Science & Technology
Science and Technology
Science and Technology
Thu, December 10, 2009 Methode Electronics, Inc. Reports Fiscal 2010 Second-Quarter Results
CHICAGO, IL--(Marketwire - December 10, 2009) - Methode Electronics, Inc. (
Second-Quarter Fiscal 2010
Methode's second-quarter fiscal 2010 net sales decreased $22.8 million, or 18.8 percent, to $98.5 million from $121.3 million in the second quarter of fiscal 2009. Net income increased $1.9 million to $2.1 million, or $0.06 per share, in the second quarter of fiscal 2010 compared to income of $0.2 million, or $0.01 per share, in the same period of fiscal 2009.
In January 2008, Methode announced a restructuring of its U.S.-based Automotive segment operations and the decision to discontinue producing certain legacy products in the Interconnect segment. In March 2009, Methode announced several additional restructuring actions to further reduce its exposure to the North American automotive industry, and to reduce costs by consolidating facilities and migrating manufacturing to lower cost regions. Methode recorded restructuring charges during the fiscal 2010 second quarter of $3.2 million ($2.6 million after-tax), or $0.07 per share, and during the fiscal 2009 second quarter of $6.3 million ($4.0 million after-tax), or $0.10 per share. The Company expects to complete these restructuring activities during the second half of fiscal 2010 and estimates that it will record additional pre-tax charges in fiscal 2010 of between $1.0 million and $2.2 million.
Net income in the fiscal 2010 second quarter benefitted by $1.7 million relating to a one-time reversal of pricing contingencies which were accrued over several years and are no longer required, as well as lower cost of products sold, restructuring costs and selling, general and administrative expenses. These benefits were offset by lower sales attributable to the planned exit of Chrysler and Ford North American business, reduced sales to Delphi Automotive Systems ("Delphi") due to the cancellation of a supply arrangement by Delphi, and the continuing softness of the global economic environment, especially the effect on the North American automotive market. Excluding restructuring charges in both periods and the $1.7 million reversal of one-time pricing contingencies included in net sales in the Fiscal 2010 period, Methode's net income was $3.5 million, or $0.10 per share, in the second quarter of fiscal 2010 compared to net income of $4.2 million, or $0.11 per share, in the same period of fiscal 2009.
Consolidated cost of products sold decreased $20.0 million, or 20.4 percent, to $77.8 million in the fiscal 2010 second quarter, compared to $97.8 million in the same period of fiscal 2009. The decrease is due to lower sales volumes and the benefit of the Company's restructuring efforts to reduce costs. Included in the cost of products sold in the Fiscal 2010 second quarter is $0.7 million of asset write-downs relating to the termination of the Delphi supply arrangement. Consolidated cost of products sold as a percentage of sales was 79.0 percent and 80.6 percent in the second quarters of fiscal 2010 and 2009, respectively. Excluding the $0.7 million Delphi asset write-down and the $1.7 million reversal of one-time pricing contingencies included in net sales, consolidated cost of products sold as a percentage of sales was 79.6 percent for the second quarter of fiscal 2010.
Consolidated gross margins as a percentage of sales increased to 22.1 percent in the fiscal 2010 second quarter from 20.2 percent in the comparable period of fiscal 2009 despite an 18.8 percent drop in sales, largely due to the restructuring actions previously taken to reduce the cost structure, in part as a result of the sustained change in the global economic environment. Excluding the $0.7 million Delphi asset write-down and the $1.7 million reversal of one-time pricing contingencies included in net sales, consolidated gross margins as a percentage of sales was 21.5 percent for the second quarter of fiscal 2010.
In the Automotive segment, gross margins as a percentage of sales increased to 23.1 percent in the fiscal 2010 second quarter from 21.0 percent in the comparable period of fiscal 2009 despite a 25.3 percent drop in sales from period to period. Excluding the $0.7 million Delphi asset write-down and the $1.7 million reversal of one-time pricing contingencies included in net sales, Automotive segment gross margins as a percentage of sales was 22.0 percent for the second quarter of fiscal 2010. Additionally, the Interconnect segment gross margins as a percentage of sales improved to 23.3 percent in the second quarter of fiscal 2010 from 22.8 percent in the same quarter of fiscal 2009, notwithstanding a 4.7 percent decrease in sales. Gross margins as a percentage of sales in the Power Products segment increased to 22.3 percent in the second quarter of fiscal 2010 from 18.1 percent from the same period of fiscal 2009, notwithstanding a 19.0 percent decrease in sales period over period.
