First Quarter
                                     2009       2008       % Change
                    Business Unit
                    Electronics     $ 51.2     $  84.8           (40 )%
                    Automotive        18.5        36.3           (49 )%
                    Electrical*       14.7        12.6            17 %

                    Total           $ 84.4     $ 133.7           (37 )%




                                             First Quarter
                                     2009       2008       % Change
                     Geography**
                     Americas       $ 36.8     $  49.7           (26 )%
                     Europe           17.7        33.3           (47 )%
                     Asia-Pacific     29.9        50.7           (41 )%

                     Total          $ 84.4     $ 133.7           (37 )%

* Startco Engineering, acquired at the beginning of the fourth quarter of 2008, added $4.3 million in sales to the Electrical business unit in the first quarter of 2009.

** Sales are
defined
based upon
shipped to
destination.

Results of Operations - First Quarter, 2009 Net sales decreased $49.3 million or 37% to $84.4 million in the first quarter of 2009 compared to $133.7 million in the first quarter of 2008 reflecting significantly lower electronics and automotive sales, due to the sharp downturn in the global economy and credit crisis.
Sales in the electronics business decreased $33.6 million or 40% to $51.2 million in the first quarter of 2009 compared to $84.8 million in the first quarter of 2008 reflecting weaker demand as consumers remained pessimistic about the economy and continued to cut back on spending in all three geographic regions. In addition, many customers in Asia, particularly contract manufacturers and original design manufacturers, extended plant shutdowns, and electronics distributors tightly managed inventories in response to weak demand and the uncertain outlook for current year.
Automotive sales decreased $17.8 million or 49% to $18.5 million in the first quarter of 2009 compared to $36.3 million in the first quarter of 2008 primarily due to continued weakness in the passenger car markets in Europe and the Americas, resulting in sharp declines in global car production. In addition, many automotive original equipment manufacturers took extended plant shutdowns in response to weak demand and the uncertain outlook for 2009 and beyond. Electrical sales increased $2.1 million or 17% to $14.7 million in the first quarter of 2009 compared to $12.6 million in the first quarter of 2008 primarily due to $4.3 million in acquired business related to Startco, partially offset by an 18% decline in the electrical fuse business reflecting a downturn in non-residential construction and inventory reductions in the distribution channel.

On a geographic basis, sales in the Americas decreased $12.9 million or 26% to $36.8 million in the first quarter of 2009 compared to $49.7 million in the first quarter of 2008, primarily due to decreased electronics and automotive sales of $8.2 million and $6.7 million, respectively, partially offset by increased electrical sales of $2.0 million reflecting the addition of Startco. Europe sales decreased $15.6 million or 47% to $17.7 million in the first quarter of 2009 compared to $33.3 million in the first quarter of 2008 mainly due to decreased automotive and electronics sales. The Company also experienced $2.5 million in unfavorable foreign currency effects in the first quarter of 2009, primarily related to the negative impact from sales denominated in euros, compared to a $4.1 million net favorable currency effect in the first quarter of 2008.
Asia-Pacific sales decreased $20.8 million or 41% to $29.9 million in the first quarter of 2009 compared to $50.7 million in the first quarter on 2008 primarily due to weak demand for consumer electronics and inventory reductions by distributors. The Company also experienced $3.1 million in unfavorable foreign currency effects in the first quarter of 2009, primarily related to the negative impact from sales denominated in Korean won.
Gross profit was $18.3 million or 22% of net sales for the first quarter of 2009 compared to $38.5 million or 29% of net sales in the same quarter last year. The decrease in gross margin was mainly attributable to significantly lower net sales in the first quarter of 2009 compared to 2008 combined with reduced operating leverage due to lower production volumes. The first quarter of 2008 included a $4.4 million restructuring charge in cost of sales related to the closure of the Matamoros, Mexico manufacturing facility.
Total operating expense was $28.4 million or 34% of net sales for the first quarter of 2009 compared to $32.2 million or 24% of net sales for the same quarter in 2008. The decrease in operating expense primarily reflects the impact of cost reduction plans initiated in 2009.
Operating loss for the first quarter of 2009 was approximately $10.1 million compared to operating income of $6.3 million for the same quarter in 2008. Interest expense was $0.7 million in the first quarter of 2009 compared to $0.3 million for the first quarter of 2008. Interest expense increased in the first quarter of 2009 compared to the same quarter last year due to higher amounts of outstanding debt (primarily the Term Loan) in the first quarter of 2009. Other (income) expense, net, consisting of interest income, royalties, non-operating income and foreign currency items was ($0.9) million for the first quarter of 2009 compared to $0.3 million in the first quarter of 2008. The results for 2009 were primarily due to the impact from foreign exchange revaluation.
Loss before income taxes was $9.9 million for the first quarter of 2009 compared to income before income taxes of $5.6 million for the first quarter of 2008. Income tax benefit was $2.1 million with an effective tax rate of 21.3% for the first quarter of 2009 compared to income tax expense of $1.5 million with an effective tax rate of 27.1% in the first quarter of 2008. The change in effective tax rate is due to the mix of income (loss) by jurisdiction and the write-down of a deferred tax asset in the first quarter of 2009 related to a foreign operating loss that will expire unused.
Net loss for the first quarter of 2009 was $7.8 million or $0.36 per diluted share compared to net income of $4.1 million or $0.19 per diluted share for the same quarter of 2008.
Liquidity and Capital Resources
The Company historically has financed capital expenditures through cash flows from operations. Despite the recent adverse changes in market conditions, management expects that cash flows from operations and available lines of credit will be sufficient to support both the Company's operations and its debt obligations for the foreseeable future.
Term Loan
On September 29, 2008, the Company entered into a Loan Agreement with various lenders that provides the Company with a five-year term loan facility of up to $80.0 million for the purposes of (i) refinancing certain existing indebtedness;
(ii) funding working capital needs; and (iii) funding capital expenditures and other lawful corporate purposes, including permitted acquisitions. The Loan Agreement also contains an expansion feature, pursuant to which the Company may from time to time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The Company had $78.0 million outstanding at March 28, 2009. Further information regarding this arrangement is provided in Note 5.

