Table ofContents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

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

 

**for the quarterly period ended January 30,2010**

 

**or**

 

**o  Transition Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934.**

 

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**Commissionfile number 0-2816**

 

**METHODEELECTRONICS, INC.**

(Exact name of registrant asspecified in its charter.)

** **

| **Delaware**                    | ** ** | **36-2090085**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer    |
| incorporation or organization)  |       | Identification No.) |

 

| **7401 West Wilson Avenue, Harwood Heights,  Illinois** | ** ** | **60706-4548** |
|---------------------------------------------------------|------------|----------------|
| (Address of principal executive offices)                |       | (Zip Code)     |

 

**(708) 867-6777**

(Registrant’stelephone number, including area code)

 

**None**

(Former name, former address, former fiscalyear, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or smaller reportingcompany.  See definitions of “acceleratedfiler,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

| Large  accelerated filer o |   | Accelerated  filer x         |
|---------------------------------|--------|-----------------------------------|
|                            |   |                              |
| Non-accelerated  filer o   |   | Smaller  reporting company o |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

At March 2, 2010, registrant had 37,232,359 sharesof common stock outstanding.

 

 

 

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Table of Contents

 

METHODEELECTRONICS, INC.

FORM 10-Q

January 30,2010

 

TABLE OF CONTENTS

 

 
|                                      |   |                                                                                                                                                    | ** ** | **Page** |
|-------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I.   FINANCIAL INFORMATION |   |                                                                                                                                                    |
|                                      |   |                                                                                                                                                    |       |     |
| Item 1.                                   |   | Financial Statements                                                                                                                                    |       |     |
|                                      |   |                                                                                                                                                    |       |     |
|                                      |   | Condensed consolidated balance sheets as of —  January 30, 2010 (unaudited) and May 2, 2009                                              |       | 2        |
|                                      |   |                                                                                                                                                    |       |     |
|                                      |   | Condensed  consolidated statements of operations (unaudited) — Three months and nine  months ended January 30, 2010 and January 31, 2009 |       | 3        |
|                                      |   |                                                                                                                                                    |       |     |
|                                      |   | Condensed  consolidated statements of cash flows (unaudited) — Nine months ended  January 30, 2010 and January 31, 2009                  |       | 4        |
|                                      |   |                                                                                                                                                    |       |     |
|                                      |   | Notes to condensed consolidated  financial statements — January 30, 2010                                                                      |       | 5        |
|                                      |   |                                                                                                                                                    |       |     |
| Item 2.                                   |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                             |       | 22       |
|                                      |   |                                                                                                                                                    |       |     |
| Item 3.                                   |   | Quantitative  and Qualitative Disclosure About Market Risk                                                                                              |       | 46       |
|                                      |   |                                                                                                                                                    |       |     |
| Item 4.                                   |   | Controls and  Procedures                                                                                                                                |       | 46       |
|                                      |   |                                                                                                                                                    |       |     |
| PART II. OTHER INFORMATION           |   |                                                                                                                                                    |
|                                      |   |                                                                                                                                                    |       |     |
| Item 6.                                   |   | Exhibits                                                                                                                                                |       | 47       |
|                                      |   |                                                                                                                                                    |       |     |
| SIGNATURES                                |   | 48                                                                                                                                                      |
|                                      |   |                                                                                                                                                    |       |     |
| INDEX  TO EXHIBITS                        |   | 49                                                                                                                                                      |
|                                           |        |                                                                                                                                                         |            |          |  |  |  |  |

 

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PART I -FINANCIAL INFORMATION

 

Item 1 - FinancialStatements

 

METHODE ELECTRONICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(in thousands)

 
| ** **                                                                                                                                                             | ** ** | **As of**                 | ** ** | **As of**            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                             | ** ** | **January 30, 2010** | ** ** | **May 2, 2009** | ** ** |
| ** **                                                                                                                                                             | ** ** | **(Unaudited)**           | ** ** | ** **           | ** ** |
| ASSETS                                                                                                                                                                 |       |                      |       |                 |       |
|                                                                                                                                                                   |       |                      |       |                 |       |
| CURRENT ASSETS                                                                                                                                                         |       |                      |       |                 |       |
| Cash and cash equivalents                                                                                                                                              |       | $                         | 57,245     |                 | $          | 54,030 |   |
| Accounts receivable, net                                                                                                                                               |       | 67,595                    |       | 60,406               |       |
| Inventories:                                                                                                                                                           |       |                      |       |                 |       |
| Finished products                                                                                                                                                      |       | 4,615                     |       | 11,865               |       |
| Work in process                                                                                                                                                        |       | 6,494                     |       | 7,583                |       |
| Materials                                                                                                                                                              |       | 19,370                    |       | 17,796               |       |
|                                                                                                                                                                   |       | 30,479                    |       | 37,244               |       |
| Deferred income taxes                                                                                                                                                  |       | 4,948                     |       | 4,928                |       |
| Prepaid and refundable income taxes                                                                                                                                    |       | 6,401                     |       | 14,764               |       |
| Prepaid expenses and other current assets                                                                                                                              |       | 5,927                     |       | 6,692                |       |
| TOTAL CURRENT ASSETS                                                                                                                                                   |       | 172,595                   |       | 178,064              |       |
|                                                                                                                                                                   |       |                      |       |                 |       |
| PROPERTY, PLANT AND EQUIPMENT                                                                                                                                          |       | 286,504                   |       | 289,084              |       |
| Less allowances for depreciation                                                                                                                                       |       | 221,514                   |       | 219,167              |       |
|                                                                                                                                                                   |       | 64,990                    |       | 69,917               |       |
|                                                                                                                                                                   |       |                      |       |                 |       |
| GOODWILL                                                                                                                                                               |       | 11,771                    |       | 11,771               |       |
| INTANGIBLE ASSETS, net                                                                                                                                                 |       | 19,276                    |       | 20,501               |       |
| PRE-PRODUCTION COSTS                                                                                                                                                   |       | 8,700                     |       | 3,182                |       |
| OTHER ASSETS                                                                                                                                                           |       | 20,916                    |       | 21,853               |       |
|                                                                                                                                                                   |       | 60,663                    |       | 57,307               |       |
| TOTAL ASSETS                                                                                                                                                           |       | $                         | 298,248    |                 | $          | 305,288 |   |
|                                                                                                                                                                   |       |                      |       |                 |       |
| LIABILITIES AND EQUITY                                                                                                                                                 |       |                      |       |                 |       |
|                                                                                                                                                                   |       |                      |       |                 |       |
| CURRENT LIABILITIES                                                                                                                                                    |       |                      |       |                 |       |
| Accounts payable                                                                                                                                                       |       | $                         | 27,989     |                 | $          | 24,495 |   |
| Other current liabilities                                                                                                                                              |       | 28,128                    |       | 29,023               |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                              |       | 56,117                    |       | 53,518               |       |
|                                                                                                                                                                   |       |                      |       |                 |       |
| OTHER LIABILITIES                                                                                                                                                      |       | 10,809                    |       | 13,561               |       |
| DEFERRED COMPENSATION                                                                                                                                                  |       | 2,014                     |       | 3,308                |       |
| SHAREHOLDERS’ EQUITY                                                                                                                                              |       |                      |       |                 |       |
| Common stock, $0.50 par value, 100,000,000 shares  authorized, 38,315,225 and 38,290,776 shares issued as of January 30,  2010 and May 2, 2009, respectively |       | 19,158                    |       | 19,145               |       |
| Unearned common stock issuances                                                                                                                                        |       | (3,632                    | )          | (3,632               | )          |
| Additional paid-in capital                                                                                                                                             |       | 69,218                    |       | 68,506               |       |
| Accumulated other comprehensive income                                                                                                                                 |       | 19,278                    |       | 15,675               |       |
| Treasury stock, 1,372,188 shares as of  January 30, 2010 and May 2, 2009                                                                                     |       | (11,495                   | )          | (11,495              | )          |
| Retained earnings                                                                                                                                                      |       | 133,313                   |       | 143,577              |       |
| TOTAL METHODE ELECTRONICS, INC. SHAREHOLDERS’  EQUITY                                                                                                             |       | 225,840                   |       | 231,776              |       |
| Noncontrolling interest                                                                                                                                                |       | 3,468                     |       | 3,125                |       |
| TOTAL EQUITY                                                                                                                                                           |       | 229,308                   |       | 234,901              |       |
| TOTAL LIABILITIES AND EQUITY                                                                                                                                           |       | $                         | 298,248    |                 | $          | 305,288 |   |

 

Seenotes to condensed consolidated financial statements.

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except pershare data)

 
| ** **                                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                | ** ** | **January 30,**   | ** ** | **January 31,**  | ** ** | **January 30,** | ** ** | **January 31,** | ** ** |
| ** **                                                                | ** ** | **2010**               | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| INCOME                                                                    |       |                   |       |                  |       |   |   |   |   |
| Net  sales                                                                |       | $                      | 89,127     |                  | $          | 80,781 |   | $ | 277,398 |   | $ | 336,599 |   |
| Other                                                                     |       | 1,116                  |       | 751                   |       | 3,575 |   | 2,443 |   |
|                                                                      |       | 90,243                 |       | 81,532                |       | 280,973 |   | 339,042 |   |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| COSTS  AND EXPENSES                                                       |       |                   |       |                  |       |   |   |   |   |
| Cost  of products sold                                                    |       | 74,924                 |       | 70,512                |       | 223,617 |   | 273,757 |   |
| Restructuring                                                             |       | 559                    |       | 3,796                 |       | 7,327 |   | 14,997 |   |
| Impairment  of goodwill and intangible assets                             |       | —                 |       | 32,678                |       | — |   | 32,678 |   |
| Selling  and administrative expenses                                      |       | 17,075                 |       | 14,688                |       | 49,358 |   | 49,624 |   |
|                                                                      |       | 92,558                 |       | 121,674               |       | 280,302 |   | 371,056 |   |
| Income/(loss)  from operations                                            |       | (2,315                 | )          | (40,142               | )          | 671 |   | (32,014 | ) |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Interest  income/(expense), net                                           |       | (22                    | )          | 212                   |       | (169 | ) | 1,215 |   |
| Other  income/(expense), net                                              |       | 264                    |       | (346                  | )          | 12 |   | (1,225 | ) |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Income/(loss)  before income taxes                                        |       | (2,073                 | )          | (40,276               | )          | 514 |   | (32,024 | ) |
| Income  tax expense/(benefit)                                             |       | 2,249                  |       | (13,346               | )          | 2,760 |   | (12,314 | ) |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Net  loss                                                                 |       | (4,322                 | )          | (26,930               | )          | (2,246 | ) | (19,710 | ) |
| Less:  Net Income attributable to noncontrolling interest                 |       | (153                   | )          | (55                   | )          | (195 | ) | (222 | ) |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| NET  LOSS ATTRIBUTABLE TO METHODE ELECTRONICS, INC.                       |       | $                      | (4,475     | )                     | $          | (26,985 | ) | $ | (2,441 | ) | $ | (19,932 | ) |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Amounts  per common share attributable to Methode Electronics, Inc.: |       |                   |       |                  |       |   |   |   |   |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Basic  and diluted net loss                                               |       | $                      | (0.12      | )                     | $          | (0.74 | ) | $ | (0.07 | ) | $ | (0.54 | ) |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Cash  dividends:                                                          |       |                   |       |                  |       |   |   |   |   |
| Common  stock                                                             |       | $                      | 0.07       |                  | $          | 0.07 |   | $ | 0.21 |   | $ | 0.19 |   |
|                                                                      |       |                   |       |                  |       |   |   |   |   |
| Weighted  average number of Common Shares outstanding:                    |       |                   |       |                  |       |   |   |   |   |
| Basic  and diluted                                                        |       | 36,644                 |       | 36,597                |       | 36,642 |   | 36,964 |   |

 

See notes to condensedconsolidated financial statements.

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 
| ** **                                                                       | ** ** | **Nine Months Ended**     | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                       | ** ** | **January 30, 2010** | ** ** | **January 31, 2009** | ** ** |
| OPERATING ACTIVITIES                                                             |       |                      |       |   |   |
| Net loss                                                                         |       | $                         | (2,246     | ) | $ | (19,710 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities: |       |                      |       |   |   |
| Non-cash translation loss                                                        |       | —                    |       | 2,463 |   |
| Provision for depreciation                                                       |       | 13,691                    |       | 19,937 |   |
| Impairment of tangible assets                                                    |       | 710                       |       | 3,177 |   |
| Impairment of goodwill and intangible assets                                     |       | —                    |       | 32,678 |   |
| Amortization of intangibles                                                      |       | 1,689                     |       | 5,408 |   |
| Amortization of stock awards and stock options                                   |       | 724                       |       | 696 |   |
| Changes in operating assets and liabilities                                      |       | 1,319                     |       | (6,844 | ) |
| Other                                                                            |       | —                    |       | 576 |   |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                                       |       | 15,887                    |       | 38,381 |   |
|                                                                             |       |                      |       |   |   |
| INVESTING ACTIVITIES                                                             |       |                      |       |   |   |
| Purchases of property, plant and equipment                                       |       | (7,816                    | )          | (12,242 | ) |
| Acquisition of businesses                                                        |       | —                    |       | (57,457 | ) |
| Acquisition of technology licenses                                               |       | (440                      | )          | (903 | ) |
| Proceeds from life insurance policies                                            |       | 2,407                     |       | — |   |
| Other                                                                            |       | —                    |       | (425 | ) |
| NET CASH USED IN INVESTING  ACTIVITIES                                           |       | (5,849                    | )          | (71,027 | ) |
|                                                                             |       |                      |       |   |   |
| FINANCING ACTIVITIES                                                             |       |                      |       |   |   |
| Repurchase of common stock                                                       |       | —                    |       | (5,137 | ) |
| Proceeds from exercise of stock options                                          |       | —                    |       | 110 |   |
| Tax benefit from stock options and awards                                        |       | —                    |       | 46 |   |
| Cash dividends                                                                   |       | (7,823                    | )          | (7,154 | ) |
| NET CASH USED IN FINANCING  ACTIVITIES                                           |       | (7,823                    | )          | (12,135 | ) |
|                                                                             |       |                      |       |   |   |
| Effect of foreign currency exchange rate changes on  cash                        |       | 1,000                     |       | (5,097 | ) |
|                                                                             |       |                      |       |   |   |
| INCREASE/(DECREASE) IN CASH  AND CASH EQUIVALENTS                                |       | 3,215                     |       | (49,878 | ) |
|                                                                             |       |                      |       |   |   |
| Cash and cash equivalents at beginning of period                                 |       | 54,030                    |       | 104,305 |   |
|                                                                             |       |                      |       |   |   |
| CASH AND CASH EQUIVALENTS  AT END OF PERIOD                                      |       | $                         | 57,245     |   | $ | 54,427 |   |

 

Seenotes to condensed consolidated financial statements.

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

(Dollaramounts in thousands, except share data)

 

January 30,2010

 

**1.****            ****BASIS OFPRESENTATION**

 

MethodeElectronics, Inc. was incorporated in 1946 as an Illinois corporation andreincorporated in Delaware in 1966.  Asused herein, “we,” “us,” “our,” the “Company” or “Methode” means MethodeElectronics, Inc. and its subsidiaries. The condensed consolidated financial statements and related disclosuresas of January 30, 2010 and results of operations for the three months andnine months ended January 30, 2010 and January 31, 2009 areunaudited, pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”).  The May 2,2009 condensed consolidated balance sheet was derived from audited financialstatements, but does not include all disclosures required by accountingprinciples generally accepted in the United States of America (“U.S. GAAP”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with U.S. GAAPhave been condensed or omitted pursuant to such rules andregulations.  In our opinion, thesefinancial statements include all adjustments (consisting only of normalrecurring adjustments) necessary for the fair statement of the results for theinterim periods.  These financial statementsshould be read in conjunction with the financial statements included in ourlatest Form 10-K for the year ended May 2, 2009 filed with the SEC onJuly 2, 2009.  Results may vary fromquarter to quarter for reasons other than seasonality.

 

**2.****             RECENTLY ISSUEDACCOUNTING PRONOUNCEMENTS**

 

In September 2009,the Financial Accounting Standards Board “FASB” issued Accounting  Standards Update 2009-13, “Multiple-DeliverableRevenue Arrangements,” which amends the multiple-element arrangement guidanceunder Accounting Standards Codification “ASC” No. 605, “RevenueRecognition.”  This guidance amends thecriteria for separating consideration of products or services inmultiple-deliverable arrangements.  Thisguidance establishes a selling price hierarchy for determining the sellingprice of a deliverable, eliminates the residual method of allocation, andrequires that arrangement consideration be allocated at the inception of thearrangement to all deliverables using the relative selling price method.  In addition, this guidance significantlyexpands required disclosures related to a vendor’s multiple-deliverable revenuearrangements.  This guidance is effectiveprospectively for revenue arrangements entered into or materially modified infiscal years beginning on or after June 15, 2010, which is our fiscal year2012, that begins May 1, 2011.  Theadoption of this standard will not have a material impact on our financialstatements.

 

In January 2010,the FASB issued a new accounting standard which updates some new disclosuresand clarifies some existing disclosure requirements about fair valuemeasurements codified within ASC 820, “Fair Value Measurements and Disclosures,”(“ASC No. 820”).  The majority of the provisions of this updateare effective for interim and annual reporting periods beginning after December 15,2009.  The adoption of this standard will not have a material impacton our financial statements.

 

**3.****             RECENTLY ADOPTEDACCOUNTING PRONOUNCEMENTS**

 

Effective November 1,2009, we adopted ASC No. 810, “Consolidation” (“ASC No. 810”).  ASC No. 810 is intended to improvefinancial reporting by providing additional guidance to companies involved withvariable interest entities and by requiring additional disclosures about acompany’s involvement in variable interest entities.  This standard is effective for interim andannual periods ending after November 15, 2009.  The adoption of this standard did not have animpact on our financial statements.

 

Effective November 1,2009, we adopted ASC No. 860, “Transfers and Servicing” (“ASC No. 860”).  ASC No. 860 requires more informationabout transfers of financial assets, including continuing exposure to the riskrelated to transferred financial assets. It eliminates the concept of a qualifying special purpose entity,changes the requirements for derecognizing financial assets, and requiresadditional disclosure.  This standard iseffective for interim and annual periods ending after November 15,2009.  The adoption of this standard didnot have an impact on our financial statements.

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**3.****            ****RECENTLYADOPTED ACCOUNTING PRONOUNCEMENTS - Continued**

 

Effective October 31,2009, we adopted ASC No. 105, “Generally Accepted Accounting Principles,”(“ASC No. 105”), the FASB Accounting Standards Codification the “Codification”and the Hierarchy of Generally Accepted Accounting Principles.  The Codification is now the single source ofauthoritative GAAP for all non-governmental entities.  The Codification changes the referencing andorganization of accounting guidance.  Theissuance of ASC No. 105 did not change GAAP and therefore the adoption ofASC No. 105 will only affect how specific references to GAAP literatureare disclosed in the notes to our consolidated financial statements.

 

In December 2007,the FASB issued new guidance under ASC No. 810, an Amendment of AccountingResearch Bulletin No. 51, “Consolidated Financial Statements”.  ASC No. 810 establishes accounting andreporting standards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary.  Itclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity that should be reported as equity in theconsolidated financial statements.  Weadopted ASC No. 810 on May 3, 2009. As a result, we have reclassified financial statement line items withinour condensed consolidated balance sheet and statement of income for the priorperiod to conform with this standard. Additionally, see Note 5 for disclosure reflecting the impact of ASC No. 810on our reconciliation of comprehensive income.

