Methode Electronics - 10-Q quarterly report FY

(Mark One)

     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.

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     At March 11, 2008, Registrant had 37,992,532 shares of common stock outstanding.

TABLE OF CONTENTS

Item 1 — Financial Statements

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

1. BASIS OF PRESENTATION

     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” means Methode Electronics, Inc. and its subsidiaries. The condensed consolidated financial statements and related disclosures as of February 2, 2008 and results of operations for the three months and nine months ended February 2, 2008 and January 27, 2007 are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The April 28, 2007 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the financial statements included in our latest Form 10-K for the year ended April 28, 2007 filed with the SEC on July 12, 2007. Results may vary from quarter to quarter for reasons other than seasonality. Due to the timing of our fiscal calendar, the three months ended February 2, 2008 represent 14 weeks of results and the three months ended January 27, 2007 represent 13 weeks of results. In addition, the nine months ended February 2, 2008 represent 40 weeks of results and the nine months ended January 27, 2007 represent 39 weeks of results.

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement disclosures of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires an entity to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires an entity to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the largest amount of benefit that has a greater than fifty percent likelihood of being realized. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. See Note 6 for more information regarding the impact of adopting FIN 48.

     In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective as of our fiscal year 2009, which begins May 4, 2008. We do not believe the adoption of SFAS No. 157 will have a material impact on our financial position, results of operations or cash flows.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on the items for which the fair value option has been elected in earnings. SFAS No. 159 is effective as of our fiscal year 2009, which begins May 4, 2008. We do not believe the adoption of SFAS No. 159 will have a material impact on our financial position, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). The objective of this statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this statement establishes principles and requirements for how the acquirer: 1.) recognizes and

2. RECENT ACCOUNTING PRONOUNCEMENTS — Continued

measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; 2.) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; 3.) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This applies to our fiscal year 2010 which begins May 3, 2009. The areas that are most applicable to us with regard to this statement are (1) that the Statement requires companies to expense transaction costs as incurred, (2) that any subsequent adjustments to a recorded performance-based liability after its initial recognition will need to be adjusted through income as opposed to goodwill, and (3) any liabilities related to noncontrolling interest will be recorded at fair value. This statement will generally affect acquisitions occurring after the adoption date.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. This applies to our fiscal year 2010 which begins May 3, 2009. This statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The areas that are most applicable to us with regard to this statement are  the statement requires companies to classify expense related to noncontrolling interest’s share in income below net income (earning per share will still be determined after the impact of noncontrolling interests share in our net income as is the current practice.)  During the nine months ended February 2, 2008 and January 27, 2007, we recorded expense related to the noncontrolling interests share in income of $260 and $103, respectively, in other selling and administrative expenses and  this statement requires the liability related to noncontrolling interests to be presented as a separate caption within shareholders’ equity.  As of February 2, 2008, the liability related to noncontrolling interests was $3,072 and is included in other long-term liabilities.  We are currently evaluating the effect of this statement to determine the impact it will have on our financial statements.

     On January 24, 2008, we announced a restructuring of our U.S.-based automotive operations and a decision to discontinue producing certain legacy electronic connector products. The automotive restructuring process is expected to be completed by the end of the third quarter of fiscal 2009. The connector product exit should conclude during the first quarter of fiscal 2009. During the three months ended February 2, 2008, we recorded a restructuring charge of $450, relating to $355 for employee severance and $95 in professional fees. We estimate that we will record a pre-tax charge during the fiscal years 2008 and 2009 between $19,000 and $25,000, of which $9,000 to $12,000 relates to the cost of one-time benefits, including termination, retention, COBRA and outplacement for employees. We performed impairment testing on our assets relating to the restructuring plan and concluded that no assets were impaired as of February 2, 2008. However, we will continue to perform periodic impairment testing and will record any charges incurred as per FASB 144, ‘Accounting for the Impairment or Disposal of Long-Lived Assets’.

