e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 |
for the quarterly period ended February 2, 2008
or
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o |
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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.)
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Delaware
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36-2090085 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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7401 West Wilson Avenue, Harwood Heights, Illinois
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60706-4548 |
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(Address of principal executive offices)
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(Zip Code) |
(Registrants
telephone number, including area code) (708) 867-6777
(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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ 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 þ
At March 11, 2008, Registrant had 37,992,532 shares of common stock outstanding.
METHODE ELECTRONICS, INC.
FORM 10-Q
February 2, 2008
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
METHODE ELECTRONICS, INC AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
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February 2, 2008 |
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April 28, 2007 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
90,526 |
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$ |
60,091 |
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Accounts receivable, net |
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71,335 |
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79,180 |
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Inventories: |
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Finished products |
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14,396 |
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12,280 |
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Work in process |
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23,658 |
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20,288 |
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Materials |
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21,416 |
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21,911 |
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59,470 |
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54,479 |
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Deferred income taxes |
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7,038 |
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6,868 |
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Prepaid expenses and other current assets |
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6,403 |
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8,823 |
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TOTAL CURRENT ASSETS |
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234,772 |
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209,441 |
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PROPERTY, PLANT AND EQUIPMENT |
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315,059 |
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290,882 |
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Less allowances for depreciation |
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224,480 |
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204,025 |
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90,579 |
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86,857 |
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GOODWILL |
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54,195 |
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51,520 |
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INTANGIBLE ASSETS, net |
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43,670 |
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43,680 |
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OTHER ASSETS |
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23,065 |
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20,242 |
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120,930 |
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115,442 |
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$ |
446,281 |
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$ |
411,740 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
38,260 |
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$ |
41,041 |
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Other current liabilities |
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31,022 |
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31,420 |
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TOTAL CURRENT LIABILITIES |
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69,282 |
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72,461 |
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OTHER LIABILITIES |
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12,073 |
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4,898 |
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DEFERRED COMPENSATION |
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7,382 |
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10,172 |
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SHAREHOLDERS EQUITY |
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Common stock, $0.50 par value, 100,000,000 shares authorized, 38,121,184 and
37,950,829 shares issued as of February 2, 2008 and April 28, 2007, respectively |
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19,061 |
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18,975 |
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Unearned common stock issuances |
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(4,257 |
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(4,517 |
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Additional paid-in capital |
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69,414 |
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65,512 |
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Retained earnings |
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254,815 |
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233,684 |
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Accumulated other comprehensive income |
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23,966 |
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16,010 |
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Treasury stock, 625,342 shares as of February 2, 2008 and April 28, 2007 |
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(5,455 |
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(5,455 |
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357,544 |
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324,209 |
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$ |
446,281 |
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$ |
411,740 |
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See notes to condensed consolidated financial statements.
3
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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February 2, |
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January 27, |
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February 2, |
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January 27, |
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2008 |
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2007 |
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2008 |
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2007 |
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INCOME |
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Net sales |
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$ |
138,465 |
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$ |
105,412 |
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$ |
396,713 |
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$ |
317,499 |
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Other |
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313 |
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686 |
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986 |
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1,020 |
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138,778 |
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106,098 |
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397,699 |
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318,519 |
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COSTS AND EXPENSES |
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Cost of products sold |
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109,032 |
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85,334 |
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313,267 |
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258,537 |
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Restructuring and impairment costs |
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450 |
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1,861 |
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450 |
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1,861 |
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Selling and administrative expenses |
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17,707 |
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12,910 |
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49,778 39,939 |
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127,189 |
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100,105 |
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363,495 |
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300,337 |
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Income from operations |
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11,589 |
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5,993 |
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34,204 |
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18,182 |
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Interest income, net |
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652 |
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1,056 |
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1,699 |
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2,778 |
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Other, net |
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(923 |
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(335 |
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(2,084 |
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(9 |
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Income before income taxes and cumulative
effect of accounting change |
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11,318 |
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6,714 |
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33,819 |
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20,951 |
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Income taxes |
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1,561 |
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2,010 |
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6,984 |
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7,100 |
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Income
before cumulative effect of accounting change |
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9,757 |
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4,704 |
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26,835 |
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13,851 |
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Cumulative effect of accounting change,
net of taxes of $28 |
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101 |
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NET INCOME |
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$ |
9,757 |
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$ |
4,704 |
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$ |
26,835 |
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$ |
13,952 |
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Amounts per common share: |
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Basic and diluted net income before
cumulative effect
of accounting change |
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$ |
0.26 |
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$ |
0.13 |
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$ |
0.72 |
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$ |
0.38 |
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Basic and diluted net income |
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$ |
0.26 |
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$ |
0.13 |
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$ |
0.72 |
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$ |
0.38 |
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Cash dividends: |
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Common stock |
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$ |
0.05 |
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$ |
0.05 |
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$ |
0.15 |
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$ |
0.15 |
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Weighted average number of
Common Shares outstanding: |
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Basic |
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37,138 |
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36,193 |
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37,066 |
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36,260 |
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Diluted |
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37,492 |
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36,562 |
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37,479 |
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36,528 |
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See notes to condensed consolidated
financial statements.
4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in
thousands)
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Nine Months Ended |
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February 2, 2008 |
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January 27, 2007 |
OPERATING ACTIVITIES |
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Net income |
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$ |
26,835 |
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$ |
13,952 |
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Adjustments to reconcile net income to net
cash provided by operating activities: |
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Provision for depreciation |
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16,332 |
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14,103 |
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Amortization of intangibles |
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4,227 |
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3,576 |
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Amortization of stock awards and stock options |
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2,479 |
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2,138 |
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Changes in operating assets and liabilities |
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7,615 |
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11,188 |
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Other |
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77 |
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(352 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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57,565 |
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44,605 |
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INVESTING ACTIVITIES |
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Purchases of property, plant and equipment |
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(16,702 |
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(6,365 |
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Proceeds from sale of building |
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960 |
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800 |
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Acquisition of businesses |
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(7,090 |
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(2,678 |
) |
Joint venture dividend |
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(1,000 |
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Other |
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(407 |
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(2,016 |
) |
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NET CASH USED IN INVESTING ACTIVITIES |
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(24,239 |
) |
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(10,259 |
) |
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FINANCING ACTIVITIES |
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Repurchase of common stock |
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(3,059 |
) |
Proceeds from exercise of stock options |
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1,268 |
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263 |
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Tax benefit from stock options and awards |
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291 |
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Cash dividends |
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(5,680 |
) |
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(5,592 |
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NET CASH USED IN FINANCING ACTIVITIES |
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(4,121 |
) |
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(8,388 |
) |
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Effect of foreign currency exchange rate changes on cash |
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1,230 |
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375 |
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INCREASE IN CASH AND CASH EQUIVALENTS |
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30,435 |
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26,333 |
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Cash and cash equivalents at beginning of period |
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60,091 |
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81,646 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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$ |
90,526 |
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$ |
107,979 |
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See notes to condensed consolidated financial statements.
5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
February 2, 2008
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 February 2, 2008 and results of operations for the three
months and nine months ended February 2, 2008 and January 27, 2007 are unaudited, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The April 28, 2007
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 the
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 April 28, 2007 filed with
the SEC on July 12, 2007. Results may vary from quarter to quarter for reasons other than
seasonality. Due to the timing of our fiscal calendar, the three months ended February 2, 2008
represent 14 weeks of results and the three months ended January 27, 2007 represent 13 weeks of
results. In addition, the nine months ended February 2, 2008 represent 40 weeks of results and the
nine months ended January 27, 2007 represent 39 weeks of results.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48 (FIN
48), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial
statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial statement
disclosures of tax positions taken or expected to be taken in a tax return. The evaluation of a
tax position is a two-step process. The first step requires an entity to determine whether it is
more likely than not that a tax position will be sustained upon examination based on the technical
merits of the position. The second step requires an entity to recognize in the financial
statements each tax position that meets the more likely than not criteria, measured at the largest
amount of benefit that has a greater than fifty percent likelihood of being realized. FIN 48 also
provides guidance on derecognition, classification, interest and penalties, accounting for interim
periods, disclosure and transition. See Note 6 for more information regarding the impact of
adopting FIN 48.
In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No.
157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value
measurements. SFAS No. 157 is effective as of our fiscal year 2009, which begins May 4, 2008. We
do not believe the adoption of SFAS No. 157 will have a material impact on our financial position,
results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS No. 159).
SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified
election dates and report unrealized gains and losses on the items for which the fair value option
has been elected in earnings. SFAS No. 159 is effective as of our fiscal year 2009, which begins
May 4, 2008. We do not believe the adoption of SFAS No. 159 will have a material impact on our
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R). The
objective of this statement is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial reports about a
business combination and its effects. To accomplish that, this statement establishes principles and
requirements for how the acquirer: 1.) recognizes and
6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
2. RECENT ACCOUNTING PRONOUNCEMENTS Continued
measures in its financial statements the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree; 2.) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; 3.) determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. This applies to our fiscal year 2010 which begins May 3,
2009. The areas that are most applicable to us with regard to this statement are (1) that the
Statement requires companies to expense transaction costs as incurred, (2) that any subsequent
adjustments to a recorded performance-based liability after its initial recognition will need to be
adjusted through income as opposed to goodwill, and (3) any liabilities related to noncontrolling
interest will be recorded at fair value. This statement will generally affect acquisitions
occurring after the adoption date.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The objective of this statement is to improve the relevance, comparability,
and transparency of the financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective
for fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008. This applies to our fiscal year 2010 which begins May 3, 2009. This statement shall be
applied prospectively as of the beginning of the fiscal year in which this Statement is initially
applied, except for the presentation and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods presented. The areas that are most
applicable to us with regard to this statement are the statement requires companies to classify
expense related to noncontrolling interests share in income below net income (earning per share
will still be determined after the impact of noncontrolling interests share in our net income as is
the current practice.) During the nine months ended February 2, 2008 and January 27, 2007, we
recorded expense related to the noncontrolling interests share in income of $260 and $103,
respectively, in other selling and administrative expenses and this statement requires the
liability related to noncontrolling interests to be presented as a separate caption within
shareholders equity. As of February 2, 2008, the liability related to noncontrolling interests
was $3,072 and is included in other long-term liabilities. We are currently evaluating the effect
of this statement to determine the impact it will have on our financial statements.
