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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, 1999
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.)
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:
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 9 1999, based upon the
average of the closing bid and asked prices on that date as reported by Nasdaq
was $822,813,000.
Registrant had 34,301,934 shares of Class A, $.50 par value, and 1,182,825
shares of Class B, $.50 par value, outstanding as of July 9, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be
held September 14, 1999, are incorporated by reference into Part III.
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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 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 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 April 1999 the Company announced its decision to exit the manufacture of
printed circuitry as described in Note 2 to the consolidated financial
statements.
The following tabulation reflects the percentage of net sales of the product
segments of the Registrant for the last three fiscal years.
April 30,
----------------
1997 1998 1999
---- ---- ----
Electronic.............................................. 81.2% 83.4% 77.9%
Optical................................................. 8.7 8.9 14.7
Other................................................... 10.1 7.7 7.4
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
manufacturers' 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, 1999, shipments to
Daimler Chrysler AG and Ford Motor Corporation each were 10% or greater of
consolidated net sales and, in the aggregate, amounted to approximately 41% of
consolidated net sales. Such shipments included a wide variety of the
Registrant's automotive component products.
2
Backlog. The Registrant's backlog of orders for its continuing operations
was approximately $70,900,000 at May 31, 1998, and $65,235,000 at May 31,
1999. It is expected that most of the total backlog at May 31, 1999, 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 $18,575,000, $21,120,000 and $22,750,000 for the fiscal
years ended April 30, 1997, 1998 and 1999, 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, 1998 and 1999, Registrant had approximately 3,800
employees.
Foreign Sales. Information about the Registrant's operations in different
geographic regions is summarized in Note 11 to the consolidated financial
statements included in Item 14 (a)(1).
Item 2. Properties
The Registrant has 22 manufacturing and five service facilities containing
approximately 1,135,000 square feet of space, of which approximately 322,000
square feet are leased. Eleven of the facilities are located in Illinois, four
in California, two in New Jersey, one in Maryland, one in the Czech Republic,
one in Ireland, two in Malta, one in Singapore and three in the United
Kingdom. The acquisition of Optokon and Stratos, Ltd. added approximately
40,000 square feet of manufacturing space in fiscal 1999. 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.
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 9, 1999, 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
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 1999.
Executive Officers of the Registrant
Director Offices and Positions Held and Length of
Name Age Since Service as Officer
- ---- --- -------- -------------------------------------------
William J. McGinley... 76 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..... 44 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...... 59 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........ 51 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........ 58 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.
All executive officers serve a term of one year which, for the current year,
expires on September 14, 1999, or until their successors are duly elected and
qualified.
4
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.
Class A Class B
Stock Price Stock Price
----------- -----------
High Low High Low
----- ----- ----- -----
Fiscal Year ended April 30, 1998
First Quarter................................... 21.63 14.63 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
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
The Registrant pays dividends quarterly and for fiscal years 1998 and 1999,
quarterly dividends were paid at an annual rate of $.20 on both the Class A
and Class B Common Stock. On June 25, 1999, the Board declared a dividend of
$.05 per Class A share and Class B share, payable on July 30, 1999, to holders
of record on July 15, 1999.
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 9, 1999, the approximate number of record holders of the
Company's Class A and Class B Common Stock was 1,260 and 450.
Item 6. Selected Financial Data
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
Income Statement Data:
Net sales.................. $403,731 $379,300 $343,092 $307,538 $270,748
Provision for exiting
printed circuit business.. 3,100 -- -- -- --
Income before income
taxes..................... 50,669 53,566 58,444 50,973 40,846
Income taxes............... 17,850 18,300 21,225 18,600 14,725
Net income................. 32,819 35,266 37,219 32,373 26,121
Per Common Share:
Net income-Basic........... $ 0.93 $ 1.00 $ 1.06 $ 0.93 $ 0.75
Net income-Diluted......... 0.93 1.00 1.06 0.92 0.75
Dividends, Class A......... 0.20 0.20 0.20 0.16 0.08
Dividends, Class B......... 0.20 0.20 0.20 0.16 0.07
Book value................. 7.03 6.37 5.59 4.69 3.87
Long-term debt............... 269 1,264 1,005 -- --
Funded debt to total
capital..................... 1:51 1:56 1:95 1:57 1:28
Retained Earnings............ $215,117 $189,397 $161,226 $131,073 $104,323
Fixed assets (net)........... 90,899 87,044 80,096 66,786 56,167
Total assets................. 316,623 287,530 253,491 223,279 191,496
Return on equity............. 14% 17% 21% 22% 22%
Pre-tax income as a
percentage of sales ........ 12.6% 14.1% 17.0% 16.6% 15.1%
Net income as a percentage of
sales....................... 8.1% 9.3% 10.8% 10.5% 9.6%
5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results Of Operations. Consolidated net sales increased 6% in fiscal 1999
following an increase of 11% in 1998. Domestic sales increased 5% in 1999 and
6% in 1998 while foreign sales gained 11% in 1999 and 32% in 1998. The foreign
sales gains in 1999 and 1998 were primarily the result of the acquisitions
described below.
