businesses and the markets in which we operate ;
(9) affect of acquisition or divestiture of various business
operations on our business, financial condition and operating
results; (10) ability to keep pace with rapid technological
changes; (11) dependence on the availability and price of raw
materials; (12) oil prices could affect our automotive customers
future results; (13) incurrence of additional restructuring
charges, goodwill and other asset impairments; and (14) incurrence
of additional goodwill and other asset impairments.
Methode Electronics, Inc.
Financial Highlights
(In thousands, except per share data, unaudited)
Three Months Ended
January 30, January 31,
2010 2009
------------ ------------
Net sales $ 89,127 $ 80,781
Other income 1,116 751
Cost of products sold 74,924 70,512
Restructuring 559 3,796
Impairment of goodwill and intangible assets - 32,678
Selling and administrative expenses 17,075 14,688
Loss from operations (2,315) (40,142)
Interest income/(expense), net (22) 212
Other income/(expense), net 264 (346)
Loss before income taxes (2,073) (40,276)
Income tax expense/(benefit) 2,249 (13,346)
Net loss (4,322) (26,930)
Less: Net income attributable to
noncontrolling interest (153) (55)
Net loss attributable to Methode Electronics,
Inc. (4,475) (26,985)
Basic and diluted loss per common share $ (0.12) $ (0.74)
Average Number of Common Shares Outstanding:
Basic and diluted 36,644 36,597
Nine Months Ended
January 30, January 31,
2010 2009
------------ ------------
Net sales $ 277,398 $ 336,599
Other income 3,575 2,443
Cost of products sold 223,617 273,757
Restructuring 7,327 14,997
Impairment of goodwill and intangible assets - 32,678
Selling and administrative expenses 49,358 49,624
Income/(loss) from operations 671 (32,014)
Interest income/(expense), net (169) 1,215
Other income/(expense), net 12 (1,225)
Income/(loss) before income taxes 514 (32,024)
Income tax expense/(benefit) 2,760 (12,314)
Net loss (2,246) (19,710)
Less: Net income attributable to
noncontrolling interest (195) (222)
Net loss attributable to Methode Electronics,
Inc. (2,441) (19,932)
Basic and diluted loss per common share $ (0.07) $ (0.54)
Average Number of Common Shares Outstanding:
Basic and diluted 36,642 36,964
Methode Electronics, Inc.
Financial Highlights
Summary Balance Sheets
(In thousands)
January 30, May 2,
2010 2009
------------- -------------
(unaudited)
Cash $ 57,245 $ 54,030
Accounts receivable - net 67,595 60,406
Inventories 30,479 37,244
Other current assets 17,276 26,384
------------- -------------
Total Current Assets 172,595 178,064
Property, plant and equipment - net 64,990 69,917
Goodwill 11,771 11,771
Intangible assets - net 19,276 20,501
Other assets 29,616 25,035
------------- -------------
Total Assets $ 298,248 $ 305,288
============= =============
Accounts payable $ 27,989 $ 24,495
Other current liabilities 28,128 29,023
------------- -------------
Total Current Liabilities 56,117 53,518
Other liabilities 12,823 16,869
------------- -------------
Total Methode Electronics, Inc. shareholders'
equity 225,840 231,776
Noncontrolling interest 3,468 3,125
------------- -------------
Total shareholders' equity 229,308 234,901
------------- -------------
Total Liabilities and Shareholders' Equity $ 298,248 $ 305,288
============= =============
Methode Electronics, Inc.
Financial Highlights
Summary Statements of Cash Flows
(In thousands)
Nine Months Ended
January 30, January 31,
2010 2009
------------ ------------
Operating Activities:
Net loss $ (2,246) $ (19,710)
Non-cash translation loss - 2,463
Provision for depreciation 13,691 19,937
Impairment of tangible assets 710 3,177
Impairment of goodwill and intangible assets - 32,678
Amortization of intangible assets 1,689 5,408
Amortization of stock awards and stock
options 724 696
Changes in operating assets and liabilities 1,319 (6,844)
Other - 576
------------ ------------
Net Cash Provided by Operating Activities 15,887 38,381
Investing Activities:
Purchases of property, plant and equipment (7,816) (12,242)
Acquisitions of businesses - (57,457)
Acquisitions of businesses and technology (440) (903)
Proceeds from life insurance policies 2,407 -
Other - (425)
------------ ------------
Net Cash Used in Investing Activities (5,849) (71,027)
Financing Activities:
Repurchase of common stock - (5,137)
Proceeds from exercise of stock options - 110
Tax benefit from stock options and awards - 46
Dividends (7,823) (7,154)
------------ ------------
Net Cash Used in Financing Activities (7,823) (12,135)
Effect of foreign exchange rate changes on cash 1,000 (5,097)
------------ ------------
Increase/(Decrease) in Cash and Cash
Equivalents 3,215 (49,878)
Cash and Cash Equivalents at Beginning of
Period 54,030 104,305
------------ ------------
Cash and Cash Equivalents at End of Period $ 57,245 $ 54,427
============ ============
For Methode Electronics Inc. - Investor Contacts: Philip Kranz
Dresner Corporate Services 312-780-7240 pkranz@dresnerco.com
Kristine Walczak Dresner Corporate Services 312-780-7205
kwalczak@dresnerco.com
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