Table of
Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended May 1, 2010
Commission
File Number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of Registrant as specified in its
charter)
Delaware
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36-2090085
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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7401 West Wilson Avenue
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Chicago, Illinois
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60706-4548
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants
telephone number (including area code):
(708) 867-6777
Securities registered pursuant
to Section 12(b) of the Act:
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Name of each exchange
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Title of each Class
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on which registered
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Common Stock, $0.50 Par Value
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New York Stock Exchange
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Securities registered pursuant
to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o
No
x
Indicate by check mark if the Registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
x
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 if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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 a smaller
reporting company. See definitions of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting
company
o
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Indicate by check mark whether the registrant is
a shell company (as defined in Rule 12b-2 of the
Act).
Yes
o
No
x
The aggregate market value of common stock, $0.50 par
value, held by non-affiliates of the Registrant on October 31, 2009, based
upon the average of the closing bid and asked prices on that date as reported
by the New York Stock Exchange was $240.1 million.
Registrant had 38,146,646 shares of common stock, $0.50
par value, outstanding as of July 1, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the proxy
statement for the annual shareholders meeting to be held September 16,
2010 are incorporated by reference into Part III.
Table of Contents
PART I
Item 1. Business
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 mean Methode Electronics, Inc. and its subsidiaries.
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 components are found in the primary end
markets of the aerospace, appliance, automotive, construction, consumer and
industrial equipment markets, communications (including information processing
and storage, networking equipment, wireless and terrestrial voice/data
systems), rail and other transportation industries.
Since January 2008, weve undertaken two separate
restructuring initiatives to reposition our company to be more competitive in
the marketplace. Both restructuring
initiatives were completed during fiscal 2010.
We have recorded a total of $25.7 million of costs related to the January 2008
restructuring, of which $2.5 million was recorded in fiscal 2010. We have also recorded a total of $12.5
million of costs related to the March 2009 restructuring, of which $5.3
million was recorded in fiscal 2010.
We maintain our financial records on the basis of
a fifty-two or fifty-three week fiscal year ending on the Saturday closest to April 30. Due to the timing of our fiscal calendar, the
fiscal years ended May 1, 2010 and May 2, 2009 represent 52 weeks of
results and the fiscal year ended May 3, 2008 represents 53 weeks of
results.
Segments.
Our
business is managed and our financial results are reported on a segment basis,
with those segments being Automotive, Interconnect, Power Products and
Other.
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.
The Interconnect segment provides a variety of copper
and fiber-optic interconnect and interface solutions for the aerospace,
appliance, commercial, computer, construction, consumer, material handling,
medical, military, mining, networking, storage, and telecommunications
markets. Solutions include connectors,
conductive polymer, thick film inks, custom cable assemblies, industrial safety
radio remote controls, solid-state field effect interface panels, optical and
copper transceivers, PC and express card packaging and terminators. Services include the design and installation
of fiber optic and copper infrastructure systems, and manufacturing active and
passive optical components.
The Power Products segment manufactures braided flexible
cables, current-carrying laminated bus devices, custom power-product
assemblies, high-current low voltage flexible power cabling systems and powder
coated bus bars that are used in various markets and applications, including
aerospace, computers, industrial and power conversion, insulated gate bipolar
transistor solutions, military, telecommunications, and transportation.
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.
Financial results by segment are summarized in Note 14
to the consolidated financial statements.
1
Table of Contents
Sales.
The following table reflects the
percentage of net sales of the segments of the Company for the last three
fiscal years.
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Year Ended
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May 1,
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May 2,
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May 3,
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2010
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2009
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2008
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Automotive
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53.4
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%
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57.2
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%
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65.7
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%
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Interconnect
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33.3
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%
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30.8
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%
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24.7
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%
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Power Products
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10.8
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%
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10.0
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%
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8.3
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%
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Other
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2.5
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%
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1.9
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%
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1.3
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%
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Our sales activities are directed by sales managers who
are supported by field application engineers and other engineering personnel
who work with customers to design our products into their systems. Our field application engineers also help us
identify emerging markets and new products.
Our products are sold through in-house sales staff and through
independent manufacturers representatives with offices throughout the
world. Information about our sales and
operations in different geographic regions is summarized in Note 14 to the
consolidated financial statements. Sales
are made primarily to OEMs, either directly or through their tiered suppliers
as well as selling partners and distributors.
Sources and Availability of
Materials
. Principal materials that we purchase include
coil and bar stock, die castings, ferrous and copper alloy sheet, glass,
plastic molding materials, precious metals, application-specific integrated
circuits, light-emitting diode (LED) displays and silicon. All of these items are available from several
suppliers and we generally rely on more than one supplier for each item. We have not experienced any significant
shortages of raw materials and normally do not carry inventories of raw materials
or finished products in excess of those reasonably required to meet production
and shipping schedules. We did not
experience significant price increases in fiscal 2010 and 2009 for copper,
precious metals and petroleum-based raw materials. We did, however, experience significant price
increases in fiscal 2008 related to those items.
Patents; Licensing Agreements
. We have numerous United States and foreign
patents and license agreements covering certain of our products and
manufacturing processes, several of which are considered significant to our
business. Our ability to compete
effectively with other companies depends, in part, on our ability to maintain
the proprietary nature of our technology. Although we have been awarded, have
filed applications for, or have been licensed under numerous patents in the
United States and other countries, there can be no assurance concerning the
degree of protection afforded by these patents or the likelihood that pending
patents will be issued.
Seasonality
. A significant portion of our
business is dependent on automotive sales and the vehicle production schedules
of our customers. The automotive market
is cyclical and depends on general economic conditions, interest rates, fuel
prices and consumer spending patterns. Historically, our business was moderately
seasonal as our North American automotive customers halt operations for
approximately two weeks in July for model changeovers and for one to two
weeks during the December holiday period.
During the second half of fiscal 2009 and the first quarter of fiscal
2010, we experienced additional customer plant shutdowns due to lower demand
for their products. If we continue to
experience shutdowns in addition to July and December, future quarterly
results may be affected.
Material Customers
. During the fiscal year ended May 1,
2010, shipments to Ford Motor Company (Ford) and General Motors Corporation (GM),
or their tiered suppliers, each represented approximately 10% or greater of
consolidated net sales and, in the aggregate, amounted to approximately 32.1%
of consolidated net sales. Such
shipments included a wide variety of our automotive component products.
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Backlog
. Our backlog of orders was approximately $59.3 million at May 1,
2010, and $66.7 million at May 2, 2009.
It is expected that most of the total backlog at May 1, 2010 will
be shipped within fiscal 2011.
Competitive Conditions
. The markets in which we operate
are highly competitive and characterized by rapid changes due to technological
improvements and developments. We
compete with a large number of other manufacturers in each of our product
areas; many of these competitors have greater resources and sales. Price, service and product performance are
significant elements of competition in the sale of our products.
Research and Development
. We maintain a research and
development program involving a number of professional employees who devote a
majority of their time to the development of new products and processes and the
advancement of existing products. Senior
management of our Company participates directly in the program. Expenditures for such activities amounted to
$18.4 million, $22.0 million and $25.6 million for fiscal 2010, 2009 and 2008,
respectively.
Environmental Matters
. Compliance with foreign,
federal, state and local provisions regulating the discharge of materials into
the environment has not materially affected our capital expenditures, earnings
or our competitive position. Currently,
we do not have any environmental related lawsuits or material administrative
proceedings pending against us. Further
information as to environmental matters affecting us is presented in Note 9 to
the consolidated financial statements.
Employees.
At May 1, 2010 and May 2,
2009, we had 2,315 and 2,876 employees, respectively. We also from time to time employ part-time
employees and hire independent contractors.
As of May 1, 2010 our employees from our Malta and Mexico
facilities, which account for about 50% of the total number of employees, are
represented by a collective bargaining agreement. We have never experienced a work stoppage and
we believe that our employee relations are good.
Segment Information and Foreign
Sales
.
Information about our operations by segment and in different geographic
regions is summarized in Note 14 to the consolidated financial statements.
Available Information
. We are subject to
the informational requirements of the Securities Exchange Act of 1934 (Exchange
Act) and file periodic reports, proxy statements and other information with the
Securities and Exchange Commission (SEC). Such reports may be obtained by
visiting the Public Reference Room of the SEC at 100 F Street, NE,
Washington, D.C. 20549, or by calling the SEC at (800) SEC-0330. In addition,
the SEC maintains an internet site (www.sec.gov) that contains reports, proxy
and information statements and other information.
Financial and other information can
also be accessed on the investor section of our website at www.methode.com. We
make available, free of charge, copies of our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after filing
such material electronically or otherwise furnishing it to the SEC. Also posted on our website are the Companys
Corporate Governance Guidelines, Code of Conduct and the charters of the Audit
Committee, Compensation Committee, Nominating and Governance Committee and
Technology Committee. Copies of these documents are also available free of
charge by sending a request to Methode Electronics, Inc., 7401 West Wilson
Avenue, Chicago, Illinois 60706, Attention: Investor Relations
Department. Information on our website
is not incorporated into this Form 10-K or our other securities filings
and is not a part of them.
Certifications.
As required by the rules and
regulations of the New York Stock Exchange (NYSE), we delivered to the NYSE a
certification signed by our Chief Executive Officer, Donald W. Duda, certifying
that Mr. Duda was not aware of any violation by the Company of the NYSEs
corporate governance listing standards as of October 20, 2009.
As required by the rules and
regulations of the SEC, the Sarbanes-Oxley Act Section 302 certifications
regarding the quality of our public disclosures are filed as exhibits to this
Annual Report on Form 10-K.
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Table of Contents
Item 1A. Risk Factors
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 business is highly
dependent upon two large automotive customers and specific makes and models of
automobiles. 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, 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 and are made as of the date of this report. We undertake no duty to update any such
forward-looking statements.
We depend on a small number of large customers, specifically two large
automotive customers. If we were to lose
any of these customers or any of these customers volume of products purchased,
or if any of the customers declare bankruptcy, our future results could be
adversely affected.
During
the year ended May 1, 2010, shipments to Ford and GM, or their tiered
suppliers, each represented 10% or greater of consolidated net sales and, in
the aggregate, amounted to approximately 32.1% of consolidated net sales. The contracts we have entered into with many
of our customers provide for supplying the customers requirements for a
particular model, rather than for manufacturing a specific quantity of
products. Such contracts range from one year to the life of the model, which is
generally three to seven years. Therefore, the loss of a contract for a major
model or a significant decrease in demand for certain key models or group of
related models sold by Ford or GM could have a material adverse impact on our
results of operations and financial condition. We also compete to supply
products for successor models and are subject to the risk that Ford or GM will
not select us to produce products on any such model, which could have a
material adverse impact on our results of operations and financial condition.
In
addition, we have significant receivable balances related to these customers
and other major customers that would be at risk in the event of their
bankruptcy. Due to the financial
stresses within the worldwide automotive industry, certain automakers and
suppliers have already declared bankruptcy or may be susceptible to bankruptcy.
Because we derive a substantial portion of our revenues from customers
in the automotive, appliance, computer and communications industries, we are
susceptible to trends and factors affecting those industries.
Our components are found in the primary end markets of
the automotive, communications (including information processing and storage,
networking equipment, wireless and terrestrial voice/data systems), aerospace,
rail and other transportation industries, appliances and the consumer and
industrial equipment markets. Factors
negatively affecting these industries and the demand for products also
negatively affect our business, financial condition and operating results. In
fiscal 2010 and 2009, we experienced slow-downs in all significant segments due
to the recession. Any adverse
occurrence, including additional industry slowdown, recession, rising interest
rates, political instability, costly or constraining regulations, armed
hostilities, terrorism, excessive inflation, prolonged disruptions in one or
more of our customers production schedules or labor disturbances, that results
in significant decline in the volume of sales in these industries, or in an
overall downturn in the business and operations of our customers in these
industries, could materially adversely affect our business, financial condition
and operating results.
Our business is cyclical and seasonal in nature and further downturns
in the automotive industry could reduce the sales and profitability of our
business.
A large portion of our business is dependent on
automotive sales and the vehicle production schedules of our customers. The automotive market is cyclical and depends
on general economic conditions, interest rates and consumer spending
patterns. Any significant reduction in
vehicle production by our customers would have a material adverse effect on our
business. Traditionally, in prior fiscal
years, our business was moderately seasonal as our North American automotive
customers historically halt operations for approximately two weeks in July for
model changeovers and one to two weeks during the December holiday
period. During the second half of
fiscal 2009 and the first quarter of fiscal 2010, we experienced additional
customer plant shutdowns due to lower demand
4
Table of Contents
for their products.
If we continue to experience shutdowns in addition to July and
December, future quarterly results may be affected.
Our technology-based business and the markets in which we operate are
highly competitive. If we are unable to
compete effectively, our sales will decline.
The markets in which we operate are highly competitive
and characterized by rapid changes due to technological improvements and
developments. We compete with a large
number of other manufacturers in each of our product areas; many of these
competitors have greater resources and sales.
Price, service and product performance are significant elements of
competition in the sale of our products.
Competition may intensify further if more companies enter the markets in
which we operate. Our failure to compete effectively could materially adversely
affect our business, financial condition and operating results.
We face risks relating to our international operations.
Because we have significant international operations,
our operating results and financial condition could be adversely affected by
economic, political, health, regulatory and other factors existing in foreign
countries in which we operate. Our international operations are subject to
inherent risks, which may adversely affect us, including: fluctuations in
exchange rates; political and economic instability; expropriation, or the
imposition of government controls; changes in government regulations; export
license requirements; trade restrictions; earnings expatriation restrictions;
exposure to different legal standards; less favorable intellectual property
laws; health conditions and standards; currency controls; increases in duties
and taxes; high levels of inflation or deflation; greater difficulty in
collecting our accounts receivable and longer payment cycles; changes in labor
conditions and difficulties in staffing and managing our international
operations; limitations on insurance coverage against geopolitical risks,
natural disasters and business operations; and
communication among and management of international operations. In
addition, these same factors may also place us at a competitive disadvantage to
some of our foreign competitors.
We may be unable to keep pace with rapid technological changes, which
would adversely affect our business.
The technologies relating to some of our products have
undergone, and are continuing to undergo, rapid and significant changes.
Specifically, end markets for electronic components and assemblies are
characterized by technological change, frequent new product introductions and
enhancements, changes in customer requirements and emerging industry
standards. These changes could render
our existing products unmarketable before we can recover any or all of our
research, development and other expenses. Furthermore, the life cycles of our
products vary, may change and are difficult to estimate. If we are unable, for
technological or other reasons, to develop and market new products or product
enhancements in a timely and cost-effective manner, our business, financial
condition and operating results could be materially adversely affected.
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.
Despite our quality control and quality assurance
efforts, defects may occur in the products we manufacture due to design or
manufacturing errors or component failure. Product defects may result in
delayed shipments and reduced demand for our products. We may be subject to
increased costs due to warranty claims on defective products. Product defects
may result in product liability claims against us where defects cause, or are
alleged to cause, property damage, bodily injury or death. We may be required
to participate in a recall involving products that are, or are alleged to be,
defective. We carry insurance for certain legal matters involving product
liability, however, we do not have coverage for all costs related to product
defects and the costs of such claims, including costs of defense and
settlement, may exceed our available coverage.
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
have numerous United States and foreign patents and license agreements covering
certain of our products and manufacturing processes, several of which are
considered material to our business. Our
ability to
5
Table of Contents
compete
effectively with other companies depends, in part, on our ability to maintain
the proprietary nature of our technology. Although we have been awarded, have
filed applications for, or have been licensed under numerous patents in the
United States and other countries, there can be no assurance concerning the
degree of protection afforded by these patents or the likelihood that pending
patents will be issued. The loss of any
significant patents and trade secrets could adversely affect our sales,
margins, profitability and, as a result, share price.
We may become involved in litigation in the future to
protect our intellectual property or because others may allege that we infringe
on their intellectual property. These claims and any resulting lawsuit could
subject us to liability for damages and invalidate our intellectual property
rights. If an infringement claim is successfully asserted by a holder of
intellectual property rights, we may be required to cease marketing or selling
certain products, pay a penalty for past infringement and spend significant
time and money to develop a non-infringing product or process or to obtain
licenses for the technology, process or information from the holder. We may not
be successful in the development of a non-infringing alternative, or licenses
may not be available on commercially acceptable terms, if at all, in which case
we may lose sales and profits. In addition, any litigation could be lengthy and
costly and could materially adversely affect us even if we are successful in
the litigation.
We are
dependent on the availability and price of materials.
We require substantial amounts of materials, including
petroleum-based products, glass, copper and precious metals, application-specific
integrated circuits, light-emitting diode (LED) displays, and all materials we
require are purchased from outside sources. The availability and prices of
materials may be subject to curtailment or change due to, among other things,
new laws or regulations, suppliers allocations to other purchasers,
interruptions in production by suppliers, changes in exchange rates and
worldwide price levels. Any change in the supply of, or price for, these
materials could materially affect our results of operations and financial
condition. We did not experience
significant price increases in fiscal 2010 and 2009 for copper, precious metals
and petroleum-based materials. We did,
however, experience significant price increases in fiscal 2008 related to those
items.
We may acquire businesses or divest business operations. These
transactions may pose significant risks and may materially adversely affect our
business, financial condition and operating results.
We intend to explore opportunities to acquire other
businesses or technologies that could complement, enhance or expand our current
business or product lines or that might otherwise offer growth opportunities.
Any transactions that we are able to identify and complete may involve a number
of risks, including: the diversion of our managements attention from our
existing business to integrate the operations and personnel of the acquired or
combined business or joint venture; possible adverse effects on our operating
results during the integration process; and our possible inability to achieve
the intended objectives of the transaction. In addition, we may not be able to
successfully or profitably integrate, operate, maintain and manage our newly
acquired operations or employees. We may not be able to maintain uniform
standards, controls, procedures and policies, and this may lead to operational
inefficiencies. In addition, future acquisitions may result in dilutive
issuances of equity securities, a reduction of cash or the incurrence of debt.
We have in the past, and may in the future, consider
divesting certain business operations. Divestitures may involve a number of
risks, including the diversion of managements attention, significant costs and
expenses, the loss of customer relationships and cash flow, and the disruption
of operations in the affected business. Failure to timely complete a
divestiture or to consummate a divestiture may negatively affect valuation of
the affected business or result in restructuring charges.
A significant fluctuation between the U.S. dollar and other currencies
could adversely impact our operating results.
Although our financial results are reported in U.S.
dollars, a significant portion of our sales and operating costs are realized in
other currencies, mainly in Europe and China.
Our profitability is affected by movements of the U.S. dollar against
the euro and Chinese yuan in which we generate revenue and incur expenses. Significant long-term fluctuations in
relative currency values, in particular an increase in the value of the U.S.
dollar against foreign currencies, could have an adverse effect on our
profitability and financial condition.
6
Table of Contents
Unfavorable tax law changes may adversely affect results.
We are subject to income taxes in the U.S. and in
various foreign jurisdictions. Domestic
and international tax liabilities are subject to the allocation of income among
various tax jurisdictions. Our effective
tax rate could be adversely affected by changes in the mix of earnings among
countries with differing statutory tax rates or changes in the tax laws.
The future
trading price of our common stock could be subject to wide fluctuations in
response to a variety of factors.
The market price of our common stock has fluctuated
significantly in the past and is likely to fluctuate in the
future. The future trading price of our common stock could be
subject to wide fluctuations in response to a variety of factors, many of which
are beyond our control, including, but not limited to:
·
quarterly variations in our operating results and the operating results
of other technology companies;
·
actual or anticipated announcements of technical innovations or new
products by us or our competitors;
·
changes in analysts estimates of our financial performance or buy/sell
recommendations;
·
any acquisitions we pursue or complete;
·
general conditions in the aerospace, appliance, automotive, consumer and
industrial equipment markets, communications, rail and other transportation
industries; and
·
global economic and financial conditions.
In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have affected the
market prices for many companies and that often have been unrelated to the
operating performance of such companies. These broad market
fluctuations and other factors have harmed and may harm the market price of our
common stock.
We are
subject to the risks of owning real property.
A majority of our real properties in the U.S. are owned
by us. Ownership of property is subject
to the risks of owning real property, which may include:
·
the possibility of environmental contamination and the costs associated
with correcting any environmental problems;
·
adverse changes in the value of these properties, due to interest rate
changes, changes in the neighborhood in which the property is located, or other
factors;
·
increased cash commitments for improving the current buildings;
·
the risk of financial loss in excess of amounts covered by insurance, or
uninsured risks, such as the loss caused by damage to the buildings as a result
of fire, floods, or other natural disasters;
·
rising real estate taxes; and
·
the potential difficulty of selling the real property, if we chose to do
so, due to the stagnant real estate market.
7
Table of Contents
Item 2. Properties
We
operate the following manufacturing and other facilities, all of which we
believe to be in good condition and adequate to meet our current and reasonably
anticipated needs:
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|
|
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Owned/
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|
Approximate
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|
Location
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|
Use
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|
Leased
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|
Square Footage
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|
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Chicago, Illinois
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Corporate Headquarters
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Owned
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15,000
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|
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Automotive
Segment:
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|
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Carthage, Illinois
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|
Manufacturing
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|
Owned
|
|
261,000
|
|
Mriehel, Malta
|
|
Manufacturing
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|
Leased
|
|
209,000
|
|
Shanghai, China
|
|
Manufacturing
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|
Leased
|
|
75,500
|
|
McAllen, Texas
|
|
Warehousing
|
|
Leased
|
|
38,000
|
|
Monterrey, Mexico
|
|
Manufacturing
|
|
Leased
|
|
36,000
|
|
Southfield, Michigan
|
|
Sales and Engineering Design Center
|
|
Owned
|
|
17,000
|
|
Gau-Algesheim, Germany
|
|
Sales and Engineering Design Center
|
|
Leased
|
|
6,800
|
|
Burnley, England
|
|
Engineering Design Center
|
|
Leased
|
|
5,900
|
|
Bangalore, India
|
|
Engineering Design Center
|
|
Leased
|
|
4,000
|
|
Sin El Fil, Lebanon
|
|
Engineering Design Center
|
|
Leased
|
|
2,300
|
|
|
|
|
|
|
|
|
|
Interconnect
Segment:
|
|
|
|
|
|
|
|
Shanghai, China
|
|
Manufacturing
|
|
Leased
|
|
49,000
|
|
Richardson, Texas
|
|
Manufacturing
|
|
Leased
|
|
45,000
|
|
Chicago, Illinois
|
|
Manufacturing
|
|
Owned
|
|
38,400
|
|
Jihlava, Czech Republic
|
|
Manufacturing
|
|
Owned
|
|
36,000
|
|
Mosta, Malta
|
|
Manufacturing
|
|
Leased
|
|
32,500
|
|
Laguna, Philippines
|
|
Manufacturing
|
|
Leased
|
|
22,800
|
|
Wheaton, Illinois
|
|
Manufacturing
|
|
Leased
|
|
22,500
|
|
Oklahoma City, Oklahoma
|
|
Manufacturing/Design Center
|
|
Leased
|
|
19,800
|
|
San Jose, California
|
|
Sales and Design
|
|
Leased
|
|
7,250
|
|
Warsaw, Poland
|
|
Sales and Distribution
|
|
Leased
|
|
5,700
|
|
Limerick, Ireland
|
|
Sales and Distribution
|
|
Leased
|
|
4,700
|
|
Singapore
|
|
Sales and Administrative
|
|
Leased
|
|
3,000
|
|
Kiev, Ukraine
|
|
Sales and Distribution
|
|
Leased
|
|
900
|
|
Ljubljana, Slovenia
|
|
Sales and Distribution
|
|
Leased
|
|
400
|
|
|
|
|
|
|
|
|
|
Power
Products Segment:
|
|
|
|
|
|
|
|
Shaghai, China
|
|
Manufacturing
|
|
Leased
|
|
60,000
|
|
Rolling
Meadows, Illinois
|
|
Manufacturing
|
|
Owned
|
|
52,000
|
|
San Jose, California
|
|
Prototype and Design Center
|
|
Leased
|
|
7,250
|
|
|
|
|
|
|
|
|
|
Other
Segment:
|
|
|
|
|
|
|
|
Palatine, Illinois
|
|
Test Laboratory
|
|
Owned
|
|
27,000
|
|
Hunt Valley, Maryland
|
|
Test Laboratory
|
|
Owned
|
|
16,000
|
|
Chicago, Illinois
|
|
Manufacturing
|
|
Owned
|
|
10,000
|
|
8
Table of Contents
Item 3. Legal
Proceedings
As of July 1, 2010, we were not involved in any
material legal proceedings or any legal proceedings or material administrative
proceedings with governmental authorities pertaining to the discharge of
materials into the environment or otherwise.
In March 2010, DPH Holdings Corp. and certain of
its affiliated debtors, as successors to Delphi Corporation and certain of its
affiliates (Delphi), served the Company with a complaint seeking to
avoid and recover approximately $19.7 million in alleged preference
payments that Delphi made to the Company within the 90-day period
preceding Delphis bankruptcy filing in October 2005 (the Complaint).
Delphi is pursuing similar preference complaints against approximately 175
other, unrelated third-parties. The Complaint, dated September 28,
2007, was originally filed under seal with the United States Bankruptcy Court
for the Southern District of New York (titled as Delphi Corporation, et
al. v. Methode Electronics, Inc, Adversary Proceeding No. 07-2432) and
pursuant to certain court orders, the Complaint was not unsealed and served
upon the Company until March 2010. The Company has
filed a joinder to third-parties motions to dismiss the Delphi preference
complaints based on violations of due process and other defenses connected to
the unusual manner that Delphi filed and served the preference
complaints. Additionally, the Company possesses several other
substantive defenses to the Complaint including, but not limited
to, the affirmative defenses available under the Bankruptcy
Code, statute of limitations, setoff, waiver and
estoppel. Although the ultimate liabilities resulting from
this proceeding could be significant to the Companys results of operations in
the period recognized, management does not anticipate that they will have
a material adverse effect on the Companys consolidated financial position.
