Methode Electronics, Inc. Reports Fiscal 2009 Fourth-Quarter and Full-Year Results
Impairment and Restructuring Charges Impact Fourth-Quarter and Full-Year Results
CHICAGO, IL -- (Marketwire - July 02, 2009) - Methode Electronics, Inc. (NYSE: MEI), a global
designer and manufacturer of electro-mechanical devices, today announced
operating results for the fiscal-year 2009 fourth quarter and year ended
May 2, 2009. Due to the timing of the Company's fiscal calendar, the 12
months ended May 2, 2009, represent 52 weeks of results, while the 12
months ended May 3, 2008, represent 53 weeks of results.
Fourth-Quarter Fiscal Year 2009
Methode's fourth-quarter fiscal year 2009 net sales decreased $65.4
million, or 42.4 percent, to $89.0 million from $154.4 million in the
fourth quarter of fiscal year 2008. Net income decreased $105.5 million to
a loss of $92.6 million, or $2.50 per share, in the fourth quarter of
fiscal year 2009 compared to income of $12.9 million, or $0.34 per share,
in the same period of fiscal year 2008.
The decrease in net income in the fiscal-year 2009 fourth quarter is due to
an impairment of goodwill and intangible assets charge of $61.7 million
($1.99 per share after tax), restructuring charges of $10.3 million ($0.41
per share after tax), and lower sales attributable to the continuing
softness of the global economic environment, especially the effect on the
North American automotive market, as compared to the fiscal-year 2008
fourth quarter, which had restructuring charges of $4.7 million ($0.08 per
share after tax). Excluding the restructuring and impairment of goodwill
and intangible assets charges, Methode's net loss was $3.6 million, or
$0.10 per share, in the fourth-quarter fiscal year 2009 compared to net
income of $15.7 million, or $0.42 per share, excluding restructuring
charges, in the same period of fiscal year 2008.
Based on Methode's reduced market capitalization and general business
declines in the last half of fiscal year 2009, the Company performed
goodwill impairment tests in accordance with generally accepted accounting
principles as of May 2, 2009. As a result, it was determined that the fair
value of the net assets of certain reporting units was less than the
carrying value. Therefore, a goodwill impairment charge was recorded for
$45.1 million in the fourth quarter of fiscal year 2009. Also, in
accordance with generally accepted accounting principles, the Company
determined that certain identifiable intangible assets were impaired based
on the Company's future estimates of the undiscounted cash flows, which
resulted in an impairment charge of $16.6 million in the fourth quarter of
fiscal year 2009.
In the fourth quarter of fiscal year 2009, Automotive segment net sales
were negatively impacted by the continuing softness of the global economic
environment, especially the effect on the North American automotive
industry, and by negligible Chrysler sales volumes as compared to the prior
period due to the Company's decision to exit the Chrysler business. The
transfer of the Chrysler product was substantially completed during the
second quarter of fiscal year 2009. Additionally, as a result of the
Company's agreement with Ford Motor Company to transfer all production at
Methode's Reynosa, Mexico, facility to another supplier, the Company's
sales to Ford were further reduced in the fourth quarter of fiscal 2009.
Methode expects to complete the transfer of this Ford business by August
2009.
In January 2008, Methode announced a restructuring of its U.S.-based
automotive operations and the decision to discontinue producing certain
legacy products in the Interconnect segment. In March 2009, Methode
announced several additional restructuring actions to further reduce its
exposure to the North American automotive industry, and to reduce costs by
consolidating facilities and migrating manufacturing to lower cost regions.
The Company expects to complete these restructuring activities by the end
of the 2010 fiscal year and estimates that it will record pre-tax charges
in fiscal year 2010 of between $9.2 million and $19.2 million.
Consolidated cost of products sold decreased $32.4 million, or 28.1
percent, to $82.7 million in the fiscal-year 2009 fourth quarter, compared
to $115.1 million in the same period of fiscal year 2008. The decrease is
due to lower sales volumes. Cost of products sold as a percentage of sales
was 92.9 percent and 74.6 percent in the fourth-quarter fiscal years 2009
and 2008, respectively. The increase in cost of products sold as a
percentage of net sales in the current period is the result of
manufacturing inefficiencies caused by the significant drop in sales
experienced in the last half of fiscal year 2009.
