PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement
Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations. Our business is highly dependent upon two large automotive customers and specific makes and models of vehicles. Our results will be subject to many of the same risks that apply to the automotive, appliance, commercial vehicle, computer and communications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes. Other factors which may result in materially different results for future periods include the following risk factors. Additional risks and uncertainties not presently known or that our management currently believe to be insignificant may also adversely affect our financial condition or results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements. The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws and are made as of the date of this report. Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:
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Impact from pandemics, such as the COVID-19 pandemic;
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Dependence on our supply chain, including semiconductor and resin suppliers;
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Dependence on the automotive, appliance, commercial vehicle, computer and communications industries;
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Dependence on a small number of large customers, including two large automotive customers;
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Recognition of goodwill and long-lived asset impairment charges;
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Timing and magnitude of costs associated with restructuring activities;
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International trade disputes resulting in tariffs and our ability to mitigate tariffs;
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Timing, quality and cost of new program launches;
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Ability to withstand price pressure, including pricing reductions;
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Failure to attract and retain qualified personnel;
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Ability to successfully market and sell Dabir Surfaces products;
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Customary risks related to conducting global operations;
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Costs associated with environmental, health and safety regulations;
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Ability to withstand business interruptions;
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Ability to successfully benefit from acquisitions and divestitures;
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Investment in programs prior to the recognition of revenue;
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Dependence on the availability and price of materials;
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Judgments related to accounting for tax positions;
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Income tax rate fluctuations;
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Adjustments to compensation expense for performance-based awards;
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Ability to keep pace with rapid technological changes;
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Breaches to our information technology systems;
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Ability to avoid design or manufacturing defects;
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Ability to compete effectively;
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Ability to protect our intellectual property;
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Success of recent acquisitions and/or our ability to implement and profit from new applications of the acquired technology;
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Ability to manage our debt levels and any restrictions thereunder; and
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Impact to interest expense from the replacement or modification of LIBOR.
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Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those foreseen in such forward-looking statements. These forward-looking statements speak only
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as of the date of the report, press release, statement, document, webcast or oral discussion in which they are made. We do not intend to update any forward-looking statements, all of which are expressly qualified by the foregoing. See Part I — Item 1A, Risk Factors of our Form 10-K for the fiscal year ended May 2, 2020 and Part II - Item 1A, Risk Factors of this Form 10-Q for further discussions regarding some of the reasons that actual results may be materially different from those we anticipate.
Overview
We are 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. Our primary manufacturing facilities are located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; and Monterrey, Mexico. We design, manufacture and market devices employing electrical, electronic, LED lighting, sensors and radio remote control technologies. Our business is managed, and our financial results are reported, on a segment basis, with those segments being Automotive, Industrial, Interface and Medical.
Our components are found in the primary end-markets of the aerospace, appliance, automotive, commercial vehicle, construction, consumer and industrial equipment, communications (including information processing and storage, networking equipment and wireless and terrestrial voice/data systems), medical, rail and other transportation industries.
Impact of COVID-19
The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created significant volatility and disruptions to capital and credit markets in the global financial markets. We began to see the impacts of COVID-19 at the beginning of our fourth quarter of fiscal 2020 at our China manufacturing facilities, which were initially closed 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 into our third quarter 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 non-automotive customers. We expect this semiconductor shortage will likely have a short-term impact on our operating results and financial condition in the fourth quarter of fiscal 2021, and possibly into 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:
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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;
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Elimination of most business travel and restriction of visitors to our facilities;
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Enhanced cleaning and disinfection procedures at our facilities, temperature checks for our workers before they enter our manufacturing facilities, promotion of social distancing at our facilities and requirements for employees to work from home where possible;
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Reduction of non-program related capital expenditures;
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Deferral of discretionary spending; and
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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.
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In addition, we initiated certain restructuring actions in the nine months ended January 30, 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 the three months and nine months ended January 30, 2021, we recognized $0.7 million and $8.3 million of restructuring costs, respectively. We currently expect to incur additional restructuring costs of approximately $0.2 million during the current fiscal year related to the initiated restructuring programs and we may take additional restructuring actions in future periods based upon market conditions and industry trends.
The extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the related impact on our customers, especially in the automotive and commercial vehicle markets. These future developments are outside of our control, are highly uncertain and cannot be predicted. If the impact is further prolonged, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity. These and other potential impacts of the COVID-19 pandemic, including the resulting global semiconductor chip shortage, may adversely impact our results for the remainder of fiscal 2021 and into fiscal 2022, and that impact could be material. We continue to actively monitor the ongoing potential impacts of COVID-19 and will seek to mitigate and minimize its impact on our business.
Financial Reporting Periods
We maintain our 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. For the three months ended January 30, 2021, our accounting period included 13 weeks compared to 14 weeks for the three months ended February 1, 2020. For the nine months ended January 30, 2021, our accounting period included 39 weeks compared to 40 weeks for the nine months ended February 1, 2020. The following discussions of comparative results among periods should be reviewed in this context.
