<PAGE>
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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, 2000
COMMISSION FILE NUMBER 0-2816
METHODE ELECTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2090085
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7401 WEST WILSON AVENUE 60706
CHICAGO, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (INCLUDING AREA CODE): (708) 867-6777
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- --------------------
None None
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 12, 2000, based upon
the average of the closing bid and asked prices on that date as reported by
Nasdaq was $1,550,731,000.
Registrant had 34,505,152 shares of Class A, $.50 par value, and
1,109,915 shares of Class B, $.50 par value, outstanding as of July 12, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be
held September 12, 2000, 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 Company manufactures component devices worldwide for Original
Equipment Manufacturers (OEMs) of information processing and networking
equipment, voice and data communication systems, consumer electronics,
automobiles, aerospace vehicles and industrial equipment. Products employ
electrical, electronic and optical technologies as sensors, interconnections
and controls. The business is managed on a technology product basis, with
those technology segments being Electronic, Optical Subsystems and Components
and Other. The business units whose results are identified in the Electronic
segment principally employ electronic processes to control and convey
signals. The business units whose results are identified in the Optical
Subsystems and Components segment principally employ light to control and
convey signals. The Other segment includes manufacturers of multi-layer
printed circuit boards and bus systems as well as independent laboratories
which provide services for qualification testing and certification of
electronic and optical components. In September 1999 the Company exited the
manufacture of printed circuitry as described in Note 3 to the consolidated
financial statements.
As described in Note 2 to the consolidated financial statements,
substantially all of the Optical Subsystems and Components segment was
transferred to the Company's newly formed subsidiary, Stratos Lightwave, Inc.
(Stratos), effective May 28, 2000. On June 27, 2000, Stratos issued shares of
common stock in an initial public offering. The Company owns 84.3% of
Stratos' common stock. It is the Company's intention to distribute, at a
later date, all of the shares of Stratos' common stock it owns to its
shareholders contingent upon receiving a ruling from the Internal Revenue
Service that such distribution would be tax-free to the Company and its
stockholders.
The following tabulation reflects the percentage of net sales of the
product segments of the Registrant for the last three fiscal years.
<TABLE>
<CAPTION>
APRIL 30,
-----------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Electronic 83.4% 77.9% 74.0%
Optical 8.9 14.7 20.1
Other 7.7 7.4 5.9
</TABLE>
SALES. 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 ferrous and copper alloy strips, plastic molding
materials, ferrules and fiber optic cable, semiconductor components, 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, 2000, shipments to
Daimler Chrysler AG and Ford
2
<PAGE>
Motor Corporation each were 10% or greater of consolidated net sales and, in the
aggregate, amounted to approximately 46% of consolidated net sales. Such
shipments included a wide variety of the Registrant's automotive component
products.
BACKLOG. The Registrant's backlog of orders for its continuing operations
was approximately $65,235,000 at May 31, 1999, and $90,500,000 at May 31, 2000.
It is expected that most of the total backlog at May 31, 2000, will be shipped
within the current fiscal year.
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
$21,120,000, $22,750,000 and $23,615,000 for the fiscal years ended April 30,
1998, 1999 and 2000, 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 9 to the consolidated financial statements included in Item 14 (a)(1).
EMPLOYEES. At April 30, 1999 and 2000, Registrant had approximately 3,800
and 3,700 employees, respectively. Registrant also from time to time employs
part-time employees and hires independent contractors. Registrant's employees
are not represented by any collective bargaining agreement, and registrant has
never experienced a work stoppage. Registrant believes that it's employee
relations are good.
FOREIGN SALES. Information about the Registrant's operations in different
geographic regions is summarized in Note 12 to the consolidated financial
statements included in Item 14 (a)(1).
ITEM 2. PROPERTIES
The Registrant has 23 manufacturing and four service facilities
containing approximately 1,120,000 square feet of space, of which
approximately 370,000 square feet are leased. The Electronic segment has six
facilities located in Illinois, two in California, one in New Jersey, one in
Ireland, two in Malta, one in Mexico, one in Singapore and one in the United
Kingdom totaling approximately 825,000 square feet of space. The Optical
Subsystems and Components segment has two facilities located in Illinois, one
in Florida, one in Massachusetts, one in Texas, one in the Peoples Republic
of China, one in the Czech Republic and two in the United Kingdom totaling
approximately 210,000 square feet of space. Approximately 156,000 square feet
of the Optical segment space, 51,000 square feet of which are leased, were
transferred to Stratos Lightwave, Inc. effective May 28, 2000. The Other
segment has two facilities located in Illinois and one in Maryland totaling
approximately 85,000 square feet of space. Registrant's manufacturing
facilities have been modernized in the opinion of management to keep pace
with developments in the industry.
ITEM 3. LEGAL PROCEEDINGS
As of July 12, 2000, 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.
3
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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 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE OFFICES AND POSITIONS HELD AND LENGTH OF SERVICE AS OFFICER
---- --- --------- -----------------------------------------------------------
<S> <C> <C> <C>
William J. McGinley 77 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. McGinley.
James W. McGinley 45 1993 Director, President and Chief Executive Officer of Stratos
Lighwave, Inc., a subsidiary of the Registrant since April 12,
2000. Prior thereto, President of the Registrant from August
1998. Prior thereto, Mr. James W. McGinley held various
positions with divisions of the Registrant, including President
from 1994 through 1998 and Executive Vice President from
1993 through 1994 of Optical Interconnect Products. Mr. James
W. McGinley is the son of Mr. William J. McGinley.
John R. Cannon 52 1997 Senior Executive Vice President of the Registrant since 1997.
Prior thereto, Senior Executive Vice President of dataMate
Products since 1996; prior thereto, Executive Vice President of
dataMate Products.
Kevin J. Hayes 59 1984 Executive Vice President of the Registrant since 1997, Chief
Financial Officer since 1996 and Assistant Secretary 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 12, 2000, 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, 2000
First Quarter . . . . . . . . . . $24.50 $14.38 $24.00 $13.75
Second Quarter . . . . . . . . . . 22.50 13.50 21.50 14.00
Third Quarter . . . . . . . . . . 43.50 15.50 43.06 16.50
Fourth Quarter . . . . . . . . . . 66.44 32.50 65.50 31.50
Fiscal Year ended April 30, 1999
First Quarter . . . . . . . . . . 16.38 10.63 15.88 11.75
Second Quarter . . . . . . . . . . 16.00 11.75 15.13 12.50
Third Quarter . . . . . . . . . . 16.13 12.00 15.50 13.00
Fourth Quarter . . . . . . . . . . 15.63 10.00 16.25 9.50
</TABLE>
The Registrant pays dividends quarterly and for fiscal years 2000 and
1999, quarterly dividends were paid at an annual rate of $.20 on both the Class
A and Class B Common Stock. On June 23, 2000, the Board declared a dividend of
$.05 per Class A share and Class B share, payable on July 31, 2000, to holders
of record on July 14, 2000.
