UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

~~__________________________________~~

FORM 10-Q

(Mark One)

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☒~~Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

for the quarterly period ended ~~October 26, 2019~~August 1, 2020

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☐~~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~~

001-33731

METHODE ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-2090085

~~Delaware~~		~~36-2090085~~
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification No.)



8750 West Bryn Mawr Avenue,	Suite 1000, Chicago, Illinois	~~Chicago,~~	~~Illinois~~	60631-3518
(Address of principal executive offices)		(Zip Code)

~~(Registrant’s~~

(Registrant’s telephone number, including area code) (~~708~~) (708) 867-6777

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class
Trading Symbol(s)		Name of each exchange
~~Title of each Class~~	~~Trading Symbol(s)~~	on which registered
Common Stock, $0.50 Par Value	~~MEI~~	MEI	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer.” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



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 13(a) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☒

At ~~December 3, 2019,~~September 1, 2020, the registrant had ~~37,091,487~~37,529,738 shares of common stock outstanding.

Table of Contents

METHODE ELECTRONICS, INC.

~~FORM 10-Q~~

~~October 26, 2019~~

~~TABLE OF CONTENTS~~

INDEX



		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (unaudited) - Three ~~and Six~~ Months Ended ~~October 26,~~August 1, 2020 and July 27, 2019 ~~and October 27, 2018~~	2

	Condensed Consolidated Statements of Comprehensive Income (unaudited) - Three ~~and Six~~ Months Ended ~~October 26,~~August 1, 2020 and July 27, 2019 ~~and October 27, 2018~~	3

	Condensed Consolidated Balance Sheets as of ~~October 26, 2019~~August 1, 2020 (unaudited) and ~~April 27, 2019~~May 2, 2020	4

	Condensed Consolidated Statements of Shareholders' Equity (unaudited) - Three ~~and Six~~ Months Ended ~~October 26,~~August 1, 2020 and July 27, 2019 ~~and October 27, 2018~~	5

	Condensed Consolidated Statements of Cash Flows (unaudited) - ~~Six~~Three Months Ended ~~October 26,~~August 1, 2020 and July 27, 2019 ~~and October 27, 2018~~	7 6

	Notes to Condensed Consolidated Financial Statements	8 7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23 20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37 29

Item 4.	Controls and Procedures	37 29

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	38 30

Item 6.	Exhibits	38 30

SIGNATURES		39 32

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in millions, except per share data)

	Three Months Ended
	August 1, 2020			July 27, 2019
Net Sales	$	190.9		$	270.2

Cost of Products Sold		145.8			194.4

Gross Profit		45.1			75.8

Selling and Administrative Expenses		26.6			32.4
Amortization of Intangibles		4.7			4.8

Income from Operations		13.8			38.6

Interest Expense, Net		1.6			2.9
Other (Income) Expense, Net		(3.4	)		0.1

Income before Income Taxes		15.6			35.6

Income Tax (Benefit) Expense		(5.1	)		7.3

Net Income	$	20.7		$	28.3

Basic and Diluted Income per Share:
Basic	$	0.55		$	0.75
Diluted	$	0.54		$	0.75

Cash Dividends per Share	$	0.11		$	0.11

Three Months Ended Six Months Ended
October 26,
2019 October 27,
2018 October 26,
2019 October 27,
2018
Net Sales $ 257.2
$ 264.0
$ 527.4
$ 487.4

Cost of Products Sold 188.6
193.2
383.0
356.5

Gross Profit 68.6
70.8
144.4
130.9

Selling and Administrative Expenses 33.2
48.0
65.6
77.5
Amortization of Intangibles 4.7
3.7
9.5
5.6

Income from Operations 30.7
19.1
69.3
47.8

Interest Expense, Net 2.7
1.6
5.6
1.8
Other (Income) Expense, Net (1.0 ) (0.1 ) (0.9 ) 0.2

Income before Income Taxes 29.0
17.6
64.6
45.8

Income Tax Expense 5.2
3.0
12.5
7.5

Net Income $ 23.8
$ 14.6
$ 52.1
$ 38.3

Basic and Diluted Income per Share:

Basic $ 0.63
$ 0.39
$ 1.39
$ 1.02
Diluted $ 0.63
$ 0.39
$ 1.38
$ 1.02

Cash Dividends per Share $ 0.11
$ 0.11
$ 0.22
$ 0.22

See notes to condensed consolidated financial statements.

Table of Contents

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

	Three Months Ended
	August 1, 2020			July 27, 2019
Net Income	$	20.7		$	28.3

Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments		20.3			(1.6	)
Derivative Financial Instruments		(3.6	)		—
Total Comprehensive Income	$	37.4		$	26.7

Three Months Ended Six Months Ended
October 26,
2019 October 27,
2018 October 26,
2019 October 27,
2018
Net Income $ 23.8
$ 14.6
$ 52.1
$ 38.3

Foreign Currency Translation Adjustments (2.8 ) (7.7 ) (4.4 ) (25.6 )
Total Comprehensive Income $ 21.0
$ 6.9
$ 47.7
$ 12.7

See notes to condensed consolidated financial statements.

