METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
Note 1.
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Description of Business and Summary of Significant Accounting Policies
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Description of Business
Methode Electronics, Inc. (the "Company" or "Methode") is a global developer of custom engineered and application specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. The Company's primary manufacturing facilities are located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; and Monterrey, Mexico. The Company designs, manufactures and markets devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing technologies.
Impact of COVID-19
The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. The Company began to see the impacts of the COVID-19 pandemic at the beginning of its fourth quarter of fiscal 2020 at its China manufacturing facilities, which were initially closed 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. There has been a resurgence of COVID-19 cases globally and it is possible the COVID-19 pandemic could still have an adverse impact on the Company’s business, operating results and financial condition for the remainder of fiscal 2021.
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 $3.3 million and $6.2 million in the three and six months ended October 31, 2020, respectively, and has been reported as other income.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company's goodwill, 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 October 31, 2020 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 condensed consolidated financial statements as of October 31, 2020 and for the three and six months ended October 31, 2020. However, the Company's future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to its consolidated financial statements in future reporting periods.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements included in the Company's Form 10-K for the year ended May 2, 2020, filed with the SEC on June 30, 2020. Results may vary from quarter-to-quarter for reasons other than seasonality.
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Table of Contents
Financial Reporting Periods
The Company maintains its financial records on the basis of a 52- or 53-week fiscal year ending on the Saturday closest to April 30. Fiscal 2021 is a 52-week year and fiscal 2020 was a 53-week year. The three months ended October 31, 2020 and October 26, 2019 were both 13-week periods, and the six months ended October 31, 2020 and October 26, 2019 were both 26-week periods.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from these estimates.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, "Description of Business and Summary of Significant Accounting Policies," to the consolidated financial statements included in the Company's Form 10-K for the year ended May 2, 2020. There have been no material changes to the significant accounting policies in the six months ended October 31, 2020 other than those noted below.
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 held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.
The Company adopted this guidance as of May 3, 2020. The guidance allows for various methods for measuring expected credit losses. The Company elected to apply a historical loss rate based on historic write-offs to aging categories. The historical loss rate will be adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. The adoption of the guidance did not have a material impact on the Company's condensed consolidated financial statements. The allowance for doubtful accounts balance was $0.9 million and $0.6 million as of October 31, 2020 and May 2, 2020, respectively.
In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The guidance in ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. The Company adopted this guidance prospectively as of May 3, 2020, and the impact on its condensed consolidated financial statements will depend on the nature of the Company’s future cloud computing arrangements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." The guidance 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 guidance as of May 3, 2020, and there was no impact on the condensed 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 its condensed consolidated financial statements.
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Table of Contents
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 the general principles in Accounting Standards Codification (“ASC”) 740, such as recognizing deferred taxes for equity investments, the incremental approach to performing intraperiod tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a 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 annual periods beginning after December 15, 2020, and interim periods thereafter; however, early adoption is permitted. The Company is currently assessing the potential impact of the standard on its condensed consolidated financial statements.
The majority of the Company's revenue is recognized at a point in time. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.
Revenues associated with products which the Company believes have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over time basis. The Company believes the most faithful depiction of the transfer of goods to the customer is based on progress to date, which is typically smooth throughout the production process. As such, the Company recognizes revenue evenly over the production process through transfer of control to the customer.
Customers typically negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.
The Company treats shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation.
Across all products, the amount of revenue recognized corresponds to the related purchase order. Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
Contract Balances
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 an entity has received consideration, or the amount is due from the customer in advance of revenue recognition. The net changes in the contract asset and contract liability balances for the three and six months ended October 31, 2020 and October 26, 2019 were not material.
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Table of Contents
Disaggregated Revenue Information
Geographic net sales are determined based on the Company's operational locations. 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.
