UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended October 31, 2009
or
o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Commission file number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter.)
Delaware |
36-2090085 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
|
|
7401 West Wilson Avenue, Harwood Heights, Illinois |
60706-4548 |
(Address of principal executive offices) |
(Zip Code) |
(708) 867-6777
(Registrants telephone number, including area code)
None
(Former name, former address, former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
|
Accelerated filer x |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At December 8, 2009, registrant had 37,520,657 shares of common stock outstanding.
METHODE ELECTRONICS, INC.
FORM 10-Q
October 31, 2009
PART I - FINANCIAL INFORMATION
METHODE ELECTRONICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
As of |
|
As of |
|
||
|
|
October 31, 2009 |
|
May 2, 2009 |
|
||
|
|
(Unaudited) |
|
|
|
||
ASSETS |
|
|
|
|
|
||
CURRENT ASSETS |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
60,274 |
|
$ |
54,030 |
|
Accounts receivable, net |
|
71,837 |
|
60,406 |
|
||
Inventories: |
|
|
|
|
|
||
Finished products |
|
8,029 |
|
11,865 |
|
||
Work in process |
|
16,018 |
|
10,765 |
|
||
Materials |
|
17,207 |
|
17,796 |
|
||
|
|
41,254 |
|
40,426 |
|
||
Deferred income taxes |
|
4,972 |
|
4,928 |
|
||
Refundable income taxes |
|
9,073 |
|
14,764 |
|
||
Prepaid expenses and other current assets |
|
6,375 |
|
6,692 |
|
||
TOTAL CURRENT ASSETS |
|
193,785 |
|
181,246 |
|
||
|
|
|
|
|
|
||
PROPERTY, PLANT AND EQUIPMENT |
|
297,484 |
|
289,084 |
|
||
Less allowances for depreciation |
|
229,134 |
|
219,167 |
|
||
|
|
68,350 |
|
69,917 |
|
||
|
|
|
|
|
|
||
GOODWILL |
|
11,771 |
|
11,771 |
|
||
INTANGIBLE ASSETS, net |
|
19,583 |
|
20,501 |
|
||
OTHER ASSETS |
|
22,722 |
|
21,853 |
|
||
|
|
54,076 |
|
54,125 |
|
||
TOTAL ASSETS |
|
$ |
316,211 |
|
$ |
305,288 |
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
||
CURRENT LIABILITIES |
|
|
|
|
|
||
Accounts payable |
|
$ |
31,075 |
|
$ |
24,495 |
|
Other current liabilities |
|
27,860 |
|
29,023 |
|
||
TOTAL CURRENT LIABILITIES |
|
58,935 |
|
53,518 |
|
||
|
|
|
|
|
|
||
OTHER LIABILITIES |
|
14,154 |
|
13,561 |
|
||
DEFERRED COMPENSATION |
|
2,305 |
|
3,308 |
|
||
SHAREHOLDERS EQUITY |
|
|
|
|
|
||
Common stock, $0.50 par value, 100,000,000 shares authorized, 38,315,225 and 38,290,776 shares issued as of October 31, 2009 and May 2, 2009, respectively |
|
19,158 |
|
19,145 |
|
||
Unearned common stock issuances |
|
(3,632 |
) |
(3,632 |
) |
||
Additional paid-in capital |
|
69,001 |
|
68,506 |
|
||
Accumulated other comprehensive income |
|
23,891 |
|
15,675 |
|
||
Treasury stock, 1,372,188 shares as of October 31, 2009 and May 2, 2009 |
|
(11,495 |
) |
(11,495 |
) |
||
Retained earnings |
|
140,378 |
|
143,577 |
|
||
TOTAL METHODE ELECTRONICS, INC. SHAREHOLDERS EQUITY |
|
237,301 |
|
231,776 |
|
||
Noncontrolling interest |
|
3,516 |
|
3,125 |
|
||
TOTAL SHAREHOLDERS EQUITY |
|
240,817 |
|
234,901 |
|
||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
316,211 |
|
$ |
305,288 |
|
See notes to condensed consolidated financial statements.
2
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
October 31, |
|
November 1, |
|
October 31, |
|
November 1, |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
98,496 |
|
$ |
121,304 |
|
$ |
188,272 |
|
$ |
255,818 |
|
Other |
|
1,072 |
|
959 |
|
2,459 |
|
1,692 |
|
||||
|
|
99,568 |
|
122,263 |
|
190,731 |
|
257,510 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
||||
Cost of products sold |
|
77,784 |
|
97,815 |
|
148,693 |
|
203,245 |
|
||||
Restructuring |
|
3,156 |
|
6,284 |
|
6,767 |
|
11,201 |
|
||||
Selling and administrative expenses |
|
16,413 |
|
18,537 |
|
32,286 |
|
34,934 |
|
||||
|
|
97,353 |
|
122,636 |
|
187,746 |
|
249,380 |
|
||||
Income/(loss) from operations |
|
2,215 |
|
(373 |
) |
2,985 |
|
8,130 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income/(expense), net |
|
(45 |
) |
469 |
|
(147 |
) |
1,003 |
|
||||
Other income/(expense), net |
|
143 |
|
(610 |
) |
(252 |
) |
(879 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income/(loss) before income taxes |
|
2,313 |
|
(514 |
) |
2,586 |
|
8,254 |
|
||||
Income tax expense/(benefit) |
|
225 |
|
(865 |
) |
511 |
|
1,032 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
2,088 |
|
351 |
|
2,075 |
|
7,222 |
|
||||
Less: Net Income attributable to noncontrolling interest |
|
(36 |
) |
(113 |
) |
(42 |
) |
(168 |
) |
||||
NET INCOME ATTRIBUTABLE TO METHODE ELECTRONICS, INC. |
|
$ |
2,052 |
|
$ |
238 |
|
$ |
2,033 |
|
$ |
7,054 |
|
|
|
|
|
|
|
|
|
|
|
||||
Amounts per common share attributable to Methode Electronics, Inc.: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic net income |
|
$ |
0.06 |
|
$ |
0.01 |
|
$ |
0.06 |
|
$ |
0.19 |
|
Diluted net income |
|
$ |
0.06 |
|
$ |
0.01 |
|
$ |
0.06 |
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash dividends: |
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
$ |
0.07 |
|
$ |
0.07 |
|
$ |
0.14 |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of Common Shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
36,644 |
|
37,068 |
|
36,641 |
|
37,120 |
|
||||
Diluted |
|
36,868 |
|
37,551 |
|
36,823 |
|
37,584 |
|
See notes to condensed consolidated financial statements.
