<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 January 31, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
---------------------------------
Commission file number 0-2816
METHODE ELECTRONICS, INC.
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(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
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(Former name, former address, former fiscal year, if changed since last report)
At March 3, 1998, Registrant had 34,271,882 shares of Class A Common Stock
and 1,199,754 shares of Class B Common Stock outstanding.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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INDEX
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets January 31, 1998 and April 30,
1997
Condensed consolidated statements of income -- Three months and nine
months ended January 31,1998 and 1997
Condensed consolidated statements of cash flows -- Three months and
nine months ended January 31, 1998 and 1997
Notes to condensed consolidated financial statements -- January 31,
1998
Item 2. Management's discussion and analysis of financial condition and results
of operations
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and reports on Form 8-K
SIGNATURES
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2
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
January 31, April 30,
1998 1997
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 23,037,524 $ 23,115,320
Accounts receivable - net 50,492,354 54,054,695
Inventories:
Finished products 8,821,113 7,347,088
Work in process 33,777,731 21,323,077
Materials 10,761,726 11,185,199
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53,360,570 39,855,364
Current deferred income taxes 2,971,000 2,831,000
Prepaid expenses 2,211,528 2,944,056
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TOTAL CURRENT ASSETS 132,072,976 122,800,435
PROPERTY, PLANT AND EQUIPMENT 190,425,107 179,050,393
Less allowance for depreciation 108,062,990 98,954,082
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82,362,117 80,096,311
GOODWILL - net 37,769,273 35,190,298
INTANGIBLE BENEFIT PLAN ASSET 2,433,262 2,934,061
OTHER ASSETS 14,469,273 12,469,978
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$269,106,901 $253,491,083
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and notes payable $ 25,163,648 $ 25,559,239
Other current liabilities 15,656,278 18,979,585
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TOTAL CURRENT LIABILITIES 40,819,926 44,538,824
OTHER LIABILITIES 2,688,929 2,464,519
DEFERRED COMPENSATION 7,153,388 6,964,135
ACCUMULATED BENEFIT PLAN OBLIGATION 2,384,394 2,326,248
SHAREHOLDERS' EQUITY
Common Stock 17,834,094 17,744,672
Paid in capital 20,773,425 18,040,963
Retained earnings 181,623,778 161,225,847
Other shareholders' equity (4,171,033) 185,875
------------ ------------
216,060,264 197,197,357
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$269,106,901 $253,491,083
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended January 31, Nine Months Ended January 31,
------------------------------ ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME:
Net sales $90,740,296 $85,943,283 $282,572,856 $250,097,629
Other 1,024,806 1,984,063 3,494,795 4,713,523
----------- ----------- ------------ ------------
Total 91,765,102 87,927,346 286,067,651 254,811,152
COSTS AND EXPENSES:
Cost of products sold 68,692,163 62,126,072 208,955,627 181,086,078
Selling and administrative expenses 12,122,541 11,417,133 37,493,056 32,397,319
----------- ----------- ------------ ------------
Total 80,814,704 73,543,205 246,448,683 213,483,397
----------- ----------- ------------ ------------
Income before income taxes 10,950,398 14,384,141 39,618,968 41,327,755
Provision for income taxes 3,860,000 5,250,000 13,900,000 15,085,000
----------- ----------- ------------ ------------
NET INCOME $ 7,090,398 $ 9,134,141 $ 25,718,968 $ 26,242,755
=========== =========== ============ ============
Basic and diluted earnings
per Common Share $0.20 $0.26 $0.73 $0.75
=========== =========== ============ ============
Cash dividends per Common Share $0.05 $0.05 $0.15 $0.15
Weighted average number of
Common Shares outstanding 35,264,000 35,135,000 35,261,000 35,122,000
</TABLE>
See notes to condensed consolidated financial statements.
4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended January 31,
----------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,718,968 $ 26,242,755
Provision for depreciation
and amortization 13,655,188 10,392,031
Changes in operating assets
and liabilities (14,469,018) (3,766,593)
Other 2,481,533 1,041,221
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NET CASH PROVIDED BY OPERATING ACTIVITIES 27,386,671 33,909,414
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (14,931,570) (17,131,286)
Acquisitions (3,711,003)
Other (5,857,162) 1,092,640
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NET CASH USED IN INVESTING ACTIVITIES (24,499,735) (16,038,646)
FINANCING ACTIVITIES
Dividends (5,321,037) (5,300,505)
Other 2,356,305 (216,361)
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NET CASH USED IN FINANCING ACTIVITIES (2,964,732) (5,516,866)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (77,796) 12,353,902
Cash and cash equivalents at
beginning of period 23,115,320 50,185,934
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,037,524 $ 62,539,836
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
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METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JANUARY 31, 1998
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and nine-month periods
ended January 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending April 30, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended April 30, 1997.
In 1997, the Financial Acounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. The adoption of Statement 128 did not impact the
Company's earnings per share amounts for any period presented.
NOTE 2. ACQUISITION
Effective May 5, 1997, the Company, using available cash balances,
purchased all of the outstanding shares of Adam Technologies, a designer and
marketer of electronic connectors. The acquisition, which may require additional
contingent consideration if certain performance targets are attained, was
accounted for using the purchase method of accounting and the results of
operations of Adam Technologies have been included in the Company's consolidated
financial statements from the date of acquisition.
