XNYS:MEI Methode Electronics Inc Class A Annual Report 10-K Filing - 4/28/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 28, 2012
Commission File Number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
36-2090085
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
7401 West Wilson Avenue
 
Chicago, Illinois
60706-4548
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number (including area code):  (708) 867-6777 
Securities registered pursuant to Section 12(b) of the Act: 
 
 
Name of each exchange
Title of each Class
 
on which registered
Common Stock, $0.50 Par Value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class) 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of 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 (as defined in Rule 12b-2 of the Act).   Yes   o    No   x
The aggregate market value of common stock, $0.50 par value, held by non-affiliates of the Registrant on October 29, 2011, based upon the average of the closing bid and asked prices on that date as reported by the New York Stock Exchange was $339.4 million.
Registrant had 37,033,490 shares of common stock, $0.50 par value, outstanding as of June 26, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held September 13, 2012 are incorporated by reference into Part III of this Form 10-K.



METHODE ELECTRONICS, INC.
FORM 10-K
April 28, 2012

TABLE OF CONTENTS
 
Unresolved Staff Comments
Item 4.
Mine Safety Disclosures
 11
 
 
 
 
 
 
 
 
 



PART I
 
Item 1.  Business
 
Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966.  As used herein, “we,” “us,” “our,” the “Company” or “Methode” mean Methode Electronics, Inc. and its subsidiaries.
 
We are a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in China, Egypt, Germany, India, Lebanon, Malta, Mexico, the Philippines, Singapore, Switzerland, the United Kingdom and the United States.  We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless and sensing technologies.  Our components are found in the primary end markets of the aerospace, appliance, automotive, construction, consumer and industrial equipment, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), rail and other transportation industries.
 
We maintain our financial records on the basis of a fifty-two or fifty-three week fiscal year ending on the Saturday closest to April 30.
 
Segments.  Our business is managed and our financial results are reported on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other.
 
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile Original Equipment Manufacturers, ("OEMs"), either directly or through their tiered suppliers. Our products include control switches for electrical power and signals, connectors for electrical devices, integrated control components, switches and sensors that monitor the operation or status of a component or system, and packaging of electrical components.
 
The Interconnect segment provides a variety of copper and fiber-optic interconnect and interface solutions for the aerospace, appliance, commercial, computer, construction, consumer, material handling, medical, military, mining, networking, storage, and telecommunications markets.  Solutions include conductive polymers, connectors, custom cable assemblies, industrial safety radio remote controls, optical and copper transceivers, personal computer and express card packaging and terminators, solid-state field effect interface panels, and thick film inks.  Services include the design and installation of fiber optic and copper infrastructure systems, and manufacturing active and passive optical components.
 
The Power Products segment manufactures braided flexible cables, current-carrying laminated bus devices, custom power-product assemblies, high-current low voltage flexible power cabling systems and powder coated bus bars that are used in various markets and applications, including aerospace, computers, industrial and power conversion, inverters and battery systems, insulated gate bipolar transistor solutions, military, telecommunications, and transportation.
 
The Other segment includes a designer and manufacturer of magnetic torque sensing products, and independent laboratories that provide services for qualification testing and certification, and analysis of electronic and optical components.
 
Financial results by segment are summarized in Note 13 to our consolidated financial statements.

Sales.  The following table reflects the percentage of net sales of the segments of the Company for the last three fiscal years.
 
 
Year Ended
 
April 28,
2012
 
April 30,
2011
 
May 1,
2010
Automotive
58.0
%
 
52.8
%
 
53.4
%
Interconnect
27.7
%
 
32.4
%
 
33.3
%
Power Products
11.3
%
 
11.8
%
 
10.8
%
Other
3.0
%
 
3.0
%
 
2.5
%
 
Our sales activities are directed by sales managers who are supported by field application engineers and other engineering personnel who work with customers to design our products into their systems.  Our field application engineers also help us identify emerging markets and new products.  Our products are sold through in-house sales staff and through independent manufacturers’ representatives with offices throughout the world.  Information about our sales and operations in

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different geographic regions is summarized in Note 13 to our consolidated financial statements.  Sales are made primarily to OEMs, either directly or through their tiered suppliers as well as selling partners and distributors.
 
Sources and Availability of Materials.  Principal materials that we purchase include application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, glass, light-emitting diode (LED) displays, plastic molding materials, precious metals, and silicon die castings.  All of these items are available from several suppliers and we generally rely on more than one supplier for each item.  We normally do not carry inventories of raw materials or finished products in excess of those reasonably required to meet production and shipping schedules. We experienced price increases on some resins as well as silver in fiscal 2012, however copper prices remained constant. In fiscal 2011, we experienced some shortages for specific electrical components.  Additionally in fiscal 2011, we experienced significant price increases for copper, precious metals and petroleum-based raw materials.  We did not experience significant price increases in fiscal 2010.
 
Patents; Licensing Agreements.  We have numerous United States and foreign patents and license agreements covering certain of our products and manufacturing processes, several of which are considered significant to our business.   Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the United States and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued.
 
Seasonality.  A significant portion of our business is dependent on automotive sales and the vehicle production schedules of our customers.  The automotive market is cyclical and depends on general economic conditions, interest rates, fuel prices and consumer spending patterns.
 
Material Customers.  During the fiscal year ended April 28, 2012, shipments to Ford Motor Company (“Ford”) and General Motors Corporation (“GM”), or their tiered suppliers, represented 18.7% and 18.5%, respectively, of consolidated net sales.  Such shipments included a wide variety of our automotive component products.

Backlog. Our backlog of orders was approximately $87.9 million at April 28, 2012, and $82.2 million at April 30, 2011.  We expect that most of the backlog at April 28, 2012 will be shipped within fiscal 2013.
 
Competitive Conditions.  The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments.  We compete with a large number of other manufacturers in each of our product areas; many of these competitors have greater resources and sales.  Price, service and product performance are significant elements of competition in the sale of our products.
 
Research and Development.  We maintain a research and development program involving a number of professional employees who devote a majority of their time to the enhancement of existing products and to the development of new products and processes.  Senior management of our Company participates directly in the program.  Expenditures for such activities amounted to $20.4 million, $19.5 million and $18.4 million for fiscal 2012, 2011 and 2010, respectively.
 
Environmental Matters.  Compliance with foreign, federal, state and local provisions regulating the discharge of materials into the environment has not materially affected our capital expenditures, earnings or our competitive position.  Currently, we do not have any environmental related lawsuits or material administrative proceedings pending against us.  Further information as to environmental matters affecting us is presented in Note 9 to our consolidated financial statements.
 
Employees.  At April 28, 2012 and April 30, 2011, we had 3,143 and 2,743 employees, respectively.  We also from time to time employ part-time employees and hire independent contractors.  As of April 28, 2012, our employees from our Malta and Mexico facilities, which account for approximately 64% of our total number of employees, are represented by collective bargaining agreements.  We have never experienced a work stoppage and we believe that our employee relations are good.
 
Segment Information and Foreign Sales.  Information about our operations by segment and in different geographic regions is summarized in Note 13 to our consolidated financial statements.
 
Available Information.  We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and file periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). Such reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at (800) SEC-0330. In addition, the SEC maintains an internet site(www.sec.gov) that contains periodic reports, proxy and information statements and other information regarding Methode.
 

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Financial and other information can also be accessed on the investor relations section of our website at www.methode.com. We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.   Also posted on our website are the Company’s Corporate Governance Guidelines, Code of Conduct and the charters of the Audit Committee, Compensation Committee, Nominating and Governance Committee and Technology Committee. Copies of these documents are also available free of charge by sending a request to Methode Electronics, Inc., 7401 West Wilson Avenue, Chicago, Illinois 60706, Attention: Investor Relations Department.  Information on our website is not incorporated into this Form 10-K or our other securities filings and is not a part of them.
 
Certifications.  As required by the rules and regulations of the New York Stock Exchange (“NYSE”), we delivered to the NYSE a certification signed by our Chief Executive Officer, Donald W. Duda, certifying that Mr. Duda was not aware of any violation by the Company of the NYSE’s corporate governance listing standards as of October 20, 2011.
 
As required by the rules and regulations of the SEC, the Sarbanes-Oxley Act Section 302 certifications regarding the quality of our public disclosures are filed as exhibits to this Annual Report on Form 10-K.

Item 1A.  Risk Factors
 
Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties.  We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations.  Our business is highly dependent upon two large automotive customers and specific makes and models of automobiles.  Our results will be subject to many of the same risks that apply to the automotive, appliance, computer and communications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes.   Other factors which may result in materially different results for future periods include the following risk factors. Additional risks and uncertainties not presently known or that our management currently believe to be insignificant may also adversely affect our financial condition or results of operations.  These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements.  The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws and are made as of the date of this report.
 
We depend on a small number of large customers, specifically two large automotive customers.  If we were to lose either of these customers or experienced a significant decline in the volume or price of products purchased by these customers, or if either of the customers declare bankruptcy, our future results could be adversely affected.
 
During the year ended April 28, 2012, shipments to Ford and GM, or their tiered suppliers, represented 18.7% and 18.5%, respectively, of our consolidated net sales.  The contracts we have entered into with these customers provide for supplying the customers’ requirements for a particular model, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life of the model, which is generally three to seven years. Therefore, the loss of a contract for a major model or a significant decrease in demand for certain key models or group of related models sold by Ford or GM could have a material adverse impact on our results of operations and financial condition. We also compete to supply products for successor models and are subject to the risk that Ford or GM will not select us to produce products on any such model, which could have a material adverse impact on our results of operations and financial condition.
 
Because we derive a substantial portion of our revenues from customers in the automotive, appliance, computer and communications industries, we are susceptible to trends and factors affecting those industries.
 
Our components are found in the primary end markets of the automotive, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), aerospace, rail and other transportation industries, appliances and the consumer and industrial equipment markets.  Factors negatively affecting these industries and the demand for products also negatively affect our business, financial condition and operating results. In fiscal 2010 and 2009, we experienced slow-downs in all significant segments due to the recession.  Any adverse occurrence, including additional industry slowdown, recession, rising interest rates, political instability, costly or constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results.
 

3


Downturns in the automotive industry or the bankruptcy of certain automotive customers could reduce the sales and profitability of our business.
 
Currently, approximately 58% of our business is dependent on automotive sales and the vehicle production schedules of our customers.  The automotive market is cyclical and depends on general economic conditions, interest rates and consumer spending patterns.  Any significant reduction in vehicle production by our customers would have a material adverse effect on our business.

In addition, we have significant receivable balances related to these customers that would be at risk in the event of their bankruptcy.  Prior to fiscal 2012, due to the financial stresses within the global economy, which directly affected the worldwide automotive industry, certain automakers and suppliers declared bankruptcy. In the event of the bankruptcy of any of our customers with significant receivable balances, our financial condition and operating results could be adversely affected.
  
Our technology-based business and the markets in which we operate are highly competitive.  If we are unable to compete effectively, our sales will decline.
 
The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments.  We compete with a large number of other manufacturers in each of our product areas; many of these competitors have greater resources and sales.  Price, service and product performance are significant elements of competition in the sale of our products.  Competition may intensify further if more companies enter the markets in which we operate. Our failure to compete effectively could materially adversely affect our business, financial condition and operating results.
 
We face risks relating to our international operations
 
Recently, there has been global concern over the overall macroeconomic environment in Europe, the currency exchange rate fluctuations between the euro and the U.S. dollar, the banking system in the European Economic Community, the ability of European consumers to access credit to finance automobile purchases and the ability of the European Central Bank to provide enough liquidity and backing to any countries experiencing sovereign debt issues, such as Greece, Italy and Spain. Any or all of these factors could negatively impact our European operations.

