UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 28, 2018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
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.) |
8750 West Bryn Mawr Avenue, Suite 1000 | |
Chicago, Illinois | 60631-3518 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number (including area code):
(708) 867-6777Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange | ||
Title of each Class | Trading Symbol(s) | on which registered |
Common Stock, $0.50 Par Value | MEI | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company, or a smaller reporting company.
Large Accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of common stock, $0.50 par value, held by non-affiliates of the Registrant on October 28, 2017,26, 2019, based upon the average of the closing bid and asked pricesprice on that date as reported by the New York Stock Exchange, was $1.5$0.9 billion.
Registrant had 37,005,44937,164,331 shares of common stock, $0.50 par value, outstanding as of June 19, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statementregistrant’s definitive Proxy Statement for the 2020 annual shareholders' meeting to be held on September 13, 201816, 2020 are incorporated by reference into Part III of this Form 10-K.
METHODE ELECTRONICS, INC.
FORM 10-K
TABLE OF CONTENTS
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Item 16. | 40 |
Item 1. Business
Description of Business
Methode Electronics, Inc. was incorporated in 1946 as an Illinois corporation and reincorporated in Delaware in 1966. As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc. and its subsidiaries.
We are a global manufacturerdeveloper of componentcustom engineered and subsystem devicesapplication specific products and solutions with manufacturing,
design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the
Netherlands, Singapore, Switzerland, the United Kingdom and the United States. Our primary manufacturing facilities are
located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; Monterrey and Fresnillo Mexico; and Nelson, British Columbia, Canada.Monterrey, Mexico. We design,
manufacture and market devices employing electrical, radio remote control, electronic, light-emitting diode ("LED") based lighting, wireless and sensing and optical technologies. Our corporate headquarters is located in Chicago, Illinois. Our components are found in the primary end-markets of the aerospace, appliance, automotive, commercial vehicle, construction, consumer and industrial equipment, communications (including information processing and storage, networking equipment and wireless and terrestrial voice/data systems), medical, rail and other transportation industries.
Impact of the COVID-19 Pandemic
The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We began to see the impacts of COVID-19 at the beginning of our fourth quarter of fiscal 2020 at our China manufacturing facilities, which were initially closed for a few weeks after the Chinese New Year. Our manufacturing facilities in China resumed operations later in the fourth quarter of fiscal 2020, but at lower capacity utilization. However, the major impact to our business from the COVID-19 pandemic began in mid-March 2020, as our operations in North America and Europe were adversely impacted by many of our customers suspending their manufacturing operations due to the COVID-19 pandemic. As a result, net sales and production levels at our major North American and European manufacturing facilities were significantly reduced to well below capacity, thus impacting our results of operations during the fourth quarter of fiscal 2020.
In response to the COVID-19 pandemic and business disruption, we implemented certain measures to manage costs, preserve liquidity and enhance employee safety. These measures included the following:
• | Reduction of payroll costs through a combination of temporary salary reductions, four-day work weeks and furloughs; |
• | Elimination of most business travel and restriction of visitors to our facilities; |
• | Enhanced cleaning and disinfection procedures at our facilities, temperature checks for our workers before they enter our manufacturing facilities, promotion of social distancing at our facilities and requirements for employees to work from home where possible; |
• | Reduction of capital expenditures; |
• | Deferral of discretionary spending; and |
• | The draw-down of $100.0 million available under our revolving credit facility in order to increase our cash position and preserve financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic. |
The extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the related impact on our customers, especially in the automotive and commercial vehicle markets. These future developments are outside of our control, are highly uncertain and cannot be predicted. If the impact is prolonged, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity. These and other potential impacts of the COVID-19 pandemic will adversely impact our results for the first quarter of fiscal 2021, as well as the full fiscal year, and that impact could be material.
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Fiscal Year
We maintain our financial records on the basis of a fifty-two52 or fifty-three week53-week fiscal year ending on the Saturday closest to April 30. Fiscal 2018, fiscal 20172020 ended on May 2, 2020 and represented 53 weeks of results. Fiscal 2019 ended on April 27, 2019 and fiscal 2016 all2018 ended on April 28, 2018 and both represented fifty-two52 weeks of results.
Segments
Our business is managed, and our financial results are reported, based on a segment basis, with those segments beingthe following four segments: Automotive, Industrial, Interface Power Products and Other.
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile original equipment manufacturers ("OEMs"), either directly or through their tiered suppliers. Our products include integrated center consoles, hidden switches, ergonomic switches, transmission lead-frames, light-emitting diode ("LED") basedLED-based lighting and sensors, which incorporate magneto-elastic sensing and other technologies that monitor the operation or status of a component or system.
The InterfaceIndustrial segment provides a variety of copper and fiber-optic interface and interfacemanufactures external lighting solutions, for the aerospace, appliance, commercial food service, construction, consumer, material handling, medical, military, mining, point-of-sale and telecommunications markets. Solutions include conductive polymers, industrial safety radio remote controls, optical and copper transceivers and solid-state field-effect consumer touch panels. Services include the design and installation of fiber-optic and copper infrastructure systems and manufacturing active and passive optical components. Through fiscal 2018, the interface segment included our Methode Development Company business, which provided conductive ink products for the automotive market. The business was shuttered at the end of fiscal 2018 due to a management-driven strategic change in direction. Through fiscal 2017, the Interface segment included our Connectivity business, which provided solutions for computer and networking markets, including connectors and custom cable assemblies. This business was shuttered at the end of fiscal 2017 due to market conditions.
The OtherInterface segment provides a variety of copper and fiber-optic interface and interface solutions for the appliance, commercial food service, construction, consumer, material handling, point-of-sale and telecommunications markets. Solutions include copper transceivers and solid-state field-effect consumer touch panels.
The Medical segment is primarily made up of our medical device business, Dabir Surfaces, Inc. (“Dabir Surfaces”), our surface support technology aimed at pressure injury prevention. Methode is developingDabir Surfaces has developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures. Through fiscal 2017, the Other segment included our Active Energy Solutions business, which provided inverters, battery systems
Sales and insulated-gate bipolar transistor solutions. Due to market conditions, this business was shuttered at the end of fiscal 2017.
Year Ended | |||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | |||||||
Automotive | 80.3 | % | 77.5 | % | 76.0 | % | |||
Interface | 12.7 | % | 15.6 | % | 17.4 | % | |||
Power Products | 7.0 | % | 6.9 | % | 6.6 | % | |||
Other | — | % | — | % | — | % |
The majority of our sales activities are directed by sales managers who are supported by field application engineers and other engineeringtechnical personnel who work with customers to design our products into their systems. Our field application engineers also help us identify emerging markets and new products. Our products are primarily sold through our in-house sales staff andstaff. We also utilize independent manufacturers’ representatives with offices throughout the world. Information about our sales and operations in different geographic regions is summarized in Note 1215, "Segment Information and Geographic Area Information," to our consolidated financial statements.statements in this Annual Report. Sales are made primarily to OEMs, either directly or through their tiered suppliers, as well as to selling partners and distributors.
The following table reflects the percentage of net sales by segment for the last three fiscal years.
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
Automotive |
|
| 69.5 | % |
|
| 73.4 | % |
|
| 80.3 | % |
Industrial |
|
| 24.6 | % |
|
| 20.7 | % |
|
| 11.6 | % |
Interface |
|
| 5.7 | % |
|
| 5.8 | % |
|
| 8.1 | % |
Medical |
|
| 0.2 | % |
|
| 0.1 | % |
|
| — | % |
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Sources and Availability of Materials
The principal materials that we purchase include application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, glass, LED displays, plastic molding materials,resins, precious metals, and silicon die castings. All of these items are available from several suppliers and we generally rely on more than one supplier for each item.
Intellectual Property
We normally do not carry inventories of raw materials or finished products in excess of those reasonably required to meet production and shipping schedules. In fiscal 2018, the Company experienced increased costs for copper. We did not experience any significant price increases in fiscal 2017 or fiscal 2016. We experienced some lower costs for certain commodities, primarily the cost of resin-based products, in fiscal 2016.
Seasonality
A significant portion of our business is dependent upon automotive and commercial vehicle industries. Consequently, our Automotive and Industrial segments may experience seasonal fluctuations based on the automotive sales and vehiclethe production schedules of our customers. The automotive market isand commercial vehicle markets are cyclical and dependsdepend on general economic conditions, interest rates, fuel prices and consumer spending patterns.
Major Customers
During the fiscal year ended April 28, 2018,2020, shipments to General Motors Corporation (“GM”) and Ford Motor Company (“Ford”), or their tiered suppliers, represented 43.3%26.8% and 12.3%10.7%, respectively, of consolidated net sales. In general, these sales were for component parts used in particular vehicle models of the OEMs. Typically, our FordGM and GMFord supply arrangements for each component part include a blanket purchase order and production releases. In general, a blanket purchase order is issued for each FordGM or GMFord part as identified by the customer part number. Each such FordGM or GMFord blanket purchase order accounted for less than 10.0% of our fiscal 20182020 consolidated net sales. Each blanket purchase order includes standard terms and conditions, including price. In certain circumstances, we supply FordGM or GMFord the requirements for a particular customer vehicle model for the life of the model, which can vary from three to seven years. Both FordGM and GMFord order parts using production releases approved under the relevant blanket purchase order. The production releases are submitted by the various FordGM or GMFord plants and include information regarding part quantities and delivery specifications.
Backlog
We manufacture products based on a combination of specific order requirements and forecasts of our customers’ demand. For many of our OEM customers, especially in the automotive and commercial vehicle markets, we have long-term supply agreements where there is an expectation that we will supply products in future periods, however these agreements do not necessarily constitute firm orders was approximately $249.2 millionand these OEM customers are not required to purchase any minimum amount of products from us. Firm orders are generally limited to authorized customer purchase orders which are typically based on April 28, 2018,customer release schedules. We fulfill these purchase orders as promptly as possible. The dollar amount of such purchase order releases on hand and $203.2 million on April 29, 2017. We expect that most ofnot processed at any point in time is not believed to be significant based upon the time frame involved. Accordingly, backlog at April 28, 2018 willany given time might not be shipped within fiscal 2019.
Competition
The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments. We compete with a large number of other manufacturers in each of our product areas;areas and many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products.
Research and Development
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We maintain a research and development program involving a number of professional employees who devote a majority of their time to the enhancement of existing products and to the development of new products and processes. Research and development costs primarily relate to product engineering and design and development expenses
Environmental Matters
Compliance with foreign, federal, state and local provisions regulating the discharge of materials into the environment has not materially affected our capital expenditures, earnings or our competitive position. Currently, we do not have any material environmental-related lawsuits or material administrative proceedings pending against us. Further information as to environmental matters affecting us is presented in Note 812, "Commitments and Contingencies," to our consolidated financial statements.
Employees
At April 28, 2018May 2, 2020 and April 29, 2017,27, 2019, we had 5,0566,044 and 4,4646,187 employees, respectively. We also, from time to time, employ part-time employees and hire independent contractors. Our employees from our Malta and Mexico facilities, which account for approximately 60%Approximately 37% of our total number of employees,workforce are represented by collective bargaining agreements. These employees are primarily located at our Malta and Mexico facilities. We have never experienced a work stoppage and we believe that our employee relations are good.
Available Information
Through our internet website at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at (800) SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains periodic reports, proxy and information statements and other information regarding Methode.
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Item 1A. Risk Factors
Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations. Our business is dependent upon two large automotive customers and specific makes and models of automobiles. Our results will be subject to many of the same risks that apply to the automotive, appliance, commercial vehicle, computer and communications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes. Other factors which may result in materially different results for future periods include the following risk factors. Additional risks and uncertainties not presently known or that our management currently believe to be insignificant may also adversely affect our financial condition or results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements. The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws and are made as of the date of this report.
The sales to GM primarily consisted of integrated center consoles for use in trucks and SUV's, and a shift in consumer preference for smaller or more fuel efficient vehicles could adversely affect our operating results. The supply arrangements with these customers generally provide for supplying the customers’ requirements for particular models, rather than for manufacturing a specific quantity of products. Such supply arrangements cover a period from one year to the life of the model, which is generally three to seven years. Therefore, the losseffects of a Fordpandemic or GM supply arrangement for a model or a significant decrease in demand for one or morewidespread outbreak of these modelsan illness, such as the COVID-19 pandemic, has had and could continue to have a material adverse impact on our business, results of operations and financial condition. We also compete
The recent outbreak of COVID-19, which has been declared by the World Health Organization to supply products for successor modelsbe a pandemic, has spread across the globe and are subject tois impacting worldwide economic activity. A pandemic, including COVID-19, or other public widespread outbreak of an illness, poses the risk that Fordwe, our employees, our suppliers, our customers and others may be restricted or GM will not select usprevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be requested or mandated by governmental authorities.
While we have implemented measures to produce products on any such model, which could have a material adversemitigate the impact of the COVID-19 pandemic, we expect our fiscal 2021 results of operations to be adversely affected by the COVID-19 pandemic. The extent of the impact on our business will depend on a number of evolving factors, including the duration and spread of the pandemic, as well as the possibility of the pandemic re-occurring, actions taken by governmental authorities to restrict certain business operations and social activity and impose travel restrictions, the impact of the pandemic on economic activity and whether recessionary conditions will persist, consumer demand, the ability of our supply chain to deliver in a timely and cost-effective manner, the ability of our employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of our customers and suppliers and future access to capital, all of which remain uncertain. As a result, the magnitude and duration of the impact on our business, results of operations and financial condition. The Company, from time to time, provides price concessions in connection with the awarding of new business.
We derive a substantial portion of our revenues from customers in the automotive, commercial vehicle, appliance, computer and communications industries weand are susceptible to trends and factors affecting those industries.
Our components are found in the primary end-markets of the automotive, commercial vehicle, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), aerospace, rail and other transportation industries, appliances, consumer and industrial equipment markets, and medical device markets. Key economic and market conditions which could impact the automotive industry include availability of affordable financing, fuel costs, consumer confidence and unemployment levels. Factors negatively affecting these industries also negatively affect our business, financial condition and operating results.results of operations. Any adverse occurrence, including industry slowdown, recession, rising interest rates, political instability, costly or constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results.
Our abilityAutomotive segment has been adversely impacted by disruptions caused to market ourthe global automotive products is subject to a lengthy sales cycle, which requires significant investment prior to significant sales revenues,industry by the COVID-19 pandemic. Global vehicle production has decreased, and there is no assurance that our products will be implementedsome vehicle manufacturers have completely shut down manufacturing operations in any particular vehicle.
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experienced, and are availablelikely to consumers in that manufacturer’s vehicles.
Our business is dependent on sales to GM and Ford. If we were to lose either of these customers or experienced a significant decline in the volume or price of products purchased by these customers, or if either of the customers declared bankruptcy, our future results could be given thatadversely affected.
During fiscal 2020, sales to GM and Ford, or their tiered suppliers, represented 26.8% and 10.7%, respectively, of our products will be implementedconsolidated net sales. The sales to GM primarily consisted of integrated center consoles for use in anylight trucks and SUV's, and a shift in consumer preference for smaller or more fuel-efficient vehicles could adversely affect our results of operations. The sales to Ford consist of ambient lighting, overhead consoles and other integrated modules, including control panels. The arrangements with these customers generally provide for supplying the customers’ requirements for particular vehicles. During this development process, we derive minimal fundingmodels, rather than for manufacturing a specific quantity of products. Such supply arrangements cover a period from prototype sales butone year to the life of the model, which is generally obtain nothree to seven years. Therefore, the loss of a GM or Ford supply arrangement for a model or a significant revenue until mass production begins, whichdecrease in demand for one or more of these models could
In addition, our sales to GM and Ford, can be impacted by work stoppages, such the United Auto Workers (“UAW”) labor strike at GM in the fall of 2019. This labor strike at GM adversely affected.
International trade disputes could result in tariffs and other protectionist measures that could adversely affect our business.
Tariffs could increase the cost of our products and the components and raw materials that go into making them. These increased costs could adversely impact the gross profit margin that we develop areearn on sales of our products. Tariffs could also likelymake our products more expensive for customers, which could make our products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit our ability to offer our products and services. Political uncertainty surrounding international trade disputes and protectionist measures could also have a lengthynegative effect on consumer confidence and spending, which could adversely affect our business.
Any changes in U.S. trade policy could trigger retaliatory actions by affected countries, resulting in "trade wars."
Any changes in U.S. trade policy could trigger retaliatory actions by affected countries, resulting in "trade wars," which could increase costs for goods imported into the United States. This increase in costs may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or if trading partners limit their trade with the United States. If these consequences are realized, the volume of economic activity in the U.S., including demand for our products, may be materially reduced. Such a reduction may materially and adversely affect our sales cycle. Because such technology is new and evolving, and because customers will likely require that any new product we develop pass certain feasibility and economic viability tests before committing to purchase, it is expected that any new products we develop will take some years before they are sold to customers, if at all.
Our inability, or our customers' inability, to effectively manage the timing, quality and cost of new program launches could adversely affect our financial performance.
In connection with the awarding of new business, we obligate ourselves to deliver new products and services that are subject to our customers' timing, performance and quality demands. Additionally, we must effectively coordinate the activities of numerous suppliers in order for the program launches of certain of our products to be successful. Given the complexity of new program launches, we may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, our sales related to these new programs generally are dependent upon the timing and success of our customers' introduction of new vehicles.products. Our inability, or our customers' inability, to effectively manage the timing, quality and costs of these new program launches could adversely affect our financial condition, operating results of operations and cash flows.
Over the past several years we have experienced, and we expect to continue to experience, pressure to lower our prices. The Company,We, from time to time, providesprovide price concessions in connection with the awarding of new business.
Failure to attract and other currenciesretain qualified personnel could adversely impactaffect our operating results.
Our success, both generally and in U.S. dollars, a significant portion of our salesconnection with mergers and operating costs are realized in other currencies, mainly in Europe and China. Our profitability is affected by movements of the U.S. dollar against other currencies in which we generate revenue and incur expenses, particularly the euro and Chinese yuan. Significant fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effectacquisitions, depends on our profitability and financial condition.
Our Dabir Surfaces medical device products are emerging technologies. Our ability to successfully market and sell these products will depend on acceptance by the medical community.
We continue to develop our Dabir Surfaces medical device products, which are included in several ongoing clinical research and product evaluation studies. We will not be successful in marketing and selling these products to the medical community if we are unable to demonstrate the clinical efficacy, cost effectiveness and distinctive benefits of the products or if our customers prefer competitive products.
A significant fluctuation between the U.S. dollar and other currencies could adversely impact our results of operations and financial condition.
We have currency exposures related to transactions denominated in currencies other than the local currencies of the countries in which we operate. Gains and losses resulting from the remeasurement of assets and liabilities in a currency other than the functional currency of our supply chainforeign subsidiaries are reported in current period income. In the future, unfavorable changes in exchange rate relationships between the functional currencies of our subsidiaries and their non-functional currency denominated assets and liabilities could have an adverse impact on our results of operations and financial condition. While we seek to manage our foreign exchange risk through operational means by matching revenue with same-currency costs, this may not always be effective. We currently do not use third-party derivative financial instruments to mitigate the risk of transactional currency fluctuations. As a result, significant fluctuations in relative currency values, in particular against the value of the U.S. dollar, could have an adverse effect on our business, financial condition and results of operations.
We are also subject to currency translation risk as wellwe are required to translate the financial statements of our foreign subsidiaries to U.S. dollars. We report the effect of translation for our foreign subsidiaries with a functional currency other than the U.S. dollar as require additional resources to restore our supply chain.
A significant portion of our business activities are conducted in foreign countries, exposing us to additional risks that may not exist in the United States.
International operations represent a significant portion of our business. Sales outside the U.S. represent a material amount of our consolidated net sales, and we expect net sales outside the U.S. to continue to represent a significant portion of our consolidated net sales. Outside of the U.S., we operate manufacturing facilities in Belgium, Canada, China, Egypt, Malta, Mexico, the Netherlands and the United Kingdom.
Our international operations subject us to extensive domestic and foreign regulations and expose us to a variety of domestic and foreign political, economic and other risks, including:
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• | changes in international trade and investment policies, including restrictions or taxes on the repatriation of dividends or other funds, new or higher tariffs, duties or customs (for example, on products imported from Mexico or China), new barriers to entry or domestic preference procurement requirements and changes to, or withdrawals from, free trade agreements; |
• | changes in foreign or domestic government leadership; |
• | changes in foreign or domestic laws or regulations impacting our overall business model or restricting our ability to manufacture, purchase or sell our products; |
• | changes in domestic or foreign tax laws; |
• | changes in foreign currency exchange rates and interest rates; |
• | economic downturns in foreign countries or geographic regions where we have significant operations, such as China, Egypt, Malta and Mexico; |
• | significant changes in conditions in the countries in which we operate with the effect of competition from new market entrants; |
• | uncertainty related to the United Kingdom’s withdrawal from the European Union; |
• | impact of compliance with U.S. and other foreign countries’ export controls and economic sanctions; |
• | liabilities resulting from U.S. and foreign laws and regulations, including those related to the Foreign Corrupt Practices Act and certain other anti-corruption laws; |
• | differing labor regulations and union relationships; |
• | logistical and communications challenges; and |
• | differing protections for our intellectual property. |
Any of these factors may impacthave an adverse effect on our gross margins, including the following:
Our business is subject to costs associated with environmental, health and safety regulations.
Our operations are subject to various federal, state, local and foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. We believe that our current and former operations and facilities have been, and are being, operated in compliance, in all material respects, with such laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. The operation of our manufacturing facilities entails risks in these areas, however, and there can be no assurance that we will not incur material costs or liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving environmental, health and safety laws, regulations or other pertinent requirements that may be adopted or imposed in the future by governmental authorities.
Should a catastrophic event or other significant business interruption occur at any of our facilities, we could face significant reconstruction or remediation costs, penalties, third party liability and loss of production capacity, which could adversely affect our business.
Weather conditions, natural disasters or other catastrophic events could cause significant disruptions in operations, including, specifically, disruptions at our manufacturing facilities or those of our major suppliers or customers. In turn, the quality, cost and volumes of the products we produce and sell could be unexpectedly, negatively affected, which willwould impact our salesresults of operations and profitability.
War, terrorism, geopolitical uncertainties, public health issues (such as the COVID-19 pandemic), and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, manufacturing partners and customers. Our business operations could be subject to interruption by power shortages, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond our control. Such events could decrease demand for our products or make it difficult or impossible for us to produce and deliver products to our customers, or to receive components from our suppliers, thereby creating delays and inefficiencies in our supply chain. Should major public health issues, including pandemics, arise, we could be negatively affected by shutdowns, shelter in place orders, more stringent employee travel restrictions, additional limitations in freight services,
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governmental actions limiting the movement of products between regions, and disruptions in the operations of our manufacturing partners and component suppliers. The majority of our research and development activities, our corporate headquarters, information technology systems, and other critical business operations, including certain component suppliers and manufacturing partners, are in locations that could be affected by natural disasters. In the event of a natural disaster, losses could be incurred and significant recovery time could be required to resume operations and our financial condition and operating results could be materially adversely affected. While we may purchase insurance policies to cover the direct economic impact experienced following a natural disaster occurring at one of our own facilities, there can be no assurance that such insurance policies will cover the full extent of our financial loss nor will they cover losses which are not economic in nature such as, for example, our reputation as a reliable supplier.
Impairment charges relating to our goodwill and long-lived assets could adversely affect our financial statements.
A significant portion of our long-term assets consists of goodwill and long-lived assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If such circumstances or conditions exist, further steps are required in order to determine whether the carrying value of each of the individual assets exceeds its fair market value. If our analysis indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying value over its fair value.
In evaluating the potential for impairment of goodwill, we make assumptions regarding future operating performance, business trends, and market and economic conditions. Such analyses further require us to make certain assumptions about sales, operating margins, growth rates, and discount rates. Uncertainties are inherent in evaluating and applying these factors to the assessment of goodwill. We could be required to evaluate the recoverability of goodwill prior to the annual assessment if we experience business disruptions, unexpected significant declines in operating results, a divestiture of a significant component of our business, or declines in market capitalization.
We also continually evaluate whether events or circumstances have occurred that indicate our long-lived assets may be impaired. We use an estimate of the related undiscounted cash flow over the remaining life of the asset in measuring whether the asset is recoverable.
In the event that we determine that our goodwill or long-lived assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our financial condition and results of operations.The impact of the COVID-19 pandemic may adversely impact our future projections, which may increase the requirement to record an impairment.
Our inability to capitalize on prior or future acquisitions or any decision to strategically divest one or more current businesses may adversely affect our business.
We have completed acquisitions and divestitures in the past and we may continue to seek acquisitions to grow our businesses or divest operations to focus on our core businesses. We may fail to derive significant benefits from such transactions. Also, if we fail to achieve sufficient financial performance from an acquisition, certain long-lived assets, such as property, plant and equipment and intangible assets, could become impaired and result in the recognition of an impairment loss.
The success of our acquisitions depends on our ability to:
• | successfully execute the integration or consolidation of the acquired operations into our existing businesses; |
• | develop or modify the financial reporting and information systems of the acquired entity to ensure overall financial integrity and adequacy of internal control procedures; |
• | finance the acquisition; |
• | identify and take advantage of cost reduction opportunities; and |
• | further penetrate new and existing markets with the product capabilities we may acquire. |
12
Integration of acquisitions may take longer than we expect and may never be achieved to the extent originally anticipated. Acquisitions may also increase our debt levels. This could result in lower than expected business growth or higher than anticipated costs. In addition, acquisitions or strategic divestitures may:
• | cause a disruption in our ongoing business; |
• | cause dilution of our common stock; |
• | distract our management; or |
• | unduly burden other resources in our company. |
Our ability to market our automotive and commercial vehicle products is subject to a lengthy sales cycle, which requires significant investment prior to significant sales revenues, and there is no assurance that our products will be implemented in any particular vehicle.
The sales cycles for our automotive and commercial vehicle products are lengthy because the manufacturers must develop high degrees of assurance that the products they buy will meet customer needs, interface as easily as possible with the other parts of a vehicle and with the manufacturer’s production and assembly process, and have minimal warranty, safety and service problems. As a result, from the time that a manufacturer develops a strong interest in our products, it normally will take several years before our products are available to consumers in that manufacturer’s vehicles.
In the automotive components industry, products typically proceed through five stages of research and development. Initial research on the product concept comes first, to assess its technical feasibility and economic costs and benefits. This stage often includes development of an internal prototype for the component supplier’s own evaluation. If the product appears feasible, the component supplier manufactures a functioning prototype to demonstrate and test the product’s features. These prototypes are then marketed and sold to automotive companies for testing and evaluation. If an automobile manufacturer shows interest in the product, it typically works with the component supplier to refine the product, then purchases second and subsequent generation engineering prototypes for further evaluation. Finally, the automobile manufacturer either decides to purchase the component for a production vehicle or terminates the program.
The time required to progress through these five stages to commercialization varies widely. Generally, the more a component must be integrated with other vehicle systems, the longer the process takes. Further, products that are installed by the factory usually require extra time for evaluation because other vehicle systems are affected, and a decision to introduce the product into the vehicle is not easily reversed. Because our automotive products affect other vehicle systems and are a factory-installed item, the process usually takes several years from conception to commercialization.
While we currently have active development programs with various OEMs for a variety of our products, no assurance can be given that our products will be implemented in any particular vehicles. During this development process, we derive minimal funding from prototype sales but generally obtain no significant revenue until mass production begins, which could have a material adverse effect on our liquidity. If our products are not selected after a lengthy development process, our results of operations and financial condition could be adversely affected.
Other automotive and commercial vehicle products that we develop are also likely to have a lengthy sales cycle. Because such technology is new and evolving, and because customers will likely require that any new product we develop pass certain feasibility and economic viability tests before committing to purchase, it is expected that any new products we develop will take some years before they are sold to customers, if at all.
We are dependent on the availability and price of materials.
We require substantial amounts of materials, including application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, glass, LED displays, plastic molding materials, precious metals, and silicon die castings. The availability and prices of materials may be subject to curtailment or change due to, among other things, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and worldwide
13
price levels. Any change in the availability of, or price for, these materials could materially adversely affect our results of operations and financial condition.
Disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.
Our ability, and that of our suppliers, business partners and contract manufacturers, to make, move and sell products is critical to our success. Damage or disruption to our or their manufacturing or distribution capabilities due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, or other reasons, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
Our judgments regarding the accounting for tax positions and the resolution of tax disputes may impact our results of operations and financial condition.
Significant judgment is required to determine our effective tax rate and evaluate our tax positions. We provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and results of operations. Additionally, we are subject to audits in the various taxing jurisdictions in which we conduct business. Based on the status of these audits and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. Any negative or unexpected outcomes of these examinations and audits could have a material adverse impact on our results of operations and financial condition.
Changes in our effective tax rate may adversely impact our results of operations.
A number of factors may increase our effective tax rate, which could reduce our net income, including:
• | the jurisdictions in which profits are determined to be earned and taxed; |
• | changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances; |
• | adjustments to income taxes upon finalization of tax returns; |
• | increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairments of goodwill and long-lived assets; |
• | changes in available tax credits; |
• | changes in tax laws or interpretation, including changes in the U.S. to the taxation of non-U.S. income and expenses; and |
• | changes in U.S. generally accepted accounting principles ("GAAP"). |
We may be unable to keep pace with rapid technological changes, which could adversely affect our business.
The technologies relating to some of our products have undergone, and are continuing to undergo, rapid and significant changes. Specifically, end-markets for electronic components and assemblies are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards. These changes could render our existing products unmarketable before we can recover any or all of our research, development and other expenses. Furthermore, the life cycles of our products vary, may change and are difficult to estimate. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and operating results could be materially adversely affected.
We face certain security threats relating to the confidentiality and integrity of our ITinformation technology (“IT”) systems. Despite implementation of security measures, our IT systems may be vulnerable to damage from computer viruses, cyber attackscyber-attacks and other unauthorized access, and these security breaches could result in a disruption to our operations. A material network breach of our IT systems could involve the theft of our and our customers' intellectual property or trade secrets which may be used by competitors to develop competing products. To the extent that any security breach results in a loss or damage to data, or inappropriate disclosure of confidential or proprietary information, it could cause significant damage to our reputation, affect our customer relations, lead to claims against us, increase our costs to protect against future damage and could result in a material adverse effect on our business and financial position.
Any such disruption or security breach, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the U.S. and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. Federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly changing nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful. While we have secured cyber insurance to potentially cover certain risks associated with cyber incidents, there can be no assurance the insurance will be sufficient to cover any such liability.
