-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PUh9gNCaZtRLATo2nNdWgilSp0+wUCXtjDtSEetJVDLcKa+KUK6sqa1lB09/YvAw +XwpuDCd4fC5/TAEP2N4Ww== 0000950131-99-001420.txt : 19990311 0000950131-99-001420.hdr.sgml : 19990311 ACCESSION NUMBER: 0000950131-99-001420 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METHODE ELECTRONICS INC CENTRAL INDEX KEY: 0000065270 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 362090085 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02816 FILM NUMBER: 99561625 BUSINESS ADDRESS: STREET 1: 7444 W WILSON AVE CITY: HARWOOD HEIGHTS STATE: IL ZIP: 60656 BUSINESS PHONE: 7088679600 MAIL ADDRESS: STREET 1: 7444 WEST WILSON AVENUE CITY: CHICAGO STATE: IL ZIP: 60656 10-Q 1 FORM 10-Q 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 January 31, 1999 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 March 1, 1999, Registrant had 34,356,805 shares of Class A Common Stock and 1,189,191 shares of Class B Common Stock outstanding. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- INDEX METHODE ELECTRONICS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION - ------------------------------- Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets January 31, 1999 and April 30, 1998 Condensed consolidated statements of income--Nine months ended January 31, 1999 and 1998 Condensed consolidated statements of cash flows--Nine months ended January 31, 1999 and 1998 Note to condensed consolidated financial statements--January 31, 1999 Item 2. Management's discussion and analysis of financial condition and results of operations PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and reports on Form 8-K SIGNATURES - ---------- 2 PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS METHODE ELECTRONICS, INC. AND SUBSIDIARIES
January 31, April 30, 1999 1998 ------------ ------------ ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 24,418,514 $ 24,178,868 Accounts receivable - net 84,223,310 64,468,407 Inventories: Finished products 10,011,515 9,754,109 Work in process 27,139,139 27,669,081 Materials 13,562,409 11,541,822 ------------ ------------ 50,713,063 48,965,012 Current deferred income taxes 4,023,000 4,023,000 Prepaid expenses 2,459,090 3,055,417 ------------ ------------ TOTAL CURRENT ASSETS 165,836,977 144,690,704 PROPERTY, PLANT AND EQUIPMENT 212,178,171 199,786,527 Less allowance for depreciation 124,740,375 112,742,879 ------------ ------------ 87,437,796 87,043,648 GOODWILL - net 38,539,586 38,749,031 INTANGIBLE BENEFIT PLAN ASSET 1,765,530 2,266,329 OTHER ASSETS 13,316,927 14,780,143 ------------ ------------ $306,896,816 $287,529,855 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts and notes payable $ 32,332,380 $ 27,727,636 Other current liabilities 18,696,046 22,710,265 ------------ ------------ TOTAL CURRENT LIABILITIES 51,028,426 50,437,901 OTHER LIABILITIES 2,946,696 2,585,704 DEFERRED COMPENSATION 7,314,411 7,259,549 ACCUMULATED BENEFIT PLAN OBLIGATION 801,985 1,206,819 SHAREHOLDERS' EQUITY Common Stock 17,903,957 17,836,506 Paid in capital 22,983,770 21,021,669 Retained earnings 208,052,330 189,397,396 Other shareholders' equity (4,134,759) (2,215,689) ------------ ------------ 244,805,298 226,039,882 ------------ ------------ $306,896,816 $287,529,855 ============ ============
See note to condensed consolidated financial statements. 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES
Three Months Ended January 31, Nine Months Ended January 31, ------------------------------ ----------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ------------ INCOME: Net sales $96,387,118 $90,740,296 $292,224,430 $282,572,856 Other 834,098 1,024,806 3,142,685 3,494,795 ----------- ----------- ------------ ------------ Total 97,221,216 91,765,102 295,367,115 286,067,651 COSTS AND EXPENSES: Cost of products sold 72,798,522 68,692,163 218,621,798 208,955,627 Selling and administrative expenses 13,545,268 12,122,541 40,122,748 37,493,056 ----------- ----------- ------------ ------------ Total 86,343,790 80,814,704 258,744,546 246,448,683 ----------- ----------- ------------ ------------ Income before income taxes 10,877,426 10,950,398 36,622,569 39,618,968 Provision for income taxes 3,755,000 3,860,000 12,635,000 13,900,000 ----------- ----------- ------------ ------------ NET INCOME $ 7,122,426 $7,090,398 $ 23,987,569 $25,718,968 =========== =========== ============ ============ Basic and diluted earnings per Common Share $ 0.20 $ 0.20 $ 0.68 $ 0.73 =========== =========== ============ ============ Cash dividends per Common Share $ 0.05 $ 0.05 $ 0.15 $ 0.15 Weighted average number of Common Shares outstanding: Basic 35,336,000 35,263,000 35,344,000 35,261,000 Diluted 35,445,000 35,375,000 35,425,000 35,351,000
See notes to condensed consolidated financial statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) METHODE ELECTRONICS, INC. AND SUBSIDIARIES
Nine Months Ended January 31, ------------------------------------- 1999 1998 ------------ ------------ OPERATING ACTIVITIES Net income $ 23,987,569 $ 25,718,968 Provision for depreciation and amortization 14,028,329 13,655,188 Changes in operating assets and liabilities (16,920,108) (14,469,018) Other 1,794,522 2,481,533 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 22,890,312 27,386,671 INVESTING ACTIVITIES Purchases of property, plant and equipment (15,509,754) (14,931,570) Acquisitions (1,698,789) (3,711,003) Other (2,688,074) (5,857,162) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (19,896,617) (24,499,735) FINANCING ACTIVITIES Dividends (5,332,635) (5,321,037) Other 2,578,586 2,356,305 ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (2,754,049) (2,964,732) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 239,646 (77,796) Cash and cash equivalents at beginning of period 24,178,868 23,115,320 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,418,514 $ 23,037,524 ============ ============
