SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the quarterly period ended October 31, 1997 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. _____________________________ Commission file number 0-2816 METHODE ELECTRONICS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter.) Delaware 36-2090085 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7444 West Wilson Avenue, Harwood Heights, Illinois 60656 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (708) 867-9600 -------------- None - -------------------------------------------------------------------------------- (Former name, former address, former fiscal year, if changed since last report) At December 8, 1997, Registrant had 34,263,132 shares of Class A Common Stock and 1,199,754 shares of Class B Common Stock outstanding. 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 report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- -----
INDEX METHODE ELECTRONICS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets October 31, 1997 and April 30, 1997 Condensed consolidated statements of income -- Six months ended October 31, 1997 and 1996 Condensed consolidated statements of cash flows -- Six months ended October 31, 1997 and 1996 Notes to condensed consolidated financial statements -- October 31, 1997 Item 2. Management's discussion and analysis of financial condition and results of operations PART II. OTHER INFORMATION - --------------------------- Item 4. Submission of matters to a vote of security holders Item 6. Exhibits and reports on Form 8-K SIGNATURES - ---------- 2
PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Condensed Consolidated Balance Sheets Methode Electronics, Inc. and Subsidiaries <TABLE> <CAPTION> October 31, April 30, 1997 1997 ---- ---- ASSETS (Unaudited) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 21,719,504 $ 23,115,320 Accounts receivable - net 65,383,544 54,054,695 Inventories: Finished products 9,535,875 7,347,088 Work in process 28,966,021 21,323,077 Materials 10,111,656 11,185,199 --------------- --------------- 48,613,552 39,855,364 Current deferred income taxes 2,971,000 2,831,000 Prepaid expenses 2,416,951 2,944,056 --------------- --------------- TOTAL CURRENT ASSETS 141,104,551 122,800,435 PROPERTY, PLANT AND EQUIPMENT 187,004,998 179,050,393 Less allowance for depreciation 105,434,030 98,954,082 --------------- --------------- 81,570,968 80,096,311 GOODWILL - net 38,042,057 35,190,298 INTANGIBLE BENEFIT PLAN ASSET 2,600,195 2,934,061 OTHER ASSETS 13,699,881 12,469,978 --------------- --------------- $277,017,652 $253,491,083 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts and notes payable $ 30,553,539 $ 25,559,239 Other current liabilities 21,548,897 18,979,585 --------------- --------------- TOTAL CURRENT LIABILITIES 52,102,436 44,538,824 OTHER LIABILITIES 2,376,259 2,464,519 DEFERRED COMPENSATION 6,994,538 6,964,135 ACCUMULATED BENEFIT PLAN OBLIGATION 2,471,318 2,326,248 SHAREHOLDERS' EQUITY Common Stock 17,829,719 17,744,672 Paid in capital 20,598,808 18,040,963 Retained earnings 176,306,949 161,225,847 Other shareholders' equity (1,662,375) 185,875 --------------- --------------- 213,073,101 197,197,357 --------------- --------------- $277,017,652 $253,491,083 =============== =============== </TABLE> See notes to condensed consolidated financial statements. 3
<TABLE> <CAPTION> CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES Three Months Ended October 31, Six Months Ended October 31, ----------------------------- --------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> INCOME: Net sales $ 99,934,242 $ 85,188,636 $ 191,832,560 $164,154,346 Other 1,337,801 1,350,577 2,469,989 2,729,460 ------------ ------------ ------------- ------------ Total 101,272,043 86,539,213 194,302,549 166,883,806 COSTS AND EXPENSES: Cost of products sold 73,488,813 61,319,492 140,263,464 118,960,006 Selling and administrative expenses 13,205,915 10,890,695 25,370,515 20,980,186 ------------ ------------ ------------- ------------ Total 86,694,728 72,210,187 165,633,979 139,940,192 ------------ ------------ ------------- ------------ Income before income taxes 14,577,315 14,329,026 28,668,570 26,943,614 Provision for income taxes 5,105,000 5,230,000 10,040,000 9,835,000 ------------ ------------ ------------- ------------ NET INCOME $ 9,472,315 $ 9,099,026 $ 18,628,570 $ 17,108,614 ============ ============ ============= ============ Weighted average number of Common Shares outstanding 35,338,000 35,218,000 35,318,000 35,194,000 Earnings per Common Share $ 0.27 $ 0.26 $ 0.53 $ 0.49 ============ ============ ============= ============ Cash dividends per Common Share $ 0.05 $ 0.05 $ 0.05 $ 0.05 </TABLE> See notes to condensed consolidated financial statements. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Six Months Ended October 31, --------------------------- 1997 1996 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 18,628,570 $ 17,108,614 Provision for depreciation and amortization 9,120,573 6,812,400 Changes in operating assets and liabilities (13,544,328) (4,465,649) Other 1,630,351 721,538 ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 15,835,166 20,176,903 INVESTING ACTIVITIES Purchases of property, plant and equipment (9,878,728) (11,796,856) Acquisitions (3,710,865) Other (2,234,041) 1,485,125 ------------- ------------ NET CASH USED IN INVESTING ACTIVITIES (15,823,634) (10,311,731) FINANCING ACTIVITIES Dividends (3,547,468) (3,533,614) Other 2,140,120 (333,355) ------------- ------------ NET CASH USED IN FINANCING ACTIVITIES (1,407,348) (3,866,969) ------------- ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,395,816) 5,998,203 Cash and cash equivalents at beginning of period 23,115,320 50,185,934 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,719,504 $ 56,184,137 ============= ============ See notes to condensed consolidated financial statements. </TABLE> 5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) OCTOBER 31, 1997 NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended October 31, 1997 are not necessarily indicative of the results that may be expected for the year ending April 30, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended April 30, 1997. NOTE 2. ACQUISITION Effective May 5, 1997, the Company, using available cash balances, purchased all of the outstanding shares of Adam Technologies, a designer and marketer of electronic connectors. The acquisition, which may require additional contingent consideration if certain performance targets are attained, was accounted for using the purchase method of accounting and the results of operations of Adam Technologies have been included in the Company's consolidated financial statements from the date of acquisition. 6
Item 2. Management's Discussion and Analysis Results of Operations - --------------------- Net sales for the second quarter of fiscal 1998 increased 17% to $99,833,000, compared with $85,189,000 for the second quarter last year. Sales for the six months ended October 31, 1997 increased 17% to $191,833,000 compared with $164,154,000 for the same period last year. The Company's two most recent acquisitions, Adam Technologies, Inc., a broad line electronic connector supplier, and Merit-Malta Methode, a European automotive component manufacturer, added more than 10% to its sales growth. Automotive interconnect devices and controls, which represented about half of Methode's business during all periods, experienced a 2% decline in sales to the domestic automotive industry. Our dataMate "smart interconnect" companies grew by approximately 60% in the current quarter and 50% in the current six-month period. Sales of Network Buss products to the mainframe computer industry continued the decline begun in the first quarter of fiscal 1997, and in the current quarter and six-month period the decline approximated 3% of consolidated sales. Other income consisted primarily of earnings from an automotive joint venture, royalty and license fees, and interest income on short-term investments. Cost of products sold as a percentage of sales for the second quarter increased to 73.5% from 72.0% for the year-ago period. For the six-month period ended October 31, 1997 this percentage increased to 73.1% from 72.5% for the same period last year. The automotive business was the largest contributor to this margin decline due to the reduction in volume and additional costs incurred for new programs that are not yet producing revenue. Selling and administrative expenses as a percentage of sales were 13.2% in both the current quarter and six-month period of fiscal 1998, up from 12.8% for the year-ago periods. The effective income tax rate was 35.0% in the current quarter and six- month period compared with 36.5% for the quarter and six-month period ended October 31, 1996. The effective income tax rate in fiscal 1998 equaled the statutory federal rate of 35% with lower statutory rates on foreign operations offsetting the effect of state income taxes. In fiscal 1997, the foreign operations were not a large enough component of total income to completely offset the effect of state income taxes. Financial Conditions, Liquidity and Capital Resources - ----------------------------------------------------- Net cash provided by operating activities was $15,835,000 in fiscal 1998, down from the $20,177,000 provided during the year-ago period. The decrease was primarily the result of increased working capital requirements. To accelerate market penetration and extend product offerings, the Company purchased the Common Stock of Adam Technologies in May 1997. Available cash balances were used to fund this acquisition. Depreciation and amortization expense increased to $9,121,000 in fiscal 1998 compared with $6,812,000 in fiscal 1997. Acquisitions of subsidiaries in the fourth quarter of 1997 and the first quarter of 1998 were major contributors to this increase. Capital expenditures were $9,879,000 in fiscal 1998 compared with $11,797,000 last year. It is presently expected that fixed asset additions for fiscal 1998 will approximate $25,000,000 and will be financed with internally generated funds. 7