3. RESTRUCTURING
On January 24, 2008, we announced a restructuring of our U.S.-based automotive operations and
a decision to discontinue producing certain legacy electronic connector products. The automotive
restructuring process is expected to be completed by the end of the third quarter of fiscal 2009.
The connector product exit should conclude during the first quarter of fiscal 2009. During the
three months ended February 2, 2008, we recorded a restructuring charge of $450, relating to $355
for employee severance and $95 in professional fees. We estimate that we will record a pre-tax
charge during the fiscal years 2008 and 2009 between $19,000 and $25,000, of which $9,000 to
$12,000 relates to the cost of one-time benefits, including termination, retention, COBRA and
outplacement for employees. We performed impairment testing on our assets relating to the
restructuring plan and concluded that no assets were impaired as of February 2, 2008. However, we
will continue to perform periodic impairment testing and will record any charges incurred as per
FASB 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
As of February 2, 2008, we had an accrued restructuring liability of $450 reflected in the
current liabilities section of our consolidated balance sheet. We expect this liability to be paid
out by the end of the third quarter of fiscal year 2009.
In the third quarter of fiscal year 2007, we closed our Scotland automotive parts
manufacturing plant and transferred all production lines from that facility to its automotive parts
manufacturing operation in Malta. We recorded charges of $2,352 related to the closing and
transfer of operations, consisting of involuntary severance of
7
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
3. RESTRUCTURING Continued
$1,359 for termination of 140 employees, equipment moving and installation costs of $667, provision
for the permanent impairment of assets of $174, and professional fees and lease and other
obligations of $152, reduced by a cumulative currency translation credit of $491.
4. COMPREHENSIVE INCOME
The components of our comprehensive income for the three months and nine months ended February
2, 2008 and January 27, 2007 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
February 2, |
|
|
January 27, |
|
|
February 2, |
|
|
January 27, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,757 |
|
|
$ |
4,704 |
|
|
$ |
26,835 |
|
|
$ |
13,952 |
|
Translation adjustment |
|
|
3,895 |
|
|
|
583 |
|
|
|
7,956 |
|
|
|
1,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
13,652 |
|
|
$ |
5,287 |
|
|
$ |
34,791 |
|
|
$ |
15,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. GOODWILL AND INTANGIBLE ASSETS
In connection with the Power Distribution segment acquisition of Cableco Technologies in
fiscal 2005, additional contingent consideration may be due if certain operational and financial
targets are met. During the first quarter of fiscal year 2008, a portion of the operational and
financial targets were met resulting in a $260 payment. The payment was recorded as an increase to
goodwill. Additional goodwill of up to $4,257 may result from future contingent payments for this
acquisition.
In connection with the Interconnect segment acquisition of TouchSensor Technologies, L.L.C.
(TST) on February 28, 2007, an increase to goodwill of $1,013 was recorded for the nine months
ended February 2, 2008. The increase relates to adjustments for working capital and valuation of
intangible assets acquired. We are finalizing the valuation of the intangible assets acquired and
we anticipate that the valuations will not differ materially from our current assessment.
On August 31, 2007, we acquired the assets of Value Engineered Products, Inc. (VEP) for $5,750
in cash. VEP is a thermal management solutions provider, manufacturing heat sinks and related
products for high-powered applications. These components complement our Power Distribution 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 close.
Based on a third-party valuation report, we estimate 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, $600 for trademarks and $1,402 for goodwill. The customer
relationships acquired will be amortized over a period of 196 months beginning September 2007. The
trademark intangible assets are not subject to amortization but will be subject to periodic
impairment testing. The accounts and transactions of the acquired business have been included in
the Power Distribution segment in the consolidated financial statements from the effective date of
the acquisition.
8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
5. GOODWILL AND INTANGIBLE ASSETS Continued
The following tables present details of the Companys intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Customer relationships and agreements |
|
$ |
41,248 |
|
|
$ |
17,470 |
|
|
$ |
23,778 |
|
Patents and technology licenses |
|
|
25,371 |
|
|
|
5,729 |
|
|
|
19,642 |
|
Covenants not to compete |
|
|
2,480 |
|
|
|
2,230 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
69,099 |
|
|
$ |
25,429 |
|
|
$ |
43,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2007 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Customer relationships and agreements |
|
$ |
38,170 |
|
|
$ |
14,293 |
|
|
$ |
23,877 |
|
Patents and technology licenses |
|
|
24,382 |
|
|
|
4,741 |
|
|
|
19,641 |
|
Covenants not to compete |
|
|
2,330 |
|
|
|
2,168 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,882 |
|
|
$ |
21,202 |
|
|
$ |
43,680 |
|
|
|
|
|
|
|
|
|
|
|
At February 2, 2008, the intangible assets for customer relationships and agreements includes
$2,505 of net value assigned to a supply agreement with Delphi Corporation, acquired in our
acquisition of the passive occupancy detection systems (PODS) business in August 2001. Delphi is
currently operating under a bankruptcy petition filed on October 8, 2005. We continue to supply
product to Delphi post-petition pursuant to this supply agreement and have determined that the
value of the supply agreement has not been impaired.
The estimated aggregate amortization expense for fiscal 2008 and each of the four succeeding
fiscal years is as follows:
|
|
|
|
|
2008 |
|
$ |
5,126 |
|
2009 |
|
|
3,475 |
|
2010 |
|
|
3,480 |
|
2011 |
|
|
3,181 |
|
2012 |
|
|
2,533 |
|
6. INCOME TAXES
We adopted FIN 48 on April 29, 2007. As a result of the implementation of FIN 48, we
recognized a $1,039 increase in the liability for unrecognized tax benefits which was accounted for
as an increase of $1,014 to the April 29, 2007 balance of deferred tax assets and a decrease of $25
to the April 29, 2007 balance of retained earnings.
We recognize interest and penalties accrued related to the unrecognized tax benefits in the
provision for income taxes. During the nine months ended February 2, 2008, we recognized an
insignificant amount in interest and penalties. We had approximately $1,248 for the payment of
interest and penalties accrued at February 2, 2008. The total unrecognized tax benefits as of
February 2, 2008 was $4,451.
We believe that it is reasonably possible that the total amount of unrecognized tax benefits
will change within twelve months of the date of adoption of FIN 48. 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
9
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
6. INCOME TAXES Continued
closure of those statutes of limitation is expected to result in the recognition of uncertain tax
positions in the amount of $161.
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 year 2005.
7. COMMON STOCK AND STOCK-BASED COMPENSATION
The following table sets forth the changes in the number of issued shares of common stock
during the nine month periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
February 2, |
|
|
January 27, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
|
|
37,950,829 |
|
|
|
37,700,484 |
|
Repurchased and retired |
|
|
|
|
|
|
(96,467 |
) |
Options exercised |
|
|
122,469 |
|
|
|
37,893 |
|
Restricted stock awards vested |
|
|
47,886 |
|
|
|
4,003 |
|
Reversal of unvested restricted stock awards upon
adoption of SFAS No. 123(R) |
|
|
|
|
|
|
(463,957 |
) |
|
|
|
|
|
|
|
Balance at the end of the period |
|
|
38,121,184 |
|
|
|
37,181,956 |
|
We paid quarterly dividends in the amounts of $1,884, $1,897 and $1,898, or $0.05 per share,
on July 27, 2007, October 26, 2007 and February 2, 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 and the repurchase of common stock. Our Board of Directors approved a
stock repurchase plan in September 2006, which expires at the end of fiscal 2008. There were no
shares purchased during the first nine months of fiscal 2008.
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.
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 awarded 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 February 2, 2008 there were 1,005,877 shares still available for
award under the Stock Plan.
As of April 28, 2007, awards with respect to 400,900 shares and 171,877 shares of our common
stock were subject to issuance under the 2004 Plan and the 2000 Plan, respectively. 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.
10
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
7. COMMON STOCK AND STOCK-BASED COMPENSATION Continued
The following tables summarize the stock option activity and related information for the nine
months ended February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
Summary of Option Activity |
|
|
|
|
|
|
Wtd. Avg. |
|
|
Shares |
|
Exercise Price |
Outstanding at April 28, 2007 |
|
|
818,918 |
|
|
$ |
10.26 |
|
Exercised |
|
|
(122,469 |
) |
|
|
10.36 |
|
Forfeited |
|
|
(3,521 |
) |
|
|
8.03 |
|
|
|
|
|
|
|
|
|
|
Outstanding at February 2, 2008 |
|
|
692,928 |
|
|
|
10.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at February 2, 2008 |
|
Exercisable Options at February 2, 2008 |
|
|
|
|
|
|
Wtd. Avg. |
|
Avg. |
|
|
|
|
|
Wtd. Avg. |
|
Avg. |
Range of |
|
|
|
|
|
Exercise |
|
Remaining |
|
|
|
|
|
Exercise |
|
Remaining |
Exercise Prices |
|
Shares |
|
Price |
|
Life (Years) |
|
Shares |
|
Price |
|
Life (Years) |
$5.12 $7.69 |
|
|
178,751 |
|
|
$ |
6.59 |
|
|
|
3.0 |
|
|
|
178,751 |
|
|
$ |
6.59 |
|
|
|
3.0 |
|
$8.08 $11.64 |
|
|
364,120 |
|
|
|
10.56 |
|
|
|
3.0 |
|
|
|
364,120 |
|
|
|
10.56 |
|
|
|
3.0 |
|
$12.11 $17.66 |
|
|
150,057 |
|
|
|
13.87 |
|
|
|
2.2 |
|
|
|
150,057 |
|
|
|
13.87 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
692,928 |
|
|
|
10.25 |
|
|
|
|
|
|
|
692,928 |
|
|
|
10.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value for all options outstanding at
February 2, 2008 was $1,998.
Prior to June 21, 2007, we had three active stock plans, the Methode Electronics, Inc. 1997
Stock Plan, the Methode Electronics, Inc. 2000 Stock Plan, and the Methode Electronics, Inc. 2004
Stock Plan. No options were granted under the Plans since the first quarter of fiscal 2005. As of
February 2, 2008, we had 692,928 unexercised stock options, all of which are fully vested and have
a term of ten years. In the nine months ended February 2, 2008, we recognized pre-tax
compensation expense of $11. There is no remaining unrecognized compensation expense relating to
the stock options after July 28, 2007.
