UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment #1
(Mark One) |
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x |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended November 1, 2008 |
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or |
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter.)
Delaware |
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36-2090085 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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7401 West Wilson Avenue, Harwood Heights, Illinois |
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60706-4548 |
(Address of principal executive offices) |
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(Zip Code) |
(Registrants telephone number, including area code) (708) 867-6777
None
(Former name, former address, former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At December 9, 2008, Registrant had 37,838,970 shares of common stock outstanding.
METHODE ELECTRONICS, INC.
FORM 10-Q/A
November 1, 2008
2
We are filing this first amendment to our quarterly report on Form 10-Q for the six months ended November 1, 2008 to restate our condensed consolidated financial statements for the three and six months then ended. In the course of preparing our financial statements for our annual report on Form 10-K to be filed with the Securities and Exchange Commission (SEC) for the fiscal year ended May 2, 2009, we discovered an error related to unrealized currency exchange losses arising from an intercompany loan between our corporate headquarters and one of our foreign subsidiaries in conjunction with a recent acquisition of Hetronic, L.L.C., purchased on September 30, 2008. The loan amount was $20,858,304. Due to the U.S. Dollar increasing versus the Euro, from 0.6923 on September 30, 2008 to 0.7850 on November 1, 2008, an unrealized currency loss of $2,463,140 should have been recorded during the second quarter. The restatements to include this unrecorded currency loss have a significant impact to our previously reported condensed consolidated balance sheets and condensed consolidated statement of income for the three and six months ended November 1, 2008. Note 2 of this Form 10-Q/A discloses previously reported results as well as the restated results in our unaudited Condensed Consolidated Financial Statements for the three and six months ended November 1, 2008.
No attempt has been made in the Form 10-Q/A to update disclosures presented in the original Form 10-Q as filed except those items affected by the recognition of the previously unrecorded loan currency loss. Furthermore, this Form 10-Q/A does not reflect events occurring after the original filing except as disclosed in the original Form 10-Q, including any changes to the exhibits affected by subsequent events. Therefore, the exhibits have not been included with this Form 10-Q/A with the exception of Exhibits 31.1, 31.2 and 32.1 new certificates by our principal executive officer and principal financial officer as required by Rule 13a-14 promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, this Form 10-Q/A should be read in conjunction with our other filings made with the SEC subsequent to the filing of the original Form 10-Q, including any amendments to those filings.
3
PART I - FINANCIAL INFORMATION
METHODE ELECTRONICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
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Restated |
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(Note 2) |
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November 1, 2008 |
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May 3, 2008 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
52,806 |
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$ |
104,305 |
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Accounts receivable, net |
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73,599 |
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85,805 |
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Inventories: |
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Finished products |
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17,369 |
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15,384 |
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Work in process |
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17,681 |
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20,715 |
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Materials |
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32,993 |
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19,850 |
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68,043 |
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55,949 |
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Deferred income taxes |
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8,485 |
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8,730 |
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Prepaid expenses and other current assets |
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6,082 |
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6,028 |
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TOTAL CURRENT ASSETS |
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209,015 |
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260,817 |
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PROPERTY, PLANT AND EQUIPMENT |
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288,166 |
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308,264 |
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Less allowances for depreciation |
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207,762 |
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217,984 |
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80,404 |
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90,280 |
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GOODWILL |
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68,085 |
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54,476 |
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INTANGIBLE ASSETS, net |
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54,184 |
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41,282 |
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OTHER ASSETS |
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26,144 |
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23,365 |
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148,413 |
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119,123 |
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$ |
437,832 |
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$ |
470,220 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
32,922 |
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$ |
42,810 |
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Other current liabilities |
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25,654 |
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33,902 |
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TOTAL CURRENT LIABILITIES |
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58,576 |
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76,712 |
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OTHER LIABILITIES |
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17,211 |
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13,833 |
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DEFERRED COMPENSATION |
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4,561 |
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6,890 |
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SHAREHOLDERS EQUITY |
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Common stock, $0.50 par value, 100,000,000 shares authorized, 38,283,075 and 38,225,379 shares issued as of November 1, 2008 and May 3, 2008, respectively |
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19,141 |
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19,113 |
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Unearned common stock issuances |
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(4,257 |
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(4,257 |
) |
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Additional paid-in capital |
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71,682 |
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69,953 |
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Retained earnings |
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268,363 |
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265,838 |
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Accumulated other comprehensive income |
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13,935 |
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28,381 |
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Treasury stock, 1,342,588 and 702,708 shares as of November 1, 2008 and May 3, 2008, respectively |
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(11,380 |
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(6,243 |
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357,484 |
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372,785 |
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$ |
437,832 |
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$ |
470,220 |
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See notes to condensed consolidated financial statements.
4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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Restated |
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Restated |
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(Note 2) |
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(Note 2) |
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November 1, |
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October 27, |
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November 1, |
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October 27, |
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2008 |
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2007 |
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2008 |
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2007 |
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INCOME |
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Net sales |
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$ |
121,304 |
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$ |
133,239 |
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$ |
255,818 |
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$ |
258,248 |
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Other |
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959 |
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527 |
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1,692 |
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673 |
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122,263 |
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133,766 |
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257,510 |
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258,921 |
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COSTS AND EXPENSES |
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Cost of products sold |
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97,815 |
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105,900 |
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203,245 |
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204,235 |
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Restructuring |
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6,284 |
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11,201 |
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Selling and administrative expenses |
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18,650 |
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16,107 |
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35,102 |
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32,071 |
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122,749 |
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122,007 |
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249,548 |
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236,306 |
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Income/(loss) from operations |
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(486 |
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11,759 |
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7,962 |
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22,615 |
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Interest income, net |
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469 |
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611 |
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1,003 |
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1,047 |
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Other, net |
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(610 |
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(941 |
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(879 |
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(1,161 |
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Income before income taxes |
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(627 |
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11,429 |
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8,086 |
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22,501 |
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Income taxes/(benefit) |
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(865 |
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2,623 |
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1,032 |
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5,423 |
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NET INCOME |
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$ |
238 |
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$ |
8,806 |
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$ |
7,054 |
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$ |
17,078 |
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Amounts per common share: |
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Basic net income |
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$ |
0.01 |
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$ |
0.24 |
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$ |
0.19 |
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$ |
0.46 |
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Diluted net income |
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$ |
0.01 |
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$ |
0.24 |
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$ |
0.19 |
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$ |
0.46 |
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Cash dividends: |
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Common stock |
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$ |
0.07 |
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$ |
0.05 |
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$ |
0.12 |
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$ |
0.10 |
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Weighted average number of Common Shares outstanding: |
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Basic |
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37,068 |
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37,079 |
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37,120 |
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37,033 |
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Diluted |
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37,551 |
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37,467 |
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37,584 |
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37,476 |
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See notes to condensed consolidated financial statements.