The General Data Privacy Regulation (“GDPR”) of the European Union creates a range of compliance obligations applicable to the collection, use, retention, security, processing and transfer of personal data in the European Union. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the U.S., enhances enforcement authority and imposes large penalties for noncompliance.
Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.
Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to a variety of factors, including design or manufacturing errors, component failure or counterfeit parts. Product defects may result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects may result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. We may be required to participate in a recall involving products that are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability, however, we do not have coverage for all costs related to product defects or recalls and the costs of such claims, including costs of defense and settlement, may exceed our available coverage.
Reorganization activities may lead to additional costs and material adverse effects.
In the past, we have taken actions to restructure and optimize our production and manufacturing capabilities and efficiencies through relocations, consolidations, plant closings or asset sales. In the future, we may take additional restructuring actions including the consolidating, closing or selling of additional facilities. These actions could result in impairment charges and various charges for such items as idle capacity, disposition costs and severance costs, in addition to normal or attendant risks and uncertainties. We may be unsuccessful in any of our current or future efforts to restructure or consolidate our
15
business. Plans to minimize or eliminate any loss of revenues during restructuring or consolidation may not be achieved. These activities may have a material adverse effect on our business, financial condition and results of operations.
Our technology-based businessbusinesses and the markets in which we operate are highly competitive. If we are unable to compete effectively, our sales could decline.
The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments. We compete with a large number of other manufacturers in each of our product areas;areas and many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products. Competition may intensify further if more companies enter the markets in which we operate. Our failure to compete effectively could materially adversely affect our business, financial condition and operating results.
If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another person’s intellectual property, our business, financial condition and operating results could be materially adversely affected.
We have numerous United StatesU.S. and foreign patents and license agreements covering certain of our products and manufacturing processes. Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the United StatesU.S. and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued. The loss of certain patents and trade secrets could adversely affect our sales, margins or profitability.
We have and may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringe on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay a penalty for past infringement and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.
We cannot guarantee that the newlyrecently acquired Pacific Insight Electronics Corp. ("Pacific Insight") or Procoplast S.A. ("Procoplast")Grakon businesses will be successful or that we can implement and profit from any new applications of the acquired technology.
We acquired Pacific InsightGrakon Parent, Inc. (“Grakon”) on October 3, 2017 and Procoplast on July 27, 2017.September 12, 2018. As a result, of these acquisitions, we now manufacture LED-based lighting in North America and automotive assemblies on mainland Europe,Asia, which are expected to aid in our expansion in the automotive sector.and commercial vehicle sectors. The markets for the products these companies produce are competitive and rapidly changing. If we do not keep pace with technological innovations in the industry, our products may not be competitive, and our revenue and operating results may suffer. Furthermore, while we intend to expand these businesses by integrating the acquired technologies into additional automotive and other applications, we can make no guarantee that such ventures will be successful or profitable.
Performance-based stock awards under our long-term incentive plan could requirehave required significant adjustments to compensation expense in our condensed consolidated statements of income if management changes its determinations on the probability of meeting certain performance levels.income. Any future performance-based stock awards issued under our long-term incentive plan could require similar adjustments. The adjustments could be material our financial statements.
In general, performance-based stock-based compensation expense under our long-term incentive plans is recognized over the vesting period based on the projected probability of achievement of the threshold, target or maximum performance level. In each period, the stock-based compensation expense may be adjusted, as necessary, in response to changes in
16
our forecast with respect to the financial statements.
We have incurred a significant amount of indebtedness, and our level of indebtedness and restrictions under our indebtedness could beadversely affect our operations and liquidity. The COVID-19 pandemic could also adversely impact our liquidity.
Our primary sources of liquidity are cash generated from operations and availability under our revolving credit facility. Our senior unsecured credit agreement consists of a $200.0 million revolving credit facility and a $250.0 million term loan. On March 23, 2020, we drew down $100.0 million under the revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic. As of May 2, 2020, $339.7 million in principal was outstanding under these financing arrangements and we had $91.4 million of availability remaining under the revolving credit facility. The term loan matures in September 2023 and requires quarterly principal payments of $3.1 million over the five-year term, with the remaining balance due upon maturity. The senior unsecured credit agreement provides for variable rates of interest based on a numberthe type of factors, including an accretive acquisition or a favorable change in expectations regarding Dabir Surfaces’ fiscal 2020 revenuesborrowing and resultant EBITDA.
Further, the use of conflict-free minerals may increase our costs and expenses, and an inability to certify that our products are conflict-free may adversely affect customer relationships.
Our senior unsecured credit agreement imposes various restrictions and covenants regarding the operation of our business, including covenants that require us to obtain the lenders’ consent before we can, among other things and subject to certain exceptions: (i) incur additional indebtedness or additional liens on our property; (ii) consummate certain acquisitions, dispositions, mergers or consolidations; (iii) make any material change in the nature of our business; (iv) enter into certain transactions with our affiliates; or (v) repurchase or redeem any outstanding shares of our common stock or pay cash dividends to our stockholders when a default exists or certain financial covenants are not maintained.
The amount of our outstanding indebtedness could have an adverse effect on our operations and liquidity, including by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due diligence to determine the source of any conflict minerals used in our productsduring adverse economic and to make annual disclosures which began in May 2014. Because our supply chain is broad-based and complex,industry conditions, because we may not be ablehave sufficient cash flows to easily verify the origins for all minerals used inmake our products. In addition, the rules may reduce the number of suppliers who provide components and products containing conflict-free minerals and thus may increase the cost of the components used in manufacturing our products and the costsscheduled debt payments; (ii) causing us to use a larger portion of our productscash flows to us. Any increased costsfund interest and expenses may haveprincipal payments, thereby reducing the availability of cash to fund working capital, product development, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund the activities and expenditures described above and for other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.
The replacement or modification of LIBOR as a material adverse impactreference rate could increase our interest expense in the future.
The London Inter-Bank Offered Rate (“LIBOR”) is expected to be phased out by the end of 2021. LIBOR is currently used as the reference rate on our financial condition and resultssenior unsecured credit agreement, which matures in September 2023. Currently, no replacement rate has been identified. The transition from LIBOR could result in higher interest expense than has historically been recognized.
17
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Our corporate headquarters is located in Chicago, Illinois. As of May 2, 2020, we leased or owned 42 operating facilities. We operate the following manufacturing and other facilities, all of which we believe to beour space is in good condition and adequate to meet our current and reasonably anticipated needs:
Location | Segment(s) | Use | Owned/ Leased | Approximate Square Footage | ||||||
Lontzen, Belgium | Automotive | Manufacturing and Warehousing | Owned | 153,000 | ||||||
Dongguan, China | Automotive and Industrial | Manufacturing | Leased | 197,000 | ||||||
Shanghai, China | Automotive and Industrial | Manufacturing | Leased | 194,333 | ||||||
Cairo, Egypt | Automotive and Industrial | Manufacturing | Leased | 176,780 | ||||||
Mriehel, Malta | Automotive and Industrial | Manufacturing | Leased | 299,290 | ||||||
Fresnillo, Mexico | Automotive | Manufacturing | Leased | 86,150 | ||||||
Monterrey, Mexico | Automotive, Industrial and Interface | Manufacturing | Leased | 291,974 | ||||||
Santa Catarina Nuevo Léon, Mexico | Automotive | Manufacturing | Leased | 128,038 | ||||||
McAllen, Texas | Automotive and Interface | Warehousing | Leased | 93,647 | ||||||
Rolling Meadows, Illinois | Industrial | Manufacturing | Owned | 89,000 | ||||||
Seattle, Washington | Automotive and Industrial | Warehousing | Leased | |||||||
61,767 | ||||||||||
Item 3. Legal Proceedings
From time to time, we were nothave and may become involved in various litigation matters, including administrative proceedings, regulatory proceedings, environmental matters, and commercial disputes. The impact and outcome of litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that could harm our business. We are not currently aware of any material legal proceedings or any administrativeclaims to which we are a party or judicial proceedings with governmental authorities pertaining to which our property is subject that we believe will have, individually or in the dischargeaggregate, a material adverse effect on our business, financial condition or results of materials into the environment.
Item 4. Mine Safety Disclosures
Not Applicable
Supplementary Item: Information about our Executive Officers of the Registrant
Name | Age | |||||
Offices and Positions Held and Length of Service as Officer | ||||||
Donald W. Duda | 64 | Chief Executive Officer since 2004 and President and Director since 2001. | ||||
Ronald L.G. Tsoumas | 59 | Chief Financial Officer of the Company since 2018; prior thereto, served as Controller | ||||
Andrea J. Barry | 57 | Chief Human Resources Officer of the Company since 2017; prior thereto, served as CHRO for Wirtz Beverage Group from 2013 to 2016. | ||||
Michael S. Brotherton | 43 | President, Grakon from 2018 to June 2020; prior thereto, served as Vice President and General Manager, North American Automotive, from 2010 to 2018. On June 11, 2020, Mr. Brotherton ceased to be employed by the Company. | ||||
Timothy R. Glandon | 56 | Vice President since 2006; General Manager, North American Automotive, from 2006 to 2015. | ||||
Joseph E. Khoury | 56 | Chief Operating Officer of the Company since 2018; prior thereto, served as Senior Vice President since | ||||
Anil V. Shetty | 54 | President, Dabir Surfaces since 2018; prior thereto, Vice President and General Manager, |
18
All executive officers are elected by the Board of Directors and serve a term of one year or until their successors are duly elected and qualified.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the New York Stock Exchange. The following is a tabulationExchange under the symbol "MEI." As of high and low sales prices for the periods presented andJune 16, 2020, we had 382 holders of record of our common stock.
Dividends
While we currently expect that quarterly cash dividends declared per share.
High | Low | Dividends Declared Per Share | ||||||||||
Fiscal Year Ended April 28, 2018 | ||||||||||||
First Quarter | $ | 44.95 | $ | 36.05 | $ | 0.09 | ||||||
Second Quarter | 46.75 | 36.75 | 0.09 | |||||||||
Third Quarter | 48.44 | 39.00 | 0.11 | |||||||||
Fourth Quarter | 42.10 | 36.95 | 0.11 | |||||||||
Fiscal Year Ended April 29, 2017 | ||||||||||||
First Quarter | $ | 35.91 | $ | 27.13 | $ | 0.09 | ||||||
Second Quarter | 37.11 | 29.85 | 0.09 | |||||||||
Third Quarter | 44.05 | 30.25 | 0.09 | |||||||||
Fourth Quarter | 46.40 | 40.75 | 0.09 |
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12, “Security Ownership of common stock, payableCertain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report for certain information relating to our equity compensation plans.
Stock Performance
The following graph shows the cumulative total stockholder return on July 27, 2018, to holders of record on July 13, 2018. As of June 19, 2018, the number of record holders of our common stock over the period spanning May 2, 2015 to May 2, 2020, as compared with that of the NYSE Composite Index (“NYSE Index”) and a selected peer group of comparable, publicly traded companies that we have selected for purposes of this comparison. We have assumed that dividends have been reinvested and that $100 was 411.invested on May 2, 2015. The stock price performance included in this graph is historical and not necessarily indicative of future stock price performance.
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| May 2, |
| April 30, |
| April 29, |
| April 28, |
| April 27, |
| May 2, |
| ||||||
Company/Index | 2015 |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
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Methode Electronics, Inc. | $ | 100.00 |
| $ | 69.07 |
| $ | 104.48 |
| $ | 96.03 |
| $ | 70.48 |
| $ | 69.54 |
|
NYSE Index |
| 100.00 |
|
| 98.56 |
|
| 113.24 |
|
| 126.27 |
|
| 137.77 |
|
| 122.55 |
|
Peer Group * |
| 100.00 |
|
| 87.54 |
|
| 124.92 |
|
| 125.00 |
|
| 137.09 |
|
| 108.06 |
|
* The peer group consists of Belden Inc., CTS Corporation, Dorman Products, Inc., Franklin Electric Company, Inc., Gentherm Incorporated, Benchmark Electronics, Kemet Corporation, LCI Industries, Littelfuse, Inc., MTS Systems Corporation, OSI Systems, Inc., Rogers Corporation, Standard Motor Products, Inc., Stoneridge, Inc. and TTM Technologies, Inc.
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Item 6. Selected Financial Data
The following selected financial data were derived from our audited consolidated financial statements and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and related notes included elsewhere in this report. The Consolidated Statements of Income data forAnnual Report. Fiscal 2020 represented 53 weeks, while fiscal 2019, fiscal 2018, fiscal 2017 and fiscal 2016 and the Consolidated Balance Sheets datarepresented 52 weeks.
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| Fiscal Year Ended |
| |||||||||||||||||
(In Millions, Except Per Share Amounts) |
| May 2, 2020 (1) |
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| April 27, 2019 (2) |
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| April 28, 2018 (3) |
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| April 29, 2017 (4) |
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| April 30, 2016 (5) |
| |||||
Statement of Income Data: |
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Net Sales |
| $ | 1,023.9 |
|
| $ | 1,000.3 |
|
| $ | 908.3 |
|
| $ | 816.5 |
|
| $ | 809.1 |
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Income before Income Taxes |
|
| 148.7 |
|
|
| 103.6 |
|
|
| 123.8 |
|
|
| 115.9 |
|
|
| 110.9 |
|
Income Tax Expense |
|
| 25.3 |
|
|
| 12.0 |
|
|
| 66.6 |
|
|
| 23.0 |
|
|
| 26.3 |
|
Net Income |
|
| 123.4 |
|
|
| 91.6 |
|
|
| 57.2 |
|
|
| 92.9 |
|
|
| 84.6 |
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Per Common Share Data: |
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Basic Net Income |
|
| 3.28 |
|
|
| 2.45 |
|
|
| 1.54 |
|
|
| 2.49 |
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|
| 2.21 |
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Diluted Net Income |
|
| 3.26 |
|
|
| 2.43 |
|
|
| 1.52 |
|
|
| 2.48 |
|
|
| 2.20 |
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Dividends |
|
| 0.44 |
|
|
| 0.44 |
|
|
| 0.40 |
|
|
| 0.36 |
|
|
| 0.36 |
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Book Value |
|
| 20.84 |
|
|
| 18.43 |
|
|
| 16.82 |
|
|
| 14.53 |
|
|
| 12.61 |
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Balance Sheet Data: |
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Cash and Cash Equivalents |
|
| 217.3 |
|
|
| 83.2 |
|
|
| 246.1 |
|
|
| 294.0 |
|
|
| 227.8 |
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Total Assets |
|
| 1,370.6 |
|
|
| 1,231.7 |
|
|
| 915.9 |
|
|
| 704.0 |
|
|
| 655.9 |
|
Total Debt |
|
| 352.1 |
|
|
| 292.6 |
|
|
| 57.8 |
|
|
| 27.0 |
|
|
| 57.0 |
|
Total Equity |
|
| 783.4 |
|
|
| 689.7 |
|
|
| 630.0 |
|
|
| 541.1 |
|
|
| 470.1 |
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Cash Flow Data: |
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Cash Provided by Operating Activities |
|
| 140.6 |
|
|
| 102.0 |
|
|
| 117.8 |
|
|
| 145.2 |
|
|
| 110.7 |
|
Cash Used in Investing Activities |
|
| (44.5 | ) |
|
| (470.8 | ) |
|
| (179.0 | ) |
|
| (21.7 | ) |
|
| (21.6 | ) |
Cash Provided by (Used in) Financing Activities |
|
| 41.7 |
|
|
| 217.4 |
|
|
| (12.7 | ) |
|
| (47.0 | ) |
|
| (28.7 | ) |
(1) | Fiscal 2020 includes $5.4 million of pre-tax legal expense relating to the Hetronic litigation. Fiscal 2020 also includes income of $9.9 million for an international government grant for maintaining certain employment levels during the period and a $5.2 million stock-based compensation expense reversal related to RSA compensation expense. |
(2) | Fiscal 2019 includes $3.5 million of pre-tax legal expense relating to the Hetronic litigation. During fiscal 2019, we engaged in initiatives to reduce overall costs and improve operational profitability, which increased costs during the period by $6.9 million. Fiscal 2019 also includes pre-tax acquisition expenses of $15.4 million related to the acquisition of Grakon, income of $5.8 million for an international government grant for maintaining certain employment levels during the period and $7.4 million of stock-based compensation expense related to the re-estimation of RSA compensation expense based upon target levels of performance. |
(3) | Fiscal 2018 includes $8.1 million of pre-tax legal expense relating to the Hetronic litigation. Fiscal 2018 also includes pre-tax acquisition expenses of $6.8 million related to the acquisitions of Procoplast and Pacific Insight, income of $7.3 million for an international government grant for maintaining certain employment levels during the period and a $6.0 million stock-based compensation benefit related to the re-estimation of RSA compensation expense based upon threshold levels of performance. The results for fiscal 2018 also includes a provisional estimated tax charge of $53.7 million as a result of U.S. Tax Reform and a tax benefit of $9.8 million for foreign investment tax credits. |
(4) | Fiscal 2017 includes $11.0 million of pre-tax legal expense relating to the Hetronic litigation. Fiscal 2017 also includes pre-tax exit costs for two reporting units of $2.3 million, pre-tax acquisition expenses of $1.5 million, primarily related to a potential acquisition we elected not to undertake, and income of $4.5 million for an international government grant for maintaining certain employment levels during the period. The results for fiscal 2017 include a tax benefit of $4.0 million for foreign investment tax credits, partially offset by a tax expense of $1.7 million on a dividend between foreign entities. |
(5) | Fiscal 2016 includes $9.9 million of pre-tax legal expense relating to the Hetronic litigation. |
22
Fiscal Year Ended | ||||||||||||||||||||
(In Millions, Except Percentages and Per Share Amounts) | April 28, 2018 (1) | April 29, 2017 (2) | April 30, 2016 (3) | May 2, 2015 (4) | May 3, 2014 (53 weeks) (5) | |||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net Sales | $ | 908.3 | $ | 816.5 | $ | 809.1 | $ | 881.1 | $ | 772.8 | ||||||||||
Income before Income Taxes | 123.8 | 115.9 | 110.9 | 120.8 | 75.9 | |||||||||||||||
Income Tax Expense (Benefit) | 66.6 | 23.0 | 26.3 | 19.8 | (20.3 | ) | ||||||||||||||
Net Income | 57.2 | 92.9 | 84.6 | 101.1 | 96.1 | |||||||||||||||
Per Common Share: | ||||||||||||||||||||
Basic Net Income | 1.54 | 2.49 | 2.21 | 2.61 | 2.53 | |||||||||||||||
Diluted Net Income | 1.52 | 2.48 | 2.20 | 2.58 | 2.51 | |||||||||||||||
Dividends | 0.40 | 0.36 | 0.36 | 0.36 | 0.30 | |||||||||||||||
Book Value | 16.82 | 14.53 | 12.61 | 11.82 | 10.21 | |||||||||||||||
Long-term Debt | 53.4 | 27.0 | 57.0 | 5.0 | 48.0 | |||||||||||||||
Retained Earnings | 472.0 | 427.0 | 358.6 | 356.5 | 269.2 | |||||||||||||||
Fixed Assets, Net | 162.2 | 90.6 | 93.0 | 93.3 | 101.2 | |||||||||||||||
Total Assets | 915.9 | 704.0 | 655.9 | 604.1 | 575.5 | |||||||||||||||
Return on Average Equity | 9.8 | % | 18.6 | % | 18.2 | % | 23.5 | % | 28.2 | % | ||||||||||
Pre-tax Income as a Percentage of Sales | 13.6 | % | 14.2 | % | 13.7 | % | 13.7 | % | 9.8 | % | ||||||||||
Net Income as a Percentage of Sales | 6.3 | % | 11.4 | % | 10.5 | % | 11.5 | % | 12.4 | % |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. You should read the following discussion and analysis in conjunction with Item 6, “Selected Financial Data” and our consolidated financial statements and related notes included in this Annual Report. This discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements because of a variety of factors, including those set forth under Item 1A. “Risk Factors” of this Annual Report. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations.
Overview
We are a global manufacturerdeveloper of componentcustom engineered and subsystem devicesapplication specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. Our primary manufacturing facilities are located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; Monterrey and Fresnillo Mexico; and Nelson, British Columbia, Canada.Monterrey, Mexico. We design, manufacture and market devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing and optical technologies.
Our business is managed, and our financial results are reported, based on a segment basis, with those segments beingthe following four segments: Automotive, Industrial, Interface Power Products and Other.Medical. For more information regarding the business and products of these segments, see “Item 1. Business.”
Our components are found in the primary end-markets of the aerospace, appliance, automotive, commercial vehicle, construction, consumer and industrial equipment, communications (including information processing and storage, networking equipment and wireless and terrestrial voice/data systems), medical, rail and other transportation industries.
Impact of COVID-19
The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We began to see the impacts of COVID-19 at the beginning of our fourth quarter of fiscal 2020 at our China manufacturing facilities, which were initially closed for a few weeks after the Chinese New Year. Our manufacturing facilities in China resumed operations later in the fourth quarter of fiscal 2020, but at lower capacity utilization. However, the major impact to our business from the COVID-19 pandemic began in mid-March 2020, as our operations in North America and Europe were adversely impacted by many of our customers suspending their manufacturing operations due to the COVID-19 pandemic. As a result, net sales and production levels at our major North American and European manufacturing facilities were significantly reduced to well below capacity, thus impacting our results of operations during the fourth quarter of fiscal 2020.
In response to the COVID-19 pandemic and business disruption, we implemented certain measures to manage costs, preserve liquidity and enhance employee safety. These measures included the following:
• | Reduction of payroll costs through a combination of temporary salary reductions, four-day work weeks and furloughs; |
• | Elimination of most business travel and restriction of visitors to our facilities; |
• | Enhanced cleaning and disinfection procedures at our facilities, temperature checks for our workers before they enter our manufacturing facilities, promotion of social distancing at our facilities and requirements for employees to work from home where possible; |
• | Reduction of capital expenditures; |
• | Deferral of discretionary spending; and |
• | The draw-down of $100.0 million available under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic. |
23
The extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the related impact on our customers, especially in the automotive and commercial vehicle markets. These future developments are outside of our control, are highly uncertain and cannot be predicted. If the impact is prolonged, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity. These and other potential impacts of the COVID-19 pandemic will adversely impact our results for the first quarter of fiscal 2021, as well as the full fiscal year, and that impact could be material.
Grakon Transaction
On July 27, 2017,September 12, 2018, we acquired 100% of the stock of ProcoplastGrakon for $22.2$422.1 million in cash, net of cash acquired. The business, located near the Belgian-German border,headquartered in Seattle, Washington, is an independenta manufacturer of automotive assemblies. The accountscustom designed exterior lighting solutions and transactionshighly styled engineered components, with locations in Canada, China, the Netherlands and the United Kingdom. Grakon’s manufacturing capabilities and products help diversify our product offerings and expand the Industrial segment, which is a key component of Procoplastour strategic direction. Grakon’s results have been included in the Automotive segment in the consolidated financial statements from the effective date of the acquisition.
Results of Operations
We maintain our financial records on the basis of a 52- or 53-week fiscal year ending on the Saturday closest to April 30. For morefiscal 2020, our accounting period included 53 weeks and ended on May 2, 2020. For fiscal 2019 and fiscal 2018, our accounting period included 52 weeks and ended on April 27, 2019 and April 28, 2018, respectively. The following discussions of comparative results among periods should be reviewed in this context.
A detailed comparison of our results of operations between fiscal 2019 and fiscal 2018 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2019 Annual Report on Form 10-K filed with the SEC on June 20, 2019.
24
Results of Operations for the Fiscal Year Ended May 2, 2020 compared to the Fiscal Year Ended April 27, 2019.
Consolidated Results
Below is a table summarizing results for the fiscal years ended:
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| Net Change |
|
| Net Change |
| ||||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net Sales |
| $ | 1,023.9 |
|
| $ | 1,000.3 |
|
| $ | 23.6 |
|
|
| 2.4 | % |
Cost of Products Sold |
|
| 741.0 |
|
|
| 734.5 |
|
|
| 6.5 |
|
|
| 0.9 | % |
Gross Profit |
|
| 282.9 |
|
|
| 265.8 |
|
|
| 17.1 |
|
|
| 6.4 | % |
Selling and Administrative Expenses |
|
| 116.8 |
|
|
| 142.9 |
|
|
| (26.1 | ) |
|
| (18.3 | )% |
Amortization of Intangibles |
|
| 19.0 |
|
|
| 16.1 |
|
|
| 2.9 |
|
|
| 18.0 | % |
Interest Expense, Net |
|
| 10.1 |
|
|
| 8.3 |
|
|
| 1.8 |
|
|
| 21.7 | % |
Other Income, Net |
|
| (11.7 | ) |
|
| (5.1 | ) |
|
| (6.6 | ) |
|
| 129.4 | % |
Income Tax Expense |
|
| 25.3 |
|
|
| 12.0 |
|
|
| 13.3 |
|
|
| 110.8 | % |
Net Income |
| $ | 123.4 |
|
| $ | 91.6 |
|
| $ | 31.8 |
|
|
| 34.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 2, 2020 |
|
| April 27, 2019 |
|
|
|
|
|
|
|
|
| ||
Percent of sales: |
| (53 Weeks) |
|
| (52 Weeks) |
|
|
|
|
|
|
|
|
| ||
Net Sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
Cost of Products Sold |
|
| 72.4 | % |
|
| 73.4 | % |
|
|
|
|
|
|
|
|
Gross Profit |
|
| 27.6 | % |
|
| 26.6 | % |
|
|
|
|
|
|
|
|
Selling and Administrative Expenses |
|
| 11.4 | % |
|
| 14.3 | % |
|
|
|
|
|
|
|
|
Amortization of Intangibles |
|
| 1.9 | % |
|
| 1.6 | % |
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
| 1.0 | % |
|
| 0.8 | % |
|
|
|
|
|
|
|
|
Other Income, Net |
|
| (1.1 | )% |
|
| (0.5 | )% |
|
|
|
|
|
|
|
|
Income Tax Expense |
|
| 2.5 | % |
|
| 1.2 | % |
|
|
|
|
|
|
|
|
Net Income |
|
| 12.1 | % |
|
| 9.2 | % |
|
|
|
|
|
|
|
|
Net Sales. Consolidated net sales increased by $23.6 million, or 2.4%, to $1,023.9 million in fiscal 2020, compared to $1,000.3 million in fiscal 2019. The acquisition of Grakon increased net sales by $76.2 million, while the impact of foreign currency translation decreased net sales by $13.9 million. The weaker euro and Chinese renminbi impacted foreign currency translation. Excluding the acquisition of Grakon and foreign currency translation, net sales decreased by $38.7 million, primarily due to the adverse impacts from the UAW labor strike at GM and the negative impact of the COVID-19 pandemic on net sales during our fourth fiscal quarter.
Cost of Products Sold. Consolidated cost of products sold increased by $6.5 million, or 0.9%, to $741.0 million (72.4% of sales) in fiscal 2020, compared to $734.5 million (73.4% of sales) in fiscal 2019. The acquisition of Grakon increased cost of products sold by $46.4 million, while the impact of foreign currency translation decreased cost of products sold by $8.7 million. Excluding the acquisition of Grakon and foreign currency translation, cost of products sold decreased by $31.2 million, primarily due to lower sales volumes. Consolidated cost of products sold in fiscal 2019 included $5.6 million of purchase accounting adjustments related to Grakon inventory and $2.8 million of costs related to initiatives to reduce overall costs and improve operational profitability.
25
Gross Profit. Gross profit increased by $17.1 million, or 6.4%, to $282.9 million (27.6% of sales) in fiscal 2020, compared to $265.8 million (26.6% of sales) in fiscal 2019. The acquisition of Grakon increased gross profit by $29.8 million, while the impact of foreign currency translation decreased gross profit by $5.2 million. Excluding the acquisition of Grakon and foreign currency translation, gross profit decreased by $7.5 million, primarily due to lower sales in the Automotive segment as a result of the UAW labor strike at GM and lower sales of radio remote control products in the Industrial segment, partially offset by the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. Gross profit was also negatively impacted in our fourth fiscal quarter by the negative impact of the COVID-19 pandemic on net sales.
Selling and Administrative Expenses. Selling and administrative expenses decreased by $26.1 million, or 18.3%, to $116.8 million (11.4% of sales) in fiscal 2020, compared to $142.9 million (14.3% of sales) in fiscal 2019. The impact of foreign currency translation decreased selling and administrative expenses by $1.3 million, which was partially offset by the acquisition of Grakon which increased selling and administrative expenses by $1.1 million. Excluding foreign currency translation and the acquisition of Grakon, selling and administrative expenses decreased by $25.9 million. The decrease was primarily due to lower stock-based compensation expense, professional fees and salaries. Stock-based compensation expense decreased by $13.7 million, as fiscal 2020 included a $5.2 million reversal of stock-based compensation expense related to prior years, while fiscal 2019 included a $7.4 million accrual adjustment expense related to prior years. For further information, regardingsee Note 13, "Shareholders Equity,” to the acquisitionsconsolidated financial statements included in this Annual Report. Professional fees were higher in fiscal 2019 primarily due to transaction costs associated with the acquisition of ProcoplastGrakon. Salaries were lower in fiscal 2020 due to lower incentive compensation expense and Pacific Insight, see “Note 2. Acquisitions.”
Amortization of Intangibles. Amortization of intangibles increased by $2.9 million, or 18.0%, to $19.0 million in fiscal 2020, compared to $16.1 million in fiscal 2019. The increase was due to amortization expense related to the BoardGrakon acquisition, partially offset by lower amortization expense in the Interface segment.
Interest Expense, Net. Interest expense, net was $10.1 million in fiscal 2020, compared to $8.3 million in fiscal 2019. The increase was due to higher average borrowings in fiscal 2020 compared to fiscal 2019, partially offset by lower average interest rates.
Other Income, Net. Other income, net increased by $6.6 million to $11.7 million in fiscal 2020, compared to $5.1 million in fiscal 2019. The increase was primarily due to higher income from international government grants of Directors authorized the repurchase of up$11.6 million in fiscal 2020 compared to $100$5.8 million in fiscal 2019. Approximately $1.7 million of the Company's outstanding common stock through September 1, 2017.international government grants relates to assistance provided with respect to the COVID-19 pandemic. The Company purchased no outstanding common stockremaining $9.9 million of international government grants in fiscal 2020 relate to maintaining certain employment levels. In fiscal 2020, we sold assets related to a previously closed business and recognized a gain on sale of $0.5 million. In addition, net foreign exchange losses were $3.1 million in fiscal 2020, compared to $1.4 million in fiscal 2019.
