Methode Electronics - 10-Q quarterly report FY

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
for the quarterly period ended January 31, 2002
or
o	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 (State or other jurisdiction of incorporation or organization)		36-2090085 (I.R.S. Employer Identification No.)
7401 West Wilson Avenue, Harwood Heights, Illinois (Address of principal executive offices)		60706-4548 (Zip Code)
(Registrant's telephone number, including area code) (708) 867-6777

None
(Former name, former address, former fiscal year, if changed since last report)

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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

At March 6, 2002, Registrant had 34,923,526 shares of Class A Common Stock and 1,089,417 shares of Class B Common Stock outstanding.

INDEX

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed consolidated balance sheets January 31, 2002 and April 30, 2001	3
	Condensed consolidated statements of income—Three months and nine months ended January 31, 2002 and 2001	4
	Condensed consolidated statements of cash flows—Nine months ended January 31, 2002 and 2001	5
	Notes to condensed consolidated financial statements—January 31, 2002	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	14
PART II. OTHER INFORMATION
Item 6.	Exhibits and reports on Form 8-K	14

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

				January 31, 2002			April 30, 2001
				(Unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	54,332		$	42,788
	Accounts receivable, net				57,232			66,124
	Inventories:
		Finished products			10,116			8,314
		Work in process			21,765			30,114
		Materials			8,977			12,932

					40,858			51,360
	Current deferred income taxes				8,303			7,521
	Prepaid expenses				5,768			9,532

			TOTAL CURRENT ASSETS		166,493			177,325
PROPERTY, PLANT AND EQUIPMENT					201,707			196,829
	Less allowance for depreciation				133,089			126,705

					68,618			70,124
GOODWILL, net					27,260			27,629
INTANGIBLE ASSETS, net					15,322			1,435
OTHER ASSETS					19,087			18,417

				$	296,780		$	294,930

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts and notes payable			$	20,060		$	27,658
	Other current liabilities				31,547			26,341

			TOTAL CURRENT LIABILITIES		51,607			53,999
OTHER LIABILITIES					7,798			5,344
DEFERRED COMPENSATION					5,081			6,257
SHAREHOLDERS' EQUITY
	Common Stock				18,201			18,091
	Paid in capital				34,379			33,320
	Retained earnings				193,690			190,591
	Other shareholders' equity				(13,976	)		(12,672	)

					232,294			229,330

				$	296,780		$	294,930

See note to condensed consolidated financial statements.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In Thousands, Except Per Share Data)

			Three Months Ended January 31,					Nine Months Ended January 31,
			2002			2001		2002		2001
INCOME:
	Net sales		$	74,035		$	86,143	$	234,695	$	270,002
	Other			437			487		1,456		1,757

				74,472			86,630		236,151		271,759
COSTS AND EXPENSES:
	Cost of products sold			65,839			71,840		197,120		217,611
	Selling and administrative expenses			9,157			11,438		28,781		33,408

				74,996			83,278		225,901		251,019

Income (loss) from operations				(524	)		3,352		10,250		20,740
Interest, net				248			429		954		1,298
Other, net				298			6,121		900		6,685

Income from continuing operations before income taxes				22			9,902		12,104		28,723
Income taxes				(350	)		860		3,625		7,275

Income from continuing operations				372			9,042		8,479		21,448
Discontinued operations				—			4,060		—		9,266

		NET INCOME	$	372		$	13,102	$	8,479	$	30,714

Basic and diluted earnings per Common Share:
	Income from continuing operations		$	0.01		$	0.25	$	0.24	$	0.60
	Net income		$	0.01		$	0.37	$	0.24	$	0.86
Cash dividends per Common Share			$	0.05		$	0.05	$	0.15	$	0.15
Weighted average number of Common
	Shares outstanding:
		Basic		35,924			35,631		35,845		35,575
		Diluted		36,096			35,770		36,020		35,806

See notes to condensed consolidated financial statements.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)

			Nine Months Ended January 31,
			2002			2001
OPERATING ACTIVITIES
	Income from continuing operations		$	8,479		$	21,448
	Provision for depreciation and amortization			12,495			11,510
	Changes in operating assets and liabilities			16,844			(7,160	)
	Other			464			535

		NET CASH PROVIDED BY OPERATING ACTIVITIES		38,282			26,333
INVESTING ACTIVITIES
	Purchases of property, plant and equipment			(9,083	)		(11,853	)
	Acquisitions			(13,008	)		—
	Other			(908	)		(7,245	)