Selling and administrative expenses decreased $2.1 million, or 11.4 percent, to $16.4 million in the fiscal 2010 second quarter, as compared to $18.5 million in the prior-year period. The decrease relates to lower intangible asset amortization expense and lower stock award amortization expense during the second quarter of fiscal 2010, partially offset by higher selling and administrative expenses from Hetronic, which was acquired in September 2008. Additionally, the selling and administrative expenses for the second quarter of fiscal 2010 included $1.5 million in legal fees relating to the Delphi supply arrangement dispute. Due to the significant drop in sales and increased legal fees experienced during the quarter, selling and administrative expenses as a percentage of sales increased to 16.6 percent in the second quarter of fiscal 2010, compared to 15.3 percent in the same period of fiscal 2009.
The effective income tax rate was an expense of 9.7 percent in the second quarter of fiscal 2010 compared to a benefit of 168.3 percent in the same period of fiscal 2009. The higher effective tax rate in the fiscal 2010 second quarter was due to the restructuring charges and the slowing of business, causing a loss before income tax for the Company's U.S.-based businesses. Normally, a tax benefit is recorded relating to the net loss before income taxes, but due to the uncertainty of the future utilization of the tax benefit by the Company's U.S.-based businesses, a valuation allowance was recorded offsetting the tax benefit. Additionally, the tax rates for the second quarters of fiscal 2010 and fiscal 2009 reflect utilization of foreign investment tax credits and the effect of lower tax rates on income of the Company's foreign earnings and a higher percentage of earnings at those foreign operations.
Six-Month Period Fiscal 2010
For the six-month period ended October 31, 2009, net sales decreased $67.5 million, or 26.4 percent, to $188.3 million from $255.8 million for the six-month period ended November 1, 2008. Net income decreased $4.9 million, or 70.0 percent, to $2.1 million, or $0.06 per share, in the fiscal 2010 six-month period compared to $7.0 million, or $0.19 per share, in the fiscal 2009 six-month period.
The decrease in net income is due mainly to lower sales, lower interest income and increased income taxes partially offset by lower restructuring expenses, lower other expense and lower costs due to restructuring and consolidation efforts.
In the six-month period of fiscal 2010, Automotive segment net sales were negatively impacted by lower sales to Delphi Corporation due to the cancellation of the supply arrangement by Delphi, planned lower Chrysler sales, and the softening of the global economic environment, especially the effect on the North American automotive industry, but were also favorably impacted by $1.7 million relating to a one-time reversal of pricing contingencies which were accrued over several years and are no longer required.
The Company recorded a restructuring charge during the six-month period of fiscal year 2010 of $6.8 million ($6.2 million after-tax), or $0.17 per share, compared to $11.2 million ($7.3 million after-tax), or $0.19 per share, in the fiscal 2009 six-month period. Excluding restructuring charges in both periods and the $1.7 million reversal of one-time pricing contingencies included in net sales in the Fiscal 2010 period, Methode's net income was $7.1 million, or $0.19 per share, in the first six months of fiscal 2010 compared to net income of $14.4 million, or $0.38 per share, in the same period of fiscal 2009.
Consolidated cost of products sold decreased $54.5 million, or 26.8 percent, to $148.7 million in the fiscal 2010 six-month period, compared to $203.2 million in the same period of fiscal 2009. The decrease is due to lower sales volumes and the benefit of the Company's restructuring efforts to reduce costs. Cost of products sold as a percentage of sales was 79.0 percent and 79.4 percent in the first six months of fiscal years 2010 and 2009, respectively.
Consolidated gross margins as a percentage of sales increased to 22.4 percent in the fiscal 2010 six-month period from 21.2 percent in the comparable period of fiscal 2009 despite a 26.4 percent drop in sales, largely due to the restructuring actions previously taken to reduce the cost structure as a result of the sustained change in the global economic environment. Excluding the $0.7 million Delphi asset write-down and the $1.7 million reversal of one-time pricing contingencies included in net sales, consolidated gross margins as a percentage of sales was 22.0 percent for the first six months of fiscal 2010.