In addition, because approximately 59% of our sales come from our international operations, our operating results and financial condition could be adversely affected by economic, political, health, regulatory and other factors existing in foreign countries in which we operate. Our international operations are subject to inherent risks, which may adversely affect us, including: fluctuations in exchange rates; political and economic instability; expropriation, or the imposition of government controls; changes in government regulations; export license requirements; trade restrictions; earnings expatriation restrictions; exposure to different legal standards; less favorable intellectual property laws; health conditions and standards; currency controls; increases in duties and taxes; high levels of inflation or deflation; greater difficulty in collecting our accounts receivable and longer payment cycles; changes in labor conditions and difficulties in staffing and managing our international operations; limitations on insurance coverage against geopolitical risks, natural disasters and business operations; and  communication among and management of international operations. In addition, these same factors may also place us at a competitive disadvantage to some of our foreign competitors.
 
We are dependent on the availability and price of materials.
 
We require substantial amounts of materials, including petroleum-based products, glass, copper and precious metals, application-specific integrated circuits and light-emitting diode (LED) displays, and all materials we require are purchased from third party sources. The availability and prices of materials may be subject to curtailment or change due to, among other things, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and worldwide price levels. Any change in the availability of, or price for, these materials could materially adversely affect our results of operations and financial condition.  We experienced price increases on some resins as well as silver in fiscal 2012, however copper prices remained constant.We experienced significant price increases in fiscal 2011 for copper, precious metals and petroleum-based raw materials and shortages for certain electrical components.
 
Disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.
Our ability, including manufacturing or distribution capabilities, and that of our suppliers, business partners and contract manufacturers, to make, move and sell products is critical to our success. Damage or disruption to our or their

4


manufacturing or distribution capabilities due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, or other reasons, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.

We may be unable to keep pace with rapid technological changes, which would adversely affect our business.
 
The technologies relating to some of our products have undergone, and are continuing to undergo, rapid and significant changes. Specifically, end markets for electronic components and assemblies are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards.  These changes could render our existing products unmarketable before we can recover any or all of our research, development and other expenses. Furthermore, the life cycles of our products vary, may change and are difficult to estimate. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and operating results could be materially adversely affected.
 
Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.
 
Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to a variety of factors, including design or manufacturing errors or component failure. Product defects may result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects may result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. We may be required to participate in a recall involving products that are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability, however, we do not have coverage for all costs related to product defects or recalls and the costs of such claims, including costs of defense and settlement, may exceed our available coverage.
 
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 have numerous United States and foreign patents and license agreements covering certain of our products and manufacturing processes, several of which are considered significant to our business.  Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the United States and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued.  The loss of any significant patents and trade secrets could adversely affect our sales, margins, profitability and, as a result, share price.
 
We have and may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringe on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay a penalty for past infringement and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.
 
We are subject to continuing pressure to lower our prices.
 
Over the past several years we have experienced, and we expect to continue to experience, pressure to lower our prices. In order to maintain our margins, we must strive to increase volumes and reduce our costs. Continuing pressures to reduce our prices could have a material adverse effect on our financial condition, results of operations and cash flows.
 

5


We were awarded new North American automotive business in fiscal 2011 for a program that will not begin production until the end of fiscal 2013. We anticipate that it will take a significant amount of our cash and resources to launch this program.

During fiscal 2011, we were awarded a next generation center stack program for multiple GM vehicle platforms. The program is expected to be manufactured in our plant in Monterrey, Mexico. We anticipate that the center stack program for GM will require a significant amount of cash for the purchase of equipment, tooling and initial inventory as well as additional staffing for the development and launching of the program. We expect to begin production and generate sales on this program in late fiscal 2013. Therefore, we anticipate our cash balances will likely decline due to the launching of this program without a corresponding increase in sales.

We currently have a significant amount of our cash located outside the U.S.

We believe our current world-wide cash balances together with expected future cash flows to be generated from operations will be sufficient to support current operations. However, due to the shifting of operations from the U.S. to foreign locations, a significant amount of cash and expected future cash flows are located outside of the U.S. Except for a planned dividend from a foreign subsidiary, no provision has been made for income taxes on undistributed net income of foreign operations, as we currently expect them to be indefinitely reinvested in our foreign operations. However, if we change our position and the cash is repatriated back to the U.S., it may have an adverse affect on our U.S. federal and state taxes, by lowering our net operating loss positions or potentially creating a tax liability.

A significant fluctuation between the U.S. dollar and other currencies could adversely impact our operating results.
 
Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in other currencies, mainly in Europe and China.  Our profitability is affected by movements of the U.S. dollar against the euro and Chinese yuan in which we generate revenue and incur expenses.  Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our profitability and financial condition.

We may acquire businesses or divest business operations. These transactions may pose significant risks and may materially adversely affect our business, financial condition and operating results.
 
We intend to explore opportunities to acquire other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer growth opportunities. Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or joint venture; possible adverse effects on our operating results during the integration process; and our possible inability to achieve the intended objectives of the transaction. In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. We may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities, a reduction of cash or the incurrence of debt.
 
We have in the past, and may in the future, consider divesting certain business operations. Divestitures may involve a number of risks, including the diversion of management’s attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of operations in the affected business. Failure to timely complete or to consummate a divestiture may negatively affect the valuation of the affected business or result in restructuring charges.

We could suffer significant business interruptions.
 
Our operations may be vulnerable to interruption by natural disasters such as earthquakes, tsunamis, typhoons, or floods, or other disasters such as fires, explosions, acts of terrorism or war, disease or failures of our management information or other systems. If a business interruption occurs, our business could be materially and adversely affected.

Unfavorable tax law changes may adversely affect results.
 
We are subject to income taxes in the U.S. and in various foreign jurisdictions.  Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions.  Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates or changes in the tax laws.
 

6


We cannot ensure that the newly acquired Eetrex and Advanced Molding and Decoration businesses will be successful or that we can implement and profit from any new applications of the acquired technology.

We acquired 70% of Eetrex during fiscal 2011 and an additional 20% during fiscal 2012. As a result of this acquisition, we now design and manufacture chargers, inverters and battery systems for hybrid and plug-in hybrid electronic vehicles. The market for these products is competitive and rapidly developing. If we do not keep pace with technological innovations in the industry, our products may not be competitive and we may not benefit from future revenue and earnings. Furthermore, while we intend to expand the Eetrex business by integrating the technology into additional applications, we can make no guarantee that such ventures will be successful or profitable.

We acquired certain assets and liabilities from Nypro Monterrey, S. de R.L. from Nypro, Inc. in September, 2011. We operate this injection molding and painting business under the name of Advanced Molding and Decoration, S.A. de C.V. (AMD). This business provides us with high-quality injection molding, painting and decorating capabilities, however, we make no guarantee AMD will be successful or profitable.

The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors.
 
The market price of our common stock has fluctuated significantly in the past and is likely to fluctuate in the future.  The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, including, but not limited to:
 
quarterly variations in our operating results and the operating results of other technology companies;
actual or anticipated announcements of technical innovations or new products by us or our competitors;
changes in analysts’ estimates of our financial performance or buy/sell recommendations;
any acquisitions or divestitures we pursue or complete;
general conditions in the aerospace, appliance, automotive, consumer and industrial equipment markets and communications, rail and other transportation industries; and
global economic and financial conditions.
 
In addition, the stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for many companies and that often have been unrelated to the operating performance of such companies.  These broad market fluctuations and other factors have harmed and may harm the market price of our common stock. 

Item 1B. Unresolved Staff Comments

None


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Item 2.  Properties
 
We operate the following manufacturing and other facilities, all of which we believe to be in good condition and adequate to meet our current and reasonably anticipated needs:
 
Location
 
Use
 
Owned/
Leased
 
Approximate
Square Footage
 
 
 
 
 
 
 

Chicago, Illinois
 
Corporate Headquarters
 
Owned
 
15,000

 
 
 
 
 
 
 

Automotive Segment:
 
 
 
 
 
 

Carthage, Illinois
 
Manufacturing
 
Owned
 
261,000

Monterrey, Mexico
 
Manufacturing
 
Leased
 
247,000

Mriehel, Malta
 
Manufacturing
 
Leased
 
209,000

Shanghai, China
 
Manufacturing
 
Leased
 
75,500

McAllen, Texas
 
Warehousing
 
Leased
 
38,000

Zhenjiang, China
 
Manufacturing
 
Leased
 
19,200

Southfield, Michigan
 
Sales and Engineering Design Center
 
Owned
 
17,000

Bangalore, India
 
Engineering Design Center
 
Leased
 
11,860

Gau-Algesheim, Germany
 
Sales and Engineering Design Center
 
Leased
 
8,100

Burnley, England
 
Engineering Design Center
 
Leased
 
5,900

Sin El Fil, Lebanon
 
Engineering Design Center
 
Leased
 
2,300

 
 
 
 
 
 
 

Interconnect Segment:
 
 
 
 
 
 

Shanghai, China
 
Manufacturing
 
Leased
 
49,000

Chicago, Illinois
 
Manufacturing
 
Owned
 
38,400

Mriehel, Malta
 
Manufacturing
 
Leased
 
32,500

Oklahoma City, Oklahoma
 
Manufacturing/Design Center
 
Leased
 
26,100

Richardson, Texas
 
Manufacturing
 
Leased
 
25,700

Laguna, Philippines
 
Manufacturing
 
Leased
 
22,800

Wheaton, Illinois
 
Manufacturing
 
Leased
 
22,500

San Jose, California
 
Sales and Design
 
Leased
 
7,250

Singapore
 
Sales and Administrative
 
Leased
 
1,250

 
 
 
 
 
 
 

Power Products Segment:
 
 
 
 
 
 

Rolling Meadows, Illinois
 
Manufacturing
 
Owned
 
52,000

Mriehel, Malta
 
Manufacturing
 
Leased
 
40,700

Shanghai, China
 
Manufacturing
 
Leased
 
35,000

Boulder, Colorado
 
Prototype and Design Center
 
Leased
 
9,500

San Jose, California
 
Prototype and Design Center
 
Leased
 
7,250

 
 
 
 
 
 
 

Other Segment:
 
 
 
 
 
 

Palatine, Illinois
 
Test Laboratory
 
Owned
 
27,000

Hunt Valley, Maryland
 
Test Laboratory
 
Owned
 
16,000

Chicago, Illinois
 
Manufacturing
 
Owned
 
10,000



8


Item 3.  Legal Proceedings
 
Other than as described below, as of April 28, 2012, we were not involved in any material legal proceedings or any legal proceedings or material administrative proceedings with governmental authorities pertaining to the discharge of materials into the environment or otherwise.
 
On September 4, 2008, Methode and Delphi Automotive Systems LLC (“Delphi”) entered into a supply agreement pursuant to which Methode was to supply all of Delphi’s requirements for the seat bladders used in Delphi’s occupant restraint system from October 1, 2008 through September 30, 2011. On August 26, 2009, Delphi notified us that effective September 10, 2009, our supply arrangement was terminated. We are contesting Delphi’s right to terminate this long-term supply arrangement and the parties are engaged in litigation regarding this supply agreement and our related intellectual property.

