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METHODE ELECTRONICS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statement
Certain statements in this report are forward-looking statements that are
subject to certain risks and uncertainties. We undertake no duty to update any
such forward-looking statements to conform to actual results or changes in our
expectations. Our business is highly dependent upon two large automotive
customers and specific makes and models of automobiles. Our results will be
subject to many of the same risks that apply to the automotive, appliance,
computer and communications industries, such as general economic conditions,
interest rate fluctuations, consumer spending patterns and technological
changes. Other factors which may result in materially different results for
future periods include the following risk factors. Additional risks and
uncertainties not presently known or that our management currently believes to
be insignificant may also adversely affect our financial condition or results of
operations. These risk factors should be considered in connection with
evaluating the forward-looking statements contained in this report because these
factors could cause our actual results and condition to differ materially from
those projected in forward-looking statements. The forward-looking statements
in this report are subject to the safe harbor protection provided under the
securities laws and are made as of the date of this report.
• We depend on a small number of large customers, specifically two large
automotive customers. If we were to lose either of these customers or experienced a significant decline in the volume of products purchased by
these customers, or if either of these customers declare bankruptcy, our
future results could be adversely affected.
• Because we derive a substantial portion of our revenues from customers in
the automotive, appliance, computer and communications industries, we are
susceptible to trends and factors affecting those industries.
• Downturns in the automotive industry or the bankruptcy of certain
automotive customers could reduce the sales and profitability of our
business.
• We have a significant amount of new product launches scheduled in fiscal
2013 and fiscal 2014. We can not assure that the new product launches will
be timely, successful or profitable.
• Our technology-based business and the markets in which we operate are highly competitive. If we are unable to compete effectively, our sales
will decline.
• We face risks relating to our international operations, including
political and economic instability, expropriation, or the imposition of
government controls.
• We are dependent on the availability and price of materials.
• Disruption of our supply chain could have an adverse effect on our
business, financial condition and results of operations.
• We may be unable to keep pace with rapid technological changes, which
could adversely affect our business.
• We have not, and may not experience comparable increases in our gross
margins as our sales increase due to a variety of factors, including,
without limitation the following: 1.) changes in product mix; 2.) new
program and product launch costs; 3.) increases in operating expenses; 4.)
competitive pricing pressures; and 5.) decreases in volume.
• Products we manufacture may contain design or manufacturing defects that
could result in reduced demand for our products or services and liability
claims against us.
• If we are unable to protect our intellectual property or we infringe, or
are alleged to infringe, on another person's intellectual property, our
business, financial condition and operating results could be materially
adversely affected.
• We are subject to continuing pressure to lower our prices.
• We were awarded new North American automotive business in fiscal 2011 for
programs that will not begin production until the first quarter of fiscal
2014. We anticipate that it will take a significant amount of our cash and
resources to launch these programs.
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• We currently have a significant amount of our cash located outside the
U.S. and we may suffer adverse tax consequences if we repatriate this
cash.
• A significant fluctuation between the U.S. dollar and other currencies
could adversely impact our operating results.
• We may acquire businesses or divest business operations. These
transactions may pose significant risks and may materially adversely
affect our business, financial condition and operating results.
• We could suffer significant business interruptions, which could adversely
affect our sales and operating results.
• The following factors may impact our income tax rate or impose additional
liabilities: 1.) changes in the mix of earnings among countries with
different tax rates; 2.) changes in our assessment of tax exposures; 3.)
changes in the valuation of deferred tax assets and liabilities; 4.)
changes in tax laws; and 5.) expiration of uncertain tax positions.
• We cannot ensure that acquired businesses will be successful or that we
can implement and profit from any new applications of the acquired
technology.
•The future trading price of our common stock could be subject to wide
fluctuations in response to a variety of factors.
Any such forward-looking statements are not guarantees of future performance and
actual results, developments and business decisions may differ materially from
those foreseen in such forward-looking statements. These forward-looking
statements speak only as of the date of this report. We do not intend to update
any forward-looking statements, all of which are expressly qualified by the
foregoing. See Part I - Item 1A, Risk Factors of our Form 10-K for the fiscal
year ended April 28, 2012, for a further discussion regarding some of the
reasons that actual results may be materially different from those we
anticipate.
Overview
We are a global manufacturer of component and subsystem devices with
manufacturing, design and testing facilities in China, Egypt, Germany, India,
Italy, Lebanon, Malta, Mexico, the Philippines, Singapore, Switzerland, the
United Kingdom and the United States. We are a global designer and manufacturer
of electronic and electro-mechanical devices. We design, manufacture and market
devices employing electrical, radio remote control, electronic, wireless,
sensing and optical technologies. Our business is managed on a segment basis,
with those segments being Automotive, Interconnect, Power Products and
Other. For more information regarding the business and products of these
segments, see "Item 1. Business" of our Form 10-K for the fiscal year ended
April 28, 2012.
Our components are found in the primary end markets of the aerospace, appliance,
automotive, construction, consumer and industrial equipment markets,
communications (including information processing and storage, networking
equipment, wireless and terrestrial voice/data systems), rail and other
transportation industries.
Delphi Settlement
In September 2012, the Company and various Delphi parties settled all Delphi
related litigation matters. In addition to resolving all claims between the
parties, the Company assigned certain patents to Delphi and entered into a
non-compete with respect to the related technology. In exchange, the Company
received a payment of $20.0 million, half of which was paid in October 2012 and
half of which was paid in January 2013. The Company recorded the entire gain in
the second quarter of fiscal 2013, in the income from settlement section of our
consolidated statement of operations.
Amended and Restated Credit Agreement
On September 21, 2012, we entered into an amendment to our Amended and Restated
Credit Agreement which increased the maximum principal amount of the credit
facility from $75.0 million to $100.0 million, with an option to increase the
principal amount by up to an additional $50.0 million, subject to customary
conditions and approval of the lender(s) providing new commitment(s). The
amendment also extended the maturity date from February 25, 2016 to September
21, 2017. The credit facility provides for variable rates of interest based on
the type of borrowing and the Company's debt to EBITDA financial ratio. At
January 26, 2013, the interest rate on the credit facility is 1.5% plus LIBOR.
The Amended and Restated Credit Agreement is guaranteed by certain of our U.S.
subsidiaries.
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Recent Transactions
In September 2012, we acquired certain assets of Hetronic South Europe S.R.L.
for $1.4 million in cash, as well as the forgiveness of debt owed to the Company
of $1.3 million, for total consideration of $2.7 million. We operate this
business under the name Hetronic Italy. The business, located in Milan, Italy,
is a market leader in industrial safety radio remote controls, primarily serving
the Italian market. The accounts and transactions of Hetronic Italy have been
included in the Hetronic Group in the Interconnect segment in the consolidated
financial statements from the effective date of the acquisition.
In September 2011, we acquired certain assets and liabilities of Nypro
Monterrey, S. de R.L. (Nypro Monterrey) from Nypro Inc. for $6.4 million. We
operate this injection molding and painting business under the name Advanced
Molding and Decoration, S.A. de C.V. (AMD), and it has become a part of our
existing Monterrey manufacturing campus and the Automotive segment. AMD operates
a state-of-the-art facility, which provides us with high-quality injection
molding, painting and decorating capabilities.
