MEI-4.30.2011-10K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2011
Commission File Number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware | 36-2090085 |
(State or other jurisdiction of | (IRS Employer |
incorporation or organization) | Identification No.) |
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7401 West Wilson Avenue | |
Chicago, Illinois | 60706-4548 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number (including area code): (708) 867-6777
Securities registered pursuant to Section 12(b) of the Act:
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| | Name of each exchange |
Title of each Class | | on which registered |
Common Stock, $0.50 Par Value | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o | | Accelerated filer x |
Non-accelerated filer o | | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of common stock, $0.50 par value, held by non-affiliates of the Registrant on October 30, 2010, based upon the average of the closing bid and asked prices on that date as reported by the New York Stock Exchange was $331.6 million.
Registrant had 36,991,530 shares of common stock, $0.50 par value, outstanding as of June 30, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held September 15, 2011 are incorporated by reference into Part III.
METHODE ELECTRONICS, INC.
FORM 10-K
April 30, 2011
TABLE OF CONTENTS
PART I
Item 1. Business
Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966. As used herein, “we,” “us,” “our,” the “Company” or “Methode” mean Methode Electronics, Inc. and its subsidiaries.
We are a global designer and manufacturer of electro-mechanical devices. We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless and sensing technologies. Our components are found in the primary end markets of the aerospace, appliance, automotive, construction, consumer and industrial equipment markets, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), rail and other transportation industries.
We maintain our financial records on the basis of a fifty-two or fifty-three week fiscal year ending on the Saturday closest to April 30. Due to the timing of our fiscal calendar, the fiscal years ended April 30, 2011, May 1, 2010 and May 2, 2009 represent 52 weeks of results.
Segments. Our business is managed and our financial results are reported on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other.
The Automotive segment supplies electronic and electromechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Our products include control switches for electrical power and signals, connectors for electrical devices, integrated control components, switches and sensors that monitor the operation or status of a component or system, and packaging of electrical components.
The Interconnect segment provides a variety of copper and fiber-optic interconnect and interface solutions for the aerospace, appliance, commercial, computer, construction, consumer, material handling, medical, military, mining, networking, storage, and telecommunications markets. Solutions include connectors, conductive polymer, thick film inks, custom cable assemblies, industrial safety radio remote controls, solid-state field effect interface panels, optical and copper transceivers, PC and express card packaging and terminators. Services include the design and installation of fiber optic and copper infrastructure systems, and manufacturing active and passive optical components.
The Power Products segment manufactures braided flexible cables, current-carrying laminated bus devices, custom power-product assemblies, high-current low voltage flexible power cabling systems and powder coated bus bars that are used in various markets and applications, including aerospace, computers, industrial and power conversion, inverters and battery systems, insulated gate bipolar transistor solutions, military, telecommunications, and transportation.
The Other segment includes a designer and manufacturer of magnetic torque sensing products, and independent laboratories that provide services for qualification testing and certification, and analysis of electronic and optical components.
Financial results by segment are summarized in Note 14 to the consolidated financial statements.
Sales. The following table reflects the percentage of net sales of the segments of the Company for the last three fiscal years.
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| Year Ended |
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2011 | | May 1,
2010 | | May 2,
2009 |
Automotive | 52.8 | % | | 53.4 | % | | 57.2 | % |
Interconnect | 32.4 | % | | 33.3 | % | | 30.8 | % |
Power Products | 11.8 | % | | 10.8 | % | | 10.0 | % |
Other | 3.0 | % | | 2.5 | % | | 1.9 | % |
Our sales activities are directed by sales managers who are supported by field application engineers and other engineering personnel who work with customers to design our products into their systems. Our field application engineers also help us identify emerging markets and new products. Our products are sold through in-house sales staff and through independent manufacturers’ representatives with offices throughout the world. Information about our sales and operations in
different geographic regions is summarized in Note 14 to the consolidated financial statements. Sales are made primarily to OEMs, either directly or through their tiered suppliers as well as selling partners and distributors.
Sources and Availability of Materials. Principal materials that we purchase include coil and bar stock, die castings, ferrous and copper alloy sheets, glass, plastic molding materials, precious metals, application-specific integrated circuits, light-emitting diode (LED) displays and silicon. All of these items are available from several suppliers and we generally rely on more than one supplier for each item. We have experienced some shortages for specific electrical components in fiscal 2011, however, we have not experienced any other significant shortages of raw materials and normally do not carry inventories of raw materials or finished products in excess of those reasonably required to meet production and shipping schedules. We experienced significant price increases in fiscal 2011 for copper, precious metals and petroleum-based raw materials. We did not experience significant price increases in fiscal 2010 and 2009 related to those items.
Patents; Licensing Agreements. We have numerous United States and foreign patents and license agreements covering certain of our products and manufacturing processes, several of which are considered significant to our business. Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the United States and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued.
Seasonality. A significant portion of our business is dependent on automotive sales and the vehicle production schedules of our customers. The automotive market is cyclical and depends on general economic conditions, interest rates, fuel prices and consumer spending patterns. Historically, our business was moderately seasonal as our North American automotive customers halt operations for approximately two weeks in July for model changeovers and for one to two weeks during the December holiday period.
Material Customers. During the fiscal year ended April 30, 2011, shipments to Ford Motor Company (“Ford”) and General Motors Corporation (“GM”), or their tiered suppliers, represented 17.9% and 17.6%, respectively, of consolidated net sales. Such shipments included a wide variety of our automotive component products.
Backlog. Our backlog of orders was approximately $82.2 million at April 30, 2011, and $59.3 million at May 1, 2010. It is expected that most of the total backlog at April 30, 2011 will be shipped within fiscal 2012.
Competitive Conditions. The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments. We compete with a large number of other manufacturers in each of our product areas; many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products.
Research and Development. We maintain a research and development program involving a number of professional employees who devote a majority of their time to the enhancement of existing products and to the development of new products and processes. Senior management of our Company participates directly in the program. Expenditures for such activities amounted to $19.5 million, $18.4 million and $22.0 million for fiscal 2011, 2010 and 2009, respectively.
Environmental Matters. Compliance with foreign, federal, state and local provisions regulating the discharge of materials into the environment has not materially affected our capital expenditures, earnings or our competitive position. Currently, we do not have any environmental related lawsuits or material administrative proceedings pending against us. Further information as to environmental matters affecting us is presented in Note 9 to the consolidated financial statements.
Employees. At April 30, 2011 and May 1, 2010, we had 2,743 and 2,315 employees, respectively. We also from time to time employ part-time employees and hire independent contractors. As of April 30, 2011, our employees from our Malta and Mexico facilities, which account for about 60% of the total number of employees, are represented by collective bargaining agreements. We have never experienced a work stoppage and we believe that our employee relations are good.
Segment Information and Foreign Sales. Information about our operations by segment and in different geographic regions is summarized in Note 14 to the consolidated financial statements.
Available Information. We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and file periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). Such reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at (800) SEC-0330. In addition, the SEC maintains an internet site
(www.sec.gov) that contains reports, proxy and information statements and other information.
Financial and other information can also be accessed on the investor section of our website at www.methode.com. We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Also posted on our website are the Company’s Corporate Governance Guidelines, Code of Conduct and the charters of the Audit Committee, Compensation Committee, Nominating and Governance Committee and Technology Committee. Copies of these documents are also available free of charge by sending a request to Methode Electronics, Inc., 7401 West Wilson Avenue, Chicago, Illinois 60706, Attention: Investor Relations Department. Information on our website is not incorporated into this Form 10-K or our other securities filings and is not a part of them.
Certifications. As required by the rules and regulations of the New York Stock Exchange (“NYSE”), we delivered to the NYSE a certification signed by our Chief Executive Officer, Donald W. Duda, certifying that Mr. Duda was not aware of any violation by the Company of the NYSE’s corporate governance listing standards as of October 20, 2010.
As required by the rules and regulations of the SEC, the Sarbanes-Oxley Act Section 302 certifications regarding the quality of our public disclosures are filed as exhibits to this Annual Report on Form 10-K.
Item 1A. Risk Factors
Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations. Our business is highly dependent upon two large automotive customers and specific makes and models of automobiles. Our results will be subject to many of the same risks that apply to the automotive, appliance, computer and telecommunications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes. Other factors, which may result in materially different results for future periods, include the following risk factors. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements. The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws and are made as of the date of this report. We undertake no duty to update any such forward-looking statements.
We depend on a small number of large customers, specifically two large automotive customers. If we were to lose either of these customers or experienced a significant decline in the volume of products purchased by these customers, or if any of the customers declare bankruptcy, our future results could be adversely affected.
During the year ended April 30, 2011, shipments to Ford and GM, or their tiered suppliers, each represented 17.9% and 17.6% of consolidated net sales. The contracts we have entered into with these customers provide for supplying the customers’ requirements for a particular model, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life of the model, which is generally three to seven years. Therefore, the loss of a contract for a major model or a significant decrease in demand for certain key models or group of related models sold by Ford or GM could have a material adverse impact on our results of operations and financial condition. We also compete to supply products for successor models and are subject to the risk that Ford or GM will not select us to produce products on any such model, which could have a material adverse impact on our results of operations and financial condition.
Because we derive a substantial portion of our revenues from customers in the automotive, appliance, computer and communications industries, we are susceptible to trends and factors affecting those industries.
Our components are found in the primary end markets of the automotive, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), aerospace, rail and other transportation industries, appliances and the consumer and industrial equipment markets. Factors negatively affecting these industries and the demand for products also negatively affect our business, financial condition and operating results. In fiscal 2010 and 2009, we experienced slow-downs in all significant segments due to the recession. Any adverse occurrence, including additional industry slowdown, recession, rising interest rates, political instability, costly or constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results.
Further downturns in the automotive industry or the bankruptcy of certain automotive customers could reduce the sales and profitability of our business.
Currently, approximately 53% of our business is dependent on automotive sales and the vehicle production schedules of our customers. The automotive market is cyclical and depends on general economic conditions, interest rates and consumer spending patterns. Any significant reduction in vehicle production by our customers would have a material adverse effect on our business. Traditionally, in prior fiscal years, our business was moderately seasonal as our North American automotive customers historically halt operations for approximately two weeks in July for model changeovers and one to two weeks during the December holiday period.
In addition, we have significant receivable balances related to these customers that would be at risk in the event of their bankruptcy. Due to the financial stresses within the worldwide automotive industry, certain automakers and suppliers have already declared bankruptcy or may be susceptible to bankruptcy. In the event of the bankruptcy of any of our customers with significant receivable balances, our financial condition and operating results could be adversely affected.
Our technology-based business and the markets in which we operate are highly competitive. If we are unable to compete effectively, our sales will decline.
The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments. We compete with a large number of other manufacturers in each of our product areas; many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products. Competition may intensify further if more companies enter the markets in which we operate. Our failure to compete effectively could materially adversely affect our business, financial condition and operating results.
We face risks relating to our international operations.
Because approximately 60% of our sales come from our international operations, our operating results and financial condition could be adversely affected by economic, political, health, regulatory and other factors existing in foreign countries in which we operate. Our international operations are subject to inherent risks, which may adversely affect us, including: fluctuations in exchange rates; political and economic instability; expropriation, or the imposition of government controls; changes in government regulations; export license requirements; trade restrictions; earnings expatriation restrictions; exposure to different legal standards; less favorable intellectual property laws; health conditions and standards; currency controls; increases in duties and taxes; high levels of inflation or deflation; greater difficulty in collecting our accounts receivable and longer payment cycles; changes in labor conditions and difficulties in staffing and managing our international operations; limitations on insurance coverage against geopolitical risks, natural disasters and business operations; and communication among and management of international operations. In addition, these same factors may also place us at a competitive disadvantage to some of our foreign competitors.