5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
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Six Months Ended |
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Restated |
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(Note 2) |
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November 1, 2008 |
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October 27, 2007 |
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OPERATING ACTIVITIES |
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Net income |
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$ |
7,054 |
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$ |
17,078 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Non-cash translation loss |
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2,463 |
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Provision for depreciation |
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12,489 |
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9,939 |
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Impairment of assets |
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3,177 |
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Amortization of intangibles |
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3,052 |
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2,739 |
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Amortization of stock awards and stock options |
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1,605 |
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1,602 |
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Changes in operating assets and liabilities |
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(1,160 |
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10,587 |
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Other |
|
735 |
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174 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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29,415 |
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42,119 |
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INVESTING ACTIVITIES |
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Purchases of property, plant and equipment |
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(9,557 |
) |
(10,082 |
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Proceeds from sale of building |
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960 |
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Acquisition of businesses |
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(56,785 |
) |
(7,350 |
) |
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Acquisition of technology licenses |
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(225 |
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(346 |
) |
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Joint venture dividend |
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(1,000 |
) |
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Other |
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(209 |
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(346 |
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NET CASH USED IN INVESTING ACTIVITIES |
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(66,776 |
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(18,164 |
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FINANCING ACTIVITIES |
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Repurchase of common stock |
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(5,137 |
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Proceeds from exercise of stock options |
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110 |
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1,145 |
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Tax benefit from stock options and awards |
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46 |
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190 |
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Cash dividends |
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(4,528 |
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(3,781 |
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NET CASH USED IN FINANCING ACTIVITIES |
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(9,509 |
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(2,446 |
) |
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Effect of foreign currency exchange rate changes on cash |
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(4,629 |
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1,250 |
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INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
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(51,499 |
) |
22,759 |
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Cash and cash equivalents at beginning of period |
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104,305 |
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60,091 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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$ |
52,806 |
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$ |
82,850 |
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See notes to condensed consolidated financial statements.
6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
November 1, 2008
1. BASIS OF PRESENTATION
Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966. As used herein, we, us, our, the Company or Methode means Methode Electronics, Inc. and its subsidiaries. The condensed consolidated financial statements and related disclosures as of November 1, 2008 and results of operations for the three months and six months ended November 1, 2008 and October 27, 2007 are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The May 3, 2008 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the financial statements included in our latest Form 10-K for the year ended May 3, 2008 filed with the SEC on July 17, 2008. Results may vary from quarter to quarter for reasons other than seasonality.
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
We have restated our balance sheet as of November 1, 2008 and the related statement of income and cash flows. We discovered an error related to unrealized currency exchange losses arising from an intercompany loan between our corporate headquarters and one of our foreign subsidiaries in conjunction with a recent acquisition of Hetronic, L.L.C., purchased on September 30, 2008. The loan amount was $20,858. Due to the U.S. Dollar increasing versus the Euro, from 0.6923 on September 30, 2008 to 0.7850 on November 1, 2008, an unrealized currency loss of $2,463 should have been recorded during the second quarter.
The effects of the restatement are as follows:
· Adjustment to the November 1, 2008 condensed consolidated balance sheet decreases retained earnings by $2,463 from $270,826 as previously reported, to $268,363 and increases the accumulated other comprehensive income by $2,463 from $11,472 as previously reported, to $13,935.
· Adjustment to the three months ended November 1, 2008 condensed consolidated statement of income decreases other income by $2,463 from $1,853 as previously reported to an expense of $610. Net income for the three months ended November 1, 2008 decreased $2,463 from $2,701 as previously reported to $238. Basic and diluted earnings per share both decreased $0.06, from $0.07 as previously reported to $0.01.
· Adjustment to the six months ended November 1, 2008 condensed consolidated statement of income decreases other income by $2,463 from $1,584 as previously reported to an expense of $879. Net income for the six months ended November 1, 2008 decreased $2,463 from $9,517 as previously reported to $7,054. Basic earnings per share decreased $0.07, from $0.26 as previously reported to $0.19. Diluted earnings per share decreased $0.06, from $0.25 as previously reported to $0.19.
· Adjustment to the six months ended November 1, 2008 condensed consolidated statement of cash flows decreases net income by $2,463, from $9,517 as previously reported to $7,054. In addition, a non-cash charge of $2,463 was added back to the operating activities section of the condensed consolidated statement of cash flows.
