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Methode Electronics (NYSE:MEI)

Q1 2013 Earnings Call

August 30, 2012 11:00 am ET

Executives

Donald W. Duda - Chief Executive Officer, President and Director

Douglas A. Koman - Chief Financial Officer, Principal Accounting Officer and Vice President of Corporate Finance

Analysts

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Jeremy Hellman - Divine Capital Markets LLC, Research Division

Gregory M. Macosko - Lord, Abbett & Co. LLC

Operator

Welcome to the Methode Electronics Fiscal 2013 First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

This conference call does contain certain forward-looking statements, which reflects management's expectations regarding future events and operating performances and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly report. Such factors may include, without limitations, the following: dependence on a small number of large customers, including 2 large automotive customers; dependence on the automotive, appliance, computer and communications industries; further downturns in the automotive industry or the bankruptcy of certain automotive customers; ability to compete effectively; customary risks related to conducting global operations; dependence on the availability and price of raw materials; dependence on our supply chain; ability to keep pace with rapid technological changes; ability to improve gross margins due to a variety of factors; ability to avoid design or manufacturing defects; ability to protect our intellectual property; ability to withstand price pressure; the usage of a significant amount of our cash and resources to launch new North American automotive programs; location of a significant amount of cash outside of the U.S.; currency fluctuations; ability to successfully benefit from acquisitions and divestitures; ability to withstand business interruptions; income tax rate fluctuations; ability to implement and profit from newly acquired technology; and the future trading price of our stock.

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer for Methode Electronics.

Donald W. Duda

Thank you, Rob, and good morning, everyone. Thank you for joining us today for our fiscal 2013 first quarter financial results conference call. I am joined today by Doug Koman, Chief Financial Officer; and Ron Tsoumas, Controller. Both Doug and I have comments, and afterwards, we will be pleased to take your questions.

Methode's first quarter sales improved 7% to nearly $119 million, driven mainly from increased sales of the Ford center console program, lead frame assembly products, torque-sensing products for e-bikes and motorcycles and sales for the recently acquired AMD. These sales improvements were partially offset by softness in our Interconnect and Power Products segments.

In our release today, we have reiterated full year fiscal 2013 sales guidance of $495 million to $525 million. As we discussed last quarter, the launch of a user interface panel for a large laundry program, along with the launch of multiple automotive programs in Europe in the second and third quarters, is expected to improve second and third quarter sales and earnings sequentially. Additionally, the launch of the General Motors center console program in the fourth quarter is anticipated to make that quarter Methode's strongest in sales and earnings for fiscal 2013. However, that being said, we remain cautious about the macroeconomic environment in Europe and are managing our risks very carefully, particularly concerning the second half of our fiscal year.

Approximately 45% of our manufacturing sales in Europe are for products exported to North America. At this point, that portion of the business is projected to remain stable. Our concern is mainly for those products manufactured and distributed within Europe. Currently, customer orders through the end of this calendar year are in line with our expectations, but as I said, we remain cautious.

First quarter earnings per share of $0.10 improved from $0.04 last year. Higher overall sales volume, higher other segment income, lower performance-based compensation and severance expense and a commodity price investment drove earnings. First quarter earnings were negatively impacted this year by higher income tax expense, higher selling and administrative expense due to the acquisition of AMD and higher design, development and engineering costs.

As we have discussed over the last several quarters, design, development and launch costs in both our Automotive and Power Products segments continued to impact net income and gross margins. Additionally, vendor production and delivery issues and increased sales of products with a higher prime cost further affected our North American Automotive income. In total, the development and launch costs and vendor charges lowered first quarter net income by approximately $2.5 million or $0.07 per share and lowered our gross margin by 3.1 percentage points.

Our vertical integration of Advanced Molding and Decorating or AMD continues to progress as anticipated. At the end of the first quarter, AMD is successfully producing decorative components for the majority of the Ford center console products we supply. As a result, we anticipate vendor production and delivery costs should be eliminated in this second quarter. Additionally, our Ford center console program originally carried a higher prime cost due to the high purchase content, which reduces the program's overall gross margins. With the vertical integration substantially complete, we should see gross margins in the Automotive segment begin to improve, reaching our target of low to mid 20s in fiscal 2014.