We are dependent on the availability and price of materials.
We require substantial amounts of materials, including petroleum-based products, glass, copper and precious metals, application-specific integrated circuits, light-emitting diode (LED) displays, and all materials we require are purchased from outside sources. The availability and prices of materials may be subject to curtailment or change due to, among other things, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and worldwide price levels. Any change in the availability of, or price for, these materials could materially affect our results of operations and financial condition. We experienced significant price increases in fiscal 2011 for copper, precious metals and petroleum-based raw materials. We did not experience significant price increases in fiscal 2010 and 2009 related to those items. Recent events in the Middle East may result in significantly higher oil prices, which could result in higher prices for oil-based materials, such as resins.
Disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.
Our ability, including manufacturing or distribution capabilities, and that of our suppliers, business partners and contract manufacturers, to make, move and sell products is critical to our success. Damage or disruption to our or their manufacturing or distribution capabilities due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, or other reasons, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events,
or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
We may be unable to keep pace with rapid technological changes, which would adversely affect our business.
The technologies relating to some of our products have undergone, and are continuing to undergo, rapid and significant changes. Specifically, end markets for electronic components and assemblies are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards. These changes could render our existing products unmarketable before we can recover any or all of our research, development and other expenses. Furthermore, the life cycles of our products vary, may change and are difficult to estimate. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and operating results could be materially adversely affected.
Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.
Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to design or manufacturing errors or component failure. Product defects may result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects may result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. We may be required to participate in a recall involving products that are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability, however, we do not have coverage for all costs related to product defects or recalls and the costs of such claims, including costs of defense and settlement, may exceed our available coverage.
If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another person’s intellectual property, our business, financial condition and operating results could be materially adversely affected.
We have numerous United States and foreign patents and license agreements covering certain of our products and manufacturing processes, several of which are considered significant to our business. Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the United States and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued. The loss of any significant patents and trade secrets could adversely affect our sales, margins, profitability and, as a result, share price.
We may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringe on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay a penalty for past infringement and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.
We are subject to continuing pressure to lower our prices.
Over the past several years we have experienced, and we expect to continue to experience, pressure to lower our prices. In order to maintain our margins, we must continue to reduce our costs by similar amounts. Continuing pressures to reduce our prices could have a material adverse effect on our financial condition, results of operations and cash flows.
We were awarded new North American automotive business in fiscal 2011 for programs that will not begin production until fiscal 2013. We anticipate that it will take a significant amount of our cash and resources to launch these programs.
During fiscal 2011, we were awarded a next generation center stack program for multiple GM vehicle platforms as well as transmission lead-frame assemblies for GM transmissions. Both programs are expected to be manufactured in our plant in Monterrey, Mexico. We anticipate that these programs will require a significant amount of cash for the purchase of equipment, tooling and initial inventory as well as additional staffing for the development and launching of the programs. We
expect to begin production and generate sales on these programs in fiscal 2013. Therefore, we anticipate our cash balances may decline due to the launching of these programs without a corresponding increase in sales.
We currently have a significant amount of our cash located outside the U.S.
We believe our current world-wide cash balances together with expected future cash flows to be generated from operations will be sufficient to support current operations. However, due to the shifting of operations from the U.S. to foreign locations, a significant amount of cash and expected future cash flows are located outside of the U.S. No provision has been made, except for our Ireland business, for income taxes on undistributed net income of foreign operations, as we currently expect them to be indefinitely reinvested in our foreign operations. However, if we change our position and the cash is repatriated back to the U.S., it may have an adverse affect on our U.S. federal and state taxes, by lowering our net operating loss positions or potentially creating a tax liability.
A significant fluctuation between the U.S. dollar and other currencies could adversely impact our operating results.
Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in other currencies, mainly in Europe and China. Our profitability is affected by movements of the U.S. dollar against the euro and Chinese yuan in which we generate revenue and incur expenses. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our profitability and financial condition.
We may acquire businesses or divest business operations. These transactions may pose significant risks and may materially adversely affect our business, financial condition and operating results.
We intend to explore opportunities to acquire other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer growth opportunities. Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or joint venture; possible adverse effects on our operating results during the integration process; and our possible inability to achieve the intended objectives of the transaction. In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. We may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities, a reduction of cash or the incurrence of debt.
We have in the past, and may in the future, consider divesting certain business operations. Divestitures may involve a number of risks, including the diversion of management’s attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of operations in the affected business. Failure to timely complete or to consummate a divestiture may negatively affect the valuation of the affected business or result in restructuring charges.
We could suffer significant business interruptions.
Our operations and those of our suppliers may be vulnerable to interruption by natural disasters such as earthquakes, tsunamis, typhoons, or floods, or other disasters such as fires, explosions, acts of terrorism or war, disease or failures of our management information or other systems. If a business interruption occurs, our business could be materially and adversely affected.
Unfavorable tax law changes may adversely affect results.
We are subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates or changes in the tax laws.
We cannot ensure that the newly acquired Eetrex business will be successful or that we can implement and profit from any new applications of the acquired technology.
We acquired 70% of Eetrex as of April 30, 2011. As a result of this acquisition, we now design and manufacture chargers, inverters and battery systems for hybrid and plug-in hybrid electronic vehicles. The market for these products is competitive and rapidly developing. If we do not keep pace with technological innovations in the industry, our products may not be competitive and we may not benefit from future revenue and earnings. Furthermore, while we intend to expand the
Eetrex business by integrating the technology into additional applications, we can make no guarantee that such ventures will be successful or profitable.
The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors.
The market price of our common stock has fluctuated significantly in the past and is likely to fluctuate in the future. The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, including, but not limited to:
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• | quarterly variations in our operating results and the operating results of other technology companies; |
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• | actual or anticipated announcements of technical innovations or new products by us or our competitors; |
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• | changes in analysts’ estimates of our financial performance or buy/sell recommendations; |
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• | any acquisitions or divestitures we pursue or complete; |
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• | general conditions in the aerospace, appliance, automotive, consumer and industrial equipment markets and communications, rail and other transportation industries; and |
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• | global economic and financial conditions. |
In addition, the stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for many companies and that often have been unrelated to the operating performance of such companies. These broad market fluctuations and other factors have harmed and may harm the market price of our common stock.
Item 2. Properties
We operate the following manufacturing and other facilities, all of which we believe to be in good condition and adequate to meet our current and reasonably anticipated needs:
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Location | | Use | | Owned/ Leased | | Approximate Square Footage |
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Chicago, Illinois | | Corporate Headquarters | | Owned | | 15,000 |
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Automotive Segment: | | | | | | |
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Carthage, Illinois | | Manufacturing | | Owned | | 261,000 |
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Mriehel, Malta | | Manufacturing | | Leased | | 259,220 |
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Shanghai, China | | Manufacturing | | Leased | | 55,485 |
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McAllen, Texas | | Warehousing | | Leased | | 38,000 |
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Monterrey, Mexico | | Manufacturing | | Leased | | 36,000 |
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Southfield, Michigan | | Sales and Engineering Design Center | | Owned | | 17,000 |
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Bangalore, India | | Engineering Design Center | | Leased | | 9,860 |
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Gau-Algesheim, Germany | | Sales and Engineering Design Center | | Leased | | 8,100 |
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Burnley, England | | Engineering Design Center | | Leased | | 5,900 |
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Sin El Fil, Lebanon | | Engineering Design Center | | Leased | | 2,300 |
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Interconnect Segment: | | | | | | |
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Chicago, Illinois | | Manufacturing | | Owned | | 38,400 |
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Mriehel, Malta | | Manufacturing | | Leased | | 32,500 |
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Richardson, Texas | | Manufacturing | | Leased | | 25,700 |
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Oklahoma City, Oklahoma | | Manufacturing/Design Center | | Leased | | 24,700 |
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Laguna, Philippines | | Manufacturing | | Leased | | 22,800 |
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Wheaton, Illinois | | Manufacturing | | Leased | | 22,500 |
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Shanghai, China | | Manufacturing | | Leased | | 15,000 |
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San Jose, California | | Sales and Design | | Leased | | 7,250 |
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Singapore | | Sales and Administrative | | Leased | | 1,250 |
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Power Products Segment: | | | | | | |
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Rolling Meadows, Illinois | | Manufacturing | | Owned | | 52,000 |
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Shanghai, China | | Manufacturing | | Leased | | 40,000 |
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Mosta, Malta | | Manufacturing | | Leased | | 32,500 |
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San Jose, California | | Prototype and Design Center | | Leased | | 7,250 |
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Other Segment: | | | | | | |
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Palatine, Illinois | | Test Laboratory | | Owned | | 27,000 |
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Hunt Valley, Maryland | | Test Laboratory | | Owned | | 16,000 |
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Chicago, Illinois | | Manufacturing | | Owned | | 10,000 |
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Item 3. Legal Proceedings
Other than as described below, as of April 30, 2011, we were not involved in any material legal proceedings or any legal proceedings or material administrative proceedings with governmental authorities pertaining to the discharge of materials into the environment or otherwise.
In March 2010, DPH Holdings Corp. and certain of its affiliated debtors, as successors to Delphi Corporation and certain of its affiliates (“Delphi”), served the Company with a complaint seeking to recover approximately $19.7 million in alleged preference payments that Delphi made to the Company within the 90-day period preceding Delphi’s bankruptcy filing in October 2005 (the “Complaint”). Delphi is pursuing similar preference complaints against approximately 175 other, unrelated third-parties. The Complaint, dated September 28, 2007, was originally filed under seal with the United States Bankruptcy Court for the Southern District of New York (titled as Delphi Corporation, et al. v. Methode Electronics, Inc, Adversary Proceeding No. 07-2432) and pursuant to certain court orders, the Complaint was not unsealed and served upon the Company until March 2010. The Company has filed a joinder to third-parties’ motions to dismiss the Delphi preference complaints based on violations of due process and other defenses connected to the unusual manner that Delphi filed and served the preference complaints. Additionally, the Company possesses several other substantive defenses to the Complaint including, but not limited to, the affirmative defenses available under the Bankruptcy Code, statute of limitations, setoff, waiver and estoppel. Although the outcome of potential legal actions and claims cannot be determined, it is the opinion of our management, based on the information available, that we have adequate reserves for these liabilities and that the ultimate resolution of these matters will not have a material adverse effect on our consolidated financial statements.