3
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
Six Months Ended |
|
|||||
|
|
October 31, 2009 |
|
November 1, 2008 |
|
|||
OPERATING ACTIVITIES |
|
|
|
|
|
|||
Net income |
|
$ |
2,075 |
|
$ |
7,222 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|||
Non-cash translation loss |
|
|
|
2,463 |
|
|||
Provision for depreciation |
|
10,118 |
|
12,489 |
|
|||
Impairment of tangible assets |
|
710 |
|
3,177 |
|
|||
Amortization of intangibles |
|
1,123 |
|
3,052 |
|
|||
Amortization of stock awards and stock options |
|
507 |
|
1,605 |
|
|||
Changes in operating assets and liabilities |
|
1,044 |
|
(1,160 |
) |
|||
Other |
|
48 |
|
567 |
|
|||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
15,625 |
|
29,415 |
|
||
|
|
|
|
|
|
|||
INVESTING ACTIVITIES |
|
|
|
|
|
|||
Purchases of property, plant and equipment |
|
(5,821 |
) |
(9,557 |
) |
|||
Acquisition of businesses |
|
|
|
(56,785 |
) |
|||
Acquisition of technology licenses |
|
(181 |
) |
(225 |
) |
|||
Other |
|
|
|
(209 |
) |
|||
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(6,002 |
) |
(66,776 |
) |
||
|
|
|
|
|
|
|||
FINANCING ACTIVITIES |
|
|
|
|
|
|||
Repurchase of common stock |
|
|
|
(5,137 |
) |
|||
Proceeds from exercise of stock options |
|
|
|
110 |
|
|||
Tax benefit from stock options and awards |
|
|
|
46 |
|
|||
Cash dividends |
|
(5,233 |
) |
(4,528 |
) |
|||
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(5,233 |
) |
(9,509 |
) |
||
|
|
|
|
|
|
|||
Effect of foreign currency exchange rate changes on cash |
|
1,854 |
|
(4,629 |
) |
|||
|
|
|
|
|
|
|||
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
6,244 |
|
(51,499 |
) |
||
|
|
|
|
|
|
|||
Cash and cash equivalents at beginning of period |
|
54,030 |
|
104,305 |
|
|||
|
|
|
|
|
|
|||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
|
$ |
60,274 |
|
$ |
52,806 |
|
See notes to condensed consolidated financial statements.
4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
October 31, 2009
1. BASIS OF PRESENTATION
Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966. As used herein, we, us, our, the Company or Methode means Methode Electronics, Inc. and its subsidiaries. The condensed consolidated financial statements and related disclosures as of October 31, 2009 and results of operations for the three months and six months ended October 31, 2009 and November 1, 2008 are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The May 2, 2009 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the financial statements included in our latest Form 10-K for the year ended May 2, 2009 filed with the SEC on July 2, 2009. Results may vary from quarter to quarter for reasons other than seasonality.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements, which amends the multiple-element arrangement guidance under Accounting Standards Codification (ASC) No. 605, Revenue Recognition. This guidance amends the criteria for separating consideration of products or services in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method of allocation, and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendors multiple-deliverable revenue arrangements. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, which is our fiscal year 2012, that begins May 1, 2011. The adoption of this standard will not have a material impact on our financial statements.
In June 2009, the FASB issued ASC No. 810, Consolidation (ASC No. 810). ASC No. 810 is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a companys involvement in variable interest entities. This standard is effective for interim and annual periods ending after November 15, 2009, which is our third quarter fiscal 2010, that ends on January 30, 2010. The adoption of this standard will not have a material impact on our financial statements.
In June 2009, the FASB issued ASC No. 860, Transfers and Servicing (ASC No. 860). ASC No. 860 will require more information about transfers of financial assets, including companies that have continuing exposure to the risk related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods ending after November 15, 2009, which is our third quarter fiscal 2010, that ends on January 30, 2010. The adoption of this standard will not have a material impact on our financial statements.
3. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective October 31, 2009, we adopted ASC No. 105, Generally Accepted Accounting Principles, the FASB Accounting Standards Codification (the Codification) and the Hierarchy of Generally Accepted Accounting Principles. The Codification is now the single source of authoritative GAAP for all non-governmental entities. The Codification changes the referencing and organization of accounting guidance. The issuance of ASC No. 105 will not change GAAP and therefore the adoption of ASC No. 105 will only affect how specific references to GAAP literature are disclosed in the notes to our consolidated financial statements.
5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
3. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS - Continued
In December 2007, the FASB issued new guidance under ASC No. 810, Consolidation,, an Amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements (ASC No. 810). ASC No. 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We adopted ASC No. 810 on May 3, 2009. As a result, we have reclassified financial statement line items within our condensed consolidated balance sheet and statement of income for the prior period to conform with this standard. Additionally, see Note 5 for disclosure reflecting the impact of ASC No. 810 on our reconciliation of comprehensive income.
In June 2008, the FASB issued ASC No. 260, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (ASC No. 260). ASC No. 260 was issued to clarify that unvested share-based payment awards with a right to receive non-forfeitable dividends are participating securities. This ASC also provides guidance on how to allocate earnings to participating securities and compute basic earnings per share using the two-class method. We adopted ASC No. 260 on May 3, 2009. The adoption did not have a material impact on our earnings per share calculations.
In February 2008, the FASB issued new guidance under ASC No. 820, Fair Value Measurements and Disclosures, (FASB Staff Position No. 157-2), which delays the effective date of SFAS No. 157 for non-financial assets and liabilities, which are not measured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008, which is our fiscal year 2010 that began May 3, 2009. The adoption of ASC No. 820 for non-financial assets and liabilities did not have a material impact on our condensed consolidated financial statements.
On May 3, 2009, we adopted the provisions of ASC No. 805-10, Business Combinations (ASC No. 805-10). ASC No. 805-10 establishes principles and requirements on how an acquirer recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, noncontrolling interests in the acquiree, goodwill or gain from a bargain purchase and accounting for transaction costs. Additionally, ASC No. 805-10 determines what information must be disclosed to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The adoption of ASC No. 805-10 did not have an impact on our consolidated financial statements, but will have an impact on the accounting for future business combinations.
In April 2009, the FASB issued three FASB Staff Positions, (FSPs) related to fair value measurements. The first, FSP ASC No. 820, Fair Value Measurements and Disclosures, provides guidance on determining whether a market is inactive and whether transactions in that market are distressed. The second FSP issued, ASC No. 320, Investments Debt and Equity Securities, and EITF 99-20-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides guidance on how to assess whether an asset has experienced an other-than-temporary impairment and, if so, where the impairment should be recorded in the financial statements. The third FSP issued, ASC No. 825, Financial Instruments, and ASC No. 270, Interim Reporting, requires that disclosures currently required under ASC No. 825, Disclosures about Fair Value of Financial Instruments, be presented for interim periods as well as annual periods. The Company adopted these FSPs during the first quarter of 2010. The adoption of these FSPs did not have a material impact on the Companys consolidated financial statements.
In May 2009, the FASB issued ASC No. 855, Subsequent Events (ASC No. 855). ASC No. 855 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in the financial statements and (3) the disclosure that an entity should make about events or transactions that occurred after the balance sheet date. We adopted ASC No. 855 on August 1, 2009 and the adoption did not have a material impact on our financial statements. We evaluated subsequent events through December 9, 2009, the time these financial statements were filed with the Securities and Exchange Commission.
