Methode Electronics, Inc. (NYSE: MEI), a
global developer of custom engineered and application specific
products and solutions, today announced financial results for the
Fiscal 2011 second quarter ended October 30, 2010.
Second-Quarter Fiscal 2011 Methode's
second-quarter Fiscal 2011 net sales increased $8.1 million, or 8.2
percent, to $106.6 million from $98.5 million in the second quarter
of Fiscal 2010. Excluding the loss of sales to Delphi, which were
$6.6 million, and planned lower legacy automotive products sales of
$3.9 million in the second quarter of Fiscal 2010, sales in the
2011 period increased $18.6 million, or 21.1 percent.
In June 2006, the Company sold certain unsecured claims it had
filed against Delphi in Delphi's bankruptcy proceeding to Credit
Suisse for $3.1 million pursuant to a Transfer Agreement. These
claims were subsequently assigned by Credit Suisse to Blue Angel.
On July 20, 2010, Blue Angel delivered a demand letter to the
Company contending that under the terms of the Transfer Agreement,
the unsecured claims had been objected to recently by the debtor in
the Delphi bankruptcy proceeding, and therefore the Company owed
Blue Angel $3.1 million plus interest. On October 25, 2010, Blue
Angel filed a complaint seeking $3.1 million plus applicable
interest as set out in the Transfer Agreement. While the Company
believes that it has certain defenses to the complaint, during the
second quarter of Fiscal 2011, an expense of $3.8 million was
recorded for these unsecured claims sold to Blue Angel, which
includes interest.
Net income decreased to a loss of $0.5 million, or $0.01 per
share, in the Fiscal 2011 period compared to income of $2.1
million, or $0.6 per share, in the same period of Fiscal 2010. The
decrease is primarily due to the Blue Angel expense of $3.8
million, currency exchange loss of $2.0 million, a negotiated
program termination charge of $1.3 million, vendor supply issue
costs of $0.6 million, customer cancellation charges of $0.4
million, additional costs related to environmental matters of $0.3
million, as well as higher sales and marketing expenses in North
American and Asia, partially offset by no restructuring costs and
higher net sales and gross profit in the second quarter of Fiscal
2011 compared to the second quarter of Fiscal 2010.
Methode recorded no restructuring charges during the Fiscal 2011
second quarter compared to restructuring charges of $3.2 million
($2.6 million after-tax), or $0.07 per share, during the Fiscal
2010 second quarter. Additionally, net income in the Fiscal 2010
second quarter benefitted by $1.7 million ($1.2 million after-tax),
or $0.03 per share, relating to a one-time reversal of pricing
contingencies. Excluding the Blue Angel expense and the negotiated
program termination charge in the Fiscal 2011 second quarter, the
restructuring charges and the reversal of one-time pricing
contingencies in the Fiscal 2010 period, Methode's net income was
$4.6 million, or $0.12 per share, in the second quarter of Fiscal
2011 compared to $3.5 million, or $0.10 per share, in the same
period of Fiscal 2010.
Consolidated gross margins (including other income) as a
percentage of sales were 22.1 percent in both the Fiscal 2011 and
Fiscal 2010 second quarters. Gross margins (including other income)
were negatively impacted by the loss of the Delphi business, the
negotiated program termination charge, the one-time pricing
contingency reversal in the second quarter of Fiscal 2010,
additional costs related to environmental matters, the customer
cancellation charge, additional cost due to vendor supply issues,
but were offset by higher sales volumes, a favorable change in
sales mix within the Interconnect segment and cost efficiencies
from the Company's Asian businesses, in the second quarter of
fiscal 2011, as compared to the second quarter of fiscal 2010.
Selling and administrative expenses increased $4.8 million, or
29.3 percent, to $21.2 million in the Fiscal 2011 second quarter
compared to $16.4 million in the prior-year second quarter due
primarily to the Blue Angel expense and higher selling and
marketing expenses in the North American and Asian Automotive
segments as a result of higher sales, partially offset by lower
legal expenses related to the Delphi patent and supply agreement
litigation, as well as lower commission and professional fees in
the Fiscal 2011 period compared to the Fiscal 2010 period.