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Three Months Ended October 31, 2020
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(Dollars in Millions)
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Auto
|
|
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Industrial
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|
|
Interface
|
|
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Medical
|
|
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Total
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Geographic Net Sales:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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North America
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|
$
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117.8
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|
|
$
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41.8
|
|
|
$
|
16.2
|
|
|
$
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0.8
|
|
|
$
|
176.6
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|
|
Europe & Africa
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|
|
58.2
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|
|
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16.7
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|
|
|
—
|
|
|
|
—
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|
|
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74.9
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Asia
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39.7
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|
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9.4
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|
|
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0.2
|
|
|
|
—
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|
|
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49.3
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|
|
Total Net Sales
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|
$
|
215.7
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|
|
$
|
67.9
|
|
|
$
|
16.4
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|
|
$
|
0.8
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|
|
$
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300.8
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|
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Timing of Revenue Recognition:
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|
|
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|
|
|
|
|
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|
|
|
|
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Goods Transferred at a Point in Time
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|
$
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206.7
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|
|
$
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67.9
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|
|
$
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16.4
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|
|
$
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0.8
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|
|
$
|
291.8
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|
|
Goods Transferred Over Time
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|
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9.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
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9.0
|
|
|
Total Net Sales
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|
$
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215.7
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|
|
$
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67.9
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|
|
$
|
16.4
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|
|
$
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0.8
|
|
|
$
|
300.8
|
|
|
|
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Three Months Ended October 26, 2019
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(Dollars in Millions)
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|
Auto
|
|
|
Industrial
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|
|
Interface
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|
|
Medical
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|
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Total
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Geographic Net Sales:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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North America
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$
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106.7
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|
|
$
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45.9
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|
|
$
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11.8
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|
|
$
|
0.3
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|
|
$
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164.7
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|
Europe & Africa
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|
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52.7
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|
|
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11.9
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|
|
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0.1
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|
|
|
—
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|
|
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64.7
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|
|
Asia
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|
|
20.7
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|
|
|
7.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27.8
|
|
|
Total Net Sales
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|
$
|
180.1
|
|
|
$
|
64.9
|
|
|
$
|
11.9
|
|
|
$
|
0.3
|
|
|
$
|
257.2
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods Transferred at a Point in Time
|
|
$
|
168.7
|
|
|
$
|
64.9
|
|
|
$
|
11.9
|
|
|
$
|
0.3
|
|
|
$
|
245.8
|
|
|
Goods Transferred Over Time
|
|
|
11.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11.4
|
|
|
Total Net Sales
|
|
$
|
180.1
|
|
|
$
|
64.9
|
|
|
$
|
11.9
|
|
|
$
|
0.3
|
|
|
$
|
257.2
|
|
|
|
|
Six Months Ended October 31, 2020
|
|
|
(Dollars in Millions)
|
|
Auto
|
|
|
Industrial
|
|
|
Interface
|
|
|
Medical
|
|
|
Total
|
|
|
Geographic Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
194.1
|
|
|
$
|
62.4
|
|
|
$
|
29.4
|
|
|
$
|
1.2
|
|
|
$
|
287.1
|
|
|
Europe & Africa
|
|
|
87.0
|
|
|
|
29.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116.5
|
|
|
Asia
|
|
|
59.7
|
|
|
|
28.0
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
88.1
|
|
|
Total Net Sales
|
|
$
|
340.8
|
|
|
$
|
119.9
|
|
|
$
|
29.8
|
|
|
$
|
1.2
|
|
|
$
|
491.7
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods Transferred at a Point in Time
|
|
$
|
326.8
|
|
|
$
|
119.9
|
|
|
$
|
29.8
|
|
|
$
|
1.2
|
|
|
$
|
477.7
|
|
|
Goods Transferred Over Time
|
|
|
14.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14.0
|
|
|
Total Net Sales
|
|
$
|
340.8
|
|
|
$
|
119.9
|
|
|
$
|
29.8
|
|
|
$
|
1.2
|
|
|
$
|
491.7
|
|
|
|
|
Six Months Ended October 26, 2019
|
|
|
(Dollars in Millions)
|
|
Auto
|
|
|
Industrial
|
|
|
Interface
|
|
|
Medical
|
|
|
Total
|
|
|
Geographic Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
228.3
|
|
|
$
|
94.8
|
|
|
$
|
24.3
|
|
|
$
|
0.6
|
|
|
$
|
348.0
|
|
|
Europe & Africa
|
|
|
101.7
|
|
|
|
24.4
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
126.3
|
|
|
Asia
|
|
|
36.3
|
|
|
|
16.5
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
53.1
|
|
|
Total Net Sales
|
|
$
|
366.3
|
|
|
$
|
135.7
|
|
|
$
|
24.8
|
|
|
$
|
0.6
|
|
|
$
|
527.4
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods Transferred at a Point in Time
|
|
$
|
347.7
|
|
|
$
|
135.7
|
|
|
$
|
24.8
|
|
|
$
|
0.6
|
|
|
$
|
508.8
|
|
|
Goods Transferred Over Time
|
|
|
18.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.6
|
|
|
Total Net Sales
|
|
$
|
366.3
|
|
|
$
|
135.7
|
|
|
$
|
24.8
|
|
|
$
|
0.6
|
|
|
$
|
527.4
|
|
10
Table of Contents
The Company continually monitors market factors and industry trends and takes necessary actions to reduce overall costs and improve operational profitability. In the three and six months ended October 31, 2020, 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 the three months ended October 31, 2020, the Company recognized $4.2 million of restructuring costs. These charges consist of $2.7 million recorded in cost of products sold and $1.5 million recorded in selling and administrative expenses. In the six months ended October 31, 2020, the Company recognized $7.6 million of restructuring costs. These charges consist of $4.6 million recorded in cost of products sold and $3.0 million recorded in selling and administrative expenses.