Executive Officers of the Registrant
Name
|
|
Age
|
|
Offices and Positions Held and
Length of Service as Officer
|
Donald W. Duda
|
|
54
|
|
Chief Executive Officer of the Company since 2004.
President and Director of the Company since 2001. Prior thereto Mr. Duda
was Vice President-Interconnect Group since March 2000. Prior thereto
Mr. Duda was with Amphenol Corporation through November 1998 as
General Manager of its Fiber Optic Products Division since 1988.
|
|
|
|
|
|
Douglas A. Koman
|
|
60
|
|
Chief Financial Officer of the Company since 2004.
Vice President, Corporate Finance, of the Company since 2001. Prior thereto
Mr. Koman was Assistant Vice President-Financial Analysis since
December 2000. Prior thereto Mr. Koman was with Illinois Central
Corporation through March 2000 as Controller since November 1997
and Treasurer since July 1991.
|
|
|
|
|
|
Thomas D. Reynolds
|
|
47
|
|
Chief Operating Officer, of the Company since
June 24, 2010. Senior Vice President, Worldwide Automotive Operations,
of the Company since 2006. Vice President and General Manager, North American
Automotive Operations, of the Company since October 2001. Prior thereto
Mr. Reynolds was with Donnelly Corporation through October 2001 as
Senior Manager of Operations since 1999, and as Director of Transnational
Business Unit from 1995 to 1999.
|
|
|
|
|
|
Timothy R. Glandon
|
|
46
|
|
Vice President and General Manager, North American
Automotive, of the Company since 2006. Prior thereto Mr. Glandon was
General Manager of Automotive Safety Technologies since 2001. Prior thereto
Mr. Glandon was Vice President and General Manager with American
Components, Inc. from 1996 to 2001.
|
9
Table of Contents
Joseph. E. Khoury
|
|
46
|
|
Vice President and General Manager, European
Automotive, of the Company since 2004. Prior thereto Mr. Khoury was
General Manager of Methode Electronics International, GMBH since 2000.
|
|
|
|
|
|
Theodore D. Kill
|
|
59
|
|
Vice President, Worldwide Automotive Sales, of the
Company since August 2006. Prior thereto Mr. Kill was a principal
with Kill and Associates from 2003 to 2006. Prior thereto Mr. Kill was a
principal with Kill and Bolton Associates from 1995 to 2003.
|
|
|
|
|
|
Ronald L.G. Tsoumas
|
|
49
|
|
Controller and Treasurer of the Company since 2007.
Prior thereto Mr. Tsoumas was Assistant Controller of the Company since
July 1998.
|
All executive officers are elected by the Board of
Directors and serve a term of one year or until their successors are duly
elected and qualified.
PART II
Item
5. Market for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following is a tabulation of high and low sales
prices for the periods indicated as reported by the New York Stock Exchange.
|
|
|
|
|
|
Dividends
|
|
|
|
Sales Price Per Share
|
|
Paid
|
|
|
|
High
|
|
Low
|
|
Per Share
|
|
Fiscal Year ended
May 1, 2010
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.18
|
|
$
|
5.28
|
|
$
|
0.07
|
|
Second Quarter
|
|
9.75
|
|
6.92
|
|
0.07
|
|
Third Quarter
|
|
12.75
|
|
6.99
|
|
0.07
|
|
Fourth Quarter
|
|
14.32
|
|
9.70
|
|
0.07
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended
May 2, 2009
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
12.51
|
|
$
|
9.50
|
|
$
|
0.05
|
|
Second Quarter
|
|
13.65
|
|
6.11
|
|
0.07
|
|
Third Quarter
|
|
9.66
|
|
4.45
|
|
0.07
|
|
Fourth Quarter
|
|
6.43
|
|
2.59
|
|
0.07
|
|
On June 24, 2010, the Board declared a dividend of
$0.07 per share of common stock, payable on July 30, 2010, to holders of
record on July 16, 2010.
As of June 30, 2010, the number of record holders
of our common stock was 636.
10
Table of Contents
Equity Compensation Plan Information
The
following table provides information about shares of our common stock that may
be issued upon exercise of stock options or granting of stock awards under all
of the existing equity compensation plans as of May 1, 2010.
Plan category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column)
|
|
Equity compensation plans
approved by security holders
|
|
1,125,276
|
|
$
|
7.28
|
|
473,181
|
|
|
|
|
|
|
|
|
|
Equity compensation plans
not approved by security holders
|
|
|
|
|
|
|
|
Total
|
|
1,125,276
|
|
$
|
7.28
|
|
473,181
|
|
Recent Sales of Unregistered Securities
In March 2010, we sold 30,000 shares of our common
stock (the Methode shares) in exchange for the shares of Hetronic Asia
Manufacturing & Trading Corporation (the Hetronic shares) held by
each investor. Methode also paid certain
cash consideration for the Hetronic shares.
The Methode shares vest for each investor one-third per year over a
period of three years ending on April 28, 2012, subject to certain events
of forfeiture.
11
Table of Contents
Purchase of Equity Securities by the
Company and Affiliated Purchasers
|
|
|
|
|
|
Total Number of
|
|
Maximum Number of
|
|
|
|
Total
|
|
|
|
Shares Purchased as
|
|
Shares that
|
|
|
|
Number of
|
|
Average
|
|
Part of Publicly
|
|
May Yet Be Purchased
|
|
|
|
Shares
|
|
Price Paid
|
|
Announced Plans
|
|
Under the Plans or
|
|
Period
|
|
Purchased (1)
|
|
Per Share
|
|
or Programs (2)
|
|
Programs (2)
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010
through February 27, 2010
|
|
218
|
|
$
|
10.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2010
through April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4, 2010 through
May 1, 2010
|
|
10,487
|
|
$
|
11.10
|
|
|
|
|
|
|
|
10,705
|
|
$
|
11.10
|
|
|
|
|
|
(1) The amount includes the repurchase and
cancellation of shares of common stock redeemed by the Company for the payment
of minimum withholding taxes on the value of restricted stock awards vesting
during the period.
(2) On September 18, 2008, the Board of
Directors adopted a plan to repurchase up to 3 million shares of its
common stock. There were 669,480 shares purchased under the
plan, however, no shares were purchased in fiscal 2010. The plan expired on May 1, 2010.
12
Table of Contents
Item 6. Selected Financial Data
The following selected financial data should be
read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Companys Consolidated Financial
Statements and related notes included elsewhere in this report. The consolidated statement of operations data
for fiscal 2010, 2009 and 2008, and the consolidated balance sheet data as of
May 1, 2010 and May 2, 2009, are derived from, and are qualified by
reference to, the Companys audited consolidated financial statements included
elsewhere in this report. The
consolidated statement of operations data for fiscal 2007 and 2006, and the
consolidated balance sheet data as of May 3, 2008, April 28, 2007 and
April 29, 2006, are derived from audited consolidated financial statements
not included in this report. Due to the
timing of our fiscal calendar, fiscal 2008 represents 53 weeks of results. Fiscal 2010, 2009, 2007 and 2006 represent 52
weeks of results.
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
April 28,
|
|
April 29,
|
|
|
|
2010
|
|
2009
|
|
2008 (53 wks)
|
|
2007
|
|
2006
|
|
|
|
(In Millions, Except Percentages and Per Share
Amounts)
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
373.1
|
|
$
|
425.6
|
|
$
|
551.1
|
|
$
|
448.4
|
|
$
|
421.6
|
|
Income/(loss) before income
taxes and cumulative affect of accounting change
|
|
7.8
|
(1)
|
(110.5
|
)(2)
|
49.8
|
(3)
|
35.5
|
(4)
|
32.2
|
(5)
|
Income tax expense/(benefit)
|
|
(6.0
|
)(1)
|
1.7
|
(2)
|
9.7
|
(3)
|
9.8
|
(4)
|
15.3
|
(5)
|
Cumulative effect of
accounting change
|
|
|
|
|
|
|
|
0.1
|
|
|
|
Net income/(loss) applicable
to Methode Electronics, Inc.
|
|
13.7
|
(1)
|
(112.5
|
)(2)
|
39.8
|
(3)
|
26.1
|
(4)
|
17.0
|
(5)
|
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income/(loss)
|
|
0.37
|
(1)
|
(3.05
|
)(2)
|
1.07
|
(3)
|
0.72
|
(4)
|
0.47
|
(5)
|
Diluted net income/(loss)
|
|
0.37
|
(1)
|
(3.05
|
)(2)
|
1.06
|
(3)
|
0.71
|
(4)
|
0.47
|
(5)
|
Dividends
|
|
0.28
|
|
0.26
|
|
0.20
|
|
0.20
|
|
0.20
|
|
Book Value
|
|
6.43
|
|
6.28
|
|
9.93
|
|
8.69
|
|
7.82
|
|
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
146.8
|
|
143.6
|
|
265.8
|
|
233.7
|
|
215.1
|
|
Fixed Assets (net)
|
|
61.9
|
|
69.9
|
|
90.3
|
|
86.9
|
|
90.5
|
|
Total Assets
|
|
310.8
|
|
305.3
|
|
470.2
|
|
411.7
|
|
374.6
|
|
Return on Average Equity
|
|
6.0
|
%(1)
|
-37.2
|
%(2)
|
11.4
|
%(3)
|
8.5
|
%(4)
|
5.9
|
%(5)
|
Pre-tax Income/(loss) as a
Percentage of Sales
|
|
2.1
|
%(1)
|
-26.0
|
%(2)
|
9.0
|
%(3)
|
8.0
|
%(4)
|
7.7
|
%(5)
|
Net Income/(loss) as a
Percentage of Sales
|
|
3.8
|
%(1)
|
-26.4
|
%(2)
|
7.2
|
%(3)
|
5.8
|
%(4)
|
4.0
|
%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Fiscal 2010 results include a pre-tax charge of $7.8 million relating to
restructuring activities. In addition,
fiscal 2010 includes $5.8 million of pre-tax legal expense relating to the
Delphi supply agreement and patent lawsuit.
Income tax includes a $8.4 million loss carry-back benefit related to
losses in our U.S.-based businesses.
(2)
Fiscal 2009 results include a pre-tax charge of $94.4 million relating to
goodwill and other asset impairments. In
addition, fiscal 2009 results include a pre-tax charge of $25.3 million
relating to restructuring activities.
The income tax expense includes a $28.0 million valuation charge related
to the uncertainty of the future realization of our deferred tax assets.
(3)
Fiscal 2008 results include a pre-tax charge of $5.2 million relating to
a restructuring of our U.S.-based automotive operations and the decision to
discontinue producing certain legacy products in the Interconnect segment.
(4)
Fiscal 2007 results include a pre-tax and an after-tax restructuring
charge of $2.0 million related to the closing of our Scotland automotive parts
manufacturing plant and transfer of production lines from that facility to our
automotive parts manufacturing facility in Malta.
(5)
Fiscal 2006 results include $4.5 million of income tax expense related to
the repatriation of $38.1 million
13
Table of Contents
of foreign earnings for which income taxes were not
previously provided, and an after-tax charge of $1.5 million ($2.3 million pre-tax)
related to receivables deemed to be impaired due to the Chapter 11 bankruptcy
filing by Delphi.
Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations
Overview
We are a global manufacturer of component and subsystem
devices with manufacturing, design and testing facilities in China, Czech
Republic, Germany, Lebanon, 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.
Our components are found in the primary end markets of
the aerospace, appliance, automotive, construction, consumer and industrial
equipment markets, communications (including information processing and
storage, networking equipment, wireless and terrestrial voice/data systems),
rail and other transportation industries
Since January 2008, weve undertaken two separate
restructuring initiatives to reposition our company to be more competitive in
the marketplace. Both restructuring
actions were completed during fiscal 2010.
We have recorded a total of $25.7 million related to the January 2008
restructuring, of which $2.5 million was recorded in fiscal 2010. We have also recorded a total of $12.5
million related to the March 2009 restructuring, of which $5.3 million was
recorded in fiscal 2010.
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 seat 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.
As described in more detail in Part I, Item 3 Legal
Proceedings of this Annual Report on Form 10-K, in March 2010,
DPH Holdings Corp., as successor to Delphi Corporation, served the
Company with a complaint seeking to recover approximately
$19.7 million in alleged preference payments that Delphi made to the
Company within the 90-day preference period preceding Delphis bankruptcy
filing. The Company is seeking to dismiss the
Delphi preference complaint based on violations of due process
and the Company possesses several other substantive defenses.
Business Outlook
Due
to the loss of the Delphi business and the exit of legacy Ford products in
fiscal 2010, we expect a decline in our Automotive segment sales in fiscal
2011. In addition, it is unclear in
Europe what the impact will be with regard to the phase out of the scrappage
incentives, which governments paid owners to trade in old cars to purchase new
models. It is also unclear what the
current European debt crisis will have on our European businesses. For our other businesses, if the economic
conditions continue to stabilize, with no significant further deterioration, we
expect modest sales growth during fiscal 2011 as compared to fiscal 2010. The restructuring actions undertaken by us
over the past three fiscal years, targeted at reducing our cost structure are
expected to positively impact our future
earnings and cash flows. The additional
operating cash flow generated by these cost savings will continue to be
strategically deployed to strengthen our competitive position.
Results may differ materially from what is expressed or
forecasted. See Item 1A Risk Factors
herein.
14
Table of Contents
Results of Operations
Results of Operations for the Fiscal Year Ended May 1, 2010 as
Compared to the Fiscal Year Ended May 2, 2009
Consolidated Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
373.1
|
|
$
|
425.6
|
|
$
|
(52.5
|
)
|
-12.3
|
%
|
Other income
|
|
4.5
|
|
3.2
|
|
1.3
|
|
40.6
|
%
|
|
|
377.6
|
|
428.8
|
|
(51.2
|
)
|
-11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
297.7
|
|
356.4
|
|
(58.7
|
)
|
-16.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
79.9
|
|
72.4
|
|
7.5
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
7.8
|
|
25.3
|
|
(17.5
|
)
|
-69.2
|
%
|
Impairment of goodwill and
other assets
|
|
|
|
94.4
|
|
(94.4
|
)
|
N/M
|
|
Selling and administrative
expenses
|
|
62.4
|
|
57.2
|
|
5.2
|
|
9.1
|
%
|
Amortization of intangibles
|
|
2.3
|
|
6.9
|
|
(4.6
|
)
|
-66.7
|
%
|
Interest income/(expense),
net
|
|
(0.1
|
)
|
1.4
|
|
(1.5
|
)
|
N/M
|
|
Other, net -
income/(expense)
|
|
0.5
|
|
(0.5
|
)
|
1.0
|
|
N/M
|
|
Income taxes -
expense/(benefit)
|
|
(6.0
|
)
|
1.7
|
|
(7.7
|
)
|
N/M
|
|
Net income attributable to
noncontrolling interest
|
|
0.1
|
|
0.3
|
|
(0.2
|
)
|
-66.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
attributable to Methode Electronics, Inc.
|
|
$
|
13.7
|
|
$
|
(112.5
|
)
|
$
|
126.2
|
|
N/M
|
|
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
Percent of sales:
|
|
2010
|
|
2009
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other income
|
|
1.2
|
%
|
0.8
|
%
|
|
|
|
|
Cost of products sold
|
|
79.8
|
%
|
83.7
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
21.4
|
%
|
17.0
|
%
|
|
|
|
|
Restructuring
|
|
2.1
|
%
|
5.9
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
0.0
|
%
|
22.2
|
%
|
|
|
|
|
Selling and administrative expenses
|
|
16.7
|
%
|
13.4
|
%
|
|
|
|
|
Amortization of intangibles
|
|
0.6
|
%
|
1.6
|
%
|
|
|
|
|
Interest income/(expense),
net
|
|
0.0
|
%
|
0.3
|
%
|
|
|
|
|
Other, net -
income/(expense)
|
|
0.1
|
%
|
-0.1
|
%
|
|
|
|
|
Income taxes -
expense/(benefit)
|
|
-1.6
|
%
|
0.4
|
%
|
|
|
|
|
Net income attributable to
noncontrolling interest
|
|
0.0
|
%
|
0.1
|
%
|
|
|
|
|
Net income/(loss)
attributable to Methode Electronics, Inc.
|
|
3.7
|
%
|
-26.4
|
%
|
|
|
|
|
Net Sales
. Consolidated net sales decreased
$52.5 million, or 12.3%, to $373.1 million for fiscal 2010 from $425.6 million
for fiscal 2009. The Automotive segment
net sales declined $44.3 million or 18.2% to $199.3 million for fiscal 2010
from $243.6 million for fiscal 2009. The
decline is primarily attributable to lower sales to Delphi, Ford and Chrysler
and the weak economic environment. The
Interconnect segment net sales decreased $6.9 million, or 5.3% to $124.1
million for fiscal 2010 as compared to $131.0 million for fiscal 2009. The Power Products segment net sales
decreased $2.3 million, or 5.4% to $40.4 million for 2010 as compared to $42.7
million for fiscal 2009. The Other
segment net sales increased $1.1 million, or 13.4%, to $9.3 million for fiscal
2010, as
15
Table of Contents
compared to $8.2 million for fiscal 2009. Translation of foreign operations net sales
for fiscal 2010 increased reported net sales by $1.0 million or 0.3% due to
currency rate fluctuations.
Other Income
. Other income increased $1.3
million, or 40.6%, to $4.5 million for fiscal 2010 from $3.2 million for fiscal
2009. Other income consisted primarily
of earnings from engineering design fees and royalties. The increase relates to engineering design
fees in our European automotive business.
Cost of Products Sold
. Consolidated cost of products
sold decreased $58.7 million, or 16.5%, to $297.7 million for fiscal 2010
compared to $356.4 million for fiscal 2009.
The decrease is due to the lower sales volumes. Consolidated cost of products sold as a
percentage of sales were 79.8% for fiscal 2010, compared to 83.7% for fiscal
2009. The decrease relates to
restructuring and consolidation efforts that were undertaken in prior periods
to improve inefficiencies in the business.
Gross Margins (including other
income).
Consolidated
gross margins (including other income) increased $7.5 million, or 10.4%, to
$79.9 million for fiscal 2010 compared to $72.4 million for fiscal 2009. Gross margins (including other income) as a
percentage of net sales were 21.4% for fiscal 2010 compared to 17.0% for fiscal
2009. The increase relates to higher
other income in fiscal 2010 as well as restructuring and consolidation efforts
that were undertaken in prior periods.
Restructuring
. In March 2009, we announced
additional restructuring actions to consolidate manufacturing facilities to
reduce costs. During fiscal 2010, we
recorded a restructuring charge of $5.3 million related to this restructuring
initiative, which consisted of $3.6 million for employee severance and $1.7
million relating to other costs. During
fiscal 2009, we recorded a restructuring charge of $7.3 million related to this
restructuring initiative, which consisted of $0.1 for employee severance, $1.4
million for the impairment of fixed assets, $5.4 million for the impairment of
customer funded tooling and $0.4 million for other costs. All of the restructuring actions related to
the March 2009 restructuring initiative are now complete.
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 fiscal 2010, we recorded a
restructuring charge of $2.5 million related to this restructuring initiative,
which consisted of $0.7 million for employee severance, $1.5 million for the
impairment and accelerated depreciation and $0.3 million relating to other
costs. During fiscal 2009, we recorded a
restructuring charge of $18.0 million related to this restructuring initiative,
which consisted of $6.1 million for employee severance, $10.8 million for
impairment and accelerated depreciation, $0.2 million for inventory write-downs
and $0.9 million relating to other costs.
All of the restructuring actions related to the January 2008
restructuring initiative are now complete.
Impairment of Goodwill and Other Assets
. During fiscal 2009, in accordance with
Accounting Standards Codification, (ASC) No. 350, Intangibles-Goodwill
and Other, we performed goodwill impairment testing and concluded that
goodwill was impaired. Therefore, during
fiscal 2009, we recorded a goodwill impairment charge of $25.8 million in our
Automotive segment, $30.8 million in our Interconnect segment, $5.4 million in
our Power Products segment and $1.2 million in our Other segment for a total of
$63.2 million related to these assets.
Also during the third quarter of fiscal 2009, in
accordance with ASC No. 360, Property, Plant and Equipment, it was
determined that certain identifiable assets of our businesses were
impaired. Therefore, during fiscal 2009,
we recorded an impairment charge of $4.6 million in our Automotive segment,
$26.2 million in our Interconnect segment and $0.4 million in our Other segment
for a total of $31.2 million related to these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses increased
$5.2 million, or 9.1%, to $62.4 million for fiscal 2010 compared to $57.2
million for fiscal 2009. The increase is
due to $5.8 million in legal fees relating to the Delphi supply agreement and
patent dispute. In addition, selling and
administrative expenses were negatively impacted by $1.4 million due to $0.8
million of stock-based compensation in fiscal 2010, compared to a net reversal
of expense of $0.6 million in fiscal 2009.
The net reversal in fiscal 2009 was due to performance-based shares not
meeting certain financial targets.
Selling and administrative expenses were lower by $2.0 million due to
restructuring and consolidation efforts from previous periods. Selling and administrative expenses as a
percentage of net sales increased to 16.7% for fiscal 2010 from 13.4% for
fiscal 2009.
16
Table of Contents
Amortization of Intangibles
. Amortization of intangibles
decreased $4.6 million, or 66.7%, to $2.3 million for fiscal 2010, compared to
$6.9 million for fiscal 2009. The
decrease is due to the impairment of certain intangible assets in fiscal 2009.
Interest Income/(Expense), Net
. Net interest income/(expense)
decreased $1.5 million for fiscal 2010 to an expense of $0.1 million as compared to income of $1.4
million for fiscal 2009. The average
cash balance in fiscal 2010 was $62.5 million compared to an average cash
balance of $81.4 million for fiscal 2009.
The decrease in the average cash balance relates primarily to the
Hetronic acquisition during the second quarter of fiscal 2009. The average interest rate earned for fiscal
2010 was 0.59% compared to 2.22% for fiscal 2009. Interest expense was $0.5 million and $0.4
million for fiscal 2010 and fiscal 2009, respectively. The interest expense in fiscal 2010 includes
$0.1 million of fees related to the amendment of our bank agreement.
Other Income/(Expense), Net
. Other income/(expense), net
increased $1.0 million to income of $0.5 million for fiscal 2010 compared to an
expense of $0.5 million for fiscal 2009.
Fiscal 2010 included a $1.1 million gain recorded from life insurance
policies owned by the Company in connection with an employee deferred
compensation plan. During fiscal 2010,
our net currency exchange losses increased due to the strengthening of the U.S.
dollar versus the Euro and Czech koruna, resulting in exchange losses. During 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.
During fiscal 2009 and the first half of fiscal
2010, we were invested in an enhanced cash fund sold as an alternative to
traditional money-market funds. At May 1,
2010 there was zero invested in the fund.
For fiscal 2010 we recorded a gain of $0.6 million, and for fiscal 2009
we recorded a loss of $1.2 million.
Income Taxes
Expense/(Benefit).
Income taxes expense/(benefit) decreased by
$7.7 million to a benefit of $6.0 million for fiscal 2010, compared to an
expense of $1.7 million for fiscal 2009.
The $6.0 million for fiscal 2010, includes taxes on foreign profits of
$0.5 million, book to income tax return expense adjustments of $2.9 million and
other expense of $1.7 million. In
addition, a benefit of $3.2 million was recorded due to the settlement of
uncertain tax positions and related interest from prior periods. For the fiscal 2010, we have a loss before
income taxes in our U.S.-based businesses.
Therefore, we recorded a tax carry-back benefit of $7.9 million in
fiscal 2010. The effective tax rates for
both the fiscal 2010 and 2009 periods 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/(Loss) Attributable
to Methode Electronics, Inc.
Net income/(loss) attributable to Methode
Electronics, Inc. increased $126.2 million to net income of $13.7 million
for fiscal 2010, compared to a net loss of $112.5 million for fiscal 2009,
primarily due to zero goodwill and other asset write-offs for fiscal 2010
versus $94.4 million in write-offs for fiscal 2009. Income taxes were favorable by $7.7 million
in fiscal 2010 compared to fiscal 2009, related to a tax loss carry-back for
our U.S.-based businesses. In addition,
restructuring charges, amortization expense and other expense were lower as well
as lower overall manufacturing costs due to restructuring efforts. In addition, fiscal 2010 selling and
administrative expenses were higher due to the Delphi supply agreement and
patent litigation.
