UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 27, 2019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 0-2816
METHODE ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 36-2090085 |
(State or other jurisdiction of | (IRS Employer |
incorporation or organization) | Identification No.) |
8750 West Bryn Mawr Avenue,Suite 1000 | |
Chicago,Illinois | 60631-3518 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number (including area code):
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange | ||
Title of each Class | Trading Symbol(s) | on which registered |
Common Stock, $0.50 Par Value | MEI | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company, or a smallercompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company.
Large Accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of common stock $0.50 par value, held by non-affiliates of the Registrant on October 27, 2018,29, 2021, based upon the average of the closing bid and asked pricesprice on that date as reported by the New York Stock Exchange, was $0.9$1.1 billion.
Registrant had 37,059,42538,303,809 shares of its common stock $0.50 par value, outstanding as of June 18, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statementregistrant’s definitive Proxy Statement for the 2022 annual shareholders' meeting to be held on September 12, 201914, 2022 are incorporated by reference into Part III of this Form 10-K.
METHODE ELECTRONICS, INC.
FORM 10-K
TABLE OF CONTENTS
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 27 |
Item 10. | 28 | |
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As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“this Annual Report”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, expressed or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or our strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:
Additional details and factors are discussed under the caption “Risk Factors” in this Annual Report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Any forward-looking statements made by us speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
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Item 1. Business
Description of Business
We are a leading global manufacturersupplier of componentcustom engineered solutions with sales, engineering and subsystem devices with manufacturing designlocations in North America, Europe, Middle East and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, 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 Fresnillo and Monterrey, Mexico. Our corporate headquarters is located in Chicago, Illinois.Asia. We design, manufactureengineer and market devices employing electrical, radio remote control, electronic,produce mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing our broad range of technologies for user interface, light-emitting diode ("LED"(“LED”) based lighting wirelesssystem, power distribution and sensing technologies. sensor applications.
Our componentssolutions are found in the primary end-marketsend markets of the aerospace, appliance,transportation (including automotive, commercial vehicles, communications (including information processingvehicle, e-bike, aerospace, bus and storage, networkingrail), cloud computing infrastructure, construction equipment, consumer appliance and wireless and terrestrial voice/data systems), construction, consumer and industrial equipment, medical rail and other transportation industries.
Fiscal Year
We maintain our financial records on the basis of a 52 or 53 week53-week fiscal year ending on the Saturday closest to April 30. Fiscal 20192022 ended on April 27, 2019,30, 2022 and fiscal 20182021 ended on April 28, 2018 and fiscal 2017 ended on April 29, 2017, and allMay 1, 2021, which represented 52 weeks of results for each year. Fiscal 2020 ended on May 2, 2020, which represented 53 weeks of results.
Operating Segments
Our business is managed, and our reportable segments resulting fromfinancial results are reported, based on the acquisition of Grakon Parent, Inc. ("Grakon"). Prior to the acquisition of Grakon, our reportable segments were Automotive, Power, Interface and Other. As a result of this change, our reportable segments are nowfollowing four segments: Automotive, Industrial, Interface and Medical. Historical information has been revised to reflect the new reportable segments. Refer toSee Note 11, "Segment15, “Segment Information and Geographic Area Information," inInformation” to our consolidated financial statements in this Annual Report for further information.
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile original equipment manufacturers ("OEMs"),OEMs, either directly or through their tiered suppliers. Our products include integrated center consoles, hidden switches, ergonomic switches, transmission lead-frames, LED basedLED-based lighting, and sensors which incorporate magneto-elastic sensing and other technologies that monitor the operation or status of a component or system.
The 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, cloud computing, commercial vehicles, computers, industrial, military, power conversion military, telecommunications and transportation.
The Interface segment provides a variety of coppercopper-based transceivers and fiber-optic interfacerelated accessories for the cloud computing hardware equipment and telecommunications broadband equipment markets, user interface solutions for the appliance, commercial food service, construction, consumer, material handling,and point-of-sale equipment markets, and telecommunicationsfluid-level sensors for the marine/recreational vehicle and sump pump markets. Solutions include copper transceivers and solid-state field-effect consumer touch panels.
The Medical segment is made up of our medical device business, Dabir Surfaces, Inc. (“Dabir Surfaces”), our surface support technology aimed at pressure injury prevention. Dabir Surfaces has developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures.
The following table reflects the percentage of net sales by segment for the last three fiscal years.
Fiscal Year Ended | |||||||||
April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||
Automotive | 73.4 | % | 80.3 | % | 77.5 | % | |||
Industrial | 20.7 | % | 11.6 | % | 11.3 | % | |||
Interface | 5.8 | % | 8.1 | % | 11.2 | % | |||
Medical | 0.1 | % | — | % | — | % |
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| Fiscal Year Ended |
| |||||||||
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| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
Automotive |
|
| 67.2 | % |
|
| 69.4 | % |
|
| 69.5 | % |
Industrial |
|
| 27.3 | % |
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| 24.6 | % |
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| 24.6 | % |
Interface |
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| 5.1 | % |
|
| 5.7 | % |
|
| 5.7 | % |
Medical |
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| 0.4 | % |
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| 0.3 | % |
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| 0.2 | % |
Sales and Marketing
The majority of our sales activities are directed by sales managers who are supported by field application engineers and other technical personnel who work with customers to design our products into their systems. Our field application
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Sources and Availability of Materials
The principal materials that we purchase include application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, glass, LED displays, plastic molding resins, capacitors and resistors, precious metals, and silicon die castings. All of these items are available from several suppliers and we generally rely on more than one supplier for each item.
Refer to Item 1A. “Risk Factors” in this Annual Report for risks related to the current supply chain issues, including the worldwide semiconductor supply shortage.
Intellectual Property
We generally rely on patents, trade secrets, trademarks, licenses, and non-disclosure agreements to protect our intellectual property and proprietary products. We have been granted a number of patents in the U.S., Europe and Asia and have additional domestic and international patent applications pending related to our products and manufacturing processes.products. Our existing patents expire on various dates from 2019 to 2036.between 2022 and 2041. We seek patents in order to protect our interest in certainunique and critical products and technologies, including our TouchSensor field-effect touch technology, magneto-elastic torquetorque/force sensing, current sensing, displacement sensing, medical devices and high-power distributionradio-type products. We do not believe any single patent is material to our business, nor would the expiration or invalidity of any patent have a material adverse effect on our business or our ability to compete.
Seasonality
A significant portion of our business is dependent upon the automotive and commercial vehicle industries. Consequently, our Automotive and Industrial segments may experience seasonal fluctuations based on the sales and the production schedules of our customers. The automotive and commercial vehicle markets are cyclical and depend on general economic conditions, interest rates, fuel prices and consumer spending patterns.
Major Customers
During fiscal 2019, shipments2022, our five largest customers accounted for approximately 50% of our consolidated net sales, with sales to General Motors Corporation (“GM”) and Ford Motor Company (“Ford”), or theirits tiered suppliers represented 35.5% and 11.6%, respectively,representing 23.3% of consolidated net sales. In general, thesethe sales to GM were for component parts used in particular GM vehicle models of the OEMs.models. Typically, our GM and Ford supply arrangementsarrangement for each component part includeincludes a blanket purchase order and production releases. In general, a blanket purchase order is issued for each GM or Ford part as identified by the customer part number. Each such GM or Ford blanket purchase order accounted for less than 10.0% of our fiscal 2019 consolidated net sales. Each blanket purchase order includes standard terms and conditions, including price. In certain circumstances, we supply GM or Ford the requirements for a particular customer vehicle model for the life of the model, which can vary from three to seven years. Both GM and Ford orderorders parts using production releases approved under the relevant blanket purchase order. The production releases are submitted by the various GM or Ford plants and include information regarding part quantities and delivery specifications.
Backlog
We manufacture products based on a combination of specific order requirements and forecasts of our customers’ demand. For many of our OEM customers, especially in the automotive and commercial vehicle markets, we have long-term supply arrangements where there is an expectation that we will supply products in future periods. However, these arrangements do not necessarily constitute firm orders was approximately $275.1 millionand these OEM customers are not required to purchase any minimum amount of products from us. Firm orders are generally limited to authorized customer purchase orders which are typically based on customer release schedules. We fulfill these purchase orders as promptly as possible. The dollar amount of such purchase order releases on hand and not processed at April 27, 2019, and $249.2 million at April 28, 2018. We expect that most ofany point in time is not believed to be significant based upon the time frame involved. Accordingly, backlog at April 27, 2019 willany given time might not be shipped within fiscal 2020.
Competition
The markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments. We compete with a large number of other manufacturers in each of our product areas;areas and many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products.
Research and Development
We maintain a research and development program involving a number of professional employees who devote a majority of their time to the enhancement of existing products and to the development of new products and processes. Research and development costs primarily relate to product engineering and design and development expenses and are classified as a component of costs of products sold on our consolidated statements of income. Expenditures for such activities amounted to $41.2$35.7 million for fiscal 2019, $37.92022, $37.1 million for fiscal 20182021 and $27.8$34.9 million for fiscal 2017.
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Government Regulations
Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with foreign, federal, statethese laws, rules, and local provisions regulating the discharge of materials into the environmentregulations has not materially affectedhad a material effect upon our capital expenditures, earningsresults of operations, or our competitive position. Currently,position, and we do not have anycurrently anticipate material environmental-related lawsuitscapital expenditures for environmental control facilities. Nevertheless, compliance with existing or material administrative proceedings pending against us. Further information asfuture governmental regulations, including, but not limited to, those pertaining to international operations, environmental matters affecting us(including climate change), export controls, business acquisitions, consumer and data protection, employee health and safety, and regional quarantine requirements, could have a material impact on our business in subsequent periods. Refer to Item 1A. “Risk Factors” in this Annual Report for a discussion of these potential impacts.
Human Capital
As of April 30, 2022, we employed approximately 7,000 employees worldwide, substantially all of whom were employed full time with approximately 94% of these employees located outside the U.S. Our U.S. employees are not subject to any collective bargaining agreements although certain international employees are covered by national or local labor agreements.
Our corporate culture is presentedcommitted to doing business with integrity, teamwork, and performance excellence. Our management team and all our employees are expected to exhibit the principles of fairness, honesty, and integrity in Note 9, "Commitmentsthe actions we undertake. Our employees must adhere to our Code of Conduct that addresses topics such as anti-corruption, discrimination, harassment, privacy, appropriate use of company assets and Contingencies,"protecting confidential information. Our employees participate in annual training on preventing, identifying, reporting, and stopping any type of unlawful discrimination or unethical actions.
Talent Acquisition, Development and Succession Planning
Our talent strategy is focused on attracting the best talent, recognizing, and rewarding their performance while continually developing, engaging, and retaining them. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. When we hire new employees, we focus not just on the skills required for current positions, but the ever-changing complex skills and competencies that will be required as we move forward.
We have a global talent review and succession planning process designed to align our talent plans with the current and future strategies of the business. This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent development. Our teams meet with leaders and team members across the company to develop action plans and goals focused on both personal and professional development.
Diversity and Inclusion
As highlighted in our consolidated financial statements.
Health and Safety
The success of our business is fundamentally connected to the well-being of our employees. We maintain a work environment with a safety culture grounded on the premise of eliminating workplace incidents, risks, and hazards. We have created and implemented processes to help eliminate safety events and reduce their frequency and severity. The safety of our employees is a top priority and vital to our success. Our employees are regularly trained on safety-related topics and we monitor and measure our effectiveness at all our locations.
It is always a top priority, but employee health and safety continue to be of paramount importance during the COVID-19 global pandemic. In fiscal 2022, we continued to maintain extensive safety measures, including conducting temperature and health screenings and contract tracing, providing PPE, distanced workstations and plexiglass barriers, adopting enhanced cleaning and disinfection protocols, requiring employees to be vaccinated if legally permissible and instituting other informationmeasures aimed at minimizing the transmission of COVID-19 while sustaining production and related services. Our safety measures are aligned with the Securitiesrecommendations of U.S. and Exchange
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Benefits and information statements and other information regarding Methode.
As part of our website.efforts to attract and motivate our employees, we offer competitive compensation and benefits that may vary by region and employee-type. We provide compensation packages that include base salary/wages, and short and long-term incentives. We also provide employee benefits such as life, disability, and health (medical, dental, and vision) insurance, a 401(k) plan with a company match, paid time off, tuition reimbursement, military leave, and holiday pay. We believe those benefits are competitive within our industry.
The Human Resources function at Methode is an active and visible partner to the business at all levels. Our Chief Human Resources Officer reports directly to the Chief Executive Officer and interacts frequently with our Board of Directors. In fiscal 2023, our human capital focus will be on employee health and safety, employee and leadership development, and communications.
Available Information
Through our internet website at www.methode.com, we make available, free of charge, copies of our annual reportAnnual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) ofand other filings with the Securities and Exchange ActCommission (“SEC”), as soon as reasonably practicable after filing such material electronicallythey are filed or otherwise furnishing itfurnished to the SEC. Our filings are also available on the SEC’s website at www.sec.gov. Also posted on our website are our Corporate Governance Guidelines, Code of Business Conduct, Anti-Corruption Policy, Insider Trading Policy, Diversity & Inclusion Statement, Conflict Minerals Policy, Supplier Code of Conduct and the charters of the Audit Committee, Compensation Committee, Medical Products Committee, Nominating and Governance Committee and Technology Committee. Copies of these documents are also available free of charge by sending a request to Methode Electronics, Inc., 8750 West Bryn Mawr Avenue, Suite 1000, Chicago, Illinois 60631, Attention: Investor Relations Department. Information onThe references in this Annual Report to our website isaddress or any third party’s website address, including but not incorporated into this Form 10-K or our other securities filingslimited to the SEC’s website, do not constitute incorporation by reference of the information contained in those websites and isshould not abe considered part of them.
Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to certainvarious risks, and uncertainties. We undertake no dutyincluding, but not limited to, update any such forward-looking statements to conform tothose set forth below, which could cause actual results to vary materially from recent results or from anticipated future results. These risk factors should be considered together with information included elsewhere in this Annual Report.
Operational and Industry Risks
The inability of our supply chain, or the supply chain of our customers, to deliver key components, such as semiconductors, could materially adversely affect our business, financial condition and results of operations and cause us to incur significant cost increases.
Our products contain a significant number of components that we source globally. If our supply chain fails to deliver products to us, or to our customers, in sufficient quality and quantity on a timely basis, we will be challenged to meet our production schedules or could incur significant additional expenses for expedited freight and other related costs. Similarly, many of our customers are dependent on an ever-greater number of global suppliers to manufacture their products. These global supply chains have been, and may continue to be, adversely impacted by events outside of our control, including macroeconomic events, trade restrictions, economic recessions, political crises, labor relations issues, liquidity constraints, or natural occurrences, such as the ongoing disruptions from the COVID-19 pandemic. Any significant disruptions to such supply chains could materially adversely affect our business, financial condition and results of operations.
Many of the industries we supply, including the automotive and commercial vehicle industries, are reliant on semiconductors. Globally, there is an ongoing significant shortage of semiconductors. The semiconductor supply chain is complex, with capacity constraints occurring throughout. There is significant competition within the automotive and commercial vehicle supply chains and with other industries to satisfy current and near-term requirements for semiconductors. We have worked and will continue to work closely with our suppliers and customers to minimize any potential adverse impacts of the semiconductor supply shortage and monitor the availability of semiconductor microchips and other component parts and raw materials, customer production schedules and any other supply chain inefficiencies that may arise. However, if we are not able to mitigate the semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on our business, financial condition and results of operations.
We have experienced and may in the future experience supplier price increases that could negatively affect our business, financial condition and results of operations. The price increases are often driven by raw material pricing and availability, component or part availability, manufacturing capacity, industry allocations, logistics capacity, military conflicts, natural disasters or pandemics, and significant changes in the financial or business condition of our expectations. Oursuppliers.
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The COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business, is dependent upon two large automotivefinancial condition and results of operations. The extent of the effects of the COVID-19 pandemic on our business depends on future events that continue to be highly uncertain and beyond our control.
The COVID-19 pandemic has had, and continues to have, a significant impact on our business, financial condition and results of operations. The COVID-19 pandemic and the ongoing measures to reduce its spread have negatively impacted the global economy, disrupted consumer and customer demand and global supply chains, and created significant volatility and disruption of financial markets. Although vaccines have been introduced that are expected to reduce the effect of COVID-19, governmental authorities throughout the world continue to implement numerous measures aimed at containing and mitigating the effects of the COVID-19 pandemic, including renewed travel bans and restrictions, quarantines, social distancing orders, “lock-down” orders and shutdowns of non-essential activities. Most recently, the COVID-19 lock-downs in China have impacted our manufacturing operations, customer production schedules and supply chains.
The extent of the impact on our business will depend on a number of evolving factors, all of which remain uncertain, including the duration and spread of the pandemic, actions taken by governmental authorities to restrict business operations and social activity and impose travel restrictions, shifting consumer demand, the ability of our supply chain to deliver in a timely and cost-effective manner, the ability of our employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of our customers and specific makessuppliers and modelsfuture access to capital.
We have implemented numerous actions in order to effectively manage the unprecedented challenges and uncertainties of automobiles. Ourthe COVID-19 pandemic on a global basis, such as implementing new workplace hygiene and disinfection protocols, redesigning production processes, leveraging our global purchasing power to secure PPE for our entire workforce, adopting processes to continuously monitor and strengthen our supply chain and consolidating operations. We may be required to take additional actions in response to evolving conditions, such as renewed travel restrictions, quarantines and stay-at-home orders. A prolonged extension of the disruptions resulting directly or indirectly from the COVID-19 pandemic could have a material adverse impact on our business, financial condition and results will be subjectof operations.
The COVID-19 pandemic and the ongoing measures to reduce its spread may also impact many of our other risk factors discussed in this Annual Report, including customer demand, supply chain disruptions, availability of financing sources and risks of international operations. The ultimate significance of the same risksCOVID-19 pandemic on our business will depend on events that apply to the automotive, appliance, commercial vehicle, computerare beyond our control and communications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes. Other factors which may result in materially different results for future periods include the following risk factors.that we cannot predict. Additional risks and uncertainties not presently known to us or that our managementwe currently believe to be insignificantdeem immaterial may also affect our business, financial condition and results of operations.
We are susceptible to trends and factors affecting the automotive and commercial vehicle industries.
We derive a substantial portion of our revenues from customers in the automotive and commercial vehicle industries. Factors negatively affecting these industries also negatively affect our business, financial condition and results of operations. Automotive sales and production are highly cyclical and, in addition to general economic conditions, also depend on other factors, such as consumer confidence and consumer preferences. Any adverse occurrence, including industry slowdowns, recession, rising interest rates, rising fuel costs, political instability, costly or constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances or work stoppages, that results in a significant decline in sales volumes in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition orand results of operations.
The COVID-19 pandemic has significantly disrupted, and may continue to significantly disrupt, the global automotive and commercial vehicle industries and customer sales, production volumes and purchases of vehicles by consumers. In addition, the spread of COVID-19 has created a significant disruption in the manufacturing operations, delivery systems and overall supply chains of automobile and commercial vehicle manufacturers and suppliers. Further, the COVID-19 pandemic resulted in a temporary shutdown of substantially all of the major OEMs in our markets at various times in fiscal 2021 and fiscal 2022, which impacted our sales volumes. The elevated COVID-19 rates in China have led to widespread lock-downs during the fourth quarter of fiscal 2022, and continued into the first quarter of fiscal 2023, negatively impacting OEMs in that region, along with creating further supply chain disruptions. Although automotive and commercial vehicle production has resumed, customer sales and production volumes may significantly decrease or may be very volatile due to supply chain issues or other global economic impacts and uncertainties which could materially adversely affect our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely impacted by the effects of inflation.
Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. There have been recent significant inflationary trends in the cost of components, materials, labor, freight costs and other expenses. These inflationary pressures could affect wages, the cost and availability of components and materials, and our ability to meet customer demand. Inflation may further exacerbate other risk factors should be considered in connection with evaluating the forward-looking statements containeddiscussed in this report because these factors could causeAnnual Report, including customer demand, supply chain disruptions, availability of financing sources, and risks of international operations and the recruitment and retention of talent.
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The loss or insolvency of 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.
Our five largest customers accounted for approximately 50% of our consolidated net sales in fiscal 2019, shipments2022, with sales to GM and Ford, or theirits tiered suppliers represented 35.5% and 11.6%, respectively,representing 23.3% of our consolidated net sales. TheIn certain cases, the sales to these customers are concentrated in a single product. For GM, the sales primarily consisted of integrated center consoles produced for use in light trucks and SUV's, and a shift in consumer preference for smaller or more fuel efficient vehicles could adversely affect our results of operations.SUV’s. The arrangements with theseGM and our other major customers generally provide for supplying the customers’its requirements for particular models, rather than for manufacturing a specific quantity of products. Such supply arrangements cover a period from one year to the life of the model, which is generally three to seven years. Therefore, theThe loss of a GM or Ford supply arrangement for a modelany of our other major customers, or a significant decreasedecline in demand for one or morethe production levels of these customers or particular models, could have a material adverse impact onreduce our sales and thereby adversely affect our financial condition, operating results of operations and financial condition.cash flows. We also compete to supply products for successor models for our major customers and are subject to the risk that GM or Fordthe customer will not select us to produce products on any such successor model, which could have a material adverse impact on our financial condition, operating results of operations and financial condition.
Our inability to attract or retain key employees and a substantial portion of our revenues from customers in the automotive, commercial vehicle, appliance, computer and communications industries, we are susceptible to trends and factors affecting those industries.
Our success depends upon the continued contributions of our customers’ production schedules or labor disturbances, that resultsexecutive officers and other key employees, many of whom have many years of experience with us and would be extremely difficult to replace. We must also attract and retain experienced and highly skilled engineering, sales and marketing and managerial personnel. Competition for qualified personnel is intense in significant declineour industries, and we may not be successful in hiring and retaining these people. If we lost the volume of sales in these industries, or in an overall downturn in the business and operationsservices of our customers in these industries,executive officers or our other highly qualified and experienced employees or cannot attract and retain other qualified personnel, our business could materiallysuffer due to less effective management or less successful products due to a reduced ability to design, manufacture and market our products.
The global nature of our operations subjects us to political, economic and social risks that could adversely affect our business, financial condition and results of operations.
Sales to customers which could make our products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit our ability to offer our products and services. Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could adversely affect our business.
Many of the laws and regulations listed above are complex and often difficult to interpret and violations could result in significant criminal penalties or sanctions. Any of these factors may have an adverse effect on our international operations which could have a material adverse effect on our business, financial condition and results of operations or cash flows.
We are dependent on the probabilityavailability and price of meeting certain performanceraw materials.
We require substantial amounts of materials, including application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, extrusions, glass, LED displays, plastic molding resins, precious metals, silicon die castings and wire. The availability and prices of materials may be subject to curtailment or change due to, among other things, inflation, new laws or regulations, suppliers’ allocations to other purchasers, supply chain disruptions, changes in exchange rates and worldwide price levels. The adjustmentsAny change in the availability of, lead times for, or price for, these materials could be material to the financial statements.
Our inability, or our customers'customers’ inability, to effectively manage the timing, quality and cost of new program launches could adversely affect our financial performance.
In connection with the awarding of new business, we obligate ourselves to deliver new products and services that are subject to our customers' timing, performance and quality demands. Additionally, we must effectively coordinate the activities of numerous suppliers and our and our customers’ personnel in order for the program launches of certain of our products to be successful. Given the complexity of new program launches, we may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, our sales related to these new programs generally are dependent upon the timing and success of our customers' introduction of new products. Our inability, or our customers' inability, to effectively manage the timing, quality and costs of these new program launches could adversely affect our financial condition and results of operationsoperations.
Our businesses and cash flows.
The markets in which we operate are highly competitive. We compete with a large number of other manufacturers in each of our product areas and many of these competitors have greater resources and sales. Price, service and product performance are subjectsignificant elements of competition in the sale of our products. Competition may intensify further if more companies enter the markets in which we operate. Our failure to continuing pressure to lower our prices.
Future price reductions and increased quality standards may reduce our profitability and have a material adverse effect on our business, financial condition and results of operations.
Our ability,supply arrangements with our customers typically require us to provide our products at predetermined prices. In some cases, these prices decline over the course of the arrangement and thatmay require us to meet certain productivity and cost reduction targets. In addition, our customers may require us to share productivity savings in excess of our suppliers, business partners and contract manufacturers,cost reduction targets. The costs that we incur in fulfilling these orders may vary substantially from our initial estimates. Unanticipated cost increases or the inability to make, move and sell products is criticalmeet certain cost reduction targets may occur as a result of several factors, including increases in the costs of labor, components or materials. In some cases, we are permitted to pass on to our success. Damage or disruptioncustomers the cost increases associated with specific materials. However, cost overruns that we cannot pass on to our or their manufacturing or distribution capabilities due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, or other reasons, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur,customers could adversely affect our business, financial condition and results of operations, as well as requireoperations.
Certain of our customers have exerted and continue to exert considerable pressure on us to reduce prices and costs, improve quality and provide additional resources to restore our supply chain.
Our ability to market our automotive and commercial vehicle products is subject to curtailmenta lengthy sales cycle, which requires significant investment prior to reporting significant sales revenues, and there is no assurance that our products will be implemented in any particular vehicle.
The sales cycles for our automotive and commercial vehicle products are lengthy because the manufacturers must develop high degrees of assurance that the products they buy will meet their needs, interface correctly with the other parts of a vehicle and with the manufacturer’s production and assembly process, and have minimal warranty, safety and service problems. While we currently have active development programs with various OEMs for a variety of our products, no assurance can be given that our products will be implemented in any particular vehicles. If our products are not selected after a lengthy development process, our business, financial condition and results of operations could be adversely affected.
Our inability to capitalize on prior or change duefuture acquisitions or any decision to among other things, new lawsstrategically divest one or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and worldwide price levels. Any change in the availability of, or price for, these materials could materiallymore current businesses may adversely affect our business, financial condition and results of operations.
We have completed acquisitions and divestitures in the past and we intend to continue to seek acquisitions to grow our businesses and may divest operations to focus on our core businesses. We may fail to derive significant benefits from such transactions. Also, if we fail to achieve sufficient financial performance from an acquisition, certain long-lived assets, such as property, plant and equipment and intangible assets, could become impaired and result in the recognition of an impairment loss.
The success of our acquisitions depends on our ability to:
8
Integration of acquisitions may take longer than we expect and may never be achieved to the extent originally anticipated. Acquisitions may also increase our debt levels. This could result in lower than expected business growth or higher than anticipated costs. In addition, acquisitions or strategic divestitures may:
Our profitability will suffer if we are unable to successfully integrate an acquisition, if the acquisition does not further our business strategy as we expected or if we do not achieve sufficient revenue to offset the increased expenses associated with any acquisition. We may overpay for, or otherwise not realize the expected return on, our investments, which could adversely affect our operating results and potentially cause impairments to assets that we record as a part of an acquisition including intangible assets and goodwill.
Our customers may cancel their orders, change production quantities or locations or delay production.
We generally receive volume estimates, but not firm volume commitments from our customers, and may experience reduced or extended lead times in customer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a number of customers may harm our results of operations.
In addition, we make key decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements. Changes in demand for our customers’ products may increase our effective tax rate, which could reduce our net income, including:
A catastrophic event or other significant business interruption at any of our facilities could adversely affect our business, financial condition and results of operations.
Weather conditions, natural disasters or other catastrophic events could cause significant disruptions at our manufacturing facilities or those of our major suppliers or customers. In such event, losses could be breached.
War, terrorism, geopolitical uncertainties (including the military conflict between Russia and Ukraine), public health issues (such as the COVID-19 pandemic), and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, and customers. Our business operations could be subject to interruption by power shortages, terrorist attacks and other hostile acts, labor disputes, population lockdowns and other events beyond our control. Such events could decrease demand for our products or make it difficult or impossible for us to produce and deliver products to our customers, or to receive components from our suppliers. Should major public health issues, including pandemics, arise, we could be negatively affected by shutdowns, shelter in place orders, more stringent travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, and disruptions in the operations of our manufacturing partners and component suppliers. Any such business interruptions could materially affect our business, financial condition and results of operations.
Russia’s invasion of Ukraine and the resulting economic sanctions imposed by the international community have impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Although we have no operations in Russia or Ukraine, certain of our customers and suppliers have been negatively impacted by these events, which in turn has impacted markets where we do business, including Europe and Asia. These events have caused additional disruption in the supply chains, which are already experiencing disruption due to the impacts of the COVID-19 pandemic and may continue to impact demand for our products. The continuation of this military conflict between Russia and Ukraine could lead to other supply chain disruptions, increased inflationary pressures, and volatility in global markets and industries that could negatively impact our operations.
9
Technology and Intellectual Property Risks
Our operations could be negatively impacted by IT service interruptions, data corruption or misuse, cyber-based attacks, or network security breaches.