Selling and administrative expenses decreased $2.7 million, or 7.7 percent, to $32.3 million for the six months ended October 31, 2009, from $35.0 million for the six months ended November 1, 2008. The decrease is due to lower intangible asset amortization expense and lower stock award amortization expense during the first half of fiscal 2010, partially offset by selling and administrative expenses from Hetronic, acquired in September 2008. In addition, the selling and administrative expenses for the first half of fiscal 2010 included $1.9 million in legal fees relating to the Delphi supply arrangement dispute. Selling and administrative expenses as a percentage of net sales increased to 17.2 percent in the six months ended October 31, 2009, from 13.7 percent for the six months ended November 1, 2008.
Income tax expense was 19.8 percent in the first six months of fiscal 2010 compared with 12.5 percent in the same period of fiscal 2009. The higher effective tax rate in the fiscal 2010 six-month period was due to the restructuring charges and the slowing of business, causing a loss before income tax for the Company's U.S.-based businesses. Normally, a tax benefit is recorded relating to the net loss before income taxes, but due to the uncertainty of the future utilization of the tax benefit by the Company's U.S.-based businesses, a valuation allowance was recorded offsetting the tax benefit. The effective tax rates for the first half of fiscal 2010 and 2009 reflect utilization of foreign investment tax credits and the effect of lower tax rates on income of the Company's foreign earnings and a higher percentage of earnings at those foreign operations.
Delphi Litigation
Delphi terminated its supply arrangement with the Company effective September 10, 2009. The Company is contesting Delphi's right to terminate this long-term supply arrangement, and the parties are engaged in litigation regarding this supply arrangement and the Company's intellectual property. The Company ceased supplying product to Delphi subsequent to September 10, 2009.
Management Comments
President and Chief Executive Officer Donald W. Duda said, "Methode's performance in the second quarter of fiscal 2010 was strong on a sequential basis for both our Automotive and Interconnect segments, with sales up over the first quarter of Fiscal 2010 in both segments. However, Automotive segment results in the second quarter of fiscal 2010 were impacted positively by pricing contingencies that are no longer needed, offset by a decrease in sales to Delphi.
"Our third and fourth quarter Fiscal 2010 results for the Automotive segment will continue to be impacted by the cancellation of the Delphi supply agreement and associated litigation expense, as well as expected continued volatility in all our business segments."
Mr. Duda concluded, "Even though Methode's consolidated sales were down quarter over quarter, our ability to improve profitability remains strong through our exit of legacy automotive business and our significant restructuring efforts. Throughout this and the last fiscal year, we have taken actions to align our expense levels with the expectation of a long challenging economic environment, with our key objective to improve margins while operating at significantly lower sales levels. Our results thus far in Fiscal 2010 validate our strategy."
Conference Call
Today, the Company will conduct a conference call and Webcast to review financial and operational highlights led by its President and Chief Executive Officer, Donald W. Duda, and Chief Financial Officer, Douglas A. Koman, at 10:00 a.m. Central time. To participate in the conference call, please dial (877) 407-8031 (domestic) or (201) 689-8031 (international) at least five minutes prior to the start of the event. A simultaneous Webcast can be accessed through the Company's Web site, [ www.methode.com ], by selecting the Investor Relations page, and then clicking on the "Webcast" icon.
A replay of the conference call, as well as an MP3 download, will be available shortly after the call through December 24 by dialing (877) 660-6853 (domestic) or (201) 612-7415 and providing Account number 286 and Conference ID number 338766. On the Internet, a replay will be available for seven days through the Company's Web site, [ www.methode.com ], by selecting the Investor Relations page and then clicking on the "Webcast" icon.
About Methode Electronics, Inc.
Methode Electronics, Inc. (
Forward-Looking Statements
This press release contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this press release involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly reports. Such factors may include, without limitation, the following: (1) dependence on a small number of large customers; (2) dependence on the automotive, appliance, computer and communications industries; (3) seasonal and cyclical nature of some of our businesses; (4) ability to protect our intellectual property; (5) customary risks related to conducting global operations; (6) ability to successfully benefit from acquisitions; (7) ability to keep pace with rapid technological changes; (8) ability to avoid design or manufacturing defects; (9) dependence on the availability and price of raw materials; (10) oil prices could affect our automotive customers future results; (11) incurrence of additional restructuring charges, goodwill and other asset impairments.