     As of February 2, 2008, we had an accrued restructuring liability of $450 reflected in the current liabilities section of our consolidated balance sheet. We expect this liability to be paid out by the end of the third quarter of fiscal year 2009.

     In the third quarter of fiscal year 2007, we closed our Scotland automotive parts manufacturing plant and transferred all production lines from that facility to its automotive parts manufacturing operation in Malta.  We recorded charges of $2,352 related to the closing and transfer of operations, consisting of involuntary severance of

3. RESTRUCTURING — Continued

$1,359 for termination of 140 employees, equipment moving and installation costs of $667, provision for the permanent impairment of assets of $174, and professional fees and lease and other obligations of $152, reduced by a cumulative currency translation credit of $491.

     The components of our comprehensive income for the three months and nine months ended February 2, 2008 and January 27, 2007 include net income and adjustments to stockholders’ equity for foreign currency translations. The foreign currency translation adjustment was due to exchange rate fluctuations in our foreign affiliates’ local currency versus the U.S. dollar.

     The following table presents details of our comprehensive income:

     In connection with the Power Distribution segment acquisition of Cableco Technologies in fiscal 2005, additional contingent consideration may be due if certain operational and financial targets are met. During the first quarter of fiscal year 2008, a portion of the operational and financial targets were met resulting in a $260 payment. The payment was recorded as an increase to goodwill. Additional goodwill of up to $4,257 may result from future contingent payments for this acquisition.

     In connection with the Interconnect segment acquisition of TouchSensor Technologies, L.L.C. (TST) on February 28, 2007, an increase to goodwill of $1,013 was recorded for the nine months ended February 2, 2008. The increase relates to adjustments for working capital and valuation of intangible assets acquired. We are finalizing the valuation of the intangible assets acquired and we anticipate that the valuations will not differ materially from our current assessment.

     On August 31, 2007, we acquired the assets of Value Engineered Products, Inc. (VEP) for $5,750 in cash. VEP is a thermal management solutions provider, manufacturing heat sinks and related products for high-powered applications. These components complement our Power Distribution product offerings and, in some instances, are joined with bus bars to aid thermal management of power systems. The terms of the acquisition provide for an additional payment of up to a maximum of $1,000 if sales reach specified targets during the twelve-month period following the close.

     Based on a third-party valuation report, we estimate the tangible net assets acquired in the VEP transaction had a fair value of $915. The fair values assigned to intangible assets acquired were $2,900 for customer relationships, $600 for trademarks and $1,402 for goodwill. The customer relationships acquired will be amortized over a period of 196 months beginning September 2007. The trademark intangible assets are not subject to amortization but will be subject to periodic impairment testing. The accounts and transactions of the acquired business have been included in the Power Distribution segment in the consolidated financial statements from the effective date of the acquisition.

5. GOODWILL AND INTANGIBLE ASSETS — Continued

     The following tables present details of the Company’s intangible assets:

     At February 2, 2008, the intangible assets for customer relationships and agreements includes $2,505 of net value assigned to a supply agreement with Delphi Corporation, acquired in our acquisition of the passive occupancy detection systems (PODS) business in August 2001. Delphi is currently operating under a bankruptcy petition filed on October 8, 2005. We continue to supply product to Delphi post-petition pursuant to this supply agreement and have determined that the value of the supply agreement has not been impaired.

     The estimated aggregate amortization expense for fiscal 2008 and each of the four succeeding fiscal years is as follows:

     We adopted FIN 48 on April 29, 2007. As a result of the implementation of FIN 48, we recognized a $1,039 increase in the liability for unrecognized tax benefits which was accounted for as an increase of $1,014 to the April 29, 2007 balance of deferred tax assets and a decrease of $25 to the April 29, 2007 balance of retained earnings.

     We recognize interest and penalties accrued related to the unrecognized tax benefits in the provision for income taxes. During the nine months ended February 2, 2008, we recognized an insignificant amount in interest and penalties. We had approximately $1,248 for the payment of interest and penalties accrued at February 2, 2008. The total unrecognized tax benefits as of February 2, 2008 was $4,451.