Selling and administrative expenses decreased $3.0 million, or 18.8
percent, to $13.0 million for the fourth-quarter fiscal year 2009, compared
to $16.0 million in the prior-year period. The decrease relates to lower
performance-based compensation expense and commission expense as a result
of lower sales and earnings. Due to the significant drop in sales
experienced in the last half of fiscal year 2009, selling and
administrative expenses as a percentage of sales increased to 14.6 percent
in the fourth-quarter fiscal year 2009, compared to 10.4 percent in the
same period of fiscal year 2008.
Fiscal Year 2009 Results
For the year ended May 2, 2009, net sales decreased $125.5 million, or 22.8
percent, to $425.6 million from $551.1 million for the year ended May 3,
2008. Net income decreased $152.3 million to a loss of $112.5 million, or
$3.05 per share, in fiscal year 2009 compared to income of $39.8 million,
or $1.06 per share, in fiscal year 2008.
The decrease in net income is due mainly to an impairment of goodwill and
intangible assets charge of $94.4 million ($2.54 per share after tax),
restructuring charges of $25.3 million ($0.68 per share after tax), and
lower sales attributable to the softening of the global economic
environment in fiscal year 2009. Fiscal year 2008 results included
restructuring charges of $5.2 million ($0.08 per share after tax).
Excluding the restructuring and impairment of goodwill and intangible asset
charges, Methode achieved net income of $6.4 million, or $0.17 per share,
in fiscal year 2009 compared to $42.9 million, or $1.14 per share,
excluding restructuring charges, in fiscal year 2008.
In fiscal year 2009, net sales were negatively impacted by the softening of
the global economic environment, especially the effect on the North
American automotive industry, and by planned lower Chrysler and Ford sales
volumes in the Automotive segment.
Consolidated cost of products sold decreased $72.0 million, or 16.8
percent, to $356.4 million in fiscal year 2009, compared to $428.4 million
in fiscal year 2008. The decrease is due to lower sales volumes. Cost of
products sold as a percentage of sales was 83.7 percent and 77.7 percent in
fiscal years 2009 and 2008, respectively. The increase in cost of products
sold as a percentage of net sales in the current period is the result of
manufacturing inefficiencies caused by the significant drop in sales
experienced in the last half of fiscal year 2009.
Selling and administrative expenses decreased $4.0 million, or 6.5 percent,
to $57.5 million for the fiscal year ended May 2, 2009, from $61.5 million
for the fiscal year ended May 3, 2008. Selling and administrative expense
was favorably impacted by lower performance-based compensation expense and
commission expense in fiscal year 2009 compared to fiscal year 2008. These
were partially offset by higher amortization expense from the Hetronic, VEP
and TouchSensor acquisitions. As a percentage of sales, selling and
administrative expenses increased to 13.5 percent in fiscal year 2009,
compared to 11.2 percent in fiscal year 2008 as a result of the significant
drop in sales experienced in the last half of fiscal year 2009.
For fiscal year 2009, the income tax provision was an expense of $1.7
million compared with an expense of $9.7 million in fiscal year 2008. In
fiscal year 2009, the impairment of assets, restructuring charges and
slowing of business resulted in a loss before income taxes generating a tax
benefit. Offsetting this tax benefit, in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," the
Company recorded a valuation allowance due to the uncertainty of the future
utilization of the tax benefit. The valuation allowance was recorded in the
fourth quarter of fiscal 2009, resulting in an income tax expense of $14.0
million compared to $2.7 million in the same period of fiscal year 2008.