Executive Officers of the Registrant
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Name | | Age | | Offices and Positions Held and Length of Service as Officer |
Donald W. Duda | | 55 |
| | Chief Executive Officer of the Company since 2004. President and Director of the Company since 2001. Prior thereto Mr. Duda was Vice President-Interconnect Group since March 2000. Prior thereto Mr. Duda was with Amphenol Corporation through November 1998 as General Manager of its Fiber Optic Products Division since 1988. |
| | | | |
Douglas A. Koman | | 61 |
| | Chief Financial Officer of the Company since 2004. Vice President, Corporate Finance, of the Company since 2001. Prior thereto Mr. Koman was Assistant Vice President-Financial Analysis since December 2000. Prior thereto Mr. Koman was with Illinois Central Corporation through March 2000 as Controller since November 1997 and Treasurer since July 1991. |
| | | | |
Thomas D. Reynolds | | 48 |
| | Chief Operating Officer, of the Company since June 2010. Senior Vice President, Worldwide Automotive Operations, of the Company since 2006. Vice President and General Manager, North American Automotive Operations, of the Company since October 2001. Prior thereto Mr. Reynolds was with Donnelly Corporation through October 2001 as Senior Manager of Operations since 1999, and as Director of Transnational Business Unit from 1995 to 1999. |
| | | | |
Timothy R. Glandon | | 47 |
| | Vice President and General Manager, North American Automotive, of the Company since 2006. Prior thereto Mr. Glandon was General Manager of Automotive Safety Technologies since 2001. Prior thereto Mr. Glandon was Vice President and General Manager with American Components, Inc. from 1996 to 2001. |
| | | | |
Joseph. E. Khoury | | 47 |
| | Vice President and General Manager, European Automotive, of the Company since 2004. Prior thereto Mr. Khoury was General Manager of Methode Electronics International, GMBH since 2000. |
| | | | |
Theodore P. Kill | | 60 |
| | Vice President, Worldwide Automotive Sales, of the Company since August 2006. Prior thereto Mr. Kill was a principal with Kill and Associates from 2003 to 2006. Prior thereto Mr. Kill was a principal with Kill and Bolton Associates from 1995 to 2003. |
| | | | |
Ronald L.G. Tsoumas | | 50 |
| | Controller and Treasurer of the Company since 2007. Prior thereto Mr. Tsoumas was Assistant Controller of the Company since July 1998. |
All executive officers are elected by the Board of Directors and serve a term of one year or until their successors are duly elected and qualified.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following is a tabulation of high and low sales prices for the periods indicated as reported by the New York Stock Exchange.
|
| | | | | | | | | | | |
| | | | | Dividends Paid Per Share |
| Sales Price Per Share | |
| High | | Low | |
Fiscal Year ended April 30, 2011 | |
| | |
| | |
|
First Quarter | $ | 11.78 |
| | $ | 9.31 |
| | $ | 0.07 |
|
Second Quarter | 11.03 |
| | 7.85 |
| | 0.07 |
|
Third Quarter | 13.73 |
| | 9.10 |
| | 0.07 |
|
Fourth Quarter | 12.74 |
| | 11.26 |
| | 0.07 |
|
| | | | | |
Fiscal Year ended May 1, 2010 | |
| | |
| | |
|
First Quarter | $ | 8.18 |
| | $ | 5.28 |
| | $ | 0.07 |
|
Second Quarter | 9.75 |
| | 6.92 |
| | 0.07 |
|
Third Quarter | 12.75 |
| | 6.99 |
| | 0.07 |
|
Fourth Quarter | 14.32 |
| | 9.70 |
| | 0.07 |
|
On June 23, 2011, the Board declared a dividend of $0.07 per share of common stock, payable on July 29, 2011, to holders of record on July 15, 2011.
As of June 30, 2011, the number of record holders of our common stock was 574.
Equity Compensation Plan Information
The following table provides information about shares of our common stock that may be issued upon exercise of stock options or granting of stock awards under all of the existing equity compensation plans as of April 30, 2011.
|
| | | | | | | | | | |
Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) |
Equity compensation plans approved by security holders | | 1,131,267 |
| | $ | 7.43 |
| | 1,261,931 |
|
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
Total | | 1,131,267 |
| | $ | 7.43 |
| | 1,261,931 |
|
Purchase of Equity Securities by the Company and Affiliated Purchasers
|
| | | | | | | | | | | | | |
Period | | Total
Number of
Shares Purchased (1) | | Average
Price Paid Per Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs | | Maximum Number of
Shares that
May Yet Be Purchased
Under the Plans or Programs |
January 30, 2011 through February 26, 2011 | | — |
| | $ | — |
| | |
| | |
|
February 27, 2011 through April 2, 2011 | | 205 |
| | 11.82 |
| | |
| | |
|
April 3, 2011 through April 30, 2011 | | 5,173 |
| | $ | 12.36 |
| | — |
| | — |
|
| | 5,378 |
| | $ | 12.34 |
| | — |
| | — |
|
_________________________________
(1) The amount includes the repurchase and cancellation of shares of common stock redeemed by the Company for the payment of minimum withholding taxes on the value of restricted stock awards vesting during the period.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Consolidated Financial Statements and related notes included elsewhere in this report. The consolidated statement of operations data for fiscal 2011, 2010 and 2009, and the consolidated balance sheet data as of April 30, 2011 and May 1, 2010, are derived from, and are qualified by reference to, the Company’s audited consolidated financial statements included elsewhere in this report. The consolidated statement of operations data for fiscal 2008 and 2007, and the consolidated balance sheet data as of May 2, 2009, May 3, 2008 and April 28, 2007, are derived from audited consolidated financial statements not included in this report. Due to the timing of our fiscal calendar, fiscal 2008 represents 53 weeks of results. Fiscal 2011, 2010, 2009 and 2007 represent 52 weeks of results.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | |
| April 30,
2011 | | | May 1,
2010 | | | May 2, 2009 | | | May 3, 2008 (53wks) | | | April 28,
2007 | |
| (In Millions, Except Percentages and Per Share Amounts) | |
Income Statement Data: | |
| | | |
| | | |
| | | |
| | | |
| |
Net sales | $ | 428.2 |
| | | $ | 377.6 |
| | | $ | 428.8 |
| | | $ | 555.0 |
| | | $ | 450.0 |
| |
Income/(loss) before income taxes | 14.5 |
| (1) | | 7.8 |
| (2) | | (110.5 | ) | (3) | | 49.8 |
| (4) | | 35.5 |
| (5) |
Income tax expense/(benefit) | (4.1 | ) | (1) | | (6.0 | ) | (2) | | 1.7 |
| (3) | | 9.7 |
| (4) | | 9.8 |
| (5) |
Income/(loss) from continuing operations | 18.5 |
| (1) | | 13.8 |
| (2) | | (112.1 | ) | (3) | | 39.8 |
| (4) | | 26.1 |
| (5) |
Income from discontinued operations, net of tax | 0.6 |
| (1) | | — |
| | | — |
| | | — |
| | | — |
| |
Cumulative effect of accounting change, net of tax | — |
| | | — |
| | | — |
| | | — |
| | | 0.1 |
| |
Net income/(loss) applicable to Methode Electronics, Inc. | 19.5 |
| (1) | | 13.7 |
| (2) | | (112.5 | ) | (3) | | 39.8 |
| (4) | | 26.1 |
| (5) |
Per Common Share: | |
| | | |
| | | |
| | | |
| | | |
| |
Basic net income/(loss) from continuing operations | 0.51 |
| (1) | | 0.37 |
| (2) | | (3.05 | ) | (3) | | 1.07 |
| (4) | | 0.72 |
| (5) |
Basic net income/(loss) from discontinued operations | 0.02 |
| (1) | | — |
| (2) | | — |
| (3) | | — |
| (4) | | — |
| (5) |
Basic net income/(loss) applicable to Methode Electronics, Inc. | 0.53 |
| | | 0.37 |
| | | (3.05 | ) | | | 1.07 |
| | | 0.72 |
| |
| | | | | | | | | | | | | | |
Diluted net income/(loss) from continuing operations | 0.50 |
| (1) | | 0.37 |
| (2) | | (3.05 | ) | (3) | | 1.06 |
| (4) | | 0.71 |
| (5) |
Diluted net income/(loss) from discontinued operations | 0.02 |
| (1) | | — |
| (2) | | — |
| (3) | | — |
| (4) | | — |
| (5) |
Diluted net income/(loss) applicable to Methode Electronics, Inc. | 0.52 |
| | | 0.37 |
| | | (3.05 | ) | | | 1.06 |
| | | 0.71 |
| |
| | | | | | | | | | | | | | |
Dividends | 0.28 |
| | | 0.28 |
| | | 0.26 |
| | | 0.20 |
| | | 0.20 |
| |
Book Value | 6.95 |
| | | 6.43 |
| | | 6.28 |
| | | 9.93 |
| | | 8.69 |
| |
Long-term Debt | — |
| | | — |
| | | — |
| | | — |
| | | — |
| |
Retained Earnings | 156.0 |
| | | 146.8 |
| | | 143.6 |
| | | 265.8 |
| | | 233.7 |
| |
Fixed Assets (net) | 61.5 |
| | | 61.9 |
| | | 69.9 |
| | | 90.3 |
| | | 86.9 |
| |
Total Assets | 334.7 |
| | | 310.8 |
| | | 305.3 |
| | | 470.2 |
| | | 411.7 |
| |
Return on Average Equity | 7.9 | % | (1) | | 6.0 | % | (2) | | (37.2 | )% | (3) | | 11.4 | % | (4) | | 8.5 | % | (5) |
Pre-tax Income/(loss) as a Percentage of Sales | 3.4 | % | (1) | | 2.1 | % | (2) | | (25.8 | )% | (3) | | 9.0 | % | (4) | | 7.9 | % | (5) |
Net Income/(loss) as a Percentage of Sales | 4.6 | % | (1) | | 3.6 | % | (2) | | (26.2 | )% | (3) | | 7.2 | % | (4) | | 5.8 | % | (5) |
(1) Fiscal 2011 results includes an after-tax gain on the sale of a business of $0.6 million. In addition, fiscal 2011 includes $4.8 million of pre-tax legal expense relating to the Delphi supply agreement and patent lawsuit.
(2) Fiscal 2010 results include a pre-tax charge of $7.8 million relating to restructuring activities. In addition, fiscal 2010 includes $5.8 million of pre-tax legal expense relating to the Delphi supply agreement and patent lawsuit. Income tax includes a $8.4 million loss carry-back benefit related to losses in our U.S.-based businesses.
(3) Fiscal 2009 results include a pre-tax charge of $94.4 million relating to goodwill and other asset impairments. In addition, fiscal 2009 results include a pre-tax charge of $25.3 million relating to restructuring activities. The income tax expense includes a $28.0 million valuation charge related to the uncertainty of the future realization of our deferred tax assets.
(4) Fiscal 2008 results include a pre-tax charge of $5.2 million relating to a restructuring of our U.S.-based automotive operations and the decision to discontinue producing certain legacy products in the Interconnect segment.
(5) Fiscal 2007 results include a pre-tax and an after-tax restructuring charge of $2.0 million related to the closing of our Scotland automotive parts manufacturing plant and transfer of production lines from that facility to our automotive parts manufacturing facility in Malta.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in China, Germany, India, Lebanon, Malta, Mexico, the Philippines, Singapore, Switzerland, the United Kingdom and the United States. We are a global designer and manufacturer of electronic and electro-mechanical devices. We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless, sensing and optical technologies. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other. For more information regarding the business and products of these segments, see “Item 1. Business.”
Our components are found in the primary end markets of the aerospace, appliance, automotive, construction, consumer and industrial equipment markets, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), rail and other transportation industries
Recent Transactions
In May 2010, we paid $1.0 million for a 15% equity investment in Eetrex Incorporated to facilitate our development into the electric vehicle market. Eetrex is located in Boulder, Colorado and is a developer and manufacturer of chargers, inverters and battery systems for hybrid and plug-in hybrid electronic vehicles. In March 2011, we paid an additional $1.1 million, for a total investment of $2.1 million, to acquire an additional 36% of the stock of Eetrex. In April 2011, we paid an additional $0.7 million and acquired an additional 19% of their stock, for a total 70% ownership. Under the agreements, the Company has additional opportunities to acquire the remaining Eetrex shares in the future.
In March 2011, we sold our 75% ownership interest in Optokon, our Czech optical operation, to the minority shareholder for $10.0 million. The net assets of our 75% ownership interest had a book value of $9.9 million. We recorded a net gain of $4.1 million related to sale of the net assets, primarily attributable to the cumulative translation gains since the date of the initial investment. We also recorded income taxes related to the sale of $3.5 million, resulting in a gain after taxes of $0.6 million. In the sale, we received $5.9 million in cash as well as a collateralized note for $4.1 million.
Management concluded the Optokon results of operations for fiscal 2011, 2010 and 2009 were not material to the consolidated or segment level financial statements for those periods presented to be separately reported as a discontinued operations in accordance with ASC 205-20, "Presentation of Financial Statements".