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 year 2008, there were 525,589 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 the nine months ended February 2, 2008, we awarded 244,123 restricted stock
awards. Of the 244,123 shares granted, 24,000 shares vest immediately upon grant, 164,673 are
performance-based RSAs and 55,450 are time-based RSAs.
We recognized pre-tax compensation expense for RSAs of $2,469 and $2,057 in the nine months
ended February 2, 2008 and January 27, 2007, respectively. We record the expense in the selling
and administrative section of our condensed consolidated statement of income.
11
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
7. COMMON STOCK AND STOCK-BASED COMPENSATION Continued
The following table summarizes the RSA activity for the nine months ended February 2, 2008
|
|
|
|
|
|
|
Shares |
Unvested at April 28, 2007 |
|
|
525,589 |
|
Awarded |
|
|
244,123 |
|
Released |
|
|
(51,715 |
) |
Forfeited |
|
|
(432 |
) |
|
|
|
|
|
Unvested at February 2, 2008 |
|
|
717,565 |
|
|
|
|
|
|
The table below shows the Companys unvested RSAs at February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable |
|
Target |
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
Unearned |
Grant |
|
|
|
|
|
|
|
Weighted |
|
Compensation |
|
Compensation |
Fiscal |
|
|
|
|
|
|
|
Average |
|
Expense at |
|
Expense at |
Year |
|
RSAs |
|
Vesting Period |
|
Value |
|
February 2, 2008 |
|
February 2, 2008 |
2005 |
|
|
532 |
|
|
3-year equal annual installments |
|
$ |
11.27 |
|
|
$ |
|
|
|
$ |
|
|
2006 |
|
|
27,940 |
|
|
3-year equal annual installments |
|
|
12.30 |
|
|
|
8 |
|
|
|
8 |
|
2006 |
|
|
190,500 |
|
|
3-year cliff |
|
|
12.42 |
|
|
|
312 |
|
|
|
312 |
|
2007 |
|
|
50,720 |
|
|
3-year equal annual installments |
|
|
7.81 |
|
|
|
55 |
|
|
|
55 |
|
2007 |
|
|
227,750 |
|
|
3-year cliff |
|
|
7.79 |
|
|
|
793 |
|
|
|
793 |
|
2008 |
|
|
55,450 |
|
|
3-year equal annual installments |
|
|
15.14 |
|
|
|
418 |
|
|
|
418 |
|
2008 |
|
|
164,673 |
|
|
3-year cliff |
|
|
15.14 |
|
|
|
2,137 |
|
|
|
2,137 |
|
At February 2, 2008, the aggregate unvested RSAs had a weighted average fair value
of $11.45 and a weighted average vesting period of approximately 15 months.
12
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
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 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
February 2, |
|
January 27, |
|
February 2, |
|
January 27, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Numerator net income |
|
$ |
9,757 |
|
|
$ |
4,704 |
|
|
$ |
26,835 |
|
|
$ |
13,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted
average shares |
|
|
37,138 |
|
|
|
36,193 |
|
|
|
37,066 |
|
|
|
36,260 |
|
Dilutive potential common shares-employee
and director stock options |
|
|
354 |
|
|
|
369 |
|
|
|
413 |
|
|
|
268 |
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
weighted average shares and assumed conversions |
|
|
37,492 |
|
|
|
36,562 |
|
|
|
37,479 |
|
|
|
36,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change |
|
$ |
0.26 |
|
|
$ |
0.13 |
|
|
$ |
0.72 |
|
|
$ |
0.38 |
|
Net income |
|
$ |
0.26 |
|
|
$ |
0.13 |
|
|
$ |
0.72 |
|
|
$ |
0.38 |
|
Options to purchase 29,413 shares of common stock at a weighted-average exercise price
of $17.66 per share were outstanding as of February 2, 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.
9. 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 thermal, storage, networking equipment, wireless and
terrestrial voice/data systems), aerospace and military, rail and other transportation industries
and the consumer and industrial equipment markets.
We report in four operating segments Automotive, Interconnect, Power Distribution and Other.
The Companys systems are not designed to capture information by smaller product groups and it
would be impracticable to break down the Companys sales into smaller product groups.
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 card and express card packaging, optical and copper transceivers, terminators,
connectors, custom cable assemblies and conductive polymer and thick
13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. SEGMENT INFORMATION Continued
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 Distribution segment manufactures current-carrying laminated bus devices, custom
power-distribution assemblies, powder coated bus bars, braided flexible cables, customized heat
sinks 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 (IGBT) solutions, aerospace and military.
The Other segment includes a design 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 in the Annual Report on Form 10-K for the year ended April 28,
2007. We allocate resources to and we evaluate performance of our segments based on segment
income. Transfers between segments are recorded using internal transfer prices set by us.
14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. SEGMENT INFORMATION Continued
The table below presents information about our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended February 2, 2008 |
|
|
|
Auto- |
|
|
Inter- |
|
|
Power Dis- |
|
|
|
|
|
|
Elimi- |
|
|
Consoli- |
|
|
|
motive |
|
|
Connect |
|
|
tribution |
|
|
Other |
|
|
nations |
|
|
dated |
|
Net sales |
|
$ |
90,145 |
|
|
$ |
40,046 |
|
|
$ |
14,696 |
|
|
$ |
1,861 |
|
|
$ |
8,283 |
|
|
$ |
138,465 |
|
Transfers between segments |
|
|
(1,530 |
) |
|
|
(4,488 |
) |
|
|
(2,211 |
) |
|
|
(54 |
) |
|
|
(8,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers |
|
$ |
88,615 |
|
|
$ |
35,558 |
|
|
$ |
12,485 |
|
|
$ |
1,807 |
|
|
$ |
|
|
|
$ |
138,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
before restructuring charge |
|
$ |
13,678 |
|
|
$ |
986 |
|
|
$ |
2,566 |
|
|
$ |
(608 |
) |
|
$ |
|
|
|
$ |
16,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment costs |
|
|
(379 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
including restructuring charge |
|
$ |
13,299 |
|
|
$ |
915 |
|
|
$ |
2,566 |
|
|
$ |
(608 |
) |
|
$ |
|
|
|
$ |
16,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 27, 2007 |
|
|
|
Auto- |
|
|
Inter- |
|
|
Power Dis- |
|
|
|
|
|
|
Elimi- |
|
|
Consoli- |
|
|
|
motive |
|
|
Connect |
|
|
tribution |
|
|
Other |
|
|
nations |
|
|
dated |
|
Net sales |
|
$ |
72,836 |
|
|
$ |
23,735 |
|
|
$ |
12,923 |
|
|
$ |
2,055 |
|
|
$ |
6,137 |
|
|
$ |
105,412 |
|
Transfers between segments |
|
|
(639 |
) |
|
|
(3,951 |
) |
|
|
(1,512 |
) |
|
|
(35 |
) |
|
|
(6,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers |
|
$ |
72,197 |
|
|
$ |
19,784 |
|
|
$ |
11,411 |
|
|
$ |
2,020 |
|
|
$ |
|
|
|
$ |
105,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
before restructuring charge |
|
$ |
3,976 |
|
|
$ |
2,527 |
|
|
$ |
2,642 |
|
|
$ |
(43 |
) |
|
$ |
|
|
|
$ |
9,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment costs |
|
|
(1,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
including restructuring charge |
|
$ |
2,115 |
|
|
$ |
2,527 |
|
|
$ |
2,642 |
|
|
$ |
(43 |
) |
|
$ |
|
|
|
$ |
7,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. SEGMENT INFORMATION Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended February 2, 2008 |
|
|
|
Auto- |
|
|
Inter- |
|
|
Power Dis- |
|
|
|
|
|
|
Elimi- |
|
|
Consoli- |
|
|
|
motive |
|
|
Connect |
|
|
tribution |
|
|
Other |
|
|
nations |
|
|
dated |
|
Net sales |
|
$ |
263,196 |
|
|
$ |
108,353 |
|
|
$ |
38,558 |
|
|
$ |
5,148 |
|
|
$ |
18,542 |
|
|
$ |
396,713 |
|
Transfers between segments |
|
|
(1,913 |
) |
|
|
(11,128 |
) |
|
|
(5,391 |
) |
|
|
(110 |
) |
|
|
(18,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers |
|
$ |
261,283 |
|
|
$ |
97,225 |
|
|
$ |
33,167 |
|
|
$ |
5,038 |
|
|
$ |
|
|
|
$ |
396,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
before restructuring charge |
|
$ |
38,720 |
|
|
$ |
4,544 |
|
|
$ |
6,544 |
|
|
$ |
(1,291 |
) |
|
$ |
|
|
|
$ |
48,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment costs |
|
|
(379 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
including restructuring charge |
|
$ |
38,341 |
|
|
$ |
4,473 |
|
|
$ |
6,544 |
|
|
$ |
(1,291 |
) |
|
$ |
|
|
|
$ |
48,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and cumulative
effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended January 27, 2007 |
|
|
|
Auto- |
|
|
Inter- |
|
|
Power Dis- |
|
|
|
|
|
|
Elimi- |
|
|
Consoli- |
|
|
|
motive |
|
|
Connect |
|
|
tribution |
|
|
Other |
|
|
nations |
|
|
dated |
|
Net sales |
|
$ |
223,395 |
|
|
$ |
66,389 |
|
|
$ |
36,271 |
|
|
$ |
5,838 |
|
|
$ |
14,394 |
|
|
$ |
317,499 |
|
Transfers between segments |
|
|
(968 |
) |
|
|
(10,423 |
) |
|
|
(2,860 |
) |
|
|
(143 |
) |
|
|
(14,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers |
|
$ |
222,427 |
|
|
$ |
55,966 |
|
|
$ |
33,411 |
|
|
$ |
5,695 |
|
|
$ |
|
|
|
$ |
317,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
before restructuring charge |
|
$ |
16,253 |
|
|
$ |
6,466 |
|
|
$ |
6,895 |
|
|
$ |
(232 |
) |
|
$ |
|
|
|
$ |
29,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment costs |
|
|
(1,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss)
including restructuring charge |
|
$ |
14,392 |
|
|
$ |
6,466 |
|
|
$ |
6,895 |
|
|
$ |
(232 |
) |
|
$ |
|
|
|
$ |
27,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and cumulative
effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. 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
16
10. CONTINGENCIES Continued
available, that we have adequate reserves for these liabilities and that the ultimate resolution of
these matters will not have a material effect on our consolidated financial statements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement
Certain information included in or incorporated by reference in this document, in press
releases, written statements or other documents filed with or furnished to the SEC, or in our
communications and discussions through webcasts, phone calls, conference calls and other
presentations and meetings, may be deemed to be forward-looking statements within the meaning of
the federal securities laws. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including statements regarding:
projections of sales revenue, margins, expenses, tax provisions (or reversal of tax provisions),
earnings or losses from operations, cash flows, liquidity position, synergies, cost-control
activities, cost savings or other financial items; plans, strategies and objectives of management
for future operations, trends, seasonality. Forward-looking statements may be characterized by
terminology such as believe, anticipate, should, would, intend, plan, will,
expects, estimates, projects, position strategy and similar expressions. These
statements are based on assumptions and assessments made by us in light of our experience and our
perception of historical trends, current conditions, expected future developments and other factors
we believe to be appropriate. These forward-looking statements are subject to a number of risks
and uncertainties, including but not limited to the following:
|
|
|
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 approximately 65% of our revenues from the automotive industry, any
downturns, work stoppages or other challenges faced by this industry may have an adverse
effect on our business, financial condition and operating results. |
|
|
|
|
Because we also derive a substantial portion of our revenues from customers in the
appliance, computer and communications industries, we are susceptible to trends and factors
affecting those industries. |
|
|
|
|
We are subject to intense pricing pressures in the automotive industry. |
|
|
|
|
We face risks relating to our international operations, currency fluctuations, and
political and economic instability. |
|
|
|
|
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. |
|
|
|
|
Our business is cyclical and seasonal in nature and 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 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. |
17
Cautionary Statement Continued
|
|
|
We may acquire businesses or divest certain business operations. These transactions may
pose significant risks and may materially adversely affect our business, financial
condition and operating results. |
|
|
|
|
We cannot assure you that the newly-acquired TouchSensor Technologies and Value
Engineered Products Inc. businesses will be successful or that we can implement and profit
from new applications of the acquired technology. |
|
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|
We are dependent on the availability and price of raw materials. |
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 statement, all of which are expressly qualified by the
foregoing. See Part I Item A, Risk Factors of our latest Form 10-K for the fiscal year ended
April 28, 2007, for a further discussion regarding some of the reasons that actual results may be
materially different from those we anticipate.