We face certain security threats relating to the confidentiality and integrity of our ITinformation technology (“IT”) systems. Despite implementation of security measures, our IT systems may be vulnerable to damage from computer viruses, cyber attackscyber-attacks and other unauthorized access, and these security breaches could result in a disruption to our operations. A material network breach of our IT systems could involve the theft of our and our customers' intellectual property or trade secrets which may be used by competitors to develop competing products. To the extent that any security breach results in a loss or damage to data, or inappropriate disclosure of confidential or proprietary information, it could cause significant damage to our reputation, affect our customer relations, lead to claims against us, increase our costs to protect against future damage and could result in a material adverse effect on our business, financial condition and results of operations.
Further, the recent military conflict between Russia and Ukraine could result in cyberattacks that could directly or indirectly impact us, including the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia. The impact of any one or more of these or other factors could adversely affect our business, financial position.
Any such disruption or security breach, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the U.S. and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. Federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly changing nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful. While we have secured cyber insurance to potentially cover certain risks associated with cyber incidents, there can be no assurance the insuranceit will be sufficient to cover any such liability.
In addition,particular, the European Parliament and the CouncilGeneral Data Privacy Regulation (“GDPR”) of the European Union adoptedcreates a comprehensive general data privacy regulation (“GDPR”) in 2016range of compliance obligations applicable to replace the current European Union Data Protection Directive and related country-specific legislation. The GDPR took effect in May 2018 and governs the collection, use, retention, security, processing and usetransfer of personal data in the European Union. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to countries such as the U.S., enhances enforcement authority and imposes large penalties for noncompliance.
We may be subject to increased costs due to warranty claims on defective products. Product defects may result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. We may be required to participate in a recall involving products that are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability, however, we do not have coverage for all costs related to product defects or recalls and the costs of such claims, including costs of defense and settlement, may exceed our available coverage.
The technologies relating to some of our products have undergone, and are continuing to undergo, rapid and significant changes. Specifically, end-markets for electronic components and assemblies are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards. These changes could render our existing products unmarketable before we can recover any or all of our research, development and other expenses. Furthermore, the life cycles of our products vary, may change and are sometimes difficult to estimate. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and results of operations could be materially adversely affected.
If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another person’s intellectual property, our business, financial conditioncompetitive position and operating results couldof operations may be materially adversely affected.
We have numerous U.S. and foreign patents, trade secrets and license agreements covering certain of our products and manufacturing processes. Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the U.S. and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued. The loss of certain patents and trade secrets could adversely affect our sales, margins or profitability.
10
We have and may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringe on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay a penalty for past infringement and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.
Legal, Regulatory and Compliance Risks
We are subject to government regulations, including environmental, health, and safety laws and regulations, that expose us to potential financial liability.
Our operations are regulated by a number of federal, state, local and international government regulations, including those pertaining to environmental, health, and safety (“EHS”) that govern, among other things, air and water emissions, worker protection, and the handling, storage and disposal of hazardous materials. If we violate EHS laws and regulations, we could be liable for substantial fines, penalties, and costs of mandated remedial actions. Our environmental permits could also be revoked or modified, which could require us to cease or limit production at one or more of our facilities, thereby materially adversely affecting our business, financial condition and results of operations. EHS laws and regulations have generally become more stringent over time and could continue to do so in response to climate change concerns, imposing greater compliance costs and increasing risks and penalties associated with any violation, which also could materially adversely affect our business, financial condition and results of operations.
We operate our business on a global basis and changes to trade policy, including tariffs and customs regulations, could have a material and adverse effect on our business.
We manufacture and sell our products globally and rely on a global supply chain to deliver the required raw materials, components, and parts, as well as the final products to our customers. Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China, Egypt and Mexico, could have a material adverse effect on our business, financial condition and operating results. For instance, beginning in 2018, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive and commercial vehicle industries, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, and China imposed retaliatory tariffs on imports of U.S. vehicles and certain automotive components. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these tariffs and other regulatory actions could materially affect our business, including in the form of an increase in cost of goods sold, decreased margins, increased pricing for customers, and reduced sales.
Climate change and climate change regulations could adversely impact our business and results of operations.
Increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, regional and/or federal requirements or industry standards to reduce or mitigate global warming and other environmental risks. These regulations or standards could mandate more restrictive requirements, such as stricter limits on greenhouse gas emissions and production of single use plastics, and could increase costs relating to monitoring and reporting emissions data. In addition, the risks of climate change may impact manufacturing, product demand, the availability and cost of materials and natural resources, and sources and supply of energy, and could increase insurance and other operating costs. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon us, our operations or products, or our operations are disrupted due to physical impacts of climate change, our business, financial condition and results of operations could be materially adversely affected.
Products we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.
Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to a variety of factors, including design or manufacturing errors, component failure or counterfeit parts. Product defects may result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects may result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. We may be required to participate in a recall involving products that are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability, however, we do not have coverage for all costs related to product defects or recalls and the costs of such claims, including costs of defense and settlement, may exceed our available coverage. Any such product defects or product liability claims could materially adversely affect our business, financial condition and results of operations.
11
Financial Risks
We have significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on our financial condition and results of operations.
A significant portion of our long-term assets consists of goodwill and other intangible assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. In the event that we determine that our goodwill or other intangible assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our financial condition and results of operations.
We have incurred a significant amount of indebtedness and our level of indebtedness and restrictions under our indebtedness could adversely affect our operations and liquidity.
Our primary sources of liquidity are cash generated from operations and availability under our revolving credit facility. Our senior unsecured credit agreement that providedconsists of a $200.0 million revolving credit facility and a $250.0 million term loan. As of April 27, 2019, $278.730, 2022, $206.3 million in principal was outstanding under these financing arrangements.arrangements and we had $199.9 million of availability remaining under the revolving credit facility. The term loan matures in September 2023 and requires quarterly principal payments of $3.1 million over the five-year term, with the remaining balance due upon maturity. The senior unsecured credit agreement provides for variable rates of interest based on the type of borrowing and our debt to EBITDA financial ratio and contains customary representations and warranties, financial covenants, restrictive covenants and events of default.
Our senior unsecured credit agreement provides an option to increase the size of our revolving credit facility and term loan by an additional $200.0 million, subject to customary conditions and approval of the lenders providing the new commitments. There can be no assurance that lenders will approve additional commitments under current circumstances.
Our senior unsecured credit agreement imposes various restrictions and covenants regarding the operation of our business, including covenants that require us to obtain the lender’slenders’ consent before we can, among other things and subject to certain limited exceptions: (i) incur additional indebtedness or additional liens on our property; (ii) consummate certain acquisitions, dispositions, mergers or consolidations; (iii) make any material change in the nature of our business; (iv) enter into certain transactions with our affiliates; or (v) repurchase or redeem any outstanding shares of our common stock or pay dividends or other distributions, other than stockcash dividends to our stockholders.
The amount of our outstanding indebtedness could have an adverse effect on our operations and liquidity, including by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions, because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal payments, thereby reducing the availability of cash to fund working capital, product development, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund the activities and expenditures described above and for other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.
A significant fluctuation between the useU.S. dollar and other currencies could adversely impact our business, results of conflict-free minerals may increaseoperations and financial condition.
We transact business in various foreign countries. We present our costsconsolidated financial statements in U.S. dollars, but a portion of our revenues and expenses, and an inability to certify that our productsexpenditures are conflict-free may adversely affect customer relationships.
Performance-based awards under our productslong-term incentive plan may require significant adjustments to us. Any increased costs and expenses maycompensation expense which could have a material adverse impact on our results of operations.
Compensation expense for the performance-based restricted stock awards (“RSAs”) and performance units (“Performance Units”) awarded under our five-year long-term incentive program will be recognized over the vesting period based on the projected probability of achieving the relevant performance goals for fiscal 2025. As of April 30, 2022, we have not recorded any compensation expense for the RSAs or the Performance Units based on the probability assessment required under the accounting rules and regulations. Each quarter, we will assess the probability of vesting for the RSAs and the Performance Units and will adjust the compensation expense as necessary. At such time, we may be required to record compensation expense relating to prior periods, and such compensation expense adjustment could be material to our results of operations.
12
Restructuring activities may lead to additional costs and material adverse effects.
In the past, we have taken actions to restructure and optimize our production and manufacturing capabilities and efficiencies through relocations, consolidations, facility closings or asset sales. In the future, we may take additional restructuring actions including the consolidating, closing or selling of additional facilities. These actions could result in impairment charges and various charges for such items as idle capacity, disposition costs and severance costs, in addition to normal or attendant risks and uncertainties. We may be unsuccessful in any of our current or future efforts to restructure or consolidate our business. Plans to minimize or eliminate any loss of revenues during restructuring or consolidation may not be achieved. These activities may have a material adverse effect on our business, financial condition and results of operations. Further, if
Changes in our effective tax rate may adversely impact our results of operations.
A number of factors may increase our effective tax rate, which could reduce our net income, including:
Our judgments regarding the accounting for tax positions and the resolution of tax disputes may impact our results of operations and financial condition.
Significant judgment is required to determine our effective tax rate and evaluate our tax positions. We provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and results of operations. Additionally, we are unablesubject to certify thataudits in the various taxing jurisdictions in which we conduct business. Based on the status of these audits and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. Any negative or unexpected outcomes of these examinations and audits could have a material adverse impact on our products are conflict free, we may face challenges with our customers, which may place us at a competitive disadvantage,results of operations and our reputation may be harmed.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Chicago, Illinois. As of April 27, 2019,30, 2022, we leased or owned 3632 operating facilities. We believe our space is in good condition and adequate to meet our current and reasonably anticipated future needs.
Location | Segment(s) | Use | Owned/ | Approximate | ||||||
Lontzen, Belgium | Automotive | Manufacturing and Warehousing | Owned | 124,000 | ||||||
Dongguan, China | Automotive and Industrial | Manufacturing | Leased | 197,000 | ||||||
Shanghai, China | Automotive and Industrial | Manufacturing | Leased | 147,000 | ||||||
Suzhou, China | Automotive and Industrial | Manufacturing | Leased | 318,000 | ||||||
Cairo, Egypt | Automotive and Industrial | Manufacturing | Leased | 272,328 | ||||||
Mriehel, Malta | Automotive and Industrial | Manufacturing | Leased | 299,000 | ||||||
Monterrey, Mexico | Automotive, Industrial and Interface | Manufacturing | Leased | 292,000 | ||||||
Santa Catarina Nuevo Léon, Mexico | Automotive | Manufacturing | Leased | |||||||
158,000 | ||||||||||
Item 3. Legal Proceedings
From time to time, we have and may become involved in various litigation matters, including administrative proceedings, regulatory proceedings, environmental matters, and commercial disputes. The impact and outcome of litigation if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that could harm our business. We are not currently aware of any such legal proceedings or claims to which we are a party or to which our property is subject that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not Applicable
Supplementary Item: Information about our Executive Officers
Name | Age | Offices and Positions Held and Length of Service as Officer | ||||
Donald W. Duda | 66 | Chief Executive Officer since 2004 and President and Director since 2001. | ||||
Ronald L.G. Tsoumas | 61 | Chief Financial Officer of the Company since 2018; prior thereto, served as Controller of the Company | ||||
Andrea J. Barry | 59 | Chief Administrative Officer of the Company since January 2022 and Chief Human Resources Officer of the Company since 2017; | ||||
Timothy R. Glandon | 58 | Vice President since 2006; General Manager, North American Automotive, from 2006 to 2015. | ||||
Joseph E. Khoury | 58 | Chief Operating Officer of the Company since 2018; prior thereto, served as Senior Vice President since 2015, and as Vice President and General Manager of European Operations from 2004 to 2015. | ||||
Kevin M. Martin | 56 | Vice President, North America since 2020; prior thereto, Vice President and General Manager, North America Automotive, from 2019 to 2020, General Manager, North America Automotive in 2018, and Director of Sales, North America Automotive from 2014 to 2017. | ||||
Anil V. Shetty | 56 | President, Dabir Surfaces since 2018; prior thereto, Vice President and General Manager, Asia, from 2015, and Executive Managing Director, Asia from 2011 to 2015. |
All executive officers are elected by the Board of Directors and serve a term of one year or until their successors are duly elected and qualified.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the New York Stock Exchange under the symbol "MEI." The following“MEI”. As of June 15, 2022, we had 366 holders of record of our common stock. This does not include persons whose stock is a tabulation of highin nominee or “street name” accounts held by banks, brokers and low sales prices for the periods presented andother nominees.
Dividends
While we currently expect that quarterly cash dividends declaredwill continue to be paid in the future, such payments are at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, liquidity position and compliance with debt covenants. In the first quarter of fiscal 2022, we increased our quarterly dividend from $0.11 per share to $0.14 per share.
High | Low | Dividends Declared Per Share | ||||||||||
Fiscal Year Ended April 27, 2019 | ||||||||||||
First Quarter | $ | 45.45 | $ | 37.70 | $ | 0.11 | ||||||
Second Quarter | 41.30 | 27.65 | 0.11 | |||||||||
Third Quarter | 33.98 | 20.99 | 0.11 | |||||||||
Fourth Quarter | 32.22 | 25.11 | 0.11 | |||||||||
Fiscal Year Ended April 28, 2018 | ||||||||||||
First Quarter | $ | 44.95 | $ | 36.05 | $ | 0.09 | ||||||
Second Quarter | 46.75 | 36.75 | 0.09 | |||||||||
Third Quarter | 48.44 | 39.00 | 0.11 | |||||||||
Fourth Quarter | 42.10 | 36.95 | 0.11 |
Issuer Purchases of Equity Securities
On June 13, 2019,March 31, 2021, the Board of Directors declared a dividendauthorized the purchase of $0.11 per share of common stock, payable on July 26, 2019,up to holders of record on July 12, 2019. As of June 18, 2019, the number of record holders$100.0 million of our common stock, was 397.
On June 16, 2022, the Board of Directors authorized an increase in our existing share buyback program under which we may purchase up to an additional $100.0 million of our outstanding common stock, and also extended the expiration from March 31, 2023 to June 14, 2024.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 6. Selected Financial Data
15
Stock Performance
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andgraph shows the cumulative total stockholder return on our consolidated financial statements and related notes included elsewhere in this report. The Consolidated Statements of Income data for fiscal 2019, fiscal 2018 and fiscal 2017, andcommon stock over the Consolidated Balance Sheets data as of April 27, 2019 and April 28, 2018, are derived from, and are qualified by reference to, our audited consolidated financial statements included elsewhere in this report. The Consolidated Statements of Income data for fiscal 2016 and fiscal 2015, and the Consolidated Balance Sheets data as ofperiod spanning April 29, 2017 to April 30, 20162022, as compared with that of the Dow Jones U.S. Auto Parts Total Return Index, our Fiscal 2021 Peer Group and May 2, 2015 are derived from audited consolidated financial statements notour Fiscal 2022 Peer Group. We have assumed that dividends have been reinvested and that $100 was invested on April 29, 2017. The stock price performance included in this report.
Fiscal Year Ended | ||||||||||||||||||||
(In Millions, Except Percentages and Per Share Amounts) | April 27, 2019 (1) | April 28, 2018 (2) | April 29, 2017 (3) | April 30, 2016 (4) | May 2, 2015 (5) | |||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net Sales | $ | 1,000.3 | $ | 908.3 | $ | 816.5 | $ | 809.1 | $ | 881.1 | ||||||||||
Income before Income Taxes | 103.6 | 123.8 | 115.9 | 110.9 | 120.8 | |||||||||||||||
Income Tax Expense | 12.0 | 66.6 | 23.0 | 26.3 | 19.8 | |||||||||||||||
Net Income | 91.6 | 57.2 | 92.9 | 84.6 | 101.1 | |||||||||||||||
Per Common Share Data: | ||||||||||||||||||||
Basic Net Income | 2.45 | 1.54 | 2.49 | 2.21 | 2.61 | |||||||||||||||
Diluted Net Income | 2.43 | 1.52 | 2.48 | 2.20 | 2.58 | |||||||||||||||
Dividends | 0.44 | 0.40 | 0.36 | 0.36 | 0.36 | |||||||||||||||
Book Value | 18.43 | 16.82 | 14.53 | 12.61 | 11.82 | |||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Total Debt | 292.6 | 57.8 | 27.0 | 57.0 | 5.0 | |||||||||||||||
Retained Earnings | 545.2 | 472.0 | 427.0 | 358.6 | 356.5 | |||||||||||||||
Fixed Assets, Net | 191.9 | 162.2 | 90.6 | 93.0 | 93.3 | |||||||||||||||
Total Equity | 689.7 | 630.0 | 541.1 | 470.1 | 459.0 | |||||||||||||||
Total Assets | 1,231.7 | 915.9 | 704.0 | 655.9 | 605.8 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Return on Average Equity | 13.9 | % | 9.8 | % | 18.6 | % | 18.2 | % | 23.5 | % | ||||||||||
Pre-tax Income as a Percentage of Sales | 10.4 | % | 13.6 | % | 14.2 | % | 13.7 | % | 13.7 | % | ||||||||||
Net Income as a Percentage of Sales | 9.2 | % | 6.3 | % | 11.4 | % | 10.5 | % | 11.5 | % |
Company/Index |
| April 29, 2017 |
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| April 28, 2018 |
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| April 27, 2019 |
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| May 1, |
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| April 30, 2022 |
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Methode Electronics, Inc. |
| $ | 100.00 |
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| $ | 91.91 |
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| $ | 67.45 |
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| $ | 66.56 |
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| $ | 106.14 |
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| $ | 106.69 |
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NYSE Stock Market (US Companies) |
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| 100.00 |
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| 111.51 |
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| 121.66 |
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| 108.22 |
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| 162.74 |
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Dow Jones U.S. Auto Parts Total Return Index |
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| 100.00 |
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| 117.84 |
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| 103.77 |
|
|
| 77.16 |
|
|
| 144.05 |
|
|
| 110.63 |
|
Fiscal 2022 Peer Group |
|
| 100.00 |
|
|
| 104.81 |
|
|
| 104.05 |
|
|
| 82.04 |
|
|
| 140.09 |
|
|
| 129.57 |
|
Fiscal 2021 Peer Group |
|
| 100.00 |
|
|
| 104.57 |
|
|
| 105.16 |
|
|
| 83.37 |
|
|
| 141.61 |
|
|
| 131.61 |
|
The Fiscal 2022 Peer Group consists of the following fifteen public companies:
Belden Corporation | Franklin Electric Company. Inc | Patrick Industries, Inc. |
Benchmark Electronics, Inc. | Gentherm Incorporated | Rogers Corporation |
Cooper-Standard Holdings Inc | LCI Industries | Stoneridge, Inc. |
CTS Corporation | Littelfuse, Inc. | TTM Technologies, Inc. |
Fabrinet | OSI Systems, Inc. | Visteon Corporation |
The Compensation Committee of the Board of Directors reviews the peer group annually and from time to time changes the composition of the peer group where changes are appropriate. In fiscal 2022, the Compensation Committee added Cooper-Standard Holdings Inc., Fabrinet and Patrick Industries, Inc. based on our revenue, market capitalization and industry criteria for the peer group. Delphi Technologies PLC, Kemet Corporation and MTS Systems Corporation were all acquired in fiscal 2019 also include a discrete tax benefit2021 and were excluded from the re-measurementpeer group.
Item 6. [Reserved]
Not applicable.
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. You should read the following discussion and analysis in conjunction with Item 6, “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this report.Annual Report. This discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements because of a variety of factors, including those set forth under Item 1A. “Risk Factors.”
Overview
We are a leading global manufacturersupplier of componentcustom engineered solutions with sales, engineering and subsystem devices with manufacturing designlocations in North America, Europe, Middle East and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, 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 Fresnillo and Monterrey, Mexico.Asia. We design, manufactureengineer and market devices employing electrical, radio remote control, electronic,produce mechatronic products for OEMs utilizing our broad range of technologies for user interface, LED lighting wirelesssystem, power distribution and sensing technologies.
Our solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices. Our business is managed on a segment basis, with our reportablefour segments resulting from the acquisition of Grakon. Prior to the Grakon acquisition, our reportable segments were Automotive, Power, Interface and Other. As a result of this change, our reportable segments are nowbeing Automotive, Industrial, Interface and Medical. Historical information has been revised to reflect the new reportable segments. For more information regarding the business and products of these segments, see “ItemItem 1. Business.”
Impact of the aerospace, appliance, automotive, commercial vehicle, construction,COVID-19 Pandemic
The COVID-19 pandemic and the ongoing measures to reduce its spread have negatively impacted the global economy, disrupted consumer and industrial equipment, communications (including information processingcustomer demand and storage, networking equipmentglobal supply chains, and wirelessresulted in manufacturing inefficiencies and terrestrial voice/data systems), medical, railincreased freight costs due to global capacity constraints. We expect that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact our business and other transportation industries.
We continue to focus on effectively managing the unprecedented challenges and uncertainties of the pandemic on a global basis. Management has prioritized the health and safety of our employees and their families. We adopted numerous safety procedures at our global facilities, including hygiene and disinfection protocols, testing and contact tracing, social distancing and wearing personal protective equipment. We share best practices throughout our global facilities, resulting in effective and standardized safety guidelines and procedures, updated on a regular basis, promoting the health and safety of our employees.
Global Supply Chain Disruptions
We continue to experience business interruptions, including customer shutdowns and increased material and logistics costs, labor shortages, and most significantly, impacts from the worldwide semiconductor supply shortage. The business, headquarteredsemiconductor supply shortage is due, in Seattle, Washington,part, to increased demand across multiple industries, including the automotive industry, resulting in a slowdown in their production schedules. The semiconductor supply shortage is also impacting our supply chain and our ability to meet demand at some of our non-automotive customers. We expect this semiconductor shortage to have a manufacturercontinued impact on our operating results and financial condition in fiscal 2023.
Restructuring Actions
In fiscal 2022, we initiated a restructuring plan to consolidate one of custom designed exterior lighting solutions and highly styled engineered components, with locations in Canada, China, the Netherlands and the United Kingdom. Grakon’s manufacturing capabilities and products help diversify our product offerings and expandoperations within the Industrial segment in response to logistics issues and tariffs. This action resulted in a facility shutdown and consolidation of activities into an existing location. In fiscal 2022, we recognized $3.6 million of restructuring costs. We may take additional restructuring actions in future periods based upon market conditions and industry trends.
As a result of the COVID-19 pandemic, we initiated certain restructuring actions in fiscal 2021 to rationalize our operations, lower our costs and improve financial performance and long-term cash flow generation. These actions included plant consolidations and workforce reductions in the Automotive, Industrial and Interface segments. In fiscal 2021, we recognized $8.2 million of restructuring costs.
17
Impacts of Macroeconomic and Geopolitical Conditions
Adverse macroeconomic conditions, including but not limited to inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, higher interest rates and currency fluctuations could adversely affect demand for our products. In addition, in February 2022, Russia invaded Ukraine resulting in, among other things, economic sanctions imposed by the international community which is a key componenthave impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Although we have no operations in Russia or Ukraine, certain of our strategic direction. The accountscustomers and transactions of Grakonsuppliers have been includednegatively impacted by these events, which in turn has impacted markets where we do business, including Europe and Asia. The economic sanctions imposed on Russia has further increased existing global supply chain, logistics, and inflationary challenges.
Consolidated Results of Operations
We maintain our financial records on the basis of a 52 or 53-week fiscal year ending on the Saturday closest to April 30. Fiscal 2022 ended on April 30, 2022 and fiscal 2021 ended on May 1, 2021, which represented 52 weeks of results for each year. Fiscal 2020 ended on May 2, 2020, which represented 53 weeks of results. The following discussions of comparative results among periods should be reviewed in this context.
A detailed comparison of our results of operations between fiscal 2021 and fiscal 2020 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2021 Annual Report on Form 10-K filed with the SEC on June 24, 2021.
The table below compares our results of operations between fiscal 2022 and fiscal 2021:
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Net sales |
| $ | 1,163.6 |
|
| $ | 1,088.0 |
|
Cost of products sold |
|
| 898.7 |
|
|
| 813.9 |
|
Gross profit |
|
| 264.9 |
|
|
| 274.1 |
|
Selling and administrative expenses |
|
| 134.1 |
|
|
| 126.9 |
|
Amortization of intangibles |
|
| 19.1 |
|
|
| 19.3 |
|
Interest expense, net |
|
| 3.5 |
|
|
| 5.2 |
|
Other income, net |
|
| (10.3 | ) |
|
| (12.2 | ) |
Income tax expense |
|
| 16.3 |
|
|
| 12.6 |
|
Net income |
| $ | 102.2 |
|
| $ | 122.3 |
|
Net sales
Net sales increased $75.6 million, or 6.9%, to $1,163.6 million in fiscal 2022, compared to $1,088.0 million in fiscal 2021. The increase was primarily due to higher sales in the Automotive and Industrial segmentssegments. The COVID-19 pandemic negatively impacted net sales in the consolidated financial statements for seven a half monthsfirst quarter of fiscal 2021. Net sales were favorably impacted by foreign currency translation of $5.5 million, primarily due to the strengthening of the Chinese renminbi relative to the U.S. dollar in fiscal 2019.
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | Net Change ($) | Net Change (%) | ||||||||||||
Net Sales | $ | 1,000.3 | $ | 908.3 | $ | 92.0 | 10.1 | % | ||||||||
Cost of Products Sold | 734.5 | 668.7 | 65.8 | 9.8 | % | |||||||||||
Gross Profit | 265.8 | 239.6 | 26.2 | 10.9 | % | |||||||||||
Selling and Administrative Expenses | 142.9 | 115.7 | 27.2 | 23.5 | % | |||||||||||
Amortization of Intangibles | 16.1 | 5.6 | 10.5 | 187.5 | % | |||||||||||
Interest Expense, Net | 8.3 | 0.9 | 7.4 | N/M | * | |||||||||||
Other Income, Net | (5.1 | ) | (6.4 | ) | (1.3 | ) | (20.3 | )% | ||||||||
Income Tax Expense | 12.0 | 66.6 | (54.6 | ) | (82.0 | )% | ||||||||||
Net Income | $ | 91.6 | $ | 57.2 | $ | 34.4 | 60.1 | % | ||||||||
Percent of sales: | April 27, 2019 | April 28, 2018 | ||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | ||||||||||||
Cost of Products Sold | 73.4 | % | 73.6 | % | ||||||||||||
Gross Profit | 26.6 | % | 26.4 | % | ||||||||||||
Selling and Administrative Expenses | 14.3 | % | 12.7 | % | ||||||||||||
Amortization of Intangibles | 1.6 | % | 0.6 | % | ||||||||||||
Interest Expense, Net | 0.8 | % | 0.1 | % | ||||||||||||
Other Income, Net | (0.5 | )% | (0.7 | )% | ||||||||||||
Income Tax Expense | 1.2 | % | 7.3 | % | ||||||||||||
Net Income | 9.2 | % | 6.3 | % | ||||||||||||
*N/M equals non-meaningful |
Cost of products sold beginning in fiscal 2019. Pre-production reimbursements were $12.8 million in fiscal 2018. Excluding acquisitions, foreign currency translation and pre-production reimbursements, net sales decreased by $48.3 million, primarily due to lower pricing and sales volumes of existing products in the Automotive segment and lower appliance and data solution product sales volumes in the Interface segment.
Cost of Products Sold
Gross profit margin
Gross profit margin was 22.8% of $5.6 millionnet sales in fiscal 2022, compared to 25.2% of net sales in fiscal 2021. The decrease was due to higher material, logistics and $2.8 million ofother operating costs related to initiatives to reduce overallassociated with global supply chain disruptions and factory inefficiencies, higher labor costs and improve operational profitability.
18
Selling and Administrative Expenses
Selling and administrative expenses increased $27.2$7.2 million, or 23.5%5.7%, to $142.9$134.1 million (14.3%(11.5% of net sales) in fiscal 2019,2022, compared to $115.7$126.9 million (12.7%(11.7% of net sales) in fiscal 2018. Acquisitions accounted for $17.3 million of the increase, while the impact of foreign currency translation decreased selling and administrative expenses by $1.4 million. Excluding acquisitions and foreign currency translation, selling and administrative expenses increased by $11.3 million in fiscal 2019 compared to fiscal 2018.2021. The increase was primarily due to a $10.0 million increase inhigher stock-based compensation expense, higher acquisition-related costs of $3.8 millionsalary expense and expenses for initiatives to reduce overall costs and improve operational profitability of $4.1 million,travel expense, partially offset by lower legalrestructuring costs and professional fees.
Stock-based compensation expense increased $5.0 million as our long-term incentive plan was not introduced until the second quarter of fiscal 2021. Salary and travel expense was lower in fiscal 2021 as a result of actions we took in response to the COVID-19 pandemic 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. Restructuring costs included within selling and administrative expenses were $2.3 million in fiscal 2022, compared to $3.4 million in fiscal 2021. Professional fees of $5.1 million. Legal fees were lower mostlydecreased $1.8 million mainly due to the decrease inlower Hetronic-related legal fees. The increase in stock-based compensation expense includes expense of $7.4 million relating to prior periods. See Note 5, "Shareholders Equity,” in the consolidated financial statements for further information.