In the second quarter of Fiscal 2011, income tax expense
increased $0.6 million to $0.8 million compared to $0.2 million in
the same period of Fiscal 2010. Taxes for both periods include
taxes on foreign profits and non-Federal U.S. taxes.
Comparing the Automotive segment's second quarter of Fiscal 2011
to the same period of Fiscal 2010,
- Net sales decreased 2.5 percent attributable to no net sales to
Delphi compared to $6.6 million of sales to Delphi, and planned
lower legacy automotive products sales of $3.9 million in the 2011
period. Excluding Delphi and legacy sales in both periods, net
sales increased $9.1 million, or 19.9 percent.
- Excluding the loss of sales to Delphi, the planned transfer of
business to China in the third quarter of Fiscal 2010 and the loss
of legacy automotive products sales, North American sales increased
40.0 percent. Excluding the planned transfer of business to China
in the third quarter of Fiscal 2010, Asian sales increased 63.1
percent.
- Gross margins (including other income) as a percentage of sales
decreased to 19.7 percent from 23.1 percent due to the loss of
higher margin sales to Delphi, the negotiated program termination
charge, vendor supply issue costs, costs related to environmental
matters, and increased costs relating to new product development,
partially offset by improved Asian gross margins.
- Income before income taxes decreased $5.5 million due to the
Blue Angel unsecured claim, lower net sales and gross margins,
increased costs for new product development, higher selling and
marketing expenses and higher currency exchange costs offset by no
restructuring charges and lower legal expenses.
Comparing the Interconnect segment's second quarter of Fiscal
2011 to the same period of Fiscal 2010,
- Net sales increased 19.7 percent attributable to solid growth
in the interface solutions and data solutions businesses. Net sales
increased 17.8 percent, 41.3 percent and 3.0 percent in North
America, Europe and Asia, respectively.
- Gross margins as a percentage of sales increased to 31.0
percent from 23.3 percent due primarily to higher sales volume and
sales mix.
- Income before income taxes improved $5.0 million as a result of
increased net sales and gross profit, no restructuring expense and
lower overall commission expense.
Comparing the Power Products segment second quarter of Fiscal
2011 to the same period of Fiscal 2010,
- Net sales improved 27.7 percent driven by higher busbar demand
in Asia and higher busbar, flexible cabling and heat sink product
demand in North America.
- Gross margins as a percentage of sales decreased to 20.8
percent from 22.3 percent due to customer cancellation charges of
$0.4 million, as well as higher costs related to new product
development, partially offset by lower costs for Asian busbar and
U.S. cabling products.
- Income before income taxes increased to $1.1 million due to
higher net sales and gross margins, partially offset by customer
cancellation charges.
Six-Month Period Fiscal 2011 For the
six-month period ended October 30, 2010, net sales increased $16.6
million, or 8.8 percent, to $204.9 million from $188.3 million for
the six months ended October 31, 2009. Excluding the loss of sales
to Delphi, which were $14.1 million, and the planned lower legacy
automotive product sales of $10.2 million in the first six months
of Fiscal 2010, sales in the 2011 six-month period increased $40.9
million, or 24.9 percent.
Net income improved $1.5 million, or 71.4 percent, to $3.6
million, or $0.10 per share, in the Fiscal 2011 period compared to
$2.1 million, or $0.06 per share, in the Fiscal 2010 period. Net
income in the Fiscal 2011 period improved compared to the Fiscal
2010 period primarily due to higher net sales and gross margins, no
restructuring expenses, and a gain from a life insurance policy,
partially offset by the Blue Angel expense, the negotiated program
termination charge, vendor supply issue costs, costs related to
environmental matters, customer cancellation charges, higher
development, selling and marketing expenses and higher tax expense
in the first half of Fiscal 2011 compared to the first half of
Fiscal 2010.
During the six-month period of Fiscal 2010, the Company recorded
a restructuring charge of $6.8 million ($6.2 million after-tax), or
$0.17 per share, and reversed one-time pricing contingencies of
$1.7 million ($1.2 million after tax), or $0.03 per share.