Overview
We are a global manufacturer of component and subsystem devices with manufacturing, design and
testing facilities in the U. S., Malta, Mexico, United Kingdom, Germany, Czech Republic, China and
Singapore. We design, manufacture and market devices employing electrical, thermal, electronic,
wireless, sensing and optical technologies. Our business is managed on a segment basis, with those
segments being Automotive, Interconnect, Power Distribution 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 April 28, 2007.
Our components are found in the primary end markets of the automotive, appliance,
communications, aerospace and military, rail and other transportation industries and the consumer
and industrial equipment markets. Recent trends in the industries that we serve include:
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continued customer migration to Asian and Eastern European suppliers; |
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growth of North American operations of foreign-based automobile manufacturers; |
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rising raw material costs; |
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|
the deteriorating financial condition of certain of our customers and the uncertainty as
they undergo restructuring initiatives, including in some cases, reorganization under
bankruptcy laws; |
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increasing pressure by automobile manufacturers on automotive suppliers to reduce
selling prices; |
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more supplier-funded design, engineering and tooling costs previously funded directly by
the automobile manufacturers; |
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reduced production schedules for domestic automobile manufacturers; and |
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interest rate fluctuations. |
In response to pricing pressures, we continue to employ lean manufacturing processes and
invest in, and implement techniques to lower our costs in order to reduce or prevent margin
erosion. We also have become more selective with regard to programs in which we participate in
order to reduce our exposure to low profit programs, and have transferred several automotive lines
and identified additional lines to be transferred from the U.S. to lower-cost countries.
Due to the timing of our fiscal calendar, the three months ended February 2, 2008 represent 14
weeks of results and the three months ended January 27, 2007 represent 13 weeks of results. In
addition, the nine months ended February 2, 2008 represent 40 weeks of results and the nine months
ended January 27, 2007 represent 39 weeks of results.
18
Business Outlook
Sales in fiscal 2008 should increase compared to fiscal 2007. This is due to growth related
to the TouchSensor Technologies, L.L.C. (TST) and Value Engineered Products, Inc. (VEP)
acquisitions on February 28, 2007 and August 31, 2007, respectively. Sales of automotive products
at our Shanghai, China operation are expected to continue to increase and we anticipate increased
sales of automotive switches at our Malta operation. Sales of sensor pads for passive
occupant-detection systems are expected to decline due to lower demand in the U.S. We have
received price increases on previously marginally profitable and unprofitable products, which we
had decided to exit at the expiration of our manufacturing commitment, but, at the request of the
customer, have agreed to continue to produce. We expect completing the exit of these products
during the second quarter of fiscal 2009, and, therefore, do not expect to achieve the same level
of income growth in fiscal year 2009 as achieved in fiscal year 2008.
Results of Operations for the Three Months Ended February 2, 2008 (14 weeks) as Compared to the
Three Months Ended January 27, 2007 (13 weeks)
Consolidated Results
Below is a table summarizing results for the three months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
138.5 |
|
|
$ |
105.4 |
|
|
$ |
33.1 |
|
|
|
31.4 |
% |
Other income |
|
|
0.3 |
|
|
|
0.7 |
|
|
|
(0.4 |
) |
|
|
-57.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138.8 |
|
|
|
106.1 |
|
|
|
32.7 |
|
|
|
30.8 |
% |
|
Cost of products sold |
|
|
109.0 |
|
|
|
85.3 |
|
|
|
23.7 |
|
|
|
27.8 |
% |
|
Gross margin (including other
income) |
|
|
29.8 |
|
|
|
20.8 |
|
|
|
9.0 |
|
|
|
43.3 |
% |
|
Selling and administrative expenses |
|
|
17.8 |
|
|
|
12.9 |
|
|
|
4.9 |
|
|
|
38.0 |
% |
Restructuring and impairment costs |
|
|
0.5 |
|
|
|
1.9 |
|
|
|
(1.4 |
) |
|
|
-73.7 |
% |
Interest income, net |
|
|
0.7 |
|
|
|
1.0 |
|
|
|
(0.3 |
) |
|
|
-30.0 |
% |
Other, net |
|
|
(0.9 |
) |
|
|
(0.3 |
) |
|
|
(0.6 |
) |
|
|
200.0 |
% |
Income taxes |
|
|
1.5 |
|
|
|
2.0 |
|
|
|
(0.5 |
) |
|
|
-25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9.8 |
|
|
$ |
4.7 |
|
|
$ |
5.1 |
|
|
|
108.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Other income |
|
|
0.2 |
% |
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
78.7 |
% |
|
|
80.9 |
% |
|
|
|
|
|
|
|
|
Gross margin (including other
income) |
|
|
21.5 |
% |
|
|
19.7 |
% |
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
12.9 |
% |
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
Restructuring and impairment costs |
|
|
0.4 |
% |
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
Interest income, net |
|
|
0.5 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
Other, net |
|
|
-0.6 |
% |
|
|
-0.3 |
% |
|
|
|
|
|
|
|
|
Income taxes |
|
|
1.1 |
% |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
Net income |
|
|
7.1 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
Net Sales. Consolidated net sales increased $33.1 million, or 31.4%, to $138.5 million for
the three months ended February 2, 2008 from $105.4 million for three months ended January 27,
2007. Of the $33.1 million
19
Consolidated Results Continued
increase, $14.7 million relates to our TST and VEP acquisitions. The increase was also driven by
strong organic growth from our European and Asian operations. Sales from those operations
increased 44.7% during the three months ended February 2, 2008 as compared to the three months
ended January 27, 2007. Automotive segment sales were impacted by price increases of $5.4 million
on previously marginally profitable and unprofitable products. Excluding TST, the Interconnect
segment sales increased 14.2% for the three months ended February 2, 2008 due to strong sales from
our Asian connector and European optical businesses. Excluding VEP, the Power Distribution segment
sales decreased 5.8% for the three months ended February 2, 2008 as compared to the three months
ended January 27, 2007. Translation of foreign operations net sales in the three months ended
February 2, 2008 increased reported net sales by $3.1 million or 2.2% due to currency rate
fluctuations.
Other Income. Other income decreased $0.4 million, or 57.1%, to $0.3 million for the three
months ended February 2, 2008 from $0.7 million for three months ended January 27, 2007. Other
income consisted primarily of earnings from our automotive joint venture, engineering design fees
and royalties.
Cost of Products Sold. Consolidated cost of products sold increased $23.7 million, or 27.8%,
to $109.0 million for the three months ended February 2, 2008 from $85.3 million for the three
months ended January 27, 2007. The increase is due to the higher sales volumes. Consolidated cost
of products sold as a percentage of sales was 78.7% for the three months ended February 2, 2008 and
80.9% for the three months ended January 27, 2007. Automotive segment cost of goods sold as a
percentage of sales were favorably impacted by price increases and the transfer of certain
operations from Scotland to Malta during the third quarter of fiscal 2007. In addition, we have
previously made our North American operations more efficient and cost effective in anticipation of
the forecasted lower automotive sales in the U.S. market.
Gross Margins (including other income). Consolidated gross margins (including other income)
increased $9.0 million, or 43.3%, to $29.8 million for the three months ended February 2, 2008 as
compared to $20.8 million for the three months ended January 27, 2007. Gross margins as a
percentage of net sales increased to 21.5% for the three months ended February 2, 2008 from 19.7%
for the three months ended January 27, 2007. The increase in gross margin as a percentage of sales
is primarily due to the auto segment pricing increases and integration of the Scotland operation to
Malta.
Selling and Administrative Expenses. Selling and administrative expenses increased $4.9
million, or 38.0%, to $17.8 million for the three months ended February 2, 2008 compared to $12.9
million for the three months ended January 27, 2007. Of the $4.9 million increase, $1.4 million
relates to the TST and VEP businesses. The majority of the additional increase relates to
additional global support staff and increased long-term incentive compensation due to improved
performance and higher share price and higher professional fees. Selling and administrative
expenses as a percentage of net sales increased to 12.9% in the three months ended February 2, 2008
from 12.2% for the three months ended January 27, 2007.