6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
4. RESTRUCTURING
March 2009 Restructuring
In March 2009, we announced several additional restructuring actions to further reduce our exposure to the North American automotive industry and to consolidate manufacturing facilities in lower cost regions. The restructuring is expected to be completed during the second half of fiscal 2010. We record the expense in the restructuring section of our condensed consolidated statement of income. As of October 31, 2009, we have recorded a total of $12,182 of restructuring charges related to this restructuring. We estimate that we will record additional pre-tax restructuring charges in the second half of fiscal 2010 of between $500 and $1,200.
During the three months ended October 31, 2009, we recorded a restructuring charge of $2,978, which consisted of $1,819 for employee severance and $1,159 relating to other costs. During the six months ended October 31, 2009, we recorded a restructuring charge of $4,919, which consisted of $3,490 for employee severance and $1,429 relating to other costs. As of October 31, 2009, we had an accrued restructuring liability of $597 reflected in the current liabilities section of our consolidated balance sheet. We expect this liability to be paid out during fiscal 2010.
The table below reflects the March 2009 restructuring activity for the first and second quarter of fiscal 2010:
|
|
One-Time |
|
|
|
|
|
|
|
||||
|
|
Employee |
|
Asset |
|
Other |
|
|
|
||||
|
|
Severance |
|
Write-Downs |
|
Costs |
|
Total |
|
||||
Accrued balance at May 2, 2009 |
|
$ |
140 |
|
$ |
|
|
$ |
|
|
$ |
140 |
|
First quarter fiscal 2010 restructuring charges |
|
1,671 |
|
|
|
270 |
|
1,941 |
|
||||
First quarter 2010 payments and asset write-downs |
|
(1,625 |
) |
|
|
(270 |
) |
(1,895 |
) |
||||
Accrued balance at August 1, 2009 |
|
186 |
|
|
|
|
|
186 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Second quarter fiscal 2010 restructuring charges |
|
1,819 |
|
|
|
1,159 |
|
2,978 |
|
||||
Second quarter 2010 payments and asset write-downs |
|
(1,688 |
) |
|
|
(879 |
) |
(2,567 |
) |
||||
Accrued balance at October 31, 2009 |
|
$ |
317 |
|
$ |
|
|
$ |
280 |
|
$ |
597 |
|
January 2008 Restructuring
In January 2008, we announced a restructuring of our U.S.-based automotive operations and a decision to discontinue producing certain legacy products in the Interconnect segment. The Automotive and Interconnect restructuring is expected to be completed during the second half of fiscal 2010. We record the expense in the restructuring section of our condensed consolidated statement of income. As of October 31, 2009, we have recorded charges totaling $25,022 related to this restructuring. We estimate that we will record additional pre-tax restructuring charges in fiscal 2010 of between $500 and $1,000.
During the three months ended October 31, 2009, we recorded a restructuring charge of $178, which consisted of $88 for accelerated depreciation and $90 related to other costs. During the six months ended October 31, 2009, we recorded a restructuring charge of $1,848, which consisted of $180 for employee severance, $1,538 in impairments and accelerated depreciation and $130 relating to other costs. As of October 31, 2009, we had an accrued restructuring liability of $1,417 reflected in the current liabilities section of our consolidated balance sheet.
7
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
4. RESTRUCTURING - Continued
The table below reflects the January 2008 restructuring activity for the first and second quarter of fiscal 2010:
|
|
One-Time |
|
|
|
|
|
|
|
||||
|
|
Employee |
|
Asset |
|
Other |
|
|
|
||||
|
|
Severance |
|
Write-Downs |
|
Costs |
|
Total |
|
||||
Accrued balance at May 2, 2009 |
|
$ |
1,849 |
|
$ |
|
|
$ |
|
|
$ |
1,849 |
|
First quarter fiscal 2010 restructuring charges |
|
180 |
|
1,450 |
|
40 |
|
1,670 |
|
||||
First quarter 2010 payments and asset write-downs |
|
(368 |
) |
(1,450 |
) |
(40 |
) |
(1,858 |
) |
||||
Accrued balance at August 1, 2009 |
|
1,661 |
|
|
|
|
|
1,661 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Second quarter fiscal 2010 restructuring charges |
|
|
|
88 |
|
90 |
|
178 |
|
||||
Second quarter 2010 payments and asset write-downs |
|
(244 |
) |
(88 |
) |
(90 |
) |
(422 |
) |
||||
Accrued balance at October 31, 2009 |
|
$ |
1,417 |
|
$ |
|
|
$ |
|
|
$ |
1,417 |
|
5. COMPREHENSIVE INCOME/(LOSS)
The components of our comprehensive income/(loss) for the three and six months ended October 31, 2009 and November 1, 2008 include net income and adjustments to stockholders equity for foreign currency translations. The foreign currency translation adjustment was due to exchange rate fluctuations in our foreign affiliates local currency versus the U.S. dollar.
The following table presents details of our comprehensive income/(loss) (unaudited):
|
|
Three Months Ended October 31, 2009 |
|
Six Months Ended October 31, 2009 |
|
||||||||||||||
|
|
|
|
Methode |
|
Noncontrolling |
|
|
|
Methode |
|
Noncontrolling |
|
||||||
|
|
Total |
|
Shareholders |
|
Interest |
|
Total |
|
Shareholders |
|
Interest |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
$ |
2,088 |
|
$ |
2,052 |
|
$ |
36 |
|
$ |
2,075 |
|
$ |
2,033 |
|
$ |
42 |
|
Translation adjustment |
|
3,208 |
|
3,192 |
|
16 |
|
8,216 |
|
7,867 |
|
349 |
|
||||||
Total comprehensive income |
|
$ |
5,296 |
|
$ |
5,244 |
|
$ |
52 |
|
$ |
10,291 |
|
$ |
9,900 |
|
$ |
391 |
|
|
|
Three Months Ended November 1, 2008 |
|
Six Months Ended November 1, 2008 |
|
||||||||||||||
|
|
|
|
Methode |
|
Noncontrolling |
|
|
|
Methode |
|
Noncontrolling |
|
||||||
|
|
Total |
|
Shareholders |
|
Interest |
|
Total |
|
Shareholders |
|
Interest |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
$ |
351 |
|
$ |
238 |
|
$ |
113 |
|
$ |
7,222 |
|
$ |
7,054 |
|
$ |
168 |
|
Translation adjustment |
|
(16,181 |
) |
(15,431 |
) |
(750 |
) |
(14,446 |
) |
(13,922 |
) |
(524 |
) |
||||||
Total comprehensive loss |
|
$ |
(15,830 |
) |
$ |
(15,193 |
) |
$ |
(637 |
) |
$ |
(7,224 |
) |
$ |
(6,868 |
) |
$ |
(356 |
) |
6. GOODWILL AND INTANGIBLE ASSETS
We review our goodwill and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable, and we also review our goodwill annually in accordance with ASC No. 350, Intangibles Goodwill and Other. The values assigned to goodwill and intangible assets are normally based on estimates and judgments regarding expectations for the success and life cycle of products and technologies acquired. A severe decline in expectations could result in significant impairment charges, which could have a material adverse effect on our financial condition and results of operations. We did not perform impairment testing on our goodwill and intangible assets during the second quarter of fiscal 2010 because there were no additional indicators of impairment.
