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, 1997 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 (I.R.S. 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 15, 1997, based upon the average of the closing bid and asked prices on that date as reported by Nasdaq was $687,898,000. Registrant had 34,272,032 shares of Class A, $.50 par value, and 1,200,854 shares of Class B, $.50 par value, outstanding as of July 15, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual shareholders meeting to be held September 9, 1997, are incorporated by reference into Part III.
PART I ------ Item 1. Business Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966. As used herein, Methode Electronics, Inc. shall be referred to as the "Registrant" or the "Company." The Registrant operates in one industry segment, which consists of the manufacture of electronic components and devices that connect, control and convey electrical energy, pulse and signal, including connectors, automotive components, interconnect devices, printed circuits, and current carrying distribution systems. Components and devices manufactured by the Registrant are used in the production of electronic equipment and other products with applications in the automotive, computer, voice and data communications equipment, industrial, military and aerospace, and consumer electronics industries. The following tabulation reflects the percentages of net sales of the major classes of products of the Registrant for the last three fiscal years. <TABLE> <CAPTION> April 30 1995 1996 1997 ----- ----- ----- <S> <C> <C> <C> Connectors and Controls 86.0% 88.6% 89.9% Printed Circuit Boards and Services 5.5 4.4 5.5 Current Carrying Distribution Systems 8.5 7.0 4.6 </TABLE> The sales activities of the Registrant are directed by sales managers who are supported by engineering personnel who provide technical services. The Registrant's products are sold through its sales staff and through independent manufacturers' representatives with offices throughout the world. Sales are made primarily to original equipment manufacturers and also to independent distributors. Sources and Availability of Raw Materials. Principal raw materials purchased by Registrant include copper-clad laminate, ferrous and copper alloy strips, plastic molding materials, fiber optic cable, etching and plating chemicals, die castings and precious metals. All of these items are available from several suppliers and the Registrant generally relies on more than one for each item. Patents; Licensing Agreements. The Registrant has various patents and licensing agreements, but does not consider its business to be materially dependent upon such patents and licensing agreements. Seasonality. The business of the Registrant is not seasonal. Working Capital Items. The Registrant is required to maintain adequate levels of inventory to meet scheduled delivery requirements of customers. It is not normal for the Registrant to carry significant amounts of finished goods, as the preponderance of orders received are for scheduled future deliveries. Material Customers. During the year ended April 30, 1997, shipments to Chrysler Corporation and Ford Motor Corporation each were 10% or greater of consolidated net sales and, in the aggregate, amounted to approximately 42% 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 $55,200,000 at May 31, 1996, and $62,300,000 at May 31, 1997. It is expected that most of the total backlog at May 31, 1997, will be shipped within the current fiscal year. 2
Contracts Subject to Termination at the Election of the Government. Shipments as a subcontractor for various military programs constitute a significant portion of the Registrant's multilayer printed circuitry output, although not material to the Registrant's business as a whole. Although existing government orders are subject to termination at the election of the Government, the Registrant historically has never experienced a significant termination and has no information to lead it to believe that there is a likelihood of such an event during fiscal year 1998. 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 $14,120,000, $17,425,000 and $18,575,000 for the fiscal years ended April 30, 1995, 1996, and 1997, 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 7 to the consolidated financial statements included in Item 14(a)(1). Employees. At April 30, 1996, and 1997, Registrant had approximately 3,250 and 3,650 employees, respectively. Foreign Sales. Information about the Registrant's operations in different geographic regions is summarized in Note 9 to the consolidated financial statements included in Item 14 (a) (1). Item 2. Properties The Registrant has 21 manufacturing and three service facilities containing approximately 962,000 square feet of space, of which approximately 295,000 square feet are leased. Ten of the