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 12, 2000, the approximate number of record holders of the
Company's Class A and Class B Common Stock was 1,080 and 375.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ............................... $422,146 $403,731 $379,300 $343,092 $307,538
Provision for exiting printed
circuit business...................... - 3,100 - - -
Income before income taxes............... 46,988 50,669 53,566 58,444 50,973
Income taxes............................. 16,100 17,850 18,300 21,225 18,600
Net income............................... 30,888 32,819 35,266 37,219 32,373
Per Common Share:
Net income-Basic......................... $0.87 $0.93 $ 1.00 $ 1.06 $ 0.93
Net income-Diluted....................... 0.87 0.93 1.00 1.06 0.92
Dividends, Class A....................... 0.20 0.20 0.20 0.20 0.16
Dividends, Class B....................... 0.20 0.20 0.20 0.20 0.16
Book value............................... 7.69 7.03 6.37 5.59 4.69
Long-term debt............................. - 269 1,264 1,005 -
Funded debt to total capital............... 1:236 1:51 1:56 1:95 1:57
Retained Earnings.......................... $238,898 $215,117 $189,397 $161,226 $131,073
Fixed assets (net)......................... 95,847 90,899 87,044 80,096 66,786
Total assets............................... 340,973 316,623 287,530 253,491 223,279
Return on equity........................... 12% 14% 17% 21% 22%
Pre-tax income as a percentage of sales.... 11.1% 12.6% 14.1% 17.0% 16.6%
Net income as a percentage of sales........ 7.3% 8.1% 9.3% 10.8% 10.5%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's business is managed on a technology product basis, with
those technology segments being Electronic, Optical Subsystems and Components
and Other. The business units whose results are identified in the Electronic
segment principally employ electronic processes to control and convey
signals. The business units whose results are identified in the Optical
Subsystems and Components segment principally employ light to control and
convey signals. The Other segment includes manufacturers of multi-layer
printed circuit boards and bus systems as well as independent laboratories
which provide services for qualification testing and certification of
electronic and optical components. The Company exited the printed circuit
business in September, 1999.
As described in Note 2 to the consolidated financial statements,
substantially all of the Optical Subsystems and Components segment was
transferred to the Company's newly formed subsidiary, Stratos Lightwave, Inc.
(Stratos), effective May 28, 2000. On June 27, 2000, Stratos issued shares of
common stock in an initial public offering. The Company owns 84.3% of
Stratos' common stock outstanding. It is the Company's intention to
distribute, at a later date, all of the shares of Stratos common stock it
owns to its stockholders contingent upon receiving a ruling from the Internal
Revenue Service that such a distribution would be tax-free to the Company and
its stockholders.
5
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement data as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THE YEAR ENDED APRIL 30,
-----------------------------------------------
2000 1999 1998
-----------------------------------------------
<S> <C> <C> <C>
Income:
Net sales 100.0% 100.0% 100.0%
Settlement of litigation - 0.6 -
Other 1.5 1.2 1.5
----- ----- -----
101.5 101.8 101.5
Costs and expenses:
Cost of products sold 76.2 75.1 73.9
Selling and administrative expenses 13.7 12.9 13.1
Provision for exiting printed circuit business - 0.8 -
Amortization of intangibles 0.4 0.3 0.3
Interest expense 0.1 0.2 0.1
----- ----- -----
90.4 89.3 87.4
---- ---- ----
Income Before Income Taxes 11.1 12.5 14.1
Income taxes 3.8 4.4 4.8
----- ----- -----
Net Income 7.3% 8.1% 9.3%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED APRIL 30, 2000 AND 1999
NET SALES. Consolidated net sales increased 5% to $422,146,000 in fiscal
2000 from $403,731,000 in fiscal 1999. Net sales of the Electronic segment,
which represented 74% of consolidated net sales in fiscal 2000 and 78% in fiscal
1999, decreased to $312,327,000 in fiscal 2000 from $314,406,000 in fiscal 1999.
Sales to the automotive industry, which represented 69% and 65% of Electronic
segment net sales in 2000 and 1999, grew by 5% in fiscal 2000. This increase was
offset by a 27% sales decrease at our Singapore connector facility, a 17% sales
decrease at our terminator and cable assembly facility in Ireland and a 10%
decrease in net sales of our dataMate products.
Net sales of the Optical Subsystems and Components segment represented
20% of consolidated net sales in fiscal 2000 and 15% of consolidated net
sales in fiscal 1999. Optical Subsystems and Components segment net sales
increased 43% to $84,847,000 in fiscal 2000 from $59,248,000 in fiscal 1999.
Of this $25,599,000 increase, $19,218,000 is from an increase in net sales of
optical subsystems and $6,381,000 is from an increase in net sales of optical
components. The increase in net sales of optical subsystems was primarily due
to an increase in sales of Stratos' line of internal removable transceivers.
Net sales of the Other segment, principally current carrying bus devices,
printed circuit boards and test laboratories, declined 17% to $24,972,000 in
fiscal 2000 from $30,077,000 in fiscal 1999. The Company exited the printed
circuit board business in fiscal 2000 which resulted in a decrease in printed
circuit board net sales of $8,119,000. Net sales of current carrying bus devices
increased $2,441,000 and test laboratory net sales increased modestly in fiscal
2000.
SETTLEMENT OF LITIGATION. Income from the settlement of litigation in
fiscal 1999 represented the settlement of a claim relative to one of the
Company's patents in the Electronic segment.
OTHER INCOME. Other income consisted primarily of earnings from the
Company's automotive joint venture, license fees and royalties and interest
income on short-term investments. The increase in other income in fiscal 2000
was primarily the result of a $1,409,000 increase in license fees related to
Stratos' optoelectronic patents. License fees consist of both fixed schedule
payments and contingent payments based on sales volumes of licensed products.
COST OF SALES. Cost of goods sold as a percentage of net sales was 76% in
fiscal 2000 compared with 75% in fiscal 1999.
6
<PAGE>
Gross margins of the Electronic segment decreased to 24% in fiscal 2000
from 25% in fiscal 1999. Gross margins on sales to the automotive industry were
flat from year to year. Our Singapore connector facility, our terminator and
cable assembly facility in Ireland and our dataMate facility all reported
decreased gross margins due to sales volume declines in fiscal 2000.
Gross margins of the Optical Subsystems and Components segment
decreased to 25% in fiscal 2000 from 30% in fiscal 1999. Fiscal 2000 cost of
sales includes an increase of approximately $1,800,000 in material and
overhead costs related to major product development projects and
approximately $1,700,000 of additional personnel costs dedicated to research
and development. Fiscal 2000 also included start-up and unusual expenses
related to Stratos' recently acquired Stratos Micro Systems and Bandwidth
Semiconductor subsidiaries. The Optical Subsystems and Components segment also
experienced declines in the average unit prices for its products.
Gross margins of the Other segment improved to 20% in fiscal 2000 from
11% in fiscal 1999. This improvement was primarily the result of exiting the
printed circuit business.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
as a percentage of net sales were 14% in fiscal 2000 and 13% in fiscal 1999. The
increase was primarily due to an increased provision for bad debts of $1,820,000
and increased staff costs incurred to support Stratos' growing optical subsystem
business.
PROVISION FOR EXITING PRINTED CIRCUIT BUSINESS. The $3,100,000 provision
for exiting printed circuit business in 1999 represents the estimated loss on
disposal of assets, employee severance pay and additional costs associated with
environmental matters specifically related to the decision to exit the business.
Operating losses that were incurred in the first half of fiscal 2000 to wind
down these business were not material and were recorded as incurred.
INCOME TAXES. The effective income tax rates were 34% in fiscal 2000 and
35% in fiscal 1999. The effective income tax rates for both years reflect the
effects of lower tax rates from foreign operations, offset in part, by state
income taxes.
FISCAL YEARS ENDED APRIL 30, 1999 AND 1998
NET SALES. Consolidated net sales increased 6% to $403,731,000 in fiscal
1999 from $379,300,000 in fiscal 1998. Net sales of the Electronic segment,
which represented 78% of consolidated net sales in fiscal 1999 and 83% in fiscal
1998, decreased to $314,406,000 in fiscal 1999 from $316,265,000 in fiscal 1998.
Sales to the automotive industry, which represented 65% and 59% of the
Electronic segment net sales in 1999 and 1998, grew by 9% in fiscal 1999. This
increase was offset by a sales decrease of our non-automotive interconnect
devices led by a 42% decrease in net sales of our dataMate products.
