Methode Electronics Inc (MEI) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Methode Electronics, Inc. third quarter 2007 earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. Certain statements in this press release dated March 2, 2007 containing information for Methode's third-quarter reporting period for the 2006/2007 fiscal year and offering guidance for Methode's fourth-quarter and full-year reporting periods for the 2007 fiscal year are forward-looking statements that are subject to certain risks and uncertainties. Methode's results will be subject to many of the same risks that apply to the automotive, computer and telecommunications industries, such as general economic conditions, interest rates, consumer spending patterns and technological change. Other factors which may result in materially different results include Delphi Corporation's bankruptcy petition, other significant customer bankruptcy filings, restructuring, operational improvement and cost reduction programs currently under review by Methode, the current macroeconomic environment, including higher petroleum and copper prices affecting material and components used by Methode, potential manufacturing plant shutdowns by automotive customers and significant fluctuations in the demand for certain automobile models. In addition, market growth, operating costs, currency exchange rates and devaluation, delays in development, production and marketing of new products, and other factors set forth from time to time in Methode's Form 10-K and other reports filed with the Securities and Exchange Commission, may also affect Methode's results. The forward-looking statements in this press release are subject to the Safe Harbor protection provided under the securities law. All information in this press release is as of March 2, 2007. Methode undertakes no duty to update any forward-looking statement to conform (indiscernible) to actual results or changes in Methode's expectations.

I will now turn the conference over to Mr. Donald Duda, Chief Executive Officer and President of Methode Electronics. Sir, you may begin your conference.

Thank you, [Everett]. Good morning, everyone. Thank you for joining us today for our fiscal 2007 third-quarter financial results and TouchSensor acquisition conference call. With me on the call is Doug Koman, our Chief Financial Officer, Bob Kuehnau, Methode's Treasurer and Controller, and Joey Iske, Director of Investor Relations. Both Doug and I have comments today, and afterwards we will be pleased to take your questions.

Methode completed the third quarter with net sales of 105.4 million and net income of 4.7 million, or $0.13 per share, which exceeded our previous guidance. Contributing to the upside was better-than-expected sales and income from Methode's Power Distribution and Interconnect segments, as well as strong performance from our European and Asian automotive businesses.

In domestic auto for the third quarter, sales continued to decline due to production cuts and extended plant shutdowns by Ford and DaimlerChrysler. However, our European automotive business reported increased sales with customers such as Alpha, VW, Mitsubishi, Ford and Aston Martin.

We have now completed the transfer of automotive production from our Scotland facility to Malta. The Scotland facility is now closed. We anticipate improved efficiencies with this business going forward.

Sales in the Interconnect segment were up in the third quarter compared to the year-ago quarter, mainly due to increases in data center installations in the U.S. from our connectivity business unit, sales of fiber optic products in Europe, solid sales of our copper transceiver product, as well as increased Asian connector sales. Our PC and ExpressCard frame kits are launching [several] new programs over the next few months, and we anticipate interest to remain (indiscernible) high. All in all, a good quarter for Methode's Interconnect group.

Our Power Distribution segment increased sales over 50% in the third quarter compared with the third quarter of last year. Sales are attributed to increased demand for our high-current, flexible cabling systems, as well as bus bars for computer, telecommunications and locomotive applications. Sequentially, bus bar sales were slightly below the second-quarter results, as some older programs began winding down production as they approached end of life.

However, several military and aerospace programs, along with new computer and telecommunication design-ins, are moving forward, with anticipated launch dates in 2009. In fact, with several Methode bus bars aboard, the Lockheed Martin F-35, or Joint Strike Fighter, as it is often referred to, completed its inaugural flight in December. This aircraft is expected to go through the most comprehensive flight test program in military aviation history. It is also the most powerful single-engine fighter ever produced, and is designed to replace several aircraft, including the F-16 and FA-18 Hornet.

From a global perspective in Power Distribution, our bus bar operation in China continues to grow, and we are taking a very serious look at entering the European market.