Sales of the Electronic segment represented 78% of consolidated sales in
1999, 83% in 1998 and 81% in 1997. Electronic sales were flat in 1999 compared
with 1998 sales. Sales in 1998 were up 14% over 1997 sales. Sales to the
automotive industry which represented 65%, 59% and 63% of Electronic segment
sales in 1999, 1998 and 1997 increased 9% in 1999 and 7% in 1998. Fiscal 1998
Electronic sales benefited from acquisitions made in the fourth quarter of
1997 and the first quarter of fiscal 1998.
Sales of the Optical segment represented 15% of consolidated sales in 1999
and 9% in both 1998 and 1997. Optical sales grew 76% in 1999 and 13% in 1998
led by the explosive growth in sales of the Company's Optoelectronics products
which increased 285% in 1999 and 240% in 1998. Optical sales in 1999 were also
helped by the acquisition of two European based optical connector companies
during the year.
Sales of other products (chiefly current carrying bus devices and printed
circuit boards) increased 2% in 1999 following a decline of 15% in 1998.
Income from the settlement of litigation in fiscal 1999 represented the
settlement of a claim relative to one of the Company's patents.
Other income consisted primarily of earnings from the Company's 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 1999, 1998 and 1997 were
74.5%, 73.9% and 71.8%. The gross margin declines in 1999 and 1998 were
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. Selling and administrative expenses as a percentage of
sales were 13.6%, 13.2% and 12.8%. The increase in 1999 is partly due to an
additional provision for bad debts of $1,000,000.
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 will be
incurred in the first half of fiscal 2000 to wind down these businesses are
not expected to be material and will be recorded as incurred.
Effective income tax rates were 35.2%, 34.2% and 36.3% for fiscal 1999,
1998, and 1997. The effective income tax rates for this three-year period
reflect the effects of lower tax rates from foreign operations offset, in
part, by state income taxes. The balance between these effects was altered by
the acquisition of substantial business operations in lower tax locations in
late 1997. The effective rate for 1998 was lower than 1997 and 1999 due to the
effects of the substantially tax-free gain on the sale of a building.
Financial Condition, Liquidity And Capital Resources. Net cash provided by
operations was $32,317,000, $38,288,000 and $44,854,000 in 1999, 1998 and
1997. The decrease in cash provided from operations in 1999 and 1998 was
primarily the result of lower net income and increased working capital
requirements to support increased sales. The Company used $2,766,000 of cash
in fiscal 1999 to acquire Polycore Technologies, 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 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.
6
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 and based upon
the belief that Methode stock represents an excellent investment for the
Company.
Depreciation and amortization expense was $17,735,000, $17,627,000 and
$14,668,000 in 1999, 1998 and 1997. Capital expenditures were $21,996,000,
$23,211,000 and $20,376,000 in 1999, 1998 and 1997. Principal capital
investments involved the expansion of the automotive manufacturing and test
laboratory facilities and purchases of machinery and equipment to support the
increasing sales volume of optoelectronic devices and products for the
automotive industry in 1999, purchases of new facilities for an independent
test laboratory and our cable assembly operations in 1998 and completion of a
new Research and Test Center in 1997. Capital expenditures in 1999, 1998 and
1997 were funded from operating cash flows. It is anticipated that capital
acquisitions for 2000 will also be funded from operating cash flows.
Year 2000 Conversion. The Year 2000 issue exists because many computer
systems, applications and assets use two-digit date fields to designate a
year. As the century date change occurs, date sensitive systems may recognize
the Year 2000 as 1900, or not at all. This inability to recognize or properly
treat the Year 2000 may cause systems to process financial and operations
information incorrectly.
Status Of Readiness:
The Company's Year 2000 Strategy to make systems "Y2K ready" includes a common
company-wide focus on all internal systems potentially impacted by the Y2K
issue, including Information Technology ("IT") Systems and Non-IT equipment
and systems (Operating Equipment) that contain embedded computer technology.
Each of the foregoing IT and Non-IT programs is being conducted in phases;
described as follows:
Inventory Phase--Identify hardware or software that use or process date
information.
Assessment Phase--Identify Year 2000 Date processing deficiencies and
related implications.
