News Release
For: | Methode Electronics, Inc. | Contact: | Joey Iske | |||||||||
7401 West Wilson Avenue | Director of Investor Relations | |||||||||||
Chicago, IL 60706 | 708-457-4060 | |||||||||||
jiske@methode.com |
Methode Electronics, Inc. Reports Fiscal 2007 Fourth Quarter and Year-End Results
CHICAGO, July 12, 2007 — Methode Electronics, Inc. (Nasdaq: METH), a global manufacturer of electronic components and subsystem devices,today announced operating results for the fourth quarter and fiscal year ended April 28, 2007.
For the fiscal 2007 fourth quarter, Methode reported net sales of $130.9 million, and net income of $12.1 million, or $0.33 per share. This compares with fiscal 2006 fourth quarter net sales of $116.3 million, and net income of $4.3 million, or $0.12 per share. Included in the fiscal 2006 fourth quarter was a tax charge of $4.5 million, or $0.12 per share, for repatriation of $38.1 million of foreign earnings, and an $0.8 million reduction to the bad debt provision, $0.6 million after tax, or $0.02 per share, on the sale of claims against Delphi pre-petition receivables. Excluding the tax charge and the reduced bad debt provision, earnings per share equaled $0.22 in the fiscal 2006 fourth quarter.
Methode achieved better than expected sales and profits in the fourth quarter, compared to previous guidance. Although Methode’s U.S. automotive business levels were down year-over-year, their sales and profit performance was much better than expected in the quarter. Growth in the Interconnect segment pushed sales above expected levels due to increased sales in China and the inclusion of TouchSensor for two months in the quarter. In addition, increased demand for Power Distribution bus bar products provided better than anticipated results.
Cost of products sold as a percentage of net sales was 77.4 percent in the fourth quarter of fiscal 2007, compared to 78.2 percent in the fiscal 2006 fourth quarter. The margins improved primarily due to favorable purchase price variance from our suppliers supporting our Shanghai Interconnect operation and production efficiencies at our Power Distribution operations in Asia and the U.S. This gross margin increase was partially offset by increased raw material and component prices in the Automotive segment, and reduced overhead absorption due to lower sales of legacy automotive products in North America.
Selling and administrative cost as a percentage of net sales was 11.7 percent in the fourth quarter of fiscal 2007, compared to 11.1 percent in the prior-year period. The increase is primarily attributable to higher stock-based compensation expense, as 2007 was the first fiscal year to reflect three annual grants of performance-based restricted stock awards that have three-year vesting periods. In the fourth quarter of fiscal 2006, selling and administrative cost benefited from a reduction in bad debt provision related to the sale of Delphi pre-petition receivables.
Methode’s fiscal 2007 fourth quarter tax provision reflects expanded business in lower rate tax jurisdictions in Malta and China, and the recognition of tax credit utilization related to a scheduled increase in the statutory rate in Malta and the transfer of manufacturing operations from Scotland to Malta. The fiscal 2006 fourth quarter tax provision included a tax charge of $4.5 million, or $0.12 per share, for repatriating $38.1 million of foreign earnings to the U.S.
For the 2007 fiscal year, Methode reported net sales of $448.4 million and net income of $26.1 million, or $0.71 per diluted share, compared to the 2006 fiscal year with net sales of $421.6 million and net income of $17.0 million, or $0.47 per diluted share. Included in the fiscal 2006 results was a $2.3 million bad debt provision, $1.5 million after tax, or $0.04 per share, for receivables deemed uncollectible due to the Delphi bankruptcy, and the above mentioned repatriation tax charge. Excluding the Delphi bad debt and tax charges, earnings per share equaled $0.63 in fiscal 2006.
Cost of products sold as a percentage of net sales was 80.3 percent in fiscal 2007, compared to 79.8 percent in fiscal 2006. The increase was primarily due to price and volume reductions for legacy automotive products in North America, operational inefficiencies at the Scotland automotive facility during the first half of the year, as well as the cost of relocating manufacturing operations from Scotland to the Malta facility in the third quarter of fiscal 2007. Partially offsetting this were increased sales, favorable purchase price variance from suppliers supporting our Shanghai operation and production efficiencies at our Interconnect and Power Distribution segments.