Restructuring and Impairment Costs. On January 24, 2008, we announced a restructuring of our
U.S.-based automotive operations and the decision to discontinue producing certain legacy
electronic connector products. As a result, we recorded a restructuring charge of $0.5 million for
the three months ended February 2, 2008. We recorded $1.9 million of restructuring and impairment
costs in the third quarter of fiscal 2007 relating to the closing of our Scotland automotive parts
manufacturing plant and transferred all production lines from that facility to our automotive parts
manufacturing operation in Malta.
Interest Income, Net. Net interest income decreased 30.0% in the three months ended February
2, 2008 to $0.7 million as compared to $1.0 million in the three months ended January 27, 2007.
The average cash balance was $88.8 million during the three months ended February 2, 2008 as
compared to $104.6 million during the three months ended January 27, 2007. The average interest
rate earned in the three months ended February 2, 2008 was 3.57% as compared to 4.34% in the three
months ended January 27, 2007. The average interest rate earned includes both taxable interest and
tax-free municipal interest. The cash balance decreased primarily due to the acquisition of the
TST and VEP businesses. Interest expense was $0.1 million for both periods.
Other, Net. Other, net increased to $0.9 million for the three months ended February 2, 2008
versus $0.3 million for the three months ended January 27, 2007. Other, net consists primarily of
currency exchange gains and
20
Consolidated Results Continued
losses at the Companys foreign operations. The functional currencies of these operations are the
British pound, Chinese yuan, Czech koruna, Euro, Maltese lira, 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 the third quarter ended February 2, 2008, we recorded a charge of $0.3 million relating to a
reduction of the net asset value (NAV) on a portion of our short-term investments which is an
enhanced cash fund sold as an alternative to traditional money market funds. We have historically
invested a portion of our cash in the fund. During the third quarter, the fund was overwhelmed with
withdrawal requests and a restriction was placed on the redemption ability of the fund. Therefore,
during the third quarter, we recorded a realized loss of $0.1 million on partial redemptions and an
unrealized loss of $0.2 million for the reduction in the NAVs principal balance.
Income Taxes. The effective income tax rate was 13.8% in the third quarter of fiscal 2008
compared with 29.9% in the third quarter of fiscal 2007. During the three months ended February 2,
2008, we recognized $0.3 million relating to the expiration of certain statute of limitations for
tax positions that were not challenged by the taxing authorities. In addition, we recognized $0.5
million relating to tax return reconciliations compared to income tax provisions during the three
months ended February 2, 2008. The effective tax rates for both fiscal 2008 and 2007 reflect
utilization of foreign investment tax credits and the effect of lower tax rates on income of the
Companys foreign earnings and higher earnings at those operations. The effective tax rate was
higher in fiscal 2007 primarily due to the establishment of a valuation allowance for potentially
non-deductible stock-based compensation.
Net Income. Net income increased $5.1 million, or 108.5%, to $9.8 million for the three
months ended February 2, 2008 as compared to $4.7 million for the three months ended January 27,
2007 due to the auto segment price increases, strong sales and increased efficiencies from our
European and Asian operations, offset slightly by higher selling and administrative expenses. In
addition, restructuring costs decreased by $1.4 million and our effective tax rate was 13.8% during
the three months ended February 2, 2008. Net income as a percentage of sales increased to 7.1% for
the three months ended February 2, 2008 as compared to 4.5% for the three months ended January 27,
2007.
21
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
88.6 |
|
|
$ |
72.2 |
|
|
$ |
16.4 |
|
|
|
22.7 |
% |
Cost of products sold |
|
|
69.9 |
|
|
|
62.4 |
|
|
|
7.5 |
|
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
18.7 |
|
|
|
9.8 |
|
|
|
8.9 |
|
|
|
90.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes and restructuring |
|
$ |
13.7 |
|
|
$ |
4.0 |
|
|
$ |
9.7 |
|
|
|
242.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
(0.4 |
) |
|
|
(1.9 |
) |
|
$ |
1.5 |
|
|
|
79.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
13.3 |
|
|
$ |
2.1 |
|
|
$ |
11.2 |
|
|
|
522.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Cost of products sold |
|
|
78.9 |
% |
|
|
86.4 |
% |
|
|
|
|
|
|
|
|
Gross margin |
|
|
21.1 |
% |
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
Income before income
taxes and restructuring |
|
|
15.5 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
Restructuring |
|
|
-0.4 |
% |
|
|
-2.6 |
% |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
15.0 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
Net Sales. Automotive segment net sales increased $16.4 million, or 22.7%, to $88.6 million
for the three months ended February 2, 2008 from $72.2 million for the three months ended January
27, 2007. The automotive segment net sales increase was primarily driven from organic growth from
our European and Asian operations. Net sales from these operations increased 40.0% for the three
months ended February 2, 2008. Sales were also impacted by price increases of $5.4 million on
previously marginally profitable and unprofitable products, which we had decided to exit at the
expiration of our manufacturing commitment but, at the request of the customer, have agreed to
produce. We estimate to complete the exit of these products during the second quarter of fiscal
year 2009. Excluding the price increases, North American automotive segment sales decreased
slightly in the third quarter of fiscal 2008. Translation of foreign operations net sales in the
three months ended February 2, 2008 increased reported net sales by $2.6 million, or 2.9%, due to
currency rate fluctuations.
Cost of Products Sold. Automotive segment cost of products sold increased $7.5 million to
$69.9 million for the three months ended February 2, 2008 from $62.4 for the three months ended
January 27, 2007. The increase relates to higher sales volumes. Automotive segment costs of
products sold as a percentage of sales decreased to 78.9% for the three months ended February 2,
2008 from 86.4% for the three months ended January 27, 2007. Automotive segment cost of goods sold
as a percentage of sales was favorably impacted by price increases. The integration of our
Scotland operation to our Malta operation has increased efficiency in our European manufacturing
processes. In addition, we have previously made our North American operations more efficient and
cost effective in anticipation of the forecasted lower automotive sales in the U.S. market.
Gross Margins. Automotive segment gross margins increased $8.9 million, or 90.8%, to $18.7
million for the three months ended February 2, 2008 as compared to $9.8 million for the three
months ended January 27, 2007. The increase in gross profit as a percentage of sales is primarily
due to the pricing increases and integration of the
Scotland operation. Gross margins as a percentage of net sales increased to 21.1% for the three
months ended February 2, 2008 from 13.6% for the three months ended January 27, 2007.
22
Automotive Segment Results Continued
Restructuring and Impairment Costs. On January 24, 2008, we announced a restructuring of our
U.S.-based automotive operations. As a result we recorded a restructuring charge of $0.4 million
for the three months ended February 2, 2008. We recorded $1.9 million of restructuring and
impairment costs in the third quarter of fiscal 2007 relating to the closing of our Scotland
automotive parts manufacturing plant and transferred all production lines from that facility to our
automotive parts manufacturing operation in Malta.
Income Before Income Taxes. Automotive segment income before income taxes increased $11.2
million, or 522.8%, to $13.3 million for the three months ended February 2, 2008 compared to $2.1
million for the three months ended January 27, 2007 due to the price increases, strong sales in
Europe and Asia and integration of our Scotland operation to our Malta operation. In addition,
restructuring costs decreased by $1.5 million in the three months ended February 2, 2008.
Interconnect Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
35.6 |
|
|
$ |
19.8 |
|
|
$ |
15.8 |
|
|
|
79.8 |
% |
Cost of products sold |
|
|
27.8 |
|
|
|
13.4 |
|
|
|
14.4 |
|
|
|
107.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
7.8 |
|
|
|
6.4 |
|
|
|
1.4 |
|
|
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes and restructuring |
|
$ |
1.0 |
|
|
$ |
2.5 |
|
|
$ |
(1.5 |
) |
|
|
-60.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
0.9 |
|
|
$ |
2.5 |
|
|
$ |
(1.6 |
) |
|
|
-62.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Cost of products sold |
|
|
78.1 |
% |
|
|
67.7 |
% |
|
|
|
|
|
|
|
|
Gross margin |
|
|
21.9 |
% |
|
|
32.3 |
% |
|
|
|
|
|
|
|
|
Income before income
taxes and restructuring |
|
|
2.8 |
% |
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
Restructuring |
|
|
-0.2 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2.6 |
% |
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
Net Sales. Interconnect segment net sales increased $15.8 million, or 79.8%, to $35.6 million
for the three months ended February 2, 2008 from $19.8 million for the three months ended January
27, 2007. A majority of the sales increase is due to the TST acquisition. Sales from our Asian
connector business increased 95.4% for the three months ended February 2, 2008. Excluding TST, the
Interconnect segment sales increased 14.2% for the three months ended February 2, 2008 due to the
strong sales from our Asian connector business. In addition, sales increased from our European
optical business, offset by lower sales in our domestic data installation business. Translation of
foreign operations net sales in the three months ended February 2, 2008 increased reported net
sales by $0.5 million, or 1.4%, due to currency rate fluctuations.
Cost of Products Sold. Interconnect segment cost of products sold increased $14.4 million to
$27.8 million for the three months ended February 2, 2008 compared to $13.4 million for the three
months ended January 27, 2007. The majority of the increase is due to cost of products sold from
our TST acquisition. Interconnect segment cost of products sold as a percentage of net sales
increased to 78.1% for the three months ended February 2, 2008 compared to 67.7% for the three
months ended January 27, 2007. The increase is primarily due to the TST business,
23
Interconnect Segment Results Continued
which has higher cost of products sold as a percentage of sales as compared to the other businesses
in the Interconnect segment. We experienced lower sales in our domestic data center installation
business and higher costs related to PC card adapters during the third quarter of fiscal 2008. In
addition, we experienced increased costs due to overall lower sales volumes in our North American
operations (excluding TST).
Gross Margins. Interconnect segment gross margins increased $1.4 million, or 21.9%, to $7.8
million for the three months ended February 2, 2008 as compared to $6.4 million for the three
months ended January 27, 2007. The majority of the increase is due to the TST acquisition. In
addition, gross margins increased in our Asian connector business and European optical business,
partially offset with gross margin declines in our PC card adapter and data installation business.
Gross margins as a percentage of net sales decreased to 21.9% for the three months ended February
2, 2008 from 32.3% for the three months ended January 27, 2007.
Restructuring and Impairment Costs. On January 24, 2008, we announced our decision to
discontinue producing certain legacy electronic connector products. As a result we recorded a
restructuring charge of $0.1 million for the three months ended February 2, 2008.