Income Tax Expense. Income tax expense increased by $13.3 million, or 110.8%, to $25.3 million in fiscal 2020, compared to $12.0 million in fiscal 2019. Our effective tax rate increased to 17.0% in fiscal 2020, compared to 11.6% in fiscal 2019. The increase was primarily related to the higher pre-tax income from the Grakon acquisition in fiscal 2020 and an increase in tax reserves. The effective tax rate in fiscal 2019 was lower primarily due to a tax benefit related to the finalization of the transition tax from U.S. Tax Reform and investment tax credits generated from a non-U.S. location.
Net Income. Net income increased by $31.8 million, or 34.7%, to $123.4 million in fiscal 2020, compared to $91.6 million in fiscal 2019. Net income increased as a result of the reasons described above.
26
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the fiscal years ended:
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| Net Change |
|
| Net Change |
| ||||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net Sales |
| $ | 712.1 |
|
| $ | 734.7 |
|
| $ | (22.6 | ) |
|
| (3.1 | )% |
Gross Profit |
| $ | 178.2 |
|
| $ | 188.3 |
|
| $ | (10.1 | ) |
|
| (5.4 | )% |
Income from Operations |
| $ | 124.4 |
|
| $ | 126.3 |
|
| $ | (1.9 | ) |
|
| (1.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 2, 2020 |
|
| April 27, 2019 |
|
|
|
|
|
|
|
|
| ||
Percent of sales: |
| (53 Weeks) |
|
| (52 Weeks) |
|
|
|
|
|
|
|
|
| ||
Net Sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
Gross Profit |
|
| 25.0 | % |
|
| 25.6 | % |
|
|
|
|
|
|
|
|
Income from Operations |
|
| 17.5 | % |
|
| 17.2 | % |
|
|
|
|
|
|
|
|
Net Sales. Automotive segment net sales decreased by $22.6 million, or 3.1%, to $712.1 million in fiscal 2020, from $734.7 million in fiscal 2019. Net sales were negatively impacted in our fourth fiscal quarter as a result of the COVID-19 pandemic. Net sales decreased in North America by $25.2 million, or 5.5%, to $435.6 million in fiscal 2020, compared to $460.8 million in fiscal 2019. The decrease was primarily due to the adverse impact from the COVID-19 pandemic and the adverse impact from the UAW labor strike at GM, partially offset by higher sales from the Grakon acquisition. Net sales in Europe increased by $6.4 million, or 3.3%, to $202.1 million in fiscal 2020, compared to $195.7 million in fiscal 2019. The weaker euro decreased net sales in Europe by $7.6 million. Excluding the impact of foreign currency translation, net sales in Europe increased by $14.0 million primarily due to higher sales volumes of sensor and switch products, partially offset by the adverse impact of the COVID-19 pandemic. Net sales in Asia decreased by $3.8 million, or 4.9%, to $74.4 million in fiscal 2020, compared to $78.2 million in fiscal 2019. The weaker Chinese renminbi decreased net sales in Asia by $2.6 million. Excluding foreign currency translation, net sales in Asia decreased by $1.2 million, primarily due to lower sales of our sensor and transmission lead-frame assembly products and the adverse impact of the COVID-19 pandemic, partially offset by the launch of touchscreen product sales to an Asian automobile OEM.
Gross Profit. Automotive segment gross profit decreased by $10.1 million, or 5.4%, to $178.2 million in fiscal 2020, compared to $188.3 million in fiscal 2019. Gross profit margin decreased slightly to 25.0% in fiscal 2020, from 25.6% in fiscal 2019. The decrease in gross profit margin was primarily due to the adverse impact from the UAW labor strike at GM, the impact of the COVID-19 pandemic in our fourth fiscal quarter and product mix. Gross profit was also negatively impacted by $3.8 million from the weaker euro and Chinese renminbi. This was partially offset by higher gross profit from the Grakon acquisition and the benefits realized from initiatives taken in fiscal 2019 to reduce overall costs and improve operational profitability. In fiscal 2019, we incurred $2.7 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $0.6 million of expenses incurred in fiscal 2020.
27
Income from Operations. Automotive segment income from operations decreased by $1.9 million, or 1.5%, to $124.4 million in fiscal 2020, compared to $126.3 million in fiscal 2019. The decrease was primarily due to lower gross profit, partially offset by lower selling and administrative costs and the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019.
Industrial Segment Results
Below is a table summarizing results for the fiscal years ended:
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| Net Change |
|
| Net Change |
| ||||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net Sales |
| $ | 251.4 |
|
| $ | 206.8 |
|
| $ | 44.6 |
|
|
| 21.6 | % |
Gross Profit |
| $ | 95.0 |
|
| $ | 68.6 |
|
| $ | 26.4 |
|
|
| 38.5 | % |
Income from Operations |
| $ | 59.4 |
|
| $ | 37.4 |
|
| $ | 22.0 |
|
|
| 58.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 2, 2020 |
|
| April 27, 2019 |
|
|
|
|
|
|
|
|
| ||
Percent of sales: |
| (53 Weeks) |
|
| (52 Weeks) |
|
|
|
|
|
|
|
|
| ||
Net Sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
Gross Profit |
|
| 37.8 | % |
|
| 33.2 | % |
|
|
|
|
|
|
|
|
Income from Operations |
|
| 23.6 | % |
|
| 18.1 | % |
|
|
|
|
|
|
|
|
Net Sales. Industrial segment net sales increased by $44.6 million, or 21.6%, to $251.4 million in fiscal 2020, compared to $206.8 million in fiscal 2019. The acquisition of Grakon increased net sales by $44.3 million, while the impact of foreign currency translation decreased net sales by $3.7 million. Excluding the acquisition of Grakon and foreign currency translation, net sales increased by $4.0 million despite the adverse impact from the COVID-19 pandemic in our fourth fiscal quarter. The increase was primarily due to higher sales volumes of busbar products, partially offset by lower sales volumes of radio remote control products.
Gross Profit. Industrial segment gross profit increased by $26.4 million, or 38.5%, to $95.0 million in fiscal 2020, compared to $68.6 million in fiscal 2019. Gross profit margin increased to 37.8% in fiscal 2020, from 33.2% in fiscal 2019. The increase in gross profit margin was primarily due to a favorable product mix relating to our Grakon and busbar businesses, partially offset by reduced radio remote control sales volumes. Gross profit in fiscal 2019 also included $5.6 million of purchase accounting adjustments related to the acquisition of Grakon.
Income from Operations. Industrial segment income from operations increased by $22.0 million, or 58.8%, to $59.4 million in fiscal 2020, compared to $37.4 million in fiscal 2019. The acquisition of Grakon accounted for $21.0 million of the increase.
28
Interface Segment Results
Below is a table summarizing results for the fiscal years ended:
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| Net Change |
|
| Net Change |
| ||||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net Sales |
| $ | 58.8 |
|
| $ | 57.7 |
|
| $ | 1.1 |
|
|
| 1.9 | % |
Gross Profit |
| $ | 10.0 |
|
| $ | 7.8 |
|
| $ | 2.2 |
|
|
| 28.2 | % |
Income (Loss) from Operations |
| $ | 5.6 |
|
| $ | (0.3 | ) |
| $ | 5.9 |
|
| N/M* |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 2, 2020 |
|
| April 27, 2019 |
|
|
|
|
|
|
|
|
| ||
Percent of sales: |
| (53 Weeks) |
|
| (52 Weeks) |
|
|
|
|
|
|
|
|
| ||
Net Sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
Gross Profit |
|
| 17.0 | % |
|
| 13.5 | % |
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
| 9.5 | % |
|
| (0.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*N/M equals non-meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. Interface segment net sales increased by $1.1 million, or 1.9%, to $58.8 million in fiscal 2020, compared to $57.7 million in fiscal 2019. Net sales increased primarily due to modestly higher sales volumes of appliance products and our legacy data solutions products.
Gross Profit. Interface segment gross profit increased by $2.2 million, or 28.2%, to $10.0 million in fiscal 2020, compared to $7.8 million in fiscal 2019. Gross profit margin increased to 17.0% in fiscal 2020, from 13.5% in fiscal 2019. The increase relates to higher sales volumes of appliance products and our legacy data solutions products.
Income (Loss) From Operations. Interface segment income from operations increased by $5.9 million to income of $5.6 million in fiscal 2020, compared to a loss of $0.3 million in fiscal 2019. The increase was due to higher gross profit, lower amortization of intangibles and lower selling and administrative expenses as a result of the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019.
Medical Segment Results
Below is a table summarizing results for the fiscal years ended:
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| Net Change |
|
| Net Change |
| ||||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net Sales |
| $ | 1.6 |
|
| $ | 1.1 |
|
| $ | 0.5 |
|
|
| 45.5 | % |
Gross Profit |
| $ | (1.5 | ) |
| $ | (2.8 | ) |
| $ | 1.3 |
|
|
| 46.4 | % |
Loss from Operations |
| $ | (6.0 | ) |
| $ | (8.6 | ) |
| $ | 2.6 |
|
|
| 30.2 | % |
Net Sales. The Medical segment had $1.6 million of net sales in fiscal 2020, compared to $1.1 million of net sales in fiscal 2019. Higher net sales were due to increased sales volumes.
Gross Profit. Medical segment gross profit was a loss of $1.5 million in fiscal 2020, compared to a loss of $2.8 million in fiscal 2019. The improvement primarily relates to lower engineering costs and wages incurred during the period and higher sales volumes.
Loss from Operations. Medical segment loss from operations decreased by $2.6 million to $6.0 million in fiscal year ended April 28, 2018, which leaves2020, compared to $8.6 million in fiscal 2019. The decrease was due to lower selling and administrative expenses and an improvement in gross profit. Selling and administrative expenses were lower due to the total repurchasedbenefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. In fiscal 2019, we incurred $0.9 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $0.1 million of expenses incurred in fiscal 2020.
29
Financial Condition, Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement. The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months. However, in the event that economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic, our liquidity position could be severely impacted.
Our senior unsecured credit agreement provides for a $200.0 million revolving credit facility and a $250.0 million term loan. On March 23, 2020, we drew down $100.0 million under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the COVID-19 pandemic. As of May 2, 2020, $108.5 million in principal was outstanding under the plan at 2,277,466 sharesrevolving credit facility and we have $91.4 million of availability under the revolving credit facility. As of May 2, 2020, $231.2 million in principal was outstanding common stock for $71.9under the term loan. The term loan matures in September 2023 and requires quarterly principal payments of $3.1 million over the five-year term, with the remaining balance due upon maturity. We were in compliance with all covenants under the senior unsecured credit agreement as of May 2, 2020. For further information, see Note 10, "Debt," to the consolidated financial statements included in this Annual Report.
Our senior unsecured credit agreement provides an option to increase the size of our revolving credit facility and term loan by an additional $200.0 million, subject to customary conditions and approval of the lenders providing the new commitments. There can be no assurance that lenders will approve additional commitments under current circumstances.As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our future prospects.
At May 2, 2020, we had $217.3 million of cash and cash equivalents, of which $47.0 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the repayment of intercompany loans and the payment of dividends, without creating material additional income tax expense.
Cash Flows
Cash flow is summarized below:
|
| Fiscal Year Ended |
| |||||
|
| May 2, 2020 |
|
| April 27, 2019 |
| ||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
| ||
Operating activities: |
|
|
|
|
|
|
|
|
Net Income |
| $ | 123.4 |
|
| $ | 91.6 |
|
Non-cash Items |
|
| 56.7 |
|
|
| 52.6 |
|
Changes in Operating Assets and Liabilities |
|
| (39.5 | ) |
|
| (42.2 | ) |
Net Cash Provided by Operating Activities |
|
| 140.6 |
|
|
| 102.0 |
|
Net Cash Used in Investing Activities |
|
| (44.5 | ) |
|
| (470.8 | ) |
Net Cash Provided by Financing Activities |
|
| 41.7 |
|
|
| 217.4 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
| (3.7 | ) |
|
| (11.5 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 134.1 |
|
|
| (162.9 | ) |
Cash and Cash Equivalents at Beginning of the Year |
|
| 83.2 |
|
|
| 246.1 |
|
Cash and Cash Equivalents at End of the Year |
| $ | 217.3 |
|
| $ | 83.2 |
|
Operating Activities
Net cash provided by operating activities increased by $38.6 million to $140.6 million in fiscal 2020, compared to $102.0 million in fiscal 2019. The increase was primarily due to a positive net change in net income after non-cash adjustments of $35.9 million and a net positive change in operating assets and liabilities of $2.7 million. The plan expired on September 1, 2017.changes in operating assets and
30
liabilities was primarily due to lower accounts receivable and prepaid expenses and other assets, offset by higher inventories and lower accounts payable and other liabilities.
Investing Activities
Net cash used in investing activities of $44.5 million in fiscal 2020 primarily represents capital expenditures of $45.1 million. Net cash used in investing activities of $470.8 million in fiscal 2019 primarily relates to the acquisition of Grakon of $422.1 million and capital expenditures of $49.8 million.
Financing Activities
The decrease in net cash provided by financing activities in fiscal 2020, compared to fiscal 2019, was primarily due to lower net borrowings under our senior unsecured credit agreement. Higher borrowings in fiscal 2019 primarily related to the funding for the Grakon acquisition.
Contractual Obligations
The following table summarizes contractual obligations and commitments, as of May 2, 2020:
|
| Payments Due By Period |
| |||||||||||||||||
(Dollars in Millions) |
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| More than 5 years |
| |||||
Finance Leases |
| $ | 1.4 |
|
| $ | 0.5 |
|
| $ | 0.8 |
|
| $ | 0.1 |
|
| $ | — |
|
Operating Leases |
|
| 29.7 |
|
|
| 6.6 |
|
|
| 11.1 |
|
|
| 6.3 |
|
|
| 5.7 |
|
Debt (1) |
|
| 354.3 |
|
|
| 15.3 |
|
|
| 28.3 |
|
|
| 307.9 |
|
|
| 2.8 |
|
Estimated Interest on Debt (2) |
|
| 19.6 |
|
|
| 6.0 |
|
|
| 11.3 |
|
|
| 2.1 |
|
|
| 0.2 |
|
Deferred Compensation |
|
| 6.7 |
|
|
| 1.2 |
|
|
| 2.3 |
|
|
| 1.2 |
|
|
| 2.0 |
|
Total |
| $ | 411.7 |
|
| $ | 29.6 |
|
| $ | 53.8 |
|
| $ | 317.6 |
|
| $ | 10.7 |
|
(1) | Assumes the outstanding borrowings under the revolving credit facility will be repaid upon maturity of the credit agreement in September 2023. |
(2) | Amounts represent estimated contractual interest payments on outstanding debt. Interest rates in effect as of May 2, 2020 are used for floating-rate debt. |
We enter into agreements with suppliers to assist us in meeting our customers' production needs. These agreements vary as to duration and quantity commitments. Historically, most have been short-term agreements, which do not provide for minimum purchases, or are requirements-based contracts.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Legal Matters
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. We became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, weterminated all of our agreements with the Fuchs companies. On June 20, 2014, we filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants have filed counterclaims alleging breach of contract, interference with business relations and business slander, and an affiliated company has filed a suit in front of the European Union Intellectual Property Office seeking to invalidate the company’s NOVA trademark in the EU.slander. On April 2, 2015, we amended our complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties.
A trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one
remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in our favor. The verdict
31
included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 22, 2020, the Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic’s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the Court held defendants in contempt for violating the permanent injunction and entered the final judgment. The final judgment is subject to post-trial motions and possible appeal. Once the automatic stay has expired and assuming that defendants are not granted a further stay pending appeal, we will work with counsel to collect on the judgment. As with any judgment, particularly any judgment involving defendants outside of April 28, 2018, discovery has been closed, and the parties are briefing summaryUnited States, there is no guarantee that we will be able to collect the judgment.
We incurred legal fees of $8.1$5.4 million, $11.0$3.5 million and $9.9$8.1 million in fiscal 2018,2020, fiscal 20172019 and fiscal 2016,2018, respectively, related to the lawsuits. These amounts are included in the selling and administrative expenses and as part of the Industrial segment.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the Interface segment.
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | ||||||||||||
Net Sales | $ | 908.3 | $ | 816.5 | $ | 91.8 | 11.2 | % | ||||||||
Cost of Products Sold | 668.7 | 598.2 | 70.5 | 11.8 | % | |||||||||||
Gross Profit | 239.6 | 218.3 | 21.3 | 9.8 | % | |||||||||||
Selling and Administrative Expenses | 115.7 | 105.2 | 10.5 | 10.0 | % | |||||||||||
Amortization of Intangibles | 5.6 | 2.3 | 3.3 | 143.5 | % | |||||||||||
Interest (Income) Expense, Net | 0.9 | (0.4 | ) | 1.3 | N/M | * | ||||||||||
Other Income, Net | (6.4 | ) | (4.7 | ) | (1.7 | ) | 36.2 | % | ||||||||
Income Tax Expense | 66.6 | 23.0 | 43.6 | 189.6 | % | |||||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | (35.7 | ) | (38.4 | )% | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | ||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | ||||||||||||
Cost of Products Sold | 73.6 | % | 73.3 | % | ||||||||||||
Gross Margins | 26.4 | % | 26.7 | % | ||||||||||||
Selling and Administrative Expenses | 12.7 | % | 12.9 | % | ||||||||||||
Amortization of Intangibles | 0.6 | % | 0.3 | % | ||||||||||||
Interest (Income) Expense, Net | 0.1 | % | — | % | ||||||||||||
Other Income, Net | (0.7 | )% | (0.6 | )% | ||||||||||||
Income Tax Expense | 7.3 | % | 2.8 | % | ||||||||||||
Net Income | 6.3 | % | 11.4 | % | ||||||||||||
*N/M equals non-meaningful |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 728.7 | $ | 632.2 | $ | 96.5 | 15.3 | % | |||||||
Cost of Products Sold | 527.1 | 449.4 | 77.7 | 17.3 | % | ||||||||||
Gross Profit | 201.6 | 182.8 | 18.8 | 10.3 | % | ||||||||||
Selling and Administrative Expenses | 45.3 | 34.5 | 10.8 | 31.3 | % | ||||||||||
Income from Operations | $ | 156.3 | $ | 148.3 | $ | 8.0 | 5.4 | % | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Cost of Products Sold | 72.3 | % | 71.1 | % | |||||||||||
Gross Margins | 27.7 | % | 28.9 | % | |||||||||||
Selling and Administrative Expenses | 6.2 | % | 5.5 | % | |||||||||||
Income from Operations | 21.4 | % | 23.5 | % |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | ||||||||||||
Net Sales | $ | 115.8 | $ | 127.4 | $ | (11.6 | ) | (9.1 | )% | |||||||
Cost of Products Sold | 90.5 | 100.8 | (10.3 | ) | (10.2 | )% | ||||||||||
Gross Profit | 25.3 | 26.6 | (1.3 | ) | (4.9 | )% | ||||||||||
Selling and Administrative Expenses | 20.3 | 27.5 | (7.2 | ) | (26.2 | )% | ||||||||||
Income (Loss) from Operations | $ | 5.0 | $ | (0.9 | ) | $ | 5.9 | N/M | * | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | ||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | ||||||||||||
Cost of Products Sold | 78.2 | % | 79.1 | % | ||||||||||||
Gross Margins | 21.8 | % | 20.9 | % | ||||||||||||
Selling and Administrative Expenses | 17.5 | % | 21.6 | % | ||||||||||||
Income (Loss) from Operations | 4.3 | % | (0.7 | )% | ||||||||||||
* N/M equals non-meaningful |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 63.2 | $ | 56.3 | $ | 6.9 | 12.3 | % | |||||||
Cost of Products Sold | 46.0 | 41.2 | 4.8 | 11.7 | % | ||||||||||
Gross Profit | 17.2 | 15.1 | 2.1 | 13.9 | % | ||||||||||
Selling and Administrative Expenses | 3.2 | 3.6 | (0.4 | ) | (11.1 | )% | |||||||||
Income from Operations | $ | 14.0 | $ | 11.5 | $ | 2.5 | 21.7 | % | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Cost of Products Sold | 72.8 | % | 73.2 | % | |||||||||||
Gross Margins | 27.2 | % | 26.8 | % | |||||||||||
Selling and Administrative Expenses | 5.1 | % | 6.4 | % | |||||||||||
Income from Operations | 22.2 | % | 20.4 | % |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 0.3 | $ | 0.3 | $ | — | — | % | |||||||
Cost of Products Sold | 3.8 | 6.5 | (2.7 | ) | (41.5 | )% | |||||||||
Gross Profit | (3.5 | ) | (6.2 | ) | 2.7 | (43.5 | )% | ||||||||
Selling and Administrative Expenses | 7.9 | 6.2 | 1.7 | 27.4 | % | ||||||||||
Loss from Operations | $ | (11.4 | ) | $ | (12.4 | ) | $ | 1.0 | (8.1 | )% |
(Dollars in Millions) | April 29, 2017 | April 30, 2016 | Net Change ($) | Net Change (%) | ||||||||||||
Net Sales | $ | 816.5 | $ | 809.1 | $ | 7.4 | 0.9 | % | ||||||||
Cost of Products Sold | 598.2 | 596.2 | 2.0 | 0.3 | % | |||||||||||
Gross Profit | 218.3 | 212.9 | 5.4 | 2.5 | % | |||||||||||
Selling and Administrative Expenses | 105.2 | 100.8 | 4.4 | 4.4 | % | |||||||||||
Amortization of Intangibles | 2.3 | 2.4 | (0.1 | ) | (4.2 | )% | ||||||||||
Interest Income, Net | (0.4 | ) | (0.7 | ) | 0.3 | (42.9 | )% | |||||||||
Other Income, Net | (4.7 | ) | (0.5 | ) | (4.2 | ) | 840.0 | % | * | |||||||
Income Tax Expense | 23.0 | 26.3 | (3.3 | ) | (12.5 | )% | ||||||||||
Net Income | $ | 92.9 | $ | 84.6 | $ | 8.3 | 9.8 | % | ||||||||
Percent of sales: | April 29, 2017 | April 30, 2016 | ||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | ||||||||||||
Cost of Products Sold | 73.3 | % | 73.7 | % | ||||||||||||
Gross Margins | 26.7 | % | 26.3 | % | ||||||||||||
Selling and Administrative Expenses | 12.9 | % | 12.5 | % | ||||||||||||
Amortization of Intangibles | 0.3 | % | 0.3 | % | ||||||||||||
Interest Income, Net | — | % | (0.1 | )% | ||||||||||||
Other Income, Net | (0.6 | )% | (0.1 | )% | ||||||||||||
Income Tax Expense | 2.8 | % | 3.3 | % | ||||||||||||
Net Income | 11.4 | % | 10.5 | % | ||||||||||||
*N/M equals non meaningful |
(Dollars in Millions) | April 29, 2017 | April 30, 2016 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 632.2 | $ | 614.3 | $ | 17.9 | 2.9 | % | |||||||
Cost of Products Sold | 449.4 | 443.6 | 5.8 | 1.3 | % | ||||||||||
Gross Profit | 182.8 | 170.7 | 12.1 | 7.1 | % | ||||||||||
Selling and Administrative Expenses | 34.5 | 33.9 | 0.6 | 1.8 | % | ||||||||||
Income from Operations | $ | 148.3 | $ | 136.8 | $ | 11.5 | 8.4 | % | |||||||
Percent of sales: | April 29, 2017 | April 30, 2016 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Cost of Products Sold | 71.1 | % | 72.2 | % | |||||||||||
Gross Margins | 28.9 | % | 27.8 | % | |||||||||||
Selling and Administrative Expenses | 5.5 | % | 5.5 | % | |||||||||||
Income from Operations | 23.5 | % | 22.3 | % |
(Dollars in Millions) | April 29, 2017 | April 30, 2016 | Net Change ($) | Net Change (%) | ||||||||||||
Net Sales | $ | 127.4 | $ | 140.8 | $ | (13.4 | ) | (9.5 | )% | |||||||
Cost of Products Sold | 100.8 | 107.9 | (7.1 | ) | (6.6 | )% | ||||||||||
Gross Profit | 26.6 | 32.9 | (6.3 | ) | (19.1 | )% | ||||||||||
Selling and Administrative Expenses | 27.5 | 30.2 | (2.7 | ) | (8.9 | )% | ||||||||||
Income (Loss) from Operations | $ | (0.9 | ) | $ | 2.7 | $ | (3.6 | ) | N/M | * | ||||||
Percent of sales: | April 29, 2017 | April 30, 2016 | ||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | ||||||||||||
Cost of Products Sold | 79.1 | % | 76.6 | % | ||||||||||||
Gross Margins | 20.9 | % | 23.4 | % | ||||||||||||
Selling and Administrative Expenses | 21.6 | % | 21.4 | % | ||||||||||||
Income (Loss) from Operations | (0.7 | )% | 1.9 | % | ||||||||||||
*N/M equals non meaningful |
(Dollars in Millions) | April 29, 2017 | April 30, 2016 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 56.3 | $ | 53.5 | $ | 2.8 | 5.2 | % | |||||||
Cost of Products Sold | 41.2 | 40.5 | 0.7 | 1.7 | % | ||||||||||
Gross Profit | 15.1 | 13.0 | 2.1 | 16.2 | % | ||||||||||
Selling and Administrative Expenses | 3.6 | 3.6 | — | — | % | ||||||||||
Income from Operations | $ | 11.5 | $ | 9.4 | $ | 2.1 | 22.3 | % | |||||||
Percent of sales: | April 29, 2017 | April 30, 2016 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Cost of Products Sold | 73.2 | % | 75.7 | % | |||||||||||
Gross Margins | 26.8 | % | 24.3 | % | |||||||||||
Selling and Administrative Expenses | 6.4 | % | 6.7 | % | |||||||||||
Income from Operations | 20.4 | % | 17.6 | % |
(Dollars in Millions) | April 29, 2017 | April 30, 2016 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 0.3 | $ | 0.3 | $ | — | — | % | |||||||
Cost of Products Sold | 6.5 | 4.3 | 2.2 | 51.2 | % | ||||||||||
Gross Profit | (6.2 | ) | (4.0 | ) | (2.2 | ) | 55.0 | % | |||||||
Selling and Administrative Expenses | 6.2 | 4.8 | 1.4 | 29.2 | % | ||||||||||
Loss from Operations | $ | (12.4 | ) | $ | (8.8 | ) | $ | (3.6 | ) | 40.9 | % | ||||
Percent of sales: | April 29, 2017 | April 30, 2016 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Cost of Products Sold | 2,166.7 | % | 1,433.3 | % | |||||||||||
Gross Margins | (2,066.7 | )% | (1,333.3 | )% | |||||||||||
Selling and Administrative Expenses | 2,066.7 | % | 1,600.0 | % | |||||||||||
Loss from Operations | (4,133.3 | )% | (2,933.3 | )% |
Fiscal Year Ended | ||||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | ||||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | 84.6 | ||||||
Depreciation and Amortization | 28.1 | 24.3 | 23.9 | |||||||||
Changes in Operating Assets and Liabilities | 42.8 | 19.3 | (12.7 | ) | ||||||||
Other Non-cash Items | (10.3 | ) | 8.7 | 14.9 | ||||||||
Cash Flow from Operations | $ | 117.8 | $ | 145.2 | $ | 110.7 |
Payments Due By Period | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | ||||||||||||||||
Capital Leases | $ | 2.9 | $ | 0.9 | $ | 1.8 | $ | 0.2 | $ | — | ||||||||||
Operating Leases | 20.3 | 6.7 | 10.9 | 1.9 | 0.8 | |||||||||||||||
Long-term Debt | 51.0 | 0.8 | 36.3 | 8.5 | 5.4 | |||||||||||||||
Purchase Obligations | 119.5 | 119.1 | 0.4 | — | — | |||||||||||||||
Deferred Compensation | 7.5 | 1.2 | 2.2 | 1.3 | 2.8 | |||||||||||||||
Total | $ | 198.3 | $ | 127.8 | $ | 49.8 | $ | 11.7 | $ | 9.0 |
Revenue Recognition. Most of our revenue is recognized at a point in time. We have determined that the most definitive demonstration that control has transferred to a customer is physical shipment or conditions.delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where we transfer products to a customer location but retain ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.
Revenues associated with products which we believe have no alternative use, and where we have an enforceable right to payment, are recognized on an over time basis. We believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements.
In addition, customers typically negotiate annual price downs. Management has evaluated these price downs and other relevant information. Estimates of uncollectible amounts are revised each reporting period, and changes are recordeddetermined that in the period they become known. If the financial condition of our customers weresome instances, these price downs give rise to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Allowance for Excess and Obsolete Inventory.
Inventories are valued at the lower of cost orBusiness Combinations. Accounting for business combinations requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill and Other Intangibles.
32
Accounting for business purchases. We review goodwillcombinations requires us to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Impairment of Goodwill. Goodwill is not amortized but is tested for impairment on at least an annual basis or more frequentlybasis. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit to its carrying amount including goodwill. An impairment of goodwill exists if indicatorsthe carrying amount of the reporting unit exceeds its fair value. The impairment are identified.
Qualitative factors including,include, but are not limited to, the results of prior year fair value calculations, the movement of our share price and market capitalization, the reporting unit and overall financial performance, and macroeconomic and industry conditions. We consider the qualitative factors and weight of the evidence obtained to determine if it is more likely than not that thea reporting units'unit's fair value is less than the carrying amount. Although we believe the factors considered in the impairment analysis are reasonable, significant changes in any one of the assumptions used could produce a different result. If, after assessing the qualitative factors, we were to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we would perform a quantitative impairment test.assessment is performed. We may also elect to proceed directly to the quantitative impairment analysisassessment without considering such qualitative factors.
For the quantitative analysis,assessment, fair values are primarily established using a discounted cash flow methodology (specifically, the income approach and market approach). The determination of discounted cash flows is based on our long-range forecasts and requires assumptions related to revenue and operating income growth, asset-related expenditures, working capital levels, and other market participant assumptions. The revenue growth rates included in the forecasts are our best estimates based on current and anticipated market conditions, and the profitability assumptions are projected based on current and anticipated cost structures. Long-range forecasting involves uncertainty which increases with each successive period. Key assumptions, such as revenue growth rates and profitability, especially in the outer years, involve a greater degree of uncertainty.
Impairment of Long-Lived Assets. We continually evaluate whether events and circumstances have occurred which indicate that the fiscal 2018 first quarter,remaining estimated useful lives of our intangible assets, excluding goodwill, and other long-lived assets, may warrant revision or that the Company early adopted ASU No. 2017-04 (issuedremaining balance of such assets may not be recoverable. If impairment indicators exist, we perform an impairment analysis by comparing the FASB in January 2017), "Intangibles - Goodwill and Other (Topic 350): Simplifyingundiscounted cash flows resulting from the Test for Goodwill Impairment" on a prospective basis. This
Income Taxes.