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Results of Operations for the Three Months Ended January 30, 2021 compared to the Three Months Ended February 1, 2020
Consolidated Results
Below is a table summarizing results for the three months ended:
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January 30,
2021
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February 1,
2020
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(Dollars in Millions)
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(13 Weeks)
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(14 Weeks)
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Net Change ($)
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Net Change (%)
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Net Sales
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$
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295.3
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$
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285.9
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$
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9.4
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3.3
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%
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Cost of Products Sold
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222.7
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206.6
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16.1
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7.8
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%
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Gross Profit
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72.6
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79.3
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(6.7
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)
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(8.4
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)%
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Selling and Administrative Expenses
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32.4
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33.0
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(0.6
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)
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(1.8
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)%
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Amortization of Intangibles
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4.8
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4.8
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—
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—
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Interest Expense, Net
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1.3
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2.4
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(1.1
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)
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(45.8
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)%
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Other Income, Net
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(2.4
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)
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(4.9
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)
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2.5
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(51.0
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)%
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Income Tax Expense
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4.6
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2.8
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1.8
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64.3
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%
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Net Income
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$
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31.9
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$
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41.2
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$
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(9.3
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)
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(22.6
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)%
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January 30,
2021
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February 1,
2020
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Percent of sales:
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(13 Weeks)
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(14 Weeks)
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|
|
|
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|
|
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Net Sales
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100.0
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%
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|
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100.0
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%
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Cost of Products Sold
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75.4
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%
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72.3
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%
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Gross Profit
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24.6
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%
|
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27.7
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%
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Selling and Administrative Expenses
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11.0
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%
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11.5
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%
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Amortization of Intangibles
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1.6
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%
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1.7
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%
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|
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Interest Expense, Net
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0.4
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%
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0.8
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%
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|
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|
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Other Income, Net
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(0.8
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)%
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(1.7
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)%
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|
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|
|
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Income Tax Expense
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1.6
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%
|
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1.0
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%
|
|
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|
|
|
|
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Net Income
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10.8
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%
|
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14.4
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%
|
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|
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|
Net Sales. Net sales increased $9.4 million, or 3.3%, to $295.3 million in the three months ended January 30, 2021, compared to $285.9 million in the three months ended February 1, 2020. The impact of foreign currency translation increased net sales by $9.7 million, primarily due to the strengthening of the euro and Chinese renminbi, relative to the U.S. dollar. Excluding the impact of foreign currency translation, net sales were comparable in both periods. See results by segment for additional details.
Cost of Products Sold. Cost of products sold increased $16.1 million, or 7.8%, to $222.7 million (75.4% of sales) in the three months ended January 30, 2021, compared to $206.6 million (72.3% of sales) in the three months ended February 1, 2020. The impact of foreign currency translation increased cost of products sold by $6.9 million. Excluding the impact of foreign currency translation, cost of products sold increased by $9.2 million. The increase was primarily due to premium freight and factory inefficiencies resulting from supply chain disruptions due to the COVID-19 pandemic and to a lesser extent tariff expense and product sales mix.
Gross Profit. Gross profit decreased $6.7 million, or 8.4%, to $72.6 million (24.6% of sales) in the three months ended January 30, 2021, compared to $79.3 million (27.7% of sales) in the three months ended February 1, 2020. The impact of foreign currency translation increased gross profit by $2.8 million. Excluding the impact of foreign currency translation, gross profit decreased by $9.5 million. The decrease in gross profit margins was primarily due to premium freight and factory inefficiencies resulting from supply chain disruptions due to the COVID-19 pandemic and to a lesser extent tariff expense and product sales mix.
Selling and Administrative Expenses. Selling and administrative expenses decreased $0.6 million, or 1.8%, to $32.4 million (11.0% of sales) in the three months ended January 30, 2021, compared to $33.0 million (11.5% of sales) in the three months ended February 1, 2020. The impact of foreign currency translation increased selling and administrative expenses by $0.7 million. Excluding the impact of foreign currency translation, selling and administrative expenses decreased by $1.3 million. The decrease was primarily due to lower compensation expense, travel expense and restructuring costs, partially offset by higher stock-based compensation
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expense. The decrease in compensation expense was primarily related to the benefit of restructuring actions taken in the first quarter of fiscal 2021. In the three months ended January 30, 2021, we recognized $0.3 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $0.7 million of restructuring costs recognized in the three months ended February 1, 2020.
Amortization of Intangibles. Amortization of intangibles was unchanged at $4.8 million in both the three months ended January 30, 2021 and February 1, 2020.
Interest Expense, Net. Interest expense, net was $1.3 million in the three months ended January 30, 2021, compared to $2.4 million in the three months ended February 1, 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 in March 2020, which was fully repaid in the three months ended January 30, 2021.