8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
6. GOODWILL AND INTANGIBLE ASSETS - Continued
The following tables present details of the Companys intangible assets:
|
|
As of October 31, 2009 |
|
|||||||||
|
|
|
|
|
|
|
|
Wtd. Avg. |
|
|||
|
|
|
|
|
|
|
|
Remaining |
|
|||
|
|
|
|
Accumulated |
|
|
|
Amortization |
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
Periods (Years) |
|
|||
Customer relationships and agreements |
|
$ |
14,995 |
|
$ |
12,889 |
|
$ |
2,106 |
|
14.2 |
|
Patents and technology licenses |
|
23,449 |
|
6,096 |
|
17,353 |
|
13.2 |
|
|||
Covenants not to compete |
|
480 |
|
356 |
|
124 |
|
2.3 |
|
|||
Total |
|
$ |
38,924 |
|
$ |
19,341 |
|
$ |
19,583 |
|
|
|
|
|
As of May 2, 2009 |
|
|||||||||
|
|
|
|
|
|
|
|
Wtd. Avg. |
|
|||
|
|
|
|
|
|
|
|
Remaining |
|
|||
|
|
|
|
Accumulated |
|
|
|
Amortization |
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
Periods (Years) |
|
|||
Customer relationships and agreements |
|
$ |
14,995 |
|
$ |
12,718 |
|
$ |
2,277 |
|
14.7 |
|
Patents and technology licenses |
|
23,244 |
|
5,169 |
|
18,075 |
|
13.4 |
|
|||
Covenants not to compete |
|
480 |
|
331 |
|
149 |
|
2.8 |
|
|||
Total |
|
$ |
38,719 |
|
$ |
18,218 |
|
$ |
20,501 |
|
|
|
The estimated aggregate amortization expense for fiscal 2010 and each of the four succeeding fiscal years is as follows:
2010 |
|
$ |
2,240 |
|
2011 |
|
2,197 |
|
|
2012 |
|
1,685 |
|
|
2013 |
|
1,308 |
|
|
2014 |
|
1,195 |
|
As of October 31, 2009, the patents and technology licenses include $2,400 of trade names that are not subject to amortization.
7. ACQUISITIONS
On September 30, 2008, we acquired certain assets of Hetronic LLC (Hetronic) for $53,639 in cash. We also incurred $2,447 in transaction costs. Hetronic is a global leader in industrial safety radio remote controls with locations in the U.S., Malta, the Philippines and Germany. Hetronic is represented in 45 countries by direct sales associates, licensed partners, distributors and representatives. Hetronic provides application specific and standard controls to many different industries, such as agriculture, construction, material handling, military, mining and transportation.
Based in part on a third-party valuation report, management determined that the tangible net assets acquired had a fair value of $20,533. The fair values assigned to intangible assets acquired were $12,170 for customer relationships, $2,700 for the trade name and trademarks, $1,450 for technology valuation, and $170 for non-competes, resulting in $19,063 of goodwill. The customer relationships, technology valuation and non-compete agreements will be amortized over 5 to approximately 12 years. The trade name and trademarks are not subject to amortization but will be subject to periodic impairment testing. The accounts and transactions of Hetronic have been included in the Interconnect segment in the consolidated financial statements from the effective date of the acquisition.
9
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
7. ACQUISITIONS - Continued
At the end of fiscal 2009, in accordance with ASC No. 350, Intangibles Goodwill and Other and ASC No. 360, Property, Plant, and Equipment, it was determined that the goodwill and intangible assets for Hetronic were impaired. Therefore, in the fourth quarter of fiscal 2009, we recorded an impairment charge of $19,063 and $11,587 for goodwill and intangible assets, respectively.
8. INCOME TAXES
At October 31, 2009, we had valuation allowances against our deferred tax assets of $53,152. In accordance with ASC No. 740, Income Taxes, a valuation allowance is required to be recorded when it is more likely than not that deferred tax assets will not be realized. Future realization depends on the existence of sufficient taxable income within the carry-forward period available under the tax law. Sources of future taxable income include future reversals of taxable temporary differences, future taxable income exclusive of reversing taxable differences, taxable income in carry-back years and tax planning strategies. These sources of positive evidence of realizability must be weighed against negative evidence, such as cumulative losses in recent years.
In forming a judgment about the future realization of our deferred tax assets, we considered both the positive and negative evidence of realizability and gave significant weight to the negative evidence from our recent cumulative loss. We will continue to assess this situation and make appropriate adjustments to the valuation allowance based on our evaluation of the positive and negative evidence existing at the time. We are currently unable to forecast when there will be sufficient positive evidence for us to reverse the valuation allowances that we have recorded.
The valuation allowance is associated with the deferred tax assets for the differences between book and tax that result from net operating losses (NOLs), foreign investment tax credits with unlimited carryovers generated in the current and prior years and temporary differences which become deductible when the related asset is recovered or related liability is settled.
We recognize interest and penalties accrued related to the unrecognized tax benefits in the provision for income taxes. During the three months ended October 31, 2009, we recognized $42 in interest and zero in penalties. We had approximately $1,020 accrued at October 31, 2009 for the payment of interest. The total unrecognized tax benefit as of October 31, 2009 was $6,126.
We believe that it is reasonably possible that the total amount of unrecognized tax benefits will change within the next twelve months. We have certain tax return years subject to statutes of limitation, which will close within twelve months of the end of the quarter. Unless challenged by tax authorities, the closure of those statutes of limitation is expected to result in the recognition of uncertain tax positions in the range of between $500 and $2,500.
The Company and all of its domestic subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Our foreign subsidiaries file income tax returns in certain foreign jurisdictions since they have operations outside the U.S. The Company and its subsidiaries are generally no longer subject to U.S. federal, state and local examinations by tax authorities for years before fiscal 2006.
10
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. COMMON STOCK AND STOCK-BASED COMPENSATION
The following table sets forth the changes in the number of issued shares of common stock during the six-month period presented:
|
|
Six Months Ended |
|
||
|
|
October 31, |
|
November 1, |
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
Balance at the beginning of the period |
|
38,290,776 |
|
38,225,379 |
|
Options exercised |
|
|
|
19,089 |
|
Restricted stock awards vested |
|
24,449 |
|
38,607 |
|
Balance at the end of the period |
|
38,315,225 |
|
38,283,075 |
|
We paid quarterly dividends of $2,616 on July 31, 2009 and October 30, 2009. We intend to retain the remainder of our earnings not used for dividend payments to provide funds for the operation and expansion of our business. Our Board of Directors approved a stock repurchase plan on September 18, 2008 to repurchase up to 3,000,000 shares. The plan expires at the end of fiscal 2010. There were no shares purchased during the first or second quarter of fiscal 2010.