Management Comments
President and Chief Executive Officer Donald W. Duda said, "Accounting
rules mandated that goodwill and certain identifiable intangible assets of
Methode were impaired. Notwithstanding these charges, we believe Methode's
businesses are viable and well positioned to rebound when the economy
improves. During fiscal year 2009, we aggressively restructured and
strengthened Methode's global manufacturing footprint to lower our
breakeven point. Through these actions, we have significantly reduced the
Company's cost structure and cash flow needs going forward. We also
continued the acceleration of our strategy to substantially exit the legacy
North American auto business and expect to reduce our overall automotive
sales to approximately 40 percent of total revenues by the end of fiscal
2011. These actions, along with the additional restructuring actions taken
throughout fiscal years 2008 and 2009, will see us through these difficult
times and will allow us to come out of this downturn a leaner and stronger
company. Furthermore, Methode's margin and profit potential should benefit
considerably from our restructuring initiatives when the economy returns to
normalized levels.
"In addition, Methode's balance sheet remains strong, and we have good
liquidity. We ended the year with $54.0 million in cash, no debt and a $75
million revolving credit facility. Additionally, we generated $43.2 million
in cash from operating activities in fiscal year 2009, allowing us to
repurchase approximately 670,000 shares of our common stock, while paying
an aggregate of 26 cents per share in dividends for the fiscal year."
Mr. Duda concluded, "Our strategy remains unchanged, with our focus on
providing user interfaces, sensors and power solutions, and accelerating
the introduction of new products utilizing our advanced manufacturing
capabilities. In fiscal 2010, we expect to solidify our existing market
positions and increase our prominence in new markets to advance future
results."
Conference Call
The Company will conduct a conference call and Webcast to review financial
and operational highlights led by its President and Chief Executive
Officer, Donald W. Duda, and Chief Financial Officer, Douglas A. Koman, at
10:00 a.m. Central time today. To participate in the conference call,
please dial (877) 407-8031 (domestic) or (201) 689-8031 (international) and
provide passcode 326370 at least five minutes prior to the start of the
event. A simultaneous Webcast can be accessed through the Company's Web
site, www.methode.com, by selecting the Investor Relations page and then
clicking on the "Webcast" icon. A replay of the conference call, as well as
an MP3 download, will be available shortly after the call through July 9 by
dialing (877) 660-6853 (domestic) or (201) 612-7415 and providing pass code
326370. On the Internet, a replay will be available for seven days through
the Company's Web site, www.methode.com, by selecting the Investor
Relations page and then clicking on the "Webcast" icon.
About Methode Electronics, Inc.
Methode Electronics, Inc. (NYSE: MEI) is a global designer and manufacturer
of electro-mechanical devices with manufacturing, design and testing
facilities in the United States, Malta, Mexico, the United Kingdom,
Germany, the Czech Republic, China, Singapore, the Philippines and India.
We design, manufacture and market devices employing electrical, electronic,
wireless, radio remote control, sensing and optical technologies to control
and convey signals through sensors, interconnections and controls. Our
business is managed on a segment basis, with those segments being
Automotive, Interconnect, Power Products and Other. Our components are in
the primary end markets of the automobile, computer, information processing
and networking equipment, voice and data communication systems, consumer
electronics, appliances, aerospace vehicles and industrial equipment
industries. Further information can be found on Methode's Web site
www.methode.com.
Forward-Looking Statements
This press release contains certain forward-looking statements, which
reflect management's expectations regarding future events and operating
performance and speak only as of the date hereof. These forward-looking
statements are subject to the safe harbor protection provided under the
securities laws. Methode undertakes no duty to update any forward-looking
statement to conform the statement to actual results or changes in
Methode's expectations on a quarterly basis or otherwise. The
forward-looking statements in this press release involve a number of risks
and uncertainties. The factors that could cause actual results to differ
materially from our expectations are detailed in Methode's filings with the
Securities and Exchange Commission, such as our annual and quarterly
reports. Such factors may include, without limitation, the following: (1)
dependence on a small number of large customers within the automotive
industry; (2) dependence on the automotive, appliance, computer and
communications industries; (3) seasonal and cyclical nature of some of our
businesses; (4) ability to protect our intellectual property; (5)
customary risks related to conducting global operations; (6) ability to
successfully benefit from acquisitions; (7) ability to keep pace with
rapid technological changes; (8) ability to avoid design or manufacturing
defects; (9) dependence on the availability and price of raw materials;
(10) oil prices could affect our automotive customers future results; (11)
incurrence of additional restructuring charges, goodwill and other asset
impairments.