17
Table of Contents
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
199.3
|
|
$
|
243.6
|
|
$
|
(44.3
|
)
|
-18.2
|
%
|
Other income
|
|
3.9
|
|
2.5
|
|
1.4
|
|
56.0
|
%
|
|
|
203.2
|
|
246.1
|
|
(42.9
|
)
|
-17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
166.7
|
|
206.0
|
|
(39.3
|
)
|
-19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
36.5
|
|
40.1
|
|
(3.6
|
)
|
-9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
5.6
|
|
19.3
|
|
(13.7
|
)
|
-71.0
|
%
|
Impairment of goodwill and
other assets
|
|
|
|
30.5
|
|
(30.5
|
)
|
N/M
|
|
Selling and administrative
expenses
|
|
19.6
|
|
14.6
|
|
5.0
|
|
34.2
|
%
|
Interest, net - income
|
|
0.1
|
|
|
|
0.1
|
|
N/M
|
|
Other, net -
income/(expense)
|
|
(0.2
|
)
|
0.3
|
|
(0.5
|
)
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income
taxes
|
|
$
|
11.2
|
|
$
|
(24.0
|
)
|
$
|
35.2
|
|
N/M
|
|
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
Percent of sales:
|
|
2010
|
|
2009
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other income
|
|
2.0
|
%
|
1.0
|
%
|
|
|
|
|
Cost of products sold
|
|
83.6
|
%
|
84.6
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
18.3
|
%
|
16.5
|
%
|
|
|
|
|
Restructuring
|
|
2.8
|
%
|
7.9
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
0.0
|
%
|
12.5
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
9.8
|
%
|
6.0
|
%
|
|
|
|
|
Interest income, net
|
|
0.1
|
%
|
0.0
|
%
|
|
|
|
|
Other, net -
income/(expense)
|
|
-0.1
|
%
|
0.1
|
%
|
|
|
|
|
Income/(loss) before income
taxes
|
|
5.6
|
%
|
-9.9
|
%
|
|
|
|
|
Net Sales
. Automotive segment net sales
decreased $44.3 million, or 18.2%, to $199.3 million for fiscal 2010 from
$243.6 million for fiscal 2009. Net
sales to Delphi Corporation decreased $27.1 million, or 65.8%, to $14.1 million
for fiscal 2010 compared to $41.2 million for fiscal 2009 due to the
cancellation of the supply agreement on September 10, 2009. The Automotive segment net sales were also
negatively impacted by planned lower Chrysler sales volumes of $1.0 million for
fiscal 2010, compared to $14.8 million for fiscal 2009. In addition, the decline is attributable to
the softness of the U.S. economic environment.
Net sales declined by 60.2% in North America and increased by 19.8% and
154.2% in Europe and Asia, respectively for fiscal 2010 compared to fiscal
2009. Translation of foreign operations
net sales for fiscal 2010 increased reported net sales by $1.0 million, or
0.5%, due to currency rate fluctuations.
Other Income
. Other income increased $1.4
million, or 56.0%, to $3.9 million for fiscal 2010 from $2.5 million for fiscal
2009. Other income consisted primarily
of earnings from engineering design fees and royalties. The increase relates to engineering design
fees in our European automotive business.
18
Table of Contents
Cost of Products Sold
. Automotive segment cost of
products sold decreased $39.3 million, or 19.1%, to $166.7 million for fiscal
2010 from $206.0 million for fiscal 2009.
The decrease primarily relates to lower sales volumes. Included in the cost of products sold for
fiscal 2010 is $0.7 million of asset write-downs relating to the termination of
the Delphi supply agreement. The
Automotive segment cost of products sold as a percentage of sales were 83.6%
for fiscal 2010, compared to 84.6% for fiscal 2009. The decrease relates to restructuring and
consolidation efforts in previous periods, partially offset by inefficiencies
caused by automotive manufacturers extending plant shut-downs during the first
quarter of fiscal 2010.
Gross Margins (including other
income).
Automotive
segment gross margins (including other income) decreased $3.6 million, or 9.0%,
to $36.5 million for fiscal 2010, compared to $40.1 million for fiscal
2009. Gross margins (including other
income) as a percentage of net sales increased to 18.3% for fiscal 2010 from
16.5% for fiscal 2009. The increase
relates to higher other income for 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
. During fiscal 2010, we recorded
a restructuring charge of $3.3 million related to our March 2009
restructuring initiative, which consisted of $2.7 million for employee
severance and $0.6 million relating to other costs. During fiscal 2009, we recorded a
restructuring charge of $6.5 million, which consisted of $1.0 million for impairment and accelerated
depreciation for buildings and improvements and machinery and equipment and
$5.4 million for customer funded tooling and $0.1 million in forfeited security
deposits related to the cancellation of the new GM business. All of the restructuring actions related to
the March 2009 restructuring initiatives are now complete.
During fiscal 2010, the Automotive segment
recorded a restructuring charge of $2.3 million for our January 2008
restructuring initiative, which consisted of $0.7 million for employee
severance, $1.4 million for the impairment and accelerated depreciation for
machinery and equipment and $0.2 in other costs. During fiscal 2009, we recorded a
restructuring charge of $12.8 million, which consisted of $4.7 million for
employee severance, $7.4 million for impairment and accelerated depreciation for
buildings, building improvements and machinery and equipment and $0.7 million
for other costs. All of the
restructuring actions related to the January 2008 restructuring
initiatives are now complete.
Impairment of Goodwill and Other
Assets
. During the
third quarter of fiscal 2009, in accordance with ASC No. 350, Intangibles
- Goodwill and Other, we performed goodwill impairment testing and concluded
that goodwill was impaired. Therefore,
during fiscal 2009, we recorded a goodwill impairment charge of $30.5 million
in our Automotive segment related to these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses increased
$5.0 million, or 34.2%, to $19.6 million for fiscal 2010 compared to $14.6
million for fiscal 2009. Selling and
administrative expenses increased in fiscal 2010 is due to $5.8 million of
legal fees associated with the Delphi supply agreement termination and patent
litigation, partially offset by restructuring and consolidation efforts. Selling and administrative expenses as a
percentage of net sales were 9.8% for the fiscal 2010 and 6.0% for fiscal 2009.
Interest Income, Net
. Net interest income was $0.1
million for fiscal 2010 compared to zero in fiscal 2009.
Other Income/(Expense), Net
. Other income/(expense), net
decreased $0.5 million to an expense of $0.2 million for fiscal 2010 compared
to income of $0.3 million for fiscal 2009.
The decrease is primarily due to the strengthening of the U.S. dollar
versus the Euro during fiscal 2010 compared to 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/(Loss) Before Income
Taxes.
Automotive
segment income/(loss) before income taxes increased $35.2 million to income of
$11.2 million for fiscal 2010 compared to a loss of $24.0 million for fiscal
2009 due to zero goodwill and intangible asset write-off for fiscal 2010 versus
$30.5 million in write-offs for fiscal 2009, lower restructuring expenses,
lower costs relating to prior restructuring and consolidation efforts, offset
by lower sales and gross margins (including other income) and legal fees
relating to the termination of
19
Table of Contents
the Delphi supply agreement.
Interconnect Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
124.1
|
|
$
|
131.0
|
|
$
|
(6.9
|
)
|
-5.3
|
%
|
Other income
|
|
0.1
|
|
0.2
|
|
(0.1
|
)
|
-50.0
|
%
|
|
|
124.2
|
|
131.2
|
|
(7.0
|
)
|
-5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
88.6
|
|
99.7
|
|
(11.1
|
)
|
-11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
35.6
|
|
31.5
|
|
4.1
|
|
13.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
1.6
|
|
5.5
|
|
(3.9
|
)
|
-70.9
|
%
|
Impairment of goodwill and
other assets
|
|
|
|
56.9
|
|
(56.9
|
)
|
N/M
|
|
Selling and administrative
expenses
|
|
23.0
|
|
31.0
|
|
(8.0
|
)
|
-25.8
|
%
|
Interest income
|
|
0.2
|
|
0.5
|
|
(0.3
|
)
|
-60.0
|
%
|
Other, net -
income/(expense)
|
|
(0.9
|
)
|
0.7
|
|
(1.6
|
)
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income
taxes
|
|
$
|
10.3
|
|
$
|
(60.7
|
)
|
$
|
71.0
|
|
N/M
|
|
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
Percent of sales:
|
|
2010
|
|
2009
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other income
|
|
0.1
|
%
|
0.2
|
%
|
|
|
|
|
Cost of products sold
|
|
71.4
|
%
|
76.1
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
28.7
|
%
|
24.0
|
%
|
|
|
|
|
Restructuring
|
|
1.3
|
%
|
4.2
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
0.0
|
%
|
43.4
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
18.5
|
%
|
23.7
|
%
|
|
|
|
|
Interest income
|
|
0.2
|
%
|
0.4
|
%
|
|
|
|
|
Other, net -
income/(expense)
|
|
-0.7
|
%
|
0.5
|
%
|
|
|
|
|
Income/(loss) before income
taxes
|
|
8.3
|
%
|
-46.3
|
%
|
|
|
|
|
Net Sales
. Interconnect segment net sales
decreased $6.9 million, or 5.3%, to $124.1 million for fiscal 2010 from $131.0
million for fiscal 2009. Net sales were
favorably impacted by the Hetronic acquisition on September 30, 2008. European net sales increased 21.7% and North
American and Asia declined 5.1% and 28.2%, respectively for fiscal 2010 as
compared to fiscal 2009. The net sales
decline in North America and Asia was primarily due to the restructuring of our
legacy Interconnect segment businesses, which included exiting certain
businesses during the fourth quarter of fiscal 2008 and the first quarter of
fiscal 2009. There was no impact to net
sales for fiscal 2010 compared to fiscal 2009 due to currency rate
fluctuations.
Other Income
. Other income was $0.1 million
for fiscal 2010, compared to $0.2 million for fiscal 2009. Other income consisted primarily of earnings
from engineering design fees and royalties.
Cost of Products Sold
. Interconnect segment cost of
products sold decreased $11.1 million, or 11.1%, to $88.6 million for fiscal
2010 compared to $99.7 million for fiscal 2009.
Interconnect segment cost of products sold as a percentage of net sales
decreased to 71.4% for fiscal 2010 compared to 76.1% for fiscal 2009. The decrease in cost of products sold as a
percentage of net sales primarily relates to restructuring efforts undertaken
in previous
20
Table
of Contents
periods, partially offset by lower sales volumes
in fiscal 2010 as compared to fiscal 2009.
Gross Margins (including other
income).
Interconnect
segment gross margins (including other income) increased $4.1 million, or
13.0%, to $35.6 million for fiscal 2010 as compared to $31.5 million for fiscal
2009. Gross margins (including other
income) as a percentage of net sales increased to 28.7% for fiscal 2010 from 24.0%
for fiscal 2009. The increase in gross
margins (including other income) as a percentage of net sales primarily relates
to restructuring efforts undertaken in previous periods, partially offset by
lower sales volumes for fiscal 2010 compared to fiscal 2009.
Restructuring
. During fiscal 2010, the
Interconnect segment recorded a restructuring charge of $1.4 million related to
our March 2009 restructuring initiative, which consisted of $0.7 million
for employee severance and $0.7 million for other costs. During fiscal 2009, we recorded a
restructuring charge of $0.3 million, which consisted of $0.1 million for employee severance and $0.2
million relating to professional fees.
All of the restructuring actions related to the March 2009
restructuring initiatives are now complete.
During fiscal 2010, the Interconnect segment recorded a
restructuring charge of $0.2 million related to our January 2008
restructuring initiative, which consisted of $0.2 million in accelerated
depreciation. During fiscal 2009, we
recorded a restructuring charge of $5.2 million, which consisted of $1.4
million for employee severance, $3.4 million for impairment and accelerated
depreciation for buildings, building improvements and machinery and equipment,
$0.2 million for inventory write-downs and $0.2 million relating to other
costs.
Impairment of Goodwill and Other Assets
. During the third quarter of fiscal 2009, in
accordance with ASC No. 350, Intangibles - Goodwill and Other, we
performed goodwill impairment testing and concluded that goodwill was
impaired. Therefore, during fiscal 2009,
we recorded a goodwill impairment charge of $30.8 million in our Interconnect
segment related to these assets.
Also during fiscal 2009, in accordance with ASC No. 360,
Property, Plant and Equipment, it was determined that certain identifiable
assets of our Interconnect businesses were impaired. Therefore, during fiscal 2009, we recorded an
impairment charge of $26.1 million for these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses decreased
$8.0 million, or 25.8%, to $23.0 million for fiscal 2010 compared to $31.0
million for fiscal 2009. 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 18.5% for fiscal 2010 from
23.7% for fiscal 2009.
Interest Income, Net
. Interest income, net decreased
$0.3 million, or 60.0%, to $0.2 million for fiscal 2010, compared to $0.5
million for fiscal 2009.
Other Income/(Expense), Net
. Other income/(expense), net
decreased $1.6 million, to an expense of $0.9 million for fiscal 2010, compared
to income of $0.7 million for fiscal 2009
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
segment income/(loss) before income taxes increased $71.0 million to income of
$10.3 million for fiscal 2010 compared to a loss of $60.7 million for fiscal
2009 due to zero goodwill and intangible asset write-off for fiscal 2010 versus
$56.9 million in write-offs for fiscal 2009.
In addition, income/(loss) before income taxes increased 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 and gross margins (including other income).
21
Table of Contents
Power Products Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
40.4
|
|
$
|
42.7
|
|
$
|
(2.3
|
)
|
-5.4
|
%
|
Other income
|
|
0.1
|
|
|
|
0.1
|
|
N/M
|
|
|
|
40.5
|
|
42.7
|
|
(2.2
|
)
|
-5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
30.0
|
|
37.2
|
|
(7.2
|
)
|
-19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
10.5
|
|
5.5
|
|
5.0
|
|
90.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
0.6
|
|
0.5
|
|
0.1
|
|
20.0
|
%
|
Impairment of goodwill and
other assets
|
|
|
|
5.4
|
|
(5.4
|
)
|
N/M
|
|
Selling and administrative
expenses
|
|
6.5
|
|
5.1
|
|
1.4
|
|
27.5
|
%
|
Other - expense
|
|
|
|
(0.2
|
)
|
0.2
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income
taxes
|
|
$
|
3.4
|
|
$
|
(5.7
|
)
|
$
|
9.1
|
|
N/M
|
|
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
Percent of sales:
|
|
2010
|
|
2009
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost of products sold
|
|
74.3
|
%
|
87.1
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
26.0
|
%
|
12.9
|
%
|
|
|
|
|
Restructuring
|
|
1.5
|
%
|
1.2
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
0.0
|
%
|
12.6
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
16.1
|
%
|
11.9
|
%
|
|
|
|
|
Other - expense
|
|
0.0
|
%
|
-0.5
|
%
|
|
|
|
|
Income/(loss) before income
taxes
|
|
8.4
|
%
|
-13.3
|
%
|
|
|
|
|
Net Sales
. Power Products segment net sales
decreased $2.3 million, or 5.4% to $40.4 million for fiscal 2010 compared to
$42.7 million for fiscal 2009. Net sales
have declined in fiscal 2010 as compared to fiscal 2009 by 9.8% in North
America and increased by 14.1% in Asia.
The overall decline was driven by lower demand for our flexible cabling
and heat sink products in the U.S.
Other Income
. Other income was $0.1 million
for fiscal 2010, compared to zero for fiscal 2009. Other income consisted primarily of earnings
from engineering design fees and royalties.
Cost of Products Sold
. Power Products segment cost of products
sold decreased $7.2 million, or 19.4%, to $30.0 million for fiscal 2010
compared to $37.2 million for fiscal 2009.
The Power Products segment cost of products sold as a percentage of
sales decreased to 74.3% for fiscal 2010 from 87.1% for fiscal 2009. 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 (including other
income).
Power Products segment gross margins
(including other income) increased $5.0 million, or 90.9%, to $10.5 million for
fiscal 2010, compared to $5.5 million for fiscal 2009. Gross margins as a
percentage of net sales increased to 26.0% for fiscal 2010 from 12.9% for
fiscal 2009. 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
. During fiscal 2010, the Power
Products segment recorded a restructuring charge of $0.6 million related to our
March 2009 restructuring initiative, which consisted of $0.1 million for
employee severance
22
Table of Contents
and $0.5 million relating to real estate taxes
and other facility related costs. During
fiscal 2009, we recorded a restructuring charge of $0.5 million, which
consisted of $0.4 million for impairment
and accelerated depreciation for buildings and improvements and machinery and
equipment and $0.1 million relating to other costs. All of the restructuring actions related to
the March 2009 restructuring initiative are now complete.
Impairment of Goodwill and Other
Assets
. During
fiscal 2009, in accordance with ASC No. 350, Intangibles - Goodwill and
Other, we performed goodwill impairment testing and concluded that goodwill
was impaired. Therefore, during fiscal
2009, we recorded a goodwill impairment charge of $5.4 million in our Power
Products segment related to these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses increased
$1.4 million, or 27.5%, to $6.5 million for fiscal 2010 compared to $5.1
million for fiscal 2009. Selling and
administrative expenses increased due to higher professional services fees and
allocated management resources during fiscal 2010 as compared to fiscal
2009. Selling and administrative
expenses as a percentage of net sales increased to 16.1% for fiscal 2010 from
11.9% for fiscal 2009.
Other Expense.
Other expense was zero for fiscal
2010, compared to $0.2 million for fiscal 2009.
Income/(Loss) Before Income
Taxes.
Power
Products income/(loss) before income taxes increased $9.1 million to income of
$3.4 million for fiscal 2010, compared to a loss of $5.7 million for fiscal
2009 due to zero goodwill and intangible asset write-off for fiscal 2010 versus
$5.4 million in write-offs for fiscal 2009.
In addition, income/(loss) before income taxes increased due to lower
sales volumes, higher restructuring expenses, and higher professional fees,
more than 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
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
9.3
|
|
$
|
8.2
|
|
$
|
1.1
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
9.5
|
|
8.9
|
|
0.6
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins
|
|
(0.2
|
)
|
(0.7
|
)
|
0.5
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and
intangible assets
|
|
|
|
1.6
|
|
(1.6
|
)
|
N/M
|
|
Selling and administrative
expenses
|
|
2.1
|
|
2.8
|
|
(0.7
|
)
|
-25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(2.3
|
)
|
$
|
(5.1
|
)
|
$
|
2.8
|
|
N/M
|
|
|
|
May 1,
|
|
May 2,
|
|
|
|
|
|
Percent of sales:
|
|
2010
|
|
2009
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost of products sold
|
|
102.2
|
%
|
108.5
|
%
|
|
|
|
|
Gross margins
|
|
-2.2
|
%
|
-8.5
|
%
|
|
|
|
|
Impairment of goodwill and
intangible assets
|
|
0.0
|
%
|
19.5
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
22.6
|
%
|
34.1
|
%
|
|
|
|
|
Loss before income taxes
|
|
-24.7
|
%
|
-62.2
|
%
|
|
|
|
|
23
Table of Contents
Net Sales
. The Other segment net sales
increased $1.1 million, or 13.4%, to $9.3 million for fiscal 2010, compared to
$8.2 million for fiscal 2009. Net sales
from our torque-sensing business increased 38.0% in fiscal 2010 compared to
fiscal 2009. Net sales from our testing
facilities increased 5.1% for fiscal 2010 compared to fiscal 2009.
Cost of Products Sold
. Other segment cost of products
sold increased $0.6 million, or 6.7%, to $9.5 million for fiscal 2010 compared
to $8.9 million for fiscal 2009. The
increase is due to an increase in prototypes in our torque-sensing business in
fiscal 2010 compared to fiscal 2009.
Cost of products sold as a percentage of sales decreased to 102.2% in
fiscal 2010 compared to 108.5% in fiscal 2009.
Gross Margins.
The
Other segment gross margins increased $0.5 million to a loss of $0.2 million
compared to a loss of $0.7 million for fiscal 2009. The increase in net sales was more than
offset by an increase in prototypes in our torque-sensing business in fiscal
2010.
Impairment of Goodwill and Other
Assets
. During
fiscal 2009, in accordance with ASC No. 350, Intangible - Goodwill and
Other, we performed goodwill impairment testing and concluded that goodwill
was impaired. Therefore, during fiscal
2009, we recorded a goodwill impairment charge of $1.6 million in our Other
segment related to these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses decreased
$0.7 million, or 25.0%, to $2.1 million for fiscal 2010, compared to $2.8
million for fiscal 2009. Selling and
administrative expenses as a percentage of net sales decreased to 22.6% for
fiscal 2010 from 34.1% for fiscal 2009.
Loss Before Income Taxes.
The
Other segment loss before income taxes decreased $2.8 million to $2.3 million
for fiscal 2010, compared to $5.1 million for fiscal 2009 due to zero goodwill
and intangible asset write-off for fiscal 2010 versus $1.6 million in
write-offs for fiscal 2009. In addition,
the loss before income taxes decreased due to higher net sales and gross
margins, as well as lower selling and administrative expenses.
24
Table of Contents
Results of Operations for the Fiscal Year Ended May 2, 2009 (52
weeks) as Compared to the Fiscal Year Ended May 3, 2008 (53 weeks)
Consolidated Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
425.6
|
|
$
|
551.1
|
|
$
|
(125.5
|
)
|
-22.8
|
%
|
Other income
|
|
3.2
|
|
1.9
|
|
1.3
|
|
68.5
|
%
|
|
|
428.8
|
|
553.0
|
|
(124.2
|
)
|
-22.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
356.4
|
|
428.4
|
|
(72.0
|
)
|
-16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
72.4
|
|
124.6
|
|
(52.2
|
)
|
-41.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
25.3
|
|
5.2
|
|
20.1
|
|
N/M
|
|
Impairment of goodwill and
other assets
|
|
94.4
|
|
1.5
|
|
92.9
|
|
N/M
|
|
Selling and administrative
expenses
|
|
57.5
|
|
61.5
|
|
(4.0
|
)
|
-6.5
|
%
|
Amortization of intangibles
|
|
6.9
|
|
6.0
|
|
0.9
|
|
15.0
|
%
|
Interest income, net
|
|
1.4
|
|
2.3
|
|
(0.9
|
)
|
-39.9
|
%
|
Other, net - expense
|
|
(0.5
|
)
|
(3.2
|
)
|
2.7
|
|
N/M
|
|
Income taxes - expense
|
|
1.7
|
|
9.7
|
|
(8.0
|
)
|
-82.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(112.5
|
)
|
$
|
39.8
|
|
$
|
(152.3
|
)
|
N/M
|
|
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other income
|
|
0.8
|
%
|
0.3
|
%
|
|
|
|
|
Cost of products sold
|
|
83.7
|
%
|
77.7
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
17.0
|
%
|
22.6
|
%
|
|
|
|
|
Restructuring
|
|
5.9
|
%
|
0.9
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
22.2
|
%
|
0.3
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
13.5
|
%
|
11.2
|
%
|
|
|
|
|
Amortization of intangibles
|
|
1.6
|
%
|
1.1
|
%
|
|
|
|
|
Interest income, net
|
|
0.3
|
%
|
0.4
|
%
|
|
|
|
|
Other, net - expense
|
|
-0.1
|
%
|
-0.6
|
%
|
|
|
|
|
Income taxes - expense
|
|
0.4
|
%
|
1.8
|
%
|
|
|
|
|
Net income/(loss)
|
|
-26.4
|
%
|
7.2
|
%
|
|
|
|
|
Net Sales
. Consolidated net sales decreased
$125.5 million, or 22.8%, to $425.6 million for the fiscal year ended May 2,
2009 from $551.1 million for the fiscal year ended May 3, 2008. The Automotive segment net sales declined
$118.5 million or 32.7% to $243.6 million for fiscal 2009 from $362.1 million
for fiscal 2008. The decline is
attributable to the softening of the global economic environment, especially
the effect on the automotive industry. The
Automotive segment net sales were also negatively impacted by planned lower
Chrysler sales volumes of $14.8 million in fiscal 2009, compared to $59.2
million in fiscal 2008. In July 2007,
we decided to exit production for certain Chrysler products at the expiration
of our manufacturing commitment. The
transfer of the Chrysler product was completed during the second quarter of
fiscal 2009. Excluding Chrysler, the
North American Automotive segment net sales declined 18.5% in fiscal 2009, as
compared to fiscal 2008. The
Interconnect segment net sales
25
Table of Contents
decreased $5.3 million, or 3.9% to $131.0 million in
fiscal 2009 as compared to $136.3 million in fiscal 2008. The Interconnect segment net sales were
favorably impacted by the Hetronic acquisition, which was purchased on September 30,
2008, offset by lower sales in the other Interconnect businesses. The Power Products segment net sales
decreased $3.1 million to $42.7 million in fiscal 2009, compared to $45.8
million in fiscal 2008. Translation of
net sales from our foreign operations increased reported net sales by $1.6
million or 0.4% due to currency rate fluctuations.
Other Income
. Other income increased $1.3
million to $3.2 million for the fiscal year ended May 2, 2009 from $1.9
million for the fiscal year ended May 3, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
Cost of Products Sold
. Consolidated cost of products
sold decreased $72.0 million, or 16.8%, to $356.4 million for the fiscal year
ended May 2, 2009 from $428.4 million for the fiscal year ended May 3,
2008. The decrease is due to the lower
sales volumes. Consolidated cost of
products sold as a percentage of sales was 83.7% for fiscal 2009 and 77.7% for
fiscal 2008. This increase relates to
manufacturing inefficiencies experienced in the third and fourth quarters of
fiscal 2009 due to a significant, unexpected drop in sales, in addition to the
drop in the planned sales to Chrysler. A
large portion of the drop in sales is due to the North American automotive
manufacturers extending plant shutdowns that occurred during the second half of
fiscal 2009.
Gross Margins (including other
income).
Consolidated
gross margins (including other income) decreased $52.2 million, or 41.9%, to
$72.4 million for the fiscal year ended May 2, 2009 as compared to $124.6
million for the fiscal year ended May 3, 2008. Gross margins as a percentage of net sales
were 17.0% for fiscal 2009 and 22.6% for fiscal 2008. Gross margins were impacted negatively due to
manufacturing inefficiencies during the third and fourth quarters of fiscal
2009 related to significantly lower sales volumes. In addition, gross margins were impacted due
to unfavorable product mix and production costs for the Power Products segment.
Restructuring
. On January 24, 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 year ended May 2,
2009, we recorded a restructuring charge of $18.0 million, which consisted
of $6.1 million for employee severance,
$10.8 million for impairment and accelerated depreciation for buildings and
improvements and machinery and equipment, $0.2 million for inventory
write-downs and $0.9 million relating to professional fees. During fiscal 2008, we recorded restructuring
charges of $5.2 million, which consisted of $3.4 million for employee
severance, $1.3 million for asset write-downs and $0.5 million for professional
fees.
