Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-Q/A

 

Amendment #1

 

(Mark One)

 

 

 

 

 

x

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the quarterly period ended November 1, 2008

 

 

 

or

 

 

 

o

 

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

 

36-2090085

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

7401 West Wilson Avenue, Harwood Heights, Illinois

 

60706-4548

(Address of principal executive offices)

 

(Zip Code)

 

(Registrant’s 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

 

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 Exchange Act).  Yes o  No x

 

At December 9, 2008, Registrant had 37,838,970 shares of common stock outstanding.

 

 

 



Table of Contents

 

METHODE ELECTRONICS, INC.

FORM 10-Q/A

November 1, 2008

 

TABLE OF CONTENTS

 

 

Page

PART I.      FINANCIAL INFORMATION

 

 

 

 

Explanatory Note

3

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Condensed consolidated balance sheets as of November 1, 2008 and May 3, 2008

4

 

 

 

 

Condensed consolidated statements of income – Three months and six months  ended November 1, 2008 and October 27, 2007

5

 

 

 

 

Condensed consolidated statements of cash flows – Six months ended  November 1, 2008 and October 27, 2007

6

 

 

 

 

Notes to condensed consolidated financial statements – November 1, 2008

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

PART II.     OTHER INFORMATION

 

 

 

Item 6.

Exhibits

45

 

 

 

SIGNATURES

46

 

 

 

INDEX TO EXHIBITS

47

 

2



Table of Contents

 

EXPLANATORY NOTE:

 

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



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Financial Statements

          METHODE ELECTRONICS, INC AND SUBSIDIARIES

          CONDENSED CONSOLIDATED BALANCE SHEETS

                (in thousands)

 

 

 

Restated

 

 

 

 

 

(Note 2)

 

 

 

 

 

November 1, 2008

 

May 3, 2008

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

52,806

 

$

104,305

 

Accounts receivable, net

 

73,599

 

85,805

 

Inventories:

 

 

 

 

 

Finished products

 

17,369

 

15,384

 

Work in process

 

17,681

 

20,715

 

Materials

 

32,993

 

19,850

 

 

 

68,043

 

55,949

 

Deferred income taxes

 

8,485

 

8,730

 

Prepaid expenses and other current assets

 

6,082

 

6,028

 

TOTAL CURRENT ASSETS

 

209,015

 

260,817

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

288,166

 

308,264

 

Less allowances for depreciation

 

207,762

 

217,984

 

 

 

80,404

 

90,280

 

 

 

 

 

 

 

GOODWILL

 

68,085

 

54,476

 

INTANGIBLE ASSETS, net

 

54,184

 

41,282

 

OTHER ASSETS

 

26,144

 

23,365

 

 

 

148,413

 

119,123

 

 

 

$

 437,832

 

$

470,220

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

 

$

32,922

 

$

42,810

 

Other current liabilities

 

25,654

 

33,902

 

TOTAL CURRENT LIABILITIES

 

58,576

 

76,712

 

 

 

 

 

 

 

OTHER LIABILITIES

 

17,211

 

13,833

 

DEFERRED COMPENSATION

 

4,561

 

6,890

 

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

 

19,113

 

Unearned common stock issuances

 

(4,257

)

(4,257

)

Additional paid-in capital

 

71,682

 

69,953

 

Retained earnings

 

268,363

 

265,838

 

Accumulated other comprehensive income

 

13,935

 

28,381

 

Treasury stock, 1,342,588 and 702,708 shares as of November 1, 2008 and May 3, 2008, respectively

 

(11,380

)

(6,243

)

 

 

357,484

 

372,785

 

 

 

$

 437,832

 

$

470,220

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

Restated

 

 

 

Restated

 

 

 

 

 

(Note 2)

 

 

 

(Note 2)

 

 

 

 

 

November 1,

 

October 27,

 

November 1,

 

October 27,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

INCOME

 

 

 

 

 

 

 

 

 

Net sales

 

$

121,304

 

$

133,239

 

$

255,818

 

$

258,248

 

Other

 

