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, 2017,31, 2020, 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$0.8 billion.
Registrant had 37,005,44938,302,350 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 2021 annual shareholders' meeting to be held on September 13, 201815, 2021 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. | 29 |
PART I
As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“this Annual Report”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or our strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:
• | Impact from pandemics, such as the COVID-19 pandemic; |
• | Dependence on the automotive and commercial vehicle industries; |
• | Dependence on our supply chain, including semiconductor suppliers; |
• | Dependence on a small number of large customers, including two large automotive customers; |
• | Dependence on the availability and price of materials; |
• | Failure to attract and retain qualified personnel; |
• | Timing, quality and cost of new program launches; |
• | Risks related to conducting global operations; |
• | Ability to compete effectively; |
• | Investment in programs prior to the recognition of revenue; |
• | Ability to withstand pricing pressures, including price reductions; |
• | Impact from production delays or cancelled orders; |
• | Ability to successfully benefit from acquisitions and divestitures; |
• | Ability to withstand business interruptions; |
• | Breaches to our information technology systems; |
• | Ability to keep pace with rapid technological changes; |
• | Ability to protect our intellectual property; |
• | Costs associated with environmental, health and safety regulations; |
• | International trade disputes resulting in tariffs and our ability to mitigate tariffs; |
• | Impact from climate change and related regulations; |
• | Ability to avoid design or manufacturing defects; |
• | Recognition of goodwill and long-lived asset impairment charges; |
• | Ability to manage our debt levels and any restrictions thereunder; |
• | Currency fluctuations; |
• | Income tax rate fluctuations; |
• | Judgments related to accounting for tax positions; |
• | Adjustments to compensation expense for performance-based awards; |
• | Timing and magnitude of costs associated with restructuring activities; and |
• | Impact to interest expense from the replacement or modification of LIBOR. |
Additional details and factors are discussed under the caption “Risk Factors” in this Annual Report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Any forward-looking statements made by us speak only as of the date on which they are made. We are under no obligation to, and expressly disclaims any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
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Item 1. Business
Description of Business
We are a leading global manufacturersupplier of componentcustom engineered solutions with sales, engineering and subsystem devices with manufacturing designlocations in North America, Europe, Middle East and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, Singapore, Switzerland, the United Kingdom and the United States. Our primary manufacturing facilities are located in Shanghai, China; Cairo, Egypt; Mriehel, Malta; Monterrey and Fresnillo, Mexico; and Nelson, British Columbia, Canada.Asia. We design, manufactureengineer and market devices employing electrical, radio remote control, electronic, wireless, sensingproduce mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing our broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and optical technologies. sensor applications.
Our corporate headquarters is located in Chicago, Illinois. Our componentssolutions are found in the primary end-marketsend markets of thetransportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance automotive, construction, consumer and industrial equipment, communications (including information processingmedical devices. Our business is managed on a segment basis, with those segments being Automotive, Industrial, Interface and storage, networking equipment and wireless and terrestrial voice/data systems), medical, rail and other transportation industries.
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 20172021 ended on May 1, 2021 and fiscal 2016 all2019 ended on April 27, 2019, which represented fifty-two52 weeks of results for each year. Fiscal 2020 ended on May 2, 2020, which represented 53 weeks of results.
Impact of the COVID-19 Pandemic
The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created significant volatility and disruptions to capital and credit markets in the global financial markets. We began to see the impacts of the COVID-19 pandemic at the beginning of our fourth quarter of fiscal 2020 at our China manufacturing facilities, which were initially closed 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. In the first quarter of fiscal 2021, our operations in North America and Europe gradually resumed operations, however production levels were still significantly reduced, resulting in lower capacity utilization, thus impacting our results of operations during the first quarter of fiscal 2021. In the second quarter of fiscal 2021, production levels in North America and Europe returned to pre-COVID levels as a result of increased demand from customers and continued for the remainder of fiscal 2021. However, towards the end of our third quarter of fiscal 2021, many automotive companies announced a slowdown in their production schedules due to a worldwide semiconductor supply shortage. The semiconductor supply shortage is impacting our supply chain and our ability to meet demand at some of our customers as well. We expect this semiconductor shortage will impact our operating results and financial condition in fiscal 2022.
In response to the COVID-19 pandemic and business disruption, in March 2020, 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. In the second quarter of fiscal 2021, we ceased the salary reductions and resumed five-day work weeks; |
• | 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, the requirement to wear masks, promotion of social distancing at our facilities and requirements for employees to work from home where possible; |
• | deferral of discretionary spending; and |
• | the March 2020 draw-down of $100.0 million under our revolving credit facility, which was repaid in full in the third quarter of fiscal 2021. The initial draw-down was as a precautionary measure in order to increase our cash position and preserve financial flexibility. |
In fiscal 2021, we continued to focus on effectively managing the unprecedented challenges and uncertainties of the pandemic on a global basis. As our operations resumed, management prioritized the health and safety of our employees and their families. We adopted numerous safety procedures at our 34 global facilities, including hygiene and disinfection protocols, testing and contact tracing, social distancing and wearing personal protective equipment (“PPE”). We implemented the sharing of best practices throughout our global facilities, resulting in effective and standardized safety guidelines and procedures, updated on a regular basis, promoting the health and safety of our employees.
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Management evaluated and redesigned our staffing requirements and structures to reflect the ongoing impact of the pandemic on our business and operations. Among other actions, management successfully implemented several important business consolidations and successfully managed pandemic-related labor issues at our facilities in Mexico. We implemented processes to continuously monitor and strengthen our supply chain to proactively mitigate potential disruptions due to the pandemic. Management also instituted elevated procedures and practices to successfully manage liquidity, cash, accounts receivable, accounts payable, capital expenditures and indebtedness during the pandemic.
In addition, we initiated certain restructuring actions in fiscal 2021 to rationalize our operations, lower our costs and improve financial performance and long-term cash flow generation. These actions included plant consolidations and workforce reductions in the Automotive, Industrial and Interface segments. In fiscal 2021, we recognized $8.2 million of restructuring costs. We may take additional restructuring actions in future periods based upon market conditions and industry trends.
Operating 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"),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 Interface segment provides a variety of copper based transceivers and related accessories for the cloud computing hardware equipment and telecommunications broadband equipment markets, user interface solutions for the appliance, commercial food service, and transportation.
The OtherMedical 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 and insulated-gate bipolar transistor solutions. Due to market conditions, this business was shuttered at the end of fiscal 2017.
The following table reflects the percentage of net sales of the segments of the Companyby segment for the last three fiscal years.
|
| Fiscal Year Ended |
| |||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
Automotive |
|
| 69.4 | % |
|
| 69.5 | % |
|
| 73.4 | % |
Industrial |
|
| 24.6 | % |
|
| 24.6 | % |
|
| 20.7 | % |
Interface |
|
| 5.7 | % |
|
| 5.7 | % |
|
| 5.8 | % |
Medical |
|
| 0.3 | % |
|
| 0.2 | % |
|
| 0.1 | % |
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 | — | % | — | % | — | % |
Sales and Marketing
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.
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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, capacitors and resistors, 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 requiredgenerally rely on patents, trade secrets, trademarks, licenses, and non-disclosure agreements to meet productionprotect our intellectual property and shipping schedules. In fiscal 2018, the Company experienced increased costs for copper.proprietary products. 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, 2018,2021, shipments to General Motors Corporation (“GM”) and Ford Motor Company (“Ford”), or their tiered suppliers, represented 43.3%27.5% and 12.3%8.8%, 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 Ford or GM blanket purchase order accounted for less than 10.0% of our fiscal 2018 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 arrangements where there is an expectation that we will supply products in future periods, however these arrangements 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
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
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Government Regulations
Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with foreign, federal, statethese laws, rules, and local provisions regulating the discharge of materials into the environmentregulations has not materially affectedhad a material effect upon our capital expenditures, earningsresults of operations, or our competitive position. Currently,position, and we do not currently anticipate material capital expenditures for environmental control facilities. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to international operations, environmental, export controls, business acquisitions, consumer and data protection, employee health and safety, and taxes, could have a material impact on our business in subsequent periods. Refer to “Item 1A. Risk Factors” in this Annual Report for a discussion of these potential impacts.
Human Capital
As of May 1, 2021, we employed approximately 7,200 employees worldwide, substantially all of whom were employed full time with approximately 94% of these employees located outside the U.S. Our U.S. employees are not subject to any material environmental-related lawsuitscollective bargaining agreements although certain international employees are covered by national or material administrative proceedings pending against us. Further information aslocal labor agreements.
Our corporate culture is committed to environmental matters affecting us is presenteddoing business with integrity, teamwork, and performance excellence. Our management team and all our employees are expected to exhibit the principles of fairness, honesty, and integrity in Note 8the actions we undertake. Our employees must adhere to our consolidated financial statements.
Talent Acquisition, Development and Succession Planning
Our talent strategy is focused on attracting the best talent, recognizing, and rewarding their performance while continually developing, engaging, and retaining them. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our Maltaoperations. When we hire new employees, we focus not just on the skills required for current positions, but the ever-changing complex skills and Mexico facilities, which account for approximately 60% of our total number of employees, are represented by collective bargaining agreements. competencies that will be required as we move forward.
We have never experienced a work stoppageglobal talent review and succession planning process designed to align our talent plans with the current and future strategies of the business. This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent development. Our teams meet with leaders and team members across the company to develop action plans and goals focused on both personal and professional development.
Diversity and Inclusion
As highlighted in our Diversity & Inclusion Statement, we believe that diversity and inclusion are business imperatives that will enable us to build and empower our employee relationsfuture workforce. We strive to maintain a diverse and inclusive workforce that reflects our global customer base and the communities that we serve. We embrace the diversity of our employees, including their unique backgrounds, experiences, thoughts, and talents. Employees are good.
Health and Safety
The success of our business is summarized in Note 12fundamentally connected to the well-being of our employees. We maintain a work environment with a safety culture grounded on the premise of eliminating workplace incidents, risks, and hazards. We have created and implemented processes to help eliminate safety events and reduce their frequency and severity. The safety of our employees is a top priority and vital to our consolidated financial statements.
It is always a top priority, but in fiscal 2021 employee health and safety were of paramount importance due to the informational requirementsCOVID-19 global pandemic. Where feasible, employees worked from home during fiscal 2021. For jobs that could not be done remotely, extensive safety measures were implemented, including equipping employees with PPE, temperature and health screenings, distanced workstations, plexiglass barriers, enhanced cleaning, and disinfection protocols, contact tracing when needed, published Safe Workplace Guidelines, employee training, and instituting other measures aimed at minimizing the transmission of the Securities Exchange Act of 1934 ("Exchange Act")COVID-19 while sustaining production and file periodic reports, proxy statements and other informationrelated services. Our safety measures are aligned with the Securitiesrecommendations of U.S. and Exchange Commission ("SEC"). Such reports may be obtained by visiting the Public Reference Roomglobal health organizations and have continued into fiscal 2022.
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Benefits and information statements and other information regarding Methode.
As part of our website.efforts to attract and motivate our employees, we offer competitive compensation and benefits that may vary by region and employee-type. We provide compensation packages that include base salary/wages, and short and long-term incentives. We also provide employee benefits such as life, disability, and health (medical, dental, and vision) insurance, a 401(k) plan with a company match, paid time off, tuition reimbursement, military leave, and holiday pay. We believe those benefits are competitive within our industry.
The Human Resources function at Methode is an active and visible partner to the business at all levels. Our Chief Human Resources Officer reports directly to the Chief Executive Officer and interacts frequently with our Board of Directors. In fiscal 2022, our human capital focus will be on employee health and safety, employee and leadership development, and communications.
Available Information
Through our internet website at www.methode.com, we make available, free of charge, copies of our annual reportAnnual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) ofand other filings with the Securities and Exchange ActCommission (“SEC”), as soon as reasonably practicable after filing such material electronicallythey are filed or otherwise furnishing itfurnished to the SEC. Our filings are also available on the SEC’s website at www.sec.gov. Also posted on our website are the Company’sour Corporate Governance Guidelines, Code of Business Conduct, Anti-Corruption Policy, Insider Trading Policy, Diversity & Inclusion Statement and the charters of the Audit Committee, Compensation Committee, Medical Products Committee, Nominating and Governance Committee and Technology Committee. Copies of these documents are also available free of charge by sending a request to Methode Electronics, Inc., 74018750 West WilsonBryn Mawr Avenue, Suite 1000, Chicago, Illinois 60706,60631, Attention: Investor Relations Department. Information onThe references in this Annual Report to our website isaddress or any third party’s website address, including but not incorporated into this Form 10-K or our other securities filingslimited to the SEC’s website, do not constitute incorporation by reference of the information contained in those websites and isshould not abe considered part of them.
Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to certainvarious risks, and uncertainties. We undertake no dutyincluding, but not limited to, update any such forward-looking statements to conform tothose set forth below, which could cause actual results to vary materially from recent results or changesfrom anticipated future results. These risk factors should be considered together with information included elsewhere in this Annual Report.
Operational and Industry Risks
The COVID-19 pandemic has adversely affected our expectations. Our business, is dependent upon two large automotivefinancial condition and results of operations. The extent of the effects of the COVID-19 pandemic on our business depends on future events that continue to be highly uncertain and beyond our control.
The COVID-19 pandemic and the ongoing measures to reduce its spread have negatively impacted the global economy, disrupted consumer and customer demand and global supply chains, and created significant volatility and disruption of financial markets. The continued volatility of the global economy adversely affected our results of operations for fiscal 2021, and we are currently unable to quantify the full and long-term impact of the pandemic on our business, financial condition and results of operations. The extent of the impact on our business will depend on a number of evolving factors, all of which remain uncertain, including the duration and spread of the pandemic, actions taken by governmental authorities to restrict business operations and social activity and impose travel restrictions, shifting 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 specific makessuppliers and modelsfuture access to capital.
We have implemented numerous actions in order to effectively manage the unprecedented challenges and uncertainties of automobiles. Ourthe COVID-19 pandemic on a global basis, such as implementing new workplace hygiene and disinfection protocols, redesigning production processes, leveraging our global purchasing power to secure PPE for our entire workforce, adopting processes to continuously monitor and strengthen our supply chain and consolidating operations. We may be required to take additional actions in response to evolving conditions, such as renewed travel restrictions, quarantine and stay-at-home orders, as well as uncertainty regarding the widespread availability and adoption of vaccines. A prolonged extension of the disruptions resulting directly or indirectly from the COVID-19 pandemic could have a material adverse impact on our business, financial condition and results will be subjectof operations
The COVID-19 pandemic and the ongoing measures to reduce its spread may also impact many of our other risk factors discussed in this Annual Report on Form 10-K, including customer demand, supply chain disruptions, availability of financing sources and risks of international operations. The ultimate significance of the same risksCOVID-19 pandemic on our business will depend on events that apply to the automotive, appliance, computerare beyond our control 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.that we cannot predict. Additional risks and uncertainties not presently known to us or that our managementwe currently believe to be insignificantdeem immaterial may also affect our business, financial condition and results of operations.
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We are susceptible to trends and factors affecting the automotive and commercial vehicle industries.
We derive a substantial portion of our revenues from customers in the automotive and commercial vehicle industries. Factors negatively affecting these industries also negatively affect our business, financial condition and results of operations. Automotive sales and production are highly cyclical and, in addition to general economic conditions, also depend on other factors, such as consumer confidence and consumer preferences. Any adverse occurrence, including industry slowdowns, 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 or work stoppages, that results in a significant decline in sales volumes 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 orand results of operations. These risk factors should be considered
The COVID-19 pandemic has significantly disrupted, and may continue to significantly disrupt, the global automotive and commercial vehicle industries and customer sales, production volumes and purchases of vehicles by consumers. In addition, the spread of COVID-19 has created a significant disruption in connection with evaluating the forward-looking statements containedmanufacturing operations, delivery systems and overall supply chains of automobile and commercial vehicle manufacturers and suppliers. Further, the COVID-19 pandemic resulted 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 asa temporary shutdown of substantially all of the datemajor OEMs in our markets at various times in fiscal 2021, which impacted our sales volumes. Although automotive and commercial vehicle production has resumed, customer sales and production volumes may significantly decrease or may be very volatile due to supply chain issues or other global economic impacts and uncertainties which could materially adversely affect our business, financial condition and results of this report.
The inability of our supply chain, or the supply chain of our customers, to deliver key components, such as semiconductors, could materially adversely affect our business, financial condition and results of operations.