Net sales of the Optical Subsystems and Components segment represented
15% of consolidated net sales in fiscal 1999 and 9% of consolidated net sales
in fiscal 1998. Optical Subsystems and Components segment net sales increased
76% to $59,248,000 in fiscal 1999 from $33,683,000 in fiscal 1998. Of this
$25,565,000 increase, $23,200,000 is from an increase in net sales of optical
subsystems and $2,365,000 is from an increase in net sales of optical
components. The increase in net sales of optical subsystems was primarily due
to an increase in sales of Stratos' embedded transceivers.
Net sales of the Other segment, principally current carrying bus devices,
printed circuit boards and test laboratories, increased 2% to $30,077,000 in
fiscal 1999 from $29,352,000 in fiscal 1998. Net sales of current carrying bus
devices increased $1,997,000 and test laboratory net sales increased $600,000 in
fiscal 1999. These sales gains were largely offset by a decline of printed
circuit board sales of $1,872,000.
SETTLEMENT OF LITIGATION. Income from the settlement of litigation in
fiscal 1999 represented the settlement of a claim relative to one of the
Company's patents in the Electronic segment.
OTHER INCOME. Other income consisted primarily of earnings from the
Company's automotive joint venture, license fees and royalties, interest income
on short-term investments, and in fiscal 1998, an approximate $1,000,000 gain
from the sale of a building.
7
<PAGE>
COST OF SALES. Cost of goods sold as a percentage of net sales was 75% in
fiscal 1999 compared with 74% in fiscal 1998.
Gross margins of the Electronic segment decreased to 25% in fiscal 1999
from 27% in fiscal 1998. The gross margin decline in 1999 was largely due to
margin erosion on sales to the automotive industry caused by product mix
changes, additional infrastructure and engineering costs incurred for new
programs not yet producing revenue and customer requested piece part sales price
reductions.
Gross margins of the Optical Subsystems and Components segment
increased to 30% in fiscal 1999 from 25% in fiscal 1998. This increase was
due primarily to a positive shift in product mix between higher margin
optical subsystems and lower margin optical components. The effect of this
shift on margins was partially offset by an increase of $700,000 in personnel
costs related to research and development and $200,000 in project related
material and overhead costs.
Gross margins of the Other segment declined to 11% in fiscal 1999 from
20% in fiscal 1998. The margin decline was primarily the result of operating
losses at our printed circuit board facilities and a $1,000,000 provision for
environmental clean-up costs at these facilities.
PROVISION FOR EXITING PRINTED CIRCUIT BUSINESS. The $3,100,000 for
exiting printed circuit business in 1999 represents the estimated loss on
disposal of assets, employee severance pay and additional costs associated with
environmental matters specifically related to the decision to exit the business.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
as a percentage of net sales were relatively flat at 13% in fiscal 1999 and
fiscal 1998, as staff costs increased to support Stratos' growing optical
subsystem business.
INCOME TAXES. The effective income tax rates were 35% in fiscal 1999 and
34% in fiscal 1998. The effective income tax rates for both years reflect the
effects of lower tax rates from foreign operations, offset in part, by state
income taxes. The effective rate for fiscal 1998 was lower than fiscal 1999 due
to the effects of a substantially tax-free gain on the sale of a building.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $56,774,000, $32,317,000 and
$38,288,000 in 2000, 1999 and 1998. The increase in cash provided by operations
in 2000 was primarily the result of accelerated collection of accounts
receivable that included substantial amounts related to automotive tooling
programs. The decrease in cash provided from operations in 1999 was primarily
the result of lower net income and increased working capital requirements to
support increased sales.
During the third quarter of fiscal 2000, the Company purchased
selected assets of Spire Corporation's optoelectronic business segment
(Bandwidth Semiconductor) for cash of approximately $13,000,000. This
acquisition provided the Company with established capabilities in research
and development into formulating optoelectronically active semiconductors for
expanded bandwidth applications. This acquisition was funded by internally
generated funds. The Company used a total of $2,766,000 of cash in fiscal
1999 to acquire Polycore Technologies (Stratos Micro Systems), a developer of
highly integrated data communication modules for Local Area Network
equipment, Stratos, Ltd., a developer and manufacturer of expanded beam fiber
optic connectivity products for harsh environments and an additional 25% of
Optokon, a fiber optic connector company, from a former joint venture
partner. In connection with the fiscal 1998 acquisition of Adam Technologies,
a designer and marketer of electrical and electronic connectors, the Company
made cash payments of $3,580,000 in 1998, $1,217,000 in 1999 and $837,000 in
fiscal 2000 using available cash. Bandwidth Semiconductor, Stratos Micro
Systems and Stratos, Ltd. were included in the May 28, 2000 transfer to
Stratos.
During fiscal 1999 the Company used $3,084,000 of its available cash to
acquire 275,000 shares of its Common Stock for treasury. The purchases of these
shares were made pursuant to a three-year Common Stock Repurchase Program
authorized by the Board of Directors in February 1999.
8
<PAGE>
Depreciation and amortization expense was $18,857,000, $17,735,000 and
$17,627,000 in 2000, 1999 and 1998. Capital expenditures were $24,668,000,
$21,996,000 and $23,211,000 in 2000, 1999 and 1998. Principal capital
investments involved the purchase of a 15,000 square foot clean room oriented
facility to house the Company's Stratos Micro Systems subsidiary in fiscal 2000,
the expansion of the automotive manufacturing and test laboratory facilities and
purchase of machinery and equipment to support the increasing sales volume of
optical subsystems and products for the automotive industry in 1999 and purchase
of new facilities for an independent test laboratory and our cable assembly
operations in 1998. Capital expenditures in 2000, 1999 and 1998 were funded from
operating cash flows. It is anticipated that capital acquisitions for 2001 will
also be funded from operating cash flows.
As described in Note 2 to the consolidated financial statements, in June,
2000 the Company's newly formed subsidiary, Stratos Lightwave, Inc. raised
$196,500,000 in cash in an initial public offering (IPO) of 16% of its common
stock. The proceeds from this IPO are available only to Stratos and will be used
to pay $2,956,500 of additional purchase price in connection with the
acquisition of Stratos Micro Systems, and for general corporate purposes.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late calendar 1999, the Company completed
its remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $500,000 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
EURO CONVERSION
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing currencies ("legal
currencies") and one common currency, the Euro. The Euro is now trading on
currency exchanges and may be used in certain transactions such as electronic
payments. Beginning in January 2002, new Euro-denominated notes and coins
will be used, and legacy currencies will be withdrawn from circulation. The
conversion to the Euro has eliminated currency exchange rate risk for
transactions between the member countries, which for the Company primarily
consists of sales to certain customers and payments to certain suppliers. The
Company is currently addressing the issues involved with the new currency,
which include converting information technology systems, recalculating
currency risk, and revising processes for preparing accounting and taxation
records. The Company does not believe the Euro conversion will have a
significant impact on the results of its operations or cash flows.
CAUTIONARY STATEMENT
Certain statements in this report are forward-looking statements that are
subject to certain risks and uncertainties. The Company's business is highly
dependent upon specific makes and models of automobiles. Therefore, the
Company's financial results will be subject to many of the same risks that apply
to the automotive industry, such as general economic conditions, interest rates
and consumer spending patterns. A significant portion of the balance of the
Company's business relates to the computer and telecommunication industries
which are subject to many of the same risks facing the automotive industry as
well as fast-moving technological change. Other factors which may result in
materially different results for future periods include actual growth in the
Company's various markets; operating costs; currency exchange rates and
devaluations; delays in development, production and marketing of new products;
and other factors set forth from time to time in the Company's Form 10-K and
other reports filed with the Securities and Exchange Commission. Any of these
factors could cause the Company's actual results to differ materially from those
described in the forward-looking statements. The forward-looking statements in
this report are intended to be subject to the safe harbor protection provided
under the securities law.