 

In June 2008,the FASB issued ASC No. 260, “Determining Whether Instruments Granted inShare-Based Payment Transactions are Participating Securities” (“ASC No. 260”).  ASC No. 260 was issued to clarify thatunvested share-based payment awards with a right to receive non-forfeitabledividends are participating securities. This ASC also provides guidance on how to allocate earnings to participatingsecurities and compute basic earnings per share using the two-classmethod.  We adopted ASC No. 260 on May 3,2009.  The adoption did not have amaterial impact on our earnings per share calculations.

 

In February 2008,the FASB issued new guidance under ASC No. 820, (FASB Staff Position No. 157-2),which delays the effective date of SFAS No. 157 for non-financialassets and liabilities, which are not measured at fair value on a recurringbasis (at least annually) until fiscal years beginning after November 15,2008, which is our fiscal year 2010 that began May 3, 2009.  The adoption of ASC No. 820 fornon-financial assets and liabilities did not have a material impact on ourcondensed consolidated financial statements.

 

On May 3,2009, we adopted the provisions of ASC No. 805-10, “Business Combinations”(“ASC No. 805-10”).  ASC No. 805-10establishes principles and requirements on how an acquirer recognizes andmeasures in its financial statements identifiable assets acquired, liabilitiesassumed, noncontrolling interests in the acquiree, goodwill or gain from abargain purchase and accounting for transaction costs. Additionally, ASC No. 805-10determines what information must be disclosed to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination. The adoption of ASC No. 805-10 did not have a material impacton our consolidated financial statements, but will have an impact on theaccounting for future business combinations.

 

In April 2009,the FASB issued three FASB Staff Positions, (“FSPs”) related to fair valuemeasurements. The first, FSP ASC No. 820, “Fair Value Measurements andDisclosures,” provides guidance on determining whether a market is inactive andwhether transactions in that market are distressed. The second FSP issued, ASC No. 320,“Investments — Debt and Equity Securities,” and EITF 99-20-2, “Recognition andPresentation of Other-Than-Temporary Impairments,” provides guidance on how toassess whether an asset has experienced an other-than-temporary impairment and,if so, where the impairment should be recorded in the financial statements. Thethird FSP issued, ASC No. 825, “Financial Instruments,” and ASC No. 270,“Interim Reporting,” requires that disclosures currently required under ASC No. 825,Disclosures about Fair Value of Financial Instruments, be presented for interimperiods as well as annual periods. The Company adopted these FSPs during thefirst quarter of fiscal 2010. The adoption of these FSPs did not have amaterial impact on the Company’s consolidated financial statements.

 

In May 2009,the FASB issued ASC No. 855, “Subsequent Events” (“ASC No. 855”). ASCNo. 855 establishes general standards of accounting for, and disclosureof, events that occur after the balance sheet date but before financial statementsare issued or are available to be issued. In particular, this statement sets forth:  (1) the period after the balance sheetdate during which management of a reporting entity should evaluate events or

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**3.****            ****RECENTLYADOPTED ACCOUNTING PRONOUNCEMENTS - Continued**

 

transactions that mayoccur for potential recognition or disclosure in the financial statements, (2) thecircumstances under which an entity should recognize events or transactionsoccurring after the balance sheet date in the financial statements and (3) thedisclosure that an entity should make about events or transactions thatoccurred after the balance sheet date. We adopted ASC No. 855 on August 1, 2009 and the adoption didnot have a material impact on our financial statements.

 

**4.****            ****RESTRUCTURINGS**

 

**March 2009Restructuring**

 

InMarch 2009, we announced several additional restructuring actions tofurther reduce our exposure to the North American automotive industry and toconsolidate manufacturing facilities in lower cost regions.  The restructuring is expected to be completedduring the fourth quarter of fiscal 2010. We record the expense in the restructuring section of our condensedconsolidated statement of operations. As of January 30, 2010, we haverecorded a total of $12,459 of charges related to this restructuring.  We estimate that we will record additionalpre-tax restructuring charges in the fourth quarter of fiscal 2010 of between$250 and $500.

 

Duringthe three months ended January 30, 2010, we recorded a restructuringcharge of $277, which consisted of $22 for employee severance and $255 relatingto other costs.  During the nine monthsended January 30, 2010, we recorded a restructuring charge of $5,196,which consisted of $3,512 for employee severance and $1,684 relating to othercosts.  As of January 30, 2010, wehad an accrued restructuring liability of $282 reflected in the currentliabilities section of our consolidated balance sheet.  We expect this liability to be paid out duringthe fourth quarter of fiscal 2010.

 

The table below reflectsthe March 2009 restructuring activity for the first, second and thirdquarters of fiscal 2010:

 
| ** **                                        | ** ** | **One-Time**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                                        | ** ** | **Employee**  | ** ** | **Other**  | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | **Severance** | ** ** | **Costs**  | ** ** | **Total**  | ** ** |
| Accrued  balance at May 2, 2009              |       | $             | 140        |       | $          | —     |       | $ | 140 |   |
| First  quarter fiscal 2010 restructuring charges  |       | 1,671         |       | 270        |       | 1,941      |       |
| First  quarter fiscal 2010 payments               |       | (1,625        | )          | (270       | )          | (1,895     | )          |
| Accrued  balance at August 1, 2009           |       | 186           |       | —     |       | 186        |       |
|                                              |       |          |       |       |       |       |       |
| Second  quarter fiscal 2010 restructuring charges |       | 1,819         |       | 1,159      |       | 2,978      |       |
| Second  quarter fiscal 2010 payments              |       | (1,688        | )          | (879       | )          | (2,567     | )          |
| Accrued  balance at October 31, 2009         |       | $             | 317        |       | $          | 280        |       | $ | 597 |   |
|                                              |       |          |       |       |       |       |       |
| Third  quarter fiscal 2010 restructuring charges  |       | 22            |       | 255        |       | 277        |       |
| Third  quarter fiscal 2010 payments               |       | (339          | )          | (253       | )          | (592       | )          |
| Accrued  balance at January 30, 2010         |       | $             | —     |       | $          | 282        |       | $ | 282 |   |

 

**January 2008 Restructuring**

 

In January 2008, we announced a restructuring of our U.S.-basedautomotive operations and a decision to discontinue producing certain legacyproducts in the Interconnect segment. The Automotive and Interconnect restructuring is expected to becompleted during the fourth quarter of fiscal 2010.  We record the expense in the restructuringsection of our condensed consolidated statement of operations.  As of January 30, 2010, we have

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**4.****            ****RESTRUCTURINGS- Continued**

 

recordedcharges totaling $25,304 related to this restructuring.  We estimate that we will record additionalpre-tax restructuring charges in the fourth quarter of fiscal 2010 of between$250 and $750.

 

Duringthe three months ended January 30, 2010, we recorded a restructuringcharge of $282, which consisted of $456 for employee severance, a gain on thesale of assets of $180 and $6 related to other costs.  During the nine months ended January 30,2010, we recorded a restructuring charge of $2,130, which consisted of $636 foremployee severance, $1,358 in impairments and accelerated depreciation and $136relating to other costs.  As of January 30,2010, we had an accrued restructuring liability of $321 reflected in thecurrent liabilities section of our consolidated balance sheet.  We expect this liability to be paid outduring the fourth quarter of fiscal 2010.

 

The table below reflectsthe January 2008 restructuring activity for the first, second and thirdquarters of fiscal 2010:

 
| ** **                                             | ** ** | **One-Time**  | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                                             | ** ** | **Employee**  | ** ** | **Asset**       | ** ** | **Other**  | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Severance** | ** ** | **Write-Downs** | ** ** | **Costs**  | ** ** | **Total**  | ** ** |
| Accrued  balance at May 2, 2009                   |       | $             | 1,849      |            | $          | —     |       | $          | —     |   | $ | 1,849 |   |
| First  quarter fiscal 2010 restructuring charges       |       | 180           |       | 1,450           |       | 40         |       | 1,670      |       |
| First  quarter 2010 payments and asset write-downs     |       | (368          | )          | (1,450          | )          | (40        | )          | (1,858     | )          |
| Accrued  balance at August 1, 2009                |       | 1,661         |       | —          |       | —     |       | 1,661      |       |
|                                                   |       |          |       |            |       |       |       |       |       |
| Second  quarter fiscal 2010 restructuring charges      |       | —        |       | 88              |       | 90         |       | 178        |       |
| Second  qtr fiscal 2010 payments and asset write-downs |       | (244          | )          | (88             | )          | (90        | )          | (422       | )          |
| Accrued  balance at October 31, 2009              |       | $             | 1,417      |            | $          | —     |       | $          | —     |   | $ | 1,417 |   |
|                                                   |       |          |       |            |       |       |       |       |       |
| Third  quarter fiscal 2010 restructuring charges       |       | 456           |       | (180            | )          | 6          |       | 282        |       |
| Third  qtr fiscal 2010 payments and asset write-downs  |       | (1,552        | )          | 180             |       | (6         | )          | (1,378     | )          |
| Accrued  balance at January 30, 2010              |       | $             | 321        |            | $          | —     |       | $          | —     |   | $ | 321 |   |

 

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METHODEELECTRONICS, INC. AND SUBSIDIARIES

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**5.****            ****COMPREHENSIVEINCOME/(LOSS)**

 

The components ofour comprehensive income/(loss) for the three and nine months ended January 30,2010 and January 31, 2009 include net income/(loss) and adjustments tostockholders’ equity for foreign currency translations.  The foreign currency translation adjustmentwas due to exchange rate fluctuations in our foreign affiliates’ local currencyversus the U.S. dollar.

 

Thefollowing table presents details of our comprehensive income/(loss)(unaudited):

 
| ** **                        | ** ** | **Three Months Ended January 30, 2010** | ** ** | **Nine Months Ended January 30, 2010** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                        | ** ** | ** **                                   | ** ** | **Methode**                                 | ** ** | **Noncontrolling** | ** ** | ** ** | ** ** | **Methode** | ** ** | **Noncontrolling** | ** ** |
| ** **                        | ** ** | **Total**                                    | ** ** | **Shareholders**                            | ** ** | **Interest** | ** ** | **Total** | ** ** | **Shareholders** | ** ** | **Interest** | ** ** |
|                              |       |                                         |       |                                        |       |   |   |   |   |   |   |   |   |
| Net income/(loss)                 |       | $                                            | (4,322     | )                                           | $          | (4,475 | ) | $ | 153 |   | $ | (2,246 | ) | $ | (2,441 | ) | $ | 195 |   |
| Translation adjustment            |       | (4,613                                       | )          | (4,442                                      | )          | (171 | ) | 3,603 |   | 3,418 |   | 185 |   |
| Total comprehensive income/(loss) |       | $                                            | (8,935     | )                                           | $          | (8,917 | ) | $ | (18 | ) | $ | 1,357 |   | $ | 977 |   | $ | 380 |   |

 
| ** **               | ** ** | **Three Months Ended January 31, 2009** | ** ** | **Nine Months Ended January 31, 2009** | ** ** |
|--------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **               | ** ** | ** **                                   | ** ** | **Methode**                                 | ** ** | **Noncontrolling** | ** ** | ** ** | ** ** | **Methode** | ** ** | **Noncontrolling** | ** ** |
| ** **               | ** ** | **Total**                                    | ** ** | **Shareholders**                            | ** ** | **Interest** | ** ** | **Total** | ** ** | **Shareholders** | ** ** | **Interest** | ** ** |
|                     |       |                                         |       |                                        |       |   |   |   |   |   |   |   |   |
| Net income/(loss)        |       | $                                            | (26,930    | )                                           | $          | (26,985 | ) | $ | 55 |   | $ | (19,710 | ) | $ | (19,932 | ) | $ | 222 |   |
| Translation adjustment   |       | (507                                         | )          | (114                                        | )          | (393 | ) | (17,416 | ) | (16,499 | ) | (917 | ) |
| Total comprehensive loss |       | $                                            | (27,437    | )                                           | $          | (27,099 | ) | $ | (338 | ) | $ | (37,126 | ) | $ | (36,431 | ) | $ | (695 | ) |

 

**6.****            ****GOODWILLAND INTANGIBLE ASSETS**

 

We review our goodwill and other intangible assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof these assets may not be recoverable, and we also review our goodwillannually in accordance with ASC No. 350, “Intangibles — Goodwill andOther,” (“ASC No. 350”).  The valuesassigned to goodwill and intangible assets are normally based on estimates andjudgments regarding expectations for the success and life cycle of products andtechnologies acquired.  A severe declinein expectations could result in significant impairment charges, which couldhave a material adverse effect on our financial condition and results ofoperations.  We did not performimpairment testing on our goodwill and intangible assets during the thirdquarter of fiscal 2010 because there were no additional indicators ofimpairment.

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**6.****            ****GOODWILLAND INTANGIBLE ASSETS - Continued**

 

The following tables present details ofthe Company’s intangible assets:

 
| ** **                             | ** ** | **As of January 30, 2010** | ** ** |
|----------------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Wtd. Avg.** | ** ** |
| ** **                             | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Remaining** | ** ** |
| ** **                             | ** ** | ** **                      | ** ** | **Accumulated** | ** ** | ** ** | ** ** | **Amortization** | ** ** |
| ** **                             | ** ** | **Gross**                       | ** ** | **Amortization** | ** ** | **Net** | ** ** | **Periods (Years)** | ** ** |
| Customer  relationships and agreements |       | $                               | 14,995     |   | $ | 12,977 |   | $ | 2,018 |   | 13.9 |   |
| Patents  and technology licenses       |       | 23,708                          |       | 6,561 |   | 17,147 |   | 13.1 |   |
| Covenants  not to compete              |       | 480                             |       | 369 |   | 111 |   | 2.1 |   |
| Total                                  |       | $                               | 39,183     |   | $ | 19,907 |   | $ | 19,276 |   |   |   |

 
| ** **                             | ** ** | **As of May 2, 2009** | ** ** |
|----------------------------------------|------------|----------------------------|------------|
| ** **                             | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | **Wtd. Avg.** | ** ** |
| ** **                             | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | **Remaining** | ** ** |
| ** **                             | ** ** | ** **                 | ** ** | **Accumulated** | ** ** | ** ** | ** ** | **Amortization** | ** ** |
| ** **                             | ** ** | **Gross**                  | ** ** | **Amortization** | ** ** | **Net** | ** ** | **Periods (Years)** | ** ** |
| Customer  relationships and agreements |       | $                          | 14,995     |   | $ | 12,718 |   | $ | 2,277 |   | 14.7 |   |
| Patents  and technology licenses       |       | 23,244                     |       | 5,169 |   | 18,075 |   | 13.4 |   |
| Covenants  not to compete              |       | 480                        |       | 331 |   | 149 |   | 2.8 |   |
| Total                                  |       | $                          | 38,719     |   | $ | 18,218 |   | $ | 20,501 |   |   |   |

 

The estimated aggregate amortization expense for fiscal 2010 and eachof the four succeeding fiscal years is as follows:

 
| 2010 |   | $     | 2,248  |   |
|------|--------|-------|--------|--------|
| 2011 |   | 2,210 |   |
| 2012 |   | 1,698 |   |
| 2013 |   | 1,321 |   |
| 2014 |   | 1,208 |   |

 

As of January 30, 2010, the patents and technology licenses include$2,400 of trade names that are not subject to amortization.

 

**7.****            ****ACQUISITIONS**

 

On September 30, 2008, we acquired certain assets of Hetronic LLC(Hetronic) for $53,639 in cash.  We alsoincurred $2,447 in transaction costs. Hetronic is a global leader in industrial safety radio remote controlswith locations in the U.S., Malta, the Philippines and Germany.

 

Basedin part on a third-party valuation report, management determined that thetangible net assets acquired had a fair value of $20,533.  The fair values assigned to intangible assetsacquired were $12,170 for customer relationships, $2,700 for the trade name andtrademarks, $1,450 for technology valuation, and $170 for non-competes,resulting in $19,063 of goodwill.  Thecustomer relationships, technology valuation and non-compete agreements will beamortized over 5 to approximately 12 years. The trade name and trademarks are not subject to amortization but willbe subject to periodic impairment testing. The accounts and transactions of Hetronic have been included in theInterconnect segment in the consolidated financial statements from theeffective date of the acquisition.

 

Atthe end of fiscal 2009, in accordance with ASC No. 350 and ASC No. 360,“Property, Plant, and Equipment,” it was determined that the goodwill andintangible assets for Hetronic were impaired. Therefore, in the

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**7.****            ****ACQUISITIONS - Continued**

 

fourthquarter of fiscal 2009, we recorded an impairment charge of $19,063 and $11,587for goodwill and intangible assets, respectively.

 

**8.****            ****INCOME TAXES**

 

AtJanuary 30, 2010, we had valuation allowances against our deferred taxassets of $56,723.  In accordance withASC No. 740, “Income Taxes,” a valuation allowance is required to berecorded when it is more likely than not that deferred tax assets will not berealized.  Future realization depends onthe existence of sufficient taxable income within the carry-forward periodavailable under the tax law.  Sources offuture taxable income include future reversals of taxable temporarydifferences, future taxable income exclusive of reversing taxable differences,taxable income in carry-back years and tax planning strategies.  These sources of positive evidence ofrealizability must be weighed against negative evidence, such as cumulativelosses in recent years.

 

Informing a judgment about the future realization of our deferred tax assets, weconsidered both the positive and negative evidence of realizability and gavesignificant weight to the negative evidence from our recent cumulativeloss.  We will continue to assess thissituation and make appropriate adjustments to the valuation allowance based onour evaluation of the positive and negative evidence existing at the time.  We are currently unable to forecast whenthere will be sufficient positive evidence for us to reverse the valuationallowances that we have recorded.

 

Thevaluation allowance is associated with the deferred tax assets for thedifferences between book and tax that result from net operating losses (NOLs),foreign investment tax credits with unlimited carryovers generated in thecurrent and prior years and temporary differences which become deductible whenthe related asset is recovered or related liability is settled.

 

During the third quarter of fiscal 2010, we recognized a benefit of$3,092 in uncertain tax positions due to settlements.  We believe that it is reasonably possiblethat the total amount of unrecognized tax benefits will change within the nexttwelve months.  We have certain taxreturn years subject to statutes of limitation, which will close within twelvemonths of the end of the quarter.  Unlesschallenged by tax authorities, the closure of those statutes of limitation isexpected to result in the recognition of uncertain tax positions in the rangeof between $300 and $2,600.

 

We recognize interest and penalties accrued related to the unrecognizedtax benefits in the provision for income taxes. During the three months ended January 30, 2010, we recognized areversal of $161 in interest and $50 in penalties.  We had approximately $1,380 accrued at January 30,2010 for the payment of interest and penalties. The total unrecognized tax benefit as of January 30, 2010 was$3,034.

