Methode Electronics, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended April 27, 2013 (52 weeks); comparison is fiscal year ended April 28, 2012. The filing also reports FY2013 fourth-quarter results. Methode manufactures electronic and electromechanical components and subsystems across Automotive, Interconnect, Power Products and Other segments.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $519.8 million | $465.1 million |
| Gross profit / margin | $91.6 million / 17.6% | $83.1 million / 17.9% |
| Operating income | $39.2 million | $11.4 million |
| Net income attributable to Methode | $40.7 million | $8.4 million |
| Diluted EPS | $1.08* | $0.22 |
| Cash from operations | $33.2 million | $24.8 million |
- Sales increased 11.8%. Automotive sales rose 14.2% to $310.1 million; Interconnect increased 9.8% to $140.2 million; Power Products rose 1.3% to $52.7 million; Other increased 20.1% to $16.7 million.
- Gross margin narrowed 0.3 percentage points. Higher automotive launch costs and purchased-content mix, along with Interconnect launch delays and development costs, offset growth and favorable mix in other areas.
- Net income includes a $20.0 million pre-tax Delphi settlement gain and a $4.3 million goodwill impairment charge. The settlement materially lifts the year-over-year earnings comparison. The tax line was a $2.5 million benefit, including $8.6 million of Malta tax-credit benefit.
- Investing cash outflow was $40.0 million, including $38.6 million of capital spending. Operating cash flow less capital spending was approximately negative $5.3 million, before acquisitions. Cash fell to $65.8 million from $86.8 million.
- Current assets were $258.7 million and current liabilities $90.5 million. Long-term debt was $43.5 million, down from $48.0 million. The $100 million revolving facility had $56.5 million available; the company reported covenant compliance and an interest rate of 1.5% plus LIBOR.
- Quarterly FY2013 sales were $148.4 million and net income attributable to Methode was $10.2 million in Q4; Q2 net income was $23.4 million, reflecting the settlement.
Material changes, outlook and risks
- Automotive represented 59.7% of sales. Ford and GM, including sales through tiered suppliers, represented 19.9% and 16.7% of consolidated sales, respectively. Backlog was $154.6 million, up from $87.9 million; management expected most of it to ship in FY2014.
- The Delphi settlement resolved related litigation. In exchange for $20.0 million, Methode assigned certain patents and accepted a non-compete concerning the technology.
- Management said worldwide cash, expected operating cash flows and the committed credit facility should support current operations. However, $61.2 million of cash was held outside the U.S. and considered permanently reinvested, limiting its availability for domestic use.
- No specific earnings or revenue guidance is provided. Management highlighted ongoing product launches, with associated development and ramp-up costs, and invested in facility expansion and equipment for programs launching in FY2014.
- Key risks include dependence on automotive production and two major customers; international and foreign-exchange exposure; customer concentration and receivable collectability; launch execution, product quality and recalls; material availability and pricing; competitive pricing and technological change; and potential additional impairment. A 10% currency-rate change was estimated to affect pre-tax income by $2.5 million.
- Environmental remediation accruals were $2.8 million for two inactive sites; costs could exceed accrued amounts. The filing states ordinary-course litigation reserves are considered adequate and does not expect pending matters to materially affect consolidated results.
Investor verification priorities
- Separate recurring operating performance from the $20.0 million settlement gain, the goodwill impairment and the tax-credit benefit.
- Check the sustainability of automotive growth, customer program volumes and the unusually higher backlog, including shipment timing and margins on new launches.
- Assess working-capital absorption: receivables and inventory rose, and operating assets and liabilities used $26.5 million of cash overall.
- Review domestic liquidity access given the overseas cash position, credit-facility terms and future capital expenditure needs.
- Reconcile diluted EPS: selected financial data reports $1.07 for FY2013, while the consolidated statements and EPS note report $1.08.
*The filing contains the diluted-EPS discrepancy noted above; the financial statements and EPS note report $1.08.