facilities are located in Illinois, four in California, one in Connecticut, one in New Jersey, one in Maryland, one in Ireland, two in Malta, two in Singapore and two in the United Kingdom. The acquisition of Merit-Malta Ltd. in fiscal 1997 added approximately 175,000 square feet of manufacturing space. Approximately 38,000 square feet of manufacturing space and a 20,000 square foot Research Center were added in 1996 and approximately 90,000 square feet of space for the manufacture of connectors and controls were added in fiscal 1995. Registrant's manufacturing facilities have been modernized as necessary in the opinion of management to keep pace with developments in the industry. Item 3. Legal Proceedings As of July 15, 1997, the Registrant was not involved in any material litigation or any litigation or material administrative proceedings with governmental authorities pertaining to the discharge of materials into the environment. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to security holders during the fourth quarter of fiscal 1997. 3
Executive Officers of the Registrant <TABLE> <CAPTION> Director Offices and Positions Held and Name Age Since Length of Service as Officer ---- --- -------- ------------------------------ <S> <C> <C> <C> William J. McGinley 74 1946 President since 1997 and Chairman since 1994. Prior thereto, he was President of the Registrant from 1946 to 1994. Mr. William J. McGinley is the father of James W. McGinley. Michael G. Andre 57 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 49 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 56 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. James W. McGinley 42 1993 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. James W. Ashley, Jr. 47 1995 Secretary of the Registrant since 1995. James W. Ashley, Jr., P.C. is a partner of Keck, Mahin & Cate (a law firm retained as counsel to the Registrant). </TABLE> All executive officers serve a term of one year which, for the current year, expires on September 9, 1997, 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 closing sales prices for the periods indicated as reported by Nasdaq. Historical data have been restated for the three for two stock split effective October 31, 1995. <TABLE> <CAPTION> Class A Class B Stock Price Stock Price ------------ ------------ High Low High Low ----- ----- ----- ----- <S> <C> <C> <C> <C> <C> Fiscal Year ended April 30, 1997 First Quarter 18.75 16.50 18.25 16.75 Second Quarter 19.63 16.75 19.25 16.75 Third Quarter 22.38 18.25 22.50 18.25 Fourth Quarter 21.88 13.25 22.00 13.25 Fiscal Year ended April 30, 1996 First Quarter 14.83 11.00 15.00 11.67 Second Quarter 16.17 14.17 16.33 14.33 Third Quarter 16.25 12.63 16.25 13.25 Fourth Quarter 16.75 13.50 16.75 13.75 </TABLE> The Registrant pays dividends quarterly and for fiscal years 1996 and 1997, quarterly dividends were paid at an annual rate of $.16 and $.20, respectively, on both the Class A and Class B Common Stock. On June 27, 1997, the Board declared a dividend of $.05 per Class A share and Class B share, payable on July 31, 1997, to holders of record on July 15, 1997. 4
The Registrant expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial conditions. As of July 15, 1997, the approximate number of record holders of the Company's Class A and Class B Common Stock was 1,320 and 525. <TABLE> <CAPTION> Item 6. Selected Financial Data 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> (In Thousands, Except Per Share Amounts) Income Statement Data: Net sales $343,092 $307,538 $270,748 $213,298 $172,038 Income from continuing operations before income taxes 58,444 50,972 40,846 33,476 22,548 Income taxes 21,225 18,600 14,725 12,500 7,800 Income from continuing operations 37,219 32,373 26,121 20,976 14,748 Discontinued operations - - - - 690 Net income 37,219 32,373 26,121 20,976 15,438 Per Common Share: Income from continuing operations $ 1.06 $ 0.93 $ 0.75 $ 0.61 $ 0.43 Net income 1.06 0.93 0.75 0.61 0.45 Dividends, Class A 0.20 0.16 0.08 0.03 0.03 Dividends, Class B 0.20 0.16 0.07 0.03 0.03 Book value 5.59 4.69 3.87 3.11 2.47 Long-term debt 1,005 - - 107 204 Funded debt to total capital 1:95 1:57 1:28 1:21 1:35 Retained Earnings $161,226 $131,073 $104,323 $ 80,963 $ 61,165 Fixed assets (net) 80,096 66,786 56,167 48,454 44,419 Total assets 253,491 223,279 191,496 160,630 129,029 From continuing operations: Return on equity 21% 22% 22% 22% 19% Pre-tax income as a percentage of 17.0% 16.6% 15.1% 15.7% 13.1% sales Net income as a percentage of sales 10.8% 10.5% 9.6% 9.8% 8.6% </TABLE> Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales increased 12% in fiscal 1997 following increases of 14% and 27% in 1996 and 1995 led by gains in electronic and automotive interconnects of 13% in 1997, 17% in 1996, and 22% in 1995. Sales of electrical, electronic and optical interconnects represented 