Other Income, Net. Other income, net was $2.4 million in the three months ended January 30, 2021, compared to $4.9 million in the three months ended February 1, 2020. In the three months ended January 30, 2021, we received $2.7 million of government assistance at certain of our international locations with respect to the COVID-19 pandemic. The three months ended February 1, 2020 includes $5.6 million for an international government grant for maintaining certain employment levels during those periods.
Income Tax Expense. Income tax expense was $4.6 million (12.6% effective tax rate) in the three months ended January 30, 2021, compared to $2.8 million (6.4% effective tax rate) in the three months ended February 1, 2020. The effective tax rate in the three months ended January 30, 2021 was lower than the U.S. statutory tax rate primarily due to foreign operations with lower statutory tax rates. The effective tax rate in the three months ended February 1, 2020 was lower than the U.S. statutory tax rate primarily due to beneficial changes related to U.S. Tax Reform and foreign operations with lower statutory rates.
Net Income. Net income decreased $9.3 million, or 22.6%, to $31.9 million in the three months ended January 30, 2021, compared to $41.2 million in the three months ended February 1, 2020. Net income decreased as a result of the reasons described above, partially offset by favorable foreign currency translation of $1.8 million.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the three months ended:
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January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(13 Weeks)
|
|
|
(14 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
210.5
|
|
|
$
|
210.3
|
|
|
$
|
0.2
|
|
|
|
0.1
|
%
|
Gross Profit
|
|
$
|
44.1
|
|
|
$
|
55.0
|
|
|
$
|
(10.9
|
)
|
|
|
(19.8
|
)%
|
Income from Operations
|
|
$
|
29.6
|
|
|
$
|
39.2
|
|
|
$
|
(9.6
|
)
|
|
|
(24.5
|
)%
|
Percent of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
21.0
|
%
|
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
14.1
|
%
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
26
Table of Contents
Net Sales. Automotive segment net sales increased $0.2 million, or 0.1%, to $210.5 million in the three months ended January 30, 2021, compared to $210.3 million in the three months ended February 1, 2020. The impact of foreign currency translation increased net sales by $7.5 million. Excluding the impact of foreign currency translation, net sales decreased by $7.3 million. Net sales in North America decreased $22.6 million, or 17.3%, to $107.7 million in the three months ended January 30, 2021, compared to $130.3 million in the three months ended February 1, 2020. The decrease was primarily due to lower electric vehicle product sales, which shifted from North America to Asia, and lower lighting product sales volumes. Net sales in Europe increased $2.9 million, or 5.1%, to $60.1 million in the three months ended January 30, 2021, compared to $57.2 million in the three months ended February 1, 2020. The stronger euro, relative to the U.S. dollar, increased net sales in Europe by $4.7 million. Excluding the impact of foreign currency translation, Europe net sales decreased $1.8 million primarily due to product mix. Net sales in Asia increased $19.9 million, or 87.3%, to $42.7 million in the three months ended January 30, 2021, compared to $22.8 million in the three months ended February 1, 2020. The stronger Chinese renminbi, relative to the U.S. dollar, increased net sales in Asia by $2.8 million. Excluding foreign currency translation, Asia net sales increased $17.1 million primarily due to higher sales of electric vehicle products which shifted from North America to Asia and higher leadframe sales volumes.
Gross Profit. Automotive segment gross profit decreased $10.9 million, or 19.8%, to $44.1 million in the three months ended January 30, 2021, compared to $55.0 million in the three months ended February 1, 2020. The impact of foreign currency translation increased gross profit by $1.8 million. Excluding the impact of foreign currency translation, gross profit decreased by $12.7 million. Automotive segment gross profit margins decreased to 21.0% in the three months ended January 30, 2021, compared to 26.2% in the three months ended February 1, 2020. The decrease in gross profit margins was primarily due to premium freight and factory inefficiencies resulting from supply chain disruptions due to the COVID-19 pandemic and to a lesser extent tariff expense and product sales mix.
Income from Operations. Automotive segment income from operations decreased $9.6 million, or 24.5%, to $29.6 million in the three months ended January 30, 2021, compared to $39.2 million in the three months ended February 1, 2020. The impact of foreign currency translation increased income from operations by $1.3 million. Excluding the impact of foreign currency translation, income from operations decreased by $10.9 million. The decrease was primarily due to lower gross profit, partially offset by lower selling and administrative expenses. Selling and administrative expenses decreased primarily due to lower compensation expense.