Planning Phase--Determining for each deficiency an appropriate solution and
budget as well as scheduling personnel and other resources.
Implementation Phase--Implement designated solutions and test systems.
The Company is upgrading hardware and software for certain major computer
systems which will concurrently address the Year 2000 issues for those
systems. The Company has fully completed its assessment of all systems that
could be significantly affected by the Year 2000. The completed assessment
indicates that most of the Company's significant information technology
systems could be affected, particularly the general ledger and billing
systems. The assessment also indicates, that in some instances, software and
hardware (embedded chips) used in operating equipment also are at risk.
However, based on a review of its product line, the Company has determined
that the products it has sold and will continue to sell do not require
remediation to be Year 2000 ready.
For IT Systems, the Company is 75% complete on the implementation phase and
expects to complete upgrade and replacement of the remaining systems by
September 1999. For its Non-IT Systems, the Company is in the process of
bringing such systems into Year 2000 readiness. This remediation is 80%
complete. The Company expects to substantially complete this remediation
effort by September 1999.
The Company has worked with third party suppliers to determine the Year 2000
readiness of the Company's systems that interface directly with third parties.
The company completed its remediation efforts on these systems with testing
completed in March 1999.
The Company has queried its significant Non-IT suppliers that do not share
information systems with the Company (external agents). To date, the Company
is not aware of any external agent with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the
7
Company has no means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000 resolution
process in a timely fashion would indirectly impact the Company, and the
impact may be material. The Company also is making inquiries as to the Year
2000 readiness of selected customers and service vendors. The Company will
have a contingency plan in place no later than October 1999 to compensate for
those external agents that fail to complete their Year 2000 Resolution by the
end of 1999.
Costs:
As of April 30, 1999, the Company's total incremental costs (historical plus
estimated future costs) of system upgrades and addressing Year 2000 issues are
estimated to be $2,635,000 of which $1,540,000 has been incurred ($340,000
expensed and $1,200,000 capitalized for new systems and equipment). These
costs are being funded through operating cash flow. Of the total remaining
project costs ($1,095,000), approximately $795,000 is attributable to the
purchase of new software and equipment which will be capitalized. The
remaining $300,000 will be expensed as incurred. The Company estimates that a
substantial portion of these costs are attributable to system upgrades that
would have been incurred regardless of the Year 2000 issue. Implementation of
the Company's Year 2000 Plan is an ongoing process. Consequently, the above-
described estimates of costs and completion dates for the various components
of the plan are subject to change.
Risks:
The Company's Year 2000 readiness program is directed primarily toward
ensuring that the Company will be able to continue to perform five critical
functions: (A) order and receive raw material and supplies, (B) make and sell
its products, (C) invoice customers and collect payments, (D) pay its
employees and suppliers and (E) maintain accurate accounting records. While
the Company currently believes that it will be able to modify or replace its
effected systems in time to minimize any significant detrimental effects on
its operations, failure to do so, or the failure of key third parties to
modify or replace their effected systems, could have materially adverse
impacts on the Company's business operations or financial condition. In
particular, because of the interdependent nature of business systems, the
Company could be materially adversely affected if private businesses,
utilities and governmental entities with which it does business or that
provide essential products or services are not Year 2000 ready. Reasonably
likely consequences of failure by the Company or third parties to resolve the
Year 2000 Problem include, among other things, temporary slowdowns of
manufacturing operations at one or more Company facilities, billing and
collection errors, delays in the distribution of products and delays in the
receipt of supplies.
The Company's expectations about future costs necessary to achieve Year 2000
readiness, the impact on its operations and its ability to bring each of its
systems into Year 2000 readiness are subject to a number of uncertainties that
could cause actual results to differ materially. Such factors include the
following: (i) The Company may not be successful in properly identifying all
systems and programs that contain two-digit year codes; (ii) The nature and
number of systems which require reprogramming, upgrading or replacement may
exceed the Company's expectations in terms of complexity and scope; (iii) The
Company may not be able to complete all remediation and testing necessary in a
timely manner; (iv) The Company's key suppliers and other third parties may
not be able to supply the Company with components or materials which are
necessary to manufacture its products, with sufficient electrical power and
other utilities to sustain its manufacturing process, or with adequate,
reliable means of transporting its products to its customers.
Contingency Plans:
Contingency plans for suppliers and mission critical systems impacted by
Year 2000 Issues are currently under development. It is anticipated that Year
2000 contingency plans will be completed by September 1999. Contingency plans
may include stockpiling raw materials, increasing inventory levels, securing
alternate sources of supply and other appropriate measures. Once developed,
Year 2000 contingency plans and related cost estimates will be continually
refined as additional information becomes available.
