- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ---------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1998 COMMISSION FILE NUMBER 0-2816 METHODE ELECTRONICS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 36-2090085 (STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.) OFINCORPORATION OR ORGANIZATION) 7444 WEST WILSON AVENUE 60656 CHICAGO, ILLINOIS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER (INCLUDING AREA CODE): (708) 867-9600 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: <TABLE> <CAPTION> NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED -------------------- --------------------- <S> <C> None None </TABLE> SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: CLASS A COMMON STOCK ($.50 PAR VALUE) CLASS B COMMON STOCK ($.50 PAR VALUE) (TITLE OF CLASS) ---------------- 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ( ). The aggregate market value of the Class A and Class B Common Stock, $.50 par value, held by non-affiliates of the Registrant on July 17, 1998, based upon the average of the closing bid and asked prices on that date as reported by Nasdaq was $495,515,000. Registrant had 34,354,793 shares of Class A, $.50 par value, and 1,191,673 shares of Class B, $.50 par value, outstanding as of July 17, 1998. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual shareholders meeting to be held September 8, 1998, are incorporated by reference into Part III. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PART I ITEM 1. BUSINESS Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966. As used herein, Methode Electronics, Inc. shall be referred to as the "Registrant" or the "Company." The Registrant operates in one industry segment, which consists of the manufacture of electronic components and devices that connect, control and convey electrical energy, pulse and signal, including connectors, automotive components, interconnect devices, printed circuits, and current carrying distribution systems. Components and devices manufactured by the Registrant are used in the production of electronic equipment and other products with applications in the automotive, computer, voice and data communications equipment, industrial, military and aerospace, and consumer electronics industries. The following tabulation reflects the percentage of net sales of the major classes of products of the Registrant for the last three fiscal years. <TABLE> <CAPTION> APRIL 30, ---------------- 1996 1997 1998 ---- ---- ---- <S> <C> <C> <C> Connectors and Controls................................. 88.6% 89.9% 92.2% Printed Circuit Boards and Services..................... 4.4 5.5 5.2 Current Carrying Distribution Systems................... 7.0 4.6 2.6 </TABLE> The sales activities of the Registrant are directed by sales managers who are supported by engineering personnel who provide technical services. The Registrant's products are sold through its sales staff and through independent manfacturers' representatives with offices throughout the world. Sales are made primarily to original equipment manufacturers and also independent distributors. Sources and Availability of Raw Materials. Principal raw materials purchased by Registrant include copper-clad laminate, ferrous and copper alloy strips, plastic molding materials, fiber optic cable, etching and plating chemicals, die castings and precious metals. All of these items are available from several suppliers and the Registrant generally relies on more than one for each item. Patents; Licensing Agreements. The Registrant has various patents and licensing agreements, but does not consider its business to be materially dependent upon such patents and licensing agreements. Seasonality. The business of the Registrant is not seasonal. Working Capital Items. The Registrant is required to maintain adequate levels of inventory to meet scheduled delivery requirements of customers. It is not normal for the Registrant to carry significant amounts of finished goods, as the preponderance of orders received are for scheduled future deliveries. Material Customers. During the year ended April 30, 1998, shipments to Chrysler Corporation and Ford Motor Corporation each were 10% or greater of consolidated net sales and, in the aggregate, amounted to approximately 35% of consolidated net sales. Such shipments included a wide variety of the Registrant's automotive component products. Backlog. The Registrant's backlog of orders was approximately $62,300,000 at May 31, 1997, and $70,900,000 at May 31, 1998. It is expected that most of the total backlog at May 31, 1998, will be shipped within the current fiscal year. Contracts Subject to Termination at the Election of the Government. Shipments as a subcontractor for various military programs constitute a significant portion of the Registrant's multilayer printed circuitry output, although not material to the Registrant's business as a whole. Although existing government orders are subject to termination at the election of the Government, the Registrant historically has never experienced a significant termination and has no information to lead it to believe that there is a likelihood of such an event during fiscal year 1999. 2
Competitive Conditions. The markets in which the Registrant operates are highly competitive and characterized by rapid changes due to technological improvements and developments. Registrant competes with a large number of other manufacturers in each of its product areas; many of these competitors have greater resources and total sales. Price, service and product performance are significant elements of competition in the sale of Registrant's products. Research and Development. Registrant maintains a Research and Development program involving a number of professional employees who devote a majority of their time to the development of new products and processes and the advancement of existing ones. Senior management of the Registrant also participates directly in the program. Expenditures for the aforementioned activities amounted to $17,425,000, $18,575,000 and $21,120,000 for the fiscal years ended April 30, 1996, 1997 and 1998, respectively. Environmental Quality. Compliance with federal, state and local provisions regulating the discharge of materials into the environment has not materially affected capital expenditures, earnings or the competitive position of the Registrant. Currently there are no environmental related lawsuits or material administrative proceedings pending against the Registrant. Further information as to environmental matters affecting the Registrant is presented in Note 8 to the consolidated financial statements included in Item 14 (a)(1). Employees. At April 30, 1997, and 1998, Registrant