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Methode Electronics Inc. Reports Operating Results (10-Q)

March 03, 2011 | About:
10qk

10qk

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Methode Electronics Inc. (MEI) filed Quarterly Report for the period ended 2011-01-29.

Methode Electronics has a market cap of $428.7 million; its shares were traded at around $11.65 with a P/E ratio of 20.4 and P/S ratio of 1.2. The dividend yield of Methode Electronics stocks is 2.4%.Mutual Fund and Other Gurus that owns MEI: Chuck Royce of Royce& Associates, Mario Gabelli of GAMCO Investors, James Barrow of Barrow, Hanley, Mewhinney & Strauss, John Keeley of Keeley Fund Management.

Highlight of Business Operations:

In June 2006, the Company sold certain unsecured claims it had against Delphi in Delphi’s bankruptcy proceeding to Credit Suisse for $3.1 million pursuant to a Transfer Agreement. These claims were subsequently assigned by Credit Suisse to Blue Angel Claims LLC (“Blue Angel”). On July 20, 2010, Blue Angel delivered a demand letter to the Company contending that under the terms of the Transfer Agreement, the unsecured claims had been objected to by Delphi in the Delphi bankruptcy proceeding and therefore the Company owed Blue Angel $3.1 million plus interest. During the second quarter of fiscal 2011, an expense of $3.8 million was recorded for these unsecured claims sold to Blue Angel, which includes interest. The litigation was subsequently settled for $2.1 million causing a reversal of expense of $1.7 million in the third quarter of fiscal 2011. As part of the settlement agreement, Blue Angel retains ownership of the unsecured claims.

Net Sales. Consolidated net sales increased $12.2 million, or 13.7%, to $101.3 million for the three months ended January 29, 2011, from $89.1 million for the three months ended January 30, 2010. The Automotive segment net sales increased $8.8 million, or 20.2%, to $52.4 million for the third quarter of fiscal 2011, from $43.6 million for the third quarter of fiscal 2010. The Interconnect segment net sales decreased $1.2 million, or 3.6%, to $32.6 million for the third quarter of fiscal 2011, compared to $33.8 million for the third quarter of fiscal 2010. The Power Products segment net sales increased $3.4 million, or 35.4%, to $13.0 million for the third quarter of fiscal 2011, as compared to $9.6 million for the third quarter of fiscal 2010. The Other segment net sales increased $1.2 million, or 57.1%, to $3.3 million for the third quarter of fiscal 2011, as compared to $2.1 million for the third quarter of fiscal 2010. Translation of foreign operations net sales for the three months ended January 29, 2011 decreased reported net sales by $1.4 million or 1.4% due to average currency rates in the third quarter

Selling and Administrative Expenses. Selling and administrative expenses decreased by $1.6 million, or 9.4%, to $15.5 million for the three months ended January 29, 2011, compared to $17.1 million for the three months ended January 30, 2010. The third quarter of fiscal 2011 includes a reversal of expense of $1.7 million for litigation regarding unsecured claims sold to Blue Angel LLC in June 2006, related to the Delphi bankruptcy. We recorded an expense of $3.8 million during the second quarter of fiscal 2011, however, the litigation was subsequently settled for $2.1 million, causing the reversal of expense of $1.7 million. See Overview section for more information regarding this matter. Stock option and stock award amortization increased by $1.2 million to $1.4 million in the third quarter of fiscal 2011, compared to $0.2 million in the third quarter of fiscal 2010. In addition, other selling and marketing expenses increased in our North American and Asian automotive businesses, partially offset by lower legal expenses related to the Delphi patent and supply agreement litigation in the third quarter of fiscal 2011, compared to the third quarter of fiscal 2010. The Delphi litigation expenses decreased $1.2 million, to $1.2 million in the third quarter of fiscal 2011, compared to $2.4 million in the third quarter of fiscal 2010. Selling and administrative expenses as a percentage of net sales decreased to 15.3% for the three months ended January 29, 2011 from 19.2% for the three months ended January 30, 2010.

Interest (Income)/Expense, Net. Interest (income)/expense, net was an expense of $0.1 million for the three months ended January 29, 2011, compared to income of $0.1 million for the three months ended January 30, 2010. Interest income was $0.1 million for the three months ended January 29, 2011, compared to $0.2 million for the three months ended January 30, 2010. Interest expense was $0.2 million for the three months ended January 29, 2011, compared to $0.1 million for the three months ended January 30, 2010. The increase in interest expense relates to borrowings against our credit facility during the third quarter of fiscal 2011.

Income Tax (Benefit)/Expense. Income tax expense decreased by $3.8 million to a benefit of $1.5 million for the three months ended January 29, 2011, compared to an expense of $2.3 million for the three months ended January 30, 2010. The benefit of $1.5 million for the third quarter of fiscal 2011 includes a benefit of $2.8 million recorded related to the expiration of uncertain tax positions and interest from prior periods, partially offset by income taxes for foreign profits of $1.2 million. The $2.3 million for the three months ended January 30, 2010, includes taxes on foreign profits of $0.6 million, book to income tax return adjustments of $2.8 million and other adjustments of $1.6 million. In addition, a benefit of $2.7 million was recorded due to the settlement of uncertain tax positions and related interest from prior periods.

Selling and Administrative Expenses. Selling and administrative expenses decreased $0.3 million, or 6.7%, to $4.2 million for the three months ended January 29, 2011, compared to $4.5 million for the three months ended January 30, 2010. The third quarter of fiscal 2011 includes a reversal of expense of $1.7 million for litigation regarding unsecured claims sold to Blue Angel LLC in June 2006, related to the Delphi bankruptcy. We recorded an expense of $3.8 million during the second quarter of fiscal 2011, however, the litigation was subsequently settled for $2.1 million, causing the reversal of expense of $1.7 million. See Overview section for more information regarding this matter. Other selling and marketing expenses increased in our North American and Asian automotive businesses, partially offset by lower legal expenses related to the Delphi patent and supply agreement litigation in the third quarter of fiscal 2011, compared to the third quarter of fiscal 2010. The Delphi litigation expenses decreased $1.2 million, to $1.2 million in the third quarter of fiscal 2011, compared to $2.4 million in the third quarter of fiscal 2010. Selling and administrative expenses as a percentage of net sales were 8.0% for the three months ended January 29, 2011 and 10.3% for the three months ended January 30, 2010.

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