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 right-of-use lease assets and equipment. Contract termination costs are recorded when notification of termination is given to the other party. The following is a rollforward of the Company's restructuring activity for the six months ended October 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Accrual as of
May 2, 2020
|
|
|
YTD Charges
|
|
|
Cash
|
|
|
Non-cash
|
|
|
Accrual as of
October 31, 2020
|
|
|
Employee Termination Benefits
|
|
$
|
0.2
|
|
|
$
|
6.3
|
|
|
$
|
(4.3
|
)
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
Asset Impairment Charges
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
—
|
|
|
Contract Termination Costs
|
|
|
—
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.6
|
|
|
Total
|
|
$
|
0.2
|
|
|
$
|
7.6
|
|
|
$
|
(4.3
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
2.8
|
|
The table below presents restructuring costs by reportable segment:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(Dollars in Millions)
|
|
October 31,
2020
|
|
|
October 26,
2019
|
|
|
October 31,
2020
|
|
|
October 26,
2019
|
|
|
Automotive
|
|
$
|
3.9
|
|
|
$
|
0.2
|
|
|
$
|
5.9
|
|
|
$
|
0.2
|
|
|
Industrial
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.9
|
|
|
|
0.2
|
|
|
Interface
|
|
|
—
|
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
|
Medical
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
|
Eliminations/Corporate
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
Total Restructuring Costs
|
|
$
|
4.2
|
|
|
$
|
0.5
|
|
|
$
|
7.6
|
|
|
$
|
0.5
|
|
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 expects to incur additional restructuring costs of approximately $0.7 million during the current fiscal year related to the initiated restructuring programs and may take additional restructuring actions in future periods based upon market conditions and industry trends.
11
Table of Contents
The provision for income taxes for an interim period is based on an estimated annual effective income tax rate and this rate is applied to ordinary year-to-date earnings or losses. The estimated annual effective income tax rate is determined excluding the effects of unusual or significant one-time items that are reported net of the related tax effects in the period in which they occur. In addition, any material effects of enacted tax law or rate changes as well as the Company’s ability to utilize various tax assets is recognized in the period in which the change occurs.
The computation of the estimated annual effective income tax rate at each interim period requires certain estimates and
assumptions including, but not limited to, the expected pre-tax income (or loss) for the year by jurisdiction, certain book to tax adjustments, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s expected pre-tax income (or loss) for the year, which could create volatility in the estimated annual effective income tax rate. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes.
The Company’s income tax expense and effective tax rate for the three and six months ended October 31, 2020 and October 26, 2019 were as follows:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(Dollars in Millions)
|
|
October 31,
2020
|
|
|
October 26,
2019
|
|
|
October 31,
2020
|
|
|
October 26,
2019
|
|
|
Income before Income Taxes
|
|
$
|
46.2
|
|
|
$
|
29.0
|
|
|
$
|
61.8
|
|
|
$
|
64.6
|
|
|
Income Tax Expense
|
|
$
|
7.6
|
|
|
$
|
5.2
|
|
|
$
|
2.5
|
|
|
$
|
12.5
|
|
|
Effective Tax Rate
|
|
|
16.5
|
%
|
|
|
17.9
|
%
|
|
|
4.0
|
%
|
|
|
19.3
|
%
|
The income tax provision for the three months ended October 31, 2020 was lower than the U.S. statutory tax rate primarily due to foreign operations with lower statutory tax rates. The income tax provision for the six months ended October 31, 2020 benefited from various tax credits earned in foreign jurisdictions. The income tax provision for both the three and six months ended October 26, 2019 was lower than the U.S. statutory tax rate primarily due to foreign investment tax credits and foreign operations with lower statutory rates.
The Company's unrecognized income tax benefits were $5.4 million and $5.2 million as of October 31, 2020 and May 2, 2020, respectively. If any portion of the Company’s unrecognized tax benefits is recognized, it would impact the Company’s effective tax rate. The unrecognized tax benefits are reviewed periodically and adjusted for changing facts and circumstances, such as tax audits, lapse of applicable statutes of limitations and changes in tax law.
