<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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.
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT METHODE ELECTRONICS, INC.
<TABLE>
<CAPTION>
SUBSIDIARY (1) JURISDICTION OF INCORPORATION
- -------------- -----------------------------
<S> <C>
Adam Technologies, Inc............................ Delaware
Graphic Research, Inc............................. California
Intertrace Technology, Inc........................ Delaware
Magna-lastic Devices, Inc......................... Delaware
Merit-Malta North America, Inc.................... Michigan
Meritronic........................................ Malta
Methode of California (2)......................... California
Methode Development Company....................... Delaware
Methode Duel, Inc................................. Delaware
Methode Electronics China PTE, Ltd................ Singapore
Methode Electronics Far East Pte., Ltd............ Singapore
Methode Electronics Foreign Sales Corporation..... U.S. Virgin Islands
Methode Electronics Europe, Ltd................... Scotland
Methode Electronics Ireland Limited............... Ireland
Methode Electronics Malta Ltd..................... Malta
Methode Electronics Shanghai Co. Ltd.............. China
Methode Electronics Suzhou Co., Ltd............... China
Methode Fibre Optic Products PTY, Ltd............. Australia
Methode Fibre Optics U.K. Ltd..................... United Kingdom
Methode International, GmbH....................... Germany
Methode New England Co., Inc...................... Delaware
Methode Technical Components...................... Delaware
Sentorque, Inc.................................... Delaware
</TABLE>
- --------
(1) All subsidiaries 100% owned, except Magna-lastic Devices, Inc. and
Sentorque, Inc. which are 75% owned.
(2) Business also done under the names Trace Laboratories Central and Trace
Laboratories East.
23
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-88036, No. 333-49559 and No. 333-49671 and Forms S-3 No. 33-
61940, No. 33-61647 and No. 333-33867), as amended, and in the related
Prospectus of Methode Electronics, Inc. of our report dated June 23, 1998,
with respect to the consolidated financial statements of Methode Electronics,
Inc. included in this Annual Report (Form 10-K) for the year ended April 30,
1998.
Ernst & Young LLP
Chicago, Illinois
July 27, 1998
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 24,178,868
<SECURITIES> 0
<RECEIVABLES> 65,776,407
<ALLOWANCES> 1,308,000
<INVENTORY> 48,965,012
<CURRENT-ASSETS> 144,690,704
<PP&E> 199,786,527
<DEPRECIATION> 112,742,879
<TOTAL-ASSETS> 287,529,855
<CURRENT-LIABILITIES> 50,437,901
<BONDS> 0
0
0
<COMMON> 17,836,506
<OTHER-SE> 208,203,376
<TOTAL-LIABILITY-AND-EQUITY> 287,529,855
<SALES> 379,299,543
<TOTAL-REVENUES> 385,105,612
<CGS> 280,181,130
<TOTAL-COSTS> 280,181,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265,602
<INCOME-PRETAX> 53,566,404
<INCOME-TAX> 18,300,000
<INCOME-CONTINUING> 35,266,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,266,404
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 23,115,320
<SECURITIES> 0
<RECEIVABLES> 55,304,695
<ALLOWANCES> 1,250,000
<INVENTORY> 39,855,364
<CURRENT-ASSETS> 122,800,435
<PP&E> 179,050,393
<DEPRECIATION> 98,954,082
<TOTAL-ASSETS> 253,491,083
<CURRENT-LIABILITIES> 44,538,824
<BONDS> 0
0
0
<COMMON> 17,744,672
<OTHER-SE> 179,452,685
<TOTAL-LIABILITY-AND-EQUITY> 253,491,083
<SALES> 343,092,265
<TOTAL-REVENUES> 349,256,461
<CGS> 246,323,504
<TOTAL-COSTS> 246,323,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,902
<INCOME-PRETAX> 58,443,883
<INCOME-TAX> 21,225,000
<INCOME-CONTINUING> 37,218,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,218,883
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<FN>
Note - Restatement reflected herein is the result of the adoption of Statement
of Financial Accounting Standards No. 128, Earnings per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 50,185,934
<SECURITIES> 0
<RECEIVABLES> 49,611,214
<ALLOWANCES> 1,285,000
<INVENTORY> 32,087,355
<CURRENT-ASSETS> 137,010,576
<PP&E> 152,507,769
<DEPRECIATION> 85,721,950
<TOTAL-ASSETS> 223,279,373
<CURRENT-LIABILITIES> 45,956,081
<BONDS> 0
0
0
<COMMON> 17,661,116
<OTHER-SE> 147,443,188
<TOTAL-LIABILITY-AND-EQUITY> 223,279,373
<SALES> 307,538,466
<TOTAL-REVENUES> 312,483,731
<CGS> 221,605,285
<TOTAL-COSTS> 221,605,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 334,092
<INCOME-PRETAX> 50,972,614
<INCOME-TAX> 18,600,000
<INCOME-CONTINUING> 32,372,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,372,614
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.92
<FN>
Note - Restatement reflected herein is the result of the adoption of Statement
of Financial Accounting Standards No. 128, Earnings per Share.
</FN>
</TABLE>