On March 12, 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 to reduce costs. During the
fiscal year ended May 2, 2009, we recorded a restructuring charge of $7.3
million, which consisted of $0.1 million for employee severance, $1.4 million
for impairment and accelerated depreciation for buildings and improvements and
machinery and equipment, $5.4 million for impairment of customer funded tooling
and $0.1 million in forfeited security deposits related to the cancellation of
the new GM business and $0.3 million relating to professional fees.
Impairment of Goodwill and Other
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, future cash
flows, a change in strategic direction or our market capitalization remaining
below our net book value for a significant period of time could result in
significant impairment charges, which could have a material adverse effect on
our financial condition and results of operations. Based on events and general business
declines, we performed step one of the goodwill impairment test in accordance
with ASC No. 350, on the reporting units that had goodwill during fiscal
2009. Based on this test, we determined
that the fair value was less than the carrying value of the net assets for
certain reporting units. We completed step two of the goodwill test and concluded
that goodwill was impaired. During fiscal
2009, we recorded a goodwill impairment charge of $25.8 million in our
Automotive segment, $30.8 million in our Interconnect segment, $5.4 million in
our Power Products segment and $1.2 million in our Other segment for a total of
$63.2 million related to these assets.
26
Table of Contents
Also, in accordance with ASC No. 360, Property,
Plant and Equipment, we record impairment losses on long-lived assets used in
operations when events and circumstances indicate that long-lived assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. During fiscal 2009,
based on our future estimates of the undiscounted cash flows, it was determined
that certain identifiable assets of our TouchSensor and Hetronic businesses in
the Interconnect segment, the Automotive Safety Technologies business from our
Automotive segment and Magna-Lastic Devices, Inc. from our Other segment
were impaired. Therefore, we recorded an
impairment charge of $26.2 million in the Interconnect segment, $4.6 million in
the Automotive segment and $0.4 million in the Other segment for a total of
$31.2 million for these assets.
In fiscal 2008, we recorded a $1.5 million impairment of
assets relating to a $0.7 million write-down of machinery and equipment as a
result of lower anticipated revenues over the life of the related project and
$0.8 million for the impairment of a particular patent (classified as an
intangible asset) where the underlying technology was deemed to be commercially
impractical.
Selling and Administrative
Expenses
. Selling and administrative expenses decreased
$4.0 million, or 6.5%, to $57.5 million for the fiscal year ended May 2,
2009 compared to $61.5 million for the fiscal year ended May 3, 2008. Selling and administrative expenses were
favorably impacted by an adjustment of pre-tax compensation expense associated
with the performance-based restricted stock awards granted in fiscal 2007, 2008
and 2009. The adjustment was made
because we determined that these awards were unlikely to vest based on the
Companys performance under the revenue growth and return on invested capital
targets. The pre-tax compensation
expense for fiscal 2009 was a reversal of expense of $0.6 million, which
relates to compensation expense reversed from previous years. The pre-tax compensation expense for fiscal
2008 was $3.3 million. Partially
offsetting the reversal of pre-tax compensation expense, selling and
administrative expenses were impacted by higher amortization expense relating
to the Hetronic, Value Engineered Products, Inc. and TouchSensor
acquisitions. In addition, management
positions were filled for our testing facilities in fiscal 2009, which were
vacant in fiscal 2008. Selling and
administrative expenses as a percentage of net sales increased to 13.5% in
fiscal 2009 from 11.2% in fiscal 2008.
Amortization of Intangibles
. Amortization of intangibles
increased $0.9 million, or 15.0%, to $6.9 million for the fiscal year ended May 2,
2009 compared to $6.0 million for the fiscal year ended May 3, 2008. The increase is due to the amortization
expenses for the Hetronic acquisition.
Interest Income, Net
. Net interest income was $1.4
million for the fiscal year ended May 2, 2009 and $2.3 million for the
fiscal year ended May 3, 2008. The
average cash balance was $81.4 million during fiscal 2009 as compared to $83.0
million during fiscal 2008. The average
interest rate earned in fiscal 2009 was 2.22% compared to 3.07% in fiscal
2008. The average interest rate earned
includes both taxable interest and tax-exempt municipal interest. Interest expense was $0.4 million for fiscal
2009 compared to $0.2 million for fiscal 2008.
Other, Net
. Other, net was an expense of
$0.5 million for the fiscal year ended May 2, 2009, compared to an expense
of $3.2 million for the fiscal year ended May 3, 2008. The decrease is primarily due to the
strengthening of the U.S. dollar versus the Euro and Czech koruna during fiscal
2009 as compared to fiscal 2008. The
functional currencies of our international operations are the British pound,
Chinese yuan, Czech koruna, Euro, 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 May 2, 2009, approximately $3.5 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. Based on the information available to us, we
have estimated the fair value of this fund at $0.72 per unit as of May 2,
2009. For fiscal 2009, we recorded a loss of $1.2 million, of which $0.6
million was realized on partial redemptions of
$8.8 million, and $0.6 million was unrealized
. See the
Financial Condition, Liquidity and Capital Resources section for more
information.
Income Taxes.
The effective income tax rate was
a net provision of 1.5% in fiscal 2009 compared with a provision of 19.7% in
fiscal 2008. The income tax rate in
fiscal 2009 was a benefit due to the impairment of goodwill and intangible
assets, restructuring charges and slowing of business in our U.S.-based
businesses, causing a loss before income taxes.
Offsetting the benefit recorded in fiscal 2009, a valuation allowance
against our deferred
27
Table of Contents
tax assets of $28.0 was recorded in accordance ASC No. 740
Income Taxes. This was recorded due to
the uncertainty of the future utilization of our deferred tax assets. See Note 7 for additional information. The effective tax rates for both fiscal 2009
and 2008 reflect utilization of foreign investment tax credits and the effect
of lower tax rates on income of the Companys foreign earnings and a higher
percentage of earnings at those foreign operations.
Net Income/(Loss).
Net income decreased $152.3
million to a loss of $112.5 million for the fiscal year ended May 2, 2009
as compared to net income of $39.8 million for the fiscal year ended May 3,
2008 due to the impairment of goodwill and intangible assets, lower sales
volumes, the income tax valuation allowance recorded against our deferred tax
assets, increased restructuring expenses, offset by favorable other income and
lower selling and administrative expenses.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
243.6
|
|
$
|
362.1
|
|
$
|
(118.5
|
)
|
-32.7
|
%
|
Other income
|
|
2.5
|
|
0.9
|
|
1.6
|
|
177.8
|
%
|
|
|
246.1
|
|
363.0
|
|
(116.9
|
)
|
-32.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
206.0
|
|
282.1
|
|
(76.1
|
)
|
-27.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
40.1
|
|
80.9
|
|
(40.8
|
)
|
-50.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
19.3
|
|
4.4
|
|
14.9
|
|
N/M
|
|
Impairment of goodwill and
other assets
|
|
30.5
|
|
1.5
|
|
29.0
|
|
N/M
|
|
Selling and administrative
expenses
|
|
14.6
|
|
18.0
|
|
(3.4
|
)
|
-18.9
|
%
|
Other, net -
income/(expense)
|
|
0.3
|
|
(1.7
|
)
|
2.0
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income
taxes
|
|
$
|
(24.0
|
)
|
$
|
55.3
|
|
$
|
(79.3
|
)
|
N/M
|
|
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other income
|
|
1.0
|
%
|
0.2
|
%
|
|
|
|
|
Cost of products sold
|
|
84.6
|
%
|
77.9
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
16.5
|
%
|
22.3
|
%
|
|
|
|
|
Restructuring
|
|
7.9
|
%
|
1.2
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
12.5
|
%
|
0.4
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
6.0
|
%
|
5.0
|
%
|
|
|
|
|
Other, net
|
|
0.1
|
%
|
-0.5
|
%
|
|
|
|
|
Income/(loss) before income
taxes
|
|
-9.9
|
%
|
15.3
|
%
|
|
|
|
|
Net Sales
. Automotive segment net sales
decreased $118.5 million, or 32.7%, to $243.6 million for the fiscal year ended
May 2, 2009 from $362.1 million for the fiscal year ended May 3,
2008. The decline is attributable to the
softening of the global economic environment, especially the effect on the
North American automotive industry. Net
sales have declined in fiscal 2009 as compared to fiscal 2008 by 34.2% in North
America, 30.6% in Europe and 30.7% in Asia.
A large portion of the drop in sales is due to the North American
automotive
28
Table of Contents
manufacturers extending plant shutdowns that
occurred during the third and fourth quarters of fiscal 2009. The Automotive segment net sales were also
negatively impacted by anticipated lower Chrysler sales volumes of $14.8
million in fiscal 2009, compared to $59.2 million in fiscal 2008. Excluding Chrysler, the North American
Automotive segment net sales declined 18.5% in fiscal 2009, as compared to
fiscal 2008. Translation of net sales
from our foreign operations in the fiscal year ended May 2, 2009 increased
reported net sales by $1.3 million, or 0.5%, due to currency rate fluctuations.
Other Income
. Other income increased $1.6
million, or 177.8%, to $2.5 million for the fiscal year ended May 2, 2009
from $0.9 million for the fiscal year ended May 3, 2008. Other income consisted primarily of earnings
from engineering design fees and royalties.
Cost of Products Sold
. Automotive segment cost of
products sold decreased $76.1 million to $206.0 million for the fiscal year
ended May 2, 2009 from $282.1 million for the fiscal year ended May 3,
2008. The decrease relates to lower
sales volumes. Automotive segment costs
of products sold as a percentage of sales increased to 84.6% for fiscal 2009
from 77.9% for fiscal 2008. This
increase relates to manufacturing inefficiencies experienced in the third and
fourth quarters of fiscal 2009 due to a significant, unexpected drop in sales,
in addition to lower planned sales to Chrysler.
A large portion of the drop in sales is due to the North American automotive
manufacturers extending plant shutdowns that occurred during the second half of
fiscal 2009.
Gross Margins (including other
income).
Automotive
segment gross margins (including other income) decreased $40.8 million, or
50.4%, to $40.1 million for the fiscal year ended May 2, 2009 as compared
to $80.9 million for the fiscal year ended May 3, 2008. Gross margins as a percentage of net sales
decreased to 16.5% for fiscal 2009 from 22.3% for fiscal 2008. Gross margins were impacted negatively due to
manufacturing inefficiencies during the second half of fiscal 2009 due to
significantly lower sales volumes. In
addition, gross margins were impacted by the planned lower Chrysler sales
volumes in fiscal 2009.
Restructuring
. On January 24, 2008, we announced
a restructuring of our U.S.-based automotive operations. During fiscal 2009, we recorded a
restructuring charge of $12.8 million, which consisted of $4.7 million for
employee severance, $7.4 million for impairment and accelerated depreciation
for buildings, building improvements and machinery and equipment and $0.7
million for professional fees.
In fiscal 2008, we recorded a restructuring
charge of $4.4 million, $2.7 million relating to employee severance, $1.3
million relating to impairment and accelerated depreciation for assets and $0.4
million for professional fees relating to the January 2008 restructuring.
On March 12, 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 to reduce costs.
During the fiscal year ended May 2, 2009, we recorded a
restructuring charge of $6.5 million, which consisted of $1.0 million for impairment and accelerated
depreciation for buildings and improvements and machinery and equipment and
$5.4 million for customer funded tooling and $0.1 million in forfeited security
deposits related to the cancellation of the new GM business.
Impairment of Goodwill and Other
Assets
. Based on
events and general business declines, we performed step one and step two of
the goodwill impairment test in accordance with ASC No. 350, on the
reporting units that had goodwill during fiscal 2009. Based on these tests, we concluded that goodwill
was impaired. We recorded a goodwill
impairment charge of $25.8 million in our Automotive segment related to these
assets.
Also, in accordance with ASC No. 360, Property,
Plant and Equipment, during the fourth quarter of fiscal 2009, based on our future
estimates of the undiscounted cash flows, it was determined that certain
identifiable assets were impaired. We
recorded an impairment charge of $4.7 million for these assets.
In fiscal 2008, we recorded a $1.5 million
impairment of assets relating to a $0.7 million write-down of machinery and
equipment as a result of lower anticipated revenues over the life of the
related project and $0.8
million for the
impairment of a particular patent (classified as an intangible asset) where the
underlying technology was deemed to be commercially impractical.
29
Table of Contents
Selling and Administrative
Expenses
. Selling and administrative expenses decreased
$3.4 million, or 18.9%, to $14.6 million for the fiscal year ended May 2,
2009 compared to $18.0 million for the fiscal year ended May 3, 2008. The decrease is due to lower commission
expense as a result of lower sales during fiscal 2009. Selling and administrative expenses as a
percentage of net sales increased to 6.0% in fiscal 2009 from 5.0% in fiscal
2008.
Other, Net
. Other, net was income of $0.3
million for the fiscal year ended May 2, 2009, compared to an expense of
$1.7 million for the fiscal year ended May 3, 2008. The decrease is primarily due to the
strengthening of the U.S. dollar versus the Euro during fiscal 2009 as compared
to fiscal 2008. The functional
currencies of our international operations are the British pound, Chinese yuan,
Euro and 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/(Loss) Before Income
Taxes.
Automotive
segment income/(loss) before income taxes decreased $79.3 million to a loss of
$24.0 million for the fiscal year ended May 2, 2009 compared to income of
$55.3 million for the fiscal year ended May 3, 2008. The decrease occurred due to goodwill and
intangible asset write-offs, manufacturing inefficiencies due to significantly
lower sales volumes during the third and fourth quarters of fiscal 2009,
increased restructuring expenses, partially offset by lower selling and
administrative expenses.
30
Table of Contents
Interconnect Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
131.0
|
|
$
|
136.3
|
|
$
|
(5.3
|
)
|
-3.9
|
%
|
Other income
|
|
0.2
|
|
0.3
|
|
(0.1
|
)
|
-33.3
|
%
|
|
|
131.2
|
|
136.6
|
|
(5.4
|
)
|
-4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
99.7
|
|
104.7
|
|
(5.0
|
)
|
-4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins (including
other income)
|
|
31.5
|
|
31.9
|
|
(0.4
|
)
|
-1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
5.5
|
|
0.6
|
|
4.9
|
|
N/M
|
|
Impairment of goodwill and
other assets
|
|
56.9
|
|
|
|
56.9
|
|
N/M
|
|
Selling and administrative
expenses
|
|
31.0
|
|
25.9
|
|
5.1
|
|
19.7
|
%
|
Interest income
|
|
0.5
|
|
0.4
|
|
0.1
|
|
25.0
|
%
|
Other, net -
income/(expense)
|
|
0.7
|
|
(1.2
|
)
|
1.9
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income
taxes
|
|
$
|
(60.7
|
)
|
$
|
4.6
|
|
$
|
(65.3
|
)
|
N/M
|
|
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Other income
|
|
0.2
|
%
|
0.2
|
%
|
|
|
|
|
Cost of products sold
|
|
76.1
|
%
|
76.8
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
24.0
|
%
|
23.4
|
%
|
|
|
|
|
Restructuring
|
|
4.2
|
%
|
0.4
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
43.4
|
%
|
0.0
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
23.7
|
%
|
19.0
|
%
|
|
|
|
|
Interest income
|
|
0.4
|
%
|
0.3
|
%
|
|
|
|
|
Other, net
|
|
0.5
|
%
|
-0.9
|
%
|
|
|
|
|
Income/(loss) before income
taxes
|
|
-46.3
|
%
|
3.4
|
%
|
|
|
|
|
Net Sales
. Interconnect segment net sales
decreased $5.3 million, or 3.9%, to $131.0 million for the fiscal year ended May 2,
2009 from $136.3 million for the fiscal year ended May 3, 2008. Net sales were favorably impacted by the
Hetronic acquisition on September 30, 2008. Excluding Hetronic, North American net sales
decreased 14.7%, Europe decreased 22.8% and Asia decreased 7.8% in fiscal 2009
as compared to fiscal 2008. The net
sales decline was primarily due to the general economic slowdown. Translation of net sales from our foreign
operations in the fiscal year ended May 2, 2009 increased reported net
sales by $0.3 million, or 0.2%, due to currency rate fluctuations.
Other Income
. Other income was $0.2 million
for the fiscal year ended May 2, 2009 and $0.3 million for the fiscal year
ended May 3, 2008. Other income
consisted primarily of earnings from engineering design fees and royalties.
Cost of Products Sold
. Interconnect segment cost of
products sold decreased $5.0 million to $99.7 million for the fiscal year ended
May 2, 2009 compared to $104.7 million for the fiscal year ended May 3,
2008. The majority of the decrease is
due to lower net sales. Interconnect
segment cost of products sold as a percentage of net sales decreased to 76.1%
in fiscal 2009 compared to 76.8% in fiscal 2008. The decrease in cost of products sold as a
percentage of net sales relates primarily to product mix related to the
Hetronic acquisition and the impact of the Interconnect restructuring.
31
Table of Contents
Gross Margins (including other
income)
Interconnect
segment gross margins (including other income) decreased $0.4 million, or 1.3%,
to $31.5 million for the fiscal year ended May 2, 2009 as compared to
$31.9 million for the fiscal year ended May 3, 2008. Gross margins as a percentage of net sales
increased to 24.0% in fiscal 2009 from 23.4% in fiscal 2008. The increase in gross margins as a percentage
of net sales relates primarily to product mix related to the Hetronic
acquisition and the impact of the Interconnect restructuring.
Restructuring
. On January 24, 2008, we
announced our decision to discontinue producing certain legacy products in the
Interconnect segment. During fiscal
2009, we recorded a restructuring charge of $5.2 million, which consisted of
$1.4 million for employee severance, $3.4 million for impairment and
accelerated depreciation for buildings, building improvements and machinery and
equipment, $0.2 million for inventory write-downs and $0.2 million relating to
professional fees. We expect the
Interconnect restructuring to be complete in fiscal 2010.
In fiscal 2008, we recorded a restructuring
charge of $0.7 million, $0.6 million for employee severance and $0.1 million
for professional fees relating to the January 2008 restructuring.
On March 12, 2009, we announced several
additional restructuring actions to consolidate manufacturing facilities in
lower cost regions to reduce costs.
During the fiscal year ended May 2, 2009, we recorded a
restructuring charge of $0.3 million, which consisted of $0.1 million for employee severance and $0.2
million relating to professional fees.
Impairment of Goodwill and Other
Assets
. Based on
events and general business declines, we performed step one and step two of
the goodwill impairment test in accordance with ASC No. 350, on the
reporting units that had goodwill during fiscal 2009. Based on these tests, we concluded that
goodwill was impaired. We recorded a
goodwill impairment charge of $30.8 million in our Interconnect segment related
to these assets
Also, in accordance with ASC No. 360, during
the fourth quarter of fiscal 2009, based on our future estimates of the
undiscounted cash flows, it was determined that certain identifiable assets
were impaired. We recorded an impairment
charge of $26.1 million for these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses increased
$5.1 million, or 19.7%, to $31.0 million for the fiscal year ended May 2,
2009 compared to $25.9 million for the fiscal year ended May 3, 2008. Selling and administrative expenses are
higher due to the Hetronic acquisition, higher amortization expense, slightly
offset by lower commission expense due to lower sales in fiscal 2009 as
compared to fiscal 2008. Selling and
administrative expenses as a percentage of net sales increased to 23.7% in
fiscal 2009 from 19.0% in fiscal 2008.
Interest Income, Net
. Net interest income was $0.5
million for the fiscal year ended May 2, 2009, compared to $0.4 million
for the fiscal year ended May 3, 2008.
Other, Net
. Other, net was income of $0.7
million for the fiscal year ended May 2, 2009, compared to an expense of
$1.2 million for the fiscal year ended May 3, 2008. The increase is primarily due to the
strengthening of the U.S. dollar versus the Euro and Czech koruna during fiscal
2009 as compared to fiscal 2008. The
functional currencies of these operations are the Chinese yuan, 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
segment income/(loss) before income taxes decreased $65.3 million to a loss of
$60.7 million for the fiscal year ended May 2, 2009 compared to income of
$4.6 million for the fiscal year ended May 3, 2008 due to the goodwill and
intangible asset write-off, higher selling and administrative expenses,
increased amortization expense and increased restructuring expenses.
32
Table of Contents
Power Products Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
42.7
|
|
$
|
45.8
|
|
$
|
(3.1
|
)
|
-6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
37.2
|
|
33.2
|
|
4.0
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins
|
|
5.5
|
|
12.6
|
|
(7.1
|
)
|
-56.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
0.5
|
|
|
|
0.5
|
|
N/M
|
|
Impairment of goodwill and
other assets
|
|
5.4
|
|
|
|
5.4
|
|
N/M
|
|
Selling and administrative
expenses
|
|
5.1
|
|
4.1
|
|
1.0
|
|
25.4
|
%
|
Other - expense
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income
taxes
|
|
$
|
(5.7
|
)
|
$
|
8.5
|
|
$
|
(14.2
|
)
|
N/M
|
|
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost of products sold
|
|
87.1
|
%
|
72.5
|
%
|
|
|
|
|
Gross margins (including
other income)
|
|
13.0
|
%
|
27.5
|
%
|
|
|
|
|
Restructuring
|
|
1.2
|
%
|
0.0
|
%
|
|
|
|
|
Impairment of goodwill and
other assets
|
|
12.5
|
%
|
0.0
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
12.0
|
%
|
9.0
|
%
|
|
|
|
|
Other - expense
|
|
-0.4
|
%
|
0.0
|
%
|
|
|
|
|
Income/(loss) before income
taxes
|
|
-13.3
|
%
|
18.6
|
%
|
|
|
|
|
Net Sales
. Power Products segment net sales
decreased $3.1 million, or 6.8%, to $42.7 million for the fiscal year ended May 2,
2009 from $45.8 million for the fiscal year ended May 3, 2008. Net sales were favorably impacted by the
Value Engineering Products (VEP) acquisition on August 31, 2007. Excluding VEP, Power Products net sales
decreased 10.9% in fiscal 2009 as compared to fiscal 2008.
Cost of Products Sold
. Power Products segment cost of
products sold increased $4.0 million, or 12.0%, to $37.2 million for the fiscal
year ended May 2, 2009 compared to $33.2 million for the fiscal year ended
May 3, 2008. The Power Products
segment cost of products sold as a percentage of sales increased to 87.1% for
fiscal 2009 from 72.5% for fiscal 2008.
The increase is partially due to a product that reached end-of-life at
the end of fiscal 2008 and had a lower cost as a percentage of sales than the
remaining sales during fiscal 2009. In
addition, we experienced an unfavorable product mix as well as increased
shipping and distribution costs.
Gross Margins.
Power Products segment gross
margins decreased $7.1 million, or 56.0%, to $5.5 million for the fiscal year
ended May 2, 2009 as compared to $12.6 million for the fiscal year ended May 3,
2008. Gross margins as a percentage of net sales decreased to 13.0% in fiscal
2009 from 27.5% in fiscal 2008. The
decrease is due to a product that reached end-of-life at the end of fiscal 2008
and had higher gross margins than the remaining sales and gross margins during
fiscal 2009. We also experienced an
unfavorable product mix, and increases in labor costs, as well as, shipping and
distribution costs.
Restructuring
. On March 12, 2009, we
announced several additional restructuring actions to consolidate manufacturing
facilities in lower cost regions to reduce costs. During the fiscal year ended May 2,
2009, we recorded a restructuring charge of $0.5 million, which consisted
of $0.4 million for impairment and
accelerated depreciation for buildings and improvements and machinery and
equipment and $0.1 million relating to professional
33
Table of Contents
services.
Impairment of Goodwill and
Intangible Assets
. Based on events and general business
declines, we performed step one and step two of the goodwill impairment
test in accordance with ASC No. 350, on the reporting units that had
goodwill during fiscal 2009. Based on
these tests, we concluded that goodwill was impaired. We recorded a goodwill impairment charge of
$5.4 million in our Power Products segment related to these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses increased
$1.0 million, or 25.4%, to $5.1 million for the fiscal year ended May 2,
2009 compared to $4.1 million for the fiscal year ended May 3, 2008. Selling and administrative expenses increased
due to the Tribotek acquisition on March 30, 2008, partially offset by
lower commission and bonus expenses in fiscal 2009. Selling and administrative expenses as a percentage
of net sales increased to 12.0% in the fiscal 2009 from 9.0% in fiscal 2008.
Other, Net
. Other, net was an expense of
$0.2 million for the fiscal year ended May 2, 2009, compared to no other,
net for the fiscal year ended May 3, 2008.
Income/(Loss) Before Income
Taxes.
Power
Products segment income/(loss) before income taxes decreased by $14.2 million
to a loss of $5.7 million for the fiscal year ended May 2, 2009 from a
profit of $8.5 million for the fiscal year ended May 3, 2008 due to impairment
of goodwill, decreased sales of products which became end-of-life at the end of
fiscal year 2008, restructuring costs, higher material, labor and shipping
costs, expenses related to Tribotek, partially offset by lower commission and
bonus expenses.