Note 5.Balance Sheet Components
Inventories
Inventories are stated at the lower-of-cost or net realizable value. Cost is determined using the first-in, first-out method. Finished products and work-in-process inventories include direct material costs and direct and indirect manufacturing costs. The Company records reserves for inventory that may be obsolete or in excess of current and future market demand. A summary of inventories is shown below:
|
(Dollars in Millions)
|
|
October 31,
2020
|
|
|
May 2,
2020
|
|
|
Finished Products
|
|
$
|
27.1
|
|
|
$
|
45.7
|
|
|
Work in Process
|
|
|
11.7
|
|
|
|
10.8
|
|
|
Raw Materials
|
|
|
81.9
|
|
|
|
74.5
|
|
|
Total Inventories
|
|
$
|
120.7
|
|
|
$
|
131.0
|
|
12
Table of Contents
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Maintenance and repair costs are expensed as incurred. Depreciation is calculated using the straight-line method using estimated useful lives of 5 to 40 years for buildings and building improvements and 3 to 15 years for machinery and equipment. A summary of property, plant and equipment is shown below:
|
(Dollars in Millions)
|
|
October 31,
2020
|
|
|
May 2,
2020
|
|
|
Land
|
|
$
|
3.3
|
|
|
$
|
3.3
|
|
|
Buildings and Building Improvements
|
|
|
91.8
|
|
|
|
87.3
|
|
|
Machinery and Equipment
|
|
|
432.5
|
|
|
|
412.3
|
|
|
Total Property, Plant and Equipment, Gross
|
|
|
527.6
|
|
|
|
502.9
|
|
|
Less: Accumulated Depreciation
|
|
|
(324.4
|
)
|
|
|
(301.0
|
)
|
|
Property, Plant and Equipment, Net
|
|
$
|
203.2
|
|
|
$
|
201.9
|
|
Depreciation expense was $7.6 million and $7.2 million in the three months ended October 31, 2020 and October 26, 2019, respectively. Depreciation expense was $15.0 million and $14.2 million in the six months ended October 31, 2020 and October 26, 2019, respectively. As of October 31, 2020 and May 2, 2020, capital expenditures recorded in accounts payable totaled $0.7 million and $5.8 million, respectively.
Pre-Production Tooling Costs Related to Long-term Supply Arrangements
The Company incurs pre-production tooling costs related to certain products produced for its customers under long-term supply arrangements. As of October 31, 2020 and May 2, 2020, the Company had $32.5 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. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract. As of October 31, 2020 and May 2, 2020, the Company had $15.8. million and $19.0 million, respectively, of Company owned pre-production tooling, which is capitalized within property, plant and equipment.
Derivative Instruments
The Company is exposed to foreign currency risks that arise from normal business operations. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through derivative instruments.
On April 14, 2020, the Company entered into a variable-rate, cross-currency swap, maturing on August 31, 2023, with a
notional value of $60.0 million (€54.8 million). The cross-currency swap is designated as a hedge of the Company's net investment in a euro-based subsidiary. 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 was in a net liability position with an aggregate fair value of $4.8 million and $1.3 million as of October 31, 2020 and May 2, 2020, respectively, and is recorded within other long-term liabilities in the condensed consolidated balance sheets.
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 records
changes in fair value attributable to the translation of foreign currencies through accumulated other comprehensive income (loss). The
Company recognizes the impact of all other changes in fair value of the derivative through interest expense, which was not material in the three and six months ended October 31, 2020.
13
Table of Contents
Note 6.Goodwill and Other Intangible Assets
Goodwill
A summary of the changes in the carrying amount of goodwill, by segment, is shown below:
|
(Dollars in Millions)
|
|
Automotive
|
|
|
Industrial
|
|
|
Total
|
|
|
Balance as of May 2, 2020
|
|
$
|
106.2
|
|
|
$
|
125.4
|
|
|
$
|
231.6
|
|
|
Foreign Currency Translation
|
|
|
0.3
|
|
|
|
1.4
|
|
|
|
1.7
|
|
|
Balance as of October 31, 2020
|
|
$
|
106.5
|
|
|
$
|
126.8
|
|
|
$
|
233.3
|
|
The Company tests indefinite-lived intangible assets and goodwill for impairment by either performing a qualitative evaluation or a quantitative test at least annually, or more frequently if an indication of impairment arises. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit or asset is less than its carrying amount.