Industrial Segment Results
Below is a table summarizing results for the three months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(13 Weeks)
|
|
|
(14 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
66.5
|
|
|
$
|
60.1
|
|
|
$
|
6.4
|
|
|
|
10.6
|
%
|
Gross Profit
|
|
$
|
24.7
|
|
|
$
|
21.9
|
|
|
$
|
2.8
|
|
|
|
12.8
|
%
|
Income from Operations
|
|
$
|
16.9
|
|
|
$
|
13.2
|
|
|
$
|
3.7
|
|
|
|
28.0
|
%
|
Percent of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
37.1
|
%
|
|
|
36.4
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
25.4
|
%
|
|
|
22.0
|
%
|
|
|
|
|
|
|
|
|
Net Sales. Industrial segment net sales increased $6.4 million, or 10.6%, to $66.5 million in the three months ended January 30, 2021, compared to $60.1 million in the three months ended February 1, 2020. Foreign currency translation increased net sales by $2.2 million. Excluding foreign currency translation, net sales increased by $4.2 million primarily due to higher sales volumes of electric vehicle busbar products and radio remote control devices, partially offset by lower sales from commercial vehicle lighting solutions.
Gross Profit. Industrial segment gross profit increased $2.8 million, or 12.8%, to $24.7 million in the three months ended January 30, 2021, compared to $21.9 million in the three months ended February 1, 2020. Gross profit margins increased to 37.1% in the three months ended January 30, 2021, compared to 36.4% in the three months ended February 1, 2020. The increase in gross profit
27
Table of Contents
margins was primarily due to higher sales of busbar products and radio remote control devices. This was partially offset by lower gross profit margins from commercial vehicle lighting solutions due to higher operational costs.
Income from Operations. Industrial segment income from operations increased $3.7 million, or 28.0%, to $16.9 million in the three months ended January 30, 2021, compared to $13.2 million in the three months ended February 1, 2020. The increase was primarily due to higher gross profit, lower selling and administrative expenses and favorable foreign currency translation. Selling and administrative expenses decreased due to lower compensation expense. Foreign currency translation increased income from operations by $0.9 million.
Interface Segment Results
Below is a table summarizing results for the three months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(13 Weeks)
|
|
|
(14 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
17.6
|
|
|
$
|
14.9
|
|
|
$
|
2.7
|
|
|
|
18.1
|
%
|
Gross Profit
|
|
$
|
4.0
|
|
|
$
|
1.8
|
|
|
$
|
2.2
|
|
|
|
122.2
|
%
|
Income from Operations
|
|
$
|
3.2
|
|
|
$
|
0.7
|
|
|
$
|
2.5
|
|
|
|
357.1
|
%
|
Percent of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
22.7
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
18.2
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
Net Sales. Interface segment net sales increased $2.7 million, or 18.1%, to $17.6 million in the three months ended January 30, 2021, compared to $14.9 million in the three months ended February 1, 2020. The increase was primarily due to higher sales volumes of appliance products, partially offset by a decrease in legacy data solutions products.
Gross Profit. Interface segment gross profit increased $2.2 million, or 122.2%, to $4.0 million in the three months ended January 30, 2021, compared to $1.8 million in the three months ended February 1, 2020. Gross profit margins increased to 22.7% in the three months ended January 30, 2021, from 12.1% in the three months ended February 1, 2020. The increase was primarily due to higher sales and lower direct labor costs.
Income from Operations. Interface segment income from operations was $3.2 million in the three months ended January 30, 2021, compared to $0.7 million in the three months ended February 1, 2020. The increase was primarily due to higher gross profit and lower selling and administrative expenses. Selling and administrative expenses decreased due to lower compensation expense which benefitted from restructuring actions taken in the first quarter of fiscal 2021.
Medical Segment Results
Below is a table summarizing results for the three months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(13 Weeks)
|
|
|
(14 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
0.7
|
|
|
$
|
0.6
|
|
|
$
|
0.1
|
|
|
|
16.7
|
%
|
Gross Profit
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.3
|
|
|
|
(100.0
|
)%
|
Loss from Operations
|
|
$
|
(1.0
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
0.6
|
|
|
|
(37.5
|
)%
|
Net Sales. The Medical segment had net sales of $0.7 million in the three months ended January 30, 2021, compared to $0.6 million in the three months ended February 1, 2020.
28
Table of Contents
Gross Profit. Medical segment gross profit was breakeven in the three months ended January 30, 2021, compared to a loss of $0.3 million in the three months ended February 1, 2020. The improvement was primarily due to lower cost of products sold and higher net sales.
Loss from Operations. Medical segment loss from operations decreased $0.6 million, to $1.0 million in the three months ended January 30, 2021, compared to $1.6 million in the three months ended February 1, 2020. The improvement was due to lower selling and administrative expenses and higher gross profit.