7
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
The effect of the adjustments discussed on the previous page for the Condensed Consolidated Balance Sheet at November 1, 2008 is illustrated below:
METHODE ELECTRONICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
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As Reported |
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|
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Restated |
|
|||
|
|
November 1, 2008 |
|
Adjustment |
|
November 1, 2008 |
|
|||
|
|
(Unaudited) |
|
|
|
|
|
|||
ASSETS |
|
|
|
|
|
|
|
|||
CURRENT ASSETS |
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
52,806 |
|
$ |
|
|
$ |
52,806 |
|
Accounts receivable, net |
|
73,599 |
|
|
|
73,599 |
|
|||
Inventories: |
|
|
|
|
|
|
|
|||
Finished products |
|
17,369 |
|
|
|
17,369 |
|
|||
Work in process |
|
17,681 |
|
|
|
17,681 |
|
|||
Materials |
|
32,993 |
|
|
|
32,993 |
|
|||
|
|
68,043 |
|
|
|
68,043 |
|
|||
Deferred income taxes |
|
8,485 |
|
|
|
8,485 |
|
|||
Prepaid expenses and other current assets |
|
6,082 |
|
|
|
6,082 |
|
|||
TOTAL CURRENT ASSETS |
|
209,015 |
|
|
|
209,015 |
|
|||
|
|
|
|
|
|
|
|
|||
PROPERTY, PLANT AND EQUIPMENT |
|
288,166 |
|
|
|
288,166 |
|
|||
Less allowances for depreciation |
|
207,762 |
|
|
|
207,762 |
|
|||
|
|
80,404 |
|
|
|
80,404 |
|
|||
|
|
|
|
|
|
|
|
|||
GOODWILL |
|
68,085 |
|
|
|
68,085 |
|
|||
INTANGIBLE ASSETS, net |
|
54,184 |
|
|
|
54,184 |
|
|||
OTHER ASSETS |
|
26,144 |
|
|
|
26,144 |
|
|||
|
|
148,413 |
|
|
|
148,413 |
|
|||
|
|
$ |
437,832 |
|
$ |
|
|
$ |
437,832 |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
32,922 |
|
$ |
|
|
$ |
32,922 |
|
Other current liabilities |
|
25,654 |
|
|
|
25,654 |
|
|||
TOTAL CURRENT LIABILITIES |
|
58,576 |
|
|
|
58,576 |
|
|||
|
|
|
|
|
|
|
|
|||
OTHER LIABILITIES |
|
17,211 |
|
|
|
17,211 |
|
|||
DEFERRED COMPENSATION |
|
4,561 |
|
|
|
4,561 |
|
|||
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|||
Common stock, $0.50 par value, 100,000,000 shares authorized, 38,283,075 and 38,225,379 shares issued as of November 1, 2008 and May 3, 2008, respectively |
|
19,141 |
|
|
|
19,141 |
|
|||
Unearned common stock issuances |
|
(4,257 |
) |
|
|
(4,257 |
) |
|||
Additional paid-in capital |
|
71,682 |
|
|
|
71,682 |
|
|||
Retained earnings |
|
270,826 |
|
(2,463 |
) |
268,363 |
|
|||
Accumulated other comprehensive income |
|
11,472 |
|
2,463 |
|
13,935 |
|
|||
Treasury stock, 1,342,588 and 702,708 shares as of November 1, 2008 and May 3, 2008, respectively |
|
(11,380 |
) |
|
|
(11,380 |
) |
|||
|
|
357,484 |
|
|
|
357,484 |
|
|||
|
|
$ |
437,832 |
|
$ |
|
|
$ |
437,832 |
|
See notes to condensed consolidated financial statements.
8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
The effect of the adjustments discussed above on the Condensed Consolidated Income Statement for the three months ended as of November 1, 2008 is illustrated below.
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
|
|
Three Months Ended |
|
|||||||
|
|
As Reported |
|
|
|
Restated |
|
|||
|
|
November 1, |
|
|
|
November 1, |
|
|||
|
|
2008 |
|
Adjustment |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|||
INCOME |
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
121,304 |
|
$ |
|
|
$ |
121,304 |
|
Other |
|
959 |
|
|
|
959 |
|
|||
|
|
122,263 |
|
|
|
122,263 |
|
|||
|
|
|
|
|
|
|
|
|||
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|||
Cost of products sold |
|
97,815 |
|
|
|
97,815 |
|
|||
Restructuring |
|
6,284 |
|
|
|
6,284 |
|
|||
Selling and administrative expenses |
|
18,650 |
|
|
|
18,650 |
|
|||
|
|
122,749 |
|
|
|
122,749 |
|
|||
Income/(loss) from operations |
|
(486 |
) |
|
|
(486 |
) |
|||
|
|
|
|
|
|
|
|
|||
Interest income, net |
|
469 |
|
|
|
469 |
|
|||
Other, net |
|
1,853 |
|
(2,463 |
) |
(610 |
) |
|||
Income before income taxes |
|
1,836 |
|
(2,463 |
) |
(627 |
) |
|||
|
|
|
|
|
|
|
|
|||
Income taxes/(benefit) |
|
(865 |
) |
|
|
(865 |
) |
|||
|
|
|
|
|
|
|
|
|||
NET INCOME |
|
$ |
2,701 |
|
$ |
(2,463 |
) |
$ |
238 |
|
|
|
|
|
|
|
|
|
|||
Amounts per common share: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Basic net income |
|
$ |
0.07 |
|
$ |
(0.06 |
) |
$ |
0.01 |
|
Diluted net income |
|
$ |
0.07 |
|
$ |
(0.06 |
) |
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|||
Cash dividends: |
|
|
|
|
|
|
|
|||
Common stock |
|
$ |
0.07 |
|
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|||
Weighted average number of Common Shares outstanding: |
|
|
|
|
|
|
|
|||
Basic |
|
37,068 |
|
|
|
37,068 |
|
|||
Diluted |
|
37,551 |
|
|
|
37,551 |
|
See notes to condensed consolidated financial statements.
9
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
The effect of the adjustments discussed above on the Condensed Consolidated Income Statement for the six months ended November 1, 2008 is illustrated below.
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
|
|
Six Months Ended |
|
|||||||
|
|
As Reported |
|
|
|
Restated |
|
|||
|
|
November 1, |
|
|
|
November 1, |
|
|||
|
|
2008 |
|
Adjustment |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|||
INCOME |
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
255,818 |
|
$ |
|
|
$ |
255,818 |
|
Other |
|
1,692 |
|
|
|
1,692 |
|
|||
|
|
257,510 |
|
|
|
257,510 |
|
|||
|
|
|
|
|
|
|
|
|||
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|||
Cost of products sold |
|
203,245 |
|
|
|
203,245 |
|
|||
Restructuring |
|
11,201 |
|
|
|
11,201 |
|
|||
Selling and administrative expenses |
|
35,102 |
|
|
|
35,102 |
|
|||
|
|
249,548 |
|
|
|
249,548 |
|
|||
Income/(loss) from operations |
|
7,962 |
|
|
|
7,962 |
|
|||
|
|
|
|
|
|
|
|
|||
Interest income, net |
|
1,003 |
|
|
|
1,003 |
|
|||
Other, net |
|
1,584 |
|
(2,463 |
) |
(879 |
) |
|||
Income before income taxes |
|
10,549 |
|
(2,463 |
) |
8,086 |
|
|||
|
|
|
|
|
|
|
|
|||
Income taxes/(benefit) |
|
1,032 |
|
|
|
1,032 |
|
|||
|
|
|
|
|
|
|
|
|||
NET INCOME |
|
$ |
9,517 |
|
$ |
(2,463 |
) |
$ |
7,054 |
|
|
|
|
|
|
|
|
|
|||
Amounts per common share: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Basic net income |
|
$ |
0.26 |
|
$ |
(0.07 |
) |
$ |
0.19 |
|
Diluted net income |
|
$ |
0.25 |
|
$ |
(0.06 |
) |
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|||
Cash dividends: |
|
|
|
|
|
|
|
|||
Common stock |
|
$ |
0.07 |
|
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|||
Weighted average number of Common Shares outstanding: |
|
|
|
|
|
|
|
|||
Basic |
|
37,120 |
|
|
|
37,120 |
|
|||
Diluted |
|
37,584 |
|
|
|
37,584 |
|
See notes to condensed consolidated financial statements.