Table of Contents

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per-share data)

	August 1, 2020			May 2, 2020
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	211.0		$	217.3
Accounts Receivable, Net		233.0			188.5
Inventories		124.0			131.0
Income Tax Receivable		13.6			12.9
Prepaid Expenses and Other Current Assets		16.4			15.9
TOTAL CURRENT ASSETS		598.0			565.6
LONG-TERM ASSETS
Property, Plant and Equipment, Net		208.6			201.9
Goodwill		233.3			231.6
Other Intangible Assets, Net		242.1			244.8
Operating Lease Assets, Net		22.1			23.5
Deferred Tax Assets		41.0			31.4
Pre-production Costs		36.0			37.1
Other Long-term Assets		37.1			34.7
TOTAL LONG-TERM ASSETS		820.2			805.0
TOTAL ASSETS	$	1,418.2		$	1,370.6

LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	83.2		$	73.8
Accrued Employee Liabilities		20.0			19.1
Other Accrued Expenses		28.3			18.5
Short-term Operating Lease Liability		5.5			5.5
Short-term Debt		15.4			15.3
Income Tax Payable		7.6			11.6
TOTAL CURRENT LIABILITIES		160.0			143.8
LONG-TERM LIABILITIES
Long-term Debt		334.4			336.8
Long-term Operating Lease Liability		18.4			20.4
Long-term Income Tax Payable		29.3			29.3
Other Long-term Liabilities		20.0			15.3
Deferred Tax Liabilities		42.3			41.6
TOTAL LONG-TERM LIABILITIES		444.4			443.4
TOTAL LIABILITIES		604.4			587.2
SHAREHOLDERS' EQUITY
Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,876,362 shares and 38,438,111 shares issued as of August 1, 2020 and May 2, 2020, respectively		19.4			19.2
Additional Paid-in Capital		151.5			150.7
Accumulated Other Comprehensive Loss		(10.2	)		(26.9	)
Treasury Stock, 1,346,624 shares as of August 1, 2020 and May 2, 2020		(11.5	)		(11.5	)
Retained Earnings		664.6			651.9
TOTAL SHAREHOLDERS' EQUITY		813.8			783.4
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,418.2		$	1,370.6

October 26,
2019 April 27,
2019
(Unaudited)
ASSETS

CURRENT ASSETS

Cash and Cash Equivalents $ 95.6
$ 83.2
Accounts Receivable, Net 205.3
219.3
Inventories 133.8
116.7
Income Tax Receivable 12.0
14.3
Prepaid Expenses and Other Current Assets 18.7
20.0
TOTAL CURRENT ASSETS 465.4
453.5
LONG-TERM ASSETS
Property, Plant and Equipment, Net 198.1
191.9
Goodwill 233.6
233.3
Other Intangible Assets, Net 255.8
264.9
Operating Lease Assets, Net 28.6
—
Deferred Tax Assets 34.1
34.3
Pre-production Costs 39.0
32.8
Other Long-term Assets 28.1
21.0
TOTAL LONG-TERM ASSETS 817.3
778.2
TOTAL ASSETS $ 1,282.7
$ 1,231.7

LIABILITIES & SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts Payable $ 97.1
$ 91.9
Accrued Employee Liabilities 22.5
20.1
Other Accrued Expenses 27.8
33.9
Short-term Operating Lease Liability 6.5
—
Short-term Debt 15.2
15.7
Income Tax Payable 15.2
19.3
TOTAL CURRENT LIABILITIES 184.3
180.9
LONG-TERM LIABILITIES
Long-term Debt 259.9
276.9
Long-term Operating Lease Liability 22.8
—
Long-term Income Tax Payable 29.3
33.0
Other Long-term Liabilities 17.0
14.8
Deferred Tax Liabilities 36.8
36.4
TOTAL LONG-TERM LIABILITIES 365.8
361.1
TOTAL LIABILITIES 550.1
542.0
SHAREHOLDERS' EQUITY

Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,438,111 shares and 38,333,576 shares issued as of October 26, 2019 and April 27, 2019, respectively 19.2
19.2
Additional Paid-in Capital 154.4
150.4
Accumulated Other Comprehensive Loss (18.0 ) (13.6 )
Treasury Stock, 1,346,624 shares as of October 26, 2019 and April 27, 2019 (11.5 ) (11.5 )
Retained Earnings 588.5
545.2
TOTAL SHAREHOLDERS' EQUITY 732.6
689.7
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,282.7
$ 1,231.7

See notes to condensed consolidated financial statements.