As part of the process of preparing ourWe provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings thatwe consider to be permanently reinvested. However, we continue to monitor the impacts of U.S. Tax Reform, including yet to be issued regulations and interpretations, on the tax consequences of future repatriations. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. under U.S. Tax Reform. We have no plans to dispose of any of our foreign subsidiaries and are not recording deferred taxes on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have consideredevaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by
33
jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be recorded to income tax expense in the period such determination was made.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured and tax planning strategiesposition taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in assessingestimate is recorded in the need forperiod in which the valuation allowance.
Contingencies.
We are subject to various investigations, claims and legal and administrative proceedings covering a wide range of matters that arise in the ordinary course of business activities. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. For those matters that we can estimate a range of loss, we have established reserves at levels within that range to provide for the most likely scenario based upon available information. The valuation of reserves for contingencies is reviewed on a quarterly basis to ensure thatNew Accounting Pronouncements
For more information regarding new applicable accounting pronouncements, see Note 1, "Description of Business and Summary of Significant Accounting Policies," to the consolidated financial statements included in this Annual Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks from foreign currency exchange, interest rates, and commodity prices, which could affect our operating results, financial position and cash flows. We manage a portion of these risks through use of derivative financial instruments in accordance with our foreign operationspolicies. We do not enter into transactionsderivative financial instruments for trading purposes.
Foreign Currency Risk
We are exposed to foreign currency risk on sales, costs and assets and liabilities denominated in currencies other than their functional currency, primarilythe U.S. dollar. We seek to manage our foreign exchange risk largely through operational means, including matching revenue with same-currency costs and assets with same-currency liabilities. We currently transact business in eight primary currencies worldwide, of which the most significant were the U.S. dollar, the euro, the Mexican peso, and the euro.Chinese renminbi. A hypothetical 10% adverse change in foreign currency exchange rates from balance sheet date levels could have impacted our income before income taxes by $1.9$9.0 million and $13.1$8.5 million at April 28, 2018May 2, 2020 and April 29, 2017,27, 2019, respectively. We also have foreign currency exposure arising from the translation of our net equity investment in our foreign operations to U.S. dollars. We generally view our investments in foreign operations with functional currenciesThese estimates assume no changes other than the U.S. dollar as long-term.exchange rate itself. However, this quantitative measure has inherent limitations. The currencies to which we are exposed aresensitivity analysis disregards the British pound, Chinese yuan, euro, Indian rupee, Mexican peso, Singapore dollarpossibility that rates can move in opposite directions and Swiss franc. A 10% change inthat gains from one currency may or may not be offset by losses from another currency.
The translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates fromas of the end of the fiscal year. Translation adjustments are not included in determining net income but are included in accumulated other comprehensive income (loss) within shareholders’ equity on the consolidated balance sheet date levels could have impacted oursheets until a sale or substantially complete liquidation of the net foreign investmentsinvestment in the international subsidiary takes place. As of May 2, 2020, the cumulative net currency translation adjustments reduced shareholders’ equity by $49.3$26.9 million atand as of April 28, 2018 and $41.127, 2019, the cumulative net currency translation adjustments reduced shareholders’ equity by $13.6 million. In addition, in April 2020, we
34
entered into a Euro denominated cross-currency swap as a net investment hedge to reduce exposure to translational exchange rate risk. As of May 2, 2020, we recorded a deferred loss, net of tax, of $1.0 million at April 29, 2017.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. The interest rate risk for our senior unsecured credit agreements,agreement, under which we had $33.6$339.7 million of net borrowings at April 28, 2018,May 2, 2020, is variable and is determined based on LIBOR. We estimate that a one percentage point change1% increase in interest rates under our senior unsecured credit agreement would not have a material impactresult in increased annual interest expense of $3.4 million.
Commodity Price Risk
We are exposed to commodity price risk primarily on our resultsraw material purchases. These raw materials are not rare or unique to our industry. The cost of operations for fiscal 2018 based uponcopper, resins, and other commodities, such as fuel and energy, has fluctuated in recent years due to changes in global supply and demand. Our gross margins could be affected if these types of costs continue to fluctuate. We actively manage these raw material costs through global sourcing initiatives and price increases on our current and expected levelsproducts. However, in the short-term, rapid increases in raw material costs can be very difficult to offset with price increases because of debt.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data are filed within this Annual Report under Item 15, for an Index to Financial Statements and“Exhibits, Financial Statement Schedule. Such Financial Statements and Schedule are incorporated herein by reference.
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectives of the design and operation of our “disclosuredisclosure controls and procedures” (asprocedures as of May 2, 2020. As defined in Rules 13a-15(e) and 15d-15(e) ofunder the Exchange Act). OurAct, disclosure controls and procedures are controls and procedures designed to ensureprovide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, wemanagement conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 28, 2018May 2, 2020 based on the guidelines established in
Based on the results of ourupon this evaluation, our management concluded that our internal control over financial reporting was effective as of April 28, 2018.May 2, 2020. Management reviewed the results of its assessment with the Audit Committee. Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on our internal control over financial reporting. This report is included on page F-2F-4 of this annual report on Form 10-K.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by a management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
Change of Control Agreement with Joseph Khoury.
Effective as of June 26, 2020, the Company and Joseph E. Khoury entered into a Change of Control Agreement (the “Change of Control Agreement”). Pursuant to the Change of Control Agreement, if within two years of a Change of Control (as defined in the Change of Control Agreement), or during a period pending a Change of Control, the Company terminates Mr. Khoury’s employment without Good Cause (as defined in the Change of Control Agreement) or the executive voluntarily terminates his employment for Good Reason (as defined in the Change of Control Agreement), Mr. Khoury is entitled to the following: (i) a lump sum payment in an amount equal to two times his base salary; (ii) a lump sum payment equal to two times the lesser of: (a) his target bonus amount for the fiscal year in which the termination occurs, or (b) the bonus he earned in the prior fiscal year; and (iii) continued participation in the Company’s welfare benefit plans for up to two years. A copy of the Change of Control Agreement is attached hereto as Exhibit 10.22, and this description is qualified by reference to the full text of the Change of Control Agreement.
Executive Officer Transition Award Agreements.
Effective as of June 26, 2020, the Company entered into Transition Award Agreements with Messrs. Duda, Tsoumas and Khoury (the “Transition Agreements”). The Transition Agreements provide for a cash opportunity equal to a multiple of the executive’s base salary as follows: Mr. Duda, 2.0 times; Mr. Tsoumas, 1.5 times; and Mr. Khoury, 1.75 times. If the executive remains employed by the Company and maintains satisfactory job performance, forty percent (40%) of the transition award will be paid on April 30, 2022 and sixty percent (60%) will be paid on April 29, 2023. If the executive is terminated for cause, resigns or retires prior to April 29, 2023, the executive must repay any transition award amounts paid prior to the termination date. If the executive is terminated without cause, dies or becomes disabled prior to such date, the executive is entitled to any unpaid portion of the transition award. A copy of the Form Transition Award Agreement is attached hereto as Exhibit 10.23 and this description is qualified by reference to the full text of the Form Transition Award Agreement.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding our directors will be includedand corporate governance matters is incorporated by reference herein to the definitive proxy statement for our 2020 annual meeting under the captions “Proposal One:One Election of Directors” and “Corporate Governance” in the definitive proxy statement for our 2018 annual meeting to be held on September 13, 2018, and is incorporated herein. The information required by reference. Informationthis item regarding our executive officers is includedappears as a supplementary item following Item 4 under a separate caption in Part I hereof, and is incorporated hereinof this Annual Report. The information required by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Informationthis item regarding compliance with Section 16(a) of the Exchange Act and information regarding our Audit Committee will be included under the captions “Section 16(a) Beneficial Ownership Reporting
We have adopted a Code of Business Conduct (the “Code”) that applies to our directors, our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, as well as other employees. The Code is publicly available on our website at www.methode.com. If we make any substantive amendments to the Code or grant any waiver, including any implicit waiver, from a provision of the Code to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations.
Item 11. Executive Compensation
The information required by this item is incorporated by reference herein to the above will be includeddefinitive proxy statement for our 2020 annual meeting under the captioncaptions “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation”Compensation Tables” and “Director Compensation” in the definitive proxy statement for our 2018 annual meeting to be held on September 13, 2018, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except as set forth herein, the above will be included under the caption “Security Ownership” ininformation required by this item is incorporated by reference herein to the definitive proxy statement for our 20182020 annual meeting to be held on September 13, 2018, and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about the Company'sour equity compensation plans as of April 28, 2018.
Plan category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted- average exercise price of outstanding options, warrants and rights |
|
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) |
| |||
Equity Compensation Plans Approved by Security Holders |
|
| 109,768 |
|
| 35.76(1) |
|
|
| 1,897,442 |
| |
Equity Compensation Plans Not Approved by Security Holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 109,768 |
|
| $ | 35.76 |
|
|
| 1,897,442 |
|
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||
Equity Compensation Plans Approved by Security Holders | 496,540 | (1) | $ | 34.33 | 1,089,122 | |||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||
Total | 496,540 | $ | 34.33 | 1,089,122 |
(1) | The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock awards and restricted stock units, since recipients are not required to pay an exercise price to receive the shares subject to these awards. |
37
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference herein to the definitive proxy statement for our 20182020 annual meeting to be held on September 13, 2018,under the captions “Corporate Governance” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference herein to the above will be includeddefinitive proxy statement for our 2020 annual meeting under the caption “Audit Committee Matters” in the definitive proxy statement for our 2018 annual meeting to be held on September 13, 2018, and is incorporated herein by reference.
Item 15. Exhibits, and Financial Statement Schedules
(a) | (1) Consolidated Financial Statements. |
Reference is made to the Index to Consolidated Financial Statements on Page F-1.
(2) Consolidated Financial Statement Schedule.
Reference is made to the Index to Financial Statement Schedule on Page F-1.
(3) Exhibits.
EXHIBIT INDEX
Exhibit Number | Description | |
3.1 | Certificate of Incorporation of Registrant, as amended and currently in effect (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on January 9, 2004). | |
3.2 | Bylaws of Registrant, as amended and currently in effect (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 19, 2020). | |
4.1 | ||
4.2 | Description of Capital Stock (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed on June 20, 2019). | |
10.1* | Methode Electronics, Inc. 2004 Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 2004). | |
10.2* | Change in Control Agreement dated September 1, 2006 between Methode Electronics, Inc. and Donald W. Duda (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 6, 2006). | |
10.3* | Change in Control Agreement dated September 14, 2006 between Methode Electronics, Inc. and Timothy R. Glandon (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 18, 2006). | |
10.4* | Amended and Restated Restricted Stock Unit Award Agreement (Executive Award/Performance Based) effective as of June 18, 2004 between Methode Electronics, Inc. and Donald W. Duda (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on March 2, 2007). | |
10.5* | Amended and Restated Restricted Stock Unit Award Agreement (Executive Award/Cliff Vesting) effective as of June 18, 2004 between Methode Electronics, Inc. and Donald W. Duda (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on March 2, 2007). | |
10.6* | Amended and Restated Restricted Stock Unit Award Agreement (Executive Award/Performance Based) effective as of June 15, 2005 between Methode Electronics, Inc. and Donald W. Duda (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 6, 2007). | |
10.7* | Amended and Restated Restricted Stock Unit Award Agreement (Executive Award/Performance Based) effective as of August 7, 2006 between Methode Electronics, Inc. and Donald W. Duda (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 6, 2007). | |
10.8* | Methode Electronics, Inc. 2007 Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 19, 2007). | |
10.9* | Change in Control Agreement dated July 15, 2008 between Methode Electronics, Inc. and Ronald L. G. Tsoumas (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed on July 17, 2008). | |
10.10* | Form of Amendment to Change in Control Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 20, 2009). | |
10.11* | Methode Electronics, Inc. 2010 Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 20, 2010). | |
10.12* | Under the 2010 Stock Plan, Form of Methode Electronics, Inc. Non-Qualified Stock Option Form Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 20, 2010). | |
10.13* | Form of Methode Electronics, Inc. Form of Amendment to Change in Control Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 12, 2010). | |
10.14* | Methode Electronics, Inc. 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 22, 2014). |
39
10.15* | 2014 Omnibus Incentive Plan Performance Based Restricted Stock Form Award Agreement - Executive Officer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2015). | |
10.16* | 2014 Omnibus Incentive Plan - Restricted Stock Unit Form Award Agreement - Executive Officer (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 9, 2015). | |
10.17* | Form of Amendment to Change in Control Agreement dated November 8, 2010 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on December 10, 2015). | |
10.18 | Amended and Restated Credit Agreement dated as of September 12, 2018 among the Company, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, the Other Lenders Party Hereto and Bank of America Merrill Lynch, as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 13, 2018). | |
10.19* | Form of First Amendment to Performance Based Restricted Stock Award Agreement dated as of July 19, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 24, 2017). | |
10.20* | Change in Control Agreement dated June 14, 2017 between Methode Electronics, Inc. and Andrea Barry (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on June 21, 2018). | |
10.21* | Change in Control Agreement dated as of December 7, 2018 between the Company and Anil Shetty (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on March 7, 2019). | |
10.22* | Change in Control Agreement dated as of June 26, 2020 between the Company and Joseph Khoury. | |
10.23* | ||
21 | ||
23 | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. | |
32 | Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350. | |
101.INS** | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL Document | |
101.SCH*** | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL*** | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB*** | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE*** | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF*** | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104** | Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
* | Management Compensatory Plan |
** As provided in the following indexes areRule 406 of Regulation S-T, this information is deemed not filed as part of this annual report ona registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, and is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is otherwise not subject to liability under those sections.
*** Submitted electronically with the Report
Item 16. Form 10-K.
None.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
METHODE ELECTRONICS, INC. | |||
(Registrant) | |||
By: | /s/ RONALD L.G. TSOUMAS | ||
Ronald L.G. Tsoumas | |||
Chief Financial Officer | |||
(Principal |
Dated: June 21, 2018
41
Pursuant to the requirements of the Securities Exchange Act of 1934, this report annual report on Form 10-K 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 | ||
/ | Chairman of the Board | June | ||
Walter J. Aspatore | ||||
/ | Vice Chairman of the Board | June | ||
Lawrence B. Skatoff | ||||
/s/ DONALD W. DUDA | Chief Executive Officer, President & Director | June | ||
Donald W. Duda | (Principal Executive Officer) | |||
/ | Chief Financial Officer | June | ||
Ronald L.G. Tsoumas | (Principal Financial Officer) | |||
/ | Chief Accounting Officer | June | ||
Amit N. Patel | (Principal Accounting Officer) | |||
/s/ DAVID P. BLOM | Director | June 25, 2020 | ||
David P. Blom | ||||
/s/ THERESE M. BOBEK | Director | June 25, 2020 | ||
Therese M. Bobek | ||||
/s/ BRIAN J. CADWALLADER | Director | June | ||
Brian J. Cadwallader | ||||
/s/ BRUCE K. CROWTHER | Director | June 25, 2020 | ||
Bruce K. Crowther | ||||
/s/ DARREN M. DAWSON | Director | June | ||
Darren M. Dawson | ||||
/ | Director | June | ||
Isabelle C. Goossen | ||||
/ | Director | June | ||
Mary A. Lindsey | ||||
/ | Director | June | ||
Angelo V. Pantaleo | ||||
/s/ MARK D. SCHWABERO | Director | June 25, 2020 | ||
Mark D. Schwabero | ||||
42
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements: | Page | |
F-2 | ||
F-5 | ||
F-6 | ||
F-7 | ||
F-8 | ||
F-9 | ||
F-10 | ||
Schedule: | ||
All other 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 immaterial and, therefore, have been omitted.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Methode Electronics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Methode Electronics, Inc. and subsidiaries (the(the Company) as of April 28, 2018May 2, 2020 and April 29, 2017,27, 2019, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended April 28, 2018,May 2, 2020, and the related notesand financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 28, 2018May 2, 2020 and April 29, 2017,27, 2019, and the results of its operations and its cash flows for each of the three years in the period ended April 28, 2018,May 2, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 28, 2018,May 2, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Valuation of Grakon Industrial Reporting Unit Goodwill
F-2
Description of the Matter | At May 2, 2020, the balance of the Company’s goodwill related to the Grakon Industrial reporting unit was $123.8 million. As discussed in Note 7 to the consolidated financial statements, goodwill is tested for impairment at least annually or when impairment indicators are present at the reporting unit. Auditing management’s assessment of the estimated fair value of the Industrial reporting unit was complex and required the involvement of valuation specialists due to the judgmental nature of the assumptions utilized in the valuation process. The fair value estimate was sensitive to significant assumptions such as revenue growth rates, EBITDA, and the discount rate. The estimate also included assumptions related to the terminal growth rate, capital expenditures, working capital levels, and other market participant assumptions. | |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill fair value assessment process. This included testing controls over management’s review of the projected financial information and other key assumptions used in the valuation model as well as controls over the carrying value of the Industrial reporting unit. To test the fair value of the Industrial reporting unit, our audit procedures included, among others, evaluating the Company's use of the income approach, testing the significant assumptions described above used to develop the prospective financial information, and testing the completeness and accuracy of the underlying data. For example, we compared certain significant assumptions to current industry, market and economic trends, historical performance, and other guideline companies within the same industry. We performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the reporting unit resulting from changes in the assumptions. We also assessed the historical accuracy of management’s forecasting process, and we also involved our valuation specialists to assist in testing certain significant assumptions in the fair value estimate. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1966.
Chicago, Illinois
June 21, 2018
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Methode Electronics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Methode Electronics,Electronic Inc. and subsidiaries’ internal control over financial reporting as of April 28, 2018,May 2, 2020, based on criteria established in Internal Control- IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 20182020 consolidated financial statements of the Company and our report dated June 21, 201830, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
June 21, 2018
F-4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
|
| May 2, 2020 |
|
| April 27, 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ | 217.3 |
|
| $ | 83.2 |
|
Accounts Receivable, Less Allowance (2020 - $0.7 and 2019 - $0.9) |
|
| 188.5 |
|
|
| 219.3 |
|
Inventories |
|
| 131.0 |
|
|
| 116.7 |
|
Income Taxes Receivable |
|
| 12.9 |
|
|
| 14.3 |
|
Prepaid Expenses and Other Current Assets |
|
| 15.9 |
|
|
| 20.0 |
|
TOTAL CURRENT ASSETS |
|
| 565.6 |
|
|
| 453.5 |
|
LONG-TERM ASSETS |
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net |
|
| 201.9 |
|
|
| 191.9 |
|
Goodwill |
|
| 231.6 |
|
|
| 233.3 |
|
Other Intangible Assets, Net |
|
| 244.8 |
|
|
| 264.9 |
|
Operating Lease Assets, Net |
|
| 23.5 |
|
|
| — |
|
Deferred Tax Assets |
|
| 31.4 |
|
|
| 34.3 |
|
Pre-production Costs |
|
| 37.1 |
|
|
| 32.8 |
|
Other Long-term Assets |
|
| 34.7 |
|
|
| 21.0 |
|
TOTAL LONG-TERM ASSETS |
|
| 805.0 |
|
|
| 778.2 |
|
TOTAL ASSETS |
| $ | 1,370.6 |
|
| $ | 1,231.7 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts Payable |
| $ | 73.8 |
|
| $ | 91.9 |
|
Accrued Employee Liabilities |
|
| 19.1 |
|
|
| 20.1 |
|
Other Accrued Expenses |
|
| 18.5 |
|
|
| 33.9 |
|
Short-term Operating Lease Liability |
|
| 5.5 |
|
|
| — |
|
Short-term Debt |
|
| 15.3 |
|
|
| 15.7 |
|
Income Tax Payable |
|
| 11.6 |
|
|
| 19.3 |
|
TOTAL CURRENT LIABILITIES |
|
| 143.8 |
|
|
| 180.9 |
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Long-term Debt |
|
| 336.8 |
|
|
| 276.9 |
|
Long-term Operating Lease Liability |
|
| 20.4 |
|
|
| — |
|
Long-term Income Taxes Payable |
|
| 29.3 |
|
|
| 33.0 |
|
Other Long-term Liabilities |
|
| 15.3 |
|
|
| 14.8 |
|
Deferred Tax Liabilities |
|
| 41.6 |
|
|
| 36.4 |
|
TOTAL LONG-TERM LIABILITIES |
|
| 443.4 |
|
|
| 361.1 |
|
TOTAL LIABILITIES |
|
| 587.2 |
|
|
| 542.0 |
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,438,111 shares and 38,333,576 shares issued as of May 2, 2020 and April 27, 2019, respectively |
|
| 19.2 |
|
|
| 19.2 |
|
Additional Paid-in Capital |
|
| 150.7 |
|
|
| 150.4 |
|
Accumulated Other Comprehensive Loss |
|
| (26.9 | ) |
|
| (13.6 | ) |
Treasury Stock, 1,346,624 shares as of May 2, 2020 and April 27, 2019 |
|
| (11.5 | ) |
|
| (11.5 | ) |
Retained Earnings |
|
| 651.9 |
|
|
| 545.2 |
|
TOTAL SHAREHOLDERS' EQUITY |
|
| 783.4 |
|
|
| 689.7 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
| $ | 1,370.6 |
|
| $ | 1,231.7 |
|
April 28, 2018 | April 29, 2017 | ||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and Cash Equivalents | $ | 246.1 | $ | 294.0 | |||
Accounts Receivable, Less Allowance (2018 - $0.5 and 2017 - $0.6) | 202.6 | 165.3 | |||||
Inventories: | |||||||
Finished Products | 15.4 | 10.9 | |||||
Work in Process | 14.6 | 8.7 | |||||
Materials | 54.1 | 38.3 | |||||
Total Inventories | 84.1 | 57.9 | |||||
Prepaid and Refundable Income Taxes | 2.4 | 0.6 | |||||
Prepaid Expenses and Other Current Assets | 14.8 | 12.5 | |||||
TOTAL CURRENT ASSETS | 550.0 | 530.3 | |||||
PROPERTY, PLANT AND EQUIPMENT | |||||||
Land | 0.8 | 0.6 | |||||
Buildings and Building Improvements | 69.2 | 48.2 | |||||
Machinery and Equipment | 364.7 | 287.9 | |||||
Property, Plant and Equipment, Gross | 434.7 | 336.7 | |||||
Less: Allowances for Depreciation | 272.5 | 246.1 | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | 162.2 | 90.6 | |||||
OTHER ASSETS | |||||||
Goodwill | 59.2 | 1.6 | |||||
Other Intangibles, Less Accumulated Amortization | 61.0 | 6.6 | |||||
Cash Surrender Value of Life Insurance | 8.2 | 7.8 | |||||
Deferred Income Taxes | 42.3 | 40.4 | |||||
Pre-production Costs | 20.5 | 15.5 | |||||
Other | 12.5 | 11.2 | |||||
TOTAL OTHER ASSETS | 203.7 | 83.1 | |||||
TOTAL ASSETS | $ | 915.9 | $ | 704.0 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts Payable | $ | 89.5 | $ | 75.3 | |||
Salaries, Wages and Payroll Taxes | 22.8 | 18.7 | |||||
Other Accrued Expenses | 21.6 | 17.7 | |||||
Short-term Debt | 4.4 | — | |||||
Income Tax Payable | 18.7 | 12.7 | |||||
TOTAL CURRENT LIABILITIES | 157.0 | 124.4 | |||||
LONG-TERM DEBT | 53.4 | 27.0 | |||||
LONG-TERM INCOME TAX PAYABLE | 42.6 | — | |||||
OTHER LIABILITIES | 4.6 | 2.6 | |||||
DEFERRED INCOME TAXES | 18.3 | — | |||||
DEFERRED COMPENSATION | 10.0 | 8.9 | |||||
SHAREHOLDERS’ EQUITY | |||||||
Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,198,353 shares and 38,133,925 shares issued as of April 28, 2018 and April 29, 2017, respectively | 19.1 | 19.1 | |||||
Additional Paid-in Capital | 136.5 | 132.2 | |||||
Accumulated Other Comprehensive Loss | 13.9 | (25.7 | ) | ||||
Treasury Stock, 1,346,624 shares as of April 28, 2018 and April 29, 2017 | (11.5 | ) | (11.5 | ) | |||
Retained Earnings | 472.0 | 427.0 | |||||
TOTAL EQUITY | 630.0 | 541.1 | |||||
TOTAL LIABILITIES AND EQUITY | $ | 915.9 | $ | 704.0 |
See notes to consolidated financial statements.
F-5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
|
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
| |||
Net Sales |
| $ | 1,023.9 |
|
| $ | 1,000.3 |
|
| $ | 908.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Products Sold |
|
| 741.0 |
|
|
| 734.5 |
|
|
| 668.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 282.9 |
|
|
| 265.8 |
|
|
| 239.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Administrative Expenses |
|
| 116.8 |
|
|
| 142.9 |
|
|
| 115.7 |
|
Amortization of Intangibles |
|
| 19.0 |
|
|
| 16.1 |
|
|
| 5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
| 147.1 |
|
|
| 106.8 |
|
|
| 118.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
| 10.1 |
|
|
| 8.3 |
|
|
| 0.9 |
|
Other Income, Net |
|
| (11.7 | ) |
|
| (5.1 | ) |
|
| (6.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes |
|
| 148.7 |
|
|
| 103.6 |
|
|
| 123.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense |
|
| 25.3 |
|
|
| 12.0 |
|
|
| 66.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
| $ | 123.4 |
|
| $ | 91.6 |
|
| $ | 57.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 3.28 |
|
| $ | 2.45 |
|
| $ | 1.54 |
|
Diluted |
| $ | 3.26 |
|
| $ | 2.43 |
|
| $ | 1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends per Share |
| $ | 0.44 |
|
| $ | 0.44 |
|
| $ | 0.40 |
|
Fiscal Year Ended | |||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | |||||||||
Net Sales | $ | 908.3 | $ | 816.5 | $ | 809.1 | |||||
Cost of Products Sold | 668.7 | 598.2 | 596.2 | ||||||||
Gross Profit | 239.6 | 218.3 | 212.9 | ||||||||
Selling and Administrative Expenses | 115.7 | 105.2 | 100.8 | ||||||||
Amortization of Intangibles | 5.6 | 2.3 | 2.4 | ||||||||
Income from Operations | 118.3 | 110.8 | 109.7 | ||||||||
Interest (Income) Expense, Net | 0.9 | (0.4 | ) | (0.7 | ) | ||||||
Other Income, Net | (6.4 | ) | (4.7 | ) | (0.5 | ) | |||||
Income before Income Taxes | 123.8 | 115.9 | 110.9 | ||||||||
Income Tax Expense | 66.6 | 23.0 | 26.3 | ||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | 84.6 | |||||
Basic and Diluted Income per Share: | |||||||||||
Basic | $ | 1.54 | $ | 2.49 | $ | 2.21 | |||||
Diluted | $ | 1.52 | $ | 2.48 | $ | 2.20 | |||||
Cash Dividends per Share: | |||||||||||
Common Stock | $ | 0.40 | $ | 0.36 | $ | 0.36 |
See notes to consolidated financial statements.
F-6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
|
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
| |||
Net Income |
| $ | 123.4 |
|
| $ | 91.6 |
|
| $ | 57.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), Net of Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments |
|
| (12.3 | ) |
|
| (27.5 | ) |
|
| 39.6 |
|
Derivative Financial Instruments |
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
Total Comprehensive Income |
| $ | 110.1 |
|
| $ | 64.1 |
|
| $ | 96.8 |
|
Fiscal Year Ended | |||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | |||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | 84.6 | |||||
Other Comprehensive Income (Loss): | |||||||||||
Foreign Currency Translation Adjustments | 39.6 | (17.3 | ) | (0.1 | ) | ||||||
Total Comprehensive Income | 96.8 | 75.6 | 84.5 |
See notes to consolidated financial statements.