34
Table of Contents
Other Segment Results
Below is a table summarizing results for the
years ended:
(in millions)
(Not meaningful equals N/M)
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net Change
|
|
Net Change
|
|
Net sales
|
|
$
|
8.2
|
|
$
|
6.9
|
|
$
|
1.3
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
8.9
|
|
6.7
|
|
2.2
|
|
32.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margins
|
|
(0.7
|
)
|
0.2
|
|
(0.9
|
)
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and
intangible assets
|
|
1.6
|
|
|
|
1.6
|
|
N/M
|
|
Selling and administrative
expenses
|
|
2.8
|
|
2.0
|
|
0.8
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(5.1
|
)
|
$
|
(1.8
|
)
|
$
|
(3.3
|
)
|
183.3
|
%
|
|
|
May 2,
|
|
May 3,
|
|
|
|
|
|
Percent of sales:
|
|
2009
|
|
2008
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
Cost of products sold
|
|
108.5
|
%
|
97.1
|
%
|
|
|
|
|
Gross margins
|
|
-8.5
|
%
|
2.9
|
%
|
|
|
|
|
Impairment of goodwill and
intangible assets
|
|
19.5
|
%
|
0.0
|
%
|
|
|
|
|
Selling and administrative
expenses
|
|
34.1
|
%
|
29.0
|
%
|
|
|
|
|
Loss before income taxes
|
|
-62.2
|
%
|
-26.1
|
%
|
|
|
|
|
Net Sales
. The Other segment net sales
increased $1.3 million to $8.2 million for the fiscal year ended May 2,
2009 as compared to $6.9 million for the fiscal year ended May 3,
2008. Net sales from our torque-sensing
business increased 60.6% and net sales from our testing facilities increased
11.2% in fiscal 2009 as compared to fiscal 2008.
Cost of Products Sold
. Other segment cost of products
sold increased $2.2 million to $8.9 million for the fiscal year ended May 2,
2009 compared to $6.7 million for the fiscal year ended May 3, 2008. The increase is due to additional support
staff in our U.S. testing facilities and a new testing facility that was opened
in Shanghai, China during the second quarter of fiscal 2009.
Gross Margins .
The
Other segment gross margins was a loss of $0.7 million for fiscal 2009,
compared to income $0.2 million for fiscal 2008. Gross margins declined in fiscal 2009 due to
the increase in additional support staff in our U.S. testing facilities and the
new testing facility in Shanghai, China.
Impairment of Goodwill and
Intangible Assets
. Based on events and general business
declines, we performed step one and step two of the goodwill impairment
test in accordance with ASC No. 350, on the reporting units that had
goodwill during fiscal 2009. Based on
these tests, we concluded that goodwill was impaired. We recorded a goodwill impairment charge of
$1.2 million in our Other segment related to these assets.
Also, in accordance with ASC No. 360, during the fourth quarter of fiscal 2009,
based on our future estimates of the undiscounted cash flows, it was determined
that certain identifiable assets were impaired.
We recorded an impairment charge of $0.4 million for these assets.
Selling and Administrative
Expenses
. Selling and administrative expenses increased
$0.8 million to $2.8 million for the fiscal year ended May 2, 2009
compared to $2.0 million for the fiscal year ended May 3, 2008. The increase is primarily due to the new
testing facility in Shanghai, China.
Selling and administrative expenses as a percentage of net sales
increased to 34.1% in fiscal 2009 from 29.0% in fiscal 2008.
35
Table of Contents
Loss Before Income Taxes.
The
Other segment loss before income taxes was $5.1 million for the fiscal year
ended May 2, 2009 compared to $1.8 million for the fiscal year ended May 3,
2008. The increase in the loss before
income taxes is due the impairment of goodwill and intangible assets,
additional support staff for our North American testing facilities as well as
costs associated with the new testing facility in Shanghai, China.
Financial Condition, Liquidity and Capital Resources
We have historically financed our cash requirements
through cash flows from operations. Our
future cash flow 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 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 May 1, 2010, we were in compliance with these covenants and had
no borrowings against this credit facility.
During fiscal 2009 and the
first half of fiscal 2010, we were 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 2009,
we received the remaining principal in the fund. The balance in the fund as of May 1,
2010 was zero.
For fiscal 2010, we recorded
a gain of $0.6 million and for fiscal 2009, we recorded a loss of $1.2 million
.
Operating cash flow is summarized below (in millions):
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Net income/(loss)
|
|
$
|
13.8
|
|
$
|
(112.2
|
)
|
$
|
40.1
|
|
Depreciation and
amortization
|
|
19.4
|
|
37.0
|
|
28.2
|
|
Changes in operating assets
and liabilities
|
|
(11.5
|
)
|
6.3
|
|
6.8
|
|
Other non-cash items
|
|
5.7
|
|
112.1
|
|
1.9
|
|
Cash flow from operations
|
|
$
|
27.4
|
|
$
|
43.2
|
|
$
|
77.0
|
|
Operating
Activities Fiscal 2010 Compared to Fiscal 2009
Net cash provided by operating activities decreased
$15.8 million to $27.4 million for fiscal 2010 compared to $43.2 million for
fiscal 2009. While our net income increased $126.0 million to net income of
$13.8 million for fiscal 2010, compared to a loss of $112.2 million for fiscal
2009, $106.4 million of the change related to non-cash charges ($5.7 million
for fiscal 2010 compared to $112.1 million for fiscal 2009). The depreciation
and amortization add back to cash flow from operations decreased $17.6 million
to $19.4 million for fiscal 2010, compared to $37.0 million in fiscal 2009. The
decrease for both depreciation and other non-cash items in fiscal 2010 compared
to fiscal 2009 is primarily due to goodwill and fixed assets that were written
off in fiscal 2009. The changes in operating assets and liabilities decreased
by $17.8 million, to cash used of $11.5 million in fiscal 2010, compared to
$6.3 million of cash generated in fiscal 2009 primarily driven by higher
accounts receivable balances at the end of fiscal 2010 due to higher sales in
the fourth quarter of fiscal 2010, compared to the fourth quarter of fiscal
2009.
36
Table of Contents
Operating
Activities Fiscal 2009 Compared to Fiscal 2008
Net cash provided by operating activities decreased
$33.8 million to $43.2 million for fiscal 2009 compared to $77.0 million for
fiscal 2008. The decrease was due to our
net income/(loss) decreasing $152.3 million to net loss of $112.2 million for
fiscal 2009, compared to net income of $40.1 million for fiscal 2008, which is
partially offset by non-cash charge add-backs difference of $119.0 million for
goodwill and intangible asset write-offs as well as depreciation and
amortization expenses in fiscal 2009 compared to fiscal 2008. The changes in operating assets and
liabilities decreased by $0.5 million, to cash generated of $6.3 million in
fiscal 2009, compared to $6.8 million of cash generated in fiscal 2008.
Investing
Activities Fiscal 2010 Compared to Fiscal 2009
Net cash used in investing activities decreased $68.3
million to $7.8 million for fiscal 2010, compared to $76.1 million for fiscal
2009. Purchases of plant and equipment
decreased $7.7 million, to $9.4 million for fiscal 2010, compared to $17.1
million for fiscal 2009. In fiscal 2010,
we received $2.4 million from life insurance polices in connection with an
employee deferred compensation plan. In September 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.
Also in fiscal 2009, we made a contingent payment of $0.8 million
related to the VEP acquisition. In
addition, we made a contingent payment of $0.3 million and $0.6 million in
fiscal 2010 and 2009, respectively for the Cableco Technologies acquisition.
Investing
Activities Fiscal 2009 Compared to Fiscal 2008
Net
cash used in investing activities was $76.1 million for fiscal 2009 and $29.0
million for fiscal 2008. Purchases of
property, plant and equipment was $17.1 million and $20.0 million for fiscal
2009 and 2008, respectively. In fiscal 2009, we purchased Hetronic and made
the contingent payments related to the VEP and Cableco acquisitions described
above. During fiscal 2008, we
also paid a $1.0 million dividend for our automotive joint venture.
Financing
Activities Fiscal 2010 Compared to Fiscal 2009
Net cash used in financing activities was $10.3
million for fiscal 2010, compared to $15.1 million for fiscal 2009. We paid cash dividends of $10.4 million in
fiscal 2010, compared to $9.8 million in fiscal 2009. Our board of directors approved a stock
repurchase plan in September 2008 to purchase up to 3,000,000 shares. The plan expired May 1, 2010. In fiscal 2009, we purchased 669,480 shares
for $5.3 million. There were no shares
purchased in fiscal 2010.
Financing
Activities Fiscal 2009 Compared to Fiscal 2008
Net cash used in financing activities was $15.1
million in fiscal 2009 and $7.1 million
in fiscal 2008. We paid cash dividends
of $9.8 million and $7.6 million in
fiscal 2009 and 2008, respectively. We
repurchased 53,012 and 95,420 shares in
fiscal 2009 and 2008, respectively, of
our common stock from the former owners of Cableco in accordance with the terms
of the earn-out provision of the Cableco purchase agreement.
We repurchased 669,480 shares of common stock
for $5.3 million in fiscal 2009.
37
Table of Contents
Contractual
Obligations
The following table summarizes contractual obligations
and commitments, as of May 1, 2010 (in thousands):
|
|
Payments Due By Period
|
|
|
|
|
|
Less than
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
1 year
|
|
1-3 years
|
|
4-5 years
|
|
5 years
|
|
Operating leases
|
|
$
|
4,906
|
|
$
|
2,604
|
|
$
|
1,963
|
|
$
|
271
|
|
$
|
68
|
|
Purchase obligations
|
|
46,251
|
|
46,251
|
|
|
|
|
|
|
|
Deferred compensation
|
|
4,356
|
|
379
|
|
876
|
|
328
|
|
2,773
|
|
Total
|
|
$
|
55,513
|
|
$
|
49,234
|
|
$
|
2,839
|
|
$
|
599
|
|
$
|
2,841
|
|
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements, other than the operating leases
and purchase obligations noted in the preceding table.
Critical Accounting Policies and Estimates
Managements
discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions; however, we do not believe that it is reasonably likely that
changes will occur. We believe the
following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition.
We recognize revenue on product sales when i)
persuasive evidence of an agreement exists, ii) the price is fixed or
determinable, iii) delivery has occurred or services have been rendered, and
iv) collection of the sales proceeds is reasonably assured. Revenue from our product sales not requiring
installation, net of trade discounts and estimated sales allowances, is
recognized when title passes, which is generally upon shipment. We do not have any additional obligations or
customer acceptance provisions after shipment of such products. We handle returns by replacing, repairing or
issuing credit for defective products when returned. Revenue from cabling infrastructure systems
installations is recognized when the installation is completed, tested and
accepted by the customer.
Allowance for Doubtful Accounts.
We maintain an allowance for
doubtful accounts for estimated losses resulting from the inability of
customers to make required payments. The amount of the allowance is based on
the age of unpaid amounts, information about the creditworthiness of customers,
and other relevant information. Estimates of uncollectible amounts are revised
each period, and changes are recorded in the period they become known. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
In addition, our revenues and accounts receivable are
concentrated in a relatively small number of customers. A significant change in the liquidity or
financial position of any one of these customers or a deterioration in the
economic environment or automotive industry, in general, could have a material
adverse impact on the collectability of our accounts receivable and our future
operating results, including a reduction in future revenues and additional
allowances for doubtful accounts.
Allowance for Excess and Obsolete
Inventory.
Inventories are valued at the lower-of-cost-or-market
value and have been reduced by allowances for excess and obsolete inventories.
The estimated allowances are based on our review of inventories on hand
compared to estimated future usage and sales, using assumptions about future
product life cycles, product demand and market conditions. If actual product life cycles, product demand
and market conditions are less favorable than those projected by us, additional
inventory write-downs may be required.
38
Table of Contents
Intangible Assets.
We have significant intangible
assets related to goodwill and other acquired intangibles. The determination of related estimated useful
lives and whether these assets are impaired involves significant judgment. In assessing the recoverability of our
intangibles, we must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges for these assets. In accordance
with ASC No. 350,
Goodwill and Other
Assets,
on May 1, 2002, we ceased amortizing goodwill. In lieu of amortization, we are required to
perform an annual impairment review
(see Note 4 to the
Consolidated Financial Statements).
Income Taxes.
As part of the process of
preparing our Consolidated Financial Statements, we are required to estimate
income taxes in each of the jurisdictions in which we operate. The process
involves estimating actual current tax expense along with assessing temporary
differences resulting from differing treatment of items for book and tax
purposes. These temporary differences result in deferred tax assets and
liabilities, which are included in our consolidated balance sheet. We record a
valuation allowance to reduce our deferred tax assets to the amount that is
more likely than not to be realized. We have considered future taxable income
and ongoing tax planning strategies in assessing the need for the valuation
allowance. The tax laws of Malta provide
for investment tax credits of 50% of certain qualified expenditures. Unused credits can be carried forward
indefinitely. We have accumulated
investment tax credits in excess of amounts more likely than not to be realized
based upon projections of taxable income to be generated within a reasonable
time period. Valuation allowances have
been provided for this excess.
Contingencies.
We are subject to various
investigations, claims, legal and administrative proceedings covering a wide
range of matters that arise in the ordinary course of business activities. A significant amount of judgment and use of
estimates is required to quantify our ultimate exposure in these matters. For
those matters that we can estimate a range of loss, we have established
reserves at levels within that range to provide for the most likely scenario
based upon available information. The
valuation of reserves for contingencies is reviewed on a quarterly basis to
assure that the Company is properly reserved. Reserve balances are adjusted to
account for changes in circumstances for ongoing issues and the establishment
of additional reserves for emerging issues. While we believe that the current
level of reserves is adequate, changes in the future could impact these
determinations.
Item 7A. 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 $4.7 million and $2.8 million at May 1, 2010 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, 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 $12.8 million at May 1, 2010 and $10.8 million
at May 2, 2009.
Item 8. Financial Statements and Supplementary Data
See Item 15 for an Index to Financial Statements and
Financial Statement Schedule. Such
Financial Statements and Schedule are incorporated herein by reference.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As
of the end of the period covered by this annual report on Form 10-K, we
performed an evaluation under the supervision and with the participation of our
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 Exchange Act)).
Our disclosure controls and procedures are designed to ensure that the
information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and
39
Table of Contents
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, our
disclosure controls and procedures were effective.
Managements Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of our internal control over financial
reporting as of May 1, 2010 based on the guidelines established in
Internal Control Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our internal control over financial reporting
includes policies and procedures that provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with U.S. generally
accepted accounting principles.
Based
on the results of our evaluation, our management concluded that our internal
control over financial reporting was effective as of May 1, 2010.
Management reviewed the results of its assessment with the Audit
Committee. Our independent registered
public accounting firm, Ernst and Young, LLP, has issued an attestation report
on our internal control over financial reporting. This report is included on page F-2 of
this report on Form 10-K.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15
or 15d-15 that was conducted during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief Financial Officer,
do not expect that our disclosure controls or our internal control over
financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of a simple error or
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people or by management override of
the controls. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Information regarding our directors will be included
under the caption Proposal One:
Election of Directors and Corporate Governance in the definitive
proxy statement for our 2010 annual meeting to be held on September 16,
2010, and is incorporated herein by reference.
Information regarding our executive officers is included under a
separate caption in Part I hereof, and is incorporated herein by
reference, in accordance with General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K. Information regarding
40
Table of Contents
compliance with Section 16(a) of the Exchange
Act is included under the caption Section 16(a) Beneficial Ownership
Reporting Compliance and Audit Committee Matters in the definitive proxy
statement for our 2010 annual meeting and is incorporated herein by reference.
We have adopted a Code of Business Conduct (the Code)
that applies to our directors, our principal executive officer, principal
financial officer, principal accounting officer or controller and persons
performing similar functions, as well as other employees. The Code of Business Conduct is publicly
available on our website at www.methode.com.
If we make any substantive amendments to the Code or grant any waiver,
including any implicit waiver, from a provision of the Code to our principal
executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions, we will disclose the nature
of such amendment or waiver on our website or in a report on Form 8-K in
accordance with applicable rules and regulations.
Item 11. Executive Compensation
Information regarding the above will be included under
the caption Compensation Discussion and Analysis, Compensation Committee
Report, Executive Compensation Tables and Director Compensation in the
definitive proxy statement for our 2010 annual meeting to be held on September 16,
2010, and is incorporated herein by reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information regarding the above will be included under
the caption Security Ownership and Executive Compensation Discussion and
Analysis and in subsequent compensation tables in the definitive proxy
statement for our 2010 annual meeting to be held on September 16, 2010,
and is incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Information regarding the above will be included under
the caption Corporate Governance in the definitive proxy statement for our
2010 annual meeting to be held on September 16, 2010, and is incorporated
herein by reference.
Item 14. Principal Accounting Fees and Services
Information regarding the above will be included under
the caption Audit Committee Matters in the definitive proxy statement for our
2010 annual meeting to be held on September 16, 2010, and is incorporated
herein by reference.
41
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedule
(a)
The documents included in the following indexes are filed as part of this
annual report on Form 10-K.
(1) (2)
The response to this portion of Item 15 is
included in this report under the caption
Financial Statements and Financial Statement Schedule below, which
is incorporated herein by reference.
(3)
See Index
to Exhibits immediately following the financial statement schedule.
(b)
See Index to Exhibits
immediately following the financial statement schedule.
(c)
See Financial Statements and Financial
Statement Schedule.
42
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
|
|
(Registrant)
|
|
|
|
By:
|
/s/ DOUGLAS A. KOMAN
|
|
Douglas A. Koman
|
|
Chief Financial Officer
|
|
(Principal Accounting and Financial Officer)
|
Dated: July 1,
2010
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s / WARREN L. BATTS
|
|
Chairman of the Board
|
|
July 1, 2010
|
Warren L. Batts
|
|
|
|
|
|
|
|
|
|
/s/ DONALD W. DUDA
|
|
Chief Executive Officer, President & Director
|
|
July 1, 2010
|
Donald W. Duda
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s / DOUGLAS A. KOMAN HORNUNG
|
|
Chief Financial Officer
|
|
July 1, 2010
|
Douglas A. Koman
|
|
|
|
|
|
|
|
|
|
/s / WALTER J. ASPATORE
|
|
Director
|
|
July 1, 2010
|
Walter J. Aspatore
|
|
|
|
|
|
|
|
|
|
/s/ J. EDWARD COLGATE
|
|
Director
|
|
July 1, 2010
|
J. Edward Colgate
|
|
|
|
|
|
|
|
|
|
/s/ DARREN M. DAWSON
|
|
Director
|
|
July 1, 2010
|
Darren M. Dawson
|
|
|
|
|
|
|
|
|
|
/s / ISABELLE C. GOOSSEN
|
|
Director
|
|
July 1, 2010
|
Isabelle C. Goossen
|
|
|
|
|
|
|
|
|
|
/s / CHRISTOPHER J. HORNUNG
|
|
Director
|
|
July 1, 2010
|
Christopher J. Hornung
|
|
|
|
|
|
|
|
|
|
/s / LAWRENCE B. SKATOFF
|
|
Director
|
|
July 1, 2010
|
Lawrence B. Skatoff
|
|
|
|
|
|
|
|
|
|
/s / PAUL G. SHELTON
|
|
Director
|
|
July 1, 2010
|
Paul G. Shelton
|
|
|
|
|
43
Table of Contents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
FORM 10-K
ITEM 15 (a) (1) and (2)
(1)
|
Financial Statements
|
|
|
|
|
|
The following consolidated financial statements of
Methode Electronics, Inc. and subsidiaries are included in Item 8:
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F1
|
|
|
|
|
Report of Independent Registered Public Accounting
Firm on Internal
Control over Financial
Reporting
|
F2
|
|
|
|
|
Consolidated Balance Sheets May 1, 2010 and
May 2, 2009
|
F3
|
|
|
|
|
Consolidated Statements of Operations Years Ended
May 1, 2010, May 2, 2009 and May 3, 2008
|
F4
|
|
|
|
|
Consolidated Statements of Shareholders Equity
Years Ended May 1, 2010, May 2, 2009 and May 3, 2008
|
F5
|
|
|
|
|
Consolidated Statements of Cash Flows Years Ended
May 1, 2010, May 2, 2009 and May 3, 2008
|
F6
|
|
|
|
|
Notes to Consolidated Financial Statements
|
F7
|
|
|
|
(2)
|
Financial Statement Schedule
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
F35
|
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are immaterial and, therefore,
have been omitted.
44
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Methode Electronics, Inc.
We have audited the accompanying consolidated balance
sheets of Methode Electronics, Inc. and subsidiaries as of May 1,
2010 and May 2, 2009, and the related consolidated statements of
operations, shareholders equity and cash flows for each of the three years in
the period ended May 1, 2010. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial
statements and schedule are the responsibility of the Companys
management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Methode Electronics, Inc. and subsidiaries at May 1, 2010
and May 2, 2009, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended May 1,
2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States), the
effectiveness of Methode Electronics, Inc.s internal control over
financial reporting as of May 1, 2010, based on criteria established in
Internal Control Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated June 30, 2010 expressed an unqualified opinion thereon.
|
/s/ ERNST & YOUNG LLP
|
|
|
|
|
Chicago, Illinois
|
|
July 1, 2010
|
|
F-1
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Board of Directors and Shareholders
Methode Electronics, Inc.
We
have audited Methode Electronics, Inc.s internal control over financial
reporting as of May 1, 2010, based on criteria established in
Internal ControlIntegrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Methode Electronics, Inc.s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Report on
Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Companys internal
control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In
our opinion, Methode Electronics, Inc. maintained effective internal
control over financial reporting as of May 1, 2010, based on the COSO
criteria.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Methode Electronics, Inc. as of May 1, 2010 and May 2, 2009, and
the related consolidated statements of operations, shareholders equity, and
cash flows for each of the three years in the period ended May 1, 2010 and
our report dated June 30, 2010 expressed an unqualified opinion thereon.
|
/s/ ERNST & YOUNG LLP
|
|
|
Chicago, Illinois
|
|
July 1, 2010
|
|
F-2
Table of Contents
METHODE ELECTRONICS, INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share
data)
|
|
May 1, 2010
|
|
May 2, 2009
|
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,821
|
|
$
|
54,030
|
|
Accounts receivable, less
allowance (2010 $1,102; 2009 $1,444)
|
|
68,649
|
|
60,406
|
|
Inventories:
|
|
|
|
|
|
Finished products
|
|
5,487
|
|
11,865
|
|
Work in process
|
|
7,686
|
|
7,583
|
|
Materials
|
|
16,587
|
|
17,796
|
|
|
|
29,760
|
|
37,244
|
|
Deferred income taxes
|
|
2,272
|
|
4,928
|
|
Prepaid and refundable
income taxes
|
|
13,956
|
|
14,764
|
|
Prepaid expenses and other
current assets
|
|
6,138
|
|
6,692
|
|
TOTAL CURRENT ASSETS
|
|
184,596
|
|
178,064
|
|
PROPERTY, PLANT AND
EQUIPMENT
|
|
|
|
|
|
Land
|
|
3,240
|
|
3,236
|
|
Buildings and building
improvements
|
|
49,398
|
|
54,378
|
|
Machinery and equipment
|
|
228,112
|
|
231,470
|
|
|
|
280,750
|
|
289,084
|
|
Less allowances for depreciation
|
|
218,874
|
|
219,167
|
|
|
|
61,876
|
|
69,917
|
|
OTHER ASSETS
|
|
|
|
|
|
Goodwill
|
|
12,096
|
|
11,771
|
|
Other intangibles, less
accumulated amortization
|
|
18,811
|
|
20,501
|
|
Cash surrender value of life
insurance
|
|
9,391
|
|
11,177
|
|
Deferred income taxes
|
|
3,657
|
|
4,993
|
|
Pre-production costs
|
|
11,984
|
|
3,182
|
|
Other
|
|
8,412
|
|
5,683
|
|
|
|
64,351
|
|
57,307
|
|
TOTAL ASSETS
|
|
$
|
310,823
|
|
$
|
305,288
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
Accounts payable
|
|
$
|
29,743
|
|
$
|
24,495
|
|
Salaries, wages and payroll
taxes
|
|
8,252
|
|
7,918
|
|
Other accrued expenses
|
|
18,283
|
|
19,921
|
|
Income taxes
|
|
2,467
|
|
1,184
|
|
TOTAL CURRENT LIABILITIES
|
|
58,745
|
|
53,518
|
|
|
|
|
|
|
|
OTHER LIABILITIES
|
|
10,251
|
|
13,561
|
|
DEFERRED COMPENSATION
|
|
1,885
|
|
3,308
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
Common stock, $0.50 par
value, 100,000,000 shares authorized, 38,149,946 and 38,290,776 shares issued
as of May 1, 2010 and May 2, 2009, respectively
|
|
19,075
|
|
19,145
|
|
Unearned common stock
issuances
|
|
|
|
(3,632
|
)
|
Additional paid-in capital
|
|
65,991
|
|
68,506
|
|
Accumulated other
comprehensive income
|
|
16,247
|
|
15,675
|
|
Treasury stock, 1,342,188
and 1,372,188 shares as of May 1, 2010 and May 2, 2009,
respectively
|
|
(11,377
|
)
|
(11,495
|
)
|
Retained earnings
|
|
146,818
|
|
143,577
|
|
TOTAL METHODE
ELECTONICS, INC. SHAREHOLDERS EQUITY
|
|
236,754
|
|
231,776
|
|
Noncontrolling interest
|
|
3,188
|
|
3,125
|
|
TOTAL EQUITY
|
|
239,942
|
|
234,901
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
310,823
|
|
$
|
305,288
|
|
See notes to consolidated financial statements.