The Loan Agreement requires the Company to meet certain financial tests, including a consolidated leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains additional affirmative and negative covenants which, among other things, impose certain limitations on the Company's ability to merge with other companies, create liens on its property, incur additional indebtedness, enter into transactions with affiliates except on an arm's length basis, dispose of property, or issue dividends or make distributions. At March 28, 2009, the Company was in compliance with all covenants.
Revolving Credit Facilities
On January 28, 2009, Startco entered into an unsecured financing arrangement with a foreign bank that provided a CAD 10.0 million (equivalent to approximately $8.1 million at March 28, 2009) revolving credit facility, for capital expenditures and general working capital, which expires on July 21, 2011. This facility consists of prime-based loans and overdrafts, bankers acceptances and U.S. base rate loans and overdrafts, and is guaranteed by the Company. At March 28, 2009, Startco had approximately CAD 7.0 million (equivalent to approximately $5.7 million at March 28, 2009) available under the revolving credit facility at an interest rate of bankers acceptance rate plus 1.62% (2.08% as of March 28, 2009).
This agreement contains covenants that, among other matters, impose limitations on future mergers, sales of assets, and changes in control, as defined in the agreement. In addition, the Company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage, working capital, leverage and net worth. At March 28, 2009, Startco was in compliance with all covenants.
The Company also has an unsecured domestic financing arrangement consisting of a credit agreement with banks that provides a $75.0 million revolving credit facility, with a potential increase of up to $125.0 million upon request of the Company and agreement with the lenders, which expires on July 21, 2011. At March 28, 2009, the Company had available $75.0 million of borrowing capacity under the revolving credit facility at an interest rate of LIBOR plus 0.625% (1.14% as of March 28, 2009).
The domestic bank credit agreement contains covenants that, among other matters, impose limitations on the incurrence of additional indebtedness, future mergers, sales of assets, payment of dividends, and changes in control, as defined in the agreement. In addition, the Company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage, working capital, leverage and net worth. At March 28, 2009, the Company was in compliance with all covenants.
Other Obligations
The Company has an unsecured bank line of credit in Japan that provides a 700 million yen (an equivalent of $7.1 million at March 28, 2009) revolving credit facility at an interest rate of TIBOR plus 0.625% (1.24% as of March 28, 2009). The revolving line of credit becomes due on July 21, 2011. The Company had no outstanding borrowings on the yen facility at March 28, 2009. In the first quarter of 2008, the Company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese dollar (equivalent to $1.2 million) revolving credit facility at an interest rate of two-years time deposit plus 0.145% (2.88% as of March 29, 2008). The revolving line of credit was due on August 18, 2009. The Company had the equivalent of $0.6 million outstanding on the Taiwanese dollar facility at March 29, 2008. The Company also had a foreign fixed rate mortgage loan outstanding totaling approximately 35.1 million Taiwanese dollars (equivalent to $1.2 million) with maturity dates through August 2013. The Company chose to repay the outstanding balances on both debt instruments in June 2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the line of credit was closed on June 28, 2008. The Company started 2009 with $70.9 million of cash and cash equivalents. Net cash used in operating activities was approximately $1.9 million for the first quarter of 2009 reflecting a $7.8 million net loss and $4.0 in net changes to various operating assets and liabilities, partially offset by $9.9 million in non-cash adjustments (primarily $8.6 million in depreciation and amortization and $1.3 million in stock-based compensation). Changes in various operating assets and liabilities (including short-term and long-term items) that impacted cash flows in 2009 consisted of net decreases in accrued payroll and severance ($9.5 million) and accrued expenses and income taxes ($10.2 million), partially offset by decreases in accounts receivable ($9.4 million), inventories ($4.7 million) and prepaid expenses and other ($1.6 million).