Amortization of Intangibles
Amortization of intangibles increased $10.5decreased $0.2 million, or 187.5%1.0%, to $16.1$19.1 million in fiscal 2019,2022, compared to $5.6$19.3 million in fiscal 2018. The increase was due to amortization2021.
Interest expense, related to recent acquisitions.
Interest expense, net was $8.3$3.5 million in fiscal 2019,2022, compared to $0.9$5.2 million in fiscal 2018. The increase was due to borrowings made in fiscal 2019 to fund the acquisition of Grakon.
Other income, net
Other income, net decreased $1.9 million compared to $7.3$10.3 million in fiscal 2018. During2022, compared to $12.2 million in fiscal 2018, we recorded a gain of $1.6 million related to the sale of exclusive rights for a licensing agreement.
Income Tax Expense.
Income tax expense decreased $54.6increased $3.7 million, or 82.0%29.4%, to $12.0$16.3 million in fiscal 2019,2022, compared to $66.6$12.6 million in fiscal 2018.2021. Our effective tax rate decreasedincreased to 11.6%13.8% in fiscal 2019,2022, compared to 53.8%9.3% in fiscal 2018. The change in2021. In fiscal 2022, the effective income tax rate was primarilyfavorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates, the release of a valuation allowance of approximately $2.0 million due to a tax law change, and less U.S. tax on foreign income of $1.7 million attributable to lower earnings in non-U.S. jurisdictions, partially offset with non-deductible compensation of $2.1 million. In fiscal 2021, the enactmenteffective income tax rate was favorably impacted by the amount of U.S. Tax Reform. This resultedincome earned in foreign jurisdictions with lower tax rates, tax credits and various deductions allowed in foreign jurisdictions. In addition, the Company received a provisional tax expense estimatebenefit of $53.7approximately $7.2 million related to the deemed repatriated earnings and the revaluation of deferred taxesa favorable tax ruling in fiscal 2018, while fiscal 2019 includes a $4.8 million tax benefit related to U.S. Tax Reform. For further details regarding the impacts of U.S. Tax Reform, refer to Note 7, “Income Taxes,” in the consolidated financial statements. Ourforeign jurisdiction.
Net income tax expense is impacted by the level and mix of earnings among tax jurisdictions, as well as the changes in the amounts of foreign investment tax credits realized.
Net income increased $34.4decreased $20.1 million, or 60.1%16.4%, to $91.6$102.2 million in fiscal 2019,2022, compared to $57.2$122.3 million in fiscal 2018. Lower income tax expense accounted for $54.6 million2021. The impact of the increase, acquisitions accounted for $14.5 million of the increase, while foreign currency translation reducedincreased net income by $1.7$1.1 million. Excluding income tax expense, acquisitions and foreign currency translation, net income was negatively impacted by lower sales volumes, higher selling and administrative expense and higher interest expense.
Operating Segments
Automotive Segment Results
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 734.7 | $ | 728.7 | $ | 6.0 | 0.8 | % | |||||||
Gross Profit | $ | 188.3 | $ | 201.6 | $ | (13.3 | ) | (6.6 | )% | ||||||
Income from Operations | $ | 126.3 | $ | 156.3 | $ | (30.0 | ) | (19.2 | )% | ||||||
Percent of sales: | April 27, 2019 | April 28, 2018 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Gross Profit | 25.6 | % | 27.7 | % | |||||||||||
Income from Operations | 17.2 | % | 21.4 | % |
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Net sales |
|
|
|
|
|
| ||
North America |
| $ | 400.9 |
|
| $ | 406.4 |
|
EMEA |
| $ | 216.5 |
|
| $ | 212.3 |
|
Asia |
| $ | 164.1 |
|
| $ | 137.0 |
|
Net sales |
| $ | 781.5 |
|
| $ | 755.7 |
|
Gross profit |
| $ | 150.0 |
|
| $ | 163.4 |
|
As a percent of net sales |
|
| 19.2 | % |
|
| 21.6 | % |
Income from operations |
| $ | 92.6 |
|
| $ | 107.6 |
|
As a percent of net sales |
|
| 11.8 | % |
|
| 14.2 | % |
19
Net Sales
Automotive segment net sales increased $6.0$25.8 million, or 0.8%3.4%, to $734.7$781.5 million in fiscal 2019, from $728.72022, compared to $755.7 million in fiscal 2018. 2021. Sales volumes in fiscal 2021 were negatively impacted from the COVID-19 pandemic. Fiscal 2022 net sales benefitted from customer recoveries from spot buys of materials and premium freight costs of $13.2 million (primarily in North America). Excluding foreign currency translation and customer cost recoveries, net sales increased $9.4 million, or 1.2%.
Net sales increased in North America by $43.4decreased $5.5 million, or 10.4%1.4%, to $460.8$400.9 million in fiscal 2019,2022, compared to $417.4$406.4 million in fiscal 2018. Acquisitions in North America accounted for $65.9 million of the increase. North American sales in fiscal 2019 included $32.5 million from Grakon, which represents approximately seven and a half months of results. North American sales in fiscal 2019 also included $87.9 million from Pacific Insight, which represents a full year of results, compared to fiscal 2018, which included sales of $54.4 million from seven months of Pacific Insight's results. Excluding acquisitions, sales declined for our integrated center stack products and transmission lead-frame assemblies primarily due to sales mix and pricing reductions, partially offset by higher sales for our human machine interface assembly products due to new program launches. Net sales decreased in Europe by $17.6 million, or 8.3%, to $195.7 million in fiscal 2019, compared to $213.3 million in fiscal 2018. The decrease in European sales was primarily due to lower sales volumes of hidden switches, offset by higher sales volumes of sensor products. European sales were also impacted by the adoption of ASC 606 whereby pre-production reimbursements are now being excluded from net sales and included in cost of products sold beginning in fiscal 2019. European pre-production reimbursements were $9.9 million in fiscal 2018. In addition, the impact of the weaker euro decreased net sales in Europe by $5.3 million. European sales in fiscal 2019 included $33.1 million from Procoplast, which represented a full year of results, compared to $26.4 million in fiscal 2018, which represented nine months of results. Net sales in Asia decreased $19.8 million, or 20.2%, to $78.2 million in fiscal 2019, compared to $98.0 million in fiscal 2018.2021. The decrease was primarily due to lower lighting product sales volumes. Net sales in EMEA increased $4.2 million, or 2.0%, to $216.5 million in fiscal 2022, compared to $212.3 million in fiscal 2021. The weaker euro, relative to the U.S. dollar, decreased net sales in EMEA by $4.5 million. Excluding the impact of our transmission lead-frame assembliesforeign currency translation, net sales in EMEA increased $8.7 million primarily due to a combination of pricing reductions and lowerhigher sensor product sales. Net sales volumes. We also experienced lower sales volumes for hidden switches, linear pressure sensors and our steering angle sensor products, the latter of which is approaching end of production.in Asia increased $27.1 million, or 19.8%, to $164.1 million in fiscal 2022, compared to $137.0 million in fiscal 2021. The weakerstronger Chinese renminbi, decreasedrelative to the U.S. dollar, increased net sales in Asia by $1.9$7.6 million.
Gross Profit.
Automotive segment gross profit decreased $13.3$13.4 million, or 6.6%8.2%, to $188.3$150.0 million in fiscal 2019,2022, compared to $201.6$163.4 million in fiscal 2018. The Automotive segment2021. Excluding the impact of foreign currency translation, gross profit margindecreased $14.3 million. Gross profit margins decreased to 25.6%19.2% in fiscal 2019,2022, from 27.7%21.6% in fiscal 2018.2021. The decrease in gross profit marginmargins was primarily due to higher material and other costs associated with supply chain disruptions and product mix, partially offset by higher sales volumes and lower sales volume and unfavorable sales mixrestructuring costs. In fiscal 2022, we recognized $0.1 million of restructuring costs in Asia and North America, which includes the impact of the sales increase of our Pacific Insight business, which currently has a higher cost of products sold as a percentage of salesthis segment, compared to other business units within the Automotive segment. Gross profit margin was also negatively impacted during$4.8 million in fiscal 2019 by expenses incurred for initiatives to reduce overall costs and improve operational profitability of $2.7 million and net tariff expense of $0.7 million. Foreign currency translation positively impacted North America as purchases from Mexico benefitted from the weaker Mexican peso, while the weaker euro and Chinese renminbi negatively impacted gross profit recognized by our operations in Europe and Asia.
Income from Operations.
Automotive segment income from operations decreased $30.0$15.0 million, or 19.2%13.9%, to $126.3$92.6 million in fiscal 2019,2022, compared to $156.3$107.6 million in fiscal 2018.2021. Excluding the impact of foreign currency translation, income from operations decreased $16.2 million. The decrease was primarily due to lower gross profit and higher selling and administrative expenses, primarily due to an increase in stock-based compensation expense.expenses. Selling and administrative expenses also decreased income from operationsincreased due to higher salary expense, partially offset by lower restructuring costs. Salary expense was lower in fiscal 2021 due to the impact of salary reductions and other cost saving measures in response to the COVID-19 pandemic. Restructuring costs in this segment's selling and administrative expenses incurred for initiativeswere $0.1 million in fiscal 2022, compared to reduce overall costs and improve operational profitability of $2.0 million.
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 206.8 | $ | 105.8 | $ | 101.0 | 95.5 | % | |||||||
Gross Profit | $ | 68.6 | $ | 28.2 | $ | 40.4 | 143.3 | % | |||||||
Income from Operations | $ | 37.4 | $ | 13.0 | $ | 24.4 | 187.7 | % | |||||||
Percent of sales: | April 27, 2019 | April 28, 2018 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Gross Profit | 33.2 | % | 26.7 | % | |||||||||||
Income from Operations | 18.1 | % | 12.3 | % |
Industrial
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Net sales |
| $ | 318.1 |
|
| $ | 267.9 |
|
Gross profit |
| $ | 101.5 |
|
| $ | 98.1 |
|
As a percent of net sales |
|
| 31.9 | % |
|
| 36.6 | % |
Income from operations |
| $ | 67.1 |
|
| $ | 64.3 |
|
As a percent of net sales |
|
| 21.1 | % |
|
| 24.0 | % |
Net Sales
Industrial segment net sales increased $101.0$50.2 million, or 95.5%18.7%, to $206.8$318.1 million in fiscal 2019,2022, compared to $105.8$267.9 million in fiscal 2018. Net2021. Fiscal 2022 net sales included $7.6 million of customer cost recoveries of premium freight costs. Excluding the impact of foreign currency translation and customer cost recoveries, net sales increased in North America by $85.3$40.3 million, or 219.8%15.0%, to $124.1 million in fiscal 2019, compared to $38.8 million in fiscal 2018. Net sales in North America in fiscal 2019 includes $84.4 million from seven and a half months of results of Grakon. Other North American sales were relatively flat as higher sales volumes of radio remote control products were offset by lower sales volumes of busbar products. Net sales in Europe increased $8.5 million, or 21.9%, to $47.4 million in fiscal 2019, compared to $38.9 million in fiscal 2018. Net sales in Europe in fiscal 2019 includes $4.8 million from seven and a half months of results of Grakon. Other European sales increased primarily due to higher sales volumes of radio remote control and busbar products, partially offset with lower salesall product categories in the Industrial segment. Sales volumes of bypass switches andin fiscal 2021 were negatively impacted by the weaker euro. Net sales in AsiaCOVID-19 pandemic.
Gross profit
Industrial segment gross profit increased $7.2$3.4 million, or 25.6%3.5%, to $35.3$101.5 million in fiscal 2019,2022, compared to $28.1$98.1 million in fiscal 2018.2021. Excluding the impact of foreign currency translation, gross profit increased $2.3 million. Gross profit margin decreased to 31.9% in fiscal 2022, from 36.6% in fiscal 2021. The decrease in gross profit margins was due to lower gross profit margins from busbar products and commercial vehicle products and the recognition of $1.2 million of restructuring costs in this segment in fiscal 2022.
Income from operations
Industrial segment income from operations increased $2.8 million, or 4.4%, to $67.1 million in fiscal 2022, compared to $64.3 million in fiscal 2021. Excluding the impact of foreign currency translation, income from operations increased $2.0 million. The increase was primarily due to higher gross profit, partially offset by higher selling and administrative costs. Selling and administrative expenses were higher primarily due to $2.2 million of restructuring costs in this segment in fiscal 2022, compared to $1.0 million in fiscal 2021.
20
Interface
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Net sales |
| $ | 59.8 |
|
| $ | 61.6 |
|
Gross profit |
| $ | 12.6 |
|
| $ | 12.3 |
|
As a percent of net sales |
|
| 21.1 | % |
|
| 20.0 | % |
Income from operations |
| $ | 9.9 |
|
| $ | 8.9 |
|
As a percent of net sales |
|
| 16.6 | % |
|
| 14.4 | % |
Net sales
Interface segment net sales decreased $1.8 million, or 2.9%, to $59.8 million in fiscal 2022, compared to $61.6 million in fiscal 2021. Fiscal 2022 net sales benefitted from customer recoveries from spot buys of materials and premium freight costs of $1.3 million. Excluding customer cost recoveries, net sales decreased $3.1 million, or 5.0%. The decrease was primarily due to lower sales volumes of busbarappliance products which were negatively impacted by a shortage of semiconductor chips, partially offset by the weaker Chinese renminbi.
Gross Profit.
Interface segment gross profit increased $40.4$0.3 million, or 143.3%2.4%, to $68.6$12.6 million in fiscal 2019,2022, compared to $28.2$12.3 million in fiscal 2018.2021. Gross profit margin increased to 33.2%21.1% in fiscal 2019,2022, from 26.7%20.0% in fiscal 2018. Gross profit margins are generally2021. The increase was due to higher at our Grakon industrial business. However, purchase accounting related adjustments to inventory of $5.6 million and net tariff expense on imported Chinese goods of $1.6 million negatively impacted Grakon’s gross profit. Gross profit margin also benefitted from increased sales volumes of radio remote control and busbarlegacy data solutions products.
Income from Operations.
Interface segment income from operations was $37.4increased $1.0 million, or 11.2%, to $9.9 million in fiscal 2019,2022, compared to $13.0$8.9 million in fiscal 2018.2021. The increase was primarily due to income from operations from Grakon, lower Hetronic legal fees and higher sales volumes of radio remote control and busbar products, partially offset by higher stock-based compensation expense.
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 57.7 | $ | 73.2 | $ | (15.5 | ) | (21.2 | )% | ||||||
Gross Profit | $ | 7.8 | $ | 14.3 | $ | (6.5 | ) | (45.5 | )% | ||||||
Income (Loss) from Operations | $ | (0.3 | ) | $ | 6.0 | $ | (6.3 | ) | (105.0 | )% | |||||
Percent of sales: | April 27, 2019 | April 28, 2018 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Gross Profit | 13.5 | % | 19.5 | % | |||||||||||
Income (Loss) from Operations | (0.5 | )% | 8.2 | % |
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 1.1 | $ | 0.3 | $ | 0.8 | 266.7 | % | |||||||
Gross Profit | $ | (2.8 | ) | $ | (3.5 | ) | $ | 0.7 | 20.0 | % | |||||
Loss from Operations | $ | (8.6 | ) | $ | (11.4 | ) | $ | 2.8 | 24.6 | % |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | ||||||||||||
Net Sales | $ | 908.3 | $ | 816.5 | $ | 91.8 | 11.2 | % | ||||||||
Cost of Products Sold | 668.7 | 598.2 | 70.5 | 11.8 | % | |||||||||||
Gross Profit | 239.6 | 218.3 | 21.3 | 9.8 | % | |||||||||||
Selling and Administrative Expenses | 115.7 | 105.2 | 10.5 | 10.0 | % | |||||||||||
Amortization of Intangibles | 5.6 | 2.3 | 3.3 | 143.5 | % | |||||||||||
Interest Expense (Income), Net | 0.9 | (0.4 | ) | 1.3 | N/M | * | ||||||||||
Other Income, Net | (6.4 | ) | (4.7 | ) | (1.7 | ) | 36.2 | % | ||||||||
Income Tax Expense | 66.6 | 23.0 | 43.6 | 189.6 | % | |||||||||||
Net Income | $ | 57.2 | $ | 92.9 | $ | (35.7 | ) | (38.4 | )% | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | ||||||||||||||
Net Sales | 100.0 | % | 100.0 | % | ||||||||||||
Cost of Products Sold | 73.6 | % | 73.3 | % | ||||||||||||
Gross Profit | 26.4 | % | 26.7 | % | ||||||||||||
Selling and Administrative Expenses | 12.7 | % | 12.9 | % | ||||||||||||
Amortization of Intangibles | 0.6 | % | 0.3 | % | ||||||||||||
Interest Expense (Income), Net | 0.1 | % | — | % | ||||||||||||
Other Income, Net | (0.7 | )% | (0.6 | )% | ||||||||||||
Income Tax Expense | 7.3 | % | 2.8 | % | ||||||||||||
Net Income | 6.3 | % | 11.4 | % | ||||||||||||
*N/M equals non meaningful |
Medical
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Net sales |
| $ | 4.2 |
|
| $ | 2.8 |
|
Gross profit |
| $ | (0.4 | ) |
| $ | (0.3 | ) |
Loss from operations |
| $ | (5.5 | ) |
| $ | (4.6 | ) |
Net Sales
Medical segment net sales increased by $91.8$1.4 million, or 11.2%50.0%, to $908.3$4.2 million in fiscal 2018,2022, compared to $816.5$2.8 million in fiscal 2017. Acquisitions in the Automotive segment accounted for $80.8 million of the increase, while foreign currency translation accounted for $13.1 million of the increase. Foreign currency translation benefitted from the stronger euro and Chinese renminbi. Net sales were higher by $13.5 million in the Industrial segment which partially offset lower net sales of $18.3 million in the Interface segment.
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 728.7 | $ | 632.2 | $ | 96.5 | 15.3 | % | |||||||
Gross Profit | $ | 201.6 | $ | 182.8 | $ | 18.8 | 10.3 | % | |||||||
Income from Operations | $ | 156.3 | $ | 148.3 | $ | 8.0 | 5.4 | % | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Gross Profit | 27.7 | % | 28.9 | % | |||||||||||
Income from Operations | 21.4 | % | 23.5 | % |
Gross profit margin decreased primarily due to unfavorable sales mix related to acquisitions, the inclusion of $0.8 million of purchase accounting adjustments related to acquisitions and pricing reductions on certain products. Gross profit in fiscal 2017 benefitted from favorable commodity pricing adjustments of $1.0 million and the reversal of accruals of $1.0 million related to resolved customer commercial issues.
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 105.8 | $ | 92.3 | $ | 13.5 | 14.6 | % | |||||||
Gross Profit | $ | 28.2 | $ | 20.8 | $ | 7.4 | 35.6 | % | |||||||
Income from Operations | $ | 13.0 | $ | 2.7 | $ | 10.3 | 381.5 | % | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Gross Profit | 26.7 | % | 22.5 | % | |||||||||||
Income from Operations | 12.3 | % | 2.9 | % |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 73.2 | $ | 91.5 | $ | (18.3 | ) | (20.0 | )% | ||||||
Gross Profit | $ | 14.3 | $ | 17.8 | $ | (3.5 | ) | (19.7 | )% | ||||||
Income from Operations | $ | 6.0 | $ | 4.0 | $ | 2.0 | 50.0 | % | |||||||
Percent of sales: | April 28, 2018 | April 29, 2017 | |||||||||||||
Net Sales | 100.0 | % | 100.0 | % | |||||||||||
Gross Profit | 19.5 | % | 19.5 | % | |||||||||||
Income from Operations | 8.2 | % | 4.4 | % |
(Dollars in Millions) | April 28, 2018 | April 29, 2017 | Net Change ($) | Net Change (%) | |||||||||||
Net Sales | $ | 0.3 | $ | 0.2 | $ | 0.1 | 50.0 | % | |||||||
Gross Profit | $ | (3.5 | ) | $ | (3.1 | ) | $ | (0.4 | ) | (12.9 | )% | ||||
Loss from Operations | $ | (11.4 | ) | $ | (8.5 | ) | $ | (2.9 | ) | (34.1 | )% |
Medical segment gross profit was a loss of $3.5$0.4 million in fiscal 20182022, compared to a loss of $3.1$0.3 million in fiscal 2017. The increased loss primarily relates to2021. Gross profit was impacted by higher material costs and unfavorable sales mix, which offset the vertical manufacturing integration of some key components and research efforts to expand the product offerings.
Loss from Operations.
Medical segment loss from operations increased $2.9$0.9 million, or 19.6%, to $11.4$5.5 million in fiscal 20182022, compared to $8.5$4.6 million in fiscal 2017.2021. The increasedincrease in the loss relateswas due to higher outsideselling and administrative expenses, primarily higher advertising expenses and professional fees, research and development and marketing expenses in fiscal 2018.
Financial Condition, Liquidity and Capital Resources
Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements, dividends and stock repurchases. Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement. We believe our current world-wide cash balances together with expected future cash flows to be generated from operations and our committed credit facilityliquidity position will be sufficient to supportfund our existing operations and current operations. A significant amount of cashcommitments for at least the next twelve months. However, if economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic and expected future cash flows are located outside ofother geopolitical risks, including the U.S. OfRussia-Ukraine war and the $83.2lockdowns in China, our liquidity position could be severely impacted.
At April 30, 2022, we had $172.0 million of cash and cash equivalents, as of April 27, 2019, $69.9which $107.0 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, and the payment of dividends, without creating material additional income tax expense.
Fiscal Year Ended | ||||||||||||
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
Operating activities: | ||||||||||||
Net Income | $ | 91.6 | $ | 57.2 | $ | 92.9 | ||||||
Non-cash Items | 52.6 | 17.0 | 32.1 | |||||||||
Changes in Operating Assets and Liabilities | (42.2 | ) | 43.6 | 20.2 | ||||||||
Net Cash Provided by Operating Activities | 102.0 | 117.8 | 145.2 | |||||||||
Net Cash Used in Investing Activities | (470.8 | ) | (179.0 | ) | (21.7 | ) | ||||||
Net Cash Provided by (Used In) Financing Activities | 217.4 | (12.7 | ) | (47.0 | ) | |||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (11.5 | ) | 26.0 | (10.3 | ) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (162.9 | ) | (47.9 | ) | 66.2 | |||||||
Cash and Cash Equivalents at Beginning of the Year | 246.1 | 294.0 | 227.8 | |||||||||
Cash and Cash Equivalents at End of the Year | $ | 83.2 | $ | 246.1 | $ | 294.0 |
21
Share Buyback Program
On March 31, 2021, the Board of Directors authorized the purchase of up to Fiscal 2018
On June 16, 2022, the Board of Directors authorized an increase in our existing share buyback program under which we may purchase up to higher prepaid expenses and other assets and lower accounts payable and accrued expenses.
Credit Agreement
Our senior unsecured credit agreement that providedprovides for a $200.0 million revolving credit facility and a $250.0 million term loan. As of April 27, 2019, $278.730, 2022, no principal was outstanding under the revolving credit facility and we have $199.9 million of availability under the revolving credit facility. As of April 30, 2022, $206.3 million in principal was outstanding under the credit agreement.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 credit agreementCredit Agreement as of April 27, 2019. See30, 2022. For further information, see Note 10, "Debt," in“Debt” to the consolidated financial statements included in this Annual Report.
On December 10, 2021, we entered into a First Amendment to the Credit Agreement (“First Amendment”). The First Amendment amended and restated the Credit Agreement to provide, among other things, that upon the occurrence of certain events, the interest rate calculation method will generally transition from the London Interbank Offered Rate (“LIBOR”) to an alternate reference rate, including the Secured Overnight Financing Rate (“SOFR”) for further information.
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. We may seek 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.
Cash Flows
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 102.2 |
|
| $ | 122.3 |
|
Non-cash items |
|
| 66.4 |
|
|
| 50.7 |
|
Changes in operating assets and liabilities |
|
| (69.8 | ) |
|
| 6.8 |
|
Net cash provided by operating activities |
|
| 98.8 |
|
|
| 179.8 |
|
Net cash used in investing activities |
|
| (37.4 | ) |
|
| (24.8 | ) |
Net cash used in financing activities |
|
| (114.6 | ) |
|
| (142.9 | ) |
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
| (8.0 | ) |
|
| 3.8 |
|
(Decrease) increase in cash and cash equivalents |
|
| (61.2 | ) |
|
| 15.9 |
|
Cash and cash equivalents at beginning of the period |
|
| 233.2 |
|
|
| 217.3 |
|
Cash and cash equivalents at end of the period |
| $ | 172.0 |
|
| $ | 233.2 |
|
Operating activities
Net cash provided by operating activities decreased $81.0 million to $98.8 million in fiscal 2022, compared to $179.8 million in fiscal 2021. The decrease was due to higher cash outflows related to changes in operating assets and liabilities. The $69.8 million of cash outflows for operating assets and liabilities in fiscal 2022 was primarily due to higher inventory (as a result of global supply chain and logistics disruptions) and lower accounts payable and other liabilities.
Investing activities
Net cash used in investing activities was $37.4 million in fiscal 2022, compared to $24.8 million in fiscal 2021. The activity primarily represents capital expenditures in both fiscal years. We received $0.6 million of cash from the sale of property, plant and equipment in fiscal 2022.
22
Financing activities
Net cash used in financing activities was $114.6 million in fiscal 2022, compared to $142.9 million in fiscal 2021. In fiscal 2022, we used $64.5 million of cash for the purchase of shares under our share buyback program, compared to $6.7 million in fiscal 2021. We paid cash dividends of $20.4 million in fiscal 2022, compared to $17.4 million in fiscal 2021. We increased our quarterly dividend from $0.11 per share to $0.14 per share in the first quarter of fiscal 2022. In fiscal 2022, we paid $0.3 million in taxes related to the net share settlement of equity awards compared to $3.9 million in fiscal 2021. In fiscal 2022, we had net repayments on our borrowings of $29.2 million. In fiscal 2021, we had net repayments on our borrowings of $115.2 million, which included the repayment of the $100.0 million precautionary draw-down on our revolving credit facility from March 2020.
Contractual Obligations
The following table summarizes our significant contractual obligations and commercial commitments as of April 27, 2019:
|
| Payments Due By Period |
| |||||||||||||||||
(in millions) |
| Total |
|
| Less than |
|
| 1-3 years |
|
| 3-5 years |
|
| More than |
| |||||
Finance leases |
| $ | 0.8 |
|
| $ | 0.4 |
|
| $ | 0.3 |
|
| $ | 0.1 |
|
| $ | — |
|
Operating leases |
|
| 24.0 |
|
|
| 6.5 |
|
|
| 7.3 |
|
|
| 3.2 |
|
|
| 7.0 |
|
Debt (1) |
|
| 211.4 |
|
|
| 13.0 |
|
|
| 197.1 |
|
|
| 0.4 |
|
|
| 0.9 |
|
Estimated interest on debt (2) |
|
| 5.6 |
|
|
| 3.7 |
|
|
| 1.7 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Deferred compensation |
|
| 8.0 |
|
|
| 1.6 |
|
|
| 1.9 |
|
|
| 1.8 |
|
|
| 2.7 |
|
Total |
| $ | 249.8 |
|
| $ | 25.2 |
|
| $ | 208.3 |
|
| $ | 5.6 |
|
| $ | 10.7 |
|
Payments Due By Period | ||||||||||||||||||||
(Dollars in Millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Capital Leases | $ | 1.7 | $ | 0.6 | $ | 0.9 | $ | 0.2 | $ | — | ||||||||||
Operating Leases | 34.2 | 7.8 | 10.5 | 7.5 | 8.4 | |||||||||||||||
Debt (1) | 295.5 | 15.7 | 28.8 | 247.7 | 3.3 | |||||||||||||||
Estimated Interest on Debt (2) | 46.8 | 11.7 | 20.7 | 14.2 | 0.2 | |||||||||||||||
Deferred Compensation | 8.5 | 1.2 | 3.2 | 1.6 | 2.5 | |||||||||||||||
Total | $ | 386.7 | $ | 37.0 | $ | 64.1 | $ | 271.2 | $ | 14.4 | ||||||||||
(1) Assumes the outstanding borrowings under the revolving credit facility will be repaid upon maturity of the credit agreement in September 2023. | ||||||||||||||||||||
(2) Amounts represent estimated contractual interest payments on outstanding debt. Interest rates in effect as of April 27, 2019 are used for floating-rate debt. |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements other than the operating leases and purchase obligations noted in the preceding table.
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 defendantsA trial with respect to the matter has been set for trialbegan in February 2020.
We incurred legal fees of $3.5$3.3 million, $8.1$5.7 million and $11.0$5.4 million in fiscal 2019,2022, fiscal 20182021 and fiscal 2017,2020, respectively, related to the lawsuits. These amounts are included in the selling and administrative expenses inand as part of the InterfaceIndustrial segment.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions. In certain circumstances, those estimates and assumptions that can affect amounts reported in the accompanying consolidated financial statements and notes. In preparing our consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. As a result,To the extent that there are differences between these estimates and actual results, could differ from these estimates. The following is a brief discussion of our critical accounting policies and estimates. We believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements.