Results of Operations for the Nine Months Ended January 30, 2021 compared to the Nine Months Ended February 1, 2020
Consolidated Results
Below is a table summarizing results for the nine months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
787.0
|
|
|
$
|
813.3
|
|
|
$
|
(26.3
|
)
|
|
|
(3.2
|
)%
|
Cost of Products Sold
|
|
|
588.5
|
|
|
|
589.6
|
|
|
|
(1.1
|
)
|
|
|
(0.2
|
)%
|
Gross Profit
|
|
|
198.5
|
|
|
|
223.7
|
|
|
|
(25.2
|
)
|
|
|
(11.3
|
)%
|
Selling and Administrative Expenses
|
|
|
89.8
|
|
|
|
98.6
|
|
|
|
(8.8
|
)
|
|
|
(8.9
|
)%
|
Amortization of Intangibles
|
|
|
14.5
|
|
|
|
14.3
|
|
|
|
0.2
|
|
|
|
1.4
|
%
|
Interest Expense, Net
|
|
|
4.3
|
|
|
|
8.0
|
|
|
|
(3.7
|
)
|
|
|
(46.3
|
)%
|
Other Income, Net
|
|
|
(8.4
|
)
|
|
|
(5.8
|
)
|
|
|
(2.6
|
)
|
|
|
44.8
|
%
|
Income Tax Expense
|
|
|
7.1
|
|
|
|
15.3
|
|
|
|
(8.2
|
)
|
|
|
(53.6
|
)%
|
Net Income
|
|
$
|
91.2
|
|
|
$
|
93.3
|
|
|
$
|
(2.1
|
)
|
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
Percent of sales:
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Cost of Products Sold
|
|
|
74.8
|
%
|
|
|
72.5
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
25.2
|
%
|
|
|
27.5
|
%
|
|
|
|
|
|
|
|
|
Selling and Administrative Expenses
|
|
|
11.4
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
Amortization of Intangibles
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
Interest Expense, Net
|
|
|
0.5
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
Other Income, Net
|
|
|
(1.1
|
)%
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
0.9
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
11.6
|
%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
Net Sales. Net sales decreased $26.3 million, or 3.2%, to $787.0 million in the nine months ended January 30, 2021, compared to $813.3 million in the nine months ended February 1, 2020. The impact of foreign currency translation increased net sales by $15.2 million. Excluding foreign currency translation, net sales decreased $41.5 million as a result of lower sales in the Automotive and Industrial segments, which were negatively impacted by the COVID-19 pandemic, primarily in the first quarter of fiscal 2021. Net sales in the nine months ended February 1, 2020 were negatively impacted by $28.7 million due to the United Auto Workers (“UAW”) labor strike at General Motors (“GM”).
Cost of Products Sold. Cost of products sold decreased $1.1 million, or 0.2%, to $588.5 million (74.8% of sales) in the nine months ended January 30, 2021, compared to $589.6 million (72.5% of sales) in the nine months ended February 1, 2020. The impact of foreign currency translation increased cost of products sold by $11.0 million. Excluding foreign currency translation, cost of products sold decreased $12.1 million. The decrease was primarily due to lower sales volumes and lower labor costs, partially offset by restructuring costs. Labor costs were lower as a result of actions taken in fiscal 2020 in response to the impact from the COVID-19 pandemic on our production volumes. In the nine months ended January 30, 2021, we recognized $5.0 million of restructuring costs
29
Table of Contents
related to actions taken to reduce overall costs and improve operational profitability, compared to $0.6 million of restructuring costs recognized in the nine months ended February 1, 2020.
Gross Profit. Gross profit decreased $25.2 million, or 11.3%, to $198.5 million (25.2% of sales) in the nine months ended January 30, 2021, compared to $223.7 million (27.5% of sales) in the nine months ended February 1, 2020. The impact of foreign currency translation increased gross profit by $4.2 million. Excluding foreign currency translation, gross profit decreased $29.4 million. The decrease in gross profit margins was primarily due to lower sales volumes, product sales mix and restructuring costs, partially offset by lower operational costs.
Selling and Administrative Expenses. Selling and administrative expenses decreased $8.8 million, or 8.9%, to $89.8 million (11.4% of sales) in the nine months ended January 30, 2021, compared to $98.6 million (12.1% of sales) in the nine months ended February 1, 2020. The impact of foreign currency translation increased selling and administrative expenses by $0.7 million. Excluding foreign currency translation, selling and administrative expenses decreased $9.5 million. The decrease was primarily due to lower compensation expense, stock-based compensation expense and travel expense, partially offset by higher restructuring costs. As noted above, we initiated actions which included temporary salary reductions and four-day work weeks (which ended in the second quarter of fiscal 2021) and the elimination of most business travel. In addition, stock-based compensation expense was lower by $1.3 million as our five-year, long-term incentive plan concluded in fiscal 2020 and a new long-term incentive plan was not introduced until September 27, 2020. In the nine months ended January 30, 2021, we recognized $3.3 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $1.0 million of restructuring costs recognized in the nine months ended February 1, 2020.
Amortization of Intangibles. Amortization of intangibles increased $0.2 million, or 1.4%, to $14.5 million in the nine months ended January 30, 2021, compared to $14.3 million in the nine months ended February 1, 2020.