 

Thefollowing table presents a reconciliation of the beginning and ending amountsof unrecognized tax benefits:

 
| Balance  at May 2, 2009                         |   | $      | 6,126  |   |
|------------------------------------------------------|--------|--------|--------|--------|
| Increases  for positions related to the current year |   | — |   |
| Increases  for positions related to the prior years  |   | — |   |
| Decreases  for positions related to prior years      |   | — |   |
| Settlements                                          |   | (3,092 | )      |
| Lapsing  of statutes of limitations                  |   | — |   |
| Balance  at January 30, 2010                    |   | $      | 3,034  |   |

 

The Company and all of its domestic subsidiaries file income taxreturns in the U.S. federal jurisdiction and various states.  Our foreign subsidiaries file income taxreturns in certain foreign jurisdictions since they have operations outside theU.S.  The Company and its subsidiariesare generally no longer subject to U.S. federal, state and local examinationsby tax authorities for all years except fiscal 2009 and fiscal 2006.

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**9.****            ****COMMON STOCK AND STOCK-BASED COMPENSATION**

 

Thefollowing table sets forth the changes in the number of issued shares of commonstock during the nine-month periods presented:

 
| ** **                              | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **January 30,**  | ** ** | **January 31,** | ** ** |
| ** **                              | ** ** | **2010**              | ** ** | **2009** | ** ** |
|                                    |       |                  |       |   |   |
| Balance  at the beginning of the period |       | 38,290,776            |       | 38,225,379 |   |
| Options  exercised                      |       | —                |       | 19,089 |   |
| Restricted  stock awards vested         |       | 24,449                |       | 50,473 |   |
| Repurchase  and retirement              |       | —                |       | (53,012 | ) |
| Balance  at the end of the period       |       | 38,315,225            |       | 38,241,929 |   |

 

Wepaid quarterly dividends of $2,590 on January 30, 2010.  Our Board of Directors approved a stockrepurchase plan on September 18, 2008 to repurchase up to 3,000,000shares.  The plan expires at the end offiscal 2010.  There were no sharespurchased during the first three quarters of fiscal 2010.

 

**Stock Options GrantedUnder the 2000 and 2004 Stock Plans**

 

Optionsto purchase 583,909 shares of our common stock were granted in previous yearsunder the 2000 and 2004 stock plans and are outstanding and exercisable as of January 30,2010.  Options to purchase 30,128 sharesof our common stock expired and options to purchase 11,596 shares of our commonstock were forfeited during the first nine months of fiscal 2010.  There was no remaining compensation expenserelating to these options in the first three quarters of fiscal 2010.

 

Thefollowing tables summarize the stock option activity and related informationfor the stock options granted under the 2000 and 2004 stock plans for the ninemonths ended January 30, 2010:

 
| ** **                            | ** ** | **Summary of Option Activity** | ** ** |
|---------------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | ** **                     | ** ** | **Wtd. Avg.** | ** ** |
| ** **                            | ** ** | **Shares**                     | ** ** | **Exercise Price** | ** ** |
| Outstanding at  May 2, 2009      |       | 625,633                        |       | $ | 10.26 | ** ** |
| Exercised                             |       | —                         |       | — |   |
| Forfeited  and Expired                |       | (41,724                        | )          | 8.17 |   |
| Outstanding  at January 30, 2010 |       | 583,909                        |       | $ | 10.52 |   |
|                                       |            |                                |            |  |  |  |  |

 
| **Options Outstanding and  Exercisable at January 30, 2010** | ** ** |
|-------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | ** ** | ** ** | **Wtd. Avg.** | ** ** | **Avg.** | ** ** |
| **Range of**                                                      | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Remaining** | ** ** |
| **Exercise Prices**                                               | ** ** | **Shares** | ** ** | **Price** | ** ** | **Life (Years)** | ** ** |
| $5.72 - $7.69                                                     |       | 148,125 |   | $ | 6.72 |   | 1.8 |   |
| $8.53 - $11.44                                                    |       | 303,085 |   | 10.86 |   | 1.8 |   |
| $12.11 - $17.66                                                   |       | 132,699 |   | 14.00 |   | 0.8 |   |
|                                                              |       | 583,909 |   | $ | 10.52 |   |   |   |

 

Theoptions outstanding had an intrinsic value of $736 at January 30,2010.  The intrinsic value represents thetotal pre-tax intrinsic value (the difference between the Company’s closingstock price on the last trading day of the third quarter of fiscal 2010 and theexercise price, multiplied by the number of in-the-money options) that wouldhave been received by the option holders had all option holders exercised theiroptions on January 30, 2010.

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**9.****            ****COMMON STOCK AND STOCK-BASED COMPENSATION - Continued**

 

**Stock Options GrantedUnder the 2007 Stock Plan**

 

InMarch 2009, the Compensation Committee approved the grant of options topurchase 285,000 shares of our common stock to our executive officers under the2007 Stock Plan.  The March 2009stock options vest on the third anniversary of the date of grant.  In July 2009, the Compensation Committeeapproved the grant of options to purchase 275,000 shares of our common stock toour executive officers and other members of management under the sameplan.  The July 2009 stock optionsvest one-third per year on each anniversary of the date of grant.  Additionally, in December 2009, theCompensation Committee approved the grant of options to purchase 35,500 sharesof our common stock to some members of the management team.  The December 2009 stock options vest onthe third anniversary of the date of grant. The stock options granted under the 2007 plan have a ten-year term.

 

Thefollowing tables summarize the stock option activity and related informationfor the stock options granted under the 2007 stock plan for the nine monthsended January 30, 2010:

 
| ** **                            | ** ** | **Summary of Option Activity** | ** ** |
|---------------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | ** **                     | ** ** | **Wtd. Avg.** | ** ** |
| ** **                            | ** ** | **Shares**                     | ** ** | **Exercise Price** | ** ** |
| Outstanding  at May 2, 2009      |       | 285,000                        |       | $ | 2.72 |   |
| Granted                               |       | 310,500                        |       | 6.65 |   |
| Exercised                             |       | —                         |       | — |   |
| Cancelled                             |       | —                         |       | — |   |
| Outstanding  at January 30, 2010 |       | 595,500                        |       | $ | 4.77 |   |

 
| **Options Outstanding  at January 30, 2010** | ** ** |
|---------------------------------------------------|------------|
| ** **                                        | ** ** | ** ** | ** ** | **Avg.** | ** ** |
| ** **                                        | ** ** | ** ** | ** ** | **Remaining** | ** ** |
| **Exercise  Price**                               | ** ** | **Shares** | ** ** | **Life (Years)** | ** ** |
| $                                                 | 2.72       |   | 285,000 |   | 9.1 |   |
| $                                                 | 6.46       |   | 275,000 |   | 9.4 |   |
| $                                                 | 8.13       |   | 35,500 |   | 9.8 |   |

 

Weestimated the fair value of our employee stock options on the date of grantusing the Black-Scholes option-pricing model with the following assumptions:

 
| ** **                              | ** ** | **Fiscal 2009** | ** ** | **Fiscal 2010** | ** ** |
|-----------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                              | ** ** | **Grants**      | ** ** | **Grants**      | ** ** |
|                                    |       |            |       |            |       |
| Average  expected volatility            |       | 69.58           | %          | 86.88           | %          |
| Average  risk-free interest rate        |       | 1.39            | %          | 1.43            | %          |
| Dividend  yield                         |       | 2.26            | %          | 2.77            | %          |
| Expected  life of options               |       | 6.87 years      |       | 6.87 years      |       |
| Weighted-average  grant-date fair value |       | $               | 1.46       |            | $          | 4.02 |   |
|                                         |            |                 |            |                 |            |  |  |

 

Werecognized pre-tax compensation expense for stock options granted under the2007 plan of $136 and $328 in the three months and nine months ended January 30,2010.  There was no pre-tax compensationexpense relating to these options for both the three months and nine monthsended January 31, 2009.  We recordthe compensation expense related to the stock options in the selling andadministrative section of our condensed consolidated statement of operations.

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**9.****            ****COMMON STOCK AND STOCK-BASED COMPENSATION - Continued**

 

**Restricted Stock Awards and Restricted Stock Units**

 

In April 2007, 225,000 shares of commonstock subject to performance-based Restricted Stock Awards (RSAs) granted toour CEO in fiscal 2006 and 2007 were converted to Restricted Stock Units(RSUs).  The RSUs were subject to thesame vesting schedule and other major provisions of the RSAs they replaced,except the RSUs are not payable until the earlier of: (1) thirty daysafter the CEO’s date of termination of employment with the Company and all ofits subsidiaries and affiliates; or (2) the last day of our fiscal year inwhich the payment of common stock in satisfaction of the RSUs becomesdeductible to the Company under Section 162(m) of the InternalRevenue Code.  The RSUs are not entitledto voting rights or the payment of dividends. All further discussion of RSAs in this report includes the RSUsdescribed above.

 

At May 3, 2009, the beginning of fiscal2010, there were 578,287 shares of common stock subject to performance-basedand time-based RSAs outstanding.  Thetime-based RSAs vest in three equal annual installments from the grantdate.  All RSAs awarded to executives areperformance-based and vest after three years if the recipient remains employedby the Company until that date and we have met certain revenue growth andreturn on invested capital targets.  Asof December 18, 2009, it was determined that based on the current economicenvironment, the 287,750 performance-based shares granted in fiscal years 2008and 2009 were not expected to meet the revenue growth and return on investedcapital targets, and, therefore were cancelled. All of the unvested RSAs are entitled to voting rights and to payment ofdividends.  During the nine months ended January 30,2010, we awarded 24,000 restricted shares to our independent directors, all ofwhich vested immediately upon grant.

 

Werecognized pre-tax compensation expense for RSAs of $81 and a reversal ofexpense of $910 in the three months ended January 30, 2010 and January 31,2009, respectively.  We recognizedpre-tax compensation expense for RSAs of $396 and $692 in the nine months endedJanuary 30, 2010 and January 31, 2009, respectively.  We record the expense in the selling andadministrative section of our condensed consolidated statement of operations.

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**9.****            ****COMMONSTOCK AND STOCK-BASED COMPENSATION - Continued**

 

The following tablesummarizes the RSA activity for the nine months ended January 30, 2010:

 
| ** **                                      | ** ** | **Shares** | ** ** |
|-------------------------------------------------|------------|------------|------------|
| Unvested  and unissued at May 2, 2009      |       | 578,287    |       |
| Awarded                                         |       | 24,000     |       |
| Vested                                          |       | (24,667    | )          |
| Forfeited  and Cancelled                        |       | (288,298   | )          |
| Unvested  and unissued at January 30, 2010 |       | 289,322    |       |

 

The table below shows the Company’s unvested and unissued RSAs at January 30,2010:

 
| ** ** | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **   | ** ** | **Probable**              | ** ** | **Target**                | ** ** |
|------------|------------|------------|------------|-----------------------------------|------------|--------------|------------|---------------------------|------------|---------------------------|------------|
| ** ** | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **   | ** ** | **Unearned**              | ** ** | **Unearned**              | ** ** |
| **Grant**  | ** ** | ** ** | ** ** | ** **                        | ** ** | **Weighted** | ** ** | **Compensation**          | ** ** | **Compensation**          | ** ** |
| **Fiscal** | ** ** | ** ** | ** ** | ** **                        | ** ** | **Average**  | ** ** | **Expense at**            | ** ** | **Expense at**            | ** ** |
| **Year**   | ** ** | **RSAs**   | ** ** | **Vesting Period**                | ** ** | **Value**    | ** ** | **January 30, 2010** | ** ** | **January 30, 2010** | ** ** |
| 2006       |       | 125,000    |       | 3-year cliff  performanced-based  |       | $            | 12.42      |                      | $          | —                    |       | $ | — |   |
| 2007       |       | 100,834    |       | 3-year equal annual  installments |       | 7.67         |       | —                    |       | —                    |       |
| 2008       |       | 15,263     |       | 3-year equal annual  installments |       | 14.84        |       | 23                        |       | 23                        |       |
| 2009       |       | 48,225     |       | 3-year equal annual  installments |       | 10.62        |       | 148                       |       | 148                       |       |
|            |            |            |            |                                   |            |              |            |                           |            |                           |            |  |  |  |

 

At January 30, 2010,the aggregate unvested and un issued RSAs had a grant date weighted averagefair value of $10.59 and a weighted average vesting period of approximately11.7 months.

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**10.****         ****NET LOSS PER SHARE**

 

Basic loss pershare is calculated by dividing net loss by the weighted average number ofcommon shares outstanding for the applicable period.  Diluted loss per share is calculated afteradjusting the numerator and the denominator of the basic loss per sharecalculation for the effect of all potentially dilutive common sharesoutstanding during the period.  Potential common shares have not been included in the calculation ofdiluted net loss per share as the effect would have been anti-dilutive.

 

The following table setsforth the computation of basic and diluted loss per share:

 
| ** **                                                                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **January 30,**   | ** ** | **January 31,**  | ** ** | **January 30,** | ** ** | **January 31,** | ** ** |
| ** **                                                                                        | ** ** | **2010**               | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| Numerator  - net loss attributable to Methode Electronics, Inc.                              |       | $                      | (4,475     | )                     | $          | (26,985 | ) | $ | (2,441 | ) | $ | (19,932 | ) |
|                                                                                              |       |                   |       |                  |       |   |   |   |   |
| Denominator:                                                                                      |       |                   |       |                  |       |   |   |   |   |
| Denominator  for basic loss per share-weighted average shares                                     |       | 36,644                 |       | 36,597                |       | 36,642 |   | 36,964 |   |
| Dilutive  potential common shares-employee stock options                                          |       | —                 |       | —                |       | — |   | — |   |
| Denominator  for diluted loss per share adjusted weighted average shares and assumed  conversions |       | 36,644                 |       | 36,597                |       | 36,642 |   | 36,964 |   |
|                                                                                              |       |                   |       |                  |       |   |   |   |   |
| Net  loss per share:                                                                              |       |                   |       |                  |       |   |   |   |   |
| Basic  and diluted                                                                                |       | $                      | (0.12      | )                     | $          | (0.74 | ) | $ | (0.07 | ) | $ | (0.54 | ) |

 

Options to purchase435,784 shares of common stock at a weighted-average exercise price of $11.81 pershare were outstanding as of January 30, 2010 and options to purchase638,302 shares of common stock at a weighted-average exercise price of $10.36were outstanding as of January 31, 2009, but were not included in thecomputation of diluted loss per share because the exercise prices were greaterthan the average market price of the common stock and, therefore, the effectwould be antidilutive.  Potential commonshares have not been included in the calculation of diluted net loss per share,as the effect would be anti-dilutive. As such, the numerator and thedemoninator used in computing both basic and diluted net loss per share forboth the three months and nine months ended January 30, 2010 and January 31,2009 are the same.

 

**11.****         ****SEGMENT INFORMATION**

 

Weare a global manufacturer of component and subsystem devices.  We design, manufacture and market devicesemploying electrical, electronic, wireless, sensing and opticaltechnologies.  Our components are foundin the primary end markets of the automotive, appliance, communications (includinginformation processing and storage, networking equipment, wireless andterrestrial voice/data systems), aerospace, rail and other transportationindustries; and the consumer and industrial equipment markets.

 

ASCNo. 280, “Segment Reporting” (“ASC No. 280”), establishes annualand interim reporting standards for an enterprise’s operating segments andrelated disclosures about its products, services, geographic areas and majorcustomers. An operating segment is defined as a component of an enterprise thatengages in business activities from which it may earn revenues and incurexpenses, and about which separate financial information is regularly evaluatedby the Chief Operating Decision Maker (“CODM”) in deciding how to allocateresources.  The CODM, as defined byASC No. 280, is the Company’s President and Chief Executive Officer.

 

The Automotive segment supplieselectronic and electromechanical devices and related products to

 

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NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**11.****          SEGMENT INFORMATION - Continued**

 

automobileOEMs, either directly or through their tiered suppliers, including controlswitches for electrical power and signals, connectors for electrical devices,integrated control components, switches and sensors that monitor the operationor status of a component or system, and packaging of electrical components.

 

The Interconnect segment provides avariety of copper and fiber-optic interconnect and interface solutions for theappliance, computer, networking, telecommunications, storage, medical,military, aerospace, commercial, consumer markets and industrial equipmentmarkets.  Solutions include solid-statefield effect interface panels, wireless optical and copper transceivers,terminators, connectors, custom cable assemblies and conductive polymer andthick film inks.  Services include thedesign and installation of fiber optic and copper infrastructure systems, andmanufacture of active and passive optical components.

 

ThePower Products segment manufactures current-carrying devices, including custompower-product assemblies, laminated and powder coated bus bars, braidedflexible cables and high-current low voltage flexible power cabling systemsthat are used in various markets and applications, includingtelecommunications, computers, transportation, industrial and power conversion,insulated gate bipolar transistor solutions, aerospace and military.

 

TheOther segment includes a designer and manufacturer of magnetic torque sensingproducts, and independent laboratories that provide services for qualificationtesting and certification, and analysis of electronic and optical components.

 

The accounting policies of the segmentsare the same as those described in the summary of significant accountingpolicies.  See Note 1 in our Form 10-Kfor the fiscal year ended May 2, 2009 for more information regardingsignificant accounting policies.  Weallocate resources to and evaluate performance of segments based on current andexpected future operating income. Transfers between segments are recorded usinginternal transfer prices set by theCompany.