See note to condensed consolidated financial statements. 5 METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) JANUARY 31, 1999 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, 1999 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. Comprehensive income consists of net income and foreign currency translation adjustments and totaled $6,171,478 and $4,309,657 for the third quarters of 1999 and 1998, and $23,264,044 and $21,990,844 for the nine months ended January 31, 1999 and 1998. 6 Item 2. Management's Discussion and Analysis Results of Operations - --------------------- Net sales for the third quarter of fiscal 1999 increased 6% to $96,387,000, compared with $99,740,000 for the third quarter last year. Sales for the nine months ended January 31, 1999 increased 3% to $292,224,000 compared with $282,573,000 for the same period last year. Sales of our high frequency gigabit optical transceiver products more than doubled in the current quarter and more than tripled for the nine-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 7% increase in sales in the current quarter and a 2% increase for the current nine- month period. Our worldwide automotive interconnect sales increased 12% for the current quarter and 6% for the nine-month period. Sales of our dataMate "smart interconnects" fell off approximately 25% in the current quarter and 28% in the nine-month period following sales gains of approximately 11% in the prior year quarter and 35% in the prior year nine-month period. Sales of other connector products were up 2% for the current quarter but down 7% for the nine-month period compared with the prior year. 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 third quarter was 75.5% compare with 75.7% for the year-ago period. For the nine-month period ended January 31, 1999 this percentage increased to 74.8% from 74.0% for the same period last year. Margin declines in the nine-month period 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 14.1% and 13.7% in the current quarter and nine-month periods of fiscal 1999, up from 13.4% and 13.3% for the year-ago periods. The effective income tax rate was 34.5% in the current quarter and nine- month period compared with 35.3% and 35.1% for the quarter and nine-month period ended January 31, 1998. The effective income tax rate in fiscal 1998 approximated 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 $22,890,000 in fiscal 1999, down from $27,387,000 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 $14,028,000 in fiscal 1999 compared with $13,655,000 in fiscal 1998. Capital expenditures were $15,510,000 in fiscal 1999 compared with $14,932,000 last year. It is presently expected that fixed asset additions for fiscal 1999 will approximate $23,000,000 and will be financed with internally generated funds. 7 The Board of Directors adopted a Common Stock Repurchase Program that authorizes the Company to repurchase up to $20,000,000 of Common Stock of the Company over the next three years. Depending on the timing of such purchases, the Company may utilize bank borrowings to fund this program. 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-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 that 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 65% complete on the implementation phase and expects to complete the upgrade and replacement of 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 55% 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. 8 Costs: As of January 31, 1999, 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 $1,500,000 has been incurred ($350,000 expensed and $1,200,000 capitalized for new systems and equipment). These costs are being funded through operating cash flow. Of the total remaining project costs ($2,600,000), approximately $1,900,000 is attributable to the purchase of new software and equipment that will be capitalized. The remaining $700,000 will be expensed as incurred. The Company estimates that substantial portions 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 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. Euro Conversion: On January 1, 1999, eleven member countries of the European Union established fixed conversion rates between their existing currencies ("legal currencies") and one common currency, the Euro. The Euro is now trading on currency exchanges and may be used in certain transactions such as electronic payments. Beginning in January 2002, new Euro-denominated notes and coins will be issued, and legacy currencies will be withdrawn from circulation. The conversion to the Euro has eliminated currency exchange rate risk for transactions between the member countries, which for the Company primarily consists of sales to certain customers and payments to certain suppliers. The Company is currently addressing the issues involved with the new currency, which include converting information technology systems, recalculating currency risk, and revising processes for preparing accounting and taxation records. Based on the work completed so far, the Company does not believe the Euro conversion will have a significant impact on the results of its operations or cash flows. 9 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits INDEX TO EXHIBITS
Sequential Exhibit Page Number Description Number - ------- ----------- ---------- 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 12
_______ (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 January 31, 1999 10 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: March 10, 1999 ------------- 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS APR-30-1999 MAY-01-1998 JAN-31-1999 24,418,514 0 85,577,310 1,354,000 50,713,063 165,836,977 212,178,171 124,740,375 306,896,816 51,028,426 0 0 0 17,903,957 226,901,341 306,896,816 292,224,430 295,367,115 218,621,798 218,621,798 0 0 492,588 36,622,569 12,635,000 23,987,569 0 0 0 23,987,569 0.68 0.68
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