     We believe that it is reasonably possible that the total amount of unrecognized tax benefits will change within twelve months of the date of adoption of FIN 48. We have certain tax return years subject to statutes of limitation, which will close within twelve months of the end of the quarter. Unless challenged by tax authorities, the

6. INCOME TAXES — Continued

closure of those statutes of limitation is expected to result in the recognition of uncertain tax positions in the amount of $161.

     The Company and all of its domestic subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Our foreign subsidiaries file income tax returns in certain foreign jurisdictions since they have operations outside the U.S. The Company and its subsidiaries are generally no longer subject to U.S. federal, state and local examinations by tax authorities for years before fiscal year 2005.

     The following table sets forth the changes in the number of issued shares of common stock during the nine month periods presented:

     We paid quarterly dividends in the amounts of $1,884, $1,897 and $1,898, or $0.05 per share, on July 27, 2007, October 26, 2007 and February 2, 2008, respectively. We intend to retain the remainder of our earnings not used for dividend payments to provide funds for the operation and expansion of our business and the repurchase of common stock. Our Board of Directors approved a stock repurchase plan in September 2006, which expires at the end of fiscal 2008. There were no shares purchased during the first nine months of fiscal 2008.

     On June 21, 2007, our Board of Directors, on the recommendation of our Compensation Committee, adopted the Methode Electronics, Inc. 2007 Stock Plan (the “Stock Plan”). The Stock Plan was voted on and approved by the shareholders at our annual meeting on September 13, 2007.

     The Stock Plan permits a total of 1,250,000 shares of our common stock to be awarded to participants. Shares issued under the Stock Plan may be either authorized but unissued shares, or treasury shares. If any award terminates, expires, is cancelled or forfeited as to any number of shares of common stock, new awards may be awarded with respect to such shares. The total number of shares with respect to which awards may be granted to any participant in any calendar year shall not exceed 200,000 shares. As of February 2, 2008 there were 1,005,877 shares still available for award under the Stock Plan.

     As of April 28, 2007, awards with respect to 400,900 shares and 171,877 shares of our common stock were subject to issuance under the 2004 Plan and the 2000 Plan, respectively. Upon adoption of the Stock Plan, our board of directors elected to terminate the 2004 Plan and the 2000 Plan with respect to the shares reserved under these plans that are not subject to outstanding awards.

7. COMMON STOCK AND STOCK-BASED COMPENSATION — Continued

     The following tables summarize the stock option activity and related information for the nine months ended February 2, 2008:

     The aggregate intrinsic value for all options outstanding at February 2, 2008 was $1,998.

     Prior to June 21, 2007, we had three active stock plans, the Methode Electronics, Inc. 1997 Stock Plan, the Methode Electronics, Inc. 2000 Stock Plan, and the Methode Electronics, Inc. 2004 Stock Plan. No options were granted under the Plans since the first quarter of fiscal 2005. As of February 2, 2008, we had 692,928 unexercised stock options, all of which are fully vested and have a term of ten years. In the nine months ended February 2, 2008, we recognized pre-tax compensation expense of $11. There is no remaining unrecognized compensation expense relating to the stock options after July 28, 2007.

     In April 2007, 225,000 shares of common stock subject to performance-based Restricted Stock Awards (RSAs) granted to our CEO in fiscal 2006 and 2007 were converted to Restricted Stock Units (RSUs). The RSUs are subject to the same vesting schedule and other major provisions of the RSAs they replaced, except the RSUs are not payable until the earlier of: (1) thirty days after the CEO’s date of termination of employment with the Company and all of its subsidiaries and affiliates; or (2) the last day of our fiscal year in which the payment of common stock in satisfaction of the RSUs becomes deductible to the Company under Section 162(m) of the Internal Revenue Code. All further discussion of RSAs in this report includes the RSUs described above.