Table of Contents

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(in millions, except share data)

	Three Months Ended August 1, 2020
	Common Stock Shares		Common Stock		Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Treasury Stock			Retained Earnings			Total Equity
Balance as of May 2, 2020		38,438,111	$	19.2	$	150.7		��	$	(26.9	)	$	(11.5	)	$	651.9		$	783.4
Earned Portion of Restricted Stock, Net of Tax Withholding		433,251		0.2		(0.2	)			—			—			(3.9	)		(3.9	)
Exercise of Stock Options		5,000		—		0.1				—			—			—			0.1
Stock-based Compensation Expense		—		—		0.9				—			—			—			0.9
Other Comprehensive Income		—		—		—				16.7			—			—			16.7
Net Income		—		—		—				—			—			20.7			20.7
Dividends on Common Stock		—		—		—				—			—			(4.1	)		(4.1	)
Balance as of August 1, 2020		38,876,362	$	19.4	$	151.5			$	(10.2	)	$	(11.5	)	$	664.6		$	813.8

	Three Months Ended July 27, 2019
	Common Stock Shares		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Retained Earnings			Total Equity
Balance as of April 27, 2019		38,333,576	$	19.2	$	150.4	$	(13.6	)	$	(11.5	)	$	545.2		$	689.7
Earned Portion of Restricted Stock, Net of Tax Withholding		104,535		—		—		—			—			(0.4	)		(0.4	)
Stock-based Compensation Expense		—		—		2.5		—			—			—			2.5
Other Comprehensive Loss		—		—		—		(1.6	)		—			—			(1.6	)
Net Income		—		—		—		—			—			28.3			28.3
Dividends on Common Stock		—		—		—		—			—			(4.2	)		(4.2	)
Balance as of July 27, 2019		38,438,111	$	19.2	$	152.9	$	(15.2	)	$	(11.5	)	$	568.9		$	714.3

Three Months Ended October 26, 2019

Common
Stock
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Other Comprehensive
Loss

Treasury
Stock
Retained Earnings Total Shareholders Equity
Balance as of July 27, 2019 38,438,111
$ 19.2
$ 152.9
$ (15.2 ) $ (11.5 ) $ 568.9
$ 714.3
Stock-based Compensation Expense —
—
1.5
—
—
—
1.5
Foreign Currency Translation Adjustments —
—
—
(2.8 ) —
—
(2.8 )
Net Income —
—
—
—
—
23.8
23.8
Dividends on Common Stock —
—
—
—
—
(4.2 ) (4.2 )
Balance as of October 26, 2019 38,438,111
$ 19.2
$ 154.4
$ (18.0 ) $ (11.5 ) $ 588.5
$ 732.6

Three Months Ended October 27, 2018

Common
Stock
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Other Comprehensive
Income (Loss)

Treasury
Stock
Retained Earnings Total Shareholders Equity
Balance as of July 28, 2018 38,333,576
$ 19.2
$ 138.5
$ (4.0 ) $ (11.5 ) $ 490.0
$ 632.2
Stock-based Compensation Expense —
—
8.8
—
—
—
8.8
Foreign Currency Translation Adjustments —
—
—
(7.7 ) —
—
(7.7 )
Net Income —
—
—
—
—
14.6
14.6
Dividends on Common Stock —
—
—
—
—
(4.6 ) (4.6 )
Balance as of October 27, 2018 38,333,576
$ 19.2
$ 147.3
$ (11.7 ) $ (11.5 ) $ 500.0
$ 643.3

Six Months Ended October 26, 2019

Common
Stock
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Other Comprehensive
Loss

Treasury
Stock
Retained Earnings Total Shareholders Equity
Balance as of April 27, 2019 38,333,576
$ 19.2
$ 150.4
$ (13.6 ) $ (11.5 ) $ 545.2
$ 689.7
Earned Portion of Restricted Stock, Net of Tax Withholding 104,535
—
—
—
—
(0.4 ) (0.4 )
Stock-based Compensation Expense —
—
4.0
—
—
—
4.0
Foreign Currency Translation Adjustments —
—
—
(4.4 ) —
—
(4.4 )
Net Income —
—
—
—
—
52.1
52.1
Dividends on Common Stock —
—
—
—
—
(8.4 ) (8.4 )
Balance as of October 26, 2019 38,438,111
$ 19.2
$ 154.4
$ (18.0 ) $ (11.5 ) $ 588.5
$ 732.6

Six Months Ended October 27, 2018

Common
Stock
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Other Comprehensive
Loss

Treasury
Stock
Retained Earnings Total Shareholders Equity
Balance as of April 28, 2018 38,198,353
$ 19.1
$ 136.5
$ 13.9
$ (11.5 ) $ 472.0
$ 630.0
Earned Portion of Restricted Stock, Net of Tax Withholding 135,223
0.1
(0.1 ) —
—
(1.7 ) (1.7 )
Stock-based Compensation Expense —
—
10.9
—
—
—
10.9
Adoption of ASU 2014-09 —
—
—
—
—
0.1
0.1
Foreign Currency Translation Adjustments —
—
—
(25.6 ) —
—
(25.6 )
Net Income —
—
—
—
—
38.3
38.3
Dividends on Common Stock —
—
—
—
—
(8.7 ) (8.7 )
Balance as of October 27, 2018 38,333,576
$ 19.2
$ 147.3
$ (11.7 ) $ (11.5 ) $ 500.0
$ 643.3

See notes to condensed consolidated financial statements.