Interest Expense, Net. Interest expense, net was $4.3 million in the nine months ended January 30, 2021, compared to $8.0 million in the nine months ended February 1, 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-dawn in March 2020, which was fully repaid in the three months ended January 30, 2021.
Other Income, Net. Other income, net was $8.4 million in the nine months ended January 30, 2021, compared to $5.8 million in the nine months ended February 1, 2020. In the nine months ended January 30, 2021, we received $8.9 million of government assistance at certain of our international locations with respect to the COVID-19 pandemic. The nine months ended February 1, 2020 includes $5.6 million for an international government grant for maintaining certain employment levels during those periods. In the nine months ended February 1, 2020, we sold assets related to a previously closed business and recognized a gain on sale of $0.5 million.
Income Tax Expense. Income tax expense was $7.1 million (7.2% effective tax rate) in the nine months ended January 30, 2021, compared to $15.3 million (14.1% effective tax rate) in the nine months ended February 1, 2020. The lower effective tax rate in the nine months ended January 30, 2021 was primarily due to discrete tax benefits recorded of $7.6 million. These discrete tax benefits included tax credits earned and research deductions claimed in foreign jurisdictions. Excluding the discrete tax benefits, the effective tax rate would have been 15.0%. In the nine months ended February 1, 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 $2.1 million, or 2.3%, to $91.2 million in the nine months ended January 30, 2021, compared to $93.3 million in the nine months ended February 1, 2020. Net income decreased as a result of the reasons described above, partially offset by favorable foreign currency translation of $3.3 million.
30
Table of Contents
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the nine months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
551.3
|
|
|
$
|
576.6
|
|
|
$
|
(25.3
|
)
|
|
|
(4.4
|
)%
|
Gross Profit
|
|
$
|
123.2
|
|
|
$
|
146.6
|
|
|
$
|
(23.4
|
)
|
|
|
(16.0
|
)%
|
Income from Operations
|
|
$
|
83.7
|
|
|
$
|
101.2
|
|
|
$
|
(17.5
|
)
|
|
|
(17.3
|
)%
|
Percent of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
22.3
|
%
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
15.2
|
%
|
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
Net Sales. Automotive segment net sales decreased $25.3 million, or 4.4%, to $551.3 million in the nine months ended January 30, 2021, compared to $576.6 million in the nine months ended February 1, 2020. The impact of foreign currency translation increased net sales by $12.4 million. Excluding foreign currency translation, net sales decreased $37.7 million. Net sales were negatively impacted in our first quarter of fiscal 2021 from the COVID-19 pandemic, which was partially offset by higher sales in our second quarter of fiscal 2021 as a result of pent-up demand. Net sales in North America decreased $56.8 million, or 15.8%, to $301.8 million in the nine months ended January 30, 2021, compared to $358.6 million in the nine months ended February 1, 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 the nine months ended February 1, 2020 were negatively impacted by $28.7 million due to the UAW labor strike at GM. Net sales in Europe decreased $11.8 million, or 7.4%, to $147.1 million in the nine months ended January 30, 2021, compared to $158.9 million in the nine months ended February 1, 2020. The stronger euro, relative to the U.S. dollar, increased net sales by $8.4 million. Excluding foreign currency translation, net sales in Europe decreased $20.2 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 $43.3 million, or 73.3%, to $102.4 million in the nine months ended January 30, 2021, compared to $59.1 million in the nine months ended February 1, 2020. The stronger Chinese renminbi, relative to the U.S. dollar, increased net sales in Asia by $4.0 million. Excluding foreign currency translation, Asia net sales increased $39.3 million primarily due to higher electric vehicle product sales volumes which were transferred from North America, higher leadframe sales volumes and higher touchscreen sales volumes to an Asian automotive OEM, which launched in the second half of fiscal 2020.
Gross Profit. Automotive segment gross profit decreased $23.4 million, or 16.0%, to $123.2 million in the nine months ended January 30, 2021, compared to $146.6 million in the nine months ended February 1, 2020. Automotive segment gross profit margins decreased to 22.3% in the nine months ended January 30, 2021, compared to 25.4% in the nine months ended February 1, 2020. The decrease in gross profit margins was primarily due to the impact of the COVID-19 pandemic on sales volumes and restructuring actions taken in fiscal 2021. In the nine months ended January 30, 2021, we recognized $5.0 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $0.6 million of restructuring costs recognized in the nine months ended February 1, 2020.
Income from Operations. Automotive segment income from operations decreased $17.5 million, or 17.3%, to $83.7 million in the nine months ended January 30, 2021, compared to $101.2 million in the nine months ended February 1, 2020. The impact of foreign currency translation increased automotive segment income from operations by $2.3 million. Excluding foreign currency translation, automotive segment income from operations decreased $19.8 million. The decrease was primarily due to lower gross profit, partially offset by lower selling and administrative expenses. Selling and administrative expenses decreased due to lower compensation expense, partially offset by restructuring costs. Total restructuring costs related to actions taken to reduce overall costs and improve operational profitability were $6.4 million in the nine months ended January 30, 2021, compared to $0.7 million of restructuring costs in the nine months ended February 1, 2020.