Income Before Income Taxes. Interconnect income before income taxes decreased $1.6 million,
or 62.8%, to $0.9 million for the three months ended February 2, 2008 compared to $2.5 million for
the three months ended January 27, 2007 due to the gross margin declines in our PC card adapter and
data installation businesses, partially offset with increases from the TST business.
Power Distribution Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
12.5 |
|
|
$ |
11.4 |
|
|
$ |
1.1 |
|
|
|
9.6 |
% |
Cost of products sold |
|
|
8.9 |
|
|
|
7.9 |
|
|
|
1.0 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
3.6 |
|
|
|
3.5 |
|
|
|
0.1 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
2.6 |
|
|
$ |
2.6 |
|
|
$ |
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Cost of products sold |
|
|
71.2 |
% |
|
|
69.3 |
% |
|
|
|
|
|
|
|
|
Gross margin |
|
|
28.8 |
% |
|
|
30.7 |
% |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
20.8 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
Net Sales. Power Distribution segment net sales increased $1.1 million to $12.5 million for
the three months ended February 2, 2008 from $11.4 million for the three months ended January 27,
2007. Net sales increased due to the VEP acquisition and were more than offset by lower sales from
our bus bar business. Excluding VEP, the Power Distribution segment sales decreased 5.8% in the
three months ended February 2, 2008.
The majority of the decrease relates to certain projects for a customer which reached end of life
at the end of fiscal year 2007. In addition, we are no longer the sole supplier for another
customer starting in fiscal year 2008.
Cost of Products Sold. Power Distribution segment cost of products sold increased $1.0
million, or 12.7%, to $8.9 million for the three months ended February 2, 2008 compared to $7.9
million for the three months ended January 27, 2007. The Power Distribution segment cost of
products sold as a percentage of sales increased to 71.2% for the three months ended February 2,
2008 from 69.3% for the three months ended January 27, 2007. The increase
24
Power Distribution Segment Results Continued
is primarily due to higher material costs and price erosion at our North American operation,
partially offset by margin improvement at our Shanghai, China operation.
Gross Margins. Power Distribution segment gross margins increased $0.1 million, or 2.9%, to
$3.6 million for the three months ended February 2, 2008 as compared to $3.5 million for the three
months ended January 27, 2007. Gross margins as a percentage of net sales decreased to 28.8% for
the three months ended February 2, 2008 from 30.7% for the three months ended January 27, 2007.
The increase is primarily due to the VEP business, offset by higher material costs from our bus bar
business.
Income Before Income Taxes. Power Distribution segment income before income taxes was $2.6
million for both the three months ended February 2, 2008 and January 27, 2007 due to certain
projects ending at the end of fiscal year 2007, no longer being the sole supplier for another
customer and higher material and price erosion at our North American operation.
Other Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
1.8 |
|
|
$ |
2.0 |
|
|
$ |
(0.2 |
) |
|
|
-10.0 |
% |
Cost of products sold |
|
|
1.8 |
|
|
|
1.6 |
|
|
|
0.2 |
|
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(0.6 |
) |
|
$ |
|
|
|
$ |
(0.6 |
) |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Cost of products sold |
|
|
100.0 |
% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
Gross margin |
|
|
0.0 |
% |
|
|
20.0 |
% |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
-33.3 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
Net Sales. The Other segment net sales decreased $0.2 million to $1.8 million for the three
months ended February 2, 2008 as compared to $2.0 million for the three months ended January 27,
2007.
Cost of Products Sold. Other segment cost of products sold increased $0.2 million to $1.8
million for the three months ended February 2, 2008 compared to $1.6 million for the three months
ended January 27, 2007. The majority of the increase is due to increased initiatives in our
torque-sensing business.
Gross Margins. The Other segment gross margins decreased $0.4 million to no gross profit for
the three months ended February 2, 2008 as compared to $0.4 million for the three months ended
January 27, 2007. The majority of the decrease is due to increased initiatives in our
torque-sensing business.
Loss Before Income Taxes. The Other segment loss before income taxes was $0.6 million for the
three months ended February 2, 2008 compared to break-even for the three months ended January 27,
2007.
25
Results of Operations for the Nine Months Ended February 2, 2008 (40 weeks) as Compared to the
Nine Months Ended January 27, 2007 (39 weeks)
Consolidated Results
Below is a table summarizing results for the nine months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
396.7 |
|
|
$ |
317.5 |
|
|
$ |
79.2 |
|
|
|
24.9 |
% |
Other income |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397.7 |
|
|
|
318.5 |
|
|
|
79.2 |
|
|
|
24.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
313.3 |
|
|
|
258.5 |
|
|
|
54.8 |
|
|
|
21.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (including other
income) |
|
|
84.4 |
|
|
|
60.0 |
|
|
|
24.4 |
|
|
|
40.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
49.8 |
|
|
|
39.9 |
|
|
|
9.9 |
|
|
|
24.8 |
% |
Restructuring and impairment costs |
|
|
0.4 |
|
|
|
1.9 |
|
|
|
(1.5 |
) |
|
|
-78.9 |
% |
Interest income, net |
|
|
1.7 |
|
|
|
2.8 |
|
|
|
(1.1 |
) |
|
|
-39.3 |
% |
Other, net |
|
|
(2.1 |
) |
|
|
|
|
|
|
(2.1 |
) |
|
|
0.0 |
% |
Income taxes |
|
|
7.0 |
|
|
|
7.1 |
|
|
|
(0.1 |
) |
|
|
-1.4 |
% |
Cumulative effect of accounting
change |
|
|
|
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
26.8 |
|
|
$ |
14.0 |
|
|
$ |
12.8 |
|
|
|
91.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Other income |
|
|
0.3 |
% |
|
|
0.3 |
% |
Cost of products sold |
|
|
79.0 |
% |
|
|
81.4 |
% |
Gross margin (including other income) |
|
|
21.3 |
% |
|
|
18.9 |
% |
Selling and administrative expenses |
|
|
12.6 |
% |
|
|
12.6 |
% |
Restructuring and impairment costs |
|
|
0.1 |
% |
|
|
0.6 |
% |
Interest income, net |
|
|
0.4 |
% |
|
|
0.9 |
% |
Other, net |
|
|
-0.5 |
% |
|
|
0.0 |
% |
Income taxes |
|
|
1.8 |
% |
|
|
2.2 |
% |
Cumulative effect of accounting change |
|
|
0.0 |
% |
|
|
0.0 |
% |
Net income |
|
|
6.8 |
% |
|
|
4.4 |
% |
Net Sales. Consolidated net sales increased $79.2 million, or 24.9%, to $396.7 million for
the nine months ended February 2, 2008 from $317.5 million for nine months ended January 27, 2007.
Of the $79.2 million increase, $39.2 million relates to our TST and VEP acquisitions. The
increase was also driven by strong organic growth from our European and Asian operations. Sales
from those operations increased 43.9% during the nine months ended February 2, 2008. Automotive
segment sales were impacted by price increases of $10.3 million on previously marginally profitable
and unprofitable products. Excluding TST, the Interconnect segment sales increased 8.6% for the
nine months ended February 2, 2008 due to strong sales from our Asian connector and European
optical businesses. Excluding VEP, the Power Distribution segment sales decreased 8.9% for the
nine months ended February 2, 2008. Translation of foreign operations net sales in the nine months
ended February 2, 2008 increased reported net sales by $6.5 million, or 1.6%, due to currency rate
fluctuations.
Other Income. Other Income was $1.0 million for both periods. Other income consisted
primarily of earnings from our automotive joint venture, engineering design fees and royalties.
26
Consolidated Results Continued
Cost of Products Sold. Consolidated cost of products sold increased $54.8 million, or 21.2%,
to $313.3 million for the nine months ended February 2, 2008 from $258.5 million for the nine
months ended January 27, 2007. The increase is due to the higher sales volumes. Consolidated cost
of products sold as a percentage of sales was 79.0% for the nine months ended February 2, 2008 and
81.4% for the nine months ended January 27, 2007. Automotive segment cost of goods sold as a
percentage of sales was favorably impacted by price increases and the transfer of certain
operations from Scotland to Malta during the third quarter of fiscal 2007.
Gross Margins (including other income). Consolidated gross margins (including other income)
increased $24.4 million, or 40.7%, to $84.4 million for the nine months ended February 2, 2008 as
compared to $60.0 million for the nine months ended January 27, 2007. Gross margins as a
percentage of net sales increased to 21.3% for the nine months ended February 2, 2008 from 18.9%
for the nine months ended January 27, 2007. The increase in gross margin as a percentage of sales
is primarily due to the auto segment pricing increases and integration of the Scotland operation.
Selling and Administrative Expenses. Selling and administrative expenses increased $9.9
million, or 24.8%, to $49.8 million for the nine months ended February 2, 2008 compared to $39.9
million for the nine months ended January 27, 2007. Of the $9.9 million increase, $3.8 million
relates to the TST and VEP businesses. The majority of the additional increase relates to
additional global support staff and increased long-term incentive compensation due to improved
performance and a higher share price and higher professional fees. Selling and administrative
expenses as a percentage of net sales was 12.6% for both periods.
Restructuring and Impairment Costs. On January 24, 2008, we announced a restructuring of our
U.S.-based automotive operations and the decision to discontinue producing certain legacy
electronic connector products. As a result, we recorded a restructuring charge of $0.4 million for
the nine months ended February 2, 2008. We recorded $1.9 million of restructuring and impairment
costs in the third quarter of fiscal 2007 relating to the closing of our Scotland automotive parts
manufacturing plant and transferred all production lines from that facility to our automotive parts
manufacturing operation in Malta.
Interest Income, Net. Net interest income decreased 39.3% in the nine months ended February
2, 2008 to $1.7 million as compared to $2.8 million in the nine months ended January 27, 2007. The
average cash balance was $78.8 million during the nine months ended February 2, 2008 as compared to
$95.0 million during the nine months ended January 27, 2007. The average interest rate earned in
the nine months ended February 2, 2008 was 4.74% as compared to 6.21% in the nine months ended
January 27, 2007. The average interest rate earned includes both taxable interest and tax-free
municipal interest. The cash balance decreased primarily due to the acquisition of the TST and VEP
businesses on February 28, 2007 and August 31, 2007, respectively. Interest expense was $0.2
million for both periods.