F-3
Table of Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
data)
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
INCOME
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
373,136
|
|
$
|
425,644
|
|
$
|
551,073
|
|
Other
|
|
4,510
|
|
3,202
|
|
1,879
|
|
|
|
377,646
|
|
428,846
|
|
552,952
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
Cost of products sold
|
|
297,711
|
|
356,496
|
|
428,355
|
|
Restructuring
|
|
7,770
|
|
25,278
|
|
5,159
|
|
Impairment of goodwill and
other assets
|
|
|
|
94,374
|
|
1,472
|
|
Selling and administrative
expenses
|
|
62,427
|
|
57,128
|
|
61,221
|
|
Amortization of intangibles
|
|
2,297
|
|
6,933
|
|
6,013
|
|
|
|
370,205
|
|
540,209
|
|
502,220
|
|
|
|
|
|
|
|
|
|
Income/(loss) from
operations
|
|
7,441
|
|
(111,363
|
)
|
50,732
|
|
|
|
|
|
|
|
|
|
Interest income/(expense),
net
|
|
(139
|
)
|
1,382
|
|
2,324
|
|
Other income/(expense), net
|
|
515
|
|
(479
|
)
|
(3,250
|
)
|
Income/(loss) before income
taxes
|
|
7,817
|
|
(110,460
|
)
|
49,806
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit)
|
|
(5,964
|
)
|
1,680
|
|
9,723
|
|
Net income/(loss)
|
|
13,781
|
|
(112,140
|
)
|
40,083
|
|
Less: Net income
attributable to noncontrolling interest
|
|
126
|
|
343
|
|
329
|
|
NET INCOME/(LOSS)
ATTRIBUTABLE TO METHODE ELECTRONICS, INC.
|
|
$
|
13,655
|
|
$
|
(112,483
|
)
|
$
|
39,754
|
|
|
|
|
|
|
|
|
|
Amounts per common share:
|
|
|
|
|
|
|
|
Basic net income/(loss)
|
|
$
|
0.37
|
|
$
|
(3.05
|
)
|
$
|
1.07
|
|
Diluted net income/(loss)
|
|
$
|
0.37
|
|
$
|
(3.05
|
)
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
0.28
|
|
$
|
0.26
|
|
$
|
0.20
|
|
See notes to consolidated financial statements.
F-4
Table of
Contents
METHODE ELECTRONICS, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended May 1, 2010,
May 2, 2009 and May 3, 2008
(Dollar amounts in thousands, except share data)
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Common
|
|
Common
|
|
Additional
|
|
|
|
Currency
|
|
|
|
Total
|
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Paid-in
|
|
Retained
|
|
Translation
|
|
Treasury
|
|
Shareholders
|
|
|
|
Shares
|
|
$
|
|
Issuances
|
|
Capital
|
|
Earnings
|
|
Adjustments
|
|
Stock
|
|
Equity
|
|
Balance at
April 28, 2007
|
|
37,950,829
|
|
$
|
18,975
|
|
$
|
(4,517
|
)
|
$
|
65,512
|
|
$
|
233,684
|
|
$
|
16,010
|
|
$
|
(5,455
|
)
|
$
|
324,209
|
|
Cumulative impact of change
in accounting for uncertainties in income taxes (FIN 48 adoption)
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
(25
|
)
|
Release of restriction
pursuant to acquisition earn-out
|
|
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
260
|
|
Earned portion of restricted
stock awards
|
|
188,982
|
|
94
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
Stock award and stock option
amortization expense
|
|
|
|
|
|
|
|
3,359
|
|
|
|
|
|
|
|
3,359
|
|
Vested stock awards withheld
for payroll taxes
|
|
(40,140
|
)
|
(20
|
)
|
|
|
(441
|
)
|
|
|
|
|
|
|
(461
|
)
|
Exercise of options
|
|
125,708
|
|
64
|
|
|
|
1,234
|
|
|
|
|
|
|
|
1,298
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(788
|
)
|
(788
|
)
|
Tax benefit from stock
options
|
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
383
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
12,371
|
|
|
|
12,371
|
|
Net income for year
|
|
|
|
|
|
|
|
|
|
39,754
|
|
|
|
|
|
39,754
|
|
Cash dividends on common
stock
|
|
|
|
|
|
|
|
|
|
(7,575
|
)
|
|
|
|
|
(7,575
|
)
|
Balance at
May 3, 2008
|
|
38,225,379
|
|
$
|
19,113
|
|
$
|
(4,257
|
)
|
$
|
69,953
|
|
$
|
265,838
|
|
$
|
28,381
|
|
$
|
(6,243
|
)
|
$
|
372,785
|
|
Release of restriction
pursuant to acquisition earn-out
|
|
(53,012
|
)
|
(27
|
)
|
625
|
|
(598
|
)
|
|
|
|
|
|
|
|
|
Earned portion of restricted
stock awards
|
|
120,041
|
|
60
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
Stock award and stock option
amortization expense
|
|
|
|
|
|
|
|
(553
|
)
|
|
|
|
|
|
|
(553
|
)
|
Vested stock awards withheld
for payroll taxes
|
|
(20,721
|
)
|
(11
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
(141
|
)
|
Exercise of options
|
|
19,089
|
|
10
|
|
|
|
103
|
|
|
|
|
|
|
|
113
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,252
|
)
|
(5,252
|
)
|
Tax expense from stock
options
|
|
|
|
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
(209
|
)
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(12,706
|
)
|
|
|
(12,706
|
)
|
Net income/(loss) for year
|
|
|
|
|
|
|
|
|
|
(112,483
|
)
|
|
|
|
|
(112,483
|
)
|
Cash dividends on common
stock
|
|
|
|
|
|
|
|
|
|
(9,778
|
)
|
|
|
|
|
(9,778
|
)
|
Balance at
May 2, 2009
|
|
38,290,776
|
|
$
|
19,145
|
|
$
|
(3,632
|
)
|
$
|
68,506
|
|
$
|
143,577
|
|
$
|
15,675
|
|
$
|
(11,495
|
)
|
$
|
231,776
|
|
Cancellation of shares
pursuant to acquisition earn-out
|
|
(239,695
|
)
|
(120
|
)
|
3,307
|
|
(3,187
|
)
|
|
|
|
|
|
|
|
|
Release of restriction
pursuant to acquisition earn-out
|
|
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
325
|
|
Earned portion of restricted
stock awards
|
|
62,140
|
|
31
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
Stock award and stock option
amortization expense
|
|
|
|
|
|
|
|
871
|
|
|
|
|
|
|
|
871
|
|
Vested stock awards withheld
for payroll taxes
|
|
(10,923
|
)
|
(5
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
(104
|
)
|
Exercise of options
|
|
17,648
|
|
9
|
|
|
|
176
|
|
|
|
|
|
|
|
185
|
|
Treasury shares issued for
minority shares purchased
|
|
30,000
|
|
15
|
|
|
|
(214
|
)
|
|
|
|
|
118
|
|
(81
|
)
|
Tax expense from stock
options
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
(31
|
)
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
572
|
|
|
|
572
|
|
Net income for year
|
|
|
|
|
|
|
|
|
|
13,655
|
|
|
|
|
|
13,655
|
|
Cash dividends on common
stock
|
|
|
|
|
|
|
|
|
|
(10,414
|
)
|
|
|
|
|
(10,414
|
)
|
Balance at
May 1, 2010
|
|
38,149,946
|
|
$
|
19,075
|
|
$
|
|
|
$
|
65,991
|
|
$
|
146,818
|
|
$
|
16,247
|
|
$
|
(11,377
|
)
|
$
|
236,754
|
|
See notes to
consolidated financial statements
F-5
Table of
Contents
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
13,781
|
|
$
|
(112,140
|
)
|
$
|
40,083
|
|
Adjustments to reconcile net
income/(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Gain on sale of fixed assets
|
|
|
|
(407
|
)
|
(120
|
)
|
Provision for depreciation
|
|
17,112
|
|
30,103
|
|
22,146
|
|
Amortization of intangible
assets
|
|
2,297
|
|
6,933
|
|
6,013
|
|
Impairment of tangible
assets
|
|
710
|
|
10,313
|
|
1,472
|
|
Impairment of goodwill and
other assets
|
|
|
|
94,374
|
|
|
|
Stock-based compensation
|
|
871
|
|
(553
|
)
|
3,359
|
|
Provision for bad debt
|
|
142
|
|
120
|
|
195
|
|
Deferred income taxes
|
|
3,992
|
|
8,078
|
|
(2,948
|
)
|
Changes in operating assets
and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(12,436
|
)
|
33,347
|
|
(793
|
)
|
Inventories
|
|
645
|
|
19,918
|
|
(482
|
)
|
Prepaid expenses and other
current assets
|
|
(39
|
)
|
(16,086
|
)
|
7,989
|
|
Accounts payable and accrued
expenses
|
|
291
|
|
(30,832
|
)
|
107
|
|
NET CASH PROVIDED BY
OPERATING ACTIVITIES
|
|
27,366
|
|
43,168
|
|
77,021
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Purchases of property, plant
and equipment
|
|
(9,379
|
)
|
(17,064
|
)
|
(20,018
|
)
|
Acquisition of businesses
|
|
(325
|
)
|
(57,469
|
)
|
(9,647
|
)
|
Acquisition of technology
licenses
|
|
(530
|
)
|
(1,575
|
)
|
|
|
Proceeds from life insurance
policies
|
|
2,464
|
|
|
|
1,706
|
|
Joint venture dividend
|
|
|
|
|
|
(1,000
|
)
|
Other
|
|
|
|
(14
|
)
|
(27
|
)
|
NET CASH USED IN INVESTING
ACTIVITIES
|
|
(7,770
|
)
|
(76,122
|
)
|
(28,986
|
)
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
|
(5,252
|
)
|
(1,249
|
)
|
Proceeds from exercise of
stock options
|
|
185
|
|
113
|
|
1,298
|
|
Tax (expense)/benefit from
stock options and awards
|
|
(31
|
)
|
(209
|
)
|
383
|
|
Cash dividends
|
|
(10,414
|
)
|
(9,778
|
)
|
(7,575
|
)
|
NET CASH USED IN FINANCING
ACTIVITIES
|
|
(10,260
|
)
|
(15,126
|
)
|
(7,143
|
)
|
|
|
|
|
|
|
|
|
Effect of foreign currency
exchange rate changes on cash
|
|
455
|
|
(2,195
|
)
|
3,322
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
|
|
9,791
|
|
(50,275
|
)
|
44,214
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
beginning of year
|
|
54,030
|
|
104,305
|
|
60,091
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT
END OF YEAR
|
|
$
|
63,821
|
|
$
|
54,030
|
|
$
|
104,305
|
|
See notes to condensed consolidated financial
statements.
F-6
Table
of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
1.
Significant Accounting
Policies
Principles of Consolidation.
The consolidated financial
statements include the accounts and operations of Methode Electronics, Inc.
(the Company) and its subsidiaries. As
used herein, we, us, our, the Company or Methode means Methode
Electronics, Inc. and its subsidiaries.
Financial Reporting Periods.
We
maintain our financial records on the basis of a fifty-two or fifty-three week
fiscal year ending on the Saturday closest to April 30. Due to the timing of our fiscal calendar, the
fiscal year ended May 1, 2010 and the fiscal year ended May 2, 2009
represent 52 weeks of results and the fiscal year ended May 3, 2008
represents 53 weeks of results.
Cash Equivalents.
Generally, all highly liquid
investments with a maturity of three months or less when purchased are carried
at their approximate fair value and classified in the consolidated balance
sheets as cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts.
We carry accounts
receivable at their face amounts less an allowance for doubtful accounts. On a
regular basis, we record an allowance for uncollectible receivables based upon
past transaction history with customers, customer payment practices and
economic conditions. Actual collection experience may differ from the current
estimate of net receivables. A change to the allowance for uncollectible
amounts may be required if a future event or other change in circumstances
results in a change in the estimate of the ultimate collectability of a
specific account. We do not require
collateral for our accounts receivable balances. Accounts are written off against the
allowance account when they are determined to be no longer collectible.
Inventories.
Inventories are stated at the
lower-of-cost (first-in, first-out method) or market.
Property, Plant and Equipment.
Properties are stated on the
basis of cost. We amortize such costs by
annual charges to income, computed on the straight-line method using estimated
useful lives of 5 to 40 years for buildings and improvements and 3 to 15 years
for machinery and equipment for financial reporting purposes. Accelerated methods are generally used for
income tax purposes.
Income Taxes.
Deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Revenue Recognition.
We recognize revenue on product
sales when i) persuasive evidence of an agreement exists, ii) the price is
fixed or determinable, iii) delivery has occurred or services have been
rendered, and iv) collection of the sales proceeds is reasonably assured. Revenue from our product sales not requiring
installation, net of trade discounts and estimated sales allowances, is
recognized when title passes, which is generally upon shipment. We do not have any additional obligations or
customer acceptance provisions after shipment of such products. We handle returns by replacing, repairing or
issuing credit for defective products when returned. Return costs were not significant in fiscal
2010, 2009 and 2008. Revenue from
cabling infrastructure systems installations is recognized when the installation
is completed, tested and accepted by the customer.
Shipping and Handling Fees and
Costs
. Shipping
and handling fees billed to customers are included in net sales, and the
related costs are included in cost of products sold.
Foreign Currency Translation.
The functional currencies of the
majority of our foreign subsidiaries are in their local currencies. Accordingly, the results of operations of
these foreign subsidiaries are translated into U.S. dollars using average
exchange rates during the year, while the assets and liabilities are translated
using period end exchange rates.
Adjustments from the translation process are classified as a component
of shareholders equity. Exchange gains
and losses arising from transactions denominated in a currency other than the
functional currency of the foreign subsidiary are included in the Consolidated
Statements of Operations in other, net.
In fiscal 2010, 2009 and 2008, we had foreign exchange losses of $1,151,
$479 and $3,250, respectively.
F-7
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
1. Significant Accounting Policies - Continued
Long-Lived Assets.
In
accordance with Accounting Standards Codification, (ASC) No. 360, Property,
Plant and Equipment we continually evaluate whether events and circumstances
have occurred which indicate that the remaining estimated useful lives of our
intangible assets, excluding goodwill, and other long-lived assets, may warrant
revision or that the remaining balance of such assets may not be recoverable. In
the event that the undiscounted cash flows resulting from the use of the asset
group is less than the carrying amount, an impairment loss equal to the excess
of the assets carrying amount over its fair value is recorded.
Goodwill and Intangibles.
Costs assigned to the fair value
of intangible assets acquired with finite lives are being amortized over
periods ranging from 3 to 20 years, generally on a straight-line basis or
accelerated basis, depending on the nature of the intangible asset. The fair value of certain intangible assets
is being amortized over projected revenues used to initially value such
intangible assets. Goodwill represents
the excess of purchase price over the estimated fair value of net assets of
acquired companies, which has not been allocated to other intangible assets.
The Company evaluates goodwill for impairment at
the reporting unit level, which is one level below the operating segment level
(herein referred to as the reporting unit).
The impairment test for goodwill is a two-step process. The first step is to identify when goodwill
impairment has occurred by comparing the fair value of a reporting unit with
its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit
exceeds its fair value, the second step of the goodwill test is performed to
measure the amount of the impairment loss, if any. In this second step, the implied fair value
of the reporting units goodwill is compared with the carrying amount of the
goodwill. If the carrying amount of the
reporting units goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess, not to exceed
the carrying amount of the goodwill.
Based on events and general business declines, we performed step one
of the goodwill impairment test in accordance with ASC No. 350, Intangibles
Goodwill and Other, on the reporting units that had goodwill as of May 1,
2010.
Research and Development Costs.
Costs associated with the
development of new products are charged to expense when incurred. Research and development costs for the fiscal
years ended May 1, 2010, May 2, 2009 and May 3, 2008 amounted to
$18,412, $21,995 and $25,595, respectively.
Stock-Based Compensation.
See Note 5, Shareholders Equity
for a description of our stock-based compensation plans.
Use of Estimates.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results
could differ from those estimates.
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.
Comprehensive Income.
ASC No. 220, Comprehensive
Income, requires companies to report all changes in equity during a period,
except those resulting from investment by owners and distribution to owners, in
a financial statement for the period in which they were recognized. We chose to disclose comprehensive income,
which encompasses net income and foreign currency translation adjustments, in
the consolidated statement of shareholders equity.
F-8
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
1. Significant Accounting Policies - Continued
Recently Adopted Accounting
Pronouncements
Effective November 1, 2009, we adopted 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. The adoption of this standard did
not have a material impact on our financial statements.
Effective November 1, 2009, we adopted ASC No. 860,
Transfers and Servicing (ASC No. 860).
ASC No. 860 requires more information about transfers of financial
assets, including 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. The adoption of this standard did not have an
impact on our financial statements.
Effective October 31, 2009, we adopted ASC No. 105,
Generally Accepted Accounting Principles, (ASC No. 105), 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
did not change GAAP and therefore the adoption of ASC No. 105 affected how
specific references to GAAP literature are disclosed in the notes to our
consolidated financial statements.
In December 2007, the FASB issued new guidance
under ASC No. 810, an Amendment of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. 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 operations for the prior period to
conform with this standard.
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, (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 a material 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.
F-9
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
1. Significant Accounting Policies - Continued
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
fiscal 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.
2. Restructurings
March 2009 Restructuring
In
March 2009, we announced additional restructuring actions to consolidate
manufacturing facilities to reduce costs.
All of the restructuring actions were complete as of the end of fiscal
2010.
In
total, this additional restructuring affected approximately 850 employees
worldwide. We recorded a total pre-tax charge of $12,511 during fiscal years
2009 and 2010 related to this restructuring.
During the fiscal year ended May 1, 2010, we
recorded a restructuring charge of $5,248, which consisted of $3,512 for
employee severance, $279 in the cancellation of lease agreements and $1,457 for
other costs.
During the fiscal year ended May 2, 2009, we
recorded a restructuring charge of $7,263, which consisted of $100 for employee
severance, $1,373 in impairment for buildings and improvements and machinery
and equipment, $5,418 for impairment of customer funded tooling and $133 in
forfeited security deposits related to the transfer of the new GM business and
$239 relating to professional fees.
As of May 1, 2010, we had an accrued restructuring
liability of $420 reflected in the current liabilities section of our
consolidated balance sheet. We expect
this liability to be paid out during fiscal 2011.
F-10
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
2. Restructurings -
Continued
The table below reflects the activity related to
the March 2009 restructuring for fiscal 2009 and 2010.
|
|
One-Time
|
|
|
|
|
|
|
|
|
|
Employee
|
|
Asset
|
|
Other
|
|
|
|
|
|
Severance
|
|
Write-Downs
|
|
Costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Accrued balance at
May 3, 2008
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2009 restructuring
charges
|
|
100
|
|
6,924
|
|
239
|
|
7,263
|
|
Payments and asset
write-downs
|
|
|
|
(6,924
|
)
|
(198
|
)
|
(7,122
|
)
|
Accrued balance at
May 2, 2009
|
|
$
|
100
|
|
$
|
|
|
$
|
41
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
FY 2010 restructuring charges
|
|
3,512
|
|
|
|
1,736
|
|
5,248
|
|
Payments and asset
write-downs
|
|
(3,612
|
)
|
|
|
(1,357
|
)
|
(4,969
|
)
|
Accrued balance at
May 1, 2010
|
|
$
|
|
|
$
|
|
|
$
|
420
|
|
$
|
420
|
|
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 segment restructuring was completed during fiscal 2010. We record the expense in the restructuring
section of our consolidated statement of operations. We recorded a total
pre-tax charge of $25,696 related to this restructuring initiative.
During the fiscal year ended May 1, 2010, we
recorded a restructuring charge of $2,522, which consisted of $697 for employee
severance, $1,564 for accelerated depreciation for buildings equipment, and
$261 relating to other costs. As of May 1,
2010, we had an accrued restructuring liability of $155 reflected in the
current liabilities section of our consolidated balance sheet. We expect this liability to be paid out
during fiscal 2011.
During the fiscal year ended May 2, 2009, we
recorded a restructuring charge of $18,015, which consisted of $6,099 for
employee severance, $3,522 and $7,276 in impairments and accelerated
depreciation, respectively, for buildings and improvements and machinery and
equipment, $153 in inventory write-downs and $965 relating to professional
fees. As of May 2, 2009, we had an
accrued restructuring liability of $1,849 reflected in the current liabilities
section of our consolidated balance sheet.
During the fiscal year ended May 3, 2008, we
recorded a restructuring charge of $5,159, which consisted of $3,355 for
employee severance, $1,346 in impairments and accelerated depreciation for
buildings and improvements and machinery and equipment and $458 relating to
professional fees. As of May 3,
2008, we had an accrued restructuring liability of $3,176 reflected in the
current liabilities section of our consolidated balance sheet.
F-11
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
2. Restructurings -
Continued
The table below reflects the January 2008
restructuring activity for fiscal 2008, 2009 and 2010.
|
|
One-Time
|
|
|
|
|
|
|
|
|
|
Employee
|
|
Asset
|
|
Other
|
|
|
|
|
|
Severance
|
|
Write-Downs
|
|
Costs
|
|
Total
|
|
Accrued balance at
April 28, 2007
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 restructuring
charges
|
|
3,355
|
|
1,346
|
|
458
|
|
5,159
|
|
Fiscal 2008 payments and
asset write-downs
|
|
(203
|
)
|
(1,346
|
)
|
(434
|
)
|
(1,983
|
)
|
Accrued balance at
May 3, 2008
|
|
3,152
|
|
|
|
24
|
|
3,176
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 restructuring
charges
|
|
6,099
|
|
10,951
|
|
965
|
|
18,015
|
|
Fiscal 2009 payments and
asset write-downs
|
|
(7,402
|
)
|
(10,951
|
)
|
(989
|
)
|
(19,342
|
)
|
Accrued balance at
May 2, 2009
|
|
$
|
1,849
|
|
$
|
|
|
$
|
|
|
$
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 restructuring
charges
|
|
697
|
|
1,564
|
|
261
|
|
2,522
|
|
Fiscal 2010 payments and
asset write-downs
|
|
(2,429
|
)
|
(1,564
|
)
|
(223
|
)
|
(4,216
|
)
|
Accrued balance at
May 1, 2010
|
|
$
|
117
|
|
$
|
|
|
$
|
38
|
|
$
|
155
|
|
3
.
Acquisitions
Fiscal 2009 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 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.
Based
in part on a third-party valuation report, management determined that the
tangible net assets 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-competes are being
amortized over 5 to approximately 12 years.
The trade name and trademarks are not subject to amortization but are
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.
Fiscal 2008 Acquisitions
On
August 31, 2007, we acquired 100% of the assets of Value Engineered
Products, Inc. (VEP) for $5,750 in cash.
We also incurred $79 in transaction costs related to the purchase. VEP is a thermal management solutions
provider, manufacturing heat sinks and related products for high-powered
applications. These components
complement our Power Product offerings and, in some instances, are joined with
bus bars to aid thermal management of power systems. The terms of the acquisition provide for an
additional payment of up to a maximum of $1,000 if sales reach specified
targets during the twelve-month period following the closing. The final payout was $758 and was recorded in
the second quarter of fiscal 2009.
Based
in part on a third-party valuation report, management determined that the
tangible net assets acquired in the VEP transaction had a fair value of
$915. The fair values assigned to
intangible assets acquired were $2,900 for customer relationships and $600 for
trademarks, resulting in $2,172 of goodwill.
The customer relationships acquired are being amortized over a period of
approximately 16 years, which began in September 2007. The
F-12
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
3
.
Acquisitions - Continued
trademark
intangible assets are not subject to amortization but are subject to periodic
impairment testing. The accounts and
transactions of the acquired business have been included in the Power Products
segment in the consolidated financial statements from the effective date of the
acquisition.
On
March 30, 2008, we acquired 100% of the assets of Tribotek, Inc for
$1,750 in cash. We also incurred $61 in
transaction costs related to the purchase.
Tribotek designs, develops and manufactures high current power
connectors and power product systems for products such as power supplies,
servers, rectifiers, inverters, robotics and automated test equipment, in
addition to various military and telecommunication applications.
The
tangible net assets acquired in the Tribotek transaction had a fair value of
$1,445. The fair values assigned to
intangible assets acquired were $366 for patents that are being amortized over
a period of approximately 18 years beginning March 2008. There was no goodwill recorded for this
acquisition. The accounts and
transactions of the acquired business have been included in the Power Products
segment in the consolidated financial statements from the effective date of the
acquisition.
4
.
Intangible Assets and
Goodwill
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, future cash flows, a change in strategic direction or our
market capitalization remaining below our net book value for a significant
period of time could result in significant impairment charges, which could have
a material adverse effect on our financial condition and results of
operations. We performed the annual
goodwill impairment analysis as of May 1, 2010, using an internal
discounted cash flow model for each reporting unit based on our internally
developed forecasted budgets using the business conditions which existed as of
the testing date. The internal discount
rate and forecast assumptions used for our individual reporting units, as well
as overall methodology, was validated through the reconciliation to our
external market capitalization.
In fiscal 2009, based on events and general business
declines, we performed step one of the goodwill impairment test in accordance
with ASC No. 350, on the reporting units.
Based on this test, we determined that the fair value was less than the
carrying value of the net assets for certain reporting units. We completed
step two of the goodwill test and concluded that goodwill was
impaired. Therefore, during fiscal 2009,
we recorded a goodwill impairment charge of $25,838 in our Automotive segment,
$30,752 in our Interconnect segment, $5,358 in our Power Products segment and
$1,203 in our Other segment for a total of $63,151 related to these assets.
Also, in accordance with ASC No. 360, Property,
Plant and Equipment, we record impairment losses on long-lived assets used in
operations when events and circumstances indicate that long-lived assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. During fiscal 2009,
based on our future estimates of the undiscounted cash flows, it was determined
that certain identifiable intangible assets of our TouchSensor and Hetronic
businesses in the Interconnect segment, the Automotive Safety Technologies
business in our Automotive segment and Magna-Lastic Devices, Inc. from our
Other segment were impaired. Therefore,
we recorded an impairment charge of $26,176 in the Interconnect segment, $4,626
in the Automotive segment and $421 in the Other segment for a total of $31,063
for these assets.
Goodwill increased $325 in fiscal 2010, related to a
final payout for the 2005 acquisition of Cableco Technologies Corporation. We had originally issued 623,526 shares of
restricted common stock in connection with the contingent payments related to
this transaction. The contingent
payments were to be earned if certain operational and financial milestones were
met, depending on certain factors. In
fiscal 2010, the sellers earned 27,567 of the restricted shares. Since acquisition, including the 27,567
shares earned in fiscal 2010, the sellers earned a total of 383,831 of the
restricted shares. The remaining 239,695
restricted shares were cancelled in fiscal
F-13
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
4
.