The full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated for these key estimates and assumptions. However, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date.
Revenue Recognition.
Revenue associated with products which we believe have no alternative use, and where we have an enforceable right to payment, are recognized on an over time basis. In transition to ASC 606, we noted some customers ordered highly customized parts in which we were entitled to payment throughout the manufacturing process. In accordance with ASC 606, we are now recognizing revenue over time for these customers as the performance obligationRevenue is satisfied. We believe the most faithful depiction of the transfer of goods to the customer isrecognized based on progress to date, which is typically smooth throughout the production process. As such, we recognize revenue evenlyeven over the production process through transfer of control to the customer.
In addition, from time to time, customers typicallymay 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.
Allowance for Doubtful Accounts.
Goodwill.
Goodwill is not amortized but is tested for impairment on at least an annual basis.Qualitative factors including,include, but are not limited to, the results of prior year fair value calculations, the movement of our share price and market capitalization, the reporting unit and overall financial performance, and macroeconomic and industry conditions. We consider the qualitative factors and weight of the evidence obtained to determine if it is more likely than not that a reporting unit'sunit’s fair value is less than the carrying amount. Although we believe the factors considered in the impairment analysis are reasonable, significant changes in any one of the assumptions used could produce a different result. If, after assessing the qualitative factors, we were to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we would perform a quantitative impairment test.assessment is performed. We may also elect to proceed directly to the quantitative impairment analysisassessment without considering such qualitative factors.
For the quantitative analysis,assessment, we utilize either, or a combination of, the income approach and market approach to estimate the fair values are primarily established usingvalue of the reporting unit. The income approach uses a discounted cash flow methodology (specifically,method and the income and market approach).approach uses appropriate valuation multiples observed for the reporting unit’s guideline public companies. The determination of discounted cash flows is based on our long-range forecasts and requires assumptions related to revenue and operating income growth, asset-related expenditures, working capital levels, and other market participant assumptions. The revenue growth rates included in the forecasts are our best estimates based on current and anticipated market conditions, and the profitability assumptions are projected based on current and anticipated cost structures. Long-range forecasting involves uncertainty which increases with each successive period. Key assumptions, such as revenue growth rates and profitability, especially in the outer years, involve a greater degree of uncertainty.
24
Impairment of Long-Lived Assets.
Income Taxes.
The amount of income taxes we pay is subject to disposeongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of our foreign subsidiariesrelevant risks, facts, and are not recording deferred taxes on outside basis differencescircumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in foreign subsidiariesa tax return. We record a liability for the saledifference between the benefit recognized and measured and tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We report tax-related interest and penalties as a foreign subsidiary.
Our deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. We adjust these amounts to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods
We provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings thatwe consider to be permanently reinvested. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. We have no plans to dispose of any of our foreign subsidiaries and are not recording deferred taxes on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.
Contingencies.
We are subject to various investigations, claims and legal and administrative proceedings covering a wide range of matters that arise in the ordinary course of business activities. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. For those matters that we can estimate a range of loss, we have established reserves at levels within that range to provide for the most likely scenario based upon available information. The valuation of reserves for contingencies is reviewed on a quarterly basis to ensure that we are properly reserved. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While we believe that the current level of reserves is adequate, changes in the future could impact these determinations.New Accounting Pronouncements
For more information regarding new applicable accounting pronouncements, see Note 1, “Description of Business and Summary of Significant Accounting Policies” to the consolidated financial statements included in this Annual Report.
25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks from foreign currency exchange, interest rates, and commodity prices, which could affect our operating results, financial position and cash flows. We do notmanage a portion of these risks through use anyof derivative financial instruments to manage these risks.
Foreign Currency Risk
We are exposed to foreign currency risk on sales, costs and assets and liabilities denominated in currencies other than the U.S. dollar. We seek to manage our foreign exchange risk largely through operational means, including matching revenue with same-currency costs and assets with same-currency liabilities. We currently transact business in eight primary currencies worldwide, of which the most significant wereare the U.S. dollar, the euro, the Mexican peso, and the Chinese renminbi.
A hypothetical 10% adverseportion of our balance sheet is exposed to foreign currency exchange rate fluctuations, which may result in non-operating foreign currency exchange gains or losses upon remeasurement. In fiscal 2022, we reported foreign currency exchange losses of approximately $1.9 million, which were primarily attributed to the remeasurement of net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. In January 2021, we began to use foreign currency forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. The forward contracts have a maturity of less than three months and are not designated as hedging instruments. As of April 30, 2022, the notional value of these outstanding contracts was $38.6 million, and the net unrealized loss was $0.2 million. The impact of a change in the foreign currency exchange rates could have impactedon our income before income taxes by $8.5 million and $1.9 million at April 27, 2019 and April 28, 2018, respectively. These estimates assume no changes other than the exchange rate itself. However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that rates can move in opposite directions and that gains from oneforeign currency may or may notforward contracts will generally be offset by lossesagainst the gain or loss from another currency.
The translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates as of the end of the fiscal year.reporting period. Translation adjustments are not included in determining net income but are included in accumulated other comprehensive income (loss) within shareholders’ equity on the consolidated balance sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. As of April 27, 2019,30, 2022, the cumulative net currency translation adjustments reduceddecreased shareholders’ equity by $13.6 million and$30.5 million. We have outstanding a euro denominated cross-currency swap which is treated as a net investment hedge to reduce our exposure to translational exchange risk. As of April 28, 2018,30, 2022, we recorded a deferred gain, net of tax, of $1.5 million related to the cumulative net currency translation adjustments increased shareholders’ equity by $13.9 million.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. The interest rate risk foron borrowings under our senior unsecured credit agreement under which we had $278.7 million of net borrowings at April 27, 2019, is variable and is based on LIBOR. WeAs of April 30, 2022, we had $206.3 million of borrowings under our senior unsecured credit agreement. In April 2021, we began to manage our interest rate exposures through the use of interest rate swaps to effectively convert a portion of our variable-rate debt to a fixed rate. The notional amount of our interest rate swaps was $100.0 million as of April 30, 2022. Based on borrowings outstanding under our senior unsecured credit agreement at April 30, 2022, net of the interest rate swaps, we estimate that a 1% increase in interest rates under our credit agreement would result in increased annual interest expense of $2.8$1.1 million.
Commodity Price Risk
We are exposed to commodity price risk primarily on our raw material purchases. These raw materials are not rare or unique to our industry. The cost of copper, resins, and other commodities, such as fuel and energy, has fluctuated in recent years due to changes in global supply and demand. The cost of copper increased significantly in fiscal 2022. Our gross margins could be affected if these types of costs continue to fluctuate. We actively manage these raw material costs through global sourcing initiatives and price increases on our products.products where possible. However, in the short-term, rapidfurther increases in raw material costs can be very difficult to fully offset with price increases because of contractual agreements with our customers.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data are filed within this Annual Report under Item 15, for an Index to Financial Statements and“Exhibits, Financial Statement Schedule. Such Financial Statements and Schedule are incorporated herein by reference.
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our “disclosuredisclosure controls and procedures” (asprocedures as of April 30, 2022. As defined in Rules 13a-15(e) and 15d-15(e) ofunder the Exchange Act). OurAct, disclosure controls and procedures are controls and procedures designed to ensureprovide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s applicable rules and forms. As a result ofBased upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, wemanagement conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 27, 201930, 2022 based on the guidelines established in
Based on the results of ourupon this evaluation, our management concluded that our internal control over financial reporting was effective as of April 27, 2019.30, 2022. Management reviewed the results of its assessment with the Audit Committee. Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on our internal control over financial reporting. This report is included on page F-2F-4 of this annual report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by a management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
27
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding our directors will be included under the captions “Proposal One: Election of Directors” and “Corporate Governance” incorporate governance matters is incorporated by reference herein to the definitive proxy statement for our 20192022 annual meeting to be held on September 12, 2019,under the captions “Proposal One Election of Directors” and is incorporated herein“Corporate Governance.” The information required by reference. Informationthis item regarding our executive officers is includedappears as a supplementary item following Item 4 under a separate caption in Part I hereof, and is incorporated hereinof this Annual Report. The information required by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 1 to Item 401 of Regulation S-K. Informationthis item regarding compliance with Section 16(a) of the Exchange Act and information regarding our Audit Committee will be includedis incorporated by reference herein to the definitive proxy statement for our 2022 annual meeting under the captions “Delinquent Section 16(a) Reports” and “Audit Committee Matters,” respectively, in the definitive proxy statement for our 2019 annual meeting and is incorporated herein by reference.
We have adopted a Code of Business Conduct (the “Code”) that applies to our directors, our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, as well as other employees. The Code is publicly available on our website at www.methode.com. If we make any substantive amendments to the Code or grant any waiver, including any implicit waiver, from a provision of the Code to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations.
Item 11. Executive Compensation
The information required by this item is incorporated by reference herein to the definitive proxy statement for our 20192022 annual meeting to be held on September 12, 2019,under the captions “Compensation Discussion and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except as set forth herein, the above will be included under the caption “Security Ownership” ininformation required by this item is incorporated by reference herein to the definitive proxy statement for our 20192022 annual meeting to be held on September 12, 2019, and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of April 27, 2019.30, 2022. All outstanding awards relate to our common stock. Shares issued under all of the following plans may be from our treasury, newly issued or both.
Plan category |
| Number of |
|
| Weighted- |
|
| Number of |
| |||
Equity compensation plans approved by security holders |
|
| 1,955,759 |
|
| 37.01(1) |
|
|
| 112,255 |
| |
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 1,955,759 |
|
| $ | 37.01 |
|
|
| 112,255 |
|
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||
Equity Compensation Plans Approved by Security Holders | 1,325,920 | (1) | $ | 35.77 | (2) | 1,344,034 | ||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||
Total | 1,325,920 | $ | 35.77 | 1,344,034 |
The information required by this item is incorporated by reference herein to the definitive proxy statement for our 20192022 annual meeting to be held on September 12, 2019,under the captions “Corporate Governance” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference herein to the definitive proxy statement for our 20192022 annual meeting to be held on September 12, 2019, and is incorporated herein by reference.
PART IV
Item 15. Exhibits, and Financial Statement Schedules
Reference is made to the following indexesIndex to Consolidated Financial Statements on Page F-1.
(2) Consolidated Financial Statement Schedule.
Reference is made to the Index to Financial Statement Schedule on Page F-1.
(3) Exhibits.
EXHIBIT INDEX
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1* | ||
10.2* | ||
10.3* | ||
10.4* | ||
10.5* | ||
10.6* | ||
10.7* | ||
10.8* | ||
10.9* | ||
10.10* | ||
10.11* | ||
10.12* | ||
10.13* |
29
10.14 | ||
10.15* | ||
10.16* | ||
10.17* | ||
10.18* | ||
10.19* | ||
10.20* | ||
10.21* | ||
10.22* | ||
10.23* | ||
10.24* | ||
10.25* | ||
10.26 | ||
10.27* | ||
10.28* | ||
21 | ||
23 | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. | |
32** | Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350. | |
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
* Management Compensatory Plan
** Indicates that the exhibit is being furnished with this report and not filed as part of this annual report on Form 10-K.
Item 16. Form 10-K Summary
None.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
METHODE ELECTRONICS, INC. | ||
(Registrant) | ||
By: | /s/ RONALD L.G. TSOUMAS | |
Ronald L.G. Tsoumas | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
Dated: June 20, 2019
31
Pursuant to the requirements of the Securities Exchange Act of 1934, this report annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/ | Chairman of the Board | June | ||
Walter J. Aspatore | ||||
/ | Vice Chairman of the Board | June | ||
Lawrence B. Skatoff | ||||
/s/ DONALD W. DUDA | Chief Executive Officer, President & Director | June | ||
Donald W. Duda | (Principal Executive Officer) | |||
/ | Chief Financial Officer | June | ||
Ronald L.G. Tsoumas | (Principal Financial Officer) | |||
/ | Chief Accounting Officer | June | ||
Amit N. Patel | (Principal Accounting Officer) | |||
/ | Director | June | ||
David P. Blom | ||||
/s/ THERESE M. BOBEK | Director | June 23, 2022 | ||
Therese M. Bobek | ||||
/s/ BRIAN J. CADWALLADER | Director | June | ||
Brian J. Cadwallader | ||||
/ | Director | June | ||
Bruce K. Crowther | ||||
/s/ DARREN M. DAWSON | Director | June | ||
Darren M. Dawson | ||||
/ | Director | June | ||
Janie Goddard | ||||
/ | Director | June 23, 2022 | ||
Mary A. Lindsey | ||||
/s/ ANGELO V. PANTALEO | Director | June 23, 2022 | ||
Angelo V. Pantaleo | ||||
/s/ MARK D. SCHWABERO | Director | June | ||
Mark D. Schwabero | ||||
32
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Statements: | Page | |
(PCAOB ID: 42) | ||
F-5 | ||
F-6 | ||
F-7 | ||
F-8 | ||
F-9 | ||
F-10 | ||
Schedule: | ||
F-34 |
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are immaterial and, therefore, have been omitted.
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Methode Electronics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Methode Electronics, Inc. and subsidiaries (the(the Company) as of April 27, 201930, 2022 and April 28, 2018,May 1, 2021, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended April 27, 2019,30, 2022, and the related notesand financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 27, 201930, 2022 and April 28, 2018,May 1, 2021, and the results of its operations and its cash flows for each of the three years in the period ended April 27, 2019,30, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 27, 2019,30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Goodwill Impairment Assessment
Description of the Matter | At April 30, 2022, the balance of the Company’s goodwill was $233.0 million. As discussed in Note 7 to the consolidated financial statements, goodwill is tested for impairment at least annually or when impairment indicators are present at the reporting unit. Auditing management’s assessment of goodwill impairment requires judgment to evaluate the effects of macroeconomic and industry conditions on the fair value of the reporting units. The fair value estimate can be sensitive to significant assumptions such as revenue growth rates, gross profit, and the discount rate. The estimate also includes assumptions related to the terminal growth rate, capital expenditures, working capital levels, and other market participant assumptions. |
F-2
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment assessment process. This included testing controls over management’s assessment of qualitative factors and review of the prospective financial information and other key assumptions used in the valuation model as well as controls over the carrying value of the reporting units. To test the goodwill impairment assessment, our audit procedures included, among others, considering existing events and circumstances in evaluating the Company’s assessment of qualitative factors, evaluating the Company's use of the income approach, testing the significant assumptions described above used to develop the prospective financial information, and testing the completeness and accuracy of the underlying data. For example, we compared certain qualitative assessment considerations and significant assumptions to current industry, market and economic trends. We also compared significant assumptions to historical performance, and other guideline companies within the same industry. We performed a sensitivity analysis of the significant assumptions when necessary to evaluate the change in the fair value of the reporting units resulting from changes in the assumptions. We also assessed the historical accuracy of management’s forecasting process and involved our valuation specialists to assist in testing certain significant assumptions in the fair value estimate. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1966.
Chicago, Illinois
June 20, 2019
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Methode Electronics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Methode Electronics, Inc. and subsidiaries’ internal control over financial reporting as of April 27, 2019,30, 2022, based on criteria established in Internal Control- IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 20192021 consolidated financial statements of the Company and our report dated June 20, 201923, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
June 20, 2019
F-4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
April 27, 2019 | April 28, 2018 | ||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and Cash Equivalents | $ | 83.2 | $ | 246.1 | |||
Accounts Receivable, Less Allowance (2019 - $0.9 and 2018 - $0.5) | 219.3 | 202.6 | |||||
Inventories | 116.7 | 84.1 | |||||
Income Taxes Receivable | 14.3 | 2.4 | |||||
Prepaid Expenses and Other Current Assets | 20.0 | 14.8 | |||||
TOTAL CURRENT ASSETS | 453.5 | 550.0 | |||||
NON-CURRENT ASSETS | |||||||
Property, Plant and Equipment, Net | 191.9 | 162.2 | |||||
Goodwill | 233.3 | 59.2 | |||||
Intangibles, Net | 264.9 | 61.0 | |||||
Deferred Tax Assets | 34.3 | 42.3 | |||||
Pre-production Costs | 32.8 | 20.5 | |||||
Other Long-term Assets | 21.0 | 20.7 | |||||
TOTAL NON-CURRENT ASSETS | 778.2 | 365.9 | |||||
TOTAL ASSETS | $ | 1,231.7 | $ | 915.9 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts Payable | $ | 91.9 | $ | 89.5 | |||
Accrued Employee Liabilities | 20.1 | 22.8 | |||||
Other Accrued Expenses | 33.9 | 21.6 | |||||
Short-term Debt | 15.7 | 4.4 | |||||
Income Tax Payable | 19.3 | 18.7 | |||||
TOTAL CURRENT LIABILITIES | 180.9 | 157.0 | |||||
LONG-TERM LIABILITIES | |||||||
Long-term Debt | 276.9 | 53.4 | |||||
Long-term Income Taxes Payable | 33.0 | 42.6 | |||||
Other Long-term Liabilities | 14.8 | 14.6 | |||||
Deferred Tax Liabilities | 36.4 | 18.3 | |||||
TOTAL LONG-TERM LIABILITIES | 361.1 | 128.9 | |||||
TOTAL LIABILITIES | 542.0 | 285.9 | |||||
SHAREHOLDERS’ EQUITY | |||||||
Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,333,576 shares and 38,198,353 shares issued as of April 27, 2019 and April 28, 2018, respectively | 19.2 | 19.1 | |||||
Additional Paid-in Capital | 150.4 | 136.5 | |||||
Accumulated Other Comprehensive Income (Loss) | (13.6 | ) | 13.9 | ||||
Treasury Stock, 1,346,624 shares as of April 27, 2019 and April 28, 2018 | (11.5 | ) | (11.5 | ) | |||
Retained Earnings | 545.2 | 472.0 | |||||
TOTAL SHAREHOLDERS' EQUITY | 689.7 | 630.0 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,231.7 | $ | 915.9 |
|
| April 30, 2022 |
|
| May 1, 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 172.0 |
|
| $ | 233.2 |
|
Accounts receivable, net |
|
| 273.3 |
|
|
| 282.5 |
|
Inventories |
|
| 158.5 |
|
|
| 124.2 |
|
Income taxes receivable |
|
| 8.3 |
|
|
| 11.5 |
|
Prepaid expenses and other current assets |
|
| 16.9 |
|
|
| 22.6 |
|
Total current assets |
|
| 629.0 |
|
|
| 674.0 |
|
Long-term assets: |
|
|
|
|
|
| ||
Property, plant and equipment, net |
|
| 197.0 |
|
|
| 204.0 |
|
Goodwill |
|
| 233.0 |
|
|
| 235.6 |
|
Other intangible assets, net |
|
| 207.7 |
|
|
| 229.4 |
|
Operating lease right-of-use assets, net |
|
| 20.0 |
|
|
| 22.3 |
|
Deferred tax assets |
|
| 36.8 |
|
|
| 41.2 |
|
Pre-production costs |
|
| 27.2 |
|
|
| 25.0 |
|
Other long-term assets |
|
| 38.4 |
|
|
| 35.5 |
|
Total long-term assets |
|
| 760.1 |
|
|
| 793.0 |
|
Total assets |
| $ | 1,389.1 |
|
| $ | 1,467.0 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 108.5 |
|
| $ | 122.9 |
|
Accrued employee liabilities |
|
| 30.0 |
|
|
| 33.5 |
|
Other accrued liabilities |
|
| 24.5 |
|
|
| 25.0 |
|
Short-term operating lease liabilities |
|
| 6.0 |
|
|
| 6.1 |
|
Short-term debt |
|
| 13.0 |
|
|
| 14.9 |
|
Income tax payable |
|
| 6.6 |
|
|
| 20.3 |
|
Total current liabilities |
|
| 188.6 |
|
|
| 222.7 |
|
Long-term liabilities: |
|
|
|
|
|
| ||
Long-term debt |
|
| 197.5 |
|
|
| 225.2 |
|
Long-term operating lease liabilities |
|
| 14.8 |
|
|
| 17.5 |
|
Long-term income taxes payable |
|
| 22.1 |
|
|
| 24.8 |
|
Other long-term liabilities |
|
| 14.0 |
|
|
| 20.5 |
|
Deferred tax liabilities |
|
| 38.3 |
|
|
| 38.3 |
|
Total long-term liabilities |
|
| 286.7 |
|
|
| 326.3 |
|
Total liabilities |
|
| 475.3 |
|
|
| 549.0 |
|
Shareholders' equity: |
|
|
|
|
|
| ||
Common stock, $0.50 par value, 100,000,000 shares authorized, 38,276,968 shares and 39,644,913 shares issued as of April 30, 2022 and May 1, 2021, respectively |
|
| 19.2 |
|
|
| 19.8 |
|
Additional paid-in capital |
|
| 169.0 |
|
|
| 157.6 |
|
Accumulated other comprehensive (loss) income |
|
| (26.8 | ) |
|
| 6.1 |
|
Treasury stock, 1,346,624 shares as of April 30, 2022 and May 1, 2021 |
|
| (11.5 | ) |
|
| (11.5 | ) |
Retained earnings |
|
| 763.9 |
|
|
| 746.0 |
|
Total shareholders' equity |
|
| 913.8 |
|
|
| 918.0 |
|
Total liabilities and shareholders' equity |
| $ | 1,389.1 |
|
| $ | 1,467.0 |
|
See notes to consolidated financial statements.
F-5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
Fiscal Year Ended | |||||||||||
April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
Net Sales | $ | 1,000.3 | $ | 908.3 | $ | 816.5 | |||||
Cost of Products Sold | 734.5 | 668.7 | 598.2 | ||||||||
Gross Profit | 265.8 | 239.6 | 218.3 | ||||||||
Selling and Administrative Expenses | 142.9 | 115.7 | 105.2 | ||||||||
Amortization of Intangibles | 16.1 | 5.6 | 2.3 | ||||||||
Income from Operations | 106.8 | 118.3 | 110.8 | ||||||||
Interest (Income) Expense, Net | 8.3 | 0.9 | (0.4 | ) | |||||||
Other Income, Net | (5.1 | ) | (6.4 | ) | (4.7 | ) | |||||
Income before Income Taxes | 103.6 | 123.8 | 115.9 | ||||||||
Income Tax Expense | 12.0 | 66.6 | 23.0 | ||||||||
Net Income | $ | 91.6 | $ | 57.2 | $ | 92.9 | |||||
Basic and Diluted Income per Share: | |||||||||||
Basic | $ | 2.45 | $ | 1.54 | $ | 2.49 | |||||
Diluted | $ | 2.43 | $ | 1.52 | $ | 2.48 | |||||
Cash Dividends per Share: | |||||||||||
Common Stock | $ | 0.44 | $ | 0.40 | $ | 0.36 |
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
|
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Net sales |
| $ | 1,163.6 |
|
| $ | 1,088.0 |
|
| $ | 1,023.9 |
|
|
|
|
|
|
|
|
|
|
| |||
Cost of products sold |
|
| 898.7 |
|
|
| 813.9 |
|
|
| 741.0 |
|
|
|
|
|
|
|
|
|
|
| |||
Gross profit |
|
| 264.9 |
|
|
| 274.1 |
|
|
| 282.9 |
|
|
|
|
|
|
|
|
|
|
| |||
Selling and administrative expenses |
|
| 134.1 |
|
|
| 126.9 |
|
|
| 116.8 |
|
Amortization of intangibles |
|
| 19.1 |
|
|
| 19.3 |
|
|
| 19.0 |
|
|
|
|
|
|
|
|
|
|
| |||
Income from operations |
|
| 111.7 |
|
|
| 127.9 |
|
|
| 147.1 |
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
| 3.5 |
|
|
| 5.2 |
|
|
| 10.1 |
|
Other income, net |
|
| (10.3 | ) |
|
| (12.2 | ) |
|
| (11.7 | ) |
|
|
|
|
|
|
|
|
|
| |||
Income before income taxes |
|
| 118.5 |
|
|
| 134.9 |
|
|
| 148.7 |
|
|
|
|
|
|
|
|
|
|
| |||
Income tax expense |
|
| 16.3 |
|
|
| 12.6 |
|
|
| 25.3 |
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 102.2 |
|
| $ | 122.3 |
|
| $ | 123.4 |
|
|
|
|
|
|
|
|
|
|
| |||
Basic and diluted income per share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 2.74 |
|
| $ | 3.22 |
|
| $ | 3.28 |
|
Diluted |
| $ | 2.70 |
|
| $ | 3.19 |
|
| $ | 3.26 |
|
|
|
|
|
|
|
|
|
|
| |||
Cash dividends per share |
| $ | 0.56 |
|
| $ | 0.44 |
|
| $ | 0.44 |
|
See notes to consolidated financial statements.
F-6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Fiscal Year Ended | |||||||||||
April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
Net Income | $ | 91.6 | $ | 57.2 | $ | 92.9 | |||||
Other Comprehensive Income (Loss): | |||||||||||
Foreign Currency Translation Adjustments | (27.5 | ) | 39.6 | (17.3 | ) | ||||||
Total Comprehensive Income | $ | 64.1 | $ | 96.8 | $ | 75.6 |
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
|
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Net income |
| $ | 102.2 |
|
| $ | 122.3 |
|
| $ | 123.4 |
|
|
|
|
|
|
|
|
|
|
| |||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
| |||
Foreign currency translation adjustments |
|
| (42.0 | ) |
|
| 37.4 |
|
|
| (12.3 | ) |
Derivative financial instruments |
|
| 9.1 |
|
|
| (4.4 | ) |
|
| (1.0 | ) |
Total comprehensive income |
| $ | 69.3 |
|
| $ | 155.3 |
|
| $ | 110.1 |
|
See notes to consolidated financial statements.
F-7
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
(in millions, except share data)
Common Stock Shares | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Retained Earnings | Total Shareholders Equity | ||||||||||||||||||||
Balance as of April 30, 2016 | 38,181,985 | $ | 19.1 | $ | 112.3 | $ | (8.4 | ) | $ | (11.5 | ) | $ | 358.6 | $ | 470.1 | |||||||||||
Earned Portion of Restricted Stock, Net of Tax Withholding | 146,192 | 0.1 | — | — | — | (1.2 | ) | (1.1 | ) | |||||||||||||||||
Stock-based Compensation Expense | — | — | 12.4 | — | — | — | 12.4 | |||||||||||||||||||
Exercise of Stock Options | 147,829 | 0.1 | 2.6 | — | — | — | 2.7 | |||||||||||||||||||
Purchase of Common Stock | (342,081 | ) | (0.2 | ) | — | — | — | (9.6 | ) | (9.8 | ) | |||||||||||||||
Tax Benefit from Stock Option Exercises | — | — | 4.9 | — | — | — | 4.9 | |||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | (17.3 | ) | — | — | (17.3 | ) | |||||||||||||||||
Net Income for Year | — | — | — | — | — | 92.9 | 92.9 | |||||||||||||||||||
Dividends on Common Stock | — | — | — | — | — | (13.7 | ) | (13.7 | ) | |||||||||||||||||
Balance as of April 29, 2017 | 38,133,925 | 19.1 | 132.2 | (25.7 | ) | (11.5 | ) | 427.0 | 541.1 | |||||||||||||||||
Earned Portion of Restricted Stock, Net of Tax Withholding | 51,095 | — | — | — | — | (0.2 | ) | (0.2 | ) | |||||||||||||||||
Stock-based Compensation Expense | — | — | 4.0 | — | — | — | 4.0 | |||||||||||||||||||
Exercise of Stock Options | 13,333 | — | 0.3 | — | — | — | 0.3 | |||||||||||||||||||
Adoption of ASU 2016-09 | — | — | — | — | — | 2.7 | 2.7 | |||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | 39.6 | — | — | 39.6 | |||||||||||||||||||
Net Income for Year | — | — | — | — | — | 57.2 | 57.2 | |||||||||||||||||||
Dividends on Common Stock | — | — | — | — | — | (14.7 | ) | (14.7 | ) | |||||||||||||||||
Balance as of April 28, 2018 | 38,198,353 | 19.1 | 136.5 | 13.9 | (11.5 | ) | 472.0 | 630.0 | ||||||||||||||||||
Earned Portion of Restricted Stock, Net of Tax Withholding | 135,223 | 0.1 | (0.1 | ) | — | — | (1.7 | ) | (1.7 | ) | ||||||||||||||||
Stock-based Compensation Expense | — | — | 14.0 | — | — | — | 14.0 | |||||||||||||||||||
Adoption of ASU 2014-09 | — | — | — | — | — | 0.1 | 0.1 | |||||||||||||||||||
Foreign Currency Translation Adjustments | — | — | — | (27.5 | ) | — | — | (27.5 | ) | |||||||||||||||||
Net Income for Year | — | — | — | — | — | 91.6 | 91.6 | |||||||||||||||||||
Dividends on Common Stock | — | — | — | — | — | (16.8 | ) | (16.8 | ) | |||||||||||||||||
Balance as of April 27, 2019 | 38,333,576 | $ | 19.2 | $ | 150.4 | $ | (13.6 | ) | $ | (11.5 | ) | $ | 545.2 | $ | 689.7 |
|
| Common |
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Treasury |
|
| Retained |
|
| Total |
| |||||||
Balance as of April 27, 2019 |
|
| 38,333,576 |
|
| $ | 19.2 |
|
| $ | 150.4 |
|
| $ | (13.6 | ) |
| $ | (11.5 | ) |
| $ | 545.2 |
|
| $ | 689.7 |
|
Issuance of restricted stock, net of tax withholding |
|
| 104,535 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) |
|
| (0.4 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13.3 | ) |
|
| — |
|
|
| — |
|
|
| (13.3 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 123.4 |
|
|
| 123.4 |
|
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16.3 | ) |
|
| (16.3 | ) |
Balance as of May 2, 2020 |
|
| 38,438,111 |
|
|
| 19.2 |
|
|
| 150.7 |
|
|
| (26.9 | ) |
|
| (11.5 | ) |
|
| 651.9 |
|
|
| 783.4 |
|
Issuance of restricted stock, net of tax withholding |
|
| 1,350,251 |
|
|
| 0.7 |
|
|
| (0.7 | ) |
|
| — |
|
|
| — |
|
|
| (3.9 | ) |
|
| (3.9 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 6.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.8 |
|
Exercise of stock options |
|
| 24,500 |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.8 |
|
Purchases of common stock |
|
| (167,949 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7.4 | ) |
|
| (7.5 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33.0 |
|
|
| — |
|
|
| — |
|
|
| 33.0 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122.3 |
|
|
| 122.3 |
|
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16.9 | ) |
|
| (16.9 | ) |
Balance as of May 1, 2021 |
|
| 39,644,913 |
|
|
| 19.8 |
|
|
| 157.6 |
|
|
| 6.1 |
|
|
| (11.5 | ) |
|
| 746.0 |
|
|
| 918.0 |
|
Issuance of restricted stock, net of tax withholding |
|
| 44,245 |
|
|
| 0.1 |
|
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| (0.3 | ) |
|
| (0.3 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 11.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11.0 |
|
Exercise of stock options |
|
| 13,000 |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
Purchases of common stock |
|
| (1,425,190 | ) |
|
| (0.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (63.0 | ) |
|
| (63.7 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (32.9 | ) |
|
| — |
|
|
| — |
|
|
| (32.9 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 102.2 |
|
|
| 102.2 |
|
Dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21.0 | ) |
|
| (21.0 | ) |
Balance as of April 30, 2022 |
|
| 38,276,968 |
|
| $ | 19.2 |
|
| $ | 169.0 |
|
| $ | (26.8 | ) |
| $ | (11.5 | ) |
| $ | 763.9 |
|
| $ | 913.8 |
|
See notes to consolidated financial statements.