Methode Electronics, Inc. Financial Highlights (In thousands, except per share data, unaudited) Three Months Ended October 31, November 1, 2009 2008 ----------- ----------- Net sales $ 98,496 $ 121,304 Other income 1,072 959 Cost of products sold 77,784 97,815 Restructuring 3,156 6,284 Selling and administrative expenses 16,413 18,537 Income from operations 2,215 (373) Interest income/(expense), net (45) 469 Other income/(expense), net 143 (610) Income/(loss) before income taxes 2,313 (514) Income tax expense/(benefit) 225 (865) Net income 2,088 351 Less: Net income attributable to noncontrolling interest (36) (113) Net income attributable to Methode Electronics, Inc. 2,052 238 Basic earnings per common share $ 0.06 $ 0.01 Diluted earnings per common share $ 0.06 $ 0.01 Average Number of Common Shares Outstanding: Basic 36,644 37,068 Diluted 36,868 37,551 Six Months Ended October 31, November 1, 2009 2008 ----------- ----------- Net sales $ 188,272 $ 255,818 Other income 2,459 1,692 Cost of products sold 148,693 203,245 Restructuring 6,767 11,201 Selling and administrative expenses 32,286 34,934 Income from operations 2,985 8,130 Interest income/(expense), net (147) 1,003 Other expense, net (252) (879) Income before income taxes 2,586 8,254 Income tax expense 511 1,032 Net income 2,075 7,222 Less: Net income attributable to noncontrolling interest (42) (168) Net income attributable to Methode Electronics, Inc. 2,033 7,054 Basic earnings per common share $ 0.06 $ 0.19 Diluted earnings per common share $ 0.06 $ 0.19 Average Number of Common Shares Outstanding: Basic 36,641 37,120 Diluted 36,823 37,584 Methode Electronics, Inc. Summary Balance Sheets (In thousands) October 31, 2009 May 2, 2009 ------------ ------------ (unaudited) Cash $ 60,274 $ 54,030 Accounts receivable - net 71,837 60,406 Inventories 41,254 40,426 Other current assets 20,420 26,384 ------------ ------------ Total Current Assets 193,785 181,246 Property, plant and equipment - net 68,350 69,917 Goodwill 11,771 11,771 Intangible assets - net 19,583 20,501 Other assets 22,722 21,853 ------------ ------------ Total Assets $ 316,211 $ 305,288 ============ ============ Accounts payable $ 31,075 $ 24,495 Other current liabilities 27,860 29,023 ------------ ------------ Total Current Liabilities 58,935 53,518 Other liabilities 16,459 16,869 ------------ ------------ Total Methode Electronics, Inc. shareholders' equity 237,301 231,776 Noncontrolling interest 3,516 3,125 ------------ ------------ Total shareholders' equity 240,817 234,901 ------------ ------------ Total Liabilities and Shareholders' Equity $ 316,211 $ 305,288 ============ ============ Methode Electronics, Inc. Summary Statements of Cash Flow (unaudited) (In thousands) Six Months Ended October 31, November 1, 2009 2008 ----------- ----------- Operating Activities: Net income $ 2,075 $ 7,222 Non-cash translation loss - 2,463 Provision for depreciation 10,118 12,489 Impairment of tangible assets 710 3,177 Amortization of intangible assets 1,123 3,052 Amortization of stock awards and stock options 507 1,605 Changes in operating assets and liabilities 1,044 (1,160) Other 48 567 ----------- ----------- Net Cash Provided by Operating Activities 15,625 29,415 Investing Activities: Purchases of property, plant and equipment (5,821) (9,557) Acquisitions of businesses - (56,785) Acquisitions of businesses and technology (181) (225) Other - (209) ----------- ----------- Net Cash Used in Investing Activities (6,002) (66,776) Financing Activities: Repurchase of common stock - (5,137) Proceeds from exercise of stock options - 110 Tax benefit from stock options and awards - 46 Dividends (5,233) (4,528) ----------- ----------- Net Cash Used in Financing Activities (5,233) (9,509) Effect of foreign exchange rate changes on cash 1,854 (4,629) ----------- ----------- Increase/(Decrease) in Cash and Cash Equivalents 6,244 (51,499) Cash and Cash Equivalents at Beginning of Period 54,030 104,305 ----------- ----------- Cash and Cash Equivalents at End of Period $ 60,274 $ 52,806 =========== ===========