Results of Operations for the Three Months Ended January 26, 2013 as Compared to
the Three Months Ended January 28, 2012
Consolidated Results
Below is a table summarizing results for the three months ended:
(in millions)
("N/M" equals not meaningful)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 123.0 $ 112.0 $ 11.0 9.8 %
Cost of products sold 102.9 92.7 10.2 11.0 %
Gross margins 20.1 19.3 0.8 4.1 %
Selling and administrative expenses 15.9 16.8 (0.9 ) (5.4 )%
Interest income, net - (0.1 ) 0.1 N/M
Other expense, net 0.1 0.6 (0.5 ) (83.3 )%
Income tax expense 0.9 1.2 (0.3 ) (25.0 )%
Net loss attributable to noncontrolling
interest (0.1 ) - (0.1 ) N/M
Net income attributable to Methode
Electronics, Inc. $ 3.3 $ 0.8 $ 2.5 312.5 %
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 83.7 % 82.8 %
Gross margins 16.3 % 17.2 %
Selling and administrative expenses 12.9 % 15.0 %
Interest income, net - % (0.1 )%
Other expense, net 0.1 % 0.5 %
Income tax expense 0.7 % 1.1 %
Net loss attributable to noncontrolling
interest (0.1 )% - %
Net income attributable to Methode
Electronics, Inc. 2.7 % 0.7 %
Net Sales. Consolidated net sales increased $11.0 million, or 9.8%, to $123.0
million for the three months ended January 26, 2013, from $112.0 million for the
three months ended January 28, 2012. The Automotive segment net sales increased
$8.4 million, or 12.7%, to $74.3 million for the third quarter of fiscal 2013,
from $65.9 million for the third quarter of fiscal 2012. The Interconnect
segment net sales increased $2.3 million, or 7.8%, to $31.6 million for the
third quarter of fiscal
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2013, compared to $29.3 million for the third quarter of fiscal 2012. The Power
Products segment net sales decreased $0.2 million, or 1.5%, to $12.8 million for
the third quarter of fiscal 2013, compared to $13.0 million for the third
quarter of fiscal 2012. The Other segment net sales increased $0.3 million, or
7.7%, to $4.2 million for the third quarter of fiscal 2013, as compared to $3.9
million for the third quarter of fiscal 2012. Translation of foreign operations
net sales for the three months ended January 26, 2013 decreased reported net
sales by $0.2 million or 0.2% compared to the third quarter of fiscal 2012.
Cost of Products Sold. Consolidated cost of products sold increased $10.2
million, or 11.0%, to $102.9 million for the three months ended January 26,
2013, compared to $92.7 million for the three months ended January 28, 2012.
Consolidated cost of products sold as a percentage of sales was 83.7% for the
third quarter of fiscal 2013, compared to 82.8% for the third quarter of fiscal
2012. In the third quarter of fiscal 2013 and fiscal 2012, the Automotive
segment experienced costs in North America for design, development, and
engineering of $1.8 million and $1.3 million, respectively, related to a new
program scheduled to launch in this first quarter of fiscal 2014. In the third
quarter of fiscal 2013 and fiscal 2012, our North American Automotive operations
incurred third-party inspection costs, premium freight and over-time expenses
related to the Ford Center Console Program of $0.6 million and $1.8 million,
respectively. The Interconnect segment experienced an increase in cost of
products sold as a percentage of sales primarily related to manufacturing
inefficiencies due to launch delays for a white goods program, which was
expected to launch in the second quarter of fiscal 2013. The program is now
expected to launch in the fourth quarter of fiscal 2013. Cost of products sold
as a percentage of sales increased in the third quarter of fiscal 2013, due to
the newly acquired Italian radio remote-control business, purchased in September
2012. The Power Products segment cost of products sold as a percentage of sales
increased, primarily due to manufacturing inefficiencies due to lower sales
volumes at our Asian operations as well as unfavorable sales mix within the
segment. The Other segment cost of products sold as a percentage of sales
decreased primarily related to lower material costs due to a lower percentage of
purchased content as well as increased manufacturing efficiencies from our
torque-sensing business.
Gross Margins. Consolidated gross margins increased $0.8 million, or 4.1%, to
$20.1 million for the three months ended January 26, 2013, as compared to $19.3
million for the three months ended January 28, 2012. Gross margins as a
percentage of net sales decreased to 16.3% for the three months ended
January 26, 2013, compared to 17.2% for the three months ended January 28,
2012. Gross margins as a percentage of sales decreased primarily due to
increased program and product launch costs in the Automotive segment. Gross
margins were also negatively impacted by increased sales of automotive product
that have higher material cost due to the high percentage of purchased content.
The Interconnect segment experienced a decrease in gross margins as a percentage
of sales, primarily related to manufacturing inefficiencies as a result of
launch delays for the white goods program. Gross margins as a percentage of
sales were also negatively affected in the third quarter of fiscal 2013 due to
the newly acquired Italian radio-remote control business and new product
development in North America. Gross margins were also negatively impacted due to
manufacturing inefficiencies related to lower sales volumes in the Power
Products segment as well as unfavorable sales mix within the segment. Gross
margins were favorably impacted in the Other segment related to increased sales
and lower material costs in our torque-sensing business.
Selling and Administrative Expenses. Selling and administrative expenses
decreased by $0.9 million, or 5.4%, to $15.9 million for the three months ended
January 26, 2013, compared to $16.8 million for the three months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales decreased to 12.9% for the three months ended January 26, 2013 from 15.0%
for the three months ended January 28, 2012. Legal expenses decreased $0.3
million, to $0.6 million for the third quarter of fiscal 2013, compared to $0.9
million for the second quarter of fiscal 2012. Selling and administrative
expenses also decreased by $0.4 million due to lower stock award amortization
expense.
Interest Income, Net. Interest income, net was zero for the three months ended
January 26, 2013, compared to $0.1 for the three months ended January 28, 2012.
Other Expense, Net. Other expense, net decreased $0.5 million, to $0.1 million
for the three months ended January 26, 2013, compared to $0.6 million for the
three months ended January 28, 2012. All amounts for both periods relate to
currency rate fluctuations. The functional currencies of these operations are
the British pound, Chinese yuan, Euro, Indian Rupee, Mexican peso, Singapore
dollar and Swiss Franc. Some foreign operations have transactions denominated in
currencies other than their functional currencies, primarily sales in U.S.
dollars and Euros, creating exchange rate sensitivities.
Income Tax Expense. Income tax expense decreased $0.3 million, or 25.0%, to
$0.9 million for the three months ended January 26, 2013, compared to $1.2
million for the three months ended January 28, 2012. Our effective income tax
rate for the third quarter of fiscal 2013 and fiscal 2012 was 20.7% and 60.0%,
respectively. The income tax expense for both the third quarter of fiscal 2013
and fiscal 2012 primarily relates to income taxes on foreign profits.