We also incurred costs related to design, development and launch of the General Motors center console program for the next-generation truck platform, the program that has total anticipated revenue in excess of $0.5 billion over its contract life. In fiscal 2013, we anticipate approximately $4.5 million in total launch costs for the program, with the majority of those costs occurring in this first half. These costs will be ultimately absorbed as the product launches and revenue is realized, which again is anticipated to begin in the fourth quarter of this fiscal year.

In August, the company and the various Delphi parties agreed to settle all Delphi-related litigation matters. In addition to resolving all claims between the parties, the companies will assign -- the company will assign certain patents to Delphi and enter into a non-compete with respect to the related technologies. In exchange, the company will receive a payment of $20 million, half of which will be paid in October 2012 and half which will be paid in January 2013. The company expects to record the entire gain in the second quarter of this fiscal 2013. Because we reached a settlement in second quarter, SG&A should decrease in the second half of this fiscal year due to the absence of the related legal fees. As the agreement is subject to confidentiality provisions, this is the extent of the information we can provide at this time, and we will not be providing any further commentary.

Based on an anticipated decrease in SG&A and the fact that the first quarter profitability came in higher, we also announced this morning that we have increased fiscal 2013 earnings per share guidance to between $0.66 and $0.81. Please note that this range does not include the settlement amounts just discussed.

Turning to a review of our individual segments. In the first quarter, Automotive segment end sales increased over 13% due to higher sales in the Ford center console programs and our transmission lead frame product. Additionally, the acquisition of AMD contributed almost 48% of the North American Automotive sales increase in the quarter. AMD continues to break even at the gross margin level.

Automotive segment gross margins decreased in the first quarter, impacted by the higher prime cost of the Ford center console, costs related to launch of the General Motors program and AMD sales at breakeven, partially offset by commodity price adjustment from precious metals of $0.9 million. Again, our target gross margin for Automotive are low to mid 20s, which we anticipate reaching once the General Motors center console program is fully launched in the first quarter of fiscal 2014.

Interconnect sales decreased approximately 2% in the first quarter, attributable mainly to lower sales of radio remote controls in Europe, due primarily to the lack of sales to a financially distressed radio remote control distributor, as well as the planned exit of a business line at our Asian operation. To remedy the situation in Europe, we have signed a memorandum of understanding to purchase the business assets of the distributor. We anticipate the transaction to be completed during the second quarter.

However, appliance sales in North America improved in the first quarter due mainly to a modest shipment of product -- of production units for the laundry platform we are launching. As we mentioned in our release this morning, we are anticipating shipping lower volumes of this product in the second quarter than what we had originally anticipated as directed by the OEM. At this point, we foresee volumes improving significantly in the third quarter as inventory of the model we are replacing is completed. We now anticipate this program to represent $12 million to $17 million in sales in fiscal 2013, with $30 million to $40 million in annual revenue at full run rate in fiscal 2014.

Interconnect's gross margins grew slightly in the first quarter due mainly to higher sales for data solution products, offset by development costs for the laundry platform.

Our Power Products segment saw 5.5% lower sales in the first quarter due mainly to a lower demand for cabling and heat sink products. At this point, we anticipate continued softness for at least the next 2 quarters in this segment. Power Products gross margins increased in the first quarter, mainly as a result of product mix and favorable commodity pricing for raw materials. Without the new product development costs, gross margins would have been 22.3% and 20.3% in the first quarter of fiscal 2013 and 2012, respectively. Our target gross margin for the segment is in the high 20s, which we anticipate achieving in fiscal 2014 as more products launch.