9
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Although certain of the Company's subsidiaries enter into transactions in
currencies other than their functional currency, foreign currency exposures
arising from these transactions are not material to the Company. The primary
foreign currency exposure arises from the translation of the Company's net
equity investment in its foreign subsidiaries to U.S. dollars. The Company
generally views as long-term its investments in foreign subsidiaries with
functional currencies other than the U.S. dollar. The primary currencies to
which the Company is exposed are the Singapore dollar, Maltese lira and other
European currencies. The fair value of the Company's net foreign investments
would not be materially affected by a 10% adverse change in foreign currency
exchange rates from April 30, 2000 levels.
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 DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
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 14, 2000, 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" in the Registrant's proxy statement to be dated on or about
August 14, 2000, and is incorporated herein by reference.
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
14, 2000, 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
14, 2000, 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
14, 2000, and is incorporated herein by reference.
10
<PAGE>
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.
11
<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)
By: /s/ KEVIN J. HAYES
-------------------------------
Kevin J. Hayes
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
CHIEF ACCOUNTING OFFICER & DIRECTOR
Dated: July 28, 2000
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 & Director July 28, 2000
--------------------------------------- (Principal Executive Officer)
William J. McGinley
Senior Executive Vice President & Director July 28, 2000
---------------------------------------
John R. Cannon
/s/ KEVIN J. HAYES Executive Vice President, Chief Financial July 28, 2000
--------------------------------------- Officer, Chief Accounting Officer & Director
Kevin J. Hayes
/s / JAMES W. ASHLEY, JR. Secretary & Director July 28, 2000
---------------------------------------
James W. Ashley, Jr.
/s/ JAMES W. McGINLEY Director July 28, 2000
---------------------------------------
James W. McGinley
/s / MICHAEL G. ANDRE Director July 28, 2000
---------------------------------------
Michael G. Andre
/s/ WILLIAM C. CROFT Director July 28, 2000
---------------------------------------
William C. Croft
/s/ RAYMOND J. ROBERTS Director July 28, 2000
---------------------------------------
Raymond J. Roberts
Director July 28, 2000
---------------------------------------
George C. Wright
</TABLE>
12
<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:
Consolidated Balance Sheets - - April 30, 2000 and 1999.
Consolidated Statements of Income - - Years Ended April 30, 2000, 1999
and 1998.
Consolidated Statements of Shareholders' Equity - - Years Ended April 30,
2000, 1999 and 1998
Consolidated Statements of Cash Flows - - Years Ended April 30, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
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.
13
<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, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended April 30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 30, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
June 6, 2000
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
APRIL 30
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 29,427,165 $ 22,764,887
Accounts receivable, less allowance
(2000--$5,597,000; 1999--$2,538,000) 79,408,485 88,194,471
Inventories:
Finished products 8,628,565 9,877,422
Work in process 31,284,601 25,180,203
Materials 19,004,222 14,157,216
------------- -------------
58,917,388 49,214,841
Current deferred income taxes 6,300,000 5,239,000
Prepaid expenses 4,532,621 5,596,373
------------- -------------
TOTAL CURRENT ASSETS 178,585,659 171,009,572
OTHER ASSETS
Goodwill, less accumulated amortization
(2000--$4,557,065; 1999--$3,147,426) 49,227,870 39,770,435
Intangible benefit plan asset (Note 6) 930,865 1,598,597
Cash surrender value of life insurance 9,666,892 8,590,892
Other 6,715,228 4,754,005
------------- -------------
66,540,855 54,713,929
PROPERTY, PLANT AND EQUIPMENT
Land 2,617,382 2,551,399
Buildings and building improvements 51,100,045 45,559,211
Machinery and equipment 171,777,903 169,073,082
------------- -------------
225,495,330 217,183,692
Less allowances for depreciation 129,648,793 126,284,573
------------- -------------
95,846,537 90,899,119
------------- -------------
340,973,051 316,622,620
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,400,434 $ 26,131,146
Salaries, wages and payroll taxes 10,094,606 9,396,253
Other accrued expenses 12,151,774 13,539,088
Income taxes 424,278 3,308,824
Notes payable 1,165,050 4,695,741
------------- -------------
TOTAL CURRENT LIABILITIES 55,236,142 57,071,052
ACCUMULATED BENEFIT PLAN OBLIGATION (Note 6) 878,269 837,939
OTHER LIABILITIES 2,124,497 2,368,650
DEFERRED COMPENSATION 8,218,655 7,320,313
DEFERRED INCOME TAXES 683,000 550,000
SHAREHOLDERS' EQUITY (Note 4)
Common Stock, Class A 17,452,061 17,310,610
Common Stock, Class B 562,365 598,935
Stock Awards (992,839) (1,031,395)
Additional paid-in capital 27,983,589 23,066,837
Retained earnings 238,898,436 215,116,544
Foreign currency translation adjustment (6,535,856) (2,730,157)
------------- -------------
277,367,756 252,331,374
Less cost of shares in treasury 3,535,268 3,856,708
------------- -------------
273,832,488 248,474,666
------------- -------------
$ 340,973,051 $ 316,622,620
============= =============
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
INCOME
Net sales (Note 11) $422,145,674 $403,730,531 $379,299,543
Settlement of litigation -- 2,647,167 --
Other 6,520,426 4,752,350 5,806,069
------------ ------------ ------------
428,666,100 411,130,048 385,105,612
Costs and expenses:
Cost of products sold 321,804,988 303,318,071 280,181,130
Selling and administrative expenses 58,053,338 52,206,503 49,900,088
Provision for exiting printed circuit business -- 3,100,000 --
Amortization of intangibles 1,514,960 1,284,750 1,192,388
Interest expense 305,169 551,818 265,602
------------ ------------ ------------
381,678,455 360,461,142 331,539,208
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 46,987,645 50,668,906 53,566,404
Income taxes (Note 7) 16,100,000 17,850,000 18,300,000
------------ ------------ ------------
NET INCOME $ 30,887,645 $ 32,818,906 $ 35,266,404
============ ============ ============
Amounts per Common Share (Note 8):
Net income:
Basic $0.87 $0.93 $1.00
Diluted $0.87 $0.93 $1.00
Cash dividends:
Class A $0.20 $0.20 $0.20
Class B $0.20 $0.20 $0.20
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
Years Ended April 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK STOCK
CLASS A CLASS B AWARDS
------- ------- ------
<S> <C> <C> <C>
Balance at April 30, 1997 $ 17,137,447 $ 607,225 $ (1,032,465)
Stock Award grant of 145,616 shares of Common Stock, Class A 72,808 -- (2,272,528)
Earned portion of Stock Awards -- -- 2,238,323
Tax effect of Stock Awards -- -- --
Issuance of 38,052 shares of Common Stock, Class A (Note 2) 19,026 -- --
Purchase of treasury stock 10,000 shares Common Stock, Class A -- -- --
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 -- -- --
Net income for the year -- -- --
Cash dividends on Common Stock -- -- --
------------ ------------ ------------
Balance at April 30, 1998 17,234,569 601,937 (1,066,670)
Stock Award grant of 146,078 shares of Common Stock, Class A 73,039 -- (2,181,207)
Earned portion of Stock Awards -- -- 2,216,482
Tax effect of Stock Awards -- -- --
Purchase of treasury stock 275,000 shares Common Stock, Class A -- -- --
Conversion of 6,004 shares of Common Stock, Class B to 6,004
shares of Common Stock, Class A 3,002 (3,002) --
Foreign currency translation adjustment -- -- --