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Net Income Attributable to Methode Electronics, Inc. Net income attributable to
Methode Electronics, Inc. increased $2.5 million, to $3.3 million for the three
months ended January 26, 2013, compared to $0.8 million for the three months
ended January 28, 2012. The increase is primarily due to increased net sales,
lower legal and stock award amortization expense, lower currency rate
fluctuation expense, lower income taxes, partially offset with increased product
development expense and increased costs related to manufacturing inefficiencies.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 74.3 $ 65.9 $ 8.4 12.7 %
Cost of products sold 65.0 57.7 7.3 12.7 %
Gross margins 9.3 8.2 1.1 13.4 %
Selling and administrative expenses 6.0 7.0 (1.0 ) (14.3 )%
Income from operations $ 3.3 $ 1.2 $ 2.1 175.0 %
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 87.5 % 87.6 %
Gross margins 12.5 % 12.4 %
Selling and administrative expenses 8.1 % 10.6 %
Income from operations 4.4 % 1.8 %
Net Sales. Automotive segment net sales increased $8.4 million, or 12.7%, to
$74.3 million for the three months ended January 26, 2013, from $65.9 million
for the three months ended January 28, 2012. Net sales increased $3.5 million,
or 19.6%, in North America, to $21.4 million in the third quarter of fiscal
2013, compared to $17.9 million in the third quarter of fiscal 2012, primarily
due to increased sales for our Ford Center Console Program and our transmission
lead-frame assembly. Net sales increased in Europe by $6.2 million, or 22.3%, to
$34.0 million in the third quarter of fiscal 2013, compared to $27.8 million in
the third quarter of fiscal 2012, primarily due to new launches for our hidden
switch product lines. Net sales in Asia decreased $1.3 million, or 6.4%, to
$18.9 million in the third quarter of fiscal 2013, compared to $20.2 million in
the third quarter of fiscal 2012, primarily due to the planned partial transfer
of some of the transmission lead-frame assembly product from our China facility
to our Mexico facility. The transmission lead-frame assembly is now being
manufactured at both facilities. Translation of foreign operations net sales for
the three months ended January 26, 2013 decreased reported net sales by $0.2
million, or 0.3%, compared to the third quarter of fiscal 2012.
Cost of Products Sold. Automotive segment cost of products sold increased $7.3
million, or 12.7%, to $65.0 million for the three months ended January 26, 2013,
from $57.7 million for the three months ended January 28, 2012. The Automotive
segment cost of products sold as a percentage of sales was 87.5% in the third
quarter of fiscal 2013, compared to 87.6% in the third quarter of fiscal 2012.
In the third quarter of fiscal 2013 and fiscal 2012, the Automotive segment
experienced costs for design, development, and engineering of $1.8 million and
$1.3 million, respectively, at our North American facility, related to a program
scheduled to launch in the first quarter of fiscal 2014. In both the third
quarter of fiscal 2013 and 2012, our North American operations experienced
third-party inspection costs, premium freight and over-time expenses related to
the Ford Center Console Program of $0.6 million and $1.8 million, respectively.
The increase in cost of products sold as a percentage of sales was also affected
by increased sales of products that have a higher material cost due to the high
percentage of purchased content during the third quarter of fiscal 2013.
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Gross Margins. Automotive segment gross margins increased $1.1 million, or
13.4%, to $9.3 million for the three months ended January 26, 2013, as compared
to $8.2 million for the three months ended January 28, 2012. The Automotive
segment gross margins as a percentage of net sales were 12.5% for the three
months ended January 26, 2013, as compared to 12.4% for the three months ended
January 28, 2012. Gross margins were negatively impacted in the third quarter
of fiscal 2013 due to increased sales of product that has higher material cost
due to the high percentage of purchased content. Gross margins as a percentage
of sales also decreased due to increased design, development, engineering and
launch costs related to new programs and new product launches, partially offset
by lower third-party inspection costs, premium freight and over-time expenses
related to the Ford Center Console program.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $1.0 million, or 14.3%, to $6.0 million for the three months ended
January 26, 2013, compared to $7.0 million for the three months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales were 8.1% for the three months ended January 26, 2013 and 10.6% for the
three months ended January 28, 2012. Selling and administrative expenses were
lower in the third quarter of fiscal 2013, compared to the third quarter of
fiscal 2012, primarily due to lower legal, bad debt expense, lower salary and
severance expense, partially offset with higher travel expenses.
Income from Operations. Automotive segment income from operations increased
$2.1 million to $3.3 million for the three months ended January 26, 2013,
compared to $1.2 million for the three months ended January 28, 2012 due to
increased sales, lower third-party inspection costs, premium freight and
over-time expenses related to the Ford Center Console Program, lower legal,
salary, severance and bad debt expense, partially offset by increased design,
development and engineering costs and increased sales of products that have a
higher material cost due to the high percentage of purchased content.
Interconnect Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 31.6 $ 29.3 $ 2.3 7.8 %
Cost of products sold 23.7 21.1 2.6 12.3 %
Gross margins 7.9 8.2 (0.3 ) (3.7 )%
Selling and administrative expenses 4.2 4.1 0.1 2.4 %
Income from operations $ 3.7 $ 4.1 $ (0.4 ) (9.8 )%
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 75.0 % 72.0 %
Gross margins 25.0 % 28.0 %
Selling and administrative expenses 13.3 % 14.0 %
Income from operations 11.7 % 14.0 %
Net Sales. Interconnect segment net sales increased $2.3 million, or 7.8%, to
$31.6 million for the three months ended January 26, 2013, from $29.3 million
for the three months ended January 28, 2012. Net sales increased in North
America by $2.7 million, or 12.9%, to $23.7 million in the third quarter of
fiscal 2013, compared to $21.0 million in the third quarter of fiscal 2012,
primarily due to stronger sales for data solution products and white goods. Net
sales in Europe decreased $0.4 million, or 8.3%, to $4.4 million in the third
quarter of fiscal 2013, compared to $4.8 million in the third quarter of fiscal
2012,
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primarily due to lower radio remote control sales and lower sensor sales. Net
sales in Asia were flat at $3.5 million for both the third quarter of fiscal
2013 and fiscal 2012.
Cost of Products Sold. Interconnect segment cost of products sold increased
$2.6 million, or 12.3%, to $23.7 million for the three months ended January 26,
2013, compared to $21.1 million for the three months ended January 28, 2012.
Interconnect segment cost of products sold as a percentage of net sales
increased to 75.0% for the three months ended January 26, 2013, compared to
72.0% for the three months ended January 28, 2012. The increase in cost of
products sold as a percentage of sales is primarily related to manufacturing
inefficiencies due to launch delays for a white goods program, which was
expected to launch in the second quarter of fiscal 2013. The program is now
expected to launch in the fourth quarter of fiscal 2013. Cost of products sold
as a percentage of sales increased in the third quarter of fiscal 2013, due to
the newly acquired Italian radio remote-control business, purchased in September
2012. In addition, cost of goods sold as a percentage of sales increased in the
third quarter of fiscal 2013, due to new product development in North America.
Gross Margins. Interconnect segment gross margins increased $0.3 million, or
3.7%, to $7.9 million for the three months ended January 26, 2013, compared to
$8.2 million for the three months ended January 28, 2012. Gross margins as a
percentage of net sales decreased to 25.0% for the three months ended
January 26, 2013, from 28.0% for the three months ended January 28, 2012. The
decrease in gross margins as a percentage of sales is primarily related to
manufacturing inefficiencies due to launch delays for the white goods program.