Selling and administrative expense for the 2007 fiscal year represented 12.3 percent of net sales, compared to 13.2 percent in fiscal 2006. Stock-based compensation increased by $1.9 million in fiscal 2007 due to the adoption of FAS123(R), the increase in stock price and 2007 was the first fiscal year to reflect three annual grants of performance-based restricted stock awards that have three-year vesting periods. Included in fiscal 2006 results is a $2.3 million bad debt provision for impaired receivables due to the bankruptcy of Delphi Corporation. Net interest income increased due to higher average investment rates, 4.2 percent this fiscal year compared to 3.1 percent last year, and higher average cash balances, $88.9 million this fiscal year compared to $77.3 million last year.
Commenting on the year’s results, Donald W. Duda, President and Chief Executive Officer, said, “Methode realized solid improvement and achievements in fiscal 2007. Global sales increased eight percent, with a five percent improvement to the bottom line. Our Power Distribution segment had record sales growth of nearly 40 percent, while the Interconnect segment grew 20 percent. In our Automotive segment, Europe and Asia sales increased, as anticipated, but were offset by expected reductions in production volumes with Chrysler and Ford in the U.S.”
Mr. Duda continued, “In March 2007, Methode was pleased to complete the largest acquisition in our history – TouchSensor Technologies, the North American market leader in solid-state, field-effect switching. The acquisition directly complements our long-term corporate strategy. We believe it offers short and long-term synergies, provides patented technology applicable in multiple industries, including commercial, consumer durables and automotive, and provides a platform to expand into new markets, such as point-of-sale and medical equipment.”
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Business Outlook
The coming year will bring a combination of new opportunities and challenges for Methode. The Interconnect segment secured new business for a major automotive OEM to produce a highly engineered, insert-molded lead-frame for a transmission controller, which will be used across several platforms beginning with the 2009 model year automobiles.
The Interconnect segment launched several new PC card and Express card programs during the past few months, with more scheduled in fiscal 2008. The segment secured a new FCC mandated cable card program from a major multi-national OEM. It is anticipated that Methode will supply a significant percentage of the card packaging and connectors that will be used with home cable television boxes.
Fiscal 2008 will likely also bring new challenges. Methode will continue to deal with anticipated reduced production volumes for its legacy products from its U.S. automotive customers, as well as feel the effect of raw material price increases. As part of its diversification plans, Methode intends to continue to wind-down certain U.S. automotive legacy business during the 2008 fiscal year. Methode’s weight sensing product, used in a passive occupant-detection system, will also feel the impact of lower production volumes from the three Detroit OEMs.
While it had significant growth in fiscal 2007, Methode’s Power Distribution segment will have certain long-term programs reaching end-of-life during fiscal 2008. Fluctuations are customary in this business; however, the bus bar business is seeing increased competition, since customers are developing second sources as more China-based suppliers emerge. In addition to addressing these challenges, Methode intends to continue to invest in its businesses, while continuing to seek out qualified acquisitions to expand its geographic and industry reach.
Because of the volatility of the U.S. automotive market, and in particular, the unpredictable sales of the Company’s two largest automotive customers, Methode is discontinuing its practice of providing quarterly sales and earnings per share guidance. Methode anticipates sales for the 2008 fiscal year to be between $450 million and $470 million and earnings per share between $0.60 and $0.70.
Conference Call
As previously announced, the Company will conduct a conference call led by its Chief Executive Officer, Donald W. Duda, and Chief Financial Officer, Douglas A. Koman, on July 12, 2007 at 10:00 a.m. Central Time. You may participate on the conference call by dialing 1-877-407-8031 for domestic callers or 201-689-8031 for international callers. Methode also invites you to listen to the webcast of this call by visiting the Company’s website at www.methode.com and entering the “Investor Relations” page and then clicking on the “Webcast” icon. For those who cannot listen to the live broadcast, a replay, as well as an MP3 download will be available shortly after the call. A replay of the call will be available for seven days, by dialing 1-877-660-6853 for domestic callers or 201-612-7415 for international callers, both using playback account number 286 and conference ID number 245491.