Intangible Assets and
Goodwill - Continued
2010.
The following table shows the roll-forward of goodwill
in the financial statements resulting from our acquisition and impairment
activities for fiscal 2008, 2009 and 2010.
|
|
|
|
|
|
Power
|
|
|
|
|
|
|
|
Automotive
|
|
Interconnect
|
|
Products
|
|
Other
|
|
Total
|
|
Balance as of April 28,
2007
|
|
$
|
25,838
|
|
$
|
21,553
|
|
$
|
2,926
|
|
$
|
1,203
|
|
$
|
51,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attibutable to 2008
acquisitions
|
|
|
|
|
|
1,414
|
|
|
|
1,414
|
|
Adjustments due to earn-out
|
|
|
|
|
|
260
|
|
|
|
260
|
|
Adjustments due to
finalization of purchase price allocation
|
|
|
|
1,282
|
|
|
|
|
|
1,282
|
|
Balance as of May 3,
2008
|
|
$
|
25,838
|
|
$
|
22,835
|
|
$
|
4,600
|
|
$
|
1,203
|
|
$
|
54,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attibutable to 2009
acquisitions
|
|
|
|
19,063
|
|
|
|
|
|
19,063
|
|
Adjustments due to earn-out
|
|
|
|
|
|
625
|
|
|
|
625
|
|
Adjustments due to
finalization of purchase price allocation
|
|
|
|
|
|
758
|
|
|
|
758
|
|
Impairment
|
|
(25,838
|
)
|
(30,752
|
)
|
(5,358
|
)
|
(1,203
|
)
|
(63,151
|
)
|
Balance as of May 2,
2009
|
|
$
|
|
|
$
|
11,146
|
|
$
|
625
|
|
$
|
|
|
$
|
11,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments due to earn-out
|
|
|
|
|
|
325
|
|
|
|
325
|
|
Balance as of May 1,
2010
|
|
$
|
|
|
$
|
11,146
|
|
$
|
950
|
|
$
|
|
|
$
|
12,096
|
|
F-14
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
4
.
Intangible Assets and
Goodwill - Continued
Intangible Assets
The following tables present details of our remaining
identifiable intangible assets:
|
|
As of May 1, 2010
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Accumulated
|
|
|
|
Amortization
|
|
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Periods (Years)
|
|
Customer relationships and
agreements
|
|
$
|
14,995
|
|
$
|
13,066
|
|
$
|
1,929
|
|
13.7
|
|
Patents and technology
licenses
|
|
23,774
|
|
6,991
|
|
16,783
|
|
13.0
|
|
Covenants not to compete
|
|
480
|
|
381
|
|
99
|
|
1.8
|
|
Total
|
|
$
|
39,249
|
|
$
|
20,438
|
|
$
|
18,811
|
|
|
|
|
|
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 each of
the five succeeding fiscal years is as follows:
2011
|
|
$
|
2,230
|
|
2012
|
|
1,701
|
|
2013
|
|
1,324
|
|
2014
|
|
1,212
|
|
2015
|
|
1,123
|
|
As of May 1, 2010, the
patents and technology licenses include $2,400 of trade names that are not
subject to amortization.
5. Shareholders Equity
Preferred Stock.
We have 50,000 authorized shares
of Series A Junior Participating Preferred Stock, par value $100 per
share, of which none were outstanding during any of the periods presented.
Common Stock.
Common stock, par value $0.50
per share, authorized, issued and in treasury, was as follows:
|
|
May 1, 2010
|
|
May 2, 2009
|
|
Authorized
|
|
100,000,000
|
|
100,000,000
|
|
Issued
|
|
38,149,946
|
|
38,290,776
|
|
In treasury
|
|
1,342,188
|
|
1,372,188
|
|
F-15
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
5. Shareholders Equity -
Continued
At May 1, 2010, 473,181 shares of common stock are
reserved for future issuance in connection with our 2007 Stock Plans.
Shareholders Rights
Agreement.
On January 8, 2004, our Board of Directors declared a dividend of
one preferred share purchase right (a Right) for each share of common stock (Common
Shares) outstanding on January 18, 2004 to the stockholders of record on
that date. Each Right entitles the
registered holder to purchase from us one ten-thousandth of a share of our Series A
Junior Participating Preferred Stock at an exercise price of $65.00 per one
ten-thousandth of a preferred share, subject to adjustment.
The Rights, which are not detachable, will trade
automatically with the Common Shares and will not be exercisable until it is
announced that a person or group has become an acquiring person by acquiring
15% or more of the Common Shares, or a person or group commences a tender offer
that will result in such person or group owning 15% or more of the Common
Shares. Thereafter, separate right
certificates will be distributed, and each right will entitle its holder to
purchase for the exercise price, a fraction of a share of our Series A
Junior Participating Preferred Stock having economic and voting terms similar
to one share of common stock.
Upon announcement that any person or group has become an
acquiring person, each Right will entitle all right-holders (other than the
acquiring person) to purchase, for the exercise price, a number of shares of
Common Shares having a market value of twice the exercise price. Right-holders would also be entitled to
purchase the common stock of another entity having a value of twice the
exercise price if, after a person has become an acquiring person, the Company
were to enter into certain mergers or other transactions with such other
entity. If any person becomes an
acquiring person, the Companys Board of Directors may, at its option and
subject to certain limitations, exchange one share of common stock for each
Right.
The Rights may be redeemed by our Board of Directors for
$0.01 per Right at any time prior to a person or group having become an
acquiring person. The Rights will expire
on January 8, 2014.
Dividends
We paid quarterly dividends totaling $10,414, $9,778 and
$7,575 during fiscal 2010, 2009 and 2008, respectively. 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 in September 2008, which
expired at the end of fiscal 2010. There
were no shares purchased under the plan during fiscal 2010 and there were
669,480 shares purchased at an average price of $7.85 under the plan in fiscal
2009.
2007 Stock Plan
On June 21, 2007, our Board of Directors, on the
recommendation of our Compensation Committee, adopted the Methode Electronics, Inc.
2007 Stock Plan (the Stock Plan). The
Stock Plan was voted on and approved by the shareholders at our annual meeting
on September 13, 2007. Upon
adoption of the Stock Plan, our board of directors elected to terminate the
2004 Plan and the 2000 Plan with respect to the shares reserved under these
plans that are not subject to outstanding awards.
The Stock Plan permits a total of 1,250,000 shares of
our common stock to be awarded to participants.
Shares issued under the Stock Plan may be either authorized but unissued
shares, or treasury shares. If any award
terminates, expires, is cancelled or forfeited as to any number of shares of
common stock, new awards may be granted with respect to such shares. The total number of shares with respect to
which awards may be granted to any participant in any calendar year shall not
exceed 200,000 shares. As of May 1,
2010 there were 473,181 shares still available for award under the Stock Plan.
F-16
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
5. Shareholders Equity -
Continued
Stock Options Granted Under the 2000
and 2004 Stock Plans
There are 529,776 stock options that were granted in
previous years under the 2000 and 2004 stock plans that are outstanding and
exercisable as of May 1, 2010. No
options were granted under the Plans since the first quarter of fiscal
2005. Stock options granted under the
Plans vest over a period of six months to forty-eight months after the date of
the grant and have a term of ten years.
There was no remaining compensation expense relating to these options in
fiscal 2010.
|
|
Options Outstanding
|
|
Exercisable Options
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
April 28,
2007
|
|
818,918
|
|
$
|
10.26
|
|
777,668
|
|
$
|
10.20
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(125,708
|
)
|
10.32
|
|
|
|
|
|
Cancelled
|
|
(3,521
|
)
|
8.03
|
|
|
|
|
|
May 3,
2008
|
|
689,689
|
|
10.26
|
|
689,689
|
|
10.26
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(19,089
|
)
|
5.90
|
|
|
|
|
|
Cancelled
|
|
(44,967
|
)
|
10.65
|
|
|
|
|
|
May 2,
2009
|
|
625,633
|
|
10.36
|
|
625,633
|
|
10.36
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(17,648
|
)
|
10.62
|
|
|
|
|
|
Cancelled
|
|
(78,209
|
)
|
12.08
|
|
|
|
|
|
May 1,
2010
|
|
529,776
|
|
10.10
|
|
529,776
|
|
10.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding and
|
Exercisable
at May 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
Avg.
|
|
Range of
|
|
|
|
Exercise
|
|
Remaining
|
|
Exercise Prices
|
|
Shares
|
|
Price
|
|
Life (Years)
|
|
$5.12 - $7.69
|
|
148,125
|
|
$
|
6.72
|
|
1.0
|
|
$8.08 - $11.64
|
|
283,367
|
|
10.87
|
|
2.6
|
|
$12.11 - $14.70
|
|
98,284
|
|
12.99
|
|
0.1
|
|
|
|
529,776
|
|
10.10
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
5. Shareholders Equity -
Continued
Stock Options Granted Under the 2007
Stock Plan
In March 2009, the Compensation Committee approved
the grant of options to purchase 285,000 shares of our common stock 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 options to purchase 275,000 shares
of our common stock 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. Additionally, in December 2009,
the Compensation Committee approved the grant of options to purchase 35,500
shares of our common stock to some members of the management team. The December 2009 stock options vest on
the third anniversary of the date of grant.
The stock options granted under the 2007 plan have a ten-year term. We recognized pre-tax compensation expense
for stock options in the fiscal 2010 of $450 and a pre-tax compensation expense
of $17 for fiscal 2009. We record the
expense in the selling and administrative section of our Consolidated Statement
of Operations.
The
following tables summarize the stock option activity and related information
for the stock options granted under the 2007 Stock Plan as of May 1, 2010:
|
|
Summary of Option Activity
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
Shares
|
|
Exercise Price
|
|
Outstanding at May 2,
2009
|
|
285,000
|
|
$
|
2.72
|
|
Granted
|
|
310,500
|
|
6.65
|
|
Exercised
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
Outstanding at May 1,
2010
|
|
595,500
|
|
$
|
4.77
|
|
Options Outstanding
at May 1, 2010
|
|
|
|
Avg.
|
|
|
|
|
|
Remaining
|
|
Exercise Price
|
|
Shares
|
|
Life (Years)
|
|
$
|
2.72
|
|
285,000
|
|
8.8
|
|
$
|
6.46
|
|
275,000
|
|
9.2
|
|
$
|
8.13
|
|
35,500
|
|
9.6
|
|
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
|
%
|
86.88
|
%
|
Average risk-free interest
rate
|
|
1.39
|
%
|
1.43
|
%
|
Dividend yield
|
|
2.26
|
%
|
2.77
|
%
|
Expected life of options
|
|
6.87 years
|
|
6.87 years
|
|
Weighted-average grant-date
fair value
|
|
$
|
1.46
|
|
$
|
4.02
|
|
|
|
|
|
|
|
|
|
Expected
volatility was based on the monthly changes in our historical common stock
prices over the expected life of the award.
The risk-free rate is based on the U.S. Treasury yield curve in effect
at the time of the
F-18
Table
of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
5.
Shareholders Equity - Continued
grant corresponding to the
expected life of the options. Our
dividend yield is based on the average dividend yield for the previous two
years from the date of grant. The expected
life of options is based on historical stock
option exercise patterns and the terms of the options.
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. All further discussion of RSAs in this report
includes the RSUs described above.
At the beginning of fiscal 2010, there were 678,287
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. All of the unvested RSAs are
entitled to voting rights and to payment of dividends. During fiscal 2010, we awarded 24,000
restricted stock awards which vested immediately upon grant.
During fiscal 2010, it was determined that based on the
current economic environment, the performance shares granted in fiscal 2008 and
2009 were not meeting the revenue growth and return on invested capital
targets. Due to the performance shares
not meeting financial targets, all of the 382,769, performance-based stock
awards granted in fiscal 2008 and fiscal 2009 were cancelled. There was no adjustment to the pre-tax
compensation expense to reflect the performance shares not meeting current and
future anticipated revenue growth and return on invested capital targets
because the compensation expense was fully reversed in fiscal 2009. We recognized pre-tax compensation expense
for RSAs in fiscal 2010 of $421, a pre-tax compensation expense reversal of
$570 for fiscal 2009 and $3,348 for fiscal 2008. We record the expense in the selling and
administrative expenses section of our consolidated statement of operations.
F-19
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
5. Shareholders Equity -
Continued
The following table summarizes the RSA activity:
|
|
Fiscal Year
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Unvested at beginning of
fiscal year
|
|
678,287
|
|
582,298
|
|
525,589
|
|
Awarded
|
|
24,000
|
|
356,665
|
|
246,123
|
|
Vested
|
|
(62,140
|
)
|
(105,522
|
)
|
(188,982
|
)
|
Cancelled
|
|
(382,769
|
)
|
(120,750
|
)
|
|
|
Forfeited
|
|
(7,028
|
)
|
(34,404
|
)
|
(432
|
)
|
Unvested at end of period
|
|
250,350
|
|
678,287
|
|
582,298
|
|
The table below shows the Companys unvested RSAs
at May 1, 2010:
|
|
|
|
|
|
|
|
Probable
|
|
Target
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
Unearned
|
|
Grant
|
|
|
|
|
|
Weighted
|
|
Compensation
|
|
Compensation
|
|
Fiscal
|
|
|
|
|
|
Average
|
|
Expense at
|
|
Expense at
|
|
Year
|
|
RSAs
|
|
Vesting Period
|
|
Value
|
|
May 1, 2010
|
|
May 1, 2010
|
|
2006
|
|
125,000
|
|
3-year cliff performanced-based
|
|
$
|
12.42
|
|
$
|
|
|
$
|
|
|
2007
|
|
100,000
|
|
3-year cliff performanced-based
|
|
7.64
|
|
|
|
|
|
2008
|
|
666
|
|
3-year equal annual installments
|
|
11.74
|
|
|
|
|
|
2009
|
|
24,684
|
|
3-year equal annual installments
|
|
10.64
|
|
89,314
|
|
89,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 1, 2010, the
aggregate unvested RSAs had a weighted average fair value of $10.33 and a
weighted average vesting period of approximately 12 months.
6. Employee 401(k) Savings
Plan
We have an Employee 401(k) Savings Plan covering
substantially all U.S. employees to which we make contributions equal to 3% of
eligible compensation. Our contributions
to the Employee 401(k) Savings Plan were $1,429, $1,950 and $2,075 in
fiscal 2010, 2009 and 2008, respectively.
F-20
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
7. Income Taxes
Significant components of our deferred tax assets and
liabilities were as follows:
|
|
May 1,
|
|
May 2,
|
|
|
|
2010
|
|
2009
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Accelerated tax depreciation
|
|
$
|
2,978
|
|
$
|
2,104
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Deferred compensation and
stock award amortization
|
|
1,875
|
|
3,576
|
|
Inventory valuation
differences
|
|
1,364
|
|
2,855
|
|
Property valuation
differences
|
|
4,456
|
|
1,031
|
|
Accelerated book
amortization
|
|
19,738
|
|
22,025
|
|
Environmental reserves
|
|
1,569
|
|
1,191
|
|
Bad debt reserves
|
|
710
|
|
639
|
|
Vacation accruals
|
|
855
|
|
966
|
|
Restructuring accruals
|
|
197
|
|
866
|
|
Foreign investment tax
credit
|
|
23,933
|
|
26,518
|
|
Foreign net operating loss
carryover
|
|
|
|
3,032
|
|
State net operating loss
carryover
|
|
1,312
|
|
443
|
|
Other accruals
|
|
1,300
|
|
260
|
|
|
|
57,309
|
|
63,402
|
|
Less valuation allowance
|
|
48,402
|
|
51,377
|
|
Total deferred tax assets
|
|
8,907
|
|
12,025
|
|
Net deferred tax assets
|
|
$
|
5,929
|
|
$
|
9,921
|
|
|
|
|
|
|
|
Balance sheet
classification:
|
|
|
|
|
|
Current asset
|
|
$
|
2,272
|
|
$
|
4,928
|
|
Non-current asset
|
|
3,657
|
|
4,993
|
|
|
|
$
|
5,929
|
|
$
|
9,921
|
|
F-21
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
7. Income Taxes - Continued
At May 1, 2010, we had valuation allowances against
our deferred tax assets of $48,402. 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. In fiscal
2010, we utilized all ability to carry-back federal U.S. losses to prior years. 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 remainder of 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 (NOL), 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.
The state NOL carry forwards relate to the current years
NOLs, which may be used to reduce tax liabilities in future years. If not realized, the state tax benefits of
$1,312 expire over a twelve to twenty year period.
Income taxes consisted of the following:
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(11,356
|
)
|
$
|
(6,956
|
)
|
$
|
10,580
|
|
Foreign
|
|
1,339
|
|
867
|
|
1,502
|
|
State
|
|
61
|
|
(309
|
)
|
589
|
|
|
|
(9,956
|
)
|
(6,398
|
)
|
12,671
|
|
Deferred
|
|
3,992
|
|
8,078
|
|
(2,948
|
)
|
|
|
$
|
(5,964
|
)
|
$
|
1,680
|
|
$
|
9,723
|
|
F-22
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
7. Income Taxes - Continued
A reconciliation of the consolidated provisions for
income taxes to amounts determined by applying the prevailing statutory federal
income tax rate to pre-tax earnings/(loss) is as follows:
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
|
|
May 2,
|
|
|
|
May 3,
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Income tax at statutory rate
|
|
$
|
2,693
|
|
35.0
|
%
|
$
|
(38,779
|
)
|
35.0
|
%
|
$
|
17,317
|
|
35.0
|
%
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of
federal benefit
|
|
637
|
|
8.3
|
|
(2,559
|
)
|
2.3
|
|
244
|
|
0.5
|
|
Foreign operations with
lower statutory rates
|
|
(4,723
|
)
|
(61.4
|
)
|
(2,578
|
)
|
2.3
|
|
(5,718
|
)
|
(11.6
|
)
|
Foreign losses with no tax
benefit
|
|
532
|
|
6.9
|
|
13,498
|
|
(12.2
|
)
|
12
|
|
0.0
|
|
Foreign investment tax
credit (FTC)
|
|
(337
|
)
|
(4.4
|
)
|
(2,027
|
)
|
1.8
|
|
(6,360
|
)
|
(12.8
|
)
|
Change in tax contingency
reserve
|
|
(3,344
|
)
|
(43.5
|
)
|
37
|
|
|
|
1,910
|
|
3.9
|
|
Manufacturing deduction
|
|
|
|
|
|
|
|
|
|
(318
|
)
|
(0.6
|
)
|
Research and development
credit
|
|
(293
|
)
|
(3.8
|
)
|
(255
|
)
|
0.2
|
|
(470
|
)
|
(1.0
|
)
|
Foreign plant closing
benefit
|
|
|
|
|
|
|
|
|
|
(1,846
|
)
|
(3.7
|
)
|
Goodwill
|
|
|
|
|
|
6,422
|
|
(5.8
|
)
|
|
|
|
|
True-up of refundable
receivable estimate
|
|
1,714
|
|
22.3
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
(2,975
|
)
|
(38.6
|
)
|
27,953
|
|
(25.1
|
)
|
4,739
|
|
9.6
|
|
Other, net
|
|
132
|
|
1.7
|
|
(32
|
)
|
|
|
213
|
|
0.4
|
|
Income tax provision
|
|
$
|
(5,964
|
)
|
-77.5
|
%
|
$
|
1,680
|
|
-1.5
|
%
|
$
|
9,723
|
|
19.7
|
%
|
We paid income taxes of $1,392 in 2010, $8,280 in 2009
and $10,628 in fiscal 2008. In fiscal
2010, we received a tax refund of $9,334 in the U.S. No provision has been made for income taxes
on undistributed net income of foreign operations, as we expect them to be
indefinitely reinvested in our foreign operations. If the undistributed net income of $75,189
were distributed as dividends, we would be subject to foreign tax withholdings
and incur additional income tax expense of approximately $30,076, before
available foreign tax credits. It is not
practical to estimate the amount of foreign tax withholdings or foreign tax
credits that may be available.
As of May 1, 2010, our
FIN 48 gross unrecognized tax benefits totaled $2,782. After considering the federal impact on the
state issues, $2,738 of this total would favorably affect the effective tax
rate if resolved in our favor.
The following table presents a
reconciliation of the beginning and ending amounts of unrecognized tax
benefits:
Balance at May 2, 2009
|
|
$
|
6,126
|
|
Increases for positions
related to the current year
|
|
2
|
|
Increases for positions
related to the prior years
|
|
(171
|
)
|
Settlements
|
|
(3,125
|
)
|
Lapsing of statutes of
limitations
|
|
(50
|
)
|
Balance at May 1, 2010
|
|
$
|
2,782
|
|
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 from the end of the fiscal 2010. 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 between $100 and $2,700.
The U.S. Internal Revenue
Service and the Illinois Department of Revenue have completed their audits for
F-23
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
7. Income Taxes - Continued
the fiscal years ended April 30,
2007 and May 3, 2008. The U.S.
federal statute of limitations remains open for fiscal year ended April 29,
2006. Generally, the fiscal years ended April 29,
2006 and forward remain open under the state statute of limitations.
The continuing practice of the
Company is to recognize interest and penalties related to income tax matters in
the provision for income taxes. We had
$714 accrued for interest and no accrual for penalties at May 1,
2010. We recorded interest expense
related to unrecognized tax provision of $221 in fiscal 2010 and no expense for
penalties.
8. 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 potential dilutive common shares outstanding during the
period.
The following table sets forth the computation of basic
and diluted earnings/(loss) per share:
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Numerator - net
income/(loss)
|
|
$
|
13,655
|
|
$
|
(112,483
|
)
|
$
|
39,754
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for basic
earnings per share-weighted average shares (in thousands)
|
|
36,712
|
|
36,879
|
|
37,069
|
|
Dilutive potential common
shares-employee and director stock options (in thousands)
|
|
220
|
|
|
|
424
|
|
Denominator for diluted
earnings per share adjusted weighted average shares and assumed conversions
(in thousands)
|
|
36,932
|
|
36,879
|
|
37,493
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
income/(loss) per share:
|
|
|
|
|
|
|
|
Basic income/(loss) per
share
|
|
$
|
0.37
|
|
$
|
(3.05
|
)
|
$
|
1.07
|
|
Diluted net income/(loss)
per share
|
|
$
|
0.37
|
|
$
|
(3.05
|
)
|
$
|
1.06
|
|
Options to purchase 369,651, 625,633 and 35,296 shares of common stock were outstanding at May 1,
2010, May 2, 2009 and May 3, 2008, respectively, but were not
included in the computation of diluted earnings/(loss) per share because the
exercise price was greater than the average market price of the common shares;
therefore, the effect would have been anti-dilutive. Potential common shares have not been
included in the calculation of diluted net loss per share, as the effect would
be anti-dilutive. As such, the numerator
and the demoninator used in computing both basic and diluted net loss per share
for the fiscal year ended May 2, 2009 are the same.
9. Environmental Matters
We apply the guidance of SOP 96-1
Environmental
Remediation Liabilities
in accounting for known environmental
obligations. We are not aware of any
potential unasserted environmental claims that may be brought against us.
We are involved in
environmental investigation and/or remediation at two of our former plant
sites. We use environmental consultants
to assist us in evaluating our environmental liabilities in order to establish
appropriate
F-24
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
9. Environmental Matters -
Continued
accruals in our financial statements. Accruals are recorded when environmental
remediation is probable and the costs can be reasonably estimated. A number of factors affect the cost of
environmental remediation, including the determination of the extent of
contamination, the length of time remediation may require, the complexity of
environmental regulations and the advancement of remediation technology. Considering these factors, we have estimated
(without discounting) the costs of remediation, which will be incurred over a
period of several years. Recovery from
insurance or other third parties is not anticipated. We are not yet able to determine when such
remediation activity will be complete, but estimates for certain remediation
efforts are projected through 2015.
At May 1, 2010 and May 2, 2009, we had
accruals, primarily based upon independent engineering studies, for
environmental matters of $4,017 and $4,271, respectively, of which $500 was
classified in other accrued expenses and the remainder was included in other
long term liabilities on our consolidated balance sheet. We believe the provisions made for
environmental matters are adequate to satisfy liabilities relating to such
matters, however it is reasonably possible that costs could exceed accrued
amounts if the selected methods of remediation do not reduce the contaminates
at the sites to levels acceptable to federal and state regulatory agencies.
In fiscal 2010, we spent $474 on remediation cleanups
and related studies compared with $685 in fiscal 2009 and $387 in fiscal
2008. The costs associated with
environmental matters as they relate to day-to-day activities were not
material.
F-25
Table of Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
10. Comprehensive Income/(Loss)
The components of our comprehensive income/(loss) for
fiscal 2010, 2009 and 2008 include net income/(loss) 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):
|
|
Fiscal 2010
|
|
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,781
|
|
$
|
13,655
|
|
$
|
126
|
|
Translation adjustment
|
|
682
|
|
572
|
|
110
|
|
Total comprehensive income
|
|
$
|
14,463
|
|
$
|
14,227
|
|
$
|
236
|
|
|
|
Fiscal 2009
|
|
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(112,140
|
)
|
$
|
(112,483
|
)
|
$
|
343
|
|
Translation adjustment
|
|
(13,268
|
)
|
(12,706
|
)
|
(562
|
)
|
Total comprehensive loss
|
|
$
|
(125,408
|
)
|
$
|
(125,189
|
)
|
$
|
(219
|
)
|
|
|
Fiscal 2008
|
|
|
|
|
|
Methode
|
|
Noncontrolling
|
|
|
|
Total
|
|
Shareholders
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
40,083
|
|
$
|
39,754
|
|
$
|
329
|
|
Translation adjustment
|
|
13,018
|
|
12,371
|
|
647
|
|
Total comprehensive income
|
|
$
|
53,101
|
|
$
|
52,125
|
|
$
|
976
|
|
11. Pending Litigation
Certain litigation arising in the normal course of
business is pending against us. We, from
time to time, are 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 the opinion of
our management, based on the information available, that we have adequate
reserves for these liabilities and that the ultimate resolution of these
matters will not have a material adverse effect on our consolidated financial
statements.