Gross margins as a percentage of sales were also negatively affected in the
third quarter of fiscal 2013 due to the newly acquired Italian business and new
product development in North America.
Selling and Administrative Expenses. Selling and administrative expenses
increased slightly to $4.2 million for the three months ended January 26, 2013,
compared to $4.1 million for the three months ended January 28, 2012. Selling
and administrative expenses as a percentage of net sales decreased to 13.3% for
the three months ended January 26, 2013, from 14.0% for the three months ended
January 28, 2012 due to higher sales volumes. The increase in selling and
administrative expenses is primarily due to the newly acquired Italian radio
remote-control business.
Income from Operations. Interconnect segment income from operations decreased
$0.4 million, or 9.8%, to $3.7 million for the three months ended January 26,
2013, compared to $4.1 million for the three months ended January 28, 2012,
primarily due to manufacturing inefficiencies due to launch delays, increased
cost for the newly acquired business, partially offset with increased net sales.
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Power Products Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 12.8 $ 13.0 $ (0.2 ) (1.5 )%
Cost of products sold 10.7 10.8 (0.1 ) (0.9 )%
Gross margins 2.1 2.2 (0.1 ) (4.5 )%
Selling and administrative expenses 1.6 1.5 0.1 6.7 %
Income from operations $ 0.5 $ 0.7 $ (0.2 ) (28.6 )%
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 83.6 % 83.1 %
Gross margins 16.4 % 16.9 %
Selling and administrative expenses 12.5 % 11.5 %
Income from operations 3.9 % 5.4 %
Net Sales. Power Products segment net sales decreased $0.2 million, or 1.5%, to
$12.8 million for the three months ended January 26, 2013, compared to $13.0
million for the three months ended January 28, 2012. Net sales in North America
were flat at $8.5 for both the third quarter of fiscal 2013 and fiscal 2012. Net
sales increased for busbar and cabling products, offset by lower heat sink
products. Net sales in Europe were flat at $0.6 million for both the third
quarter of fiscal 2013 and fiscal 2012. Net sales in Asia decreased $0.2
million, or 5.1%, to $3.7 million for the third quarter of fiscal 2013, compared
to $3.9 million for the third quarter of 2012, due to lower demand for busbar
products.
Cost of Products Sold. Power Products segment cost of products sold decreased
$0.1 million, or 0.9%, to $10.7 million for the three months ended January 26,
2013, compared to $10.8 million for the three months ended January 28, 2012.
The Power Products segment cost of products sold as a percentage of sales
increased to 83.6% for the three months ended January 26, 2013, from 83.1% for
the three months ended January 28, 2012. The increase in cost of products sold
as a percentage of sales is primarily due to manufacturing inefficiencies due to
lower sales volumes at our Asian operations as well as unfavorable sales mix
within the segment.
Gross Margins. Power Products segment gross margins decreased $0.1 million, or
4.5%, to $2.1 million for the three months ended January 26, 2013, compared to
$2.2 million for the three months ended January 28, 2012. Gross margins as a
percentage of net sales decreased to 16.4% for the three months ended
January 26, 2013 from 16.9% for the three months ended January 28, 2012. The
decrease in gross margins as a percentage of sales is primarily due to
manufacturing inefficiencies due to lower sales volumes at our Asian operations
as well as unfavorable sales mix within the segment.
Selling and Administrative Expenses. Selling and administrative expenses
increased $0.1 million, or 6.7%, to $1.6 million for the three months ended
January 26, 2013, compared to $1.5 million for the three months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales increased to 12.5% for the three months ended January 26, 2013 from 11.5%
for the three months ended January 28, 2012. Selling and administrative expenses
increased slightly due to higher compensation expense in our European operation.
Income From Operations. Power Products segment income from operations decreased
$0.2 million to $0.5 million for the three months ended January 26, 2013,
compared to $0.7 million for the three months ended January 28, 2012, due to
lower sales volumes, manufacturing inefficiencies, unfavorable sales mix and
higher selling and administrative expenses in our European operation.
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Other Segment Results
Below is a table summarizing results for the three months ended:
(in millions)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 4.2 $ 3.9 $ 0.3 7.7 %
Cost of products sold 2.6 2.7 (0.1 ) (3.7 )%
Gross margins 1.6 1.2 0.4 33.3 %
Selling and administrative expenses 0.5 0.7 (0.2 ) (28.6 )%
Income from operations $ 1.1 $ 0.5 $ 0.6 120.0 %
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 61.9 % 69.2 %
Gross margins 38.1 % 30.8 %
Selling and administrative expenses 11.9 % 17.9 %
Income from operations 26.2 % 12.8 %
Net Sales. The Other segment net sales increased $0.3 million, or 7.7%, to $4.2
million for the three months ended January 26, 2013, compared to $3.9 million
for the three months ended January 28, 2012. Net sales from our torque-sensing
business increased 28.3% in the third quarter of fiscal 2013, compared to the
third quarter of fiscal 2012, primarily due to penetration in the e-bike and
motorcycle markets. Net sales from our testing facilities decreased 14.3% due
to lower counterfeit testing, reduced military testing and reduced environmental
testing in the third quarter of fiscal 2013, compared to the third quarter of
fiscal 2012.
Cost of Products Sold. Other segment cost of products sold decreased $0.1
million, or 3.7%, to $2.6 million for the three months ended January 26, 2013,
compared to $2.7 million for the three months ended January 28, 2012. Cost of
products sold as a percentage of net sales decreased to 61.9% in the third
quarter of fiscal 2013, compared to 69.2% in the third quarter of fiscal 2012.
The decrease in cost of products sold as a percentage of sales is primarily due
to lower material costs due to a lower percentage of purchased content as well
as increased manufacturing efficiencies from our torque-sensing business.
Gross Margins. The Other segment gross margins increased $0.4 million, or
33.3%, to $1.6 million for the three months ended January 26, 2013, compared to
$1.2 million for the three months ended January 28, 2012. The increase in gross
margins as a percentage of net sales is primarily due to decreased material
purchased content as well as increased manufacturing efficiencies from our
torque-sensing business.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $0.2 million, or 28.6%, to $0.5 million for the three months ended
January 26, 2013, compared to $0.7 million for the three months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales decreased to 11.9% for the three months ended January 26, 2013, from 17.9%
for the three months ended January 28, 2012. Selling and administrative expenses
decreased in the third quarter of fiscal 2013, compared to the third quarter of
fiscal 2012, primarily due to lower legal expenses.
Income From Operations The Other segment income from operations improved $0.6
million, or 120.0%, to $1.1 million for the three months ended January 26, 2013,
compared to $0.5 million for the three months ended January 28, 2012. The
increase was primarily due to increased net sales, lower material purchased
content and increased manufacturing efficiencies from our torque-sensing
business as well as lower legal expenses.