F-8
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Fiscal Year Ended | |||||||||||
April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
OPERATING ACTIVITIES: | |||||||||||
Net Income | $ | 91.6 | $ | 57.2 | $ | 92.9 | |||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | |||||||||||
Change in Cash Surrender Value of Life Insurance | (0.6 | ) | (0.8 | ) | (0.9 | ) | |||||
Amortization of Debt Issuance Costs | 0.5 | — | — | ||||||||
Gain on Sale of Fixed Assets | (0.4 | ) | — | — | |||||||
Gain on Sale of Licensing Agreement | — | (1.6 | ) | — | |||||||
Depreciation | 27.2 | 22.5 | 22.0 | ||||||||
Amortization of Intangible Assets | 16.1 | 5.6 | 2.3 | ||||||||
Stock-based Compensation Expense | 14.0 | 4.0 | 12.4 | ||||||||
Provision for Bad Debt | 0.2 | — | 0.2 | ||||||||
Change in Deferred Income Taxes | (4.4 | ) | (12.7 | ) | (3.9 | ) | |||||
Changes in Operating Assets and Liabilities, net of Acquisitions: | |||||||||||
Accounts Receivable | 1.5 | 2.8 | 5.6 | ||||||||
Inventories | (3.9 | ) | (7.2 | ) | 7.4 | ||||||
Prepaid Expenses and Other Assets | (16.7 | ) | 8.2 | (3.9 | ) | ||||||
Accounts Payable and Other Accrued Expenses | (23.1 | ) | 39.8 | 11.1 | |||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 102.0 | 117.8 | 145.2 | ||||||||
INVESTING ACTIVITIES: | |||||||||||
Purchases of Property, Plant and Equipment | (49.8 | ) | (47.7 | ) | (22.4 | ) | |||||
Acquisition of Businesses, Net of Cash Received | (422.1 | ) | (130.9 | ) | — | ||||||
Acquisition of Technology Licenses | — | (0.7 | ) | — | |||||||
Sale of Business/Investment/Property | 1.1 | 0.3 | 0.7 | ||||||||
NET CASH USED IN INVESTING ACTIVITIES | (470.8 | ) | (179.0 | ) | (21.7 | ) | |||||
FINANCING ACTIVITIES: | |||||||||||
Taxes Paid Related to Net Share Settlement of Equity Awards | (1.7 | ) | (0.3 | ) | (1.1 | ) | |||||
Debt Issuance Costs | (3.1 | ) | — | — | |||||||
Purchase of Common Stock | — | — | (9.8 | ) | |||||||
Proceeds from Exercise of Stock Options | — | 0.3 | 2.7 | ||||||||
Tax Benefit from Stock Option Exercises | — | — | 4.9 | ||||||||
Cash Dividends | (16.3 | ) | (14.7 | ) | (13.7 | ) | |||||
Proceeds from Borrowings | 359.0 | 81.4 | — | ||||||||
Repayment of Borrowings | (120.5 | ) | (79.4 | ) | (30.0 | ) | |||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 217.4 | (12.7 | ) | (47.0 | ) | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (11.5 | ) | 26.0 | (10.3 | ) | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (162.9 | ) | (47.9 | ) | 66.2 | ||||||
Cash and Cash Equivalents at Beginning of Year | 246.1 | 294.0 | 227.8 | ||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 83.2 | $ | 246.1 | $ | 294.0 |
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
|
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Operating activities: |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 102.2 |
|
| $ | 122.3 |
|
| $ | 123.4 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 52.6 |
|
|
| 51.5 |
|
|
| 48.3 |
|
Stock-based compensation expense |
|
| 11.8 |
|
|
| 6.8 |
|
|
| 0.3 |
|
Change in cash surrender value of life insurance |
|
| 0.1 |
|
|
| (2.0 | ) |
|
| — |
|
Amortization of debt issuance costs |
|
| 0.7 |
|
|
| 0.7 |
|
|
| 0.7 |
|
(Gain) loss on sale of business/investment/property |
|
| (0.3 | ) |
|
| 1.3 |
|
|
| (0.4 | ) |
Impairment of long-lived assets |
|
| 3.1 |
|
|
| — |
|
|
| — |
|
Change in deferred income taxes |
|
| (2.1 | ) |
|
| (9.6 | ) |
|
| 8.0 |
|
Other |
|
| 0.5 |
|
|
| 2.0 |
|
|
| (0.2 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (2.0 | ) |
|
| (81.9 | ) |
|
| 27.4 |
|
Inventories |
|
| (39.3 | ) |
|
| 11.3 |
|
|
| (15.8 | ) |
Prepaid expenses and other assets |
|
| 1.5 |
|
|
| 17.9 |
|
|
| (3.6 | ) |
Accounts payable |
|
| (8.7 | ) |
|
| 44.0 |
|
|
| (15.5 | ) |
Other liabilities |
|
| (21.3 | ) |
|
| 15.5 |
|
|
| (32.0 | ) |
Net cash provided by operating activities |
|
| 98.8 |
|
|
| 179.8 |
|
|
| 140.6 |
|
|
|
|
|
|
|
|
|
|
| |||
Investing activities: |
|
|
|
|
|
|
|
|
| |||
Purchases of property, plant and equipment |
|
| (38.0 | ) |
|
| (24.9 | ) |
|
| (45.1 | ) |
Sale of business/investment/property |
|
| 0.6 |
|
|
| 0.1 |
|
|
| 0.6 |
|
Net cash used in investing activities |
|
| (37.4 | ) |
|
| (24.8 | ) |
|
| (44.5 | ) |
|
|
|
|
|
|
|
|
|
| |||
Financing activities: |
|
|
|
|
|
|
|
|
| |||
Taxes paid related to net share settlement of equity awards |
|
| (0.3 | ) |
|
| (3.9 | ) |
|
| (0.4 | ) |
Repayments of finance leases |
|
| (0.7 | ) |
|
| (0.5 | ) |
|
| (0.7 | ) |
Proceeds from exercise of stock options |
|
| 0.5 |
|
|
| 0.8 |
|
|
| — |
|
Purchases of common stock |
|
| (64.5 | ) |
|
| (6.7 | ) |
|
| — |
|
Cash dividends |
|
| (20.4 | ) |
|
| (17.4 | ) |
|
| (16.3 | ) |
Proceeds from borrowings |
|
| — |
|
|
| 1.5 |
|
|
| 157.5 |
|
Repayments of borrowings |
|
| (29.2 | ) |
|
| (116.7 | ) |
|
| (98.4 | ) |
Net cash (used in) provided by financing activities |
|
| (114.6 | ) |
|
| (142.9 | ) |
|
| 41.7 |
|
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
| (8.0 | ) |
|
| 3.8 |
|
|
| (3.7 | ) |
(Decrease) increase in cash and cash equivalents |
|
| (61.2 | ) |
|
| 15.9 |
|
|
| 134.1 |
|
Cash and cash equivalents at beginning of the year |
|
| 233.2 |
|
|
| 217.3 |
|
|
| 83.2 |
|
Cash and cash equivalents at end of the year |
| $ | 172.0 |
|
| $ | 233.2 |
|
| $ | 217.3 |
|
|
|
|
|
|
|
|
|
|
| |||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
| |||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
| |||
Interest |
| $ | 3.6 |
|
| $ | 5.3 |
|
| $ | 9.9 |
|
Income taxes, net of refunds |
| $ | 32.3 |
|
| $ | 16.0 |
|
| $ | 21.1 |
|
See notes to consolidated financial statements.
F-9
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Description of Business and Summary of Significant Accounting PoliciesMethode Electronics, Inc. (the "Company"“Company” or "Methode"“Methode”) is a leading global manufacturersupplier of componentcustom engineered solutions with sales, engineering and subsystem devices with manufacturing designlocations in North America, Europe, Middle East and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. The Company's primary manufacturing facilities are located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; and Monterrey and Fresnillo, Mexico.Asia. The Company designs, manufacturesengineers and produces mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing its broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and sensor applications.
The Company’s solutions are found in the end markets devices employing electrical, radio remote control, electronic, wirelessof transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and sensing technologies.rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices.
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 2022 and 2021 represented 52 weeks and ended on April 30, 2022 and May 1, 2021, respectively. Fiscal 2020 represented 53 weeks and ended on May 2, 2020. The following discussions of comparative results among periods should be reviewed in that context.
Impact of the COVID-19 pandemic. The COVID-19 pandemic and the ongoing measures to reduce its spread have negatively impacted the global economy, disrupted consumer and customer demand and global supply chains, and resulted in manufacturing inefficiencies and increased freight costs due to global capacity constraints. The Company expects that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact its business and results of operations for the foreseeable future. The extent of the impact will depend on a number of evolving and uncertain factors, including the duration and spread of COVID-19 (and its variants), the rate of vaccinations, actions taken by governmental authorities to further restrict business operations and social activity and impose travel restrictions, shifting consumer demand, the ability of the Company’s supply chain to deliver in a timely and cost-effective manner, the ability of the Company’s employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of the Company’s customers and suppliers and future access to capital.
The Company continues to experience business interruptions, including customer shutdowns and increased material and logistics costs, labor shortages, and most significantly, impacts from the worldwide semiconductor supply shortage. The semiconductor supply shortage is due, in part, to increased demand across multiple industries, including the automotive industry, resulting in a slowdown in their production schedules. The semiconductor supply shortage is also impacting the Company’s supply chain and its ability to meet demand at some of its non-automotive customers. The Company expects this semiconductor shortage will have a continued impact on its operating results and financial condition in fiscal 2023.
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 $10.0 million, $11.1 million and $1.7 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, and has been reported in other income, net in the consolidated statements of income.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company’s goodwill, identifiable intangible assets and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of April 30, 2022 and through the date of this report. As a result of these assessments, the Company concluded that there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company’s consolidated financial statements as of April 30, 2022 and for the year ended April 30, 2022. 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.
Principles of Consolidation.
Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents.
F-10
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivablereceivable and Allowanceallowance for Doubtful Accounts.
Concentration of credit risk. Financial assets that subject the estimateCompany to concentration of credit risk consist primarily of cash equivalents, derivative contracts, and accounts receivable. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the ultimate collectabilityCompany’s requirement of a specific account balance. Thehigh credit standing. For accounts receivable, the Company generally does not require collateral for its accounts receivable. When a receivable balance is determined to be no longer collectible, it is written off against the allowance for doubtful accounts. Accounts receivable are generally due within 30 days to 45 days. Credit losses relating to all customers have not been material.
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.(Dollars in Millions) | April 27, 2019 | April 28, 2018 | ||||||
Finished Products | $ | 40.2 | $ | 15.4 | ||||
Work in Process | 9.4 | 14.6 | ||||||
Materials | 67.1 | 54.1 | ||||||
Total Inventories | $ | 116.7 | $ | 84.1 |
Property, Plantplant and Equipment.
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | ||||||
Land | $ | 3.7 | $ | 0.8 | ||||
Buildings and Building Improvements | 81.2 | 69.2 | ||||||
Machinery and Equipment | 390.7 | 364.7 | ||||||
Total Property, Plant and Equipment, Gross | 475.6 | 434.7 | ||||||
Less: Accumulated Depreciation | 283.7 | 272.5 | ||||||
Property, Plant and Equipment, Net | $ | 191.9 | $ | 162.2 |
Business combinations.The Company has elected to treat shipping and handling costs as an activity necessary to fulfillaccounts for business combinations using the performance obligation to transfer product to the customer and not as a separate performance obligation. Shipping and handling costs are estimated at quarter end in proportion to revenue recognized for transactions where actual costs are not yet known.
Goodwill.
Goodwill is not amortized but is tested for impairment on at least an annual basis. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount including goodwill. An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit.In conducting itsperforming the goodwill impairment testing,test, the Company may first perform aassess qualitative assessment offactors to determine whether it is more likely than not that the estimated fair value of a reporting unit’s fair valueunit is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. IfSee Note 7, “Goodwill and Other Intangible Assets” for additional information regarding the net book valueCompany’s goodwill impairment assessment for fiscal 2022.
Amortizable intangible assets. Amortizable intangible assets consist primarily of a reporting unit exceeds its fair value, an impairment lossvalues assigned to customer relationships and trade names. Amortization is measuredrecognized over the useful lives of the intangible assets, generally up to 20 years, using the straight-line method. See Note 7, “Goodwill and recognized.Other Intangible Assets” for additional information.
Impairment of long-lived assets. The Company continually evaluates whether events and circumstances have occurred which indicate that the remaining estimated useful lives of its intangible assets, excluding goodwill, and other long-lived assets, may warrant revision or that the remaining balance of such assets may not be recoverable. If impairment indicators exist, the Company performs an impairment analysis by comparing the undiscounted cash flows resulting from the use of the asset group to the carrying amount. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized based on the excess of the asset’s carrying amount over its fair value.
F-11
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pre-production costs related to long-term supply arrangements. The Company incurs pre-production tooling costs related to products produced for its customers under long-term supply arrangements. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable by the customer. As of April 30, 2022 and May 1, 2021, the Company had $27.2 million and $25.0 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling.
Costs for molds, dies and other tools used in products produced for its customers under long-term supply arrangements for which the Company has title are capitalized in property, plant and equipment and amortized over the shorter of the life of the arrangement or over the estimated useful life of the assets. Company owned tooling was $14.6 million and $17.0 million as of April 30, 2022 and May 1, 2021, respectively.
Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company estimates the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company utilizes certain practical expedients, including the election not to reassess its prior conclusions about lease identification, lease classification and initial direct costs, as well as the election not to separate lease and non-lease components for arrangements where the Company is a lessee. The Company elects to recognize a right-of-use asset and related lease liability for leases with a lease term of 12 months or less for all classes of underlying assets. Lease expense is recognized on a straight-line basis over the lease term. See Note 3, “Leases” for additional information.
Derivative financial instruments. The Company uses derivative financial instruments, including swaps and forward contracts, to manage exposures to changes in currency exchange rates and interest rates. The Company does not enter into or hold derivative financial instruments for trading or speculative purposes. See Note 8, “Derivative Financial Instruments and Hedging Activities” for additional information.
Income taxes. Income taxes are calculated using the asset and liability method, under which deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. See Note 11, “Income Taxes” for additional information.
Revenue recognition. Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.”Revenue ismeasured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. From time to time, customers may negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.
Across all products, the amount of revenue recognized corresponds to the related purchase order and is adjusted for variable consideration (such as discounts). Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
The Company’s performance obligations are typically short-term in nature. As a result, the Company has elected the practical expedient that provides an exemption from the disclosure requirements regarding information about remaining performance obligations on contracts that have original expected durations of one year or less. See Note 2, “Revenue” for further information.
Shipping and handling fees and costs. Shipping and handling fees billed to customers are included in net sales, and the related costs are included in cost of products sold.
F-12
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring expense. Restructuring expense includes costs directly associated with exit or disposal activities. Such costs include employee severance and termination benefits, asset impairment charges, contract termination fees, and other exit or disposal costs. Employee termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable. Asset impairment charges relate to the impairment of ROU lease assets and equipment. Contract termination costs are recorded when notification of termination is given to the other party. See Note 4, “Restructuring” for additional information.
Foreign currency translation. The functional currencies of the majority of the Company’s foreign subsidiaries are their local currencies. The results of operations of these foreign subsidiaries are translated into U.S. dollars using average monthly rates, while the assets and liabilities are translated using period-end exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains and losses arising from transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions, are included in the consolidated statements of income in other income, net.
Government grants. The Company recognizes grant income in other income, net in the consolidated statements of income when it is considered that there is reasonable assurance that the grant will be received and the necessary qualifying conditions, as stated in the grant agreement, are met. The international government grants are generally paid over a period of years and are recorded at amortized cost on the Company’s consolidated balance sheets. As of April 30, 2022 and May 1, 2021, grant receivables outstanding were $12.7 million and $18.6 million, respectively. The short-term and long-term portion of grant receivables are recorded on the consolidated balance sheets within accounts receivable, net and other long-term assets, respectively. Additionally, as of April 30, 2022 and May 1, 2021, the Company has no deferred grant income.
Research and Development Costsdevelopment costs. Costs associated with the enhancement of existing products and the development of new products are charged to expense when incurred. Research and development expenses primarily relate to product engineering and design and development expenses and are classified as a component of cost of goods sold on the consolidated statements of income. Research and development costs were $41.2$35.7 million, $37.9$37.1 million and $27.8$34.9 million for fiscal 2019,2022, fiscal 20182021 and fiscal 2017,2020, respectively.
Stock-based compensation. The Company recognizes compensation expense for the cost of awards of equity compensation using a fair value method in accordance with ASC 718, "Stock-based Compensation."“Stock-based Compensation.” See Note 5, "Shareholders’ Equity,"13, “Shareholders’ Equity” for additional information on stock-based compensation.
Product Warranty.
Fair value measurement. ASC 820, “Fair Value Measurements:
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes to the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The carrying values of the Company'sCompany’s short-term financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments.
F-13
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently IssuedAdopted Accounting Pronouncements
In February 2018,December 2019, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU"(“ASU”) No. 2018-02, "Income Statement-Reporting Comprehensive 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 220)740),” which simplifies the accounting for income taxes. The new guidance removes certain exceptions to the general principles in ASC 740, such as recognizing deferred taxes for equity investments, the incremental approach to performing intraperiod tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a 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. The Company adopted ASU 2019-12 as of May 2, 2021, and the impact on its consolidated financial statements was not material.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): ReclassificationFacilitation of Certain Taxthe Effects from Accumulated Other Comprehensive Income." The amendments inof 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 the adoption of this update did not have a material impact on the Company's consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832),” which requires business entities to disclose information about transactions with a government that are intended to addressaccounted for by applying a specific consequence of U.S. Tax Reformgrant or contribution model by allowing a reclassification from accumulated other comprehensive income to retained earningsanalogy (for example, International Financial Reporting Standards guidance in International Accounting Standard 20 or guidance on contributions for stranded tax effects resulting from U.S. Tax Reform’s reductionnot-for-profit entities in ASC 958-605). For transactions in the scope of the U.S. federal corporate income tax rate.new standard, business entities will need to provide information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The ASUnew guidance is effective for all entities for annual reporting periods beginning after December 15, 2018, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate is recognized. ASU 2018-02 will be effective in the first quarter of fiscal 2020. Management does not expect this ASU to have a material impact on the Company’s consolidated financial statements.
Note 2.Revenue
The Company generates revenue from manufacturing of fiscal 2021. Management is currently assessing the impactproducts for customers in diversified global markets. The majority of the new standard, but does not anticipateCompany’s revenue is recognized at a point in time. The Company has determined that the adoption of this standard will havemost definitive demonstration that control has transferred to a material impactcustomer is physical shipment or delivery, depending on the manner in which it estimates the allowancecontractual shipping terms, except for doubtful accounts on its trade accounts receivable.
Revenue associated with the related amendments using a modified retrospective approach to all contracts open as of that date. Upon adoption,products which the Company recognized a $0.1 million increase to opening retained earnings. This adjustment was a result of modifying the
Fiscal Year Ended April 27, 2019 | ||||||||||||
(Dollars in Millions) | As Reported | Adjustments | Balance Under ASC 605 | |||||||||
Net Sales | $ | 1,000.3 | $ | (24.2 | ) | $ | 1,024.5 | |||||
Cost of Products Sold | $ | 734.5 | $ | (24.2 | ) | $ | 758.7 | |||||
Total Inventories | $ | 116.7 | $ | (0.5 | ) | $ | 117.2 | |||||
Contract Assets | $ | 0.8 | $ | 0.8 | $ | — | ||||||
Contract Liabilities | $ | 0.3 | $ | 0.3 | $ | — | ||||||
Retained Earnings | $ | 545.2 | $ | 0.1 | $ | 545.1 |
Estimating total contract revenue may require judgment as certain contracts contain pricing discount structures, early payment discounts or other provisions that can impact the transaction price. The Company generally estimates variable consideration utilizing the most likely amount to which we expectit expects to be entitled. When the contract provides the customer with the right to return eligible products, the Company reduces revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns. The Company adjusts these estimates at the earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time. The Company’s payment terms with its customers are typically 30-45 days from the time control transfers. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient forunder ASC 606 to not assess whether a contract has a significant financing components, allowingcomponent.
F-14
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs to fulfill/obtain a contract
The Company incurs pre-production tooling costs related to products produced for customers under long-term supply arrangements. These costs are capitalized and recognized into income upon acceptance. The Company concluded that pre-production tooling and engineering costs do not represent a promised good or service under ASC 606, and as such, reimbursements received are accounted for as a reimbursement of the expense, not revenue.
The Company has not historically incurred material costs to obtain a contract. In the instances that costs to obtain contracts are incurred, the Company to not adjust the promised amount of consideration for the effects of a financing component when payment terms are within one year from the time a performance obligation is satisfied. The Company's customers' payment terms are typically 30-45 days from the time control transfers.
Contract balances are identified and the portfolio-specific margin is applied to estimate the pro-rata portion of revenue earned in relation to the costs incurred.
The Company receives payment from customers based on the contractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. A contract liability exists when the Company has received consideration, or the amount is due from the customer in advance of revenue recognition. Contract assets and contract liabilities are recognized in other current assets and other liabilities, respectively, in the Company's consolidated balance sheets.
Unbilled Receivables (Contract Assets)
Deferred Revenue (Contract Liabilities)
Disaggregated Revenue Information
The Company views the following disaggregated disclosures as useful to understanding the compositiontable represents a disaggregation of revenue recognized during the respective reporting period. Geographic netfrom contracts with customers by segment and geographical location. Net sales are determinedattributed to regions based on sales from its various operational locations.the location of production. Though revenue recognition patterns and contracts are generally consistent, the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic and economic factors.
F-15
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Fiscal Year Ended April 30, 2022 |
| |||||||||||||||||
(in millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Total |
| |||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
North America |
| $ | 400.9 |
|
| $ | 177.2 |
|
| $ | 59.3 |
|
| $ | 4.1 |
|
| $ | 641.5 |
|
EMEA |
|
| 216.5 |
|
|
| 80.8 |
|
|
| — |
|
|
| — |
|
|
| 297.3 |
|
Asia |
|
| 164.1 |
|
|
| 60.1 |
|
|
| 0.5 |
|
|
| 0.1 |
|
|
| 224.8 |
|
Total net sales |
| $ | 781.5 |
|
| $ | 318.1 |
|
| $ | 59.8 |
|
| $ | 4.2 |
|
| $ | 1,163.6 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goods transferred at a point in time |
| $ | 758.4 |
|
| $ | 318.1 |
|
| $ | 59.8 |
|
| $ | 4.2 |
|
| $ | 1,140.5 |
|
Goods transferred over time |
|
| 23.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23.1 |
|
Total net sales |
| $ | 781.5 |
|
| $ | 318.1 |
|
| $ | 59.8 |
|
| $ | 4.2 |
|
| $ | 1,163.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Fiscal Year Ended May 1, 2021 |
| |||||||||||||||||
(in millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Total |
| |||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
North America |
| $ | 406.4 |
|
| $ | 142.9 |
|
| $ | 61.0 |
|
| $ | 2.7 |
|
| $ | 613.0 |
|
EMEA |
|
| 212.3 |
|
|
| 68.2 |
|
|
| — |
|
|
| — |
|
|
| 280.5 |
|
Asia |
|
| 137.0 |
|
|
| 56.8 |
|
|
| 0.6 |
|
|
| 0.1 |
|
|
| 194.5 |
|
Total net sales |
| $ | 755.7 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 1,088.0 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goods transferred at a point in time |
| $ | 722.1 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 1,054.4 |
|
Goods transferred over time |
|
| 33.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33.6 |
|
Total net sales |
| $ | 755.7 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 1,088.0 |
|
Customer Concentration
Fiscal Year Ended April 27, 2019 | ||||||||||||||||||||
(Dollars in Millions) | Auto | Industrial | Interface | Medical | Total | |||||||||||||||
Geographic Net Sales: | ||||||||||||||||||||
U.S. | $ | 373.0 | $ | 110.3 | $ | 56.1 | $ | 1.1 | $ | 540.5 | ||||||||||
Malta | 116.4 | 31.8 | 0.3 | — | 148.5 | |||||||||||||||
China | 78.2 | 35.3 | 0.2 | — | 113.7 | |||||||||||||||
Canada | 87.8 | 13.8 | — | — | 101.6 | |||||||||||||||
Other | 79.3 | 15.6 | 1.1 | — | 96.0 | |||||||||||||||
Total Net Sales | $ | 734.7 | $ | 206.8 | $ | 57.7 | $ | 1.1 | $ | 1,000.3 | ||||||||||
Timing of Revenue Recognition: | ||||||||||||||||||||
Goods Transferred at a Point in Time | $ | 704.4 | $ | 206.8 | $ | 57.7 | $ | 1.1 | $ | 970.0 | ||||||||||
Goods Transferred Over Time | 30.3 | — | — | — | 30.3 | |||||||||||||||
Total Net Sales | $ | 734.7 | $ | 206.8 | $ | 57.7 | $ | 1.1 | $ | 1,000.3 |
Sales to GM and Ford in the Automotive segment, either directly or through theirits tiered suppliers, represented aare shown below.
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
Percentage of net sales: |
|
|
|
|
|
|
|
|
| |||
GM |
|
| 23.3 | % |
|
| 27.5 | % |
|
| 26.8 | % |
Note 3.Leases
The Company leases real estate, automobiles and certain equipment under both operating and finance leases. The Company does not have any significant portionarrangements where it is the lessor. The majority of the Company's business. Net salesglobal lease portfolio represents leases of real estate, such as manufacturing facilities, warehouses and buildings. As of April 30, 2022, the Company's leases have remaining lease terms of up to GM10.3 years, some of which include optional renewals or terminations, which are considered in the Company’s assessments when such options are reasonably certain to be exercised. Any variable payments related to the lease will be recorded as lease expense when and Ford approximated 35.5% and 11.6%as incurred. The Company’s lease payments are largely fixed. As of consolidated net sales, respectively, in fiscal 2019, 43.3% and 12.3% of consolidated net sales, respectively, in fiscal 2018 and 49.6% and 9.3% of consolidated net sales, respectively, in fiscal 2017.