In March 2010, DPH Holdings Corp. and certain of its affiliated debtors, as successors to Delphi Corporation and certain of its affiliates (“Delphi”), served the Company with a complaint seeking to recover approximately $19.7 million in alleged preference payments that Delphi made to the Company within the 90-day period preceding Delphi’s bankruptcy filing in October 2005 (the “Complaint”).  Delphi is pursuing similar preference complaints against a number of other, unrelated third-parties.  The Complaint, dated September 28, 2007, was originally filed under seal with the United States Bankruptcy Court for the Southern District of New York (titled as Delphi Corporation, et al. v. Methode Electronics, Inc, Adversary Proceeding No. 07-2432) and pursuant to certain court orders, the Complaint was not unsealed and served upon the Company until March 2010.  The Company has filed a joinder to third-parties’ motions to dismiss the Delphi preference complaints based on violations of due process and other defenses connected to the unusual manner that Delphi filed and served the preference complaints.   Additionally, the Company possesses several other substantive defenses to the Complaint including, but not limited to, the affirmative defenses available under the Bankruptcy Code, statute of limitations, setoff, waiver and estoppel.  The Bankruptcy Court ruled on July 22, 2010 that the Complaint did not satisfy certain pleading requirements and dismissed the Complaint without prejudice, granting Delphi leave to re-file an amended complaint. The Court overruled the Company's defenses to the proposed amended complaint relating primarily to pleading issues, and ordered that other defenses would be addressed in subsequent proceedings. Although the outcome of potential legal actions and claims cannot be determined, it is the opinion of our management, based on the information available, that we have adequate reserves for these liabilities and that the ultimate resolution of these matters will not have a material adverse effect on our consolidated financial statements.
 

9


Executive Officers of the Registrant
 
Name
 
Age
 
Offices and Positions Held and Length of Service as Officer
Donald W. Duda
 
56

 
Chief Executive Officer of the Company since 2004. President and Director of the Company since 2001. Prior thereto Mr. Duda was Vice President-Interconnect Group since 2000. Prior thereto, Mr. Duda was with Amphenol Corporation through 1998 as General Manager of its Fiber Optic Products Division since 1988.
 
 
 
 
 
Douglas A. Koman
 
62

 
Chief Financial Officer of the Company since 2004. Vice President, Corporate Finance, of the Company since 2001. Prior thereto Mr. Koman was Assistant Vice President-Financial Analysis since 2000. Prior thereto, Mr. Koman was with Illinois Central Corporation through 2000 as Controller since 1997 and Treasurer since 1991.
 
 
 
 
 
Thomas D. Reynolds
 
49

 
Chief Operating Officer, of the Company since June 2010. Senior Vice President, Worldwide Automotive Operations, of the Company since 2006. Vice President and General Manager, North American Automotive Operations, of the Company since October 2001. Prior thereto, Mr. Reynolds was with Donnelly Corporation through October 2001 as Senior Manager of Operations since 1999, and as Director of Transnational Business Unit from 1995 to 1999.
 
 
 
 
 
Timothy R. Glandon
 
48

 
Vice President and General Manager, North American Automotive, of the Company since 2006. Prior thereto, Mr. Glandon was General Manager of Automotive Safety Technologies since 2001. Prior thereto, Mr. Glandon was Vice President and General Manager with American Components, Inc. from 1996 to 2001.
 
 
 
 
 
Joseph. E. Khoury
 
48

 
Vice President and General Manager, European Automotive, of the Company since 2004. Prior thereto, Mr. Khoury was General Manager of Methode Electronics International, GMBH since 2000.
 
 
 
 
 
Theodore P. Kill
 
61

 
Vice President, Worldwide Automotive Sales, of the Company since 2006. Prior thereto, Mr. Kill was a principal with Kill and Associates from 2003 to 2006. Prior thereto, Mr. Kill was a principal with Kill and Bolton Associates from 1995 to 2003.
 
 
 
 
 
Ronald L.G. Tsoumas
 
51

 
Controller and Treasurer of the Company since 2007. Prior thereto, Mr. Tsoumas was Assistant Controller of the Company since 1998.

All executive officers are elected by the Board of Directors and serve a term of one year or until their successors are duly elected and qualified.

10


Item 3.  Mine Safety Disclosures

Not Applicable
PART II 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Our common stock is traded on the New York Stock Exchange. The following is a tabulation of high and low sales prices for the periods. 
 
 
 
 
 
Dividends
Paid
Per Share
 
Sales Price Per Share
 
 
High
 
Low
 
Fiscal Year ended April 28, 2012
 

 
 

 
 

First Quarter
$
12.57

 
$
9.84

 
$
0.07

Second Quarter
10.72

 
7.03

 
0.07

Third Quarter
10.69

 
7.68

 
0.07

Fourth Quarter
10.79

 
8.17

 
0.07

 
 
 
 
 
 
Fiscal Year ended April 30, 2011
 

 
 

 
 

First Quarter
$
11.78

 
$
9.31

 
$
0.07

Second Quarter
11.03

 
7.85

 
0.07

Third Quarter
13.73

 
9.10

 
0.07

Fourth Quarter
12.74

 
11.26

 
0.07

 
On June 21, 2012, the Board of Directors declared a dividend of $0.07 per share of common stock, payable on July 27, 2012, to holders of record on July 13, 2012. As of June 28, 2012, the number of record holders of our common stock was 552.

Equity Compensation Plan Information
 
The following table provides information about shares of our common stock that may be issued upon exercise of stock options or granting of stock awards under all of the existing equity compensation plans as of April 28, 2012. 
Plan category
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column)
Equity compensation plans approved by security holders
 
1,229,365

 
$
7.67

 
963,321

Equity compensation plans not approved by security holders
 

 

 

Total
 
1,229,365

 
$
7.67

 
963,321

 
Purchase of Equity Securities by the Company and Affiliated Purchasers 
Period
 
Total
Number of
Shares
Purchased (1)
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
 
Maximum Number of
Shares that
May Yet Be Purchased
Under the Plans or
Programs
January 29, 2012 through February 25, 2012
 
1,400

 
$
10.44

 
 

 
 

February 26, 2012 through March 31, 2012
 

 

 
 

 
 

April 1, 2012 through April 28, 2012
 

 
$

 

 

 
 
1,400

 
$
10.44

 

 

 _________________________________
(1)  The amount includes the repurchase and cancellation of shares of common stock redeemed by the Company for the payment of minimum withholding taxes on the value of restricted stock awards vesting during the period.

11


Item 6.  Selected Financial Data
 
The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Consolidated Financial Statements and related notes included elsewhere in this report.  The consolidated statement of operations data for fiscal 2012, 2011 and 2010, and the consolidated balance sheet data as of April 28, 2012 and April 30, 2011, are derived from, and are qualified by reference to, the Company’s audited consolidated financial statements included elsewhere in this report.  The consolidated statement of operations data for fiscal 2009 and 2008, and the consolidated balance sheet data as of May 1, 2010, May 2, 2009 and May 3, 2008, are derived from audited consolidated financial statements not included in this report.  Due to the timing of our fiscal calendar, fiscal 2008 represents 53 weeks of results.  Fiscal 2012, 2011, 2010 and 2009 represent 52 weeks of results.
 
 
Fiscal Year Ended
 
April 28, 2012 (1)
 
April 30, 2011 (2)
 
May 1, 2010 (3)
 
May 2, 2009 (4)
 
May 3,
2008 (53wks) (5)
 
(In Millions, Except Percentages and Per Share Amounts)
Income Statement Data:
 

 
 

 
 

 
 

 
 

Net sales
$
465.1

 
$
428.2

 
$
377.6

 
$
428.8

 
$
555.0

Income/(loss) before income taxes
11.4

 
14.5

 
7.8

 
(110.5
)
 
49.8

Income tax expense/(benefit)
3.2

 
(4.1
)
 
(6.0
)
 
1.7

 
9.7

Income/(loss) from continuing operations
8.4

 
18.5

 
13.8

 
(112.1
)
 
39.8

Income from discontinued operations, net of tax

 
0.6

 

 

 

Net income/(loss) applicable to Methode Electronics, Inc.
8.4

 
19.5

 
13.7

 
(112.5
)
 
39.8

Per Common Share:
 

 
 

 
 

 
 

 
 

Basic net income/(loss) from continuing operations
0.22

 
0.51

 
0.37

 
(3.05
)
 
1.07

Basic net income from discontinued operations

 
0.02

 

 

 

Basic net income/(loss) applicable to Methode Electronics, Inc.
0.22

 
0.53

 
0.37

 
(3.05
)
 
1.07

 
 
 
 
 
 
 
 
 
 
Diluted net income/(loss) from continuing operations
0.22

 
0.50

 
0.37

 
(3.05
)
 
1.06

Diluted net income from discontinued operations

 
0.02

 

 

 

Diluted net income/(loss) applicable to Methode Electronics, Inc.
0.22

 
0.52

 
0.37

 
(3.05
)
 
1.06

 
 
 
 
 
 
 
 
 
 
Dividends
0.28

 
0.28

 
0.28

 
0.26

 
0.20

Book Value
6.84

 
6.95

 
6.43

 
6.28

 
9.93

Long-term Debt
48.0

 

 

 

 

Retained Earnings
154.0

 
156.0

 
146.8

 
143.6

 
265.8

Fixed Assets (net)
77.2

 
61.5

 
61.9

 
69.9

 
90.3

Total Assets
403.6

 
334.7

 
310.8

 
305.3

 
470.2

Return on Average Equity
3.3
%
 
7.9
%
 
6.0
%
 
(37.2
)%
 
11.4
%
Pre-tax Income/(loss) as a Percentage of Sales
2.5
%
 
3.4
%
 
2.1
%
 
(25.8
)%
 
9.0
%
Net Income/(loss) as a Percentage of Sales
1.8
%
 
4.6
%
 
3.6
%
 
(26.2
)%
 
7.2
%

(1) Fiscal 2012 includes $3.7 million of pre-tax legal expense relating to the Delphi supply agreement and patent lawsuit.

(2) Fiscal 2011 results includes an after-tax gain on the sale of a business of $0.6 million. In addition, fiscal 2011 includes $4.8 million of pre-tax legal expense relating to the Delphi supply agreement and patent lawsuit.

(3) Fiscal 2010 results include a pre-tax charge of $7.8 million relating to restructuring activities.  In addition, fiscal 2010 includes $5.8 million of pre-tax legal expense relating to the Delphi supply agreement and patent lawsuit.  Income tax includes a $8.4 million loss carry-back benefit related to losses in our U.S.-based businesses.
 
(4) Fiscal 2009 results include a pre-tax charge of $94.4 million relating to goodwill and other asset impairments.  In

12


addition, fiscal 2009 results include a pre-tax charge of $25.3 million relating to restructuring activities.  The income tax expense includes a $28.0 million valuation charge related to the uncertainty of the future realization of our deferred tax assets.
 
(5) Fiscal 2008 results include a pre-tax charge of $5.2 million relating to a restructuring of our U.S.-based automotive operations and the decision to discontinue producing certain legacy products in the Interconnect segment.
 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
We are a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in China, Egypt, Germany, India, Lebanon, Malta, Mexico, the Philippines, Singapore, Switzerland, the United Kingdom and the United States.  We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless and sensing technologies.  Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other.   For more information regarding the business and products of these segments, see “Item 1. Business.”
 
Our components are found in the primary end markets of the aerospace, appliance, automotive, construction, consumer and industrial equipment, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), rail and other transportation industries.
 
Recent Transactions

In fiscal 2012, we paid $1.1 million for an additional 20% investment in Eetrex Incorporated to facilitate our expansion into the power electronics and battery systems markets. We now have a 90% ownership interest in Eetrex. Eetrex is located in Boulder, Colorado and is a developer and manufacturer of chargers, inverters and battery systems for the transportation, telecommunications and computing industries.

In September 2011, we acquired certain assets and liabilities of Nypro Monterrey, S. de R.L. (Nypro Monterrey) from Nypro Inc. for $6.4 million. We operate this injection molding and painting business under the name of Advanced Molding and Decoration, S.A. de C.V. (AMD), and it has become a part of our existing Monterrey manufacturing campus. AMD operates a state-of-the-art facility, which provides us with high-quality injection molding, painting and decorating capabilities. The AMD assets include 52 injection mold machines, three paint lines and several pad print machines. In addition, 228 employees from Nypro Monterrey were transfered to us as part of the acquisition.
    

13


Results of Operations
 
Results of Operations for the Fiscal Year Ended April 28, 2012, as Compared to the Fiscal Year Ended April 30, 2011.
 