In Methode's other business segment, our (indiscernible) product line has increased design work with Methode's Automotive segment. Our engineers have identified several areas of the vehicle that this patented technology can be applied.

At this time I would like to make a few comments about our acquisition of TouchSensor Technologies, which we formally announced yesterday. We are very pleased to have completed this transaction. TouchSensor is the pioneer of solid-state field-effect switching applications. We acquired TouchSensor from Gemtron Corporation for 65 million in cash and assumed liabilities.

The Company designs and manufactures digital switches for use in touch-sensitive user interface panels. These panels are currently found on products such as home appliances, commercial fitness equipment, commercial beverage dispensers, and in automobiles. TouchSensor is the North American market leader in the solid-state field-effect switch space. Having shipped more than 4 million touch panels to such prominent brands as Whirlpool, Maytag, Electrolux, Life Fitness, Precor, SubZero, Viking, General Electric, and BMW.

Solid-state switch electronics is a growing industry. There is a significant market opportunity in converting membrane switching technology to solid-state technology as more manufacturers act on consumers' preferences for high-quality, reliable, durable and aesthetically-pleasing user interface controls. According to third-party research, total solid-state input pad sales are expected to grow in excess of 25% per year over the next several years.

The acquisition of TouchSensor makes sense for Methode for many reasons. For the past few years we (indiscernible) a long-term corporate strategy that outlines the types of products we will manufacture and sell, the markets, industries and customers we will serve, and the criteria for making acquisitions that best augment our current business. The TouchSensor acquisition directly complements this corporate strategy in several key ways.

First, TouchSensor's patented technology and expertise are applicable in multiple industries, including automotive, commercial and consumer durables.

Second, TouchSensor provides a platform from which to expand into new markets, such as medical equipment and point-of-sale devices; for example, vending machines, kiosks and retail petroleum pumps.

Third, it provides a new technology platform to assist our growth with non-domestic automotive OEMs such as Toyota, Honda and Nissan, thus providing revenue diversification from the struggling Detroit auto makers, a key corporate objective.

Finally, the acquisition is anticipated to be accretive to earnings in the 2008 fiscal year.

TouchSensor's patented technology is significant for many reasons. It enhances the functionality and aesthetic qualities of switches, which product designers are seeking. It can easily and efficiently be applied to new products, as there is no application-specific software involved. It is extremely durable and reliable. And it is synergistic with our technology partners, such as [Immersion's] (indiscernible) technology, Sensor Dynamics' firmware, and [New Light's] OLED display enhancement software.

TouchSensor's technology also has a number of positive applications in the automotive market. TouchSensor recently capitalized on an opportunity to provide radio controls for the 2007 BMW X5, and an interior switch application on a domestic vehicle for the 2008 model year. Additional applications are already being pursued by our sales team.

Moreover, Methode's current automotive products can be enhanced using the TouchSensor technology. This includes exterior switches, such as keyless entry, liftgate and (indiscernible) glass hatch, as well as interior switches, such as instrument panels, center consoles and overhead controls. The technology can also be integrated directly into a device, including on-seat position controls, sunroof glass panels and exterior door handles.

Before I move on to guidance, I would like to take a moment to thank Methode's internal acquisition team for the countless hours of work they put in well above their regular assignments, as well as to thank our outside advisers. Methode is a very lean organization and depends on an outside team of professionals, such as Robert W. Baird's banking group and the law firm of Lord, Bissell & Brook.

And finally, we would like to welcome the employees and managers of TouchSensor Technologies to the Methode family of companies.

Moving on to the business outlook, Methode will include TouchSensor's operations for the months of March and April in its 2006 -- excuse me -- 2007 fiscal year. Including TouchSensor, Methode expects to achieve fiscal year 2007 sales between 430 million and 440 million. Fiscal year 2007 earnings per share are expected to be in the range of $0.52 to $0.55, which reflects an expected full-year $0.06 per share restructuring charge for the closure of Methode's Scotland facility, and modest dilution from the TouchSensor acquisition.