 

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NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**11****.****         ****SEGMENT INFORMATION - Continued**

 
| ** **                                            | ** ** | **Three Months Ended January 30, 2010** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                            | ** ** | ** **                                   | ** ** | ** ** | ** ** | **Power** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **Automotive**                               | ** ** | **Interconnect** | ** ** | **Products** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                             |       | $                                            | 43,631     |   | $ | 33,865 |   | $ | 9,603 |   | $ | 2,146 |   | $ | 118 |   | $ | 89,127 |   |
| Transfers between segments                            |       | —                                       |       | (54 | ) | (53 | ) | (11 | ) | (118 | ) | — |   |
| Net sales to unaffiliated customers                   |       | $                                            | 43,631     |   | $ | 33,811 |   | $ | 9,550 |   | $ | 2,135 |   | $ | — |   | $ | 89,127 |   |
|                                                  |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Segment income (loss) before restructuring charge     |       | $                                            | (449       | ) | $ | 3,574 |   | $ | 1,152 |   | $ | (981 | ) | $ | — |   | $ | 3,296 |   |
|                                                  |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Restructuring                                         |       | (420                                         | )          | (46 | ) | (93 | ) | — |   | — |   | (559 | ) |
|                                                  |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Segment income (loss) including restructuring  charge |       | $                                            | (869       | ) | $ | 3,528 |   | $ | 1,059 |   | $ | (981 | ) | $ | — |   | $ | 2,737 |   |
|                                                  |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Corporate expenses, net                               |       |                                         |       |   |   |   |   |   |   |   |   | (4,810 | ) |
|                                                  |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                              |       |                                         |       |   |   |   |   |   |   |   |   | $ | (2,073 | ) |

 
| ** **                                                                                       | ** ** | **Three Months Ended January 31, 2009** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                       | ** ** | ** **                                   | ** ** | ** ** | ** ** | **Power** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                       | ** ** | **Automotive**                               | ** ** | **Interconnect** | ** ** | **Products** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                                                        |       | $                                            | 36,586     |   | $ | 33,280 |   | $ | 9,219 |   | $ | 1,802 |   | $ | 106 |   | $ | 80,781 |   |
| Transfers between segments                                                                       |       | —                                       |       | (46 | ) | (35 | ) | (25 | ) | (106 | ) | — |   |
| Net sales to unaffiliated customers                                                              |       | $                                            | 36,586     |   | $ | 33,234 |   | $ | 9,184 |   | $ | 1,777 |   | $ | — |   | $ | 80,781 |   |
|                                                                                             |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Segment income (loss) before restructuring charge, impairment  of goodwill and intangible assets |       | $                                            | 29         |   | $ | 594 |   | $ | 13 |   | $ | (894 | ) | $ | — |   | $ | (258 | ) |
|                                                                                             |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Restructuring                                                                                    |       | (2,867                                       | )          | (929 | ) | — |   | — |   | — |   | (3,796 | ) |
| Impairment of goodwill and intangible assets                                                     |       | —                                       |       | (26,117 | ) | (5,358 | ) | (1,203 | ) | — |   | (32,678 | ) |
|                                                                                             |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Segment loss including restructuring charge, impairment  of goodwill and intangible assets       |       | $                                            | (2,838     | ) | $ | (26,452 | ) | $ | (5,345 | ) | $ | (2,097 | ) | $ | — |   | $ | (36,732 | ) |
|                                                                                             |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Corporate expenses, net                                                                          |       |                                         |       |   |   |   |   |   |   |   |   | (3,544 | ) |
|                                                                                             |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                                                                         |       |                                         |       |   |   |   |   |   |   |   |   | $ | (40,276 | ) |

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**11.****          SEGMENT INFORMATION -Continued**

 
| ** **                                            | ** ** | **Nine Months Ended January 30, 2010** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                            | ** ** | ** **                                  | ** ** | ** ** | ** ** | **Power** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **Automotive**                              | ** ** | **Interconnect** | ** ** | **Products** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                             |       | $                                           | 151,597    |   | $ | 88,634 |   | $ | 30,430 |   | $ | 7,273 |   | $ | 536 |   | $ | 277,398 |   |
| Transfers between segments                            |       | —                                      |       | (181 | ) | (307 | ) | (48 | ) | (536 | ) | — |   |
| Net sales to unaffiliated customers                   |       | $                                           | 151,597    |   | $ | 88,453 |   | $ | 30,123 |   | $ | 7,225 |   | $ | — |   | $ | 277,398 |   |
|                                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Segment income (loss) before restructuring charge     |       | $                                           | 11,975     |   | $ | 6,790 |   | $ | 2,793 |   | $ | (2,295 | ) | $ | — |   | $ | 19,263 |   |
|                                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Restructuring                                         |       | (5,379                                      | )          | (1,492 | ) | (456 | ) | — |   | — |   | (7,327 | ) |
|                                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Segment income (loss) including restructuring  charge |       | $                                           | 6,596      |   | $ | 5,298 |   | $ | 2,337 |   | $ | (2,295 | ) | $ | — |   | $ | 11,936 |   |
|                                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Corporate expenses, net                               |       |                                        |       |   |   |   |   |   |   |   |   | (11,422 | ) |
|                                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Income before income taxes                            |       |                                        |       |   |   |   |   |   |   |   |   | $ | 514 |   |

 
| ** **                                                                                          | ** ** | **Nine Months Ended January 31, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                          | ** ** | ** **                                  | ** ** | ** ** | ** ** | **Power** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                          | ** ** | **Automotive**                              | ** ** | **Interconnect** | ** ** | **Products** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                                                           |       | $                                           | 196,526    |   | $ | 101,144 |   | $ | 33,029 |   | $ | 6,581 |   | $ | 681 |   | $ | 336,599 |   |
| Transfers between segments                                                                          |       | —                                      |       | (321 | ) | (280 | ) | (80 | ) | (681 | ) | — |   |
| Net sales to unaffiliated customers                                                                 |       | $                                           | 196,526    |   | $ | 100,823 |   | $ | 32,749 |   | $ | 6,501 |   | $ | — |   | $ | 336,599 |   |
|                                                                                                |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Segment income (loss) before restructuring charge, impairment  of goodwill and intangible assets    |       | $                                           | 24,221     |   | $ | 2,077 |   | $ | 1,297 |   | $ | (2,225 | ) | $ | — |   | $ | 25,370 |   |
|                                                                                                |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Restructuring                                                                                       |       | (10,434                                     | )          | (4,563 | ) | — |   | — |   | — |   | (14,997 | ) |
| Impairment of goodwill and intangible assets                                                        |       | —                                      |       | (26,117 | ) | (5,358 | ) | (1,203 | ) | — |   | (32,678 | ) |
|                                                                                                |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Segment income/(loss) including restructuring  charge, impairment of goodwill and intangible assets |       | $                                           | 13,787     |   | $ | (28,603 | ) | $ | (4,061 | ) | $ | (3,428 | ) | $ | — |   | $ | (22,305 | ) |
|                                                                                                |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Corporate expenses, net                                                                             |       |                                        |       |   |   |   |   |   |   |   |   | (9,719 | ) |
|                                                                                                |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                                                                            |       |                                        |       |   |   |   |   |   |   |   |   | $ | (32,024 | ) |

 

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METHODE ELECTRONICS, INC.AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**12.****         ****CONTINGENCIES**

 

Certainlitigation arising in the normal course of business is pending against us.  We are from time to time subject to variouslegal actions and claims incidental to our business, including those arisingout of alleged defects, breach of contracts, employment-related matters andenvironmental matters.  We considerinsurance coverage and third-party indemnification when determining requiredaccruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot bedetermined, it is our opinion, based on the information available, that we haveadequate reserves for these liabilities. The ultimate resolution of the Delphi lawsuits will not have a materialadverse effect on our consolidated financial statements.

 

**13.****         ****PRE-PRODUCTION COSTS RELATED TOLONG-TERM SUPPLY ARRANGEMENTS**

 

We incur pre-production tooling costs related tocertain products produced for our customers under long-term supplyagreements.  We had $8,700 and $3,182 asof January 30, 2010 and May 2, 2009, respectively, of pre-productiontooling costs related to customer-owned tools for which reimbursement iscontractually guaranteed by the customer or for which the customer has provideda non-cancelable right to use the tooling. Net revenues and costs on projects are deferred and recognized over thelife of the related long-term supply agreement.

 

**14.****         ****FAIR VALUE MEASUREMENTS**

 

ASC No. 820 defines fair value as the exchange pricethat would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liabilityin an orderly transaction between market participants.

 

ASC No. 820 alsospecifies a fair value hierarchy based upon the observation of inputs invaluation techniques.  Observable inputs(highest level) reflect market data obtained from independent sources, whileunobservable inputs (lowest level) reflect internally developed marketassumptions.  In accordance with ASC No. 820,fair value measurements are classified under the following hierarchy:

 

·      Level 1 — Quoted prices in active markets foridentical assets and liabilities.

 

·      Level 2 — Quoted prices in active markets for similarassets and liabilities, or other inputs that are observable for the asset orliability, either directly or indirectly, for substantially the full term ofthe financial instrument.

 

·      Level 3 — Unobservable inputs that are supported bylittle or no market activity and that are significant to the fair value of theassets and liabilities.  This includescertain pricing models, discounted cash flow methodologies and similartechniques that use significant unobservable inputs.

 

Assets and liabilitiesrecorded at fair value are valued using quoted market prices or under a marketapproach using other relevant information generated by market transactionsinvolving identical or comparable instruments and included in a table belowthat summarizes the fair value of assets and liabilities as of January 30,2010:

 

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NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)

(Dollaramounts in thousands, except share data)

 

**14.****         ****FAIR VALUE MEASUREMENTS -Continued**

 
| ** **                                         | ** ** | **Fair Value Measurement Used** | ** ** |
|----------------------------------------------------|------------|---------------------------------|------------|
| ** **                                         | ** ** | ** **                      | ** ** | **Quoted prices** | ** ** | **Quoted prices** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | ** **                      | ** ** | **in active** | ** ** | **in active** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | ** **                      | ** ** | **markets for** | ** ** | **markets for** | ** ** | **Other** | ** ** |
| ** **                                         | ** ** | ** **                      | ** ** | **identical** | ** ** | **similar** | ** ** | **unobservable** | ** ** |
| ** **                                         | ** ** | **Recorded**                    | ** ** | **instruments** | ** ** | **instruments** | ** ** | **inputs** | ** ** |
| ** **                                         | ** ** | **Value**                       | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Assets:                                            |       |                            |       |   |   |   |   |   |   |
| Cash  and cash equivalents (1)                     |       | $                               | 57,245     |   | $ | 57,245 |   | $ | — |   | $ | — |   |
| Assets  related to deferred compensation plan      |       | $                               | 2,894      |   | $ | — |   | $ | 2,894 |   | $ | — |   |
| Total  assets at fair value                        |       | $                               | 60,139     |   | $ | 57,245 |   | $ | 2,894 |   | $ | — |   |
|                                               |       |                            |       |   |   |   |   |   |   |
| Liabilities:                                       |       |                            |       |   |   |   |   |   |   |
| Liabilities  related to deferred compensation plan |       | $                               | 2,705      |   | $ | 2,705 |   | $ | — |   | $ | — |   |
| Total  liabilities at fair value                   |       | $                               | 2,705      |   | $ | 2,705 |   | $ | — |   | $ | — |   |

 

----

(1) Includes cash, money-market investments and certificates ofdeposit.

 

Fair Value of OtherFinancial Instruments. The carrying values of our short-term financialinstruments, including cash and cashequivalents, accounts receivable and accounts payableapproximate their fair values because of the short maturity of theseinstruments.

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

##### ***CautionaryStatement***

##### *** ***

Certain statements in this report areforward-looking statements that are subject to certain risks anduncertainties.  We undertake no duty toupdate any such forward-looking statements to conform to actual results orchanges in our expectations.  Our resultswill be subject to many of the same risks that apply to the automotive,appliance, computer and telecommunications industries, such as general economicconditions, interest rates, credit availability, consumer spending patterns andtechnological changes.  Other factors,which may result in materially different results for future periods, includethe following risk factors.  These riskfactors should be considered in connection with evaluating the forward-lookingstatements contained in this report because these factors could cause ouractual results and condition to differ materially from those projected inforward-looking statements.  Theforward-looking statements in this report are subject to the safe harbor protectionprovided under the securities laws.

 

·      We depend on a small number of large customers.  If we were to lose any of these customers or any of these customers decreased the number of orders it placed, 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, and construction, industrial safety radio remote control markets, we are susceptible to trends and factors affecting those industries.

 

·      Our business is cyclical and seasonal in nature and further downturns in the automotive industry could reduce the sales and profitability of our business.

 

·      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 facerisks relating to our international operations, including fluctuations in theU.S. dollar.****

 

****·********     ********Productswe manufacture may contain design or manufacturing defects that could result inreduced demand for our products or services and liability claims against us.****

 

·      Wecannot assure that the Hetronic business will be successful or that we canimplement and profit from new applications of the acquired technology.

 

****·********     ********Ourtechnology-based businesses and the markets in which we operate are highlycompetitive.  If we are unable to competeeffectively, our sales will decline.****

 

****·********     ********We mayacquire businesses or divest of various business operations. These transactionsmay pose significant risks and may materially adversely affect our business,financial condition and operating results.****

 

****·********     ********We maybe unable to keep pace with rapid technological changes, which would adverselyaffect our business.****

 

·      Weare dependent on the availability and price of raw materials.

 

****·********     ********Becausewe currently derive approximately 55% of our revenues from the automotivesegment, oil prices could adversely affect future results.****

 

·      We have and may continue toincur additional significant restructuring charges that will adversely affectour results of operations.

 

****·********     ****If sales and earningsworsen, we could incur additional goodwill and other asset impairments.

 

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****Any such forward-looking statements are notguarantees of future performance and actual results, developments and businessdecisions may differ materially from those foreseen in such forward-lookingstatements.  These forward-lookingstatements speak only as of the date of the report, press release, statement,document, webcast or oral discussion in which they are made.  We do not intend to update anyforward-looking statements, all of which are expressly qualified by theforegoing.  See Part I — Item 1A,Risk Factors of our latest Form 10-K for the fiscal year ended May 2,2009, for a further discussion regarding some of the reasons that actualresults may be materially different from those we anticipate.****

 

##### ***Overview***

##### *** ***

Weare a global developer of custom engineered and application specific productsand solutions with manufacturing, design and testing facilities in China, CzechRepublic, Germany, India, Malta, Mexico, the Philippines, Singapore, the UnitedKingdom and the United States.  We are aglobal designer and manufacturer of electro-mechanical devices.  We design, manufacture and market devicesemploying electrical, radio remote control, electronic, wireless, sensing andoptical technologies.  Our business ismanaged on a segment basis, with those segments being Automotive, Interconnect,Power Products and Other.   For moreinformation regarding the business and products of these segments, see “Item 1.Business” of our Form 10-K for the fiscal year ended May 2, 2009.

 

Our components arefound in the primary end markets of the aerospace, appliance, automotive,consumer and industrial equipment markets, communications (includinginformation processing and storage, networking equipment, wireless andterrestrial voice/data systems), rail and other transportation industries.  Recent trends in the industries that we serveinclude:

 

·      Automotive industry sales volume in theUnited States and European markets declined suddenly and substantially infiscal 2009 and continues at historically low levels into the first nine monthsof fiscal 2010.

·      The deteriorating condition of certain ofour customers and the uncertainty as they undergo restructuring initiatives,including in some cases, reorganization under bankruptcy laws.

·      Decline indemand for new houses and the over-supply of new and existing houses.

·      Demand forconstruction and material handling equipment is cyclical and has been adverselyimpacted by the weakness of the economy, availability of credit and higherinterest rates.

 

Our business hasbeen and will likely continue to be materially adversely affected by thecurrent economic environment.  Thedisruptions in global financial and credit markets have significantly impactedglobal economic activity and led to a recession.  As a result of these disruptions, ourcustomers and markets have been adversely affected.  If we continue to experience reduced demandbecause of these disruptions in the macroeconomic environment or other factors,our business, results of operations and financial condition could be materiallyadversely affected.  If we are unable tosuccessfully anticipate changing economic and financial conditions, we may beunable to effectively plan for and respond to these changes and our businesscould be adversely affected.

 

On September 4,2008, Methode and Delphi Automotive Systems LLC (“Delphi”) entered into asupply agreement pursuant to which Methode was to supply all of Delphi’srequirements for the silicone bladders used in Delphi’s occupant restraintsystem from October 1, 2008 through September 30, 2011.  On August 26, 2009, Delphi notified usthat effective September 10, 2009, our supply agreement wasterminated.  We are contesting Delphi’sright to terminate this long-term supply agreement and the parties are engagedin litigation regarding this supply agreement and our related intellectualproperty.

 

On September 30,2008, we acquired certain assets of Hetronic LLC (Hetronic) for $53.6 millionin cash.  We also incurred $2.4 millionin transaction costs related to the purchase. Hetronic is a global leader in industrial safety radio remote controlswith locations in the U.S., Malta, the Philippines and Germany.  Hetronic is represented in 45 countries bydirect sales associates, licensed partners, distributors andrepresentatives.  Hetronic providesapplication specific and standard controls to many different industries, suchas material handling, transportation, mining, military, agriculture andconstruction. At the end of fiscal 2009, in accordance with ASC No. 350and ASC No. 360 it was determined that the goodwill and intangible assetsfor Hetronic were impaired.  Therefore,in the

 

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fourth quarter of fiscal2009, we recorded an impairment charge of $19.1 million and $11.6 million forgoodwill and intangible assets, respectively.

 

In March 2009,we announced several additional restructuring actions to further reduce ourexposure to the North American automotive industry and to consolidatemanufacturing facilities in lower cost regions. After these actions, our principal manufacturing operations will be inChina, Malta and Mexico.  In addition, wereached an agreement with GM to have certain programs, scheduled for futureproduction at our Shanghai, China facility, transferred to an unrelatedGM-directed supplier and we reached agreement with Ford Motor Company to haveall production from our Reynosa, Mexico facility transferred to an unrelatedFord-directed supplier.  Additionally, duringthe first quarter of fiscal 2010, our operations in Shanghai, China wereconsolidated from three facilities to two. TouchSensor, located in west suburban Chicago, Illinois completed movingall of its manufacturing to Monterrey, Mexico during the third quarter offiscal 2010.  We expect to complete theserestructuring actions during the fourth quarter of fiscal 2010.

 

In March 2009,the total pre-tax charges were estimated to be between $9.0 million and $18.0million.  As of January 30, 2010, wehave recorded a total of $12.5 million of the charges.  We estimate that we will record additionalpre-tax restructuring charges in fiscal 2010 of between $0.3 million and $0.5million.

 

**BusinessOutlook**

 

We continue toremain very cautious about the fourth quarter fiscal 2010 and fiscal 2011. Thecontinuing effect of financial sector crisis and stagnant global economicconditions has caused uncertainty in the markets in every geographic region weserve. We expect the unprecedented global economic environment to continue toaffect near-term results and to create difficult business conditions.  Sales of Automotive segment products areexpected to decline, as the loss of the Delphi business will offset new productlaunches. During the second quarter of fiscal 2010, Delphi notified us that ourlong-term supply agreement has been terminated effective September 10,2009 and we ceased manufacturing on that date. We are contesting Delphi’s right to terminate this long-term supply agreement and the parties are engaged inlitigation regarding this supply agreement and our related intellectual property.The early termination of this agreement will adversely affect sales, profitsand cash flow going forward.

 

In theInterconnect and Power Products segments visibility is low and forecasting isvery challenging. We expect continued volatility in these segments for thebalance of the fiscal year.  In ourInterconnect segment, sales from our Hetronic acquisition will be offset bysales lost due to our decisions in fiscal 2008 and 2009 to exit certainunprofitable or marginally profitable North American Interconnect segmentlegacy businesses.

 

While we havetaken steps to restructure our businesses, ongoing operating margin improvementmay not be realized or sustainable until economic conditions begin to improvein the markets we serve.