Methode Electronics, Inc.
Financial Highlights
(In thousands, except per share data, unaudited)
Three Months Ended Fiscal Year Ended
May 2, May 3, May 2, May 3,
2009 2008 2009 2008
--------- --------- --------- ---------
Net sales $ 89,045 $ 154,360 $ 425,644 $ 551,073
Other income 759 893 3,202 1,879
Cost of products sold 82,739 115,088 356,496 428,355
Restructuring 10,281 4,709 25,278 5,159
Impairment of goodwill and
other assets 61,696 1,472 94,374 1,472
Selling and administrative
expenses 13,035 15,999 57,471 61,550
Amortization of intangibles 1,524 1,786 6,933 6,013
Income/(loss) from operations (79,471) 16,199 (111,706) 50,403
Interest, net 167 625 1,382 2,324
Other, net 746 (1,166) (479) (3,250)
Income/(loss) before income
taxes (78,558) 15,658 (110,803) 49,477
Income taxes 13,994 2,739 1,680 9,723
Net income/(loss) (92,552) 12,919 (112,483) 39,754
Basic earnings/(loss) per
common share ($ 2.50) $ 0.35 ($ 3.05) $ 1.07
Diluted earnings/(loss) per
common share ($ 2.50) $ 0.34 ($ 3.05) $ 1.06
Average Number of Common Shares
Outstanding:
Basic 36,598 37,108 36,879 37,069
Diluted 36,598 37,365 36,879 37,493
Methode Electronics, Inc.
Summary Balance Sheet
(In thousands)
May 2, May 3,
2009 2008
--------- ---------
Cash $ 54,030 $ 104,305
Accounts receivable - net 60,406 85,805
Inventories 40,426 55,949
Other current assets 26,384 14,758
--------- ---------
Total Current Assets 181,246 260,817
Property, plant and equipment - net 69,917 90,280
Goodwill - net 11,771 54,476
Intangible assets - net 20,501 41,282
Other assets 21,853 23,365
--------- ---------
Total Assets $ 305,288 $ 470,220
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Accounts payable $ 24,495 $ 42,810
Other current liabilities 29,023 33,902
--------- ---------
Total Current Liabilities 53,518 76,712
Other liabilities 19,994 20,723
Shareholders' equity 231,776 372,785
--------- ---------
Total Liabilities and Shareholders' Equity $ 305,288 $ 470,220
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Methode Electronics, Inc.
Summary Statement of Cash Flow
(In thousands)
Fiscal Year Ended
May 2, May 3,
2009 2008
---------- ----------
Operating Activities:
Net income $ (112,483) $ 39,754
Provision for depreciation 30,103 22,146
Impairment of tangible assets 10,313 1,472
Impairment of goodwill and intangible assets 94,374 -
Amortization of intangibles 6,933 6,013
Amortization of stock awards and stock options (553) 3,359
Changes in operating assets and liabilities 6,347 6,821
Other 8,134 (2,544)
---------- ----------
Net Cash Provided by Operating Activities 43,168 77,021
Investing Activities:
Purchases of property, plant and equipment (17,064) (20,018)
Proceeds from sale of building and equipment - 1,706
Acquisitions of businesses and technology (59,044) (9,647)
Joint venture dividend - (1,000)
Other (14) (27)
---------- ----------
Net Cash Used in Investing Activities (76,122) (28,986)
Financing Activities:
Repurchase of common stock (5,252) (1,249)
Proceeds from exercise of stock options 113 1,298
Tax benefit from stock options and awards (209) 383
Dividends (9,778) (7,575)
---------- ----------
Net Cash Used in Financing Activities (15,126) (7,143)
Effect of foreign exchange rate changes on cash (2,195) 3,322
---------- ----------
Increase/Decrease in Cash and Cash Equivalents (50,275) 44,214
Cash and Cash Equivalents at Beginning of Period 104,305 60,091
---------- ----------
Cash and Cash Equivalents at End of Period $ 54,030 $ 104,305
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