At this time I will turn the call over to Doug for his financial commentary.

Thank you, Don. Good morning, everyone. Later today we will be filing our 10-Q, and much of the information I'm going to cover now can be found in that document.

Let me start with net sales activity for our four reporting segments; then I will go through the financial highlights included with the earnings release. All sales numbers that I provide now will exclude customer paid tooling sales, which were approximately 800,000 in the current quarter versus 1.3 million last year's quarter. And for the nine-month period, the current nine-month period, it was 2.9 million, versus last year's nine-month period of 8.8 million.

The Automotive segment had third-quarter net sales of 71.4 million compared to 68.5 million last year. That's a 4.2% increase in Automotive product sales. For the nine-month period, the Automotive segment had net sales of 221.5 million compared to 220.5 million last year. In both the quarter and the nine-month period, Automotive segment had sales gains in Europe and Asia that offset a decline in production by our North American automotive end customers.

The Interconnect segment had net sales of 19.7 million in the third quarter, up from 14.5 million last year. That's an increase of 35.9%. For the nine-month period the Interconnect segment had sales of 55.7 million compared to 49.4 million last year. That's a 12.7% increase in product sales year-over-year. The increase in this segment is primarily from sales of fiber optic connectors and patch cords in Europe, fiber optic data center installations domestically, improved sales from our European connector distribution channel, and increased sales of PCMCIA and ExpressCard products.

The Power Distribution segment was up 52.7%, with sales of 11.4 million in the current quarter compared to 7.5 million last year, and sales of 33.4 million in the current nine-month period compared to 21.2 million last year, a 57% increase. The increase is primarily due to higher demand for the high-current, flexible cabling systems and bus bar product sales, primarily to two large domestic OEMs for computer peripheral and transportation applications. We also had increased bus bar sales from our Power Distribution operation in Shanghai that opened in late fiscal 2006.

Finally, the Other segment had third-quarter sales of 2 million in the current quarter compared to 1.6 million last year, and the nine-month period sales were 5.7 million in the current period, compared to 5 million last year. The increase is due to higher sales of [port sensing] products, as this technology has been designed into new industrial consumer applications. This segment also benefited from an increased demand for the types of services offered by our test laboratories.

Continuing down the income statement, we have an increase in other income for the quarter to 686,000, compared to 103,000 last year. And for the nine-month period we have 1 million, which is up from 700,000 last year. The increase here is primarily due to higher joint venture income and increased design engineering fees at our European automotive businesses.

Moving to cost of products sold for the quarter, the percentage of sales was 81%, compared to 82.1% last year. The primary reason for the improvement in the quarter is that our Shanghai facility operated profitably, where last year it was in start-up mode and throwing off losses.

For the nine-month period, cost of products sold was 81.4 million -- 81.4% compared to 80.8 last year. The slippage here is due primarily to volume reductions due to production cutbacks by our North American automotive customers, price reductions from North American OEMs for our legacy automotive products, and increased year-over-year material costs, primarily copper, precious metals and petroleum-based products.

Moving to selling and administrative expense -- in the quarter was 12.2% of net sales, compared to 13.4% last year. For the nine-month period, selling and administrative was 12.6%, compared to 13.6% last year. The third quarter of fiscal 2006 had increased expense for stock-based compensation due to significant increase in the market price of our stock in that quarter. With the adoption of FAS 123R in fiscal 2007, we now have less stock-based compensation subject to variable accounting.

Last year's second quarter also included 3.2 million of bad debt provision related to Delphi Corporation's bankruptcy. That itself represented about 1% of sales in last year's nine-month period.

Interest income was 1.1 million for the quarter, compared to 647,000 last year, and 2.8 million in the current nine-month period, compared to 1.7 million last year. This is primarily related to the higher interest rates on cash investments.

The change in other net is primarily the impact of currency fluctuations at our foreign operations, mainly sales in U.S. dollars and euros that create exchange rate sensitivity.