had approximately 3,650 and 3,800 employees, respectively. Foreign Sales. Information about the Registrant's operations in different geographic regions is summarized in Note 10 to the consolidated financial statements included in Item 14 (a)(1). ITEM 2. PROPERTIES The Registrant has 20 manufacturing and five service facilities containing approximately 1,100,000 square feet of space, of which approximately 335,000 square feet are leased. Ten of the facilities are located in Illinois, four in California, one in Connecticut, two in New Jersey, one in Maryland, one in Ireland, two in Malta, one in China, one in Singapore and two in the United Kingdom. A 26,000 square foot independent test laboratory and a 48,000 cable assembly facility, both located in Illinois, were added in fiscal 1998. The acquisition of Merit-Malta Ltd. in fiscal 1997 added approximately 175,000 square feet of manufacturing space. Approximately 38,000 square feet of manufacturing space and a 20,000 square foot Research Center were added in 1996. Registrant's manufacturing facilities have been modernized in the opinion of management to keep pace the developments in the industry. ITEM 3. LEGAL PROCEEDINGS As of July 17, 1998, the Registrant was not involved in any material litigation or any litigation or material administrative proceedings with governmental authorities pertaining to the discharge of materials into the environment. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to security holders during the fourth quarter of fiscal 1998. 3
EXECUTIVE OFFICERS OF THE REGISTRANT <TABLE> <CAPTION> DIRECTOR OFFICES AND POSITIONS HELD AND LENGTH OF SERVICE AS NAME AGE SINCE OFFICER - ---- --- -------- --------------------------------------------------- <S> <C> <C> <C> William J. McGinley 75 1946 Chairman of the Registrant since 1994. President from March 1997 to July 1998 and from 1946 to 1994. Mr. William J. McGinley is the father of James W. McGin- ley. James W. McGinley 43 1993 President of the Registrant since July 1998. President since December 1994 and prior thereto Executive Vice President since June 1993 of Optical Interconnect Products. Prior thereto, he was General Manager of Connector Products from November 1984 to January 1989, and Vice President, Corporate Sales and Marketing from January 1989 to June 1993. Mr. James W. McGinley is the son of Mr. William J. McGinley. Michael G. Andre 58 1984 Senior Executive Vice President of the Registrant since December 1994. Prior thereto, he was Executive Vice President of Interconnect Products since January 1984 and Vice President of Interconnect Products since 1978. John R. Cannon 50 1997 Senior Executive Vice President of the Registrant since 1997. Prior thereto, Senior Executive Vice President of dataMate Products since 1996; prior thereto, Execu- tive Vice President of dataMate Products. Kevin J. Hayes 57 1984 Executive Vice President of the Registrant since 1997, Chief Financial Officer since 1996 and Assistant Sec- retary since 1995. Prior thereto, Vice President and Treasurer of the Registrant since 1974. </TABLE> All executive officers serve a term of one year which, for the current year, expires on September 8, 1998, or until their successors are duly elected and qualified. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrant's Class A and Class B Common Stock are traded on the Nasdaq National Market System under the symbols METHA and METHB. The following is a tabulation of high and low sales prices for the periods indicated as reported by Nasdaq. <TABLE> <CAPTION> CLASS A CLASS B STOCK PRICE STOCK PRICE ----------- ----------- HIGH LOW HIGH LOW ----- ----- ----- ----- <S> <C> <C> <C> <C> Fiscal Year ended April 30, 1997 First Quarter................................... 18.75 16.25 18.50 16.75 Second Quarter.................................. 19.75 16.50 19.25 16.75 Third Quarter................................... 23.00 18.00 22.50 18.25 Fourth Quarter.................................. 22.25 12.75 22.25 13.25 Fiscal Year ended April 30, 1998 First Quarter................................... 21.63 13.75 21.50 14.50 Second Quarter.................................. 27.13 19.00 27.00 19.75 Third Quarter................................... 20.75 14.38 20.00 14.25 Fourth Quarter.................................. 17.25 12.69 16.75 13.00 </TABLE> The Registrant pays dividends quarterly and for fiscal years 1997 and 1998, quarterly dividends were paid at an annual rate of $.20 on both the Class A and Class B Common Stock. On June 26, 1998, the Board declared a dividend of $.05 per Class A share and Class B share, payable on July 31, 1998, to holders of record on July 15, 1998. 4
The Registrant expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial conditions. As of July 17, 1998, the approximate number of record holders of the Company's Class A and Class B Common Stock was 1,300 and 500. ITEM 6. SELECTED FINANCIAL DATA <TABLE> <CAPTION> 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> Income Statement Data: Net sales.................. $379,300 $343,092 $307,538 $270,748 $213,298 Income before income taxes. 53,566 58,444 50,973 40,846 33,476 Income taxes............... 18,300 21,225 18,600 14,725 12,500 Net income................. 35,266 37,219 32,373 26,121 20,976 Per Common Share: Net income--Basic.......... $ 1.00 $ 1.06 $ 0.93 $ 0.75 $ 0.61 Net income--Diluted........ 1.00 1.06 0.92 0.75 0.61 Dividends, Class A......... 0.20 0.20 0.16 0.08 0.03 Dividends, Class B......... 0.20 0.20 0.16 0.07 0.03 Book value................. 6.41 5.59 4.69 3.87 3.11 Long-term debt............... 1,264 1,005 -- -- 107 Funded debt to total capital. 1:56 1:95 1:57 1:28 1:21 Retained Earnings............ $189,397 $161,226 $131,073 $104,323 $ 80,963 Fixed assets (net)........... 87,044 80,096 66,786 56,167 48,454 Total assets................. 287,530 253,491 223,279 191,496 160,630 Return on equity............. 17% 21% 22% 22% 22% Pre-tax income as a percentage of sales ........ 14.1% 17.0% 16.6% 15.1% 15.7% Net income as a percentage of sales....................... 9.3% 10.8% 10.5% 9.6% 9.8% </TABLE> ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales increased 11% in fiscal 1998 following an increase of 12% in 1997. The increase was led by gains in interconnection products of 13% in both 1998 and 1997. Sales of electrical, electronic and optical interconnects represented 92% of sales in fiscal 1998, 90% in 1997 and 89% in 1996. About half of consolidated sales were to the automotive industry during the three year period ended April 30, 1998. Interconnect sales during that time-frame benefited from the acquisition of a connector products company in the first quarter of fiscal 1998, the acquisition of an automotive components manufacturer in the fourth quarter of fiscal 1997, and the acquisition of a PC circuit packaging and enclosure operation in the second quarter of fiscal 1996. Sales of other products (chiefly current carrying bus devices and printed circuit boards) declined 15% in fiscal 1998 following a decline of 1% in 1997. Other income consisted primarily of earnings from our automotive joint venture, interest income from short-term investments, royalties and, in 1998, an approximate $1,000,000 gain from the sale of a building. Cost of goods sold as a percentage of sales for 1998, 1997 and 1996 were 73.9%, 71.8% and 72.1%. The domestic automotive business was the largest contributor to margin decline in 1998 due to a 6 % sales decline, product mix changes, and additional infrastructure and engineering costs incurred for new programs not yet producing revenue. Selling and administrative expenses as a percentage of sales were 13.5%, 12.9% and 12.9%. 5