Stock Options Granted Under the 2000 and 2004 Stock Plans
There are 589,909 stock options that were granted in previous years under the 2000 and 2004 stock plans that are outstanding and exercisable as of October 31, 2009. There were 30,128 options that expired and 5,596 options were forfeited during the first half of fiscal 2010. There was no remaining compensation expense relating to these options in the first half of fiscal 2010.
The following tables summarize the stock option activity and related information for the stock options granted under the 2000 and 2004 stock plans for the six months ended October 31, 2009:
|
|
Summary of Option Activity |
|
|||
|
|
|
|
Wtd. Avg. |
|
|
|
|
Shares |
|
Exercise Price |
|
|
Outstanding at May 2, 2009 |
|
625,633 |
|
$ |
10.26 |
|
Exercised |
|
|
|
|
|
|
Forfeited and Expired |
|
(35,724 |
) |
8.58 |
|
|
Outstanding at October 31, 2009 |
|
589,909 |
|
$ |
10.47 |
|
Options Outstanding and |
|
|||||||
|
|
|
|
Wtd. Avg. |
|
Avg. |
|
|
Range of |
|
|
|
Exercise |
|
Remaining |
|
|
Exercise Prices |
|
Shares |
|
Price |
|
Life (Years) |
|
|
$5.72 - $7.69 |
|
154,125 |
|
$ |
6.68 |
|
1.8 |
|
$8.53 - $11.44 |
|
303,085 |
|
10.86 |
|
1.8 |
|
|
$12.11 - $17.66 |
|
132,699 |
|
14.00 |
|
0.8 |
|
|
|
|
589,909 |
|
$ |
10.47 |
|
|
|
The options outstanding had an intrinsic value of $100 at October 31, 2009. The intrinsic value represents the total pre-tax intrinsic value (the difference between the Companys closing stock price on the last trading day of the second quarter of fiscal 2010 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on October 31, 2009.
11
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. COMMON STOCK AND STOCK-BASED COMPENSATION - Continued
Stock Options Granted Under the 2007 Stock Plan
In March 2009, the Compensation Committee approved the grant of 285,000 stock options to our executive officers under the 2007 Stock Plan. The March 2009 stock options vest on the third anniversary of the date of grant. In July 2009, the Compensation Committee approved the grant of 275,000 stock options to our executive officers and other members of management under the same plan. The July 2009 stock options vest one-third per year on each anniversary of the date of grant. Both the March 2009 and July 2009 stock option grants have a ten-year term.
The following tables summarize the stock option activity and related information for the stock options granted under the 2007 stock plan for the six months ended October 31, 2009:
|
|
Summary of Option Activity |
|
|||
|
|
|
|
Wtd. Avg. |
|
|
|
|
Shares |
|
Exercise Price |
|
|
Outstanding at May 2, 2009 |
|
285,000 |
|
$ |
2.72 |
|
Granted |
|
275,000 |
|
6.46 |
|
|
Exercised |
|
|
|
|
|
|
Cancelled |
|
|
|
|
|
|
Outstanding at October 31, 2009 |
|
560,000 |
|
$ |
4.56 |
|
Options Outstanding |
|
|||||
|
|
|
|
Avg. |
|
|
|
|
|
|
Remaining |
|
|
Exercise Price |
|
Shares |
|
Life (Years) |
|
|
$ |
2.72 |
|
285,000 |
|
9.3 |
|
$ |
6.46 |
|
275,000 |
|
9.7 |
|
We estimated the fair value of our employee stock options on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
Fiscal 2009 |
|
Fiscal 2010 |
|
||
|
|
Grants |
|
Grants |
|
||
|
|
|
|
|
|
||
Average expected volatility |
|
69.58 |
% |
87.31 |
% |
||
Average risk-free interest rate |
|
1.39 |
% |
1.46 |
% |
||
Dividend yield |
|
2.26 |
% |
2.66 |
% |
||
Expected life of options |
|
6.87 years |
|
6.87 years |
|
||
Weighted-average grant-date fair value |
|
$ |
1.46 |
|
$ |
3.97 |
|
Restricted Stock Awards and Restricted Stock Units
In April 2007, 225,000 shares of common stock subject to performance-based Restricted Stock Awards (RSAs) granted to our CEO in fiscal 2006 and 2007 were converted to Restricted Stock Units (RSUs). The RSUs are subject to the same vesting schedule and other major provisions of the RSAs they replaced, except the RSUs are not payable until the earlier of: (1) thirty days after the CEOs date of termination of employment with the Company and all of its subsidiaries and affiliates; or (2) the last day of our fiscal year in which the payment of common stock in satisfaction of the RSUs becomes deductible to the Company under Section 162(m) of the Internal Revenue Code.
12
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. COMMON STOCK AND STOCK-BASED COMPENSATION - Continued
At the end of fiscal 2009, 100,000 RSUs were cancelled due to the company not meeting specific revenue and performance goals. All further discussion of RSAs in this report includes the RSUs described above.
At May 3, 2009, the beginning of fiscal 2010, there were 578,287 performance-based and time-based RSAs outstanding. The time-based RSAs vest in three equal annual installments from the grant date. All RSAs awarded to senior management are performance-based and vest after three years if the recipient remains employed by the Company until that date and we have met certain revenue growth and return on invested capital targets. As of October 31, 2009, it was determined that based on the current economic environment, the performance-based shares granted in fiscal years 2008 and 2009 are not expected to meet the revenue growth and return on invested capital targets. All of the unvested RSAs are entitled to voting rights and to payment of dividends. During the six months ended October 31, 2009, we awarded 24,000 restricted shares to our independent directors, all of which vested immediately upon grant.
We recognized pre-tax compensation expense for RSAs of $81 and $811 in the three months ended October 31, 2009 and November 1, 2008, respectively. We recognized pre-tax compensation expense for RSAs of $316 and $1,603 in the six months ended October 31, 2009 and November 1, 2008, respectively. We record the expense in the selling and administrative section of our condensed consolidated statement of income.