Our business isproducts contain a significant number of components that we source globally. If our supply chain fails to deliver products to us, or to our customers, in sufficient quality and quantity on a timely basis, we will be challenged to meet our production schedules or could incur significant additional expenses for expedited freight and other related costs. Similarly, many of our customers are dependent on two largean ever-greater number of global suppliers to manufacture their products. These global supply chains have been, and may continue to be, adversely impacted by events outside of our control, including macroeconomic events, trade restrictions, economic recessions, political crises, labor relations issues, liquidity constraints, or natural occurrences, such as the ongoing disruptions from the COVID-19 pandemic. Any significant disruptions to such supply chains could materially adversely affect our business, financial condition and results of operations.
Many of the industries we supply, including the automotive customers. Ifand commercial vehicle industries, are reliant on semiconductors. Globally, there is an ongoing significant shortage of semiconductors. The semiconductor supply chain is complex, with capacity constraints occurring throughout. There is significant competition within the automotive and commercial vehicle supply chains and with other industries to satisfy current and near-term requirements for semiconductors. We have and will continue to work closely with our suppliers and customers to minimize any potential adverse impacts of the semiconductor supply shortage and monitor the availability of semiconductor microchips and other component parts and raw materials, customer production schedules and any other supply chain inefficiencies that may arise. However, if we wereare not able to losemitigate the semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on our business, financial condition and results of operations.
The loss or insolvency of either of theseour major 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,would adversely affect our future results could be adversely affected.
During the year ended April 28, 2018, shipmentsfiscal 2021, sales to GM and Ford, or their tiered suppliers, represented 43.3%27.5% and 12.3%8.8%, respectively, of our consolidated net sales. The sales to GM primarily consisted of integrated center consoles produced for use in light trucks and SUV's,SUV’s. The sales to Ford consist of ambient lighting, overhead consoles and other integrated modules, including control panels, for a shift in consumer preference for smaller or more fuel efficient vehicles could adversely affect our operating results.variety of models. 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, theThe loss of a FordGM or GMFord supply arrangement for a particular model or product or a significant decrease in demandproduction volumes for one or more of these modelsproducts could have a material adverse impact on our business, financial condition and results of operations and financial condition.operations. We also compete to supply products for successor models and are subject to the risk that FordGM or GMFord will not select us to produce products on any such successor model, which could have a material adverse impact on our results of operations and financial condition. The Company, from time to time, provides price concessions in connection with the awarding of new business.
We are dependent on the availability and price of raw materials.
We require substantial amounts of materials, including application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, extrusions, glass, LED displays, plastic molding materials, precious metals, silicon die castings and wire. 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, supply chain disruptions, changes in exchange rates and worldwide price levels. 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 declinechange in the volumeavailability of, sales inlead times for, or price for, these industries, or in an overall downturn in the business and operations of our customers in these industries,materials could materially adversely affect our business, financial condition and operating results.
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Our abilityinability to market our automotive 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.
Our success depends upon the continued contributions of our executive officers and financial conditionother key employees, many of whom have many years of experience with us and would be extremely difficult to replace. We must also attract and retain experienced and highly skilled engineering, sales and marketing and managerial personnel. Competition for qualified personnel is intense in our industries, and we may not be successful in hiring and retaining these people. If we lost the services of our executive officers or our other highly qualified and experienced employees or cannot attract and retain other qualified personnel, our business could be adversely affected.
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 and our and our customers’ personnel 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 operatingand results of operations.
The global nature of our operations subjects us to political, economic and cash flows.
Sales to customers outside of the U.S. dollar and other currencies could adversely impact our operating results.
• | differing labor regulations and practices, including various minimum wage regulations; |
• | changes in government policies, regulatory requirements and laws, including taxes, impacting our ability to manufacture, purchase or sell our products; |
• | fluctuations in currency exchange rates; |
• | political and economic instability (including changes in leadership and acts of terrorism and outbreaks of war); |
• | longer customer payment cycles and difficulty collecting accounts receivable; |
• | export duties, import controls, tariffs, and trade barriers (including quotas, sanctions and border taxes); |
• | governmental restrictions |
• | differing protections for our intellectual property; |
• | differing requirements under the various anti-bribery and anti-corruption regulations, including to the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act and the China Anti-Unfair Competition Law; |
• | coordinating communications and logistics across geographic distances and multiple time zones; and |
• | risk of governmental expropriation of our property. |
Many of 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 currency exchange rates and interest rates; economic downturns in foreign countries or geographic regions where we have significant operations, such as Mexico and China; significant changes in conditions in the countries in which we operate with the effect of competition from new market entrants and, in the United Kingdom, with passage of a referendum to discontinue membership in 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 relatedlisted above are complex and often difficult to the Foreign Corrupt Practices Actinterpret and certain other anti-corruption laws; differing labor regulations and union relationships; logistical and communications challenges; and differing protections for our intellectual property.
Our Dabir Surfaces medical device productsbusinesses and the markets in which we operate are emerging technologies. Our ability to successfully market and sell these products will depend on acceptance by the medical community.
The markets in which we operate are highly competitive. We compete with a large number of the products or if our customers prefer competitive products.
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Our ability to market our automotive and commercial vehicle products is subject to a lengthy sales cycle, which requires significant investment prior to reporting 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 their needs, interface correctly with the other parts of a vehicle and with the manufacturer’s production and assembly process, and have minimal warranty, safety and service problems. While we currently have active development programs with various OEMs for a variety of our suppliers,products, no assurance can be given that our products will be implemented in any particular vehicles. If our products are not selected after a lengthy development process, our business, partnersfinancial condition and contract manufacturers,results of operations could be adversely affected.
Future price reductions and increased quality standards may reduce our profitability and have a material adverse effect on our business, financial condition and results of operations.
Our supply arrangements with our customers typically require us to make, moveprovide our products at predetermined prices. In some cases, these prices decline over the course of the arrangement and sell products is criticalmay require us to meet certain productivity and cost reduction targets. In addition, our customers may require us to share productivity savings in excess of our cost reduction targets. The costs that we incur in fulfilling these orders may vary substantially from our initial estimates. Unanticipated cost increases or the inability to meet certain cost reduction targets may occur as a result of several factors, including increases in the costs of labor, components or materials. In some cases, we are permitted to pass on to our success. Damage or disruptioncustomers the cost increases associated with specific materials. However, cost overruns that we cannot pass on 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,customers could adversely affect our business, financial condition and results of operations, as well as requireoperations.
Certain of our customers have exerted and continue to exert considerable pressure on us to reduce prices and costs, improve quality and provide additional resourcesdesign and engineering capabilities. We may be unable to restoregenerate sufficient production cost savings in the future to offset required price reductions. Future price reductions, increased quality standards and additional engineering capabilities may reduce our supply chain.
Our customers may cancel their orders, change production quantities or locations or delay production.
We generally receive volume estimates, but not firm volume commitments from our customers, and may experience reduced or extended lead times in our effective tax ratecustomer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a number of customers may harm our results of operations.
In addition, we make key decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements. Changes in demand for our customers’ products may increase our effective tax rate, which could reduce our net income, including:
Our inability to capitalize on prior or interpretation, including changes in the U.S.future acquisitions or any decision to the taxation of non-U.S. income and expenses; and
We have completed acquisitions and financial condition.
The success of our prototypingacquisitions depends on our ability to:
• | 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; |
• | retain key personnel and key customers; |
• | identify and take advantage of cost reduction opportunities; and |
• | further penetrate new and existing markets with the product capabilities we may acquire. |
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Integration of acquisitions may take longer than we expect and production-basedmay 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 from other ongoing business concerns; or |
• | unduly burden other resources in our company. |
Our profitability will suffer if we are unable to successfully integrate an acquisition, if the acquisition does not further our business strategy as we expected or if we do not achieve sufficient revenue to offset the increased expenses associated with any acquisition. We may overpay for, or otherwise not realize the expected return on, our investments, which could adversely affect our operating results and customer mix;
A catastrophic event or other significant business interruption at any of manufacturing overhead.
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 sellsuch event, losses could be unexpectedly, negatively affected, which will impactincurred and significant recovery time could be required to resume operations and our salesbusiness, financial condition 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.suppliers. 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, 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 criticalAny such business operations, including certain component suppliers and manufacturing partners, are in locations thatinterruptions 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.
Technology and Intellectual Property Risks
Our operations 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, financial condition 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 manufacture may contain design or manufacturing defects thatconduct business, could result in reduced demand forenforcement 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 products or servicesdevelopment programs, business operations and liability claims against us.
In particular, 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 products we manufacture dueEuropean Union. The GDPR, which is wide-ranging in scope, imposes several requirements relating to a varietythe consent of factors, including design or manufacturing errors, component failure or counterfeit parts. Product defects may resultthe 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 delayed shipmentsconnection 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 countries such as the U.S., enhances enforcement authority and reduced demandimposes large penalties for our products. noncompliance.
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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.
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 sometimes 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 results of operations could be materially adversely affected.
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 conditioncompetitive position and operating results couldof operations may be materially adversely affected.
We have numerous United StatesU.S. and foreign patents, trade secrets 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.
Legal, Regulatory and Compliance Risks
We are subject to strategically divestgovernment regulations, including environmental, health, and safety laws and regulations, that expose us to potential financial liability.
Our operations are regulated by a number of federal, state, local and international government regulations, including those pertaining to environmental, health, and safety (“EHS”) that govern, among other things, air and water emissions, worker protection, and the handling, storage and disposal of hazardous materials. If we violate EHS laws and regulations, we could be liable for substantial fines, penalties, and costs of mandated remedial actions. Our environmental permits could also be revoked or modified, which could require us to cease or limit production at one or more current businesses orof our inabilityfacilities, thereby materially adversely affecting our business, financial condition and results of operations. EHS laws and regulations have generally become more stringent over time and could continue to capitalize on prior or future acquisitions maydo so in response to climate change concerns, imposing greater compliance costs and increasing risks and penalties associated with any violation, which also could materially adversely affect our business.
We operate our business on a global basis and changes to trade policy, including tariffs and customs regulations, could have completed acquisitionsa material and divestituresadverse effect on our business.
We manufacture and sell our products globally and rely on a global supply chain to deliver the required raw materials, components, and parts, as well as the final products to our customers. Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China, Egypt and Mexico, could have a material adverse effect on our business, financial condition and operating results. For instance, beginning in 2018, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive and commercial vehicle industries, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, and China imposed retaliatory tariffs on imports of U.S. vehicles and certain automotive components. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these tariffs and other regulatory actions could materially affect our business, including in the pastform of an increase in cost of goods sold, decreased margins, increased pricing for customers, and wereduced sales.
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Climate change and climate change regulations could adversely impact our business and results of operation.
Increased public awareness and concern regarding environmental risks, including global climate change, may continueresult in more international, regional and/or federal requirements or industry standards to seek acquisitions to grow our businesses. We may also 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,reduce or mitigate global warming and other environmental risks. These regulations or standards could mandate more restrictive requirements, such as property, plantstricter limits on greenhouse gas emissions and equipmentproduction of single use plastics. In addition, the risks of climate change may impact manufacturing, product demand, the availability and intangible assets,cost of materials and natural resources, and sources and supply of energy, and could become impairedincrease insurance and result in the recognitionother operating costs. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon us, our operations or products, or our operations are disrupted due to physical impacts of an impairment loss.
Products we manufacture may contain design or consolidation of the acquired operations into our existing businesses;
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 strategic divestitures may:
Financial Risks
We have significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on our financial condition and results of operations. Further, if
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 long-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. 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.
We have incurred indebtedness and our level of indebtedness and restrictions under our indebtedness could adversely affect our operations and 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. As of May 1, 2021, $228.6 million in principal was outstanding under these financing arrangements and we had $190.1 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 the type of borrowing and our debt to EBITDA financial ratio and contains customary representations and warranties, financial covenants, restrictive covenants and events of default.
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.
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 during adverse economic and industry conditions, because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal 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.
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A significant fluctuation between the U.S. dollar and other currencies could adversely impact our business, results of operations and financial condition.
We transact business in various foreign countries. We present our consolidated financial statements in U.S. dollars, but a portion of our revenues and expenditures are transacted in other currencies. As a result, we are unableexposed to certify thatfluctuations in foreign currencies. Additionally, we have currency fluctuation exposure arising from funds held in local currencies in foreign countries. Volatility in the exchange rates between the foreign currencies and the U.S. dollar could have an adverse effect on our productsbusiness, financial condition and results of operations.
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”). |
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 conflict free,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.
Performance-based awards under our long-term incentive plan may require significant adjustments to compensation expense which could have a material adverse impact on our results of operations.
Compensation expense for the performance-based restricted stock awards (“RSAs”) and performance units (“Performance Units”) recently awarded under our five-year long-term incentive program will be recognized over the vesting period based on the projected probability of achieving the relevant performance goals for fiscal 2025. As of May 1, 2021, we have not recorded any compensation expense for the RSAs or the Performance Units based on the probability assessment required under the accounting rules and regulations. Each quarter, we will assess the probability of vesting for the RSAs and the Performance Units and will adjust the compensation expense as necessary. At such time, we may face challenges withbe required to record compensation expense relating to prior periods, and such compensation expense adjustment could be material to our customers, whichresults of operation.
Reorganization activities may place us at a competitive disadvantage,lead to additional costs and material adverse effects.
In the past, we have taken actions to restructure and optimize our reputationproduction and manufacturing capabilities and efficiencies through relocations, consolidations, facility 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 harmed.
The replacement or modification of LIBOR as a reference 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 senior unsecured credit agreement, which matures in September 2023. Currently, no replacement rate has been identified. The transition from or modification of LIBOR could result in higher interest expense than has historically been recognized.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
Our corporate headquarters is located in Chicago, Illinois. As of May 1, 2021, we leased or owned 34 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 | 124,000 | ||||||
Dongguan, China | Automotive and Industrial | Manufacturing | Leased | 197,000 | ||||||
Shanghai, China | Automotive and Industrial | Manufacturing | Leased | 194,000 | ||||||
Cairo, Egypt | Automotive and Industrial | Manufacturing | Leased | 264,000 | ||||||
Mriehel, Malta | Automotive and Industrial | Manufacturing | Leased | 299,000 | ||||||
Monterrey, Mexico | Automotive, | Manufacturing | Leased | 292,000 | ||||||
Santa Catarina Nuevo Léon, Mexico | Automotive | Manufacturing | Leased | |||||||
128,000 | ||||||||||
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 | 65 | Chief Executive Officer since 2004 and President and Director since 2001. | ||||
Ronald L.G. Tsoumas | 60 | Chief Financial Officer of the Company since 2018; prior thereto, served as Controller | ||||
Andrea J. Barry | 58 | Chief Human Resources Officer of the Company since 2017; prior thereto, served as CHRO for Wirtz Beverage Group from 2013 to 2016. | ||||
Timothy R. Glandon | 57 | Vice President since 2006; General Manager, North American Automotive, from 2006 to 2015. | ||||
Joseph E. Khoury | 57 | Chief Operating Officer of the Company since 2018; prior thereto, served as Senior Vice President since | ||||
Kevin M. Martin | 55 | Vice President, North America since 2020; prior thereto, Vice President and General Manager, | ||||
Anil V. Shetty | 55 | President, Dabir Surfaces since |
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 followingExchange under the symbol “MEI”. As of June 17, 2021, we had 382 holders of record of our common stock. This does not include persons whose stock is a tabulation of highin nominee or “street name” accounts held by banks, brokers and low sales prices for the periods presented andother nominees.
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 |
Issuer Purchases of Equity Securities
On June 14, 2018,March 31, 2021, the Board of Directors declared a dividendauthorized the purchase of $0.11 per share of common stock, payable on July 27, 2018,up to holders of record on July 13, 2018. As of June 19, 2018, the number of record holders$100.0 million of our common stock, expiring on March 31, 2023. Purchases under this program may be made on the open market, in private transactions or pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. In fiscal 2021, we purchased and retired $7.5 million of common stock.
The following table provides information about our purchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the quarter ended May 1, 2021:
Fiscal Period |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of the publicly announced plan |
|
| Approximate dollar value of shares that may yet be purchased under the program (in millions) |
| ||||
January 31, 2021 to February 27, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
February 28, 2021 to April 3, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
April 4, 2021 to May 1, 2021 |
|
| 167,949 |
|
| $ | 44.66 |
|
|
| 167,949 |
|
| $ | 92.5 |
|
Total fiscal 2021 fourth quarter |
|
| 167,949 |
|
| $ | 44.66 |
|
|
| 167,949 |
|
|
|
|
|
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report for certain information relating to our equity compensation plans.