The effective tax rate in the quarter was 29.9% compared to 34.2% last year, and it was 33.9% for the current nine-month period, compared to 32.5% last year. The lower rate in the quarter was primarily due to tax planning in the quarter that resulted in partial reduction of a valuation allowance for potentially nondeductible compensation that had been established earlier in a year. The increase in the tax rate for the nine-month period primarily reflects the establishment of the valuation and allowance for some of that potentially nondeductible compensation.

Moving to the balance sheet, accounts receivable are 61.6 million, down from 74.2 million at the fiscal year end, which is primarily the result of decreased sales in the Automotive segment -- the sale of 4.6 million of pre-petition Delphi receivables in the first quarter of fiscal 2007.

Inventory is 46.2 million. That's up slightly from 45.7 million at year end. While Automotive segment inventories are down, the increase in inventories is primarily to support improved business in Power Distribution segment. We also have increased shipping volumes to North American hubs out of our Shanghai operation. Related to Automotive and Power Distribution, that also impacted inventory.

Other current assets are 14.3 million, down from 19.7 million last year. This is primarily due to a refund of temporary withholding taxes in Germany that was associated with our foreign cash repatriation in fiscal 2006.

Looking at property, plant and equipment, it's at 83.2 million. That's down from 90.5 million at year-end, primarily due to depreciation expense exceeding capital expenditures in the nine-month period. Capital spending is down, primarily due to general belt tightening, especially in our North American automotive business unit.

Goodwill is up slightly at 30.1 million, from 28.9 million at the end of last year. This is related to an earnout payment for the Cableco acquisition. Intangible assets are 14.2 million, which is down from 17.5 million at year end. That's due to normal amortization of intangibles. Other assets increased to 19.8 million from 16.4 million at year end, due to increase -- an increase in deferred tax assets, increase in cash surrender value of company-owned life insurance related to compensation -- deferred compensation plan, and due to due diligence costs related to our acquisition of TouchSensor.

Accounts Payable are 34.2 million, down from 41.6 million at year end. This is similar to the reduction in accounts receivable in that it reflects the decrease in sales. Other liabilities, both current and non-current, are flat compared to year end.

On the cash flow statement, the nine-month year-over-year increase in cash provided by operating activities is primarily due to working capital account changes in that it's primarily the change in accounts payable, accounts receivable and inventory. We also have the refund of the temporary German withholding taxes and proceeds from the sale of Delphi receivables in fiscal 2007.

The reduction in cash used in investing activities is primarily the result of less capital spending compared to last year and a smaller and final deferred purchase price payment on our (indiscernible) sensing business. And last year's nine-month period included technology license payments, where we had none in the current period. The Other category under investing activities is -- the change there is primarily due to due diligence costs related to TouchSensor. The increase in cash used in financing activities is due primarily to the open market purchase of about 206,000 shares in the second quarter of fiscal 2007.

Don, that concludes my remarks.

Thank you, Doug. Everett, we are ready to take questions.

(OPERATOR INSTRUCTIONS). Kevin Sarsany, Next Generation Equity Research.

I guess one of the things that kind of struck me is last quarter you guided to about $0.40 to $0.48 for the year, and you, obviously, had a good quarter. Now you're guiding $0.52 to whatever the number was; sorry. I'm just wondering, what has changed? Going into this, you knew you were going to do the Scotland and, hopefully, were going to get profitable in China. Is this the transition to new programs, the pruning? Can you just kind of tell me what happened there, and is it sustainable?

If you look at the guidance that we provided at the end of last quarter, and then look at the results of Q3, most of that change in our full-year guidance is coming out of the impact of Q3. And we just had some nice activity that we really hadn't planned on in a few of the segments, primarily in Power Distribution; they performed very well. And as Don mentioned in his comments, the Interconnect segment also performed well. And then even within Automotive we saw some business perform better than expected in the quarter. So to answer your question, I think, most of that increase that you're seeing in the full-year guidance, our current guidance, is really -- most of that is coming from the impact of Q3.

