<PAGE>
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, 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 December 7, 1998, Registrant had 34,355,905 shares of Class A Common
Stock and 1,190,091 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
----- -----
<PAGE>
INDEX
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets October 31, 1998 and April 30,
1998
Condensed consolidated statements of income -- Six months ended October
31, 1998 and 1997
Condensed consolidated statements of cash flows -- Six months ended
October 31, 1998 and 1997
Note to condensed consolidated financial statements -- October 31, 1998
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
<PAGE>
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 22,514,868 $ 24,178,868
Accounts receivable - net 87,228,829 64,468,407
Inventories:
Finished products 8,411,929 9,754,109
Work in process 28,168,553 27,669,081
Materials 12,057,195 11,541,822
------------ ------------
48,637,677 48,965,012
Current deferred income taxes 4,023,000 4,023,000
Prepaid expenses 3,626,081 3,055,417
------------ ------------
TOTAL CURRENT ASSETS 166,030,455 144,690,704
PROPERTY, PLANT AND EQUIPMENT 207,741,519 199,786,527
Less allowance for depreciation 121,434,543 112,742,879
------------ ------------
86,306,976 87,043,648
GOODWILL - net 38,669,517 38,749,031
INTANGIBLE BENEFIT PLAN ASSET 1,932,463 2,266,329
OTHER ASSETS 12,502,553 14,780,143
------------ ------------
$305,441,964 $287,529,855
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and notes payable $ 32,330,476 $ 27,727,636
Other current liabilities 21,081,926 22,710,265
------------ ------------
TOTAL CURRENT LIABILITIES 53,412,402 50,437,901
OTHER LIABILITIES 3,012,349 2,585,704
DEFERRED COMPENSATION 7,396,202 7,259,549
ACCUMULATED BENEFIT PLAN OBLIGATION 1,643,236 1,206,819
SHAREHOLDERS' EQUITY
Common Stock 17,903,957 17,836,506
Paid in capital 22,983,770 21,021,669
Retained earnings 202,707,191 189,397,396
Other shareholders' equity (3,617,143) (2,215,689)
------------ ------------
239,977,775 226,039,882
------------ ------------
$305,441,964 $287,529,855
============ ============
</TABLE>
See note to condensed consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended October 31, Six Months Ended October 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME:
Net sales $107,875,915 $ 99,934,242 $195,837,312 $191,832,560
Other 1,175,136 1,337,801 2,308,587 2,469,989
------------ ------------ ------------ ------------
Total 109,051,051 101,272,043 198,145,899 194,302,549
COSTS AND EXPENSES:
Cost of products sold 80,381,866 73,488,813 145,823,276 140,263,464
Selling and administrative expenses 14,701,432 13,205,915 26,577,480 25,370,515
------------ ------------ ------------ ------------
Total 95,083,298 86,694,728 172,400,756 165,633,979
------------ ------------ ------------ ------------
Income before income taxes 13,967,753 14,577,315 25,745,143 28,668,570
Provision for income taxes 4,780,000 5,105,000 8,880,000 10,040,000
------------ ------------ ------------ ------------
NET INCOME $ 9,187,753 $ 9,472,315 $ 16,865,143 $ 18,628,570
============ ============ ============ ============
Basic and diluted earnings
per Common Share $0.26 $0.27 $0.48 $0.53
===== ===== ===== =====
Cash dividends per
Common Share $0.05 $0.05 $0.10 $0.10
===== ===== ===== =====
Weighted average number of
Common Shares outstanding:
Basic 35,338,000 35,267,000 35,345,000 35,260,000
Diluted 35,419,000 35,367,000 35,412,000 35,339,000
</TABLE>
See note to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended October 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $16,865,143 $18,628,570
Provision for depreciation
and amortization 9,177,861 9,120,573
Changes in operating assets
and liabilities (16,557,789) (13,544,328)
Other 2,117,299 1,630,351
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,602,514 15,835,166
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (9,171,606) (9,878,728)
Acquisitions (1,528,995) (3,710,865)
Other (1,584,737) (2,234,041)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (12,285,338) (15,823,634)
FINANCING ACTIVITIES
Dividends (3,555,348) (3,547,468)
Other 2,574,172 2,140,120
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (981,176) (1,407,348)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,664,000) (1,395,816)
Cash and cash equivalents at
beginning of period 24,178,868 23,115,320
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,514,868 $21,719,504
=========== ===========
</TABLE>
See note to condensed consolidated financial statements.