F-7
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data)
|
| Common Stock Shares |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Retained Earnings |
|
| Total Shareholders Equity |
| |||||||
Balance as of April 29, 2017 |
|
| 38,133,925 |
|
| $ | 19.1 |
|
| $ | 132.2 |
|
| $ | (25.7 | ) |
| $ | (11.5 | ) |
| $ | 427.0 |
|
| $ | 541.1 |
|
Earned Portion of Restricted Stock, Net of Tax Withholding |
|
| 51,095 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| (0.2 | ) |
Stock-based Compensation Expense |
|
| — |
|
|
| — |
|
|
| 4.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.0 |
|
Exercise of Stock Options |
|
| 13,333 |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Adoption of ASU 2016-09 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.7 |
|
|
| 2.7 |
|
Other Comprehensive Income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39.6 |
|
|
| — |
|
|
| — |
|
|
| 39.6 |
|
Net Income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57.2 |
|
|
| 57.2 |
|
Dividends on Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14.7 | ) |
|
| (14.7 | ) |
Balance as of April 28, 2018 |
|
| 38,198,353 |
|
|
| 19.1 |
|
|
| 136.5 |
|
|
| 13.9 |
|
|
| (11.5 | ) |
|
| 472.0 |
|
|
| 630.0 |
|
Earned Portion of Restricted Stock, Net of Tax Withholding |
|
| 135,223 |
|
|
| 0.1 |
|
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| (1.7 | ) |
|
| (1.7 | ) |
Stock-based Compensation Expense |
|
| — |
|
|
| — |
|
|
| 14.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14.0 |
|
Adoption of ASU 2014-09 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Other Comprehensive Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27.5 | ) |
|
| — |
|
|
| — |
|
|
| (27.5 | ) |
Net Income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91.6 |
|
|
| 91.6 |
|
Dividends on Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16.8 | ) |
|
| (16.8 | ) |
Balance as of April 27, 2019 |
|
| 38,333,576 |
|
|
| 19.2 |
|
|
| 150.4 |
|
|
| (13.6 | ) |
|
| (11.5 | ) |
|
| 545.2 |
|
|
| 689.7 |
|
Earned Portion of Restricted Stock, Net of Tax Withholding |
|
| 104,535 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) |
|
| (0.4 | ) |
Stock-based Compensation Expense |
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Other Comprehensive Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13.3 | ) |
|
| — |
|
|
| — |
|
|
| (13.3 | ) |
Net Income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 123.4 |
|
|
| 123.4 |
|
Dividends on Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16.3 | ) |
|
| (16.3 | ) |
Balance as of May 2, 2020 |
|
| 38,438,111 |
|
| $ | 19.2 |
|
| $ | 150.7 |
|
| $ | (26.9 | ) |
| $ | (11.5 | ) |
| $ | 651.9 |
|
| $ | 783.4 |
|
Common Stock Shares | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Treasury Stock | Retained Earnings | Non-Controlling Interest | Total Shareholders Equity | |||||||||||||||||||||||
Balance as of May 2, 2015 | 39,702,036 | $ | 19.9 | $ | 102.2 | $ | (8.3 | ) | $ | (11.5 | ) | $ | 356.5 | $ | 0.2 | $ | 459.0 | |||||||||||||
Earned Portion of Restricted Stock Awards | 430,245 | 0.1 | — | — | — | — | — | 0.1 | ||||||||||||||||||||||
Stock Award and Stock Option Amortization Expense | — | — | 7.4 | — | — | — | — | 7.4 | ||||||||||||||||||||||
Exercise of Options | 47,002 | 0.1 | 0.5 | — | — | (7.7 | ) | — | (7.1 | ) | ||||||||||||||||||||
Purchase of Common Stock | (1,997,298 | ) | (1.0 | ) | — | — | — | (61.3 | ) | — | (62.3 | ) | ||||||||||||||||||
Tax Benefit from Stock Option Exercises | — | — | 2.2 | — | — | — | — | 2.2 | ||||||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | (0.1 | ) | — | — | (0.2 | ) | (0.3 | ) | |||||||||||||||||||
Net Income for Year | — | — | — | — | — | 84.6 | — | 84.6 | ||||||||||||||||||||||
Cash Dividends on Common Stock | — | — | — | — | — | (13.5 | ) | — | (13.5 | ) | ||||||||||||||||||||
Balance as of April 30, 2016 | 38,181,985 | $ | 19.1 | $ | 112.3 | $ | (8.4 | ) | $ | (11.5 | ) | $ | 358.6 | $ | — | $ | 470.1 | |||||||||||||
Earned Portion of Restricted Stock Awards | 146,192 | 0.1 | — | — | — | (1.2 | ) | — | (1.1 | ) | ||||||||||||||||||||
Stock Award and Stock Option Amortization Expense | — | — | 12.4 | — | — | — | — | 12.4 | ||||||||||||||||||||||
Exercise of Options | 147,829 | 0.1 | 2.6 | — | — | — | — | 2.7 | ||||||||||||||||||||||
Purchase of Common Stock | (342,081 | ) | (0.2 | ) | — | — | — | (9.6 | ) | — | (9.8 | ) | ||||||||||||||||||
Tax Benefit from Stock Option Exercises | — | — | 4.9 | — | — | — | — | 4.9 | ||||||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | (17.3 | ) | — | — | — | (17.3 | ) | ||||||||||||||||||||
Net Income for Year | — | — | — | — | — | 92.9 | — | 92.9 | ||||||||||||||||||||||
Cash Dividends on Common Stock | — | — | — | — | — | (13.7 | ) | — | (13.7 | ) | ||||||||||||||||||||
Balance as of April 29, 2017 | 38,133,925 | $ | 19.1 | $ | 132.2 | $ | (25.7 | ) | $ | (11.5 | ) | $ | 427.0 | $ | — | $ | 541.1 | |||||||||||||
Earned Portion of Restricted Stock Awards | 51,095 | — | — | — | — | (0.2 | ) | — | (0.2 | ) | ||||||||||||||||||||
Stock Award and Stock Option Amortization Expense | — | — | 4.0 | — | — | — | — | 4.0 | ||||||||||||||||||||||
Exercise of Options | 13,333 | — | 0.3 | — | — | — | — | 0.3 | ||||||||||||||||||||||
Adoption of ASU 2016-09 | — | — | — | — | — | 2.7 | — | 2.7 | ||||||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | 39.6 | — | — | — | 39.6 | ||||||||||||||||||||||
Net Income for Year | — | — | — | — | — | 57.2 | — | 57.2 | ||||||||||||||||||||||
Cash Dividends on Common Stock | — | — | — | — | — | (14.7 | ) | — | (14.7 | ) | ||||||||||||||||||||
Balance as of April 28, 2018 | 38,198,353 | $ | 19.1 | $ | 136.5 | $ | 13.9 | $ | (11.5 | ) | $ | 472.0 | $ | — | $ | 630.0 |
See notes to consolidated financial statements.
F-8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
|
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
| |||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
| $ | 123.4 |
|
| $ | 91.6 |
|
| $ | 57.2 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
| 48.3 |
|
|
| 43.3 |
|
|
| 28.1 |
|
Stock-based Compensation Expense |
|
| 0.3 |
|
|
| 14.0 |
|
|
| 4.0 |
|
Change in Cash Surrender Value of Life Insurance |
|
| — |
|
|
| (0.6 | ) |
|
| (0.8 | ) |
Amortization of Debt Issuance Costs |
|
| 0.7 |
|
|
| 0.5 |
|
|
| — |
|
Gain on Sale of Business/Investment/Property |
|
| (0.4 | ) |
|
| (0.4 | ) |
|
| (1.6 | ) |
Change in Deferred Income Taxes |
|
| 8.0 |
|
|
| (4.4 | ) |
|
| (12.7 | ) |
Other |
|
| (0.2 | ) |
|
| 0.2 |
|
|
| — |
|
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
| 27.4 |
|
|
| 1.5 |
|
|
| 2.8 |
|
Inventories |
|
| (15.8 | ) |
|
| (3.9 | ) |
|
| (7.2 | ) |
Prepaid Expenses and Other Assets |
|
| (3.6 | ) |
|
| (16.7 | ) |
|
| 8.2 |
|
Accounts Payable and Other Liabilities |
|
| (47.5 | ) |
|
| (23.1 | ) |
|
| 39.8 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
| 140.6 |
|
|
| 102.0 |
|
|
| 117.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment |
|
| (45.1 | ) |
|
| (49.8 | ) |
|
| (47.7 | ) |
Acquisition of Businesses, Net of Cash Acquired |
|
| — |
|
|
| (422.1 | ) |
|
| (130.9 | ) |
Acquisition of Technology Licenses |
|
| — |
|
|
| — |
|
|
| (0.7 | ) |
Sale of Business/Investment/Property |
|
| 0.6 |
|
|
| 1.1 |
|
|
| 0.3 |
|
NET CASH USED IN INVESTING ACTIVITIES |
|
| (44.5 | ) |
|
| (470.8 | ) |
|
| (179.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes Paid Related to Net Share Settlement of Equity Awards |
|
| (0.4 | ) |
|
| (1.7 | ) |
|
| (0.3 | ) |
Repayments of Finance Leases |
|
| (0.7 | ) |
|
| — |
|
|
| — |
|
Debt Issuance Costs |
|
| — |
|
|
| (3.1 | ) |
|
| — |
|
Proceeds from Exercise of Stock Options |
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Cash Dividends |
|
| (16.3 | ) |
|
| (16.3 | ) |
|
| (14.7 | ) |
Proceeds from Borrowings |
|
| 157.5 |
|
|
| 359.0 |
|
|
| 81.4 |
|
Repayment of Borrowings |
|
| (98.4 | ) |
|
| (120.5 | ) |
|
| (79.4 | ) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
| 41.7 |
|
|
| 217.4 |
|
|
| (12.7 | ) |
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents |
|
| (3.7 | ) |
|
| (11.5 | ) |
|
| 26.0 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 134.1 |
|
|
| (162.9 | ) |
|
| (47.9 | ) |
Cash and Cash Equivalents at Beginning of Year |
|
| 83.2 |
|
|
| 246.1 |
|
|
| 294.0 |
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
| $ | 217.3 |
|
| $ | 83.2 |
|
| $ | 246.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 9.9 |
|
| $ | 8.8 |
|
| $ | 2.4 |
|
Income Taxes, Net of Refunds |
| $ | 21.1 |
|
| $ | 27.8 |
|
| $ | 20.2 |
|
Fiscal Year Ended | |||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | |||||||||
OPERATING ACTIVITIES: | |||||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | 84.6 | |||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | |||||||||||
Gain on Sale of Fixed Assets | — | — | (0.7 | ) | |||||||
Gain on Sale of Licensing Agreement | (1.6 | ) | — | — | |||||||
Provision for Depreciation | 22.5 | 22.0 | 21.5 | ||||||||
Amortization of Intangible Assets | 5.6 | 2.3 | 2.4 | ||||||||
Stock-based Compensation | 4.0 | 12.4 | 7.4 | ||||||||
Provision for Bad Debt | — | 0.2 | — | ||||||||
Change in Deferred Income Taxes | (12.7 | ) | (3.9 | ) | 8.2 | ||||||
Changes in Operating Assets and Liabilities: | |||||||||||
Accounts Receivable | 2.8 | 5.6 | (6.0 | ) | |||||||
Inventories | (7.2 | ) | 7.4 | 4.5 | |||||||
Prepaid Expenses and Other Assets | 7.4 | (4.8 | ) | 0.1 | |||||||
Accounts Payable and Other Expenses | 39.8 | 11.1 | (11.3 | ) | |||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 117.8 | 145.2 | 110.7 | ||||||||
INVESTING ACTIVITIES: | |||||||||||
Purchases of Property, Plant and Equipment | (47.7 | ) | (22.4 | ) | (23.2 | ) | |||||
Acquisition of Businesses | (130.9 | ) | — | — | |||||||
Acquisition of Technology Licenses | (0.7 | ) | — | — | |||||||
Sale of Business/Investment/Property | 0.3 | 0.7 | 1.6 | ||||||||
NET CASH USED IN INVESTING ACTIVITIES | (179.0 | ) | (21.7 | ) | (21.6 | ) | |||||
FINANCING ACTIVITIES: | |||||||||||
Taxes Paid Related to Net Share Settlement of Equity Awards | (0.3 | ) | (1.1 | ) | (7.7 | ) | |||||
Purchase of Common Stock | — | (9.8 | ) | (62.3 | ) | ||||||
Proceeds from Exercise of Stock Options | 0.3 | 2.7 | 0.6 | ||||||||
Tax Benefit from Stock Option Exercises | — | 4.9 | 2.2 | ||||||||
Cash Dividends | (14.7 | ) | (13.7 | ) | (13.5 | ) | |||||
Proceeds from Borrowings | 81.4 | — | 71.0 | ||||||||
Repayment of Borrowings | (79.4 | ) | (30.0 | ) | (19.0 | ) | |||||
NET CASH USED IN FINANCING ACTIVITIES | (12.7 | ) | (47.0 | ) | (28.7 | ) | |||||
Effect of Foreign Currency Exchange Rate Changes on Cash | 26.0 | (10.3 | ) | (0.7 | ) | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (47.9 | ) | 66.2 | 59.7 | |||||||
Cash and Cash Equivalents at Beginning of Year | 294.0 | 227.8 | 168.1 | ||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 246.1 | $ | 294.0 | $ | 227.8 |
See notes to consolidated financial statements.
F-9
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Description of Business and Summary of Significant Accounting PoliciesMethode Electronics, Inc. (the "Company" or "Methode") is a global developer of custom engineered and application specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. The Company's primary manufacturing facilities are located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; and Monterrey and Fresnillo, Mexico. The Company designs, manufactures and markets devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing technologies.
Impact of COVID-19. The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. The Company began to see the impacts of the COVID-19 pandemic at the beginning of its fourth quarter of fiscal 2020 at its China manufacturing facilities, which were initially closed for a few weeks after the Chinese New Year. The Company’s manufacturing facilities in China resumed operations later in the fourth quarter of fiscal 2020, but at lower capacity utilization. However, the major impact to the Company’s business from the COVID-19 pandemic began in mid-March 2020, as the Company’s operations in North America and Europe were adversely impacted by many customers suspending their manufacturing operations due to the COVID-19 pandemic. As a result, productions levels at the Company’s major North American and European manufacturing facilities were significantly reduced to well below capacity, thus impacting the Company’s results of operations during the fourth quarter of fiscal 2020. Some of our international locations received government assistance with respect to wages and other expenses. The amounts received were not material and have been reported as other income.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company's goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of May 2, 2020 and through the date of this report. As a result of these assessments, there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company's consolidated financial statements as of and for year ended May 2, 2020. However, the Company's future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the consolidated financial statements in future reporting periods.
Basis of Presentation. The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP").
Principles of Consolidation.
The consolidated financial statements include the accounts and operations ofFinancial Reporting Periods.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents.
F-10
Accounts Receivable and Allowance for Doubtful Accounts.
Sales to General Motors Company ("GM") and Ford Motor Company ("Ford") in the Automotive segment, either directly or through their tiered suppliers, represented a significant portion of the Company's business. As of May 2, 2020 and April 27, 2019, combined accounts receivable from GM and Ford (including tiered suppliers) were approximately $32.4 million and $65.2 million, respectively.
Inventories: Inventories are stated at the lower-of-cost (first-in,or net realizable value. Cost is determined using the first-in, first-out method) or market, includingmethod. Finished products and work-in-process inventories include direct material costs and direct and indirect manufacturing costs.
Property, Plant and Equipment.
Business Combinations. The Company accounts for business combinations using the carrying amount, an impairment loss equal to the excess of the asset’s carrying amount over its fair value is recorded.
Goodwill. Goodwill is not amortized but is tested for impairment on at least an annual basis or more frequentlybasis. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount including goodwill. An impairment of goodwill exists if indicatorsthe carrying amount of the reporting unit exceeds its fair value. The impairment are identified.
In performing the goodwill impairment test, the Company has the option to first assess qualitative assessmentfactors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of any reporting unit is less than its carrying amount. If we determine that the fair value of the reporting unit may be less than its carrying amount, we evaluate goodwill using a quantitative impairment test. Otherwise, we conclude that no impairment is indicated and we do not perform the quantitative impairment test.
F-11
Amortizable Intangible Assets. Amortizable intangible assets consist primarily of fair values assigned to customer relationships and trade names. Amortization is recognized over the useful lives of the intangible assets, generally up to 20 years, using the straight-line method. See Note 7, “Goodwill and Other Intangible Assets” for additional information.
Impairment Long-Lived Assets. The Company continually evaluates whether events and circumstances have occurred which indicate that the remaining estimated useful lives of its intangible assets, excluding goodwill, and other long-lived assets, may warrant revision or that the remaining balance of such assets may not be recoverable. If impairment indicators exist, the Company performs an impairment analysis without considering such qualitative factors.
Pre-production Costs Related to Long-term Supply Arrangements. The Company incurs pre-production tooling costs related to products produced for its customers under long-term supply agreements. At May 2, 2020 and April 27, 2019, the Company had $37.1 million and $32.8 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract. At May 2, 2020 and April 27, 2019, the Company had $19.0 million and $15.0 million, respectively, of Company owned pre-production tooling, which is capitalized within property, plant and equipment.
Derivative Financial Instruments. The Company recognizes derivative financial instruments on its consolidated balance sheet at fair value. The only derivative financial instruments used by the Company are cross-currency swaps which are treated as a net investment hedge. For net investment hedges, the quantitative analysis,effective portions of changes in the fair valuesvalue of the derivative are primarily established using a discounted cash flow methodology (specifically,included in other comprehensive income or loss in the consolidated statements of comprehensive income, and market approach).the cumulative effect is included in the stockholders’ equity section of the consolidated balance sheets. The determinationcumulative changes in fair value are reclassified to the same line as the hedged item in the consolidated statements of discounted cash flowsincome when the hedged item affects earnings. See Note 8, “Derivative Instruments” for additional information.
Income Taxes. Income taxes are calculated using the asset and liability method, under which deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. See Note 11, “Income Taxes” for additional information.
Revenue Recognition. The majority of the Company's revenue is recognized at a point in time. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, with the exception of consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.
Revenues associated with products which the Company believes have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over time basis. In transition to Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” the Company noted some customers ordered highly customized parts in which the Company was entitled to payment throughout the manufacturing process. In accordance with ASC 606, the Company has begun recognizing revenue over time for these customers as the performance obligation is satisfied. The Company believes the most faithful depiction of the transfer of goods to the customer is based on our long-range forecastsprogress to date, which is
F-12
typically smooth throughout the production process. As such, the Company recognizes revenue evenly over the production process through transfer of control to the customer.
In addition, customers typically negotiate annual price downs. Management has evaluated these price downs and requires assumptionsdetermined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.
Across all products, the amount of revenue recognized corresponds to the related to revenuepurchase order and operating income growth, asset-related expenditures, working capital levels,is adjusted for variable consideration (such as discounts). Sales and other market participant assumptions. taxes collected concurrent with revenue-producing activities are excluded from revenue.
The revenue growthCompany’s performance obligations are typically short-term in nature. As a result, the Company has elected the practical expedient that provides an exemption from the disclosure requirements regarding information about remaining performance obligations on contracts that have original expected durations of one year or less.
Shipping and Handling Fees and Costs. Shipping and handling fees billed to customers are included in net sales, and the related costs are included in cost of products sold.
Foreign Currency Translation. The functional currencies of the majority of the Company's foreign subsidiaries are their local currencies. The results of operations of these foreign subsidiaries are translated into U.S. dollars using average monthly rates, while the assets and liabilities are translated using period-end exchange rates. The resulting translation adjustments are recognized in accumulated other comprehensive loss. Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the foreign subsidiary are included in the forecastsconsolidated statements of income in other income, net.
Government Grants. The Company recognizes grant income in other income, net in the consolidated statements of income when it is considered that there is reasonable assurance that the grant will be received and the necessary qualifying conditions, as stated in the grant agreement, are our best estimates basedmet. The international government grants are generally paid over a period of years and are recorded at amortized cost on the Company’s consolidated balance sheets. As of May 2, 2020 and April 27, 2019, grant receivables outstanding (both current and anticipated market conditions,long-term) were $18.7 million and the profitability assumptions are projected based on current$10.6 million, respectively. Additionally, as of May 2, 2020 and anticipated cost structures. Long-range forecasting involves uncertainty which increases with each successive period. Key assumptions, such as revenue growth rates and profitability, especially in the outer years, involve a greater degree of uncertainty.
Research and Development Costs
. Costs associated with the enhancement of existing products and the development of new products are charged to expense when incurred. Research and development expenses primarily relate to product engineering and design and development expenses and are classified as a component ofStock-Based Compensation.
The Company recognizes compensation expense for the cost of awards of equity compensation using a fair value method in accordance with ASC 718, "Stock-based Compensation." See NoteProduct Warranty. The Company’s warranties are standard, assurance-type warranties only. The Company does not offer any additional service or extended term warranties to its customers. As such, warranty obligations are accrued when its probable that a descriptionliability has been incurred and the related amounts are reasonably estimable.
F-13
Fair Value. ASC 820, "Fair Value Measurement," provides a framework for measuring fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy under ASC 820 requires an entity to maximize the use of Other Financial Instruments.
• | Level 1 - Quoted prices in active markets for identical assets or liabilities; |
• | Level 2 – Observable inputs other than quoted prices in active markets for identical assets or liabilities; |
• | Level 3 - Unobservable inputs in which little or no market activity exists, requiring the Company to develop its own assumptions that market participants would use to value the asset or liability. |
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes to the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The carrying values of ourthe Company's short-term financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. We
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2016-02, “Leases,” which amended authoritative guidance on leases and is codified in ASC 842. The amended guidance requires entities to record most leased assets and liabilities on the balance sheet, and also retains a dual model approach for assessing lease classification and recognizing expense. The FASB subsequently issued updates to provide clarification on specific topics, including adoption guidance, practical expedients and interim transition disclosure requirements.
The Company adopted the standard on April 28, 2019, by applying the modified retrospective method without
restatement of comparative periods' financial information, as permitted by the transition guidance. Accordingly, the Company
has provided disclosures required by prior lease guidance for comparative periods. The adoption of this standard resulted in the
recognition of right-of-use assets of $27.6 million and related lease obligations of $28.1 million as of April 28, 2019. The
standard did not have noa significant impact on the Company's operating results or cash flows.
The Company elected certain practical expedients, including the election not to reassess its prior conclusions about
lease identification, lease classification and initial direct costs, as well as the election not to separate lease and non-lease
components for arrangements where the Company is a lessee. Lastly, the Company elected to recognize a right-of-use asset and
related lease liability for leases with a lease term of 12 months or less for all classes of underlying assets. The Company
determines if an arrangement contains a lease at inception. Operating lease expense is recognized on a straight-line basis over the lease term.
For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The
Company's leases do not contain material assetsresidual value guarantees or liabilities measuredmaterial restrictive covenants. The discount rate used to
measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not
provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine
the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of
interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments. See Note 3,
"Leases," for additional information.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which is intended to better align risk management activities and financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain
F-14
documentation and assessment requirements. The Company adopted ASU 2017-12 as of April 28, 2019 and the adoption had no impact on a recurring basis.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement—Reporting"Income Statement-Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.Income." The amendments in this update are intended to address a specific consequence of U.S. Tax Reform by allowing
allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting
from U.S. Tax Reform’s reduction of the U.S. federal corporate income tax rate. The Company adopted ASU is2018-02 as of April 28, 2019 and the adoption had no impact on the Company’s consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” The new standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The standard will be effective for all entities for annual periods beginning after December 15, 2018, with early adoption permitted, and is to be applied eitherthe Company in the periodfirst quarter of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate is recognized. Managementfiscal 2021. The Company does not expect this ASU tothat the adoption of the standard will have a material impact on the Company’s consolidated financial statements.
In May 2017,August 2018, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract." The guidance in ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. The standard will be effective for the Company in the first quarter of fiscal 2021. The Company does not expect that the adoption of the standard will have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 718): Scope of Modification Accounting.820) – Disclosure
Framework – Changes to the Disclosure Requirements for Fair Value Measurement." The amendmentsguidance in this update provide guidance about whichASU 2018-13 changes
disclosure requirements related to fair value measurements as part of the disclosure framework project. The disclosure
framework project aims to improve the effectiveness of disclosures in the notes to the terms or conditionsfinancial statements by focusing on
requirements that clearly communicate the most important information to users of the financial statements. The standard will be effective for the Company in the first quarter of fiscal 2021. The Company does not expect that the adoption of the standard will have a material impact on the disclosures to the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes
(Topic 740)," which simplifies the accounting for income taxes. The new guidance removes certain exceptions to the general
principles in ASC 740, such as recognizing deferred taxes for equity investments, the incremental approach to performing intraperiod tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the
allocation of taxes to members of a share-based payment award requireconsolidated group and requiring that an entity to apply modification accountingreflect the effect of enacted changes in Topic 718. The amendments are tax
laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This guidance is
effective for annual periods beginning after December 15, 2017, including2020, and interim periods within those periods.thereafter; however, early adoption is permitted. The Company is currently assessing the potential impact of standard will be effective for us in fiscal years beginning April 29, 2018. This ASU is not expected to have a material effect on the Company'sits consolidated financial statements. If, in the future, Methode makes modifications to its existing share-based payment awards, those modifications will need to be evaluated based on the criteria detailed in this ASU and accounted for accordingly.
In August 2016,March 2020, the FASB issued ASU No. 2016-15, “Statement2020-04, “Reference Rate Reform (Topic 848): Facilitation of Cash Flows (Topic 230) - Classificationthe Effects of Certain Cash ReceiptsReference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and Cash Payments.” The amendments in this update provide guidance on eight specific cash flow presentation issuesexceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that have developed due to diversity in practice. The issues include, but are not limited to, debt prepaymentreference LIBOR or extinguishment costs, contingent consideration payments made after a business combination, and proceeds from the settlement of insurance claims. The amendments in this ASU, where practicable, areanother rate that is expected to be applied retrospectively. The standarddiscontinued. ASU 2020-04 will be effective for us in fiscal years beginning April 29, 2018. We do not believe this pronouncement will have a materialeffect through December 31, 2022. The Company is currently assessing the potential impact of standard on ourits consolidated financial statements.
Note 2.Revenue
The Company is a global manufacturer of component and subsystem devices whose components are found in the FASB issued ASU No. 2014-09, “Revenue from Contractsprimary end-markets of the aerospace, appliance, automotive, commercial vehicle, construction, consumer and industrial
F-15
equipment, communications (including information processing and storage, networking equipment and wireless and terrestrial voice/data systems), medical, rail and other transportation industries.
The majority of the Company's revenue is recognized at a point in time. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.
Revenues associated with Customers (Topic 606).”products which the Company believes have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over time basis. The core principle is that a company should recognize revenue to depictCompany believes the most faithful depiction of the transfer of goods or servicesto the customer is based on progress to date, which is typically smooth throughout the production process. As such, the Company recognizes revenue evenly over the production process through transfer of control to the customer.
Customers typically negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.
Across all products, the amount of revenue recognized corresponds to the related purchase order. Revenue is adjusted for variable consideration (such as discounts) as described further below. Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
Estimating total contract revenue may require judgment as certain contracts contain pricing discount structures, early payment discounts or other provisions that can impact the transaction price. The Company generally estimates variable consideration utilizing the most likely amount to which we expect to be entitled. When the contract provides the customer with the right to return eligible products, the Company reduces revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns. The Company adjusts these estimates at the earlier of when the most likely amount of consideration that reflectsis expected to be received changes or when the consideration whichbecomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time. The Company has elected the entity expectspractical expedient for significant financing components, allowing the Company to receive in exchangenot adjust the promised amount of consideration for those goods or services. In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting revenue gross versus net)," which clarifies gross versus net revenue reportingeffects of a financing component when another party is involved in the transaction. In April 2016, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations and Licensing," which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. The standards will be effective for us in the fiscalpayment terms are within one year beginning April 29, 2018.
Costs to the manufacturing of goods with no alternative use in which the Company hasFulfill/Obtain a right to payment. The contractually guaranteed price reductions could result in revenue being deferred as it relates to those material rights, which would be a change from
The Company will continueincurs pre-production tooling costs related to monitor the effect of the standard on our ongoing financial reporting.
The Company has not historically incurred material costs to obtain a contract. In the instances that costs to obtain contracts are treated as revenue generating activity. Going forward,incurred, the Company will recognize customer reimbursements related to pre-production costs as net withincapitalize and amortize those over the costlife of products sold line item. Given that tooling sales were only $10.4 million for both fiscal 2017the contract.
Contract Assets and 2018, this change in accounting treatment will have an immaterial impact on the financial statements on a go-forward basis.
The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leasesCompany receives payment from customers based on the principlecontractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. A contract liability exists when the Company has received consideration or the amount is due from the customer in advance of whetherrevenue recognition. Contract assets and contract liabilities are recognized in other current assets and other liabilities, respectively, in the Company's consolidated balance sheets.
F-16
Unbilled Receivables (Contract Assets) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized over time. Unbilled receivables were $0.5 million and $0.8 million as of May 2, 2020 and April 27, 2019, respectively. During fiscal 2020, $0.8 million of previously unbilled receivables were recorded into accounts receivable. There were 0 impairments of contract assets as of May 2, 2020.
Deferred Revenue (Contract Liabilities) - For certain of the price reductions offered by the Company, the amount of the reduction cannot be attributed entirely to production efficiencies gained. In these cases, the annual price-downs are considered to be material rights as the customer, as part of their current contract, are purchasing an option that they would not have received without the contract to purchase future product. When a contract contains a material right, a portion of the transaction price is allocated to the material right for which revenue recognition is deferred until the customer exercises its option. Deferred revenue was $0.3 million as of both May 2, 2020 and April 27, 2019. Previously deferred revenue of $0.1 million was recorded into revenue during fiscal 2020.
Disaggregated Revenue Information
The following table represents a disaggregation of revenue from contracts with customers by segment and geographical location. Net sales are attributed to regions based on the location of production. Though revenue recognition patterns and contracts are generally consistent, the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic and economic factors.
|
| Fiscal Year Ended May 2, 2020 (53 Weeks) |
| |||||||||||||||||
(Dollars in Millions) |
| Auto |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Total |
| |||||
Geographic Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 330.9 |
|
| $ | 141.1 |
|
| $ | 57.9 |
|
| $ | 1.6 |
|
| $ | 531.5 |
|
Malta |
|
| 113.2 |
|
|
| 30.4 |
|
|
| 0.3 |
|
|
| — |
|
|
| 143.9 |
|
China |
|
| 74.4 |
|
|
| 42.4 |
|
|
| 0.1 |
|
|
| — |
|
|
| 116.9 |
|
Mexico |
|
| 104.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 104.7 |
|
Other |
|
| 88.9 |
|
|
| 37.5 |
|
|
| 0.5 |
|
|
| — |
|
|
| 126.9 |
|
Total Net Sales |
| $ | 712.1 |
|
| $ | 251.4 |
|
| $ | 58.8 |
|
| $ | 1.6 |
|
| $ | 1,023.9 |
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods Transferred at a Point in Time |
| $ | 675.4 |
|
| $ | 251.4 |
|
| $ | 58.8 |
|
| $ | 1.6 |
|
| $ | 987.2 |
|
Goods Transferred Over Time |
|
| 36.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36.7 |
|
Total Net Sales |
| $ | 712.1 |
|
| $ | 251.4 |
|
| $ | 58.8 |
|
| $ | 1.6 |
|
| $ | 1,023.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Year Ended April 27, 2019 (52 Weeks) |
| |||||||||||||||||
(Dollars in Millions) |
| Auto |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Total |
| |||||
Geographic Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 373.0 |
|
| $ | 110.3 |
|
| $ | 56.1 |
|
| $ | 1.1 |
|
| $ | 540.5 |
|
Malta |
|
| 116.4 |
|
|
| 31.8 |
|
|
| 0.3 |
|
|
| — |
|
|
| 148.5 |
|
China |
|
| 78.2 |
|
|
| 35.3 |
|
|
| 0.2 |
|
|
| — |
|
|
| 113.7 |
|
Canada |
|
| 87.8 |
|
|
| 13.8 |
|
|
| — |
|
|
| — |
|
|
| 101.6 |
|
Other |
|
| 79.3 |
|
|
| 15.6 |
|
|
| 1.1 |
|
|
| — |
|
|
| 96.0 |
|
Total Net Sales |
| $ | 734.7 |
|
| $ | 206.8 |
|
| $ | 57.7 |
|
| $ | 1.1 |
|
| $ | 1,000.3 |
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods Transferred at a Point in Time |
| $ | 704.4 |
|
| $ | 206.8 |
|
| $ | 57.7 |
|
| $ | 1.1 |
|
| $ | 970.0 |
|
Goods Transferred Over Time |
|
| 30.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30.3 |
|
Total Net Sales |
| $ | 734.7 |
|
| $ | 206.8 |
|
| $ | 57.7 |
|
| $ | 1.1 |
|
| $ | 1,000.3 |
|
F-17
Customer Concentration
Sales to GM and Ford in the Automotive segment, either directly or through their tiered suppliers, are shown below.