About Methode Electronics
Methode Electronics, Inc. (NASDAQ:METH) is a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in the United States, Malta, Mexico, United Kingdom, Germany, Czech Republic, China and Singapore. We design, manufacture and market devices employing electrical, electronic, wireless, sensing and optical technologies to control and convey signals through sensors, interconnections and controls. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Distribution and Other. Our components are in the primary end markets of the automobile, information processing and networking equipment, voice and data communication systems, consumer electronics, appliances, aerospace vehicles and industrial equipment. Further information can be found at Methode’s websitewww.methode.com.
Forward-Looking Statements
Certain statements in this press release dated July 12, 2007, containing information on Methode’s fourth quarter and year-end reporting periods for fiscal 2007 and offering guidance for its 2008 fiscal year are forward-looking statements that are subject to certain risks and uncertainties. Our business is highly dependent upon three large automotive customers and specific makes and models of automobiles. The Company’s results will be subject to many of the same risks that apply to the automotive, computer, telecommunication and appliance industries, such as general economic conditions, interest rates, consumer spending patterns and technological changes. Other factors, which may result in materially different results for future periods, include significant customer bankruptcy filings; restructuring, operational improvement and cost reduction programs currently under review by Methode; the current macroeconomic environment, including higher petroleum and copper prices affecting material and components used by Methode; potential manufacturing plant closures by automotive customers; potential strikes at automotive customers; and significant fluctuations in the demand for certain automobile models. In addition, market growth, operating costs, currency exchange rates and devaluations, delays in development, production and marketing of new products and other factors set forth from time to time in our reports filed with the Securities and Exchange Commission, impact our business. Any of these factors could cause our actual results to differ materially from those described in the forward-looking statements. The forward-looking statements in this press release are subject to the safe harbor protection provided under the securities laws. All information in this press release is as of July 12, 2007. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations on a quarterly basis or otherwise.
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Methode Electronics, Inc. | ||||||||
Financial Highlights | ||||||||
(In thousands, except per share data, unaudited) | ||||||||
Three Months Ended | ||||||||
April 28, | April 29, | |||||||
2007 | 2006 | |||||||
Net sales | $ | 130,928 | $ | 116,297 | ||||
Other income | 576 | 412 | ||||||
Cost of products sold | 101,377 | 90,991 | ||||||
Restructuring charge | 166 | — | ||||||
Selling and administrative expenses | 15,328 | 12,872 | ||||||
Income from operations | 14,633 | 12,846 | ||||||
Interest, net | 650 | 452 | ||||||
Other, net | (459 | ) | 168 | |||||
Income before income taxes | 14,824 | 13,466 | ||||||
Income taxes | 2,692 | 9,175 | ||||||
Net income | 12,132 | 4,291 | ||||||
Basic and diluted earnings per common share | $ | 0.33 | $ | 0.12 | ||||
Average Number of Common Shares outstanding: | ||||||||
Basic | 36,459 | 36,284 | ||||||
Diluted | 36,916 | 36,497 | ||||||
Year Ended | ||||||||
April 28, | April 29, | |||||||
2007 | 2006 | |||||||
Net sales | $ | 448,427 | $ | 421,615 | ||||