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Results of Operations for the Nine Months Ended January 26, 2013 as Compared to
the Nine Months Ended January 28, 2012
Consolidated Results
Below is a table summarizing results for the nine months ended:
(in millions)
("N/M" equals not meaningful)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 371.5 $ 338.7 $ 32.8 9.7 %
Cost of products sold 307.7 278.6 29.1 10.4 %
Gross margins 63.8 60.1 3.7 6.2 %
Selling and administrative expenses 48.3 53.7 (5.4 ) (10.1 )%
Income from settlement (20.0 ) - (20.0 ) N/M
Interest income, net - (0.2 ) 0.2 N/M
Other expense, net 0.6 0.8 (0.2 ) (25.0 )%
Income tax expense 4.5 3.4 1.1 32.4 %
Net loss attributable to noncontrolling
interest (0.2 ) (0.2 ) - - %
Net income attributable to Methode
Electronics, Inc. $ 30.6 $ 2.6 $ 28.0 N/M
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 82.8 % 82.3 %
Gross margins 17.2 % 17.7 %
Selling and administrative expenses 13.0 % 15.9 %
Income from settlement (5.4 )% - %
Interest income, net - % (0.1 )%
Other expense, net 0.2 % 0.2 %
Income tax expense 1.2 % 1.0 %
Net loss attributable to noncontrolling
interest (0.1 )% (0.1 )%
Net income attributable to Methode
Electronics, Inc. 8.2 % 0.8 %
Net Sales. Consolidated net sales increased $32.8 million, or 9.7%, to $371.5
million for the nine months ended January 26, 2013, from $338.7 million for the
nine months ended January 28, 2012. The Automotive segment net sales increased
$29.4 million, or 15.0%, to $225.5 million for the first nine months of fiscal
2013, from $196.1 million for the first nine months of fiscal 2012. The
Interconnect segment net sales increased $3.4 million, or 3.6%, to $96.6 million
for the first nine months of fiscal 2013, compared to $93.2 million for the
first nine months of fiscal 2012. The Power Products segment net sales
decreased $2.2 million, or 5.6%, to $37.4 million for the first nine months of
fiscal 2013, compared to $39.6 million for the first nine months of fiscal
2012. The Other segment net sales increased $2.0 million, or 20.0%, to $12.0
million for the first nine months of fiscal 2013, as compared to $10.0 million
for the first nine months of fiscal 2012. Translation of foreign operations net
sales for the nine months ended January 26, 2013 decreased reported net sales by
$4.6 million or 1.2% compared to the nine months ended January 28, 2012,
primarily due to the weakening of the Euro compared to the U.S. dollar.
Cost of Products Sold. Consolidated cost of products sold increased $29.1
million, or 10.4%, to $307.7 million for the nine months ended January 26, 2013,
compared to $278.6 million for the nine months ended January 28, 2012.
Consolidated cost of products sold as a percentage of sales was 82.8% for the
first nine months of fiscal 2013, compared to 82.3% for the first nine months of
fiscal 2012. In the first nine months of fiscal 2013, the Automotive segment
experienced costs in North America for design, development, and engineering of
$5.2 million related to a new program scheduled to launch in the first quarter
of fiscal 2014. During the first nine months of fiscal 2012, our North American
Automotive operations experienced
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additional costs for design, development and engineering of $2.9 million for a
program that launched in the third quarter of fiscal 2012, as well as the
program scheduled to launch in the first quarter of fiscal 2013. In the first
nine months of fiscal 2013 and fiscal 2012, our North American operations
incurred third-party inspection costs, premium freight and over-time expenses
related to the Ford Center Console Program of $1.3 million and $3.1 million,
respectively. The Interconnect segment experienced an increase in cost of
products sold as a percentage of sales, primarily related to manufacturing
inefficiencies as a result of launch delays for a white goods program, which was
expected to launch in the second quarter of fiscal 2013. The program is now
expected to launch in the fourth quarter of fiscal 2013. Cost of products sold
as a percentage of sales increased in the first nine months of fiscal 2013, due
to the newly acquired Italian radio remote-control business, purchased in
September 2012. The Power Products segment cost of products sold as a percentage
of net sales increased, primarily due to manufacturing inefficiencies due to
lower sales volumes at our North American and Asian operations as well as
unfavorable sales mix within the segment. The Other segment cost of products
sold as a percentage of sales decreased primarily due to lower material costs
due to a lower percentage of purchased content as well as increased
manufacturing efficiencies from our torque-sensing business.
Gross Margins. Consolidated gross margins increased $3.7 million, or 6.2%, to
$63.8 million for the nine months ended January 26, 2013, as compared to $60.1
million for the nine months ended January 28, 2012. Gross margins as a
percentage of net sales decreased to 17.2% for the nine months ended January 26,
2013, compared to 17.7% for the nine months ended January 28, 2012. Gross
margins as a percentage of sales decreased primarily due to increased program
and product launch costs in the Automotive segment. Gross margins were also
negatively impacted by increased sales of automotive product that have higher
material cost due to the high percentage of purchased content. Gross margins
were positively impacted in the first nine months of fiscal 2013 due to
favorable adjustments for commodity pricing in the Automotive segment as well as
lower third-party inspection costs, premium freight and over-time expenses
related to the Ford Center Console Program. Gross margins were negatively
impacted by manufacturing inefficiencies due to launch delays in the
Interconnect segment as well as lower sales volumes in the Power Products
segment. Gross margins were favorably impacted in the Other segment due to
increased net sales and lower material costs in our torque-sensing business.
Selling and Administrative Expenses. Selling and administrative expenses
decreased by $5.4 million, or 10.1%, to $48.3 million for the nine months ended
January 26, 2013, compared to $53.7 million for the nine months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales decreased to 13.0% for the nine months ended January 26, 2013 from 15.9%
for the nine months ended January 28, 2012. In the second quarter of fiscal
2013, the Company reversed $1.1 million of various accruals related to a
customer bankruptcy. Legal expenses decreased $1.3 million, to $3.2 million for
the first nine months of fiscal 2013, compared to $4.5 million for the first
nine months of fiscal 2012. Selling and administrative expenses also decreased
in the first nine months of fiscal 2013 due to lower compensation, stock award
amortization, travel, advertising and marketing, and professional fees of $3.0
million.
Income From Settlement. In September 2012, the Company and various Delphi
parties settled all Delphi related litigation matters. In addition to resolving
all claims between the parties, the Company assigned certain patents to Delphi
and entered into a non-compete with respect to the related technology. In
exchange, the Company received a payment of $20.0 million, half of which was
paid in October 2012 and half of which was paid in January 2013. The Company
recorded the entire gain in the second quarter of fiscal 2013, in the income
from settlement section of our consolidated statement of operations.
Other Expense, Net. Other expense, net increased $0.2 million, to $0.6 million
for the nine months ended January 26, 2013, compared to $0.8 million for the
nine months ended January 28, 2012. Other expense, net included income of
$0.1 million for first nine months of fiscal 2012, related to life insurance
policies in connection with an employee deferred compensation plan. The first
nine months of fiscal 2012 also includes a gain of $0.3 million related to the
acquisition of Advanced Molding and Decoration, purchased in September 2011. All
other amounts for both the first nine months of fiscal 2013 and fiscal 2012,
relate to currency rate fluctuations. The functional currencies of these
operations are the British pound, Chinese yuan, Euro, Indian Rupee, Mexican
peso, Singapore dollar and Swiss Franc. Some foreign operations have
transactions denominated in currencies other than their functional currencies,
primarily sales in U.S. dollars and Euros, creating exchange rate sensitivities.