Are these margins kind of -- are they going to go back down, is that what you're suggesting? Or is this kind of a stable level of gross margins and EBIT margins?

The non-automotive groups are much harder to forecast. If we get upside from them they tend to have better margins, but also a little bit less predictable than auto, I guess, used to be. Auto lately is a little more difficult to forecast. I don't want to give you a non-answer, but -- it is an example of what Methode's non-automotive businesses can do when they are booking good business and shipping there. They are -- they can be significant contributors, even though their revenues are less than auto.

And how much of your revenue is now made up of Chrysler and Ford?

Domestic -- of our domestic automotive business, not total Methode business, it's slightly less than -- and correct me if I'm wrong -- slightly less than 50% of our (indiscernible).

Where was this last quarter or a year ago? It was higher, obviously.

Yes, it was higher. We've got business in Asia going, and we've got business in Europe. And also, the domestic business with the Big Three is shrinking.

I was trying to get -- was it 60%, 55%?

We could get that number for you, but we won't have it here.

Good enough. I guess, on the tax rate going forward, what do you expect? Does it go back to about 33%?

The tax rate probably is at a run rate that's a little bit higher than maybe we would expect going forward. A lot of it, Kevin, just has to do with the mix of business and the favorable tax rates we have with some of our foreign businesses. But I wouldn't change -- look for a significant change in tax rate. But it might currently be a little bit higher than we would expect going forward.

Meaning versus the 29%, or are we talking the 33%?

For the nine-month period.

But going forward, I mean, is it going to be 33, 34? Or is this 29% that you did in this last quarter, the 30%, a more normalized level now?

We don't comment specifically on tax, because that's just too difficult. But I think what I was -- my answer was if you look at the tax rate for the nine-month period, I think, going forward we should be below that.

And then, on the TouchSensor, could you give out at all the profitability of that business, EBIT, EBITDA?

We haven't provided any of that information because we haven't determined how this is going to fit into our segment reporting. And until we do that, we're just not going to provide any more detail on (indiscernible) at this time.

I guess growing -- the industry growing at 25%, is this -- it sounds like there's a transition from what they previously used to this new product. Who else provides this? And is that a fair statement that this is a secular trend, and you happen to have bought into it? And who are the other competitors?

It is a growing market. We had an independent market study done. There is a transition from membrane switches to solid-state switching. TouchSensor has -- is probably the leader in that market space with their field-effect switching. There are other solid-state switch technologies [or capacitors]. And I believe ultrasonic (indiscernible) TouchSense has been in the market the longest, is considered to be the market leader.

And they've -- historically they've been on higher-end equipment. But as their costs come down, and (technical difficulty) user or, actually, designers are looking for a more durable product, there is a transformation taking place in the market. The membrane switch market is huge. So, to the degree that you can cut into that, that's where you get some significant growth. The best example I can give is you go to the gas pump, and the membrane switch on the pump is often broken and there's an out-of-order sign on it, and so on. TouchSensor's technology is extremely robust and will be, I think, a welcome application of the technology. That's a good example of where you can erode or cut into the membrane market.

My last question is on cash flow. It looks like you're spending less on CapEx because of North America, Chrysler and Ford. Is that kind of relationship that I'm looking at here for the nine months -- D&A of about 14 million versus about 6 million in CapEx -- is that kind of a relationship that you expect to continue?

Yes. The depreciation and, similarly, on CapEx -- although, Kevin, with the acquisition of TouchSensor, we haven't factored in what exactly we might need, if anything, for the fourth quarter, as far as capital spending there.

Tyson Bauer, Wealth Monitors.

Great quarter and also a great job on the acquisition. A couple of -- just two quick topics I'd like to have you address. One is, even post-acquisition, you should have a very strong balance sheet and still a robust liquidity amount available to you. Are you looking to integrate the TouchSensor before examining other areas in the M&A side, or does this not prevent you from still being acquisitive in the marketplace?