Delphi Litigation
In March 2010, DPH Holdings Corp., as successor to Delphi Corporation, served the Company with a complaint seeking to recover approximately $19.7 million in alleged preference payments that Delphi made to the Company within the 90-day preference period preceding Delphi's bankruptcy filing. The Company is seeking to dismiss the Delphi preference complaint based on violations of due process and the Company possesses several other substantive defenses.
In June 2006, the Company sold certain unsecured claims it had against Delphi in Delphi’s bankruptcy proceeding to Credit Suisse for $3.1 million pursuant to a Transfer Agreement. These claims were subsequently assigned by Credit Suisse to Blue Angel Claims LLC (“Blue Angel”). On July 20, 2010, Blue Angel delivered a demand letter to the Company contending that under the terms of the Transfer Agreement, the unsecured claims had been objected to by Delphi in the Delphi bankruptcy proceeding and therefore the Company owed Blue Angel $3.1 million plus interest. The litigation was subsequently settled for$2.1 million in fiscal 2011. As part of the settlement agreement, Blue Angel retains ownership of the unsecured claims.
Business Outlook
Our overall outlook for fiscal 2012 is cautiously optimistic. While fiscal 2011 production levels in China, Europe and North America were strong, our European businesses may experience some softness in fiscal 2012 as economic austerity programs continue to roll through Europe affecting both European and export demand. We expect our North American automotive production to continue to improve in the Automotive segment in fiscal 2012 as new programs are launched. However, recent events in the Middle East may result in significantly higher oil prices and corresponding increases in prices for oil-based material, such as resins. Any such increases could negatively impact the profitability of our business. We expect sales in our Power Products segment to increase in fiscal 2012. While we expect that Interconnect segment sales will modestly increase in fiscal 2012, sales to our customers in the appliance industry will continue to be soft until unemployment and home sales improve. While our prior restructuring activities have reduced our cost structure, we do expect higher designing, developing and engineering costs in fiscal 2012 to support programs scheduled to launch in fiscal 2013. During fiscal 2011, we experienced additional costs due to vendor supply issues for new automotive products that began ramping up in the second quarter of fiscal 2011 that are expected to continue until those manufacturing capabilities are brought in-house. We may continue to experience manufacturing inefficiencies due to multiple product launches, component shortages, and supplier issues that could negatively affect our results. The Company maintains a positive long-term outlook for its global business and is committed to developing new product solutions for our customers and to making strategic capital investments as it pursues its growth strategy.
Results may differ materially from what is expressed or forecasted. See “ Item 1A Risk Factors” herein.
Results of Operations
Results of Operations for the Fiscal Year Ended April 30, 2011, as Compared to the Fiscal Year Ended May 1, 2010.
Consolidated Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| April 30, 2011 | | May 1, 2010 | | Net Change | | Net Change |
Net sales | $ | 428.2 |
| | $ | 377.6 |
| | $ | 50.6 |
| | 13.4 | % |
| | | | | | | |
Cost of products sold | 339.0 |
| | 297.7 |
| | 41.3 |
| | 13.9 | % |
| | | | | | | |
Gross margins | 89.2 |
| | 79.9 |
| | 9.3 |
| | 11.6 | % |
| | | | | | | |
Restructuring | — |
| | 7.8 |
| | (7.8 | ) | | N/M |
|
Selling and administrative expenses | 70.8 |
| | 62.4 |
| | 8.4 |
| | 13.5 | % |
Amortization of intangibles | 2.4 |
| | 2.3 |
| | 0.1 |
| | 4.3 | % |
Interest (income)/expense, net | 0.2 |
| | 0.1 |
| | 0.1 |
| | 100.0 | % |
Other, net - (income)/expense | 1.3 |
| | (0.5 | ) | | 1.8 |
| | N/M |
|
Income taxes benefit | (4.1 | ) | | (6.0 | ) | | 1.9 |
| | N/M |
|
Gain on sale of discontinued business, net of tax | (0.6 | ) | | — |
| | (0.6 | ) | | N/M |
|
Net income/(loss) attributable to noncontrolling interest | (0.3 | ) | | 0.1 |
| | (0.4 | ) | | N/M |
|
Net income attributable to Methode Electronics, Inc. | $ | 19.5 |
| | $ | 13.7 |
| 0 | $ | 5.8 |
| | 42.3 | % |
| | | | | | | |
Percent of sales: | April 30,
2011 | | May 1,
2010 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 79.2 | % | | 78.8 | % | | | | |
Gross margins | 20.8 | % | | 21.2 | % | | | | |
Restructuring | — | % | | 2.1 | % | | | | |
Selling and administrative expenses | 16.5 | % | | 16.5 | % | | | | |
Amortization of intangibles | 0.6 | % | | 0.6 | % | | | | |
Interest (income)/expense, net | — | % | | — | % | | | | |
Other, net - (income)/expense | 0.3 | % | | (0.1 | )% | | | | |
Income taxes benefit | (1.0 | )% | | (1.6 | )% | | | | |
Gain on sale of discontinued business, net of tax | (0.1 | )% | | — | % | | | | |
Net income/(loss) attributable to noncontrolling interest | (0.1 | )% | | — | % | | | | |
Net income attributable to Methode Electronics, Inc. | 4.6 | % | | 3.6 | % | | | | |
Net Sales. Consolidated net sales increased $50.6 million, or 13.4%, to $428.2 million for fiscal 2011, from $377.6 million for fiscal 2010. The Automotive segment net sales increased $22.8 million, or 11.2%, to $226.0 million for fiscal 2011, from $203.2 million for fiscal 2010. The Interconnect segment net sales increased $14.6 million, or 11.8%, to $138.8 million for fiscal 2011, compared to $124.2 million for fiscal 2010. The Power Products segment net sales increased $9.9 million, or 24.4%, to $50.4 million for fiscal 2011, as compared to $40.5 million for fiscal 2010. The Other segment net sales increased $3.7 million, or 39.8%, to $13.0 million for fiscal 2011, as compared to $9.3 million for fiscal 2010. Included in net sales is other income, which consisted primarily of earnings from engineering design fees and royalties. Other income decreased $0.3
million, or 6.7%, to $4.2 million for fiscal 2011, from $4.5 million for fiscal 2010. The decrease relates to engineering design fees in our European automotive business. Translation of foreign operations net sales for fiscal 2011 decreased reported net sales by $4.2 million or 1.1% due to average currency rates for fiscal 2011, compared to the average currency rates for fiscal 2010.
Cost of Products Sold. Consolidated cost of products sold increased $41.3 million, or 13.9%, to $339.0 million for fiscal 2011, compared to $297.7 million for fiscal 2010. Consolidated cost of products sold as a percentage of sales were 79.2% in fiscal 2011, compared to 78.8% in fiscal 2010. During fiscal 2011, we recorded a negotiated program termination charge of $1.3 million for certain products manufactured in our Malta facility and $0.4 million for customer cancellation of certain products manufactured in our U.S. facility. In addition, we incurred $2.3 million in additional costs due to a certain vendor's production and delivery issues for new products that began ramping up production during fiscal 2011. The increases were more than offset by cost efficiencies experienced in our Asian businesses, and higher sales volumes as well as a change in sales mix within the Interconnect segment in fiscal 2011, as compared to fiscal 2010. Included in the cost of products sold for fiscal 2010 is $0.7 million of asset write-downs related to the termination of the Delphi supply agreement.
Gross Margins. Consolidated gross margins increased $9.3 million, or 11.6%, to $89.2 million for fiscal 2011, as compared to $79.9 million for fiscal 2010. Gross margins as a percentage of net sales decreased to 20.8% for fiscal 2011, compared to 21.2% for fiscal 2010. Gross margins as a percentage of sales declined due to loss of the Delphi business, the one-time reversal of pricing contingencies in fiscal 2010, the customer negotiated program cancellation and other customer cancellation charges, lower other income and costs due to a certain vendor's production and delivery issues, but were partially offset by higher sales volumes, a favorable change in sales mix within the Interconnect segment and cost efficiencies from our Asian businesses, for fiscal 2011, compared to fiscal 2010.
Restructuring. During fiscal 2010, we completed all of our planned restructuring initiatives. During fiscal 2010, we recorded a total restructuring charge of $7.8 million, which consisted of $4.3 million for employee severance, $1.5 million for accelerated depreciation and $2.0 million for other costs.
Amortization of Intangibles. Amortization of intangibles increased $0.1 million, to $2.4 million for fiscal 2011, compared to $2.3 million for fiscal 2010.
Selling and Administrative Expenses. Selling and administrative expenses increased $8.4 million, or 13.5%, to $70.8 million for fiscal 2011, compared to $62.4 million for fiscal 2010. During fiscal 2011, we recorded a settlement of $2.1 million for litigation regarding unsecured claims sold to Blue Angel LLC in June 2006, related to the Delphi bankruptcy. See the Overview section for more information regarding this matter. Stock option and stock award amortization increased by $2.1 million, to $3.0 million in fiscal 2011, compared to $0.9 million in fiscal 2010. Delphi litigation expenses decreased $1.0 million, to $4.8 million for fiscal 2011, compared to $5.8 million for fiscal 2010. Selling and marketing expenses increased in our North American and Asian automotive businesses, partially offset by lower commissions and professional fees in fiscal 2011, compared to fiscal 2010. Selling and administrative expenses as a percentage of net sales were 16.5% for both fiscal 2011 and 2010.
Interest Expense, Net. Interest expense, net increased $0.1 million, to $0.2 million for fiscal 2011, compared to $0.1 million for fiscal 2010. Interest income was $0.6 million for fiscal 2011, compared to $0.4 million for fiscal 2010. Interest expense was $0.8 million for fiscal 2011, compared to $0.5 million for fiscal 2010. The increase in interest expense relates to borrowings against our credit facility during fiscal 2011.
Other, Net. Other, net increased $1.8 million to an expense of $1.3 million for fiscal 2011, compared to income of $0.5 million for fiscal 2010. Fiscal 2011 included income of $1.2 million for life insurance polices in connection with the deferred compensation plan. In addition, fiscal 2011 includes a gain on investment of business of $0.2 million, related to the original $1.0 million investment in Eetrex. Fiscal 2010 included income of $0.6 million related to an enhanced cash fund, as well as income of $1.1 million for life insurance polices in connection with the deferred compensation plan. All other amounts for both fiscal 2011 and fiscal 2010, relate to currency rate fluctuations. The functional currencies of these operations are the British pound, Czech koruna, Chinese yuan, Euro, Indian Rupee, Mexican peso, Singapore dollar and Swiss Franc. Some foreign operations have transactions denominated in currencies other than their functional currencies, primarily sales in U.S. dollars and Euros, creating exchange rate sensitivities.
Income Tax Benefit. Income tax benefit from continuing operations decreased by $1.9 million to $4.1 million for fiscal 2011, compared to $6.0 million for fiscal 2010. Fiscal 2011 includes a benefit for an intraperiod tax allocation related to the sale of Optokon of $3.5 million, a benefit of $2.7 million related to the expiration of uncertain tax positions and interest from prior periods, partially offset by a net income tax expense on foreign profits of $2.1 million. Fiscal 2010 includes taxes
on foreign profits of $1.1 million, book to income tax return adjustments of $2.8 million and other adjustments of $1.6 million. In addition, a benefit of $2.7 million was recorded due to the settlement of uncertain tax positions and related interest from prior periods.