The following table summarizes the RSA activity for the six months ended October 31, 2009:
|
|
Shares |
|
Unvested at May 2, 2009 |
|
578,287 |
|
Awarded |
|
24,000 |
|
Vested |
|
(24,667 |
) |
Forfeited |
|
|
|
Unvested at October 31, 2009 |
|
577,620 |
|
The table below shows the Companys unvested RSAs at October 31, 2009:
|
|
|
|
|
|
|
|
Probable |
|
Target |
|
|||
|
|
|
|
|
|
|
|
Unearned |
|
Unearned |
|
|||
Grant |
|
|
|
|
|
Weighted |
|
Compensation |
|
Compensation |
|
|||
Fiscal |
|
|
|
|
|
Average |
|
Expense at |
|
Expense at |
|
|||
Year |
|
RSAs |
|
Vesting Period |
|
Value |
|
October 31, 2009 |
|
October 31, 2009 |
|
|||
2006 |
|
125,000 |
|
3-year cliff performanced-based |
|
$ |
12.42 |
|
$ |
|
|
$ |
|
|
2007 |
|
834 |
|
3-year equal annual installments |
|
11.07 |
|
|
|
|
|
|||
2008 |
|
17,793 |
|
3-year equal annual installments |
|
14.89 |
|
46 |
|
46 |
|
|||
2008 |
|
149,730 |
|
3-year cliff performanced-based |
|
15.14 |
|
|
|
467 |
|
|||
2009 |
|
49,724 |
|
3-year equal annual installments |
|
10.64 |
|
206 |
|
206 |
|
|||
2009 |
|
234,539 |
|
3-year cliff performanced-based |
|
11.35 |
|
|
|
1,530 |
|
|||
At October 31, 2009, the aggregate unvested RSAs had a grant date weighted average fair value of $12.61 and a weighted average vesting period of approximately 10.5 months.
13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
10. EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing net earnings by the weighted average number of common shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the numerator and the denominator of the basic EPS calculation for the effect of all potentially dilutive common shares outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
October 31, |
|
November 1, |
|
October 31, |
|
November 1, |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Numerator - net income attributable to Methode Electronics, Inc. |
|
$ |
2,052 |
|
$ |
238 |
|
$ |
2,033 |
|
$ |
7,054 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Denominator for basic earnings per share-weighted average shares |
|
36,644 |
|
37,068 |
|
36,641 |
|
37,120 |
|
||||
Dilutive potential common shares-employee stock options |
|
224 |
|
483 |
|
182 |
|
465 |
|
||||
Denominator for diluted earnings per share adjusted weighted average shares and assumed conversions |
|
36,868 |
|
37,551 |
|
36,823 |
|
37,585 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.06 |
|
$ |
0.01 |
|
$ |
0.06 |
|
$ |
0.19 |
|
Diluted |
|
$ |
0.06 |
|
$ |
0.01 |
|
$ |
0.06 |
|
$ |
0.19 |
|
Options to purchase 445,784 shares of common stock at a weighted-average exercise price of $11.72 per share were outstanding as of October 31, 2009 and options to purchase 304,522 shares of common stock at a weighted-average exercise price of $12.54 were outstanding as of November 1, 2008, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock and, therefore, the effect would be antidilutive.
11. SEGMENT INFORMATION
We are a global manufacturer of component and subsystem devices. We design, manufacture and market devices employing electrical, electronic, wireless, sensing and optical technologies. Our components are found in the primary end markets of the automotive, appliance, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), aerospace, rail and other transportation industries; and the consumer and industrial equipment markets.
ASC No. 280, Segment Reporting (ASC No. 280), establishes annual and interim reporting standards for an enterprises operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources. The CODM, as defined by ASC No. 280, is the Companys President and Chief Executive Officer.
The Automotive segment supplies electronic and electromechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers, including control switches for electrical power and signals, connectors for electrical devices, integrated control components, switches and sensors that monitor the operation or status of a component or system, and packaging of electrical components.
14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
11. SEGMENT INFORMATION - Continued
The Interconnect segment provides a variety of copper and fiber-optic interconnect and interface solutions for the appliance, computer, networking, telecommunications, storage, medical, military, aerospace, commercial, consumer markets and industrial equipment markets. Solutions include solid-state field effect interface panels, wireless optical and copper transceivers, terminators, connectors, custom cable assemblies and conductive polymer and thick film inks. Services include the design and installation of fiber optic and copper infrastructure systems, and manufacture of active and passive optical components.
The Power Products segment manufactures current-carrying devices, including custom power-product assemblies, laminated and powder coated bus bars, braided flexible cables and high-current low voltage flexible power cabling systems that are used in various markets and applications, including telecommunications, computers, transportation, industrial and power conversion, insulated gate bipolar transistor solutions, aerospace and military.
The Other segment includes a designer and manufacturer of magnetic torque sensing products, and independent laboratories that provide services for qualification testing and certification, and analysis of electronic and optical components.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. See Note 1 in our Form 10-K for the fiscal year ended May 2, 2009 for more information regarding significant accounting policies. We allocate resources to and evaluate performance of segments based on operating income. Transfers between segments are recorded using internal transfer prices set by the Company.
15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
11. SEGMENT INFORMATION - Continued
|
|
Three Months Ended October 31, 2009 |
|
||||||||||||||||
|
|
Automotive |
|
Interconnect |
|
Power |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
Net sales |
|
$ |
56,193 |
|
$ |
30,605 |
|
$ |
9,412 |
|
$ |
2,419 |
|
$ |
133 |
|
$ |
98,496 |
|
Transfers between segments |
|
|
|
(76 |
) |
(30 |
) |
(27 |
) |
(133 |
) |
|
|
||||||
Net sales to unaffiliated customers |
|
$ |
56,193 |
|
$ |
30,529 |
|
$ |
9,382 |
|
$ |
2,392 |
|
$ |
|
|
$ |
98,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) before restructuring charge |
|
$ |
7,953 |
|
$ |
1,616 |
|
$ |
611 |
|
$ |
(749 |
) |
$ |
|
|
$ |
9,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restructuring |
|
(2,339 |
) |
(676 |
) |
(141 |
) |
|
|
|
|
(3,156 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) including restructuring charge |
|
$ |
5,614 |
|
$ |
940 |
|
$ |
470 |
|
$ |
(749 |
) |
$ |
|
|
$ |
6,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
(3,962 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,313 |
|
|
|
Three Months Ended November 1, 2008 |
|
||||||||||||||||
|
|
Automotive |
|
Interconnect |
|
Power |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
Net sales |
|
$ |
75,207 |
|
$ |
32,146 |
|
$ |
11,676 |
|
$ |
2,556 |
|
$ |
281 |
|
$ |
121,304 |
|
Transfers between segments |
|
|
|
(143 |
) |
(112 |
) |
(26 |
) |
(281 |
) |
|
|
||||||
Net sales to unaffiliated customers |
|
$ |
75,207 |
|
$ |
32,003 |
|
$ |
11,564 |
|
$ |
2,530 |
|
$ |
|
|
$ |
121,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) before restructuring charge |
|
$ |
10,528 |
|
$ |
(638 |
) |
$ |
482 |
|
$ |
(750 |
) |
$ |
|
|
$ |
9,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restructuring |
|
(4,351 |
) |
(1,933 |
) |
|
|
|
|
|
|
(6,284 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) including restructuring charge |
|
$ |
6,177 |
|
$ |
(2,571 |
) |
$ |
482 |
|
$ |
(750 |
) |
$ |
|
|
$ |
3,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
(3,852 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
$ |
(514 |
) |
16
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
11. SEGMENT INFORMATION - Continued
|
|
Six Months Ended October 31, 2009 |
|
||||||||||||||||
|
|
Automotive |
|
Interconnect |
|
Power |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
Net sales |
|
$ |
107,392 |
|
$ |
55,345 |
|
$ |
20,827 |
|
$ |
5,126 |
|
$ |
418 |
|
$ |
188,272 |
|
Transfers between segments |
|
|
|
(127 |
) |
(254 |
) |
(37 |