PART II. OTHER INFORMATION - ---------------------------- Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Stockholders Meeting of the company was held on September 9, 1997. (c) At the Annual Stockholders Meeting, the Class A and Class B Stockholders (collectively referred to herein as the "Stockholders") voted on the following uncontested matters. Each Class A nominee for director was elected by a vote of the Class A Stockholders; each Class B nominee for director was elected by a vote of the Class B Stockholders; and the proposed adoption of the Methode Electronics, Inc. 1997 Stock Plan was approved by the Stockholders as follows: 1. Election of the below named Class A Nominees of the Board of Directors of the Company by the holders of Class A Common Stock: <TABLE> <CAPTION> For Withheld ---------- -------- <S> <C> <C> Michael G. Andre 30,129,046 628,229 William C. Croft 30,188,715 568,560 James W. Ashley, Jr. 30,128,617 628,658 </TABLE> 2. Election of the below named Class B Nominee of the Board of Directors of the Company by the holders of Class B Common Stock: <TABLE> <CAPTION> For Withheld ---------- -------- <S> <C> <C> John R. Cannon 1,141,095 4,805 Kevin J. Hayes 1,141,095 4,805 James W. McGinley 1,141,095 4,805 William J. McGinley 1,141,095 4,805 Raymond J. Roberts 1,141,095 4,805 George C. Wright 1,140,455 5,445 </TABLE> 3. Adoption of the Methode Electronics, Inc. 1997 Stock Plan. The affirmative vote of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock voting together as a single class with each share of Class A Common Stock having one-tenth of a vote per share and each share of Class B Common Stock having one vote per share was required (and received) for the adoption of the Plan. No other items were voted on at the Annual Stockholders Meeting or otherwise during the quarter. 8
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits INDEX TO EXHIBITS <TABLE> <CAPTION> Sequential Exhibit Page Number Description Number - ------- ----------- ---------- <S> <C> <C> 3.1 Certificate of Incorporation of Registrant, as amended and currently in effect(1) 3.2 By-Laws of Registrant, as amended and currently in effect(1) 4.1 Article Fourth of Certificate of Incorporation of Registrant, as amended and currently in effect (included in Exhibit 3.1) 10.1 Methode Electronics, Inc. Employee Stock Ownership Plan dated February 24,1977(2)* 10.2 Methode Electronics, Inc. Employee Stock Ownership Plan and Trust Amendment No. 1(2)* 10.3 Methode Electronics, Inc. Employee Stock Ownership Trust(2)* 10.4 Methode Electronics, Inc. Employee Stock Ownership Trust- Amendment No. 1(2)* 10.5 Methode Electronics, Inc. Incentive Stock Award Plan(3)* 10.6 Methode Electronics Inc. Supplemental Executive Benefit Plan(4)* 10.7 Methode Electronics. Inc. Managerial Bonus and Matching Bonus Plan (also referred to as the Longevity Contingent Bonus Program) (4)* 10.8 Methode Electronics, Inc. Capital Accumulation Plan(4)* 10.9 Incentive Stock Award Plan for Non-Employee Directors(5)* 10.10 Methode Electronics, Inc. 401(k) Savings Plan(5)* 10.11 Methode Electronics, Inc. 401(k) Savings Trust(5)* 10.12 Methode Electronics, Inc. Electronic Controls Division Cash and Class A Common Stock Bonus Plan(6)* 27 Financial Data Schedules 11 _______ (1) Previously filed with Registrant's Form S-3 Registration Statement No. 33-61940 filed April 30, 1993 and incorporated herein by reference. (2) Previously filed with Registrant's S-8 Registration Statement No. 2-60613 and incorporated herein by reference. (3) Previously filed with Registrant's Registration Statement No. 2-92902 filed August 23, 1984, and incorporated herein by reference. (4) Previously filed with Registrant's Form 10-Q for three months ended January 31, 1994, and incorporated herein by reference. (5) Previously filed with Registrant's Form 10-K for the year ended April 30, 1994, and incorporated herein by reference. (6) Previously filed with Registrant's S-8 Registration Statement No. 33-88036 and incorporated herein by reference. *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report on Form 10-Q pursuant to Item 6 of Form 10-Q. b) Reports on Form 8-K The Company did not file a report on Form 8-K during the three months ended October 31, 1997. </TABLE> 9
SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Methode Electronics, Inc. By: -------------------------------- Kevin J. Hayes Chief Financial Officer Dated: December 11, 1997 ----------------- 10