Excluding the Blue Angel expense, the negotiated program
termination charge, and the gain on a life insurance policy in the
Fiscal 2011 period, and the restructuring charges and the reversal
of one-time pricing contingencies in the Fiscal 2010 period,
Methode's net income was $8.7 million, or $0.23 per share, in the
first six months of Fiscal 2011 compared to $7.1 million, or $0.19
per share, in the first six months of Fiscal 2010.
Consolidated gross margins (including other income) as a
percentage of sales were 21.4 percent in the Fiscal 2011 first six
months compared to 22.4 percent in the Fiscal 2010 period. The
decrease primarily relates to the loss of the Delphi business, the
negotiated program termination charge, vendor supply issue costs,
costs related to environmental matters, customer cancellation
charges, partially offset by higher sales volumes, a favorable
change in sales mix within the Interconnect segment and cost
efficiencies from the Company's Asian businesses in the first half
of Fiscal 2011 compared to the first half of Fiscal 2010.
Selling and administrative expenses increased $5.2 million, or
16.1 percent, to $37.5 million for the six-month period of Fiscal
2011 compared to $32.3 million for the same period of Fiscal 2010
due primarily to the Blue Angel expense, higher selling and
marketing expenses in the North American and Asian automotive
businesses, partially offset by lower commissions and professional
fees in the first half of Fiscal 2011 compared to the first half of
Fiscal 2010.
Income tax expense increased $0.9 million to $1.4 million for
the first six months of Fiscal 2011 compared to $0.5 million for
the same period of Fiscal 2010. For both periods taxes include
taxes on foreign profits and non-Federal U.S. taxes.
Comparing the six-month period of Fiscal 2011 to the same period
of Fiscal 2010, Automotive segment
- Net sales decreased $3.3 million, or 3.1 percent, negatively
impacted by lower sales to Delphi of $14.1 million and planned
lower legacy automotive products sales of $10.2 million. Excluding
Delphi and legacy automotive products sales in both periods, net
sales increased $21.0 million, or 25.3 percent.
- Excluding the loss of sales to Delphi, the planned transfer of
business to China in the third quarter of Fiscal 2010 and the loss
of legacy automotive products sales, North American sales increased
7.4 percent. Excluding the planned transfer of business to China in
the third quarter of Fiscal 2010, Asian sales increased 100.4
percent.
- Gross margins (including other income) as a percentage of sales
were 19.5 percent compared to 22.1 percent due to the loss of
higher margin sales to Delphi, the negotiated program termination
charge, vendor supply issue costs, increased costs relating to new
product development and lower engineering design fees, partially
offset by improved Asian gross margins.
- Income before income taxes decreased $5.5 million due to the
Blue Angel charge, lower sales and gross margins, higher selling
and marketing expenses, increased development cost in North America
and higher currency exchange costs, partially offset by no
restructuring charges.
Comparing the six-month period of Fiscal 2011 to the same period
of Fiscal 2010, Interconnect segment
- Net sales increased $15.9 million, or 28.8 percent, due to
increased sales in the interface solutions and data solutions
businesses. Net sales increased 31.3 percent, 40.4 percent and 3.4
percent in North American, Europe and Asia, respectively.
- Gross margins (including other income) as a percentage of sales
increased to 29.1 percent from 24.3 percent also due mainly to
higher sales volumes, as well as a change in sales mix.
- Income before income taxes increased to $9.5 million from $1.2
million due to increased net sales and gross profit, no
restructuring expenses, and lower commissions.
Comparing the six-month period of Fiscal 2011 to the same period
of Fiscal 2010, Power Products segment
- Net sales increased $3.0 million, or 14.6 percent, driven
mainly by higher demand for busbar products in Asia, as well as the
introduction of busbar products in Europe, which accounted for $1.2
million in net sales, offset by lower demand for busbar, flexible
cabling and heat sink products in North America.
- Gross margins as a percentage of sales decreased to 20.3
percent from 21.8 percent attributable mainly to customer
cancellation charges, as well as increased costs related to new
product development, partially offset by lower costs in Asia.
- Income before income taxes increased $0.5 million, or 45.5
percent, due to higher net sales and gross profit, no restructuring
charges, partially offset by customer cancellation charges and
higher costs for U.S. busbar products, higher selling and
administrative expenses and higher currency exchange costs.