Gain on the Sale of Discontinued Business, Net of Tax. In March 2011, we sold our 75% ownership in Optokon, to the minority shareholder for $10.0 million. The net assets of our 75% ownership had a book value of $9.9 million. We recorded a gain of $4.1 million to sale of the net assets, primarily attributable to the cumulative translation gains since the date of the initial investment. We also recorded income taxes related to the sale of $3.5 million, resulting in a gain net of taxes of $0.6 million. The tax expense was based on the amount sold of $10.0 million less our initial investment of $1.2 million, resulting in a taxable gain of $8.8 million. In the sale, we received $5.9 million in cash as well as a collateralized note for $4.1 million.
Net Income Attributable to Methode Electronics, Inc. Net income attributable to Methode Electronics, Inc. increased $5.8 million, or 42.3%, to $19.5 million for fiscal 2011, compared to $13.7 million for fiscal 2010. The increase is primarily due to higher net sales and gross margins, no restructuring expenses, gain on the sale of a business, partially offset by the Blue Angel unsecured claims charge, higher stock option and stock award amortization, lower tax benefits, the one-time reversal of pricing contingencies in fiscal 2010, customer negotiated cancellation and other customer cancellation costs, costs related to a certain vendor's production and delivery issues, higher development costs and higher foreign currency exchange expenses in fiscal 2011, compared to fiscal 2010.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| April 30, 2011 | | May 1, 2010 | | Net Change | | Net Change |
Net sales | $ | 226.0 |
| | $ | 203.2 |
| | $ | 22.8 |
| | 11.2 | % |
| | | | | | | |
Cost of products sold | 186.3 |
| | 166.7 |
| | 19.6 |
| | 11.8 | % |
| | | | | | | |
Gross margins | 39.7 |
| | 36.5 |
| | 3.2 |
| | 8.8 | % |
| | | | | | | |
Restructuring | — |
| | 5.6 |
| | (5.6 | ) | | N/M |
|
Selling and administrative expenses | 26.4 |
| | 19.6 |
| | 6.8 |
| | 34.7 | % |
Income from operations | $ | 13.3 |
| | $ | 11.3 |
| | $ | 2.0 |
| | 17.7 | % |
| | | | | | | |
Percent of sales: | April 30,
2011 | | May 1,
2010 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 82.4 | % | | 82.0 | % | | | | |
Gross margins | 17.6 | % | | 18.0 | % | | | | |
Restructuring | — | % | | 2.8 | % | | | | |
Selling and administrative expenses | 11.7 | % | | 9.6 | % | | | | |
Income from operations | 5.9 | % | | 5.6 | % | | | | |
Below is a table showing the changes in the North America automotive net sales in fiscal 2011, compared to fiscal 2010:
|
| | | |
North America Automotive net sales for fiscal 2010 | $ | 55.7 |
|
Termination of certain Ford legacy products at our Reynosa, Mexico facility | (18.2 | ) |
Termination of Delphi supply agreement | (14.1 | ) |
Transfer of transmission lead-frame product to Shanghai, China facility | (11.4 | ) |
Subtotal | 12.0 |
|
| |
Ford center console program | 21.4 |
|
North American Automotive net sales for fiscal 2011 | $ | 33.4 |
|
Net Sales. Automotive segment net sales increased $22.8 million, or 11.2%, to $226.0 million for fiscal 2011, from $203.2 million for fiscal 2010. Net sales increased in Asia by 107.6%, to $77.0 million and increased in Europe by 4.8%, to $111.6 million, however, net sales from North America declined by 40.0%, to $33.4 million in fiscal 2011, compared to fiscal 2010. The increase in Asia is primarily due to increased sales for the transmission lead-frame and steering angle sensor products. In North America, there were no sales to Delphi Corporation in fiscal 2011, as compared to net sales of $14.1 million in fiscal 2010 due to the cancellation of the supply agreement on September 10, 2009. Net sales also declined in North America by $11.4 million due to the planned transfer of production from our U.S. facility to our facility in Shanghai, China in the third quarter of fiscal 2010, as well as by $18.2 million due to the termination of production of certain Ford legacy products at our Reynosa, Mexico facility at the end of the second quarter of fiscal 2010, as well as declines in sales of service parts. The decrease in North America automotive sales was partially offset by sales of $21.4 million in fiscal 2011, compared to fiscal 2010, due to the Ford Center Console Program, which launched at the end of the first quarter. Net sales benefited by $1.7 million in fiscal 2010, related to a one-time reversal of pricing contingencies which were accrued over several years and were no longer required. Included in net sales is other income, which consisted primarily of earnings from engineering design fees and royalties. Other income increased $0.1 million, or 2.6%, to $4.0 million for fiscal 2011, from $3.9 million for fiscal 2010. Translation of foreign operations net sales for fiscal 2011 decreased reported net sales by $4.1 million, or 2.0%, due to average currency rates in fiscal 2011, compared to the average currency rates in fiscal 2010.
Cost of Products Sold. Automotive segment cost of products sold increased $19.6 million, or 11.8%, to $186.3 million for fiscal 2011, from $166.7 million for fiscal 2010. Fiscal 2011 includes a charge of $1.3 million for negotiated program termination costs for certain products manufactured in our Malta facility. In addition, we incurred $2.3 million in additional costs due to a vendor's production and delivery issues for new products during fiscal 2011. The Automotive segment cost of products sold as a percentage of sales were 82.4% in fiscal 2011, compared to 82.0% in fiscal 2010. The increase in cost of products sold as a percentage of sales were also due to customer program cancellation charges and costs related to a certain vendor's production and delivery issues and the loss of the Delphi business, partially offset by higher sales volumes and improvements in cost of products sold in Asia. In addition, increasing costs of products sold as a percentage of sales primarily relates to the development of new products in North America, which are expected to begin shipping in future periods. Included in the cost of products sold for fiscal 2010 is $0.7 million of asset write-downs relating to the termination of the Delphi supply agreement.
Gross Margins. Automotive segment gross margins increased $3.2 million, or 8.8%, to $39.7 million for fiscal 2011, as compared to $36.5 million for fiscal 2010. The Automotive segment gross margins as a percentage of net sales were 17.6% for fiscal 2011, as compared to 18.0% for fiscal 2010. Gross margins as a percentage of sales decreased in fiscal 2011, compared to fiscal 2010, due to the loss of the Delphi business, increasing costs on the remaining North American business, customer program cancellation charges and costs related to a vendor's production and delivery issues, partially offset by higher sales volumes and cost efficiencies in Asia.
Restructuring. During fiscal 2010, we completed all of our planned restructuring initiatives. During fiscal 2010, we recorded a total restructuring charge of $5.6 million, which consisted of $3.4 million for employee severance, $1.4 million for accelerated depreciation and $0.8 million for other costs.
Selling and Administrative Expenses. Selling and administrative expenses increased $6.8 million, or 34.7%, to $26.4 million for fiscal 2011, compared to $19.6 million for fiscal 2010. During fiscal 2011, we recorded a settlement of $2.1 million for litigation regarding unsecured claims sold to Blue Angel LLC in June 2006, related to the Delphi bankruptcy. See the Overview section for more information regarding this matter. Delphi litigation expenses decreased $1.0 million, to $4.8 million for fiscal 2011, compared to $5.8 million for fiscal 2010. In addition, selling and marketing expenses increased in our North American and Asian automotive businesses primarily due to new product development efforts in fiscal 2011, compared to fiscal
2010. Selling and administrative expenses as a percentage of net sales were 11.7% for fiscal 2011 and 9.6% for fiscal 2010.
Income From Operations. Automotive segment income from operations increased $2.0 million or 17.7%, to $13.3 million for fiscal 2011, compared to $11.3 million for fiscal 2010 due to the lack of restructuring charges, higher sales and gross margins, partially offset by the Blue Angel unsecured claims charge, the one-time reversal of pricing contingencies in fiscal 2010, higher selling and marketing expenses, increased development costs in North America, and negotiated program termination costs in fiscal 2011, compared to fiscal 2010.
Interconnect Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| April 30, 2011 | | May 1, 2010 | | Net Change | | Net Change |
Net sales | $ | 138.8 |
| | $ | 124.2 |
| | $ | 14.6 |
| | 11.8 | % |
| | | | | | | |
Cost of products sold | 96.8 |
| | 88.6 |
| | 8.2 |
| | 9.3 | % |
| | | | | | | |
Gross margins | 42.0 |
| | 35.6 |
| | 6.4 |
| | 18.0 | % |
| | | | | | | |
Restructuring | — |
| | 1.6 |
| | (1.6 | ) | | N/M |
|
Selling and administrative expenses | 22.0 |
| | 23.0 |
| | (1.0 | ) | | (4.3 | )% |
Income from operations | $ | 20.0 |
| | $ | 11.0 |
| | $ | 9.0 |
| | 81.8 | % |
| | | | | | | |
Percent of sales: | April 30,
2011 | | May 1,
2010 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 69.7 | % | | 71.3 | % | | | | |
Gross margins | 30.3 | % | | 28.7 | % | | | | |
Restructuring | — | % | | 1.3 | % | | | | |
Selling and administrative expenses | 15.9 | % | | 18.5 | % | | | | |
Income from operations | 14.4 | % | | 8.9 | % | | | | |
Net Sales. Interconnect segment net sales increased $14.6 million, or 11.8%, to $138.8 million for fiscal 2011, from $124.2 million for fiscal 2010. Net sales increased 12.5% and 19.3% in North America and Europe, respectively, however, net sales declined in Asia by 2.4% in fiscal 2011, compared to fiscal 2010. The increase in North America is due to increased sales for our data, sensor and radio remote control devices and the increase in Europe is due to increased sales for radio remote control devices. The decrease in Asia relates to lower sales for legacy products due to the planned exit of this product line in fiscal 2011, compared to fiscal 2010. Translation of foreign operations net sales in fiscal 2011 decreased reported net sales by $0.1 million, due to average currency rates in fiscal 2011, compared to the average currency rates in fiscal 2010.
Cost of Products Sold. Interconnect segment cost of products sold increased $8.2 million, or 9.3%, to $96.8 million for fiscal 2011, compared to $88.6 million for fiscal 2010. Interconnect segment cost of products sold as a percentage of net sales decreased to 69.7% for fiscal 2011, compared to 71.3% for fiscal 2010. The decrease is primarily due to a favorable change in sales mix within the segment as well as the overall increase in net sales in fiscal 2011, compared to fiscal 2010.
Gross Margins. Interconnect segment gross margins increased $6.4 million, or 18.0%, to $42.0 million for fiscal 2011, as compared to $35.6 million for fiscal 2010. Gross margins as a percentage of net sales increased to 30.3% for fiscal 2011, from 28.7% for fiscal 2010. The increase in gross margins as a percentage of net sales primarily relates to higher sales volumes as well as a favorable change in sales mix within the segment in fiscal 2011, compared to fiscal 2010.
Restructuring. During fiscal 2010, we completed all of our planned restructuring initiatives. During fiscal 2010, we
recorded a total restructuring charge of $1.6 million, which consisted of $0.7 million for employee severance, $0.2 million for accelerated depreciation and $0.7 million for other costs.
Selling and Administrative Expenses. Selling and administrative expenses decreased $1.0 million, or 4.3%, to $22.0 million for fiscal 2011, compared to $23.0 million for fiscal 2010. The decrease is due to lower professional fees in our remote control business. Selling and administrative expenses as a percentage of net sales decreased to 15.9%, due to higher sales volumes, in fiscal 2011, from 18.5% for fiscal 2010.
Income From Operations. Interconnect segment income from operations increased $9.0 million, or 81.8%, to $20.0 million for fiscal 2011, compared to $11.0 million for fiscal 2010, due to increased net sales and gross margins, no restructuring expenses and lower selling and administrative expenses.