Other income | 1,596 | 1,074 | ||||||
Cost of products sold | 359,914 | 336,410 | ||||||
Restructuring charge | 2,027 | — | ||||||
Selling and administrative expenses | 55,267 | 55,559 | ||||||
Income from operations | 32,815 | 30,720 | ||||||
Interest, net | 3,428 | 2,106 | ||||||
Other, net | (468 | ) | (457 | ) | ||||
Income before income taxes and | ||||||||
cumulative effect of accounting change | 35,775 | 32,369 | ||||||
Income taxes | 9,792 | 15,320 | ||||||
Income before cumulative effect of accounting change | 25,983 | 17,049 | ||||||
Cumulative effect of accounting change | 101 | — | ||||||
Net income | 26,084 | 17,049 | ||||||
Diluted Earnings per Common Share: | ||||||||
Income before cumulative effect of accounting change | $ | 0.71 | $ | 0.47 | ||||
Net income | $ | 0.71 | $ | 0.47 | ||||
Average Number of Common Shares outstanding: | ||||||||
Basic | 36,328 | 36,259 | ||||||
Diluted | 36,643 | 36,463 | ||||||
Note — Certain amounts in fiscal 2006 have been reclassified to conform to the classification in fiscal 2007. | ||||||||
Summary Balance Sheets | ||||||||
(In thousands) | ||||||||
April 28, | April 29, | |||||||
2007 | 2006 | |||||||
Cash | $ | 60,091 | $ | 81,646 | ||||
Accounts receivable — net | 79,180 | 74,223 | ||||||
Inventories | 54,479 | 45,681 | ||||||
Other current assets | 15,691 | 19,722 | ||||||
Total Current Assets | 209,441 | 221,272 | ||||||
Property, plant and equipment — net | 86,857 | 90,497 | ||||||
Goodwill — net | 51,520 | 28,893 | ||||||
Intangible assets — net | 43,680 | 17,540 | ||||||
Other assets | 20,242 | 16,381 | ||||||
Total Assets | $ | 411,740 | $ | 374,583 | ||||
Accounts payable | $ | 41,041 | $ | 41,581 | ||||
Other current liabilities | 31,420 | 32,622 | ||||||
Total current liabilities | 72,461 | 74,203 | ||||||
Other liabilities | 15,070 | 8,671 | ||||||
Shareholders’ equity | 324,209 | 291,709 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 411,740 | $ | 374,583 | ||||
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Summary Statements of Cash Flows | ||||||||
(In thousands) | ||||||||
Year Ended | ||||||||
April 28, | April 29, | |||||||
2007 | 2006 | |||||||
Operating Activities: | ||||||||
Net income | $ | 26,084 | $ | 17,049 | ||||
Provision for depreciation | 18,915 | 17,466 | ||||||
Amortization and impairment of intangibles | 5,085 | 5,380 | ||||||
Amortization of restricted stock awards | 2,897 | 2,047 | ||||||
Provision for losses on accounts receivable | 372 | 2,109 | ||||||
Deferred income taxes | (1,012 | ) | (2,870 | ) | ||||
Changes in operating assets and liabilities | 3,524 | (12,283 | ) | |||||
Other | 509 | 750 | ||||||
Net Cash Provided by Operating Activities | 56,374 | 29,648 | ||||||
Investing Activities: | ||||||||
Purchases of property, plant and equipment | (10,667 | ) | (18,654 | ) | ||||
Proceeds from sale of building | 800 | 1,712 | ||||||
Acquisitions of businesses | (63,168 | ) | (5,344 | ) | ||||
Acquisitions of technology licenses | (113 | ) | (2,103 | ) | ||||
Other | (1,356 | ) | (1,427 | ) | ||||
Net Cash Used in Investing Activities: | (74,504 | ) | (25,815 | ) | ||||
Financing Activities | ||||||||
Options exercised | 7,208 | 689 | ||||||
Dividends | (7,472 | ) | (7,465 | ) | ||||
Tax benefit from stock options and awards | 1,175 | — | ||||||
Purchase of common stock | (3,596 | ) | (1,783 | ) | ||||
Net Cash Used in Financing Activities | (2,685 | ) | (8,559 | ) | ||||
Effect of foreign exchange rate changes on cash | (740 | ) | (770 | ) | ||||
Increase (Decrease) in Cash and Cash Equivalents | 21,555 | (5,496 | ) | |||||
Cash and cash equivalents at beginning of period | 81,646 | 87,142 | ||||||
Cash and Cash Equivalents at End of Period | $ | 60,091 | $ | 81,646 | ||||
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