Table of Contents

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

	Three Months Ended
	August 1, 2020			July 27, 2019
OPERATING ACTIVITIES
Net Income	$	20.7		$	28.3
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		12.1			11.8
Stock-based Compensation Expense		0.9			2.5
Change in Cash Surrender Value of Life Insurance		(0.6	)		(0.3	)
Amortization of Debt Issuance Costs		0.2			0.2
Change in Deferred Income Taxes		(6.2	)		—
Other		1.0			—
Changes in Operating Assets and Liabilities:
Accounts Receivable		(37.3	)		(12.8	)
Inventories		9.1			(5.7	)
Prepaid Expenses and Other Assets		1.5			0.7
Accounts Payable and Other Liabilities		15.0			(5.6	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		16.4			19.1

INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment		(11.6	)		(13.2	)
NET CASH USED IN INVESTING ACTIVITIES		(11.6	)		(13.2	)

FINANCING ACTIVITIES
Taxes Paid Related to Net Share Settlement of Equity Awards		(3.9	)		(0.4	)
Proceeds from Exercise of Stock Options		0.1			—
Repayments of Finance Leases		(0.1	)		(0.2	)
Cash Dividends		(5.0	)		(4.1	)
Proceeds from Borrowings		—			1.0
Repayments of Borrowings		(4.1	)		(10.7	)
NET CASH USED IN FINANCING ACTIVITIES		(13.0	)		(14.4	)
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents		1.9			(0.9	)
DECREASE IN CASH AND CASH EQUIVALENTS		(6.3	)		(9.4	)
Cash and Cash Equivalents at Beginning of the Year		217.3			83.2
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	$	211.0		$	73.8

SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest	$	1.5		$	2.9
Income Taxes, Net of Refunds	$	4.8		$	7.8
Operating Lease Obligations	$	2.1		$	2.1

Six Months Ended
October 26,
2019 October 27,
2018
OPERATING ACTIVITIES

Net Income $ 52.1
$ 38.3
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Change in Cash Surrender Value of Life Insurance (0.3 ) —
Amortization of Debt Issuance Costs 0.3
0.2
Gain on Sale of Fixed Assets —
(0.7 )
Gain on Sale of Business (0.5 ) —
Depreciation 14.2
12.8
Amortization of Intangible Assets 9.5
5.6
Stock-based Compensation Expense 4.0
10.9
Provision for Bad Debt —
0.1
Change in Deferred Income Taxes 0.4
(0.4 )
Changes in Operating Assets and Liabilities:
Accounts Receivable 10.7
(8.2 )
Inventories (18.1 ) (5.2 )
Prepaid Expenses and Other Assets (10.2 ) (13.2 )
Accounts Payable and Other Liabilities 5.7
(4.0 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 67.8
36.2

INVESTING ACTIVITIES

Purchases of Property, Plant and Equipment (26.8 ) (28.6 )
Acquisitions of Businesses, Net of Cash Acquired —
(421.6 )
Sale of Business/Investment/Property 0.6
0.7
NET CASH USED IN INVESTING ACTIVITIES (26.2 ) (449.5 )

FINANCING ACTIVITIES

Taxes Paid Related to Net Share Settlement of Equity Awards (0.4 ) (1.7 )
Repayments of Finance Leases (0.3 ) —
Cash Dividends (8.2 ) (8.6 )
Proceeds from Borrowings 26.4
348.0
Repayments of Borrowings (44.2 ) (46.6 )
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (26.7 ) 291.1
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents (2.5 ) (13.0 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12.4
(135.2 )
Cash and Cash Equivalents at Beginning of the Year 83.2
246.1
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 95.6
$ 110.9

SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest $ 5.6
$ 1.6
Income Taxes, Net of Refunds $ 10.9
$ 14.9

See notes to condensed consolidated financial statements.

Table of Contents

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1.

Description of Business and Summary of Significant Accounting Policies

Description of Business ~~and Summary of Significant Accounting Policies~~

~~Description of Business~~

Methode Electronics, Inc. (the "Company" or "Methode") is a global ~~manufacturer~~developer of ~~component~~custom engineered and ~~subsystem devices~~application specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. The Company's primary manufacturing facilities are located in Dongguan and Shanghai, China; Cairo, Egypt; Mriehel, Malta; and Fresnillo and Monterrey, Mexico. The Company designs, manufactures and markets devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing technologies.

