<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7444 West Wilson Avenue, Harwood Heights, Illinois 60656
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(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
----- -----
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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
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2
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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
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<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
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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
<PAGE>
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
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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
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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
<PAGE>
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
<PAGE>
SIGNATURES
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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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 21,719,504
<SECURITIES> 0
<RECEIVABLES> 66,630,544
<ALLOWANCES> 1,247,000
<INVENTORY> 48,613,552
<CURRENT-ASSETS> 141,104,551
<PP&E> 187,004,998
<DEPRECIATION> 105,434,030
<TOTAL-ASSETS> 277,017,652
<CURRENT-LIABILITIES> 52,102,436
<BONDS> 0
0
0
<COMMON> 17,829,719
<OTHER-SE> 195,243,382
<TOTAL-LIABILITY-AND-EQUITY> 277,017,652
<SALES> 191,832,560
<TOTAL-REVENUES> 194,302,549
<CGS> 140,263,464
<TOTAL-COSTS> 140,263,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,813
<INCOME-PRETAX> 28,668,570
<INCOME-TAX> 10,040,000
<INCOME-CONTINUING> 18,628,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,628,570
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