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
Percentage of Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
GM |
|
| 26.8 | % |
|
| 35.5 | % |
|
| 43.3 | % |
Ford |
|
| 10.7 | % |
|
| 11.6 | % |
|
| 12.3 | % |
Note 3.Leases
The Company leases real estate, automobiles and certain equipment under both operating and finance leases. The Company does not have any significant arrangements where it is the lessor. The majority of the Company's global lease portfolio represents leases of real estate, such as manufacturing facilities, warehouses and buildings. As of May 2, 2020, the Company's leases have remaining lease terms of up to 11.3 years, some of which include optional renewals or terminations, which are considered in the Company’s assessments when such options are reasonably certain to be exercised. Any variable payments related to the lease is effectively a financed purchase by the lessee. This classification will determine whetherbe recorded as lease expense is recognized based on an effective interest method or on a straight line basis overwhen and as incurred. The Company’s lease payments are largely fixed. As of May 2, 2020, the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedesthat the previousCompany has signed but have not yet commenced are immaterial.
In addition to the operating lease assets presented on the consolidated balance sheets, assets under finance leases standard, ASC 840 Leases.of $1.0 million are included in property, plant and equipment, net on the consolidated balance sheets as of May 2, 2020. Finance lease obligations were $1.4 million as of May 2, 2020 and is split between other accrued expenses for the short-term portion and other long-term liabilities for the long-term portion on the consolidated balance sheets. The amendmentsCompany had an immaterial amount of finance lease expense in this updatethe year ended May 2, 2020.
The components of lease expense were as follows:
(Dollars in Millions) |
| Fiscal Year Ended May 2, 2020 |
| |
Lease Cost: |
|
|
|
|
Operating Lease Cost |
| $ | 9.0 |
|
Variable Lease Cost |
|
| 1.3 |
|
Total Lease Cost |
| $ | 10.3 |
|
Supplemental cash flow and other information related to operating leases was as follows:
(Dollars in Millions) |
| Fiscal Year Ended May 2, 2020 |
| |
Operating Cash Flows: |
|
|
|
|
Cash Paid Related to Operating Lease Obligations |
| $ | 8.7 |
|
Non-cash Activity: |
|
|
|
|
Right-of-use Assets Obtained in Exchange for Lease Obligations |
| $ | 5.5 |
|
Weighted-average Remaining Lease Term |
| 5.7 years |
| |
Weighted-average Discount Rate |
|
| 4.7 | % |
F-18
Maturities of operating lease liabilities as of May 2, 2020, are effective for fiscal years beginning after December 15, 2018, which is our fiscal 2020, beginning on April 28, 2019. We are currently evaluating the impact this guidance will have on our consolidated financial statements.shown below:
(Dollars in Millions) |
| Operating Leases |
| |
Fiscal Year: |
|
|
|
|
2021 |
| $ | 6.6 |
|
2022 |
|
| 5.9 |
|
2023 |
|
| 5.2 |
|
2024 |
|
| 4.0 |
|
2025 |
|
| 2.3 |
|
Thereafter |
|
| 5.7 |
|
Total Lease Payments |
|
| 29.7 |
|
Less: Imputed Interest |
|
| (3.8 | ) |
Present Value of Lease Liabilities |
| $ | 25.9 |
|
Disclosures related to be measured at fair value with changes in fair value recognized in net income, requires public business entitiesperiods prior to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this update are effective for fiscal years beginning after December 15, 2017, which is our fiscal 2019, beginning on April 29, 2018. We do not expect any impact from the adoption of this guidance on our consolidated financial statements.
Total rent expense was $7.6 million and Other (Topic 350).” The amendments in this ASU simplify goodwill impairment testing by removing the requirement of Step 2 to determine the implied fair value of the goodwill of a business which fails Step 1. The effects of this update result$5.9 million in the amount by which a carrying amount exceeds the business' fair value to be recognized as an impairment charge in the period identified. The standard is effectiveyears ended April 27, 2019 and April 28, 2018, respectively. Future minimum lease payments for us for annual and interim goodwill impairment tests in fiscal years beginning May 3, 2020, with early adoption permitted. The Company has adopted this ASU on a prospective basis effectiveassets under operating leases as of April 30, 2017 and has concluded that this pronouncement has no material impact on its consolidated financial statements.27, 2019 were as follows:
(Dollars in Millions) |
| Operating Leases |
| |
Fiscal Years: |
|
|
|
|
2020 |
| $ | 7.8 |
|
2021 |
|
| 5.6 |
|
2022 |
|
| 4.9 |
|
2023 |
|
| 4.2 |
|
2024 |
|
| 3.3 |
|
Thereafter |
|
| 8.4 |
|
Net Minimum Lease Payments |
| $ | 34.2 |
|
Note 4.Acquisitions
Acquisition of Grakon
On September 12, 2018, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this update clarify the definition of a business, with the objective of assisting entities with
F-19
During the second quarter of fiscal 2020, the Company completed the allocation of the purchase price to the assets acquired and liabilities assumed. Based on the final allocation, goodwill decreased by $0.2 million from the preliminary amount reported in the Company's consolidated financial statements as of April 27, 2019. The final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed were:
(Dollars in Millions) |
|
|
|
|
Cash |
| $ | 6.9 |
|
Accounts Receivable |
|
| 36.1 |
|
Inventory |
|
| 30.8 |
|
Prepaid Expenses and Other Current Assets |
|
| 1.6 |
|
Intangible Assets |
|
| 221.9 |
|
Goodwill |
|
| 175.1 |
|
Pre-production Costs |
|
| 1.5 |
|
Property, Plant and Equipment |
|
| 16.2 |
|
Accounts Payable |
|
| (19.4 | ) |
Accrued Employee Liabilities |
|
| (4.4 | ) |
Other Accrued Expenses |
|
| (7.6 | ) |
Income Tax Payable |
|
| (0.3 | ) |
Deferred Income Tax Liability |
|
| (29.4 | ) |
Total Purchase Price |
| $ | 429.0 |
|
The following table presents details of the intangible assets acquired:
(Dollars in Millions) |
| Fair Value at Date of Acquisition |
|
| Amortization Period | |
Customer Relationships and Agreements - Significant Customer |
| $ | 57.0 |
|
| 19.5 years |
Customer Relationships and Agreements - All Other Customers |
|
| 125.0 |
|
| 19.5 years |
Technology Licenses |
|
| 17.7 |
|
| 11.7 years |
Trade Names |
|
| 22.2 |
|
| 8.5 years |
Total |
| $ | 221.9 |
|
|
|
F-20
In fiscal 2019, acquisition-related costs of $15.4 million were incurred in relation to the acquisition of Grakon, of which $9.8 million was reported in selling and administrative expenses and $5.6 million was reported in costs of products sold on the consolidated statements of income.
Fiscal 2018 Acquisitions
On July 27, 2017, the Company acquired 100% of the stock of Procoplast S.A. ("Procoplast") for $22.2 million in cash, net of cash acquired. The business, located near the Belgian-German border, is an independent manufacturer of automotive assemblies. The accounts and transactions of Procoplast have been included in the Automotive segment in the consolidated financial statements from the effective date of the acquisition. For goodwill impairment testing purposes, Procoplast will be included in the Company's European Automotive reporting unit.
(Dollars in Millions) | ||||
Cash | $ | 1.3 | ||
Accounts Receivable | 7.4 | |||
Inventory | 3.5 | |||
Intangible Assets | 19.2 | |||
Goodwill | 6.8 | |||
Pre-production Costs | 2.3 | |||
Property, Plant and Equipment | 23.8 | |||
Accounts Payable | (4.9 | ) | ||
Salaries, Wages and Payroll Taxes | (0.8 | ) | ||
Other Accrued Expenses | (0.7 | ) | ||
Income Taxes Payable | (0.6 | ) | ||
Short-term Debt | (3.2 | ) | ||
Other Liabilities | (2.1 | ) | ||
Long-term Debt | (20.6 | ) | ||
Deferred Income Tax Liability | (7.9 | ) | ||
Total Purchase Price | $ | 23.5 |
(Dollars in Millions) | Fair Value at Date of Acquisition | Amortization Period | ||||
Customer Relationships and Agreements - Significant Customer | $ | 12.3 | 17.0 years | |||
Customer Relationships and Agreements - All Other Customers | 2.8 | 11.5 years | ||||
Technology Licenses | 2.1 | 8.5 years | ||||
Trade Names | 2.0 | 8.5 years | ||||
Total | $ | 19.2 |
On October 3, 2017, wethe Company acquired 100% of the outstanding common shares of Pacific Insight in a cash transactionElectronics Corp. ("Pacific Insight") for $108.7 million in cash, net of cash acquired. Headquartered in Canada, Pacific Insight headquartered in Vancouver, British Columbia, Canada, is a global solutions provider offering design, development, manufacturing and delivery of lighting and electronic products and full-service solutions to the automotive and commercial vehicle markets,markets.
The purchase price was allocated to the tangible and has manufacturing facilitiesintangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition dates. Goodwill arising from the acquisition of Procoplast and Pacific Insight are not deductible for tax purposes. The purchase price allocations were finalized at the end of fiscal 2018 and are summarized as follows:
(Dollars in Millions) |
| Procoplast |
|
| Pacific Insight |
|
| Total |
| |||
Cash |
| $ | 1.3 |
|
| $ | 4.9 |
|
| $ | 6.2 |
|
Accounts Receivable |
|
| 7.4 |
|
|
| 18.3 |
|
|
| 25.7 |
|
Inventory |
|
| 3.5 |
|
|
| 13.0 |
|
|
| 16.5 |
|
Intangible Assets |
|
| 19.2 |
|
|
| 40.1 |
|
|
| 59.3 |
|
Goodwill |
|
| 6.8 |
|
|
| 50.4 |
|
|
| 57.2 |
|
Other Assets |
|
| 2.3 |
|
|
| 2.3 |
|
|
| 4.6 |
|
Property, Plant and Equipment |
|
| 23.8 |
|
|
| 13.2 |
|
|
| 37.0 |
|
Accounts Payable |
|
| (4.9 | ) |
|
| (7.9 | ) |
|
| (12.8 | ) |
Other Accrued Expenses |
|
| (2.1 | ) |
|
| (3.7 | ) |
|
| (5.8 | ) |
Short-term Debt |
|
| (3.2 | ) |
|
| (0.8 | ) |
|
| (4.0 | ) |
Other Long-term Liabilities |
|
| (2.1 | ) |
|
| — |
|
|
| (2.1 | ) |
Long-term Debt |
|
| (20.6 | ) |
|
| (3.4 | ) |
|
| (24.0 | ) |
Deferred Income Tax Liability |
|
| (7.9 | ) |
|
| (12.8 | ) |
|
| (20.7 | ) |
Total Purchase Price |
| $ | 23.5 |
|
| $ | 113.6 |
|
| $ | 137.1 |
|
Intangible assets acquired consisted of customer relationships, technology licenses and trademarks. The weighted average amortization period for the acquired Procoplast and Pacific Insight intangible assets were 14.4 years and 10.7 years, respectively.
For goodwill impairment testing purposes, Procoplast is included in both Canadathe Company's European Automotive reporting unit and Mexico. Its technologyPacific Insight is included in LED-based ambient and direct lighting will expand our presence within the automotive interior, as well as augment our efforts in overhead console and other areas.Company’s North American Automotive reporting unit. The accounts and transactions of Procoplast and Pacific Insight have been included in the Automotive segment in the consolidated financial statements from the effective date of theeach acquisition.
For goodwill impairment testing purposes, Pacific Insight will be includedboth acquisitions, combined transaction costs of $6.8 million were incurred in the Company's North American Automotive reporting unit.
(Dollars in Millions) | ||||
Cash | $ | 4.9 | ||
Accounts Receivable | 18.3 | |||
Inventory | 13.0 | |||
Prepaid Expenses and Other Current Assets | 0.3 | |||
Income Taxes Receivable | 1.2 | |||
Intangible Assets | 40.1 | |||
Goodwill | 50.4 | |||
Pre-production Costs | 0.8 | |||
Property, Plant and Equipment | 13.2 | |||
Accounts Payable | (7.9 | ) | ||
Salaries, Wages and Payroll Taxes | (0.8 | ) | ||
Other Accrued Expenses | (2.9 | ) | ||
Short-term Debt | (0.8 | ) | ||
Long-term Debt | (3.4 | ) | ||
Deferred Income Tax Liability | (12.8 | ) | ||
Total Purchase Price | $ | 113.6 |
The following table presents details of the intangible assets acquired:
(Dollars in Millions) | Fair Value at Date of Acquisition | Amortization Period | ||||
Customer Relationships and Agreements - Automotive | $ | 22.6 | 11.0 years | |||
Customer Relationships and Agreements - Commercial | 9.6 | 13.0 years | ||||
Trade Names | 6.2 | 7.5 years | ||||
Technology Licenses | 1.7 | 5.5 years | ||||
Total | $ | 40.1 |
F-21
results presented below primarily include amortization charges for acquired intangible assets, depreciation adjustments for property, plant and equipment that has been revalued, interest expense adjustments due to an increased debt level, adjustments for certain acquisition-related charges and related tax effects.
|
| Fiscal Year Ended |
| |||||
(Dollars in Millions) |
| April 27, 2019 |
|
| April 28, 2018 |
| ||
Revenues |
| $ | 1,073.3 |
|
| $ | 1,095.0 |
|
Net Income |
| $ | 106.4 |
|
| $ | 70.5 |
|
Year Ended | ||||||||
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | ||||||
Revenues | $ | 947.3 | $ | 910.0 | ||||
Net Income | $ | 62.2 | $ | 97.6 |
Note 5. Inventory
A summary of $5.5inventories is shown below:
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
| ||
Finished Products |
| $ | 45.7 |
|
| $ | 40.2 |
|
Work in Process |
|
| 10.8 |
|
|
| 9.4 |
|
Raw Materials |
|
| 74.5 |
|
|
| 67.1 |
|
Total Inventories |
| $ | 131.0 |
|
| $ | 116.7 |
|
Note 6.Property, Plant and Equipment
A summary of property, plant and equipment is shown below:
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
| ||
Land |
| $ | 3.3 |
|
| $ | 3.7 |
|
Buildings and Building Improvements |
|
| 87.3 |
|
|
| 81.2 |
|
Machinery and Equipment |
|
| 412.3 |
|
|
| 390.7 |
|
Total Property, Plant and Equipment, Gross |
|
| 502.9 |
|
|
| 475.6 |
|
Less: Accumulated Depreciation |
|
| (301.0 | ) |
|
| (283.7 | ) |
Property, Plant and Equipment, Net |
| $ | 201.9 |
|
| $ | 191.9 |
|
Depreciation expense was $29.3 million, were incurred$27.2 million and $22.5 million in relation tofiscal 2020, fiscal 2019 and fiscal 2018, respectively. As of May 2, 2020 and April 27, 2019, capital expenditures recorded in accounts payable totaled $5.8 million and $6.4 million, respectively.
Note 7. Goodwill and Other Intangible Assets
Goodwill
The Company tests goodwill for impairment on an annual basis as of the acquisitionbeginning of Pacific Insightthe fourth quarter each year, or more frequently if indicators of potential impairment exist. Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the year ended April 28, 2018,operating results of which $4.9 million have been reported in selling and administrative expenses and $0.6 million have been reported in costs of products sold on the consolidated statements of income.
At the beginning of the fourth quarter of fiscal 2018,2020, the Company performed a quantitative goodwill impairment test on our North American Automotive and European Automotiveits reporting units in the Automotive segment, Power Systems Group in the Power Products segment and Hetronic in our Interface segment. In determining the estimated fair valuesunits. The Company utilizes a combination of the reporting units, the Company was requiredincome approach and market value approach to estimate a number of factors, including future cash flows, operating results, discount rates and market conditions. On the basis of these estimates, the analysis indicated the following:
Fair Value of Reporting Unit | Carrying Value of Reporting Unit | Excess (Deficiency) | ||||||||||
North American Automotive | $ | 708.5 | $ | 215.3 | $ | 493.2 | ||||||
European Automotive | $ | 386.5 | $ | 302.1 | $ | 84.4 | ||||||
Power Systems Group | $ | 44.0 | $ | 13.1 | $ | 30.9 | ||||||
Hetronic | $ | 77.5 | $ | 32.0 | $ | 45.5 |
F-22
The goodwill impairment losses reported in the fiscal year ended April 28, 2018.
Automotive | Interface | Power Products | Total | |||||||||||||
Balance as of May 2, 2015 | $ | — | $ | 0.7 | $ | 1.0 | $ | 1.7 | ||||||||
Goodwill Acquired | — | — | — | — | ||||||||||||
Impairment | — | — | — | — | ||||||||||||
Foreign Currency Translation | — | — | — | — | ||||||||||||
Balance as of April 30, 2016 | — | 0.7 | 1.0 | 1.7 | ||||||||||||
Goodwill Acquired | — | — | — | — | ||||||||||||
Impairment | — | — | — | — | ||||||||||||
Foreign Currency Translation | — | (0.1 | ) | — | (0.1 | ) | ||||||||||
Balance as of April 29, 2017 | — | 0.6 | 1.0 | 1.6 | ||||||||||||
Goodwill Acquired | 57.2 | — | — | 57.2 | ||||||||||||
Impairment | — | — | — | — | ||||||||||||
Foreign Currency Translation | 0.3 | 0.1 | — | 0.4 | ||||||||||||
Balance as of April 28, 2018 | $ | 57.5 | $ | 0.7 | $ | 1.0 | $ | 59.2 |
A summary of the indefinite-lived intangible assetchanges in goodwill by reportable segment is less than its carrying value. The fair valuesas follows:
(Dollars in Millions) |
| Automotive |
|
| Industrial |
|
| Total |
| |||
Balance as of April 29, 2017 |
| $ | — |
|
| $ | 1.6 |
|
| $ | 1.6 |
|
Acquisitions |
|
| 57.2 |
|
|
| — |
|
|
| 57.2 |
|
Foreign Currency Translation |
|
| 0.3 |
|
|
| 0.1 |
|
|
| 0.4 |
|
Balance as of April 28, 2018 |
|
| 57.5 |
|
|
| 1.7 |
|
|
| 59.2 |
|
Acquisitions |
|
| 49.4 |
|
|
| 125.9 |
|
|
| 175.3 |
|
Foreign Currency Translation |
|
| (0.6 | ) |
|
| (0.6 | ) |
|
| (1.2 | ) |
Balance as of April 27, 2019 |
|
| 106.3 |
|
|
| 127.0 |
|
|
| 233.3 |
|
Acquisitions |
|
| — |
|
|
| (0.2 | ) |
|
| (0.2 | ) |
Foreign Currency Translation |
|
| (0.1 | ) |
|
| (1.4 | ) |
|
| (1.5 | ) |
Balance as of May 2, 2020 |
| $ | 106.2 |
|
| $ | 125.4 |
|
| $ | 231.6 |
|
A summary of the trademarks tested exceeded their carrying valuegoodwill by approximately 44%, 28% and 17% for fiscal 2018, fiscal 2017 and fiscal 2016, respectively.reporting unit is as follows:
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
| ||
Grakon Industrial |
| $ | 123.8 |
|
| $ | 125.4 |
|
North American Automotive |
|
| 99.8 |
|
|
| 99.8 |
|
European Automotive |
|
| 6.4 |
|
|
| 6.5 |
|
Other |
|
| 1.6 |
|
|
| 1.6 |
|
Total |
| $ | 231.6 |
|
| $ | 233.3 |
|
Other Intangible Assets, Net
The following tables present details of the Company's identifiable intangible assets:
|
| As of May 2, 2020 |
| |||||||||||||
(Dollars in Millions) |
| Gross |
|
| Accumulated Amortization |
|
| Net |
|
| Wtd. Avg. Remaining Amortization Periods (Years) |
| ||||
Definite-lived Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships and Agreements |
| $ | 243.5 |
|
| $ | (40.8 | ) |
| $ | 202.7 |
|
|
| 16.5 |
|
Trade Names, Patents and Technology Licenses |
|
| 75.3 |
|
|
| (35.0 | ) |
|
| 40.3 |
|
|
| 7.8 |
|
Total Definite-lived Intangible Assets |
|
| 318.8 |
|
|
| (75.8 | ) |
|
| 243.0 |
|
|
|
|
|
Indefinite-lived Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names, Patents and Technology Licenses |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
|
|
Total Indefinite-lived Intangible Assets |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
|
|
Total Other Intangible Assets |
| $ | 320.6 |
|
| $ | (75.8 | ) |
| $ | 244.8 |
|
|
|
|
|
F-23
|
| As of April 27, 2019 | ||||||||||||
(Dollars in Millions) |
| Gross |
|
| Accumulated Amortization |
|
| Net |
|
| Wtd. Avg. Remaining Amortization Periods (Years) | |||
Definite-lived Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships and Agreements |
| $ | 244.5 |
|
| $ | (27.7 | ) |
| $ | 216.8 |
|
| 17.4 |
Trade Names, Patents and Technology Licenses |
|
| 75.5 |
|
|
| (29.2 | ) |
|
| 46.3 |
|
| 8.4 |
Total Definite-lived Intangible Assets |
|
| 320.0 |
|
|
| (56.9 | ) |
|
| 263.1 |
|
|
|
Indefinite-lived Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names, Patents and Technology Licenses |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
Total Indefinite-lived Intangible Assets |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
Total Other Intangible Assets |
| $ | 321.8 |
|
| $ | (56.9 | ) |
| $ | 264.9 |
|
|
|
As of April 28, 2018 | |||||||||||||
Gross | Accumulated Amortization | Net | Wtd. Avg. Remaining Amortization Periods (Years) | ||||||||||
Customer Relationships and Agreements | $ | 64.4 | $ | 18.1 | $ | 46.3 | 12.3 | ||||||
Trade Names, Patents and Technology Licenses | 37.7 | 23.0 | 14.7 | 5.3 | |||||||||
Total | $ | 102.1 | $ | 41.1 | $ | 61.0 |
As of April 29, 2017 | |||||||||||||
Gross | Accumulated Amortization | Net | Wtd. Avg. Remaining Amortization Periods (Years) | ||||||||||
Customer Relationships and Agreements | $ | 16.3 | $ | 15.6 | $ | 0.7 | 6.8 | ||||||
Trade Names, Patents and Technology Licenses | 25.8 | 19.9 | 5.9 | 1.4 | |||||||||
Covenants Not to Compete | 0.1 | 0.1 | — | 0.4 | |||||||||
Total | $ | 42.2 | $ | 35.6 | $ | 6.6 |
The Company performed an impairment test for its indefinite-lived intangible asset and determined that no impairment existed at May 2, 2020. Based on the current amount of intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
(Dollars in Millions) |
|
|
|
|
Fiscal Year: |
|
|
|
|
2021 |
| $ | 18.9 |
|
2022 |
|
| 18.9 |
|
2023 |
|
| 18.9 |
|
2024 |
|
| 18.5 |
|
2025 |
|
| 17.9 |
|
Thereafter |
|
| 149.9 |
|
Total |
| $ | 243.0 |
|
2019 | $ | 7.5 | |
2020 | $ | 5.5 | |
2021 | $ | 5.4 | |
2022 | $ | 5.4 | |
2023 | $ | 5.4 |
Note 8. Derivative Instruments
The Company is exposed to foreign currency risks that arise from normal business operations. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through derivative instruments.
On April 14, 2020, the Company entered into a variable-rate, cross-currency swap, maturing on August 31, 2023, with a notional value of April 28, 2018 and April 29, 2017, the trade names, patents and technology licenses included $1.8$60.0 million of trade names that are not subject to amortization.
The stockholders approved the 2014 Incentive Plan in September 2014. The 2014 Incentive Plan provides for discretionary grants of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units and performance units to key employees and directors.
RSA Shares | RSU Shares | ||||
Unvested and Unissued at May 2, 2015 | — | — | |||
Awarded | 1,185,000 | 576,000 | |||
Vested | (24,000 | ) | — | ||
Forfeited and Canceled | — | — | |||
Unvested and Unissued at April 30, 2016 | 1,161,000 | 576,000 | |||
Awarded | 99,000 | 32,000 | |||
Vested | (27,000 | ) | (11,333 | ) | |
Forfeited and Canceled | (64,500 | ) | (28,667 | ) | |
Unvested and Unissued at April 29, 2017 | 1,168,500 | 568,000 | |||
Awarded | 152,738 | 30,925 | |||
Vested | (24,000 | ) | (160,553 | ) | |
Forfeited and Canceled | (126,000 | ) | (56,000 | ) | |
Unvested and Unissued at April 28, 2018 | 1,171,238 | 382,372 |
Grant Fiscal Year | Number of Shares Unvested | Vesting Period | Weighted Average Value | Probable Unearned Compensation Expense at April 28, 2018 | Target Unearned Compensation Expense at April 28, 2018 | ||||||||||||
2016, 2017 and 2018 | 363,413 | (1) | Five-year RSA cliff, performance-based | $ | 34.11 | $ | 5.5 | $ | 11.0 | ||||||||
2016, 2017 and 2018 | 382,372 | Five-year RSU, 30% in fiscal 2018, 30% in fiscal 2019 and 40% in fiscal 2020 | $ | 35.85 | $ | 5.1 | $ | 5.1 |
Summary of Option Activity | |||||||
Shares | Wtd. Avg. Exercise Price | ||||||
Outstanding at May 2, 2015 | 242,667 | $ | 24.50 | ||||
Awarded | — | — | |||||
Exercised | (18,668 | ) | 12.96 | ||||
Canceled | (26,667 | ) | 32.07 | ||||
Outstanding at April 30, 2016 | 197,332 | 24.55 | |||||
Awarded | — | — | |||||
Exercised | (125,332 | ) | 17.40 | ||||
Canceled | — | — | |||||
Outstanding at April 29, 2017 | 72,000 | 37.01 | |||||
Awarded | — | — | |||||
Exercised | — | — | |||||
Canceled | — | — | |||||
Outstanding at April 28, 2018 | 72,000 | $ | 37.01 |
Options Outstanding at April 28, 2018 | |||||||
Shares | Exercise Price | Avg. Remaining Life (Years) | |||||
72,000 | $ | 37.01 | 6.3 |
Options Exercisable at April 28, 2018 | |||||||
Shares | Exercise Price | Avg. Remaining Life (Years) | |||||
72,000 | $ | 37.01 | 6.3 |
2010 Stock Plan | ||||
Fiscal 2015 Awards | ||||
Average Expected Volatility | 51.00 | % | ||
Average Risk-free Interest Rate | 1.00 | % | ||
Dividend Yield | 1.66 | % | ||
Expected Life of Options (in years) | 4.12 | |||
Weighted-average Grant-date Fair Value | $ | 14.99 |
Summary of Option Activity | |||||||
Shares | Wtd. Avg. Exercise Price | ||||||
Outstanding at May 2, 2015 | 108,000 | $ | 24.21 | ||||
Awarded | — | — | |||||
Exercised | (28,334 | ) | 10.99 | ||||
Canceled | — | — | |||||
Outstanding at April 30, 2016 | 79,666 | 28.91 | |||||
Awarded | — | — | |||||
Exercised | (22,497 | ) | 21.52 | ||||
Canceled | — | — | |||||
Outstanding at April 29, 2017 | 57,169 | 31.82 | |||||
Awarded | — | — | |||||
Exercised | (13,333 | ) | 24.67 | ||||
Canceled | (1,668 | ) | 37.01 | ||||
Outstanding at April 28, 2018 | 42,168 | $ | 33.87 |
Options Outstanding at April 28, 2018 | |||||||
Shares | Exercise Price | Avg. Remaining Life (Years) | |||||
5,000 | $ | 10.55 | 2.2 | ||||
37,168 | $ | 37.01 | 6.3 | ||||
42,168 | $ | 33.87 |
Options Exercisable at April 28, 2018 | |||||||
Shares | Exercise Price | Avg. Remaining Life (Years) | |||||
5,000 | $ | 10.55 | 2.2 | ||||
37,168 | $ | 37.01 | 6.3 | ||||
42,168 | $ | 33.87 |
Fiscal 2015 Awards | ||||
Average Expected Volatility | 51.00 | % | ||
Average Risk-free Interest Rate | 1.00 | % | ||
Dividend Yield | 1.66 | % | ||
Expected Life of Options (in years) | 4.12 | |||
Weighted-average Grant-date Fair Value | $ | 14.99 |
Note 9. Retirement Benefits
Defined Contribution Plans
The RSUs were subject to the same vesting schedule and other major provisions of the RSAs they replaced, except the shares of stock underlying the RSUs will not be issued and delivered until the earlier of: (1) thirty days after the CEO’s date of termination of employment with the Company and all of its subsidiaries and affiliates; or (2) the last day of our fiscal year in which the payment of common stock in satisfaction of the RSUs becomes deductible to the Company under Section 162(m) of the Code. The RSUs are not entitled to voting rights or dividends, however a bonus in lieu of dividends is paid. The RSU’s were fully vested as of April 28, 2018. As of April 28, 2018, 29,945 shares have been delivered in connection with the RSUs with a remaining balance to be delivered of 195,055 shares.
Compensation Expense | ||||||||||||
Fiscal 2018 | Fiscal 2017 | Fiscal 2016 | ||||||||||
2014 Incentive Plan: | ||||||||||||
RSAs | $ | (1.0 | ) | $ | 6.6 | $ | 3.6 | |||||
RSUs | 5.0 | 5.5 | 2.8 | |||||||||
Total 2014 Incentive Plan | 4.0 | 12.1 | 6.4 | |||||||||
2010 Stock Plan: | ||||||||||||
RSUs | — | 0.1 | 0.1 | |||||||||
Stock Options | — | 0.1 | 0.3 | |||||||||
Total 2010 Stock Plan | — | 0.2 | 0.4 | |||||||||
2007 Stock Plan: | ||||||||||||
Stock Options | — | 0.1 | 0.6 | |||||||||
Total 2007 Stock Plan | — | 0.1 | 0.6 | |||||||||
Total Compensation Expense | $ | 4.0 | $ | 12.4 | $ | 7.4 |
F-24
Non-Qualified Deferred Compensation Plan
The Company maintains a non-qualified deferred compensation plan (“the NQDC Plan”) for certain eligible employees and members of the Board of Directors. Under the NQDC Plan, participants may elect to defer up to 75% of their annual base salary and 100% of their annual cash incentive compensation, with an aggregate minimum deferral of $3,000. The minimum period of deferral is three years. Participants are immediately 100% vested. The Company does 0t make any contributions to the employee 401(k) SavingsNQDC Plan.
The deferred compensation liability for the NDQC Plan was $1.4$5.4 million and $6.1 million as of May 2, 2020 and April 27, 2019, respectively. The Company has purchased life insurance policies on certain employees, which are held in a Rabbi trust, on certain employees to potentially offset these unsecured obligations. These life insurance policies are recorded at their cash surrender value of $6.6 million and $6.9 million as of May 2, 2020 and April 27, 2019, respectively, and are included in other long-term assets in the consolidated balance sheets.