Effective income tax rates were 34.2%, 36.3% and 36.5% for fiscal 1998, 1997 and 1996. The effective income tax rate for 1998 was less than the statutory federal rate of 35% due to the effects of the substantially tax-free gain on the sale of a building and of lower tax rates from foreign operations offset, in part, by state income taxes. For 1997 and 1996, the effective income tax rate also reflected state income taxes balanced by lower tax rates on foreign operations. The balance between these effects was altered by the acquisition of substantial business operations in lower tax locations in late 1997. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES Net cash provided by operations was $38,288,000, $44,854,000 and $43,429,000 in 1998, 1997 and 1996. The decrease in cash provided from operations in 1998 was primarily the result of lower net income and increased working capital requirements to support increased sales. To further extend its product lines, broaden sources of supply and stimulate technological development, the Company used $3,579,531 of its available cash in the first quarter of fiscal 1998 to acquire 100% of Adam Technologies, a designer and marketer of electrical and electronic connectors. Depreciation and amortization expense was $17,627,000, $14,668,000 and $12,117,000 in 1998, 1997 and 1996. Capital expenditures were $23,211,000, $20,376,000 and $22,124,000 in 1998, 1997 and 1996. Principal capital investments involved purchases of new facilities for an independent test laboratory and our cable assembly operations in 1998, completion of a new Automotive Research and Test Center in 1997 and expansions at our Automotive Electronic Controls, Optoelectronic Products and Fiber Optic Products facilities in 1996. Capital expenditures in 1998, 1997 and 1996 were funded from operating cash flows. It is anticipated that capital acquisitions for 1999 will also be funded from operating cash flows. YEAR 2000 CONVERSION Many of Methode's systems must be modified due to computer program limitations in recognizing dates beyond 1999. If not modified, the systems could fail or produce erroneous results by, at or after January 1, 2000. The Company has developed and is currently executing a four-stage risk-based plan designed to assure that its critical computer systems, applications and facilities are Year 2000 ready. The four stages include (1) inventory, (2) assessment, (3) remediation/replacement and (4) testing and certification. At April 30, 1998, the Company had substantially completed the inventory and assessment stages at all locations. The remediation/replacement and testing and certification stages are at different levels toward completion at the Company's various locations. The plan calls for all locations to be Year 2000 ready by June 1999. The company is upgrading hardware and software for certain major computer systems which will concurrently address the Year 2000 issues. It is impracticable to segregate costs between system upgrades and the Year 2000 issues. Through April 30, 1998, the Company incurred approximately $650,000 related to the upgrades and the Year 2000 issues, of which $250,000 was expensed as incurred. Management estimates the remaining costs to be approximately $3,150,000, of which $1,625,000 relates to new hardware and software that will be capitalized. The majority of these costs will be incurred in fiscal 1999. The Year 2000 project plans are based upon management's best estimates and actual costs and completion dates may differ from anticipated results. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 14 for an Index to Financial Statements and Financial Statement Schedules. Such Financial Statements and Schedules are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 6
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the directors of the Registrant is included under the caption "Election of Directors" in the Registrant's proxy statement to be dated on or about August 10, 1998, and is incorporated herein by reference. Information regarding the executive officers of the Registrant is included under a separate caption in Part I hereof, and is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Information regarding Section 16(a) of the Exchange Act is included under the caption "16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION Information regarding the above is included under the caption "Executive Compensation" in the Registrant's proxy statement to be dated on or about August 10, 1998, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the above is included under the caption "Security Ownership" in the Registrant's proxy statement to be dated on or about August 10, 1998, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding the above is included under the caption "Election of Directors" in the Registrant's proxy statement to be dated on or about August 10, 1998, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The response to this portion of Item 14 is included in this report under the caption "List of Financial Statements and Financial Statement Schedules" which is incorporation herein by reference. (a) (3) LIST OF EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K See "Exhibit Index" immediately following the financial statement schedules. (b) REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the last quarter of the period covered by this report. (c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K See "Exhibit Index" immediately following the financial statement schedules. (d) FINANCIAL STATEMENT SCHEDULES The response to this portion of Item 14 is included in this report under the caption "List of Financial Statements and Financial Statement Schedules" which is incorporated herein by reference. Schedules and exhibits other than those listed are omitted for the reasons that they are not required, are not applicable or that equivalent information has been included in the financial statements, and notes thereto, or elsewhere herein. 7
SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) 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. (Registrant) /s/ Kevin J. Hayes By: _________________________________ Kevin J. Hayes Executive Vice President, Chief Financial Officer & Director Dated: July 28, 1998 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. <TABLE> <CAPTION> SIGNATURE TITLE DATE --------- ----- ---- <S> <C> <C> /s/ William J. McGinley Chairman of the Board & July 28, 1998 ___________________________________ Director (Principal William J. McGinley Executive Officer) /s/ James W. McGinley President & Director July 28, 1998 ____________________________________ James W. McGinley /s/ Michael G. Andre Senior Executive Vice July 28, 1998 ____________________________________ President & Director Michael G. Andre /s/ John R. Cannon Senior Executive Vice July 28, 1998 ____________________________________ President & Director John R. Cannon /s/ Kevin J. Hayes Executive Vice President, July 28, 1998 ____________________________________ Chief Financial Officer & Kevin J. Hayes Director /s/ James W. Ashley, Jr. Secretary & Director July 28, 1998 ____________________________________ James W. Ashley, Jr. /s/ William C. Croft Director July 28, 1998 ____________________________________ William C. Croft /s/ Raymond J. Roberts Director July 28, 1998 ____________________________________ Raymond J. Roberts Director July 28, 1998 ____________________________________ George C. Wright </TABLE> 8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES FORM 10-K ITEM 14 (A) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Methode Electronics, Inc. and subsidiaries are included in Item 8: <TABLE> <S> <C> Consolidated Balance Sheets--April 30, 1998 and 1997. Consolidated Statements of Income--Years Ended April 30, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Equity--Years Ended April 30, 1998, 1997 and 1996 Consolidated Statements of Cash Flows--Years Ended April 30, 1998, 1997 and 1996 Notes to Consolidated Financial Statements </TABLE> The schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inappropriate and, therefore, have been omitted. 9
REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Methode Electronics, Inc. We have audited the accompanying consolidated balance sheets of Methode Electronics, Inc. and subsidiaries as of April 30, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended April 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Methode Electronics, Inc. and subsidiaries at April 30, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP Chicago, Illinois June 23, 1998 10
METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> APRIL 30 -------------------------- 1998 1997 ------------ ------------ <S> <C> <C> ASSETS Current Assets Cash and cash equivalents........................ $ 24,178,868 $ 23,115,320 Accounts receivable, less allowance (1998-- $1,308,000; 1997--$1,250,000)................... 64,468,407 54,054,695 Inventories: Finished products.............................. 9,754,109 7,347,088 Work in process................................ 27,669,081 21,323,077 Materials...................................... 11,541,822 11,185,199 ------------ ------------ 48,965,012 39,855,364 Current deferred income taxes.................... 4,023,000 2,831,000 Prepaid expenses................................. 3,055,417 2,944,056 ------------ ------------ Total Current Assets......................... 144,690,704 122,800,435 OTHER ASSETS Goodwill, less accumulated amortization (1998-- $1,974,111; 1997--$781,723)....................... 38,749,031 35,190,298 Intangible benefit plan asset (Note 5)............. 2,266,329 2,934,061 Cash surrender value of life insurance............. 7,651,851 6,680,225 Other.............................................. 7,128,292 5,789,753 ------------ ------------ 55,795,503 50,594,337 PROPERTY, PLANT AND EQUIPMENT Land............................................... 1,706,569 1,700,401 Buildings and building improvements................ 44,639,178 38,541,323 Machinery and equipment............................ 153,440,780 138,808,669 ------------ ------------ 199,786,527 179,050,393 Less allowances for depreciation................... 112,742,879 98,954,082 ------------ ------------ 87,043,648 80,096,311 ------------ ------------ $287,529,855 $253,491,083 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable................................. $ 24,876,865 $ 24,471,106 Salaries, wages and payroll taxes................ 8,831,919 7,755,491 Other accrued expenses........................... 11,618,114 8,655,617 Income taxes..................................... 2,260,232 2,568,477 Notes payable.................................... 2,850,771 1,088,133 ------------ ------------ Total Current Liabilities.................... 50,437,901 44,538,824 Accumulated Benefit Plan Obligation (Note 5)....... 1,206,819 2,326,248 Other Liabilities.................................. 2,585,704 2,464,519 Deferred Compensation.............................. 7,259,549 6,964,135 Shareholders' Equity (Note 3) Common Stock, Class A............................ 17,234,569 17,137,447 Common Stock, Class B............................ 601,937 607,225 Stock Awards..................................... (1,066,670) (1,032,465) Additional paid-in capital....................... 21,021,669 18,040,963 Retained earnings................................ 189,397,396 161,225,847 Foreign currency translation adjustment.......... (376,063) 1,830,046 ------------ ------------ 226,812,838 197,809,063 Less cost of shares in treasury................ 772,956 611,706 ------------ ------------ 226,039,882 197,197,357 ------------ ------------ $287,529,855 $253,491,083 ============ ============ </TABLE> See notes to consolidated financial statements. 11
METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> YEAR ENDED APRIL 30 -------------------------------------- 1998 1997 1996 ------------ ------------ ------------ <S> <C> <C> <C> INCOME Net sales (Note 10)...................... $379,299,543 $343,092,265 $307,538,466 Other.................................... 5,806,069 6,164,196 4,945,265 ------------ ------------ ------------ 385,105,612 349,256,461 312,483,731 Costs and expenses: Cost of products sold.................. 280,181,130 246,323,504 221,605,285 Selling and administrative expenses.... 51,092,476 44,311,172 39,571,740 Interest expense....................... 265,602 177,902 334,092 ------------ ------------ ------------ 331,539,208 290,812,578 261,511,117 ------------ ------------ ------------ Income Before Income Taxes........... 53,566,404 58,443,883 50,972,614 Income taxes (Note 6).................... 18,300,000 21,225,000 18,600,000 ------------ ------------ ------------ Net Income........................... $ 35,266,404 $ 37,218,883 $ 32,372,614 ============ ============ ============ Amounts per Common Share (Note 7): Net income: Basic................................ $1.00 $1.06 $0.93 Diluted.............................. $1.00 $1.06 $0.92 Cash dividends: Class A.............................. $0.20 $0.20 $0.16 Class B.............................. $0.20 $0.20 $0.16 </TABLE> See notes to consolidated financial statements. 12
METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED APRIL 30, 1998, 1997, AND 1996 <TABLE> <CAPTION> FOREIGN COMMON COMMON ADDITIONAL CURRENCY TOTAL STOCK STOCK STOCK PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS' CLASS A CLASS B AWARDS CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY ----------- -------- ----------- ----------- ------------ ----------- --------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance at April 30, 1995............... $11,025,006 $640,483 $ (988,015) $17,106,383 $104,322,709 $2,859,897 $ (44,206) $134,922,257 Stock Award grant of 169,062 shares of Common Stock, Class A........... 56,354 (1,910,688) 1,854,334 -- Earned portion of Stock Awards...... 1,928,958 1,928,958 Tax benefit from appreciation of Stock Awards...... 68,000 68,000 Issuance of 165,708 shares of Common Stock, Class A (Note 2).......... 55,236 2,104,764 2,160,000 Three-for-two stock split paid in Common Stock, Class A........... 5,884,037 (5,884,037) Conversion of 32,066 shares of Common Stock, Class B to 32,066 shares of Common Stock, Class A.... 16,033 (16,033) -- Foreign currency translation adjustment........ (725,545) (725,545) Net income for the year.............. 32,372,614 32,372,614 Cash dividends on Common Stock...... (5,621,980) (5,621,980) ----------- -------- ----------- ----------- ------------ ---------- --------- ------------ Balance at April 30, 1996............... 17,036,666 624,450 (969,745) 15,249,444 131,073,343 2,134,352 (44,206) 165,104,304 Stock Award grant of 119,493 shares of Common Stock, Class A........... 59,747 (2,050,075) 1,990,328 -- Earned portion of Stock Awards...... 1,987,355 1,987,355 Tax benefit from appreciation of Stock Awards...... 125,000 125,000 Issuance of 47,619 shares of Common Stock, Class A (Note 2).......... 23,809 676,191 700,000 Purchase of treasury stock 40,000 shares Common Stock, Class A........... (567,500) (567,500) Conversion of 34,449 shares of Common Stock, Class B to 34,449. -- shares of Common Stock, Class A.... 17,225 (17,225) -- Foreign currency translation adjustment........ (304,306) (304,306) Net income for the year.............. 37,218,883 37,218,883 Cash dividends on Common Stock...... (7,066,379) (7,066,379) ----------- -------- ----------- ----------- ------------ ---------- --------- ------------ Balance at April 30, 1997............... 17,137,447 607,225 (1,032,465) 18,040,963 161,225,847 1,830,046 (611,706) 197,197,357 Stock Award grant of 145,616 shares of Common Stock, Class A........... 72,808 (2,272,528) 2,199,720 -- Earned portion of Stock Awards...... 2,238,323 2,238,323 Tax benefit from appreciation of Stock Awards...... 179,000 179,000 Issuance of 38,052 shares of Common Stock, Class A (Note 2).......... 19,026 601,986 621,012 Purchase of treasury stock 10,000 shares Common Stock, Class A........... (161,250) (161,250) Conversion of 10,577 shares of Common Stock, Class B to 10,577. -- shares of Common Stock, Class A.... 5,288 (5,288) -- Foreign currency translation adjustment........ (2,206,109) (2,206,109) Net income for the year.............. 35,266,404 35,266,404 Cash dividends on Common Stock...... (7,094,855) (7,094,855) ----------- -------- ----------- ----------- ------------ ---------- --------- ------------ Balance at April 30, 1998............... $17,234,569 $601,937 $(1,066,670) $21,021,669 $189,397,396 $ (376,063) $(772,956) $226,039,882 =========== ======== =========== =========== ============ ========== ========= ============ === </TABLE> See notes to consolidated financial statements. 13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED APRIL 30 ------------------------------------- 1998 1997 1996 ----------- ----------- ----------- <S> <C> <C> <C> OPERATING ACTIVITIES Net income............................. $35,266,404 $37,218,883 $32,372,614 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization........................ 17,627,450 14,668,382 12,117,010 Provision for losses on accounts receivable.......................... 92,000 11,000 35,000 Provision for deferred compensation and supplemental executive benefit plan................................ (156,283) (342,482) 684,120 Provision for deferred income taxes.. (1,015,000) 541,000 792,000 Amortization of Stock Awards......... 2,238,323 1,987,355 1,928,958 Changes in operating assets and liabilities: Accounts receivable................ (7,095,259) (786,579) (8,312,521) Inventories........................ (7,463,783) (3,048,392) 1,061,181 Current deferred income taxes and prepaid expenses.................. 21,229 651,990 (548,935) Accounts payable and accrued expenses.......................... (1,226,684) (6,046,726) 3,299,795 ----------- ----------- ----------- Net Cash Provided by Operating Activities...................... 38,288,397 44,854,431 43,429,222 INVESTING ACTIVITIES Purchases of property, plant and equipment............................. (23,211,297) (20,375,599) (22,123,827) Purchase of subsidiaries (Note 2)...... (3,847,501) (40,818,330) -- Purchase of treasury stock............. (161,250) (567,500) -- Purchases of life insurance policies... (971,626) (740,535) (920,171) Other.................................. (3,653,368) (917,560) (2,692,727) ----------- ----------- ----------- Net Cash Used in Investing Activities...................... (31,845,042) (63,419,524) (25,736,725) FINANCING ACTIVITIES Borrowings (repayments) on lines of credit and long-term borrowings....... 1,715,048 (1,439,142) (2,648,239) Dividends.............................. (7,094,855) (7,066,379) (5,621,980) ----------- ----------- ----------- Net Cash Used in Net Financing Activities...................... (5,379,807) (8,505,521) (8,270,219) ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents................ 1,063,548 (27,070,614) 9,422,278 Cash and cash equivalents at beginning of year............................... 23,115,320 50,185,934 40,763,656 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year......................... $24,178,868 $23,115,320 $50,185,934 =========== =========== =========== </TABLE> See notes to consolidated financial statements. 