31
Table of Contents
Industrial Segment Results
Below is a table summarizing results for the nine months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
186.4
|
|
|
$
|
195.8
|
|
|
$
|
(9.4
|
)
|
|
|
(4.8
|
)%
|
Gross Profit
|
|
$
|
65.5
|
|
|
$
|
72.9
|
|
|
$
|
(7.4
|
)
|
|
|
(10.2
|
)%
|
Income from Operations
|
|
$
|
40.0
|
|
|
$
|
44.8
|
|
|
$
|
(4.8
|
)
|
|
|
(10.7
|
)%
|
Percent of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
35.1
|
%
|
|
|
37.2
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
21.5
|
%
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
Net Sales. Industrial segment net sales decreased $9.4 million, or 4.8%, to $186.4 million in the nine months ended January 30, 2021, compared to $195.8 million in the nine months ended February 1, 2020. The impact of foreign currency translation increased net sales by $2.8 million. Excluding foreign currency translation, net sales decreased $12.2 million. The decrease was primarily due to lower sales from commercial vehicle lighting solutions and radio remote control devices which were adversely impacted from the COVID-19 pandemic. This was partially offset by higher sales volumes of electric vehicle busbar products.
Gross Profit. Industrial segment gross profit decreased $7.4 million, or 10.2%, to $65.5 million in the nine months ended January 30, 2021, compared to $72.9 million in the nine months ended February 1, 2020. Gross profit margins decreased to 35.1% in the nine months ended January 30, 2021, compared to 37.2% in the nine months ended February 1, 2020. The decrease in gross profit margins was primarily due to the impact of the COVID-19 pandemic on commercial vehicle lighting solutions and radio remote control product sales. This was partially offset by higher gross profit margins from busbar products.
Income from Operations. Industrial segment income from operations decreased $4.8 million, or 10.7%, to $40.0 million in the nine months ended January 30, 2021, compared to $44.8 million in the nine months ended February 1, 2020. The decrease was primarily due to lower gross profit, higher legal fees and restructuring costs, partially offset by higher income from operations from busbar products. In the nine months ended January 30, 2021, we recognized $0.9 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $0.4 million of restructuring costs recognized in the nine months ended February 1, 2020.
Interface Segment Results
Below is a table summarizing results for the nine months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
47.4
|
|
|
$
|
39.7
|
|
|
$
|
7.7
|
|
|
|
19.4
|
%
|
Gross Profit
|
|
$
|
10.1
|
|
|
$
|
4.5
|
|
|
$
|
5.6
|
|
|
|
124.4
|
%
|
Income from Operations
|
|
$
|
7.4
|
|
|
$
|
0.7
|
|
|
$
|
6.7
|
|
|
N/M*
|
|
Percent of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
21.3
|
%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
15.6
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*N/M equals non-meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. Interface segment net sales increased $7.7 million, or 19.4%, to $47.4 million in the nine months ended January 30, 2021, compared to $39.7 million in the nine months ended February 1, 2020. The increase was primarily due to higher sales volumes of appliance products, partially offset by lower sales volumes of legacy data solutions products.
32
Table of Contents
Gross Profit. Interface segment gross profit increased $5.6 million, or 124.4%, to $10.1 million in the nine months ended January 30, 2021, compared to $4.5 million in the nine months ended February 1, 2020. Gross profit margins increased to 21.3% in the nine months ended January 30, 2021, from 11.3% in the nine months ended February 1, 2020. The increase was primarily due to higher sales volumes of appliance products and lower operational costs.
Income from Operations. Interface segment income from operations increased $6.7 million to $7.4 million in the nine months ended January 30, 2021, compared to $0.7 million in the nine months ended February 1, 2020. The increase was primarily due to higher gross profit and lower selling and administrative expenses, partially offset by restructuring costs recognized in the first quarter of fiscal 2021. Selling and administrative expenses in the nine months ended January 30, 2021 benefitted from restructuring actions taken in the first quarter of fiscal 2021. In the nine months ended January 30, 2021, we recognized $0.7 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability.
Medical Segment Results
Below is a table summarizing results for the nine months ended:
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
|
Net Change ($)
|
|
|
Net Change (%)
|
|
Net Sales
|
|
$
|
1.9
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
|
58.3
|
%
|
Gross Profit
|
|
$
|
(1.0
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
0.3
|
|
|
|
(23.1
|
)%
|
Loss from Operations
|
|
$
|
(4.1
|
)
|
|
$
|
(4.9
|
)
|
|
$
|
0.8
|
|
|
|
(16.3
|
)%
|
Net Sales. The Medical segment had net sales of $1.9 million in the nine months ended January 30, 2021, compared to $1.2 million in the nine months ended February 1, 2020. Net sales increased due to higher product demand.