90% of sales in fiscal 1997, 89% in 1996, and 86% in 1995. About half of consolidated sales were to the automotive industry during the three-year period ended April 30, 1997. Interconnect sales during that time frame benefited from the acquisition of a manufacturer of automotive components and other devices in the fourth quarter of fiscal 1997; the acquisition of a PCMCIA connector and package producer in the second quarter of fiscal 1996; and acquisitions of two molded cable operations in the second quarter of fiscal 1995. Sales of other connectivity devices (chiefly bus devices and printed circuit boards) and services declined 1% and 8% in fiscal 1997 and 1996 versus a gain of 72% in fiscal 1995. This area experienced difficult market conditions due to a decline in sales of mainframe computers (for which Methode supplies power and signal distribution buswork) and reduced defense procurement (for which Methode provides sophisticated multilayer circuit boards). Management has taken action to broaden the markets for these products. 5
Other income consisted primarily of earnings from our automotive joint venture, interest income from short-term investments, and royalties. Cost of goods sold as a percentage of sales for 1997, 1996 and 1995 were 71.8%, 72.1% and 72.8%. Selling and administrative expenses as a percentage of sales were 12.9%, 12.9% and 13.3% in 1997, 1996 and 1995. Effective income tax rates were 36.3%, 36.5% and 36.1% for fiscal 1997, 1996 and 1995. The effective income tax rates exceed the statutory federal rate of 35% due to the effect of state income taxes offset, in part, by lower tax rates on foreign operations. Financial Condition, Liquidity, and Capital Resources Net cash provided by operations was $44,854,000, $43,429,000 and $37,320,000 in 1997, 1996 and 1995. The increase in cash provided by operations was primarily the result of higher net income offset, in part, in 1997 by increased working capital requirements. To accelerate market penetration, extend product lines and stimulate technological development, the Company used $40,818,000 of its available cash in February 1997 to acquire 100% of Merit Elektrik GmbH, a manufacturer of automotive electrical components, and a 75% interest in Magnetoelastic Devices, Inc., a research company focused on solid state magnetic effects. Shortly after fiscal 1997 year-end, using operating cash flows the Company purchased the Common Stock of Adam Technologies, Inc., a designer and marketer of electronic connectors. Depreciation and amortization expense was $14,668,000, $12,117,000 and $10,608,000 in fiscal 1997, 1996 and 1995. Capital expenditures were $20,376,000, $22,124,000 and $17,422,000 in fiscal 1997, 1996 and 1995. Principal capital investments involved completion of a new Automotive Research and Test Center in 1997; expansions at our Automotive Electronic Controls, Optoelectronic Products and Fiber Optic Products facilities in 1996; and a new test lab in 1995. Capital expenditures in 1997, 1996 and 1995 were funded from operating cash flows. It is anticipated that fixed capital acquisitions for 1998 will also be funded from operating cash flows. 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 8, 1997, 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." 6
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 8, 1997, 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 8, 1997, 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 8, 1997, and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) (2) List of Financial Statements and Financial Statement Schedules The response to this portion of Item 14 is included in this report under the caption "List of Financial Statements and Financial Statement Schedules" which is incorporated 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 The Company filed a report on Form 8-K on February 20, 1997, reporting its acquisition of 75% of the Common Stock of Sentorque, Inc. On February 27, 1997, the Company filed a report on Form 8-K reporting its acquisition of 100% of Merit-Elektrik GmbH and Merit-Malta Ltd. (c) Exhibits Required by Item 601 of Regulation S-K See "Exhibit Index" immediately following the financial statement schedules. (d) Financial Statement Schedules The response to this portion of Item 14 is included in this report under the caption "List of Financial Statements and Financial Statement Schedules" which is incorporated herein by reference. Schedules and exhibits other than those listed are omitted for the reasons that they are not required, are not applicable or that equivalent information has been included in the financial statements, and notes thereto, or elsewhere herein. 7