Power Products Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| April 30, 2011 | | May 1, 2010 | | Net Change | | Net Change |
Net sales | $ | 50.4 |
| | $ | 40.5 |
| | $ | 9.9 |
| | 24.4 | % |
| | | | | | | |
Cost of products sold | 39.8 |
| | 30.0 |
| | 9.8 |
| | 32.7 | % |
| | | | | | | |
Gross margins | 10.6 |
| | 10.5 |
| | 0.1 |
| | 1.0 | % |
| | | | | | | |
Restructuring | — |
| | 0.6 |
| | (0.6 | ) | | N/M |
|
Selling and administrative expenses | 7.0 |
| | 6.5 |
| | 0.5 |
| | 7.7 | % |
Income from operations | $ | 3.6 |
| | $ | 3.4 |
| | $ | 0.2 |
| | 5.9 | % |
| | | | | | | |
Percent of sales: | April 30,
2011 | | May 1,
2010 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 79.0 | % | | 74.1 | % | | | | |
Gross margins | 21.0 | % | | 25.9 | % | | | | |
Restructuring | — | % | | 1.5 | % | | | | |
Selling and administrative expenses | 13.9 | % | | 16.0 | % | | | | |
Income from operations | 7.1 | % | | 8.4 | % | | | | |
Net Sales. Power Products segment net sales increased $9.9 million, or 24.4%, to $50.4 million for fiscal 2011, compared to $40.5 million for fiscal 2010. Net sales increased in fiscal 2011, as compared to fiscal 2010 by 4.6% in North America and by 65.2% in Asia. The increase in Asia was due to an increased demand for our busbar products. In North America, higher demand for our flexible cabling and heat sink products was offset with lower demand for our busbar products. We also began selling busbar products in Europe in fiscal 2011, which accounted for $2.6 million in net sales, compared to no net sales in fiscal 2010.
Cost of Products Sold. Power Products segment cost of products sold increased $9.8 million, or 32.7%, to $39.8 million for fiscal 2011, compared to $30.0 million for fiscal 2010. The Power Products segment cost of products sold as a percentage of sales increased to 79.0% for fiscal 2011, from 74.1% for fiscal 2010. Fiscal 2011 includes an inventory and equipment charge of $0.4 million, relating to the customer cancellation of certain products manufactured in the U.S. The increase in the cost of products sold as a percentage of sales is primarily due to new product development, as well as customer cancellation charges, partially offset by lower costs in our Asian business.
Gross Margins. Power Products segment gross margins increased $0.1 million, or 1.0%, to $10.6 million for fiscal 2011, compared to $10.5 million for fiscal 2010. Gross margins as a percentage of net sales decreased to 21.0% for fiscal 2011 from 25.9% for fiscal 2010. The decrease in gross margins as a percentage of sales is primarily due to the increased costs due
to new product development for the Eetrex products, as well as customer cancellation charges, partially offset by lower costs in our Asian business.
Restructuring. During fiscal 2010, we completed all of our planned restructuring initiatives. During fiscal 2010, we recorded a restructuring charge of $0.6 million, which consisted of $0.1 million for employee severance and $0.5 million related to other costs.
Selling and Administrative Expenses. Selling and administrative expenses increased $0.5 million, or 7.7%, to $7.0 million for fiscal 2011, compared to $6.5 million for fiscal 2010. Selling and administrative expenses increased due to increased selling and professional fees in our U.S.-based busbar and heat sink businesses as well as increased expenses due to the purchase of 70% of Eetrex in fiscal 2011, as compared to fiscal 2010. Selling and administrative expenses as a percentage of net sales decreased to 13.9% in fiscal 2011, from 16.0% for fiscal 2010.
Income From Operations. Power Products segment income from operations increased $0.2 million, or 5.9%, to $3.6 million for fiscal 2011, compared to $3.4 million for fiscal 2010, due to higher net sales and gross profit, no restructuring charges, partially offset with expenses related to new product development and expenses related to Eetrex, customer cancellation charges and higher selling and administrative expenses.
Other Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| April 30, 2011 | | May 1, 2010 | | Net Change | | Net Change |
Net sales | $ | 13.0 |
| | $ | 9.3 |
| | $ | 3.7 |
| | 39.8 | % |
| | | | | | | |
Cost of products sold | 12.0 |
| | 9.5 |
| | 2.5 |
| | 26.3 | % |
| | | | | | | |
Gross margins | 1.0 |
| | (0.2 | ) | | 1.2 |
| | N/M |
|
| | | | | | | |
Selling and administrative expenses | 3.0 |
| | 2.1 |
| | 0.9 |
| | 42.9 | % |
| | | | | | | |
Loss from operations | $ | (2.0 | ) | | $ | (2.3 | ) | | $ | 0.3 |
| | N/M |
|
| | | | | | | |
Percent of sales: | April 30,
2011 | | May 1,
2010 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 92.3 | % | | 102.2 | % | | | | |
Gross margins | 7.7 | % | | (2.2 | )% | | | | |
Selling and administrative expenses | 23.1 | % | | 22.6 | % | | | | |
Loss from operations | (15.4 | )% | | (24.7 | )% | | | | |
Net Sales. The Other segment net sales increased $3.7 million, or 39.8%, to $13.0 million for fiscal 2011, compared to $9.3 million for fiscal 2010. Net sales from our torque-sensing business increased 178.2% in fiscal 2011, compared to fiscal 2010. Net sales from our testing facilities decreased 13.8% in fiscal 2011, compared to fiscal 2010.
Cost of Products Sold. Other segment cost of products sold increased $2.5 million to $12.0 million for fiscal 2011, compared to $9.5 million for fiscal 2010. Cost of products sold as a percentage of sales decreased to 92.3% in fiscal 2011, compared to 102.2% in fiscal 2010 primarily due to increased sales from our torque-sensing business.
Gross Margins. The Other segment gross margins increased to $1.0 million for fiscal 2011, compared to a loss of $0.2 million for fiscal 2010. Gross margins as a percentage of sales increased to 7.7% in fiscal 2011, compared to negative 2.2% in fiscal 2010 primarily due to increased sales from our torque-sensing business.
Selling and Administrative Expenses. Selling and administrative expenses increased $0.9 million, or 42.9%, to $3.0
million for fiscal 2011, compared to $2.1 million for fiscal 2010. Selling and administrative expenses as a percentage of net sales increased to 23.1% for fiscal 2011, from 22.6% for fiscal 2010.
Loss from Operations. The Other segment loss from operations decreased $0.3 million, to $2.0 million for fiscal 2011, compared to $2.3 million for fiscal 2010, due to increased sales and gross profit, partially offset by higher selling and administrative expenses.
Results of Operations for the Fiscal Year Ended May 1, 2010 as Compared to the Fiscal Year Ended May 2, 2009
Consolidated Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| May 1, 2010 | | May 2, 2009 | | Net Change | | Net Change |
Net sales | $ | 377.6 |
| | $ | 428.8 |
| | $ | (51.2 | ) | | (11.9 | )% |
| | | | | | | |
Cost of products sold | 297.7 |
| | 356.4 |
| | (58.7 | ) | | (16.5 | )% |
| | | | | | | |
Gross margins | 79.9 |
| | 72.4 |
| | 7.5 |
| | 10.4 | % |
| | | | | | | |
Restructuring | 7.8 |
| | 25.3 |
| | (17.5 | ) | | (69.2 | )% |
Impairment of goodwill and other assets | — |
| | 94.4 |
| | (94.4 | ) | | N/M |
|
Selling and administrative expenses | 62.4 |
| | 57.2 |
| | 5.2 |
| | 9.1 | % |
Amortization of intangibles | 2.3 |
| | 6.9 |
| | (4.6 | ) | | (66.7 | )% |
Interest (income)/expense, net | 0.1 |
| | (1.4 | ) | | 1.5 |
| | N/M |
|
Other (income)/expense, net | (0.5 | ) | | 0.5 |
| | (1.0 | ) | | N/M |
|
Income taxes - (benefit)/expense | (6.0 | ) | | 1.7 |
| | (7.7 | ) | | N/M |
|
Net income attributable to noncontrolling interest | 0.1 |
| | 0.3 |
| | (0.2 | ) | | (66.7 | )% |
Net income/(loss) | $ | 13.7 |
| | $ | (112.5 | ) | | $ | 126.2 |
| | N/M |
|
| | | | | | | |
Percent of sales: | May 1,
2010 | | May 2,
2009 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 78.8 | % | | 83.1 | % | | | | |
Gross margins | 21.2 | % | | 16.9 | % | | | | |
Restructuring | 2.1 | % | | 5.9 | % | | | | |
Impairment of goodwill and other assets | — | % | | 22.0 | % | | | | |
Selling and administrative expenses | 16.5 | % | | 13.3 | % | | | | |
Amortization of intangibles | 0.6 | % | | 1.6 | % | | | | |
Interest (income)/expense, net | — | % | | (0.3 | )% | | | | |
Other (income)/expense, net | (0.1 | )% | | 0.1 | % | | | | |
Income taxes - (benefit)/expense | (1.6 | )% | | 0.4 | % | | | | |
Net income attributable to noncontrolling interest | — | % | | 0.1 | % | | | | |
Net income/(loss) | 3.6 | % | | (26.2 | )% | | | | |
Net Sales. Consolidated net sales decreased $51.2 million, or 11.9%, to $377.6 million for fiscal 2010 from $428.8 million for fiscal 2009. The Automotive segment net sales declined $42.9 million or 17.4% to $203.2 million for fiscal 2010 from $246.1 million for fiscal 2009. The decline is primarily attributable to lower sales to Delphi, Ford and Chrysler and the weak economic environment. The Interconnect segment net sales decreased $7.0 million, or 5.3% to $124.2 million for fiscal 2010 as compared to $131.2 million for fiscal 2009. The Power Products segment net sales decreased $2.2 million, or 5.2% to $40.5 million for 2010 as compared to $42.7 million for fiscal 2009. The Other segment net sales increased $1.1 million, or
13.4%, to $9.3 million for fiscal 2010, as compared to $8.2 million for fiscal 2009. Included in net sales is other income, which consisted primarily of earnings from engineering design fees and royalties. Other income increased $1.3 million, or 40.6%, to $4.5 million for fiscal 2010, from $3.2 million for fiscal 2009. The increase relates to engineering design fees in our European automotive business. Translation of foreign operations net sales for fiscal 2010 increased reported net sales by $1.0 million or 0.3% due to currency rate fluctuations.
Cost of Products Sold. Consolidated cost of products sold decreased $58.7 million, or 16.5%, to $297.7 million for fiscal 2010 compared to $356.4 million for fiscal 2009. The decrease is due to the lower sales volumes. Consolidated cost of products sold as a percentage of sales were 78.8% for fiscal 2010, compared to 83.1% for fiscal 2009. The decrease relates to restructuring and consolidation efforts that were undertaken in prior periods to reduce inefficiencies in the business.
Gross Margins. Consolidated gross margins increased $7.5 million, or 10.4%, to $79.9 million for fiscal 2010 compared to $72.4 million for fiscal 2009. Gross margins as a percentage of net sales were 21.2% for fiscal 2010 compared to 16.9% for fiscal 2009. The increase relates to higher other income in fiscal 2010 as well as restructuring and consolidation efforts that were undertaken in prior periods.
Restructuring. In March 2009, we announced additional restructuring actions to consolidate manufacturing facilities to reduce costs. During fiscal 2010, we recorded a restructuring charge of $5.3 million related to this restructuring initiative, which consisted of $3.6 million for employee severance and $1.7 million relating to other costs. During fiscal 2009, we recorded a restructuring charge of $7.3 million related to this restructuring initiative, which consisted of $0.1 for employee severance, $1.4 million for the impairment of fixed assets, $5.4 million for the impairment of customer funded tooling and $0.4 million for other costs. All of the restructuring actions related to the March 2009 restructuring initiative are now complete.