15
Stock Performance
The following graph shows the cumulative total stockholder return on our common stock over the period spanning April 30, 2016 to May 1, 2021, as compared with that of the NYSE Composite Index (“NYSE Index”), our Fiscal 2020 Peer Group and our Fiscal 2021 Peer Group. We have assumed that dividends have been reinvested and that $100 was 411.invested on April 30, 2016. The stock price performance included in this graph is historical and not necessarily indicative of future stock price performance.
| April 30, |
| April 29, |
| April 28, |
| April 27, |
| May 2, |
| May 1, |
| ||||||
Company/Index | 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Methode Electronics, Inc. | $ | 100.00 |
| $ | 151.27 |
| $ | 139.03 |
| $ | 102.04 |
| $ | 100.68 |
| $ | 160.55 |
|
NYSE Index |
| 100.00 |
|
| 114.89 |
|
| 128.11 |
|
| 139.78 |
|
| 124.33 |
|
| 186.97 |
|
Fiscal 2021 Peer Group |
| 100.00 |
|
| 139.25 |
|
| 145.62 |
|
| 146.43 |
|
| 116.09 |
|
| 197.20 |
|
Fiscal 2020 Peer Group |
| 100.00 |
|
| 142.85 |
|
| 141.50 |
|
| 158.89 |
|
| 121.71 |
|
| 199.13 |
|
The Fiscal 2021 Peer Group consists of the following fifteen public companies:
Belden Corporation | Gentherm Incorporated | OSI Systems, Inc. |
Benchmark Electronics, Inc. | Kemet Corporation | Rogers Corporation |
CTS Corporation | LCI Industries | Stoneridge, Inc. |
Delphi Technologies PLC | Littelfuse, Inc. | TTM Technologies, Inc. |
Franklin Electric Company, Inc. | MTS Systems Corporation | Visteon Corporation |
The Compensation Committee of the Board of Directors reviews the peer group annually and from time to time changes the composition of the peer group where changes are appropriate. In fiscal 2021, the Compensation Committee added Delphi Technologies PLC and Visteon Corporation and removed Dorman Products, Inc. and Standard Motor Products, Inc. based on our revenue, market capitalization and industry criteria for the peer group. Delphi Technologies PLC, Kemet Corporation and MTS Systems Corporation were all acquired in fiscal 2021 and were excluded from the five-year cumulative total returns.
Item 6. Selected Financial Data
Not applicable.
16
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 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 leading global manufacturersupplier of componentcustom engineered solutions with sales, engineering and subsystem devices with manufacturing designlocations in North America, Europe, Middle East and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, Singapore, Switzerland, the United Kingdom and the United States. Our primary manufacturing facilities are located in Shanghai, China; Cairo, Egypt; Mriehel, Malta; Monterrey and Fresnillo, Mexico; and Nelson, British Columbia, Canada.Asia. We design, manufactureengineer and market devices employing electrical, radio remote control, electronic, wireless, sensingproduce mechatronic products for OEMs utilizing our broad range of technologies for user interface, LED lighting system, power distribution and optical technologies.sensor applications.
Our solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices. Our business is managed on a segment basis, with those segments being Automotive, Industrial, Interface Power Products and Other.Medical. For more information regarding the business and products of these segments, see “Item 1. Business.”
Impact of the aerospace, appliance, automotive, construction,COVID-19 Pandemic
The COVID-19 pandemic and the ongoing measures to reduce its spread have negatively impacted the global economy, disrupted consumer and industrial equipment, communications (including information processingcustomer demand and storage, networking equipmentglobal supply chains, and wirelessresulted in manufacturing efficiencies and terrestrial voice/data systems), medical, railincreased freight costs due to global capacity constraints. We expect that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact our business and other transportation industries.
Restructuring actions
As a result of the COVID-19 pandemic, we initiated certain restructuring actions in fiscal 2021 to rationalize our operations, lower our costs and improve financial performance and long-term cash net of cash acquired. The business, located near the Belgian-German border, is an independent manufacturer of automotive assemblies. The accountsflow generation. These actions included plant consolidations and transactions of Procoplast have been includedworkforce reductions in the Automotive, segmentIndustrial and Interface segments. In fiscal 2021, we recognized $8.2 million of restructuring costs. We may take additional restructuring actions in future periods based upon market conditions and industry trends.
Results of Operations
We maintain our financial records on the basis of a 52- or 53-week fiscal year ending on the Saturday closest to April 30. For fiscal 2021 and fiscal 2019, our accounting period included 52 weeks and ended on May 1, 2021 and April 27, 2019, respectively. For fiscal 2020, our accounting period included 53 weeks and ended on May 2, 2020. The following discussions of comparative results among periods should be reviewed in this context.
A detailed comparison of our results of operations between fiscal 2020 and fiscal 2019 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2020 Annual Report on Form 10-K filed with the SEC on June 30, 2020.
17
The table below compares our results of operations between fiscal 2021 and fiscal 2020:
|
| Fiscal Year Ended |
|
|
|
|
|
|
|
|
| |||||||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| Net Change |
|
| Net Change |
| ||||||||||||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| ($) |
|
| (%) |
| ||||||||||||
Net sales |
| $ | 1,088.0 |
|
|
| 100.0 | % |
| $ | 1,023.9 |
|
|
| 100.0 | % |
| $ | 64.1 |
|
|
| 6.3 | % |
Cost of products sold |
|
| 813.9 |
|
|
| 74.8 | % |
|
| 741.0 |
|
|
| 72.4 | % |
|
| 72.9 |
|
|
| 9.8 | % |
Gross profit |
|
| 274.1 |
|
|
| 25.2 | % |
|
| 282.9 |
|
|
| 27.6 | % |
|
| (8.8 | ) |
|
| (3.1 | )% |
Selling and administrative expenses |
|
| 126.9 |
|
|
| 11.7 | % |
|
| 116.8 |
|
|
| 11.4 | % |
|
| 10.1 |
|
|
| 8.6 | % |
Amortization of intangibles |
|
| 19.3 |
|
|
| 1.8 | % |
|
| 19.0 |
|
|
| 1.9 | % |
|
| 0.3 |
|
|
| 1.6 | % |
Interest expense, net |
|
| 5.2 |
|
|
| 0.5 | % |
|
| 10.1 |
|
|
| 1.0 | % |
|
| (4.9 | ) |
|
| (48.5 | )% |
Other income, net |
|
| (12.2 | ) |
|
| (1.1 | )% |
|
| (11.7 | ) |
|
| (1.1 | )% |
|
| (0.5 | ) |
|
| 4.3 | % |
Income tax expense |
|
| 12.6 |
|
|
| 1.2 | % |
|
| 25.3 |
|
|
| 2.5 | % |
|
| (12.7 | ) |
|
| (50.2 | )% |
Net income |
| $ | 122.3 |
|
|
| 11.2 | % |
| $ | 123.4 |
|
|
| 12.1 | % |
| $ | (1.1 | ) |
|
| (0.9 | )% |
Net sales. Net sales increased by $64.1 million, or 6.3%, to $1,088.0 million in fiscal 2021, compared to $1,023.9 million in fiscal 2020. The impact of foreign currency translation, primarily the euro and Chinese renminbi, increased net sales by $26.7 million. Excluding foreign currency translation, net sales increased by $37.4 million, primarily due to higher sales in the Automotive and Industrial segments.
Cost of products sold. Cost of products sold increased by $72.9 million, or 9.8%, to $813.9 million (74.8% of sales) in fiscal 2021, compared to $741.0 million (72.4% of sales) in fiscal 2020. The impact of foreign currency translation increased cost of products sold by $18.9 million. Excluding foreign currency translation, cost of products sold increased by $54.0 million, primarily due to higher material and operating costs and restructuring costs, partially offset by lower labor costs. Supply chain shortages and disruptions led to higher material and logistic costs. Material costs were also impacted by product sales mix. In fiscal 2021, we recognized $4.8 million of restructuring costs, compared to $0.6 million in fiscal 2020. Labor costs were lower as a result of actions taken in response to the COVID-19 pandemic.
Gross profit. Gross profit decreased by $8.8 million, or 3.1%, to $274.1 million (25.2% of sales) in fiscal 2021, compared to $282.9 million (27.6% of sales) in fiscal 2020. The impact of foreign currency translation increased gross profit by $7.8 million. Excluding foreign currency translation, gross profit decreased by $16.6 million. The decrease in gross profit margin was primarily due to higher material costs, product sales mix and restructuring costs, partially offset by lower labor costs.
Selling and administrative expenses. Selling and administrative expenses increased by $10.1 million, or 8.6%, to $126.9 million (11.7% of sales) in fiscal 2021, compared to $116.8 million (11.4% of sales) in fiscal 2020. The impact of foreign currency translation increased selling and administrative expenses by $1.7 million. Excluding foreign currency translation, selling and administrative expenses increased by $8.4 million. The increase was primarily due to higher stock-based and cash incentive compensation expenses and restructuring costs, partially offset by lower salary expense and travel expense. Cash incentive compensation expense increased by $7.1 million due to the increase in the amounts earned under our annual performance-based bonus program compared to fiscal 2020. Stock-based compensation expense increased by $6.5 million as fiscal 2020 included a $5.2 million reversal of stock-based compensation expense.For further information, see Note 13, “Shareholders Equity,” to the consolidated financial statements included in this Annual Report. In fiscal 2021, we recognized $3.4 million of restructuring costs, compared to $1.2 million in fiscal 2020. Salary expense was lower in fiscal 2021 as a result of the actions we took in response to the COVID-19 pandemic. As noted above, we implemented temporary salary reductions and four-day work weeks (which ended in the second quarter of fiscal 2021) and eliminated most business travel.
Amortization of intangibles. Amortization of intangibles increased by $0.3 million, or 1.6%, to $19.3 million in fiscal 2021, compared to $19.0 million in fiscal 2020.
Interest expense, net. Interest expense, net was $5.2 million in fiscal 2021, compared to $10.1 million in fiscal 2020. The decrease was due to a lower effective interest rate on outstanding borrowings, partially offset by higher average borrowings. Average borrowings were higher due to the precautionary $100.0 million draw-down under our revolving credit facility in March 2020, which was fully repaid in the third quarter of fiscal 2021.
Other income, net. Other income, net increased by $0.5 million to $12.2 million in fiscal 2021, compared to $11.7 million in fiscal 2020. In fiscal 2021, we received $11.1 million of government assistance at certain of our international locations with respect to the COVID-19 pandemic. In fiscal 2020, we received $11.6 million of international government assistance, of which approximately $1.7 million related to assistance provided with respect to the COVID-19 pandemic. The remaining $9.9 million of international government grants in fiscal 2020 related 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 $0.3 million in fiscal 2021, compared to $3.1 million in fiscal 2020.
18
Income tax expense. Income tax expense decreased by $12.7 million, or 50.2%, to $12.6 million in fiscal 2021, compared to $25.3 million in fiscal 2020. Our effective tax rate decreased to 9.3% in fiscal 2021, compared to 17.0% in fiscal 2020. The lower effective tax rate in fiscal 2021 was primarily due to discrete tax benefits recorded of $10.4 million. These discrete tax benefits included tax credits earned and research deductions claimed in foreign jurisdictions. The discrete tax benefits were partially offset by discrete tax expense of $1.6 million, resulting in a net discrete tax benefit of $8.8 million. Excluding the net discrete tax benefits, the effective tax rate would have been 15.9%. In fiscal 2020, income tax expense included discrete tax expenses of $1.5 million. Excluding the discrete tax expense, the effective tax rate would have been 15.5%.
Net income. Net income decreased by $1.1 million, or 0.9%, to $122.3 million in fiscal 2021, compared to $123.4 million in fiscal 2020. The impact of foreign currency translation increased net income by $5.4 million. Excluding foreign currency translation, net income decreased by $6.5 million as a result of the reasons described above.
Operating Segments
Automotive
|
| Fiscal Year Ended |
|
|
|
|
|
|
|
|
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| Net Change |
|
| Net Change |
| ||||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net sales |
| $ | 755.7 |
|
| $ | 712.1 |
|
| $ | 43.6 |
|
|
| 6.1 | % |
Gross profit |
| $ | 163.4 |
|
| $ | 178.2 |
|
| $ | (14.8 | ) |
|
| (8.3 | )% |
As a percent of net sales |
|
| 21.6 | % |
|
| 25.0 | % |
|
|
|
|
|
|
|
|
Income from operations |
| $ | 107.6 |
|
| $ | 124.4 |
|
| $ | (16.8 | ) |
|
| (13.5 | )% |
As a percent of net sales |
|
| 14.2 | % |
|
| 17.5 | % |
|
|
|
|
|
|
|
|
Net sales. Automotive segment net sales increased by $43.6 million, or 6.1%, to $755.7 million in fiscal 2021, compared to $712.1 million in fiscal 2020. The impact of foreign currency translation increased net sales by $20.7 million. Excluding foreign currency translation, net sales increased by $22.9 million. Net sales decreased in North America by $29.2 million, or 6.7%, to $406.4 million in fiscal 2021, compared to $435.6 million in fiscal 2020. The decrease was due to lower electric vehicle product sales which shifted from North America to Asia and lower lighting product sales volumes. Net sales in fiscal 2020 were negatively impacted by $28.7 million due to the UAW labor strike at GM. Net sales in Europe increased by $10.2 million, or 5.0%, to $212.3 million in fiscal 2021, compared to $202.1 million in fiscal 2020. The stronger euro, relative to the U.S. dollar, increased net sales in Europe by $14.0 million. Excluding the impact of foreign currency translation, net sales in Europe decreased by $3.8 million due to lower sales volumes, primarily in the first quarter of fiscal 2021, as a result of the COVID-19 pandemic. Net sales in Asia increased by $62.6 million, or 84.1%, to $137.0 million in fiscal 2021, compared to $74.4 million in fiscal 2020. The stronger Chinese renminbi, relative to the U.S. dollar, increased net sales in Asia by $6.7 million. Excluding foreign currency translation, net sales in Asia increased by $55.9 million primarily due to higher electric vehicle product sales volumes which were transferred from North America, and higher lead frame and touchscreen sales volumes.
Gross profit. Automotive segment gross profit decreased by $14.8 million, or 8.3%, to $163.4 million in fiscal 2021, compared to $178.2 million in fiscal 2020. The impact of foreign currency translation increased gross profit by $5.2 million. Excluding foreign currency translation, gross profit decreased by $20.0 million. Gross profit margin decreased to 21.6% in fiscal 2021, from 25.0% in fiscal 2020. The decrease in gross profit margin was primarily due to higher material costs and restructuring actions taken in fiscal 2021. In fiscal 2021, we recognized $4.9 million of restructuring costs, compared to $0.6 million in fiscal 2020.
Income from operations. Automotive segment income from operations decreased by $16.8 million, or 13.5%, to $107.6 million in fiscal 2021, compared to $124.4 million in fiscal 2020. The impact of foreign currency translation increased automotive segment income from operations by $3.6 million. Excluding foreign currency translation, automotive segment income from operations decreased by $20.4 million, primarily due to lower gross profit.
19
Industrial
|
| Fiscal Year Ended |
|
|
|
|
|
|
|
|
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| Net Change |
|
| Net Change |
| ||||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net sales |
| $ | 267.9 |
|
| $ | 251.4 |
|
| $ | 16.5 |
|
|
| 6.6 | % |
Gross profit |
| $ | 98.1 |
|
| $ | 95.0 |
|
| $ | 3.1 |
|
|
| 3.3 | % |
As a percent of net sales |
|
| 36.6 | % |
|
| 37.8 | % |
|
|
|
|
|
|
|
|
Income from operations |
| $ | 64.3 |
|
| $ | 59.4 |
|
| $ | 4.9 |
|
|
| 8.2 | % |
As a percent of net sales |
|
| 24.0 | % |
|
| 23.6 | % |
|
|
|
|
|
|
|
|
Net sales. Industrial segment net sales increased by $16.5 million, or 6.6%, to $267.9 million in fiscal 2021, compared to $251.4 million in fiscal 2020. The impact of foreign currency translation increased net sales by $6.0 million. Excluding foreign currency translation, net sales increased by $10.5 million. The increase was primarily due to higher sales volumes of electric vehicle busbar products, partially offset by lower sales volumes of commercial vehicle lighting solutions which were adversely impacted from the effective dateCOVID-19 pandemic.
Gross profit. Industrial segment gross profit increased by $3.1 million, or 3.3%, to $98.1 million in fiscal 2021, compared to $95.0 million in fiscal 2020. The majority of the acquisition.
Income from operations. Industrial segment income from operations increased by $4.9 million, or 8.2%, to $64.3 million in fiscal 2021, compared to $59.4 million in fiscal 2020. The impact of Pacific Insightforeign currency translation increased income from operations by $2.4 million. Excluding foreign currency translation, income from operations increased by $2.5 million. The increase was primarily due to lower selling and administrative costs which benefited from actions to reduce headcount and related costs as a result of the COVID-19 pandemic. This was partially offset by the recognition of $1.0 million of restructuring costs in a cash transaction for $108.7fiscal 2021.