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METHODE ELECTRONICS, INC. (Registrant) By /s/Kevin J. Hayes ----------------- Kevin J. Hayes Executive Vice President, Chief Financial Officer & Director Dated: July 28, 1997 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, President & July 28, 1997 - --------------------------- Director William J. McGinley (Principal Executive Officer) /s/ Michael G Andre Senior Executive Vice President & July 28, 1997 - --------------------------- Director Michael G. Andre /s/ John R. Cannon Senior Executive Vice President & July 28, 1997 - --------------------------- Director John R. Cannon /s/ Kevin J. Hayes Executive Vice President, July 28, 1997 - --------------------------- Chief Financial Officer & Director Kevin J. Hayes /s/ James W. McGinley President, Optical Interconnect July 28, 1997 - --------------------------- Products, & Director James W. McGinley /s/ James W. Ashley, Jr. Secretary & Director July 28, 1997 - --------------------------- James W. Ashley, Jr. /s/ William C. Croft Director July 28, 1997 - --------------------------- William C. Croft /s/ Raymond J. Roberts Director July 28, 1997 - --------------------------- Raymond J. Roberts Director July 28, 1997 - --------------------------- George C. Wright </TABLE> 8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES FORM 10-K Item 14(a)(1) and (2) List of Financial Statements and Financial Statement Schedules The following consolidated financial statements of Methode Electronics, Inc. and subsidiaries are included in Item 8: Consolidated Balance Sheets--April 30, 1997, and 1996 Consolidated Statements of Income--Years Ended April 30, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Equity--Years Ended April 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows--Years Ended April 30, 1997, 1996 and 1995 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. 9
REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Methode Electronics, Inc. We have audited the accompanying consolidated balance sheets of Methode Electronics, Inc. and subsidiaries as of April 30, 1997, and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended April 30, 1997. 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, 1997, and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois June 24, 1997 10
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS METHODE ELECTRONICS, INC. AND SUBSIDIARIES April 30 1997 1996 ---- ---- <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 23,115,320 $ 50,185,934 Accounts receivable, less allowance (1997--$1,250,000; 1996--$1,285,000) 54,054,695 48,326,214 Inventories: Finished products 7,347,088 5,199,125 Work in process 21,323,077 15,330,639 Materials 11,185,199 11,557,591 --------------------------- 39,855,364 32,087,355 Current deferred income taxes 2,831,000 3,029,000 Prepaid expenses 2,944,056 3,382,073 --------------------------- TOTAL CURRENT ASSETS 122,800,435 137,010,576 OTHER ASSETS Goodwill, less accumulated amortization (1997--$544,693; 1996--$190,005) 35,190,298 3,825,687 Intangible benefit plan asset (Note 5) 2,934,061 3,601,793 Cash surrender value of life insurance 6,680,225 5,939,690 Other 5,789,753 6,115,808 --------------------------- 50,594,337 19,482,978 PROPERTY, PLANT AND EQUIPMENT Land 1,700,401 1,684,985 Buildings and building improvements 38,541,323 32,757,588 Machinery and equipment 138,808,669 118,065,196 --------------------------- 179,050,393 152,507,769 Less allowances for depreciation 98,954,082 85,721,950 --------------------------- 80,096,311 66,785,819 --------------------------- $253,491,083 $223,279,373 =========================== </TABLE> 11
<TABLE> <CAPTION> April 30 1997 1996 ---- ---- <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 24,471,106 $ 23,448,875 Salaries, wages and payroll taxes 7,755,491 7,355,329 Other accrued expenses 8,655,617 9,367,295 Income taxes 2,568,477 2,845,202 Notes payable 1,088,133 2,939,380 ----------------------------- TOTAL CURRENT LIABILITIES 44,538,824 45,956,081 ACCUMULATED BENEFIT PLAN OBLIGATION (Note 5) 2,326,248 2,999,422 OTHER LIABILITIES 2,464,519 1,918,391 DEFERRED COMPENSATION 6,964,135 7,301,175 SHAREHOLDERS' EQUITY (Note 3) Common Stock, Class A 17,137,447 17,036,666 Common Stock, Class B 607,225 624,450 Stock Awards (1,032,465) (969,745) Additional paid-in capital 18,040,963 15,249,444 Retained earnings 161,225,847 131,073,343 Foreign currency translation adjustment 1,830,046 2,134,352 ------------------------------ 197,809,063 165,148,510 Less cost of shares in treasury 611,706 44,206 ------------------------------ 197,197,357 165,104,304 ------------------------------ $253,491,083 $223,279,373 ============================== </TABLE> See notes to consolidated financial statements. 12