In January 2008, we announced a restructuring of our U.S.-based automotive operations and the decision to discontinue producing certain legacy products in the Interconnect segment. During fiscal 2010, we recorded a restructuring charge of $2.5 million related to this restructuring initiative, which consisted of $0.7 million for employee severance, $1.5 million for the impairment and accelerated depreciation and $0.3 million relating to other costs. During fiscal 2009, we recorded a restructuring charge of $18.0 million related to this restructuring initiative, which consisted of $6.1 million for employee severance, $10.8 million for impairment and accelerated depreciation, $0.2 million for inventory write-downs and $0.9 million relating to other costs. All of the restructuring actions related to the January 2008 restructuring initiative are now complete.
Impairment of Goodwill and Other Assets. During fiscal 2009, in accordance with Accounting Standards Codification, (“ASC”) No. 350, “Intangibles-Goodwill and Other,” we performed goodwill impairment testing and concluded that goodwill was impaired. Therefore, during fiscal 2009, we recorded a goodwill impairment charge of $25.8 million in our Automotive segment, $30.8 million in our Interconnect segment, $5.4 million in our Power Products segment and $1.2 million in our Other segment for a total of $63.2 million related to these assets.
Also during the third quarter of fiscal 2009, in accordance with ASC No. 360, “Property, Plant and Equipment,” it was determined that certain identifiable assets of our businesses were impaired. Therefore, during fiscal 2009, we recorded an impairment charge of $4.6 million in our Automotive segment, $26.2 million in our Interconnect segment and $0.4 million in our Other segment for a total of $31.2 million related to these assets.
Selling and Administrative Expenses. Selling and administrative expenses increased $5.2 million, or 9.1%, to $62.4 million for fiscal 2010 compared to $57.2 million for fiscal 2009. The increase is due to $5.8 million in legal fees relating to the Delphi supply agreement and patent dispute. In addition, selling and administrative expenses were negatively impacted by $1.4 million due to $0.8 million of stock-based compensation in fiscal 2010, compared to a net reversal of expense of $0.6 million in fiscal 2009. The net reversal in fiscal 2009 was due to performance-based shares not meeting certain financial targets. Selling and administrative expenses were lower by $2.0 million due to restructuring and consolidation efforts from previous periods. Selling and administrative expenses as a percentage of net sales increased to 16.5% for fiscal 2010 from 13.3% for fiscal 2009.
Amortization of Intangibles. Amortization of intangibles decreased $4.6 million, or 66.7%, to $2.3 million for fiscal 2010, compared to $6.9 million for fiscal 2009. The decrease is due to the impairment of certain intangible assets in fiscal 2009.
Interest Income/(Expense), Net. Net interest income/(expense) decreased $1.5 million for fiscal 2010 to an expense of $0.1 million as compared to income of $1.4 million for fiscal 2009. The average cash balance in fiscal 2010 was $62.5 million compared to an average cash balance of $81.4 million for fiscal 2009. The decrease in the average cash balance relates
primarily to the Hetronic acquisition during the second quarter of fiscal 2009. The average interest rate earned for fiscal 2010 was 0.59% compared to 2.22% for fiscal 2009. Interest expense was $0.5 million and $0.4 million for fiscal 2010 and fiscal 2009, respectively. The interest expense in fiscal 2010 includes $0.1 million of fees related to the amendment of our bank agreement.
Other Income/(Expense), Net. Other income/(expense), net increased $1.0 million to income of $0.5 million for fiscal 2010 compared to an expense of $0.5 million for fiscal 2009. Fiscal 2010 included a $1.1 million gain recorded from life insurance policies owned by the Company in connection with an employee deferred compensation plan. During fiscal 2010, our net currency exchange losses increased due to the strengthening of the U.S. dollar versus the Euro and Czech koruna, resulting in exchange losses. During fiscal 2009, we recorded $2.5 million of unrealized currency exchange losses arising from an intercompany loan between our corporate headquarters and one of our foreign subsidiaries in conjunction with the acquisition of Hetronic, partially offset by currency exchange gains recorded in the same period. The functional currencies of these operations are the British pound, Chinese yuan, Czech koruna, euro, Indian rupee, Mexican peso and Singapore dollar. Some foreign operations have transactions denominated in currencies other than their functional currencies, primarily sales in U.S. dollars and Euros, creating exchange rate sensitivities.
During fiscal 2009 and the first half of fiscal 2010, we were invested in an enhanced cash fund sold as an alternative to traditional money-market funds. At May 1, 2010 there was zero invested in the fund. For fiscal 2010 we recorded a gain of $0.6 million, and for fiscal 2009 we recorded a loss of $1.2 million.
Income Taxes — Expense/(Benefit). Income taxes — expense/(benefit) decreased by $7.7 million to a benefit of $6.0 million for fiscal 2010, compared to an expense of $1.7 million for fiscal 2009. The $6.0 million for fiscal 2010, includes taxes on foreign profits of $0.5 million, book to income tax return expense adjustments of $2.9 million and other expense of $1.7 million. In addition, a benefit of $3.2 million was recorded due to the settlement of uncertain tax positions and related interest from prior periods. For fiscal 2010, we had a loss before income taxes in our U.S.-based businesses. Therefore, we recorded a tax carry-back benefit of $7.9 million in fiscal 2010. The effective tax rates for both the fiscal 2010 and 2009 periods reflect utilization of foreign investment tax credits and the effect of lower tax rates on income of the Company’s foreign operations and a higher percentage of earnings at those foreign operations.
Net Income/(Loss) Attributable to Methode Electronics, Inc. Net income/(loss) attributable to Methode Electronics, Inc. increased $126.2 million to net income of $13.7 million for fiscal 2010, compared to a net loss of $112.5 million for fiscal 2009, primarily due to zero goodwill and other asset write-offs for fiscal 2010 versus $94.4 million in write-offs for fiscal 2009. Income taxes were favorable by $7.7 million in fiscal 2010 compared to fiscal 2009, related to a tax loss carry-back for our U.S.-based businesses. In addition, restructuring charges, amortization expense and other expense were lower, and we had lower overall manufacturing costs due to restructuring efforts. In addition, fiscal 2010 selling and administrative expenses were higher due to the Delphi supply agreement and patent litigation.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| May 1, 2010 | | May 2, 2009 | | Net Change | | Net Change |
Net sales | $ | 203.2 |
| | $ | 246.1 |
| | $ | (42.9 | ) | | (17.4 | )% |
| | | | | | | |
Cost of products sold | 166.7 |
| | 206.0 |
| | (39.3 | ) | | (19.1 | )% |
| | | | | | | |
Gross margins (including other income) | 36.5 |
| | 40.1 |
| | (3.6 | ) | | (9.0 | )% |
| | | | | | | |
Restructuring | 5.6 |
| | 19.3 |
| | (13.7 | ) | | (71.0 | )% |
Impairment of goodwill and other assets | — |
| | 30.5 |
| | (30.5 | ) | | N/M |
|
Selling and administrative expenses | 19.6 |
| | 14.6 |
| | 5.0 |
| | 34.2 | % |
Income/(loss) from operations | $ | 11.3 |
| | $ | (24.3 | ) | | $ | 35.6 |
| | N/M |
|
| | | | | | | |
Percent of sales: | May 1,
2010 | | May 2,
2009 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 82.0 | % | | 83.7 | % | | | | |
Gross margins (including other income) | 18.0 | % | | 16.3 | % | | | | |
Restructuring | 2.8 | % | | 7.8 | % | | | | |
Impairment of goodwill and other assets | — | % | | 12.4 | % | | | | |
Selling and administrative expenses | 9.6 | % | | 5.9 | % | | | | |
Income/(loss) from operations | 5.6 | % | | (9.9 | )% | | | | |
Net Sales. Automotive segment net sales decreased $42.9 million, or 17.4%, to $203.2 million for fiscal 2010 from $246.1 million for fiscal 2009. Net sales to Delphi Corporation decreased $27.1 million, or 65.8%, to $14.1 million for fiscal 2010 compared to $41.2 million for fiscal 2009 due to the cancellation of the supply agreement on September 10, 2009. The Automotive segment net sales were also negatively impacted by planned lower Chrysler sales volumes of $1.0 million for fiscal 2010, compared to $14.8 million for fiscal 2009. In addition, the decline is attributable to the softness of the U.S. economic environment. Net sales declined by 60.2% in North America and increased by 19.8% and 154.2% in Europe and Asia, respectively for fiscal 2010 compared to fiscal 2009. Included in net sales is other income, which consisted primarily of earnings from engineering design fees and royalties. Other income increased $1.4 million, or 56.0%, to $3.9 million for fiscal 2010, from $2.5 million for fiscal 2009. The increase relates to engineering design fees in our European automotive business. Translation of foreign operations net sales for fiscal 2010 increased reported net sales by $1.0 million, or 0.5%, due to currency rate fluctuations.
Cost of Products Sold. Automotive segment cost of products sold decreased $39.3 million, or 19.1%, to $166.7 million for fiscal 2010 from $206.0 million for fiscal 2009. The decrease primarily relates to lower sales volumes. Included in the cost of products sold for fiscal 2010 is $0.7 million of asset write-downs relating to the termination of the Delphi supply agreement. The Automotive segment cost of products sold as a percentage of sales were 82.0% for fiscal 2010, compared to 83.7% for fiscal 2009. The decrease relates to restructuring and consolidation efforts in previous periods, partially offset by inefficiencies caused by automotive manufacturers extending plant shut-downs during the first quarter of fiscal 2010.
Gross Margins. Automotive segment gross margins decreased $3.6 million, or 9.0%, to $36.5 million for fiscal 2010, compared to $40.1 million for fiscal 2009. Gross margins as a percentage of net sales increased to 18.0% for fiscal 2010 from 16.3% for fiscal 2009. The increase relates to higher other income for fiscal 2010 as well as restructuring and consolidation efforts that occurred in prior periods, partially offset by inefficiencies caused by automotive manufacturers extending plant shut-downs during the first quarter of fiscal 2010.
Restructuring. During fiscal 2010, we recorded a restructuring charge of $3.3 million related to our March 2009 restructuring initiative, which consisted of $2.7 million for employee severance and $0.6 million relating to other costs. During fiscal 2009, we recorded a restructuring charge of $6.5 million, which consisted of $1.0 million for impairment and accelerated depreciation for buildings and improvements and machinery and equipment and $5.4 million for customer funded tooling and $0.1 million in forfeited security deposits related to the cancellation of the new GM business. All of the restructuring actions related to the March 2009 restructuring initiatives are now complete.
During fiscal 2010, the Automotive segment recorded a restructuring charge of $2.3 million for our January 2008 restructuring initiative, which consisted of $0.7 million for employee severance, $1.4 million for the impairment and accelerated depreciation for machinery and equipment and $0.2 million in other costs. During fiscal 2009, we recorded a restructuring charge of $12.8 million, which consisted of $4.7 million for employee severance, $7.4 million for impairment and accelerated depreciation for buildings, building improvements and machinery and equipment and $0.7 million for other costs. All of the restructuring actions related to the January 2008 restructuring initiatives are now complete.
Impairment of Goodwill and Other Assets. During the third quarter of fiscal 2009, in accordance with ASC No. 350, “Intangibles - Goodwill and Other,” we performed goodwill impairment testing and concluded that goodwill was impaired. Therefore, during fiscal 2009, we recorded a goodwill impairment charge of $30.5 million in our Automotive segment related to these assets.