In addition to the operating lease assets presented on the consolidated balance sheets, assets under finance leases of the stock of Grakon for $422.1$0.7 million in cash, net of cash acquired. The business, headquartered in Seattle, Washington, is a manufacturer of custom designed lighting solutions and highly styled engineered components. Grakon’s manufacturing capabilities and products help diversify the Company's product offerings and expand the Industrial segment, which is a key component of the Company's strategic direction. The accounts and transactions of Grakon have been$0.7 million are included in property, plant and equipment, net on the Automotiveconsolidated balance sheets as of April 30, 2022 and Industrial segmentsMay 1, 2021, respectively. Finance lease obligations were $0.8 million and $1.0 million as of April 30, 2022 and May 1, 2021, respectively, and are split between other accrued expenses for the short-term portion and other long-term liabilities for the long-term portion on the consolidated balance sheets. The Company had an immaterial amount of finance lease expense in the consolidated financial statements from the effective dateyears ended April 30, 2022 and May 1, 2021.
The components of the acquisition. For goodwill impairment testing purposes, Grakon has been included in the Company's North American Automotive and Grakon Industrial reporting units.
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
(in millions) |
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Lease cost: |
|
|
|
|
|
|
|
|
| |||
Operating lease cost |
| $ | 8.9 |
|
| $ | 8.4 |
|
| $ | 9.0 |
|
Variable lease cost |
|
| 1.6 |
|
|
| 1.6 |
|
|
| 1.3 |
|
Total lease cost |
| $ | 10.5 |
|
| $ | 10.0 |
|
| $ | 10.3 |
|
F-16
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow and other information related to operating leases was as follows:
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
(in millions) |
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Operating cash flows: |
|
|
|
|
|
|
|
|
| |||
Cash paid related to operating lease obligations, including lease termination payment |
| $ | 10.8 |
|
| $ | 9.3 |
|
| $ | 8.7 |
|
Non-cash activity: |
|
|
|
|
|
|
|
|
| |||
Right-of-use assets obtained in exchange for lease obligations |
| $ | 7.7 |
|
| $ | 5.7 |
|
| $ | 5.5 |
|
Weighted-average remaining lease term |
| 5.3 years |
|
| 5.0 years |
|
| 5.7 years |
| |||
Weighted-average discount rate |
|
| 4.4 | % |
|
| 4.6 | % |
|
| 4.7 | % |
Maturities of estimating the fair value of the assets acquired andoperating lease liabilities assumed. Accordingly, the Company's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as the Company completes the process, which would likely impact the Company's allocation of the purchase price to goodwill. The primary fair value estimates considered preliminary are contingencies and income tax-related items. Based on the Company's preliminary allocation of the purchase price, revised as of April 27, 2019, goodwill decreased $2.830, 2022, are shown below:
(in millions) |
|
|
| |
Fiscal Year: |
|
|
| |
2023 |
| $ | 6.5 |
|
2024 |
|
| 4.8 |
|
2025 |
|
| 2.5 |
|
2026 |
|
| 1.7 |
|
2027 |
|
| 1.5 |
|
Thereafter |
|
| 7.0 |
|
Total lease payments |
|
| 24.0 |
|
Less: imputed interest |
|
| (3.2 | ) |
Present value of lease liabilities |
| $ | 20.8 |
|
Note 4. Restructuring
The Company continually monitors market factors and industry trends and takes restructuring actions to reduce overall costs and improve future operational profitability as appropriate. Restructuring actions generally result in charges for employee termination benefits, plant closures, asset impairments and contract termination costs.
In fiscal 2022, the Company initiated a restructuring plan to consolidate one of its operations within the Industrial segment in response to logistics and tariff issues. This action resulted in a facility shutdown and consolidation of activities into an existing location. In fiscal 2022, the Company recognized $3.6 million from the preliminary amount reported in the Company's consolidated financial statements as of January 26, 2019. The revised preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed were:
(Dollars in Millions) | ||||
Cash | $ | 6.9 | ||
Accounts Receivable | 36.1 | |||
Inventory | 30.8 | |||
Prepaid Expenses and Other Current Assets | 1.6 | |||
Intangible Assets | 221.9 | |||
Goodwill | 175.3 | |||
Pre-production Costs | 1.5 | |||
Property, Plant and Equipment | 16.2 | |||
Accounts Payable | (19.4 | ) | ||
Accrued Employee Liabilities | (4.4 | ) | ||
Other Accrued Expenses | (7.5 | ) | ||
Income Tax Payable | (0.7 | ) | ||
Deferred Income Tax Liability | (29.3 | ) | ||
Total Purchase Price | $ | 429.0 |
(Dollars in Millions) | Fair Value at Date of Acquisition | Amortization Period | ||||
Customer Relationships and Agreements - Significant Customer | $ | 57.0 | 19.5 years | |||
Customer Relationships and Agreements - All Other Customers | 125.0 | 19.5 years | ||||
Technology Licenses | 17.7 | 11.7 years | ||||
Trade Names | 22.2 | 8.5 years | ||||
Total | $ | 221.9 |
In fiscal 2021, the Company initiated certain restructuring actions in response to the adverse impacts from the COVID-19 pandemic. These actions included plant consolidations and $5.6workforce reductions in the Automotive, Industrial and Interface segments. In fiscal 2021, the Company recognized $8.2 million of restructuring costs, of which $4.8 million was reportedrecorded in costscost of products sold onand $3.4 million was recorded in selling and administrative expenses.
Employee termination benefits are accrued upon the consolidated statementscommitment 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 income.
|
|
|
|
|
|
|
| Utilization |
|
|
|
| ||||||||
(in millions) |
| Accrual as of |
|
| YTD charges |
|
| Cash |
|
| Non-cash |
|
| Accrual as of |
| |||||
Employee termination benefits |
| $ | 0.7 |
|
| $ | 0.4 |
|
| $ | (1.0 | ) |
| $ | — |
|
| $ | 0.1 |
|
Asset impairment charges |
|
| — |
|
|
| 3.1 |
|
|
| — |
|
|
| (3.1 | ) |
|
| — |
|
Contract termination costs |
|
| 0.5 |
|
|
| 0.1 |
|
|
| (0.6 | ) |
|
| — |
|
|
| — |
|
Total |
| $ | 1.2 |
|
| $ | 3.6 |
|
| $ | (1.6 | ) |
| $ | (3.1 | ) |
| $ | 0.1 |
|
F-17
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents restructuring costs by reportable segment:
|
| Fiscal Year Ended |
| |||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Automotive |
| $ | 0.2 |
|
| $ | 6.2 |
|
Industrial |
|
| 3.4 |
|
|
| 1.0 |
|
Interface |
|
| — |
|
|
| 0.7 |
|
Medical |
|
| — |
|
|
| — |
|
Eliminations/Corporate |
|
| — |
|
|
| 0.3 |
|
Total restructuring costs |
| $ | 3.6 |
|
| $ | 8.2 |
|
Estimates of Procoplast have been includedrestructuring costs are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in the Automotive segment in the consolidated financial statementsestimating restructuring costs, actual amounts paid for such activities may differ from the effective date of the acquisition. For goodwill impairment testing purposes, Procoplast is included in the Company's European Automotive reporting unit.
Note 5. Inventory
A summary of the purchase price to the fair valuesinventories is shown below:
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Finished products |
| $ | 31.8 |
|
| $ | 24.8 |
|
Work in process |
|
| 12.9 |
|
|
| 14.0 |
|
Raw materials |
|
| 113.8 |
|
|
| 85.4 |
|
Total inventories |
| $ | 158.5 |
|
| $ | 124.2 |
|
Note 6.Property, Plant and Equipment
A summary of the assets acquired and liabilities assumed was:
(Dollars in Millions) | ||||
Cash | $ | 1.3 | ||
Accounts Receivable | 7.4 | |||
Inventory | 3.5 | |||
Intangible Assets | 19.2 | |||
Goodwill | 6.8 | |||
Pre-production Costs | 2.3 | |||
Property, Plant and Equipment | 23.8 | |||
Accounts Payable | (4.9 | ) | ||
Accrued Employee Liabilities | (0.8 | ) | ||
Other Accrued Expenses | (0.7 | ) | ||
Income Taxes Payable | (0.6 | ) | ||
Short-term Debt | (3.2 | ) | ||
Other Long-term Liabilities | (2.1 | ) | ||
Long-term Debt | (20.6 | ) | ||
Deferred Income Tax Liability | (7.9 | ) | ||
Total Purchase Price | $ | 23.5 |
(Dollars in Millions) | Fair Value at Date of Acquisition | Amortization Period | ||||
Customer Relationships and Agreements - Significant Customer | $ | 12.3 | 17.0 years | |||
Customer Relationships and Agreements - All Other Customers | 2.8 | 11.5 years | ||||
Technology Licenses | 2.1 | 8.5 years | ||||
Trade Names | 2.0 | 8.5 years | ||||
Total | $ | 19.2 |
(Dollars in Millions) | ||||
Cash | $ | 4.9 | ||
Accounts Receivable | 18.3 | |||
Inventory | 13.0 | |||
Prepaid Expenses and Other Current Assets | 0.3 | |||
Income Taxes Receivable | 1.2 | |||
Intangible Assets | 40.1 | |||
Goodwill | 50.4 | |||
Pre-production Costs | 0.8 | |||
Property, Plant and Equipment | 13.2 | |||
Accounts Payable | (7.9 | ) | ||
Accrued Employee Liabilities | (0.8 | ) | ||
Other Accrued Expenses | (2.9 | ) | ||
Short-term Debt | (0.8 | ) | ||
Long-term Debt | (3.4 | ) | ||
Deferred Income Tax Liability | (12.8 | ) | ||
Total Purchase Price | $ | 113.6 |
(Dollars in Millions) | Fair Value at Date of Acquisition | Amortization Period | ||||
Customer Relationships and Agreements - Automotive | $ | 22.6 | 11.0 years | |||
Customer Relationships and Agreements - Commercial | 9.6 | 13.0 years | ||||
Trade Names | 6.2 | 7.5 years | ||||
Technology Licenses | 1.7 | 5.5 years | ||||
Total | $ | 40.1 |
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Land |
| $ | 3.3 |
|
| $ | 3.3 |
|
Buildings and building improvements |
|
| 89.2 |
|
|
| 88.9 |
|
Machinery and equipment |
|
| 407.5 |
|
|
| 408.0 |
|
Construction in progress |
|
| 21.5 |
|
|
| 24.8 |
|
Total property, plant and equipment, gross |
|
| 521.5 |
|
|
| 525.0 |
|
Less: accumulated depreciation |
|
| (324.5 | ) |
|
| (321.0 | ) |
Property, plant and equipment, net |
| $ | 197.0 |
|
| $ | 204.0 |
|
Depreciation expense adjustments due to an increased debt level, adjustments for certain acquisition-related chargeswas $33.5 million, $32.2 million and related tax effects.$29.3 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively. As of April 30, 2022 and May 1, 2021, capital expenditures recorded in accounts payable totaled $4.4 million and $5.5 million, respectively.
Fiscal Year Ended | ||||||||
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | ||||||
Revenues | $ | 1,073.3 | $ | 1,095.0 | ||||
Net Income | $ | 106.4 | $ | 70.5 |
Note 7. Goodwill and Other Intangible Assets
Goodwill
The Company evaluatestests goodwill for impairment on an annual basis as of the beginning of the fourth quarter each year, and at an interim date,or more frequently if indicators of potential impairment exist. Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component)reporting unit), for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit.
At the beginning of the fourth quarter of fiscal 2019,2022, the annual goodwill impairment assessment was completed. The Company performed a qualitative assessment for each reporting unit except for two within the Automotive segment where a quantitative goodwill impairment test onassessment was performed. The qualitative assessments indicated that it was more likely than not that the fair value of each reporting unit exceeded its reporting units. Therespective carrying value.
For the quantitative assessment, the Company utilizes a combination of anutilized the income and market value approach to estimate the fair value of each of itsthe reporting units. Cash flow projections arewere based on management’s estimates of revenue growth rates and earnings before interest, taxes, depreciation and amortization ("EBITDA"(“EBITDA”) margins, taking into consideration business and market conditions for the countries and markets in which the reporting unit operates. The Company calculates the discount rate based on a market-participant, risk-adjusted weighted average cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size, geography and other factors specific to the reporting unit.
F-18
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The market value approach is based on appropriate valuation multiples observed forquantitative assessment of the reporting unit’s guideline public companies.
A summary of the changes in goodwill by reportable segment is as follows:
(in millions) |
| Automotive |
|
| Industrial |
|
| Total |
| |||
Balance as of April 27, 2019 |
| $ | 106.3 |
|
| $ | 127.0 |
|
| $ | 233.3 |
|
Acquisitions |
|
| 0 |
|
|
| (0.2 | ) |
|
| (0.2 | ) |
Foreign currency translation |
|
| (0.1 | ) |
|
| (1.4 | ) |
|
| (1.5 | ) |
Balance as of May 2, 2020 |
|
| 106.2 |
|
|
| 125.4 |
|
|
| 231.6 |
|
Foreign currency translation |
|
| 0.5 |
|
|
| 3.5 |
|
|
| 4.0 |
|
Balance as of May 1, 2021 |
|
| 106.7 |
|
|
| 128.9 |
|
|
| 235.6 |
|
Foreign currency translation |
|
| (0.8 | ) |
|
| (1.8 | ) |
|
| (2.6 | ) |
Balance as of April 30, 2022 |
| $ | 105.9 |
|
| $ | 127.1 |
|
| $ | 233.0 |
|
A summary of goodwill by reporting unit is as follows:
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Grakon Industrial |
| $ | 125.5 |
|
| $ | 127.2 |
|
North American Automotive |
|
| 99.8 |
|
|
| 99.8 |
|
European Automotive |
|
| 6.1 |
|
|
| 6.9 |
|
Other |
|
| 1.6 |
|
|
| 1.7 |
|
Total |
| $ | 233.0 |
|
| $ | 235.6 |
|
Other intangible assets, net
Details of identifiable intangible assets are shown below:
|
| As of April 30, 2022 |
| |||||||||||||
(in millions) |
| Gross |
|
| Accumulated |
|
| Net |
|
| Weighted |
| ||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer relationships and agreements |
| $ | 232.3 |
|
| $ | (55.1 | ) |
| $ | 177.2 |
|
|
| 14.7 |
|
Trade names, patents and technology licenses |
|
| 58.0 |
|
|
| (29.3 | ) |
|
| 28.7 |
|
|
| 6.2 |
|
Total amortized intangible assets |
|
| 290.3 |
|
|
| (84.4 | ) |
|
| 205.9 |
|
|
|
| |
Unamortized trade name |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
| |
Total other intangible assets |
| $ | 292.1 |
|
| $ | (84.4 | ) |
| $ | 207.7 |
|
|
|
|
|
| As of May 1, 2021 |
| |||||||||||||
(in millions) |
| Gross |
|
| Accumulated |
|
| Net |
|
| Weighted |
| ||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer relationships and agreements |
| $ | 235.3 |
|
| $ | (42.7 | ) |
| $ | 192.6 |
|
|
| 15.6 |
|
Trade names, patents and technology licenses |
|
| 58.7 |
|
|
| (23.7 | ) |
|
| 35.0 |
|
|
| 7.0 |
|
Total amortized intangible assets |
|
| 294.0 |
|
|
| (66.4 | ) |
|
| 227.6 |
|
|
|
| |
Unamortized trade name |
|
| 1.8 |
|
|
| — |
|
|
| 1.8 |
|
|
|
| |
Total other intangible assets |
| $ | 295.8 |
|
| $ | (66.4 | ) |
| $ | 229.4 |
|
|
|
|
(Dollars in Millions) | Automotive | Industrial | Total | |||||||||
Balance as of April 30, 2016 | $ | — | $ | 1.7 | $ | 1.7 | ||||||
Foreign Currency Translation | — | (0.1 | ) | (0.1 | ) | |||||||
Balance as of April 29, 2017 | — | 1.6 | 1.6 | |||||||||
Acquisitions | 57.2 | — | 57.2 | |||||||||
Foreign Currency Translation | 0.3 | 0.1 | 0.4 | |||||||||
Balance as of April 28, 2018 | 57.5 | 1.7 | 59.2 | |||||||||
Acquisitions | 49.4 | 125.9 | 175.3 | |||||||||
Foreign Currency Translation | (0.6 | ) | (0.6 | ) | (1.2 | ) | ||||||
Balance as of April 27, 2019 | $ | 106.3 | $ | 127.0 | $ | 233.3 |
F-19
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of April 27, 2019 | |||||||||||||
(Dollars in Millions) | Gross | Accumulated Amortization | Net | Wtd. Avg. Remaining Amortization Periods (Years) | |||||||||
Definite-lived Intangible Assets: | |||||||||||||
Customer Relationships and Agreements | $ | 244.5 | $ | 27.7 | $ | 216.8 | 17.4 | ||||||
Trade Names, Patents and Technology Licenses | 75.5 | 29.2 | 46.3 | 8.4 | |||||||||
Total Definite-lived Intangible Assets | 320.0 | 56.9 | 263.1 | ||||||||||
Indefinite-lived Intangible Assets: | |||||||||||||
Trade Names, Patents and Technology Licenses | 1.8 | — | 1.8 | ||||||||||
Total Indefinite-lived Intangible Assets | 1.8 | — | 1.8 | ||||||||||
Total Intangible Assets | $ | 321.8 | $ | 56.9 | $ | 264.9 |
As of April 28, 2018 | |||||||||||||
(Dollars in Millions) | Gross | Accumulated Amortization | Net | Wtd. Avg. Remaining Amortization Periods (Years) | |||||||||
Definite-lived Intangible Assets: | |||||||||||||
Customer Relationships and Agreements | $ | 64.4 | $ | 18.1 | $ | 46.3 | 12.3 | ||||||
Trade Names, Patents and Technology Licenses | 35.9 | 23.0 | 12.9 | 5.3 | |||||||||
Total Definite-lived Intangible Assets | 100.3 | 41.1 | 59.2 | ||||||||||
Indefinite-lived Intangible Assets: | |||||||||||||
Trade Names, Patents and Technology Licenses | 1.8 | — | 1.8 | ||||||||||
Total Indefinite-lived Intangible Assets | 1.8 | — | 1.8 | ||||||||||
Total Intangible Assets | $ | 102.1 | $ | 41.1 | $ | 61.0 |
The Company performed an impairment test for its indefinite-lived trade name intangible asset and determined that no impairment existed atas of April 27, 2019 and April 28, 2018. 30, 2022. Based on the current amount of intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
(in millions) |
|
|
| |
Fiscal Year: |
|
|
| |
2023 |
| $ | 18.9 |
|
2024 |
|
| 18.5 |
|
2025 |
|
| 17.9 |
|
2026 |
|
| 17.1 |
|
2027 |
|
| 16.4 |
|
Thereafter |
|
| 117.1 |
|
Total |
| $ | 205.9 |
|
(Dollars in Millions) | |||
Fiscal Year: | |||
2020 | $ | 19.1 | |
2021 | 19.0 | ||
2022 | 19.0 | ||
2023 | 18.9 | ||
2024 | 18.6 | ||
Thereafter | 168.5 | ||
Total | $ | 263.1 |
Note 8. Derivative Financial Instruments and Hedging Activities
The Company is exposed to various market risks including, but not limited to, foreign currency exchange rates and market interest rates. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through the Boarduse of Directors authorizedderivative financial instruments. Derivative financial instruments are measured at fair value on a recurring basis.
For a designated cash flow hedge, the repurchase of up to $100.0 millioneffective portion of the Company's outstanding common stock through September 1, 2017. change in the fair value of the derivative financial instrument is recorded in AOCI in the consolidated balance sheets. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI is recorded in earnings and reflected in the consolidated statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. The gain or loss associated with changes in the fair value of derivatives not designated as hedges are recorded immediately in the consolidated statements of income on the same line as the associated risk. For a designated net investment hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded as a cumulative translation adjustment in AOCI in the consolidated balance sheets.
Net investment hedges
The Company purchasedhas a variable-rate, cross-currency swap, maturing on August 31, 2023, with a notional value of $60.0 million (€54.8 million). The Company entered into the cross-currency swap to mitigate changes in net assets due to changes in U.S. dollar-euro spot exchange rates. The cross-currency swap is designated as a hedge of the Company’s net investment in a euro-based
subsidiary.
Hedge effectiveness is assessed at the inception of the hedging relationship and retired 280,168 shares for $9.8quarterly thereafter, under the spot-to-spot method. The Company recognizes the impact of all other changes in fair value of the derivative through interest expense, which was not material in either fiscal 2022 or fiscal 2021.
Interest rate swaps
In April 2021, the Company entered into interest rate swaps, maturing on August 31, 2023, with a notional value of $100.0 million, to manage its exposure and to mitigate the impact of interest rate variability. The interest rate swaps are designated as cash flow hedges.
Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter. The effective portion of the periodic changes in fair value is recognized in AOCI. Subsequently, the accumulated gains and losses recorded in equity are reclassified to income in the period during which the hedged cash flow impacts earnings, which are expected to be immaterial over the next 12 months. No ineffectiveness was recognized in fiscal 2017, for2022 or fiscal 2021.
Derivatives not designated as hedges
The Company uses short-term foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-functional currency balance sheet exposures. These forward contracts are not designated as hedging instruments. Gains and losses on these forward contracts are recognized in other income, net, along with the foreign currency gains and losses on monetary assets and liabilities in the consolidated statements of income.
As of April 30, 2022 and May 1, 2021, the Company held foreign currency forward contracts with a total undernotional value of $38.6 million and $14.8 million, respectively. In fiscal 2022 and fiscal 2021, gains of $0.1 million and losses of $0.1 million, respectively, were recorded in earnings within other income, net in the repurchase planconsolidated statements of 2,277,466 shares for $71.9 million.
F-20
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of derivative instruments on the consolidated statements of income. Awards subject to graded vesting are recognized using the accelerated recognition method over the requisite service period.
(Dollars in Millions) | Fiscal Year Ended | Unrecognized Compensation Expense at | ||||||||||||||
April 27, 2019 | April 28, 2018 | April 29, 2017 | April 27, 2019 | |||||||||||||
2014 Incentive Plan: | ||||||||||||||||
RSAs | $ | 10.9 | $ | (2.0 | ) | $ | 5.7 | $ | 5.0 | |||||||
RSUs | 2.2 | 5.0 | 5.5 | 1.6 | ||||||||||||
Director Awards | 0.9 | 1.0 | 0.9 | — | ||||||||||||
Total 2014 Incentive Plan | 14.0 | 4.0 | 12.1 | 6.6 | ||||||||||||
2010 Stock Plan: | ||||||||||||||||
RSUs | — | — | 0.1 | — | ||||||||||||
Stock Options | — | — | 0.1 | — | ||||||||||||
Total 2010 Stock Plan | — | — | 0.2 | — | ||||||||||||
2007 Stock Plan: | ||||||||||||||||
Stock Options | — | — | 0.1 | — | ||||||||||||
Total 2007 Stock Plan | — | — | 0.1 | — | ||||||||||||
Total Stock-based Compensation Expense | $ | 14.0 | $ | 4.0 | $ | 12.4 | $ | 6.6 |
The fair value of derivative instruments are classified as Level 2 within the RSAs granted was based on the closing stock price on the date of grant. All non-vested RSAs accrue dividend equivalents, whichfair value hierarchy and are subject to vesting and paid in cash upon release. Accrued dividends are forfeitable to the extent that the underlying awards do not vest.
|
| Asset/(Liability) |
| |||||
(in millions) | Financial Statement Caption | April 30, 2022 |
|
| May 1, 2021 |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
| ||
Net investment hedges | Other long-term liabilities | $ | — |
|
| $ | (6.8 | ) |
Net investment hedges | Other long-term assets | $ | 1.9 |
|
| $ | — |
|
Interest rate swaps | Other long-term liabilities | $ | — |
|
| $ | (0.2 | ) |
Interest rate swaps | Other long-term assets | $ | 3.0 |
|
| $ | — |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
| ||
Foreign currency forward contracts | Other accrued liabilities | $ | (0.2 | ) |
| $ | — |
|
RSA Shares | Wtd. Avg. Grant Date Fair Value | |||||
Non-vested and Unissued at April 30, 2016 | 1,161,000 | $ | 33.35 | |||
Awarded | 72,000 | $ | 34.90 | |||
Vested | — | $ | — | |||
Forfeited | (64,500 | ) | $ | 33.78 | ||
Non-vested and Unissued at April 29, 2017 | 1,168,500 | $ | 33.42 | |||
Awarded | 128,738 | $ | 40.92 | |||
Vested | — | $ | — | |||
Forfeited | (126,000 | ) | $ | 34.42 | ||
Non-vested and Unissued at April 28, 2018 | 1,171,238 | $ | 34.13 | |||
Awarded | 11,625 | $ | 38.75 | |||
Vested | — | $ | — | |||
Forfeited | (151,455 | ) | $ | 34.79 | ||
Non-vested and Unissued at April 27, 2019 | 1,031,408 | $ | 34.09 |
RSU Shares | Wtd. Avg. Grant Date Fair Value | ||||||
Non-vested at April 30, 2016 | 576,000 | $ | 33.39 | ||||
Awarded | 32,000 | $ | 34.90 | ||||
Vested | (11,333 | ) | $ | 33.78 | |||
Forfeited | (28,667 | ) | $ | 33.78 | |||
Non-vested at April 29, 2017 | 568,000 | $ | 33.45 | ||||
Awarded | 30,925 | $ | 41.82 | ||||
Vested | (160,553 | ) | $ | 33.72 | |||
Forfeited | (56,000 | ) | $ | 34.42 | |||
Non-vested at April 28, 2018 | 382,372 | $ | 33.87 | ||||
Awarded | 7,750 | $ | 38.75 | ||||
Vested | (152,328 | ) | $ | 33.75 | |||
Forfeited | (49,950 | ) | $ | 32.42 | |||
Non-vested at April 27, 2019 | 187,844 | $ | 34.55 |
Shares | Wtd. Avg. Exercise Price | Weighted-Average Life (years) | Aggregate Intrinsic Value (in millions) | ||||||||||
Outstanding and Exercisable at April 30, 2016 | 197,332 | $ | 24.55 | ||||||||||
Awarded | — | $ | — | ||||||||||
Exercised | (125,332 | ) | $ | 17.40 | |||||||||
Forfeited | — | $ | — | ||||||||||
Outstanding and Exercisable at April 29, 2017 | 72,000 | $ | 37.01 | 7.3 | $ | — | |||||||
Awarded | — | $ | — | ||||||||||
Exercised | — | $ | — | ||||||||||
Forfeited | — | $ | — | ||||||||||
Outstanding and Exercisable at April 28, 2018 | 72,000 | $ | 37.01 | 6.3 | $ | 0.3 | |||||||
Awarded | — | $ | — | ||||||||||
Exercised | — | $ | — | ||||||||||
Forfeited | — | $ | — | ||||||||||
Outstanding and Exercisable at April 27, 2019 | 72,000 | $ | 37.01 | 5.2 | $ | — |
Shares | Wtd. Avg. Exercise Price | Weighted-Average Life (years) | Aggregate Intrinsic Value (in millions) | ||||||||||
Outstanding and Exercisable at April 30, 2016 | 79,666 | $ | 28.91 | ||||||||||
Awarded | — | $ | — | ||||||||||
Exercised | (22,497 | ) | $ | 21.52 | |||||||||
Forfeited | — | $ | — | ||||||||||
Outstanding and Exercisable at April 29, 2017 | 57,169 | $ | 31.82 | 6.8 | $ | 0.7 | |||||||
Awarded | — | $ | — | ||||||||||
Exercised | (13,333 | ) | $ | 24.67 | |||||||||
Forfeited | (1,668 | ) | $ | 37.01 | |||||||||
Outstanding and Exercisable at April 28, 2018 | 42,168 | $ | 33.87 | 5.8 | $ | 0.3 | |||||||
Awarded | — | $ | — | ||||||||||
Exercised | — | $ | — | ||||||||||
Forfeited | (7,500 | ) | $ | 37.01 | |||||||||
Outstanding and Exercisable at April 27, 2019 | 34,668 | $ | 33.20 | 4.6 | $ | 0.1 |
Options Outstanding and Exercisable at April 27, 2019 | |||||||
Shares | Exercise Price | Avg. Remaining Life (Years) | |||||
5,000 | $ | 10.55 | 1.2 | ||||
29,668 | $ | 37.01 | 5.2 | ||||
34,668 |
Note 9. Retirement Benefits
Defined contribution plans
The Company has an employee 401(k) Savings Plan covering substantially all U.S. employees to which it makes contributions equal to 3%3% of eligible compensation. ContributionsIn addition, certain of the Company’s foreign subsidiaries also have defined contribution savings plans. Company contributions to the employee 401(k) Savings Plan was $1.5these plans were $1.2 million, $1.2 million and $1.7 million, in fiscal 20192022, fiscal 2021 and $1.4 million in both fiscal 2018 and 2017.