During the second quarter of fiscal 2021, the Company evaluated the effects of the COVID-19 pandemic and its negative impact on the global economy on each of the Company’s reporting units and indefinite-lived intangible assets. Management reviewed key assumptions, including revisions of projected future revenues for reporting units and the results of the previous annual impairment testing performed during the fourth quarter of fiscal 2020. The Company did not identify an indication of impairment for any of its reporting units or indefinite-lived intangible assets. Although it was determined that a triggering event had not occurred as of October 31, 2020, management will continue to monitor the impacts of the COVID-19 pandemic on the Company and significant changes in key assumptions that could result in future period impairment charges.
Other Intangible Assets, Net
Details of identifiable intangible assets are shown below:
|
|
|
As of October 31, 2020
|
|
|
(Dollars in Millions)
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Wtd. Avg.
Remaining
Amortization
Periods
(Years)
|
|
|
Definite-lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships and Agreements
|
|
$
|
245.2
|
|
|
$
|
(47.6
|
)
|
|
$
|
197.6
|
|
|
|
16.0
|
|
|
Trade Names, Patents and Technology Licenses
|
|
|
75.7
|
|
|
|
(38.1
|
)
|
|
|
37.6
|
|
|
|
7.4
|
|
|
Total Definite-lived Intangible Assets
|
|
|
320.9
|
|
|
|
(85.7
|
)
|
|
|
235.2
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names, Patents and Technology Licenses
|
|
|
1.8
|
|
|
|
—
|
|
|
|
1.8
|
|
|
|
|
|
|
Total Indefinite-lived Intangible Assets
|
|
|
1.8
|
|
|
|
—
|
|
|
|
1.8
|
|
|
|
|
|
|
Total Other Intangible Assets
|
|
$
|
322.7
|
|
|
$
|
(85.7
|
)
|
|
$
|
237.0
|
|
|
|
|
|
|
|
|
As of May 2, 2020
|
|
|
(Dollars in Millions)
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Wtd. Avg.
Remaining
Amortization
Periods
(Years)
|
|
|
Definite-lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships and Agreements
|
|
$
|
243.5
|
|
|
$
|
(40.8
|
)
|
|
$
|
202.7
|
|
|
|
16.5
|
|
|
Trade Names, Patents and Technology Licenses
|
|
|
75.3
|
|
|
|
(35.0
|
)
|
|
|
40.3
|
|
|
|
7.8
|
|
|
Total Definite-lived Intangible Assets
|
|
|
318.8
|
|
|
|
(75.8
|
)
|
|
|
243.0
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names, Patents and Technology Licenses
|
|
|
1.8
|
|
|
|
—
|
|
|
|
1.8
|
|
|
|
|
|
|
Total Indefinite-lived Intangible Assets
|
|
|
1.8
|
|
|
|
—
|
|
|
|
1.8
|
|
|
|
|
|
|
Total Other Intangible Assets
|
|
$
|
320.6
|
|
|
$
|
(75.8
|
)
|
|
$
|
244.8
|
|
|
|
|
|
14
Table of Contents
Based on the current amount of intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
|
(Dollars in Millions)
|
|
|
|
|
|
Fiscal Year:
|
|
|
|
|
|
Remainder of 2021
|
|
$
|
9.5
|
|
|
2022
|
|
|
19.1
|
|
|
2023
|
|
|
19.0
|
|
|
2024
|
|
|
18.6
|
|
|
2025
|
|
|
18.1
|
|
|
Thereafter
|
|
|
150.9
|
|
|
Total
|
|
$
|
235.2
|
|
Note 7.Debt
A summary of debt is shown below:
|
(Dollars in Millions)
|
|
October 31, 2020
|
|
|
May 2, 2020
|
|
|
Revolving Credit Facility
|
|
$
|
110.0
|
|
|
$
|
108.5
|
|
|
Term Loan
|
|
|
225.0
|
|
|
|
231.2
|
|
|
Other Debt
|
|
|
14.5
|
|
|
|
14.6
|
|
|
Unamortized Debt Issuance Costs
|
|
|
(1.9
|
)
|
|
|
(2.2
|
)
|
|
Total Debt
|
|
|
347.6
|
|
|
|
352.1
|
|
|
Less: Current Maturities
|
|
|
(15.3
|
)
|
|
|
(15.3
|
)
|
|
Total Long-term Debt
|
|
$
|
332.3
|
|
|
$
|
336.8
|
|
Revolving Credit Facility/Term Loan
The Company is a party to an 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 terminates in September 2023 and 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. Subsequent to October 31, 2020, the Company repaid $50.0 million of the outstanding balance under the Revolving Credit Facility.
Outstanding borrowings under the Credit Agreement bear interest at variable rates based on the type of borrowing and the Company’s debt to EBITDA financial ratio, as defined in the Credit Agreement. The weighted-average interest rate on outstanding borrowings under the Credit Agreement was 1.65% at October 31, 2020. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. As of October 31, 2020, the Company was in compliance with all the covenants in the Credit Agreement.