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
8
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. Based on the work completed so far, the
Company does not believe the Euro conversion will have a significant impact on
the results of its operations or cash flows.
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, 1999 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 and 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 10, 1999, 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, 1999, 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, 1999, 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, 1999, and is incorporated herein by reference.
9
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.
10
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, 1999
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.
Signature Title Date
/s/ William J. McGinley Chairman of the Board & July 28, 1999
- ----------------------------------- Director (Principal
William J. McGinley Executive Officer)
/s/ James W. McGinley President and Director July 28, 1999
- -----------------------------------
James W. McGinley
/s/ Michael G. Andre Senior Executive Vice July 28, 1999
- ----------------------------------- President & Director
Michael G. Andre
/s/ John R. Cannon Senior Executive Vice July 28, 1999
- ----------------------------------- President & Director
John R. Cannon
/s/ Kevin J. Hayes Executive Vice July 28, 1999
- ----------------------------------- President, Chief
Kevin J. Hayes Financial Officer &
Director
/s/ James W. Ashley, Jr. Secretary & Director July 28, 1999
- -----------------------------------
James W. Ashley, Jr.
/s/ William C. Croft Director July 28, 1999
- -----------------------------------
William C. Croft
/s/ Raymond J. Roberts Director July 28, 1999
- -----------------------------------
Raymond J. Roberts
Director July 28, 1999
- -----------------------------------
George C. Wright
11
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, 1999 and 1998.
Consolidated Statements of Income--Years Ended April 30, 1999, 1998 and
1997.
Consolidated Statements of Shareholders' Equity--Years Ended April 30,
1999, 1998 and 1997
Consolidated Statements of Cash Flows--Years Ended April 30, 1999, 1998 and
1997
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.
12
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, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended April 30, 1999. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 30, 1999, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
June 21, 1999
13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30,
--------------------------
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 22,764,887 $ 24,178,868
Accounts receivable, less allowance (1999--
$2,538,000; 1998--$1,308,000)................... 88,194,471 64,468,407
Inventories:
Finished products.............................. 8,383,897 9,754,109
Work in process................................ 28,871,507 27,669,081
Materials...................................... 11,959,437 11,541,822
------------ ------------
49,214,841 48,965,012
Current deferred income taxes.................... 5,239,000 4,023,000
Prepaid expenses................................. 5,596,373 3,055,417
------------ ------------
TOTAL CURRENT ASSETS......................... 171,009,572 144,690,704
OTHER ASSETS
Goodwill, less accumulated amortization (1999--
$3,147,426; 1998--$1,974,111)................... 39,770,435 38,749,031
Intangible benefit plan asset (Note 5)........... 1,598,597 2,266,329
Cash surrender value of life insurance........... 8,590,892 7,651,851
Other............................................ 4,754,005 7,128,292
------------ ------------
54,713,929 55,795,503
PROPERTY, PLANT AND EQUIPMENT
Land............................................. 2,551,399 1,706,569
Buildings and building improvements.............. 45,559,211 44,639,178
Machinery and equipment.......................... 169,073,082 153,440,780
------------ ------------
217,183,692 199,786,527
Less allowances for depreciation................. 126,284,573 112,742,879
------------ ------------
90,899,119 87,043,648
------------ ------------
$316,622,620 $287,529,855
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................. $ 26,131,146 $ 24,876,865
Salaries, wages and payroll taxes................ 9,396,253 8,831,919
Other accrued expenses........................... 13,539,088 11,618,114
Income taxes..................................... 3,308,824 1,844,232
Notes payable.................................... 4,695,741 2,850,771
------------ ------------
TOTAL CURRENT LIABILITIES.................... 57,071,052 50,021,901
ACCUMULATED BENEFIT PLAN OBLIGATION (Note 5)....... 837,939 1,206,819
OTHER LIABILITIES.................................. 2,368,650 2,585,704
DEFERRED COMPENSATION.............................. 7,320,313 7,259,549
DEFERRED INCOME TAXES.............................. 550,000 416,000
SHAREHOLDERS' EQUITY (Note 3)
Common Stock, Class A............................ 17,310,610 17,234,569
Common Stock, Class B............................ 598,935 601,937
Stock Awards..................................... (1,031,395) (1,066,670)
Additional paid-in capital....................... 23,066,837 21,021,669
Retained earnings................................ 215,116,544 189,397,396
Foreign currency translation adjustment.......... (2,730,157) (376,063)
------------ ------------
252,331,374 226,812,838
Less cost of shares in treasury.................. 3,856,708 772,956
------------ ------------
248,474,666 226,039,882
------------ ------------
$316,622,620 $287,529,855
============ ============
See notes to consolidated financial statements.