Impact of COVID-19

The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. The Company expects the disruptions caused by the COVID-19 pandemic to continue to have an adverse impact on the Company's operating results across all segments for the remainder of fiscal 2021. The Company began to see the impacts of the COVID-19 pandemic at the beginning of its fourth quarter of fiscal 2020 at its China manufacturing facilities, which were initially closed after the Chinese New Year. The Company’s manufacturing facilities in China resumed operations later in the fourth quarter of fiscal 2020, but at lower capacity utilization. However, the major impact to the Company’s business from the COVID-19 pandemic began in mid-March 2020, as the Company’s operations in North America and Europe were adversely impacted by many customers suspending their manufacturing operations due to the COVID-19 pandemic. As a result, production levels at the Company’s major North American and European manufacturing facilities were still significantly reduced to well below capacity through early June 2020. In the first quarter of fiscal 2021, the Company’s operations in North America and Europe gradually resumed operations, however production levels were still significantly reduced, resulting in lower capacity utilization. Some of the Company’s international locations received government assistance with respect to wages and other expenses. The amount of assistance received was $2.9 million in the three months ended August 1, 2020 and have been reported as other income.

The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company's goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of August 1, 2020 and through the date of this report. As a result of these assessments, the Company concluded that there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company's condensed consolidated financial statements as of and for the three months ended August 1, 2020. However, the Company's future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to its consolidated financial statements in future reporting periods.

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements included in the Company's Form 10-K for the year ended ~~April 27, 2019,~~May 2, 2020, filed with the SEC on June ~~20, 2019.~~30, 2020. Results may vary from quarter-to-quarter for reasons other than seasonality.

Table of Contents

Financial Reporting Periods

The Company maintains its financial records on the basis of a 5252- or ~~53 week~~53-week fiscal year ending on the Saturday closest to April 30. The three months ended ~~October 26,~~August 1, 2020 and July 27, 2019 ~~and October 27, 2018~~ were both ~~13-week periods, and the six months ended October 26, 2019 and October 27, 2018 were both 26-week~~13 week periods.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from these estimates.

~~Change in Presentation~~

~~During the second quarter of fiscal 2019, the Company changed its reportable segments. Refer to Note 11 “Segment Information,” for further discussion on the impact of the change.~~

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, "Description of Business and Summary of Significant Accounting Policies," to the consolidated financial statements included in the Company's Form 10-K for the year ended ~~April 27, 2019.~~May 2, 2020. There have been no material changes to the significant accounting policies in the ~~six~~three months ended ~~October 26, 2019~~August 1, 2020 other than those noted below.

Recently Adopted Accounting Pronouncements

In ~~February~~June 2016, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”) ~~2016-02, “Leases,” which amended authoritative guidance on leases and is codified in Accounting Standards Codification ("ASC") 842. The amended guidance~~ requires entities to record most leased assets and liabilities on the balance sheet, and also retains a dual model approach for assessing lease classification and recognizing expense. The FASB subsequently issued updates to provide clarification on specific topics, including adoption guidance, practical expedients and interim transition disclosure requirements.

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~The Company adopted the standard on April 28, 2019,~~ ~~by applying the modified retrospective method without restatement of comparative periods' financial information, as permitted by the transition guidance~~. ~~Accordingly, the Company has provided disclosures required by prior lease guidance for comparative periods.~~ The adoption of this standard resulted in the recognition of right-of-use assets of $27.6 million and related lease obligations of $28.1 million as of April 28, 2019. The standard did not have a significant impact on the Company's operating results or cash flows.

~~The Company elected certain practical expedients, including the election not to reassess~~ its prior conclusions about lease identification, lease classification and initial direct costs, as well as the election not to separate lease and non-lease components for arrangements where the Company is a lessee. ~~Lastly, the Company elected to recognize a right-of-use asset and related lease liability for leases with a lease term of 12 months or less for all classes of underlying assets.~~ ~~The Company determines if an arrangement contains a lease at inception. Operating lease expense is recognized on a straight-line basis over the lease term.~~

For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments. ~~Refer to Note 3, "Leases," for additional information.~~

~~In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~." The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from U.S. Tax Reform’s reduction of the U.S. federal corporate income tax rate. The Company adopted ASU 2018-02 as of April 28, 2019 and the adoption had no impact on the Company’s consolidated financial statements.