5
<PAGE>
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 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 six-month periods
ended October 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
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Item 2. Management's Discussion and Analysis
Results of Operations
- ---------------------
Net sales for the second quarter of fiscal 1999 increased 8% to
$107,876,000, compared with $99,934,000 for the second quarter last year. Sales
for the six months ended October 31, 1998 increased 2% to $195,837,000 compared
with $191,833,000 for the same period last year. Sales of our high frequency
gigabit optical transceiver products increased eightfold in the current quarter
and six-month period compared with the same periods last year. Domestic
automotive interconnect devices and controls, which represented approximately
40% of Methode's business during all periods, experienced a 3% increase in sales
in the current quarter. Domestic automotive sales were flat for the six-month
period. Sales of our dataMate "smart interconnects" fell off over 40% in the
current quarter and six-month period following sales gains of approximately 60%
in the prior year quarter and 50% in the prior year six-month period.
Other income consisted primarily of earnings from an automotive joint
venture, royalty and license fees, and interest on short-term investments.
Cost of products sold as a percentage of sales for the second quarter
increased to 74.5% from 73.5% for the year-ago period. For the six-month period
ended October 31, 1998 this percentage increased to 74.5% from 73.1% for the
same period last year. Margin declines resulted, to some extent, from the
incremental cost of providing our automotive customers with full-service
engineering support previously provided by the customers' engineering staff.
Margin improvement resulting from volume gains by optical transceiver products
were offset by margin declines due to reduced sales volumes of dataMate
products.
Selling and administrative expenses as a percentage of sales were 13.6% in
both the current quarter and six-month period of fiscal 1998, up from 13.2% for
the year-ago periods.
The effective income tax rate was 34.2% in the current quarter and 34.5%
for the six-month period compared with 35.0% for the quarter and six-month
period ended October 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 1999, the
foreign operations were a larger component of total income resulting in a lower
effective rate.
Financial Conditions, Liquidity and Capital Resources
- -----------------------------------------------------
Net cash provided by operating activities was $11,603,000 for the first
half of fiscal 1999, down from $15,835,000 provided during the year-ago period.
The decrease was the result of lower net income and increased working capital
requirements primarily due to large automotive tooling requirements.
Depreciation and amortization expense was $9,178,000 in fiscal 1999
compared with $9,121,000 in fiscal 1998. Capital expenditures were $9,172,000
in fiscal 1999 compared with $9,879,000 last year. It is presently expected
that fixed asset additions for fiscal 1999 will approximate $24,000,000 and will
be financed with internally generated funds.
Year 2000 (Y2K) Conversion
- --------------------------
The Year 2000 issue exists because many computer system, applications and
assets use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems may recognize the Year 2000 as 1900, or
not at all. This inability to recognize or properly treat the Year 2000 may
cause systems to process financial and operations information incorrectly.
Status of Readiness:
The Company's Year 2000 Strategy to make systems "Y2K ready" includes a
common company
7
<PAGE>
wide focus on all internal systems potentially impacted by the Y2K issue,
including Information Technology ("IT") Systems and Non-IT equipment and systems
(Operating Equipment) that contain embedded computer technology. Each of the
foregoing IT and Non IT programs is being conducted in phases; described as
follows:
Inventory Phase - Identify hardware or software that use or process date
information.
Assessment Phase - Identify Year 2000 Date processing deficiencies and
related implications.
Planning Phase - Determine for each deficiency an appropriate solution and
budget as well as schedule personnel and other resources.
Implementation Phase - Implement designated solutions and test systems.
The Company is upgrading hardware and software for certain major computer
systems which will concurrently address the Year 2000 issues for those systems.
To date, the Company has fully completed its assessment of all systems that
could be significantly affected by the Year 2000. The completed assessment
indicates that most of the Company's significant information technology systems
could be affected, particularly the general ledger and billing systems. The
assessment also indicates, that in some instances, software and hardware
(embedded chips) used in operating equipment also are at risk. However, based
on a review of its product line, the Company has determined that the products it
has sold and will continue to sell do not require remediation to be Year 2000
Compliant.
For IT Systems, to date the Company is 60% complete on the implementation
phase and expects to complete upgrade and replacement of the remaining systems
by September 1999.
For its Non-IT Systems, the Company is in the process of bringing such systems
into Year 2000 compliance. This remediation is 50% complete. The Company expects
to substantially complete this remediation effort by August 1999.
The Company is in the process of working with third party suppliers to
ensure that the Company's systems that interface directly with third parties are
Year 2000 compliant. The company has completed 80% of its remediation efforts
on these systems with testing to be completed on all significant systems no
later than June 1999. We have been informed that these key suppliers are in the
process of making their billing systems Year 2000 compliant by the end of 1999.
The Company has queried its significant Non-IT suppliers that do not share
information systems with the company (external agents). To date, the Company is
not aware of any external agent with a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that external agents will be Year
2000 ready. The inability of external agents to complete their Year 2000
resolution process in a timely fashion would indirectly impact the Company, and
the impact may be material. The Company also plans to make inquiry as to the
Year 2000 readiness of selected customers and service vendors.