Interface
|
| Fiscal Year Ended |
|
|
|
|
|
|
|
|
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| Net Change |
|
| Net Change |
| ||||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net sales |
| $ | 61.6 |
|
| $ | 58.8 |
|
| $ | 2.8 |
|
|
| 4.8 | % |
Gross profit |
| $ | 12.3 |
|
| $ | 10.0 |
|
| $ | 2.3 |
|
|
| 23.0 | % |
As a percent of net sales |
|
| 20.0 | % |
|
| 17.0 | % |
|
|
|
|
|
|
|
|
Income from operations |
| $ | 8.9 |
|
| $ | 5.6 |
|
| $ | 3.3 |
|
|
| 58.9 | % |
As a percent of net sales |
|
| 14.4 | % |
|
| 9.5 | % |
|
|
|
|
|
|
|
|
Net sales. Interface segment net sales increased by $2.8 million, netor 4.8%, to $61.6 million in fiscal 2021, compared to $58.8 million in fiscal 2020. The increase was primarily due to higher sales volumes of cash acquired. Pacific Insight, headquarteredappliance products, partially offset by lower sales volumes of legacy data solutions products.
Gross profit. Interface segment gross profit increased by $2.3 million, or 23.0%, to $12.3 million in Vancouver, British Columbia, Canada, is a global solutions provider offering design, development, manufacturing and deliveryfiscal 2021, compared to $10.0 million in fiscal 2020. Gross profit margin increased to 20.0% in fiscal 2021, from 17.0% in fiscal 2020. The increase relates to higher sales volumes of lighting and electronicappliance products and full-service solutionslower operational costs.
Income from operations. Interface segment income from operations increased by $3.3 million, or 58.9%, to $8.9 million in fiscal 2021, compared to $5.6 million in fiscal 2020. The increase was primarily due to higher gross profit and lower selling and administrative expenses, partially offset by $0.7 million of restructuring costs recognized in the automotivefirst quarter of fiscal 2021. Selling and commercial vehicle markets. Its technologyadministrative expenses in LED-based ambientfiscal 2021 benefitted from restructuring actions taken in the first quarter of fiscal 2021.
20
Medical
|
| Fiscal Year Ended |
|
|
|
|
|
|
|
|
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| Net Change |
|
| Net Change |
| ||||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| ($) |
|
| (%) |
| ||||
Net sales |
| $ | 2.8 |
|
| $ | 1.6 |
|
| $ | 1.2 |
|
|
| 75.0 | % |
Gross profit |
| $ | (0.3 | ) |
| $ | (1.5 | ) |
| $ | 1.2 |
|
|
| 80.0 | % |
Loss from operations |
| $ | (4.6 | ) |
| $ | (6.0 | ) |
| $ | 1.4 |
|
|
| 23.3 | % |
Net sales. The Medical segment had $2.8 million of net sales in fiscal 2021, compared to $1.6 million of net sales in fiscal 2020. Net sales increased due to higher product demand.
Gross profit. Medical segment gross profit was a loss of $0.3 million in fiscal 2021, compared to a loss of $1.5 million in fiscal 2020. The improvement was due to higher net sales.
Loss from operations. Medical segment loss from operations decreased by $1.4 million to $4.6 million in fiscal 2021, compared to $6.0 million in fiscal 2020. The improvement was due to higher net sales and direct lighting will expandlower selling and administrative costs.
Financial Condition, Liquidity and Capital Resources
Our liquidity requirements are primarily to fund our presence within the automotive interior,business operations, including capital expenditures and working capital requirements, as well as augmentto fund debt service requirements, dividends and stock repurchases. Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our effortssenior unsecured credit agreement. We believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months. However, if economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic, our liquidity position could be severely impacted.
At May 1, 2021, we had $233.2 million of cash and cash equivalents, of which $92.2 million was held in overhead consolesubsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and other areas. The accountscan be repatriated, primarily through the payment of dividends and transactionsthe repayment of Pacific Insight have been included in the Automotive segment in the consolidated financial statements from the effective date of the acquisition. For more information regarding the acquisitions of Procoplast and Pacific Insight, see “Note 2. Acquisitions.”
Stock Repurchase Common Stock
On March 31, 2021, the Board of Directors authorized the repurchasepurchase of up to $100$100.0 million of our common stock. Such purchases may be made on the Company's outstanding common stock through Septemberopen market, in private transactions or pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. As of May 1, 2017. The Company2021, we purchased no outstanding common stock during the fiscal year ended April 28, 2018, which leaves the total repurchased under the plan at 2,277,466and retired 167,949 shares of outstandingour common stock for $71.9$7.5 million.
Credit Agreement
Our senior unsecured credit agreement provides for a $200.0 million revolving credit facility and a $250.0 million term loan. In March 2020, as a precautionary measure in response to the COVID-19 pandemic, we drew down $100.0 million under our revolving credit facility, which we repaid in the third quarter of fiscal 2021. As of May 1, 2021, $9.9 million in principal was outstanding under the revolving credit facility and we have $190.1 million of availability under the revolving credit facility. As of May 1, 2021, $218.7 million in principal was outstanding under the term loan. The plan expiredterm 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 1, 2021. For further information, see Note 10, “Debt” to the consolidated financial statements included in this Annual Report.
Borrowings under our senior unsecured credit agreement bear interest at rates equal to LIBOR plus an applicable margin. LIBOR is expected to be phased out by the end of 2021, which is before the maturity of our senior unsecured credit agreement. At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate; however, we continue to monitor the efforts of various parties, including government agencies, seeking to identify an alternative rate to replace LIBOR. The consequences of the discontinuance of LIBOR cannot be entirely predicted but could result in an increase in our interest expense.
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, Septemberamong other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our future prospects.
21
Cash Flows
|
| Fiscal Year Ended |
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
| ||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
| ||
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 122.3 |
|
| $ | 123.4 |
|
Non-cash items |
|
| 50.7 |
|
|
| 56.7 |
|
Changes in operating assets and liabilities |
|
| 6.8 |
|
|
| (39.5 | ) |
Net cash provided by operating activities |
|
| 179.8 |
|
|
| 140.6 |
|
Net cash used in investing activities |
|
| (24.8 | ) |
|
| (44.5 | ) |
Net cash (used in) provided by financing activities |
|
| (142.9 | ) |
|
| 41.7 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 3.8 |
|
|
| (3.7 | ) |
Net increase in cash and cash equivalents |
|
| 15.9 |
|
|
| 134.1 |
|
Cash and cash equivalents at beginning of the year |
|
| 217.3 |
|
|
| 83.2 |
|
Cash and cash equivalents at end of the year |
| $ | 233.2 |
|
| $ | 217.3 |
|
Operating activities
Net cash provided by operating activities increased by $39.2 million to $179.8 million in fiscal 2021, compared to $140.6 million in fiscal 2020. The increase was primarily due to cash generated from working capital. The changes in working capital was primarily due to lower inventories, prepaid expenses and other assets and higher accounts payable and other liabilities, partially offset by higher accounts receivable.
Investing activities
Net cash used in investing activities was $24.8 million in fiscal 2021, compared to $44.5 million in fiscal 2020. The activity primarily represents capital expenditures in both fiscal years.
Financing activities
Net cash used in financing activities was $142.9 million in fiscal 2021, compared to net cash provided by financing activities of $41.7 million in fiscal 2020. In fiscal 2021, we had net repayments on our borrowings of $115.2 million, which included the repayment of the $100.0 million precautionary draw-down on our revolving credit facility in March 2020. In fiscal 2020, we had net borrowings of $59.1 million. In fiscal 2021, we paid dividends of $17.4 million, compared to $16.3 million in fiscal 2020. We also initiated a stock repurchase program in fiscal 2021 and spent $6.7 million of cash for the purchase of shares.
Contractual Obligations
The following table summarizes our significant contractual obligations and commercial commitments as of May 1, 2017.2021:
|
| Payments Due By Period |
| |||||||||||||||||
(in millions) |
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| More than 5 years |
| |||||
Finance leases |
| $ | 1.0 |
|
| $ | 0.5 |
|
| $ | 0.4 |
|
| $ | 0.1 |
|
| $ | — |
|
Operating leases |
|
| 26.6 |
|
|
| 6.9 |
|
|
| 10.5 |
|
|
| 5.3 |
|
|
| 3.9 |
|
Capital expenditure commitments |
|
| 6.7 |
|
|
| 6.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Debt (1) |
|
| 241.6 |
|
|
| 14.9 |
|
|
| 223.2 |
|
|
| 1.0 |
|
|
| 2.5 |
|
Estimated interest on debt (2) |
|
| 8.3 |
|
|
| 3.5 |
|
|
| 4.5 |
|
|
| 0.2 |
|
|
| 0.1 |
|
Deferred compensation |
|
| 6.5 |
|
|
| 1.3 |
|
|
| 1.5 |
|
|
| 1.6 |
|
|
| 2.1 |
|
Total |
| $ | 290.7 |
|
| $ | 33.8 |
|
| $ | 240.1 |
|
| $ | 8.2 |
|
| $ | 8.6 |
|
(1) | Assumes the outstanding borrowings under the revolving credit facility will be repaid upon maturity of the credit agreement in September 2023. |
(2) | Based on interest rates in effect as of May 1, 2021 (including the impact of interest rate swaps). |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined under SEC rules.
22
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. As
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 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 April 28, 2018, discovery has been closed,the permanent injunction. On May 29, 2020, the Court held defendants in contempt for violating the permanent injunction and entered the final judgment. Defendants appealed entry of the final monetary judgment as well. The appeal of the permanent injunction and the parties are briefing summaryappeal of the final judgment have been consolidated into a single appeal. That appeal is fully briefed and was argued on March 8, 2021. There is no deadline for the Court to issue a decision. Like any judgment, particularly any judgment involving defendants outside of the United States, there is no guarantee that we will be able to collect the judgment.
We incurred legal fees of $8.1$5.7 million, $11.0$5.4 million and $9.9$3.5 million in fiscal 2018,2021, fiscal 20172020 and fiscal 2016,2019, respectively, related to the lawsuits. These amounts are included in the selling and administrative expenses in the Interface segment.
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | 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 |
Critical Accounting Policies and Chinese yuan as compared to the U.S. dollar.
The preparation of Products Sold
(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 |
The full impact of the sales proceedsCOVID-19 pandemic is unknown and cannot be reasonably assured. Revenue from our product sales not requiring installation, net of trade discountsestimated for these key estimates and estimated sales allowances, is recognized when title passes, which is generally upon shipment. We do not have any additional obligations or customer acceptance provisions after shipment of such products. We handle returns by replacing, repairing or issuing credit for defective products when returned. The Company collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with a revenue-producing transaction between the Company and the Company’s customers. These taxes may include, but are not limited to, sales, use, value-added, and some excise taxes. The Company reports the collection of these taxes on a net basis (excluded from revenues).
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 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.
Revenue 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. Revenue is recognized based on progress to date, which is typically even over the production process through transfer of control to the customer.
In addition, customers weretypically negotiate annual price downs. Management has evaluated these price downs and determined that in some 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 Excessexcess and Obsolete Inventory.
23
Goodwill.Goodwill and Other Intangibles.
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, we utilize a combination of the income approach and market approach to estimate the fair values are primarily established usingvalue of the reporting unit. The income approach uses a discounted cash flow methodology (specifically,method and the income and market approach).approach uses appropriate valuation multiples observed for the reporting unit’s guideline public companies. 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 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): Simplifying the Test for Goodwill Impairment" on a prospective basis. This
Income taxes. Our income tax expense and tax purposes. These temporary differences result in deferred tax assets and liabilities reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax provision and in evaluating income tax uncertainties.
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 position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which are includedthe determination is made. We report tax-related interest and penalties as a component of income tax expense.
Our deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. We adjust these amounts to reflect changes in our Consolidated Balance Sheets.tax rates expected to be in effect when the temporary differences reverse. 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 strategiesstrategies. The realization of tax benefits is evaluated by 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 assessing the needfuture 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.
We 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. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. 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 valuation allowance.
24
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, from balance sheet date levelsand commodity prices, which could have impactedaffect our income before income taxes by $1.9 millionoperating results, financial position and $13.1 million at April 28, 2018 and April 29, 2017, respectively.cash flows. We also havemanage a portion of these risks through use of derivative financial instruments in accordance with our policies. We do not enter into derivative financial instruments for speculative or trading purposes.
Foreign currency risk
We are exposed to foreign currency exposure arising from the translation of our net equity investmentrisk on sales, costs and assets and liabilities denominated in our foreign operations to U.S. dollars. We generally view our investments in foreign operations with functional currencies other than the 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, as long-term. The currencies to which we are exposed are the British pound, Chinese yuan, euro, Indian rupee,the Mexican peso, Singapore dollar and Swiss franc. the Chinese renminbi.
A 10%portion of our balance sheet is exposed to foreign currency exchange rate fluctuations, which may result in non-operating foreign currency exchange gains or losses upon remeasurement. In fiscal 2021, we reported foreign currency exchange losses of approximately $0.3 million, which were primarily attributed to the remeasurement of net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. In January 2021, we began to use foreign currency forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. The forward contracts have a maturity of less than three months and are not designated as hedging instruments. As of May 1, 2021, the notional value of these outstanding contracts was $14.8 million, and the net unrealized loss was $22 thousand. The impact of a change in the foreign currency exchange rates on our foreign currency forward contracts will generally be offset against the gain or loss from the re-measurement of the underlying balance sheet date levels couldexposure.
The translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates as of the end of the reporting period. 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 sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. As of May 1, 2021, the cumulative net currency translation adjustments increased shareholders’ equity by $11.5 million. We have impactedoutstanding a euro denominated cross-currency swap which is treated as a net investment hedge to reduce our exposure to translational exchange risk. As of May 1, 2021, we recorded a deferred loss, net foreign investments by $49.3of tax, of $5.2 million at April 28, 2018 and $41.1 million at April 29, 2017.
Interest rate risk
We are exposed to market risk from changes in interest rates. The interest rate risk foron borrowings under our senior unsecured credit agreements, underagreement which we had $33.6 million of net borrowings at April 28, 2018, is variable and is determined based on LIBOR. WeAs of May 1, 2021, we had $228.6 million of borrowings under our senior unsecured credit agreement. In April 2021, we began to manage our interest rate exposures through the use of interest rate swaps to effectively convert a portion of our variable-rate debt to a fixed rate. The notional amount of our interest rate swaps was $100.0 million as of May 1, 2021. Based on borrowings outstanding under our senior unsecured credit agreement at May 1, 2021, net of the interest rate swaps, we estimate that a one percentage point change1% increase in interest rates would not have a material impactresult in increased annual interest expense of $1.3 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 forcopper, resins, and other commodities, such as fuel and energy, has fluctuated in recent years due to changes in global supply and demand. The cost of copper has increased significantly in fiscal 2018 based upon2021. 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 1, 2021. 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 1, 2021 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 1, 2021. 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.
Changes in Internal Control over Financial Reporting
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
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding our directors will be included under the captions “Proposal One: Election of Directors” and “Corporate Governance” incorporate governance matters is incorporated by reference herein to the definitive proxy statement for our 20182021 annual meeting to be held on September 13, 2018,under the captions “Proposal One Election of Directors” and is incorporated herein“Corporate Governance.” 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 definitive proxy statement for our 20182021 annual meeting to be held on September 13, 2018,under the captions “Compensation Discussion 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 20182021 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 |
|
| 1,906,199 |
|
| 37.01(1) |
|
|
| 203,431 |
| |
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 1,906,199 |
|
| $ | 37.01 |
|
|
| 203,431 |
|
(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. |
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 |
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 20182021 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 definitive proxy statement for our 20182021 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 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1* | ||
10.2* | ||
10.3* | ||
10.4* | ||
10.5* | ||
10.6* | ||
10.7* | ||
10.8* | ||
10.9* | ||
10.10* | ||
10.11* | ||
10.12* | ||
10.13* | ||
10.14* | ||
10.15* | ||
10.16 |
28
10.17* | ||
10.18* | ||
10.19* | ||
10.20* | ||
10.21* | ||
10.22* | ||
10.23* | ||
10.24* | ||
10.25* | ||
10.26* | ||
10.27* | ||
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.