~~New Accounting Pronouncements Not Yet Adopted~~

~~In June 2016, the FASB issued ASU~~ 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” The guidance in ASU 2016-13 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ~~This~~

The Company adopted this guidance ~~is effective~~as of May 3, 2020. The guidance allows for ~~fiscal years beginning after December 15, 2019, with early~~various methods for measuring expected credit losses. The Company elected to apply a historical loss rate based on historic write-offs to aging categories. The historical loss rate will be adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. The adoption ~~permitted. Management is currently assessing the impact~~ of the ~~new standard, but does~~guidance did not ~~anticipate that the adoption of this standard will~~ have a material impact on the ~~manner in which it estimates the~~Company's condensed consolidated financial statements. The allowance for doubtful accounts ~~on its trade accounts receivable.~~balance was $0.8 million and $0.6 million as of August 1, 2020 and May 2, 2020, respectively

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The guidance in ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ~~This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted.~~ The Company ~~is evaluating~~adopted this guidance prospectively as of May 3, 2020, and the impact ~~of adopting this new accounting guidance~~ on its condensed consolidated financial ~~statements.~~

statements will depend on the nature of the Company’s future cloud computing arrangements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure

Framework – Changes to the Disclosure Requirements for Fair Value Measurement." The guidance in ASU 2018-13 changes disclosure requirements related to fair value measurements as part of the disclosure framework project. The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The Company adopted this guidance as of May 3, 2020, and there was no impact on the condensed consolidated financial statements.

New Accounting Pronouncements Not Adopted

In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)," which simplifies the accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification (“ASC 740”), such as recognizing deferred taxes for equity investments, the incremental approach to performing intraperiod tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This guidance is effective for ~~fiscal years, and interim~~

Table of Contents

annual periods ~~within those years,~~ beginning after December 15, ~~2019, with~~2020, and interim periods thereafter; however, early adoption is permitted. The Company is ~~evaluating~~currently assessing the ~~provisions~~potential impact of the ~~updated guidance and assessing the impact~~standard on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “~~Table~~Reference Rate Reform (Topic 848): Facilitation of ~~Contents~~the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships that reference LIBOR or another rate that is expected to be discontinued, subject to meeting certain criteria. ASU 2020-04 will be in effect through December 31, 2022. The Company is currently assessing the potential impact of the standard on its condensed consolidated financial statements.

Note 2.

Revenue

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

2.~~Revenue~~

The majority of the Company's revenue is recognized at a point in time. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, ~~with the exception of~~except for consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.

Revenues associated with products which the Company believes have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over time basis. The Company believes the most faithful depiction of the transfer of goods to the customer is based on progress to date, which is typically smooth throughout the production process. As such, the Company recognizes revenue evenly over the production process through transfer of control to the customer.

~~In addition, customers~~

Customers typically negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.

The Company treats shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation. ~~Shipping and handling costs are estimated at quarter-end in proportion to revenue recognized for transactions where actual costs are not yet known.~~

Across all products, the amount of revenue recognized corresponds to the related purchase order. ~~Revenue is adjusted for variable consideration (such as discounts) as described further below.~~ Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

Contract Balances

The Company receives payment from customers based on the contractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists.

A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. A contract liability exists when ~~the Company~~an entity has received consideration, or the amount is due from the customer in advance of revenue recognition. ~~Contract assets~~The net change in the contract asset and contract ~~liabilities are recognized in prepaid expenses and other current assets and other long-term liabilities, respectively, in~~liability balances for the ~~Company's condensed consolidated balance sheets.~~

~~Unbilled Receivables (Contract Assets)~~ ~~- Unbilled receivables were $0.9 million as of October 26, 2019 and $0.8 million as of April 27, 2019. In the six~~three months ended ~~October 26,~~August 1, 2020 and July 27, 2019 ~~$0.8 million of previously unbilled receivables~~ were ~~recorded into accounts receivable. There were 0 impairments of contract assets as of October 26, 2019.~~

~~Deferred Revenue (Contract Liabilities)~~ ~~- Deferred revenue was $0.3 million as of both October 26, 2019 and April 27, 2019. NaN previously deferred revenue was recorded into revenue in the six months ended October 26, 2019.~~

not material.

Table of Contents

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Disaggregated Revenue Information

~~The Company views the following disaggregated disclosures as useful to understanding the composition of revenue recognized during the respective reporting periods.~~

Geographic net sales are determined based on ~~our sales from~~ the Company's ~~various~~ operational locations. Though revenue recognition patterns and contracts are generally consistent, the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic and economic factors.

	Three Months Ended August 1, 2020
(Dollars in Millions)	Auto		Industrial		Interface		Medical		Total
Geographic Net Sales:
North America	$	76.3	$	20.6	$	13.2	$	0.4	$	110.5
Europe & Africa		28.8		12.8		—		—		41.6
Asia		20.0		18.6		0.2		—		38.8
Total Net Sales	$	125.1	$	52.0	$	13.4	$	0.4	$	190.9
Timing of Revenue Recognition:
Goods Transferred at a Point in Time	$	120.1	$	52.0	$	13.4	$	0.4	$	185.9
Goods Transferred Over Time		5.0		—		—		—		5.0
Total Net Sales	$	125.1	$	52.0	$	13.4	$	0.4	$	190.9

	Three Months Ended July 27, 2019
(Dollars in Millions)	Auto		Industrial		Interface		Medical		Total
Geographic Net Sales:
North America	$	121.6	$	48.9	$	12.5	$	0.3	$	183.3
Europe & Africa		49.0		12.5		0.1		—		61.6
Asia		15.6		9.4		0.3		—		25.3
Total Net Sales	$	186.2	$	70.8	$	12.9	$	0.3	$	270.2
Timing of Revenue Recognition:
Goods Transferred at a Point in Time	$	179.0	$	70.8	$	12.9	$	0.3	$	263.0
Goods Transferred Over Time		7.2		—		—		—		7.2
Total Net Sales	$	186.2	$	70.8	$	12.9	$	0.3	$	270.2

Note 3.