14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1998 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. Cash Equivalents: All highly liquid investments with a maturity of three months or less when purchased are carried at their approximate fair value and classified in the balance sheet as cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in, first- out method) or market. Property, Plant and Equipment: Properties are stated on the basis of cost. The Company amortizes such costs by annual charges to income, computed on the straight-line method for financial reporting purposes and on accelerated methods for income tax purposes. Long-Lived Assets: In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long- lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in the first quarter of 1997 and the effect of adoption was not material. Income Taxes: Income taxes are accounted for using the liability method as required by Statement of Financial Accounting Standards, "SFAS" No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Research and Development Costs: Costs associated with the development of new products are charged to expense when incurred. Research and development costs for the years ended April 30, 1998, 1997 and 1996 amounted to $21,120,000, $18,575,000 and $17,425,000, respectively. Fair Value of Financial Instruments: The carrying amounts of the Company's borrowings under its short-term revolving credit agreements approximate their fair value. The weighted average interest rates on such borrowings for the years ended April 30, 1998, 1997 and 1996 were 7.10%, 6.57% and 5.18%, respectively. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Segment Disclosures: In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for years beginning after December 15, 1997. SFAS 131 established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. The Company will adopt the new requirements retroactively in fiscal 1999. Management has not completed its review of Statement 131, but anticipates that the adoption of this statement will not have a significant effect on the Company's reported segments. 15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Comprehensive Income: In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. The Statement established standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Statement is effective for the Company in fiscal 1999. The company does not anticipate that adoption of this Statement will have a material impact on the current presentation of its financial statements. 2. ACQUISITIONS In May of 1997, the Company purchased all of the outstanding shares of Adam Technologies, a New Jersey based designer and marketer of electronic connectors, for cash and additional contingent cash consideration based on the attainment of certain performance targets for fiscal 1998, 1999 and 2000. For 1998, the targets were substantially met and an additional cash payment was made subsequent to year end. The acquisition 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. On February 26, 1997, the Company acquired all of the outstanding shares of German-based Merit-Eletrik GmbH and Malta-based Merit Malta Ltd. (collectively, Merit Eletrik). The aggregate purchase price of approximately $30,400,000 including costs of acquisition, was financed with available cash balances. Merit Eletrik is a manufacturer of automotive switches, transmission controls, and other devices. The acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to the net assets acquired based upon their estimated fair values. The estimated fair values of tangible assets acquired and liabilities assumed were $17,916,000 and $7,199,000, respectively. This allocation resulted in an excess of purchase price over assets acquired of $19,680,000, which is being amortized on a straight-line basis over 40 years. On February 16, 1997, the Company acquired for cash 75% of the outstanding shares of Sentorque, Inc. Sentorque, Inc.'s wholly-owned subsidiary Magna- lastic Devices, Inc., owns a portfolio of intellectual property covering innovative advances in circulary magnetized noncontact torque sensors. On July 31, 1995, the Company issued 165,708 shares of Common Stock, Class A to acquire a San Jose, California, manufacturer of sonic welded packages for the personal computer card industry. In July 1996 and 1997, 47,619 and 38,052 additional shares of Common Stock, Class A were issued as additional consideration for this acquisition. The above-described acquisitions were accounted for using the purchase method of accounting, and the results of operations of the acquired companies have been included in the Company's consolidated financial statements from their respective dates of acquisition. The excess of purchase price over net assets acquired in these acquisitions, if any, is being amortized on a straight-line basis over periods ranging from 25 to 40 years. Had these acquisitions been made as of the beginning of fiscal 1997, sales and operating results would not be materially different than reported. 3. SHAREHOLDERS' EQUITY Preferred Stock: The Company has 50,000 authorized shares of Series A, 4% cumulative convertible Preferred Stock, par value $100 per share, of which none were outstanding at April 30, 1998. Common Stock: Common Stock, Class A, is entitled to dividends at least equivalent to those paid on the shares of Common Stock, Class B. The Common Stock, Class A, has more limited voting rights than the Common Stock, Class B. Generally the holders of Common Stock, Class A, are entitled to elect 25% of the Company's Board of Directors and are entitled to one-tenth of one vote per share respecting other matters. Holders of Common Stock, Class B, are entitled to one vote per share. Each share of Common Stock, Class B, is convertible into one share of Common Stock, Class A, at the option of the holder. At April 30, 1998, 3,887,960 shares of Common Stock, Class A, are reserved for future issuance in connection with the conversion of shares of Common Stock, Class B, and the Company's stock award and stock option plans. 16