Consolidated Results
 
Below is a table summarizing results for the fiscal years ended:
(in millions)
("N/M" equals not meaningful)
 
 
April 28,
2012
 
April 30,
2011
 
Net Change
 
Net Change
Net sales
$
465.1

 
$
428.2

 
$
36.9

 
8.6
 %
 
 
 
 
 
 
 
 
Cost of products sold
382.0

 
339.0

 
43.0

 
12.7
 %
 
 
 
 
 
 
 
 
Gross margins
83.1

 
89.2

 
(6.1
)
 
(6.8
)%
 
 
 
 
 
 
 
 
Selling and administrative expenses
69.9

 
70.8

 
(0.9
)
 
(1.3
)%
Amortization of intangibles
1.8

 
2.4

 
(0.6
)
 
(25.0
)%
Interest (income)/expense, net
(0.3
)
 
0.2

 
(0.5
)
 
N/M

Other expense, net
0.3

 
1.3

 
(1.0
)
 
(76.9
)%
Income tax (benefit)/expense
3.2

 
(4.1
)
 
7.3

 
N/M

Gain on sale of discontinued business, net of tax

 
(0.6
)
 
0.6

 
N/M

Net loss attributable to noncontrolling interest
(0.2
)
 
(0.3
)
 
0.1

 
N/M

Net income attributable to Methode Electronics, Inc.
$
8.4

 
$
19.5


$
(11.1
)
 
(56.9
)%
 
 
 
 
 
 
 
 
Percent of sales:
April 28,
2012
 
April 30,
2011
 
 
 
 
Net sales
100.0
 %
 
100.0
 %
 
 
 
 
Cost of products sold
82.1
 %
 
79.2
 %
 
 
 
 
Gross margins
17.9
 %
 
20.8
 %
 
 
 
 
Selling and administrative expenses
15.0
 %
 
16.5
 %
 
 
 
 
Amortization of intangibles
0.4
 %
 
0.6
 %
 
 
 
 
Interest (income)/expense, net
(0.1
)%
 
 %
 
 
 
 
Other expense, net
0.1
 %
 
0.3
 %
 
 
 
 
Income tax (benefit)/expense
0.7
 %
 
(1.0
)%
 
 
 
 
Gain on sale of discontinued business, net of tax
 %
 
(0.1
)%
 
 
 
 
Net loss attributable to noncontrolling interest
 %
 
(0.1
)%
 
 
 
 
Net income attributable to Methode Electronics, Inc.
1.8
 %
 
4.6
 %
 
 
 
 
 
Net Sales.  Consolidated net sales increased $36.9 million, or 8.6%, to $465.1 million for fiscal 2012, from $428.2 million for fiscal 2011.  The Automotive segment net sales increased $45.6 million, or 20.2%, to $271.6 million for fiscal 2012, from $226.0 million for fiscal 2011.  The Interconnect segment net sales decreased $11.1 million, or 8.0%, to $127.7 million for fiscal 2012, compared to $138.8 million for fiscal 2011.  The Power Products segment net sales increased $1.6 million, or 3.2%, to $52.0 million for fiscal 2012, as compared to $50.4 million for fiscal 2011.  The Other segment net sales increased $0.9 million, or 6.9%, to $13.9 million for fiscal 2012, compared to $13.0 million for fiscal 2011.  Translation of foreign operations net sales for fiscal 2012 increased reported net sales by $2.3 million or 0.5% due to average currency rates in fiscal 2012, compared to the average currency rates in fiscal 2011.
 
Cost of Products Sold.  Consolidated cost of products sold increased $43.0 million, or 12.7%, to $382.0 million for fiscal 2012, compared to $339.0 million for fiscal 2011.  Consolidated cost of products sold as a percentage of sales were

14


82.1% for fiscal 2012, compared to 79.2% for fiscal 2011.  In fiscal 2012, the Automotive segment experienced design, development, engineering and launch costs of $4.6 million, compared to $1.2 million in fiscal 2011 related to a program that launched in fiscal 2012 and new program that will not launch until the later part of fiscal 2013. In addition, this segment incurred costs of $3.3 million related to a vendor's production and delivery issues, compared to $2.3 million in fiscal 2011. The Power Products segment reported costs of $2.4 million for new product development for fiscal 2012, compared to $1.9 million for fiscal 2011. Fiscal 2011 includes a charge of $1.3 million in our Automotive segment for negotiated program termination costs for certain products manufactured in our Malta automotive facility, as well as an inventory and equipment charge of $0.4 million relating to the customer cancellation of certain products manufactured in the U.S. in our Power Products segment.
 
Gross Margins.  Consolidated gross margins decreased $6.1 million, or 6.8%, to $83.1 million for fiscal 2012, as compared to $89.2 million for fiscal 2011.  Gross margins as a percentage of net sales were 17.9% for fiscal 2012, compared to 20.8% for fiscal 2011.  Gross margins as a percentage of sales decreased primarily due to new program and product launch costs and increased costs related to a vendor's production and delivery issues. In addition, gross margins were negatively impacted by increased sales of automotive product that has higher material cost due to the current high percentage of purchased content. Gross margins were negatively impacted in fiscal 2011 for negotiated program termination costs for certain products as well as costs associated with the customer cancellation of certain products.

Selling and Administrative Expenses.  Selling and administrative expenses decreased by $0.9 million, or 1.3%, to $69.9 million for fiscal 2012, compared to $70.8 million for fiscal 2011.  During fiscal 2011, we recorded an expense of $2.1 million for litigation regarding unsecured claims sold to Blue Angel LLC, related to the Delphi bankruptcy. Stock award amortization expense increased by $1.0 million, to $4.0 million for fiscal 2012, compared with $3.0 million for fiscal 2011. Selling and administrative expenses increased $1.2 million in fiscal 2012 due to the acquisitions of Eetrex and AMD. Legal expenses decreased $0.7 million, to $6.0 million for fiscal 2012, compared to $6.7 million in fiscal 2011, primarily due to lower Delphi litigation expenses, partially offset with legal expenses related to the AMD acquisition. Fiscal 2011 includes income of $0.5 million received for grants at one of our Malta facilities. Selling and administrative expenses as a percentage of net sales decreased to 15.0% for fiscal 2012 from 16.5% for fiscal 2011.
 
Amortization of Intangibles.  Amortization of intangibles decreased $0.6 million, or 25.0%, to $1.8 million for fiscal 2012, compared to $2.4 million for fiscal 2011. The decrease is primarily due to certain intangible assets that became fully amortized by the end of fiscal 2011.

Interest (Income)/Expense, Net.  Interest (income)/expense, net was income of $0.3 million for fiscal 2012, compared to an expense of $0.2 million for fiscal 2011.

Other Expense, Net.  Other expense, net decreased $1.0 million, or 76.9%, to $0.3 million for fiscal 2012, as compared to $1.3 million for fiscal 2011.  Other income included income of $0.4 million and $1.2 million for fiscal 2012 and fiscal 2011, respectively, related to life insurance policies in connection with an employee deferred compensation plan. Fiscal 2012 includes a gain of $0.3 million related to the acquisition of AMD. All other amounts for both periods relate to expenses for currency rate fluctuations.  The functional currencies of our international operations are the British pound, Chinese yuan, Euro, Indian rupee, Mexican peso, Singapore dollar and Swiss franc.  Some foreign operations have transactions denominated in currencies other than their functional currencies, primarily sales in U.S. dollars and Euros, creating exchange rate sensitivities.
 
Income Tax (Benefit)/Expense.  Income tax (benefit)/expense increased by $7.3 million to an expense of $3.2 million for fiscal 2012, compared to a benefit of $4.1 million for fiscal 2011.  The income tax expense for fiscal 2012 relates to income taxes on foreign profits of $3.1 million and $2.0 million for foreign taxes on a foreign dividend. In addition, fiscal 2012 includes a benefit of $1.9 million related to tax credits from our Malta facility. Fiscal 2011 includes a benefit for an intraperiod tax allocation related to the sale of Optokon of $3.5 million and a benefit of $2.7 million related to the expiration of uncertain tax positions and interest from prior periods, partially offset by a net income tax expense on foreign profits of $2.1 million.
 
Gain on the Sale of Discontinued Business, Net of Tax.  In March 2011, we sold our 75% ownership in Optokon, to the minority shareholder for $10.0 million. The net assets of our 75% ownership had a book value of $9.9 million. We recorded a gain of $4.1 million for sale of the net assets, primarily attributable to the cumulative translation gains since the date of the initial investment. We also recorded income taxes related to the sale of $3.5 million, resulting in a gain net after tax of $0.6 million. The tax expense was based on the amount sold of $10.0 million less our initial investment of $1.2 million, resulting in a taxable gain of $8.8 million. In the sale, we received $5.9 million in cash as well as a collateralized note for $4.1 million.


15


Net Income Attributable to Methode Electronics, Inc.   Net income attributable to Methode Electronics, Inc. decreased $11.1 million, to $8.4 million for fiscal 2012, compared to $19.5 million for fiscal 2011.  The decrease is primarily due to the higher expenses for new product development and product launches, increased stock award amortization expense, increased costs related to a vendor's production and delivery issues, higher tax expense, higher selling and administrative expenses due to acquisitions, the absence of a grant from our Malta facility and lower life insurance proceeds and the gain on the sale of the Optokon business in fiscal 2011, partially offset by higher sales, lower legal expenses and the absence of expense for Blue Angel claims and the absence of negotiated cancellation costs and inventory charges.

Operating Segments
 
Automotive Segment Results
 
Below is a table summarizing results for the fiscal years ended:
(in millions)
 
 
April 28,
2012
 
April 30,
2011
 
Net Change
 
Net Change
Net sales
$
271.6

 
$
226.0

 
$
45.6

 
20.2
 %
 
 
 
 
 
 
 
 
Cost of products sold
233.3

 
186.3

 
47.0

 
25.2
 %
 
 
 
 
 
 
 
 
Gross margins
38.3

 
39.7

 
(1.4
)
 
(3.5
)%
 
 
 
 
 
 
 
 
Selling and administrative expenses
28.3

 
26.4

 
1.9

 
7.2
 %
Income from operations
$
10.0

 
$
13.3

 
$
(3.3
)
 
(24.8
)%
 
 
 
 
 
 
 
 
Percent of sales:
April 28,
2012
 
April 30,
2011
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
 
 
 
Cost of products sold
85.9
%
 
82.4
%
 
 
 
 
Gross margins
14.1
%
 
17.6
%
 
 
 
 
Selling and administrative expenses
10.4
%
 
11.7
%
 
 
 
 
Income from operations
3.7
%
 
5.9
%
 
 
 
 

Net Sales.  Automotive segment net sales increased $45.6 million, or 20.2%, to $271.6 million for fiscal 2012, from $226.0 million for fiscal 2011.  Net sales increased in North America, Europe and Asia by 108.5%, 5.2% and 3.4%, respectively.  The increase in North America is primarily due to increased sales for our Ford Center Console Program and transmission lead-frame assembly as well as sales from the AMD business acquired in September 2011. The increase in Asia is due to increases in our transmission lead-frame and steering angle sensor products and the increase in Europe is primarily due to currency fluctuations. Translation of foreign operations net sales for fiscal 2012 increased reported net sales by $2.1 million, or 0.8%, due to average currency rates in fiscal 2012, compared to the average currency rates in fiscal 2011.