14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended April 30
--------------------------------------
1999 1998 1997
------------ ------------ ------------
INCOME
Net sales (Note 10)................... $403,730,531 $379,299,543 $343,092,265
Settlement of litigation.............. 2,647,167
Other................................. 4,752,350 5,806,069 6,164,196
------------ ------------ ------------
411,130,048 385,105,612 349,256,461
Costs and expenses:
Cost of products sold................. 300,749,178 280,181,130 246,323,504
Selling and administrative expenses... 54,775,396 49,900,088 43,947,463
Provision for exiting printed circuit
business (Note 2).................... 3,100,000
Amortization of intangibles........... 1,284,750 1,192,388 363,709
Interest expense...................... 551,818 265,602 177,902
------------ ------------ ------------
360,461,142 331,539,208 290,812,578
------------ ------------ ------------
INCOME BEFORE INCOME TAXES.......... 50,668,906 53,566,404 58,443,883
Income taxes (Note 6)................... 17,850,000 18,300,000 21,225,000
------------ ------------ ------------
NET INCOME........................ $ 32,818,906 $ 35,266,404 $ 37,218,883
============ ============ ============
Amounts per Common Share (Note 7):
Net income:
Basic............................... $0.93 $1.00 $1.06
Diluted............................. $0.93 $1.00 $1.06
Cash dividends:
Class A............................. $0.20 $0.20 $0.20
Class B............................. $0.20 $0.20 $0.20
See notes to consolidated financial statements.
15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended April 30, 1999, 1998, and 1997
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
----------- -------- ----------- ----------- ------------ ----------- ----------- -------------
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
119,423 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 effect 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 effect 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
Stock Award
grant of
146,078 shares
of Common
Stock, Class
A.............. 73,039 (2,181,207) 2,108,168 --
Earned portion
of Stock
Awards......... 2,216,482 2,216,482
Tax effect of
Stock Awards... (63,000) (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........ 3,002 (3,002) --
Foreign currency
translation
adjustment..... (2,354,094) (2,354,094)
Net income for
the year....... 32,818,906 32,818,906
Cash dividends
on Common
Stock.......... (7,099,758) (7,099,758)
----------- -------- ----------- ----------- ------------ ----------- ----------- ------------
Balance at April
30, 1999....... $17,310,610 $598,935 $(1,031,395) $23,066,837 $215,116,544 $(2,730,157) $(3,856,708) $248,474,666
=========== ======== =========== =========== ============ =========== =========== ============
Comprehensive
Income
-------------
Balance at April
30, 1996.......
Stock Award
grant of
119,423 shares
of Common
Stock, Class
A..............
Earned portion
of Stock
Awards.........
Tax effect of
Stock Awards...
Issuance of
47,619 shares
of Common
Stock, Class A
(Note 2).......
Purchase of
treasury stock
40,000 shares
Common Stock,
Class A........
Conversion of
34,449 shares
of Common
Stock, Class B
to 34,449
shares of
Common Stock,
Class A........
Foreign currency
translation
adjustment..... $ (304,306)
Net income for
the year....... 37,218,883
-------------
$36,914,577
=============
Cash dividends
on Common
Stock..........
Balance at April
30, 1997.......
Stock Award
grant of
145,616 shares
of Common
Stock, Class
A..............
Earned portion
of Stock
Awards.........
Tax effect of
Stock Awards...
Issuance of
38,052 shares
of Common
Stock, Class A
(Note 2).......
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
-------------
$33,060,295
=============
Cash dividends
on Common
Stock..........
Balance at April
30, 1998.......
Stock Award
grant of
146,078 shares
of Common
Stock, Class
A..............
Earned portion
of Stock
Awards.........
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........
Foreign currency
translation
adjustment..... $(2,354,094)
Net income for
the year....... 32,818,906
-------------
$30,464,812
=============
Cash dividends
on Common
Stock..........
Balance at April
30, 1999.......
See notes to consolidated financial statements.