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In October, 1995, the Company's Board of Directors declared a three for two stock split, paid on October 31, 1995, whereby one additional share of Class A Common Stock was issued for each two shares of Class A and Class B Common Stock outstanding. All share and per share data have been restated to reflect this stock split. Common Stock, par value $.50 per share, authorized, issued and in treasury, was as follows: <TABLE> <CAPTION> APRIL 30, 1998 APRIL 30, 1997 COMMON STOCK COMMON STOCK -------------------- -------------------- CLASS A CLASS B CLASS A CLASS B ---------- --------- ---------- --------- <S> <C> <C> <C> <C> Authorized...................... 50,000,000 5,000,000 50,000,000 5,000,000 Issued.......................... 34,469,138 1,203,873 34,274,892 1,214,451 In Treasury..................... 184,200 12,200 174,200 12,200 </TABLE> Stock Awards: The Company has an Incentive Stock Award Plan (Incentive Plan) which permits the issuance of up to 3,000,000 shares of Common Stock, Class A, to certain officers and key employees of the Company, of which 2,421,091 shares have been awarded through April 30, 1998. Pursuant to the terms of the Incentive Plan, the granted stock does not vest until two years after the award date. If for any reason other than retirement, disability or death an employee terminates his service before the two-year period, the stock will not vest and will be made available for future grants. The Company also has an Incentive Stock Award Plan for Non-employee Directors which permits the issuance of up to 120,000 shares of Common Stock, Class A, to non-employee directors, of which 87,000 shares have been awarded at April 30, 1998. Shares awarded pursuant to this plan have no vesting restrictions. Stock Options: In 1998 the Company adopted the Methode Electronics, Inc. 1997 Stock Plan ("Plan"). The Plan awards stock options to key employees. As of April 30, 1998, the maximum number of shares that may be granted under the Plan is 2,000,000. On January 15, 1998, options on 205,645 shares of Common Stock, Class A were granted to 176 key employees at an option price of $15.53, the fair market value of the shares on the date of grant. Options on 1,100 shares were canceled leaving a balance of 204,545 outstanding at April 30, 1998. The options vest six months and eighteen months after grant date and have a term of 10 years. The Company has not recorded any compensation expense associated with these stock options. The Company has adopted the disclosure-only provisions of SFAS No. 123. Consistent with prior years, stock-based compensation continues to be recorded using the intrinsic value method prescribed in APB No. 25 and related Interpretations. The fair value of the options as of the date of grant was estimated using the Black-Scholes option pricing model with the following assumptions for 1998: dividend yield of 1.9%; average risk-free interest 5.5%; expected volatility of 0.378, and expected option life of 6 years. If the Company had determined compensation cost based on the fair value at the grant date for the 1998 stock option grants consistent with SFAS No. 123, the Company's net earnings for the year ended April 30, 1998 would have been reduced to $35,125,502. Basic and diluted earnings per share would not differ from amounts reported. 4. EMPLOYEE STOCK OWNERSHIP PLAN The Company has an Employee Stock Ownership Plan for the benefit of full- time employees who have completed one year of service. The purpose of the Plan is to assist employees to accumulate capital ownership in the Company and through that ownership to promote in them a strong interest in the successful operation of the Company. The Company made annual contributions of $1,200,000 to the Plan during fiscal 1998, 1997 and 1996. 17
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. SUPPLEMENTAL EXECUTIVE BENEFIT PLAN In fiscal 1992, the Company adopted an unfunded defined benefit plan covering certain key executives. Benefits under the plan are in recognition of significant contributions to the success of the Company made by the executives during their many years of service with the Company. Annual payments of $900,000 pursuant to the plan are being made through fiscal year 2001. The net periodic cost recognized as expense for this plan was as follows: <TABLE> <CAPTION> PRIOR SERVICE COSTS INTEREST TOTAL ------------------- -------- -------- <S> <C> <C> <C> 1998................................ $667,732 $180,570 $848,302 1997................................ 667,732 226,826 894,558 1996................................ 667,732 270,093 937,825 </TABLE> The weighted-average assumed discount rate used to measure the projected benefit obligation in all years was 6 2/3%. 6. INCOME TAXES Significant components of the Company's deferred tax assets and liabilities at April 30 were as follows: <TABLE> <CAPTION> 1998 1997 ---------- ---------- <S> <C> <C> Deferred tax liabilities: Accelerated tax depreciation................... $4,234,000 $4,279,000 Other liabilities.............................. 22,000 49,000 ---------- ---------- Total deferred tax liabilities............... 4,256,000 4,328,000 Deferred tax assets: Deferred compensation and Stock Awards......... 3,759,000 3,873,000 Inventory valuation differences................ 1,320,000 978,000 Environmental reserves......................... 495,000 690,000 Other accruals................................. 2,289,000 1,616,000 Net operating loss carryovers.................. -- 40,000 ---------- ---------- 7,863,000 7,197,000 Less valuation allowance....................... -- 40,000 ---------- ---------- Total deferred tax assets..................... 7,863,000 7,157,000 ---------- ---------- Net deferred tax assets...................... $3,607,000 $2,829,000 ========== ========== Net current deferred tax assets.............. $4,023,000 $2,831,000 Net non-current deferred tax assets (liabilities)............................... (416,000) (2,000) ---------- ---------- $3,607,000 $2,829,000 ========== ========== </TABLE> Federal and state income taxes on income consisted of the following: <TABLE> <CAPTION> 1998 1997 1996 ----------- ----------- ----------- <S> <C> <C> <C> Current Federal............................ $14,951,000 $16,477,000 $14,115,000 Foreign............................ 1,268,000 745,000 696,000 State.............................. 3,096,000 3,462,000 2,997,000 ----------- ----------- ----------- 19,315,000 20,684,000 17,808,000 Deferred (credit).................... (1,015,000) 541,000 792,000 ----------- ----------- ----------- $18,300,000 $21,225,000 $18,600,000 =========== =========== =========== </TABLE> 18