     At the beginning of fiscal year 2008, there were 525,589 performance-based and time-based RSAs outstanding. The time-based RSAs vest in three equal annual installments from the grant date. All RSAs awarded to senior management are performance-based and vest after three years if the recipient remains employed by the Company until that date and we have met certain revenue growth and return on invested capital targets. All of the unvested RSAs are entitled to voting rights and to payment of dividends. During the nine months ended February 2, 2008, we awarded 244,123 restricted stock awards. Of the 244,123 shares granted, 24,000 shares vest immediately upon grant, 164,673 are performance-based RSAs and 55,450 are time-based RSAs.

     We recognized pre-tax compensation expense for RSAs of $2,469 and $2,057 in the nine months ended February 2, 2008 and January 27, 2007, respectively. We record the expense in the selling and administrative section of our condensed consolidated statement of income.

7. COMMON STOCK AND STOCK-BASED COMPENSATION — Continued

The following table summarizes the RSA activity for the nine months ended February 2, 2008

     At February 2, 2008, the aggregate unvested RSAs had a weighted average fair value of $11.45 and a weighted average vesting period of approximately 15 months.

8. EARNINGS PER SHARE

     Basic earnings per share (EPS) is calculated by dividing net earnings by the weighted average number of common shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the numerator and the denominator of the basic EPS calculation for the effect of all potential dilutive common shares outstanding during the period.

     The following table sets forth the computation of basic and diluted earnings per share:

     Options to purchase 29,413 shares of common stock at a weighted-average exercise price of $17.66 per share were outstanding as of February 2, 2008, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock and, therefore, the effect would be antidilutive.

     We are a global manufacturer of component and subsystem devices. We design, manufacture and market devices employing electrical, electronic, wireless, sensing and optical technologies. Our components are found in the primary end markets of the automotive, appliance, communications (including information processing and thermal, storage, networking equipment, wireless and terrestrial voice/data systems), aerospace and military, rail and other transportation industries and the consumer and industrial equipment markets.

     We report in four operating segments – Automotive, Interconnect, Power Distribution and Other. The Company’s systems are not designed to capture information by smaller product groups and it would be impracticable to break down the Company’s sales into smaller product groups.

     The Automotive segment supplies electronic and electromechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers, including 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 appliance, computer, networking, telecommunications, storage, medical, military, aerospace, commercial and consumer markets. Solutions include solid-state field effect interface panels, PC card and express card packaging, optical and copper transceivers, terminators, connectors, custom cable assemblies and conductive polymer and thick

METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)

film inks. Services include the design and installation of fiber optic and copper infrastructure systems, and manufacture of active and passive optical components.

     The Power Distribution segment manufactures current-carrying laminated bus devices, custom power-distribution assemblies, powder coated bus bars, braided flexible cables, customized heat sinks and high-current low voltage flexible power cabling systems that are used in various markets and applications, including telecommunications, computers, transportation, industrial and power conversion, insulated gate bipolar transistor (IGBT) solutions, aerospace and military.

     The Other segment includes a design 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.

     The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Annual Report on Form 10-K for the year ended April 28, 2007. We allocate resources to and we evaluate performance of our segments based on segment income. Transfers between segments are recorded using internal transfer prices set by us.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)

     The table below presents information about our reportable segments:

METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share data)

     Certain litigation arising in the normal course of business is pending against us. We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, employment-related matters and environmental matters. We consider insurance coverage and third-party indemnification when determining required accruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot be determined, it is our opinion, 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 effect on our consolidated financial statements.

     Certain information included in or incorporated by reference in this document, in press releases, written statements or other documents filed with or furnished to the SEC, or in our communications and discussions through webcasts, phone calls, conference calls and other presentations and meetings, may be deemed to be “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding: projections of sales revenue, margins, expenses, tax provisions (or reversal of tax provisions), earnings or losses from operations, cash flows, liquidity position, synergies, cost-control activities, cost savings or other financial items; plans, strategies and objectives of management for future operations, trends, seasonality. Forward-looking statements may be characterized by terminology such as “believe”, “anticipate”, “should”, “would”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “position” “strategy” and similar expressions. These statements are based on assumptions and assessments made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to the following:

     Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those foreseen in such forward-looking statements. These forward-looking statements speak only as of the date of the report, press release, statement, document, webcast or oral discussion in which they are made. We do not intend to update any forward-looking statement, all of which are expressly qualified by the foregoing. See Part I – Item A, Risk Factors of our latest Form 10-K for the fiscal year ended April 28, 2007, for a further discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

     We are a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in the U. S., Malta, Mexico, United Kingdom, Germany, Czech Republic, China and Singapore. We design, manufacture and market devices employing electrical, thermal, electronic, wireless, sensing and optical technologies. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Distribution and Other. For more information regarding the business and products of these segments, see “Item 1. Business” of our Form 10-K for the fiscal year ended April 28, 2007.

     Our components are found in the primary end markets of the automotive, appliance, communications, aerospace and military, rail and other transportation industries and the consumer and industrial equipment markets. Recent trends in the industries that we serve include:

     In response to pricing pressures, we continue to employ lean manufacturing processes and invest in, and implement techniques to lower our costs in order to reduce or prevent margin erosion. We also have become more selective with regard to programs in which we participate in order to reduce our exposure to low profit programs, and have transferred several automotive lines and identified additional lines to be transferred from the U.S. to lower-cost countries.

     Due to the timing of our fiscal calendar, the three months ended February 2, 2008 represent 14 weeks of results and the three months ended January 27, 2007 represent 13 weeks of results. In addition, the nine months ended February 2, 2008 represent 40 weeks of results and the nine months ended January 27, 2007 represent 39 weeks of results.

     Sales in fiscal 2008 should increase compared to fiscal 2007. This is due to growth related to the TouchSensor Technologies, L.L.C. (TST) and Value Engineered Products, Inc. (VEP) acquisitions on February 28, 2007 and August 31, 2007, respectively. Sales of automotive products at our Shanghai, China operation are expected to continue to increase and we anticipate increased sales of automotive switches at our Malta operation. Sales of sensor pads for passive occupant-detection systems are expected to decline due to lower demand in the U.S. We have received price increases on previously marginally profitable and unprofitable products, which we had decided to exit at the expiration of our manufacturing commitment, but, at the request of the customer, have agreed to continue to produce. We expect completing the exit of these products during the second quarter of fiscal 2009, and, therefore, do not expect to achieve the same level of income growth in fiscal year 2009 as achieved in fiscal year 2008.

Below is a table summarizing results for the three months ended:
(in millions)

     Net Sales. Consolidated net sales increased $33.1 million, or 31.4%, to $138.5 million for the three months ended February 2, 2008 from $105.4 million for three months ended January 27, 2007. Of the $33.1 million

increase, $14.7 million relates to our TST and VEP acquisitions. The increase was also driven by strong organic growth from our European and Asian operations. Sales from those operations increased 44.7% during the three months ended February 2, 2008 as compared to the three months ended January 27, 2007. Automotive segment sales were impacted by price increases of $5.4 million on previously marginally profitable and unprofitable products. Excluding TST, the Interconnect segment sales increased 14.2% for the three months ended February 2, 2008 due to strong sales from our Asian connector and European optical businesses. Excluding VEP, the Power Distribution segment sales decreased 5.8% for the three months ended February 2, 2008 as compared to the three months ended January 27, 2007. Translation of foreign operations net sales in the three months ended February 2, 2008 increased reported net sales by $3.1 million or 2.2% due to currency rate fluctuations.

     Other Income. Other income decreased $0.4 million, or 57.1%, to $0.3 million for the three months ended February 2, 2008 from $0.7 million for three months ended January 27, 2007. Other income consisted primarily of earnings from our automotive joint venture, engineering design fees and royalties.

     Cost of Products Sold. Consolidated cost of products sold increased $23.7 million, or 27.8%, to $109.0 million for the three months ended February 2, 2008 from $85.3 million for the three months ended January 27, 2007. The increase is due to the higher sales volumes. Consolidated cost of products sold as a percentage of sales was 78.7% for the three months ended February 2, 2008 and 80.9% for the three months ended January 27, 2007. Automotive segment cost of goods sold as a percentage of sales were favorably impacted by price increases and the transfer of certain operations from Scotland to Malta during the third quarter of fiscal 2007. In addition, we have previously made our North American operations more efficient and cost effective in anticipation of the forecasted lower automotive sales in the U.S. market.

