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 January 31, 1998 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 March 3, 1998, Registrant had 34,271,882 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 January 31, 1998 and April 30, 1997 Condensed consolidated statements of income -- Three months and nine months ended January 31,1998 and 1997 Condensed consolidated statements of cash flows -- Three months and nine months ended January 31, 1998 and 1997 Notes to condensed consolidated financial statements -- January 31, 1998 Item 2. Management's discussion and analysis of financial condition and results of operations PART II. OTHER INFORMATION - --------------------------- 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> January 31, April 30, 1998 1997 ------------ ------------ ASSETS (Unaudited) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 23,037,524 $ 23,115,320 Accounts receivable - net 50,492,354 54,054,695 Inventories: Finished products 8,821,113 7,347,088 Work in process 33,777,731 21,323,077 Materials 10,761,726 11,185,199 ------------ ------------ 53,360,570 39,855,364 Current deferred income taxes 2,971,000 2,831,000 Prepaid expenses 2,211,528 2,944,056 ------------ ------------ TOTAL CURRENT ASSETS 132,072,976 122,800,435 PROPERTY, PLANT AND EQUIPMENT 190,425,107 179,050,393 Less allowance for depreciation 108,062,990 98,954,082 ------------ ------------ 82,362,117 80,096,311 GOODWILL - net 37,769,273 35,190,298 INTANGIBLE BENEFIT PLAN ASSET 2,433,262 2,934,061 OTHER ASSETS 14,469,273 12,469,978 ------------ ------------ $269,106,901 $253,491,083 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts and notes payable $ 25,163,648 $ 25,559,239 Other current liabilities 15,656,278 18,979,585 ------------ ------------ TOTAL CURRENT LIABILITIES 40,819,926 44,538,824 OTHER LIABILITIES 2,688,929 2,464,519 DEFERRED COMPENSATION 7,153,388 6,964,135 ACCUMULATED BENEFIT PLAN OBLIGATION 2,384,394 2,326,248 SHAREHOLDERS' EQUITY Common Stock 17,834,094 17,744,672 Paid in capital 20,773,425 18,040,963 Retained earnings 181,623,778 161,225,847 Other shareholders' equity (4,171,033) 185,875 ------------ ------------ 216,060,264 197,197,357 ------------ ------------ $269,106,901 $253,491,083 ============ ============ </TABLE> See notes to condensed consolidated financial statements. 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Three Months Ended January 31, Nine Months Ended January 31, ------------------------------ ------------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- <S> <C> <C> <C> <C> INCOME: Net sales $90,740,296 $85,943,283 $282,572,856 $250,097,629 Other 1,024,806 1,984,063 3,494,795 4,713,523 ----------- ----------- ------------ ------------ Total 91,765,102 87,927,346 286,067,651 254,811,152 COSTS AND EXPENSES: Cost of products sold 68,692,163 62,126,072 208,955,627 181,086,078 Selling and administrative expenses 12,122,541 11,417,133 37,493,056 32,397,319 ----------- ----------- ------------ ------------ Total 80,814,704 73,543,205 246,448,683 213,483,397 ----------- ----------- ------------ ------------ Income before income taxes 10,950,398 14,384,141 39,618,968 41,327,755 Provision for income taxes 3,860,000 5,250,000 13,900,000 15,085,000 ----------- ----------- ------------ ------------ NET INCOME $ 7,090,398 $ 9,134,141 $ 25,718,968 $ 26,242,755 =========== =========== ============ ============ Basic and diluted earnings per Common Share $0.20 $0.26 $0.73 $0.75 =========== =========== ============ ============ Cash dividends per Common Share $0.05 $0.05 $0.15 $0.15 Weighted average number of Common Shares outstanding 35,264,000 35,135,000 35,261,000 35,122,000 </TABLE> See notes to condensed consolidated financial statements. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Nine Months Ended January 31, ---------------------------- 1998 1997 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 25,718,968 $ 26,242,755 Provision for depreciation and amortization 13,655,188 10,392,031 Changes in operating assets and liabilities (14,469,018) (3,766,593) Other 2,481,533 1,041,221 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 27,386,671 33,909,414 INVESTING ACTIVITIES Purchases of property, plant and equipment (14,931,570) (17,131,286) Acquisitions (3,711,003) Other (5,857,162) 1,092,640 ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (24,499,735) (16,038,646) FINANCING ACTIVITIES Dividends (5,321,037) (5,300,505) Other 2,356,305 (216,361) ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (2,964,732) (5,516,866) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (77,796) 12,353,902 Cash and cash equivalents at beginning of period 23,115,320 50,185,934 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,037,524 $ 62,539,836 ============ ============ </TABLE> See notes to condensed consolidated financial statements. 5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) JANUARY 31, 1998 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 nine-month periods ended January 31, 1998 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. In 1997, the Financial Acounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. The adoption of Statement 128 did not impact the Company's earnings per share amounts for any period presented. 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 third quarter of fiscal 1998 increased 6% to $90,740,000, compared with $85,943,000 last year. Sales for the nine months ended January 31, 1998 increased 13% to $282,573,000 compared with $250,098,000 a year ago. Without 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, sales for the quarter would have been slightly below the prior year third quarter and the year-to-date sales would have been almost flat with last year. Automotive interconnect devices and controls, which represented about half of Methode's business during all periods, experienced about a 5% decline in sales to the domestic automotive industry for the quarter and a decline of almost 4% for the year-to-date period. Our dataMate "smart interconnect" companies grew by approximately 11% in the current quarter and 35% in the current nine-month period. Sales of fiber optic connectors were off about 25% in the quarter and 5% year-to-date due to a slowdown in cable assembly sales to the data center market. The 1998 third quarter contained one less week of operations as compared to the 1997 quarter. Other income consisted primarily of earnings from an automotive joint venture, royalty and license fees, and interest income on short-term investments. Other income for the quarter was down nearly $1,000,000 primarily due to reduced interest income. Also last year's quarter contained a $244,000 gain from the sale of marketable securities. Cost of products sold as a percentage of sales for the third quarter increased to 75.7% from 72.3% for the year-ago period. For the nine-month period ended January 31, 1998 this percentage increased to 74.0% from 72.4% last year. The automotive business was the largest contributor to this margin decline falling 4% due to the reduction in volume, product mix, additional infrastructure, some customer pricing pressure and engineering costs incurred for new programs that are not yet producing revenue. Selling and administrative expenses as a percentage of sales were 13.4% and 13.3% in the three-month and nine-month periods of fiscal 1998, up from 13.3% and 13.0% for the year-ago periods. The effective income tax rate was 35.0% in the current quarter and nine- month period compared with 36.5% for the quarter and nine-month period ended January 31, 1997. 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 $27,387,000 in fiscal 1998, down from the $33,909,000 provided during the year-ago period. The decrease was the result of increased working capital requirements for automotive tooling inventories. 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 $13,655,000 in fiscal 1998 compared with $10,392,000 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 $14,932,000 in fiscal 1998 compared with $17,131,000 last year. It is presently expected that fixed asset additions for fiscal 1998 will approximate $20,000,000 and will be financed with internally generated funds. 7
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 10 _______ (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 January 31, 1998. </TABLE> 8
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: March 11, 1998 -------------- 9