10
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
The effect of the adjustments discussed above on the condensed consolidated cash flow statement for the six months ended as of November 1, 2008 is illustrated below.
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
Six Months Ended |
|
|||||||
|
|
As Reported |
|
|
|
Restated |
|
|||
|
|
November 1, 2008 |
|
Adjustment |
|
November 1, 2008 |
|
|||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|||
Net income |
|
$ |
9,517 |
|
$ |
(2,463 |
) |
$ |
7,054 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|||
Non-cash translation loss |
|
|
|
2,463 |
|
2,463 |
|
|||
Provision for depreciation |
|
12,489 |
|
|
|
12,489 |
|
|||
Impairment of assets |
|
3,177 |
|
|
|
3,177 |
|
|||
Amortization of intangibles |
|
3,052 |
|
|
|
3,052 |
|
|||
Amortization of stock awards and stock options |
|
1,605 |
|
|
|
1,605 |
|
|||
Changes in operating assets and liabilities |
|
(1,160 |
) |
|
|
(1,160 |
) |
|||
Other |
|
735 |
|
|
|
735 |
|
|||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
29,415 |
|
|
|
29,415 |
|
|||
|
|
|
|
|
|
|
|
|||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|||
Purchases of property, plant and equipment |
|
(9,557 |
) |
|
|
(9,557 |
) |
|||
Proceeds from sale of building |
|
|
|
|
|
|
|
|||
Acquisition of businesses |
|
(56,785 |
) |
|
|
(56,785 |
) |
|||
Acquisition of technology licenses |
|
(225 |
) |
|
|
(225 |
) |
|||
Joint venture dividend |
|
|
|
|
|
|
|
|||
Other |
|
(209 |
) |
|
|
(209 |
) |
|||
NET CASH USED IN INVESTING ACTIVITIES |
|
(66,776 |
) |
|
|
(66,776 |
) |
|||
|
|
|
|
|
|
|
|
|||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|||
Repurchase of common stock |
|
(5,137 |
) |
|
|
(5,137 |
) |
|||
Proceeds from exercise of stock options |
|
110 |
|
|
|
110 |
|
|||
Tax benefit from stock options and awards |
|
46 |
|
|
|
46 |
|
|||
Cash dividends |
|
(4,528 |
) |
|
|
(4,528 |
) |
|||
NET CASH USED IN FINANCING ACTIVITIES |
|
(9,509 |
) |
|
|
(9,509 |
) |
|||
|
|
|
|
|
|
|
|
|||
Effect of foreign currency exchange rate changes on cash |
|
(4,629 |
) |
|
|
(4,629 |
) |
|||
|
|
|
|
|
|
|
|
|||
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
(51,499 |
) |
|
|
(51,499 |
) |
|||
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at beginning of period |
|
104,305 |
|
|
|
104,305 |
|
|||
|
|
|
|
|
|
|
|
|||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
52,806 |
|
|
|
$ |
52,806 |
|
|
See notes to condensed consolidated financial statements.
11
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
3. RECENT ACCOUNTING PRONOUNCEMENTS
We adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (SFAS No. 157) as of May 4, 2008 for financial assets and liabilities, and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 defines fair value, establishes a framework for measuring fair value as required by other accounting pronouncements and expands fair value measurement disclosures. The provisions of SFAS No. 157 are applied prospectively upon adoption and did not have a material impact on our condensed consolidated financial statements. The disclosures required by SFAS No. 157 are included in Note 12, Fair Value Measurements, to our condensed consolidated financial statements.
In February 2008, the FASB issued FASB Staff Position No. 157-2, which delays the effective date of SFAS No. 157 for non-financial assets and liabilities, which are not measured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008, which is our fiscal year 2010 that begins May 3, 2009. We are currently assessing the impact of adopting SFAS No. 157 for non-financial assets and liabilities on our condensed consolidated financial statements.
We adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 (SFAS No. 159) as of May 4, 2008. SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. We did not elect the fair value option for any assets or liabilities, which were not previously carried at fair value. Accordingly, the adoption of SFAS No. 159 had no impact on our condensed consolidated financial statements.
We adopted Emerging Issues Task Force (EITF) No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF No. 06-4) as of May 4, 2008. EITF No. 06-4 requires that endorsement split-dollar life insurance arrangements, which provide a benefit to an employee beyond the postretirement period be recorded in accordance with SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions or Accounting Principle Board (APB) Opinion No. 12, Omnibus Opinion1967 based on the substance of the agreement with the employee. The adoption of EITF No. 06-4 had no impact on our condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS No. 141R), a revision of SFAS No. 141, Business Combinations. SFAS No. 141R establishes requirements for the recognition and measurement of acquired assets, liabilities, goodwill and non-controlling interests. SFAS No. 141R also provides disclosure requirements related to business combinations. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year 2010 that begins May 3, 2009. SFAS No. 141R will be applied prospectively to business combinations with an acquisition date on or after the effective date. This statement will generally affect acquisitions occurring after the adoption date.
In December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes new standards for the accounting for and reporting of non-controlling interests (formerly minority interests) and for the loss of control of partially owned and consolidated subsidiaries. SFAS No. 160 does not change the criteria for consolidating a partially owned entity. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year 2010 that begins May 3, 2009. The provisions of SFAS No. 160 will be applied prospectively upon adoption except for the presentation and disclosure requirements, which will be applied retrospectively. We do not expect the adoption of SFAS No. 160 to have a material impact on our condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133 (SFAS No. 161). SFAS No. 161 requires enhanced disclosures about an entitys derivative and hedging activities and is effective for fiscal years and interim periods beginning after November 15, 2008, which is our fiscal year 2010 that begins May 3, 2009. We do not believe the adoption of SFAS No. 161 will have a material impact on our condensed consolidated financial statements.