29
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
30
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 24, 2021 | ||
David P. Blom | ||||
/s/ THERESE M. BOBEK | Director | June 24, 2021 | ||
Therese M. Bobek | ||||
/s/ BRIAN J. CADWALLADER | Director | June | ||
Brian J. Cadwallader | ||||
/s/ BRUCE K. CROWTHER | Director | June 24, 2021 | ||
Bruce K. Crowther | ||||
/s/ DARREN M. DAWSON | Director | June | ||
Darren M. Dawson | ||||
/ | Director | June | ||
Janie Goddard | ||||
/ | Director | June | ||
Mary A. Lindsey | ||||
/ | Director | June | ||
Angelo V. Pantaleo | ||||
/s/ MARK D. SCHWABERO | Director | June 24, 2021 | ||
Mark D. Schwabero | ||||
31
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: | ||
F-36 |
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 1, 2021 and April 29, 2017,May 2, 2020, 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 1, 2021, 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 1, 2021 and April 29, 2017,May 2, 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 28, 2018,May 1, 2021, 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 1, 2021, 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 Matter
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
Description of the Matter | At May 1, 2021, the balance of the Company’s goodwill related to the Grakon Industrial reporting unit was $127.2 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, gross profit, 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. |
F-2
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 Grakon Industrial reporting unit. To test the fair value of the Grakon 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 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, Inc. and subsidiaries’ internal control over financial reporting as of April 28, 2018,May 1, 2021, 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 20182021 consolidated financial statements of the Company and our report dated June 21, 201824, 2021 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 1, 2021 |
|
| May 2, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 233.2 |
|
| $ | 217.3 |
|
Accounts receivable, net |
|
| 282.5 |
|
|
| 188.5 |
|
Inventories |
|
| 124.2 |
|
|
| 131.0 |
|
Income taxes receivable |
|
| 11.5 |
|
|
| 12.9 |
|
Prepaid expenses and other current assets |
|
| 22.6 |
|
|
| 15.9 |
|
Total current assets |
|
| 674.0 |
|
|
| 565.6 |
|
Long-term assets: |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 204.0 |
|
|
| 201.9 |
|
Goodwill |
|
| 235.6 |
|
|
| 231.6 |
|
Other intangible assets, net |
|
| 229.4 |
|
|
| 244.8 |
|
Operating lease right-of-use assets, net |
|
| 22.3 |
|
|
| 23.5 |
|
Deferred tax assets |
|
| 41.2 |
|
|
| 31.4 |
|
Pre-production costs |
|
| 25.0 |
|
|
| 37.1 |
|
Other long-term assets |
|
| 35.5 |
|
|
| 34.7 |
|
Total long-term assets |
|
| 793.0 |
|
|
| 805.0 |
|
Total assets |
| $ | 1,467.0 |
|
| $ | 1,370.6 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 122.9 |
|
| $ | 73.8 |
|
Accrued employee liabilities |
|
| 33.5 |
|
|
| 19.1 |
|
Other accrued liabilities |
|
| 25.0 |
|
|
| 18.5 |
|
Short-term operating lease liabilities |
|
| 6.1 |
|
|
| 5.5 |
|
Short-term debt |
|
| 14.9 |
|
|
| 15.3 |
|
Income tax payable |
|
| 20.3 |
|
|
| 11.6 |
|
Total current liabilities |
|
| 222.7 |
|
|
| 143.8 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Long-term debt |
|
| 225.2 |
|
|
| 336.8 |
|
Long-term operating lease liabilities |
|
| 17.5 |
|
|
| 20.4 |
|
Long-term income taxes payable |
|
| 24.8 |
|
|
| 29.3 |
|
Other long-term liabilities |
|
| 20.5 |
|
|
| 15.3 |
|
Deferred tax liabilities |
|
| 38.3 |
|
|
| 41.6 |
|
Total long-term liabilities |
|
| 326.3 |
|
|
| 443.4 |
|
Total liabilities |
|
| 549.0 |
|
|
| 587.2 |
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Common stock, $0.50 par value, 100,000,000 shares authorized, 39,644,913 shares and 38,438,111 shares issued as of May 1, 2021 and May 2, 2020, respectively |
|
| 19.8 |
|
|
| 19.2 |
|
Additional paid-in capital |
|
| 157.6 |
|
|
| 150.7 |
|
Accumulated other comprehensive income (loss) |
|
| 6.1 |
|
|
| (26.9 | ) |
Treasury stock, 1,346,624 shares as of May 1, 2021 and May 2, 2020 |
|
| (11.5 | ) |
|
| (11.5 | ) |
Retained earnings |
|
| 746.0 |
|
|
| 651.9 |
|
Total shareholders' equity |
|
| 918.0 |
|
|
| 783.4 |
|
Total liabilities and shareholders' equity |
| $ | 1,467.0 |
|
| $ | 1,370.6 |
|
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 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
|
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Net sales |
| $ | 1,088.0 |
|
| $ | 1,023.9 |
|
| $ | 1,000.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
| 813.9 |
|
|
| 741.0 |
|
|
| 734.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 274.1 |
|
|
| 282.9 |
|
|
| 265.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
| 126.9 |
|
|
| 116.8 |
|
|
| 142.9 |
|
Amortization of intangibles |
|
| 19.3 |
|
|
| 19.0 |
|
|
| 16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
| 127.9 |
|
|
| 147.1 |
|
|
| 106.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| 5.2 |
|
|
| 10.1 |
|
|
| 8.3 |
|
Other income, net |
|
| (12.2 | ) |
|
| (11.7 | ) |
|
| (5.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 134.9 |
|
|
| 148.7 |
|
|
| 103.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 12.6 |
|
|
| 25.3 |
|
|
| 12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 122.3 |
|
| $ | 123.4 |
|
| $ | 91.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 3.22 |
|
| $ | 3.28 |
|
| $ | 2.45 |
|
Diluted |
| $ | 3.19 |
|
| $ | 3.26 |
|
| $ | 2.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
| $ | 0.44 |
|
| $ | 0.44 |
|
| $ | 0.44 |
|
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 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
|
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Net income |
| $ | 122.3 |
|
| $ | 123.4 |
|
| $ | 91.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 37.4 |
|
|
| (12.3 | ) |
|
| (27.5 | ) |
Derivative financial instruments |
|
| (4.4 | ) |
|
| (1.0 | ) |
|
| 0 |
|
Total comprehensive income |
| $ | 155.3 |
|
| $ | 110.1 |
|
| $ | 64.1 |
|
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 28, 2018 |
|
| 38,198,353 |
|
| $ | 19.1 |
|
| $ | 136.5 |
|
| $ | 13.9 |
|
| $ | (11.5 | ) |
| $ | 472.0 |
|
| $ | 630.0 |
|
Issuance 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 |
|
Issuance 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 |
|
Issuance of restricted stock, net of tax withholding |
|
| 1,350,251 |
|
|
| 0.7 |
|
|
| (0.7 | ) |
|
| — |
|
|
| — |
|
|
| (3.9 | ) |
|
| (3.9 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 6.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.8 |
|
Exercise of stock options |
|
| 24,500 |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.8 |
|
Purchase of common stock |
|
| (167,949 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7.4 | ) |
|
| (7.5 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33.0 |
|
|
| — |
|
|
| — |
|
|
| 33.0 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122.3 |
|
|
| 122.3 |
|
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16.9 | ) |
|
| (16.9 | ) |
Balance as of May 1, 2021 |
|
| 39,644,913 |
|
| $ | 19.8 |
|
| $ | 157.6 |
|
| $ | 6.1 |
|
| $ | (11.5 | ) |
| $ | 746.0 |
|
| $ | 918.0 |
|
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 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
|
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 122.3 |
|
| $ | 123.4 |
|
| $ | 91.6 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 51.5 |
|
|
| 48.3 |
|
|
| 43.3 |
|
Stock-based compensation expense |
|
| 6.8 |
|
|
| 0.3 |
|
|
| 14.0 |
|
Change in cash surrender value of life insurance |
|
| (2.0 | ) |
|
| — |
|
|
| (0.6 | ) |
Amortization of debt issuance costs |
|
| 0.7 |
|
|
| 0.7 |
|
|
| 0.5 |
|
Loss (gain) on sale of business/investment/property |
|
| 1.3 |
|
|
| (0.4 | ) |
|
| (0.4 | ) |
Change in deferred income taxes |
|
| (9.6 | ) |
|
| 8.0 |
|
|
| (4.4 | ) |
Other |
|
| 2.0 |
|
|
| (0.2 | ) |
|
| 0.2 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (81.9 | ) |
|
| 27.4 |
|
|
| 1.5 |
|
Inventories |
|
| 11.3 |
|
|
| (15.8 | ) |
|
| (3.9 | ) |
Prepaid expenses and other assets |
|
| 17.9 |
|
|
| (3.6 | ) |
|
| (16.7 | ) |
Accounts payable and other liabilities |
|
| 59.5 |
|
|
| (47.5 | ) |
|
| (23.1 | ) |
Net cash provided by operating activities |
|
| 179.8 |
|
|
| 140.6 |
|
|
| 102.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (24.9 | ) |
|
| (45.1 | ) |
|
| (49.8 | ) |
Acquisition of businesses, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (422.1 | ) |
Sale of business/investment/property |
|
| 0.1 |
|
|
| 0.6 |
|
|
| 1.1 |
|
Net cash used in investing activities |
|
| (24.8 | ) |
|
| (44.5 | ) |
|
| (470.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid related to net share settlement of equity awards |
|
| (3.9 | ) |
|
| (0.4 | ) |
|
| (1.7 | ) |
Repayments of finance leases |
|
| (0.5 | ) |
|
| (0.7 | ) |
|
| — |
|
Debt issuance costs |
|
| — |
|
|
| — |
|
|
| (3.1 | ) |
Proceeds from exercise of stock options |
|
| 0.8 |
|
|
| — |
|
|
| — |
|
Purchase of common stock |
|
| (6.7 | ) |
|
| — |
|
|
| — |
|
Cash dividends |
|
| (17.4 | ) |
|
| (16.3 | ) |
|
| (16.3 | ) |
Proceeds from borrowings |
|
| 1.5 |
|
|
| 157.5 |
|
|
| 359.0 |
|
Repayments of borrowings |
|
| (116.7 | ) |
|
| (98.4 | ) |
|
| (120.5 | ) |
Net cash (used in) provided by financing activities |
|
| (142.9 | ) |
|
| 41.7 |
|
|
| 217.4 |
|
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
| 3.8 |
|
|
| (3.7 | ) |
|
| (11.5 | ) |
Increase (decrease) in cash and cash equivalents |
|
| 15.9 |
|
|
| 134.1 |
|
|
| (162.9 | ) |
Cash and cash equivalents at beginning of the year |
|
| 217.3 |
|
|
| 83.2 |
|
|
| 246.1 |
|
Cash and cash equivalents at end of the year |
| $ | 233.2 |
|
| $ | 217.3 |
|
| $ | 83.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 5.3 |
|
| $ | 9.9 |
|
| $ | 8.8 |
|
Income taxes, net of refunds |
| $ | 16.0 |
|
| $ | 21.1 |
|
| $ | 27.8 |
|
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 leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. The Company designs, engineers and produces mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing its broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and sensor applications.
The Company’s solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices.
Impact of the COVID-19 pandemic. The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant 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 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. In the first quarter of fiscal 2021, the Company’s operations in North America and Europe gradually resumed operations, however production levels were still significantly reduced, resulting in lower capacity utilization. In the second quarter of fiscal 2021, production levels returned to pre-COVID levels as a result of increased demand from customers, which continued through the fourth quarter of fiscal 2021. However, towards the end of the Company’s third quarter of fiscal 2021, many automotive companies announced a slowdown in their production schedules due to a worldwide semiconductor supply shortage. The semiconductor supply shortage is also impacting the Company’s supply chain and its ability to meet demand at some of its customers as well. The Company expects this semiconductor shortage will impact its operating results and financial condition in fiscal 2022.
Various government programs have been enacted to provide assistance to businesses impacted by the COVID-19 pandemic. The amount of assistance the Company received was $11.1 million and $1.7 million in fiscal 2021 and fiscal 2020, respectively, and has been reported in other income, net in the consolidated statements of 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, identifiable 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 1, 2021 and through the date of this report. As a result of these assessments, the Company concluded that there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company’s consolidated financial statements as of May 1, 2021 and for the year ended May 1, 2021. 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 its consolidated financial statements in future reporting periods.
At this time, the ultimate impact of the COVID-19 pandemic cannot be reasonably estimated due to the uncertainty about the extent and duration of the spread of the virus. Therefore, it is possible the COVID-19 pandemic could still have an adverse impact on the Company’s future business, operating results and financial condition.
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.
Financial 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 Equivalents.
F-10
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable and allowance for doubtful accounts. Accounts receivable are classified in the Consolidated Balance Sheets as cash equivalents.
Sales to General Motors Company (“GM”) and Ford Motor Company (“Ford”) in the estimateAutomotive segment, either directly or through their tiered suppliers, represented a significant portion of the ultimate collectabilityCompany's business. As of a specific account. We do not require collateral for ourMay 1, 2021 and May 2, 2020, combined accounts receivable balances. Accounts are written off against the allowance account when they are determined to be no longer collectible.
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, Plantplant 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 may first assess qualitative assessmentfactors to determine whether 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.
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 of long-lived assets. The Company 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.
F-11
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pre-production costs related to revenue and operating income growth, asset-related expenditures, working capital levels,long-term supply arrangements. The Company incurs pre-production tooling costs related to products produced for its customers under long-term supply arrangements. Engineering, testing and other market participant assumptions. costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable by the customer. As of May 1, 2021 and May 2, 2020, the Company had $25.0 million and $37.1 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.
Costs for molds, dies and other tools used in products produced for its customers under long-term supply arrangements for which the Company has title are capitalized in property, plant and equipment and amortized over the shorter of the life of the arrangement or over the estimated useful life of the assets. Company owned tooling was $17.0 million and $19.0 million as of May 1, 2021 and May 2, 2020, respectively.
Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company estimates the incremental borrowing rate to discount the lease payments based on information available at lease commencement. 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 options. The Company utilizes 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. The Company elects 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. Lease expense is recognized on a straight-line basis over the lease term. See Note 3, “Leases” for additional information.
Derivative financial instruments. The Company uses derivative financial instruments, including swaps and forward contracts, to manage exposures to changes in currency exchange rates and interest rates. The Company does not enter into or hold derivative financial instruments for trading or speculative purposes. See Note 8, “Derivative Financial Instruments and Hedging Activities” 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. Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue growthwhen it satisfies a performance obligation by transferring control over a product or service to a customer. From time to time, customers may 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 and is adjusted for variable consideration (such as discounts). Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
The Company’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. See Note 2, “Revenue” for further information.
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.
F-12
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring expense. Restructuring expense includes costs directly associated with exit or disposal activities. Such costs include employee severance and termination benefits, asset impairment charges, contract termination fees, and other exit or disposal costs. Employee termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable. Asset impairment charges relate to the impairment of ROU lease assets and equipment. Contract termination costs are recorded when notification of termination is given to the other party. See Note 4, “Restructuring” for additional information.
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 recorded as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains and losses arising from transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions, are included in the forecasts are our best estimates based on current and anticipated market conditions,consolidated 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 profitability assumptions are projected based on current and anticipated cost structures. Long-range forecasting involves uncertainty which increases with each successive period. Key assumptions, suchnecessary qualifying conditions, as revenue growth rates and profitability, especiallystated in the outergrant agreement, are met. The international government grants are generally paid over a period of years involve a greater degreeand are recorded at amortized cost on the Company’s consolidated balance sheets. As of uncertainty.
Research and Development Costs
Stock-based compensation. The Company recognizes compensation expense for the fiscal year ended April 28, 2018 and $27.8 million for both the fiscal years ended April 29, 2017 and April 30, 2016.
Product 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 description of our stock-based compensation plans.
Fair value measurement. 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 have no material
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” The guidance in ASU 2016-13 requires the measurement and recognition of expected credit losses for financial assets or liabilities measuredheld at fair value on a recurring basis.
F-13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2017,August 2018, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation (Topic 718)2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): ScopeCustomer’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 Company adopted this guidance prospectively as of Modification Accounting." The amendments in this update provide guidance about which changesMay 3, 2020, and the impact was immaterial to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The 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 2016,2018, the FASB issued ASU No. 2016-15, “Statement of Cash Flows2018-13, “Fair Value Measurement (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The amendmentsguidance in ASU 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 financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The Company adopted this update provideguidance as of May 3, 2020, and there was no impact on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships that reference LIBOR or another rate that is expected to be discontinued, subject to meeting certain criteria. ASU 2020-04 was effective upon issuance and generally can be applied prospectively through December 31, 2022. The Company does not expect a material effect from the adoption of this guidance on eight specific cash flow presentation issues that have developed dueits consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
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 diversitythe general principles in practice. The issues include, but are not limitedASC 740, such as recognizing deferred taxes for equity investments, the incremental approach to debt prepayment or extinguishment costs, contingent consideration payments made after a business combination,performing intraperiod tax allocation and proceeds from the settlement of insurance claims. The amendmentscalculating income taxes in this ASU, where practicable, are to be applied retrospectively.interim periods. The standard will bealso 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 consolidated group and requiring that an entity reflect the effect of enacted changes in 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 usthe Company in the first quarter of fiscal years beginning April 29, 2018. We do2022. The Company does not believeexpect this pronouncement willguidance to have a material impact on ourits consolidated financial statements.