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME METHODE ELECTRONICS, INC. AND SUBSIDIARIES Year Ended April 30 1997 1996 1995 ---- ---- ---- <S> <C> <C> <C> INCOME Net sales (Note 9) $343,092,265 $307,538,466 $270,747,848 Other 6,164,196 4,945,265 3,732,237 ------------------------------------------------ 349,256,461 312,483,731 274,480,085 Costs and expenses: Cost of products sold 246,323,504 221,605,285 197,215,648 Selling and administrative expenses 44,311,172 39,571,740 36,056,404 Interest expense 177,902 334,092 361,644 ------------------------------------------------ 290,812,578 261,511,117 233,633,696 ------------------------------------------------ INCOME BEFORE INCOME TAXES 58,443,883 50,972,614 40,846,389 Income taxes (Note 6) 21,225,000 18,600,000 14,725,000 ------------------------------------------------ NET INCOME $ 37,218,883 $ 32,372,614 $ 26,121,389 ================================================ Amounts per Common Share (Note 3): Net income $1.06 $0.93 $0.75 Cash dividends: Class A $0.20 $0.16 $0.08 Class B $0.20 $0.16 $0.07 Weighted average number of Common Shares outstanding 35,236,000 34,967,000 34,671,000 </TABLE> See notes to consolidated financial statements. 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY METHODE ELECTRONICS, INC. AND SUBSIDIARIES Years Ended April 30, 1997, 1996, and 1995 <TABLE> <CAPTION> Common Common Additional Currency Stock Stock Stock Paid-in Retained Translation Treasury Class A Class B Awards Capital Earnings Adjustment Stock ------- ------- ------ ------- -------- ---------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at April 30, 1994 $10,967,861 $642,846 $ (720,064) $14,795,130 $ 80,963,058 $1,272,080 $ (44,206) Stock Award grant of 164,348 shares of Common Stock, Class A 54,782 (1,767,035) 1,712,253 Earned portion of Stock Awards 1,499,084 Tax benefit from appreciation of Stock Awards 599,000 Conversion of 4,725 shares of Common Stock, Class B to 4,725 shares of Common Stock, Class A 2,363 (2,363) Foreign currency translation adjustment 1,587,817 Net income for the year 26,121,389 Cash dividends on Common Stock (2,761,738) ----------------------------------------------------------------------------------------------- Balance at April 30, 1995 11,025,006 640,483 (988,015) 17,106,383 104,322,709 2,859,897 (44,206) Stock Award grant of 169,062 shares of Common Stock, Class A 56,354 (1,910,688) 1,854,334 Earned portion of Stock Awards 1,928,958 Tax benefit from appreciation of Stock Awards 68,000 Issuance of 165,708 shares of Common Stock, Class A (Note 2) 55,236 2,104,764 Three-for-two stock split paid in Common Stock, Class A 5,884,037 (5,884,037) Conversion of 32,066 shares of Common Stock, Class B to 32,066 shares of Common Stock, Class A 16,033 (16,033) Foreign currency translation adjustment (725,545) Net income for the year 32,372,614 Cash dividends on Common Stock (5,621,980) ----------------------------------------------------------------------------------------------- Balance at April 30, 1996 17,036,666 624,450 15,249,444 2,134,352 (44,206) (969,745) 131,073,343 Stock Award grant of 119,493 shares of Common Stock, Class A 59,747 (2,050,075) 1,990,328 Earned portion of Stock Awards 1,987,355 Tax benefit from appreciation of Stock Awards 125,000 Issuance of 47,619 shares of Common Stock, Class A (Note 2) 23,809 676,191 Purchase of treasury stock -- 40,000 shares of Common Stock, Class A (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) Net income for the year 37,218,883 Cash dividends on Common Stock (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) ================================================================================================= </TABLE> See notes to consolidated financial statements. 14
CONSOLIDATED STATEMENTS OF CASH FLOWS METHODE ELECTRONICS, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Year Ended April 30 1997 1996 1995 ---- ---- ---- <S> <C> <C> <C> OPERATING ACTIVITIES Net income $ 37,218,883 $ 32,372,614 $ 26,121,389 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 14,668,382 12,117,010 10,608,121 Provision for losses on accounts receivable 11,000 35,000 157,000 Provision for deferred compensation and supplemental executive benefit plan (342,482) 684,120 735,974 Provision for deferred income taxes 541,000 792,000 150,000 Amortization of Stock Awards 1,987,355 1,928,958 1,499,084 Changes in operating assets and liabilities: Accounts receivable (786,579) (8,312,521) (2,640,227) Inventories (3,048,392) 1,061,181 (3,659,668) Current deferred income taxes and prepaid expenses 651,990 (548,935) (355,103) Accounts payable and accrued expenses (6,046,726) 3,299,795 4,703,232 -------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 44,854,431 43,429,222 37,319,802 INVESTING ACTIVITIES Purchases of property, plant and equipment (20,375,599) (22,123,827) (17,421,612) Acquisitions (Note 2) (40,818,330) - (2,593,063) Purchase of treasury stock (567,500) - - Purchases of life insurance policies (740,535) (920,171) (493,631) Other (917,560) (2,692,727) 287,899 -------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (63,419,524) (25,736,725) (20,220,407) FINANCING ACTIVITIES Repayment on