12
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
3. RECENT ACCOUNTING PRONOUNCEMENTS - Continued
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. This provision of FSP 142-3 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, which is our fiscal year 2010 that begins May 3, 2009. Early adoption is prohibited. Since this guidance will be applied prospectively, on adoption, there will be no impact to our financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles . We do not believe the adoption of this standard will have a material impact on our condensed consolidated financial statements.
4. RESTRUCTURING
On January 24, 2008, we announced a restructuring of our U.S.-based automotive operations and a decision to discontinue producing certain legacy products in the Interconnect segment. The Automotive and Interconnect restructuring is expected to be completed during fiscal 2010. We record the expense in the restructuring section of our condensed consolidated statement of income. We estimate that we will record additional pre-tax charges through fiscal 2010 of between $5,000 and $10,000, of which $2,000 to $3,000 will relate to the termination of approximately 550 employees and the cost of one-time employee benefits, retention, COBRA and outplacement services. During the second quarter of fiscal 2009, we recorded impairment charges on our fixed assets of $2,705 and $472 for the Automotive and Interconnect segments, respectively. Based on the rules of SFAS No. 144, we concluded that the future estimated cash flows did not support the current net book values of the assets (before the impairment adjustment) due to lower forecasted sales in the Automotive and Interconnect segments. We will continue to perform periodic impairment testing, if indicators exist, and will record any charges incurred as per SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144) in the period when impairment is incurred.
During the fiscal quarter ended November 1, 2008, we recorded a restructuring charge of $6,284, which consisted of $1,609 for employee severance, $4,350 in impairment and accelerated depreciation for buildings and improvements and machinery and equipment and $325 relating to professional fees. As of November 1, 2008, we had an accrued restructuring liability of $5,297 reflected in the current liabilities section of our condensed consolidated balance sheet. We expect the majority of this liability to be paid out during fiscal 2010.
During the six months ended November 1, 2008, we recorded a restructuring charge of $11,201, which consisted of $4,430 for employee severance, $5,900 in impairments and accelerated depreciation for buildings and improvements and machinery and equipment, $153 in inventory write-downs and $718 relating to professional fees.
13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
The table below reflects the activity for restructuring as of November 1, 2008:
|
|
One-Time |
|
|
|
|
|
|
|
||||
|
|
Employee |
|
Asset |
|
Other |
|
|
|
||||
|
|
Benefits |
|
Write-Downs |
|
Costs |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
FY 2008 restructuring charges |
|
$ |
3,355 |
|
$ |
1,346 |
|
$ |
458 |
|
$ |
5,159 |
|
Payments and asset write-downs |
|
(203 |
) |
(1,346 |
) |
(434 |
) |
(1,983 |
) |
||||
Accrued balance at May 3, 2008 |
|
3,152 |
|
|
|
24 |
|
3,176 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
First Quarter FY 2009 restructuring charges |
|
2,821 |
|
1,703 |
|
393 |
|
4,917 |
|
||||
Payments and asset write-downs |
|
(1,556 |
) |
(1,703 |
) |
(417 |
) |
(3,676 |
) |
||||
Accrued balance at August 2, 2008 |
|
4,417 |
|
|
|
|
|
4,417 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Second Quarter FY 2009 restructuring charges |
|
1,609 |
|
4,350 |
|
325 |
|
6,284 |
|
||||
Payments and asset write-downs |
|
(729 |
) |
(4,350 |
) |
(325 |
) |
(5,404 |
) |
||||
Accrued balance at November 1, 2008 |
|
5,297 |
|
|
|
|
|
5,297 |
|
||||
5. COMPREHENSIVE INCOME/(LOSS)
The components of our comprehensive income/(loss) for the three months and six months ended November 1, 2008 and October 27, 2007 include net income and adjustments to stockholders equity for foreign currency translations. The foreign currency translation adjustment was due to exchange rate fluctuations in our foreign affiliates local currency versus the U.S. dollar.
The following table presents details of our comprehensive income/(loss):
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
Restated |
|
|
|
Restated |
|
|
|
||||
|
|
(Note 2) |
|
|
|
(Note 2) |
|
|
|
||||
|
|
November 1, |
|
October 27, |
|
November 1, |
|
October 27, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
238 |
|
$ |
8,806 |
|
$ |
7,054 |
|
$ |
17,078 |
|
Translation adjustment |
|
(16,181 |
) |
4,309 |
|
(14,446 |
) |
4,061 |
|
||||
Total comprehensive income/(loss) |
|
$ |
(15,943 |
) |
$ |
13,115 |
|
$ |
(7,392 |
) |
$ |
21,139 |
|
6. GOODWILL AND INTANGIBLE ASSETS
We review our goodwill and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable, and we also review our goodwill annually in accordance with SFAS No. 142, Goodwill and Other Intangibles. The values assigned to goodwill and intangible assets are normally based on estimates and judgments regarding expectations for the success and life cycle of products and technologies acquired. A severe decline in expectations could result in significant impairment charges, which could have a material adverse effect on our business, financial condition and results of operations.
14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
6. GOODWILL AND INTANGIBLE ASSETS - Continued
One potential indicator of goodwill and other intangible asset impairment is whether our fair value, as measured by our market capitalization, has remained below our net book value for a significant period of time. During the second quarter of fiscal 2009, the lowest closing price of our common stock was $6.11, as reported by the New York Stock Exchange, which corresponds to a market capitalization of approximately $231,197, compared to our November 1, 2008 net book value of approximately $357,484. Based on this event and general business declines, including the Automotive segment, we performed step one of the goodwill impairment test in accordance with paragraph 19 of SFAS No. 142, on the reporting units that have goodwill as of November 1, 2008. Based on this test, we determined that the fair value was less than the carrying value of the net assets for certain reporting units. We have not yet completed step two of the impairment test, and, as of the filing of this 10-Q, impairment is possible but is not reasonably estimable. The amount of goodwill associated to these reporting units is $29,237.
In accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. During the second quarter of 2009, events and circumstances indicated that $15,192 million of identifiable intangible assets of the TouchSensor business might be impaired. However, the Companys estimate of undiscounted cash flows indicated that such carrying amounts are expected to be recovered. Nonetheless, it is reasonably possible that the estimate of undiscounted cash flows may change in the near term resulting in the need to write down those assets to fair value.
On September 30, 2008, we acquired certain assets of Hetronic LLC (Hetronic) for $53,639 in cash. We also incurred $2,367 in transaction costs related to the purchase. Hetronic is a global leader in industrial safety radio remote controls with locations in the U.S., Malta, the Philippines and Germany. Hetronic is represented in 45 countries by direct sales associates, licensed partners, distributors and representatives. Hetronic provides application specific and standard controls to many different industries, such as material handling, transportation, mining, military, agriculture and construction.