Selling and Administrative Expenses. Selling and administrative expenses increased $5.0 million, or 34.2%, to $19.6 million for fiscal 2010 compared to $14.6 million for fiscal 2009. Selling and administrative expenses increased in fiscal 2010 due to $5.8 million of legal fees associated with the Delphi supply agreement termination and patent litigation, partially offset by restructuring and consolidation efforts. Selling and administrative expenses as a percentage of net sales were 9.6% for fiscal 2010 and 5.9% for fiscal 2009.
Income/(Loss) From Operations. Automotive segment income/(loss) from operations increased $35.6 million to income of $11.3 million for fiscal 2010 compared to a loss of $24.3 million for fiscal 2009 due to zero goodwill and intangible asset write-off for fiscal 2010 versus $30.5 million in write-offs for fiscal 2009, lower restructuring expenses, lower costs relating to prior restructuring and consolidation efforts, offset by lower sales and gross margins (including other income) and legal fees relating to the termination of the Delphi supply agreement.
Interconnect Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| May 1, 2010 | | May 2, 2009 | | Net Change | | Net Change |
Net sales | $ | 124.2 |
| | $ | 131.2 |
| | $ | (7.0 | ) | | (5.3 | )% |
| | | | | | | |
Cost of products sold | 88.6 |
| | 99.7 |
| | (11.1 | ) | | (11.1 | )% |
| | | | | | | |
Gross margins | 35.6 |
| | 31.5 |
| | 4.1 |
| | 13.0 | % |
| | | | | | | |
Restructuring | 1.6 |
| | 5.5 |
| | (3.9 | ) | | (70.9 | )% |
Impairment of goodwill and other assets | — |
| | 56.9 |
| | (56.9 | ) | | N/M |
|
Selling and administrative expenses | 23.0 |
| | 31.0 |
| | (8.0 | ) | | (25.8 | )% |
Income/(loss) from operations | $ | 11.0 |
| | $ | (61.9 | ) | | $ | 72.9 |
| | N/M |
|
| | | | | | | |
Percent of sales: | May 1,
2010 | | May 2,
2009 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 71.3 | % | | 76.0 | % | | | | |
Gross margins | 28.7 | % | | 24.0 | % | | | | |
Restructuring | 1.3 | % | | 4.2 | % | | | | |
Impairment of goodwill and other assets | — | % | | 43.4 | % | | | | |
Selling and administrative expenses | 18.5 | % | | 23.6 | % | | | | |
Income/(loss) from operations | 8.9 | % | | (47.2 | )% | | | | |
Net Sales. Interconnect segment net sales decreased $7.0 million, or 5.3%, to $124.2 million for fiscal 2010 from $131.2 million for fiscal 2009. Net sales were favorably impacted by the Hetronic acquisition on September 30, 2008. European net sales increased 21.7% and North American and Asia declined 5.1% and 28.2%, respectively for fiscal 2010 as compared to fiscal 2009. The net sales decline in North America and Asia was primarily due to the restructuring of our legacy Interconnect segment businesses, which included exiting certain businesses during the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009. There was no impact to net sales for fiscal 2010 compared to fiscal 2009 due to currency rate fluctuations.
Cost of Products Sold. Interconnect segment cost of products sold decreased $11.1 million, or 11.1%, to $88.6 million for fiscal 2010 compared to $99.7 million for fiscal 2009. Interconnect segment cost of products sold as a percentage of net sales decreased to 71.3% for fiscal 2010 compared to 76.0% for fiscal 2009. The decrease in cost of products sold as a percentage of net sales primarily relates to restructuring efforts undertaken in previous periods, partially offset by lower sales volumes in fiscal 2010 as compared to fiscal 2009.
Gross Margins. Interconnect segment gross margins increased $4.1 million, or 13.0%, to $35.6 million for fiscal 2010 as compared to $31.5 million for fiscal 2009. Gross margins as a percentage of net sales increased to 28.7% for fiscal 2010 from 24.0% for fiscal 2009. The increase in gross margins (including other income) as a percentage of net sales primarily relates to restructuring efforts undertaken in previous periods, partially offset by lower sales volumes for fiscal 2010 compared to fiscal 2009.
Restructuring. During fiscal 2010, the Interconnect segment recorded a restructuring charge of $1.4 million related to our March 2009 restructuring initiative, which consisted of $0.7 million for employee severance and $0.7 million for other costs. During fiscal 2009, we recorded a restructuring charge of $0.3 million, which consisted of $0.1 million for employee severance and $0.2 million relating to professional fees. All of the restructuring actions related to the March 2009 restructuring initiatives are now complete.
During fiscal 2010, the Interconnect segment recorded a restructuring charge of $0.2 million related to our January 2008 restructuring initiative, which consisted of $0.2 million in accelerated depreciation. During fiscal 2009, we recorded a restructuring charge of $5.2 million, which consisted of $1.4 million for employee severance, $3.4 million for impairment and accelerated depreciation for buildings, building improvements and machinery and equipment, $0.2 million for inventory write-downs and $0.2 million relating to other costs.
Impairment of Goodwill and Other Assets. During the third quarter of fiscal 2009, in accordance with ASC No. 350, “Intangibles - Goodwill and Other,” we performed goodwill impairment testing and concluded that goodwill was impaired. Therefore, during fiscal 2009, we recorded a goodwill impairment charge of $30.8 million in our Interconnect segment related to these assets.
Also during fiscal 2009, in accordance with ASC No. 360, “Property, Plant and Equipment,” it was determined that certain identifiable assets of our Interconnect businesses were impaired. Therefore, during fiscal 2009, we recorded an impairment charge of $26.1 million for these assets.
Selling and Administrative Expenses. Selling and administrative expenses decreased $8.0 million, or 25.8%, to $23.0 million for fiscal 2010 compared to $31.0 million for fiscal 2009. Selling and administrative expenses are lower due to reduced intangible asset amortization expenses, partially offset by higher selling and administrative expenses due to the Hetronic acquisition. In addition, selling and administrative expenses (not including Hetronic) were lower due to the restructuring efforts undertaken in the first and second quarters of fiscal 2009. Selling and administrative expenses as a percentage of net sales decreased to 18.5% for fiscal 2010 from 23.6% for fiscal 2009.
Income/(Loss) From Operations. Interconnect segment income/(loss) from operations increased $72.9 million to income of $11.0 million for fiscal 2010 compared to a loss of $61.9 million for fiscal 2009 due to zero goodwill and intangible asset write-off for fiscal 2010 versus $56.9 million in write-offs for fiscal 2009. In addition, income/(loss) from operations increased due to lower intangible asset amortization expenses, lower selling and administrative expenses due to prior restructuring efforts, lower restructuring expenses, partially offset by lower sales and gross margins.
Power Products Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| May 1, 2010 | | May 2, 2009 | | Net Change | | Net Change |
Net sales | $ | 40.5 |
| | $ | 42.7 |
| | $ | (2.2 | ) | | (5.2 | )% |
| | | | | | | |
Cost of products sold | 30.0 |
| | 37.2 |
| | (7.2 | ) | | (19.4 | )% |
| | | | | | | |
Gross margins | 10.5 |
| | 5.5 |
| | 5.0 |
| | 90.9 | % |
| | | | | | | |
Restructuring | 0.6 |
| | 0.5 |
| | 0.1 |
| | 20.0 | % |
Impairment of goodwill and other assets | — |
| | 5.4 |
| | (5.4 | ) | | N/M |
|
Selling and administrative expenses | 6.5 |
| | 5.1 |
| | 1.4 |
| | 27.5 | % |
Income/(loss) from operations | $ | 3.4 |
| | $ | (5.5 | ) | | $ | 8.9 |
| | N/M |
|
| | | | | | | |
Percent of sales: | May 1,
2010 | | May 2,
2009 | | | | |
Net sales | 100.0 | % | | 100.0 | % | | | | |
Cost of products sold | 74.1 | % | | 87.1 | % | | | | |
Gross margins | 25.9 | % | | 12.9 | % | | | | |
Restructuring | 1.5 | % | | 1.2 | % | | | | |
Impairment of goodwill and other assets | — | % | | 12.6 | % | | | | |
Selling and administrative expenses | 16.0 | % | | 11.9 | % | | | | |
Income/(loss) from operations | 8.4 | % | | (12.9 | )% | | | | |
Net Sales. Power Products segment net sales decreased $2.2 million, or 5.2% to $40.5 million for fiscal 2010 compared to $42.7 million for fiscal 2009. Net sales declined in fiscal 2010 as compared to fiscal 2009 by 9.8% in North America and increased by 14.1% in Asia. The overall decline was driven by lower demand for our flexible cabling and heat sink products in the U.S.
Cost of Products Sold. Power Products segment cost of products sold decreased $7.2 million, or 19.4%, to $30.0 million for fiscal 2010 compared to $37.2 million for fiscal 2009. The Power Products segment cost of products sold as a percentage of sales decreased to 74.1% for fiscal 2010 from 87.1% for fiscal 2009. The decrease is due to restructuring and consolidation efforts for our Power Products businesses in the U.S. during the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.
Gross Margins. Power Products segment gross margins increased $5.0 million, or 90.9%, to $10.5 million for fiscal 2010, compared to $5.5 million for fiscal 2009. Gross margins as a percentage of net sales increased to 25.9% for fiscal 2010 from 12.9% for fiscal 2009. The increase is due to restructuring and consolidation efforts for our Power Products businesses in the U.S. during the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.
Restructuring. During fiscal 2010, the Power Products segment recorded a restructuring charge of $0.6 million related to our March 2009 restructuring initiative, which consisted of $0.1 million for employee severance and $0.5 million relating to real estate taxes and other facility related costs. During fiscal 2009, we recorded a restructuring charge of $0.5 million, which consisted of $0.4 million for impairment and accelerated depreciation for buildings and improvements and machinery and equipment and $0.1 million relating to other costs. All of the restructuring actions related to the March 2009 restructuring initiative are now complete.
Impairment of Goodwill and Other Assets. During fiscal 2009, in accordance with ASC No. 350, “Intangibles - Goodwill and Other,” we performed goodwill impairment testing and concluded that goodwill was impaired. Therefore, during fiscal 2009, we recorded a goodwill impairment charge of $5.4 million in our Power Products segment related to these assets.
Selling and Administrative Expenses. Selling and administrative expenses increased $1.4 million, or 27.5%, to $6.5 million for fiscal 2010 compared to $5.1 million for fiscal 2009. Selling and administrative expenses increased due to higher professional services fees and allocated management resources during fiscal 2010 as compared to fiscal 2009. Selling and administrative expenses as a percentage of net sales increased to 16.0% for fiscal 2010 from 11.9% for fiscal 2009.
Income/(Loss) From Operations. Power Products income/(loss) from operations increased $8.9 million to income of $3.4 million for fiscal 2010, compared to a loss of $5.5 million for fiscal 2009 due to zero goodwill and intangible asset write-off for fiscal 2010 versus $5.4 million in write-offs for fiscal 2009. In addition, income/(loss) from operations increased due to lower sales volumes, higher restructuring expenses, and higher professional fees, more than offset by lower cost of products sold due to prior restructuring and consolidation efforts.
Other Segment Results
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
|
| | | | | | | | | | | | | | |
| May 1, 2010 | | May 2, 2009 | | Net Change | | Net Change |
Net sales | $ | 9.3 |
| | $ | 8.2 |
| | $ | 1.1 |
| | 13.4 | % |
| | | | | | | |
Cost of products sold | 9.5 |
| | 8.9 |
| | 0.6 |
| | 6.7 | % |
| | | | | | | |
Gross margins | (0.2 | ) | | (0.7 | ) | | 0.5 |
| | N/M |
|
| | | | | | | |
Impairment of goodwill and intangible assets | — |
| | 1.6 |
| | (1.6 | ) | | N/M |
|
Selling and a |