lines of credit and long-term borrowings (1,439,142) (2,648,239) (359,963) Dividends (7,066,379) (5,621,980) (2,761,738) -------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (8,505,521) (8,270,219) (3,121,701) -------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27,070,614) 9,422,278 13,977,694 Cash and cash equivalents at beginning of year 50,185,934 40,763,656 26,785,962 -------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,115,320 $ 50,185,934 $ 40,763,656 ============================================ See notes to consolidated financial statements. </TABLE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES April 30, 1997 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. Cash Equivalents: All highly liquid investments with a maturity of three months or less when purchased are carried at their approximate fair value and classified in the balance sheet as cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment: Properties are stated on the basis of cost. The Company amortizes such costs by annual charges to income, computed on the straight-line method for financial reporting purposes and on accelerated methods for income tax purposes. Long-Lived Assets: In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in the first quarter of 1997 and the effect of adoption was not material. Income Taxes: Income taxes are accounted for using the liability method as required by Statement of Financial Accounting Standards 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, 1997, 1996 and 1995 amounted to $18,575,000, $17,425,000 and $14,120,000, respectively. Earnings Per Share: Net income per Common Share is based on the weighted average number of Common Shares outstanding. The dilutive effect on net income per Common Share assuming the vesting of unearned Stock Awards is not significant. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("Statement No. 128"), Earnings per Share, which is required to be adopted in the Company's third quarter of fiscal year 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Statement No. 128 is not expected to have any impact on the Company's computation of earnings per share. 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, 1997, 1996 and 1995 were 6.57%, 5.18% and 5.28%, respectively. 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 1. SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Reclassifications: - ----------------- Certain amounts have been reclassified in the financial statements for fiscal 1996 and 1995 to conform to their presentation in 1997. 2. ACQUISITIONS On February 26, 1997, the Company acquired all of the outstanding shares of German-based Merit-Elektrik GmbH and Malta-based Merit Malta Ltd. (collectively Merit Elektrik). The aggregate purchase price of approximately $30,400,000, including costs of acquisition, was financed with available cash balances. Merit Elektrik is a manufacturer of automotive switches, transmission controls and other devices. The acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to the net assets acquired based upon their estimated fair values. The estimated fair values of tangible assets acquired and liabilities assumed were $17,916,000 and $7,199,000, respectively. This allocation resulted in an excess of purchase price over assets acquired of $19,680,000 which is being amortized on a straight-line basis over 40 years. On February 16, 1997, the Company acquired for cash 75% of the outstanding shares of Sentorque, Inc. located in Florida. Sentorque, Inc. owns a portfolio of intellectual property covering innovative advances in circularly magnetized non-contact torque sensors. On July 31, 1995, the Company issued 165,708 shares of Common Stock, Class A to acquire a San Jose, California manufacturer of sonic welded packages for the personal computer card industry. On June 27, 1996, 47,619 additional shares of Common Stock, Class A, were issued as additional consideration for this acquisition. A final installment of 38,052 shares will be made in the first quarter of fiscal 1998 related to this acquisition. On September 9, 1994, the Company purchased for cash, a molded cable assembly business with operations located in North Haven, Connecticut and Limerick, Ireland. 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 1996, sales and operating results would not be materially different than reported. 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 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, 1997. 