Note 2.Revenue
The Company generates revenue from the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”manufacturing of products for customers in diversified global markets. The core principlemajority of the Company’s revenue is recognized at a point in time. The Company has determined that a company should recognize revenue to depict the transfer of goods or servicesmost definitive demonstration that control has transferred to a customer at an amount that reflectsis physical shipment or delivery, depending on the considerationcontractual 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.
Revenue associated with products which the entity expects to receive in exchange 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 reporting 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 fiscal year beginning April 29, 2018.
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 contractually guaranteed price reductions could result inCompany generally estimates variable consideration utilizing the most likely amount to which it expects to be entitled. When the contract provides the customer with the right to return eligible products, the Company reduces revenue being deferred as it relatesat 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 is expected to those material rights, which would be received changes or when the consideration becomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time. The Company’s payment terms with its customers are typically 30-45 days from the time control transfers. As the Company’s standard payments terms are less than one year, the Company has elected the practical expedient under ASC 606 to not assess whether a change from
F-14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs to be material upon adoption. fulfill/obtain a contract
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 recognizecapitalize and amortize those over the life of the contract.
Contract balances
The Company receives payment from customers based on the contractual 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 reimbursementsin advance of revenue recognition. Contract assets and contract liabilities are recognized in other current assets and other liabilities, respectively, in the Company's consolidated balance sheets.
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 $0.6 million and $0.5 million as of May 1, 2021 and May 2, 2020, respectively. During fiscal 2021, $0.5 million of previously unbilled receivables were recorded into accounts receivable. There were 0 impairments of contract assets as of May 1, 2021.
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 1, 2021 and May 2, 2020, respectively. Previously deferred revenue of $0.1 million was recorded into revenue during fiscal 2021.
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.
F-15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Fiscal Year Ended May 1, 2021 (52 Weeks) |
| |||||||||||||||||
(in millions) |
| Auto |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Total |
| |||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 406.4 |
|
| $ | 142.9 |
|
| $ | 61.0 |
|
| $ | 2.7 |
|
| $ | 613.0 |
|
Europe & Africa |
|
| 212.3 |
|
|
| 68.2 |
|
|
| 0 |
|
|
| 0 |
|
|
| 280.5 |
|
Asia |
|
| 137.0 |
|
|
| 56.8 |
|
|
| 0.6 |
|
|
| 0.1 |
|
|
| 194.5 |
|
Total net sales |
| $ | 755.7 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 1,088.0 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods transferred at a point in time |
| $ | 722.1 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 1,054.4 |
|
Goods transferred over time |
|
| 33.6 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 33.6 |
|
Total net sales |
| $ | 755.7 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 1,088.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Year Ended May 2, 2020 (53 Weeks) |
| |||||||||||||||||
(in millions) |
| Auto |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Total |
| |||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 435.6 |
|
| $ | 160.6 |
|
| $ | 57.9 |
|
| $ | 1.6 |
|
| $ | 655.7 |
|
Europe & Africa |
|
| 202.1 |
|
|
| 48.4 |
|
|
| 0.3 |
|
|
| — |
|
|
| 250.8 |
|
Asia |
|
| 74.4 |
|
|
| 42.4 |
|
|
| 0.6 |
|
|
| — |
|
|
| 117.4 |
|
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 |
|
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 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
Percentage of Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
GM |
|
| 27.5 | % |
|
| 26.8 | % |
|
| 35.5 | % |
Ford |
|
| 8.8 | % |
|
| 10.7 | % |
|
| 11.6 | % |
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 1, 2021, the Company's leases have remaining lease terms of up to 10.3 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 pre-productionthe lease will be recorded as lease expense when and as incurred. The Company’s lease payments are largely fixed. As of May 1, 2021, the operating leases that the Company 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 of $0.7 million and $1.0 million are included in property, plant and equipment, net on the consolidated balance sheets as of May 1, 2021 and May 2, 2020, respectively. Finance lease obligations were $1.0 million and $1.4 million as of May 1, 2021 and May 2, 2020, respectively, and are 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 Company had an immaterial amount of finance lease expense in the years ended May 1, 2021 and May 2, 2020.
F-16
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease expense were as follows:
|
| Fiscal Year Ended |
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
| ||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
| ||
Lease cost: |
|
|
|
|
|
|
|
|
Operating lease cost |
| $ | 8.4 |
|
| $ | 9.0 |
|
Variable lease cost |
|
| 1.6 |
|
|
| 1.3 |
|
Total lease cost |
| $ | 10.0 |
|
| $ | 10.3 |
|
Supplemental cash flow and other information related to operating leases was as follows:
|
| Fiscal Year Ended |
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
| ||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
| ||
Operating cash flows: |
|
|
|
|
|
|
|
|
Cash paid related to operating lease obligations |
| $ | 9.3 |
|
| $ | 8.7 |
|
Non-cash activity: |
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations |
| $ | 5.7 |
|
| $ | 5.5 |
|
Weighted-average remaining lease term |
| 5.0 years |
|
| 5.7 years |
| ||
Weighted-average discount rate |
|
| 4.6 | % |
|
| 4.7 | % |
Maturities of operating lease liabilities as of May 1, 2021, are shown below:
(in millions) |
|
|
|
|
Fiscal Year: |
|
|
|
|
2022 |
| $ | 6.9 |
|
2023 |
|
| 6.0 |
|
2024 |
|
| 4.5 |
|
2025 |
|
| 3.0 |
|
2026 |
|
| 2.3 |
|
Thereafter |
|
| 3.9 |
|
Total lease payments |
|
| 26.6 |
|
Less: imputed interest |
|
| (3.0 | ) |
Present value of lease liabilities |
| $ | 23.6 |
|
Note 4. Restructuring
F-17
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company continually monitors market factors and industry trends and takes necessary actions to reduce overall costs as net withinand improve operational profitability. In fiscal 2021, the Company initiated certain restructuring actions in response to the adverse impacts from the COVID-19 pandemic. These actions included plant consolidations and workforce reductions in the Automotive, Industrial and Interface segments. In fiscal 2021, the Company recognized $8.2 million of restructuring costs. These charges consisted of $4.8 million recorded in cost of products sold and $3.4 million recorded in selling and administrative expenses.
The table below presents restructuring costs by reportable segment:
|
| Fiscal Year Ended |
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
| ||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
| ||
Automotive |
| $ | 6.2 |
|
| $ | 0.8 |
|
Industrial |
|
| 1.0 |
|
|
| 0.5 |
|
Interface |
|
| 0.7 |
|
|
| — |
|
Medical |
|
| — |
|
|
| 0.1 |
|
Eliminations/Corporate |
|
| 0.3 |
|
|
| 0.4 |
|
Total restructuring costs |
| $ | 8.2 |
|
| $ | 1.8 |
|
Estimates of restructuring costs are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring costs, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals. The Company may take additional restructuring actions in future periods based upon market conditions and industry trends.
The following is a rollforward of the Company’s restructuring activity in fiscal 2021:
|
|
|
|
|
|
|
|
|
| Utilization |
|
|
|
|
| |||||
(in millions) |
| Accrual as of May 2, 2020 |
|
| YTD charges |
|
| Cash |
|
| Non-cash |
|
| Accrual as of May 1, 2021 |
| |||||
Employee termination benefits |
| $ | 0.2 |
|
| $ | 7.1 |
|
| $ | (6.6 | ) |
| $ | — |
|
| $ | 0.7 |
|
Asset impairment charges |
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| (0.6 | ) |
|
| — |
|
Contract termination costs |
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
Total |
| $ | 0.2 |
|
| $ | 8.2 |
|
| $ | (6.6 | ) |
| $ | (0.6 | ) |
| $ | 1.2 |
|
Note 5. Inventory
A summary of inventories is shown below:
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
| ||
Finished products |
| $ | 24.8 |
|
| $ | 45.7 |
|
Work in process |
|
| 14.0 |
|
|
| 10.8 |
|
Raw materials |
|
| 85.4 |
|
|
| 74.5 |
|
Total inventories |
| $ | 124.2 |
|
| $ | 131.0 |
|
Note 6.Property, Plant and Equipment
A summary of property, plant and equipment is shown below:
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
| ||
Land |
| $ | 3.3 |
|
| $ | 3.3 |
|
Buildings and building improvements |
|
| 88.9 |
|
|
| 87.3 |
|
Machinery and equipment |
|
| 408.0 |
|
|
| 367.1 |
|
Construction in progress |
|
| 24.8 |
|
|
| 45.2 |
|
Total property, plant and equipment, gross |
|
| 525.0 |
|
|
| 502.9 |
|
Less: accumulated depreciation |
|
| (321.0 | ) |
|
| (301.0 | ) |
Property, plant and equipment, net |
| $ | 204.0 |
|
| $ | 201.9 |
|
Depreciation expense was $32.2 million, $29.3 million and $27.2 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. As of May 1, 2021 and May 2, 2020, capital expenditures recorded in accounts payable totaled $5.5 million and $5.8 million, respectively.
F-18
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, plant and equipment with a net book value of $6.2 million was disposed subsequent to May 1, 2021.
Note 7. Goodwill and Other Intangible Assets
Goodwill
The Company tests goodwill for impairment on an annual basis as of the beginning of the 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 reporting unit), for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit.
At the beginning of the fourth quarter of fiscal 2021, the annual goodwill impairment assessment was completed. The Company performed a qualitative assessment for each reporting unit except for one within the Industrial segment where a quantitative assessment was performed. The qualitative assessments indicated that it was more likely than not that the fair value of each reporting unit exceeded its respective carrying value.
For the quantitative assessment, the Company utilized a combination of the income approach and market approach to estimate the fair value of the reporting unit. Cash flow projections were based on management’s estimates of revenue growth rates and earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins, taking into consideration business and market conditions for the countries and markets in which the reporting unit operates. The Company calculates the discount rate based on a market-participant, risk-adjusted weighted average cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size, geography and other factors specific to the reporting unit. The market approach is based on appropriate valuation multiples observed for the reporting unit’s guideline public companies.
The quantitative assessment of the reporting unit indicated that the fair value exceeded the carrying value. The Company does not believe that any of its reporting units are at risk for impairment. While the Company considered the impact from the COVID-19 pandemic may have on its future cash flows when preparing its annual goodwill impairment test, the full extent of the impact that the COVID-19 pandemic or the semiconductor supply shortage will have on the Company’s business, operations and financial condition is currently unknown. The Company will continue to assess its goodwill for impairment as events and circumstances change. Any deterioration in the Company’s forecasted revenue and EBITDA margins, could result in an impairment of a portion or all of its goodwill. The amount of such impairment would be recognized as an expense in the period the goodwill is impaired.
A summary of the changes in goodwill by reportable segment is as follows:
(in millions) |
| Automotive |
|
| Industrial |
|
| Total |
| |||
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 |
|
Foreign currency translation |
|
| 0.5 |
|
|
| 3.5 |
|
|
| 4.0 |
|
Balance as of May 1, 2021 |
| $ | 106.7 |
|
| $ | 128.9 |
|
| $ | 235.6 |
|
A summary of goodwill by reporting unit is as follows:
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
| ||
Grakon Industrial |
| $ | 127.2 |
|
| $ | 123.8 |
|
North American Automotive |
|
| 99.8 |
|
|
| 99.8 |
|
European Automotive |
|
| 6.9 |
|
|
| 6.4 |
|
Other |
|
| 1.7 |
|
|
| 1.6 |
|
Total |
| $ | 235.6 |
|
| $ | 231.6 |
|
F-19
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other intangible assets, net
The following tables present details of the Company’s identifiable intangible assets:
|
| As of May 1, 2021 |
| |||||||||||||
(in millions) |
| Gross |
|
| Accumulated amortization |
|
| Net |
|
| Weighted average useful life (years) |
| ||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and agreements |
| $ | 235.3 |
|
| $ | (42.7 | ) |
| $ | 192.6 |
|
|
| 15.6 |
|
Trade names, patents and technology licenses |
|
| 58.7 |
|
|
| (23.7 | ) |
|
| 35.0 |
|
|
| 7.0 |
|
Total amortized intangible assets |
|
| 294.0 |
|
|
| (66.4 | ) |
|
| 227.6 |
|
|
|
|
|
Unamortized trade name |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
|
|
Total other intangible assets |
| $ | 295.8 |
|
| $ | (66.4 | ) |
| $ | 229.4 |
|
|
|
|
|
|
| As of May 2, 2020 |
| |||||||||||||
(in millions) |
| Gross |
|
| Accumulated amortization |
|
| Net |
|
| Weighted average useful life (years) |
| ||||
Amortized 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 amortized intangible assets |
|
| 318.8 |
|
|
| (75.8 | ) |
|
| 243.0 |
|
|
|
|
|
Unamortized trade name |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
|
|
Total other intangible assets |
| $ | 320.6 |
|
| $ | (75.8 | ) |
| $ | 244.8 |
|
|
|
|
|
The Company performed an impairment test for its indefinite-lived trade name intangible asset and determined that no impairment existed as of May 1, 2021. 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:
(in millions) |
|
|
|
|
Fiscal Year: |
|
|
|
|
2022 |
| $ | 19.2 |
|
2023 |
|
| 19.1 |
|
2024 |
|
| 18.8 |
|
2025 |
|
| 18.2 |
|
2026 |
|
| 17.3 |
|
Thereafter |
|
| 135.0 |
|
Total |
| $ | 227.6 |
|
F-20
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Derivative Financial Instruments and Hedging Activities
The Company is exposed to various market risks including, but not limited to, foreign currency exchange rates and market interest rates. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through the use of derivative financial instruments. Derivative financial instruments are measured at fair value on a recurring basis.
For a designated cash flow hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded in AOCI in the consolidated balance sheets. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI is recorded in earnings and reflected in the consolidated statements of income on the same line item. Givenas the gain or loss on the hedged item attributable to the hedged risk. The gain or loss associated with changes in the fair value of derivatives not designated as hedges are recorded immediately in the consolidated statements of income on the same line as the associated risk. For a designated net investment hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded as a cumulative translation adjustment in AOCI in the consolidated balance sheets.
Net investment hedges
In April 2020, the Company entered into a variable-rate, cross-currency swap, maturing on August 31, 2023, with a notional value of $60.0 million (€54.8 million). The Company entered into the cross-currency swap to mitigate changes in net assets due to changes in U.S. dollar-Euro spot exchange rates. The cross-currency swap is designated as a hedge of the Company’s net investment in a euro-based subsidiary.
The fair value of the cross-currency swap is classified within Level 2 of the fair value hierarchy. Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method. The Company amortizes the impact of all other changes in fair value of the derivative through interest expense, which was not material in either fiscal 2021 or fiscal 2020. As of May 1, 2021 and May 2, 2020, the cross-currency swap was in a net liability position with an aggregate fair value of $6.8 million and $1.3 million, respectively, and is recorded within other long-term liabilities in the consolidated balance sheets.
Interest rate swaps
In April 2021, the Company entered into interest rate swaps, maturing on August 31, 2023, with a notional value of $100.0 million, to manage its exposure and to mitigate the impact of interest rate variability. The interest rate swaps are designated as cash flow hedges.
The fair value of the interest rate swap is classified within Level 2 of the fair value hierarchy. Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter. The effective portion of the periodic changes in fair value is recognized in AOCI. Subsequently, the accumulated gains and losses recorded in equity are reclassified to income in the period during which the hedged cash flow impacts earnings, which are expected to be immaterial over the next 12 months. As of May 1, 2021, the interest rate swap was in a net liability position with an aggregate fair value of $0.2 million and is recorded within other long-term liabilities in the consolidated balance sheets. No ineffectiveness was recognized in fiscal 2021.
Derivatives not designated as hedges
In January 2021, the Company began to use short-term foreign currency forward contracts to reduce the earnings impact that tooling salesexchange rate fluctuations have on non-functional currency balance sheet exposures. These forward contracts are not designated as hedging instruments. Gains and losses on these forward contracts are recognized in other income, net, along with the foreign currency gains and losses on monetary assets and liabilities in the consolidated statements of income.
F-21
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of May 1, 2021, the Company held foreign currency forward contracts with a notional value of $14.8 million. The forward contracts were only $10.4in a liability position with an aggregate fair value of $22 thousand as of May 1, 2021 and are recorded within other accrued liabilities in the consolidated balance sheets. In fiscal 2021, losses of $0.1 million were recorded in earnings within other income, net in the consolidated statements of income.