 

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**Results of Operations for the Three Months Ended January 30,2010 as Compared to the Three Months Ended January 31, 2009.**

 

**ConsolidatedResults**

 

Below is a tablesummarizing results for the three months ended:

(in millions)

(Notmeaningful equals “N/M”)

 
| ** **                                               | ** ** | **January 30,** | ** ** | **January 31,** | ** ** | ** **     | ** ** | ** **     | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------|------------|----------------|------------|
| ** **                                               | ** ** | **2010**             | ** ** | **2009**             | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
| Net  sales                                               |       | $                    | 89.1       |                 | $          | 80.8           |       | $              | 8.3        |   | 10.3 | % |
| Other  income                                            |       | 1.1                  |       | 0.8                  |       | 0.3            |       | 37.5           | %          |
|                                                     |       | 90.2                 |       | 81.6                 |       | 8.6            |       | 10.5           | %          |
|                                                     |       |                 |       |                 |       |           |       |           |       |
| Cost  of products sold                                   |       | 74.9                 |       | 70.5                 |       | 4.4            |       | 6.2            | %          |
|                                                     |       |                 |       |                 |       |           |       |           |       |
| Gross  margins (including other income)                  |       | 15.3                 |       | 11.1                 |       | 4.2            |       | 37.8           | %          |
|                                                     |       |                 |       |                 |       |           |       |           |       |
| Restructuring                                            |       | 0.6                  |       | 3.8                  |       | (3.2           | )          | -84.2          | %          |
| Impairment  of goodwill and intangible assets            |       | —               |       | 32.7                 |       | (32.7          | )          | N/M            |       |
| Selling  and administrative expenses                     |       | 17.1                 |       | 14.7                 |       | 2.4            |       | 16.3           | %          |
| Interest  income, net                                    |       | 0.1                  |       | 0.2                  |       | (0.1           | )          | -50.0          | %          |
| Other  income/(expense), net                             |       | 0.3                  |       | (0.3                 | )          | 0.6            |       | N/M            |       |
| Income  taxes - expense/(benefit)                        |       | 2.3                  |       | (13.3                | )          | 15.6           |       | N/M            |       |
| Net  income attributable to noncontrolling interest      |       | 0.2                  |       | 0.1                  |       | 0.1            |       | 100.0          | %          |
|                                                     |       |                 |       |                 |       |           |       |           |       |
| Net  loss attributable to Methode Electronics, Inc. |       | $                    | (4.5       | )                    | $          | (27.0          | )          | $              | 22.5       |   | N/M |   |

 
| ** **                                               | ** ** | **January 30,** | ** ** | **January 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| **Percent  of sales:**                                   | ** ** | **2010**             | ** ** | **2009**             | ** ** |
| Net  sales                                               |       | 100.0                | %          | 100.0                | %          |
| Other  income                                            |       | 1.2                  | %          | 1.0                  | %          |
| Cost  of products sold                                   |       | 84.1                 | %          | 87.3                 | %          |
| Gross  margins (including other income)                  |       | 17.2                 | %          | 13.7                 | %          |
| Restructuring                                            |       | 0.7                  | %          | 4.7                  | %          |
| Impairment  of goodwill and intangible assets            |       | 0.0                  | %          | 40.5                 | %          |
| Selling  and administrative expenses                     |       | 19.2                 | %          | 18.2                 | %          |
| Interest  income, net                                    |       | 0.1                  | %          | 0.2                  | %          |
| Other  income/(expense), net                             |       | 0.3                  | %          | -0.4                 | %          |
| Income  taxes - expense/(benefit)                        |       | 2.6                  | %          | -16.5                | %          |
| Net  income attributable to noncontrolling interest      |       | 0.2                  | %          | 0.1                  | %          |
| Net  loss attributable to Methode Electronics, Inc. |       | -5.1                 | %          | -33.4                | %          |

 

*Net Sales*.  Consolidated net sales increased $8.3million, or 10.3%, to $89.1 million for the three months ended January 30,2010 from $80.8 million for the three months ended January 31, 2009.  The Automotive segment net sales increased$7.0 million, or 19.1%, to $43.6 million for the third quarter of fiscal 2010from $36.6 million for the third quarter of fiscal 2009.  The increase is primarily attributable tostronger sales in our European and Asian markets, partially offset by no salesto Delphi and lower sales to Ford and Chrysler in the U.S.  The Interconnect segment net sales increased$0.6 million, or 1.8%, to $33.8 million for the third quarter of fiscal 2010 ascompared to $33.2 million for the third quarter of fiscal 2009.  The Power Products segment net salesincreased $0.4 million, or 4.3%, to $9.6 million for the third quarter offiscal 2010 as compared to $9.2 million for the third quarter of fiscal2009.  The Other segment net salesincreased $0.3 million, or 16.7%, to $2.1 million for the third quarter offiscal 2010, as compared to $1.8 million in the third quarter of fiscal2009.  Translation of foreign operationsnet sales for the three months ended January 30, 2010 increased reportednet sales by $1.9 million or 2.2% due to currency rate fluctuations.

 

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*OtherIncome*.  Other incomeincreased $0.3 million, or 37.5%, to $1.1 million for the three months ended January 30,2010 from $0.8 million for three months ended January 31, 2009.  Other income consisted primarily of earningsfrom engineering design fees and royalties. The increase relates to engineering design fees in our Europeanautomotive market.

 

*Cost ofProducts Sold*. Consolidated cost of products sold increased $4.4 million, or 6.2%, to$74.9 million for the three months ended January 30, 2010 compared to$70.5 million for the three months ended January 31, 2009.  The increase is due to the higher salesvolumes.  Consolidated cost of productssold as a percentage of sales were 84.1% in the third quarter of fiscal 2010,compared to 87.3% in the third quarter of fiscal 2009.  The decrease relates to restructuring andconsolidation efforts that occurred in prior periods.

 

*GrossMargins (including other income). *Consolidatedgross margins (including other income) increased $4.2 million, or 37.8%, to$15.3 million for the three months ended January 30, 2010 as compared to$11.1 million for the three months ended January 31, 2009.  Gross margins (including other income) as apercentage of net sales were 17.2% for the three months ended January 30,2010 as compared to 13.7% for the three months ended January 31,2009.  The increase relates torestructuring and consolidation efforts that occurred in prior periods as wellas higher other income in the third quarter of fiscal 2010 compared to thethird quarter of fiscal 2009.

 

*Restructuring*. In March 2009, we announcedadditional restructuring actions to further reduce our exposure to the NorthAmerican automotive industry and to consolidatemanufacturing facilities in lower cost regions.  During the fiscal quarter ended January 30,2010, we recorded a restructuring charge of $0.3 million related to thisrestructuring initiative, which consisted of $0.1 million for employeeseverance and $0.2 million relating to other costs.  We expect the March 2009 restructuringto be completed during the fourth quarter of fiscal 2010.

 

In January 2008,we announced a restructuring of our U.S.-based automotive operations and thedecision to discontinue producing certain legacy products in the Interconnectsegment.  During the fiscal quarter endedJanuary 30, 2010, we recorded a restructuring charge of $0.3 millionrelated to this restructuring initiative, which consisted of $0.5 million foremployee severance, offset by a gain on the sale of assets of $0.2million.  During the fiscal quarter endedJanuary 31, 2009, we recorded a restructuring charge of $3.8 million,which consisted of $1.3 million for employee severance, $2.3 million forimpairment and accelerated depreciation, and $0.2 million relating to othercosts.  We expect the January 2008restructuring to be completed during the fourth quarter of fiscal 2010.

 

*Impairment of Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $11.5million in our Interconnect segment, $5.4 million in our Power Products segmentand $1.2 million in our Other segment for a total of $18.1 million related tothese assets.

 

Also during thethird quarter of fiscal 2009, in accordance with ASC No. 360, “Property,Plant and Equipment,” it was determined that certain identifiable assets of ourTouchSensor business were impaired. Therefore, during the third quarter of fiscal 2009, we recorded animpairment charge of $14.6 million for these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses increased $2.4 million, or 16.3%, to$17.1 million for the three months ended January 30, 2010 compared to$14.7 million for the three months ended January 31, 2009.  Thethird quarter of fiscal 2010 included $2.4 million in legal fees relating tothe Delphi supply agreement andpatent dispute.  In addition, theselling and administrative expenses for the third quarter of 2010 wereunfavorable by $0.8 million in bonuses and professional fees and $0.3 millionin sales and marketing expenses, offset by net favorable stock award andintangible asset amortization expense of $1.1 million as compared to the thirdquarter of fiscal 2009.    Sellingand administrative expenses as a percentage of net sales increased to 19.2% inthe three months ended January 31, 2010 from 18.2% for the three monthsended January 31, 2009.

 

*InterestIncome, Net*.  Interestincome, net decreased $0.1 million, or 50.0%, in the three months ended January 30,2010 to $0.1 million as compared to $0.2 million in the three months ended January 31,2009.  The average cash balance was $60.3million during the three months ended January 30, 2010 as compared to$58.3

 

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million during the threemonths ended January 31, 2009.  Theaverage interest rate earned for the three months ended January 30, 2010was 1.00% compared to 2.34% in the three months ended January 31,2009.  Interest expense was $0.1 millionfor both the three months ended January 30, 2010 and January 31,2009.

 

*OtherIncome/(Expense), Net*. Other income/(expense), net increased $0.6 million to income of $0.3million for the three months ended January 30, 2010 as compared to anexpense of $0.3 million for the three months ended January 31, 2009.  During the quarter ended January 30,2010 there was no gain or loss on the short-term investments. During thequarter ended January 31, 2009 we recorded a loss of $0.5 million, ofwhich $0.3 million was realized on partial redemptions of $1.8 million, and$0.2 million was unrealized.  The income of $0.3 million for the threemonths ended January 30, 2010 relates to currency gains.  The functional currencies of theseoperations are the British pound, Chinese yuan, Czech koruna, Euro, IndianRupee, Mexican peso and Singapore dollar. Some foreign operations have transactions denominated in currenciesother than their functional currencies, primarily sales in U.S. dollars andEuros, creating exchange rate sensitivities.

 

*IncomeTaxes — Expense/(Benefit).* Income taxes — expense/(benefit) increased by $15.6 million to anexpense of $2.3 million for the three months ended January 30, 2010,compared to a tax benefit of $13.3 million for the three months ended January 31,2009.  The $2.3 million for the three monthsended January 31, 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 andrelated interest from prior periods.  Forthe third quarter of fiscal 2010, we have a loss before income taxes.  Normally, a tax benefit is recorded relatingto the net loss before income taxes, but due to the uncertainty of the futureutilization of the tax benefit by our U.S.-based businesses, a valuationallowance was recorded offsetting the tax benefit in accordance with ASC No. 740“Income Taxes” in the U.S.  See note 8 toour condensed consolidated financial statements for additionalinformation.  The effective tax rates forboth the third quarter of fiscal 2010 and 2009 reflect utilization of foreigninvestment tax credits and the effect of lower tax rates on income of theCompany’s foreign operations and a higher percentage of earnings at thoseforeign operations.

 

*NetLoss Attributable to Methode Electronics, Inc.*  Net loss attributable to Methode Electronics, Inc.decreased $22.5 million, to $4.5 million for the three months ended January 30,2010 as compared to $27.0 million for the three months ended January 31,2009 due to no goodwill and intangible asset write-off for the three monthsended January 30, 2010 versus $32.7 million in write-offs for the threemonths ended January 31, 2009.  Inaddition, sales and gross margins (including other income) were higher,restructuring charges were lower, offset by higher selling and administrativeexpenses due to the Delphi dispute as well as higher income tax expense in thethird quarter of fiscal 2010 compared to the third quarter of fiscal 2009.

 

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**OperatingSegments**

 

**AutomotiveSegment Results**

 

Below is a table summarizing results for the three months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                              | ** ** | **January 30,** | ** ** | **January 31,** | ** ** | ** **     | ** ** | ** **     | ** ** |
|-----------------------------------------|------------|----------------------|------------|----------------------|------------|----------------|------------|----------------|------------|
| ** **                              | ** ** | **2010**             | ** ** | **2009**             | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
| Net  sales                              |       | $                    | 43.6       |                 | $          | 36.6           |       | $              | 7.0        |   | 19.1 | % |
| Other  income                           |       | 0.9                  |       | 0.6                  |       | 0.3            |       | 50.0           | %          |
|                                    |       | 44.5                 |       | 37.2                 |       | 7.3            |       | 19.6           | %          |
|                                    |       |                 |       |                 |       |           |       |           |       |
| Cost  of products sold                  |       | 41.0                 |       | 35.3                 |       | 5.7            |       | 16.1           | %          |
|                                    |       |                 |       |                 |       |           |       |           |       |
| Gross  margins (including other income) |       | 3.5                  |       | 1.9                  |       | 1.6            |       | 84.2           | %          |
|                                    |       |                 |       |                 |       |           |       |           |       |
| Restructuring                           |       | 0.4                  |       | 2.9                  |       | (2.5           | )          | -86.2          | %          |
| Selling  and administrative expenses    |       | 4.5                  |       | 2.0                  |       | 2.5            |       | 125.0          | %          |
| Interest  income, net                   |       | —               |       | 0.1                  |       | (0.1           | )          | N/M            |       |
| Other  income, net                      |       | 0.5                  |       | 0.1                  |       | 0.4            |       | 400.0          | %          |
|                                    |       |                 |       |                 |       |           |       |           |       |
| Loss  before income taxes               |       | $                    | (0.9       | )                    | $          | (2.8           | )          | $              | 1.9        |   | N/M |   |

 
| ** **                              | ** ** | **January 30,** | ** ** | **January 31,** | ** ** |
|-----------------------------------------|------------|----------------------|------------|----------------------|------------|
| **Percent  of sales:**                  | ** ** | **2010**             | ** ** | **2009**             | ** ** |
| Net  sales                              |       | 100.0                | %          | 100.0                | %          |
| Other  income                           |       | 2.1                  | %          | 1.6                  | %          |
| Cost  of products sold                  |       | 94.0                 | %          | 96.4                 | %          |
| Gross  margins (including other income) |       | 8.0                  | %          | 5.2                  | %          |
| Restructuring                           |       | 0.9                  | %          | 7.9                  | %          |
| Selling  and administrative expenses    |       | 10.3                 | %          | 5.5                  | %          |
| Interest  income, net                   |       | 0.0                  | %          | 0.3                  | %          |
| Other  income, net                      |       | 1.1                  | %          | 0.3                  | %          |
| Loss  before income taxes               |       | -2.1                 | %          | -7.7                 | %          |

 

*Net Sales*.  Automotive segment net sales increased $7.0million, or 19.1%, to $43.6 million for the three months ended January 30,2010 from $36.6 million for the three months ended January 31, 2009.  We recorded no net sales to Delphi Corporationin the third quarter of 2010 as compared to net sales of $9.4 million in thethird quarter of fiscal 2009 due to the cancellation of the supply agreement onSeptember 10, 2009.  Offsetting theDelphi sales loss, sales from our European and Asian markets were stronger inthe third quarter of fiscal 2010, compared to the third quarter of fiscal2009.  Net sales declined by 79.2% inNorth America.  However, net sales haveincreased by 131.1% in Europe and 344.4% in Asia in the third quarter of fiscal2010 as compared to fiscal 2009.  Aportion of Asia’s growth benefited from the planned transfer of production fromour U.S. facility to our facility in Shanghai, China in the third quarter offiscal 2010.  Translation of foreignoperations net sales in the three months ended January 30, 2010 increasedreported net sales by $1.7 million, or 4.1%, due to currency rate fluctuations.

 

*OtherIncome*.  Other incomeincreased $0.3 million, or 50.0%, to $0.9 million for the three months ended January 30,2010 from $0.6 million for three months ended January 31, 2009.  Other income consisted primarily of earningsfrom engineering design fees and royalties. The increase relates to engineering design fees in our Europeanautomotive market.

 

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*Cost ofProducts Sold*. Automotive segment cost of products sold increased $5.7 million, or16.1%, to $41.0 million for the three months ended January 30, 2010 from$35.3 million for the three months ended January 31, 2009.  The increase primarily relates to highersales volumes.  The Automotive segmentcost of products sold as a percentage of sales were 94.0% in the third quarterof fiscal 2010, compared to 96.4% in the third quarter of fiscal 2009.   Improvements in cost of goods sold as apercentage of sales in Europe and Asia were partially offset by the loss of theDelphi business and increasing cost on the remaining North American business.

 

*GrossMargins (including other income). *Automotivesegment gross margins (including other income) increased $1.6 million, or84.2%, to $3.5 million for the three months ended January 30, 2010 ascompared to $1.9 million for the three months ended January 31, 2009.  The Automotive segment gross margins(including other income) as a percentage of net sales were 8.0% for the threemonths ended January 30, 2010 as compared to 5.2% for the three monthsended January 31, 2009.  Grossmargins (including other income) as a percentage of sales increased due tohigher other income and improved gross margins in our European and Asianmarkets, partially offset by the loss of the Delphi business and declininggross margins on the remaining North American business.

 

*Restructuring*.   During the fiscal quarter ended January 30,2010, we recorded a restructuring charge of $0.1 million related to our March 2009restructuring initiative for other costs. We expect the March 2009 restructuring to be completed during thefourth quarter of fiscal 2010.

 

During the fiscalquarter ended January 30, 2010, the Automotive segment recorded arestructuring charge of $0.3 million for our January 2008 restructuringinitiative for employee severance of $0.5 million, offset by a gain on the saleof assets of $0.2 million.  During thefiscal quarter ended January 31, 2009, the Automotive segment recorded arestructuring charge of $2.9 million for this restructuring initiative, whichconsisted of $1.1 million for employee severance and $1.8 million forimpairment and accelerated depreciation. We expect the January 2008 restructuring to be completed during thefourth quarter of fiscal 2010.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses increased $2.5 million, or 125.0%,to $4.5 million for the three months ended January 30, 2010 compared to$2.0 million for the three months ended January 31, 2009.  Selling and administrative expenses increasedin the third quarter of fiscal 2010 compared to the third quarter of fiscal2009 due to $2.4 million of legal fees associated with the Delphi supply agreementtermination and patent dispute.  Sellingand administrative expenses as a percentage of net sales were 10.3% for thethree months ended January 30, 2010 and 5.5% for the three months ended January 31,2009.

 

*InterestIncome, Net*.  Netinterest income was zero in the three months ended January 30, 2010compared to $0.1 million in the three months ended January 31, 2009.

 

*OtherIncome, Net*.  Otherincome, net was $0.5 million for the three months ended January 30, 2010as compared to $0.1 million for the three months ended January 31,2009.  The functional currencies of theseoperations are the British pound, Chinese yuan, Euro and the Mexican peso.  Some foreign operations have transactionsdenominated in currencies other than their functional currencies, primarilysales in U.S. dollars and Euros, creating exchange rate sensitivities.

 

*Loss Before Income Taxes. *Automotive segment lossbefore income taxes decreased $1.9 million to $0.9 million for the three monthsended January 30, 2010 compared to $2.8 million for the three months endedJanuary 31, 2009 due to higher sales and gross margins (including otherincome), lower restructuring expenses, higher other income, partially offset bylegal fees relating to the termination of the Delphi agreement.

 

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** **

**InterconnectSegment Results**

** **

Below is a tablesummarizing results for the three months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                                    | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                    |       | $                          | 33.8       |                       | $          | 33.2           |       | $              | 0.6        |   | 1.8 | % |
| Other  income                                 |       | 0.1                        |       | 0.1                        |       | —         |       | 0.0            | %          |
|                                          |       | 33.9                       |       | 33.3                       |       | 0.6            |       | 1.8            | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                        |       | 24.4                       |       | 26.2                       |       | (1.8           | )          | -6.9           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Gross  margins (including other income)       |       | 9.5                        |       | 7.1                        |       | 2.4            |       | 33.8           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Restructuring                                 |       | 0.1                        |       | 0.9                        |       | (0.8           | )          | -88.9          | %          |
| Impairment  of goodwill and intangible assets |       | —                     |       | 26.1                       |       | (26.1          | )          | N/M            |       |
| Selling  and administrative expenses          |       | 5.7                        |       | 6.8                        |       | (1.1           | )          | -16.2          | %          |
| Interest  income                              |       | 0.1                        |       | 0.2                        |       | (0.1           | )          | -50.0          | %          |
| Other  expense, net                           |       | (0.3                       | )          | —                     |       | (0.3           | )          | N/M            |       |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Income/(loss)  before income taxes            |       | $                          | 3.5        |                       | $          | (26.5          | )          | $              | 30.0       |   | N/M |   |

 
| **Percent  of sales:**                        | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                                    |       | 100.0                      | %          | 100.0                      | %          |
| Other  income                                 |       | 0.3                        | %          | 0.3                        | %          |
| Cost  of products sold                        |       | 72.2                       | %          | 78.9                       | %          |
| Gross  margins (including other income)       |       | 28.1                       | %          | 21.4                       | %          |
| Restructuring                                 |       | 0.3                        | %          | 2.7                        | %          |
| Impairment  of goodwill and intangible assets |       | 0.0                        | %          | 78.6                       | %          |
| Selling  and administrative expenses          |       | 16.9                       | %          | 20.5                       | %          |
| Interest  income                              |       | 0.3                        | %          | 0.6                        | %          |
| Other  expense, net                           |       | -0.9                       | %          | 0.0                        | %          |
| Income/(loss)  before income taxes            |       | 10.4                       | %          | -79.8                      | %          |

 

*Net Sales*.  Interconnect segment net sales increased $0.6million, or 1.8%, to $33.8 million for the three months ended January 30,2010 from $33.2 million for the three months ended January 31, 2009. NorthAmerican net sales increased 8.1%, Europe declined 3.2% and Asia declined by14.1% in the third quarter of fiscal 2010 as compared to the third quarter offiscal 2009.  The increase in the U.S.was primarily driven by strong sales in our interface solutions and networkingbusinesses.  The sales declines in Europeand Asia are primarily due to the restructuring of our legacy Interconnectsegment businesses during previous periods. Translation of foreign operations net sales in the three months ended January 30,2010 increased reported net sales by $0.2 million, or 0.6%, due to currencyrate fluctuations.