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, 1997, 1,982,206 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 Incentive Stock Award Plans. In October, 1995, the Company's Board of Directors declared a three for two stock split, paid on October 31, 1995, whereby one additional share of Class A Common Stock was issued for each two shares of Class A and Class B Common Stock outstanding. All share and per share data have been restated to reflect this stock split. Common Stock, par value $.50 per share, authorized, issued and in treasury, was as follows: <TABLE> <CAPTION> April 30, 1997 April 30, 1996 ----------------------- -------------------------- Common Stock Common Stock Class A Class B Class A Class B ------- ------- ------- ------- <S> <C> <C> <C> <C> Authorized 50,000,000 5,000,000 50,000,000 5,000,000 Issued 34,274,892 1,214,451 34,073,331 1,248,900 In treasury 174,200 12,200 134,200 12,200 </TABLE> Stock Awards: The Company has an Incentive Stock Award Plan (Incentive Plan) that 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 2,331,121 shares have been awarded through April 30, 1997. 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 that permits the issuance of up to 120,000 shares of Common Stock, Class A, to non-employee directors, of which 75,000 shares have been awarded at April 30, 1997. Shares awarded pursuant to this plan have no vesting restrictions. 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 4. EMPLOYEE STOCK OWNERSHIP PLAN The Company has an Employee Stock Ownership Plan for the benefit of full-time employees who have completed one year of service. The purpose of the Plan is to assist employees to accumulate capital ownership in the Company and through that ownership to promote in them a strong interest in the successful operation of the Company. The Company made annual contributions of $1,200,000 to the Plan during fiscal 1997, 1996 and 1995. 5. SUPPLEMENTAL EXECUTIVE BENEFIT PLAN In fiscal 1992, the Company adopted an unfunded defined benefit plan covering certain key executives. Benefits under the plan are in recognition of significant contributions to the success of the Company made by the executives during their many years of service with the Company. Annual payments of $900,000 pursuant to the plan are being made through fiscal year 2001. The net periodic cost recognized as expense for this plan was as follows: <TABLE> <CAPTION> Prior Service Costs Interest Total ------------- -------- ----- <S> <C> <C> <C> 1997 $667,732 $226,826 $894,558 1996 667,732 270,093 937,825 1995 667,732 310,566 978,298 </TABLE> The weighted-average assumed discount rate used to measure the projected benefit obligation in all years was 6-2/3%. 6. INCOME TAXES Significant components of the Company's deferred tax assets and liabilities at April 30 were as follows: <TABLE> <CAPTION> 1997 1996 ---- ---- <S> <C> <C> Deferred tax liabilities: Accelerated tax depreciation $ 4,279,000 $ 4,362,000 Other liabilities 49,000 134,000 ----------- ----------- $ 4,328,000 $ 4,496,000 Deferred tax assets: Deferred compensation and Stock Awards 3,873,000 3,878,000 Inventory valuation differences 978,000 1,012,000 Environmental reserves 690,000 1,020,000 Other accruals 1,616,000 1,596,000 Net operating loss carry forwards 40,000 165,000 ----------- ----------- 7,197,000 7,671,000 Less valuation allowance 40,000 165,000 ----------- ----------- Total deferred tax assets 7,157,000 7,506,000 Net deferred tax assets 2,829,000 3,010,000 =========== =========== Net current deferred tax assets 2,831,000 3,029,000 Net non-current deferred tax liabilities (2,000) (19,000) ----------- ----------- $ 2,829,000 $ 3,010,000 =========== =========== </TABLE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 6. INCOME TAXES (Continued) Federal and state taxes on income consisted of the following: <TABLE> <CAPTION> 1997 1996 1995 ----------- ----------- ----------- <S> <C> <C> <C> Current Federal $16,477,000 $14,115,000 $11,726,000 Foreign 745,000 696,000 324,000 State 3,462,000 2,997,000 2,525,000 ----------- ------------ ---------- 20,684,000 17,808,000 14,575,000 Deferred 541,000 792,000 150,000 ----------- ----------- ----------- $21,225,000 $18,600,000 $14,725,000 =========== =========== =========== </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: <TABLE> <CAPTION> 1997 1996 1995 ------------ ------------ ------------ <S> <C> <C> <C> Income tax at statutory rate $20,455,000 $17,841,000 $14,296,000 Effect of: State income taxes 2,301,000 2,026,000 1,641,000 Foreign operations with lower statutory rates (993,000) (736,000) (865,000) Other-net (538,000) (531,000) (347,000) ----------- ----------- ----------- Income tax provision $21,225,000 $18,600,000 $14,725,000 =========== =========== =========== </TABLE> The Company paid income taxes of approximately $21,035,000 in 1997, $16,840,000 in 1996 and $13,980,000 in 1995. No provision has been made for income taxes of approximately $7,036,000 at April 30, 1997 which would be payable should undistributed net income of $17,612,000 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. 