) |
(418 |
) |
|
|
||||||
Net sales to unaffiliated customers |
|
$ |
107,392 |
|
$ |
55,218 |
|
$ |
20,573 |
|
$ |
5,089 |
|
$ |
|
|
$ |
188,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) before restructuring charge |
|
$ |
13,463 |
|
$ |
2,645 |
|
$ |
1,464 |
|
$ |
(1,329 |
) |
$ |
|
|
$ |
16,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restructuring |
|
(4,958 |
) |
(1,446 |
) |
(363 |
) |
|
|
|
|
(6,767 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) including restructuring charge |
|
$ |
8,505 |
|
$ |
1,199 |
|
$ |
1,101 |
|
$ |
(1,329 |
) |
$ |
|
|
$ |
9,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
(6,890 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,586 |
|
|
|
Six Months Ended November 1, 2008 |
|
||||||||||||||||
|
|
Automotive |
|
Interconnect |
|
Power |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
Net sales |
|
$ |
159,940 |
|
$ |
67,865 |
|
$ |
23,810 |
|
$ |
4,778 |
|
$ |
575 |
|
$ |
255,818 |
|
Transfers between segments |
|
|
|
(275 |
) |
(245 |
) |
(55 |
) |
(575 |
) |
|
|
||||||
Net sales to unaffiliated customers |
|
$ |
159,940 |
|
$ |
67,590 |
|
$ |
23,565 |
|
$ |
4,723 |
|
$ |
|
|
$ |
255,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) before restructuring charge |
|
$ |
24,126 |
|
$ |
1,536 |
|
$ |
1,284 |
|
$ |
(1,332 |
) |
$ |
|
|
$ |
25,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restructuring |
|
(7,514 |
) |
(3,687 |
) |
|
|
|
|
|
|
(11,201 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) including restructuring charge |
|
$ |
16,612 |
|
$ |
(2,151 |
) |
$ |
1,284 |
|
$ |
(1,332 |
) |
$ |
|
|
$ |
14,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
(6,159 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
$ |
8,254 |
|
17
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
12. CONTINGENCIES
Certain litigation arising in the normal course of business is pending against us. We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, employment-related matters and environmental matters. We consider insurance coverage and third-party indemnification when determining required accruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot be determined, it is our opinion, based on the information available, that we have adequate reserves for these liabilities. Legal Proceedings in this Form 10-Q, the ultimate resolution of these matters will not have a material adverse effect on our consolidated financial statements.
13. PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS
We incur pre-production tooling costs related to certain products produced for our customers under long-term supply agreements. We had $8,425 and $3,182 as of October 31, 2009 and May 2, 2009, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling. These amounts are included in our work-in-process inventory in the condensed consolidated balance sheets. Net revenues and costs on projects are deferred and recognized over the life of the related long-term supply agreement.
14. FAIR VALUE MEASUREMENTS
ASC No. 820, Fair Value Measurements and Disclosures (ASC No. 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.
ASC No. 820 also specifies a fair value hierarchy based upon the observation of inputs in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with ASC No. 820, fair value measurements are classified under the following hierarchy:
· Level 1 Quoted prices in active markets for identical assets and liabilities.
· Level 2 Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
· Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Assets and liabilities recorded at fair value are valued using quoted market prices or under a market approach using other relevant information generated by market transactions involving identical or comparable instruments and included in a table below that summarizes the fair value of assets and liabilities as of October 31, 2009:
18
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
14. FAIR VALUE MEASUREMENTS - Continued
|
|
Fair Value Measurement Used |
|
||||||||||
|
|
|
|
Quoted prices |
|
Quoted prices |
|
|
|
||||
|
|
|
|
in active |
|
in active |
|
|
|
||||
|
|
|
|
markets for |
|
markets for |
|
Other |
|
||||
|
|
|
|
identical |
|
similar |
|
unobservable |
|
||||
|
|
Recorded |
|
instruments |
|
instruments |
|
inputs |
|
||||
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents (1) |
|
$ |
60,274 |
|
$ |
60,274 |
|
$ |
|
|
$ |
|
|
Assets related to deferred compensation plan |
|
$ |
2,842 |
|
$ |
|
|
$ |
2,842 |
|
$ |
|
|
Total assets at fair value |
|
$ |
63,116 |
|
$ |
60,274 |
|
$ |
2,842 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
Liabilities related to deferred compensation plan |
|
$ |
2,796 |
|
$ |
2,796 |
|
$ |
|
|
$ |
|
|
Total liabilities at fair value |
|
$ |
2,796 |
|
$ |
2,796 |
|
$ |
|
|
$ |
|
|
(1) Includes cash, money-market investments and certificates of deposit.
Fair Value of Other Financial Instruments. The carrying values of our short-term financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short maturity of these instruments.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations. Our results will be subject to many of the same risks that apply to the automotive, appliance, computer and telecommunications industries, such as general economic conditions, interest rates, credit availability, consumer spending patterns and technological changes. Other factors, which may result in materially different results for future periods, include the following risk factors. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements. The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws.
· We depend on a small number of large customers. If we were to lose any of these customers or any of these customers decreased the number of orders it placed, our future results could be adversely affected.
· Because we derive a substantial portion of our revenues from customers in the automotive, appliance, computer and communications industries, and construction, industrial safety radio remote control markets, we are susceptible to trends and factors affecting those industries.
· Our business is cyclical and seasonal in nature and further downturns in the automotive industry could reduce the sales and profitability of our business.
· If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another persons intellectual property, our business, financial condition and operating results could be materially adversely affected.
· We face risks relating to our international operations, including fluctuations in the U.S. dollar.
· We cannot assure that the newly-acquired Hetronic business will be successful or that we can implement and profit from new applications of the acquired technology.
· Our technology-based businesses and the markets in which we operate are highly competitive. If we are unable to compete effectively, our sales will decline.
· We may acquire businesses or divest of various business operations. These transactions may pose significant risks and may materially adversely affect our business, financial condition and operating results.
· We may be unable to keep pace with rapid technological changes, which would adversely affect our business.
· Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.
· We are dependent on the availability and price of raw materials.
· Because we currently derive approximately 57% of our revenues from the automotive segment, oil prices could adversely affect future results.
· We have and may continue to incur additional significant restructuring charges that will adversely affect our results of operations.
· If sales and earnings worsen, we could incur additional goodwill and other asset impairments.
20
Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those foreseen in such forward-looking statements. These forward-looking statements speak only as of the date of the report, press release, statement, document, webcast or oral discussion in which they are made. We do not intend to update any forward-looking statements, all of which are expressly qualified by the foregoing. See Part I Item 1A, Risk Factors of our latest Form 10-K for the fiscal year ended May 2, 2009, for a further discussion regarding some of the reasons that actual results may be materially different from those we anticipate.
