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 July 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 September 8, 1998, Registrant had 34,360,093 shares of Class A Common Stock and 1,191,673 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 July 31, 1998 and April 30, 1998 Condensed consolidated statements of income -- Three months ended July 31, 1998 and 1997 Condensed consolidated statements of cash flows -- Three months ended July 31, 1998 and 1997 Note to condensed consolidated financial statements -- July 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> July 31, April 30, 1998 1998 -------- --------- <S> <C> <C> ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 27,586,202 $ 24,178,868 Accounts receivable - net 67,158,243 64,468,407 Inventories: Finished products 10,702,881 9,754,109 Work in process 29,782,174 27,669,081 Materials 13,199,987 11,541,822 ------------ ------------ 53,685,042 48,965,012 Current deferred income taxes 4,023,000 4,023,000 Prepaid expenses 2,331,991 3,055,417 ------------ ------------ TOTAL CURRENT ASSETS 154,784,478 144,690,704 PROPERTY, PLANT AND EQUIPMENT 200,327,402 199,786,527 Less allowance for depreciation 116,102,585 112,742,879 ------------ ------------ 84,224,817 87,043,648 GOODWILL - net 38,908,164 38,749,031 INTANGIBLE BENEFIT PLAN ASSET 2,099,396 2,266,329 OTHER ASSETS 10,644,825 14,780,143 ------------ ------------ $290,661,680 $287,529,855 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts and notes payable $ 25,939,811 $ 27,727,636 Other current liabilities 23,314,595 22,710,265 ------------ ------------ TOTAL CURRENT LIABILITIES 49,254,406 50,437,901 OTHER LIABILITIES 2,709,003 2,585,704 DEFERRED COMPENSATION 7,169,779 7,259,549 ACCUMULATED BENEFIT PLAN OBLIGATION 1,207,010 1,206,819 SHAREHOLDERS' EQUITY Common Stock 17,901,842 17,836,506 Paid in capital 22,924,550 21,021,669 Retained earnings 195,297,225 189,397,396 Other shareholders' equity (5,802,135) (2,215,689) ------------ ------------ 230,321,482 226,039,882 ------------ ------------ $290,661,680 $287,529,855 ============ ============ </TABLE> See note to condensed consolidated financial statements. 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Three Months Ended July 31, --------------------------- 1998 1997 ---- ---- <S> <C> <C> INCOME: Net sales $87,961,397 $91,898,318 Other 1,133,451 1,132,188 ----------- ----------- Total 89,094,848 93,030,506 COSTS AND EXPENSES: Cost of products sold 65,441,410 66,774,651 Selling and administrative expenses 11,876,048 12,164,600 ----------- ----------- Total 77,317,458 78,939,251 ----------- ----------- Income before income taxes 11,777,390 14,091,255 Provision for income taxes 4,100,000 4,935,000 ----------- ----------- NET INCOME $ 7,677,390 $ 9,156,255 =========== =========== Basic and diluted earnings per Common Share $ 0.22 $ 0.26 =========== =========== Cash dividends per Common Share $ 0.05 $ 0.05 Weighted average number of Common Shares outstanding: Basic 35,350,000 35,255,000 Diluted 35,404,000 35,313,000 </TABLE> See note to condensed consolidated financial statements. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Three Months Ended July 31, ----------------------------- <S> <C> <C> 1998 1997 ---- ---- OPERATING ACTIVITIES Net Income $ 7,677,390 $ 9,156,255 Provision for depreciation and amortization 4,664,562 4,468,898 Changes in operating assets and liabilities (2,249,970) (4,030,498) Other 793,054 801,193 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,885,036 10,395,848 INVESTING ACTIVITIES Purchases of property, plant and equipment (4,072,490) (4,851,455) Acquisitions (1,444,442) (3,649,195) Other (305,532) (1,506,440) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (5,822,464) (10,007,090) FINANCING ACTIVITIES Dividends (1,777,561) (1,773,632) Other 122,323 2,266,525 ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,655,238) 492,893 ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 3,407,334 881,651 Cash and cash equivalents at beginning of period 24,178,868 23,115,320 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $27,586,202 $23,996,971 =========== =========== </TABLE> See note to condensed consolidated financial statements. 5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 1998 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 period ended July 31, 1998 are not necessarily indicative of the results that may be expected for the year ending April 30, 1999. 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, 1998. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Net sales for the first quarter of fiscal 1999 decreased 4% to $87,961,000 from $91,898,000 a year ago. Our domestic automotive sales declined 3% and worldwide, our automotive sales were 2% below sales for the year-ago period. Automotive interconnect devices represented about half of Methode's business during both periods. Sales of non-automotive interconnect devices were down 9% from the first quarter of fiscal 1998. Strong sales of our high frequency gigabit optical transceiver products significantly helped to mitigate the sales slowdown by the majority of our other non-automotive interconnect devices. 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 quarter increased to 74.4% compared with the year-ago period of 72.7%. Margins were unfavorably impacted by our automotive margins which suffered a three percentage point drop from the first quarter of fiscal 1998 primarily due to our aggressive investment in new product launches and development. Selling and administrative expenses as a percentage of sales remained relatively constant at 13.5% in the first quarter of fiscal 1999, compared with 13.2% for the year-ago period. The effective income tax rate was 35% in both the current and prior year first quarter. The effective income tax rate for both periods equaled the statutory federal rate of 35% with lower statutory rates on foreign operations offsetting the effect of state income taxes. Financial Conditions, Liquidity and Capital Resources Net cash provided by operating activities was $10,885,000 in the first quarter of fiscal 1999, on a par with the $10,396,000 provided during the year- ago period. The decrease in cash provided by net income in the current quarter was offset by a smaller increase in working capital requirements. Depreciation and amortization expense was $4,665,000 in the first quarter of fiscal 1999 compared with $4,469,000 in fiscal 1998, with capital additions of $4,072,000 and $4,851,000, respectively. It is presently expected that fixed asset additions for fiscal 1999 will approach $25,000,000 and will be financed with internally generated funds. Year 2000 Conversion The Company's plan to become Year 2000 ready has not significantly changed from that described in its annual report on Form 10-K for the year ended April 30, 1998. 7
PART II. OTHER INFORMATION - -------------------------- Item 6. Exhibits and Reports on Form 8-K a) Exhibits INDEX TO EXHIBITS <TABLE> <CAPTION> Sequential Exhibit Page Number Description Number - ------ ----------- ------ <C> <S> <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)* 10.13 Methode Electronics, Inc. 1997 Stock Plan (7)* 27 Financial Data Schedules................................................................. 10 </TABLE> - -------- (1) Previously filed with Registrant's Form S-3 Registration Statement No. 33-61940 filed April 30, 1993 and incorporated herein by reference. 8
(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. 333-49559 and incorporated herein by reference. (7) Previously filed with Registrant's Registration Statement No. 333-49671 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 July 31, 1998. 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: September 10, 1998 ------------------ 9