Impairment Charges Impact Third-Quarter and Nine-Month Results; Announces Accelerated Exit of Legacy Automotive

CHICAGO, IL -- (Marketwire) -- 03/12/09 -- Methode Electronics, Inc. (NYSE: MEI), a global designer and manufacturer of electro-mechanical devices, today announced operating results for the fiscal year 2009 third-quarter and nine-month periods ended January 31, 2009. Due to the timing of the Company's fiscal calendar, the three months ended January 31, 2009, represent 13 weeks of results, while the three months ended February 2, 2008, represent 14 weeks of results. In addition, the nine months ended January 31, 2009, represent 39 weeks of results, while the nine months ended February 2, 2008, represent 40 weeks of results.

Third-Quarter Fiscal Year 2009

Methode's third-quarter fiscal year 2009 net sales decreased $57.7 million, or 41.7 percent, to $80.8 million from $138.5 million in the third-quarter fiscal year 2008. Net income decreased $36.8 million to a loss of $27.0 million, or $0.74 per share, in the third-quarter fiscal year 2009 compared to income of $9.8 million, or $0.26 per share, in the third-quarter fiscal year 2008.

The decrease in net income in the fiscal year 2009 third quarter is due to an impairment of goodwill and intangible assets charge of $32.7 million ($20.1 million after-tax, or $0.54 per share), restructuring charges of $3.8 million ($2.5 million after tax, or $0.07 per share), lower sales attributable to the softening of the global economic environment, especially the effect on the North American auto market, and higher selling and administrative expenses related to the Hetronic acquisition compared to the fiscal year 2008 third quarter, which had no impairment charge and restructuring charges of $0.5 million ($0.3 million after-tax, or $0.01 per share).

Based on Methode's reduced market capitalization and general business declines in the third quarter, the Company performed goodwill impairment tests in accordance with SFAS No. 142 on the reporting units that had goodwill as of November 1, 2008. Because of these tests, it was determined that the fair value of the net assets of these reporting units was less than the carrying value. As a result, a goodwill impairment charge was recorded for $18.1 million in the third quarter of fiscal year 2009.

Also, in accordance with SFAS No. 144, the Company determined that certain identifiable intangible assets of its TouchSensor business were impaired based on the Company's future estimates of the undiscounted cash flows, which resulted in an impairment charge of $14.6 million during the third quarter of fiscal year 2009.

In the third quarter of fiscal year 2009, Automotive segment net sales were negatively impacted by the continued softening of the global economic environment, especially the effect on the North American auto industry, and by negligible Chrysler sales volumes due to the Company's decision to exit this business, compared to $13.2 million of Chrysler revenues in the same period of fiscal year 2008. The transfer of the Chrysler product was substantially completed during the second quarter of fiscal year 2009.

In January 2008, Methode announced a restructuring of its U.S.-based automotive operations and the decision to discontinue producing certain legacy products in the Interconnect segment. Excluding the restructuring and impairment of goodwill and intangible assets charges, Methode's net loss was $4.4 million, or $0.13 per share, in the third-quarter fiscal year 2009 compared to net income of $10.0 million, or $0.27 per share, in the same period of fiscal year 2008, excluding $0.5 million, in restructuring charges. The Company expects to complete this restructuring during fiscal year 2010.

Consolidated cost of products sold decreased $38.5 million, or 35.3 percent, to $70.5 million in the fiscal year 2009 third quarter, compared to $109.0 million in the same period of fiscal year 2008. The decrease is due to lower sales volumes. Cost of products sold as a percentage of sales was 87.3 percent and 78.7 percent in the third-quarter fiscal years 2009 and 2008, respectively. The increase in cost of products sold as a percentage of net sales in the current period is due to manufacturing inefficiencies caused by the inability to adjust overhead costs in line with the significant, sudden drop in sales experienced in the third quarter of fiscal year 2009.

Selling and administrative expenses decreased $3.0 million, or 16.9 percent, to $14.8 million for the third-quarter fiscal year 2009, compared to $17.8 million in the prior-year period. The decrease relates to lower bonus and commission expenses relating to lower sales and earnings. Because of the significant, sudden drop in sales, selling and administrative expenses as a percentage of sales increased to 18.3 percent in the third-quarter fiscal year 2009, compared to 12.9 percent in the same period of fiscal year 2008.

Income tax rate was a benefit of 33.1 percent in the third quarter of fiscal year 2009 compared with an income tax expense of 14.0 percent in the same period of fiscal year 2008 due to impairment and restructuring charges and the slowing of business, which caused a loss before income taxes in fiscal year 2009. The effective tax rates for the third quarters of fiscal years 2009 and 2008 reflect utilization of foreign investment tax credits and the effect of lower tax rates on earnings of the Company's foreign operations and a higher percentage of earnings at those foreign operations.

Nine-Month Period Ended January 31, 2009

For the nine-month period ended January 31, 2009, net sales decreased $60.1 million, or 15.1 percent, to $336.6 million from $396.7 million for the nine-month period ended February 2, 2008. Net income decreased $44.3 million to a loss of $17.5 million, or $0.47 per share, in the fiscal year 2009 nine-month period compared to income of $26.8 million, or $0.72 per share, in the fiscal year 2008 nine-month period.

The decrease in net income is due mainly to an impairment of goodwill and intangible assets charge of $32.7 million ($20.1 million after-tax, or $0.54 per share), restructuring charges of $15.0 million ($9.8 million after-tax, or $0.27 per share), and lower sales attributable to the softening of the global economic environment in the fiscal year 2009 nine-month period, partially offset by favorable other income. In the fiscal year 2008 nine-month period, there was no impairment charge and restructuring charges were $0.5 million ($0.3 million after-tax, or $0.01 per share).

In the nine-month period of fiscal year 2009, Automotive segment net sales were negatively impacted by the softening of the global economic environment, especially the effect on the North American automotive industry, and by planned lower Chrysler sales volume ($14.3 million in fiscal year 2009 compared to $40.3 million in fiscal year 2008) due to the Company's decision to exit this business.

Excluding the restructuring and impairment of goodwill and intangible assets charges, Methode achieved net income of $12.5 million, or $0.34 per share, in the first nine months of fiscal year 2009 compared to $27.1 million, or $0.72 per share, in the same period of fiscal year 2008, excluding $0.5 million in restructuring charges.

Consolidated cost of products sold decreased $39.5 million, or 12.6 percent, to $273.8 million in the fiscal year 2009 nine-month period, compared to $313.3 million in the same period of fiscal year 2008. The decrease is due to lower sales volumes. Cost of products sold as a percentage of sales was 81.3 percent and 79.0 percent in the first nine months of fiscal years 2009 and 2008, respectively.

Selling and administrative expenses decreased $0.1 million, or 0.2 percent, to $49.7 million for the nine months ended January 31, 2009, from $49.8 million for the nine months ended February 2, 2008.