The Company also owns and is the beneficiary of a number of life insurance policies on the lives of former key executives that are unrestricted as to use. These life insurance policies are recorded at their cash surrender value of $9.0 million and $8.6 million as of May 2, 2020 and April 27, 2019, respectively, and are included in other long-term assets in the consolidated balance sheets.
The cash surrender value of the life insurance policies approximates its fair value and are classified within Level 2 of the fair value hierarchy.
Note 10. Debt
A summary of debt is shown below:
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
| ||
Revolving Credit Facility |
| $ | 108.5 |
|
| $ | 35.0 |
|
Term Loan |
|
| 231.2 |
|
|
| 243.7 |
|
Other Debt |
|
| 14.6 |
|
|
| 16.8 |
|
Unamortized Debt Issuance Costs |
|
| (2.2 | ) |
|
| (2.9 | ) |
Total Debt |
|
| 352.1 |
|
|
| 292.6 |
|
Less: Current Maturities |
|
| (15.3 | ) |
|
| (15.7 | ) |
Total Long-term Debt |
| $ | 336.8 |
|
| $ | 276.9 |
|
Revolving Credit Facility/Term Loan
In September 2018, the Company entered into five-year Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America, N.A., as Administrative Agent, and Wells Fargo Bank, N.A. The Credit Agreement consists of a senior unsecured revolving credit facility (“Revolving Credit Facility”) of $200.0 million and a senior unsecured term loan (“Term Loan”) of $250.0 million. In addition, the Company has an option to increase the size of the Revolving Credit Facility and Term Loan by up to an additional $200.0 million, subject to customary conditions and approval of the lenders providing new commitments. The Credit Agreement is guaranteed by the Company’s wholly-owned U.S. subsidiaries. For the Term Loan, the Company is required to make quarterly principal payments of 1.25% of the original Term Loan ($3.1 million) through maturity, with the remaining balance due on September 12, 2023.
On March 23, 2020, the Company borrowed $100.0 million under its Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic. As of May 2, 2020, the Company has $91.4 million of availability under the Revolving Credit Facility.
Outstanding borrowings under the Credit Agreement bear interest at variable rates based on the type of borrowing and the Company’s debt to EBITDA financial ratio, as defined. The weighted-average interest rate on outstanding borrowings under
F-25
the Credit Agreement was approximately 1.7% at May 2, 2020. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. As of May 2, 2020, the Company was in compliance with all the covenants in the Credit Agreement. The fair value of borrowings under the Credit Agreement approximates book value because the interest rate is variable.
Other Debt
One of the Company’s European subsidiaries has debt that consists of 15 notes with maturities ranging from 2020 to 2031. The weighted-average interest rate was approximately 1.5% at May 2, 2020 and $2.8 million of the debt was classified as short-term. The fair value of other debt was $14.2 million at May 2, 2020 and was based on Level 2 inputs on a non-recurring basis.
Scheduled Maturities
As of May 2, 2020, scheduled principal payments of debt are as follows:
(Dollars in Millions) |
| Amount |
| |
Fiscal Years: |
|
|
|
|
2021 |
| $ | 15.3 |
|
2022 |
|
| 14.6 |
|
2023 |
|
| 13.7 |
|
2024 |
|
| 307.5 |
|
2025 |
|
| 0.4 |
|
Thereafter |
|
| 2.8 |
|
Total |
| $ | 354.3 |
|
Note 11. Income Taxes
Income Tax Provision
Details of the Company’s income tax provision are as follows:
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
| |||
Income (Loss) before Income Taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Source |
| $ | 47.3 |
|
| $ | (0.6 | ) |
| $ | 11.4 |
|
Foreign Source |
|
| 101.4 |
|
|
| 104.2 |
|
|
| 112.4 |
|
Income before Income Taxes |
| $ | 148.7 |
|
| $ | 103.6 |
|
| $ | 123.8 |
|
Current Tax Provision (Benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (Federal and State) |
| $ | 5.1 |
|
| $ | (5.7 | ) |
| $ | 46.8 |
|
Foreign |
|
| 12.8 |
|
|
| 21.5 |
|
|
| 18.8 |
|
Subtotal |
|
| 17.9 |
|
|
| 15.8 |
|
|
| 65.6 |
|
Deferred Tax Provision (Benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (Federal and State) |
|
| 6.1 |
|
|
| 2.5 |
|
|
| 11.6 |
|
Foreign |
|
| 1.3 |
|
|
| (6.3 | ) |
|
| (10.6 | ) |
Subtotal |
|
| 7.4 |
|
|
| (3.8 | ) |
|
| 1.0 |
|
Total Income Tax Expense |
| $ | 25.3 |
|
| $ | 12.0 |
|
| $ | 66.6 |
|
F-26
A reconciliation of the income tax expense to the prevailing statutory federal income tax rate (21.0% for 2020, 21.0% for 2019 and 30.5% for 2018) to pre-tax earnings is as follows:
|
| Fiscal Year Ended |
| |||||||||
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
Income Tax at Statutory Rate |
| $ | 31.2 |
|
| $ | 21.8 |
|
| $ | 37.7 |
|
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
State Income Taxes, Net of Federal Benefit |
|
| 1.5 |
|
|
| (0.8 | ) |
|
| 0.1 |
|
Withholding Taxes |
|
| 2.3 |
|
|
| 1.8 |
|
|
| — |
|
U.S. Tax Reform Transition Tax |
|
| — |
|
|
| (4.8 | ) |
|
| 48.5 |
|
Foreign Tax Differential |
|
| (8.3 | ) |
|
| (9.6 | ) |
|
| (15.3 | ) |
U.S. Tax on Foreign Income |
|
| (1.0 | ) |
|
| 3.4 |
|
|
| — |
|
Foreign Investment Tax Credit |
|
| (0.8 | ) |
|
| (2.0 | ) |
|
| (9.8 | ) |
Change in Tax Reserve |
|
| 2.2 |
|
|
| (0.1 | ) |
|
| 0.1 |
|
Change in Valuation Allowance |
|
| 0.8 |
|
|
| — |
|
|
| 0.4 |
|
Tax Rate Change, Foreign |
|
| (0.1 | ) |
|
| — |
|
|
| (1.5 | ) |
U.S. Tax Reform Re-measurements |
|
| — |
|
|
| — |
|
|
| 5.2 |
|
Other, Net |
|
| (2.5 | ) |
|
| 2.3 |
|
|
| 1.2 |
|
Income Tax Expense |
| $ | 25.3 |
|
| $ | 12.0 |
|
| $ | 66.6 |
|
Effective Income Tax Rate |
|
| 17.0 | % |
|
| 11.6 | % |
|
| 53.8 | % |
The Company’s fiscal 2020 effective tax rate is primarily affected by the amount of income earned in the jurisdictions in which the Company operates, the amount of tax credits earned, withholding taxes, tax reserves, and the current taxation of foreign earnings. The Company had a favorable impact from operations in foreign countries with tax rates lower than the U.S. statutory tax rate. The Company earned $0.8 million in investment tax credits primarily related to an investment in qualified expenditures. This was offset by a change in tax reserves of $2.2 million and foreign withholding taxes of $2.3 million.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, includes various income and payroll tax provisions, modifications to federal net operating loss rules, business interest deduction limitations, and bonus depreciation eligibility for qualified improvement property. The Company does not expect there to be a significant tax impact on its consolidated financial statements at this time and will continue to assess the implications of the CARES Act and its continuing developments and interpretations.
In fiscal 2019, the effective tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates and a beneficial adjustment related to the finalization of U.S. Tax Reform of $4.8 million. This adjustment under SAB 118 primarily consists of changes in interpretations and assumptions the Company made, additional regulatory guidance that was issued, and actions the Company took as a result of U.S. Tax Reform.
U.S. Tax Reform includes a new global intangible low-taxed income (“GILTI”) provision which requires the Company to include foreign subsidiary earnings in its U.S. tax return starting in fiscal 2019. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
In fiscal 2018, and $1.3 million in both fiscal 2017 and 2016.
F-27
In fiscal 2018, the Company had a company is generally required to recognizefavorable impact from earnings in lower taxes jurisdictions. In addition, the effectCompany recorded an unfavorable provisional estimate on the effects of tax law changes in tax laws in its financial statements in the period in which the legislation is enacted. The U.S. Tax Reform legislation was signed into law on December 22, 2017. As such, the Company included such results into its financial statements for the year ending April 28, 2018.
Deferred Income Taxes and a re-measurement of the Company’s net U.S. deferred tax assets of $5.2 million.
Significant components of ourthe Company's deferred income tax assets and liabilities were as follows:
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
| ||
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
| $ | (4.5 | ) |
| $ | (9.0 | ) |
Amortization |
|
| (47.8 | ) |
|
| (43.9 | ) |
Foreign Tax |
|
| (1.8 | ) |
|
| (2.0 | ) |
Lease Liabilities |
|
| (5.2 | ) |
|
| — |
|
Other Liabilities |
|
| (1.0 | ) |
|
| (0.1 | ) |
Deferred Tax Liabilities, Gross |
|
| (60.3 | ) |
|
| (55.0 | ) |
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Deferred Compensation and Stock Award Amortization |
|
| 7.0 |
|
|
| 8.6 |
|
Inventory Valuation Differences |
|
| 2.7 |
|
|
| 1.9 |
|
Property Valuation Differences |
|
| 0.8 |
|
|
| 1.6 |
|
Environmental Reserves |
|
| 0.2 |
|
|
| 0.3 |
|
Lease Assets |
|
| 5.7 |
|
|
| — |
|
Vacation Accruals |
|
| — |
|
|
| 0.4 |
|
Foreign Investment Tax Credit |
|
| 25.9 |
|
|
| 28.2 |
|
Net Operating Loss Carryovers |
|
| 12.9 |
|
|
| 13.8 |
|
Foreign Tax Credits |
|
| — |
|
|
| 1.1 |
|
Other |
|
| 1.9 |
|
|
| 3.3 |
|
Deferred Tax Assets, Gross |
|
| 57.1 |
|
|
| 59.2 |
|
Less Valuation Allowance |
|
| (7.0 | ) |
|
| (6.3 | ) |
Deferred Tax Assets, Net of Valuation Allowance |
|
| 50.1 |
|
|
| 52.9 |
|
Net Deferred Tax Liabilities |
| $ | (10.2 | ) |
| $ | (2.1 | ) |
Balance Sheet Classification: |
|
|
|
|
|
|
|
|
Long-term Asset |
|
| 31.4 |
|
|
| 34.3 |
|
Long-term Liability |
|
| (41.6 | ) |
|
| (36.4 | ) |
Net Deferred Tax Liabilities |
| $ | (10.2 | ) |
| $ | (2.1 | ) |
April 28, 2018 | April 29, 2017 | |||||||
Deferred Tax Liabilities: | ||||||||
Accelerated Tax Depreciation | $ | 6.3 | $ | 2.0 | ||||
Accelerated Book Amortization | 11.4 | — | ||||||
Foreign Tax Withheld | 4.8 | 4.2 | ||||||
Deferred Income | 0.2 | 0.4 | ||||||
Deferred Tax Liabilities, Gross | 22.7 | 6.6 | ||||||
Deferred Tax Assets: | ||||||||
Deferred Compensation and Stock Award Amortization | 7.5 | 10.1 | ||||||
Inventory Valuation Differences | 1.8 | 2.9 | ||||||
Property Valuation Differences | 2.0 | 1.9 | ||||||
Accelerated Book Amortization | — | 7.2 | ||||||
Environmental Reserves | 0.2 | 0.5 | ||||||
Bad Debt Reserves | 0.1 | 0.1 | ||||||
Vacation Accruals | 1.0 | 1.0 | ||||||
Foreign Investment Tax Credit | 29.3 | 17.9 | ||||||
Net Operating Loss Carryovers | 5.8 | 4.7 | ||||||
Other Accruals | 1.5 | 2.6 | ||||||
Deferred Tax Assets, Gross | 49.2 | 48.9 | ||||||
Less Valuation Allowance | 2.5 | 1.9 | ||||||
Deferred Tax Assets, Net of Valuation Allowance | 46.7 | 47.0 | ||||||
Net Deferred Tax Assets | $ | 24.0 | $ | 40.4 | ||||
Balance Sheet Classification: | ||||||||
Non-current Asset | 42.3 | 40.4 | ||||||
Non-current Liability | (18.3 | ) | — | |||||
Net Deferred Tax Assets | $ | 24.0 | $ | 40.4 |
The Company evaluated all available positiverecorded a net deferred tax liability for U.S. and negative evidence, including past operating resultsforeign income taxes of $10.2 million for fiscal 2020 and $2.1 million for fiscal 2019. In assessing the projectionrealizability of future taxable income and determinedthe deferred tax assets, the Company considers whether it is more likely than not that expected future taxable incomesome portion or the entire deferred tax asset will be sufficient to utilize substantially allrealized. Ultimately, the realization of our state netthe deferred tax assets. We will continue to maintainasset is dependent upon the generation of sufficient earnings in future periods in which these temporary items can be utilized. In that regard, the Company has a valuation allowance of $2.5$7.0 million related to certain state, federal, and foreign net operating loss carryovers and other credits untiland determined that these deferred tax assets aredid not reach the more likely than not realizable.
At April 28, 2018, weMay 2, 2020, the Company had available $2.1$7.9 million of federal, $78.2$4.7 million of state, and $0.3 million of foreign net operating loss carryforwards (havingwith a tax benefitvaluation allowance of $0.4$5.3 million $5.2of federal and $1.7 million and $0.1 million, respectively).of state. If unused, the U.S. federal net operating loss carryforwards will expire in the years 20192021 through 2031.2034. The state net operating loss carryforwards will expire in the years 20192021 through 2037.
The tax laws of Malta provide forCompany earns investment tax credits of 30.0% offor certain qualified expenditures.expenditures in foreign jurisdictions. Total unused credits are $29.3$25.9 million as of April 28, 2018,May 2, 2020, all of which $27.6 million can be carried forward indefinitely and $1.7 million expire in 2020. We record investment tax credits using the "flow through" method.
Fiscal Year Ended | ||||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | ||||||||||
Domestic Source | $ | 11.4 | $ | 21.6 | $ | 25.3 | ||||||
Foreign Source | 112.4 | 94.3 | 85.6 | |||||||||
Income before Income Tax | $ | 123.8 | $ | 115.9 | $ | 110.9 |
Fiscal Year Ended | ||||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | ||||||||||
Current | ||||||||||||
Federal | $ | 46.5 | $ | 9.2 | $ | 2.8 | ||||||
Foreign | 18.8 | 17.0 | 14.7 | |||||||||
State | 0.3 | 0.7 | 0.6 | |||||||||
Subtotal | 65.6 | 26.9 | 18.1 | |||||||||
Deferred | ||||||||||||
Federal and State | 11.6 | (1.2 | ) | 5.5 | ||||||||
Foreign | (10.6 | ) | (2.7 | ) | 2.7 | |||||||
Subtotal | 1.0 | (3.9 | ) | 8.2 | ||||||||
Total Income Tax Expense | $ | 66.6 | $ | 23.0 | $ | 26.3 |
Indefinite Reinvestment
The Company has not provided for income taxes from continuing operations to amounts determined by applying the prevailing statutory federal income tax rate to pre-tax earnings is as follows:
Fiscal Year Ended | |||||||||||||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | |||||||||||||||||||
Income Tax at Statutory Rate | $ | 37.7 | 30.5 | % | $ | 40.5 | 35.0 | % | $ | 38.9 | 35.0 | % | |||||||||
Effect of: | |||||||||||||||||||||
State Income Taxes, Net of Federal Benefit | 0.1 | 0.1 | % | 0.9 | 0.8 | % | 0.4 | 0.4 | % | ||||||||||||
U.S. Tax Reform Repatriation | 48.5 | 39.2 | % | — | — | % | — | — | % | ||||||||||||
Foreign Operations with Lower Statutory Rates | (15.3 | ) | (12.4 | )% | (14.5 | ) | (12.5 | )% | (11.9 | ) | (10.7 | )% | |||||||||
Foreign Investment Tax Credit | (9.8 | ) | (7.9 | )% | (4.7 | ) | (4.1 | )% | (2.1 | ) | (1.9 | )% | |||||||||
Change in Tax Reserve | 0.1 | — | % | 0.1 | 0.1 | % | 0.1 | 0.1 | % | ||||||||||||
Change in Valuation Allowance | 0.4 | 0.3 | % | 0.3 | 0.3 | % | 0.1 | 0.1 | % | ||||||||||||
Tax Rate Change, Foreign | (1.5 | ) | (1.2 | )% | — | — | % | — | — | % | |||||||||||
U.S. Tax Reform Re-measurements | 5.2 | 4.2 | % | — | — | % | — | — | % | ||||||||||||
Other, Net | 1.2 | 1.0 | % | 0.4 | 0.3 | % | 0.8 | 0.8 | % | ||||||||||||
Income Tax Provision (Benefit) | $ | 66.6 | 53.8 | % | $ | 23.0 | 19.9 | % | $ | 26.3 | 23.8 | % |
Unrecognized Tax Benefits
The Company operates in multiple jurisdictions throughout the world and the income tax returns of April 28, 2018, ourits subsidiaries in various jurisdictions are subject to periodic examination by the tax authorities. The Company regularly assesses the status of these examinations and the various outcomes to determine the adequacy of its provision for income taxes. The amount of gross unrecognized tax benefits totaled $1.4$5.2 million whichand $3.1 million at May 2, 2020 and April 27, 2019, respectively. These amounts represent the amount of unrecognized benefits that, if recognized, would favorably affectimpact the effective tax rate if resolved in ourthe Company’s favor.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
| ||
Balance at Beginning of Fiscal Year |
| $ | 3.1 |
|
| $ | 1.4 |
|
Increases for Positions Related to the Prior Years |
|
| 1.9 |
|
|
| 1.8 |
|
Increases for Positions Related to the Current Year |
|
| 0.3 |
|
|
| 0.9 |
|
Lapsing of Statutes of Limitations |
|
| (0.1 | ) |
|
| (1.0 | ) |
Balance at End of Fiscal Year |
| $ | 5.2 |
|
| $ | 3.1 |
|
Balance as of April 29, 2017 | $ | 1.3 | ||
Increases for Positions Related to the Prior Years | — | |||
Increases for Positions Related to the Current Year | 0.1 | |||
Decreases for Positions Related to the Prior Years | — | |||
Lapsing of Statutes of Limitations | — | |||
Balance as of April 28, 2018 | $ | 1.4 |
At May 2, 2020, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.
The U.S. federal statute of limitations remains open for fiscal years ended on or after 20152017 and for state tax purposes on or after fiscal year 2013. Tax authorities may have the ability to review and adjust net operating losses or tax credits that were generated prior to these fiscal years. In the major foreign jurisdictions, fiscal year 20122013 and subsequent periods remain open and subject to examination by taxing authorities.
Note 12. Commitments and Contingencies
Environmental Matters
The continuing practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes. We had $0.1 million accrued for interest and no accrual for penalties at April 28, 2018.
Fiscal Year Ended | ||||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | ||||||||||
Numerator: | ||||||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | 84.6 | ||||||
Denominator: | ||||||||||||
Denominator for Basic Earnings Per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Awards | 37,281,630 | 37,283,096 | 38,333,484 | |||||||||
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units | 260,269 | 202,605 | 138,128 | |||||||||
Denominator for Diluted Earnings Per Share | 37,541,899 | 37,485,701 | 38,471,612 | |||||||||
Basic and Diluted Income Per Share: | ||||||||||||
Basic Income Per Share | $ | 1.54 | $ | 2.49 | $ | 2.21 | ||||||
Diluted Income Per Share | $ | 1.52 | $ | 2.48 | $ | 2.20 |
F-29
At April 28, 2018May 2, 2020 and April 29, 2017, we27, 2019, the Company had accruals, primarily based upon independent engineering studies, for environmental matters of $0.9 million and $1.1 million, and $1.3respectively. The accrual at May 2, 2020 consists of $0.6 million respectively, of which $0.8 million was classified in other accrued expenses and the remainder was included in other long-term liabilities on our Consolidated Balance Sheets. We believethe consolidated balance sheet. The accrual at April 27, 2019 consists of $0.8 million classified in other accrued expenses and the remainder was included in other long-term liabilities on the consolidated balance sheet. The Company believes the provisions made for environmental matters are adequate to satisfy liabilities relating to such matters, however it is reasonably possible that costs could exceed accrued amounts if the selected methods of remediation do not reduce the contaminates at the sites to levels acceptable to federal and state regulatory agencies.
In fiscal 2018, we2020, the Company spent $0.3$0.5 million on remediation cleanups and related studies, compared with $1.2$0.1 million in fiscal 20172019 and $1.0$0.3 million in fiscal 2016.2018. The costs associated with environmental matters as they relate to day-to-day activities were not material in fiscal 2018,2020, fiscal 20172019 or fiscal 2016.
Litigation
The Company, from time to time, areis subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, patent infringementsinfringement claims, employment-related matters and environmental matters. We considerThe Company considers insurance coverage and third party indemnification when determining required accruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot be determined, it is the opinion of ourthe Company's management, based on the information available, that we havethe Company has adequate reserves for these liabilities and that the ultimate resolution of these matters will not have a material adverse effect on ourthe Company's consolidated financial statements.
Hetronic Germany-GmbH Matters
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. WeThe Company became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, we the Companyterminated all of ourits agreements with the Fuchs companies. On June 20, 2014, wethe Company filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants have filed counterclaims alleging breach of contract, interference with business relations and business slander, and an affiliated company has filed a suit in front of the European Union Intellectual Property Office seeking to invalidate the company’s NOVA trademark in the EU.slander. On April 2, 2015, wethe Company amended ourits complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties. AsA trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in favor of the Company. The verdict included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 28, 2018, discovery22, 2020, the Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic’s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the Court held defendants in contempt for violating the permanent injunction and entered the final judgment. The final judgment is subject to post-trial motions and possible appeal. Once the automatic stay has been closed,expired and assuming that defendants are not granted a further stay pending appeal, the Company will work with counsel to collect on the judgment. Like any judgment, particularly any judgment involving defendants outside of the United States, there is no guarantee that the Company will be able to collect the judgment.
Note 13. Shareholders’ Equity
Dividends
The Company paid dividends totaling $16.3 million in both fiscal 2020 and 2019, and $14.7 million in fiscal 2018.
Accumulated Other Comprehensive Income (Loss)
F-30
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. A summary of changes in accumulated other comprehensive income (loss), net of tax is shown below:
|
| Fiscal Year Ended |
| |||||||||
(Dollars in Millions) |
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
Currency Translation Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year |
| $ | (13.6 | ) |
| $ | 13.9 |
|
| $ | (25.7 | ) |
Other Comprehensive Income (Loss) Recognized During the Period, Net of Tax |
|
| (12.3 | ) |
|
| (27.5 | ) |
|
| 39.6 |
|
Balance at End of Year |
|
| (25.9 | ) |
|
| (13.6 | ) |
|
| 13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year |
|
| — |
|
|
| — |
|
|
| — |
|
Other Comprehensive Loss Recognized During the Period, Net of Tax |
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
Balance at End of Year |
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), End of Period |
| $ | (26.9 | ) |
| $ | (13.6 | ) |
| $ | 13.9 |
|
Stock-Based Compensation
The Company has granted stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock awards to employees and non-employee directors under the Methode Electronics, Inc. 2014 Omnibus Incentive Plan (“2014 Plan”), the Methode Electronics, Inc. 2010 Stock Plan (“2010 Plan”), the Methode Electronics, Inc. 2007 Stock Plan (“2007 Plan”) and the parties are briefing summary judgment.
Stock-Based Compensation Expense
All stock-based payments to employees and directors are recognized in selling and administrative expenses on the consolidated statements of income. Awards subject to graded vesting are recognized using the accelerated recognition method over the requisite service period. The credit facilitytable below summarizes the stock-based compensation expense (benefit) related to the equity awards:
|
| Fiscal Year Ended |
|
| Unrecognized Compensation Expense at |
| ||||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
|
|
|
| ||||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
|
| May 2, 2020 |
| ||||
RSAs |
| $ | (2.1 | ) |
| $ | 10.9 |
|
| $ | (2.0 | ) |
| $ | — |
|
RSUs |
|
| 1.5 |
|
|
| 2.2 |
|
|
| 5.0 |
|
|
| — |
|
Director Awards |
|
| 0.9 |
|
|
| 0.9 |
|
|
| 1.0 |
|
|
| — |
|
Total Stock-based Compensation Expense |
| $ | 0.3 |
|
| $ | 14.0 |
|
| $ | 4.0 |
|
| $ | — |
|
2014 Plan
The 2014 Plan provides for discretionary grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance units to key employees and directors. The 2014 Plan is inintended to promote the maximum principal amountsuccess of $150.0 million, with an optionthe Company and to increase the principal amountstockholder value by up toproviding an additional $100.0 million, subjectmeans to customary conditionsattract, motivate, retain and approvalreward selected employees and eligible directors through the grant of equity awards.
F-31
Restricted Stock Awards
The grant of RSAs under the lender(s) providing new commitment(s). The credit facility is available for general corporate purposes, including working capital and acquisitions. The credit facility provides for variable rates2014 Incentive Plan were performance-based awards that vested at the end of interestfiscal 2020 based on the typeachievement of borrowingan EBITDA hurdle. The fair value of the RSAs granted was based on the closing stock price on the date of grant. All RSAs accrued dividend equivalents based on the awards vested.
Per ASC 718, “Compensation - Stock Compensation” stock-based compensation expense is recognized for these performance awards over the vesting period based on the projected probability (70% confidence) of achievement of the EBITDA hurdle in fiscal 2020. In each period, the stock-based compensation expense was subject to adjustment, as necessary, in response to any changes in the Company’s forecast with respect to achieving the fiscal 2020 EBITDA hurdle.
In fiscal 2018, the Company determined that only a threshold performance level would be achieved and adjusted its stock-based compensation expense for these awards. The result was a reversal of previously recognized stock-based compensation expense of $6.0 million. Stock-based compensation expense for these awards in fiscal 2018 was a credit of $2.0 million.
In fiscal 2019, the Company determined that the target hurdle would be achieved based on the recent acquisition of Grakon and adjusted its stock-based compensation expense for these awards. The result was an additional expense of $7.4 million. Stock-based compensation expense for these awards in fiscal 2019 was $10.9 million.
The actual EBITDA hurdle achieved was approximately 69% of target, which was determined in the fourth quarter of fiscal 2020. The target hurdle was not achieved because of among other factors, the impact of the COVID-19 pandemic. The result was a reversal of previously recognized stock-based compensation expense related to prior years of $5.2 million. Stock-based compensation expense for these awards in fiscal 2020 was a credit of $2.1 million.
The following table summarizes the RSA activity under the 2014 Incentive Plan:
|
| RSA Shares |
|
| Wtd. Avg. Grant Date Fair Value |
| ||
Non-vested at April 29, 2017 |
|
| 1,168,500 |
|
| $ | 33.42 |
|
Awarded |
|
| 128,738 |
|
| $ | 40.92 |
|
Vested |
|
| — |
|
| $ | — |
|
Forfeited |
|
| (126,000 | ) |
| $ | 34.42 |
|
Non-vested at April 28, 2018 |
|
| 1,171,238 |
|
| $ | 34.13 |
|
Awarded |
|
| 11,625 |
|
| $ | 38.75 |
|
Vested |
|
| — |
|
| $ | — |
|
Forfeited |
|
| (151,455 | ) |
| $ | 34.79 |
|
Non-vested at April 27, 2019 |
|
| 1,031,408 |
|
| $ | 34.09 |
|
Awarded |
|
| — |
|
| $ | — |
|
Vested |
|
| (455,750 | ) |
| $ | 33.89 |
|
Forfeited |
|
| (575,658 | ) |
| $ | 34.25 |
|
Non-vested at May 2, 2020 |
|
| — |
|
| $ | — |
|
As of May 2, 2020, there were 444,500 RSAs that were vested for which shares were issued in the first quarter of fiscal 2021.
Restricted Stock Units
RSUs granted under the 2014 Plan vest over a pre-determined period of time, generally three to five years from the date of grant. The fair value of the RSUs granted was based on the closing stock price on the date of grant.
F-32
The following table summarizes RSU activity granted under the 2014 Plan:
|
| RSU Shares |
|
| Wtd. Avg. Grant Date Fair Value |
| ||
Non-vested at April 29, 2017 |
|
| 568,000 |
|
| $ | 33.45 |
|
Awarded |
|
| 30,925 |
|
| $ | 41.82 |
|
Vested |
|
| (160,553 | ) |
| $ | 33.72 |
|
Forfeited |
|
| (56,000 | ) |
| $ | 34.42 |
|
Non-vested at April 28, 2018 |
|
| 382,372 |
|
| $ | 33.87 |
|
Awarded |
|
| 7,750 |
|
| $ | 38.75 |
|
Vested |
|
| (152,328 | ) |
| $ | 33.75 |
|
Forfeited |
|
| (49,950 | ) |
| $ | 32.42 |
|
Non-vested at April 27, 2019 |
|
| 187,844 |
|
| $ | 34.55 |
|
Awarded |
|
| — |
|
| $ | — |
|
Vested |
|
| (176,994 | ) |
| $ | 34.25 |
|
Forfeited |
|
| (7,750 | ) |
| $ | 38.75 |
|
Non-vested at May 2, 2020 |
|
| 3,100 |
|
| $ | 41.20 |
|
As of May 2, 2020, there were 91,694 RSUs that were vested for which shares were issued in the first quarter of fiscal 2021. In addition, 80,800 shares that vested were deferred for issuance.
Director Awards
During fiscal 2020, fiscal 2019 and fiscal 2018, the Company issued 30,000 shares, 24,000 shares and 24,000 shares, respectively, of common stock to our independent directors, all of which vested immediately upon grant.
2010 Plan and 2007 Plan
The following table summarizes combined stock option activity under the 2010 Plan and 2007 Plan:
|
| Shares |
|
| Wtd. Avg. Exercise Price |
|
| Weighted- Average Life (years) |
|
| Aggregate Intrinsic Value (in millions) |
| ||||
Outstanding and Exercisable at April 29, 2017 |
|
| 129,169 |
|
| $ | 34.71 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (13,333 | ) |
| $ | 24.67 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (1,668 | ) |
| $ | 37.01 |
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at April 28, 2018 |
|
| 114,168 |
|
| $ | 35.85 |
|
|
| 6.1 |
|
| $ | 0.6 |
|
Exercised |
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (7,500 | ) |
| $ | 37.01 |
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at April 27, 2019 |
|
| 106,668 |
|
| $ | 35.76 |
|
|
| 5.0 |
|
| $ | 0.1 |
|
Exercised |
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at May 2, 2020 |
|
| 106,668 |
|
| $ | 35.76 |
|
|
| 4.0 |
|
| $ | 0.1 |
|
The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the fiscal year and the Company's debt to EBITDA financial ratio. The Credit Agreement is guaranteedexercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that date.