Other Debt
One of the Company’s European subsidiaries has debt that consists of 14 notes with maturities ranging from 2021 to 2031. The weighted-average interest rate on this debt was approximately 1.47% at October 31, 2020 and $2.8 million of the debt was classified as short-term.
15
Table of Contents
Note 8.Shareholders’ Equity
Dividends
The Company paid dividends totaling $4.1 million in both the three months ended October 31, 2020 and October 26, 2019. The Company paid dividends totaling $9.1 million and $8.2 million in the six months ended October 31, 2020 and October 26, 2019, respectively. Dividends paid in the six months ended October 31, 2020 include $0.9 million of dividends on restricted stock that vested during the period.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. A summary of changes in accumulated other comprehensive income (loss), net of tax is shown below:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(Dollars in Millions)
|
|
October 31, 2020
|
|
|
October 26, 2019
|
|
|
October 31, 2020
|
|
|
October 26, 2019
|
|
|
Currency Translation Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
(5.6
|
)
|
|
$
|
(15.2
|
)
|
|
$
|
(25.9
|
)
|
|
$
|
(13.6
|
)
|
|
Other Comprehensive Income (Loss) Recognized During the Period, Net of Tax
|
|
|
1.4
|
|
|
|
(2.8
|
)
|
|
|
21.7
|
|
|
|
(4.4
|
)
|
|
Balance at End of Period
|
|
|
(4.2
|
)
|
|
|
(18.0
|
)
|
|
|
(4.2
|
)
|
|
|
(18.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
|
(4.6
|
)
|
|
|
—
|
|
|
|
(1.0
|
)
|
|
|
—
|
|
|
Other Comprehensive Income (Loss) Recognized During the Period, Net of Tax
|
|
|
0.9
|
|
|
|
—
|
|
|
|
(2.7
|
)
|
|
|
—
|
|
|
Balance at End of Period
|
|
|
(3.7
|
)
|
|
|
—
|
|
|
|
(3.7
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss, End of Period
|
|
$
|
(7.9
|
)
|
|
$
|
(18.0
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(18.0
|
)
|
Stock-based Compensation
The Company has granted stock options, performance-based restricted stock (“PSAs”), performance units (“PUs”), 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 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 October 31, 2020, there was 196,288 shares available for award under the 2014 Plan.
The Company accounts for stock-based compensation under the fair-value method. Accordingly, equity-classified stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as compensation cost over the requisite service period. The requisite service period generally matches the stated vesting period of the award but may be shorter if the employee is retirement-eligible and, under the award’s terms, may fully vest upon retirement from the Company. The Company recognizes compensation cost for awards that have graded vesting features under the graded vesting method, which considers each separately vesting tranche as though they were, in substance, multiple awards.
Performance-based Restricted Stock (“PSAs”) and Performance Units (“PUs”)
In the second quarter of fiscal 2021, the Company granted 917,000 PSAs to executive officers and certain non-executives which will be earned based on the achievement of an earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) measure for fiscal 2025. The PSAs 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.
16
Table of Contents
The fair value of the PSAs 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 PSAs do not vest. Compensation expense for PSAs 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 achieved. 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 non-equity unit with a conversion value equal to the fair market value of a share of the Company’s common stock on the vesting date. The PUs are classified as liability awards due to the cash settlement feature and are re-measured at each balance sheet date. In accordance with ASC 718, based on projections of the Company’s current business portfolio, compensation expense has not been recognized for the PSAs or PUs in the three and six months ended October 31, 2020, as the performance conditions are not probable of being met.
Restricted Stock Units (“RSUs”)
RSUs granted under the 2014 Plan vest over a pre-determined period of time, up to five years. In the second quarter of fiscal 2021, the Company granted 938,300 RSUs to executive officers and certain non-executives. The fair value of the RSUs was based on the closing stock price on the date of grant and earn dividend equivalents during the vesting periods, which are forfeitable if the RSUs don’t vest.
The following table summarizes RSU activity under the 2014 Plan:
|
|
|
RSU Shares
|
|
|
Wtd. Avg. Grant
Date Fair Value
|
|
|
Non-vested at May 2, 2020
|
|
|
3,100
|
|
|
$
|
41.20
|
|
|
Awarded
|
|
|
938,300
|
|
|
$
|
28.30
|
|
|
Vested
|
|
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
Non-vested at October 31, 2020
|
|
|
941,400
|
|
|
$
|
28.34
|
|
Under the various stock plans, common stock underlying vested RSUs held by certain executives will not be delivered until termination of employment or a change of control of the Company. As of October 31, 2020, common stock to be delivered to these executives totaled 577,055 shares.