Net income for the year -- -- --
Cash dividends on Common Stock -- -- --
------------ ------------ ------------
Balance at April 30, 1999 17,310,610 598,935 (1,031,395)
Stock Award grant of 123,995 shares of Common Stock, Class A 61,998 -- (1,813,308)
Earned portion of Stock Awards -- -- 1,851,864
Exercise of options for 85,765 shares of Common Stock, Class A 42,883 -- --
Tax effect of Stock Awards and Stock Options -- -- --
Contributions and sales of 39,455 shares of Treasury Stock to ESOP -- -- --
Conversion of 73,140 shares of Common Stock, Class B to 73,140
shares of Common Stock, Class A 36,570 (36,570) --
Foreign currency translation adjustment -- -- --
Net income for the year -- -- --
Cash dividends on Common Stock -- -- --
------------ ------------ ------------
Balance at April 30, 2000 $ 17,452,061 $ 562,365 $ (992,839)
============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
PAID-IN RETAINED TRANSLATION
CAPITAL EARNINGS ADJUSTMENT
------- -------- ------------
<S> <C> <C> <C>
Balance at April 30, 1997 $ 18,040,963 $161,225,847 $ 1,830,046
Stock Award grant of 145,616 shares of Common Stock, Class A 2,199,720 -- --
Earned portion of Stock Awards -- -- --
Tax effect of Stock Awards 179,000 -- --
Issuance of 38,052 shares of Common Stock, Class A (Note 2) 601,986 -- --
Purchase of treasury stock 10,000 shares Common Stock, Class A -- -- --
Conversion of 10,577 shares of Common Stock, Class B to 10,577
shares of Common Stock, Class A -- -- --
Foreign currency translation adjustment -- -- (2,206,109)
Net income for the year -- 35,266,404 --
Cash dividends on Common Stock -- (7,094,855) --
-----------------------------------------
Balance at April 30, 1998 21,021,669 189,397,396 (376,063)
Stock Award grant of 146,078 shares of Common Stock, Class A 2,108,168 -- --
Earned portion of Stock Awards -- -- --
Tax effect of Stock Awards (63,000) -- --
Purchase of treasury stock 275,000 shares Common Stock, Class A -- -- --
Conversion of 6,004 shares of Common Stock, Class B to 6,004 -- -- --
shares of Common Stock, Class A -- -- --
Foreign currency translation adjustment -- -- (2,354,094)
Net income for the year -- 32,818,906 --
Cash dividends on Common Stock -- (7,099,758) --
----------- ------------ -----------
Balance at April 30, 1999 23,066,837 (215,116,544) (2,730,157)
Stock Award grant of 123,995 shares of Common Stock, Class A 1,751,310 -- --
Earned portion of Stock Awards -- -- --
Exercise of options for 85,765 shares of Common Stock, Class A 1,274,011 -- --
Tax effect of Stock Awards and Stock Options 520,000 -- --
Contributions and sales of 39,455 shares of Treasury Stock to ESOP 1,371,431 -- --
Conversion of 73,140 shares of Common Stock, Class B to 73,140
shares of Common Stock, Class A -- -- --
Foreign currency translation adjustment -- -- (3,805,699)
Net income for the year -- 30,887,645 --
Cash dividends on Common Stock -- (7,105,753) --
----------- ------------ -----------
Balance at April 30, 2000 $27,983,589 $238,898,436 $(6,535,856)
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
TOTAL
TREASURY SHAREHOLDERS' COMPREHENSIVE
STOCK EQUITY INCOME
----- ------ ------
<C> <C> <C>
Balance at April 30, 1997 $ (611,706) $197,197,357 --
Stock Award grant of 145,616 shares of Common Stock, Class A -- -- --
Earned portion of Stock Awards -- 2,238,323 --
Tax effect of Stock Awards -- 179,000 --
Issuance of 38,052 shares of Common Stock, Class A (Note 2) -- 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 -- -- --
Foreign currency translation adjustment -- $ (2,206,109) $ (2,206,109)
Net income for the year -- 35,266,404 35,266,404
------------
-- $ 33,060,295
============
Cash dividends on Common Stock -- (7,094,855)
------------ -------------
Balance at April 30, 1998 (772,956) 226,039,882 --
Stock Award grant of 146,078 shares of Common Stock, Class A -- -- --
Earned portion of Stock Awards -- 2,216,482 --
Tax effect of Stock Awards -- (63,000) --
Purchase of treasury stock 275,000 shares Common Stock, Class A (3,083,752) (3,083,752) --
Conversion of 6,004 shares of Common Stock, Class B to 6,004 -- -- --
shares of Common Stock, Class A -- (2,354,094) (2,354,094)
Foreign currency translation adjustment -- 32,818,906 32,818,906
Net income for the year ------------
-- -- $ 30,464,812
============
Cash dividends on Common Stock -- (7,099,758)
------------ -------------
Balance at April 30, 1999 (3,856,708) (248,474,666) --
Stock Award grant of 123,995 shares of Common Stock, Class A -- -- --
Earned portion of Stock Awards -- 1,851,864 --
Exercise of options for 85,765 shares of Common Stock, Class A -- 1,316,894 --
Tax effect of Stock Awards and Stock Options -- 520,000 --
Contributions and sales of 39,455 shares of Treasury Stock to ESOP 321,440 1,692,871 --
Conversion of 73,140 shares of Common Stock, Class B to 73,140
shares of Common Stock, Class A -- -- --
Foreign currency translation adjustment -- (3,805,699) $ (3,805,699)
Net income for the year -- 30,887,645 30,887,645
------------
$ 27,081,946
============
Cash dividends on Common Stock -- (7,105,753)
------------ -------------
Balance at April 30, 2000 $(3,535,268) $273,832,488
=========== =============
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income 30,887,645 $ 32,818,906 $ 35,266,404
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation
and amortization 18,857,009 17,734,723 17,627,450
Provision for losses on accounts receivable 3,093,172 1,272,672 92,000
Provision for deferred compensation and
supplemental executive benefit plan 706,404 359,616 (156,283)
Provision for deferred income taxes (770,000) (1,230,000) (1,015,000)
Amortization of Stock Awards 1,851,864 2,216,482 2,238,323
Provision for loss on idle equipment 1,000,000
Contribution of treasury stock to ESOP 1,200,000
Changes in operating assets and liabilities:
Accounts receivable 5,718,667 (24,020,866) (7,095,259)
Inventories (10,475,860) 1,602,072 (7,463,783)
Current deferred income
taxes and prepaid expenses 1,063,752 (2,583,288) 21,229
Accounts payable and
accrued expenses 3,641,842 4,146,575 (1,226,684)
------------- ------------ --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 56,774,495 32,316,892 38,288,397
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (24,668,132) (21,995,559) (23,211,297)
Purchases of subsidiaries (Note 3) (13,967,375) (3,983,419) (3,847,501)
Purchases of life insurance policies (1,076,000) (939,041) (971,626)
Proceeds from sale of Printed Circuit Assets 3,529,019 - -
Other (5,053,050) 1,795,922 (3,653,368)
------------- ------------ --------------
NET CASH USED IN INVESTING ACTIVITIES (41,235,538) (25,122,097) (31,683,792)
FINANCING ACTIVITIES
Borrowings (repayments) on lines of
credit and long-term borrowings (3,580,691) 1,574,734 1,715,048
Exercise of stock options 1,316,894
Treasury stock transactions 492,871 (3,083,752) (161,250)
Dividends (7,105,753) (7,099,758) (7,094,855)
------------- ------------ --------------
CASH USED IN NET FINANCING ACTIVITIES (8,876,679) (8,608,776) (5,541,057)
------------- ------------ --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,662,278 (1,413,981) 1,063,548
Cash and cash equivalents at beginning of year 22,764,887 24,178,868 23,115,320
------------- ------------ --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 29,427,165 $ 22,764,887 $ 24,178,868
============= ============= ==============
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
APRIL 30, 2000
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 using estimated useful lives of 5 to 40 years for
buildings and improvements and 3 to 15 years for machinery and equipment for
financial reporting purposes. Accelerated methods are generally used for income
tax purposes.
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.
REVENUE RECOGNITION. Revenue from product sales, net of trade discounts
and allowances, is recognized when title passes which is upon shipment (FOB
shipping point). The Company handles returns by replacing, repairing or issuing
credit for defective products when returned. Return costs were not significant
in fiscal years 2000, 1999 and 1998.