     Gross Margins (including other income). Consolidated gross margins (including other income) increased $9.0 million, or 43.3%, to $29.8 million for the three months ended February 2, 2008 as compared to $20.8 million for the three months ended January 27, 2007. Gross margins as a percentage of net sales increased to 21.5% for the three months ended February 2, 2008 from 19.7% for the three months ended January 27, 2007. The increase in gross margin as a percentage of sales is primarily due to the auto segment pricing increases and integration of the Scotland operation to Malta.

     Selling and Administrative Expenses. Selling and administrative expenses increased $4.9 million, or 38.0%, to $17.8 million for the three months ended February 2, 2008 compared to $12.9 million for the three months ended January 27, 2007. Of the $4.9 million increase, $1.4 million relates to the TST and VEP businesses. The majority of the additional increase relates to additional global support staff and increased long-term incentive compensation due to improved performance and higher share price and higher professional fees. Selling and administrative expenses as a percentage of net sales increased to 12.9% in the three months ended February 2, 2008 from 12.2% for the three months ended January 27, 2007.

     Restructuring and Impairment Costs. On January 24, 2008, we announced a restructuring of our U.S.-based automotive operations and the decision to discontinue producing certain legacy electronic connector products. As a result, we recorded a restructuring charge of $0.5 million for the three months ended February 2, 2008. We recorded $1.9 million of restructuring and impairment costs in the third quarter of fiscal 2007 relating to the closing of our Scotland automotive parts manufacturing plant and transferred all production lines from that facility to our automotive parts manufacturing operation in Malta. 

     Interest Income, Net. Net interest income decreased 30.0% in the three months ended February 2, 2008 to $0.7 million as compared to $1.0 million in the three months ended January 27, 2007. The average cash balance was $88.8 million during the three months ended February 2, 2008 as compared to $104.6 million during the three months ended January 27, 2007. The average interest rate earned in the three months ended February 2, 2008 was 3.57% as compared to 4.34% in the three months ended January 27, 2007. The average interest rate earned includes both taxable interest and tax-free municipal interest. The cash balance decreased primarily due to the acquisition of the TST and VEP businesses. Interest expense was $0.1 million for both periods.

     Other, Net. Other, net increased to $0.9 million for the three months ended February 2, 2008 versus $0.3 million for the three months ended January 27, 2007. Other, net consists primarily of currency exchange gains and

losses at the Company’s foreign operations. The functional currencies of these operations are the British pound, Chinese yuan, Czech koruna, Euro, Maltese lira, Mexican peso and Singapore dollar. 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. During the third quarter ended February 2, 2008, we recorded a charge of $0.3 million relating to a reduction of the net asset value (NAV) on a portion of our short-term investments which is an enhanced cash fund sold as an alternative to traditional money market funds. We have historically invested a portion of our cash in the fund. During the third quarter, the fund was overwhelmed with withdrawal requests and a restriction was placed on the redemption ability of the fund. Therefore, during the third quarter, we recorded a realized loss of $0.1 million on partial redemptions and an unrealized loss of $0.2 million for the reduction in the NAV’s principal balance.

     Income Taxes. The effective income tax rate was 13.8% in the third quarter of fiscal 2008 compared with 29.9% in the third quarter of fiscal 2007. During the three months ended February 2, 2008, we recognized $0.3 million relating to the expiration of certain statute of limitations for tax positions that were not challenged by the taxing authorities. In addition, we recognized $0.5 million relating to tax return reconciliations compared to income tax provisions during the three months ended February 2, 2008. The effective tax rates for both fiscal 2008 and 2007 reflect utilization of foreign investment tax credits and the effect of lower tax rates on income of the Company’s foreign earnings and higher earnings at those operations. The effective tax rate was higher in fiscal 2007 primarily due to the establishment of a valuation allowance for potentially non-deductible stock-based compensation.