Income Tax Expense. Income tax expense increased to $1.1 million, or 32.4%, to
$4.5 million for the nine months ended January 26, 2013, compared to $3.4
million for the nine months ended January 28, 2012. Our effective income tax
rate for both the first nine months of fiscal 2013 and fiscal 2012 was 12.9% and
58.3%, respectively. The income tax expense for the first nine months of fiscal
2013 primarily relates to income taxes on foreign profits. The income tax
expense for the first nine months of fiscal 2012 relates to income taxes on
foreign profits of $3.3 million and $0.9 million for foreign taxes on a foreign
dividend. In addition, the first nine months of fiscal 2012 includes a benefit
of $1.1 million relating to tax credits from our Malta facility.
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Net Income Attributable to Methode Electronics, Inc. Net income attributable to
Methode Electronics, Inc. increased $28.0 million, to $30.6 million for the nine
months ended January 26, 2013, compared to $2.6 million for the nine months
ended January 28, 2012. The increase is primarily due to income from the
litigation settlement, higher sales volumes, one-time reversal of various
accruals related to a customer bankruptcy, lower legal, compensation, travel,
advertising and marketing expenses, and professional fees, lower third-party
inspection costs, premium freight and over-time expenses related to the Ford
Center Console Program, partially offset with higher costs for design,
development and engineering, manufacturing inefficiencies, costs related to
launch delays and higher income tax expense.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
("N/M" equals not meaningful)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 225.5 $ 196.1 $ 29.4 15.0 %
Cost of products sold 194.8 168.3 26.5 15.7 %
Gross margins 30.7 27.8 2.9 10.4 %
Selling and administrative expenses 18.3 21.1 (2.8 ) (13.3 )%
Income from settlement (20.0 ) - (20.0 ) N/M
Income from operations $ 32.4 $ 6.7 $ 25.7 N/M
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 86.4 % 85.8 %
Gross margins 13.6 % 14.2 %
Selling and administrative expenses 8.1 % 10.8 %
Income from settlement (8.9 )% - %
Income from operations 14.4 % 3.4 %
Net Sales. Automotive segment net sales increased $29.4 million, or 15.0%, to
$225.5 million for the nine months ended January 26, 2013, from $196.1 million
for the nine months ended January 28, 2012. Net sales increased $27.8 million,
or 63.0%, in North America, to $71.9 million in the first nine months of fiscal
2013, compared to $44.1 million in the first nine months of fiscal 2012,
primarily due to increased sales for our Ford Center Console Program and our
transmission lead-frame assembly. Net sales increased in Europe by $9.5 million,
or 10.6%, to $99.4 million in the first nine months of fiscal 2013, compared to
$89.9 million in the first nine months of fiscal 2012, primarily due to new
launches for our hidden switch product lines. In the first nine months of fiscal
2013, the Automotive segment recorded $1.4 million of favorable commodity
pricing adjustments for precious metals supplied to one customer in Europe. Net
sales in Asia decreased $7.9 million, or 12.7%, to $54.2 million in the first
nine months of fiscal 2013, compared to $62.1 million in the first nine months
of fiscal 2012, primarily due to the planned partial transfer of some of the
transmission lead-frame assembly product from our China facility to our Mexico
facility. The transmission lead-frame assembly is now being manufactured at both
facilities. Translation of foreign operations net sales for the nine months
ended January 26, 2013 decreased reported net sales by $4.6 million, or 2.0%,
compared to the first nine months of fiscal 2012, primarily due to the weakening
of the Euro as compared to the U.S. dollar.
Cost of Products Sold. Automotive segment cost of products sold increased $26.5
million, or 15.7%, to $194.8 million for the nine months ended January 26, 2013,
from $168.3 million for the nine months ended January 28, 2012. The Automotive
segment cost of products sold as a percentage of sales was 86.4% in the first
nine months of fiscal 2013, compared to 85.8% in the first nine months of fiscal
2012. In the first nine months of fiscal 2013, the Automotive segment
experienced costs for
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design, development, and engineering of $5.2 million at our North American
facility, related to a program scheduled to launch in the first quarter of
fiscal 2014. During the first nine months of fiscal 2012, our North American
operations experienced costs for design, development and engineering of $2.9
million for a program that launched in the third quarter of fiscal 2012, as well
as the program scheduled to launch in the first quarter of fiscal 2014. In both
the first nine months of fiscal 2013 and fiscal 2012, our North American
operations experienced third-party inspection costs, premium freight and
over-time expenses related to the Ford Center Console Program of $1.3 million
and $3.1 million, respectively. The increase in costs of products sold as a
percentage of sales was also affected by increased sales of products that have a
higher material cost due to the high percentage of purchased content during the
first nine months of fiscal 2013.
Gross Margins. Automotive segment gross margins increased $2.9 million, or
10.4%, to $30.7 million for the nine months ended January 26, 2013, as compared
to $27.8 million for the nine months ended January 28, 2012. The Automotive
segment gross margins as a percentage of net sales were 13.6% for the nine
months ended January 26, 2013, as compared to 14.2% for the nine months ended
January 28, 2012. Gross margins were negatively impacted in the first nine
months of fiscal 2013 due to increased sales of product that has higher material
cost due to the current high percentage of purchased content. Gross margins as a
percentage of sales also decreased due to increased design, development,
engineering and launch costs related to new programs and new product launches.
Gross margins were favorably impacted by the favorable commodity pricing
adjustments in the first nine months of fiscal 2013 as well as lower costs for
third-party inspection, premium freight and over-time expenses related to the
Ford Center Console program.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $2.8 million, or 13.3%, to $18.3 million for the nine months ended
January 26, 2013, compared to $21.1 million for the nine months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales were 8.1% for the nine months ended January 26, 2013 and 10.8% for the
nine months ended January 28, 2012. In the second quarter of fiscal 2013, the
Company reversed $1.1 million of various accruals related to a customer
bankruptcy. Legal fees decreased $1.0 million, to $1.8 million for the first
nine months of fiscal 2013, compared to $2.8 million for the first nine months
of fiscal 2012. In addition, Selling and administrative expenses were also lower
by $0.6 million due to lower headcount from European operations in the first
nine months of fiscal 2013, compared to the first nine months of fiscal 2012.
Income From Settlement. In September 2012, the Company and various Delphi
parties settled all Delphi related litigation matters. In addition to resolving
all claims between the parties, the Company assigned certain patents to Delphi
and entered into a non-compete with respect to the related technology. In
exchange, the Company received a payment of $20.0 million, half of which was
paid in October 2012 and half of which was paid in January 2013. The Company
recorded the entire gain in the second quarter of fiscal 2013, in the income
from settlement section of our consolidated statement of operations.
Income from Operations. Automotive segment income from operations increased
$25.7 million to $32.4 million for the nine months ended January 26, 2013,
compared to $6.7 million for the nine months ended January 28, 2012 due to
income from the litigation settlement, increased sales, the favorable commodity
pricing adjustments, lower legal and other selling and administrative expenses
and lower costs for third-party inspection, premium freight and over-time
expenses related to the Ford Center Console program, partially offset with
higher design, development and engineering expenses.