We are a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in China, Czech Republic, Germany, India, Malta, Mexico, the Philippines, Singapore, the United Kingdom and the United States. We are a global designer and manufacturer of electro-mechanical devices. We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless, sensing and optical technologies. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other. For more information regarding the business and products of these segments, see Item 1. Business of our Form 10-K for the fiscal year ended May 2, 2009.
Our components are found in the primary end markets of the aerospace, appliance, automotive, consumer and industrial equipment markets, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), rail and other transportation industries. Recent trends in the industries that we serve include:
· Automotive industry sales volume in the United States and European markets declined suddenly and substantially in fiscal 2009 and continues at historically low levels into the first half of fiscal 2010.
· The deteriorating condition of certain of our customers and the uncertainty as they undergo restructuring initiatives, including in some cases, reorganization under bankruptcy laws.
· Decline in demand for new houses and the over-supply of new and existing houses.
· Demand for construction and material handling equipment is cyclical and has been impacted by the weakness of the economy, availability of credit and higher interest rates.
Our business has been and will likely continue to be materially adversely affected by the current economic environment. The disruptions in global financial and credit markets have significantly impacted global economic activity and led to an economic recession. As a result of these disruptions, our customers and markets have been adversely affected. We have recently experienced and continue to experience a drop in sales throughout all of our businesses. If we continue to experience reduced demand because of these disruptions in the macroeconomic environment or other factors, our business, results of operations and financial condition could be materially adversely affected. If we are unable to successfully anticipate changing economic and financial conditions, we may be unable to effectively plan for and respond to these changes and our business could be adversely affected.
On September 4, 2008, Methode and Delphi Automotive Systems LLC (Delphi) entered into a supply agreement pursuant to which Methode was to supply all of Delphis requirements for the silicone bladders used in Delphis occupant restraint system from October 1, 2008 through September 30, 2011. On August 26, 2009, Delphi notified us that effective September 10, 2009, our supply arrangement was terminated. We are contesting Delphis right to terminate this long-term supply arrangement and the parties are engaged in litigation regarding this supply arrangement and our related intellectual property.
On September 30, 2008, we acquired certain assets of Hetronic LLC (Hetronic) for $53.6 million in cash. We also incurred $2.4 million in transaction costs related to the purchase. Hetronic is a global leader in industrial safety radio remote controls with locations in the U.S., Malta, the Philippines and Germany. Hetronic is represented in 45 countries by direct sales associates, licensed partners, distributors and representatives. Hetronic provides application specific and standard controls to many different industries, such as material handling, transportation, mining, military, agriculture and construction.
21
In March 2009, we announced several additional restructuring actions to further reduce our exposure to the North American automotive industry and to consolidate manufacturing facilities in lower cost regions. After these actions, our principal manufacturing operations will be in China, Malta and Mexico. In addition, we reached an agreement with GM to have certain programs, scheduled for future production at our Shanghai, China facility, transferred to an unrelated GM-directed supplier and we reached agreement with Ford Motor Company to have all production from our Reynosa, Mexico facility transferred to an unrelated Ford-directed supplier. TouchSensor manufacturing, currently in west suburban Chicago, Illinois is in the process of moving to Monterrey, Mexico, and expects to complete the move by the end of the third quarter of fiscal 2010. Additionally, during the first quarter of fiscal 2010, our operations in Shanghai, China were consolidated from three facilities to two. We expect to complete the restructuring actions during the second half of fiscal 2010.
In March 2009, the total pre-tax charges were estimated to be between $16.0 million and $25.0 million. As of October 31, 2009, we have recorded a total of $12.2 million of the charges. We estimate that we will record additional pre-tax restructuring charges in fiscal 2010 of between $0.5 million and $1.2 million.
Business Outlook
We remain very cautious about fiscal 2010. The continuing effect of financial sector crisis and stagnant global economic conditions has caused uncertainty in the markets in every geographic region we serve. We expect the unprecedented global economic environment to continue to affect near-term results and to create difficult business conditions. Sales of Automotive segment products are expected to decline, as the effects of the Cash for Clunkers programs both in the United States and Europe diminish. Delphi recently notified us that our long-term supply arrangement has been terminated effective September 10, 2009 and we ceased manufacturing on that date. We are contesting Delphis right to terminate this long-term supply arrangement and the parties are engaged in litigation regarding this supply arrangement and our related intellectual property. The early termination of this agreement will adversely affect sales, profits and cash flow going forward.
In the Interconnect and Power Products segments visibility is low and forecasting is very challenging. We expect continued volatility in these segments for the balance of the fiscal year. In our Interconnect segment, sales from our Hetronic acquisition will be offset by sales lost due to our decision in fiscal 2008 and 2009 to exit certain unprofitable or marginally profitable North American Interconnect segment legacy businesses.
While we have taken steps to restructure our businesses, ongoing operating margin improvement may not be realized or sustainable until economic conditions begin to improve in the markets we serve.
22
Results of Operations for the Three Months Ended October 31, 2009 as Compared to the Three Months Ended November 1, 2008.
Consolidated Results
Below is a table summarizing results for the three months ended:
(in millions)
|
|
October 31, |
|
November 1, |
|
|
|
|
|
|||
|
|
2009 |
|
2008 |
|
Net Change |
|
Net Change |
|
|||
Net sales |
|
$ |
98.5 |
|
$ |
121.3 |
|
$ |
(22.8 |
) |
-18.8 |
% |
Other income |
|
1.1 |
|
1.0 |
|
0.1 |
|
10.0 |
% |
|||
|
|
99.6 |
|
122.3 |
|
(22.7 |
) |
-18.6 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Cost of products sold |
|
77.8 |
|
97.8 |
|
(20.0 |
) |
-20.4 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Gross margins (including other income) |
|
21.8 |
|
24.5 |
|
(2.7 |
) |
-11.0 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Restructuring |
|
3.2 |
|
6.3 |
|
(3.1 |
) |
-49.2 |
% |
|||
Selling and administrative expenses |
|
16.4 |
|
18.5 |
|
(2.1 |
) |
-11.4 |
% |
|||
Interest income, net |
|
|
|
0.4 |
|
(0.4 |
) |
-100.0 |
% |
|||
Other income/(expense), net |
|
0.1 |
|
(0.6 |
) |
0.7 |
|
-116.7 |
% |
|||
Income taxes - expense/(benefit) |
|
0.2 |
|
(0.9 |
) |
1.1 |
|
-122.2 |
% |
|||
Net income attributable to noncontrolling interest |
|
|
|
0.2 |
|
(0.2 |
) |
-100.0 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Net income attributable to Methode Electronics, Inc. |
|
$ |
2.1 |
|
$ |
0.2 |
|
$ |
1.9 |
|
950.0 |
% |
|
|
October 31, |
|
November 1, |
|
< |