     Net Income. Net income increased $5.1 million, or 108.5%, to $9.8 million for the three months ended February 2, 2008 as compared to $4.7 million for the three months ended January 27, 2007 due to the auto segment price increases, strong sales and increased efficiencies from our European and Asian operations, offset slightly by higher selling and administrative expenses. In addition, restructuring costs decreased by $1.4 million and our effective tax rate was 13.8% during the three months ended February 2, 2008. Net income as a percentage of sales increased to 7.1% for the three months ended February 2, 2008 as compared to 4.5% for the three months ended January 27, 2007.

Below is a table summarizing results for the three months ended:
(in millions)

     Net Sales. Automotive segment net sales increased $16.4 million, or 22.7%, to $88.6 million for the three months ended February 2, 2008 from $72.2 million for the three months ended January 27, 2007. The automotive segment net sales increase was primarily driven from organic growth from our European and Asian operations. Net sales from these operations increased 40.0% for the three months ended February 2, 2008. Sales were also impacted by price increases of $5.4 million on previously marginally profitable and unprofitable products, which we had decided to exit at the expiration of our manufacturing commitment but, at the request of the customer, have agreed to produce. We estimate to complete the exit of these products during the second quarter of fiscal year 2009. Excluding the price increases, North American automotive segment sales decreased slightly in the third quarter of fiscal 2008. Translation of foreign operations net sales in the three months ended February 2, 2008 increased reported net sales by $2.6 million, or 2.9%, due to currency rate fluctuations.

     Cost of Products Sold. Automotive segment cost of products sold increased $7.5 million to $69.9 million for the three months ended February 2, 2008 from $62.4 for the three months ended January 27, 2007. The increase relates to higher sales volumes. Automotive segment costs of products sold as a percentage of sales decreased to 78.9% for the three months ended February 2, 2008 from 86.4% for the three months ended January 27, 2007. Automotive segment cost of goods sold as a percentage of sales was favorably impacted by price increases. The integration of our Scotland operation to our Malta operation has increased efficiency in our European manufacturing processes. In addition, we have previously made our North American operations more efficient and cost effective in anticipation of the forecasted lower automotive sales in the U.S. market.

     Gross Margins. Automotive segment gross margins increased $8.9 million, or 90.8%, to $18.7 million for the three months ended February 2, 2008 as compared to $9.8 million for the three months ended January 27, 2007. The increase in gross profit as a percentage of sales is primarily due to the pricing increases and integration of the Scotland operation. Gross margins as a percentage of net sales increased to 21.1% for the three months ended February 2, 2008 from 13.6% for the three months ended January 27, 2007.

     Restructuring and Impairment Costs. On January 24, 2008, we announced a restructuring of our U.S.-based automotive operations. As a result we recorded a restructuring charge of $0.4 million for the three months ended February 2, 2008. We recorded $1.9 million of restructuring and impairment costs in the third quarter of fiscal 2007 relating to the closing of our Scotland automotive parts manufacturing plant and transferred all production lines from that facility to our automotive parts manufacturing operation in Malta.

     Income Before Income Taxes. Automotive segment income before income taxes increased $11.2 million, or 522.8%, to $13.3 million for the three months ended February 2, 2008 compared to $2.1 million for the three months ended January 27, 2007 due to the price increases, strong sales in Europe and Asia and integration of our Scotland operation to our Malta operation. In addition, restructuring costs decreased by $1.5 million in the three months ended February 2, 2008.

Below is a table summarizing results for the three months ended:
(in millions)

     Net Sales. Interconnect segment net sales increased $15.8 million, or 79.8%, to $35.6 million for the three months ended February 2, 2008 from $19.8 million for the three months ended January 27, 2007. A majority of the sales increase is due to the TST acquisition. Sales from our Asian connector business increased 95.4% for the three months ended February 2, 2008. Excluding TST, the Interconnect segment sales increased 14.2% for the three months ended February 2, 2008 due to the strong sales from our Asian connector business. In addition, sales increased from our European optical business, offset by lower sales in our domestic data installation business. Translation of foreign operations net sales in the three months ended February 2, 2008 increased reported net sales by $0.5 million, or 1.4%, due to currency rate fluctuations.