		NET CASH USED IN INVESTING ACTIVITIES		(22,999	)		(19,098	)
FINANCING ACTIVITIES
	Options exercised			1,168			2,408
	Dividends			(5,380	)		(5,351	)
	Other			473			(4	)

		NET CASH USED IN FINANCING ACTIVITIES		(3,739	)		(2,947	)
Net cash used in discontinued operations				—			(820	)

		INCREASE IN CASH AND CASH EQUIVALENTS		11,544			3,468
Cash and cash equivalents at beginning of period				42,788			28,890

	CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	54,332		$	32,358

See note to condensed consolidated financial statements.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

January 31, 2002

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, 2002 are not necessarily indicative of the results that may be expected for the year ending April 30, 2002. 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, 2001.

Comprehensive income (loss) consists of net income and foreign currency translation adjustments and totaled ($0.7) million and $15.6 million for the third quarters of fiscal 2002 and 2001, respectively, and $7.1 million and $30.0 million for the nine months ended January 31, 2002 and 2001, respectively.

2. ACQUISITION

On August 1, 2001 the Company purchased for $12.6 million in cash, including costs of acquisition, the automotive safety business of American Components, Inc. Additional contingent consideration will be due beginning in fiscal 2003 based on the attainment of certain sales targets, up to a maximum additional consideration of $11.5 million. Included in this asset purchase are the manufacturing operations and patented intellectual property for a sensor pad currently used by a tier-one automotive supplier in its passenger occupant detector system. Also included in this purchase was patented intellectual property for a rollover airbag curtain that the Company intends to further develop. The pro forma results of operations for the nine months ended January 31, 2002 and the three and nine months ended January 31, 2001 assuming the purchase occurred at the beginning of the period would not differ materially from reported amounts.

3. DISCONTINUED OPERATIONS

As of May 28, 2000 the Company contributed and transferred to its then wholly-owned subsidiary, Stratos Lightwave, Inc. (Stratos), all of the assets and liabilities of its optoelectronics and fiber optic divisions and all of the capital stock and equity interest held by the Company in certain other subsidiaries that conducted the majority of its optical products business, pursuant to a master separation agreement.

In the first quarter of fiscal 2001 Stratos issued 10,062,500 shares of common stock in an initial public offering at a price of $21 per share. After the initial public offering, the Company owned 84.3% of Stratos' common stock outstanding. Proceeds from the offering totaled $195.5 million net of underwriting discount and expenses and were retained by Stratos.

Effective as of the close of business on April 28, 2001 ("the distribution date"), Methode distributed all of its remaining interest in Stratos through a stock dividend to Methode stockholders of record as of the close of business on April 5, 2001. This distribution was made in the amount of 1.5113 shares of Stratos common stock for each outstanding share of Methode Class A and Class B common

stock. Methode's consolidated financial statements for all periods present Stratos as discontinued operations through the distribution date in accordance with APB Opinion No. 30.

Net sales for Stratos for the three-month and nine-month periods ended January 31, 2001 were $40.3 million and $100.7 million, respectively.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No.142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2003. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $0.6 million ($.02 per share) per year. During fiscal 2003, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of May 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.

In October 2001, the FASB issued SFAS 144, Accounting for the Impairment and Disposal of Long Lived Assets. The Company will adopt these standards beginning in the first quarter of fiscal 2003. The Company does not expect that the adoption of this statement will have a material effect on the Company's financial statements.

5. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

			Three Months Ended January 31,				Nine Months Ended January 31,
			2002		2001		2002		2001
			(In Thousands, Except Per Share Amounts)
Numerator:
	Income from continuing operations		$	372	$	9,042	$	8,479	$	21,448
	Income from discontinued operations			—		4,060		—		9,266

	Net income			372		13,102		8,479		30,714
Denominator:
	Denominator for basic earnings per share—weighted-average shares			35,924		35,631		35,845		35,575
		Dilutive potential common shares—employee stock awards/options		172		139		175		231

Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions				36,096		35,770		36,020		35,806

Basic and diluted earnings per share:
	Income from continuing operations		$	0.01	$	0.25	$	0.24	$	0.60

	Net income		$	0.01	$	0.37	$	0.24	$	0.86

Options to purchase 875,642 shares of common stock at a weighted average option price of $12.81 per share were outstanding at January 31, 2002 but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

6. SEGMENT INFORMATION

Methode Electronics, Inc. is a global manufacturer of component and subsystem devices. The Company designs, manufactures and markets devices employing electrical, electronic, wireless, sensing and optical technologies. Methode's components are found in the primary end markets of the automotive, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), aerospace, rail and other transportation industries; and the consumer and industrial equipment markets. The Company has two reportable business segments: Electronic and Optical.