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Interconnect Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 96.6 $ 93.2 $ 3.4 3.6 %
Cost of products sold 70.9 67.7 3.2 4.7 %
Gross margins 25.7 25.5 0.2 0.8 %
Selling and administrative expenses 13.0 13.4 (0.4 ) (3.0 )%
Income from operations $ 12.7 $ 12.1 $ 0.6 5.0 %
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 73.4 % 72.6 %
Gross margins 26.6 % 27.4 %
Selling and administrative expenses 13.5 % 14.4 %
Income from operations 13.1 % 13.0 %
Net Sales. Interconnect segment net sales increased $3.4 million, or 3.6%, to
$96.6 million for the nine months ended January 26, 2013, from $93.2 million for
the nine months ended January 28, 2012. Net sales increased in North America by
$7.6 million, or 12.2%, to $69.8 million in the first nine months of fiscal
2013, compared to $62.2 million in the first nine months of fiscal 2012,
primarily due to stronger sales for data solution products and white goods. Net
sales in Europe decreased $2.2 million, or 12.0%, to $16.1 million in the first
nine months of fiscal 2013, compared to $18.3 million in the first nine months
of fiscal 2012, primarily due to weaker radio remote control sales and lower
sensor sales. Net sales in Asia decreased $2.0 million, or 15.7%, to $10.7
million in the first nine months of fiscal 2013, compared to $12.7 million in
the first nine months of fiscal 2012, primarily due to weaker radio remote
control sales as well as certain legacy products resulting from the planned exit
of a product line.
Cost of Products Sold. Interconnect segment cost of products sold increased
$3.2 million, or 4.7%, to $70.9 million for the nine months ended January 26,
2013, compared to $67.7 million for the nine months ended January 28, 2012.
Interconnect segment cost of products sold as a percentage of net sales
increased to 73.4% for the nine months ended January 26, 2013, compared to 72.6%
for the nine months ended January 28, 2012. The increase in cost of products
sold as a percentage of net sales is primarily related to manufacturing
inefficiencies due to launch delays for the white goods program, which was
expected to launch in the second quarter of fiscal 2013. The program is now
expected to launch in the fourth quarter of fiscal 2013.
Gross Margins. Interconnect segment gross margins increased $0.2 million, or
0.8%, to $25.7 million for the nine months ended January 26, 2013, compared to
$25.5 million for the nine months ended January 28, 2012. Gross margins as a
percentage of net sales decreased to 26.6% for the nine months ended January 26,
2013, from 27.4% for the nine months ended January 28, 2012. The decrease in
gross margins as a percentage of sales is primarily related to manufacturing
inefficiencies due to launch delays for the white goods program, which was
expected to launch in the second quarter of fiscal 2013.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $0.4 million, or 3.0%, to $13.0 million for the nine months ended
January 26, 2013, compared to $13.4 million for the nine months ended
January 28, 2012. Selling and administrative expenses as a percentage of net
sales decreased to 13.5% for the nine months ended January 26, 2013, from 14.4%
for the nine months ended January 28, 2012. The decrease is primarily due to
lower headcount and travel expense in the first nine months of fiscal 2013,
compared to the first nine months of fiscal 2012.
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Income from Operations. Interconnect segment income from operations increased
$0.6 million, or 5.0%, to $12.7 million for the nine months ended January 26,
2013, compared to $12.1 million for the nine months ended January 28, 2012,
primarily due to increased net sales, lower headcount and travel expenses,
partially offset with increased costs for manufacturing inefficiencies due to
launch delays.
Power Products Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 37.4 $ 39.6 $ (2.2 ) (5.6 )%
Cost of products sold 31.8 32.6 (0.8 ) (2.5 )%
Gross margins 5.6 7.0 (1.4 ) (20.0 )%
Selling and administrative expenses 5.0 5.2 (0.2 ) (3.8 )%
Income from operations $ 0.6 $ 1.8 $ (1.2 ) (66.7 )%
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 85.0 % 82.3 %
Gross margins 15.0 % 17.7 %
Selling and administrative expenses 13.4 % 13.1 %
Income from operations 1.6 % 4.5 %
Net Sales. Power Products segment net sales decreased $2.2 million, or 5.6%, to
$37.4 million for the nine months ended January 26, 2013, compared to $39.6
million for the nine months ended January 28, 2012. Net sales decreased in
North America $1.2 million, or 4.6%, to $24.9 million in the first nine months
of fiscal 2013, compared to $26.1 million in the first nine months of fiscal
2012, primarily due to lower demand for our busbar and heat sink products,
partially offset by higher demand for our cabling products. Net sales in Europe
were flat at $1.6 million for both the first nine months of fiscal 2013 and
fiscal 2012. Net sales in Asia decreased $1.0 million, or 8.4%, to $10.9 million
for the first nine months of fiscal 2013, compared to $11.9 million for the
first nine months of fiscal 2012, due to lower demand for busbar products.
Cost of Products Sold. Power Products segment cost of products sold decreased
$0.8 million, or 2.5%, to $31.8 million for the nine months ended January 26,
2013, compared to $32.6 million for the nine months ended January 28, 2012. The
Power Products segment cost of products sold as a percentage of sales increased
to 85.0% for the nine months ended January 26, 2013, from 82.3% for the nine
months ended January 28, 2012. The increase in cost of products sold as a
percentage of sales is primarily due to manufacturing inefficiencies due to
lower sales volumes at our North American and Asian operations as well as
unfavorable sales mix within the segment.
Gross Margins. Power Products segment gross margins decreased $1.4 million, or
20.0%, to $5.6 million for the nine months ended January 26, 2013, compared to
$7.0 million for the nine months ended January 28, 2012. Gross margins as a
percentage of net sales decreased to 15.0% for the nine months ended January 26,
2013 from 17.7% for the nine months ended January 28, 2012. The decrease in
gross margins as a percentage of sales is primarily due to manufacturing
inefficiencies due to lower sales volumes at our North American and Asian
operations as well as unfavorable sales mix within the segment.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $0.2 million, or 3.8%, to $5.0 million for the nine months ended
January 26, 2013, compared to $5.2 million for the nine months ended January 28,
2012. Selling and administrative expenses as a percentage of net sales
increased to 13.4% for the nine months ended January 26, 2013 from 13.1% for the
nine months ended January 28, 2012. Selling and administrative expenses
decreased primarily due to lower compensation expense in our North American
operation.
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Income From Operations. Power Products segment income from operations decreased
$1.2 million, or 66.7%, to $0.6 million for the nine months ended January 26,
2013, compared to $1.8 million for the nine months ended January 28, 2012, due
lower net sales, manufacturing inefficiencies, unfavorable sales mix and lower
selling and administrative expenses.
Other Segment Results
Below is a table summarizing results for the nine months ended:
(in millions)
("N/M" equals not meaningful)
January 26, January 28,
2013 2012 Net Change Net Change
Net sales $ 12.0 $ 10.0 $ 2.0 20.0 %
Cost of products sold 7.5 7.8 (0.3 ) (3.8 )%
Gross margins 4.5 2.2 2.3 104.5 %
Selling and administrative expenses 1.8 2.9 (1.1 ) (37.9 )%
Income/(loss) from operations $ 2.7 $ (0.7 ) $ 3.4 N/M
January 26, January 28,
Percent of sales: 2013 2012
Net sales 100.0 % 100.0 %
Cost of products sold 62.5 % 78.0 %
Gross margins 37.5 % 22.0 %
Selling and administrative expenses 15.0 % 29.0 %
Income/(loss) from operations 22.5 % (7.0 )%
Net Sales. The Other segment net sales increased $2.0 million, or 20.0%, to
$12.0 million for the nine months ended January 26, 2013, compared to $10.0
million for the nine months ended January 28, 2012. Net sales from our
torque-sensing business increased 40.2% in the first nine months of fiscal 2013,
compared to the first nine months of fiscal 2012, primarily due to penetration
in the e-bike and motorcycle markets. Net sales from our testing facilities
decreased 2.8% in the first nine months of fiscal 2013, compared to the first
nine months of fiscal 2012.