Cost of Products Sold.  Automotive segment cost of products sold increased $47.0 million, or 25.2%, to $233.3 million in fiscal 2012, from $186.3 million in fiscal 2011.  The Automotive segment cost of products sold as a percentage of sales were 85.9% in fiscal 2012, compared to 82.4% in fiscal 2011.  In fiscal 2012, the Automotive segment experienced design, development, engineering and launch costs of $4.6 million, compared to $1.2 million in fiscal 2011 related to a program that launched in fiscal 2012 and new program that will not launch until the later part of fiscal 2013. In addition, our North American operations experienced costs of $3.3 million related to a vendor's production and delivery issues, compared to $2.3 million in fiscal 2011. The increase in costs of products sold as a percentage of sales was also affected by increased sales of product that has a higher material cost due to the current high percentage of purchased content. Fiscal 2011 includes a charge of $1.3 million for negotiated program termination costs for certain products manufactured in our Malta facility.
  
Gross Margins.  Automotive segment gross margins decreased $1.4 million, or 3.5%, to $38.3 million in fiscal 2012, as compared to $39.7 million in fiscal 2011.  The Automotive segment gross margins as a percentage of net sales were 14.1% in fiscal 2012, as compared to 17.6% in fiscal 2011.  Gross margins as a percentage of sales decreased in fiscal 2012, compared to fiscal 2011, due to the design, development, engineering and launch costs related to new programs and new product launches,

16


as well as increased costs related to a vendor's production and delivery issues. In addition, gross margins were negatively impacted in fiscal 2012 by increased sales of product that has higher material cost due to the current high percentage of purchased content. The gross margins in fiscal 2011 were negatively impacted by the negotiated program termination costs.

     Selling and Administrative Expenses.  Selling and administrative expenses increased $1.9 million, or 7.2%, to $28.3 million in fiscal 2012, compared to $26.4 million in fiscal 2011.  During fiscal 2011, we recorded an expense of $2.1 million for litigation regarding unsecured claims sold to Blue Angel LLC, related to the Delphi bankruptcy. Selling and administrative expenses increased $1.2 million in fiscal 2012 due to the acquisition of AMD. In addition, selling and administrative expenses increased by $1.3 million in fiscal 2012 due to additional support staff needed for the development of products not expected to begin production until the later part of fiscal 2013. Legal expenses decreased $0.7 million, to $6.0 million in fiscal 2012, compared to $6.7 million in fiscal 2011, primarily due to lower Delphi litigation expenses, partially offset with legal expenses related to the AMD acquisition. Selling and administrative expenses as a percentage of net sales were 10.4% in fiscal 2012 and 11.7% in fiscal 2011.
 
Income from Operations.  Automotive segment income from operations decreased $3.3 million, or 24.8%, to $10.0 million in fiscal 2012, compared to $13.3 million in fiscal 2011 due to increased expenses related to new programs and new product launches, increased costs related to a vendor's production and delivery issues, partially offset with higher sales volumes and lower legal expenses and the absence of an expense for litigation regarding the Blue Angel dispute.
 
Interconnect Segment Results
 
Below is a table summarizing results for the fiscal years ended:
(in millions)
 
 
April 28,
2012
 
April 30,
2011
 
Net Change
 
Net Change
Net sales
$
127.7

 
$
138.8

 
$
(11.1
)
 
(8.0
)%
 
 
 
 
 
 
 
 
Cost of products sold
91.5

 
96.8

 
(5.3
)
 
(5.5
)%
 
 
 
 
 
 
 
 
Gross margins
36.2

 
42.0

 
(5.8
)
 
(13.8
)%
 
 
 
 
 
 
 
 
Selling and administrative expenses
18.1

 
22.0

 
(3.9
)
 
(17.7
)%
Income from operations
$
18.1

 
$
20.0

 
$
(1.9
)
 
(9.5
)%
 
 
 
 
 
 
 
 
Percent of sales:
April 28,
2012
 
April 30,
2011
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
 
 
 
Cost of products sold
71.7
%
 
69.7
%
 
 
 
 
Gross margins
28.3
%
 
30.3
%
 
 
 
 
Selling and administrative expenses
14.2
%
 
15.9
%
 
 
 
 
Income from operations
14.2
%
 
14.4
%
 
 
 
 
 
Net Sales.  Interconnect segment net sales decreased $11.1 million, or 8.0%, to $127.7 million in fiscal 2012, from $138.8 million in fiscal 2011.  Net sales decreased 5.9% in North America primarily due to weak sales for white goods and interface solutions products, partially offset by stronger sales for data and radio remote control devices. Net sales in Europe decreased 16.4% primarily due to no optical sales in fiscal 2012, due to the sale of the optical business in the fourth quarter of fiscal 2011, partially offset by higher sales for data and radio remote control devices. Net sales in Asia decreased 4.2% primarily due to lower sales for legacy products resulting from the planned exit of a product line.
 
Cost of Products Sold.  Interconnect segment cost of products sold decreased $5.3 million, or 5.5%, to $91.5 million in fiscal 2012, compared to $96.8 million in fiscal 2011.  Interconnect segment cost of products sold as a percentage of net sales increased to 71.7% in fiscal 2012, compared to 69.7% in fiscal 2011.  The increase in cost of products sold as a percentage of sales is primarily due to lower sales volumes for white goods and interface solutions products.


17


Gross Margins.  Interconnect segment gross margins decreased $5.8 million, or 13.8%, to $36.2 million in fiscal 2012, compared to $42.0 million in fiscal 2011.  Gross margins as a percentage of net sales decreased to 28.3% in fiscal 2012, from 30.3% in fiscal 2011.  The decrease in gross margins as a percentage of net sales primarily relates to lower sales volumes for white goods and interface solutions products.
  
Selling and Administrative Expenses.  Selling and administrative expenses decreased $3.9 million, or 17.7%, to $18.1 million in fiscal 2012, compared to $22.0 million in fiscal 2011.  Selling and administrative expenses decreased due to no selling and administrative expenses for our optical business, as well as lower salary and bonus expenses for our sensor business.  Selling and administrative expenses as a percentage of net sales decreased to 14.2% in fiscal 2012, from 15.9% in fiscal 2011.
 
Income from Operations.  Interconnect segment income from operations decreased $1.9 million, or 9.5%, to $18.1 million in fiscal 2012, compared to $20.0 million in fiscal 2011 primarily due to lower sales of white goods products, partially offset with lower other selling and administrative expenses.

Power Products Segment Results
 
Below is a table summarizing results for the fiscal years ended:
(in millions)
 
 
April 28,
2012
 
April 30,
2011
 
Net Change
 
Net Change
Net sales
$
52.0

 
$
50.4

 
$
1.6

 
3.2
 %
 
 
 
 
 
 
 
 
Cost of products sold
43.4

 
39.8

 
3.6

 
9.0
 %
 
 
 
 
 
 
 
 
Gross margins
8.6

 
10.6

 
(2.0
)
 
(18.9
)%
 
 
 
 
 
 
 
 
Selling and administrative expenses
6.9

 
7.0

 
(0.1
)
 
(1.4
)%
Income from operations
$
1.7

 
$
3.6

 
$
(1.9
)
 
(52.8
)%
 
 
 
 
 
 
 
 
Percent of sales:
April 28,
2012
 
April 30,
2011
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
 
 
 
Cost of products sold
83.5
%
 
79.0
%
 
 
 
 
Gross margins
16.5
%
 
21.0
%
 
 
 
 
Selling and administrative expenses
13.3
%
 
13.9
%
 
 
 
 
Income from operations
3.3
%
 
7.1
%
 
 
 
 
 
Net Sales.  Power Products segment net sales increased $1.6 million, or 3.2%, to $52.0 million in fiscal 2012, compared to $50.4 million in fiscal 2011.  Net sales increased by 4.1% in North America and by 3.8% in Asia, driven primarily by higher demand for our busbar products. Europe decreased by 13.8% due to lower demand for busbar products.
 
Cost of Products Sold.  Power Products segment cost of products sold increased $3.6 million, or 9.0%, to $43.4 million in fiscal 2012, compared to $39.8 million in fiscal 2011.  The Power Products segment cost of products sold as a percentage of sales increased to 83.5% in fiscal 2012, from 79.0% in fiscal 2011.  The increase in cost of products sold as a percentage of sales is primarily due to unfavorable product mix for our North American cabling business, as well as increased costs for product development in North America. The product development costs were $2.4 million in fiscal 2012, compared to $1.9 million in fiscal 2011. Fiscal 2011 includes an inventory and equipment write-down charge of $0.4 million relating to a customer cancellation of certain products manufactured in our U.S. facility.
 
Gross Margins.  Power Products segment gross margins decreased $2.0 million, or 18.9%, to $8.6 million in fiscal 2012, compared to $10.6 million in fiscal 2011.  Gross margins as a percentage of net sales decreased to 16.5% in fiscal 2012, from 21.0% in fiscal 2011.  The decrease in gross margins as a percentage of sales is primarily due to unfavorable product mix from our North American cabling business, as well as increased costs for product development in North America.


18


Selling and Administrative Expenses.  Selling and administrative expenses decreased $0.1 million, or 1.4%, to $6.9 million in fiscal 2012, compared to $7.0 million in fiscal 2011. Selling and administrative expenses decreased due to lower salary and bonuses in the North American businesses, partially offset with new product development in North America as well as selling and administrative expenses related to the Eetrex business. Selling and administrative expenses as a percentage of net sales decreased slightly to 13.3% in fiscal 2012 from 13.9% in fiscal 2011.
 
Income From Operations.  Power Products segment income from operations decreased $1.9 million, or 52.8%, to $1.7 million in fiscal 2012, compared to $3.6 million in fiscal 2011, due to unfavorable product mix from our North American cabling business, increased expenses for new product development, partially offset by higher sales and absence of a customer cancellation charge.
 
Other Segment Results
 
Below is a table summarizing results for the fiscal years ended:
(in millions)

 
April 28,
2012
 
April 30,
2011
 
Net Change
 
Net Change
Net sales
$
13.9

 
$
13.0

 
$
0.9

 
6.9
 %
 
 
 
 
 
 
 
 
Cost of products sold
10.4

 
12.0

 
(1.6
)
 
(13.3
)%
 
 
 
 
 
 
 
 
Gross margins
3.5

 
1.0

 
2.5

 
250.0
 %
 
 
 
 
 
 
 
 
Selling and administrative expenses
3.7

 
3.0

 
0.7

 
23.3
 %
 
 
 
 
 
 
 
 
Loss from operations
$
(0.2
)
 
$
(2.0
)
 
$
1.8

 
(90.0
)%
 
 
 
 
 
 
 
 
Percent of sales:
April 28,
2012
 
April 30,
2011
 
 
 
 
Net sales
100.0
 %
 
100.0
 %
 
 
 
 
Cost of products sold
74.8
 %
 
92.3
 %
 
 
 
 
Gross margins
25.2
 %
 
7.7
 %
 
 
 
 
Selling and administrative expenses
26.6
 %
 
23.1
 %
 
 
 
 
Loss from operations
(1.4
)%
 
(15.4
)%
 
 
 
 
 
Net Sales.  The Other segment net sales increased $0.9 million, or 6.9%, to $13.9 million in fiscal 2012, compared to $13.0 million in fiscal 2011.  Net sales from our torque-sensing business increased 6.8% in fiscal 2012, compared to fiscal 2011.  Net sales from our testing facilities increased 7.7% in fiscal 2012, compared to fiscal 2011.
  
Cost of Products Sold.  Other segment cost of products sold decreased $1.6 million, or 13.3%, to $10.4 million in fiscal 2012, compared to $12.0 million in fiscal 2011. Cost of products sold as a percentage of sales decreased to 74.8% in fiscal 2012, compared to 92.3% in fiscal 2011. The decrease in cost of products sold as a percentage of sales is primarily due to higher sales volumes as well as favorable product mix from our torque-sensing business.

Gross Margins.  The Other segment gross margins increased $2.5 million, or 250.0%, to $3.5 million in fiscal 2012, compared to $1.0 million in fiscal 2011.  The increase in gross margins as a percentage of sales is primarily due to higher sales as well as favorable product mix from our torque-sensing business.
 