Note 9. Retirement Benefits
Defined contribution plans
The Company has an employee 401(k) Savings Plan covering substantially all U.S. employees to which it makes contributions equal to 3% of eligible compensation. In addition, certain of the Company’s foreign subsidiaries also have defined contribution savings plans. Company contributions to these plans were $1.2 million, $1.7 million and $1.5 million, in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.
Non-qualified deferred compensation plan
The Company maintains a non-qualified deferred compensation plan (“NQDC Plan”) for certain eligible employees and members of the Board of Directors. Under the NQDC Plan, employees 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. Directors may defer all or a portion of their annual directors’ fees or annual stock awards. The minimum period of deferral is three years. Participants are immediately 100% vested. The Company does 0t make any contributions to the NQDC Plan.
The deferred compensation liability for the NDQC Plan was $6.5 million and $5.4 million as of May 1, 2021 and May 2, 2020, respectively. The Company has purchased life insurance policies on certain employees, which are held in a Rabbi trust, to potentially offset these unsecured obligations. These life insurance policies are recorded at their cash surrender value of $8.3 million and $6.6 million as of May 1, 2021 and May 2, 2020, 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 $9.5 million and $9.0 million as of May 1, 2021 and May 2, 2020, 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:
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
| ||
Revolving credit facility |
| $ | 9.9 |
|
| $ | 108.5 |
|
Term loan |
|
| 218.7 |
|
|
| 231.2 |
|
Other debt |
|
| 13.0 |
|
|
| 14.6 |
|
Unamortized debt issuance costs |
|
| (1.5 | ) |
|
| (2.2 | ) |
Total debt |
|
| 240.1 |
|
|
| 352.1 |
|
Less: current maturities |
|
| (14.9 | ) |
|
| (15.3 | ) |
Total long-term debt |
| $ | 225.2 |
|
| $ | 336.8 |
|
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 uncertainty in the global markets resulting from the COVID-19 pandemic. This amount was repaid in the third quarter of fiscal 2021. As of May 1, 2021, the Company has $190.1 million of availability under the Revolving Credit Facility.
F-22
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the Credit Agreement was approximately 1.4% as of May 1, 2021. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. As of May 1, 2021, 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 12 notes with maturities ranging from 2021 to 2031. The weighted-average interest rate was approximately 1.5% as of May 1, 2021 and $2.4 million of the debt was classified as short-term. The fair value of other debt was $13.1 million at May 1, 2021 and was based on Level 2 inputs on a non-recurring basis.
Scheduled maturities
As of May 1, 2021, scheduled principal payments of debt are as follows:
(in millions) |
|
|
|
|
Fiscal Year: |
|
|
|
|
2022 |
| $ | 14.9 |
|
2023 |
|
| 13.9 |
|
2024 |
|
| 209.3 |
|
2025 |
|
| 0.5 |
|
2026 |
|
| 0.5 |
|
Thereafter |
|
| 2.5 |
|
Total |
| $ | 241.6 |
|
Note 11. Income Taxes
Income tax provision
The U.S. and foreign components of income before income taxes and the provision for income taxes are as follows:
|
| Fiscal Year Ended |
| |||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 28.3 |
|
| $ | 47.3 |
|
| $ | (0.6 | ) |
Foreign |
|
| 106.6 |
|
|
| 101.4 |
|
|
| 104.2 |
|
Total income before income taxes |
| $ | 134.9 |
|
| $ | 148.7 |
|
| $ | 103.6 |
|
Income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (federal and state) |
| $ | 5.8 |
|
| $ | 5.1 |
|
| $ | (5.7 | ) |
Foreign |
|
| 15.9 |
|
|
| 12.8 |
|
|
| 21.5 |
|
Total current expense |
|
| 21.7 |
|
|
| 17.9 |
|
|
| 15.8 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (federal and state) |
|
| 1.3 |
|
|
| 6.1 |
|
|
| 2.5 |
|
Foreign |
|
| (10.4 | ) |
|
| 1.3 |
|
|
| (6.3 | ) |
Total deferred (benefit) expense |
|
| (9.1 | ) |
|
| 7.4 |
|
|
| (3.8 | ) |
Total income tax expense |
| $ | 12.6 |
|
| $ | 25.3 |
|
| $ | 12.0 |
|
F-23
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of income tax expense to the U.S. statutory federal income tax rate of 21% is as follows:
|
| Fiscal Year Ended |
| |||||||||
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
Income tax at statutory rate |
| $ | 28.3 |
|
| $ | 31.2 |
|
| $ | 21.8 |
|
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit |
|
| 0.1 |
|
|
| 1.5 |
|
|
| (0.8 | ) |
Withholding taxes |
|
| 2.7 |
|
|
| 2.3 |
|
|
| 1.8 |
|
U.S. Tax Reform transition tax |
|
| — |
|
|
| — |
|
|
| (4.8 | ) |
Foreign tax differential |
|
| (12.9 | ) |
|
| (8.3 | ) |
|
| (9.6 | ) |
U.S. tax on foreign income |
|
| 2.8 |
|
|
| (1.0 | ) |
|
| 3.4 |
|
Foreign investment tax credit |
|
| (7.2 | ) |
|
| (0.8 | ) |
|
| (2.0 | ) |
Change in tax reserve |
|
| 0.1 |
|
|
| 2.2 |
|
|
| (0.1 | ) |
Change in valuation allowance |
|
| 1.8 |
|
|
| 0.8 |
|
|
| — |
|
Tax rate change, foreign |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| — |
|
Other, net |
|
| (3.0 | ) |
|
| (2.5 | ) |
|
| 2.3 |
|
Income tax expense |
| $ | 12.6 |
|
| $ | 25.3 |
|
| $ | 12.0 |
|
Effective income tax rate |
|
| 9.3 | % |
|
| 17.0 | % |
|
| 11.6 | % |
In fiscal 2021, the effective income tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates, tax credits and various deductions allowed in foreign jurisdictions. The Company received a benefit of approximately $7.2 million related to a favorable tax ruling in a foreign jurisdiction.
In fiscal 2020, the effective income tax rate was primarily affected by the amount of income earned in foreign jurisdictions with lower tax rates, 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 CARES Act did not significantly impact the fiscal 2021 consolidated financial statements.
In fiscal 2019, the effective income 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 The Tax Cuts and Jobs Act (“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.
F-24
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes and valuation allowances
Significant components of the Company's deferred income tax assets and liabilities were as follows:
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
| ||
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Fixed Assets |
| $ | (2.9 | ) |
| $ | (3.7 | ) |
Amortization |
|
| (49.1 | ) |
|
| (47.8 | ) |
Foreign tax |
|
| (2.0 | ) |
|
| (1.8 | ) |
Lease assets |
|
| (4.9 | ) |
|
| (5.2 | ) |
Other liabilities |
|
| (0.4 | ) |
|
| (1.3 | ) |
Deferred tax liabilities, gross |
|
| (59.3 | ) |
|
| (59.8 | ) |
Deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred compensation and stock award amortization |
|
| 6.9 |
|
|
| 7.0 |
|
Inventory |
|
| 2.7 |
|
|
| 2.7 |
|
Lease liabilities |
|
| 5.3 |
|
|
| 5.7 |
|
Derivative financial instruments |
|
| 1.6 |
|
|
| 0.3 |
|
Foreign investment tax credit |
|
| 34.7 |
|
|
| 25.9 |
|
Net operating loss carryforwards |
|
| 15.6 |
|
|
| 14.1 |
|
Foreign tax credits |
|
| 1.4 |
|
|
| — |
|
Other |
|
| 3.3 |
|
|
| 1.4 |
|
Deferred tax assets, gross |
|
| 71.5 |
|
|
| 57.1 |
|
Less valuation allowance |
|
| (9.3 | ) |
|
| (7.5 | ) |
Deferred tax assets, net of valuation allowance |
|
| 62.2 |
|
|
| 49.6 |
|
Net deferred tax liabilities |
| $ | 2.9 |
|
| $ | (10.2 | ) |
Balance sheet classification: |
|
|
|
|
|
|
|
|
Long-term asset |
|
| 41.2 |
|
|
| 31.4 |
|
Long-term liability |
|
| (38.3 | ) |
|
| (41.6 | ) |
Net deferred tax asset (liability) |
| $ | 2.9 |
|
| $ | (10.2 | ) |
The Company recorded a net deferred tax asset for U.S. and foreign income taxes of $2.9 million for fiscal 2021 and recorded a net deferred tax liability of $10.2 million for fiscal 2020. In assessing the realizability of the deferred tax assets, the Company considers whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset 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 $9.3 million related to certain state, federal, and foreign net operating loss carryovers and other credits and determined that these deferred tax assets did not reach the more likely than not realizable standard.
As of May 1, 2021, the Company had available $38.4 million of federal, $68.9 million of state and $6.8 million of foreign gross operating loss carryforwards with a valuation allowance of $25.2 million for federal, $47.2 million for state and $0 for foreign. If unused, the U.S. federal net operating loss carryforwards will expire in the years 2021 through 2034. The state net operating loss carryforwards will expire in the years 2021 through 2037.
Total unused credits are $36.1 million as of May 1, 2021, all of which can be carried forward indefinitely.
Indefinite reinvestment
The Company has not provided for deferred income taxes on the undistributed earnings of foreign subsidiaries except for certain identified amounts. The amount the Company expects to repatriate is based on a variety of factors including current year earnings of the foreign subsidiaries, foreign investment needs, and U.S. cash flow considerations. The Company considers the remaining undistributed foreign earnings that are not specifically identified to be indefinitely reinvested of $376.2 million. It is not practicable to determine the amount of deferred tax liability on such foreign earnings as the actual tax liability is dependent on circumstances that exist when the remittance occurs.
F-25
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrecognized tax benefits
The Company operates in multiple jurisdictions throughout the world and the income tax returns of its 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 $5.3 million and $5.2 million as of May 1, 2021 and May 2, 2020, respectively. These amounts represent the amount of unrecognized benefits that, if recognized, would favorably impact the effective tax rate if resolved in the Company’s favor. The Company recognizes interest and penalties related to income tax uncertainties in income tax expense. Accrued interest and penalties as of May 1, 2021 and May 2, 2020 were $0.2 million and $0.1 million, respectively.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
| ||
Balance at beginning of period |
| $ | 5.2 |
|
| $ | 3.1 |
|
Increases for positions related to the prior years |
|
| — |
|
|
| 1.9 |
|
Increases for positions related to the current year |
|
| 0.2 |
|
|
| 0.3 |
|
Lapsing of statutes of limitations |
|
| (0.1 | ) |
|
| (0.1 | ) |
Balance at end of period |
| $ | 5.3 |
|
| $ | 5.2 |
|
At May 1, 2021, 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 2018 and for state tax purposes on or after fiscal year 2012. 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 2015 and subsequent periods remain open and subject to examination by taxing authorities.
Note 12. Commitments and Contingencies
Environmental matters
The Company is not aware of any potential unasserted environmental claims that may be brought against us.The Company is involved in environmental investigations and/or remediation at 2 of its plant sites no longer used for operations. The Company uses environmental consultants to assist us in evaluating its environmental liabilities in order to establish appropriate accruals in its consolidated financial statements. Accruals are recorded when environmental remediation is probable and the costs can be reasonably estimated. A number of factors affect the cost of environmental remediation, including the determination of the extent of contamination, the length of time remediation may require, the complexity of environmental regulations and the advancement of remediation technology. Considering these factors, the Company has estimated (without discounting) the costs of remediation, which will be incurred over a period of several years. Recovery from insurance or other third parties is not anticipated. The Company is not yet able to determine when such remediation activity will be complete, but estimates for certain remediation efforts are projected through fiscal 2022.
As of May 1, 2021 and May 2, 2020, the Company had accruals, primarily based upon independent estimates, for environmental matters of $0.9 million and $0.9 million, respectively. The accrual as of May 1, 2021 consists of $0.6 million classified in other accrued expenses and the remainder was included in other long-term liabilities on the consolidated balance sheet. The accrual as of May 2, 2020 consists of $0.6 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 2021, the Company spent $0.5 million on remediation cleanups and related studies, compared with $0.5 million in fiscal 2020 and $0.1 million in fiscal 2019. The costs associated with environmental matters as they relate to day-to-day activities were not material in fiscal 2021, fiscal 2020 or fiscal 2019.
F-26
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation
The Company, from time to time, is subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, patent infringement claims, employment-related matters and environmental matters. The 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 the Company's management, based on the information available, that the Company has adequate reserves for these liabilities and that the ultimate resolution of these matters will not have a material adverse effect on the 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. The Company became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, the Companyterminated all of its agreements with the Fuchs companies. On June 20, 2014, the 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 filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, the Company amended its 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 favor of the Company. The verdict 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. Defendants appealed entry of the final monetary judgment as well. The appeal of the permanent injunction and the appeal of the final judgment have been consolidated into a single appeal. That appeal is fully briefed and was argued on March 8, 2021. There is no deadline for the Court to issue its decision. 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
Share repurchase program
On March 31, 2021, the Board of Directors authorized the purchase of up to $100.0 million of the Company’s outstanding common stock through March 31, 2023. Such purchases may be made on the open market, in private transactions or pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. The Company purchased 167,949 shares at a cost of $7.5 million as of May 1, 2021. All purchased shares were retired and are reflected as a reduction of common stock for the par value of the shares, with the excess applied as a reduction to retained earnings.
Dividends
The Company paid dividends totaling $17.4 million in fiscal 2021 and $16.3 million in both fiscal 20172020 and 2018, this2019. Dividends paid in fiscal 2021 include $0.9 million of dividends on restricted stock that vested during the period.
F-27
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive income (loss)
Comprehensive income (loss) is defined as the change in accounting treatment will have an immaterial impactequity 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 |
| |||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Currency Translation Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | (25.9 | ) |
| $ | (13.6 | ) |
| $ | 13.9 |
|
Other comprehensive income (loss) recognized during the period, net of tax (expense) benefit of $(1.2) million; $0.6 million; $0.0 million |
|
| 37.4 |
|
|
| (12.3 | ) |
|
| (27.5 | ) |
Balance at end of period |
|
| 11.5 |
|
|
| (25.9 | ) |
|
| (13.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
Other comprehensive loss recognized during the period, net of tax benefit of $1.3 million; $0.3 million; $— |
|
| (4.4 | ) |
|
| (1.0 | ) |
|
| — |
|
Balance at end of period |
|
| (5.4 | ) |
|
| (1.0 | ) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
| $ | 6.1 |
|
| $ | (26.9 | ) |
| $ | (13.6 | ) |
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 Methode Electronics, Inc. 2004 Stock Plan (“2004 Plan”). The Company’s stockholders approved the 2014 Plan in September 2014. The Company can no longer make grants under the 2010 Plan, 2007 Plan and 2004 Plan. The number of shares of common stock originally authorized under the 2014 Plan is 3,000,000. As of May 1, 2021, there were 203,431 shares available for award under the 2014 Plan.
Stock-based compensation expense
All stock-based payments to employees and directors are recognized in selling and administrative expenses on the financialconsolidated statements of income. Awards subject to graded vesting are recognized using the accelerated recognition method over the requisite service period. The table below summarizes the stock-based compensation expense (benefit) related to the equity awards:
|
| Fiscal Year Ended |
| |||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
RSAs |
| $ | 0 |
|
| $ | (2.1 | ) |
| $ | 10.9 |
|
RSUs |
|
| 5.9 |
|
|
| 1.5 |
|
|
| 2.2 |
|
Director awards |
|
| 0.9 |
|
|
| 0.9 |
|
|
| 0.9 |
|
Total stock-based compensation expense |
| $ | 6.8 |
|
| $ | 0.3 |
|
| $ | 14.0 |
|
2014 Plan
The 2014 Plan provides for discretionary grants of stock options, stock appreciation rights, RSAs, RSUs and performance units to key employees and directors. The 2014 Plan is intended to promote the success of the Company and to increase stockholder value by providing an additional means to attract, motivate, retain and reward selected employees and eligible directors through the grant of equity awards.
F-28
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Awards and Performance Units (“PUs”)
In the second quarter of fiscal 2021, the Company granted 917,000 RSAs to executive officers and certain non-executives which will be earned based on the achievement of an EBITDA measure for fiscal 2025. The RSAs will vest ranging from 0% (for performance below threshold) to 100% (target performance) based on the achievement of the EBITDA performance measure and continued employment. In addition, if the target performance is exceeded, an additional 458,500 PUs can be earned that will be settled in cash. At the discretion of the Compensation Committee, the PUs may be settled in shares of common stock.