Management Comments President and Chief
Executive Officer Donald W. Duda said, "Methode continued to post
strong net sales in Fiscal 2011, which improved in the second
quarter 8.2 percent year over year and 8.5 percent sequentially
over the first quarter. This was led by improved sales in our Asian
Automotive and Power Products segments, as well as in our North
American and European Interconnect segments. Additionally,
excluding Delphi and legacy automotive products sales, Automotive
segment net sales increased nearly 20 percent in the second quarter
of Fiscal 2011 over the same period last year."
Mr. Duda concluded, "We are encouraged by our sales in the
first-half of Fiscal 2011 and remain cautiously optimistic about
our business outlook for the next few quarters as the global
financial recovery continues. We expect the trends we saw in the
first half of this fiscal year to continue through the second
half."
Conference Call The Company will conduct a
conference call and Webcast to review financial and operational
highlights led by its President and Chief Executive Officer, Donald
W. Duda, and Chief Financial Officer, Douglas A. Koman, at 10:00
a.m. Central time.
To participate in the conference call, please dial (877)
407-8031 (domestic) or (201) 689-8031 (international) at least five
minutes prior to the start of the event. A simultaneous Webcast can
be accessed through the Company's Web site, www.methode.com, by
selecting the Investor Relations page, and then clicking on the
"Webcast" icon.
A replay of the conference call, as well as an MP3 download,
will be available shortly after the call through December 23 by
dialing (877) 660-6853 (domestic) or (201) 612-7415 (international)
and providing Account number 286 and Conference ID number 362067.
On the Internet, a replay will be available for 30 days through the
Company's Web site, www.methode.com, by selecting the Investor
Relations page and then clicking on the "Webcast" icon.
About Methode Electronics, Inc. Methode
Electronics, Inc. (NYSE: MEI) is a global developer of custom
engineered and application specific products and solutions with
manufacturing, design and testing facilities in China, the Czech
Republic, Germany, India, Malta, Mexico, the Philippines,
Singapore, Switzerland, the United Kingdom and the United States.
We design, manufacture and market devices employing electrical,
electronic, wireless, radio remote control, sensing and optical
technologies to control and convey signals through sensors,
interconnections and controls. Our business is managed on a segment
basis, with those segments being Automotive, Interconnect, Power
Products and Other. Our components are in the primary end markets
of the automobile, computer, information processing and networking
equipment, voice and data communication systems, consumer
electronics, appliances, aerospace vehicles and industrial
equipment industries. Further information can be found on Methode's
Web site www.methode.com.
Forward-Looking Statements This press
release contains certain forward-looking statements, which reflect
management's expectations regarding future events and operating
performance and speak only as of the date hereof. These
forward-looking statements are subject to the safe harbor
protection provided under the securities laws. Methode undertakes
no duty to update any forward-looking statement to conform the
statement to actual results or changes in Methode's expectations on
a quarterly basis or otherwise. The forward-looking statements in
this press release involve a number of risks and uncertainties. The
factors that could cause actual results to differ materially from
our expectations are detailed in Methode's filings with the
Securities and Exchange Commission, such as our annual and
quarterly reports. Such factors may include, without limitation,
the following: (1) dependence on a small number of large customers,
including two large automotive customers; (2) dependence on the
automotive, appliance, computer and communications industries; (3)
seasonal and cyclical nature of some of our businesses; (4)
dependence on the availability, price, and risk of substitution or
counterfeit of components and raw materials; (5) ability to compete
effectively; (6) customary risks related to conducting global
operations; (7) ability to keep pace with rapid technological
changes; (8) ability to avoid design or manufacturing defects; (9)
ability to protect our intellectual property; (10) ability to
successfully benefit from acquisitions; (11) currency fluctuations;
(12) unfavorable tax laws; and (13) the future trading price of our
stock.
Methode Electronics, Inc.