On a preliminary basis, based on a third-party valuation report, the tangible net assets acquired had a fair value of $27,265. The fair values assigned to intangible assets acquired were $11,430 for customer relationships, $2,700 for the trade name and trademarks, $1,500 for technology valuation, and $260 for non-compete, resulting in $12,851 of goodwill. The customer relationships, technology valuation and non-compete will be amortized over 5 to approximately 12 years. The trade name and trademarks are not subject to amortization but will be subject to periodic impairment testing. The accounts and transactions of Hetronic have been included in the Interconnect segment in the consolidated financial statements from the effective date of the acquisition. Based on the nature of the Hetronic business, a significant portion of their inventory is raw material. This is the primary reason why the total company consolidated raw material inventory increased as of November 1, 2008 as compared to April 28, 2008.
In connection with the Power Products segments acquisition of Cableco Technologies in fiscal 2005, additional contingent consideration may be due if certain operational and financial targets are met. Additional goodwill of up to $4,257 may result from future contingent payments for this acquisition.
On August 31, 2007, we acquired 100% of the assets of Value Engineered Products, Inc. (VEP) for $5,750 in cash, plus transaction costs of $79. VEP is a thermal management solutions provider, manufacturing heat sinks and related products for high-powered applications. These components complement our Power Products product offerings and, in some instances, are joined with bus bars to aid thermal management of power systems. The terms of the acquisition provided for an additional payment of up to a maximum of $1,000 if sales reached specified targets during the twelve-month period following the close. The final payout was $758, recorded in the second quarter of fiscal 2009.
15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
6. GOODWILL AND INTANGIBLE ASSETS - Continued
Based on a third-party valuation report, the tangible net assets acquired in the VEP transaction had a fair value of $915. The fair values assigned to intangible assets acquired were $2,900 for customer relationships, $600 for trademarks, resulting in $2,172 of goodwill. The customer relationships acquired are being amortized over a period of approximately 16 years, which began in September 2007. The trademark intangible assets are not subject to amortization but will be subject to periodic impairment testing. The accounts and transactions of the acquired business have been included in the Power Products segment in the consolidated financial statements from the effective date of the acquisition.
The following tables present details of the Companys intangible assets:
|
|
As of November 1, 2008 |
|
|||||||
|
|
|
|
Accumulated |
|
|
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
|||
Customer relationships and agreements |
|
$ |
52,517 |
|
$ |
21,324 |
|
$ |
31,193 |
|
Patents and technology licenses |
|
29,077 |
|
6,531 |
|
22,546 |
|
|||
Covenants not to compete |
|
2,740 |
|
2,295 |
|
445 |
|
|||
Total |
|
$ |
84,334 |
|
$ |
30,150 |
|
$ |
54,184 |
|
|
|
As of May 3, 2008 |
|
|||||||
|
|
|
|
Accumulated |
|
|
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
|||
Customer relationships and agreements |
|
$ |
41,324 |
|
$ |
19,168 |
|
$ |
22,156 |
|
Patents and technology licenses |
|
24,692 |
|
5,795 |
|
18,897 |
|
|||
Covenants not to compete |
|
2,480 |
|
2,251 |
|
229 |
|
|||
Total |
|
$ |
68,496 |
|
$ |
27,214 |
|
$ |
41,282 |
|
The intangible assets for customer relationships and agreements includes $1,840 and $2,278 as of November 1, 2008 and May 3, 2008, respectively, of net value assigned to a supply agreement with Delphi Corporation. Delphi is currently operating under a bankruptcy petition filed on October 8, 2005. We continue to supply product to Delphi post-petition pursuant to this supply agreement and have determined that the value of the supply agreement has not been impaired.
The estimated aggregate amortization expense for fiscal 2009 and each of the four succeeding fiscal years is as follows:
2009 |
|
$ |
7,570 |
|
2010 |
|
8,496 |
|
|
2011 |
|
7,340 |
|
|
2012 |
|
5,671 |
|
|
2013 |
|
4,415 |
|
7. INCOME TAXES
We recognize interest and penalties accrued related to the unrecognized tax benefits in the provision for income taxes. During the three months and six months ended November 1, 2008, we recognized $75 and $42 in interest, respectively and zero in penalties. We had approximately $901 for the payment of interest and zero for the payment of penalties accrued at November 1, 2008. The total unrecognized tax benefits as of November 1, 2008 was $5,770.
We believe that it is reasonably possible that the total amount of unrecognized tax benefits will change within the next twelve months. We have certain tax return years subject to statutes of limitation, which will close
16
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
7. INCOME TAXES - Continued
within twelve months of the end of the quarter. Unless challenged by tax authorities, the closure of those statutes of limitation is expected to result in the recognition of uncertain tax positions in the amount of $493.
The Company and all of its domestic subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Our foreign subsidiaries file income tax returns in certain foreign jurisdictions since they have operations outside the U.S. The Company and its subsidiaries are generally no longer subject to U.S. federal, state and local examinations by tax authorities for years before fiscal year 2005.
8. COMMON STOCK AND STOCK-BASED COMPENSATION
The following table sets forth the changes in the number of issued shares of common stock during the six month period presented:
|
|
Six Months Ended |
|
||
|
|
November 1, |
|
October 27, |
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
Balance at the beginning of the period |
|
38,225,379 |
|
37,950,829 |
|
Options exercised |
|
19,089 |
|
100,730 |
|
Restricted stock awards vested |
|
38,607 |
|
46,967 |
|
Balance at the end of the period |
|
38,283,075 |
|
38,098,526 |
|
We paid quarterly dividends of $2,633 and $1,895 on October 31, 2008 and August 1, 2008, respectively. We intend to retain the remainder of our earnings not used for dividend payments to provide funds for the operation and expansion of our business. Our Board of Directors approved a stock repurchase plan on September 18, 2008 to repurchase up to 3,000,000 shares. The plan expires at the end of fiscal 2010. There were 639,880 shares purchased during the second quarter of fiscal 2009 at an average price of $8.03 per share.