Director Awards
In the six months ended October 31, 2020 and October 26, 2019, the Company granted 33,000 shares and 30,000 shares, respectively, of common stock to its non-employee directors under the 2014 Plan. The shares vested immediately upon grant. The fair value was determined based on the closing price of the Company’s stock on the date of grant.
Stock Options
The following table summarizes combined stock option activity under the 2010 Plan and 2007 Plan:
|
|
|
Shares
|
|
|
Wtd. Avg.
Exercise Price
|
|
|
Outstanding and Exercisable at May 2, 2020
|
|
|
106,668
|
|
|
$
|
35.76
|
|
|
Exercised
|
|
|
(5,000
|
)
|
|
$
|
10.55
|
|
|
Forfeited
|
|
|
(1,668
|
)
|
|
$
|
37.01
|
|
|
Outstanding and Exercisable at October 31, 2020
|
|
|
100,000
|
|
|
$
|
37.01
|
|
17
Table of Contents
Stock-based Compensation Expense
All stock-based awards to employees and non-employee directors are recognized in selling and administrative expenses on the condensed consolidated statements of income.
The following table summarizes the stock-based compensation expense related to the equity awards:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(Dollars in Millions)
|
|
October 31, 2020
|
|
|
October 26, 2019
|
|
|
October 31, 2020
|
|
|
October 26, 2019
|
|
|
PSAs
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
RSUs
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
0.8
|
|
|
Director Awards
|
|
|
—
|
|
|
|
—
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
Total Stock-based Compensation Expense
|
|
$
|
1.0
|
|
|
$
|
1.5
|
|
|
$
|
1.9
|
|
|
$
|
4.0
|
|
Note 9. Income per Share
Basic income per share is calculated by dividing net income by the weighted average number of common shares outstanding for the applicable period. The weighted average number of common shares used in the diluted income per share calculation is determined using the treasury stock method which includes the effect of all potential dilutive common shares outstanding during the period.
The following table sets forth the computation of basic and diluted income per share:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
October 31,
2020
|
|
|
October 26,
2019
|
|
|
October 31,
2020
|
|
|
October 26,
2019
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (in millions)
|
|
$
|
38.6
|
|
|
$
|
23.8
|
|
|
$
|
59.3
|
|
|
$
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for Basic Income per Share-Weighted Average Shares Outstanding and Vested/Unissued RSUs
|
|
|
38,106,793
|
|
|
|
37,587,742
|
|
|
|
37,971,668
|
|
|
|
37,561,098
|
|
|
Dilutive Potential Common Shares-Employee Stock Options, PSAs and RSUs
|
|
|
20,745
|
|
|
|
151,446
|
|
|
|
171,310
|
|
|
|
142,025
|
|
|
Denominator for Diluted Income per Share
|
|
|
38,127,538
|
|
|
|
37,739,188
|
|
|
|
38,142,978
|
|
|
|
37,703,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income per Share
|
|
$
|
1.01
|
|
|
$
|
0.63
|
|
|
$
|
1.56
|
|
|
$
|
1.39
|
|
|
Diluted Income per Share
|
|
$
|
1.01
|
|
|
$
|
0.63
|
|
|
$
|
1.56
|
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Anti-dilutive Potentially Issuable Shares Excluded from Diluted Common Shares Outstanding
|
|
|
1,017,000
|
|
|
|
755,493
|
|
|
|
559,334
|
|
|
|
759,368
|
|
18
Table of Contents
Note 10. Segment 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 Company has four reporting segments as described below.
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 external 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 used in various markets and applications, including aerospace, computers, industrial, power conversion, military, telecommunications and transportation.
The Interface segment provides a variety of copper and fiber-optic interface and interface solutions for the appliance, commercial food service, construction, consumer, material handling, point-of-sale and telecommunications markets. Solutions include copper transceivers and solid-state field-effect consumer touch panels.