Net cash used in investing activities was approximately $8.1 million and included $7.2 million in capital spending, related to the Company's plant expansion in the Asia-Pacific region, new production facilities for Startco, and office space for the Company's new U.S. headquarters, and a $0.9 million payment associated with the Shock Block acquisition (refer to Note 2). Net cash provided by financing activities included net proceeds from debt of $0.4 million. The effects of exchange rate changes decreased cash and cash equivalents by approximately $1.1 million. The net cash used in operating activities and investing activities combined with the effects of exchange rate changes less net cash provided by financing activities resulted in a $10.7 million decrease in cash, which left the Company with a cash balance of approximately $60.2 million at March 28, 2009.
The ratio of current assets to current liabilities was 3.5 to 1 at the end of the first quarter of 2009 compared to 3.1 to 1 at year-end 2008 and 2.3 to 1 at the end of the first quarter of 2008. Days sales outstanding in accounts receivable was approximately 57 days at the end of the first quarter of 2009, compared to 62 days at the end of the first quarter of 2008 and 43 days at year-end 2008. Days inventory outstanding was approximately 84 days at the end of the first quarter of 2009 compared to 63 days at the year-end 2008 and 61 days at end of the first quarter of 2008. Outlook
The Company's automotive and electronics markets continued to show weakness in the first quarter of 2009 as a result of the sharp downturn in the global economy that began in 2008. The Company believes this weakness could continue through much of 2009. The electrical business also slowed during the first quarter of 2009 and could be further impacted by declining non-residential construction in 2009.
In 2005, the Company initiated a phased transition to consolidate its manufacturing into fewer facilities in low-cost locations in China, the Philippines and Mexico. These manufacturing transfer programs remain on or ahead of schedule and are expected to generate at least $20 million in cost savings in 2009 and significant additional savings in 2010.
In addition, the Company began executing a plan that is expected to reduce operating expenses by approximately $15 million and manufacturing costs by approximately $8 million over and above the $20 million in transfer-related savings for 2009. These cost savings are expected to reduce the Company's breakeven point by the second quarter of 2009 and are expected to position the Company for improved profitability when the global economy recovers. The Company also anticipates making further reductions in manufacturing costs and capital expenditures during the remainder of the year. Capital spending for 2009 is now expected to be approximately $23 million.
Cautionary Statement Regarding Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995 ("PSLRA").
The statements in this section and the other sections of this report that are not historical facts are intended to constitute "forward-looking statements" entitled to the safe-harbor provisions of the PSRLA. These statements may involve risks and uncertainties, including, but not limited to, risks relating to product demand and market acceptance, economic conditions, the impact of competitive products and pricing, product quality problems or product recalls, capacity and supply difficulties or constraints, coal mining exposures reserves, failure of an indemnification for environmental liability, exchange rate fluctuations, commodity price fluctuations, the effect of the Company's accounting policies, labor disputes, restructuring costs in excess of expectations, pension plan asset returns less than assumed, integration of acquisitions and other risks which may be detailed in the Company's other Securities and Exchange Commission filings. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated or implied in the forward-looking statements. This report should be read in conjunction with information provided in the financial statements appearing in the Company's Annual Report on Form 10-K for the year ended December 27, 2008. For a further discussion of the risk factors of the Company, please see Item 1A. "Risk Factors" to the Company's Annual Report on Form 10-K for the year ended December 27, 2008.