The following tables summarize the stock option activity and related information for the six months ended November 1, 2008:
|
|
Summary of Option Activity |
|
|||
|
|
|
|
Wtd. Avg. |
|
|
|
|
Shares |
|
Exercise Price |
|
|
Outstanding at May 3, 2008 |
|
689,689 |
|
$ |
10.26 |
|
Exercised |
|
(19,089 |
) |
5.90 |
|
|
Forfeited |
|
(15,921 |
) |
11.68 |
|
|
Outstanding at November 1, 2008 |
|
654,679 |
|
10.35 |
|
|
Options Outstanding and |
|
|||||||
Exercisable at November 1, 2008 |
|
|||||||
|
|
|
|
Wtd. Avg. |
|
Avg. |
|
|
Range of |
|
|
|
Exercise |
|
Remaining |
|
|
Exercise Prices |
|
Shares |
|
Price |
|
Life (Years) |
|
|
$5.12 - $7.69 |
|
161,025 |
|
$ |
6.71 |
|
2.5 |
|
$8.08 - $11.64 |
|
353,305 |
|
10.58 |
|
2.4 |
|
|
$12.11 - $17.66 |
|
140,349 |
|
13.94 |
|
1.5 |
|
|
|
|
654,679 |
|
10.35 |
|
|
|
|
The aggregate intrinsic value of all options outstanding at November 1, 2008 was $142.
17
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
8. COMMON STOCK AND STOCK-BASED COMPENSATION - Continued
Prior to June 21, 2007, we had three active stock plans, the Methode Electronics, Inc. 1997 Stock Plan, the Methode Electronics, Inc. 2000 Stock Plan, and the Methode Electronics, Inc. 2004 Stock Plan. No options were granted under the Plans since the first quarter of fiscal 2005. As of November 1, 2008, we had 654,679 unexercised stock options, all of which are fully vested and have a term of ten years. There is no remaining unrecognized compensation expense relating to the stock options.
In April 2007, 225,000 shares of common stock subject to performance-based Restricted Stock Awards (RSAs) granted to our CEO in fiscal 2006 and 2007 were converted to Restricted Stock Units (RSUs). The RSUs are subject to the same vesting schedule and other major provisions of the RSAs they replaced, except the RSUs are not payable until the earlier of: (1) thirty days after the CEOs date of termination of employment with the Company and all of its subsidiaries and affiliates; or (2) the last day of our fiscal year in which the payment of common stock in satisfaction of the RSUs becomes deductible to the Company under Section 162(m) of the Internal Revenue Code. All further discussion of RSAs in this report includes the RSUs described above.
At the beginning of fiscal year 2009, there were 582,298 performance-based and time-based RSAs outstanding. The time-based RSAs vest in three equal annual installments from the grant date. All RSAs awarded to senior management are performance-based and vest after three years if the recipient remains employed by the Company until that date and we have met certain revenue growth and return on invested capital targets. All of the unvested RSAs are entitled to voting rights and to payment of dividends. During the six months ended November 1, 2008, we awarded 340,665 restricted stock awards. Of the shares granted, 24,000 shares vest immediately upon grant, 256,565 are performance-based RSAs and 60,100 are time-based RSAs.
We recognized pre-tax compensation expense for RSAs of $1,603 and $1,591 in the six months ended November 1, 2008 and October 27, 2007, respectively. We record the expense in the selling and administrative section of our condensed consolidated statement of income.
18
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
8. COMMON STOCK AND STOCK-BASED COMPENSATION - Continued
The following table summarizes the RSA activity for the six months ended November 1, 2008:
|
|
Shares |
|
Unvested at May 3, 2008 |
|
582,298 |
|
Awarded |
|
340,665 |
|
Vested |
|
(24,332 |
) |
Forfeited |
|
|
|
Unvested at November 1, 2008 |
|
898,631 |
|
The table below shows the Companys unvested RSAs at November 1, 2008:
|
|
|
|
|
|
|
|
Probable |
|
Target |
|
|
|
|
|
|
|
|
|
Unearned |
|
Unearned |
|
Grant |
|
|
|
|
|
Weighted |
|
Compensation |
|
Compensation |
|
Fiscal |
|
|
|
|
|
Average |
|
Expense at |
|
Expense at |
|
Year |
|
RSAs |
|
Vesting Period |
|
Value |
|
November 1, 2008 |
|
November 1, 2008 |
|
2006 |
|
832 |
|
3-year equal annual installments |
|
10.84 |
|
|
|
|
|
2006 |
|
125,000 |
|
3-year cliff |
|
12.42 |
|
|
|
|
|
2007 |
|
24,757 |
|
3-year equal annual installments |
|
7.87 |
|
27 |
|
27 |
|
2007 |
|
227,750 |
|
3-year cliff |
|
7.79 |
|
307 |
|
307 |
|
2008 |
|
38,954 |
|
3-year equal annual installments |
|
14.97 |
|
218 |
|
218 |
|
2008 |
|
164,673 |
|
3-year cliff |
|
15.14 |
|
1,388 |
|
1,388 |
|
2009 |
|
60,100 |
|
3-year equal annual installments |
|
11.35 |
|
509 |
|
509 |
|
2009 |
|
256,565 |
|
3-year cliff |
|
11.35 |
|
2,509 |
|
2,509 |
|
At November 1, 2008, the aggregate unvested RSAs had a weighted average fair value of $11.35 and a weighted average vesting period of approximately 16 months.
19
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
9. EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing net earnings by the weighted average number of common shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the numerator and the denominator of the basic EPS calculation for the effect of all potential dilutive common shares outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
Restated |
|
|
|
Restated |
|
|
|
||||
|
|
(Note 2) |
|
|
|
(Note 2) |
|
|
|
||||
|
|
November 1, |
|
October 27, |
|
November 1, |
|
October 27, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Numerator - net income |
|
$ |
238 |
|
$ |
8,806 |
|
$ |
7,054 |
|
$ |
17,078 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Denominator for basic earnings per share-weighted average shares |
|
37,068 |
|
37,079 |
|
37,120 |
|
37,033 |
|
||||
Dilutive potential common shares-employee and director stock options |
|
483 |
|
388 |
|
465 |
|
443 |
|
||||
Denominator for diluted earnings per share adjusted weighted average shares and assumed conversions |
|
37,551 |
|
37,467 |
|
37,584 |
|
37,476 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.01 |
|
$ |
0.24 |
|
$ |
0.20 |
|
$ |
0.46 |
|
Diluted |
|
$ |
0.01 |
|
$ |
0.24 |
|
$ |
0.19 |
|
$ |
0.46 |
|
Options to purchase 304,522 shares of common stock at a weighted-average exercise price of $12.54 per share were outstanding as of November 1, 2008, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock and, therefore, the effect would be antidilutive.