 

*OtherIncome*.  Other incomewas $0.1 million for both the three months ended January 31, 2010 and January 31,2009.  Other income consisted primarilyof earnings from engineering design fees and royalties.

 

*Cost ofProducts Sold*. Interconnect segment cost of products sold decreased $1.8 million, or6.9%, to $24.4 million for the three months ended January 30, 2010compared to $26.2 million for the three months ended January 31,2009.  Interconnect segment cost ofproducts sold as a percentage of net sales decreased to 72.2% for the threemonths ended January 30, 2010 compared to 78.9% for the three months endedJanuary 31, 2009.  The decrease incost of products sold as a percentage of net sales primarily relates torestructuring efforts undertaken in previous periods.

 

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*GrossMargins (including other income). *Interconnectsegment gross margins (including other income) increased $2.4 million, or33.8%, to $9.5 million for the three months ended January 30, 2010 ascompared to $7.1 million for the three months ended January 31, 2009.  Gross margins (including other income) as apercentage of net sales increased to 28.1% for the three months ended January 30,2010 from 21.4% for the three months ended January 31, 2009.  The increase in gross margins (includingother income) as a percentage of net sales primarily relates to restructuringefforts undertaken in previous periods.

 

*Restructuring*.  During the fiscal quarter ended January 30,2010, the Interconnect segment recorded a restructuring charge of $0.1 millionrelated to our March 2009 restructuring initiative for other costs.  We expect the March 2009 restructuringto be completed during the fourth quarter of fiscal 2010.

 

There were norestructuring charges relating to our January 2008 restructuring initiativeduring the fiscal quarter ended January 30, 2010.  During the fiscal quarter ended January 31,2009, the Interconnect segment recorded a restructuring charge of $0.9 millionrelated to this restructuring initiative, which consisted of $0.2 million foremployee severance and $0.7 million for impairment and accelerateddepreciation.  We expect the January 2008restructuring to be completed during the fourth quarter of fiscal 2010.

 

*Impairment of Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $11.5million in our Interconnect segment related to these assets.

 

Also during thethird quarter of fiscal 2009, in accordance with ASC No. 360, “Property,Plant and Equipment,” it was determined that certain identifiable assets of ourTouchSensor business were impaired. Therefore, during the third quarter of fiscal 2009, we recorded animpairment charge of $14.6 million for these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses decreased $1.1 million, or 16.2%, to$5.7 million for the three months ended January 30, 2010 compared to $6.8million for the three months ended January 31, 2009.  Selling and administrative expenses are lowerdue to reduced intangible asset amortization expenses.  In addition, selling and administrativeexpenses were lower due to the restructuring efforts undertaken in the firstand second quarters of fiscal 2009. Selling and administrative expenses as a percentage of net salesdecreased to 16.9% in the three months ended January 30, 2010 from 20.5%for the three months ended January 31, 2009.

 

*InterestIncome, Net*.  Interestincome, net was $0.1 million for the three months ended January 30, 2010,compared to $0.2 million for the three months ended January 31, 2009.

 

*OtherExpense, Net*.  Otherexpense, net was $0.3 million for the three months ended January 30, 2010,compared to zero other expense for the three months ended January 30,2009.  The functional currencies of theseoperations are the British pound, Czech koruna, Euro and Singapore dollar.  Some foreign operations have transactionsdenominated in currencies other than their functional currencies, primarilysales in U.S. dollars and Euros, creating exchange rate sensitivities.

 

*Income/(Loss)Before Income Taxes. *Interconnectsegment income/(loss) before income taxes increased $30.0 million to income of$3.5 million for the three months ended January 30, 2010 compared to aloss of $26.5 million for the three months ended January 31, 2009 due tono goodwill and intangible asset write-off for the three months ended January 30,2010 versus $26.1 million in write-offs for the three months ended January 31,2009.  In addition, the third quarter offiscal 2010 is favorable compared to the third quarter of fiscal 2009 due tohigher sales and gross margins (including other income), lower intangible assetamortization expenses, lower selling and administrative expenses due torestructuring efforts as well as lower restructuring expenses.

 

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**PowerProducts Segment Results**

** **

Below is a tablesummarizing results for the three months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                                    | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                    |       | $                          | 9.6        |                       | $          | 9.2            |       | $              | 0.4        |   | 4.3 | % |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                        |       | 7.0                        |       | 8.0                        |       | (1.0           | )          | -12.5          | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Gross  margins                                |       | 2.6                        |       | 1.2                        |       | 1.4            |       | 116.7          | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Restructuring                                 |       | 0.1                        |       | —                     |       | 0.1            |       | 0.0            | %          |
| Impairment  of goodwill and intangible assets |       | —                     |       | 5.4                        |       | (5.4           | )          | N/M            |       |
| Selling  and administrative expenses          |       | 1.4                        |       | 1.1                        |       | 0.3            |       | 27.3           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Income/(loss)  before income taxes            |       | $                          | 1.1        |                       | $          | (5.3           | )          | $              | 6.4        |   | N/M |   |

 
| **Percent  of sales:**                        | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net sales                                     |       | 100.0                      | %          | 100.0                      | %          |
| Cost  of products sold                        |       | 72.9                       | %          | 87.0                       | %          |
| Gross  margins (including other income)       |       | 27.1                       | %          | 13.0                       | %          |
| Restructuring                                 |       | 1.0                        | %          | 0.0                        | %          |
| Impairment  of goodwill and intangible assets |       | 0.0                        | %          | 58.7                       | %          |
| Selling  and administrative expenses          |       | 14.6                       | %          | 12.0                       | %          |
| Income/(loss)  before income taxes            |       | 11.5                       | %          | -57.6                      | %          |

 

*Net Sales*.  Power Products segment net sales increased$0.4 million, or 4.3% to $9.6 million for the three months ended January 30,2010 compared to $9.2 million for the three months ended January 31,2009.  Net sales have decreased in thethird quarter of fiscal 2010 as compared to the third quarter of fiscal 2009 by3.3% in North America and increased by 14.0% in Asia.  The increase was driven by higher demand forour busbar products in the U.S. and Asia, offset by lower demand flexiblecabling and heat sink products in the U.S.

 

*Cost ofProducts Sold*.  PowerProducts segment cost of products sold decreased $1.0 million, or 12.5%, to$7.0 million for the three months ended January 30, 2010 compared to $8.0million for the three months ended January 31, 2009.  The Power Products segment cost of productssold as a percentage of sales decreased to 72.9% for the three months ended January 30,2010 from 87.0% for the three months ended January 31, 2009.  The decrease is due to restructuring andconsolidation efforts undertaken for our Power Products businesses in the U.S.during the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010.

 

*GrossMargins.* PowerProducts segment gross margins increased $1.4 million, or 116.7%, to $2.6 forthe three months ended January 30, 2010, compared to $1.2 million for thethree months ended January 31, 2009. Gross margins as a percentage of net sales increased to 27.1% for thethree months ended January 30, 2010 from 13.0% for the three months ended January 31,2009.  The increase is due torestructuring and consolidation efforts undertaken for our Power Productsbusinesses in the U.S. during the fourth quarter of fiscal 2009 and the firstquarter of fiscal 2010.

 

*Restructuring*.   During the fiscal quarter ended January 30,2010, the Power Products segment recorded a restructuring charge of $0.1million for other costs related to our March 2009 restructuringinitiative.

 

*Impairmentof Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $5.4million in our Power Products segment related to these assets.

 

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*Sellingand Administrative Expenses*. Selling and administrative expenses increased $0.3 million, or 27.3%, to$1.4 million for the three months ended January 30, 2010, compared to $1.1million for the three months ended January 31, 2009.  Selling and administrative expenses increaseddue to slightly higher professional services fees during the third quarter offiscal 2010 as compared to the third quarter of fiscal 2009.  Selling and administrative expenses as apercentage of net sales increased to 14.6% in the three months ended January 31,2010 from 12.0% for the three months ended January 31, 2009.

 

*Income/(Loss)Before Income Taxes. *PowerProducts income/(loss) before income taxes increased $6.4 million, to income of$1.1 million for the three months ended January 30, 2010, compared to aloss of $5.3 million for the three months ended January 31, 2009 due to nogoodwill and intangible asset write-off for the three months ended January 30,2010 versus $5.4 million in write-offs for the three months ended January 31,2009.  In addition, the third quarter offiscal 2010 is favorable compared to the third quarter of fiscal 2009 due tohigher sales and gross margins, offset by higher selling and administrative andrestructuring expenses.

 

**OtherSegment Results**

** **

Below is a tablesummarizing results for the three months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                                    | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                    |       | $                          | 2.1        |                       | $          | 1.8            |       | $              | 0.3        |   | 16.7 | % |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                        |       | 2.3                        |       | 2.0                        |       | 0.3            |       | 15.0           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Gross  margins                                |       | (0.2                       | )          | (0.2                       | )          | 0.0            |       | 0.0            | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Impairment  of goodwill and intangible assets |       | —                     |       | 1.2                        |       | (1.2           | )          | N/M            |       |
| Selling  and administrative expenses          |       | 0.8                        |       | 0.7                        |       | 0.1            |       | 14.3           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Loss  before income taxes                     |       | $                          | (1.0       | )                          | $          | (2.1           | )          | $              | 1.1        |   | N/M |   |

 
| **Percent  of sales:**                        | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                                    |       | 100.0                      | %          | 100.0                      | %          |
| Cost  of products sold                        |       | 109.5                      | %          | 111.1                      | %          |
| Gross  margins                                |       | -9.5                       | %          | -11.1                      | %          |
| Impairment  of goodwill and intangible assets |       | 0.0                        | %          | 66.7                       | %          |
| Selling  and administrative expenses          |       | 38.1                       | %          | 38.9                       | %          |
| Loss  before income taxes                     |       | -47.6                      | %          | -116.7                     | %          |

 

*Net Sales*.  The Other segment net sales increased $0.3million, or 16.7%, to $2.1 million for the three months ended January 30,2010, compared to $1.8 million for the three months ended January 31,2009.  Net sales from our torque-sensingbusiness increased 96.0% in the third quarter of fiscal 2010 compared to thethird quarter of fiscal 2009.  Net salesfrom our testing facilities were flat in the third quarter of fiscal 2010compared to the third quarter of fiscal 2009.

 

*Cost ofProducts Sold*.  Othersegment cost of products sold increased $0.3 million to $2.3 million for thethree months ended January 30, 2010 compared to $2.0 million for the threemonths ended January 31, 2009.  Theincrease is due to an increase in prototypes in our torque-sensing business inthe third quarter of fiscal 2010 compared to the third quarter of fiscal2009.  Cost of products sold as apercentage of sales decreased to 109.5% in the third quarter of fiscal 2010 comparedto 111.1% in the third quarter of fiscal 2009.

 

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*GrossMargins. *The Othersegment gross margins were a loss of $0.2 million for both the three monthsended January 30, 2010 and January 31, 2009.  The increase in net sales were offset by anincrease in prototypes in our torque-sensing business in the third quarter offiscal 2010 compared to the third quarter of fiscal 2009.

 

*Impairment of Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill was impaired. Therefore, during the third quarter offiscal 2009, we recorded a goodwill impairment charge of $1.2 million in ourOther segment related to these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses increased $0.1 million, or 14.3%, to$0.8 million for the three months ended January 30, 2010, compared to $0.7million for the three months ended January 30, 2009.  Selling and administrative expenses as apercentage of net sales decreased to 38.1% in the three months ended January 30,2010 from 38.9% for the three months ended January 31, 2009.

 

*LossBefore Income Taxes. *TheOther segment loss before income taxes decreased $1.1 to $1.0 million for thethree months ended January 30, 2010, compared to $2.1 million for thethree months ended January 31, 2009 due to no goodwill and intangibleasset write-off for the three months ended January 30, 2010 versus $1.2million in write-offs for the three months ended January 31, 2009.  In addition, the loss before income taxesincreased due to higher prototype and selling and administrative expenses,partially offset by higher net sales.

 

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**Results ofOperations for the Nine Months Ended January 30, 2010 as Compared to theNine Months Ended January 31, 2009.**

 

**ConsolidatedResults**

Below is a tablesummarizing results for the nine months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                                               | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|----------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                               |       | $                          | 277.4      |                       | $          | 336.6          |       | $              | (59.2      | ) | -17.6 | % |
| Other  income                                            |       | 3.6                        |       | 2.4                        |       | 1.2            |       | 50.0           | %          |
|                                                     |       | 281.0                      |       | 339.0                      |       | (58.0          | )          | -17.1          | %          |
|                                                     |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                                   |       | 223.6                      |       | 273.8                      |       | (50.2          | )          | -18.3          | %          |
|                                                     |       |                       |       |                       |       |           |       |           |       |
| Gross  margins (including other income)                  |       | 57.4                       |       | 65.2                       |       | (7.8           | )          | -12.0          | %          |
|                                                     |       |                       |       |                       |       |           |       |           |       |
| Restructuring                                            |       | 7.3                        |       | 15.0                       |       | (7.7           | )          | -51.3          | %          |
| Impairment  of goodwill and intangible assets            |       | —                     |       | 32.7                       |       | (32.7          | )          | N/M            |       |
| Selling  and administrative expenses                     |       | 49.4                       |       | 49.5                       |       | (0.1           | )          | -0.2           | %          |
| Interest  income/(expense), net                          |       | (0.1                       | )          | 1.2                        |       | (1.3           | )          | N/M            |       |
| Other  expense, net                                      |       | —                     |       | (1.2                       | )          | 1.2            |       | N/M            |       |
| Income  taxes - expense/(benefit)                        |       | 2.8                        |       | (12.3                      | )          | 15.1           |       | N/M            |       |
| Net  income attributable to noncontrolling interest      |       | 0.2                        |       | 0.2                        |       | —         |       | 0.0            | %          |
|                                                     |       |                       |       |                       |       |           |       |           |       |
| Net  loss attributable to Methode Electronics, Inc. |       | $                          | (2.4       | )                          | $          | (19.9          | )          | $              | 17.5       |   | N/M |   |

 
| **Percent  of sales:**                                   | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|----------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                                               |       | 100.0                      | %          | 100.0                      | %          |
| Other  income                                            |       | 1.3                        | %          | 0.7                        | %          |
| Cost  of products sold                                   |       | 80.6                       | %          | 81.3                       | %          |
| Gross  margins (including other income)                  |       | 20.7                       | %          | 19.4                       | %          |
| Restructuring                                            |       | 2.6                        | %          | 4.5                        | %          |
| Impairment  of goodwill and intangible assets            |       | 0.0                        | %          | 9.7                        | %          |
| Selling  and administrative expenses                     |       | 17.8                       | %          | 14.7                       | %          |
| Interest  income/(expense), net                          |       | 0.0                        | %          | 0.4                        | %          |
| Other  expense, net                                      |       | 0.0                        | %          | -0.4                       | %          |
| Income  taxes - expense                                  |       | 1.0                        | %          | -3.7                       | %          |
| Net  income attributable to noncontrolling interest      |       | 0.1                        | %          | 0.1                        | %          |
| Net  loss attributable to Methode Electronics, Inc. |       | -0.9                       | %          | -5.9                       | %          |

 

*Net Sales*.  Consolidated net sales decreased $59.2million, or 17.6%, to $277.4 million for the nine months ended January 30,2010 from $336.6 million for nine months ended January 31, 2009.  The Automotive segment net sales declined$44.9 million or 22.8% to $151.6 million through the first nine months offiscal 2010 from $196.5 million for the first nine months of fiscal 2009.  The decline is primarily attributable tolower sales to Delphi, Ford and Chrysler in the Automotive segment and the weakeconomic environment.  The Interconnectsegment net sales decreased $12.3 million, or 12.2% to $88.5 million for thefirst nine months of fiscal 2010 as compared to $100.8 million for the firstnine months of fiscal 2009.  The PowerProducts segment net sales decreased $2.6 million, or 8.0% to $30.1 million forthe first nine months of fiscal 2010 as compared to $32.7 million for the firstnine months of fiscal 2009.  The Othersegment net sales increased $0.7 million to $7.2 million for the first ninemonths of fiscal 2010, as compared to $6.5 million in the first nine months offiscal 2009.  Translation of foreignoperations net sales in the nine months ended January 30, 2010 increasedreported net sales by $0.3 million or 0.1% due to currency rate fluctuations.

 

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*OtherIncome*.  Other incomeincreased $1.2 million, or 50.0%, to $3.6 million for the nine months ended January 30,2010 from $2.4 million for the nine months ended January 31, 2009.  Other income consisted primarily of earningsfrom engineering design fees and royalties. The increase relates to engineering design fees in our Europeanautomotive market.

 

*Cost ofProducts Sold*. Consolidated cost of products sold decreased $50.2 million, or 18.3%, to$223.6 million for the nine months ended January 30, 2010 compared to$273.8 million for the nine months ended January 31, 2009.  The decrease is due to the lower salesvolumes.  Consolidated cost of productssold as a percentage of sales were 80.6% in the first nine months of fiscal 2010,compared to 81.3% in the first nine months of fiscal 2009.  The decrease relates to restructuring andconsolidation efforts that were undertaken in prior periods.

 

*GrossMargins (including other income). *Consolidatedgross margins (including other income) decreased $7.8 million, or 12.0%, to$57.4 million for the nine months ended January 30, 2010 as compared to$65.2 million for the nine months ended January 31, 2009.  Gross margins (including other income) as apercentage of net sales were 20.7% for the nine months ended January 30,2010 as compared to 19.4% for the nine months ended January 31, 2009.  The increase relates to higher other incomein the first nine months of fiscal 2010 as well as restructuring andconsolidation efforts that were undertaken in prior periods.

 

*Restructuring*.  In March 2009, we announced additionalrestructuring actions to further reduce our exposure to the North Americanautomotive industry and to consolidatemanufacturing facilities in lower cost regions.  During the first nine months of fiscal 2010,we recorded a restructuring charge of $5.2 million related to thisrestructuring initiative, which consisted of $3.5 million for employeeseverance and $1.7 million relating to other costs.  We expect the March 2009 restructuringto be completed during the fourth quarter of fiscal 2010.