FOREIGN CURRENCY TRANSLATION. The results of operations of the Company's
foreign subsidiaries are translated into U.S. dollars using average exchange
rates during the year, while the assets and liabilities are translated using
period end exchange rates. The related translation adjustments are recorded in
Shareholders' Equity.
LONG-LIVED ASSETS. The Company periodically reviews long-lived assets to
determine if there are indicators of impairment. When indicators of impairment
are present, the Company evaluates the carrying value of property, plant, and
equipment and intangibles, including goodwill, in relation to the operating
performance and future undiscounted cash flows of the underlying businesses. The
Company adjusts the net book value of the underlying assets if the sum of the
expected future cash flows is less than book value.
INTANGIBLES. The excess of purchase price over the estimated fair value
of net assets of acquired companies is being amortized on a straight-line basis
over periods ranging from 25 to 40 years.
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, 2000, 1999 and 1998 amounted to $23,600,000,
$22,750,000 and $21,120,000, 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, 2000, 1999 and 1998 were 7.18%, 7.23%
and 7.10%, 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.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT DISCLOSURES. In 1999, the Company adopted SFAS No. 131
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. 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 adoption
of Statement No. 131 did not affect the results of operations or financial
position of the Company, but did affect the disclosure of segment information
(see Note 12).
COMPREHENSIVE INCOME. Statement of Financial Accounting Standards (SFAS)
No. 130, REPORTING COMPREHENSIVE INCOME, requires companies to report all
changes in equity during a period, except those resulting from investment by
owners and distribution to owners, in a financial statement for the period in
which they were recognized. The Company has chosen to disclose Comprehensive
Income, which encompasses net income and foreign currency translation
adjustments, in the Consolidated Statement of Shareholders' Equity
RECLASSIFICATION. Certain amounts in fiscal 1999 and 1988 have been
reclassified to conform to the classification in fiscal 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin (SAB), No.
101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company adopted SAB 101
effective February 1, 2000. Such adoption did not have an effect on the revenue
recognition policy of the Company.
Effective May 1, 1999, the Company adopted American Institute of
Certified Public Accountants Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP No. 98-1
requires that entities capitalize certain costs related to internal-use software
once certain criteria have been met. The adoption of this statement did not have
a significant impact on financial results.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS), No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. SFAS No.
133 will be effective for fiscal year ending April 30, 2001. The Company
believes that this statement will not have a significant impact on financial
results.
2. ISSUANCE OF SUBSIDIARY STOCK
As of May 28, 2000 the Company contributed and transferred to its then
wholly-owned subsidiary, Stratos Lightwave, Inc.(Stratos), all of the assets
and liabilities of its optoelectronics and fiber optic divisions and all of
the capital stock and equity interest held by the Company in certain other
subsidiaries that conducted the majority of its optical products business,
pursuant to a master separation agreement. The optical products business
transferred to Stratos represented 95% of the total assets and 85% of sales
for the Optical Subsystems and Components segment at April 30, 2000 and the
year then ended. In June 2000 Stratos issued 10,062,500 shares of common
stock in an initial public offering. After the initial public offering, the
Company owned 84.3% of Stratos' common stock outstanding.
Proceeds from the offering totaled $196,500,000 net of underwriting
discount and will be used by Stratos to pay $2,956,500 of additional purchase
price in connection with the acquisition of Polycore Technologies, Inc. (see
Note 3) and for general corporate purposes. It is the Company's intention to
distribute, at a later date, all of the shares of Stratos common stock it owns
to its stockholders contingent upon receiving a ruling from the Internal Revenue
Service that such a distribution would be tax-free to the Company and its
stockholders.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
2. ISSUANCE OF SUBSIDIARY STOCK (CONTINUED)
For purposes of governing certain of the ongoing relationships between
the Company and Stratos at and after the separation and to provide for an
orderly transition, the Company and Stratos entered into various agreements to
provide services such as centralized advertising, legal, accounting, employee
benefits, real estate, insurance services, information technology services,
treasury and other corporate and infrastructure services. The agreements govern
individual transitional services as requested by Stratos or the Company, of the
other party. Such services are to be provided in accordance with the policies,
procedures and practices in effect before the transfer date. The term of each
agreement shall be one year (provision for extension exists) unless earlier
terminated.
3. ACQUISITIONS AND DIVESTITURES
On December 30, 1999, the Company purchased for approximately $13,000,000
in cash, including costs of acquisition, substantially all the assets of the
Optoelectronics division of Spire Corporation.
On April 15, 1999, the Company purchased substantially all of the
assets of Polycore Technologies, Inc., a developer of highly integrated data
communication modules for Local Area Network equipment. The purchase price,
including direct acquisition costs, for this business referred to as Stratos
Micro Systems, was $795,500 in cash plus additional contingent consideration
that may become due based upon the attainment of certain performance targets.
Effective February 23, 2000, the Company entered into an amendment to the
Asset Purchase Agreement which provides that in the event the Company is part
of an Initial Public Offering of shares to be accomplished not later than
November 15, 2000, the sum of $2,956,500 will become payable to the seller
within 30 days following the Initial Public Offering in full satisfaction of
such additional contingent consideration.
Effective December 1, 1998, the Company purchased for cash, all of the
outstanding shares of Stratos, Ltd. (formerly AB Stratos, Ltd.) of Haverhill,
England. Stratos is a developer and manufacturer of fiber optic connectivity
products for harsh environments.
Effective May 5, 1997, the Company purchased all of the outstanding
shares of Adam Technologies, a designer and marketer of electronic connectors,
for cash including contingent cash consideration provided certain performance
targets were attained for fiscal 1998, 1999 and 2000. Such targets were
substantially met and additional cash payments were made subsequent to each
fiscal year end.
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, if any, over net
assets acquired, based on estimated fair value in these acquisitions 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 1998, sales and
operating results would not be materially different than reported.
In April 1999, the Company made the decision to exit the printed circuit
industry and divest its two board manufacturing facilities In the fourth quarter
of fiscal 1999 the Company recorded a non-recurring charge of $3,100,000 or
$1,860,000 net of tax benefits for the costs associated with the exit of the
business. The charge was comprised of $1,540,000 for the write-down of the plant
and equipment with a carrying value of $4,700,000 to their fair value, $600,000
for additional environmental costs directly associated with the decision to
close the operations, and approximately $960,000 for other exit costs. The
write-down for the plant and equipment reflected impairment in their carrying
value. The fair value of the plant and equipment was based upon the estimated
current value less costs to sell. The Company ceased operating both facilities
as of September 30, 1999 and sold the majority of the assets for cash of
approximately $3,529,000. At April 30, 2000 an accrual for costs relating to
exiting the printed circuit business of $614,000 remained. The Company believes
this accrual is adequate for potential losses on remaining printed circuit
assets and environmental costs directly associated with closing these
operations. Net sales of the Company's printed circuit board businesses were
$4,608,000, $12,755,000 and $14,610,000 for fiscal 2000, 1999 and 1998,
respectively. Net losses of the businesses were $661,000, $1,061,000 and
$119,000 for fiscal 2000, 1999 and 1998, respectively.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
4. 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, 2000.
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, 2000,
3,454,104 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.
Common Stock, par value $.50 per share, authorized, issued and in
treasury, was as follows:
<TABLE>
<CAPTION>
APRIL 30, 2000 APRIL 30, 1999
COMMON STOCK COMMON STOCK
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
CLASS A CLASS B CLASS A CLASS B
-------------- --------- ------------- ---------
Authorized 100,000,000 5,000,000 50,000,000 5,000,000
Issued 34,904,121 1,124,731 34,621,220 1,197,871
In Treasury 419,745 12,200 459,200 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
2,593,861 shares have been awarded through April 30, 2000. 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. There were no incentive
stock awards granted for fiscal year 2000 performance.