16
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended April 30,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
OPERATING ACTIVITIES
Net income.......................... $ 32,818,906 $ 35,266,404 $ 37,218,883
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for depreciation and
amortization...................... 17,734,723 17,627,450 14,668,382
Provision for losses on accounts
receivable........................ 1,272,672 92,000 11,000
Provision for deferred compensation
and supplemental executive benefit
plan.............................. 359,616 (156,283) (342,482)
Provision for deferred income
taxes............................. (1,230,000) (1,015,000) 541,000
Amortization of Stock Awards....... 2,216,482 2,238,323 1,987,355
Changes in operating assets and
liabilities:
Accounts receivable............... (24,020,866) (7,095,259) (786,579)
Inventories....................... 1,602,072 (7,463,783) (3,048,392)
Current deferred income taxes and
prepaid expenses................. (2,583,288) 21,229 651,990
Accounts payable and accrued
expenses......................... 4,146,575 (1,226,684) (6,046,726)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES..................... 32,316,892 38,288,397 44,854,431
INVESTING ACTIVITIES
Purchases of property, plant and
equipment.......................... (21,995,559) (23,211,297) (20,375,599)
Purchases of subsidiaries (Note 2).. (3,983,419) (3,847,501) (40,818,330)
Purchases of life insurance
policies........................... (939,041) (971,626) (740,535)
Other............................... 1,795,922 (3,653,368) (917,560)
------------ ------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES................... (25,122,097) (31,683,792) (62,852,024)
FINANCING ACTIVITIES
Borrowings (repayments) on lines of
credit and long-term borrowings.... 1,574,734 1,715,048 (1,439,142)
Purchases of treasury stock......... (3,083,752) (161,250) (567,500)
Dividends........................... (7,099,758) (7,094,855) (7,066,379)
------------ ------------ ------------
CASH USED IN NET FINANCING
ACTIVITIES................... (8,608,776) (5,541,057) (9,073,021)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. (1,413,981) 1,063,548 (27,070,614)
Cash and cash equivalents at
beginning of year................... 24,178,868 23,115,320 50,185,934
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR........................ $ 22,764,887 $ 24,178,868 $ 23,115,320
============ ============ ============
See notes to consolidated financial statements.
17
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
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 50 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.
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, 1999, 1998 and 1997 amounted to $22,750,000,
$21,120,000 and $18,575,000, 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, 1999, 1998 and 1997 were 7.23%, 7.10% and 6.57%,
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 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 11).
Comprehensive Income: In 1999, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, which
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. Prior years have been restated to conform with the SFAS
No. 130 requirements.
18
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisitions And Divestitures
On April 15, 1999, the Company purchased for cash all of the outstanding
shares of Polycore Technologies, a developer of highly integrated data
communication modules for Local Area Network equipment.
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 for cash all of the outstanding
shares of Adam Technologies, a designer and marketer of electronic connectors.
Additional contingent cash consideration is due if certain performance targets
are attained for fiscal 1999 and 2000. For 1999, the targets were
substantially met and an additional cash payment was made subsequent to year
end.
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 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.
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.
In April 1999, the Company made the decision to exit the printed circuit
industry and is seeking to divest its two board manufacturing facilities. It
is anticipated that the two operations will either be sold or closed during
the second quarter of fiscal 2000. 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 is 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 reflects
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 results of
operations to wind down the businesses will be recorded as they are incurred.
Net sales of the Company's printed circuit board businesses were $12,755,000,
$14,610,000 and $14,120,000 for fiscal 1999, 1998 and 1997, respectively. Net
losses of the businesses were $1,061,000, $119,000 and $225,000 for fiscal
1999, 1998 and 1997, respectively.
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, 1999.
19
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1999, 3,735,878 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:
April 30, 1999 April 30, 1998
Common Stock Common Stock
-------------------- --------------------
Class A Class B Class A Class B
---------- --------- ---------- ---------
Authorized...................... 50,000,000 5,000,000 50,000,000 5,000,000
Issued.......................... 34,621,220 1,197,871 34,469,138 1,203,873
In Treasury..................... 459,200 12,200 184,200 12,200
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 2,511,601
shares have been awarded through April 30, 1999. 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 99,000 shares have been awarded
at April 30, 1999. 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, 1999, 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:
Options Outstanding Exercisable Options
----------------------- ---------------------
Wtd. Avg. Wtd. Avg.
Shares Exercise Price Shares Exercise Price
------- -------------- ------ --------------
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
======= ====== ====== ======
20
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exercisable Options
Options Outstanding at April 30, 1999 at April 30, 1999
- --------------------------------------------------- ---------------------
Range of
Exercise Avg. Remaining Wtd. Avg. Wtd. Avg.
Prices Shares Life (Years) Exercise Price Shares Exercise Price
-------- ------- -------------- -------------- ------ --------------
$11.38 50,000 9.9 $11.38 -- --
$13.97-15.53 379,131 9.0 15.29 96,305 $15.53
------- ------
429,131 9.1 14.84 96,305 15.53
======= === ====== ====== ======
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:
Year Ended April 30
-----------------------------------
1999 1998 1997
----------- ----------- -----------
Net earnings
As reported........................ $32,818,906 $35,266,404 $37,218,883
Pro forma.......................... 31,888,080 35,125,502 37,218,883
Basic and diluted earnings per share
As reported........................ .93 1.00 1.06
Pro forma.......................... .90 1.00 1.06
The weighted average estimated fair value of options granted during fiscal
1999 and 1998 was $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:
1999 1998
---- ----
Risk free interest rate....................................... 5.4% 5.5%
Expected option life in years................................. 6.0 6.0
Expected volatility........................................... 43.8% 37.8%
Dividend yield................................................ 1.4% 1.3%
4. Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan 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 1999, 1998 and 1997.