The business units whose results are identified in the Electronic segment principally employ electronic processes to control and convey signals.

The business units whose results are identified in the Optical segment principally employ light to control and convey signals. As described in Note 3, the Company transferred the majority of this business to a subsidiary that it distributed to its shareholders in a tax-free distribution effective as of the close of business April 28, 2001. The following information has been restated to reflect the operations of the subsidiary as a discontinued operation.

The Company's business that manufactures bus systems as well as its independent laboratories that provide services for qualification testing and certification of electronic and optical components are included in the Other segment.

The Company allocates resources to and evaluates performance of its technology segments based on operating income. Transfers between technology segments are recorded using internal transfer prices set by the Company.

The table below presents information about the Company's reportable segments (in thousands):

			Three Months Ended January 31, 2002
			Electronic		Optical			Other			Eliminations			Consolidated
Net sales to unaffiliated customers			$	66,002	$	4,719		$	3,314		$	—		$	74,035
Transfers between technology segments				—		—			1			(1	)		—

		Total net sales	$	66,002	$	4,719		$	3,315		$	(1	)	$	74,035

Income (loss) before income taxes			$	2,754	$	(855	)	$	(10	)				$	1,889

Corporate expenses, net															(1,867	)

	Income from continuing operations before income taxes													$	22

			Three Months Ended January 31, 2001
			Electronic		Optical		Other		Eliminations			Consolidated
Net sales to unaffiliated customers			$	75,014	$	6,874	$	4,255	$	—		$	86,143
Transfers between technology segments				—		—		47		(47	)		—

		Total net sales	$	75,014	$	6,874	$	4,302	$	(47	)	$	86,143

Income before income taxes			$	4,743	$	724	$	276				$	5,743

Corporate income (expenses), net													4,159

	Income from continuing operations before income taxes											$	9,902

		Nine Months Ended January 31, 2002
		Electronic		Optical		Other		Eliminations			Consolidated
Net sales to unaffiliated customers		$	201,971	$	21,423	$	11,301	$	—		$	234,695
Transfers between technology segments			—		—		41		(41	)		—

	Total net sales	$	201,971	$	21,423	$	11,342	$	(41	)	$	234,695

Income before income taxes		$	16,714	$	1,012	$	810				$	18,536

Corporate expenses, net												(6,432	)

Income from continuing operations before income taxes											$	12,104

			Nine Months Ended January 31, 2001
			Electronic		Optical		Other		Eliminations			Consolidated
Net sales to unaffiliated customers			$	237,685	$	19,199	$	13,118				$	270,002
Transfers between technology segments				—		—		120		(120	)		—

		Total net sales	$	237,685	$	19,199	$	13,238	$	(120	)	$	270,002

Income before income taxes			$	26,913	$	1,502	$	1,313				$	29,728

Corporate expenses, net													(1,005	)

	Income from continuing operations before income taxes											$	28,723

7. COMMITMENTS AND CONTINGENCIES

The Company is from time to time subject to various legal actions and claims incidental to its business, including those arising out of alleged defects, breach of contracts, product warranties, employment-related matters and environmental matters. Although the outcome of potential legal actions and claims cannot be determined, it is the opinion of the Company's management, based on the information available at the time, that it has adequate reserves for these liabilities and that the ultimate resolution of these matters will not have a significant effect on the consolidated financial position the Company.

The Company has been in discussions with an automotive OEM customer to resolve a dispute relating to certain products the Company supplied prior to fiscal 2002. While it is the Company's position that all such products complied with product and test specifications, it also believes that it is in its best interest to bring this matter to a resolution. The Company increased its warranty reserve by $5 million in the third quarter of fiscal 2002 to address this issue. The Company is not aware of similar issues with any other products it manufactures, or has manufactured.

8. RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year presentation.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company's business is managed on a technology product basis, with those technology segments being Electronic, Optical and Other. The business units whose results are identified in the Electronic segment principally employ electronic processes to control and convey signals. The business units whose results are identified in the Optical segment principally employ light to control and convey signals. The Other segment includes a manufacturer of bus systems and independent laboratories that provide services for qualification testing and certification of electronic and optical components.