We are still actively looking. That won't slow us down from looking at companies that we're looking -- not only -- this fits into our switch products, but we're also looking in our Power Distribution and Interconnect. So, no; we'll continue to [pick out] acquisitions, for the reasons (indiscernible)

So it is -- that's your primary use of your existing liquidity then, is still looking at growth for the Company in those areas you just stated?

That's correct.

Secondly, obviously, we've had the domestics report here yesterday their ongoing struggles, not so much for GM but for the others. Does this acquisition help you in your -- I think you quoted -- directive for the Company for lessening your domestic exposure? Especially given, obviously, Ford's steep decline and the stress that tat puts on your company, does this allow you to be a little more nimble in what you're able to do going forward with some of those relationships?

Yes. I don't want to speculate what we could or couldn't do there. But more so than maybe giving us some flexibility with our current Detroit customers, it gives us the technology to go into the Toyotas and the Nissans and the Hondas. I've commented in times past about our legacy products. And if you're a good supplier to the Japanese, they're not likely to switch out. But if you bring new technology, that's a door opener. And this is, as I said in my statement, very applicable in the auto. So that gives us probably even more opportunity to diversify than we've had in the past. We have -- and we've had a relationship with TouchSensor, so our auto sales and engineering team have had access to the technology. So we have been actively working on design-ins. So that's probably the best effect of the acquisition on the Automotive segment. And that's worldwide. We'll also be knocking on the doors of our European customers.

Given volume is such a critical aspect of your business with customers, when you see customers continuing to drop market share, decline production rates by double digits, is there a break point? Or are you seeing any concessions, which I doubt they're giving you? Does there become a point where it is not feasible to continue that relationship?

You certainly can get to that point. We've said before that we're not booking any programs that don't give us the margins we desire. So probably now for two years we've passed on programs with Ford and Chrysler. We're probably more in an attrition mode than taking definitive action to simply stop doing business with them. (indiscernible) contracts and so on that we must honor. But I never rule that out. But you're right; you do get to the point where it's no longer beneficial to the Corporation. And it is possible to get there. I think we've seen some of the recent news in Detroit. But as far as concessions, not yet.

Thanks a lot, gentleman. Keep up the good work.

David Leiker, Robert W. Baird.

This is Keith Schicker. A couple questions. Most of my questions have been taken care of. Digging a little deeper into the better-than-expected auto business in Europe and Asia that you saw, can you kind of quantify was this a matter of volume or mix? What was really driving the upside there to what you guys had expected?

In Asia it's just (indiscernible). We (indiscernible) several programs, and the same in Europe. Most notably, I think, BMW was a significant contributor in Europe, as we launched a hidden switch for them. That reached its full production level in the quarter. (multiple speakers) those are the two (indiscernible). But, yes; it's volume related.

Secondly, when we look at the Scotland closure, obviously, there's going to be a margin benefit from this. Can you quantify how much that is, either quantitatively or qualitatively? And what's the timing when we should expect that to start to benefit the P&L?

I don't know that we can quantify it for your right now. We're still letting the dust settle on the transferor. The transfer went very well, but we're just now putting together our '08 projections. And so that -- in the coming weeks and months, we'll have a better handle on the impact of that. (indiscernible) have an impact.

So it sounds like that's something that's two or three quarters away maybe?

I don't know that I want to speculate. We closed the facility. You certainly get the benefits of that (indiscernible) expenses. You get that almost from day one. But, exactly when we'll see the margin increase, I just am uncomfortable to say if it's three quarters out, and have it be four quarters out. Again, we wouldn't have done it if it didn't make sense from a P&L standpoint.

Lastly, when we look at Shanghai, are we still in a -- at a point here where volumes are ramping up, are going to continue to ramp up over the next several quarters?

Yes. And we've got additional business that we've booked that that won't affect this fiscal year. But I think we said Scotland -- excuse me -- Scotland. Shanghai will ramp to, I think, in the '09, '10 model year timeframe to around 50 million.

But the other two segments in Shanghai are also looking to grow?

Yes.

[Patrick Schott], [Louis McDonald].