Options Outstanding and Exercisable at May 2, 2020 |
| |||||||||
Shares |
|
| Exercise Price |
|
| Avg. Remaining Life (Years) |
| |||
| 101,668 |
|
| $ | 37.01 |
|
|
| 4.2 |
|
| 5,000 |
|
| $ | 10.55 |
|
|
| 0.2 |
|
F-33
Deferred RSUs
Under the 2014 Plan and 2010 Plan, RSUs that have vested for certain executives, including the Company’s wholly-owned U.S. subsidiaries.CEO, will not be delivered in common stock until after the executive terminates employment from the Company or upon a change of control. As of May 2, 2020, shares to be delivered to these executives were 121,200 shares under the 2014 Plan and 180,000 shares under the 2010 Plan.
Under the 2004 Plan, 225,000 shares of common stock subject to performance based RSAs granted to the Company’s CEO in fiscal 2006 and 2007 were converted to RSUs. The Credit Agreement contains customary representationsshares of common stock underlying the RSUs will not be issued and warranties, financial covenants, restrictive covenants and eventsdelivered until the earlier of: (1) thirty days after the CEO’s date of default. At April 28, 2018, the interest rate on the credit facility was 1.25% plus LIBOR and we were in compliancetermination of employment with the covenantsCompany and all of its subsidiaries and affiliates; or (2) the last day of the agreement. DuringCompany’s fiscal year in which the year ended April 28, 2018, we had $80.0 millionpayment of borrowings and paymentscommon stock in satisfaction of $78.9 million,the RSUs becomes deductible to the Company under Section 162(m) of the Code. As of May 2, 2020, 29,945 shares have been delivered in connection with these RSUs with a remaining balance to be delivered of 195,055 shares.
The RSUs are not entitled to voting rights or dividends, however a bonus in lieu of dividends are paid. The vested deferred RSUs are considered outstanding for earnings per share calculations.
Note 14. Income Per Share
Basic income per share is calculated by dividing net income by the number of weighted average common shares outstanding for the applicable period. The weighted average number of common shares used in the diluted income per share calculation is determined using the treasury stock method which includes interestthe effect of $1.9 million, under this credit facility. Asall potential dilutive common shares outstanding during the period.
The following table sets forth the computation of April 28, 2018, there were outstanding balances against the credit facility of $30.0 million. We believe the fair value approximates the carrying amount as of April 28, 2018.
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
|
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (in millions) |
| $ | 123.4 |
|
| $ | 91.6 |
|
| $ | 57.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for Basic Income Per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Units |
|
| 37,574,671 |
|
|
| 37,405,298 |
|
|
| 37,281,630 |
|
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units |
|
| 269,799 |
|
|
| 264,262 |
|
|
| 260,269 |
|
Denominator for Diluted Income Per Share |
|
| 37,844,470 |
|
|
| 37,669,560 |
|
|
| 37,541,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Share |
| $ | 3.28 |
|
| $ | 2.45 |
|
| $ | 1.54 |
|
Diluted Income Per Share |
| $ | 3.26 |
|
| $ | 2.43 |
|
| $ | 1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Anti-dilutive Potentially Issuable Shares Excluded from Diluted Common Shares Outstanding |
|
| 566,620 |
|
|
| 678,321 |
|
|
| 363,413 |
|
Note 15. Segment Information and Geographic Area Information
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM as defined by ASC No. 280, is the Company’s President and Chief Executive Officer (“CEO”).
Effective October 27, 2018, the Company reorganized its reportable segments thatupon the acquisition of Grakon. Prior to the acquisition, the Company's reportable segments were Automotive, Power, Interface and Other. As a result of this change, the
F-34
Company's reportable segments are aggregated into fournow Automotive, Industrial, Interface and Medical. Historical information has been revised to reflect the new reportable segments. Those segments are Automotive, Interface, Power Products and Other.
A summary of the significant reportable segment changes is as follows:
• | Grakon's automotive business has been included in the Automotive segment, while Grakon's non-automotive business has been included in the Industrial segment. |
• | The busbar business, previously included in the Power segment, is now part of the Industrial segment. |
• | The radio-remote control business, previously included in the Interface segment, is now part of the Industrial segment. |
• | The medical devices business, previously included in the Other segment, now makes up the Medical segment. |
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Our productsProducts include integrated center consoles, hidden switches, ergonomic switches, transmission lead-frames, LED-based lighting and sensors, which incorporate magneto-elastic sensing and other technologies that monitor the operation or status of a component or system.
The InterfaceIndustrial segment provides a variety of copper and fiber-optic interface and interfacemanufactures external lighting solutions, for the aerospace, appliance, commercial food service, construction, consumer, material handling, medical, military, mining, point-of-sale, and telecommunications markets. Solutions include conductive polymers, industrial safety radio remote controls, optical and copper transceivers, and solid-state field-effect consumer touch panels. Services include the design and installation of fiber optic and copper infrastructure systems and manufacturing active and passive optical components. Through fiscal 2018, the interface segment included our Methode Development Company business, which provided conductive ink products for the automotive market. The business was shuttered at the end of fiscal 2018 due to a management-driven strategic change in direction. Through fiscal 2017, the Interface segment included our Connectivity reporting unit, which provided solutions for computer and networking markets, including connectors and custom cable assemblies. This reporting unit was shuttered at the end of fiscal 2017 due to market conditions.
The OtherInterface segment provides a variety of copper and fiber-optic interface and interface solutions for the appliance, commercial food service, construction, consumer, material handling, point-of-sale and telecommunications markets. Solutions include copper transceivers and solid-state field-effect consumer touch panels.
The Medical segment is primarily made up of ourthe Company's medical device business, Dabir Surfaces, ourwith its surface support technology aimed at pressure injury prevention. Methode is developingDabir Surfaces has developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures. Through fiscal 2017, the Other segment included our Active Energy Solutions business, which provided inverters, battery systems and insulated-gate bipolar transistor solutions. Due to market conditions, this business was shuttered at the end of fiscal 2017.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1, above. We allocate"Description of Business and Summary of Significant Accounting Policies." The CODM allocates resources to and evaluateevaluates the performance of each operating segments based on operating income. Transfers between segments are recorded using internal transfer prices set by us.
F-35
The tables below present information about ourthe Company’s reportable segments.
|
| Fiscal Year Ended May 2, 2020 (53 Weeks) |
| |||||||||||||||||||||
(Dollars in Millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ Corporate |
|
| Consolidated |
| ||||||
Net Sales |
| $ | 716.8 |
|
| $ | 253.9 |
|
| $ | 58.9 |
|
| $ | 1.6 |
|
| $ | (7.3 | ) |
| $ | 1,023.9 |
|
Transfers between Segments |
|
| (4.7 | ) |
|
| (2.5 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| 7.3 |
|
|
| — |
|
Net Sales to Unaffiliated Customers |
| $ | 712.1 |
|
| $ | 251.4 |
|
| $ | 58.8 |
|
| $ | 1.6 |
|
| $ | — |
|
| $ | 1,023.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) from Operations |
| $ | 124.4 |
|
| $ | 59.4 |
|
| $ | 5.6 |
|
| $ | (6.0 | ) |
| $ | (36.3 | ) |
| $ | 147.1 |
|
Interest Expense, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10.1 |
|
Other Income, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11.7 | ) |
Income before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 148.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment |
| $ | 37.5 |
|
| $ | 5.7 |
|
| $ | 0.3 |
|
| $ | 0.7 |
|
| $ | 0.9 |
|
| $ | 45.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
| $ | 31.0 |
|
| $ | 13.7 |
|
| $ | 0.9 |
|
| $ | 1.1 |
|
| $ | 1.6 |
|
| $ | 48.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
| $ | 670.9 |
|
| $ | 421.8 |
|
| $ | 71.0 |
|
| $ | 8.8 |
|
| $ | 198.1 |
|
| $ | 1,370.6 |
|
|
| Fiscal Year Ended April 27, 2019 (52 Weeks) |
| |||||||||||||||||||||
(Dollars in Millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ Corporate |
|
| Consolidated |
| ||||||
Net Sales |
| $ | 741.6 |
|
| $ | 210.0 |
|
| $ | 57.9 |
|
| $ | 1.1 |
|
| $ | (10.3 | ) |
| $ | 1,000.3 |
|
Transfers between Segments |
|
| (6.9 | ) |
|
| (3.2 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| 10.3 |
|
|
| — |
|
Net Sales to Unaffiliated Customers |
| $ | 734.7 |
|
| $ | 206.8 |
|
| $ | 57.7 |
|
| $ | 1.1 |
|
| $ | — |
|
| $ | 1,000.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) from Operations |
| $ | 126.3 |
|
| $ | 37.4 |
|
| $ | (0.3 | ) |
| $ | (8.6 | ) |
| $ | (48.0 | ) |
| $ | 106.8 |
|
Interest Expense, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8.3 |
|
Other Income, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5.1 | ) |
Income before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 103.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment |
| $ | 38.9 |
|
| $ | 2.6 |
|
| $ | 0.5 |
|
| $ | 1.9 |
|
| $ | 5.9 |
|
| $ | 49.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
| $ | 25.2 |
|
| $ | 11.7 |
|
| $ | 3.2 |
|
| $ | 1.0 |
|
| $ | 2.2 |
|
| $ | 43.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
| $ | 677.4 |
|
| $ | 404.3 |
|
| $ | 88.6 |
|
| $ | 9.4 |
|
| $ | 52.0 |
|
| $ | 1,231.7 |
|
F-36
|
| Fiscal Year Ended April 28, 2018 (52 Weeks) |
| |||||||||||||||||||||
(Dollars in Millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ Corporate |
|
| Consolidated |
| ||||||
Net Sales |
| $ | 738.4 |
|
| $ | 105.6 |
|
| $ | 73.9 |
|
| $ | 0.3 |
|
| $ | (9.9 | ) |
| $ | 908.3 |
|
Transfers between Segments |
|
| (9.7 | ) |
|
| 0.2 |
|
|
| (0.7 | ) |
|
| — |
|
|
| 10.2 |
|
|
| — |
|
Net Sales to Unaffiliated Customers |
| $ | 728.7 |
|
| $ | 105.8 |
|
| $ | 73.2 |
|
| $ | 0.3 |
|
| $ | 0.3 |
|
| $ | 908.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) from Operations |
| $ | 156.3 |
|
| $ | 13.0 |
|
| $ | 6.0 |
|
| $ | (11.4 | ) |
| $ | (45.6 | ) |
| $ | 118.3 |
|
Interest Expense, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.9 |
|
Other Income, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6.4 | ) |
Income before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 123.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property, Plant and Equipment |
| $ | 31.7 |
|
| $ | 1.5 |
|
| $ | 0.4 |
|
| $ | 3.8 |
|
| $ | 10.3 |
|
| $ | 47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
| $ | 21.3 |
|
| $ | 2.0 |
|
| $ | 3.1 |
|
| $ | 0.8 |
|
| $ | 0.9 |
|
| $ | 28.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
| $ | 632.7 |
|
| $ | 93.1 |
|
| $ | 206.8 |
|
| $ | 8.1 |
|
| $ | (24.8 | ) |
| $ | 915.9 |
|
Geographic information
The following tables sets forth net sales and tangible long-lived assets for each geographic area where the Company operates. Tangible long-lived assets include property, plant and equipment and operating lease assets.
|
| Fiscal Year Ended |
| |||||||||
|
| May 2, 2020 |
|
| April 27, 2019 |
|
| April 28, 2018 |
| |||
(Dollars in Millions) |
| (53 Weeks) |
|
| (52 Weeks) |
|
| (52 Weeks) |
| |||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 531.5 |
|
| $ | 540.5 |
|
| $ | 487.5 |
|
Malta |
|
| 143.9 |
|
|
| 148.5 |
|
|
| 184.0 |
|
China |
|
| 116.9 |
|
|
| 113.7 |
|
|
| 117.3 |
|
Mexico |
|
| 104.7 |
|
|
| — |
|
|
| — |
|
Canada |
|
| 19.5 |
|
|
| 101.6 |
|
|
| 54.4 |
|
Other |
|
| 107.4 |
|
|
| 96.0 |
|
|
| 65.1 |
|
Total Net Sales |
| $ | 1,023.9 |
|
| $ | 1,000.3 |
|
| $ | 908.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 2, 2020 |
|
| April 27, 2019 |
|
|
|
|
| ||
Tangible Long-lived Assets, Net: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 89.8 |
|
| $ | 83.9 |
|
|
|
|
|
Malta |
|
| 40.1 |
|
|
| 33.0 |
|
|
|
|
|
China |
|
| 24.1 |
|
|
| 18.6 |
|
|
|
|
|
Mexico |
|
| 24.0 |
|
|
| 9.2 |
|
|
|
|
|
Belgium |
|
| 21.4 |
|
|
| 22.1 |
|
|
|
|
|
Other |
|
| 26.0 |
|
|
| 25.1 |
|
|
|
|
|
Total Tangible Long-lived Assets, Net |
| $ | 225.4 |
|
| $ | 191.9 |
|
|
|
|
|
Year Ended April 28, 2018 | |||||||||||||||||||||||
Automotive | Interface | Power Products | Other | Eliminations/Corporate | Consolidated | ||||||||||||||||||
Net Sales | $ | 738.4 | $ | 116.1 | $ | 63.4 | $ | 0.3 | $ | (9.9 | ) | $ | 908.3 | ||||||||||
Transfers between Segments | (9.7 | ) | (0.3 | ) | (0.2 | ) | — | 10.2 | — | ||||||||||||||
Net Sales to Unaffiliated Customers | $ | 728.7 | $ | 115.8 | $ | 63.2 | $ | 0.3 | $ | 0.3 | $ | 908.3 | |||||||||||
Income/(Loss) from Operations | $ | 156.3 | $ | 5.0 | $ | 14.0 | $ | (11.4 | ) | $ | (45.6 | ) | $ | 118.3 | |||||||||
Interest Expense, Net | 0.9 | ||||||||||||||||||||||
Other Income, Net | (6.4 | ) | |||||||||||||||||||||
Income before Income Taxes | $ | 123.8 | |||||||||||||||||||||
Depreciation and Amortization | $ | 21.3 | $ | 3.5 | $ | 1.6 | $ | 0.8 | $ | 0.9 | $ | 28.1 | |||||||||||
Identifiable Assets | $ | 632.7 | $ | 251.4 | $ | 48.5 | $ | 8.1 | $ | (24.8 | ) | $ | 915.9 |
Year Ended April 29, 2017 | |||||||||||||||||||||||
Automotive | Interface | Power Products | Other | Eliminations/Corporate | Consolidated | ||||||||||||||||||
Net Sales | $ | 641.0 | $ | 128.2 | $ | 56.5 | $ | 2.2 | $ | (11.4 | ) | $ | 816.5 | ||||||||||
Transfers between Segments | (8.8 | ) | (0.8 | ) | (0.2 | ) | (1.9 | ) | 11.7 | — | |||||||||||||
Net Sales to Unaffiliated Customers | $ | 632.2 | $ | 127.4 | $ | 56.3 | $ | 0.3 | $ | 0.3 | $ | 816.5 | |||||||||||
Income/(Loss) from Operations | $ | 148.3 | $ | (0.9 | ) | $ | 11.5 | $ | (12.4 | ) | $ | (35.7 | ) | $ | 110.8 | ||||||||
Interest Income, Net | (0.4 | ) | |||||||||||||||||||||
Other Income, Net | (4.7 | ) | |||||||||||||||||||||
Income before Income Taxes | $ | 115.9 | |||||||||||||||||||||
Depreciation and Amortization | $ | 15.5 | $ | 4.2 | $ | 2.8 | $ | 1.0 | $ | 0.8 | $ | 24.3 | |||||||||||
Identifiable Assets | $ | 462.3 | $ | 202.5 | $ | 46.2 | $ | 5.2 | $ | (12.2 | ) | $ | 704.0 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended April 30, 2016 | |||||||||||||||||||||||
Automotive | Interface | Power Products | Other | Eliminations/Corporate | Consolidated | ||||||||||||||||||
Net Sales | $ | 623.1 | $ | 142.6 | $ | 54.1 | $ | 0.6 | $ | (11.3 | ) | $ | 809.1 | ||||||||||
Transfers between Segments | (8.8 | ) | (1.8 | ) | (0.6 | ) | (0.3 | ) | 11.5 | — | |||||||||||||
Net Sales to Unaffiliated Customers | $ | 614.3 | $ | 140.8 | $ | 53.5 | $ | 0.3 | $ | 0.2 | $ | 809.1 | |||||||||||
Income/(Loss) from Operations | $ | 136.8 | $ | 2.7 | $ | 9.4 | $ | (8.8 | ) | $ | (30.4 | ) | $ | 109.7 | |||||||||
Interest Income, Net | (0.7 | ) | |||||||||||||||||||||
Other Income, Net | (0.5 | ) | |||||||||||||||||||||
Income before Income Taxes | $ | 110.9 | |||||||||||||||||||||
Depreciation and Amortization | $ | 15.6 | $ | 4.3 | $ | 2.3 | $ | 0.6 | $ | 1.1 | $ | 23.9 | |||||||||||
Identifiable Assets | $ | 418.4 | $ | 184.8 | $ | 46.4 | $ | 5.0 | $ | 1.3 | $ | 655.9 |
Fiscal Year Ended | ||||||||||||
April 28, 2018 | April 29, 2017 | April 30, 2016 | ||||||||||
Net Sales: | ||||||||||||
U.S. | $ | 487.5 | $ | 506.9 | $ | 491.9 | ||||||
Malta | 184.0 | 155.5 | 167.1 | |||||||||
China | 117.3 | 127.7 | 124.8 | |||||||||
Canada | 54.4 | — | — | |||||||||
Belgium | 26.2 | — | — | |||||||||
Other | 38.9 | 26.4 | 25.3 | |||||||||
Total Net Sales | $ | 908.3 | $ | 816.5 | $ | 809.1 | ||||||
Property, Plant and Equipment, Net: | ||||||||||||
U.S. | $ | 63.3 | $ | 44.9 | $ | 44.0 | ||||||
Malta | 36.8 | 26.4 | 28.7 | |||||||||
Belgium | 25.0 | — | — | |||||||||
Canada | 13.9 | — | — | |||||||||
Egypt | 10.7 | 8.4 | 8.2 | |||||||||
China | 7.2 | 5.9 | 7.4 | |||||||||
Mexico | 4.6 | 4.3 | 3.9 | |||||||||
Other | 0.7 | 0.7 | 0.8 | |||||||||
Total Property, Plant and Equipment, Net | $ | 162.2 | $ | 90.6 | $ | 93.0 |
2018 | 2017 | |||||||
Manufacturing Equipment | $ | 1.6 | $ | — | ||||
Accumulated Amortization | (0.2 | ) | — | |||||
Net Capital Leases | $ | 1.4 | $ | — |
Capitalized Leases | Operating Leases | |||||||
Year: | ||||||||
2019 | $ | 0.9 | $ | 6.7 | ||||
2020 | 0.8 | 5.3 | ||||||
2021 | 0.5 | 3.3 | ||||||
2022 | 0.5 | 2.3 | ||||||
2023 | 0.2 | 1.4 | ||||||
Later Years | — | 1.3 | ||||||
Net Minimum Lease Payments | 2.9 | $ | 20.3 | |||||
Less Amount Representing Interest | (0.1 | ) | ||||||
Present Value of Net Minimum Lease Payments | 2.8 | |||||||
Less Current Portion | (0.9 | ) | ||||||
Long-term Obligations at April 28, 2018 | $ | 1.9 |
Note 16. Summary of Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations for the years ended April 28, 2018fiscal 2020 and April 29, 2017:fiscal 2019:
|
| Fiscal 2020 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
|
| July 27, 2019 |
|
| October 26, 2019 |
|
| February 1, 2020 |
|
| May 2, 2020 |
| ||||
(Dollars in Millions, except per share data) |
| (13 Weeks) |
|
| (13 Weeks) |
|
| (14 Weeks) |
|
| (13 Weeks) |
| ||||
Net Sales |
| $ | 270.2 |
|
| $ | 257.2 |
|
| $ | 285.9 |
|
| $ | 210.6 |
|
Gross Profit |
| $ | 75.8 |
|
| $ | 68.6 |
|
| $ | 79.3 |
|
| $ | 59.2 |
|
Net Income |
| $ | 28.3 |
|
| $ | 23.8 |
|
| $ | 41.2 |
|
| $ | 30.1 |
|
Net Income per Basic Common Share |
| $ | 0.75 |
|
| $ | 0.63 |
|
| $ | 1.10 |
|
| $ | 0.80 |
|
Net Income per Diluted Common Share |
| $ | 0.75 |
|
| $ | 0.63 |
|
| $ | 1.09 |
|
| $ | 0.79 |
|
|
| Fiscal 2019 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
|
| July 28, 2018 |
|
| October 27, 2018 |
|
| January 26, 2019 |
|
| April 27, 2019 |
| ||||
(Dollars in Millions, except per share data) |
| (13 Weeks) |
|
| (13 Weeks) |
|
| (13 Weeks) |
|
| (13 Weeks) |
| ||||
Net Sales |
| $ | 223.4 |
|
| $ | 264.0 |
|
| $ | 246.9 |
|
| $ | 266.0 |
|
Gross Profit |
| $ | 60.1 |
|
| $ | 70.8 |
|
| $ | 64.3 |
|
| $ | 70.6 |
|
Net Income |
| $ | 23.7 |
|
| $ | 14.6 |
|
| $ | 30.7 |
|
| $ | 22.6 |
|
Net Income per Basic Common Share |
| $ | 0.63 |
|
| $ | 0.39 |
|
| $ | 0.82 |
|
| $ | 0.61 |
|
Net Income per Diluted Common Share |
| $ | 0.63 |
|
| $ | 0.39 |
|
| $ | 0.82 |
|
| $ | 0.60 |
|
Fiscal 2018 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
July 29, 2017 | October 28, 2017 | January 27, 2018 | April 28, 2018 | |||||||||||||
Net Sales | $ | 201.2 | $ | 230.1 | $ | 228.0 | $ | 249.0 | ||||||||
Gross Profit | $ | 55.6 | $ | 62.0 | $ | 60.1 | $ | 61.9 | ||||||||
Net Income (Loss) | $ | 20.5 | $ | 24.2 | $ | (24.3 | ) | $ | 36.8 | |||||||
Net Income (Loss) per Basic Common Share | $ | 0.55 | $ | 0.65 | $ | (0.65 | ) | $ | 0.99 | |||||||
Net Income (Loss) per Diluted Common Share | $ | 0.55 | $ | 0.64 | $ | (0.65 | ) | $ | 0.98 |
Fiscal 2017 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
July 30, 2016 | October 29, 2016 | January 28, 2017 | April 29, 2017 | |||||||||||||
Net Sales | $ | 191.9 | $ | 209.3 | $ | 195.6 | $ | 219.7 | ||||||||
Gross Profit | $ | 54.1 | $ | 55.6 | $ | 53.4 | $ | 55.2 | ||||||||
Net Income | $ | 21.2 | $ | 24.9 | $ | 23.7 | $ | 23.1 | ||||||||
Net Income per Basic Common Share | $ | 0.57 | $ | 0.66 | $ | 0.64 | $ | 0.62 | ||||||||
Net Income per Diluted Common Share | $ | 0.57 | $ | 0.66 | $ | 0.63 | $ | 0.62 |
Significant Items for Fiscal 2018
The table below contains items included in fiscal 2018:2020:
|
| Fiscal 2020 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
|
| July 27, 2019 |
|
| October 26, 2019 |
|
| February 1, 2020 |
|
| May 2, 2020 |
| ||||
(Dollars in Millions) |
| (13 Weeks) |
|
| (13 Weeks) |
|
| (14 Weeks) |
|
| (13 Weeks) |
| ||||
Legal Fees Related to the Hetronic lawsuit |
| $ | 0.8 |
|
| $ | 1.4 |
|
| $ | 1.1 |
|
| $ | 2.1 |
|
Grant Income from Foreign Government for Maintaining Certain Employment Levels |
| $ | — |
|
| $ | — |
|
| $ | (5.5 | ) |
| $ | (4.4 | ) |
RSA Compensation Expense Adjustment |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (6.5 | ) |
Expense for Initiatives to Reduce Overall Costs and Improve Operational Profitability |
| $ | — |
|
| $ | 0.5 |
|
| $ | 1.1 |
|
| $ | 0.2 |
|
Fiscal 2018 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
July 29, 2017 | October 28, 2017 | January 27, 2018 | April 28, 2018 | |||||||||||||
Legal Fees Related to the Hetronic lawsuit | $ | 2.9 | $ | 1.6 | $ | 1.5 | $ | 2.1 | ||||||||
Acquisition-related Expenses | $ | 2.6 | $ | 4.2 | $ | — | $ | — | ||||||||
Grant Income from Foreign Government for Maintaining Certain Employment Levels | $ | — | $ | (1.5 | ) | $ | (3.6 | ) | $ | (2.2 | ) | |||||
Compensation Expense Reversal Related to the Re-estimation of RSA Performance Level | $ | — | $ | — | $ | (6.0 | ) | $ | — | |||||||
Discrete Estimated Net Income Tax Charge with Respect to U.S. Tax Reform | $ | — | $ | — | $ | 56.8 | $ | (3.1 | ) | |||||||
Foreign Investment Tax Credit | $ | (0.4 | ) | $ | (0.4 | ) | $ | (0.3 | ) | $ | (8.7 | ) |
Significant Items for Fiscal 2017
|
| Fiscal 2019 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
|
| July 28, 2018 |
|
| October 27, 2018 |
|
| January 26, 2019 |
|
| April 27, 2019 |
| ||||
(Dollars in Millions, except per share data) |
| (13 Weeks) |
|
| (13 Weeks) |
|
| (13 Weeks) |
|
| (13 Weeks) |
| ||||
Legal Fees Related to the Hetronic lawsuit |
| $ | 0.9 |
|
| $ | 1.0 |
|
| $ | 0.8 |
|
| $ | 0.8 |
|
Acquisition-related Expenses |
| $ | 0.6 |
|
| $ | 10.9 |
|
| $ | 3.8 |
|
| $ | 0.1 |
|
Grant Income from Foreign Government for Maintaining Certain Employment Levels |
| $ | (1.1 | ) |
| $ | (1.4 | ) |
| $ | (1.9 | ) |
| $ | (1.4 | ) |
RSA Compensation Expense Adjustment |
| $ | — |
|
| $ | 7.4 |
|
| $ | — |
|
| $ | — |
|
Expense for Initiatives to Reduce Overall Costs and Improve Operational Profitability |
| $ | 0.8 |
|
| $ | 2.5 |
|
| $ | 2.6 |
|
| $ | 1.0 |
|
Fiscal 2017 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
July 30, 2016 | October 29, 2016 | January 28, 2017 | April 29, 2017 | |||||||||||||
Legal Fees Related to the Hetronic lawsuit | $ | 4.3 | $ | 2.3 | $ | 1.6 | $ | 2.8 | ||||||||
Shut-down Costs for Two Reporting Units | $ | — | $ | — | $ | — | $ | 2.2 | ||||||||
Acquisition Expenses * | $ | — | $ | — | $ | — | $ | 1.5 | ||||||||
Grant Income from Foreign Government for Maintaining Certain Employment Levels | $ | — | $ | (1.5 | ) | $ | (1.5 | ) | $ | (1.5 | ) | |||||
* Related to a Potential Acquisition We Elected Not to Undertake. |
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
(in millions)
Description |
| Balance at Beginning of Period |
|
| Charged to Costs and Expenses |
|
|
|
| Deductions |
|
|
|
|
| Other |
|
|
|
|
| Balance at End of Period |
| |||||
Year Ended May 2, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts |
| $ | 0.9 |
|
| $ | (0.2 | ) |
|
|
| $ | — |
|
|
|
|
| $ | — |
|
|
|
|
| $ | 0.7 |
|
Deferred tax valuation allowance |
| $ | 6.3 |
|
| $ | 0.7 |
|
| (3 | ) | $ | — |
|
|
|
|
| $ | — |
|
|
|
|
| $ | 7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 27, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts |
| $ | 0.5 |
|
| $ | 0.2 |
|
|
|
| $ | — |
|
|
|
|
| $ | 0.2 |
|
| (1 | ) |
| $ | 0.9 |
|
Deferred tax valuation allowance |
| $ | 2.5 |
|
| $ | — |
|
|
|
| $ | (1.0 | ) |
| (3 | ) |
| $ | 4.8 |
|
| (1 | ) |
| $ | 6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 28, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts |
| $ | 0.6 |
|
| $ | — |
|
|
|
| $ | (0.1 | ) |
| (2 | ) |
| $ | — |
|
|
|
|
| $ | 0.5 |
|
Deferred tax valuation allowance |
| $ | 1.9 |
|
| $ | 0.6 |
|
| (3 | ) | $ | — |
|
|
|
|
| $ | — |
|
|
|
|
| $ | 2.5 |
|
COL. A | COL. B | COL. C | COL. D. | COL. E | ||||||||||||||
Additions | ||||||||||||||||||
Description | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts— Describe | Deductions— Describe | Balance at End of Period | |||||||||||||
YEAR ENDED APRIL 28, 2018: | ||||||||||||||||||
Reserves and allowances deducted from asset accounts: | ||||||||||||||||||
Allowance for uncollectible accounts | $ | 0.6 | $ | — | $ | — | $ | 0.1 | (2) | $ | 0.5 | |||||||
Deferred tax valuation allowance | $ | 1.9 | $ | — | $ | — | $ | (0.6 | ) | (5) | $ | 2.5 | ||||||
YEAR ENDED APRIL 29, 2017: | ||||||||||||||||||
Reserves and allowances deducted from asset accounts: | ||||||||||||||||||
Allowance for uncollectible accounts | $ | 0.5 | $ | 0.1 | $ | — | $ | — | (2) | $ | 0.6 | |||||||
Deferred tax valuation allowance | $ | 1.3 | $ | (0.6 | ) | (5) | $ | 1.9 | ||||||||||
YEAR ENDED APRIL 30, 2016: | ||||||||||||||||||
Reserves and allowances deducted from asset accounts: | ||||||||||||||||||
Allowance for uncollectible accounts | $ | 0.5 | $ | 0.1 | $ | — | $ | 0.1 | (2) | $ | 0.5 | |||||||
Deferred tax valuation allowance | $ | 2.0 | $ | 0.7 | (5) | $ | 1.3 |
(1) | Represents business acquisitions. |
(2) | ||
(3) | Represents change in temporary items. |
F-39