Other, Net. Other, net was an expense of $2.1 million for the nine months ended February 2,
2008 versus no other, net for the nine months ended January 27, 2007. Other, net consists
primarily of currency exchange gains and losses at the Companys foreign operations. The
functional currencies of these operations are the British pound, Chinese yuan, Czech koruna, Euro,
Maltese lira, 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 the third quarter ended February 2, 2008,
we recorded a charge of $0.3 million relating to a reduction of the net asset value (NAV) on a
portion of our short-term investments which is an enhanced cash fund sold as an alternative to
traditional money market funds. We have historically invested a portion of our cash in the fund.
During the third quarter, the fund was overwhelmed with withdrawal requests and a restriction was
placed on the redemption ability of the fund. Therefore, during the third quarter, we recorded a
realized loss of $0.1 million on partial redemptions and an unrealized loss of $0.2 million for
the reduction in the NAVs principal balance.
27
Consolidated Results Continued
Income Taxes. The effective income tax rate was 20.7% for the nine months ended February 2,
2008 compared with 33.9% in the nine months ended January 27, 2007. During the nine months ended
February 2, 2008, we recognized $0.3 million relating to the expiration of certain statute of
limitations for tax positions that were not challenged by the taxing authorities. In addition, we
recognized $0.5 million relating to tax return reconciliations compared to income tax provisions
during the nine months ended February 2, 2008. The effective tax rates for both fiscal 2008 and
2007 reflect utilization of foreign investment tax credits and the effect of lower tax rates on
income of the Companys foreign earnings and the higher earnings at those operations. The effective
tax rate was higher in fiscal 2007 primarily due to the establishment of a valuation allowance for
potentially non-deductible stock-based compensation.
Net Income. Net income increased $12.8 million, or 91.4%, to $26.8 million for the nine
months ended February 2, 2008 as compared to $14.0 million for the nine months ended January 27,
2007 due to the auto segment price increases, strong sales and increased efficiencies from our
European and Asian operations, offset slightly by higher selling and administrative expenses. In
addition, our effective tax rate was 20.7% during the nine months ended February 2, 2008 due to
higher foreign earnings which are taxed at lower rates. Net income as a percentage of sales
increased to 6.8% for the nine months ended February 2, 2008 as compared to 4.4% for the nine
months ended January 27, 2007.
Automotive Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
261.3 |
|
|
$ |
222.4 |
|
|
$ |
38.9 |
|
|
|
17.5 |
% |
Cost of products sold |
|
|
208.1 |
|
|
|
190.3 |
|
|
|
17.8 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
53.2 |
|
|
|
32.1 |
|
|
|
21.1 |
|
|
|
65.7 |
% |
Income before income
taxes, restructuring
and cumulative
effect of
accounting change |
|
$ |
38.7 |
|
|
$ |
16.3 |
|
|
$ |
22.4 |
|
|
|
137.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
(0.4 |
) |
|
|
(1.9 |
) |
|
|
1.5 |
|
|
|
79.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes and cumulative
effect of
accounting change |
|
$ |
38.3 |
|
|
$ |
14.4 |
|
|
$ |
23.9 |
|
|
|
165.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of products sold |
|
|
79.6 |
% |
|
|
85.6 |
% |
Gross margin |
|
|
20.4 |
% |
|
|
14.4 |
% |
Income before income taxes, restructuring and
cumulative effect of accounting change |
|
|
14.8 |
% |
|
|
7.3 |
% |
Restructuring |
|
|
-0.1 |
% |
|
|
-0.8 |
% |
Income before income taxes and cumulative
effect of accounting change |
|
|
14.7 |
% |
|
|
6.5 |
% |
Net Sales. Automotive segment net sales increased $38.9 million, or 17.5%, to $261.3 million
for the nine months ended February 2, 2008 from $222.4 million for the nine months ended January
27, 2007. The automotive
28
Automotive Segment Results Continued
segment net sales increase was primarily driven from organic growth from our European and Asian
operations. Net sales from these operations have increased 42.1% for the nine months ended
February 2, 2008. Sales were also impacted by price increases of $10.3 million on previously
marginally profitable and unprofitable products, which we had decided to exit at the expiration of
our manufacturing commitment but, at the request of the customer, have agreed to produce. We
estimate to complete the exit of these products during the second quarter of fiscal year 2009.
Excluding these price increases, North American automotive segment sales decreased 2.6% for the
nine months ended February 2, 2008. Translation of foreign operations net sales in the nine
months ended February 2, 2008 increased reported net sales by $5.7 million, or 2.2%, due to
currency rate fluctuations.
Cost of Products Sold. Automotive segment cost of products sold increased $17.8 million to
$208.1 million for the nine months ended February 2, 2008 from $190.3 for the nine months ended
January 27, 2007. The increase relates to higher sales volumes. Automotive segment costs of
products sold as a percentage of sales decreased to 79.6% for the nine months ended February 2,
2008 from 85.6% for the nine months ended January 27, 2007. Automotive segment cost of goods sold
as a percentage to sales was favorably impacted by price increases. The integration of our
Scotland operation to our Malta operation has increased efficiency in our European manufacturing
processes. In addition, we have previously made our North American operations more efficient and
cost effective in anticipation of the forecasted lower automotive sales in the U.S. market.
Gross Margins. Automotive segment gross margins increased $21.1 million, or 65.7%, to $53.2
million for the nine months ended February 2, 2008 as compared to $32.1 million for the nine months
ended January 27, 2007. The increase in gross margin as a percentage of sales is primarily due to
the pricing increases and integration of the Scotland operation. Gross margins as a percentage of
net sales increased to 20.4% for the nine months ended February 2, 2008 from 14.4% for the nine
months ended January 27, 2007.
Restructuring and Impairment Costs. On January 24, 2008, we announced a restructuring of our
U.S.-based automotive operations. As a result, we recorded a restructuring charge of $0.4 million
for the nine months ended February 2, 2008. We recorded $1.9 million of restructuring and
impairment costs in the third quarter of fiscal 2007 relating to the closing of our Scotland
automotive parts manufacturing plant and transferred all production lines from that facility to our
automotive parts manufacturing operation in Malta.
Income Before Income Taxes and cumulative effect of accounting change. Automotive segment
income before income taxes and cumulative effect of accounting change increased $23.9 million, or
165.4%, to $38.3 million for the nine months ended February 2, 2008 compared to $14.4 million for
the nine months ended January 27, 2007 due to the price increases, strong sales in Europe and Asia
and integration of our Scotland operation to our Malta operation. In addition, restructuring costs
decreased by $1.5 million in the nine months ended February 2, 2008.
29
Interconnect Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
97.2 |
|
|
$ |
56.0 |
|
|
$ |
41.2 |
|
|
|
73.6 |
% |
Cost of products sold |
|
|
75.1 |
|
|
|
39.0 |
|
|
|
36.1 |
|
|
|
92.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
22.1 |
|
|
|
17.0 |
|
|
|
5.1 |
|
|
|
30.0 |
% |
Income before income
taxes, restructuring
and cumulative
effect of
accounting change |
|
$ |
4.5 |
|
|
$ |
6.5 |
|
|
$ |
(2.0 |
) |
|
|
-30.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes and cumulative
effect of
accounting change |
|
$ |
4.4 |
|
|
$ |
6.5 |
|
|
$ |
(2.1 |
) |
|
|
-31.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of products sold |
|
|
77.3 |
% |
|
|
69.6 |
% |
Gross margin |
|
|
22.7 |
% |
|
|
30.4 |
% |
Income before income taxes, restructuring and
cumulative effect of accounting change |
|
|
4.6 |
% |
|
|
11.6 |
% |
Restructuring |
|
|
-0.1 |
% |
|
|
0.0 |
% |
Income before income taxes and cumulative
effect of accounting change |
|
|
4.6 |
% |
|
|
11.6 |
% |
Net Sales. Interconnect segment net sales increased $41.2 million, or 73.6%, to $97.2 million
for the nine months ended February 2, 2008 from $56.0 million for the nine months ended January 27,
2007. A majority of the sales increase is due to the TST acquisition. Sales from our Asian
connector business increased 86.9% for the nine months ended February 2, 2008. Excluding TST, the
Interconnect segment sales increased 8.6% for the nine months ended February 2, 2008 due to strong
sales from our Asian connector business. In addition, sales increased from our European optical
business, offset by lower sales in our domestic data installation business. Translation of foreign
operations net sales in the nine months ended February 2, 2008 increased reported net sales by $0.8
million, or 0.8%, due to currency rate fluctuations.
Cost of Products Sold. Interconnect segment cost of products sold increased $36.1 million to
$75.1 million for the nine months ended February 2, 2008 compared to $39.0 million for the nine
months ended January 27, 2007. The majority of the increase is due to cost of products sold from
our TST acquisition. Interconnect segment cost of products sold as a percentage of net sales
increased to 77.3% for the nine months ended February 2, 2008 compared to 69.6% for the nine months
ended January 27, 2007. The increase is primarily due to the TST business, which has higher cost
of products sold as a percentage of sales as compared to the other businesses in the Interconnect
segment. We experienced lower sales in our data center installation business and higher costs
related to PC card adapters during the first three quarters of fiscal 2008. In addition, we
experienced increased costs due to overall lower sales volumes in our North American operations
(excluding TST).
Gross Margins. Interconnect segment gross margins increased $5.1 million, or 30.0%, to $22.1
million for the nine months ended February 2, 2008 as compared to $17.0 million for the nine months
ended January 27, 2007. The majority of the increase is due to the TST acquisition. In addition,
gross margins increased in our Asian
30
Interconnect Segment Results Continued
connector business and European optical business, partially offset with gross margin declines in
our PC card adapter and data installation business. Gross margins as a percentage of net sales
decreased to 22.7% for the nine months ended February 2, 2008 from 30.4% for the nine months ended
January 27, 2007.
Restructuring and Impairment Costs. On January 24, 2008, we announced our decision to
discontinue producing certain legacy electronic connector products. As a result, we recorded a
restructuring charge of $0.1 million during the nine months ended February 2, 2008.
Income Before Income Taxes and Cumulative Effect of Accounting Change. Interconnect income
before income taxes and cumulative effect of accounting change decreased $2.1 million, or 31.9%, to
$4.4 million for the nine months ended February 2, 2008 compared to $6.5 million for the nine
months ended January 27, 2007 due to the gross margin declines in our PC card adapter and data
installation businesses, partially offset with increases from the TST business.