Great quarter. Thank you very much for putting some details out for us on the acquisition. I was wondering if I could maybe dissect your comments a little bit more with some specific questions. You said $65 million in cash and other liabilities for the purchase. Can you break that down between cash and liabilities?

We don't even break it out in our Q that we're going to be filing. But we can say that the significant amount of that is cash.

Also, the way you describe the business, is it all North American, or is there rest-of-world in their business?

There is a small amount of business in Europe, something less than, I want to say, 2 million. And we view that as a huge opportunity for us. It is a market that they have not capitalized on, and we have a good presence in Europe. So, that's good upside. But they're pretty much a domestic business.

Of the $38 million, as it all the white goods industry, or can you help us understand how the industry breakdown is of the trailing sales?

The majority is from the appliance market, but also

Maybe about three quarters would be on the appliance, and the rest would be coming from other (inaudible)

And their focus -- Gemtron is a glass supplier, and their focus has been to concentrate on, really, Gemtron's customers, which became TouchSensor customers, the Whirlpools and the Electroluxes of the world. And the team hasn't really explored much outside of that area, so that's also a good opportunity.

Is there customer concentration in the 38 million?

Yes.

Will you give that to us, or will [it], once it's wrapped into Methode as a whole, not be big enough to break out for us?

Again, Patrick, I don't know if -- again, when we roll it into our segments, and then we look at customer concentrations (indiscernible) if it is significant, obviously, we'll comment on it. But at this time we're not. But --

We said that their main concentration is in the appliance market.

Okay. You wouldn't give a specific comment on margins. Can you at least direct us on the business margin? Is it higher than Methode or any of the other divisions?

Higher than some, lower than others.

Higher than some, lower than others.

I don't know if we (indiscernible) I guess we (indiscernible) make sense for us to buy something that was not doing better than we're doing as a whole.

Fair statement. Can you give us any guidance on intangible amortization that will come from the acquisition? I assume there has to be some, given the way that FAS 142 is written, and that this is probably an intellectual property type of Company.

There'll be maybe an additional 1.5 million, thereabouts. But we still have to have the consultants come in and wrap up the 141 valuations, and determine exactly the amount and the [lives]. So we'll be able to comment on that better going forward.

Great. Can you comment on the capital intensity of the business? I assume it's probably less capital-intensive than some of your core businesses?

I think that's fair to say. They utilize [S&T] equipment and light assembly. So we're not anticipating -- we know we need to add capacity for them, but it's not anywhere near as intensive as launching an auto line.

On Methode itself, can you give us some guidance on what we should expect out of capital expenditures going forward, given your underspend year-to-date?

Patrick, again, the vendor spending, I think, is just an indication of, like I said, some belt tightening, especially in domestic automotive. So going forward, I guess I wouldn't expect to be growing the capital spending. I would say we're probably going to stay in that, as a run rate going forward, maybe in the upper teens, 18, 19 million.

I think it also reflects that as we launch product in Asia, there is less automation equipment involved in that versus what we might have done years ago in the U.S. for the auto makers. And also, as I said earlier, we're -- very few programs that we've taken from the domestic auto makers to launch here or in Mexico. So I would anticipate we're going to spend less capital on automotive.

I'm sorry; you said 18 to 19 million, which is consistent with your historical spending pattern, but would be a significant acceleration from where you were through the first nine months?

Correct.

A clarification. Did you -- you mentioned the stock [repo], but you said it was in the second quarter. Did you buy anything in the third quarter?

No. Because of the acquisition, the Company wasn't allowed to really be in the market.

If I go back to the Q, the six-month year-to-date number on the cash flow statement for repurchase of common stock was 1.9 million. And the one you just released was 3.1 million.

Part of that is the earnout on the Cableco acquisition [that we did]. That's in stock.

That's in the cash flow item?

Yes.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS). There are no further questions at this time.

Then we will wish everybody a pleasant day and a good weekend. Thank you.

This concludes today's conference. Thank you for your participation.