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 111,000 shares have been awarded at
April 30, 2000. Shares awarded pursuant to this plan have no vesting
restrictions.
STOCK OPTIONS. In fiscal 1998 the Company adopted the Methode
Electronics, Inc. 1997 Stock Plan ("Plan"). The Plan awards stock options to key
employees. As of April 30, 2000, the maximum number of shares that may be
granted under the Plan is 2,000,000. Stock options granted to date vest over a
period of six to twenty-seven months after the date of the grant and have a term
of ten years.
The following table summarizes the transactions pursuant to the 1997
Stock Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
---------------------------- ----------------------------
WTD. AVG. WTD. AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
April 30, 1997 - - - -
Granted 205,645 $15.53
Cancelled (1,100) 15.53
-------- -------
April 30, 1998 204,545 15.53 - -
Granted 250,866 14.31
Cancelled (26,280) 15.26
-------- ------
April 30, 1999 429,131 14.84 96,305 $15.53
Granted 291,180 27.18
Exercised (85,765) 15.41
Cancelled (23,083) 15.30
-------- ------
April 30, 2000 611,463 14.84 200,131 $15.34
======== ====== ======= ======
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
4. SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
OPTIONS OUTSTANDING AT APRIL 30, 2000 AT APRIL 30, 2000
---------------------------------------------------------------------- ---------------------------
RANGE OF AVG. REMAINING WTD. AVG. WTD. AVG.
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
---------------- ------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$11.38 - 19.06 335,163 8.1 $14.71 200,131 $15.34
$23.28 - 35.97 253,200 9.3 25.44 - -
$48.31 - 51.94 23,100 9.9 49.95 - -
------ -------
611,463 8.7 22.99 200,131 15.34
======= === ====== ======= =====
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123
and has not recorded any compensation expense associated with these stock
options. Consistent with prior years, stock-based compensation continues to be
recorded using the intrinsic value method prescribed in APB No. 25 and related
Interpretations. If the Company had determined compensation cost based on the
fair value at the grant date consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net earnings
As reported $30,887,645 $32,818,906 $35,266,404
Pro forma 29,496,659 31,888,080 35,125,502
Basic earnings per share:
As reported
Pro forma
.87 .93 1.00
.84 .90 1.00
Diluted earnings per share:
As reported .87 .93 1.00
Pro forma .83 .90 1.00
</TABLE>
The weighted average estimated fair value of options granted during
fiscal 2000, 1999 and 1998 was $15.27, $6.27 and $5.37. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.9% 5.4% 5.5%
Expected option life in years 6.0 6.0 6.0
Expected volatility 55.2% 43.8% 37.8%
Dividend yield 0.5% 1.4% 1.3%
</TABLE>
5. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit
of its eligible full-time employees. Eligible employees are generally U.S.
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 2000, 1999 and 1998. The Company is in the process of terminating
the ESOP and replacing this benefit with a Company contribution to the employee
401(k) savings plan equal to 3% of eligible compensation.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
6. 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>
2000 $667,732 $ 78,253 $745,985
1999 667,732 131,120 798,852
1998 667,732 180,570 848,302
</TABLE>
The weighted-average assumed discount rate used to measure the projected
benefit obligation in all years was 6-2/3%.
7. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities at April 30 were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax liabilities-
Accelerated tax Depreciation $5,528,000 $5,528,000
Deferred tax assets:
Deferred compensation and
Stock Awards 3,858,000 3,893,000
Inventory valuation differences 1,401,000 1,515,000
Environmental reserves 805,000 943,000
Bad debt reserves 2,168,000 985,000
Vacation accruals 1,314,000 1,202,000
Printed circuit board closure 246,000 1,000,000
Other accruals 1,353,000 679,000
---------- -----------
Total deferred tax assets 11,145,000 10,217,000
---------- -----------
Net deferred tax assets $5,617,000 $4,689,000
---------- -----------
Net current deferred tax assets $6,300,000 $5,239,000
Net non-current deferred tax
liabilities (683,000) (550,000)
---------- -----------
$5,617,000 $4,689,000
========== ==========
</TABLE>
Income taxes consisted of the following:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current
Federal $13,446,000 $14,545,000 $14,951,000
Foreign 744,000 1,440,000 1,268,000
State 2,680,000 3,095,000 3,096,000
----------- ----------- -----------
16,870,000 19,080,000 19,315,000
Deferred (credit) (770,000) (1,230,000) (1,015,000)
----------- ----------- -----------
$16,100,000 $17,850,000 $18,300,000
=========== =========== ===========
</TABLE>
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:
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
7. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income tax at
statutory rate $16,446,000 $17,734,000 $18,748,000
Effect of:
State income taxes 1,711,000 1,799,000 1,918,000
Foreign operations with
lower statutory rates (2,429,000) (1,843,000) (2,441,000)
Other - net 372,000 160,000 75,000
----------- ----------- -----------
Income tax provision $16,100,000 $17,850,000 $18,300,000
=========== =========== ===========
</TABLE>
The Company paid income taxes of approximately $18,413,000 in 2000,
$17,469,000 in 1999 and $18,415,000 in 1998. No provision has been made for
income taxes of approximately $16,157,000 at April 30, 2000 which would be
payable should undistributed net income of $40,851,000 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.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Numerator - net income $30,887,645 $32,818,906 $35,266,405
Denominator:
Denominator for basic earnings per
share-Weighted-average shares 35,308,000 35,312,000 35,262,000
Dilutive potential common shares-
Employee stock awards 236,000 99,000 101,000
----------- ----------- -----------
Denominator for diluted earnings per
Share-adjusted weighted-average
shares and assumed conversions 35,544,000 35,411,000 35,363,000
=========== =========== ===========
Basic and diluted earnings per share $ .87 $ .93 $ 1.00
=========== =========== ===========
</TABLE>
Options to purchase 23,100 shares of common stock at a weighted average
option price of $49.95 per share were outstanding during 2000 but were not
included in the computation of diluted earnings per share because the options
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
9. 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, 2000 and 1999, the Company had accruals, primarily based
upon independent engineering studies, for environmental matters of approximately
$2,735,000 and $3,075,000, respectively. The Company believes the provisions it
has made for environmental matters are adequate to satisfy its liabilities
relating to such matters.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
9. ENVIRONMENTAL MATTERS (CONTINUED)
In 2000, the Company spent $420,000 on remediation cleanups and related
studies compared with $624,000 in 1999 and $290,000 in 1998. In the fourth
quarter of fiscal 1999, the Company also recorded $600,000 to provide for
additional environmental costs associated with the exit of its printed circuit
businesses, as well as a $1,000,000 provision for general printed circuit
environmental costs not associated with the decision to exit the businesses. In
2000, the costs associated with environmental matters as they relate to
day-to-day activities were not material.
10. 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.
11. MATERIAL CUSTOMERS
Sales to two automotive customers approximated 46%, 41% and 38% of net
sales in the years ended April 30, 2000, 1999 and 1998. At April 30, 2000 and
1999, accounts receivable from customers in the automotive industry were
approximately $37,598,000 and $43,707,000.
Accounts receivable are generally due within 30 to 45 days. Credit losses
relating to all customers consistently have been within management's
expectation.
12. SEGMENT INFORMATION
As described in Note 1, the Company adopted SFAS No. 131 in fiscal
year 1999. The Company has two reportable business segments: Electronic and
Optical Subsystems and Components.
The Company manufactures component devices world-wide for Original
Equipment Manufacturers (OEMs) of information processing and networking
equipment, voice and data communication systems, consumer electronics,
automobiles, aerospace vehicles and industrial equipment. Products employ
electrical, electronic and optical technologies as sensors, interconnections
and controls. The Company is managed on a technology product basis, with
those technology segments being Electronic and Optical Subsystems and
Components.