Gross Profit. Medical segment gross profit was a loss of $1.0 million in the nine months ended January 30, 2021, compared to a loss of $1.3 million in the nine months ended February 1, 2020. The improvement was due to higher net sales.
Loss from Operations. Medical segment loss from operations was $4.1 million in the nine months ended January 30, 2021, compared to $4.9 million in the nine months ended February 1, 2020. The improvement was due to higher net sales and lower selling and administrative costs.
Financial Condition, Liquidity and Capital Resources
Credit Agreement
Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior 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.
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 January 30, 2021, $9.7 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 January 30, 2021, $221.9 million in principal was outstanding under the term loan. The term loan matures in September 2023 and requires quarterly principal payments of $3.1 million over the five-year term, with the remaining balance due upon maturity. We were in compliance with all covenants under the senior unsecured credit agreement as of January 30, 2021. For further information, see Note 7, "Debt," to the condensed consolidated financial statements included in this Quarterly Report.
Borrowings under our senior unsecured credit agreement bear interest at rates equal to the London Interbank Offered Rate (“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
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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, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our future prospects.
At January 30, 2021, we had $218.7 million of cash and cash equivalents, of which $132.6 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, without creating material additional income tax expense.
Cash Flows
Cash flow is summarized below:
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|
Nine Months Ended
|
|
|
|
January 30,
2021
|
|
|
February 1,
2020
|
|
(Dollars in Millions)
|
|
(39 Weeks)
|
|
|
(40 Weeks)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
91.2
|
|
|
$
|
93.3
|
|
Non-cash Items
|
|
|
37.3
|
|
|
|
41.4
|
|
Changes in Operating Assets and Liabilities
|
|
|
15.3
|
|
|
|
(52.1
|
)
|
Net Cash Provided by Operating Activities
|
|
|
143.8
|
|
|
|
82.6
|
|
Net Cash Used in Investing Activities
|
|
|
(20.0
|
)
|
|
|
(34.4
|
)
|
Net Cash Used in Financing Activities
|
|
|
(127.8
|
)
|
|
|
(49.7
|
)
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
5.4
|
|
|
|
(1.8
|
)
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
1.4
|
|
|
|
(3.3
|
)
|
Cash and Cash Equivalents at Beginning of the Year
|
|
|
217.3
|
|
|
|
83.2
|
|
Cash and Cash Equivalents at End of the Period
|
|
$
|
218.7
|
|
|
$
|
79.9
|
|
Operating Activities
Net cash provided by operating activities increased $61.2 million to $143.8 million in the nine months ended January 30, 2021, compared to $82.6 million in the nine months ended February 1, 2020. The increase was due to higher cash inflows related to changes in operating assets and liabilities, partially offset by lower net income adjusted for non-cash items. The $15.3 million of cash inflows for operating assets and liabilities in the nine months ended January 30, 2021 was primarily due to higher accounts payable, lower prepaid expenses and other assets and lower inventory, partially offset by higher accounts receivable.
Investing Activities
Net cash used in investing activities was $20.0 million in the nine months ended January 30, 2021, compared to $34.4 million in the nine months ended February 1, 2020. The activity in both the nine months ended January 30, 2021 and February 1, 2020 relates primarily to purchases of property, plant and equipment.
Financing Activities
Net cash used in financing activities was $127.8 million in the nine months ended January 30, 2021, compared to $49.7 million in the nine months ended February 1, 2020. We paid dividends of $13.2 million in the nine months ended January 30, 2021, compared to $12.2 million in the nine months ended February 1, 2020. In the nine months ended January 30, 2021, we paid $3.9 million in taxes related to the net share settlement of equity awards compared to $0.4 million in the nine months ended February 1, 2020. In the nine months ended January 30, 2021, we had net repayments on our borrowings of $110.4 million, which included the repayment of the $100.0 million pre-cautionary draw-down on our revolving credit facility in March 2020. In the nine months ended February 1, 2020, net repayments on our borrowings were $36.6 million.
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Recent Accounting Pronouncements
See Note 1, "Description of Business and Summary of Significant Accounting Policies" to the condensed consolidated financial statements included in Item 1.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined under SEC rules.
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, we terminated 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 filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, we amended our complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties. A trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in our favor. The verdict 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 has been set for argument on March 8, 2021. The Court will issue a decision sometime thereafter. We are 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 we will be able to collect the judgment.
In the nine months ended January 30, 2021 and February 1, 2020, we incurred Hetronic-related legal fees of $4.8 million and $3.3 million, respectively. These amounts are included in the selling and administrative expenses in the Industrial segment.
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