The fair value of the RSAs was based on the closing stock price on the date of grant and earn dividend equivalents during the vesting period, which are forfeitable if the RSAs do not vest. Compensation expense for RSAs are recognized when it is probable the minimum threshold performance criteria will be achieved. Compensation expense for the PUs are recognized when it is probable that the target performance criteria will be exceeded. The Company assesses the probability of vesting at each balance sheet date and adjusts compensation costs based on the probability assessment. The cash-settled PUs represent a go-forward basis.
In fiscal 2020, previously granted performance-based RSAs vested at 69% of target, which was determined in the practical expedientfourth 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 significant financing componentsthese awards in fiscal 2020 was a credit of $2.1 million.
The following table summarizes the RSA activity under the 2014 Incentive Plan:
|
| Restricted Stock Awards |
|
| Weighted average grant date fair value |
| ||
Non-vested at April 28, 2018 |
|
| 1,171,238 |
|
| $ | 34.13 |
|
Awarded |
|
| 11,625 |
|
| $ | 38.75 |
|
Vested |
|
| 0 |
|
| $ | 0 |
|
Forfeited |
|
| (151,455 | ) |
| $ | 34.79 |
|
Non-vested at April 27, 2019 |
|
| 1,031,408 |
|
| $ | 34.09 |
|
Awarded |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| (455,750 | ) |
| $ | 33.89 |
|
Forfeited |
|
| (575,658 | ) |
| $ | 34.25 |
|
Non-vested at May 2, 2020 |
|
| 0 |
|
| $ | 0 |
|
Awarded |
|
| 917,000 |
|
| $ | 28.30 |
|
Vested |
|
| 0 |
|
| $ | 0 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Non-vested at May 1, 2021 |
|
| 917,000 |
|
| $ | 28.30 |
|
Restricted Stock Units
RSUs granted under the 2014 Plan vest over a pre-determined period of time, up to five years from the date of grant. The fair value of RSUs granted was based on the closing stock price on the date of grant. RSUs granted in fiscal 2021 earn dividend equivalents during the vesting period, which are forfeitable if the RSUs do not vest.
F-29
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes RSU activity granted under the 2014 Plan:
|
| Restricted Stock Units |
|
| Weighted average grant date fair value |
| ||
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 |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| (176,994 | ) |
| $ | 34.25 |
|
Forfeited |
|
| (7,750 | ) |
| $ | 38.75 |
|
Non-vested at May 2, 2020 |
|
| 3,100 |
|
| $ | 41.20 |
|
Awarded |
|
| 938,300 |
|
| $ | 28.30 |
|
Vested |
|
| (25,201 | ) |
| $ | 29.87 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Non-vested at May 1, 2021 |
|
| 916,199 |
|
| $ | 28.30 |
|
As of May 1, 2021, there were 25,201 RSUs that were vested for all contracts under twelve months. We will adopt the standard utilizing the modified retrospective method. We expect enhanced disclosures and controls beginningwhich shares were issued in the first quarter of fiscal 2019.
Director awards
During fiscal 2021, fiscal 2020 and fiscal 2019, the FASBCompany issued ASU No. 2016-02, "Leases (ASC 842),"33,000 shares, 30,000 shares and 24,000 shares, respectively, of common stock to its independent directors, all of which sets outvested immediately upon grant.
Stock options
The following table summarizes combined stock option activity under the principles for2010 Plan and 2007 Plan:
|
| Shares |
|
| Weighted average exercise price |
|
| Weighted- average life (years) |
|
| Aggregate intrinsic value (in millions) |
| ||||
Outstanding and exercisable at April 28, 2018 |
|
| 114,168 |
|
| $ | 35.85 |
|
|
| 6.1 |
|
| $ | 0.6 |
|
Exercised |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (7,500 | ) |
| $ | 37.01 |
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at April 27, 2019 |
|
| 106,668 |
|
| $ | 35.76 |
|
|
| 5.0 |
|
| $ | 0.1 |
|
Exercised |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at May 2, 2020 |
|
| 106,668 |
|
| $ | 35.76 |
|
|
| 4.0 |
|
| $ | 0.1 |
|
Exercised |
|
| (24,500 | ) |
| $ | 31.61 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (9,168 | ) |
| $ | 37.01 |
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at May 1, 2021 |
|
| 73,000 |
|
| $ | 37.01 |
|
|
| 3.2 |
|
| $ | 0.6 |
|
The aggregate intrinsic value represents the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). 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 leases basedtotal pre-tax intrinsic value (the difference between the Company's closing stock price on the principlelast trading day of whether or not the lease is effectively a financed purchasefiscal year and the exercise price, multiplied by the lessee. This classification will determine whether lease expense is recognized basednumber of in-the-money options) that would have been received by the option holders had all option holders exercised their options on an effective interest method or on a straight line basis over 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 supersedes the previous leases standard, ASC 840 Leases.that date. The amendments in this update 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.
F-30
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred RSUs
Under the 2014 Plan and 2010 Plan, RSUs that have vested for certain executives, including the Company’s CEO, will not be delivered in millions, exceptcommon stock until after the executive terminates employment from the Company or upon a change of control. As of May 1, 2021, 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 shares of common 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 the Company’s 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. As of May 1, 2021, 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 data)
Note 14. Income Per Share
Basic income per share is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. To be considered a business, an asset must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The amendments are effective for us in fiscal years beginning April 29, 2018, with early adoption permitted. The Company has adopted this ASU effective as of April 30, 2017 on a prospective basis and has concluded that this pronouncement has no material impact on our consolidated financial statements.
The following table sets forth the computation of basic and diluted income per share:
|
| Fiscal Year Ended |
| |||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
|
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (in millions) |
| $ | 122.3 |
|
| $ | 123.4 |
|
| $ | 91.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic income per share - weighted average shares outstanding and vested/unissued RSUs |
|
| 38,038,615 |
|
|
| 37,574,671 |
|
|
| 37,405,298 |
|
Dilutive potential common shares - stock options, RSAs and RSUs |
|
| 267,671 |
|
|
| 269,799 |
|
|
| 264,262 |
|
Denominator for diluted income per share |
|
| 38,306,286 |
|
|
| 37,844,470 |
|
|
| 37,669,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
| $ | 3.22 |
|
| $ | 3.28 |
|
| $ | 2.45 |
|
Diluted income per share |
| $ | 3.19 |
|
| $ | 3.26 |
|
| $ | 2.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding |
|
| 738,167 |
|
|
| 566,620 |
|
|
| 678,321 |
|
F-31
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is the Company’s President and Chief Executive Officer (“CEO”).
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Products 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 Industrial segment manufactures lighting solutions, industrial safety radio remote controls, braided flexible cables, current-carrying laminated busbars and devices, custom power-product assemblies, such as our PowerRail® solution, high-current low-voltage flexible power cabling systems and powder-coated busbars that are expected to vest.
The Interface segment provides a variety of copper based transceivers and related accessories for the FASB issued ASU No. 2015-16, "Business Combinations Simplifyingcloud computing hardware equipment and telecommunications broadband equipment markets, user interface solutions for the Accountingappliance, commercial food service, and point-of-sale equipment markets, and fluid-level sensors for Measurement-Period Adjustments." the marine/recreational vehicle and sump pump markets.
The standard requires that an acquirer recognize measurement-period adjustmentsMedical segment is made up of the Company’s medical device business, Dabir Surfaces, with its surface support technology aimed at pressure injury prevention. Methode 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.
The accounting policies of the segments are the same as those described in the periodsummary of significant accounting policies in whichNote 1, “Description of Business and Summary of Significant Accounting Policies.” The CODM allocates resources to and evaluates the adjustmentsperformance of each operating segments based on operating income. Transfers between segments are determined. recorded using internal transfer prices set by the Company.
The income effectstables below present information about the Company’s reportable segments.
|
| Fiscal Year Ended May 1, 2021 (52 Weeks) |
| |||||||||||||||||||||
(in millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ Corporate |
|
| Consolidated |
| ||||||
Net sales |
| $ | 761.8 |
|
| $ | 273.2 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | (11.4 | ) |
| $ | 1,088.0 |
|
Transfers between segments |
|
| (6.1 | ) |
|
| (5.3 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 11.4 |
|
|
| 0 |
|
Net sales to unaffiliated customers |
| $ | 755.7 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 0 |
|
| $ | 1,088.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations |
| $ | 107.6 |
|
| $ | 64.3 |
|
| $ | 8.9 |
|
| $ | (4.6 | ) |
| $ | (48.3 | ) |
| $ | 127.9 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5.2 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12.2 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 134.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
| $ | 22.5 |
|
| $ | 2.1 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0.3 |
|
| $ | 24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| $ | 34.3 |
|
| $ | 14.3 |
|
| $ | 0.3 |
|
| $ | 0.9 |
|
| $ | 1.7 |
|
| $ | 51.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets |
| $ | 739.5 |
|
| $ | 461.6 |
|
| $ | 90.4 |
|
| $ | 7.6 |
|
| $ | 167.9 |
|
| $ | 1,467.0 |
|
F-32
Table of such measurement-period adjustments are to be recorded inContents
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Fiscal Year Ended May 2, 2020 (53 Weeks) |
| |||||||||||||||||||||
(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 | ) |
|
| 0 |
|
|
| 7.3 |
|
|
| 0 |
|
Net sales to unaffiliated customers |
| $ | 712.1 |
|
| $ | 251.4 |
|
| $ | 58.8 |
|
| $ | 1.6 |
|
| $ | 0 |
|
| $ | 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) |
| |||||||||||||||||||||
(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 | ) |
|
| 0 |
|
|
| 10.3 |
|
|
| 0 |
|
Net sales to unaffiliated customers |
| $ | 734.7 |
|
| $ | 206.8 |
|
| $ | 57.7 |
|
| $ | 1.1 |
|
| $ | 0 |
|
| $ | 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-33
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth net sales and tangible long-lived assets by geographic area where the same period’s financial statements but calculated as ifCompany operates. Tangible long-lived assets include property, plant and equipment and operating lease assets.
|
| Fiscal Year Ended |
| |||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 27, 2019 |
| |||
(in millions) |
| (52 Weeks) |
|
| (53 Weeks) |
|
| (52 Weeks) |
| |||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 510.8 |
|
| $ | 531.5 |
|
| $ | 540.5 |
|
China |
|
| 193.7 |
|
|
| 116.9 |
|
|
| 113.7 |
|
Malta |
|
| 173.5 |
|
|
| 143.9 |
|
|
| 148.5 |
|
Mexico |
|
| 87.4 |
|
|
| 104.7 |
|
|
| 0 |
|
Canada |
|
| 14.9 |
|
|
| 19.5 |
|
|
| 101.6 |
|
Other |
|
| 107.7 |
|
|
| 107.4 |
|
|
| 96.0 |
|
Total net sales |
| $ | 1,088.0 |
|
| $ | 1,023.9 |
|
| $ | 1,000.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
| May 1, 2021 |
|
| May 2, 2020 |
|
|
|
|
| ||
Tangible long-lived assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 75.0 |
|
| $ | 89.8 |
|
|
|
|
|
Malta |
|
| 43.0 |
|
|
| 40.1 |
|
|
|
|
|
China |
|
| 27.2 |
|
|
| 24.1 |
|
|
|
|
|
Belgium |
|
| 24.8 |
|
|
| 21.4 |
|
|
|
|
|
Mexico |
|
| 24.6 |
|
|
| 24.0 |
|
|
|
|
|
Other |
|
| 31.7 |
|
|
| 26.0 |
|
|
|
|
|
Total tangible long-lived assets, net |
| $ | 226.3 |
|
| $ | 225.4 |
|
|
|
|
|
Note 16. Acquisitions
On September 12, 2018, the accounting had been completed as of the acquisition date. The impact of measurement-period adjustments to earnings that relate to prior period financial statements are to be presented separately on the income statement or disclosed by line item. The Company has adopted this ASU effective April 30, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.
The acquisition was accounted for as a business combination. The final purchase price allocation to the acquired net assets acquired and liabilities assumed. Basedof Grakon based on the final allocation, goodwill decreased $1.3 million from the preliminary amount reported in the Company's condensed consolidated financial statements at January 27, 2018. The final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed were:is shown below:
(in millions) |
|
|
|
|
Current assets |
| $ | 68.5 |
|
Property, plant, and equipment |
|
| 16.2 |
|
Intangible assets |
|
| 221.9 |
|
Goodwill |
|
| 175.1 |
|
Other non-current assets |
|
| 1.5 |
|
Current liabilities |
|
| (31.7 | ) |
Other non-current liabilities |
|
| (29.4 | ) |
Total purchase consideration, net of cash acquired |
| $ | 422.1 |
|
(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 |
F-34
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets acquired consisted of customer relationships, technology licenses and trademarks. The Company's condensed consolidated statements of incomeamortization period for the three and nine months ended January 27, 2018 were prepared based on provisional amounts for other income and income tax expense. During the fourth quarter of fiscal 2018, the Company recognized measurement period adjustments to these provisional amounts. These adjustments were included in earnings for the three months ended April 28, 2018. If the Company had completed the purchase price allocation as of the acquisition date and recognized these measurement period adjustments in its condensed consolidated statements of income for the three and nine months ended January 27, 2018, the impact would have been a decrease to other income of $0.2 million and $0.5 million, respectively, and a decrease to income tax expense of $0.1 million and $0.2 million, respectively.
(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 |
In fiscal 2019, acquisition-related costs of $1.3$15.4 million were incurred in relation to the acquisition of Procoplast for the fiscal year ended April 28, 2018,Grakon, of which $1.1$9.8 million have beenwas reported in selling and administrative expenses and $0.2$5.6 million have beenwas reported in costs of products sold on the consolidated statements of income.
(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 |
|
| Fiscal Year Ended |
| |
(in millions) |
| April 27, 2019 |
| |
Revenues |
| $ | 1,073.3 |
|
Net income |
|
| 106.4 |
|
Year Ended | ||||||||
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | ||||||
Revenues | $ | 947.3 | $ | 910.0 | ||||
Net Income | $ | 62.2 | $ | 97.6 |
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 |
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 |
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 |
2019 | $ | 7.5 | |
2020 | $ | 5.5 | |
2021 | $ | 5.4 | |
2022 | $ | 5.4 | |
2023 | $ | 5.4 |
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 |
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 |
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 |
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 |
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 | % |
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 |
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 |
Note 1 above. We allocate resources to and evaluate performance of segments based on operating income. Transfers between segments are recorded using internal transfer prices set by us.
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 |
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 |
The following is a summary of unaudited quarterly results of operations for the years ended April 28, 2018fiscal 2021 and April 29, 2017:
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 |
|
| Fiscal 2021 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
|
| August 1, 2020 |
|
| October 31, 2020 |
|
| January 30, 2021 |
|
| May 1, 2021 |
| ||||
(in millions, except per share data) |
| (13 Weeks) |
|
| (13 Weeks) |
|
| (13 Weeks) |
|
| (13 Weeks) |
| ||||
Net sales |
| $ | 190.9 |
|
| $ | 300.8 |
|
| $ | 295.3 |
|
| $ | 301.0 |
|
Gross profit |
| $ | 45.1 |
|
| $ | 80.8 |
|
| $ | 72.6 |
|
| $ | 75.6 |
|
Net income |
| $ | 20.7 |
|
| $ | 38.6 |
|
| $ | 31.9 |
|
| $ | 31.1 |
|
Net income per basic common share |
| $ | 0.55 |
|
| $ | 1.01 |
|
| $ | 0.84 |
|
| $ | 0.82 |
|
Net income per diluted common share |
| $ | 0.54 |
|
| $ | 1.01 |
|
| $ | 0.83 |
|
| $ | 0.81 |
|
|
| Fiscal 2020 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
|
| July 27, 2019 |
|
| October 26, 2019 |
|
| February 1, 2020 |
|
| May 2, 2020 |
| ||||
(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 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 | ) |
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 |
|
| (Benefits)/ charges to income |
|
| Deductions |
|
|
| Other |
|
|
| Balance at end of period |
| |||||
Year Ended May 1, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts |
| $ | 0.7 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 0.7 |
|
Deferred tax valuation allowance |
| $ | 7.5 |
|
| $ | 1.8 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 2, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts |
| $ | 0.9 |
|
| $ | (0.2 | ) |
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 0.7 |
|
Deferred tax valuation allowance |
| $ | 6.6 |
|
| $ | 0.9 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 27, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts |
| $ | 0.5 |
|
| $ | 0.2 |
|
| $ | 0 |
|
|
| $ | 0.2 |
| (1) |
| $ | 0.9 |
|
Deferred tax valuation allowance |
| $ | 3.0 |
|
| $ | 0 |
|
| $ | (1.2 | ) |
|
| $ | 4.8 |
| (1) |
| $ | 6.6 |
|
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. |
F-36