 

In January 2008,we announced a restructuring of our U.S.-based automotive operations and thedecision to discontinue producing certain legacy products in the Interconnectsegment.  During the nine months offiscal 2010, we recorded a restructuring charge of $2.1 million related to thisrestructuring, which consisted of $0.6 million for employee severance, $1.4million for the impairment and accelerated depreciation and $0.1 millionrelating to other costs.  During thefirst nine months of fiscal 2009, we recorded a restructuring charge of $15.0million, which consisted of $5.7 million for employee severance, $8.2 millionfor impairment and accelerated depreciation, $0.2 million for inventory write-downsand $0.9 million relating to other costs. We expect the January 2008 restructuring to be completed during thefourth quarter of fiscal 2010.

 

*Impairment of Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles- Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $11.5million in our Interconnect segment, $5.4 million in our Power Products segmentand $1.2 million in our Other segment for a total of $18.1 million related tothese assets.

 

Also during thethird quarter of fiscal 2009, in accordance with ASC No. 360, “Property,Plant and Equipment,” it was determined that certain identifiable assets of ourTouchSensor business were impaired. Therefore, during the third quarter of fiscal 2009, we recorded animpairment charge of $14.6 million for these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses decreased $0.1 million, or 0.2%, to$49.4 million for the nine months ended January 30, 2010 compared to $49.5million for the nine months ended January 31, 2009.  The decrease is due to lower intangible assetamortization expense and lower stock award amortization expense during thefirst nine months of fiscal 2010 offset by$4.3 million in legal fees relating to the Delphi supply agreement and patentdispute.  Selling andadministrative expenses as a percentage of net sales increased to 17.8% in thenine months ended January 30, 2010 from 14.7% for the nine months ended January 31,2009.

 

*InterestIncome/(Expense), Net*. Net interest income/(expense) decreased $1.3 million in the nine monthsended January 30, 2010 to an expense of $0.1 million as compared to income of $1.2 million in the nine monthsended January 31, 2009.  The averagecash balance was $61.8 million during the nine months ended January 30,

 

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2010 as compared to $89.7million during the nine months ended January 31, 2009.  The decrease in cash relates primarily to theHetronic acquisition in the second quarter of fiscal 2009.  The average interest rate earned for the ninemonths ended January 30, 2010 was 0.78% compared to 3.28% in the ninemonths ended January 31, 2009. Interest expense was $0.4 million and $0.3 million for the nine monthsended January 30, 2010 and January 31, 2009, respectively.  The interest expense in the first nine monthsof fiscal 2010 included $0.1 million of fees related to the amendment of ourbank agreement.

 

*OtherExpense, Net*.  Otherexpense, net increased $1.2 million to zero for the nine months ended January 30,2010, compared to $1.2 million for the nine months ended January 31,2009.  The increase is primarily due tothe strengthening of the U.S. dollar versus the Euro and Czech koruna duringthe first nine months of fiscal 2010 as compared to the first nine months offiscal 2009.  The nine months ended January 30,2010 included a $0.4 million gain recorded from life insurance policies ownedby the Company in connection with an employee deferred compensation plan.  During the first nine months of fiscal 2009,we recorded $2.5 million of unrealized currency exchange losses arising from anintercompany loan between our corporate headquarters and one of our foreignsubsidiaries in conjunction with the acquisition of Hetronic, partially offsetby currency exchange gains recorded in the same period.  The functional currencies of these operationsare the British pound, Chinese yuan, Czech koruna, Euro, Indian Rupee, Mexicanpeso and Singapore dollar.  Some foreignoperations have transactions denominated in currencies other than theirfunctional currencies, primarily sales in U.S. dollars and Euros, creatingexchange rate sensitivities.

 

During the first six months of fiscal2010 and in fiscal 2009 we were invested in an enhanced cash fund sold as analternative to traditional money-market funds. During the first nine months of thefiscal year ended January 30, 2010, we recorded a gain of $0.6 million, ofwhich $0.4 million was from a realized loss on redemptions of $3.5 million,offset by a realized gain of $1.0 million. During the first nine months of the fiscal year ended January 31,2009, we recorded a loss of $1.0 million, of which $0.5 million was realized onpartial redemptions of $8.3 million, and $0.5 was unrealized.

 

*IncomeTaxes — Expense/(Benefit).* Income taxes — expense/(benefit) increased by $15.1 million to anexpense of $2.8 million for the nine months ended January 30, 2010,compared to a tax benefit of $13.3 million for the nine months ended January 31,2009.  The $2.8 million for the ninemonths ended January 31, 2010, includes taxes booked on foreign profits of$1.1 million, book to income tax return adjustments of $2.8 million and otheradjustments of $1.6 million.  Inaddition, a benefit of $2.7 million was recorded due to the settlement ofuncertain tax positions and related interest from prior periods.  For the first nine months of fiscal 2010, wehave a loss before income taxes.  Normally,a tax benefit is recorded relating to the net loss before income taxes, but dueto the uncertainty of the future utilization of the tax benefit by ourU.S.-based businesses, a valuation allowance was recorded offsetting the taxbenefit in accordance with ASC No. 740 “Income Taxes” in the U.S.  See note 8 to our condensed consolidatedfinancial statements for additional information.  The effective tax rates for both the firstnine months of fiscal 2010 and 2009 reflect utilization of foreign investmenttax credits and the effect of lower tax rates on income of the Company’sforeign operations and a higher percentage of earnings at those foreignoperations.

 

*NetLoss Attributable to Methode Electronics, Inc.*  Net loss attributable to Methode Electronics, Inc.decreased $17.5 million to $2.4 million for the nine months ended January 30,2010, compared to $19.9 million for the nine months ended January 31,2009, due to no goodwill and intangible asset write-off for the nine monthsended January 30, 2010 versus $32.7 million in write-offs for the ninemonths ended January 31, 2009.  In addition,restructuring charges, amortization expense and other expense were lower,offset by lower net sales and gross margins (including other income), higherselling and administrative expenses due to the Delphi dispute as well as highertax expense in the first nine months of fiscal 2010 compared to the first ninemonths of fiscal 2009.

 

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**OperatingSegments**

 

**AutomotiveSegment Results**

** **

Below is a tablesummarizing results for the nine months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                              | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                              |       | $                          | 151.6      |                       | $          | 196.5          |       | $              | (44.9      | ) | -22.8 | % |
| Other  income                           |       | 3.2                        |       | 1.9                        |       | 1.3            |       | 68.4           | %          |
|                                    |       | 154.8                      |       | 198.4                      |       | (43.6          | )          | -22.0          | %          |
|                                    |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                  |       | 127.3                      |       | 163.0                      |       | (35.7          | )          | -21.9          | %          |
|                                    |       |                       |       |                       |       |           |       |           |       |
| Gross  margins (including other income) |       | 27.5                       |       | 35.4                       |       | (7.9           | )          | -22.3          | %          |
|                                    |       |                       |       |                       |       |           |       |           |       |
| Restructuring                           |       | 5.4                        |       | 10.4                       |       | (5.0           | )          | -48.1          | %          |
| Selling  and administrative expenses    |       | 14.9                       |       | 11.3                       |       | 3.6            |       | 31.9           | %          |
| Interest  income, net                   |       | —                     |       | 0.5                        |       | (0.5           | )          | N/M            |       |
| Other  expense, net                     |       | (0.7                       | )          | (0.4                       | )          | (0.3           | )          | 75.0           | %          |
|                                    |       |                       |       |                       |       |           |       |           |       |
| Income  before income taxes             |       | $                          | 6.5        |                       | $          | 13.8           |       | $              | (7.3       | ) | -52.9 | % |

 
| **Percent  of sales:**                  | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                              |       | 100.0                      | %          | 100.0                      | %          |
| Other  income                           |       | 2.1                        | %          | 1.0                        | %          |
| Cost  of products sold                  |       | 84.0                       | %          | 83.0                       | %          |
| Gross  margins (including other income) |       | 18.1                       | %          | 18.0                       | %          |
| Restructuring                           |       | 3.6                        | %          | 5.3                        | %          |
| Selling  and administrative expenses    |       | 9.8                        | %          | 5.8                        | %          |
| Interest  income, net                   |       | 0.0                        | %          | 0.3                        | %          |
| Other  expense, net                     |       | -0.5                       | %          | -0.2                       | %          |
| Income  before income taxes             |       | 4.3                        | %          | 7.0                        | %          |

 

*Net Sales*.  Automotive segment net sales decreased $44.9million, or 22.8%, to $151.6 million for the nine months ended January 30,2010 from $196.5 million for the nine months ended January 31, 2009.  Net sales to Delphi Corporation decreased$19.2 million, or 57.7%, to $14.1 million in the first nine months of fiscal2010 as compared to $33.3 million for first nine months of fiscal 2009 due tothe cancellation of the supply agreementon September 10, 2009.  TheAutomotive segment net sales were also negatively impacted by planned lowerChrysler sales volumes of $1.0 million in the first nine months of fiscal 2010,compared to $16.9 million in the first nine months of fiscal 2009.  In addition, the decline is attributable tothe softness of the economic environment. Net sales benefited by $1.7 million for the nine months ended January 30,2010 relating to a one-time reversal of pricing contingencies which wereaccrued over several years and are no longer required.    Net sales declined by 54.4% in NorthAmerica and increased by 9.8% in Europe and by 88.7% in Asia in the first ninemonths of fiscal 2010 as compared to the first nine months of fiscal 2009.  Translation of foreign operations net salesin the nine months ended January 30, 2010 increased reported net sales by$0.4 million, or 0.3%, due to currency rate fluctuations.

 

*OtherIncome*.  Other incomeincreased $1.3 million, or 68.4%, to $3.2 million for the nine months ended January 30,2010 from $1.9 million for nine months ended January 31, 2009.  Other income consisted primarily of earningsfrom engineering design fees and royalties. The increase relates to engineering design fees in our Europeanautomotive market.

 

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*Cost ofProducts Sold*. Automotive segment cost of products sold decreased $35.7 million, or21.9%, to $127.3 million for the nine months ended January 30, 2010 from$163.0 million for the nine months ended January 31, 2009.  The decrease primarily relates to lower salesvolumes.  Included in the cost ofproducts sold for the nine months ended January 30, 2010 is $0.7 millionof asset write-downs relating to the termination of the Delphi supply agreement.  The Automotive segment cost of products soldas a percentage of sales were 84.0% in the first nine months of fiscal 2010,compared to 83.0% in the first nine months of fiscal 2009.  Excluding the Delphi asset write-down in costof products sold and the $1.7 million reversal of pricing contingenciesincluded in net sales, consolidated cost of products sold as a percentage ofsales were 84.4% for the first nine months of fiscal 2010.  The increase reflects inefficiencies causedby automotive manufacturers extending plant shut-downs during the first quarterof fiscal 2010, partially offset by restructuring and consolidation efforts.

 

*GrossMargins (including other income). *Automotivesegment gross margins (including other income) decreased $7.9 million, or22.3%, to $27.5 million for the nine months ended January 30, 2010 ascompared to $35.4 million for the nine months ended January 31, 2009.  Gross margins (including other income) as apercentage of net sales increased to 18.1% for the nine months ended January 30,2010 from 18.0% for the nine months ended January 31, 2009.  Excluding the Delphi asset write-down in costof products sold and the $1.7 million reversal of pricing contingenciesincluded in net sales, the Automotive segment gross margins (including otherincome) as a percentage of sales were 17.7% for the first nine months of fiscal2010.  The decrease relates to higherother income in the first nine months of fiscal 2010 as well as restructuringand consolidation efforts that occurred in prior periods, more than offset byinefficiencies caused by automotive manufacturers extending plant shut-downsduring the first quarter of fiscal 2010.

 

*Restructuring*.   During the first nine months of fiscal 2010,we recorded a restructuring charge of $3.7 million related to our March 2009restructuring initiative, which consisted of $3.0 million for employeeseverance and $0.7 million relating to other costs.  We expect the March 2009 restructuringto be completed during the fourth quarter of fiscal 2010.

 

During the firstnine months of fiscal 2010, the Automotive segment recorded a restructuringcharge of $1.7 million for our January 2008 restructuring initiative,which consisted of $0.6 million for employee severance, $1.0 million for theimpairment and accelerated depreciation and $0.1 in other costs.  During the first nine months of fiscal 2009,the Automotive segment recorded a restructuring charge of $10.4 million forthis restructuring initiative, which consisted of $4.3 million for employeeseverance, $5.4 million for impairment and accelerated depreciation and $0.7million for other costs.  We expect the January 2008restructuring to be completed during the fourth quarter of fiscal 2010.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses increased $3.6 million, or 31.9%, to$14.9 million for the nine months ended January 30, 2010 compared to $11.3million for the nine months ended January 31, 2009.  Selling and Administrative expenses increasedin the first nine months of fiscal 2010 compared to the first nine months offiscal 2009 due to $4.3 million of legal fees associated with the Delphi supplyagreement termination and patentdispute, partially offset by restructuring and consolidation efforts.  Selling and administrative expenses as apercentage of net sales were 9.8% for the nine months ended January 30,2010 and 5.8% for the nine months ended January 31, 2009.

 

*InterestIncome, Net*.  Netinterest income was zero in the first nine months of fiscal 2010, compared to$0.5 million in the first nine months of fiscal 2009.

 

*OtherExpense, Net*.  Otherexpense, net increased $0.3 million, or 75.0%, to $0.7 million in the firstnine months of fiscal 2010, compared to $0.4 million in the first nine monthsof fiscal 2009.  The increase isprimarily due to the strengthening of the U.S. dollar versus the Euro duringthe first nine months of fiscal 2010 as compared to the first nine months offiscal 2009.  The functional currenciesof these operations are the British pound, Chinese yuan, Euro and the Mexicanpeso.  Some foreign operations havetransactions denominated in currencies other than their functional currencies,primarily sales in U.S. dollars and Euros, creating exchange ratesensitivities.

 

*IncomeBefore Income Taxes. *Automotivesegment income before income taxes decreased $7.3 million, or 52.9%, to $6.5million for the nine months ended January 30, 2010 compared to $13.8million for the nine months

 

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ended January 30,2009 due to lower sales volumes, the asset write-down and legal fees relatingto the termination of the Delphi agreement, offset by the reversal of one-timepricing contingencies, lower costs relating to prior restructuring andconsolidation efforts and lower restructuring costs.

 

**InterconnectSegment Results**

** **

Below is a tablesummarizing results for the nine months ended:

(in millions)

(Not meaningful equals “M/N”)

 
| ** **                                    | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                    |       | $                          | 88.5       |                       | $          | 100.8          |       | $              | (12.3      | ) | -12.2 | % |
| Other  income                                 |       | 0.1                        |       | 0.2                        |       | (0.1           | )          | -50.0          | %          |
|                                          |       | 88.6                       |       | 101.0                      |       | (12.4          | )          | -12.3          | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                        |       | 65.6                       |       | 76.0                       |       | (10.4          | )          | -13.7          | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Gross  margins (including other income)       |       | 23.0                       |       | 25.0                       |       | (2.0           | )          | -8.0           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Restructuring                                 |       | 1.5                        |       | 4.6                        |       | (3.1           | )          | -67.4          | %          |
| Impairment  of goodwill and intangible assets |       | —                     |       | 26.1                       |       | (26.1          | )          | N/M            |       |
| Selling  and administrative expenses          |       | 16.1                       |       | 23.8                       |       | (7.7           | )          | -32.4          | %          |
| Interest  income                              |       | 0.1                        |       | 0.4                        |       | (0.3           | )          | -75.0          | %          |
| Other  income/(expense), net                  |       | (0.3                       | )          | 0.5                        |       | (0.8           | )          | N/M            |       |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Income/(loss)  before income taxes            |       | $                          | 5.2        |                       | $          | (28.6          | )          | $              | 33.8       |   | M/N |   |

 
| **Percent  of sales:**                        | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                                    |       | 100.0                      | %          | 100.0                      | %          |
| Other  income                                 |       | 0.1                        | %          | 0.2                        | %          |
| Cost  of products sold                        |       | 74.1                       | %          | 75.4                       | %          |
| Gross  margins (including other income)       |       | 26.0                       | %          | 24.8                       | %          |
| Restructuring                                 |       | 1.7                        | %          | 4.6                        | %          |
| Impairment  of goodwill and intangible assets |       | 0.0                        | %          | 25.9                       | %          |
| Selling  and administrative expenses          |       | 18.2                       | %          | 23.6                       | %          |
| Interest  income                              |       | 0.1                        | %          | 0.4                        | %          |
| Other  income/(expense), net                  |       | -0.3                       | %          | 0.5                        | %          |
| Income/(loss)  before income taxes            |       | 5.9                        | %          | -28.4                      | %          |

 

*Net Sales*.  Interconnect segment net sales decreased$12.3 million, or 12.2%, to $88.5 million for the nine months ended January 30,2010 from $100.8 million for the nine months ended January 31, 2009.  Net sales were favorably impacted by theHetronic acquisition on September 30, 2008.  European net sales increased 35.2% and NorthAmerican and Asia declined 13.1% and 37.8%, respectively in the first ninemonths of fiscal 2010 as compared to the first nine months of fiscal 2009.  The net sales decline in North America andAsia was primarily due to the restructuring of our legacy Interconnect segmentbusinesses during the fourth quarter of fiscal 2008 and the first quarter offiscal 2009.  Translation of foreignoperations net sales in the nine months ended January 30, 2010 decreasedreported net sales by $0.1 million, or 0.1%, due to currency rate fluctuations.

 

*OtherIncome*.  Other incomewas $0.1 million for the nine months ended January 30, 2010, compared to$0.2 million for the nine months ended January 31, 2009.  Other income consisted primarily of earningsfrom engineering design fees and royalties.

 

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*Cost ofProducts Sold*. Interconnect segment cost of products sold decreased $10.4 million, or13.7%, to $65.6 million for the nine months ended January 30, 2010compared to $76.0 million for the nine months ended January 31, 2009.  Interconnect segment cost of products sold asa percentage of net sales decreased to 74.1% for the nine months ended January 30,2010 compared to 75.4% for the nine months ended January 31, 2009.  The decrease in cost of products sold as apercentage of net sales primarily relates to restructuring efforts undertakenin previous periods, partially offset by lower sales volumes in the first ninemonths of fiscal 2010 as compared to the first nine months of fiscal 2009.

 

*GrossMargins (including other income). *Interconnectsegment gross margins (including other income) decreased $2.0 million, or 8.0%,to $23.0 million for the nine months ended January 30, 2010 as compared to$25.0 million for the nine months ended January 31, 2009.  Gross margins (including other income) as apercentage of net sales increased to 26.0% for the nine months ended January 30,2010 from 24.8% for the nine months ended January 31, 2009.  The increase in gross margins (includingother income) as a percentage of net sales primarily relates to restructuringefforts undertaken in previous periods, partially offset by lower sales volumesin the first nine months of fiscal 2010 as compared to the first nine months offiscal 2009.

 

*Restructuring*.  During the first nine months of fiscal 2010,the Interconnect segment recorded a restructuring charge of $1.4 millionrelated to our March 2009 restructuring initiative, which consisted of$0.4 million for employee severance and $1.0 million for other costs.  We expect the March 2009 restructuringto be completed during the fourth quarter of fiscal 2010.