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, 1997 and 1996, the Company had accruals, primarily based upon independent engineering studies, for environmental matters of approximately $1,825,000 and $3,050,000, respectively. The Company believes the provisions it has made for environmental matters are adequate to satisfy its liabilities relating to such matters. 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 7. ENVIRONMENTAL MATTERS (Continued) In 1997, the Company spent $1,350,000 on remediation cleanups and related studies compared with $931,000 in 1996 and $1,615,000 in 1995. In 1997, the costs associated with environmental matters as they relate to day-to-day activities were not material. In fiscal 1997, the Company elected to early adopt Statement of Position 96-1, Environmental Remediation Liabilities, the impact of which was not material to the Company. 8. 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. 9. DESCRIPTION OF BUSINESS The Company operates in one industry segment, which consists of the manufacture of electronic components that connect, convey and control electrical energy, pulse and signal, including connectors, interconnect devices, controls, printed circuits, and current-carrying distribution systems. The Company manufactures products with applications in the automotive, computer, voice and data communications, industrial, military and aerospace, and consumer electronics industries. Sales to two automotive customers approximated 42%, 40%, and 42% of net sales in the years ended April 30, 1997, 1996 and 1995, respectively. At April 30, 1997 and 1996, accounts receivable from customers in the automotive industry were approximately $28,713,000 and $27,831,000, respectively. Receivables are generally due within 30 days. Credit losses relating to all customers consistently have been within management's expectation. 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 9. DESCRIPTION OF BUSINESS (Continued) Information about the Company's operations in different geographic regions is as follows: <TABLE> <CAPTION> 1997 1996 1995 ------------ ------------ ------------ Net Sales: <S> <C> <C> <C> Domestic $279,715,031 $252,624,190 $226,024,411 Far East 25,508,921 24,630,167 18,931,172 Europe 37,868,313 30,284,109 25,792,265 ------------ ------------ ----------- $343,092,265 $307,538,466 $270,747,848 ============ ============ ============ Operating Profit: Domestic $ 51,372,014 $ 45,551,070 $ 37,237,411 Far East 337,265 1,898,117 55,404 Europe 3,925,537 1,504,735 2,421,373 Income & expenses not allocated to areas 2,809,067 2,018,692 1,132,201 ------------ ------------ ------------ $ 58,443,883 $ 50,972,614 $ 40,846,389 ============ ============ ============ Assets: Domestic $189,280,114 $179,178,383 $155,850,737 Far East 29,646,147 29,415,698 23,434,566 Europe 34,564,822 14,685,292 12,210,592 ------------ ------------ ------------ $253,491,083 $223,279,373 $191,495,895 ============ ============ ============ </TABLE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS METHODE ELECTRONICS, INC. AND SUBSIDIARIES 10. 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, 1997. <TABLE> <CAPTION> Fiscal Year 1997 Quarter Ended ------------- July 31 October 31 January 31 April 30 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $78,965,710 $85,188,636 $85,943,283 $92,994,636 Gross profit 21,325,196 23,869,144 23,817,211 27,757,210 Net income 8,009,588 9,099,026 9,134,141 10,976,128 Net income per Common Share 0.23 0.26 0.26 0.31 Fiscal Year 1996 Quarter Ended ---------------- July 31 October 31 January 31 April 30 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $68,215,814 $78,638,261 $75,731,809 $84,952,582 Gross profit 18,625,040 21,352,888 20,687,894 25,267,359 Net income 6,703,446 7,585,187 7,554,626 10,529,355 Net income per Common Share 0.19 0.22 0.22 0.30 </TABLE> 23
INDEX TO EXHIBITS <TABLE> <CAPTION> Sequential Exhibit Page Number Description Number - ------- ----------- ---------- <S> <C> <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) Savings Trust(5)* 10.12 Methode Electronics, Inc. Electronic Controls Division Cash and Class A Common Stock Bonus Plan(6) 11 Computation of Earnings per Common Share 25 21 Subsidiaries of the Registrant 26 23.1 Consent of Ernst & Young LLP 27 27 Financial Data Schedules 28 - ---------- </TABLE> (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 S-8 Registration Statement No. 2- 60613 and incorporated herein by reference. (3) Previously filed with Registrant's Registration Statement No. 2-92902 filed August 23, 1984, and incorporated herein by reference. (4) Previously filed with Registrant's Form 10-Q for three months ended January 31, 1994, and incorporated herein by reference. (5) Previously filed with Registrant's Form 10-K for the year ended April 30, 1994, and incorporated herein by reference. (6) Previously filed with Registrant's S-8 Registration Statement No. 33- 88036 and incorporated herein by reference. *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K. 24