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A reconciliation of the consolidated provisions for income taxes to amounts determined by applying the prevailing statutory federal income tax rate of 35% to pre-tax earnings is as follows: <TABLE> <CAPTION> 1998 1997 1996 ----------- ----------- ----------- <S> <C> <C> <C> Income tax at statutory rate...... $18,748,000 $20,455,000 $17,841,000 Effect of: State income taxes.............. 1,918,000 2,301,000 2,026,000 Foreign operations with lower statutory rates................ (2,441,000) (993,000) (736,000) Other--net...................... 75,000 (538,000) (531,000) ----------- ----------- ----------- Income tax provision.............. $18,300,000 $21,225,000 $18,600,000 =========== =========== =========== </TABLE> The Company paid income taxes of approximately $18,415,000 in 1998, $21,035,000 in 1997 and $16,840,000 in 1996. No provision has been made for income taxes of approximately $10,240,000 at April 30, 1998 which would be payable should undistributed net income of $25,765,000 of foreign operations be distributed as dividends, as the Company plans to continue these foreign operations and does not contemplate such distributions in the foreseeable future. 7. EARNINGS PER SHARE In 1997, the Financial Accounting 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. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> 1998 1997 1996 ----------- ----------- ----------- <S> <C> <C> <C> Numerator--net income................ $35,266,405 $37,218,883 $32,372,614 Denominator: Denominator for basic earnings per share--Weighted-average shares.... 35,262,000 35,114,000 34,854,000 Dilutive potential common shares--Employee stock awards... 101,000 107,000 161,000 ----------- ----------- ----------- Denominator for diluted earnings per Share-adjusted weighted- average shares and assumed conversions....................... 35,363,000 35,221,000 35,015,000 =========== =========== =========== Basic earnings per share............. $ 1.00 $ 1.06 $ .93 =========== =========== =========== Diluted earnings per share........... $ 1.00 $ 1.06 $ .92 =========== =========== =========== </TABLE> 8. ENVIRONMENTAL MATTERS The Company is involved in environmental investigation and/or remediation at certain of its present plant sites. The Company is not yet able to determine when such remediation activity will be complete. At April 30, 1998 and 1997, the Company had accruals, primarily based upon independent engineering studies, for environmental matters of approximately $1,785,000 and $1,825,000, respectively. The Company believes the provisions it has made for environmental matters are adequate to satisfy its liabilities relating to such matters. 19
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In 1998, the Company spent $290,000 on remediation cleanups and related studies compared with $1,350,000 in 1997 and $931,000 in 1996. In 1998, the costs associated with environmental matters as they relate to day-to-day activities were not material. 9. PENDING LITIGATION Certain litigation arising in the normal course of business is pending against the Company. The Company is of the opinion that the resolution of such litigation will not have a significant effect on the consolidated financial statements of the Company. 10. DESCRIPTION OF BUSINESS The Company operates in one industry segment, which consists of the manufacture of electronic components that connect, convey and control electrical energy, pulse and signal, including connectors, interconnect devices, controls, printed circuits, and current-carrying distribution systems. The Company manufactures products with applications in the automotive, computer, voice and data communications, industrial, military and aerospace, and consumer electronics industries. Sales to two automotive customers approximated 35%, 42%, and 40% of net sales in the years ended April 30, 1998, 1997 and 1996. At April 30, 1998 and 1997, accounts receivable from customers in the automotive industry were approximately $33,683,000 and $28,713,000. Receivables are generally due within 30 days. Credit losses relating to all customers consistently have been within management's expectation. Information about the Company's operations in different geographic regions is as follows: <TABLE> <CAPTION> 1998 1997 1996 ------------ ------------ ------------ <S> <C> <C> <C> <C> Net Sales: Domestic.................... $294,884,846 $279,715,031 $252,624,190 Asia Pacific................ 22,979,307 25,508,921 24,630,167 Europe...................... 61,435,390 37,868,313 30,284,109 ------------ ------------ ------------ $379,299,543 $343,092,265 $307,538,466 ============ ============ ============ Operating Profit (Loss): Domestic.................... $ 43,529,456 $ 51,372,014 $ 45,551,070 Asia Pacific................ 916,863 337,265 1,898,117 Europe...................... 8,091,063 3,925,538 1,504,735 Income & expenses not allocated to areas......... 1,029,022 2,809,067 2,018,692 ------------ ------------ ------------ --- $ 53,566,404 $ 58,443,883 $ 50,972,614 ============ ============ ============ Assets: Domestic.................... $221,741,834 $189,280,114 $179,178,383 Asia Pacific................ 23,217,036 29,646,147 29,415,698 Europe...................... 42,570,985 34,564,822 14,685,292 ------------ ------------ ------------ $287,529,855 $253,491,083 $223,279,373 ============ ============ ============ </TABLE> 20
METHODE ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of unaudited quarterly results of operations for the two years ended April 30, 1998: <TABLE> <CAPTION> FISCAL YEAR 1998 QUARTER ENDED ----------------------------------------------- JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales...................... $91,898,318 $99,934,242 $90,740,296 $96,726,687 Gross profit................... 25,123,667 26,445,429 22,048,133 25,501,184 Net income..................... 9,156,255 9,472,315 7,090,398 9,547,436 Net income per common share: Basic........................ 0.26 0.27 0.20 0.27 Diluted...................... 0.26 0.27 0.20 0.27 <CAPTION> FISCAL YEAR 1997 QUARTER ENDED ----------------------------------------------- JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales...................... $78,965,710 $85,188,636 $85,943,283 $92,994,636 Gross profit................... 21,325,196 23,869,144 23,817,211 27,757,210 Net income..................... 8,009,588 9,099,026 9,134,141 10,976,128 Net income per common share: Basic........................ 0.23 0.26 0.26 0.31 Diluted...................... 0.23 0.26 0.26 0.31 </TABLE> 21
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 Bylaws 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 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) Saving Trust (5)* 10.12 Methode Electronics, Inc. Electronic Controls Division Cash and Class A Common Stock Bonus Plan (6) 21 Subsidiaries of the Registrant 23 23.1 Consent of Ernst & Young LLP 24 27.1 Financial Data Schedules--April 30, 1998 25 27.2 Financial Data Schedules--April 30, 1997 Restated 26 27.3 Financial Data Schedules--April 30, 1996 Restated 27 (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 Form 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 Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K. </TABLE> 22