Now let me summarize some of the product development and new business awards and opportunities that occurred in the first quarter. In the Automotive segment, our torque-sensing group is working closely with an Asian OEM on a prototype torque sensor for a new fuel-efficient transmission. We were also awarded a trailer brake switch for the same models of General Motors trucks for which we are producing the center consoles. Annual revenue is approximately $4 million beginning with fourth quarter of this fiscal year. Program life is 5 years. Additionally, the Automotive group was awarded new lead frame business with a Detroit OEM for almost $7 million in average annual revenue beginning in the fourth quarter of fiscal 2015, with a projected run of 5 years. In Europe, we are awarded additional hidden switch business with Ford, Volvo, Jaguar, and an electric park brake switch for Renault, with combined average annual revenue of $4 million. In Interconnect, TouchSensor has developed new LevelGuard fluid sensors, which allow level-sensing in industrial and residential waste applications. Those will be introduced to the market in the second half of this fiscal year.

So to quickly summarize, the first quarter has us on our way to achieving our earnings guidance target for the year, which is an approximate threefold increase in EPS over last year. Additionally, our launch teams continue to do an excellent job of managing our projects under development and moving those towards successful launches. Today's quarterly results are just part of the story, reflecting 190-day window. I would ask that you take a look at what we are accomplishing for the long term with our technologies, custom-engineered products and solutions and global operations. We are building a company of sustainable quality and earnings for many years to come.

Now I will turn the call over to Doug, who will provide further details regarding the financial results. Doug?

Douglas A. Koman

Thanks, Don. Good morning, everyone. Let me just add a few additional comments to those Don has already made. On the last call, I commented that the full year fiscal 2013 effective tax rate would be in the low to mid-teens. Sitting here today, we expect the full year effective tax rate to be closer to the low end of that range. In fact, our first quarter effective tax rate was 10%.

In the first quarter, we spent $11.4 million for capital expenditures. For the full year, we still expect to spend between $25 million and $28 million for CapEx projects. Depreciation and amortization expense for the first quarter was $4.3 million. For the full year, we expect that number to be between $18 million and $20 million as we place more assets in service throughout the year.

As Don mentioned, consolidated net sales were up 7% or about $7.9 million year-over-year, however, sales were about $2.4 million lower year-over-year due to currency fluctuations, primarily due to the weakening of the euro to the dollar.

Operating cash was relatively flat year-over-year, with $6.2 million this year versus $6.5 million last year. We had higher net income this quarter versus last year, but we saw an offset in working capital increase due to the increase in business levels.

Lastly, let me just comment that we borrowed an additional $8.5 million in the quarter, bringing bank debt up to $56.5 million at the end of the first quarter. I bet you'll recall that in the fourth quarter of fiscal 2012, we identified $38 million of undistributed foreign earnings for repatriation in the dividend. We expect to bring this cash back to the U.S. in second and third quarter of fiscal 2013. This will help pay for capital expenditures needed for the launch of the center console program and will reduce the amount of additional borrowings under our credit facility.

That concludes my remarks.

Donald W. Duda

Thank you, Doug. Rob, we are ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of David Leiker of Robert W. Baird.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Doug, I just -- I missed the number right at the end in terms of how much cash you're repatriating.

Douglas A. Koman

Yes, we've identified $38 million. And so that's cash that's already on the balance sheet but it's in Asia, and we're bringing it back to North America into the U.S.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

And then because of the NOL possession -- position, that is not taxed. Is that correct?

Douglas A. Koman

Correct. We recognize the tax event on that decision to repatriate back in the fourth quarter, but because of the NOLs, we had an offset in the valuation allowance. So there was no P&L impact in the fourth quarter.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Great. Okay. And then, Don, a handful of questions here. The lead frame moving from Asia to North America, Mexico, I guess, in particular, what's the thought process behind that? Your customer wants it for this year or...

Donald W. Duda

Yes. Two manufacturing locations, one in Asia for shipments to the assembly plant, which I think is in the Philippines, and then they also started an assembly plant in Mexico. So 2 for supply on 2 continents.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then you provided a comment about the orders that you're seeing here for the near term are consistent with your expectations. I guess is there some -- any way you can give us some context here in August versus what you saw in June and July, if there's any sequential reduction in that order rate, particularly out of Europe?