     Cost of Products Sold. Interconnect segment cost of products sold increased $14.4 million to $27.8 million for the three months ended February 2, 2008 compared to $13.4 million for the three months ended January 27, 2007. The majority of the increase is due to cost of products sold from our TST acquisition. Interconnect segment cost of products sold as a percentage of net sales increased to 78.1% for the three months ended February 2, 2008 compared to 67.7% for the three months ended January 27, 2007. The increase is primarily due to the TST business,

which has higher cost of products sold as a percentage of sales as compared to the other businesses in the Interconnect segment. We experienced lower sales in our domestic data center installation business and higher costs related to PC card adapters during the third quarter of fiscal 2008. In addition, we experienced increased costs due to overall lower sales volumes in our North American operations (excluding TST).

     Gross Margins. Interconnect segment gross margins increased $1.4 million, or 21.9%, to $7.8 million for the three months ended February 2, 2008 as compared to $6.4 million for the three months ended January 27, 2007. The majority of the increase is due to the TST acquisition. In addition, gross margins increased in our Asian connector business and European optical business, partially offset with gross margin declines in our PC card adapter and data installation business. Gross margins as a percentage of net sales decreased to 21.9% for the three months ended February 2, 2008 from 32.3% for the three months ended January 27, 2007.

     Restructuring and Impairment Costs. On January 24, 2008, we announced our decision to discontinue producing certain legacy electronic connector products. As a result we recorded a restructuring charge of $0.1 million for the three months ended February 2, 2008.

     Income Before Income Taxes. Interconnect income before income taxes decreased $1.6 million, or 62.8%, to $0.9 million for the three months ended February 2, 2008 compared to $2.5 million for the three months ended January 27, 2007 due to the gross margin declines in our PC card adapter and data installation businesses, partially offset with increases from the TST business.

Below is a table summarizing results for the three months ended:
(in millions)

     Net Sales. Power Distribution segment net sales increased $1.1 million to $12.5 million for the three months ended February 2, 2008 from $11.4 million for the three months ended January 27, 2007. Net sales increased due to the VEP acquisition and were more than offset by lower sales from our bus bar business. Excluding VEP, the Power Distribution segment sales decreased 5.8% in the three months ended February 2, 2008. The majority of the decrease relates to certain projects for a customer which reached end of life at the end of fiscal year 2007. In addition, we are no longer the sole supplier for another customer starting in fiscal year 2008.

     Cost of Products Sold. Power Distribution segment cost of products sold increased $1.0 million, or 12.7%, to $8.9 million for the three months ended February 2, 2008 compared to $7.9 million for the three months ended January 27, 2007. The Power Distribution segment cost of products sold as a percentage of sales increased to 71.2% for the three months ended February 2, 2008 from 69.3% for the three months ended January 27, 2007. The increase

is primarily due to higher material costs and price erosion at our North American operation, partially offset by margin improvement at our Shanghai, China operation.

     Gross Margins. Power Distribution segment gross margins increased $0.1 million, or 2.9%, to $3.6 million for the three months ended February 2, 2008 as compared to $3.5 million for the three months ended January 27, 2007. Gross margins as a percentage of net sales decreased to 28.8% for the three months ended February 2, 2008 from 30.7% for the three months ended January 27, 2007. The increase is primarily due to the VEP business, offset by higher material costs from our bus bar business.

     Income Before Income Taxes. Power Distribution segment income before income taxes was $2.6 million for both the three months ended February 2, 2008 and January 27, 2007 due to certain projects ending at the end of fiscal year 2007, no longer being the sole supplier for another customer and higher material and price erosion at our North American operation.

Below is a table summarizing results for the three months ended:
(in millions)