Selling and Administrative Expenses.  Selling and administrative expenses increased $0.7 million, or 23.3%, to $3.7 million in fiscal 2012, compared to $3.0 million in fiscal 2011.  The increase is primarily due to expenses related to higher stock award amortization expense and severance. Selling and administrative expenses as a percentage of net sales increased to 26.6% in fiscal 2012, from 23.1% in fiscal 2011.
 
Loss From Operations  The Other segment loss from operations decreased $1.8 million, or 90.0%, to $0.2 million in fiscal 2012, compared to $2.0 million in fiscal 2011.  The loss decreased primarily due to increased sales and favorable product

19


mix from our torque-sensing business, partially offset with higher stock award amortization expense and severance in fiscal 2012, as compared to fiscal 2011.

Results of Operations for the Fiscal Year Ended April 30, 2011, as Compared to the Fiscal Year Ended May 1, 2010.
 
Consolidated Results
 
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
 
 
April 30,
2011
 
May 1,
2010
 
Net Change
 
Net Change
Net sales
$
428.2

 
$
377.6

 
$
50.6

 
13.4
%
 
 
 
 
 
 
 
 
Cost of products sold
339.0

 
297.7

 
41.3

 
13.9
%
 
 
 
 
 
 
 
 
Gross margins
89.2

 
79.9

 
9.3

 
11.6
%
 
 
 
 
 
 
 
 
Restructuring

 
7.8

 
(7.8
)
 
N/M

Selling and administrative expenses
70.8

 
62.4

 
8.4

 
13.5
%
Amortization of intangibles
2.4

 
2.3

 
0.1

 
4.3
%
Interest (income)/expense, net
0.2

 
0.1

 
0.1

 
100.0
%
Other, net - (income)/expense
1.3

 
(0.5
)
 
1.8

 
N/M

Income taxes benefit
(4.1
)
 
(6.0
)
 
1.9

 
N/M

Gain on sale of discontinued business, net of tax
(0.6
)
 

 
(0.6
)
 
N/M

Net income/(loss) attributable to noncontrolling interest
(0.3
)
 
0.1

 
(0.4
)
 
N/M

Net income attributable to Methode Electronics, Inc.
$
19.5

 
$
13.7

0
$
5.8

 
42.3
%
 
 
 
 
 
 
 
 
Percent of sales:
April 30,
2011
 
May 1,
2010
 
 
 
 
Net sales
100.0
 %
 
100.0
 %
 
 
 
 
Cost of products sold
79.2
 %
 
78.8
 %
 
 
 
 
Gross margins
20.8
 %
 
21.2
 %
 
 
 
 
Restructuring
 %
 
2.1
 %
 
 
 
 
Selling and administrative expenses
16.5
 %
 
16.5
 %
 
 
 
 
Amortization of intangibles
0.6
 %
 
0.6
 %
 
 
 
 
Interest (income)/expense, net
 %
 
 %
 
 
 
 
Other, net - (income)/expense
0.3
 %
 
(0.1
)%
 
 
 
 
Income taxes benefit
(1.0
)%
 
(1.6
)%
 
 
 
 
Gain on sale of discontinued business, net of tax
(0.1
)%
 
 %
 
 
 
 
Net income/(loss) attributable to noncontrolling interest
(0.1
)%
 
 %
 
 
 
 
Net income attributable to Methode Electronics, Inc.
4.6
 %
 
3.6
 %
 
 
 
 
 
Net Sales.  Consolidated net sales increased $50.6 million, or 13.4%, to $428.2 million for fiscal 2011, from $377.6 million for fiscal 2010.  The Automotive segment net sales increased $22.8 million, or 11.2%, to $226.0 million for fiscal 2011, from $203.2 million for fiscal 2010.  The Interconnect segment net sales increased $14.6 million, or 11.8%, to $138.8 million for fiscal 2011, compared to $124.2 million for fiscal 2010.  The Power Products segment net sales increased $9.9 million, or 24.4%, to $50.4 million for fiscal 2011, as compared to $40.5 million for fiscal 2010.  The Other segment net sales increased $3.7 million, or 39.8%, to $13.0 million for fiscal 2011, as compared to $9.3 million for fiscal 2010.  Included in net sales is other income, which consisted primarily of earnings from engineering design fees and royalties. Other income decreased $0.3

20


million, or 6.7%, to $4.2 million for fiscal 2011, from $4.5 million for fiscal 2010. The decrease relates to engineering design fees in our European automotive business. Translation of foreign operations net sales for fiscal 2011 decreased reported net sales by $4.2 million or 1.1% due to average currency rates for fiscal 2011, compared to the average currency rates for fiscal 2010.
 
Cost of Products Sold.  Consolidated cost of products sold increased $41.3 million, or 13.9%, to $339.0 million for fiscal 2011, compared to $297.7 million for fiscal 2010.  Consolidated cost of products sold as a percentage of sales were 79.2% in fiscal 2011, compared to 78.8% in fiscal 2010.  During fiscal 2011, we recorded a negotiated program termination charge of $1.3 million for certain products manufactured in our Malta facility and $0.4 million for customer cancellation of certain products manufactured in our U.S. facility.  In addition, we incurred $2.3 million in additional costs due to a certain vendor's production and delivery issues for new products that began ramping up production during fiscal 2011.  The increases were more than offset by cost efficiencies experienced in our Asian businesses, and higher sales volumes as well as a change in sales mix within the Interconnect segment in fiscal 2011, as compared to fiscal 2010. Included in the cost of products sold for fiscal 2010 is $0.7 million of asset write-downs related to the termination of the Delphi supply agreement.
 
Gross Margins.   Consolidated gross margins increased $9.3 million, or 11.6%, to $89.2 million for fiscal 2011, as compared to $79.9 million for fiscal 2010.  Gross margins as a percentage of net sales decreased to 20.8% for fiscal 2011, compared to 21.2% for fiscal 2010.  Gross margins as a percentage of sales declined due to loss of the Delphi business, the one-time reversal of pricing contingencies in fiscal 2010, the customer negotiated program cancellation and other customer cancellation charges, lower other income and costs due to a certain vendor's production and delivery issues, but were partially offset by higher sales volumes, a favorable change in sales mix within the Interconnect segment and cost efficiencies from our Asian businesses, for fiscal 2011, compared to fiscal 2010.
 
Restructuring.  During fiscal 2010, we completed all of our planned restructuring initiatives.  During fiscal 2010, we recorded a total restructuring charge of $7.8 million, which consisted of $4.3 million for employee severance, $1.5 million for accelerated depreciation and $2.0 million for other costs.
 
Amortization of Intangibles.  Amortization of intangibles increased $0.1 million, to $2.4 million for fiscal 2011, compared to $2.3 million for fiscal 2010.

Selling and Administrative Expenses.  Selling and administrative expenses increased $8.4 million, or 13.5%, to $70.8 million for fiscal 2011, compared to $62.4 million for fiscal 2010.  During fiscal 2011, we recorded a settlement of $2.1 million for litigation regarding unsecured claims sold to Blue Angel LLC in June 2006, related to the Delphi bankruptcy.  See the Overview section for more information regarding this matter.  Stock option and stock award amortization increased by $2.1 million, to $3.0 million in fiscal 2011, compared to $0.9 million in fiscal 2010. Delphi litigation expenses decreased $1.0 million, to $4.8 million for fiscal 2011, compared to $5.8 million for fiscal 2010. Selling and marketing expenses increased in our North American and Asian automotive businesses, partially offset by lower commissions and professional fees in fiscal 2011, compared to fiscal 2010.  Selling and administrative expenses as a percentage of net sales were 16.5% for both fiscal 2011 and 2010.
 
Interest Expense, Net.  Interest expense, net increased $0.1 million, to $0.2 million for fiscal 2011, compared to $0.1 million for fiscal 2010.  Interest income was $0.6 million for fiscal 2011, compared to $0.4 million for fiscal 2010.  Interest expense was $0.8 million for fiscal 2011, compared to $0.5 million for fiscal 2010. The increase in interest expense relates to borrowings against our credit facility during fiscal 2011.
 
Other, Net.  Other, net increased $1.8 million to an expense of $1.3 million for fiscal 2011, compared to income of $0.5 million for fiscal 2010.  Fiscal 2011 included income of $1.2 million for life insurance polices in connection with the deferred compensation plan.  In addition, fiscal 2011 includes a gain on investment of business of $0.2 million, related to the original $1.0 million investment in Eetrex. Fiscal 2010 included income of $0.6 million related to an enhanced cash fund, as well as income of $1.1 million for life insurance polices in connection with the deferred compensation plan.  All other amounts for both fiscal 2011 and fiscal 2010, relate to currency rate fluctuations.  The functional currencies of these operations are the British pound, Czech koruna, Chinese yuan, Euro, Indian Rupee, Mexican peso, Singapore dollar and Swiss Franc.  Some foreign operations have transactions denominated in currencies other than their functional currencies, primarily sales in U.S. dollars and Euros, creating exchange rate sensitivities.
 
Income Tax Benefit.  Income tax benefit from continuing operations decreased by $1.9 million to $4.1 million for fiscal 2011, compared to $6.0 million for fiscal 2010.  Fiscal 2011 includes a benefit for an intraperiod tax allocation related to the sale of Optokon of $3.5 million, a benefit of $2.7 million related to the expiration of uncertain tax positions and interest

21


from prior periods, partially offset by a net income tax expense on foreign profits of $2.1 million. Fiscal 2010 includes taxes on foreign profits of $1.1 million, book to income tax return adjustments of $2.8 million and other adjustments of $1.6 million. In addition, a benefit of $2.7 million was recorded due to the settlement of uncertain tax positions and related interest from prior periods.

Gain on the Sale of Discontinued Business, Net of Tax.  In March 2011, we sold our 75% ownership in Optokon, to the minority shareholder for $10.0 million. The net assets of our 75% ownership had a book value of $9.9 million. We recorded a gain of $4.1 million to sale of the net assets, primarily attributable to the cumulative translation gains since the date of the initial investment. We also recorded income taxes related to the sale of $3.5 million, resulting in a gain net of taxes of $0.6 million. The tax expense was based on the amount sold of $10.0 million less our initial investment of $1.2 million, resulting in a taxable gain of $8.8 million. In the sale, we received $5.9 million in cash as well as a collateralized note for $4.1 million.
 
Net Income Attributable to Methode Electronics, Inc.  Net income attributable to Methode Electronics, Inc. increased $5.8 million, or 42.3%, to $19.5 million for fiscal 2011, compared to $13.7 million for fiscal 2010.  The increase is primarily due to higher net sales and gross margins, no restructuring expenses, gain on the sale of a business, partially offset by the Blue Angel unsecured claims charge, higher stock option and stock award amortization, lower tax benefits, the one-time reversal of pricing contingencies in fiscal 2010, customer negotiated cancellation and other customer cancellation costs, costs related to a certain vendor's production and delivery issues, higher development costs and higher foreign currency exchange expenses in fiscal 2011, compared to fiscal 2010.