As described in Note 3 to the condensed consolidated financial statements, a majority of the Optical segment was transferred to a subsidiary, Stratos Lightwave, Inc. (Stratos), effective May 28, 2000. On June 26, 2000, Stratos issued shares of common stock in an initial public offering after which the Company owned 84.3% of Stratos' common stock outstanding. Effective as of the close of business on April 28, 2001, the Company distributed all of its remaining interest in Stratos through a stock dividend to its stockholders of record as of the close of business on April 5, 2001. This distribution was made in the amount of 1.5113 shares of Stratos common stock for each share of Methode Class A and Class B common stock. The Company's consolidated financial statements for all periods present Stratos as a discontinued operation through the distribution date in accordance with Accounting Principles Board Opinion No. 30.

Results of Operations

The following table sets forth certain income statement data as a percentage of net sales for the periods indicated:

			Three Months Ended January 31,				Nine Months Ended January 31,
			2002		2001		2002		2001
Income:
	Net sales		100.0	%	100.0	%	100.0	%	100.0	%
	Other		0.6		0.6		0.6		0.7

			100.6		100.6		100.6		100.7
Costs and expenses:
	Cost of products sold		88.9		83.4		84.0		80.6
	Selling and administrative expenses		12.4		13.3		12.3		12.4

		Income (Loss) From Operations	(0.7	)	3.9		4.3		7.7
	Interest, net		0.3		0.5		0.4		0.5
	Other, net		0.4		7.1		0.4		2.5

		Income From Continuing Operations Before Income Taxes	0.0		11.5		5.1		10.7
Income taxes			0.5		1.0		1.5		2.7

		Income From Continuing Operations	0.5		10.5		3.6		8.0
Discontinued operations			—		4.7		—		3.4

		Net Income	0.5	%	15.2	%	3.6	%	11.4	%

Third quarter fiscal 2002 income from continuing operations was $0.4 million, or $0.01 per share compared to $9.0 million, or $0.25 per share for the same period last year. Third quarter fiscal 2002 income from continuing operations, before recording an after-tax charge of $3.0 million, or $0.08 per share, to increase warranty reserves, was $3.4 million, or $0.09 per share. This compares with income from continuing operations of $3.0 million, or $0.08 per share, for the same period last year, before

including a life insurance gain of $6.0 million, or $0.17 per share. For the nine months ended January 31, 2002, income from continuing operations was $8.5 million, or $0.24 per share compared to $21.4 million, or $0.60 per share last year. Excluding the after-tax warranty charge of $3.0 million, or $0.08 per share, income from continuing operations for the nine months ended January 31, 2002 was $11.5 million, or $0.32 per share compared with income from continuing operations of $15.4 million, or $0.43 per share, for the same period last year before including the life insurance gain of $6.0 million, or $0.17 per share.

Net sales. Third quarter consolidated net sales decreased 14% to $74.0 million in fiscal 2002 from $86.1 million in fiscal 2001. Consolidated net sales for the nine-month period ended January 31, 2002 decreased 13% to $234.7 million from $270.0 million for the comparable period last year.

Net sales of the Electronic segment decreased 12% to $66.0 million in the third quarter of fiscal 2002 from $75.0 million in fiscal 2001. Electronic segment net sales for the nine months ended January 31, 2002 decreased 15% to $202.0 million from $237.7 million for the same period last year. Electronic segment net sales represented 89% and 86% of consolidated net sales for the quarter and nine months ended January 31, 2002 compared with 87% and 88% for the comparable periods last year. Net sales to the automotive industry, which represented 80% of the Electronic segment net sales in the third quarter and nine months ended January 31, 2002, up from 66% and 67% last year, were up 7% for the quarter and 2% for the nine months ended January 31, 2002 compared with the comparable periods last year. Sales for the balance of the Electronic segment decreased 47% in the third quarter and the nine-month period ended January 31, 2002 reflecting the continued weakness in the overall economy and the computer and telecommunication markets in particular.

Net sales of the Optical segment for the third quarter of fiscal 2002 decreased 31% to $4.7 million from $6.9 million a year ago. The most significant sales declines were experienced by the Company's European operations, primarily due to the slowdown in the telecommunications industry. Net sales for the nine-month period ended January 31, 2002 increased 12% over the same period a year ago to $21.4 million from $19.2 million. Double-digit declines in Europe were more than offset by a 76% increase in net sales at the Company's domestic subsidiary that provides custom installation of fiber optic cable assemblies primarily to data centers.