Donald W. Duda

No reduction. As I said, we're -- at least, through the calendar year, the releases we've received -- and as you know, the near-term releases tend to be pretty firm and then they get a little softer as you get out in the later months, but we are on track to what we anticipated, we are just being cautious about what the second half of our fiscal year may hold, again, particularly in Europe. But we've not seen any softening.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

So the plants in Europe start to come back up here in the next week or so. Is that coming at a pace consistent with what they went down for the summer?

Donald W. Duda

I wouldn't say it that way. I would say that what they have released to us is maintaining. I don't know whether the pace has changed or not. I mean, usually, there's some catch-up because they have been shut down.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Yes. Well, I'm just trying to get a gauge whether as we come out of their summer, whether they're taking production lower than what they went in at.

Donald W. Duda

And I don't know that. We just know that our releases have remained consistent, and that could change 6, 8 weeks from now.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Right. Yes, no, I understand. I mean, we are in this vacuum with Europe, and everyone's trying to get their arms around what we're going to be seeing there in September. In terms of the guidance, it looks like all of the increase came from absence of legal and first quarter being better than expected. Is that fair or are there some other puts and takes there that we're not seeing on the surface?

Donald W. Duda

No, I think that's accurate.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then it's one of these things where you start giving us information and we want more, right? You talk about Q2 and Q3 sequentially better than Q1, and Q4 being the best. Is there any way you can give us what that ramp looks like? Is it a little bit better and then big fourth quarter or more evenly spread or any quality of color you can give?

Donald W. Duda

We said that sequentially, they will improve. You've got laundry launching, although at a lower volume initially because we're using up inventory, than we anticipated in the second quarter. So the third quarter will be stronger because of that, and then you've got additional launches in the third quarter in Europe. And then the caveat I would put there is that we are watching Europe carefully to see what those -- how those launches materialize. We know we're going to be shipping more product than we are today, but are we going to launch at the prescribed rate? And we won't know that until we get into those quarters. And in the fourth quarter, we've got the continued launch of laundry, the addition of the launches in Europe that are carried over from Q3. And then in Q4, the last month of the quarter is when we start to ship General Motors. So...

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

So that fourth quarter then, as you start to launch that, we will have some capitalized expenses relative to the P&L at the point you start shipping, right? Or are those already hitting the income statement?

Donald W. Duda

Not yet. They'll hit in productions.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

And then those initial volumes, I mean, is that actual job 1 production or still preproduction?

Donald W. Duda

That'll be job 1. I mean, you'll be launching for available product. You start shipping in preproduction a little earlier than that.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Right. Yes. And then did you -- Don, you made a comment that you hit full production on that early in the fiscal '14?

Donald W. Duda

Right. In the first quarter, we'll have 3 months of full volume.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Okay. But isn't there a second light on that contract that...

Donald W. Duda

There is. And then SUV launches, I'm going from memory, Dave, but I want to say 6 months after that. We can verify that.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

No, I -- when you said full launch, I was thinking the entire contract, but you're viewing it...

Donald W. Duda

No. And actually, it's not 6 months, it's 3 months.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

And you're viewing it as 2 contracts, whereas I was looking at it as 1.

Operator

[Operator Instructions] Our next question is from Jeremy Hellman of Divine Capital.

Jeremy Hellman - Divine Capital Markets LLC, Research Division

So just a couple things on your plans with respect to the balance sheet. So you've got 2 tranches of $10 million coming in from the Delphi and then the $38 million you're going to repatriate. Do you -- beyond the CapEx needs that you mentioned, do you anticipate paying down debt with the balance?

Donald W. Duda

Yes. As we look at the full year, it's going to be -- we still have significant CapEx. We still are going to be spending for some design and development. And so, obviously, bringing the cash back from offshore and then also the settlement cash will help us reduce the amount of borrowings we otherwise would have needed. But the -- as far as liquidity-wise, we are very comfortable with the credit line that's in place and adequate to meet our demands.

Jeremy Hellman - Divine Capital Markets LLC, Research Division

Okay. And then otherwise, looking at torque-sensing, was are nice quarter on that line. And in the discussion about new business and the like where you mentioned some work over there in Asia, do you think that, that's getting to the point when you want to either retitle that other line or move torque-sensing into one of the other buckets? Just wondered about your plans on that.