12. Material Customers
Sales to two customers in the Automotive segment, either
directly or through their tiered suppliers, represented a significant portion
of our business. Net sales to these two
customers approximated 18.2% and 13.9% of consolidated net sales in fiscal
2010; two customers accounted for 18.8% and 9.7% of consolidated net sales,
respectively in fiscal 2009 and three customers accounted for 25.1%, 13.8% and
9.4% of consolidated net sales in fiscal 2008.
Sales of PODS sensor pads to one of these customers were 9.7% and 9.4%
of consolidated net sales in fiscal 2009 and 2008, respectively.
F-26
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
12. Material Customers -
Continued
At May 1, 2010 and May 2, 2009, accounts
receivable from customers in the automotive industry were approximately $11,300
and $26,834, respectively, which included $5,682 and $14,386, respectively, at
our Maltese subsidiary. Accounts
receivable are generally due within 30 to 60 days. Credit losses relating to all customers
generally have been within managements expectation.
13. Line of Credit
We
have an agreement with our primary bank for a revolving credit facility to
provide up to $75,000 ready financing for general corporate purposes, including
acquisition opportunities that may become available. This facility, which
expires January 31, 2011, bears interest at (a) LIBOR plus 2.75% or (b) the
banks prime rate (or, if higher, the Federal Funds Rate plus 0.5%) plus
1.50%. The facility also includes a fee of 0.50% of the unused
balance. The facility requires that we maintain a minimum consolidated
net worth equal to 85% of consolidated net worth plus 50% of consolidated net
income earned in each fiscal quarter, with no deduction for a net loss in any
quarter and maintain consolidated interest coverage, as defined, of not less
than 3.50:1.00, and maintain on a monthly basis a consolidated debt to EBITDA
ratio, as defined, of not more than 2.50:1.00. We were in compliance at May 1,
2010.
14. Segment Information and Geographic Area
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 (CEO).
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.
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 and
consumer markets. Solutions include
solid-state field effect interface panels, PC and express card packaging,
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
laminated bus devices, custom power-product assemblies; 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.
F-27
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
14. Segment Information and Geographic
Area Information - Continued
The
accounting policies of the segments are the same as those described in the
summary of 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 us.
The
table below presents information about our reportable segments:
|
|
Fiscal Year Ended May 1,
2010
|
|
|
|
Automotive
|
|
Inter-
Connect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
199,296
|
|
$
|
124,474
|
|
$
|
40,746
|
|
$
|
9,372
|
|
$
|
752
|
|
$
|
373,136
|
|
Transfers between segments
|
|
|
|
(355
|
)
|
(342
|
)
|
(55
|
)
|
(752
|
)
|
|
|
Net sales to unaffiliated
customers
|
|
$
|
199,296
|
|
$
|
124,119
|
|
$
|
40,404
|
|
$
|
9,317
|
|
$
|
|
|
$
|
373,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before
restructuring charges
|
|
$
|
16,826
|
|
$
|
11,849
|
|
$
|
3,926
|
|
$
|
(2,299
|
)
|
$
|
|
|
$
|
30,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(5,649
|
)
|
(1,552
|
)
|
(569
|
)
|
|
|
|
|
(7,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
including restructuring charges
|
|
$
|
11,177
|
|
$
|
10,297
|
|
$
|
3,357
|
|
$
|
(2,299
|
)
|
$
|
|
|
$
|
22,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(14,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
$
|
10,691
|
|
$
|
4,756
|
|
$
|
1,672
|
|
$
|
760
|
|
$
|
|
|
$
|
17,879
|
|
Corporate depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
127,613
|
|
$
|
125,133
|
|
$
|
31,081
|
|
$
|
7,659
|
|
$
|
|
|
$
|
291,486
|
|
General corporate assets
|
|
|
|
|
|
|
|
|
|
|
|
19,337
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310,823
|
|
F-28
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
14. Segment Information and Geographic Area
Information - Continued
|
|
Fiscal Year Ended May 2,
2009
|
|
|
|
Automotive
|
|
Inter-
Connect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
243,650
|
|
$
|
131,998
|
|
$
|
43,097
|
|
$
|
8,353
|
|
$
|
1,454
|
|
$
|
425,644
|
|
Transfers between segments
|
|
|
|
(952
|
)
|
(399
|
)
|
(103
|
)
|
(1,454
|
)
|
|
|
Net sales to unaffiliated
customers
|
|
$
|
243,650
|
|
$
|
131,046
|
|
$
|
42,698
|
|
$
|
8,250
|
|
$
|
|
|
$
|
425,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before
restructuring charge, impairment of goodwill and intangible assets
|
|
$
|
25,782
|
|
$
|
2,024
|
|
$
|
137
|
|
$
|
(3,506
|
)
|
$
|
|
|
$
|
24,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(19,283
|
)
|
(5,468
|
)
|
(527
|
)
|
|
|
|
|
(25,278
|
)
|
Impairment of goodwill and intangible
assets
|
|
(30,466
|
)
|
(56,926
|
)
|
(5,358
|
)
|
(1,624
|
)
|
|
|
(94,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) including
restructuring charge, impairment of goodwill and intangible assets
|
|
$
|
(23,967
|
)
|
$
|
(60,370
|
)
|
$
|
(5,748
|
)
|
$
|
(5,130
|
)
|
$
|
|
|
$
|
(95,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(15,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(110,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
$
|
17,408
|
|
$
|
15,262
|
|
$
|
2,153
|
|
$
|
1,019
|
|
$
|
|
|
$
|
35,842
|
|
Corporate depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
121,572
|
|
$
|
115,085
|
|
$
|
23,925
|
|
$
|
6,613
|
|
$
|
|
|
$
|
267,195
|
|
General corporate assets
|
|
|
|
|
|
|
|
|
|
|
|
38,093
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
$
|
305,288
|
|
F-29
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
14. Segment Information and Geographic Area
Information - Continued
The table below presents information about our
reportable segments:
|
|
Fiscal Year Ended May 3,
2008
|
|
|
|
Automotive
|
|
Inter-
Connect
|
|
Power
Products
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
362,165
|
|
$
|
137,239
|
|
$
|
46,839
|
|
$
|
6,982
|
|
$
|
2,152
|
|
$
|
551,073
|
|
Transfers between segments
|
|
(69
|
)
|
(979
|
)
|
(1,023
|
)
|
(81
|
)
|
(2,152
|
)
|
|
|
Net sales to unaffiliated
customers
|
|
$
|
362,096
|
|
$
|
136,260
|
|
$
|
45,816
|
|
$
|
6,901
|
|
$
|
|
|
$
|
551,073
|
|
Segment income (loss) before
restructuring charge
|
|
$
|
59,783
|
|
$
|
5,597
|
|
$
|
8,546
|
|
$
|
(1,798
|
)
|
|
|
$
|
72,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
(4,487
|
)
|
(672
|
)
|
|
|
|
|
|
|
(5,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) including
restructuring charge
|
|
$
|
55,296
|
|
$
|
4,925
|
|
$
|
8,546
|
|
$
|
(1,798
|
)
|
|
|
$
|
66,969
|
|
Corporate expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
(17,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
and cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
$
|
19,007
|
|
$
|
6,257
|
|
$
|
1,409
|
|
$
|
602
|
|
|
|
$
|
27,275
|
|
Corporate depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indentifiable assets
|
|
$
|
185,905
|
|
$
|
134,412
|
|
$
|
37,063
|
|
$
|
7,332
|
|
|
|
$
|
364,712
|
|
General corporate assets
|
|
|
|
|
|
|
|
|
|
|
|
105,508
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
$
|
470,220
|
|
F-30
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
14. Segment Information and
Geographic Area Information - Continued
The following table sets forth certain geographic
financial information for fiscal years ended May 1, 2010, May 2, 2009
and May 3, 2008. Geographic net
sales and income are determined based our sales and income from our various
operational locations.
|
|
Fiscal Year Ended
|
|
|
|
May 1,
|
|
May 2,
|
|
May 3,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Net Sales:
|
|
|
|
|
|
|
|
North American
|
|
$
|
167,721
|
|
$
|
259,539
|
|
$
|
356,240
|
|
Asia Pacific
|
|
70,022
|
|
53,378
|
|
51,915
|
|
Malta
|
|
124,604
|
|
100,594
|
|
127,880
|
|
Europe, excluding Malta
|
|
10,789
|
|
12,133
|
|
15,038
|
|
|
|
$
|
373,136
|
|
$
|
425,644
|
|
$
|
551,073
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and cumulative effect of accounting change:
|
|
|
|
|
|
|
|
North American
|
|
$
|
(18,183
|
)
|
$
|
(81,985
|
)
|
$
|
27,251
|
|
Asia Pacific
|
|
14,657
|
|
(30,610
|
)
|
4,598
|
|
Europe
|
|
11,482
|
|
753
|
|
15,633
|
|
Income and expenses not
allocated
|
|
(139
|
)
|
1,382
|
|
2,324
|
|
|
|
$
|
7,817
|
|
$
|
(110,460
|
)
|
$
|
49,806
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment:
|
|
|
|
|
|
|
|
North American
|
|
$
|
23,085
|
|
$
|
32,589
|
|
$
|
43,070
|
|
Asia Pacific
|
|
8,968
|
|
7,523
|
|
11,847
|
|
Malta
|
|
25,042
|
|
24,561
|
|
29,255
|
|
Europe, excluding Malta
|
|
4,781
|
|
5,244
|
|
6,108
|
|
|
|
$
|
61,876
|
|
$
|
69,917
|
|
$
|
90,280
|
|
F-31
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
15.
Lease Commitments
We lease certain office and
manufacturing properties under non-cancelable operating leases expiring at
various dates through fiscal 2015.
Rental expense under non-cancelable operating leases amounted to $4,191,
$4,841 and $4,032 in fiscal 2010, 2009 and 2008, respectively.
Our aggregate minimum rental
commitments under all non-cancelable operating leases are summarized in the
table below for the next succeeding five fiscal years:
2011
|
|
$
|
2,604
|
|
2012
|
|
1,209
|
|
2013
|
|
754
|
|
2014
|
|
242
|
|
2015
|
|
29
|
|
16. Pre-Production Costs Related
to Long-Term Supply Arrangements
We incur pre-production
tooling costs related to the products produced for our customers under
long-term supply agreements. We had
$11,984 and $3,182 as of the fiscal year ended May 1, 2010 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 other
assets section in the consolidated balance sheets. Net revenues and costs on projects are
deferred and recognized over the life of the related long-term supply
agreement.
17. Fair Value Measurements
Accounting standards define fair value based on
an exit price model, establish a framework for measuring fair value where our
assets and liabilities are required to be carried at fair values and provide
for certain disclosures related to the valuation methods used within a
valuation hierarchy as established with the accounting standards. The hierarchy priorities the inputs into
three broad levels as follows:
·
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.
Below is a table that
summarizes the fair value of assets and liabilities as of May 1, 2010:
F-32
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
17. 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)
|
|
$
|
63,821
|
|
$
|
63,821
|
|
$
|
|
|
$
|
|
|
Assets related to deferred
compensation plan
|
|
$
|
2,985
|
|
$
|
|
|
$
|
2,985
|
|
$
|
|
|
Total assets at fair value
|
|
$
|
66,806
|
|
$
|
63,821
|
|
$
|
2,985
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Liabilities related to
deferred compensation plan
|
|
$
|
2,847
|
|
$
|
2,847
|
|
$
|
|
|
$
|
|
|
Total liabilities at fair
value
|
|
$
|
2,847
|
|
$
|
2,847
|
|
$
|
|
|
$
|
|
|
(1) Includes cash, money-market investments
and certificates of deposit.
18. Summary of Quarterly Results
of Operations (Unaudited)
The following is a summary of unaudited quarterly
results of operations for the two years ended May 1, 2010 and May 2,
2009:
|
|
Fiscal Year 2010
|
|
|
|
Quarter Ended
|
|
|
|
August 1
|
|
October 31
|
|
January 30
|
|
May 1
|
|
Net sales
|
|
$
|
89,776
|
|
$
|
98,496
|
|
$
|
89,127
|
|
$
|
95,737
|
|
Gross profit
|
|
18,867
|
|
20,712
|
|
14,203
|
|
21,643
|
|
Net income/(loss)
attributable to Methode Electronics, Inc.
|
|
(19
|
)
|
2,052
|
|
(4,475
|
)
|
16,097
|
|
Net income/(loss) per basic
common share
|
|
$
|
|
|
$
|
0.05
|
|
$
|
(0.12
|
)
|
$
|
0.44
|
|
|
|
Fiscal Year 2009
|
|
|
|
Quarter Ended
|
|
|
|
August 2
|
|
November 1
|
|
January 31
|
|
May 2
|
|
Net sales
|
|
$
|
134,514
|
|
$
|
121,304
|
|
$
|
80,781
|
|
$
|
89,045
|
|
Gross profit
|
|
29,084
|
|
23,489
|
|
10,269
|
|
6,306
|
|
Net income/(loss)
attributable to Methode Electronics, Inc.
|
|
6,816
|
|
238
|
|
(26,985
|
)
|
(92,552
|
)
|
Net income/(loss) per basic
common share
|
|
$
|
0.18
|
|
$
|
0.01
|
|
$
|
(0.74
|
)
|
$
|
(2.50
|
)
|
Significant Items for Fiscal 2010
The first, second, third and fourth quarter of fiscal
2010 includes a pre-tax restructuring charge of $3,611, $3,156, $559 and $444,
respectively. In addition, the first,
second, third and fourth quarter of fiscal 2010 includes pre-tax legal fees
relating to the Delphi supply agreement and patent lawsuit of $440, $1,489,
$2,356 and $1,481, respectively.
F-33
Table of
Contents
METHODE
ELECTRONICS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except number of shares and per share data)
18. Summary of Quarterly Results
of Operations (Unaudited) - Continued
Significant Items for Fiscal 2009
The first, second, third and fourth quarter of fiscal
2009 includes a pre-tax restructuring charge of $4,917, $6,284, $3,796 and
$10,281, respectively. In addition, the
third and fourth quarter of fiscal 2009 include impairment charges for goodwill
and intangible assets write-down of $32,678 and $61,696, respectively.
19. Subsequent Event
On May 5, 2010, it was announced that we have
become an investor in Eetrex Incorporated, a Boulder, Colorado-based developer
and manufacturer of chargers, inverters, and battery systems for hybrid and
plug-in hybrid electronic vehicles. This
investment from us will be used by Eetrex to advance their technology and
product development efforts.
We paid $1,000 and acquired 15 percent, on a
fully diluted basis, of Eetrexs stock, and pursuant to the investment, we will
appoint two board members. Methode and
Extrex have entered into ancillary agreements in which Methode will become
Extrexs sales and manufacturing arm.
Additionally, Eetrex granted a non-exclusive, world-wide license to us
for fields including alternative energy, defense and aviation/aerospace
markets.
F-34
Table
of Contents
SCHEDULE IIVALUATION AND
QUALIFYING ACCOUNTS
METHODE ELECTRONICS, INC.
AND SUBSIDIARIES
(in thousands)
COL. A
|
|
COL. B
|
|
COL. C
|
|
COL. D.
|
|
COL. E
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Description
|
|
Balance at
Beginning of
Period
|
|
Charged to Costs
and Expenses
|
|
Charged to Other
Accounts
Describe
|
|
Deductions
Describe
|
|
Balance at End of
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED MAY 1,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances
deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
uncollectible accounts
|
|
$
|
1,444
|
|
$
|
142
|
|
$
|
25
|
(1)
|
$
|
509
|
(2)
|
$
|
1,102
|
|
Deferred tax valuation
allowance
|
|
51,377
|
|
943
|
|
1,880
|
(1)
|
5,798
|
(3)
|
48,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED MAY 2,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances
deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
uncollectible accounts
|
|
$
|
2,309
|
|
$
|
120
|
|
$
|
625
|
(1)
|
$
|
360
|
(2)
|
$
|
1,444
|
|
Deferred tax valuation
allowance
|
|
31,164
|
|
27,506
|
|
(7,293
|
)(1)
|
|
|
51,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED MAY 3,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances
deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
uncollectible accounts
|
|
$
|
2,231
|
|
$
|
195
|
|
$
|
45
|
(1)
|
$
|
162
|
(2)
|
$
|
2,309
|
|
Deferred tax valuation
allowance
|
|
25,762
|
|
3,892
|
|
1,510
|
(1)
|
|
|
31,164
|
|
(1) Impact of foreign currency translation and
other reclassifications.
(2) Uncollectible
accounts written off, net of recoveries.
(3) Reduction
of valuation allowances on foreign tax assets with no effect on net income.
F-35
Table
of Contents
INDEX TO
EXHIBITS
Exhibit
Number
|
|
Description
|
3.1
|
|
Certificate of Incorporation of Registrant, as amended
and currently in effect (1)
|
3.2
|
|
Bylaws of Registrant, as amended and currently in
effect (17)
|
4.1
|
|
Article Fourth of Certificate of Incorporation of
Registrant, as amended and currently in effect (included in Exhibit 3.1)
(1)
|
4.2
|
|
Rights Agreement dated as of January 8, 2004
between Methode Electronics, Inc. and Mellon Investor Services LLC,
which includes as Exhibit A thereto, the Certificate of Designation of
Series A Junior Participating Preferred Stock of Methode
Electronics, Inc.; as Exhibit B thereto, the Form of Right Certificate;
as Exhibit C thereto, the Summary of Rights to Purchase Preferred
Shares. (2)
|
10.1*
|
|
Methode Electronics, Inc. Managerial Bonus and
Matching Bonus Plan (also referred to as the Longevity Contingent Bonus
Program) (3)
|
10.2*
|
|
Methode Electronics, Inc. 2000 Stock Plan (4)
|
10.3*
|
|
Methode Electronics, Inc. 2004 Stock Plan (5)
|
10.4*
|
|
Form of Methode Electronics, Inc. Restricted
Stock Award Agreement (Executive Award/Cliff Vesting) under the 2000 Stock
Plan (23)
|
10.5
|
|
Credit Agreement dated as of December 19, 2002
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
(7)
|
10.6
|
|
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 (6)
|
10.7*
|
|
Form of
Methode Electronics, Inc. Restricted Stock Award Agreement (Outside
Director) under the 2004 Stock Plan (8)
|
10.8*
|
|
Form of
Methode Electronics, Inc. Restricted Stock Award Agreement (Executive
Award/Performance Based) under the 2004 Stock Plan (8)
|
10.9
|
|
Amendment
to Credit Agreement dated as of January 31, 2006, among Methode
Electronics, Inc., the Borrower, Bank of America, N.A., as Administrative
Agent, and L/C Issuer, and The Other Lenders Party Thereto (9)
|
10.10*
|
|
Change
in Control Agreement dated September 1, 2006 between Methode
Electronics, Inc. and Donald W. Duda (10)
|
10.11*
|
|
Change
in Control Agreement dated September 1, 2006 between Methode
Electronics, Inc. and Douglas A. Koman (10)
|
10.12*
|
|
Change
in Control Agreement dated September 1, 2006 between Methode
Electronics, Inc. and Thomas D. Reynolds (10)
|
10.13*
|
|
Change
in Control Agreement dated September 1, 2006 between Methode Electronics, Inc.
and Paul E. Whybrow (10)
|
10.14*
|
|
Change
in Control Agreement dated September 14, 2006 between Methode
Electronics, Inc. and Theodore P. Kill (11)
|
10.15*
|
|
Change
in Control Agreement dated September 14, 2006 between Methode
Electronics, Inc. and Timothy R. Glandon (11)
|
10.16*
|
|
First
Amendment to Methode Electronics, Inc. 2000 Stock Plan effective as of
December 14, 2006 (12)
|
10.17*
|
|
Amended
and Restated Restricted Stock Unit Award Agreement (Executive
Award/Performance Based) effective as of June 18, 2004 between Methode
Electronics, Inc. and Donald W. Duda (12)
|
10.18*
|
|
Amended
and Restated Restricted Stock Unit Award Agreement (Executive Award/Cliff
Vesting) effective as of June 18, 2004 between Methode
Electronics, Inc. and Donald W. Duda (12)
|
10.19
|
|
Waiver
and Amendment dated as of February 28, 2007 among Methode
Electronics, Inc., the Borrower, Bank of America, N.A., as
Administrative Agent, and L/C Issuer, and The Other Lenders Party Thereto
(13)
|
10.20*
|
|
Amended
Cash Bonus Agreement effective as of April 6, 2007 between Methode
Electronics, Inc. and Donald W. Duda (14)
|
10.21*
|
|
Amended
and Restated Restricted Stock Unit Award Agreement (Executive
Award/Performance Based) effective as of June 15, 2005 between Methode
Electronics, Inc. and Donald W. Duda (14)
|
Table of Contents
10.22*
|
|
Amended
and Restated Restricted Stock Unit Award Agreement (Executive
Award/Performance Based) effective as of August 7, 2006 between Methode
Electronics, Inc. and Donald W. Duda (14)
|
10.23*
|
|
Methode
Electronics, Inc. 2007 Stock Plan (15)
|
10.24*
|
|
Methode
Electronics, Inc. 2007 Cash Incentive Plan (15)
|
10.25*
|
|
Form Performance
Based RSA Award Agreement (15)
|
10.26*
|
|
Form Annual
Cash Bonus Award Agreement (15)
|
10.27*
|
|
Form RSA
Tandem Cash Award Agreement (15)
|
10.28*
|
|
Form Director
RSA Award Agreement (15)
|
10.29*
|
|
Change
in Control Agreement dated July 15, 2008 between Methode
Electronics, Inc. and Ronald L. G. Tsoumas (17)
|
10.30
|
|
Asset
and Share Purchase Agreement for Hetronic (18)
|
10.31
|
|
Fourth
Amendment and Waiver to Credit Agreement, effective as of May 2, 2009,
among the Company as the Borrower, Bank of America, N.A.(19)
|
10.32
|
|
Letter
Agreements dated August 25, 2008 and September 4, 2008 by and
between Methode Electronics, Inc. and Delphi Automotive Systems, LLC
(19)
|
10.33*
|
|
Form of
Methode Electronics, Inc. Restricted Stock and Tandem Cash Award
Cancellation Agreement (20)
|
10.34*
|
|
Form of
Non-Qualified Stock Option Award Agreement (21)
|
10.35*
|
|
Form of
Amendment to Change in Control Agreement (22)
|
|
|
|
21
|
|
Subsidiaries
of Methode Electronics, Inc.
|
23
|
|
Consent
of Ernst & Young LLP
|
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 8-K filed
January 9, 2004, and incorporated herein by reference.
|
(2)
|
|
Previously filed with Registrants Form 8-A filed
January 8, 2004, and incorporated herein by reference.
|
(3)
|
|
Previously filed with Registrants Form 10-K for
the year ended April 30, 2005, and incorporated herein by reference.
|
(4)
|
|
Previously filed with Registrants Form 10-Q for
the three months ended October 31, 2000, and incorporated herein by
reference.
|
(5)
|
|
Previously filed with Registrants Form 8-K filed
December 7, 2004, and incorporated herein by reference.
|
(6)
|
|
Previously filed with Registrants Form 10-Q for
the three months ended October 31, 2005, and incorporated herein by
reference.
|
(7)
|
|
Previously filed with Registrants Form 10-Q for
the three months ended January 31, 2003, and incorporated herein by
reference.
|
(8)
|
|
Previously filed with Registrants Form 8-K filed
August 11, 2006, and incorporated herein by reference.
|
(9)
|
|
Previously filed with Registrants Form 8-K filed
February 3, 2006, and incorporated herein by reference.
|
(10)
|
|
Previously filed with Registrants Form 8-K filed
September 6, 2006, and incorporated herein by reference.
|
(11)
|
|
Previously filed with Registrants Form 8-K filed
September 18, 2006, and incorporated herein by reference.
|
(12)
|
|
Previously filed with Registrants Form 10-Q for
the three months ended January 27, 2007, and incorporated herein by
reference.
|
(13)
|
|
Previously filed with Registrants Form 8-K filed
March 12, 2007, and incorporated herein by reference.
|
(14)
|
|
Previously filed with Registrants Form 8-K filed
April 6, 2007, and incorporated herein by reference.
|
(15)
|
|
Previously filed with Registrants Form 8-K filed
September 19, 2007, and incorporated herein by reference.
|
(16)
|
|
Previously filed with Registrants Form 8-K filed
November 2, 2007, and incorporated herein by reference.
|
Table of Contents
(17)
|
|
Previously filed with Registrants Form 10-K
filed July 17, 2008, and incorporated herein by reference.
|
(18)
|
|
Previously filed with Registrants Form 10-K
filed July 2, 2009, and incorporated herein by reference.
|
(19)
|
|
Previously
filed with Registrants Form 10-Q for the three months ended
August 1, 2009, and incorporated herein by reference.
|
(20)
|
|
Previously
filed with Registrants Form 8-K filed December 18, 2009, and
incorporated herein by reference.
|
(21)
|
|
Previously
filed with Registrants Form 8-K filed July 9, 2009, and
incorporated herein by reference.
|
(22)
|
|
Previously
filed with Registrants Form 8-K filed July 20, 2009, and
incorporated herein by reference.
|
(23)
|
|
Previously
filed with Registrants Form 10-Q for the three month ended
October 31, 2004, and incorporated herein by reference.
|
*
Management
Compensatory Plan
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