Cost of Products Sold. Other segment cost of products sold decreased $0.3
million, or 3.8%, to $7.5 million for the nine months ended January 26, 2013,
compared to $7.8 million for the nine months ended January 28, 2012. Cost of
products sold as a percentage of net sales decreased to 62.5% in the first nine
months of fiscal 2013, compared to 78.0% in the first nine months of fiscal
2012. The decrease in cost of products sold as a percentage of net sales is
primarily due to lower material costs due to a lower percentage of purchased
content as well as increased manufacturing efficiencies from our torque-sensing
business.
Gross Margins. The Other segment gross margins increased $2.3 million, or
104.5%, to $4.5 million for the nine months ended January 26, 2013, compared to
$2.2 million for the nine months ended January 28, 2012. Gross margins as a
percentage of net sales increased to 37.5% for the nine months ended January 26,
2013 from 22.0% for the nine months ended January 28, 2012. The increase in
gross margins as a percentage of sales is primarily due to decreased material
costs as well as increased manufacturing efficiencies from our torque-sensing
business.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $1.1 million, or 37.9%, to $1.8 million for the nine months ended
January 26, 2013, compared to $2.9 million for the nine months ended January 28,
2012. Selling and administrative expenses as a percentage of net sales
decreased to 15.0% for the nine months ended January 26, 2013, from 29.0% for
the nine months ended January 28, 2012. Selling and administrative expenses
decreased in the first nine months of fiscal 2013, compared to the first nine
months of fiscal 2012, due to lower compensation, severance and legal expenses.
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Income/(Loss) From Operations The Other segment income/(loss) from operations
improved $3.4 million to income of $2.7 million for the nine months ended
January 26, 2013, compared to a loss of $0.7 million for the nine months ended
January 28, 2012. The increase was primarily due to increased sales, lower
material costs content and increased manufacturing efficiencies from our
torque-sensing business as well as lower selling and administrative expenses.
Liquidity and Capital Resources
In September 2012, the Company and various Delphi parties settled all Delphi
related litigation matters. In addition to resolving all claims between the
parties, the Company assigned certain patents to Delphi and entered into a
non-compete with respect to the related technology. In exchange, the Company
received a payment of $20.0 million, half of which was paid in October 2012 and
half of which was paid in January 2013. The Company recorded the entire gain in
the second quarter of fiscal 2013, in the income from settlement section of our
consolidated statement of operations.
We believe our current world-wide cash balances together with expected future
cash flows to be generated from operations will be sufficient to support our
operations. However, due to the shifting of operations from the U.S. to foreign
locations, a significant amount of cash and expected future cash flows are
located outside of the U.S. Of the total cash and cash equivalents as of
January 26, 2013, $58.8 million, which represents 80.1% of our total cash and
cash equivalents, was held in subsidiaries outside the U.S. and is deemed to be
permanently reinvested and therefore not available to fund our domestic
operations. We currently have $50.8 million of net operating loss carry-forwards
in the U.S. which would reduce the cash tax obligation upon any future
repatriation of funds, as well as future domestic income.
During fiscal 2011, we were awarded a next generation center stack program for
multiple GM vehicle platforms. The program will be manufactured in our plants in
Monterrey, Mexico. This program requires a significant amount of cash for the
purchase of equipment, tooling and initial inventory as well as additional
staffing for the development and launching of the programs. We expect to begin
production and generate sales on this program in the first quarter of fiscal
2014. Therefore, we anticipate our cash balances may decline (not including the
settlement mentioned above) further due to the launch of this program without a
corresponding increase in sales.
We are party to an Amended and Restated Credit Agreement with Bank of America,
N.A., as administrative agent, and certain other financial institutions. On
September 21, 2012, we entered into an amendment to the Amended and Restated
Credit Agreement which increased the maximum principal amount of the credit
facility from $75.0 million to $100.0 million, with an option to increase the
principal amount by up to an additional $50.0 million, subject to customary
conditions and approval of the lender(s) providing new commitment(s). The
amendment also extended the maturity date from February 25, 2016 to September
21, 2017. The credit facility provides for variable rates of interest based on
the type of borrowing and the Company's debt to EBITDA financial ratio.
Currently, the interest rate on the credit facility is 1.5% plus LIBOR. The
Amended and Restated Credit Agreement is guaranteed by certain of our U.S.
subsidiaries. At January 26, 2013, we were in compliance with the covenants of
the agreement. During the first nine months of fiscal 2013, we had borrowings of
$28.5 million and payments of $37.2 million, which includes interest of $0.7
million under this credit facility. As of January 26, 2013, there were
outstanding balances against the credit facility of $40.0 million. There was
$60.0 million available to borrow under the credit facility as of January 26,
2013, which does not include the option to increase the principal amount. We
believe the fair value approximates the carrying amount as of January 26, 2013.
Cash Flow Operating Activities
Net cash provided by operating activities increased $21.0 million to $32.9
million for the nine months ended January 26, 2013, compared to $11.9 million
for the nine months ended January 28, 2012. The operating activities increase
is primarily driven by the $20.0 million received related to the legal
settlement. In addition, accounts receivable balances increased due to timing of
sales, as well as increases in inventory due to the timing of our product
launches.
Cash Flow Investing Activities
Net cash used in investing activities increased by $8.4 million, to $31.4
million for the nine months ended January 26, 2013, compared to $23.0 million
for the nine months ended January 28, 2012. Purchases of property, plant and
equipment increased $13.4 million, to $30.0 million for the nine months ended
January 26, 2013, compared to $16.6 million for the nine months ended January
28, 2012. The increase primarily relates to plant expansion and equipment
purchases in Europe and North America for products scheduled to be launched in
the first quarter of fiscal 2014. In the first nine months of fiscal 2013, we
acquired the Hetronic Italy business for $1.4 million. See note 12 for more
information regarding the transaction. In the first nine months of fiscal 2012,
we acquired the Advanced Molding and Decoration business for $6.4 million.
34--------------------------------------------------------------------------------
Table of Contents
Cash Flow Financing Activities
Net cash provided by financing activities decreased $47.7 million to cash used
of $15.8 million in the first nine months of fiscal 2013, compared to cash
provided of $31.9 million for the first nine months of fiscal 2012. During the
first nine months of fiscal 2013, the Company had net payments against the
credit facility of $8.0 million, compared to net borrowings of $39.5 million in
the first nine months of fiscal 2012. We paid dividends of $7.8 million for both
the first nine months of fiscal 2013 and fiscal 2012. The first nine months of
fiscal 2012 included $0.2 million of proceeds for the exercise of stock options.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, other than operating leases
and purchase obligations entered into in the normal course of business.
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