Net sales of the Other segment, principally electric current carrying bus devices and test laboratories declined 22% to $3.3 million in the third quarter of fiscal 2002 from $4.3 million in fiscal 2001. Other segment net sales for the nine-month period declined 14% to $11.3 from $13.1 million last year. Net sales of current-carrying bus devices decreased 24% in the quarter and 17% for the nine-month period. Net sales of the test laboratories decreased 22% in the quarter and 11% for the nine-month period. The poor performance in this segment reflects the continued weakness in the overall economy.

Other income. Other income consisted primarily of earnings from the Company's automotive joint venture, license fees and royalties. Both joint venture earnings and license fees and royalties were down year-to-date in fiscal 2002.

Cost of products sold. Cost of products sold as a percentage of net sales was 89% and 84% in the third quarter and nine-month period of fiscal 2002 compared with 83% and 81% for the third quarter and the nine-month period ended January 31, 2001. The increase in cost of products sold was the result of a $5 million charge recorded in the third quarter to increase warranty reserves. The Company has been in discussions with a customer to resolve a dispute involving certain products the Company supplied prior to fiscal 2002. The Company is not aware of similar issues with any other products it manufactures, or has manufactured. Excluding this warranty charge, the cost of products sold percentage was 82% in the third quarter and nine-month period of fiscal 2002.

Gross margins of the Electronic segment, excluding the warranty charge, increased to 20% in the third quarter from 16% for the third quarter last year. Gross margins, excluding the warranty charge, for the nine-month period ended January 31, 2002 were 19% compared to 20% for the same period last year. Actual gross margins of the Electronic Segment after reflecting the warranty charge were 11% in the quarter and 16% in the nine-month period ended January 31, 2002. Gross margins on sales to the automotive industry, excluding the warranty charge, were up in both the quarter and nine-month period ended January 31, 2002 compared to the prior year as a result of productivity gains and aggressive cost control programs. Gross margins for the balance of the Electronic segment fell dramatically due to the significant reduction in sales volume experienced in fiscal 2002.

Gross margins of the Optical segment decreased to negative 1% in third quarter and 16% in the nine-month period in fiscal 2002 from 26% in the third quarter and 16% in the nine-month period of fiscal 2001. The margin decline in the third quarter was the result of significant sales declines and related provisions for excess inventory at the Company's European fiber optic operations.

Gross margins of the Other segment decreased to 19% in third quarter of fiscal 2002 from 23% in the prior year third quarter and to 21% in the nine-month period from 23% in the nine-month period of fiscal 2001. The margin declines were primarily the result of the decline in sales volume in fiscal 2002.

Selling and administrative expenses. Selling and administrative expenses as a percentage of net sales were 12% for the quarter and nine-month period in fiscal 2002 compared to 13% for the third quarter and 12% for the nine-month period in fiscal 2001.

Interest, net. Interest income, net of interest expense declined 42% in the third quarter and 27% in the nine-month period of fiscal 2002 compared with fiscal 2001, primarily due to lower interest rates.

Other, net. Other non-operating income for fiscal 2002 consists primarily of currency exchange gains at the Company's foreign locations. Other non-operating income for the third quarter and nine-month period ended January 31, 2001 included $6.0 million from insurance proceeds related to the death on January 22, 2001 of William J. McGinley, the Company's founder.

Income taxes. The warranty charge recorded in the third quarter of fiscal 2002 reduced the Company's worldwide blended effective tax rate by reducing the expected income contribution from operations in the Company's highest tax jurisdiction. This resulted in an income tax credit in the third quarter and an effective tax rate of 30% for the nine-month period ended January 31, 2002. The effective income tax rates for the quarter and the nine-month period ended January 31, 2001 were 9% and 25% due to $6 million of non-taxable income from insurance proceeds. The effective rate for the full year fiscal 2001 was 34%.

Financial Condition, Liquidity and Capital Resources

Net cash provided by operations was $38.2 million and $26.3 million in the first nine months of fiscal 2002 and 2001, respectively. The decrease in cash provided from net income in fiscal 2002 was more than offset by decreased working capital requirements due to the overall business slowdown.