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.
21
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net periodic cost recognized as expense for this plan was as follows:
Prior
Service Costs Interest Total
------------- -------- --------
1999...................................... $667,732 $131,120 $798,852
1998...................................... 667,732 180,570 848,302
1997...................................... 667,732 226,826 894,558
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:
1999 1998
---------- ----------
Deferred tax liabilities:
Accelerated tax Depreciation.................... $5,528,000 $4,234,000
Other liabilities............................... -- 22,000
---------- ----------
Total deferred tax liabilities................ 5,528,000 4,256,000
Deferred tax assets:
Deferred compensation and Stock Awards.......... 3,893,000 3,759,000
Inventory valuation differences................. 1,515,000 1,320,000
Environmental reserves.......................... 943,000 495,000
Bad debt reserves............................... 985,000 581,000
Vacation accruals............................... 1,202,000 1,192,000
Printed circuit board closure................... 1,000,000 --
Other accruals.................................. 679,000 516,000
---------- ----------
Total deferred tax assets..................... 10,217,000 7,863,000
---------- ----------
Net deferred tax assets......................... $4,689,000 $3,607,000
========== ==========
Net current deferred tax assets................. $5,239,000 $4,023,000
Net non-current deferred tax liabilities........ (550,000) (416,000)
---------- ----------
$4,689,000 $3,607,000
========== ==========
Income taxes consisted of the following:
1999 1998 1997
----------- ----------- -----------
Current
Federal........................... $14,545,000 $14,951,000 $16,477,000
Foreign........................... 1,440,000 1,268,000 745,000
State............................. 3,095,000 3,096,000 3,462,000
----------- ----------- -----------
19,080,000 19,315,000 20,684,000
Deferred (credit)................... (1,230,000) (1,015,000) 541,000
----------- ----------- -----------
$17,850,000 $18,300,000 $21,225,000
=========== =========== ===========
22
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:
1999 1998 1997
----------- ----------- -----------
Income tax at statutory rate............ $17,734,000 $18,748,000 $20,455,000
Effect of:
State income taxes.................... 1,799,000 1,918,000 2,301,000
Foreign operations with lower
statutory rates...................... (1,843,000) (2,441,000) (993,000)
Other--net............................ 160,000 75,000 (538,000)
----------- ----------- -----------
Income tax provision.................... $17,850,000 $18,300,000 $21,225,000
=========== =========== ===========
The Company paid income taxes of approximately $17,469,000 in 1999,
$18,415,000 in 1998 and $21,035,000 in 1997. No provision has been made for
income taxes of approximately $13,031,000 at April 30, 1999 which would be
payable should undistributed net income of $32,947,000 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
The following table sets forth the computation of basic and diluted earnings
per share:
1999 1998 1997
----------- ----------- -----------
Numerator--net income...................... $32,818,906 $35,266,405 $37,218,883
Denominator:
Denominator for basic earnings per
share--
Weighted-average shares................. 35,312,000 35,262,000 35,114,000
Dilutive potential common shares--
Employee stock awards................... 99,000 101,000 107,000
----------- ----------- -----------
Denominator for diluted earnings per
Share--adjusted weighted-average shares
and assumed conversions................... 35,411,000 35,363,000 35,221,000
=========== =========== ===========
Basic and diluted earnings per share ...... $ .93 $ 1.00 $ 1.06
=========== =========== ===========
Options to purchase 378,131 shares of common stock at a weighted average
option price of $15.29 per share were outstanding during 1999 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.
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, 1999 and 1998, the Company had accruals, primarily based upon
independent engineering studies, for environmental matters of approximately
$3,075,000 and $1,785,000, respectively. The Company believes the provisions
it has made for environmental matters are adequate to satisfy its liabilities
relating to such matters.
23
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1999, the Company spent $624,000 on remediation cleanups and related
studies compared with $290,000 in 1998 and $1,350,000 in 1997. The Company
also recorded $600,000 in the fourth quarter of 1999 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 1999, 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. Material Customers
Sales to two automotive customers approximated 41%, 38% and 43% of net sales
in the years ended April 30, 1999, 1998 and 1997. At April 30, 1999 and 1998,
accounts receivable from customers in the automotive industry were
approximately $43,707,000 and $33,683,000.