Non-qualified deferred compensation plan
The Company maintains a non-qualified deferred compensation plan (“theNQDC Plan”) for certain eligible participants.employees and members of the Board of Directors. Under the NQDC Plan, participantsemployees may elect to defer up to 75%75% of their annual base salary and 100%100% of their annual cash incentive compensation, with an aggregate minimum deferral of $3,000.$3,000. Directors may defer all or a portion of their annual directors’ fees or annual stock awards. The minimum period of deferral is 3 years.three years. Participants are immediately 100%100% vested. No companyThe Company does 0t make any contributions were made to the Plan in fiscal 2019, 2018 and 2017.
The deferred compensation liability for the NDQC Plan was $6.1$7.6 million and $6.7$6.5 million as of April 27, 201930, 2022 and April 28, 2018,May 1, 2021, respectively. In addition, theThe Company has purchased life insurance policies on certain employees, which are held in a Rabbi trust, on certain employees to potentially offset these unsecured obligations. These life insurance policies are recodedrecorded at their cash surrender value of $6.9$7.8 million and $6.7$8.3 million as of April 27, 201930, 2022 and April 28, 2018,May 1, 2021, respectively, and are included in other long-term assets.
The Company also owns and is the beneficiary of a number of life insurance policies on the lives of former key executives that are unrestricted as to use. These life insurance policies are recorded at their cash surrender value of $8.6$9.9 million and $8.2$9.5 million as of April 27, 201930, 2022 and April 28, 2018,May 1, 2021, respectively, and are included in other long-term assets. assets in the consolidated balance sheets.
The cash surrender value of the life insurance policies approximates its fair value and is classified within Level 2 of the fair value hierarchy.
F-21
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Debt
A summary of debt is shown below:
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Revolving credit facility |
| $ | — |
|
| $ | 9.9 |
|
Term loan |
|
| 206.3 |
|
|
| 218.7 |
|
Other debt |
|
| 5.1 |
|
|
| 13.0 |
|
Unamortized debt issuance costs |
|
| (0.9 | ) |
|
| (1.5 | ) |
Total debt |
|
| 210.5 |
|
|
| 240.1 |
|
Less: current maturities |
|
| (13.0 | ) |
|
| (14.9 | ) |
Total long-term debt |
| $ | 197.5 |
|
| $ | 225.2 |
|
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.
On December 10, 2021, the Company entered into a First Amendment to the Credit Agreement (“First Amendment”). The First Amendment amended and restated the Credit Agreement to provide, among other things, that upon the occurrence of certain events, the interest rate calculation method will generally transition from the London Interbank Offered Rate (“LIBOR”) to an alternate reference rate, including the Secured Overnight Financing Rate (“SOFR”) for U.S. dollar denominated borrowings.
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 approximately 2.0% as of April 30, 2022. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. As of April 30, 2022, the Company was in compliance with all the covenants in the Credit Agreement. The fair value of borrowings under the Credit Agreement approximates book value because the interest rate is variable.
Other debt
One of the Company’s European subsidiaries has debt that consists of 3 notes with maturities ranging from 2023 to 2031. The weighted-average interest rate was approximately 1.4% as of April 30, 2022 and $0.5 million of the debt was classified as short-term. The fair value of other debt was $4.7 million at April 30, 2022 and was based on Level 2 inputs on a recurringnon-recurring basis.
Scheduled maturities
As of the Company’s income tax provisionApril 30, 2022, scheduled principal payments of debt are as follows:
(in millions) |
|
|
| |
Fiscal Year: |
|
|
| |
2023 |
| $ | 13.0 |
|
2024 |
|
| 196.9 |
|
2025 |
|
| 0.2 |
|
2026 |
|
| 0.2 |
|
2027 |
|
| 0.2 |
|
Thereafter |
|
| 0.9 |
|
Total |
| $ | 211.4 |
|
Fiscal Year Ended | ||||||||||||
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
Income (Loss) before Income Taxes: | ||||||||||||
Domestic Source | $ | (0.6 | ) | $ | 11.4 | $ | 21.6 | |||||
Foreign Source | 104.2 | 112.4 | 94.3 | |||||||||
Income before Income Taxes | $ | 103.6 | $ | 123.8 | $ | 115.9 | ||||||
Current Tax Provision (Benefit): | ||||||||||||
U.S. (Federal and State) | $ | (5.7 | ) | $ | 46.8 | $ | 9.9 | |||||
Foreign | 21.5 | 18.8 | 17.0 | |||||||||
Subtotal | 15.8 | 65.6 | 26.9 | |||||||||
Deferred Tax Provision (Benefit): | ||||||||||||
U.S. (Federal and State) | 2.5 | 11.6 | (1.2 | ) | ||||||||
Foreign | (6.3 | ) | (10.6 | ) | (2.7 | ) | ||||||
Subtotal | (3.8 | ) | 1.0 | (3.9 | ) | |||||||
Total Income Tax Expense | $ | 12.0 | $ | 66.6 | $ | 23.0 |
F-22
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Income Taxes
Income tax provision
The U.S. and foreign components of income before income taxes and the provision for income taxes are as follows:
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
(in millions) |
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Income before income taxes: |
|
|
|
|
|
|
|
|
| |||
U.S. |
| $ | 31.2 |
|
| $ | 28.3 |
|
| $ | 47.3 |
|
Foreign |
|
| 87.3 |
|
|
| 106.6 |
|
|
| 101.4 |
|
Total income before income taxes |
| $ | 118.5 |
|
| $ | 134.9 |
|
| $ | 148.7 |
|
Income tax expense: |
|
|
|
|
|
|
|
|
| |||
Current: |
|
|
|
|
|
|
|
|
| |||
U.S. (federal and state) |
| $ | 5.2 |
|
| $ | 5.8 |
|
| $ | 5.1 |
|
Foreign |
|
| 13.5 |
|
|
| 15.9 |
|
|
| 12.8 |
|
Total current expense |
|
| 18.7 |
|
|
| 21.7 |
|
|
| 17.9 |
|
Deferred: |
|
|
|
|
|
|
|
|
| |||
U.S. (federal and state) |
|
| 0.2 |
|
|
| 1.3 |
|
|
| 6.1 |
|
Foreign |
|
| (2.6 | ) |
|
| (10.4 | ) |
|
| 1.3 |
|
Total deferred (benefit) expense |
|
| (2.4 | ) |
|
| (9.1 | ) |
|
| 7.4 |
|
Total income tax expense |
| $ | 16.3 |
|
| $ | 12.6 |
|
| $ | 25.3 |
|
A reconciliation of the income tax expense to the prevailingU.S. statutory federal income tax rate (21.0% for 2019, 30.5% for 2018 and 35.0% for 2017) to pre-tax earningsof 21% is as follows:
|
| Fiscal Year Ended |
| |||||||||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
Income tax at statutory rate |
| $ | 24.9 |
|
| $ | 28.3 |
|
| $ | 31.2 |
|
Effect of: |
|
|
|
|
|
|
|
|
| |||
State income taxes, net of federal benefit |
|
| 0.6 |
|
|
| 0.1 |
|
|
| 1.5 |
|
Withholding taxes |
|
| 2.5 |
|
|
| 2.7 |
|
|
| 2.3 |
|
Non-deductible compensation |
|
| 2.1 |
|
|
| 0.5 |
|
|
| 0.2 |
|
Foreign tax differential |
|
| (8.1 | ) |
|
| (10.8 | ) |
|
| (8.3 | ) |
U.S. tax on foreign income |
|
| (1.7 | ) |
|
| 2.8 |
|
|
| (1.0 | ) |
Foreign investment tax credit |
|
| — |
|
|
| (7.2 | ) |
|
| (0.8 | ) |
Research and development |
|
| (2.6 | ) |
|
| (2.2 | ) |
|
| (0.6 | ) |
Change in tax reserve |
|
| (0.1 | ) |
|
| 0.1 |
|
|
| 2.2 |
|
Change in valuation allowance |
|
| (2.0 | ) |
|
| 1.8 |
|
|
| 0.8 |
|
Tax rate change, foreign |
|
| 0.1 |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Other, net |
|
| 0.6 |
|
|
| (3.4 | ) |
|
| (2.1 | ) |
Income tax expense |
| $ | 16.3 |
|
| $ | 12.6 |
|
| $ | 25.3 |
|
Effective income tax rate |
|
| 13.8 | % |
|
| 9.3 | % |
|
| 17.0 | % |
Fiscal Year Ended | ||||||||||||
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
Income Tax at Statutory Rate | $ | 21.8 | $ | 37.7 | $ | 40.5 | ||||||
Effect of: | ||||||||||||
State Income Taxes, Net of Federal Benefit | (0.8 | ) | 0.1 | 0.9 | ||||||||
Dividends | 1.8 | — | — | |||||||||
U.S. Tax Reform Transition Tax | (4.8 | ) | 48.5 | — | ||||||||
Foreign Operations with Lower Statutory Rates | (9.6 | ) | (15.3 | ) | (14.5 | ) | ||||||
Current Taxation of Foreign Income | 3.4 | — | — | |||||||||
Foreign Investment Tax Credit | (2.0 | ) | (9.8 | ) | (4.7 | ) | ||||||
Change in Tax Reserve | (0.1 | ) | 0.1 | 0.1 | ||||||||
Change in Valuation Allowance | — | 0.4 | 0.3 | |||||||||
Tax Rate Change, Foreign | — | (1.5 | ) | — | ||||||||
U.S. Tax Reform Re-measurements | — | 5.2 | — | |||||||||
Other, Net | 2.3 | 1.2 | 0.4 | |||||||||
Income Tax Expense | $ | 12.0 | $ | 66.6 | $ | 23.0 | ||||||
Effective Income Tax Rate | 11.6 | % | 53.8 | % | 19.9 | % |
In fiscal 2022, the U.S. enacted U.S. Tax Reform making significant changes to U.S. corporate income tax laws. This included a reduction in the statutory federal corporateeffective income tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates and the release of a valuation allowance of $2.0 million due to a tax law change. In addition, the Company benefited from 35.0% to 21.0%, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriationless U.S. tax on deemed repatriatedforeign income of $1.7 million attributable to lower earnings from foreign subsidiaries, immediate expensingin non-U.S. jurisdictions which was partially offset with non-deductible compensation of certain depreciable tangible assets, and limiting$2.1 million.
In fiscal 2021, the deductibility of certain executive compensation.
In fiscal 2020, the effective income tax rate was primarily affected by the amount of income earned in theforeign jurisdictions in which the Company operates,with lower tax rates, the amount of tax credits earned, withholding taxes, tax reserves, and the impactcurrent taxation of U.S. Tax Reform.foreign earnings. The Company had a favorable impact from operations in foreign countries with tax rates lower than the U.S. statutory tax rate. The Company earned $2.0$0.8 million in investment tax credits primarily related to an investment in qualified expenditures in Malta.expenditures. This was offset by U.S.a change in tax reserves of $3.4$2.2 million incurred on itsand foreign subsidiaries’ earnings under the new Global Intangible Low Tax Income regime.
F-23
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, includes various income and payroll tax provisions, modifications to federal net operating loss rules, business interest deduction limitations, and bonus depreciation eligibility for qualified improvement property. The CARES Act did not significantly impact the fiscal 2021 consolidated financial statements.
Deferred Income Taxesincome taxes and Valuation Allowances
Significant components of the Company's deferred income tax assets and liabilities were as follows:
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Deferred tax liabilities: |
|
|
|
|
|
| ||
Fixed assets |
| $ | (4.3 | ) |
| $ | (2.9 | ) |
Amortization |
|
| (48.1 | ) |
|
| (49.1 | ) |
Foreign tax |
|
| (3.1 | ) |
|
| (2.0 | ) |
Lease assets |
|
| (4.5 | ) |
|
| (4.9 | ) |
Derivative financial instruments |
|
| (1.1 | ) |
|
| — |
|
Other liabilities |
|
| (0.6 | ) |
|
| (0.4 | ) |
Deferred tax liabilities, gross |
|
| (61.7 | ) |
|
| (59.3 | ) |
Deferred tax assets: |
|
|
|
|
|
| ||
Deferred compensation and stock award amortization |
|
| 6.9 |
|
|
| 6.9 |
|
Inventory |
|
| 3.5 |
|
|
| 2.7 |
|
Lease liabilities |
|
| 4.7 |
|
|
| 5.3 |
|
Derivative financial instruments |
|
| 0 |
|
|
| 1.6 |
|
Foreign investment tax credit |
|
| 29.8 |
|
|
| 34.7 |
|
Net operating loss carryforwards |
|
| 17.4 |
|
|
| 15.6 |
|
Foreign tax credits |
|
| 1.3 |
|
|
| 1.4 |
|
Other |
|
| 3.4 |
|
|
| 3.3 |
|
Deferred tax assets, gross |
|
| 67.0 |
|
|
| 71.5 |
|
Less valuation allowance |
|
| (6.8 | ) |
|
| (9.3 | ) |
Deferred tax assets, net of valuation allowance |
|
| 60.2 |
|
|
| 62.2 |
|
Net deferred tax (liability) asset |
| $ | (1.5 | ) |
| $ | 2.9 |
|
Balance sheet classification: |
|
|
|
|
|
| ||
Long-term asset |
|
| 36.8 |
|
|
| 41.2 |
|
Long-term liability |
|
| (38.3 | ) |
|
| (38.3 | ) |
Net deferred tax (liability) asset |
| $ | (1.5 | ) |
| $ | 2.9 |
|
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | ||||||
Deferred Tax Liabilities: | ||||||||
Depreciation | $ | 9.0 | $ | 6.3 | ||||
Amortization | 43.9 | 11.4 | ||||||
Foreign Tax Withheld | 2.0 | 4.8 | ||||||
Deferred Income | 0.1 | 0.2 | ||||||
Deferred Tax Liabilities, Gross | 55.0 | 22.7 | ||||||
Deferred Tax Assets: | ||||||||
Deferred Compensation and Stock Award Amortization | 8.6 | 7.5 | ||||||
Inventory Valuation Differences | 1.9 | 1.8 | ||||||
Property Valuation Differences | 1.6 | 2.0 | ||||||
Environmental Reserves | 0.3 | 0.2 | ||||||
Bad Debt Reserves | 0.1 | 0.1 | ||||||
Vacation Accruals | 0.4 | 1.0 | ||||||
Foreign Investment Tax Credit | 28.2 | 29.3 | ||||||
Net Operating Loss Carryovers | 13.8 | 5.8 | ||||||
Foreign Tax Credits | 1.1 | — | ||||||
Other Accruals | 3.2 | 1.5 | ||||||
Deferred Tax Assets, Gross | 59.2 | 49.2 | ||||||
Less Valuation Allowance | 6.3 | 2.5 | ||||||
Deferred Tax Assets, Net of Valuation Allowance | 52.9 | 46.7 | ||||||
Net Deferred Tax Assets (Liabilities) | $ | (2.1 | ) | $ | 24.0 | |||
Balance Sheet Classification: | ||||||||
Non-current Asset | 34.3 | 42.3 | ||||||
Non-current Liability | (36.4 | ) | (18.3 | ) | ||||
Net Deferred Tax Assets (Liabilities) | $ | (2.1 | ) | $ | 24.0 |
The Company recorded a net deferred tax liability for U.S. and foreign income taxes of $2.1$1.5 million as of April 27, 2019for fiscal 2022 and a net deferred tax asset of $24.0$2.9 million as of April 28, 2018.for fiscal 2021. In assessing the realizability of the deferred tax assets, the Company considers whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient earnings in future periods in which these temporary items can be utilized. In that regard, the Company has a valuation allowance of $6.3$6.8 million as of April 27, 2019, related to certainfederal, state, federal, and foreign net operating loss carryovers and other credits untiland determined that these deferred tax assets aredid not reach the more likely than not realizable.
As of Grakon, a U.S. multinational, which increased the overall amount of deferred tax assets and liabilities. This included an increase in the deferred tax liabilities of intangible assets, net operating losses and foreign tax credits. This was offset with an additional valuation allowance associated with a limited utilization of U.S. net operating losses in future periods.
Total unused credits are $28.2$31.2 million atas of April 27, 2019,30, 2022, the majority of which $27.4 million can be carried forward indefinitely and $0.8 million expire in 2020.
Indefinite Reinvestment
The Company has not provided for deferred income taxes on the undistributed earnings of foreign subsidiaries except for certain identified amounts. The amount the Company expects to repatriate is based on a variety of factors including current year earnings of the foreign subsidiaries, foreign investment needs, and U.S. cash flow considerations. The Company considers the remaining undistributed foreign earnings that are not specifically identified to be indefinitely reinvested.reinvested of $354.3 million. It is not practicable to determine the amount of deferred tax liability on such foreign earnings as the actual tax liability is dependent on circumstances that exist when the remittance occurs.
F-24
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrecognized Tax Benefits
The Company operates in multiple jurisdictions throughout the world and the income tax returns of its subsidiaries in various jurisdictions are subject to periodic examination by the tax authorities. The Company regularly assesses the status of these examinations and the various outcomes to determine the adequacy of its provision for income taxes. The amount of gross unrecognized tax benefits totaled $3.1$5.1 million and $1.4$5.3 million atas of April 27, 201930, 2022 and April 28, 2018,May 1, 2021, respectively. These amounts represent the amount of unrecognized benefits that, if recognized, would favorably impact the effective tax rate if resolved in the Company’s favor.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Balance at beginning of period |
| $ | 5.3 |
|
| $ | 5.2 |
|
Increases for positions related to the current year |
|
| 0 |
|
|
| 0.2 |
|
Lapsing of statutes of limitations |
|
| (0.2 | ) |
|
| (0.1 | ) |
Balance at end of period |
| $ | 5.1 |
|
| $ | 5.3 |
|
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | ||||||
Balance at Beginning of Fiscal Year | $ | 1.4 | $ | 1.3 | ||||
Increases for Positions Related to the Prior Years | 1.8 | — | ||||||
Increases for Positions Related to the Current Year | 0.9 | 0.1 | ||||||
Decreases for Positions Related to the Prior Years | — | — | ||||||
Lapsing of Statutes of Limitations | (1.0 | ) | — | |||||
Balance at End of Fiscal Year | $ | 3.1 | $ | 1.4 |
At April 27, 2019,30, 2022, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.
The U.S. federal statute of limitations remains open for fiscal years ended on or after 20162019 and for state tax purposes on or after fiscal year 2013. Tax authorities may have the ability to review and adjust net operating losses or tax credits that were generated prior to these fiscal years. In the major foreign jurisdictions, fiscal 20122014 and subsequent periods remain open and subject to examination by taxing authorities.
Fiscal Year Ended | ||||||||||||
April 27, 2019 | April 28, 2018 | April 29, 2017 | ||||||||||
Numerator: | ||||||||||||
Net Income (in millions) | $ | 91.6 | $ | 57.2 | $ | 92.9 | ||||||
Denominator: | ||||||||||||
Denominator for Basic Earnings Per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Units | 37,405,298 | 37,281,630 | 37,283,096 | |||||||||
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units | 264,262 | 260,269 | 202,605 | |||||||||
Denominator for Diluted Earnings Per Share | 37,669,560 | 37,541,899 | 37,485,701 | |||||||||
Basic and Diluted Income Per Share: | ||||||||||||
Basic Income Per Share | $ | 2.45 | $ | 1.54 | $ | 2.49 | ||||||
Diluted Income Per Share | $ | 2.43 | $ | 1.52 | $ | 2.48 |
Note 12. Commitments and Contingencies
Environmental Matters
The Company is not aware of any potential unasserted environmental claims that may be brought against us.
The Company is involved in environmental investigations and/or remediation atAs of April 27, 201930, 2022 and April 28, 2018,May 1, 2021, the Company had accruals, primarily based upon independent engineering studies,estimates, for environmental matters of $1.1$1.0 million and $0.9 million, respectively. The accrual as of which $0.8April 30, 2022 consists of $0.7 million was classified in other accrued expenses and the remainder was included in other long-term liabilities on the consolidated balance sheets.sheet. The accrual as of May 1, 2021 consists of $0.6 million classified in other accrued expenses and the remainder was included in other long-term liabilities on the consolidated balance sheet. The Company believes the provisions made for environmental matters are adequate to satisfy liabilities relating to such matters, however it is reasonably possible that costs could exceed accrued amounts if the selected methods of remediation do not reduce the contaminates at the sites to levels acceptable to federal and state regulatory agencies.
In each of fiscal 2019,2022, fiscal 2021 and fiscal 2020, the Company spent $0.1$0.5 million on remediation cleanups and related studies, compared with $0.3 million in fiscal 2018 and $1.2 million in fiscal 2017.studies. The costs associated with environmental matters as they relate to day-to-day activities were not material in fiscal 2019,2022, fiscal 20182021 or fiscal 2017.
F-25
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation
The Company, from time to time, is subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, patent infringement claims, employment-related matters and environmental matters. The Company considers insurance coverage and third party indemnification when determining required accruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot be determined, it is the opinion of the Company's management, based on the information available, that the Company has adequate reserves for these liabilities and that the ultimate resolution of these matters will not have a material adverse effect on the Company's consolidated financial statements.
Hetronic Germany-GmbH Matters
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. The Company became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, the 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 defendantsA 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 were consolidated into a single appeal before the U.S. Court of Appeals for the Tenth Circuit. On August 24, 2021, the Tenth Circuit issued a decision affirming the lower court’s ruling with the exception that it instructed the District Court to modify the injunction from the entire world to all of the countries in which Hetronic sells its products. On April 20 and 21, 2022, the District Court held a hearing related to modifying the injunction pursuant to the Tenth Circuit’s opinion, and the parties currently are preparing post-hearing briefs. The defendants also filed a petition for certiorari with the United States Supreme Court seeking to further appeal the extraterritorial application of the Lanham Act in this case. Hetronic has opposed that petition. The Supreme Court has requested the views of the Solicitor General on the petition for certiorari. 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 all or any portion of the judgment.
Note 13. Shareholders’ Equity
Share buyback program
On March 31, 2021, the Board of Directors authorized the purchase of up to $100.0 million of the Company’s outstanding common stock through March 31, 2023. Such purchases may be made on the open market, in private transactions or pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. The following table summarizes the Company’s stock buyback activity under this share buyback program:
|
| Fiscal Year Ended |
| |||||
(in millions, except share and per share data) |
| April 30, 2022 |
|
| May 1, 2021 |
| ||
Shares purchased |
|
| 1,425,190 |
|
|
| 167,949 |
|
Average price per share |
| $ | 44.73 |
|
| $ | 44.66 |
|
Total cost |
| $ | 63.7 |
|
| $ | 7.5 |
|
As of April 27, 2019, this matter has30, 2022, a total of 1,593,139 shares have been set for trial in February 2020.
On June 16, 2022, the Board of Directors authorized an increase in the existing share buyback program under which the Company may purchase up to an additional $100.0 million of its outstanding common stock, and operating leases are as follows:
(Dollars in Millions) | Capitalized Leases | Operating Leases | ||||||
Fiscal Years: | ||||||||
2020 | $ | 0.6 | $ | 7.8 | ||||
2021 | 0.5 | 5.6 | ||||||
2022 | 0.4 | 4.9 | ||||||
2023 | 0.2 | 4.2 | ||||||
2024 | — | 3.3 | ||||||
Thereafter | — | 8.4 | ||||||
Net Minimum Lease Payments | 1.7 | $ | 34.2 | |||||
Less Amount Representing Interest | — | |||||||
Present Value of Net Minimum Lease Payments | 1.7 | |||||||
Less Current Portion | (0.6 | ) | ||||||
Long-term Obligations as of April 27, 2019 | $ | 1.1 |
F-26
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends
The Company paid dividends totaling $20.4 million in fiscal 2022, $17.4 million in fiscal 2021 and $16.3 million in fiscal 2020. Dividends paid in fiscal 2021 includes $0.9 million of dividends on restricted stock that vested during the period. The Company increased its quarterly dividend from $0.11 per share to $0.14 per share beginning in the three months ended July 31, 2021.
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 debtchanges in accumulated other comprehensive income (loss), net of tax is shown below:
(in millions) |
| Currency Translation Adjustments |
|
| Derivative Instruments |
|
| Total |
| |||
Balance as of April 27, 2019 |
| $ | (13.6 | ) |
| $ | - |
|
| $ | (13.6 | ) |
Other comprehensive loss |
|
| (12.9 | ) |
|
| (1.3 | ) |
|
| (14.2 | ) |
Tax benefit |
|
| 0.6 |
|
|
| 0.3 |
|
|
| 0.9 |
|
Net current period other comprehensive loss |
|
| (12.3 | ) |
|
| (1.0 | ) |
|
| (13.3 | ) |
Balance as of May 2, 2020 |
|
| (25.9 | ) |
|
| (1.0 | ) |
|
| (26.9 | ) |
Other comprehensive income (loss) |
|
| 38.6 |
|
|
| (5.7 | ) |
|
| 32.9 |
|
Tax (expense) benefit |
|
| (1.2 | ) |
|
| 1.3 |
|
|
| 0.1 |
|
Net current period other comprehensive income (loss) |
|
| 37.4 |
|
|
| (4.4 | ) |
|
| 33.0 |
|
Balance as of May 1, 2021 |
|
| 11.5 |
|
|
| (5.4 | ) |
|
| 6.1 |
|
Other comprehensive income (loss) |
|
| (42.4 | ) |
|
| 11.9 |
|
|
| (30.5 | ) |
Tax (expense) benefit |
|
| 0.4 |
|
|
| (2.8 | ) |
|
| (2.4 | ) |
Net current period other comprehensive income (loss) |
|
| (42.0 | ) |
|
| 9.1 |
|
|
| (32.9 | ) |
Balance as of April 30, 2022 |
| $ | (30.5 | ) |
| $ | 3.7 |
|
| $ | (26.8 | ) |
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | ||||||
Revolving Credit Facility | $ | 35.0 | $ | 30.0 | ||||
Term Loan | 243.7 | — | ||||||
Subsidiary Credit Facility | — | 3.6 | ||||||
Other Debt | 16.8 | 24.2 | ||||||
Unamortized Debt Issuance Costs | (2.9 | ) | — | |||||
Total Debt | 292.6 | 57.8 | ||||||
Less: Current Maturities | (15.7 | ) | (4.4 | ) | ||||
Total Long-term Debt | $ | 276.9 | $ | 53.4 |
Stock-based compensation
The Credit Agreement amends and restates the credit agreement, dated November 18, 2016, among the Company, Bank of America, N.A. and Wells Fargo Bank, N.A. The Credit Agreement consists of a senior unsecured revolving credit facility (“Revolving Credit Facility”) of $200.0 million and a senior unsecured term loan (“Term Loan”) of $250.0 million. In addition, the Company has an optiongranted stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock awards to increase the size of the Revolving Credit Facilityemployees and Term Loan by up to an additional $200.0 million. 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.
Stock-based compensation expense
All stock-based payments to employees and directors are recognized in selling and administrative expenses on the consolidated statements of income. Awards subject to graded vesting are recognized using the accelerated recognition method over the requisite service period. The table below summarizes the stock-based compensation expense (benefit) related to the equity awards:
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
(in millions) |
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
RSAs |
| $ | 0 |
|
| $ | — |
|
| $ | (2.1 | ) |
RSUs |
|
| 10.3 |
|
|
| 5.9 |
|
|
| 1.5 |
|
Deferred director awards |
|
| 0.8 |
|
|
| — |
|
|
| — |
|
Director awards |
|
| 0.7 |
|
|
| 0.9 |
|
|
| 0.9 |
|
Total stock-based compensation expense |
| $ | 11.8 |
|
| $ | 6.8 |
|
| $ | 0.3 |
|
2014 Plan
The 2014 Plan provides for discretionary grants of stock options, stock appreciation rights, RSAs, RSUs and performance units to key employees and directors. The 2014 Plan is intended to promote the success of the Company was in compliance with all the covenants in the Credit Agreement. The fair value of borrowings under the Credit Agreement approximates book value because the interest rate is variable.
F-27
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted stock awards and performance units
As of April 27, 2019, scheduled principal payments30, 2022, the Company had 928,412 RSAs outstanding which will be earned based on the achievement of debtan earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) measure for fiscal 2025. The RSAs will vest ranging from 0% (for performance below threshold) to 100% (target performance) based on the achievement of the EBITDA performance measure and continued employment. In addition, if the target performance is exceeded, an additional 464,206 PUs can be earned that will be settled in cash. At the discretion of the Compensation Committee, the PUs may be settled in shares of common stock
The fair value of the RSAs was based on the closing stock price on the date of grant and earn dividend equivalents during the vesting period, which are as follows:
(Dollars in Millions) | Amount | |||
Fiscal Years: | ||||
2020 | $ | 15.7 | ||
2021 | 14.9 | |||
2022 | 13.9 | |||
2023 | 13.7 | |||
2024 | 234.0 | |||
Thereafter | 3.3 | |||
Total | $ | 295.5 |
In fiscal 20182020, previously granted performance-based RSAs vested at 69% of target, which was determined in the fourth quarter of fiscal 2020. The target hurdle was not achieved because of among other factors, the impact of the COVID-19 pandemic. The result was a reversal of previously recognized stock-based compensation expense related to prior years of $5.2 million. Stock-based compensation expense for these awards in fiscal 2020 was a credit of $2.1 million.