Net cash used in investing activities was $23.0 million for fiscal 2002 and $19.1 million for fiscal 2001. Net cash used in investing activities in fiscal 2002 included $12.6 million for the Company's August 1, 2001 acquisition of the automotive safety business of American Components, Inc. Additional contingent consideration will be due for this acquisition beginning in fiscal 2003 based on the attainment of certain sales targets. Included in this asset purchase are the manufacturing operations and patented intellectual property for a sensor pad used by a tier-one automotive supplier in its passenger occupant detector system and the patented intellectual property for a rollover airbag curtain.

Net cash used in financing activities was $3.7 million in fiscal 2002 and $2.9 million in fiscal 2001. The Company paid cash dividends of $5.4 million in the first nine months of both fiscal 2002 and 2001 and received proceeds from the exercise of stock options of $1.2 million in fiscal 2002 and $2.4 million in fiscal 2001.

Cautionary Statement

Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. The Company's business is highly dependent upon two large automotive customers and specific makes and models of automobiles. Therefore, the Company's financial results will be subject to many of the same risks that apply to the automotive industry, such as general economic conditions, interest rates and consumer spending patterns. A significant portion of the balance of the Company's business relates to the computer and telecommunication industries which are subject to many of the same risks facing the automotive industry as well as fast-moving technological change. Other factors which may result in materially different results for future periods include actual growth in the Company's various markets; operating costs; currency exchange rates and devaluations; delays in development, production and marketing of new products; and other factors set forth from time to time in the Company's reports filed with the Securities and Exchange Commission. Any of these factors could cause the Company's actual results to differ materially from those described in the forward-looking statements. The forward-looking statements in this report are intended to be subject to the safe harbor protection provided under the securities law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Although certain of the Company's subsidiaries enter into transactions in currencies other than their functional currency, foreign currency exposures arising from these transactions are not material to the Company. The primary foreign currency exposure arises from the translation of the Company's net equity investment in its foreign subsidiaries to U.S. dollars. The Company generally views as long-term its investments in foreign subsidiaries with functional currencies other than the U.S. dollar. The primary currencies to which the Company is exposed are the Maltese lira, Euro, British pound, Czech Koruna and Singapore dollar. The fair value of the Company's net foreign investments would not be materially affected by a 10% adverse change in foreign currency exchange rates from January 31, 2002 levels.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a): Exhibits—See Index to Exhibits immediately following the signature page.
b): Reports on Form 8-K

The Company did not file a report on Form 8-K during the three months ended January 31, 2002.

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:		/s/ DOUGLAS A. KOMAN Douglas A. Koman Principal Financial Officer

Dated: March 13, 2002

INDEX TO EXHIBITS

Exhibit Number		Description
3.1		Certificate of Incorporation of Registrant, as amended and currently in effect(1)
3.2		Bylaws 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)
4.2		Form of Rights Agreement between ChaseMellon Shareholder Services LLC and Registrant(9)
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) Saving 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)*
10.14		Form of Master Separation Agreement between Stratos Lightwave, Inc. and Registrant(8)
10.15		Form of Initial Public Offering and Distribution Agreement between Stratos Lightwave, Inc. and Registrant(8)
10.16		Form of Tax Sharing Agreement between Stratos Lightwave, Inc. and Registrant(8)
10.17		Methode Electronics, Inc. 2000 Stock Plan(10)*
10.18		Form of Agreement between Horizon Farms, Inc. and Registrant(11)
10.19		Form of Agreement between William T. Jensen and Registrant(11)*
10.20		Form of Agreement between Donald W. Duda and Registrant*
10.21		Form of Agreement between John R. Cannon and Registrant*
10.22		Form of Agreement between Robert J. Kuehnau and Registrant*
10.23		Form of Agreement between James F. McQuillen and Registrant*

(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 Form 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 the 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.
(7): Previously filed with Registrant's Statement No. 333-49671 and incorporated herein by reference.
(8): Previously filed with Registrant's Form 10-K for the year ended April 30, 2000, and incorporated herein by reference.
(9): Previously filed with Registrant's Form 8-K filed July 7, 2000, and incorporated herein by reference.
(10): Previously filed with Registrant's Form 10-Q for the three months ended October 31, 2000, and incorporated herein by reference.
(11): Previously filed with Registrant's Form 10-K for the year ended April 30, 2001, and incorporated herein by reference.
*: Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per Share Data)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) January 31, 2002

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
INDEX TO EXHIBITS

Methode Electronics - 10-Q quarterly report FY

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DISCLAIMER

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