22


Operating Segments
 
Automotive Segment Results
 
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful) 
 
April 30,
2011
 
May 1,
2010
 
Net Change
 
Net Change
Net sales
$
226.0

 
$
203.2

 
$
22.8

 
11.2
%
 
 
 
 
 
 
 
 
Cost of products sold
186.3

 
166.7

 
19.6

 
11.8
%
 
 
 
 
 
 
 
 
Gross margins
39.7

 
36.5

 
3.2

 
8.8
%
 
 
 
 
 
 
 
 
Restructuring

 
5.6

 
(5.6
)
 
N/M

Selling and administrative expenses
26.4

 
19.6

 
6.8

 
34.7
%
Income from operations
$
13.3

 
$
11.3

 
$
2.0

 
17.7
%
 
 
 
 
 
 
 
 
Percent of sales:
April 30,
2011
 
May 1,
2010
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
 
 
 
Cost of products sold
82.4
%
 
82.0
%
 
 
 
 
Gross margins
17.6
%
 
18.0
%
 
 
 
 
Restructuring
%
 
2.8
%
 
 
 
 
Selling and administrative expenses
11.7
%
 
9.6
%
 
 
 
 
Income from operations
5.9
%
 
5.6
%
 
 
 
 
      
Below is a table showing the changes in the North America automotive net sales in fiscal 2011, compared to fiscal 2010:
North America Automotive net sales for fiscal 2010
$
55.7

Termination of certain Ford legacy products at our Reynosa, Mexico facility
(18.2
)
Termination of Delphi supply agreement
(14.1
)
Transfer of transmission lead-frame product to Shanghai, China facility
(11.4
)
Subtotal
12.0

Ford center console program
21.4

North American Automotive net sales for fiscal 2011
$
33.4


Net Sales.  Automotive segment net sales increased $22.8 million, or 11.2%, to $226.0 million for fiscal 2011, from $203.2 million for fiscal 2010.  Net sales increased in Asia by 107.6%, to $77.0 million and increased in Europe by 4.8%, to $111.6 million, however, net sales from North America declined by 40.0%, to $33.4 million in fiscal 2011, compared to fiscal 2010. The increase in Asia is primarily due to increased sales for the transmission lead-frame and steering angle sensor products. In North America, there were no sales to Delphi Corporation in fiscal 2011, as compared to net sales of $14.1 million in fiscal 2010 due to the cancellation of the supply agreement on September 10, 2009. Net sales also declined in North America by $11.4 million due to the planned transfer of production from our U.S. facility to our facility in Shanghai, China in the third quarter of fiscal 2010, as well as by $18.2 million due to the termination of production of certain Ford legacy products at our Reynosa, Mexico facility at the end of the second quarter of fiscal 2010, as well as declines in sales of service parts.  The decrease in North America automotive sales was partially offset by sales of $21.4 million in fiscal 2011, compared to fiscal 2010, due to the Ford Center Console Program, which launched at the end of the first quarter. Net sales benefited by $1.7 million in fiscal 2010, related to a one-time reversal of pricing contingencies which were accrued over several years and were no longer required.  Included in net sales is other income, which consisted primarily of earnings from engineering design fees and royalties. Other income increased $0.1 million, or 2.6%, to $4.0 million for fiscal 2011, from $3.9 million for fiscal 2010. Translation of foreign operations net sales for fiscal 2011 decreased reported net sales by $4.1 million, or 2.0%, due to average currency rates in fiscal 2011, compared to the average currency rates in fiscal 2010.

23


 
Cost of Products Sold.  Automotive segment cost of products sold increased $19.6 million, or 11.8%, to $186.3 million for fiscal 2011, from $166.7 million for fiscal 2010.  Fiscal 2011 includes a charge of $1.3 million for negotiated program termination costs for certain products manufactured in our Malta facility.  In addition, we incurred $2.3 million in additional costs due to a vendor's production and delivery issues for new products during fiscal 2011.  The Automotive segment cost of products sold as a percentage of sales were 82.4% in fiscal 2011, compared to 82.0% in fiscal 2010.  The increase in cost of products sold as a percentage of sales were also due to customer program cancellation charges and costs related to a certain vendor's production and delivery issues and the loss of the Delphi business, partially offset by higher sales volumes and improvements in cost of products sold in Asia.  In addition, increasing costs of products sold as a percentage of sales primarily relates to the development of new products in North America, which are expected to begin shipping in future periods. Included in the cost of products sold for fiscal 2010 is $0.7 million of asset write-downs relating to the termination of the Delphi supply agreement.
 
Gross Margins.  Automotive segment gross margins increased $3.2 million, or 8.8%, to $39.7 million for fiscal 2011, as compared to $36.5 million for fiscal 2010.  The Automotive segment gross margins as a percentage of net sales were 17.6% for fiscal 2011, as compared to 18.0% for fiscal 2010.  Gross margins as a percentage of sales decreased in fiscal 2011, compared to fiscal 2010, due to the loss of the Delphi business, increasing costs on the remaining North American business, customer program cancellation charges and costs related to a vendor's production and delivery issues, partially offset by higher sales volumes and cost efficiencies in Asia.
 
Restructuring.   During fiscal 2010, we completed all of our planned restructuring initiatives.  During fiscal 2010, we recorded a total restructuring charge of $5.6 million, which consisted of $3.4 million for employee severance, $1.4 million for accelerated depreciation and $0.8 million for other costs.
 
Selling and Administrative Expenses.  Selling and administrative expenses increased $6.8 million, or 34.7%, to $26.4 million for fiscal 2011, compared to $19.6 million for fiscal 2010.  During fiscal 2011, we recorded a settlement of $2.1 million for litigation regarding unsecured claims sold to Blue Angel LLC in June 2006, related to the Delphi bankruptcy.  See the Overview section for more information regarding this matter.  Delphi litigation expenses decreased $1.0 million, to $4.8 million for fiscal 2011, compared to $5.8 million for fiscal 2010. In addition, selling and marketing expenses increased in our North American and Asian automotive businesses primarily due to new product development efforts in fiscal 2011, compared to fiscal 2010.  Selling and administrative expenses as a percentage of net sales were 11.7% for fiscal 2011 and 9.6% for fiscal 2010.
     Income From Operations.  Automotive segment income from operations increased $2.0 million or 17.7%, to $13.3 million for fiscal 2011, compared to $11.3 million for fiscal 2010 due to the lack of restructuring charges, higher sales and gross margins, partially offset by the Blue Angel unsecured claims charge, the one-time reversal of pricing contingencies in fiscal 2010, higher selling and marketing expenses, increased development costs in North America, and negotiated program termination costs in fiscal 2011, compared to fiscal 2010.
 

24


Interconnect Segment Results
 
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
 
 
April 30,
2011
 
May 1,
2010
 
Net Change
 
Net Change
Net sales
$
138.8

 
$
124.2

 
$
14.6

 
11.8
 %
 
 
 
 
 
 
 
 
Cost of products sold
96.8

 
88.6

 
8.2

 
9.3
 %
 
 
 
 
 
 
 
 
Gross margins
42.0

 
35.6

 
6.4

 
18.0
 %
 
 
 
 
 
 
 
 
Restructuring

 
1.6

 
(1.6
)
 
N/M

Selling and administrative expenses
22.0

 
23.0

 
(1.0
)
 
(4.3
)%
Income from operations
$
20.0

 
$
11.0

 
$
9.0

 
81.8
 %
 
 
 
 
 
 
 
 
Percent of sales:
April 30,
2011
 
May 1,
2010
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
 
 
 
Cost of products sold
69.7
%
 
71.3
%
 
 
 
 
Gross margins
30.3
%
 
28.7
%
 
 
 
 
Restructuring
%
 
1.3
%
 
 
 
 
Selling and administrative expenses
15.9
%
 
18.5
%
 
 
 
 
Income from operations
14.4
%
 
8.9
%
 
 
 
 
 
Net Sales.  Interconnect segment net sales increased $14.6 million, or 11.8%, to $138.8 million for fiscal 2011, from $124.2 million for fiscal 2010.  Net sales increased 12.5% and 19.3% in North America and Europe, respectively, however, net sales declined in Asia by 2.4% in fiscal 2011, compared to fiscal 2010.  The increase in North America is due to increased sales for our data, sensor and radio remote control devices and the increase in Europe is due to increased sales for radio remote control devices. The decrease in Asia relates to lower sales for legacy products due to the planned exit of this product line in fiscal 2011, compared to fiscal 2010. Translation of foreign operations net sales in fiscal 2011 decreased reported net sales by $0.1 million, due to average currency rates in fiscal 2011, compared to the average currency rates in fiscal 2010.
 
Cost of Products Sold.  Interconnect segment cost of products sold increased $8.2 million, or 9.3%, to $96.8 million for fiscal 2011, compared to $88.6 million for fiscal 2010.  Interconnect segment cost of products sold as a percentage of net sales decreased to 69.7% for fiscal 2011, compared to 71.3% for fiscal 2010.  The decrease is primarily due to a favorable change in sales mix within the segment as well as the overall increase in net sales in fiscal 2011, compared to fiscal 2010.
 
Gross Margins. Interconnect segment gross margins increased $6.4 million, or 18.0%, to $42.0 million for fiscal 2011, as compared to $35.6 million for fiscal 2010.  Gross margins as a percentage of net sales increased to 30.3% for fiscal 2011, from 28.7% for fiscal 2010.  The increase in gross margins as a percentage of net sales primarily relates to higher sales volumes as well as a favorable change in sales mix within the segment in fiscal 2011, compared to fiscal 2010.
 
Restructuring.  During fiscal 2010, we completed all of our planned restructuring initiatives.  During fiscal 2010, we recorded a total restructuring charge of $1.6 million, which consisted of $0.7 million for employee severance, $0.2 million for accelerated depreciation and $0.7 million for other costs.
 
Selling and Administrative Expenses.  Selling and administrative expenses decreased $1.0 million, or 4.3%, to $22.0 million for fiscal 2011, compared to $23.0 million for fiscal 2010.  The decrease is due to lower professional fees in our remote control business. Selling and administrative expenses as a percentage of net sales decreased to 15.9%, due to higher sales volumes, in fiscal 2011, from 18.5% for fiscal 2010.
 

25


Income From Operations.  Interconnect segment income from operations increased $9.0 million, or 81.8%, to $20.0 million for fiscal 2011, compared to $11.0 million for fiscal 2010, due to increased net sales and gross margins, no restructuring expenses and lower selling and administrative expenses.

Power Products Segment Results
 
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful)
 
 
April 30,
2011
 
May 1,
2010
 
Net Change
 
Net Change
Net sales
$
50.4

 
$
40.5

 
$
9.9

 
24.4
%
 
 
 
 
 
 
 
 
Cost of products sold
39.8

 
30.0

 
9.8

 
32.7
%
 
 
 
 
 
 
 
 
Gross margins
10.6

 
10.5

 
0.1

 
1.0
%
 
 
 
 
 
 
 
 
Restructuring

 
0.6

 
(0.6
)
 
N/M

Selling and administrative expenses
7.0

 
6.5

 
0.5

 
7.7
%
Income from operations
$
3.6

 
$
3.4

 
$
0.2

 
5.9
%
 
 
 
 
 
 
 
 
Percent of sales:
April 30,
2011
 
May 1,
2010
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
 
 
 
Cost of products sold
79.0
%
 
74.1
%
 
 
 
 
Gross margins
21.0
%
 
25.9
%
 
 
 
 
Restructuring
%
 
1.5
%
 
 
 
 
Selling and administrative expenses
13.9
%
 
16.0
%
 
 
 
 
Income from operations
7.1
%
 
8.4
%
 
 
 
 
 
Net Sales.  Power Products segment net sales increased $9.9 million, or 24.4%, to $50.4 million for fiscal 2011, compared to $40.5 million for fiscal 2010.  Net sales increased in fiscal 2011, as compared to fiscal 2010 by 4.6% in North America and by 65.2% in Asia.  The increase in Asia was due to an increased demand for our busbar products. In North America, higher demand for our flexible cabling and heat sink products was offset with lower demand for our busbar products.  We also began selling busbar products in Europe in fiscal 2011, which accounted for $2.6 million in net sales, compared to no net sales in fiscal 2010.
 
Cost of Products Sold.  Power Products segment cost of products sold increased $9.8 million, or 32.7%, to $39.8 million for fiscal 2011, compared to $30.0 million for fiscal 2010.  The Power Products segment cost of products sold as a percentage of sales increased to 79.0% for fiscal 2011, from 74.1% for fiscal 2010.  Fiscal 2011 includes an inventory and equipment charge of $0.4 million, relating to the customer cancellation of certain products manufactured in the U.S.  The increase in the cost of products sold as a percentage of sales is primarily due to new product development, as well as customer cancellation charges, partially offset by lower costs in our Asian business.
 