The Medical segment is 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 tables below present information about the Company's reportable segments:
|
|
|
Three Months Ended October 31, 2020
|
|
|
(Dollars in Millions)
|
|
Automotive
|
|
|
Industrial
|
|
|
Interface
|
|
|
Medical
|
|
|
Eliminations
/Corporate
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
216.9
|
|
|
$
|
69.5
|
|
|
$
|
16.4
|
|
|
$
|
0.8
|
|
|
$
|
(2.8
|
)
|
|
$
|
300.8
|
|
|
Transfers between Segments
|
|
|
(1.2
|
)
|
|
|
(1.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2.8
|
|
|
|
—
|
|
|
Net Sales to Unaffiliated Customers
|
|
$
|
215.7
|
|
|
$
|
67.9
|
|
|
$
|
16.4
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
300.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
$
|
38.8
|
|
|
$
|
16.1
|
|
|
$
|
3.1
|
|
|
$
|
(1.5
|
)
|
|
$
|
(11.5
|
)
|
|
$
|
45.0
|
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
|
Income before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46.2
|
|
|
|
|
Three Months Ended October 26, 2019
|
|
|
(Dollars in Millions)
|
|
Automotive
|
|
|
Industrial
|
|
|
Interface
|
|
|
Medical
|
|
|
Eliminations
/Corporate
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
181.3
|
|
|
$
|
65.4
|
|
|
$
|
12.0
|
|
|
$
|
0.3
|
|
|
$
|
(1.8
|
)
|
|
$
|
257.2
|
|
|
Transfers between Segments
|
|
|
(1.2
|
)
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
1.8
|
|
|
|
—
|
|
|
Net Sales to Unaffiliated Customers
|
|
$
|
180.1
|
|
|
$
|
64.9
|
|
|
$
|
11.9
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
257.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
$
|
28.9
|
|
|
$
|
15.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(11.3
|
)
|
|
$
|
30.7
|
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
|
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
Income before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29.0
|
|
19
Table of Contents
|
|
|
Six Months Ended October 31, 2020
|
|
|
(Dollars in Millions)
|
|
Automotive
|
|
|
Industrial
|
|
|
Interface
|
|
|
Medical
|
|
|
Eliminations
/Corporate
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
343.3
|
|
|
$
|
121.9
|
|
|
$
|
29.8
|
|
|
$
|
1.2
|
|
|
$
|
(4.5
|
)
|
|
$
|
491.7
|
|
|
Transfers between Segments
|
|
|
(2.5
|
)
|
|
|
(2.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4.5
|
|
|
|
—
|
|
|
Net Sales to Unaffiliated Customers
|
|
$
|
340.8
|
|
|
$
|
119.9
|
|
|
$
|
29.8
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
491.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
$
|
54.1
|
|
|
$
|
23.1
|
|
|
$
|
4.2
|
|
|
$
|
(3.1
|
)
|
|
$
|
(19.5
|
)
|
|
$
|
58.8
|
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
Income before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61.8
|
|
|
|
|
Six Months Ended October 26, 2019
|
|
|
(Dollars in Millions)
|
|
Automotive
|
|
|
Industrial
|
|
|
Interface
|
|
|
Medical
|
|
|
Eliminations
/Corporate
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
368.8
|
|
|
$
|
137.0
|
|
|
$
|
24.9
|
|
|
$
|
0.6
|
|
|
$
|
(3.9
|
)
|
|
$
|
527.4
|
|
|
Transfers between Segments
|
|
|
(2.5
|
)
|
|
|
(1.3
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
3.9
|
|
|
|
—
|
|
|
Net Sales to Unaffiliated Customers
|
|
$
|
366.3
|
|
|
$
|
135.7
|
|
|
$
|
24.8
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
527.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
$
|
62.0
|
|
|
$
|
31.6
|
|
|
$
|
—
|
|
|
$
|
(3.3
|
)
|
|
$
|
(21.0
|
)
|
|
$
|
69.3
|
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6
|
|
|
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
Income before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
64.6
|
|
|
(Dollars in Millions)
|
|
October 31,
2020
|
|
|
May 2,
2020
|
|
|
Identifiable Assets:
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
$
|
768.8
|
|
|
$
|
670.9
|
|
|
Industrial
|
|
|
432.8
|
|
|
|
421.8
|
|
|
Interface
|
|
|
88.0
|
|
|
|
71.0
|
|
|
Medical
|
|
|
7.8
|
|
|
|
8.8
|
|
|
Eliminations/Corporate
|
|
|
191.9
|
|
|
|
198.1
|
|
|
Total Identifiable Assets
|
|
$
|
1,489.3
|
|
|
$
|
1,370.6
|
|
Note 11. Contingencies
Certain litigation arising in the normal course of business is pending against us. The Company is, from time-to-time, subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, employment-related matters, environmental matters and intellectual property 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 Company's opinion, based on the information available, that it has adequate reserves for these liabilities.
20
Table of Contents
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 Company terminated 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 awaiting an argument date. The Company is working with counsel to collect on the judgment though there are challenges in Europe in doing so while the appeal is pending. 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.
21
Table of Contents