 

During the firstnine months of fiscal 2010, the Interconnect segment recorded a restructuringcharge of $0.1 million for accelerated depreciation in connection with our January 2008restructuring initiative.  During thefiscal first nine months of fiscal 2009, we recorded a restructuring charge of$4.6 million related to this restructuring initiative, which consisted of $1.4million for employee severance, $2.8 million for impairment and accelerateddepreciation for buildings, building improvements and machinery and equipment,$0.2 million for inventory write-downs and $0.2 relating to professionalfees.  We expect the January 2008restructuring to be completed during the fourth quarter of fiscal 2010.

 

*Impairment of Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $11.5million in our Interconnect segment related to these assets.

 

Also during thethird quarter of fiscal 2009, in accordance with ASC No. 360, “Property,Plant and Equipment,” it was determined that certain identifiable assets of ourTouchSensor business were impaired. Therefore, during the third quarter of fiscal 2009, we recorded animpairment charge of $14.6 million for these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses decreased $7.7 million, or 32.4%, to$16.1 million for the nine months ended January 30, 2010 compared to $23.8million for the nine months ended January 31, 2009.  Selling and administrative expenses are lowerdue to reduced intangible asset amortization expenses, partially offset byhigher selling and administrative expenses due to the Hetronic acquisition.  In addition, selling and administrativeexpenses (not including Hetronic) were lower due to the restructuring effortsundertaken in the first and second quarters of fiscal 2009.  Selling and administrative expenses as apercentage of net sales decreased to 18.2% in the nine months ended January 30,2010 from 23.6% for the nine months ended January 31, 2009.

 

*InterestIncome, Net*.  Interestincome, net decreased $0.3 million, or 75.0%, to $0.1 million for the ninemonths ended January 30, 2010, compared to $0.4 million for the ninemonths ended January 31, 2009.

 

*OtherIncome/(Expense), Net*. Other expense, net was income of $0.3 million for the nine months ended January 30,2010, compared to an expense of $0.5 million for the nine months ended January 31,2009.  The functional currencies of theseoperations are the British pound, Czech koruna, Euro and Singapore dollar.  Some foreign operations have transactionsdenominated in currencies other than their functional currencies, primarilysales in U.S. dollars and Euros, creating exchange rate sensitivities.

 

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*Income/(Loss)Before Income Taxes. *Interconnectsegment income/(loss) before income taxes increased $33.8 million to income of$5.2 million for the nine months ended January 30, 2010 compared to a lossof $28.6 million for the nine months ended January 31, 2009 due to nogoodwill and intangible asset write-off for the nine months ended January 30,2010 versus $26.1 million in write-offs for the nine months ended January 31,2009.  In addition, income/(loss) beforeincome taxes increased due to lower intangible asset amortization expenses,lower selling and administrative expenses due to prior restructuring efforts,lower restructuring expenses, partially offset by lower sales and gross margins(including other income).

 

**PowerProducts Segment Results**

** **

Below is a tablesummarizing results for the nine months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                                    | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                    |       | $                          | 30.1       |                       | $          | 32.7           |       | $              | (2.6       | ) | -8.0 | % |
| Other  income                                 |       | 0.1                        |       | —                     |       | 0.1            |       | 0.0            | %          |
|                                          |       | 30.2                       |       | 32.7                       |       | (2.5           | )          | -7.6           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                        |       | 23.1                       |       | 27.3                       |       | (4.2           | )          | -15.4          | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Gross  margins                                |       | 7.1                        |       | 5.4                        |       | 1.7            |       | 31.5           | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Restructuring                                 |       | 0.5                        |       | —                     |       | 0.5            |       | 0.0            | %          |
| Impairment  of goodwill and intangible assets |       | —                     |       | 5.4                        |       | (5.4           | )          | N/M            |       |
| Selling  and administrative expenses          |       | 4.3                        |       | 4.0                        |       | 0.3            |       | 7.5            | %          |
| Other  - expense                              |       | —                     |       | (0.1                       | )          | 0.1            |       | N/M            |       |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Income/(loss)  before income taxes            |       | $                          | 2.3        |                       | $          | (4.1           | )          | $              | 6.4        |   | N/M |   |

 
| **Percent  of sales:**                        | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                                    |       | 100.0                      | %          | 100.0                      | %          |
| Other  income                                 |       | 0.3                        | %          | 0.0                        | %          |
| Cost  of products sold                        |       | 76.7                       | %          | 83.5                       | %          |
| Gross  margins (including other income)       |       | 23.6                       | %          | 16.5                       | %          |
| Restructuring                                 |       | 1.7                        | %          | 0.0                        | %          |
| Impairment  of goodwill and intangible assets |       | 0.0                        | %          | 16.5                       | %          |
| Selling  and administrative expenses          |       | 14.3                       | %          | 12.2                       | %          |
| Other  - expense                              |       | 0.0                        | %          | -0.3                       | %          |
| Income/(loss)  before income taxes            |       | 7.6                        | %          | -12.5                      | %          |

 

*Net Sales*.  Power Products segment net sales decreased$2.6 million, or 8.0% to $30.1 million for the nine months ended January 30,2010 compared to $32.7 million for the nine months ended January 31,2009.  Net sales have declined in thefirst nine months of fiscal 2010 as compared to the first nine months of fiscal2009 by 14.6% in North America and 1.4% in Asia.  The decline was driven by lower demand forour busbar, flexible cabling and heat sink products.

 

*Cost ofProducts Sold*.  PowerProducts segment cost of products sold decreased $4.2 million, or 15.4%, to$23.1 million for the nine months ended January 30, 2010 compared to $27.3million for the nine months ended January 31, 2009.  The Power Products segment cost of productssold as a percentage of sales decreased to 76.7% for the nine months ended January 30,2010 from 83.5% for the nine months ended January 31, 2009.  The decrease

 

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is due torestructuring and consolidation efforts for our Power Products businesses inthe U.S. during the fourth quarter of fiscal 2009 and the first quarter offiscal 2010.

 

*GrossMargins.* Power Productssegment gross margins increased $1.7 million, or 31.5%, to $7.1 million for thenine months ended January 30, 2010, compared to $5.4 million for the ninemonths ended January 31, 2009. Gross margins as a percentage of net salesincreased to 23.6% for the nine months ended January 30, 2010 from 16.5%for the nine months ended January 31, 2009.  The increase is due to restructuring andconsolidation efforts for our Power Products businesses in the U.S. during thefourth quarter of fiscal 2009 and the first quarter of fiscal 2010.

 

*Restructuring*.   During the first nine months of fiscal 2010,the Power Products segment recorded a restructuring charge of $0.5 millionrelated to our March 2009 restructuring initiative, which consisted of$0.1 million for employee severance and $0.4 million relating to other costs.

 

*Impairmentof Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangibles - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $5.4million in our Power Products segment related to these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses increased $0.3 million, or 7.5%, to$4.3 million for the nine months ended January 30, 2010 compared to $4.0million for the nine months ended January 31, 2009.  Selling and administrative expenses increaseddue to slightly higher professional services fees during the first nine monthsof fiscal 2010 as compared to the first nine months of fiscal 2009.  Selling and administrative expenses as apercentage of net sales increased to 14.3% in the nine months ended January 30,2010 from 12.2% for the nine months ended January 31, 2009.

 

*OtherExpense.*  Other expensewas zero for the nine months ended January 30, 2010, compared to $0.1million for the nine months ended January 31, 2009.

 

*Income/(Loss)Before Income Taxes. *PowerProducts income before income taxes increased $6.4 million to $2.3 million forthe nine months ended January 30, 2010, compared to a loss of $4.1 millionfor the nine months ended January 31, 2009 due to no goodwill andintangible asset write-off for the nine months ended January 30, 2010versus $5.4 million in write-offs for the nine months ended January 31,2009.  In addition, income/(loss) beforeincome taxes increased due to lower sales volumes, higher restructuringexpenses, and higher professional fees, more than offset by lower cost ofproducts sold due to prior restructuring and consolidation efforts.

 

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**OtherSegment Results**

** **

Below is a tablesummarizing results for the nine months ended:

(in millions)

(Not meaningful equals “N/M”)

 
| ** **                                    | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** | **Net Change** | ** ** | **Net Change** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------|------------|----------------|------------|
| Net  sales                                    |       | $                          | 7.2        |                       | $          | 6.5            |       | $              | 0.7        |   | 10.8 | % |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Cost  of products sold                        |       | 7.2                        |       | 6.6                        |       | 0.6            |       | 9.1            | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Gross  margins                                |       | —                     |       | (0.1                       | )          | 0.1            |       | N/M            |       |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Impairment  of goodwill and intangible assets |       | —                     |       | 1.2                        |       | (1.2           | )          | N/M            |       |
| Selling  and administrative expenses          |       | 2.3                        |       | 2.1                        |       | 0.2            |       | 9.5            | %          |
|                                          |       |                       |       |                       |       |           |       |           |       |
| Loss  before income taxes                     |       | $                          | (2.3       | )                          | $          | (3.4           | )          | $              | 1.1        |   | N/M |   |

 
| **Percent  of sales:**                        | ** ** | **January 30,  2010** | ** ** | **January 31,  2009** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Net  sales                                    |       | 100.0                      | %          | 100.0                      | %          |
| Cost  of products sold                        |       | 100.0                      | %          | 101.5                      | %          |
| Gross  margins                                |       | 0.0                        | %          | -1.5                       | %          |
| Impairment  of goodwill and intangible assets |       | 0.0                        | %          | 18.5                       | %          |
| Selling  and administrative expenses          |       | 31.9                       | %          | 32.3                       | %          |
| Loss  before income taxes                     |       | -31.9                      | %          | -52.3                      | %          |

 

*Net Sales*.  The Other segment net sales increased $0.7million, or 10.8%, to $7.2 million for the nine months ended January 30,2010, compared to $6.5 million for the nine months ended January 31,2009.  Net sales from our torque-sensingbusiness increased 42.0% in the first nine months of fiscal 2010 compared tothe first nine months of fiscal 2009. Net sales from our testing facilities were flat in the first nine monthsof fiscal 2010 compared to the first nine months of fiscal 2009.

 

*Cost ofProducts Sold*.  Othersegment cost of products sold increased $0.6 million, or 9.1%, to $7.2 millionfor the nine months ended January 30, 2010 compared to $6.6 million forthe nine months ended January 31, 2009. The increase is due to an increase in prototypes in our torque-sensingbusiness in the first nine months of fiscal 2010 compared to the first ninemonths of fiscal 2009.  Cost of productssold as a percentage of sales decreased to 100.0% in the first nine months offiscal 2010 compared to 101.5% in the first nine months of fiscal 2009.

 

*GrossMargins. *The Othersegment gross margins increased $0.1 million to break-even for the nine monthsended January 30, 2010, compared to a loss of $0.1 million for the ninemonths ended January 31, 2009.  Theincrease in net sales was offset by an increase in cost of products sold in thefirst nine months of fiscal 2010.

 

*Impairmentof Goodwill and Intangible Assets*.  During the third quarter of fiscal 2009, inaccordance with ASC No. 350, “Intangible - Goodwill and Other,” weperformed goodwill impairment testing and concluded that goodwill wasimpaired.  Therefore, during the thirdquarter of fiscal 2009, we recorded a goodwill impairment charge of $1.2million in our Other segment related to these assets.

 

*Sellingand Administrative Expenses*. Selling and administrative expenses increased $0.2 million, or 9.5%, to$2.3 million for the nine months ended January 30, 2010, compared to $2.1million for the nine months ended January 31, 2009.  Selling and administrative expenses as apercentage of net sales decreased to 31.9% for the nine months ended January 30,2010 from 32.3% for the nine months ended January 31, 2009.

 

*LossBefore Income Taxes. *TheOther segment loss before income taxes decreased $1.1 million to $2.3 millionfor the nine months ended January 30, 2010, compared to $3.4 million forthe nine months ended January 31, 2009 due to no goodwill and intangibleasset write-off for the nine months ended January 30, 2010 versus $1.2

 

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million inwrite-offs for the nine months ended January 31, 2009.  In addition, the loss before income taxesdecreased due to higher net sales and gross margins, offset by higher sellingand administrative expenses.

 

**Liquidityand Capital Resources**

 

Wehave historically financed our cash requirements through cash flows from operations.  Our future capital requirements will dependon a number of factors, including our future net sales and the timing and rateof expansion of our business.  We believeour current cash balances together with the cash flow expected to be generatedfrom future domestic and foreign operations will be sufficient to supportcurrent operations.

 

Wehave an agreement with our primary bank for a revolving credit facility toprovide up to $75.0 million of ready financing for general corporate purposes,including acquisition opportunities that may become available.  The bank credit agreement, which expires on January 31,2011, requires maintenance of certain financial ratios and a minimum net worthlevel. At January 30, 2010, we were in compliance with these covenants andhad no borrowings against this credit facility.

 

During fiscal 2009 andthe first half of fiscal 2010, we were invested in an enhanced cash fund soldas an alternative to traditional money-market funds. We have historicallyinvested a portion of our on hand cash balances in this fund. These investmentsare subject to credit, liquidity, market and interest rate risk. In December 2007,****the****fund was overwhelmedwith withdrawal requests from investors and was closed with a restrictionplaced upon the cash redemption ability of its holders. In September, we received our remainingprincipal in the fund. The balance in the fund as of January 30, 2010 waszero. During the first nine months of the fiscal year ended January 30,2010, we recorded a gain of $0.6 million, of which $0.4 million was from arealized loss on redemptions of $3.5 million, offset by a realized gain of $1.0million.  During the first nine months ofthe fiscal year ended January 31, 2009, we recorded a loss of $1.0million, of which $0.5 million was realized on partial redemptions of $8.3million, and $0.5 was unrealized.

 

Netcash provided by operating activities decreased $22.5 million, or 58.6%, to$15.9 million for the first nine months of fiscal 2010 compared to $38.4million in the first nine months of fiscal 2009.  The decrease was due to our net lossdecreasing $17.5 million to $2.4 million for the first nine months of fiscal2010, compared to $19.9 million in the first nine months of fiscal 2009, offsetby non-cash charge add-backs mainly driven by the $32.7 million goodwill andintangible asset write-offs in the first nine months of fiscal 2009 as well aslower depreciation and amortization expenses in the first nine months of fiscal2010 compared to the first nine months of fiscal 2009.  The primary factor in the Company’s abilityto generate cash from operations is our net income. Additionally, cash flowsfrom operations exceed net income because non-cash charges (depreciation,amortization of intangibles, restricted stock awards, and stock options)negatively impact net income but do not result in the use of cash.  Similarly, non-cash credits such as deferredincome tax benefits increase net income but do not provide cash.  Additional contributors or offsets to cashflows from operations are working capital requirements.

 

Net cash used in investing activities decreased $65.2 million to $5.8million for the first nine months of fiscal 2010, compared to $71.0 million forthe first nine months of fiscal 2009. Purchases of plant and equipment decreased $4.4 million, to $7.8 millionfor the first nine months of fiscal 2010, compared to $12.2 million for thefirst nine months of fiscal 2009.  Duringthe first nine months of fiscal 2010, we received $2.4 million from lifeinsurance polices in connection with an employee deferred compensationplan.  In September 2008, weacquired certain assets of Hetronic LLC (Hetronic) for $53.6 million incash.  We also incurred $2.4 million intransaction costs related to the purchase. Also in the first nine months of fiscal 2009, we made a contingentpayment of $0.8 million related to the VEP acquisition.

 

Net cash used in financing activities was $7.8million for the first nine months of fiscal 2010, compared to $12.1 million forthe first nine months of fiscal 2009.  Wepaid cash dividends of $7.8 million in the first nine months half of fiscal2010, compared to $7.2 million in the first nine months of fiscal 2009.  Our board of directors approved a stockrepurchase plan in September 2008 to purchase up to 3,000,000 shares.  The plan expires May 1, 2010.    In the first nine months of fiscal 2009, wepurchased 639,880 shares for $5.1 million. There were no shares purchased in the first nine months of fiscal 2010.

 

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**Off-Balance Sheet Arrangements**

 

Wedo not have any off-balance sheet arrangements, other than operating leases andpurchase obligations entered into in the normal course of business.

 

**Item 3.  Quantitative And Qualitative DisclosuresAbout Market Risk**

 

Certainof our foreign operations enter into transactions in currencies other thantheir functional currency, primarily the U.S. dollar and the Euro.  A 10% change in foreign currency exchangerates from balance sheet date levels could impact our income before incometaxes by $3.7 million and $2.8 million for periods ended January 30, 2010and May 2, 2009, respectively.  Wealso have foreign currency exposure arising from the translation of our netequity investment in our foreign operations to U.S. dollars.  We generally view our investments in foreignoperations with functional currencies other than the U.S. dollar aslong-term.  The currencies to which weare exposed are the British pound, Chinese yuan, Czech koruna, Euro, IndianRupee, Mexican peso, and Singapore dollar. A 10% change in foreign currency exchange rates from balance sheet datelevels could impact our net foreign investments by $11.8 million at January 30,2010 and $10.8 million at May 2, 2009.

 

**Item 4. Controls And Procedures**

 

As of the end of the period covered by this quarterlyreport on Form 10-Q, we performed an evaluation under the supervision andwith the participation of the Company’s management, including our ChiefExecutive Officer and our Chief Financial Officer, of our “disclosure controlsand procedures” (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934).  The Company’s disclosure controls andprocedures are designed to ensure that the information required to be disclosedby the Company in the reports that we file or submit under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s applicable rules andforms.  As a result of this evaluation, our Chief Executive Officer andChief Financial Officer have concluded that, as of the end of the periodcovered by this report, the Company’s disclosure controls and procedures wereeffective.

 

Therehave been no changes in our internal control over financial reporting duringthe quarter ended January 30, 2010 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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| **Item 6.** | ** ** | **Exhibits** |
|-------------|------------|--------------|

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                     |
| 10.1                |       | Form of Methode Electronics, Inc. Restricted  Stock and Tandem Cash Award Cancellation Agreement (1) |
| 31.1                |       | Rule 13a-14(a)/15d-14(a) Certification of  Principal Executive Officer                               |
| 31.2                |       | Rule 13a-14(a)/15d-14(a) Certification of  Principal Financial Officer                               |
| 32                  |       | Certification of Periodic Financial Report Pursuant to  18 U.S.C. Section 1350                            |

 

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| (1) |   | Previously filed with Registrant’s Form 8-K filed  December 18, 2009, and incorporated herein by reference. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------|

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|   |               | METHODE ELECTRONICS, INC. |
|--------|--------------------|---------------------------|
|   |               |                      |   |
|   |               |                      |   |
|   |               | By:                       | */s/ Douglas A. Koman* |
|   |               |                      |   | Douglas  A. Koman |
|   |               |                      |   | Chief  Financial Officer |
|   |               |                      |   | (principal  financial officer) |
|   |               |                      |   |
| Dated: | March 2, 2010 |                      |   |   |
|        |                    |                           |  |  |  |

 

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**INDEX TOEXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                     |
| 10.1                |       | Form of Methode Electronics, Inc. Restricted  Stock and Tandem Cash Award Cancellation Agreement (1) |
| 31.1                |       | Rule 13a-14(a)/15d-14(a) Certification of  Principal Executive Officer                               |
| 31.2                |       | Rule 13a-14(a)/15d-14(a) Certification of  Principal Financial Officer                               |
| 32                  |       | Certification of Periodic Financial Report Pursuant to  18 U.S.C. Section 1350                            |

 

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| (1) |   | Previously filed with Registrant’s Form 8-K filed  December 18, 2009, and incorporated herein by reference. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------|

 

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