959

 

527

 

1,692

 

673

 

 

 

122,263

 

133,766

 

257,510

 

258,921

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

Cost of products sold

 

97,815

 

105,900

 

203,245

 

204,235

 

Restructuring

 

6,284

 

 

11,201

 

 

Selling and administrative expenses

 

18,650

 

16,107

 

35,102

 

32,071

 

 

 

122,749

 

122,007

 

249,548

 

236,306

 

Income/(loss) from operations

 

(486

)

11,759

 

7,962

 

22,615

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

469

 

611

 

1,003

 

1,047

 

Other, net

 

(610

)

(941

)

(879

)

(1,161

)

Income before income taxes

 

(627

)

11,429

 

8,086

 

22,501

 

 

 

 

 

 

 

 

 

 

 

Income taxes/(benefit)

 

(865

)

2,623

 

1,032

 

5,423

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

238

 

$

8,806

 

$

7,054

 

$

17,078

 

 

 

 

 

 

 

 

 

 

 

Amounts per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income

 

$

0.01

 

$

0.24

 

$

0.19

 

$

0.46

 

Diluted net income

 

$

0.01

 

$

0.24

 

$

0.19

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

Cash dividends:

 

 

 

 

 

 

 

 

 

Common stock

 

$

0.07

 

$

0.05

 

$

0.12

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Common Shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

37,068

 

37,079

 

37,120

 

37,033

 

Diluted

 

37,551

 

37,467

 

37,584

 

37,476

 

 

See notes to condensed consolidated financial statements.

 

5



Table of Contents

 

 

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 

 

 

Six Months Ended

 

 

 

Restated

 

 

 

 

 

(Note 2)

 

 

 

 

 

November 1, 2008

 

October 27, 2007

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

7,054

 

$

17,078

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Non-cash translation loss

 

2,463

 

 

Provision for depreciation

 

12,489

 

9,939

 

Impairment of assets

 

3,177

 

 

Amortization of intangibles

 

3,052

 

2,739

 

Amortization of stock awards and stock options

 

1,605

 

1,602

 

Changes in operating assets and liabilities

 

(1,160

)

10,587

 

Other

 

735

 

174

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

29,415

 

42,119

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Purchases of property, plant and equipment

 

(9,557

)

(10,082

)

Proceeds from sale of building

 

 

960

 

Acquisition of businesses

 

(56,785

)

(7,350

)

Acquisition of technology licenses

 

(225

)

(346

)

Joint venture dividend

 

 

(1,000

)

Other

 

(209

)

(346

)

NET CASH USED IN INVESTING ACTIVITIES

 

(66,776

)

(18,164

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Repurchase of common stock

 

(5,137

)

 

Proceeds from exercise of stock options

 

110

 

1,145

 

Tax benefit from stock options and awards

 

46

 

190

 

Cash dividends

 

(4,528

)

(3,781

)

NET CASH USED IN FINANCING ACTIVITIES

 

(9,509

)

(2,446

)

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

(4,629

)

1,250

 

 

 

 

 

 

 

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

 

(51,499

)

22,759

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

104,305

 

60,091

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

52,806

 

$

82,850

 

 

See notes to condensed consolidated financial statements.

 

6



Table of Contents

 

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



Table of Contents

 

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)

 

 

 

As Reported

 

 

 

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



Table of Contents

 

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



Table of Contents

 

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.

 

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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.

 

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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 Liabilities—Including 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, “Employer’s Accounting for Postretirement Benefits Other Than Pensions” or Accounting Principle Board (“APB”) Opinion No. 12, “Omnibus Opinion—1967” 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 entity’s 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.

 

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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 SEC’s 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.

 

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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.

 

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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 Company’s 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 segment’s 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.

 

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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 Company’s 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

 

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Table of Contents

 

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.

 

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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 CEO’s 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.

 

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Table of Contents

 

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 Company’s 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



Table of Contents

 

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 Company’s systems are not designed to capture information by smaller product groups and it would be impracticable to breakdown the Company’s 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.

 

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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

)

 

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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