The business units whose results are identified in the Electronic segment
principally employ electronic processes to control and convey signals. As
described in Note 2, the Company transferred the majority of this business to a
subsidiary that it intends to distribute to its shareholders in a tax-free
distribution in fiscal 2001.
The business units whose results are identified in the Optical
Subsystems and Components segment principally employ light to control and
convey signals.
The Company's businesses which manufacture multi-layer printed circuit
boards and bus systems as well as its independent laboratories which provide
services for qualification testing and certification of electronic and optical
components are included in Other. In April 1999 the Company announced its
decision to exit the manufacture of printed circuitry as described in Note 3.
The accounting policies of the technology segments are the same as those
described in the summary of significant accounting policies. The Company
allocates resources to and evaluates performance of its technology segments
based on operating income. Transfers between technology segments are recorded
using internal transfer prices set by the Company.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
12. SEGMENT INFORMATION (CONTINUED)
The table below presents information about the Company's reportable
segments:
<TABLE>
<CAPTION>
FISCAL YEAR 2000
---------------------------------------------------------------------------
OPTICAL
SUBSYSTEMS
ELECTRONIC AND COMPONENTS OTHER ELIMINATIONS CONSOLIDATED
---------- -------------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $312,327,000 $84,847,000 $24,972,000 $422,146,000
Transfers between technology segments 132,000 2,268,000 996,000 (3,396,000) -
------------ ----------- ----------- ------------ ------------
Total net sales $312,459,000 $87,115,000 $25,968,000 $(3,396,000) $422,146,000
============ =========== =========== ============ ============
Operating income $48,507,000 $12,725,000 $1,112,000 $ 62,344,000
=========== =========== ==========
Corporate expenses (15,356,000)
============
Total operating income $ 46,988,000
------------
Depreciation and amortization $12,963,000 $3,333,000 $1,537,000 $ 17,833,000
=========== ========== ==========
Corporate depreciation and amortization 1,024,000
------------
Total depreciation and amortization $ 18,857,000
============
Identifiable assets $171,807,000 $64,395,000 $14,565,000 $250,767,000
============ =========== ===========
General corporate assets 90,206,000
------------
Total assets $340,973,000
============
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1999
-------------------------------------------------------------------------------
OPTICAL
SUBSYSTEMS
ELECTRONIC AND COMPONENTS OTHER ELIMINATIONS CONSOLIDATED
---------------- -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $314,406,000 $59,248,000 $30,077,000 $403,731,000
Transfers between technology segments - 1,865,000 777,000 (2,642,000) -
------------ ----------- ----------- ----------- ------------
Total net sales $314,406,000 $61,113,000 $30,854,000 $(2,642,000) $403,731,000
============ =========== =========== =========== ============
Operating income (loss) $ 55,979,000 $11,730,000 $(4,829,000) $ 62,880,000
============ =========== ===========
Corporate expenses (12,211,000)
------------
Total operating income $ 50,669,000
============
Depreciation and amortization $ 13,034,000 $ 1,837,000 $ 1,787,000 $ 16,658,000
============ =========== ===========
Corporate depreciation and amortization 1,077,000
------------
Total depreciation and amortization $ 17,735,000
============
Identifiable assets $178,254,000 $33,497,000 $23,075,000 $234,826,000
============ =========== ===========
General corporate assets 81,797,000
------------
Total assets $316,623,000
============
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
12. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR 1998
-------------------------------------------------------------------------
OPTICAL
SUBSYSTEMS
ELECTRONIC AND COMPONENTS OTHER ELIMINATIONS CONSOLIDATED
------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $316,265,000 $33,683,000 $29,352,000 $379,300,000
Transfers between technology segments - 316,000 925,000 (1,241,000) -
------------ ----------- ----------- ----------- ------------
Total net sales $316,265,000 $33,999,000 $30,277,000 $(1,241,000) $379,300,000
============ =========== =========== =========== ============
Operating income $ 61,803,000 $ 2,646,000 $ 689,000 $ 65,138,000
============ =========== ===========
Corporate expenses (11,572,000)
------------
Total operating income $ 53,566,000
============
Depreciation and amortization $ 13,772,000 $ 1,460,000 $ 1,550,000 $ 16,782,000
============ =========== ===========
Corporate depreciation and 845,000
aaaaamortization amortization ------------
amortization amortization
Total depreciation and amortization $ 17,627,000
============
Identifiable assets $167,406,000 $18,856,000 $21,864,000 $208,126,000
============ =========== ===========
General corporate assets 79,404,000
------------
Total assets $287,530,000
============
</TABLE>
Information about the Company's operations in different geographic
regions is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net Sales:
United States $331,056,000 $310,620,000 $294,886,000
Asia Pacific 16,227,000 21,955,000 22,979,000
Europe 74,863,000 71,156,000 61,435,000
------------ ------------ ------------
$422,146,000 $403,731,000 $379,300,000
============ ============ ============
Operating Income (Loss):
United States $ 37,187,000 $ 37,710,000 $ 43,529,000
Asia Pacific (1,016,000) 2,880,000 917,000
Europe 9,434,000 9,278,000 8,091,000
Income & expenses
not allocated to areas 1,383,000 801,000 1,029,000
------------ ------------ ------------
$ 46,988,000 $ 50,669,000 $ 53,566,000
============ ============ ============
Long-Lived Assets: $100,224,000 $ 84,882,000 $ 79,270,000
United States 9,500,000 11,018,000 15,456,000
Asia Pacific 36,281,000 36,368,000 33,333,000
------------ ------------ ------------
Europe $146,005,000 $132,268,000 $128,059,000
============ ============ ============
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
13. 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, 2000.
<TABLE>
<CAPTION>
FISCAL YEAR 2000
QUARTER ENDED
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $98,607,614 $104,359,937 $102,022,877 $117,155,246
Gross profit 24,495,714 24,100,528 23,995,371 27,749,073
Net income 8,453,898 5,403,310 7,352,775 9,677,662
Net income per
Common Share 0.24 0.15 0.21 0.27
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1999
QUARTER ENDED
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $87,961,397 $107,875,915 $ 96,387,118 $111,506,101
Gross profit 22,519,987 27,120,224 23,410,967 27,361,282
Provision for exiting
printed circuit businesses
(see Note 3) - - - 3,100,000
Net income 7,677,390 9,187,753 7,122,426 8,831,337
Net income per
Common Share 0.22 0.26 0.20 0.25
</TABLE>
29
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<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 (2)*
10.4 Methode Electronics, Inc. Employee Stock Ownership Trust -- Amendment No.1 (2)*
10.5 Methode Electronics, Inc. Incentive Stock Award Plan (3)*
10.6 Methode Electronics, Inc. Supplemental Executive Benefit Plan (4)*
10.7 Methode Electronics, Inc. Managerial Bonus and Matching Bonus Plan (also referred
to as the Longevity Contingent Bonus Program) (4)*
10.8 Methode Electronics, Inc. Capital Accumulation Plan (4)*
10.9 Incentive Stock Award Plan for Non-Employee Directors (5)*
10.10 Methode Electronics, Inc. 401(k) Savings Plan (5)*
10.11 Methode Electronics, Inc. 401(k) Saving Trust (5)*
10.12 Methode Electronics, Inc. Electronic Controls Division Cash and Class A Common
Stock Bonus Plan (6)
10.13 Methode Electronics, Inc. 1997 Stock Plan (7)
10.14 Form of Master Separation Agreement between Stratos Lightwave, Inc. and Registrant
10.15 Form of Initial Public Offering and Distribution Agreement between
Stratos Lightwave, Inc. and Registrant
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
(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.
(7) Previously filed with Registrant's Statement No. 333-49671 and incorporated herein
by reference.
*Management contract or compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K.
</TABLE>
30