10. SEGMENT INFORMATION
We are a global manufacturer of component and subsystem devices. We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless, sensing and optical technologies. Our components are found in the primary end markets of the automotive, appliance, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), aerospace, rail and other transportation industries, consumer and industrial equipment markets.
We report in four operating segments Automotive, Interconnect, Power Products and Other. The Companys systems are not designed to capture information by smaller product groups and it would be impracticable to breakdown the Companys sales into smaller product groups.
On January 24, 2008, we announced a restructuring of our U.S.-based automotive operations and a decision to discontinue producing certain legacy products in the Interconnect segment. During the three months ended November 1, 2008, we recorded a restructuring charge of $4,351 and $1,933 for the Automotive and Interconnect segments, respectively. During the six months ended November 1, 2008, we recorded a restructuring charge of $7,514 and $3,687 for the Automotive and Interconnect segments, respectively.
20
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
10. SEGMENT INFORMATION - Continued
The Automotive segment supplies electronic and electromechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers, including control switches for electrical power and signals, connectors for electrical devices, integrated control components, switches and sensors that monitor the operation or status of a component or system, and packaging of electrical components.
The Interconnect segment provides a variety of copper and fiber-optic interconnect and interface solutions for the aerospace, appliance, commercial, computer, construction, consumer, material handling, medical, military, mining, networking, storage, and telecommunications markets. Solutions include solid-state field effect interface panels, PC and express card packaging, industrial safety radio remote control, optical and copper transceivers, terminators, connectors, custom cable assemblies and conductive polymer and thick film inks. Services include the design and installation of fiber optic and copper infrastructure systems, and manufacturing of active and passive optical components.
The Power Products segment manufactures current-carrying laminated bus devices, custom power-product assemblies; powder coated bus bars, braided flexible cables and high-current low voltage flexible power cabling systems that are used in various markets and applications, including telecommunications, computers, transportation, industrial and power conversion, insulated gate bipolar transistor solutions, aerospace and military.
The Other segment includes a designer and manufacturer of magnetic torque sensing products, and independent laboratories that provide services for qualification testing and certification, and analysis of electronic and optical components.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We allocate resources to and evaluate performance of segments based on operating income. Transfers between segments are recorded using internal transfer prices set by us.
The identifiable assets for the Automotive segment decreased $34,912 to $150,993 as of November 1, 2008, compared to $185,905 as of May 3, 2008. The decrease is primarily due to restructuring charges for fixed assets and a general decrease in business. The identifiable assets for the Interconnect segment increased $47,694 to 182,106 as of November 1, 2008, compared to $134,412 as of May 3, 2008. The increase is primarily due to the acquisition of Hetronic, which was funded by Corporate.
Below is a table of identifiable assets for each segment as of November 1, 2008 and May 3, 2008:
|
|
November 1, 2008 |
|
May 3, 2008 |
|
Net Change |
|
Automotive |
|
150,993 |
|
185,905 |
|
(34,912 |
) |
Interconnect |
|
182,106 |
|
134,412 |
|
47,694 |
|
Power Products |
|
36,977 |
|
37,063 |
|
(86 |
) |
Other |
|
7,926 |
|
7,332 |
|
594 |
|
Corporate |
|
59,830 |
|
105,508 |
|
(45,678 |
) |
Total Identifiable Assets |
|
437,832 |
|
470,220 |
|
(32,388 |
) |
21
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)
10. SEGMENT INFORMATION - Continued
The table below presents information about our reportable segments:
|
|
Three Months Ended November 1, 2008 |
|
||||||||||||||||
|
|
Restated |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
(Note 2) |
|
|
|
Power |
|
|
|
|
|
|
|
||||||
|
|
Automotive |
|
Inter-Connect |
|
Distribution |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
Net sales |
|
$ |
75,207 |
|
$ |
32,146 |
|
$ |
11,676 |
|
$ |
2,556 |
|
$ |
281 |
|
$ |
121,304 |
|
Transfers between segments |
|
|
|
(143 |
) |
(112 |
) |
(26 |
) |
(281 |
) |
|
|
||||||
Net sales to unaffiliated customers |
|
$ |
75,207 |
|
$ |
32,003 |
|
$ |
11,564 |
|
$ |
2,530 |
|
$ |
|
|
$ |
121,304 |
|
Segment income (loss) before restructuring charge |
|
$ |
10,528 |
|
$ |
(638 |
) |
$ |
482 |
|
$ |
(750 |
) |
$ |
|
|
$ |
9,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restructuring |
|
(4,351 |
) |
(1,933 |
) |
|
|
|
|
|
|
(6,284 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) including restructuring charge |
|
$ |
6,177 |
|
$ |
(2,571 |
) |
$ |
482 |
|
$ |
(750 |
) |
$ |
|
|
$ |
3,338 |
|
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
(3,965 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
$ |
(627 |
) |
|
|
Three Months Ended October 27, 2007 |
|
||||||||||||||||
|
|
|
|
|
|
Power |
|
|
|
|
|
|
|
||||||
|
|
Automotive |
|
Inter-Connect |
|
Distribution |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
Net sales |
|
$ |
89,806 |
|
$ |
30,472 |
|
$ |
11,848 |
|
$ |
1,587 |
|
$ |
474 |
|
$ |
133,239 |
|
Transfers between segments |
|
|
|
(213 |
) |
(246 |
) |
(15 |
) |
(474 |
) |
|
|
||||||
Net sales to unaffiliated customers |
|
$ |
89,806 |
|
$ |
30,259 |
|
$ |
11,602 |
|
$ |
1,572 |
|
$ |
|
|
$ |
133,239 |
|
Segment income (loss) before restructuring charge |
|
$ |
13,300 |
|
$ |
1,157 |
|
$ |
2,129 |
|
$ |
(407 |
) |
$ |
|
|
$ |
16,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment income (loss) including restructuring charge |
|
$ |
13,300 |
|
$ |
1,157 |
|
$ |
2,129 |
|
$ |
(407 |
) |
$ |
|
|
$ |
16,179 |
|
Corporate expenses, net |
|
|
|
|
|
|
|
|
|
|
|
(4,750 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|