Restructuring

Three Months Ended October 26, 2019
(Dollars in Millions) Auto Industrial Interface Medical Total
Geographic Net Sales:
U.S. $ 84.2
$ 40.6
$ 11.8
$ 0.3
$ 136.9
Malta 27.2
7.6
0.1
—
34.9
Canada 22.6
5.3
—
—
27.9
China 20.7
7.0
—
—
27.7
Other 25.4
4.4
—
—
29.8
Total Net Sales $ 180.1
$ 64.9
$ 11.9
$ 0.3
$ 257.2

Timing of Revenue Recognition:
Goods Transferred at a Point in Time $ 168.7
$ 64.9
$ 11.9
$ 0.3
$ 245.8
Goods Transferred Over Time 11.4
—
—
—
11.4
Total Net Sales $ 180.1
$ 64.9
$ 11.9
$ 0.3
$ 257.2

Three Months Ended October 27, 2018
(Dollars in Millions) Auto Industrial Interface Medical Total
Geographic Net Sales:
U.S. $ 96.7
$ 24.9
$ 14.4
$ 0.3
$ 136.3
Malta 29.6
7.4
—
—
37.0
China 22.5
9.1
0.1
—
31.7
Canada 24.3
2.5
—
—
26.8
Other 28.5
3.5
0.2
—
32.2
Total Net Sales $ 201.6
$ 47.4
$ 14.7
$ 0.3
$ 264.0

Timing of Revenue Recognition:
Goods Transferred at a Point in Time $ 193.6
$ 47.4
$ 14.7
$ 0.3
$ 256.0
Goods Transferred Over Time 8.0
—
—
—
8.0
Total Net Sales $ 201.6
$ 47.4
$ 14.7
$ 0.3
$ 264.0

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Six Months Ended October 26, 2019
(Dollars in Millions) Auto Industrial Interface Medical Total
Geographic Net Sales:
U.S. $ 184.2
$ 83.1
$ 24.3
$ 0.6
$ 292.2
Malta 54.7
15.1
0.2
—
70.0
Canada 44.1
11.7
—
—
55.8
China 36.3
16.5
—
—
52.8
Other 47.0
9.3
0.3
—
56.6
Total Net Sales $ 366.3
$ 135.7
$ 24.8
$ 0.6
$ 527.4

Timing of Revenue Recognition:
Goods Transferred at a Point in Time $ 347.7
$ 135.7
$ 24.8
$ 0.6
$ 508.8
Goods Transferred Over Time 18.6
—
—
—
18.6
Total Net Sales $ 366.3
$ 135.7
$ 24.8
$ 0.6
$ 527.4

Six Months Ended October 27, 2018
(Dollars in Millions) Auto Industrial Interface Medical Total
Geographic Net Sales:
U.S. $ 174.0
$ 37.0
$ 29.4
$ 0.6
$ 241.0
Malta 60.1
15.7
0.1
—
75.9
China 42.5
17.9
0.1
—
60.5
Canada 45.1
2.5
—
—
47.6
Other 55.2
6.5
0.7
—
62.4
Total Net Sales $ 376.9
$ 79.6
$ 30.3
$ 0.6
$ 487.4

Timing of Revenue Recognition:
Goods Transferred at a Point in Time $ 359.1
$ 79.6
$ 30.3
$ 0.6
$ 469.6
Goods Transferred Over Time 17.8
—
—
—
17.8
Total Net Sales $ 376.9
$ 79.6
$ 30.3
$ 0.6
$ 487.4

3.~~Leases~~

The Company ~~leases real estate, automobiles~~continually monitors market factors and industry trends and takes necessary actions to reduce overall costs and improve operational profitability. In the three months ended August 1, 2020, the Company initiated certain ~~equipment under both operating~~restructuring actions in response to the adverse impacts from the COVID-19 pandemic. These actions included plant consolidations and ~~finance leases.~~workforce reductions in the Automotive, Industrial and Interface segments. In the three months ended August 1, 2020, the Company recognized $3.4 million of restructuring costs. These charges consist of $1.9 million recorded in cost of products sold and $1.5 million recorded in selling and administrative expenses.