Donald W. Duda

So the -- it's in Automotive as we launch the senior position, which launches in '15, our fiscal '15. That would be pure Automotive, and that would fall in, probably in the Automotive segment. It's being managed by the Automotive launch teams now. Right now, it is not Automotive, so we wouldn't put it -- but yes, I think where we -- I guess we'll cross that bridge when we get there, but more likely, it would have been...

Douglas A. Koman

Yes, that'll be a discussion we have with the accounts, Jeremy, but it's not maybe dissimilar to -- if you think of the TouchSensor technology, which is an Interconnect, but to the extent we use it in Automotive, those revenues and earnings are both in Automotive.

Jeremy Hellman - Divine Capital Markets LLC, Research Division

Okay, that makes sense. Okay. And then one last one for me, just refreshing. In terms of the legal expense that's going to be coming out now, what was the amount spent on legal both in Q1 and Q4 for last year? Just so I can adjust accordingly.

Donald W. Duda

In Q1, we spent $600,000, and -- was that about the same amount we spent in Q4?

Douglas A. Koman

Yes.

Donald W. Duda

About the same amount in both of those quarters.

Operator

Our next question is from the line of Greg Macosko with Lord, Abbett.

Gregory M. Macosko - Lord, Abbett & Co. LLC

You mentioned the design and development costs for North American Automotive. Are we at a -- given your additional announcements for new products, et cetera, on an overall basis, is the -- is that design function at a stable level at this point or do you expect it to ramp further with programs and things?

Donald W. Duda

No, I think we've reached our, I would say, peak. We may see just a little more as we launch General Motors, but we wouldn't have to add as we go forward. In fact, those engineers would be -- once General Motors launched past 90 days, 180 days past launch, then those engineers will be reassigned to new programs, and their products really then will be absorbed by the General Motors revenues.

Gregory M. Macosko - Lord, Abbett & Co. LLC

And the laundry panel that you announced, has that been long in process? And give us some color on that. Is that kind of a new direction or it's an existing direction you've sold for other customers and you're rolling it through the overall customer base?

Donald W. Duda

It is the first time that TouchSensor has been used in a laundry application. So it is a new area, it is still in appliance, of course, but it is the first time that a major appliance OEM has rolled that out on a laundry platform. And it will be the largest launch that TouchSensor, I believe, has ever done. Now the Ford center console with Touch was larger, but in terms of laundry, this is the largest and this is the first time it's being used. And this is the entire panel.

Gregory M. Macosko - Lord, Abbett & Co. LLC

And do you expect you'd have interest from other customers? Do you feel that's an opportunity further beyond this single customer?

Donald W. Duda

Yes, so what has happened in the past with TouchSensor, it was originally deployed on cooktops when SCHOTT Glass owned TouchSensor and they really funded the development -- further development of technology from the startup. They wanted it for cooktops, and once it got there with 1 customer, then it carried over to several others. That went to -- from there, it went to dishwashers, wall ovens. And so we would -- we are planning that it will -- assuming that it has good market acceptance in this platform and we think it will, that we'll see other customers, as well as this customer, roll it out in the other platforms.

Gregory M. Macosko - Lord, Abbett & Co. LLC

And just looking generally at the Interconnect and the Power Products area, you had some impacts, given sales were down in both and yet the margins -- the gross margins were improved relative to mix and some other factors. Are we at a stable level there? Or I mean, is the mix factor kind of baked in now going forward? Or is there -- would you expect fluctuations on that score?

Donald W. Duda

I would expect some fluctuations. Auto is relatively predictable, you can look at releases. And as you win awards, you can look at forecasted volumes in any number of ways. In Power Products, it's more difficult. You may book a program or you'll get print position on a program that's anticipated to be, say, $2 million, but you'll have visibility maybe 2 months out or whatever was in your lead time. So it's difficult to predict. And the margins, and margins in telecom are less than the margins on military/aero. So if you have larger orders in the mil/aero business, you're going to see considerably better gross margin. So it is a little, I don't like to use the word choppy, but it's probably a good word for it. Right now, in terms of are we in a stable position, we don't feel we need to add any additional resources. We need to launch the products we have with what we've seen in this quarter, and I think we're anticipating in the coming quarters is the volumes are -- the product is launching but not quite at the volumes that originally projected. And some of that, I think, is largely due to the economic environment. So we're kind of -- that business will improve as we launch more product, and we have focused on the higher margin product and have shied away from some of the lower margins over the last several years.