Financial Highlights
(In thousands, except per share data, unaudited)
Three Months Ended
October 30, October 31,
2010 2009
------------ ------------
Net sales $ 106,614 $ 98,496
Other income 1,102 1,072
Cost of products sold 84,073 77,784
Restructuring (21) 3,156
Selling and administrative expenses 21,293 16,413
Income from operations 2,371 2,215
Interest expense, net 61 45
Other (income)/expense, net 2,032 (143)
Income before income taxes 278 2,313
Income tax expense 768 225
Net income/(loss) (490) 2,088
Less: Net income attributable to noncontrolling
interest 23 36
Net income/(loss) attributable to Methode
Electronics, Inc. $ (513) $ 2,052
Basic and diluted income/(loss) per common share $ (0.01) $ 0.06
Average Number of Common Shares Outstanding:
Basic 37,058 36,644
Diluted 37,058 36,868
Six Months Ended
October 30, October 31,
2010 2009
------------ ------------
Net sales $ 204,899 $ 188,272
Other income 1,804 2,459
Cost of products sold 162,853 148,693
Restructuring (21) 6,767
Selling and administrative expenses 37,650 32,286
Income from operations 6,221 2,985
Interest expense, net 88 147
Other expense, net 1,183 252
Income before income taxes 4,950 2,586
Income tax expense 1,410 511
Net income 3,540 2,075
Less: Net income/(loss) attributable to
noncontrolling interest (12) 42
Net income attributable to Methode Electronics,
Inc. $ 3,552 $ 2,033
Basic and diluted income per common share $ 0.10 $ 0.06
Average Number of Common Shares Outstanding:
Basic 37,051 36,641
Diluted 37,282 36,823
Methode Electronics, Inc.
Financial Highlights
Summary Balance Sheets
(In thousands)
October 30, May 1,
2010 2010
------------ ------------
(unaudited)
Cash $ 77,192 $ 63,821
Accounts receivable - net 80,599 68,649
Inventories 34,726 29,760
Other current assets 23,059 22,366
------------ ------------
Total Current Assets 215,576 184,596
Property, plant and equipment - net 61,517 61,876
Goodwill 12,096 12,096
Intangible assets - net 17,672 18,811
Other assets 33,503 33,444
------------ ------------
Total Assets $ 340,364 $ 310,823
============ ============
Accounts payable $ 36,265 $ 29,743
Other current liabilities 27,896 29,002
Short-term debt 18,009 -
------------ ------------
Total Current Liabilities 82,170 58,745
Other liabilities 13,555 12,136
------------ ------------
Total Methode Electronics, Inc. shareholders'
equity 241,222 236,754
Noncontrolling interest 3,417 3,188
------------ ------------
Total shareholders' equity 244,639 239,942
------------ ------------
Total Liabilities and Shareholders' Equity $ 340,364 $ 310,823
============ ============
Methode Electronics, Inc.
Financial Highlights
Summary Statements of Cash Flows
(In thousands)
Six Months Ended
October 30, October 31,
2010 2009
------------ ------------
Operating Activities:
Net income $ 3,540 $ 2,075
Provision for depreciation 6,647 10,118
Impairment of intangible assets 1,299 710
Amortization of intangible assets 1,139 1,123
Amortization of stock awards and stock options 541 507
Changes in operating assets and liabilities (9,416) 1,044
Other 77 48
------------ ------------
Net Cash Provided by Operating Activities 3,827 15,625
Investing Activities:
Purchases of property, plant and equipment (5,605) (5,821)
Acquisitions of businesses and technology (750) (181)
Proceeds from life insurance policies 1,515 -
------------ ------------
Net Cash Used in Investing Activities (4,840) (6,002)
Financing Activities:
Proceeds from exercise of stock options 13 -
Dividends (5,154) (5,233)
Net borrowings 18,000 -
------------ ------------
Net Cash Provided by/(Used in) Financing
Activities 12,859 (5,233)
Effect of foreign exchange rate changes on cash 1,525 1,854
------------ ------------
Increase in Cash and Cash Equivalents 13,371 6,244
Cash and Cash Equivalents at Beginning of Period 63,821 54,030
------------ ------------
Cash and Cash Equivalents at End of Period $ 77,192 $ 60,274
============ ============
For Methode Electronics Inc. - Investor Contacts: Philip
Kranz Dresner Corporate Services 312-780-7240 pkranz@dresnerco.com
Kristine Walczak Dresner Corporate Services 312-780-7205
kwalczak@dresnerco.com
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