Costs:
As of October 31, 1998, the Company's total incremental costs (historical
plus estimated future costs) of system upgrades and addressing Year 2000 issues
are estimated to be $4,100,000 of which $1,000,000 has been incurred ($300,000
expensed and $700,000 capitalized for new systems and equipment). These costs
are being funded through operating cash flow. Of the total remaining project
costs ($3,100,000), approximately $2,350,000 is attributable to the purchase of
new software and equipment which will be capitalized. The remaining $750,000
will be expensed as incurred. The Company estimates that a substantial portion
of these costs are attributable to system upgrades that would have been incurred
regardless of the Year 2000 issue.
Implementation of our Company's Year 2000 Plan is an ongoing process.
Consequently, the above-described estimates of costs and completion dates for
the various components of the plan are subject to change.
Risks:
The Company's Year 2000 compliance program is directed primarily toward
ensuring that the
8
<PAGE>
Company will be able to continue to perform five critical functions: (A) order
and receive raw material and supplies, (B) make and sell its products, (C)
invoice customers and collect payments, (D) pay its employees and suppliers, and
(E) maintain accurate accounting records. While the Company currently believes
that it will be able to modify or replace its affected systems in time to
minimize any significant detrimental effects on its operations, failure to do
so, or the failure of key third parties to modify or replace their affected
systems, could have materially adverse impacts on the Company's business
operations or financial condition. In particular, because of the interdependent
nature of business systems, the Company could be materially adversely affected
if private businesses, utilities and governmental entities with which it does
business or that provide essential products or services are not Year 2000 ready.
Reasonably likely consequences of failure by the company or third parties to
resolve the Year 2000 Problem include, among other things, temporary slowdowns
of manufacturing operations at one or more Company facilities, billing and
collection errors, delays in the distribution of products and delays in the
receipt of supplies.
The Company's expectations about future costs necessary to achieve Year
2000 compliance, the impact on its operations and its ability to bring each of
its systems into Year 2000 compliance are subject to a number of uncertainties
that could cause actual results to differ materially. Such factors include the
following: (i) The Company may not be successful in properly identifying all
systems and programs that contain two-digit year codes; (ii) The nature and
number of systems which require reprogramming, upgrading or replacement may
exceed the Company's expectations in terms of complexity and scope; (iii) The
Company may not be able to complete all remediation and testing necessary in a
timely manner; (iv) The Company's key suppliers and other third parties may not
be able to supply the Company with components or materials which are necessary
to manufacture its products, with sufficient electrical power and other
utilities to sustain its manufacturing process, or with adequate, reliable means
of transporting its products to its customers.
Contingency Plans:
Contingency Plans for suppliers and mission critical systems impacted by
Year 2000 Issues are currently under development. We anticipate completion of
the Year 2000 Contingency Plans by June 1999. Contingency plans may include
stockpiling raw materials, increasing inventory levels, securing alternate
sources of supply and other appropriate measures. Once developed, Year 2000
Contingency Plans and related cost estimates will be continually refined, as
additional information becomes available.
9
<PAGE>
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 8, 1998.
(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.
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 30,334,209 727,953
William C. Croft 30,316,089 746,073
James W. Ashley, Jr. 30,324,952 737,210
</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 1,131,096 4,846
Kevin J. Hayes 1,131,096 4,846
James W. McGinley 1,131,096 4,846
William J. McGinley 1,130,996 4,946
Raymond J. Roberts 1,131,096 4,846
George C. Wright 1,131,096 4,846
</TABLE>
No other items were voted on at the Annual Stockholders Meeting or
otherwise during the quarter.
Item 6. Exhibits and Reports on Form 8-K
10
<PAGE>
(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 13
</TABLE>
- --------
(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.
(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 October 31, 1998
11
<PAGE>
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 14, 1998
-----------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 22,514,868
<SECURITIES> 0
<RECEIVABLES> 88,520,829
<ALLOWANCES> 1,292,000
<INVENTORY> 48,637,677
<CURRENT-ASSETS> 166,030,455
<PP&E> 207,741,519
<DEPRECIATION> 121,434,543
<TOTAL-ASSETS> 305,441,964
<CURRENT-LIABILITIES> 53,412,402
<BONDS> 0
0
0
<COMMON> 17,903,957
<OTHER-SE> 222,073,818
<TOTAL-LIABILITY-AND-EQUITY> 305,441,964
<SALES> 195,837,312
<TOTAL-REVENUES> 198,145,899
<CGS> 145,823,276
<TOTAL-COSTS> 145,823,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178,379
<INCOME-PRETAX> 25,745,143
<INCOME-TAX> 8,880,000
<INCOME-CONTINUING> 16,865,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,865,143
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