Gregory M. Macosko - Lord, Abbett & Co. LLC

In terms of the launch of the General Motors center console, I mean, is it fair to say that your experience with Ford would relate pretty strongly there and help in understanding the costs and controlling that launch?

Donald W. Duda

Yes, absolutely. The Ford -- I can't really discuss the configuration of the General Motors console, but launching 2 Ford programs with multiple colors on the bezel, plus launching Touch for the first time in Automotive, Methode definitely cut its teeth on that. And we had, had center console experience in Europe with Aston Martin, but the Ford was the first time we launched a large domestic OEM.

Gregory M. Macosko - Lord, Abbett & Co. LLC

And then finally, with regard to the exit of the product line in Interconnect, is that I mean something you expected and that's -- and there'll be additional ones going forward? Or give us some color on that.

Donald W. Duda

Sure. It was -- if you remember, the PCMCIA cards that were used in computers for years, Methode probably over the years provided 60%, 70% of those in the marketplace, and we wound down dual systems quite some time ago. But we kept the product in Asia as there's still demand, and now we're seeing the end of life on that. In fact, it went longer than we anticipated. And so we thought we'd be done with it really 6, 8 months ago, and it continued a little bit longer. So I know it's planned, and that'll be the end of PC cards.

Gregory M. Macosko - Lord, Abbett & Co. LLC

Any more coming in Interconnect or Power Products or anything?

Donald W. Duda

No, no, no. We always do some product pruning but nothing that would be remarkable.

Operator

Our next question is from the line of David Leiker of Robert W. Baird.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Just a couple of items to follow up here. I think you've given launch cost guidance in the past like $5 million to $6 million for the year. Does that sound right?

Donald W. Duda

Yes. For General Motors?

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Right.

Douglas A. Koman

Yes, about $4.5 million probably is what -- yes, $4.5 million.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

$4.5 million? Okay. And that $1.4 million at the end of the quarter was all General Motors?

Donald W. Duda

Yes.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Okay. And do you have a sense as you go through the SUV launch then, is that a comparable number or is it lower?

Donald W. Duda

Yes, it's going to be on...

Douglas A. Koman

Well, it's included in that $4.5 million, yes, to answer your cash in [ph] question.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

So you wouldn't exactly -- so that $4.5 million, I shouldn't view as of 2013 estimate? Or once you launch the pickups, the incremental launch costs that go to the SUV aren't that high?

Donald W. Duda

I think that's probably a fair assumption. And again, I misspoke before, it's a 3-month lag, not a 6-month lag. So yes, by the time we get to the pickup truck launch, SUV is just about done.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then from a longer-term perspective on the capital structure here, you've got a lot of investments, you've made a handful of acquisitions over time. Methode is a company historically that's always been debt free with significant cash balances. From a longer-term perspective, where do you see that capital structure returning to 2 or 3 years out?

Donald W. Duda

Well, barring any acquisition that would use cash, we'll start to build our cash again as these programs are launched and we receive a payment on them. So could we return to a $100-million cash position? Yes, absolutely. And historically, when we've gotten to that level, we usually have some acquisition in the mix. So I don't think our plans have changed. I mean, I have said that for the right acquisition, we might take on some long-term debt, but I don't think anything at this stage would cause us to change our capital plans for another strategy.

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

And there's nothing that you'd see there on the horizon in the context that an equity offering would make sense, is there?

Donald W. Duda

No, no.

Operator

There are no further questions at this time. I would now like to turn the floor back to management for closing comments.

Donald W. Duda

Rob, thank you. With that, we'll thank everyone for listening today and wish everyone a safe holiday weekend. Good day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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