6
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Item 2. Management's Discussion and Analysis
Results of Operations
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Net sales for the third quarter of fiscal 1998 increased 6% to $90,740,000,
compared with $85,943,000 last year. Sales for the nine months ended January 31,
1998 increased 13% to $282,573,000 compared with $250,098,000 a year ago.
Without the Company's two most recent acquisitions, Adam Technologies, Inc., a
broad line electronic connector supplier, and Merit-Malta Methode, a European
automotive component manufacturer, sales for the quarter would have been
slightly below the prior year third quarter and the year-to-date sales would
have been almost flat with last year. Automotive interconnect devices and
controls, which represented about half of Methode's business during all periods,
experienced about a 5% decline in sales to the domestic automotive industry for
the quarter and a decline of almost 4% for the year-to-date period. Our dataMate
"smart interconnect" companies grew by approximately 11% in the current quarter
and 35% in the current nine-month period. Sales of fiber optic connectors were
off about 25% in the quarter and 5% year-to-date due to a slowdown in cable
assembly sales to the data center market. The 1998 third quarter contained one
less week of operations as compared to the 1997 quarter.
Other income consisted primarily of earnings from an automotive joint
venture, royalty and license fees, and interest income on short-term
investments. Other income for the quarter was down nearly $1,000,000 primarily
due to reduced interest income. Also last year's quarter contained a $244,000
gain from the sale of marketable securities.
Cost of products sold as a percentage of sales for the third quarter
increased to 75.7% from 72.3% for the year-ago period. For the nine-month
period ended January 31, 1998 this percentage increased to 74.0% from 72.4% last
year. The automotive business was the largest contributor to this margin
decline falling 4% due to the reduction in volume, product mix, additional
infrastructure, some customer pricing pressure and engineering costs incurred
for new programs that are not yet producing revenue.
Selling and administrative expenses as a percentage of sales were 13.4% and
13.3% in the three-month and nine-month periods of fiscal 1998, up from 13.3%
and 13.0% for the year-ago periods.
The effective income tax rate was 35.0% in the current quarter and nine-
month period compared with 36.5% for the quarter and nine-month period ended
January 31, 1997. The effective income tax rate in fiscal 1998 equaled the
statutory federal rate of 35% with lower statutory rates on foreign operations
offsetting the effect of state income taxes. In fiscal 1997, the foreign
operations were not a large enough component of total income to completely
offset the effect of state income taxes.
Financial Conditions, Liquidity and Capital Resources
- -----------------------------------------------------
Net cash provided by operating activities was $27,387,000 in fiscal 1998,
down from the $33,909,000 provided during the year-ago period. The decrease was
the result of increased working capital requirements for automotive tooling
inventories.
To accelerate market penetration and extend product offerings, the Company
purchased the Common Stock of Adam Technologies in May 1997. Available cash
balances were used to fund this acquisition.
Depreciation and amortization expense increased to $13,655,000 in fiscal
1998 compared with $10,392,000 in fiscal 1997. Acquisitions of subsidiaries in
the fourth quarter of 1997 and the first quarter of 1998 were major contributors
to this increase. Capital expenditures were $14,932,000 in fiscal 1998 compared
with $17,131,000 last year. It is presently expected that fixed asset additions
for fiscal 1998 will approximate $20,000,000 and will be financed with
internally generated funds.
7
<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 10
_______
(1) Previously filed with Registrant's Form S-3 Registration Statement No. 33-61940
filed April 30, 1993 and incorporated herein by reference.
(2) Previously filed with Registrant's S-8 Registration Statement No. 2-60613 and incorporated
herein by reference.
(3) Previously filed with Registrant's Registration Statement No. 2-92902 filed
August 23, 1984, and incorporated herein by reference.
(4) Previously filed with Registrant's Form 10-Q for three months ended January 31, 1994, and
incorporated herein by reference.
(5) Previously filed with Registrant's Form 10-K for the year ended April 30, 1994, and
incorporated herein by reference.
(6) Previously filed with Registrant's S-8 Registration Statement No. 33-88036 and incorporated
herein by reference.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit to
this Report on Form 10-Q pursuant to Item 6 of Form 10-Q.
b) Reports on Form 8-K
-------------------
The Company did not file a report on Form 8-K during the three months ended January 31, 1998.
</TABLE>
8
<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: March 11, 1998
--------------
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1997
<CASH> 23,037,524
<SECURITIES> 0
<RECEIVABLES> 51,718,354
<ALLOWANCES> 1,226,000
<INVENTORY> 53,360,570
<CURRENT-ASSETS> 132,072,976
<PP&E> 190,425,107
<DEPRECIATION> 108,062,990
<TOTAL-ASSETS> 269,106,901
<CURRENT-LIABILITIES> 40,819,926
<BONDS> 0
0
0
<COMMON> 17,834,094
<OTHER-SE> 198,226,170
<TOTAL-LIABILITY-AND-EQUITY> 269,106,901
<SALES> 282,572,856
<TOTAL-REVENUES> 286,067,651
<CGS> 208,955,627
<TOTAL-COSTS> 208,955,627
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311,148
<INCOME-PRETAX> 39,618,968
<INCOME-TAX> 13,900,000
<INCOME-CONTINUING> 25,718,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,718,968
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