Power Distribution Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
33.2 |
|
|
$ |
33.4 |
|
|
$ |
(0.2 |
) |
|
|
-0.6 |
% |
Cost of products sold |
|
|
23.9 |
|
|
|
24.0 |
|
|
|
(0.1 |
) |
|
|
-0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
9.3 |
|
|
|
9.4 |
|
|
|
(0.1 |
) |
|
|
-1.1 |
% |
Income before income
taxes and cumulative
effect of
accounting change |
|
$ |
6.5 |
|
|
$ |
6.9 |
|
|
$ |
(0.4 |
) |
|
|
-5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of products sold |
|
|
72.0 |
% |
|
|
71.9 |
% |
Gross margin |
|
|
28.0 |
% |
|
|
28.1 |
% |
Income before income taxes and cumulative
effect of accounting change |
|
|
19.6 |
% |
|
|
20.7 |
% |
Net Sales. Power Distribution segment net sales decreased $0.2 million to $33.2 million for
the nine months ended February 2, 2008 from $33.4 million for the nine months ended January 27,
2007. Net sales increased due to the VEP acquisition and were more than offset by lower sales from
our bus bar business. Excluding VEP, the Power Distribution segment sales decreased 8.9% for the
nine months ended February 2, 2008. The majority of the decrease relates to certain projects for a
customer which reached end of life at the end of fiscal 2007. In addition, we are no longer the
sole supplier for another customer starting in fiscal year 2008.
Cost of Products Sold. Power Distribution segment cost of products sold decreased $0.1
million to $23.9 million for the nine months ended February 2, 2008 compared to $24.0 million for
the nine months ended January 27, 2007. The Power Distribution segment cost of products sold as a
percentage of sales increased slightly to 72.0% for the nine months ended February 2, 2008 from
71.9% for the nine months ended January 27, 2007. The increase is primarily due to higher material
costs and price erosion at our North American operation, partially offset by margin improvement at
our Shanghai, China operation.
Gross Margins. Power Distribution segment gross margins decreased $0.1 million, or 1.1%, to
$9.3 million for the nine months ended February 2, 2008 as compared to $9.4 million for the nine
months ended January 27, 2007. Gross margins were higher due to the VEP business, offset by higher
material costs from our bus bar business.
31
Power Distribution Segment Results Continued
Gross margins as a percentage of net sales decreased slightly to 28.0% for the nine months ended
February 2, 2008 from 28.1% for the nine months ended January 27, 2007.
Income Before Income Taxes and Cumulative Effect of Accounting Change. Power Distribution
segment income before income taxes and cumulative effect of accounting change decreased $0.4
million to $6.5 million for the nine months ended February 2, 2008 from $6.9 million for the nine
months ended January 27, 2007 due to certain projects ending at the end of fiscal 2007, no longer
being the sole supplier for another customer and higher material and price erosion at our North
American operation.
Other Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net Change |
|
|
Net Change |
|
Net sales |
|
$ |
5.0 |
|
|
$ |
5.7 |
|
|
$ |
(0.7 |
) |
|
|
-12.3 |
% |
Cost of products sold |
|
|
5.0 |
|
|
|
4.4 |
|
|
|
0.6 |
|
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
1.3 |
|
|
|
(1.3 |
) |
|
|
-100.0 |
% |
Loss before income
taxes and cumulative
effect of
accounting change |
|
$ |
(1.3 |
) |
|
$ |
(0.2 |
) |
|
$ |
(1.1 |
) |
|
|
550.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
January 27, |
|
Percent of sales: |
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of products sold |
|
|
100.0 |
% |
|
|
77.2 |
% |
Gross margin |
|
|
0.0 |
% |
|
|
22.8 |
% |
Loss before income taxes and cumulative
effect of accounting change |
|
|
-26.0 |
% |
|
|
-3.5 |
% |
Net Sales. The Other segment net sales decreased $0.7 million to $5.0 million for the nine
months ended February 2, 2008 as compared to $5.7 million for the nine months ended January 27,
2007.
Cost of Products Sold. Other segment cost of products sold increased $0.6 million to $5.0
million for the nine months ended February 2, 2008 compared to $4.4 million for the nine months
ended January 27, 2007. The majority of the increase is due to increased initiatives in our
torque-sensing business.
Gross Margins. The Other segment gross margins decreased $1.3 million to no gross margin for
the nine months ended February 2, 2008 as compared to $1.3 million for the nine months ended
January 27, 2007. The majority of the decrease is due to increased initiatives in our
torque-sensing business.
Loss Before Income Taxes. The Other segment loss before income taxes was $1.3 million for the
nine months ended February 2, 2008 compared to $0.2 million for the nine months ended January 27,
2007.
Liquidity and Capital Resources
We have historically financed our cash requirements through cash flows from operations. Our
future capital requirements will depend on a number of factors, including our future net sales and
the timing and rate of expansion of our business. We believe our current cash balances together
with the cash flow expected to be generated from future domestic and foreign operations will be
sufficient to support current operations. We have an agreement with our primary bank for a
committed $75.0 million revolving credit facility to provide ready financing for general corporate
purposes, including acquisition opportunities that may become available. The bank credit
32
Liquidity and Capital Resources Continued
agreement requires maintenance of certain financial ratios and a minimum net worth level. At
February 2, 2008, the Company was in compliance with these covenants and there were no borrowings
against this credit facility.
At February 2, 2008, approximately $14.0 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 $0.986 per unit as of February 2, 2008 and we recorded an unrealized loss on the fund
of $0.2 million in the quarter ended on February 2, 2008. Subsequent to our February 2, 2008 third
quarter-end and through March 13, 2008, the date of our third quarter FY 2008 10-Q filing, we have
received additional cash redemptions of $1.7 million at approximately $0.984 per unit, leaving the
new principal balance at $12.3 million.
Based on the latest information available to management, we expect that our investment in this
portfolio will be liquidated during the second quarter of fiscal 2009. The latest information from
fund management states that its goal is to have 90% of the portfolio liquidated by August 2008.
Information and the markets relating to these investments remain dynamic, and there may be further
declines in the value of these investments, the value of the collateral held by these entities, and
the liquidity of our investments. To the extent we determine that there is a further decline in
fair value, we may recognize additional losses in future periods.
Net
cash provided by operations increased $13.0 million, or 29.2%,
to $57.6 million for the
first nine months of fiscal 2008 compared to $44.6 million in the first nine months of fiscal 2007.
Our net income increased $12.8 million, or 91.4%, to $26.8 million in the first nine months of
fiscal 2008 compared to $14.0 million for the first nine months of fiscal 2007. The primary factor
in the Companys ability to generate cash from operations is our net income. During the first
quarter of fiscal 2008, we received a significant non-refundable prepayment by a customer for
products to be delivered during the remainder of the fiscal year. Additionally, cash flows from
operations exceed net income because non-cash charges (depreciation, amortization of intangibles,
restricted stock awards, and stock options) negatively impact net income but do not result in the
use of cash. Similarly, non-cash credits such as deferred income tax benefits increase net income
but do not provide cash. Additional contributors or offsets to cash flows from operations are
working capital requirements.
Net cash used in investing activities during the first nine months of fiscal 2008 was $24.2
million compared to $10.3 million for the first nine months of fiscal 2007. Purchases of plant and
equipment were $16.7 million and $6.4 million for the first nine months of fiscal 2008 and 2007,
respectively. A significant amount of the $16.7 million of purchases of plant and equipment relate
to investments to expand our Malta and Shanghai, China manufacturing operations. In the first nine
months of fiscal 2008, we purchased VEP for $5.8 million in cash. Also in the first nine months of
fiscal 2008, we made additional payments of $1.0 million relating to purchase price adjustments
relating to the TST acquisition and a contingent payment of $0.3 million related to the acquisition
of Cableco Technologies. Additionally, a dividend payment of $1.0 million was paid in the first
nine months of fiscal 2008 relating to our automotive joint venture. In the first nine months of
fiscal 2007, cash used in investing activities included the final contingent payment related to the
acquisition of AST of $2.7 million.
Net cash used in financing activities during the first nine months in fiscal 2008 was $4.1
million compared with $8.4 million in the first nine months of fiscal 2007. Proceeds from the
exercise of stock options increased $1.0 million to $1.3 million for the first nine months of
fiscal 2008 as compared to $0.3 million in the first nine months of fiscal 2007. The first nine
months of fiscal 2007 included the purchase of 205,597 shares of our common stock pursuant to a
three million-share stock repurchase plan authorized by our board of directors in September 2006.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, other than operating leases and purchase
obligations entered into in the normal course of business.
33
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Certain of our foreign operations enter into transactions in currencies other than their
functional currency, primarily the U.S. dollar and the Euro. A 10% change in foreign currency
exchange rates from balance sheet date levels could impact our income before income taxes by $0.9
million and $0.6 million at February 2, 2008 and April 28, 2007, respectively. We also have
foreign currency exposure arising from the translation of our net equity investment in our foreign
operations to U.S. dollars. We generally view our investments in foreign operations with
functional currencies other than the U.S. dollar as long-term. The currencies to which we are
exposed are the British pound, Chinese yuan, Czech koruna, Euro, Maltese lira, 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 $14.0 million at February 2, 2008 and $10.9 million at
April 28, 2007.
Item 4. Controls And Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, we performed an
evaluation under the supervision and with the participation of the Companys management, including
our Chief Executive Officer and our Chief Financial Officer, of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934).
The Companys disclosure controls and procedures are designed to ensure that the information
required to be disclosed by the Company in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions applicable rules and forms. As a result of
this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of the period covered by this report, the Companys disclosure controls and procedures were
effective.
There have been no changes in our internal control over financial reporting during the quarter
ended February 2, 2008 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
34
PART II. OTHER INFORMATION
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds
c) Purchase of equity securities by the issuer 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 |
|
|
Programs |
|
|
|
October 28, 2007
through December 1,
2007 |
|
|
247 |
|
|
$ |
12.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2, 2007
through January 5,
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 6, 2008
through February 2,
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247 |
|
|
$ |
12.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount represents 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. |
35
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
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 |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
METHODE ELECTRONICS, INC. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Douglas A. Koman |
|
|
|
|
|
|
Douglas A. Koman
|
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
(principal financial officer) |
|
|
Dated: March 13, 2008
37
INDEX TO EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description |
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 |