The following table summarizes the RSA activity under the 2014 Incentive Plan:
|
| Restricted Stock |
|
| Weighted |
| ||
Non-vested at April 27, 2019 |
|
| 1,031,408 |
|
| $ | 34.09 |
|
Awarded |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| (455,750 | ) |
| $ | 33.89 |
|
Forfeited |
|
| (575,658 | ) |
| $ | 34.25 |
|
Non-vested at May 2, 2020 |
|
| 0 |
|
| $ | 0 |
|
Awarded |
|
| 928,412 |
|
| $ | 28.50 |
|
Vested |
|
| 0 |
|
| $ | 0 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Non-vested at May 1, 2021 |
|
| 928,412 |
|
| $ | 28.50 |
|
Awarded |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| 0 |
|
| $ | 0 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Non-vested at April 30, 2022 |
|
| 928,412 |
|
| $ | 28.50 |
|
Restricted stock units
RSUs granted under the 2014 Plan vest over a pre-determined period of time, up to five years from the date of grant. The fair value of RSUs granted was based on the closing stock price on the date of grant. RSUs granted in fiscal 2021 and fiscal 2017, respectively.2022 earn dividend equivalents during the vesting period, which are forfeitable if the RSUs do not vest.
F-28
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes RSU activity granted under the 2014 Plan:
|
| Restricted Stock |
|
| Weighted |
| ||
Non-vested at April 27, 2019 |
|
| 187,844 |
|
| $ | 34.55 |
|
Awarded |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| (176,994 | ) |
| $ | 34.25 |
|
Forfeited |
|
| (7,750 | ) |
| $ | 38.75 |
|
Non-vested at May 2, 2020 |
|
| 3,100 |
|
| $ | 41.20 |
|
Awarded |
|
| 949,712 |
|
| $ | 28.49 |
|
Vested |
|
| (25,201 | ) |
| $ | 29.87 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Non-vested at May 1, 2021 |
|
| 927,611 |
|
| $ | 28.50 |
|
Awarded |
|
| 46,300 |
|
| $ | 48.41 |
|
Vested |
|
| (37,520 | ) |
| $ | 36.55 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Non-vested at April 30, 2022 |
|
| 936,391 |
|
| $ | 29.16 |
|
As of April 30, 2022, there were 37,520 RSUs that were vested for which shares were issued in the first quarter of fiscal 2023. As of April 30, 2022, unrecognized share-based compensation expense for RSUs was $13.2 million which will be recognized over a weighted-average amortization period of 1.8 years.
Director awards
The Company grants stock awards to its non-employee directors as a component of their compensation. The stock awards vest immediately upon grant. Non-employee directors may elect to defer receipt of their shares under the Company’s non-qualified deferred compensation plan. In fiscal 2022, the Company granted 32,505 shares, of which 17,730 shares were deferred. All dividends on deferred shares are reinvested into additional deferred shares based on the closing price of the Company’s common stock on the dividend payment date. Deferred shares will be settled with shares of common stock upon each director’s retirement from the Company’s Board of Directors. As of April 30, 2022, there were 17,956 deferred shares outstanding. During fiscal 2021 and fiscal 2020, the Company issued 33,000 shares and 30,000 shares, respectively, of common stock to its independent directors, all of which vested immediately upon grant.
Stock options
The following table summarizes combined stock option activity under the 2010 Plan and 2007 Plan:
|
| Shares |
|
| Weighted average exercise price |
|
| Weighted- |
|
| Aggregate |
| ||||
Outstanding and exercisable at April 27, 2019 |
|
| 106,668 |
|
| $ | 35.76 |
|
|
| 5.0 |
|
| $ | 0.1 |
|
Exercised |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
|
| ||
Forfeited |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
|
| ||
Outstanding and exercisable at May 2, 2020 |
|
| 106,668 |
|
| $ | 35.76 |
|
|
| 4.0 |
|
| $ | 0.1 |
|
Exercised |
|
| (24,500 | ) |
| $ | 31.61 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (9,168 | ) |
| $ | 37.01 |
|
|
|
|
|
|
| ||
Outstanding and exercisable at May 1, 2021 |
|
| 73,000 |
|
| $ | 37.01 |
|
|
| 3.2 |
|
| $ | 0.6 |
|
Exercised |
|
| (13,000 | ) |
| $ | 37.01 |
|
|
|
|
|
|
| ||
Forfeited |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
|
| ||
Outstanding and exercisable at April 30, 2022 |
|
| 60,000 |
|
| $ | 37.01 |
|
|
| 2.2 |
|
| $ | 0.5 |
|
The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that date. The total intrinsic value of options exercised in fiscal 2022 was $0.2 million.
F-29
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred RSUs
Under the 2014 Plan and 2010 Plan, RSUs that have vested for certain executives, including the Company’s CEO, will not be delivered in common stock until after the executive terminates employment from the Company or upon a change of control. As of April 30, 2022, shares to be delivered to these executives were 121,200 shares under the 2014 Plan and 180,000 shares under the 2010 Plan.
Under the 2004 Plan, 225,000 shares of common stock subject to performance based RSAs granted to the Company’s CEO in fiscal 2006 and 2007 were converted to RSUs. The shares of common stock underlying the RSUs will not be issued and delivered until the earlier of: (1) thirty days after the CEO’s date of termination of employment with the Company and all of its subsidiaries and affiliates; or (2) the last day of the Company’s fiscal year in which the payment of common stock in satisfaction of the RSUs becomes deductible to the Company under Section 162(m) of the Code. As of April 30, 2022, 29,945 shares have been delivered in connection with these RSUs with a remaining balance to be delivered of 195,055 shares.
The RSUs are not entitled to voting rights or dividends, however a bonus in lieu of dividends are paid. The vested deferred RSUs are considered outstanding for earnings per share calculations.
Note 14. Income Per Share
Basic income per share is calculated by dividing net income by the number of weighted average common shares outstanding for the applicable period. The weighted average number of common shares used in the diluted income per share calculation is determined using the treasury stock method which includes 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:
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
|
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Numerator: |
|
|
|
|
|
|
|
|
| |||
Net income (in millions) |
| $ | 102.2 |
|
| $ | 122.3 |
|
| $ | 123.4 |
|
|
|
|
|
|
|
|
|
|
| |||
Denominator: |
|
|
|
|
|
|
|
|
| |||
Denominator for basic income per share - weighted average shares outstanding and vested/unissued RSUs |
|
| 37,234,086 |
|
|
| 38,038,615 |
|
|
| 37,574,671 |
|
Dilutive potential common shares - stock options, RSAs and RSUs |
|
| 583,360 |
|
|
| 267,671 |
|
|
| 269,799 |
|
Denominator for diluted income per share |
|
| 37,817,446 |
|
|
| 38,306,286 |
|
|
| 37,844,470 |
|
|
|
|
|
|
|
|
|
|
| |||
Basic and diluted income per share: |
|
|
|
|
|
|
|
|
| |||
Basic income per share |
| $ | 2.74 |
|
| $ | 3.22 |
|
| $ | 3.28 |
|
Diluted income per share |
| $ | 2.70 |
|
| $ | 3.19 |
|
| $ | 3.26 |
|
|
|
|
|
|
|
|
|
|
| |||
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding |
|
| 928,412 |
|
|
| 738,167 |
|
|
| 566,620 |
|
Note 15. Segment Information and Geographic Area Information
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the Company’s President and Chief Executive Officer (“CEO”).
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Products include integrated center consoles, hidden switches, ergonomic switches, transmission lead-frames, LED-based lighting, and sensors which incorporate magneto-elastic sensing and other technologies that monitor the operation or status of a component or system.
The Industrial segment manufactures external lighting solutions, industrial safety radio remote controls, braided flexible cables, current-carrying laminated busbars and devices, custom power-product assemblies such(such as our PowerRail® solution,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.
F-30
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Interface segment provides a variety of coppercopper-based transceivers and fiber-optic interfacerelated accessories for the cloud computing hardware equipment and telecommunications broadband equipment markets, user interface solutions for the appliance, commercial food service, construction, consumer, material handling,and point-of-sale equipment markets, and telecommunicationsfluid-level sensors for the marine/recreational vehicle and sump pump markets. Solutions include copper transceivers and solid-state field-effect consumer touch panels.
The Medical segment is made up of the Company'sCompany’s medical device business, Dabir Surfaces, with its surface support technology aimed at pressure injury prevention. Methode is developinghas developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1, "Description“Description of Business and Summary of Significant Accounting Policies," above.Policies.” The CODM allocates resources to and evaluates the performance of each operating segments based on operating income. Transfers between segments are recorded using internal transfer prices set by the Company.
The tables below present information about ourthe Company’s reportable segments.
Fiscal Year Ended April 27, 2019 | |||||||||||||||||||||||
(Dollars in Millions) | Automotive | Industrial | Interface | Medical | Eliminations/Corporate | Consolidated | |||||||||||||||||
Net Sales | $ | 741.6 | $ | 210.0 | $ | 57.9 | $ | 1.1 | $ | (10.3 | ) | $ | 1,000.3 | ||||||||||
Transfers between Segments | (6.9 | ) | (3.2 | ) | (0.2 | ) | — | 10.3 | — | ||||||||||||||
Net Sales to Unaffiliated Customers | $ | 734.7 | $ | 206.8 | $ | 57.7 | $ | 1.1 | $ | — | $ | 1,000.3 | |||||||||||
Income/(Loss) from Operations | $ | 126.3 | $ | 37.4 | $ | (0.3 | ) | $ | (8.6 | ) | $ | (48.0 | ) | $ | 106.8 | ||||||||
Interest Expense, Net | 8.3 | ||||||||||||||||||||||
Other Income, Net | (5.1 | ) | |||||||||||||||||||||
Income before Income Taxes | $ | 103.6 | |||||||||||||||||||||
Depreciation and Amortization | $ | 25.2 | $ | 11.7 | $ | 3.2 | $ | 1.0 | $ | 2.2 | $ | 43.3 | |||||||||||
Identifiable Assets | $ | 677.4 | $ | 404.3 | $ | 88.6 | $ | 9.4 | $ | 52.0 | $ | 1,231.7 |
Fiscal Year Ended April 28, 2018 | |||||||||||||||||||||||
(Dollars in Millions) | Automotive | Industrial | Interface | Medical | Eliminations/Corporate | Consolidated | |||||||||||||||||
Net Sales | $ | 738.4 | $ | 105.6 | $ | 73.9 | $ | 0.3 | $ | (9.9 | ) | $ | 908.3 | ||||||||||
Transfers between Segments | (9.7 | ) | 0.2 | (0.7 | ) | — | 10.2 | — | |||||||||||||||
Net Sales to Unaffiliated Customers | $ | 728.7 | $ | 105.8 | $ | 73.2 | $ | 0.3 | $ | 0.3 | $ | 908.3 | |||||||||||
Income/(Loss) from Operations | $ | 156.3 | $ | 13.0 | $ | 6.0 | $ | (11.4 | ) | $ | (45.6 | ) | $ | 118.3 | |||||||||
Interest Expense, Net | 0.9 | ||||||||||||||||||||||
Other Income, Net | (6.4 | ) | |||||||||||||||||||||
Income before Income Taxes | $ | 123.8 | |||||||||||||||||||||
Depreciation and Amortization | $ | 21.3 | $ | 2.0 | $ | 3.1 | $ | 0.8 | $ | 0.9 | $ | 28.1 | |||||||||||
Identifiable Assets | $ | 632.7 | $ | 93.1 | $ | 206.8 | $ | 8.1 | $ | (24.8 | ) | $ | 915.9 |
|
| Fiscal Year Ended April 30, 2022 (52 Weeks) |
| |||||||||||||||||||||
(in millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ |
|
| Consolidated |
| ||||||
Net sales |
| $ | 786.3 |
|
| $ | 325.7 |
|
| $ | 59.8 |
|
| $ | 4.2 |
|
| $ | (12.4 | ) |
| $ | 1,163.6 |
|
Transfers between segments |
|
| (4.8 | ) |
|
| (7.6 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 12.4 |
|
|
| 0 |
|
Net sales to unaffiliated customers |
| $ | 781.5 |
|
| $ | 318.1 |
|
| $ | 59.8 |
|
| $ | 4.2 |
|
| $ | 0 |
|
| $ | 1,163.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from operations |
| $ | 92.6 |
|
| $ | 67.1 |
|
| $ | 9.9 |
|
| $ | (5.5 | ) |
| $ | (52.4 | ) |
| $ | 111.7 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3.5 |
| |||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10.3 | ) | |||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 118.5 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Purchases of property, plant and equipment |
| $ | 27.4 |
|
| $ | 2.4 |
|
| $ | — |
|
| $ | 0.2 |
|
| $ | 8.0 |
|
| $ | 38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| $ | 34.4 |
|
| $ | 14.9 |
|
| $ | 0.2 |
|
| $ | 1.0 |
|
| $ | 2.1 |
|
| $ | 52.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Identifiable assets |
| $ | 689.8 |
|
| $ | 455.3 |
|
| $ | 108.1 |
|
| $ | 7.9 |
|
| $ | 128.0 |
|
| $ | 1,389.1 |
|
|
| Fiscal Year Ended May 1, 2021 (52 Weeks) |
| |||||||||||||||||||||
(in millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ |
|
| Consolidated |
| ||||||
Net sales |
| $ | 761.8 |
|
| $ | 273.2 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | (11.4 | ) |
| $ | 1,088.0 |
|
Transfers between segments |
|
| (6.1 | ) |
|
| (5.3 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 11.4 |
|
|
| 0 |
|
Net sales to unaffiliated customers |
| $ | 755.7 |
|
| $ | 267.9 |
|
| $ | 61.6 |
|
| $ | 2.8 |
|
| $ | 0 |
|
| $ | 1,088.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from operations |
| $ | 107.6 |
|
| $ | 64.3 |
|
| $ | 8.9 |
|
| $ | (4.6 | ) |
| $ | (48.3 | ) |
| $ | 127.9 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5.2 |
| |||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12.2 | ) | |||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 134.9 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Purchases of property, plant and equipment |
| $ | 22.5 |
|
| $ | 2.1 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0.3 |
|
| $ | 24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| $ | 34.3 |
|
| $ | 14.3 |
|
| $ | 0.3 |
|
| $ | 0.9 |
|
| $ | 1.7 |
|
| $ | 51.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Identifiable assets |
| $ | 739.5 |
|
| $ | 461.6 |
|
| $ | 90.4 |
|
| $ | 7.6 |
|
| $ | 167.9 |
|
| $ | 1,467.0 |
|
F-31
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Fiscal Year Ended May 2, 2020 (53 Weeks) |
| |||||||||||||||||||||
(in millions) |
| Automotive |
|
| Industrial |
|
| Interface |
|
| Medical |
|
| Eliminations/ |
|
| Consolidated |
| ||||||
Net sales |
| $ | 716.8 |
|
| $ | 253.9 |
|
| $ | 58.9 |
|
| $ | 1.6 |
|
| $ | (7.3 | ) |
| $ | 1,023.9 |
|
Transfers between segments |
|
| (4.7 | ) |
|
| (2.5 | ) |
|
| (0.1 | ) |
|
| 0 |
|
|
| 7.3 |
|
|
| 0 |
|
Net sales to unaffiliated customers |
| $ | 712.1 |
|
| $ | 251.4 |
|
| $ | 58.8 |
|
| $ | 1.6 |
|
| $ | 0 |
|
| $ | 1,023.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from operations |
| $ | 124.4 |
|
| $ | 59.4 |
|
| $ | 5.6 |
|
| $ | (6.0 | ) |
| $ | (36.3 | ) |
| $ | 147.1 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10.1 |
| |||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11.7 | ) | |||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 148.7 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Purchases of property, plant and equipment |
| $ | 37.5 |
|
| $ | 5.7 |
|
| $ | 0.3 |
|
| $ | 0.7 |
|
| $ | 0.9 |
|
| $ | 45.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| $ | 31.0 |
|
| $ | 13.7 |
|
| $ | 0.9 |
|
| $ | 1.1 |
|
| $ | 1.6 |
|
| $ | 48.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Identifiable assets |
| $ | 670.9 |
|
| $ | 421.8 |
|
| $ | 71.0 |
|
| $ | 8.8 |
|
| $ | 198.1 |
|
| $ | 1,370.6 |
|
Fiscal Year Ended April 29, 2017 | |||||||||||||||||||||||
(Dollars in Millions) | Automotive | Industrial | Interface | Medical | Eliminations/Corporate | Consolidated | |||||||||||||||||
Net Sales | $ | 641.0 | $ | 92.4 | $ | 94.3 | $ | 0.2 | $ | (11.4 | ) | $ | 816.5 | ||||||||||
Transfers between Segments | (8.8 | ) | (0.1 | ) | (2.8 | ) | — | 11.7 | — | ||||||||||||||
Net Sales to Unaffiliated Customers | $ | 632.2 | $ | 92.3 | $ | 91.5 | $ | 0.2 | $ | 0.3 | $ | 816.5 | |||||||||||
Income/(Loss) from Operations | $ | 148.3 | $ | 2.7 | $ | 4.0 | $ | (8.5 | ) | $ | (35.7 | ) | $ | 110.8 | |||||||||
Interest Income, Net | (0.4 | ) | |||||||||||||||||||||
Other Income, Net | (4.7 | ) | |||||||||||||||||||||
Income before Income Taxes | $ | 115.9 | |||||||||||||||||||||
Depreciation and Amortization | $ | 15.5 | $ | 3.2 | $ | 4.3 | $ | 0.5 | $ | 0.8 | $ | 24.3 | |||||||||||
Identifiable Assets | $ | 462.3 | $ | 78.1 | $ | 170.4 | $ | 5.4 | $ | (12.2 | ) | $ | 704.0 |
The following table setstables set forth certain geographic financial information for fiscal 2019, fiscal 2018 and fiscal 2017. Geographic net sales are determined based on our sales from our various operational locations.
Fiscal Year Ended | ||||||||||||
(Dollars in Millions) | April 27, 2019 | April 28, 2018 | April 29, 2017 | |||||||||
Net Sales: | ||||||||||||
U.S. | $ | 540.5 | $ | 487.5 | $ | 506.9 | ||||||
Malta | 148.5 | 184.0 | 155.5 | |||||||||
China | 113.7 | 117.3 | 127.7 | |||||||||
Canada | 101.6 | 54.4 | — | |||||||||
Other | 96.0 | 65.1 | 26.4 | |||||||||
Total Net Sales | $ | 1,000.3 | $ | 908.3 | $ | 816.5 | ||||||
Property, Plant and Equipment, Net: | ||||||||||||
U.S. | $ | 83.9 | $ | 63.3 | $ | 44.9 | ||||||
Malta | 33.0 | 36.8 | 26.4 | |||||||||
Belgium | 22.1 | 25.0 | — | |||||||||
China | 18.6 | 7.2 | 5.9 | |||||||||
Other | 34.3 | 29.9 | 13.4 | |||||||||
Total Property, Plant and Equipment, Net | $ | 191.9 | $ | 162.2 | $ | 90.6 |
|
| Fiscal Year Ended |
| |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| May 2, 2020 |
| |||
(in millions) |
| (52 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| |||
Net sales: |
|
|
|
|
|
|
|
|
| |||
U.S. |
| $ | 547.4 |
|
| $ | 510.8 |
|
| $ | 531.5 |
|
China |
|
| 224.3 |
|
|
| 193.7 |
|
|
| 116.9 |
|
Malta |
|
| 178.4 |
|
|
| 173.5 |
|
|
| 143.9 |
|
Mexico |
|
| 76.2 |
|
|
| 87.4 |
|
|
| 104.7 |
|
Egypt |
|
| 67.2 |
|
|
| 58.4 |
|
|
| 60.0 |
|
Other |
|
| 70.1 |
|
|
| 64.2 |
|
|
| 66.9 |
|
Total net sales |
| $ | 1,163.6 |
|
| $ | 1,088.0 |
|
| $ | 1,023.9 |
|
|
|
|
|
|
|
|
|
|
| |||
(in millions) |
| April 30, 2022 |
|
| May 1, 2021 |
|
|
|
| |||
Tangible long-lived assets, net: |
|
|
|
|
|
|
|
|
| |||
U.S. |
| $ | 74.2 |
|
| $ | 75.0 |
|
|
|
| |
Malta |
|
| 38.6 |
|
|
| 43.0 |
|
|
|
| |
China |
|
| 30.1 |
|
|
| 27.2 |
|
|
|
| |
Egypt |
|
| 22.8 |
|
|
| 20.1 |
|
|
|
| |
Mexico |
|
| 21.0 |
|
|
| 24.6 |
|
|
|
| |
Belgium |
|
| 20.2 |
|
|
| 24.8 |
|
|
|
| |
Other |
|
| 10.1 |
|
|
| 11.6 |
|
|
|
| |
Total tangible long-lived assets, net |
| $ | 217.0 |
|
| $ | 226.3 |
|
|
|
|
F-32
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Summary of Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations for fiscal 20192022 and fiscal 2018:2021:
|
| Fiscal 2022 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
(in millions, except per share data) |
| July 31, 2021 |
|
| October 30, 2021 |
|
| January 29, 2022 |
|
| April 30, 2022 |
| ||||
Net sales |
| $ | 287.8 |
|
| $ | 295.5 |
|
| $ | 291.6 |
|
| $ | 288.7 |
|
Gross profit |
| $ | 71.7 |
|
| $ | 69.2 |
|
| $ | 69.1 |
|
| $ | 54.9 |
|
Net income |
| $ | 29.1 |
|
| $ | 27.5 |
|
| $ | 29.4 |
|
| $ | 16.2 |
|
Net income per basic common share |
| $ | 0.77 |
|
| $ | 0.73 |
|
| $ | 0.80 |
|
| $ | 0.44 |
|
Net income per diluted common share |
| $ | 0.76 |
|
| $ | 0.72 |
|
| $ | 0.78 |
|
| $ | 0.43 |
|
|
| Fiscal 2021 |
| |||||||||||||
|
| Quarter Ended |
| |||||||||||||
(in millions, except per share data) |
| August 1, 2020 |
|
| October 31, 2020 |
|
| January 30, 2021 |
|
| May 1, 2021 |
| ||||
Net sales |
| $ | 190.9 |
|
| $ | 300.8 |
|
| $ | 295.3 |
|
| $ | 301.0 |
|
Gross profit |
| $ | 45.1 |
|
| $ | 80.8 |
|
| $ | 72.6 |
|
| $ | 75.6 |
|
Net income |
| $ | 20.7 |
|
| $ | 38.6 |
|
| $ | 31.9 |
|
| $ | 31.1 |
|
Net income per basic common share |
| $ | 0.55 |
|
| $ | 1.01 |
|
| $ | 0.84 |
|
| $ | 0.82 |
|
Net income per diluted common share |
| $ | 0.54 |
|
| $ | 1.01 |
|
| $ | 0.83 |
|
| $ | 0.81 |
|
F-33
Fiscal 2019 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
(Dollars in Millions, except per share data) | July 28, 2018 | October 27, 2018 | January 26, 2019 | April 27, 2019 | ||||||||||||
Net Sales | $ | 223.4 | $ | 264.0 | $ | 246.9 | $ | 266.0 | ||||||||
Gross Profit | $ | 60.1 | $ | 70.8 | $ | 64.3 | $ | 70.6 | ||||||||
Net Income | $ | 23.7 | $ | 14.6 | $ | 30.7 | $ | 22.6 | ||||||||
Net Income per Basic Common Share | $ | 0.63 | $ | 0.39 | $ | 0.82 | $ | 0.61 | ||||||||
Net Income per Diluted Common Share | $ | 0.63 | $ | 0.39 | $ | 0.82 | $ | 0.60 |
Fiscal 2018 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
(Dollars in Millions, except per share data) | July 29, 2017 | October 28, 2017 | January 27, 2018 | April 28, 2018 | ||||||||||||
Net Sales | $ | 201.2 | $ | 230.1 | $ | 228.0 | $ | 249.0 | ||||||||
Gross Profit | $ | 55.6 | $ | 62.0 | $ | 60.1 | $ | 61.9 | ||||||||
Net Income (Loss) | $ | 20.5 | $ | 24.2 | $ | (24.3 | ) | $ | 36.8 | |||||||
Net Income (Loss) per Basic Common Share | $ | 0.55 | $ | 0.65 | $ | (0.65 | ) | $ | 0.99 | |||||||
Net Income (Loss) per Diluted Common Share | $ | 0.55 | $ | 0.64 | $ | (0.65 | ) | $ | 0.98 |
Fiscal 2019 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
(Dollars in Millions) | July 28, 2018 | October 27, 2018 | January 26, 2019 | April 27, 2019 | ||||||||||||
Legal Fees Related to the Hetronic lawsuit | $ | 0.9 | $ | 1.0 | $ | 0.8 | $ | 0.8 | ||||||||
Acquisition-related Expenses | $ | 0.6 | $ | 10.9 | $ | 3.8 | $ | 0.1 | ||||||||
Grant Income from Foreign Government for Maintaining Certain Employment Levels | $ | (1.1 | ) | $ | (1.4 | ) | $ | (1.9 | ) | $ | (1.4 | ) | ||||
Compensation Expense Reversal Related to the Re-estimation of RSA Performance Level | $ | — | $ | 7.4 | $ | — | $ | — | ||||||||
Discrete Estimated Net Tax Benefit with Respect to U.S. Tax Reform | $ | — | $ | — | $ | (4.8 | ) | $ | — | |||||||
Foreign Investment Tax Credit | $ | (0.4 | ) | $ | (1.1 | ) | $ | (0.7 | ) | $ | 0.2 | |||||
Expense for Initiatives to Reduce Overall Costs and Improve Operational Profitability | $ | 0.8 | $ | 2.5 | $ | 2.6 | $ | 1.0 | ||||||||
Net Tariff Expense | $ | — | $ | — | $ | 2.0 | $ | 0.3 |
Fiscal 2018 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
(Dollars in Millions) | July 29, 2017 | October 28, 2017 | January 27, 2018 | April 28, 2018 | ||||||||||||
Legal Fees Related to the Hetronic lawsuit | $ | 2.9 | $ | 1.6 | $ | 1.5 | $ | 2.1 | ||||||||
Acquisition-related Expenses | $ | 2.6 | $ | 4.2 | $ | — | $ | — | ||||||||
Grant Income from Foreign Government for Maintaining Certain Employment Levels | $ | — | $ | (1.5 | ) | $ | (3.6 | ) | $ | (2.2 | ) | |||||
Compensation Expense Reversal Related to the Re-estimation of RSA Performance Level | $ | — | $ | — | $ | (6.0 | ) | $ | — | |||||||
Discrete Estimated Net Tax Charge with Respect to U.S. Tax Reform | $ | — | $ | — | $ | 56.8 | $ | (3.1 | ) | |||||||
Foreign Investment Tax Credit | $ | (0.4 | ) | $ | (0.4 | ) | $ | (0.3 | ) | $ | (8.7 | ) |
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
(in millions)
Description |
| Balance at |
|
| (Benefits)/ |
|
| Deductions |
|
|
| Other |
|
|
| Balance at |
| |||||
Year Ended April 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for uncollectible accounts |
| $ | 0.7 |
|
| $ | 0.3 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 1.0 |
|
Deferred tax valuation allowance |
| $ | 9.3 |
|
| $ | (2.5 | ) |
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Year Ended May 1, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for uncollectible accounts |
| $ | 0.7 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 0.7 |
|
Deferred tax valuation allowance |
| $ | 7.5 |
|
| $ | 1.8 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Year Ended May 2, 2020 |
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
| |||||
Allowance for uncollectible accounts |
| $ | 0.9 |
|
| $ | (0.2 | ) |
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 0.7 |
|
Deferred tax valuation allowance |
| $ | 6.6 |
|
| $ | 0.9 |
|
| $ | 0 |
|
|
| $ | 0 |
|
|
| $ | 7.5 |
|
Description | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts— Describe | Deductions— Describe | Balance at End of Period | |||||||||||||
YEAR ENDED APRIL 27, 2019: | ||||||||||||||||||
Allowance for uncollectible accounts | $ | 0.5 | $ | 0.2 | $ | 0.2 | (1) | $ | — | (2) | $ | 0.9 | ||||||
Deferred tax valuation allowance | $ | 2.5 | $ | — | $ | 4.8 | (1) | $ | 1.0 | (3) | $ | 6.3 | ||||||
YEAR ENDED APRIL 28, 2018: | ||||||||||||||||||
Allowance for uncollectible accounts | $ | 0.6 | $ | — | $ | — | $ | 0.1 | (2) | $ | 0.5 | |||||||
Deferred tax valuation allowance | $ | 1.9 | $ | — | $ | — | $ | (0.6 | ) | (3) | $ | 2.5 | ||||||
YEAR ENDED APRIL 29, 2017: | ||||||||||||||||||
Allowance for uncollectible accounts | $ | 0.5 | $ | 0.1 | $ | — | $ | — | (2) | $ | 0.6 | |||||||
Deferred tax valuation allowance | $ | 1.3 | $ | — | $ | — | $ | (0.6 | ) | (3) | $ | 1.9 |
F-34