Accounts receivable are generally due within 30 to 45 days. Credit losses
relating to all customers consistently have been within management's
expectation.
11. 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 Products
and Optical Products.
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.
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 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 2.
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.
24
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below presents information about the Company's reportable segments:
Fiscal Year 1999
----------------------------------------------------------------
Electronic Optical Other Eliminations Consolidated
------------ ----------- ----------- ------------ ------------
Net sales from
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)................. $ 57,047,000 $11,858,000 $(4,829,000) $ 64,076,000
============ =========== ===========
Corporate expenses...... (13,407,000)
------------
Total operating
income............... $ 50,669,000
============
Depreciation and
amortization........... $ 11,966,000 $ 1,709,000 $ 1,787,000 $ 15,462,000
============ =========== ===========
Corporate depreciation
and amortization....... 2,273,000
------------
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
============
Fiscal Year 1998
----------------------------------------------------------------
Electronic Optical Other Eliminations Consolidated
------------ ----------- ----------- ------------ ------------
Net sales from
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........ $ 62,867,000 $ 2,774,000 $ 689,000 $ 66,330,000
============ =========== ===========
Corporate expenses...... (12,764,000)
------------
Total operating
income............... $ 53,566,000
============
Depreciation and
amortization........... $ 12,708,000 $ 1,332,000 $ 1,550,000 $ 15,590,000
============ =========== ===========
Corporate depreciation
and amortization....... 2,037,000
------------
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
============
25
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year 1997
---------------------------------------------------------------
Electronic Optical Other Eliminations Consolidated
------------ ----------- ----------- ------------ ------------
Net sales from
unaffiliated
customers.............. $278,613,000 $29,849,000 $34,630,000 $343,092,000
Transfers between
technology segments.... -- -- 1,219,000 (1,219,000) --
------------ ----------- ----------- ----------- ------------
Total net sales....... $278,613,000 $29,849,000 $35,849,000 ($1,219,000) $343,092,000
============ =========== =========== =========== ============
Operating income........ $ 61,324,000 $ 2,612,000 $ 3,517,000 $ 67,453,000
============ =========== ===========
Corporate expenses...... (9,009,000)
------------
Total operating
income............... $ 58,444,000
============
Depreciation and
amortization........... $ 11,104,000 $ 926,000 $ 1,608,000 $ 13,638,000
============ =========== ===========
Corporate depreciation
and amortization....... 1,030,000
------------
Total depreciation and
amortization......... $ 14,668,000
============
Identifiable assets..... $146,796,000 $14,797,000 $17,951,000 $179,544,000
============ =========== ===========
General corporate
assets................. 73,947,000
------------
Total assets.......... $253,491,000
============
Information about the Company's operations in different geographic regions is
as follows:
1999 1998 1997
------------ ------------ ------------
Net Sales:
United States.................... $310,620,000 $294,885,000 $279,715,000
Asia Pacific..................... 21,955,000 22,979,000 25,509,000
Europe........................... 71,156,000 61,436,000 37,868,000
------------ ------------ ------------
$403,731,000 $379,300,000 $343,092,000
============ ============ ============
Operating Income:
United States.................... $ 37,710,000 $ 43,529,000 $ 51,372,000
Asia Pacific..................... 2,880,000 917,000 337,000
Europe........................... 9,278,000 8,091,000 3,926,000
Income & expenses
not allocated................... 801,000 1,029,000 2,809,000
------------ ------------ ------------
$ 50,669,000 $ 53,566,000 $ 58,444,000
============ ============ ============
Assets:
United States.................... $239,269,000 $221,742,000 $189,280,000
Asia Pacific..................... 23,219,000 23,217,000 29,646,000
Europe........................... 54,135,000 42,571,000 34,565,000
------------ ------------ ------------
$316,623,000 $287,530,000 $253,491,000
============ ============ ============
26
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. 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, 1999.
Fiscal Year 1999
Quarter Ended
-------------------------------------------------
July 31 October 31 January 31 April 30
----------- ------------ ----------- ------------
Net sales................... $87,961,397 $107,875,915 $96,387,118 $111,506,101
Gross profit................ 22,519,987 27,494,049 23,588,596 29,378,721
Provision for exiting
printed circuit businesses
(see Note 2)............... -- -- -- 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
Fiscal Year 1998
Quarter Ended
-------------------------------------------------
July 31 October 31 January 31 April 30
----------- ------------ ----------- ------------
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...................... 0.26 0.27 0.20 0.27
27
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
------- ----------- ----------
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)
21 Subsidiaries of the Registrant 29
23.1 Consent of Ernst & Young LLP 30
27 Financial Data Schedule 31
- -------
(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.
28