Gross Margins.  Power Products segment gross margins increased $0.1 million, or 1.0%, to $10.6 million for fiscal 2011, compared to $10.5 million for fiscal 2010.  Gross margins as a percentage of net sales decreased to 21.0% for fiscal 2011 from 25.9% for fiscal 2010.  The decrease in gross margins as a percentage of sales is primarily due to the increased costs due to new product development for the Eetrex products, as well as customer cancellation charges, partially offset by lower costs in our Asian business.
 
Restructuring.   During fiscal 2010, we completed all of our planned restructuring initiatives.  During fiscal 2010, we recorded a restructuring  charge of $0.6 million, which consisted of $0.1 million for employee severance and $0.5 million related to other costs.


26


Selling and Administrative Expenses.  Selling and administrative expenses increased $0.5 million, or 7.7%, to $7.0 million for fiscal 2011, compared to $6.5 million for fiscal 2010.  Selling and administrative expenses increased due to increased selling and professional fees in our U.S.-based busbar and heat sink businesses as well as increased expenses due to the purchase of 70% of Eetrex in fiscal 2011, as compared to fiscal 2010.  Selling and administrative expenses as a percentage of net sales decreased to 13.9% in fiscal 2011, from 16.0% for fiscal 2010.
 
Income From Operations.  Power Products segment income from operations increased $0.2 million, or 5.9%, to $3.6 million for fiscal 2011, compared to $3.4 million for fiscal 2010, due to higher net sales and gross profit, no restructuring charges, partially offset with expenses related to new product development and expenses related to Eetrex, customer cancellation charges and higher selling and administrative expenses.
 
Other Segment Results
 
Below is a table summarizing results for the years ended:
(in millions)
("N/M" equals not meaningful) 
 
April 30,
2011
 
May 1,
2010
 
Net Change
 
Net Change
Net sales
$
13.0

 
$
9.3

 
$
3.7

 
39.8
%
 
 
 
 
 
 
 
 
Cost of products sold
12.0

 
9.5

 
2.5

 
26.3
%
 
 
 
 
 
 
 
 
Gross margins
1.0

 
(0.2
)
 
1.2

 
N/M

 
 
 
 
 
 
 
 
Selling and administrative expenses
3.0

 
2.1

 
0.9

 
42.9
%
 
 
 
 
 
 
 
 
Loss from operations
$
(2.0
)
 
$
(2.3
)
 
$
0.3

 
N/M

 
 
 
 
 
 
 
 
Percent of sales:
April 30,
2011
 
May 1,
2010
 
 
 
 
Net sales
100.0
 %
 
100.0
 %
 
 
 
 
Cost of products sold
92.3
 %
 
102.2
 %
 
 
 
 
Gross margins
7.7
 %
 
(2.2
)%
 
 
 
 
Selling and administrative expenses
23.1
 %
 
22.6
 %
 
 
 
 
Loss from operations
(15.4
)%
 
(24.7
)%
 
 
 
 
 
Net Sales.  The Other segment net sales increased $3.7 million, or 39.8%, to $13.0 million for fiscal 2011, compared to $9.3 million for fiscal 2010.  Net sales from our torque-sensing business increased 178.2% in fiscal 2011, compared to fiscal 2010.  Net sales from our testing facilities decreased 13.8% in fiscal 2011, compared to fiscal 2010.
 
Cost of Products Sold.  Other segment cost of products sold increased $2.5 million to $12.0 million for fiscal 2011, compared to $9.5 million for fiscal 2010.  Cost of products sold as a percentage of sales decreased to 92.3% in fiscal 2011, compared to 102.2% in fiscal 2010 primarily due to increased sales from our torque-sensing business.
 
Gross Margins.  The Other segment gross margins increased to $1.0 million for fiscal 2011, compared to a loss of $0.2 million for fiscal 2010.  Gross margins as a percentage of sales increased to 7.7% in fiscal 2011, compared to negative 2.2% in fiscal 2010 primarily due to increased sales from our torque-sensing business.
 
Selling and Administrative Expenses.  Selling and administrative expenses increased $0.9 million, or 42.9%, to $3.0 million for fiscal 2011, compared to $2.1 million for fiscal 2010.  Selling and administrative expenses as a percentage of net sales increased to 23.1% for fiscal 2011, from 22.6% for fiscal 2010.
 
Loss from Operations.  The Other segment loss from operations decreased $0.3 million, to $2.0 million for fiscal 2011, compared to $2.3 million for fiscal 2010, due to increased sales and gross profit, partially offset by higher selling and administrative expenses.
 

27


Financial Condition, Liquidity and Capital Resources
 
We believe our current world-wide cash balances together with expected future cash flows to be generated from operations will be sufficient to support current operations. However, due to the shifting of operations from the U.S. to foreign locations, a significant amount of cash and expected future cash flows are located outside of the U.S. Of the total cash and cash equivalents, as of April 28, 2012, $79.3 million was held in subsidiaries outside the U.S. of which the majority of this amount is deemed to be permanently reinvested and therefore not available to fund our domestic operations. We currently have $65.4 million of net operating loss carry-forwards in the U.S. which would reduce the cash tax obligation upon any future repatriation of funds.
 
During fiscal 2011, we were awarded a next generation center stack program for multiple GM vehicle platforms. The program will be manufactured in our plant in Monterrey, Mexico. We anticipate this program will require a significant amount of cash for the purchase of equipment, tooling and initial inventory as well as additional staffing for the development and launching of the program. We expect to begin production and generate sales on these programs in late fiscal 2013. Therefore, we anticipate our cash balances will likely decline due to the launching of this programs without a corresponding increase in sales.
Our Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent, and certain other financial institutions, has a maturity of February 25, 2016. The new credit facility is in the aggregate principal amount of $75.0 million, with an option to increase the principal amount by an additional $25.0 million subject to customary conditions and approval of the lender(s) providing new commitment(s). The credit facility provides for variable rates of interest based on the type of borrowing and the Company's debt to EBITDA financial ratio. The Amended and Restated Credit Agreement is guaranteed by certain of our U.S. subsidiaries. The interest rate on the credit agreement is 1.5% plus LIBOR. At April 28, 2012, we were in compliance with the covenants of the agreement. During fiscal 2012, we had borrowings of $52.0 million and payments of $4.7 million, under this credit facility, which included $0.7 million of interest payments. As of April 28, 2012, there was an outstanding balance of $48.0 million against the credit facility.  There was $27.0 million available to borrow under the credit agreement as of April 28, 2012, which does not include the option to increase the principal amount.
Operating cash flow is summarized below (in millions):
 
 
Fiscal Year Ended
 
April 28,
2012
 
April 30,
2011
 
May 1,
2010
Net income
$
8.1

 
$
19.2

 
$
13.8

Depreciation and amortization
16.2

 
15.8

 
19.4

Changes in operating assets and liabilities
(1.9
)
 
(16.1
)
 
(11.5
)
Other non-cash items
2.4

 
(1.9
)
 
5.7

Cash flow from operations
$
24.8

 
$
17.0

 
$
27.4

 
Operating Activities — Fiscal 2012 Compared to Fiscal 2011
 
Net cash provided by operating activities increased $7.8 million to $24.8 million for fiscal 2012, compared to $17.0 million for fiscal 2011, despite net income decline of $11.1 million, to $8.1 million, compared to $19.2 million for fiscal 2011. The increase in operating cash flow was primarily attributable to the increase in cash generated from the changes in operating assets and liabilities. Our trade accounts receivable used $13.5 million of cash in fiscal 2012 due to the timing of sales in the fourth quarter of fiscal 2012, compared to the fourth quarter of fiscal 2011. Inventory and prepaid and other expenses used cash of $4.4 million and accounts payable and accrued expenses generated $25.2 million, due to the timing of accounts payable payments in the fourth quarter of fiscal 2012 and the increase in deferred income tax liabilities. In fiscal 2011, cash flow from operations increased by $13.2 million due to tax refunds received relating to prior periods.

Operating Activities — Fiscal 2011 Compared to Fiscal 2010
 
Net cash provided by operating activities decreased $10.4 million to $17.0 million for fiscal 2011, compared to $27.4 million for fiscal 2010. The decrease in operating cash flow was primarily attributable to the increase in cash use related to the changes in operating assets and liabilities and lower depreciation and amortization non-cash add-back, partially offset by an increase in net income in fiscal 2011, as compared to fiscal 2010. Our trade accounts receivable, inventory and accounts payable in aggregate used $27.0 million of cash flow during fiscal 2011, compared to $11.5 million of cash used for fiscal

28


2010. The increased use of cash reflects increased accounts receivable levels, partially offset by increased accounts payable levels, associated with increased business activity, as well as management's decision to increase inventory levels on some raw material and components that historically we have experienced shortages in the marketplace. In fiscal 2011, cash flow from operations increased by $13.2 million due to tax refunds received relating to prior periods.
 
Investing Activities — Fiscal 2012 Compared to Fiscal 2011
 
Net cash used in investing activities increased $15.9 million to $32.1 million for fiscal 2012, compared to $16.2 million for fiscal 2011. Purchases of property, plant and equipment increased by $10.5 million, to $25.7 million for fiscal 2012, compared to $15.2 million for fiscal 2011. The increase is primarily due to equipment purchased for new programs that launched in fiscal 2012 and for the programs scheduled to launch in late fiscal 2013. In addition, property, plant and equipment increased due to plant expansions in Europe, China and in the U.S. In fiscal 2012, we purchased a business, Advanced Molding and Decoration, for $6.6 million. In fiscal 2011, we made an additional investment of $2.4 million in Eetrex, for a total ownership in the business of 70%. Also in fiscal 2011, we received $1.5 million for life insurance proceeds in connection with the deferred compensation plan. 

Investing Activities — Fiscal 2011 Compared to Fiscal 2010
 
Net cash used in investing activities increased $8.3 million to $16.1 million for fiscal 2011, compared to $7.8 million for fiscal 2010. Purchases of property, plant and equipment increased by $5.8 million, to $15.2 million for fiscal 2011, compared to $9.4 million for fiscal 2010. In fiscal 2011, we made an additional investment of $2.4 million in Eetrex, for a total ownership in the business of 70%. Also in fiscal 2011, we received $1.5 million for life insurance proceeds in connection with the deferred compensation plan, compared to $2.4 million in fiscal 2010.
 
Financing Activities — Fiscal 2012 Compared to Fiscal 2011
 
Net cash provided by/(used in) financing activities increased $47.2 million to cash provided of $37.9 million in fiscal 2012, compared to a cash use of $9.3 million in fiscal 2011. During fiscal 2012, the Company had net borrowings against the credit facility of $48.0 million, compared to no net borrowings in fiscal 2011. We paid dividends of $10.4 million and $10.3 million for fiscal 2012 and 2011, respectively. In addition, fiscal 2012 included $0.3 million of proceeds for the exercise of stock options, compared to $1.0 million for fiscal 2011.

Financing Activities — Fiscal 2011 Compared to Fiscal 2010
 
Net cash used for financing activities decreased $1.0 million to $9.3 million for fiscal 2011, compared to $10.3 million for fiscal 2010. We paid dividends of $10.3 million and $10.4 million for fiscal 2011 and 2010, respectively. In addition, fiscal 2011 included $1.0 million of proceeds for the exercise of stock options, compared to $0.2 million for fiscal 2010.
 
Contractual Obligations
 
The following table summarizes contractual obligations and commitments, as of April 28, 2012 (in thousands):
 
 
Payments Due By Period
 
Total
 
Less than
 1 year
 
1-3 years
 
4-5 years
 
More than
 5 years
Operating leases
$
9,781

 
$
3,751

 </