Employee termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable. Asset impairment charges primarily relate to the impairment of right-of-use lease assets. Contract termination costs are recorded when notification of termination is given to the other party. The ~~Company does not have any significant arrangements where it~~following is ~~the lessor. The majority~~a rollforward of the Company's global lease portfolio represents leases of real estate, such as manufacturing facilities, warehouses and buildings. As of October 26, 2019, the Company's leases have remaining lease terms up to 11.8 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 as incurred. The Company’s lease payments are largely fixed. As of October 26, 2019, the operating leases that the Company has signed but have not yet commenced are immaterial.

In addition to the operating lease assets presented on the condensed consolidated balance sheets, assets under finance leases of $0.8 million are included in property, plant and equipment, net on the condensed consolidated balance sheets as of October 26, 2019. The finance lease obligation is split between other accrued expenses for the short-term portion and other long-term liabilities for the long-term portion on the condensed consolidated balance sheets. The Company had an immaterial amount of finance lease expense in the three and six months ended October 26, 2019.

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~The components of lease expense were as follows:~~

(Dollars in Millions) Three Months Ended October 26, 2019 Six Months Ended October 26, 2019
Lease Cost:
Operating Lease Cost $ 2.3
$ 4.8
Variable Lease Cost 0.2
0.4
Total Lease Cost $ 2.5
$ 5.2

~~Supplemental cash flow and other information related to operating leases was as follows:~~

(Dollars in Millions) Six Months Ended October 26, 2019
Operating Cash Flows:
Cash Paid Related to Operating Lease Obligations $ 4.3

Non-cash Activity:
Right-of-use Assets Obtained in Exchange for Lease Obligations $ 5.1

Weighted-average Remaining Lease Term 5.8 years
Weighted-average Discount Rate 4.67 %

~~Maturities of operating lease liabilities as of October 26, 2019, are shown below:~~

(Dollars in Millions) Operating Leases
Fiscal Year:
Remainder of 2020 $ 4.2
2021 6.4
2022 5.9
2023 5.2
2024 4.0
Thereafter 8.0
Total Lease Payments 33.7
Less: Imputed Interest (4.4 )
Present Value of Lease Liabilities $ 29.3

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Disclosures related to periods prior to the adoption of ASC 842~~

Total rent expense was $1.5 million and $3.1 million in the three and six months ended October 27, 2018, respectively. Future minimum lease payments for assets under operating leases as of April 27, 2019 were as follows:

(Dollars in Millions) Operating Leases
Fiscal Years:
2020 $ 7.8
2021 5.6
2022 4.9
2023 4.2
2024 3.3
Thereafter 8.4
Net Minimum Lease Payments $ 34.2

~~4. Acquisition~~

~~Acquisition of Grakon~~

On September 12, 2018, the Company acquired 100% of the stock of Grakon Parent, Inc. ("Grakon") for $422.1 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 included in the Automotive and Industrial segments in the condensed consolidated financial statements from the effective date of the acquisition.

During the second quarter of fiscal 2020, the Company completed the allocation of the purchase price to the assets acquired and liabilities assumed. Based on the final allocation, goodwill decreased $0.2 million from the preliminary amount reported in the Company's consolidated financial statements as of April 27, 2019. The final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed were:

(Dollars in Millions)
Cash $ 6.9
Accounts Receivable 36.1
Inventory 30.8
Prepaid Expenses and Other Current Assets 1.6
Other Intangible Assets 221.9
Goodwill 175.1
Pre-production Costs 1.5
Property, Plant and Equipment 16.2
Accounts Payable (19.4 )
Accrued Employee Liabilities (4.4 )
Other Accrued Expenses (7.6 )
Income Tax Payable (0.3 )
Deferred Income Tax Liability (29.4 )
Total Purchase Price $ 429.0

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~The following table presents details of the intangible assets acquired:~~

(Dollars in Millions) Fair Value at Date of Acquisition Amortization Period
Customer Relationships and Agreements - Significant Customer $ 57.0
19.5 years
Customer Relationships and Agreements - All Other Customers 125.0
19.5 years
Technology Licenses 17.7
11.7 years
Trade Names 22.2
8.5 years
Total $ 221.9

Acquisition-related costs of $10.9 million and $11.5 million were incurred in relation to the acquisition of Grakon in the three and six months ended October 27, 2018, respectively. Acquisition-related costsrestructuring activity for the three months ended ~~October 27, 2018 included $8.3 million~~August 1, 2020:

					Utilization
(Dollars in Millions)	Accrual as of May 2, 2020		YTD Charges		Cash			Non-cash			Accrual as of August 1, 2020
Employee Termination Benefits	$	0.2	$	2.5	$	(1.1	)	$	—		$	1.6
Asset Impairment Charges		—		0.3		—			(0.3	)		—
Contract Termination Costs		—		0.6		—			—			0.6
Total	$	0.2	$	3.4	$	(1.1	)	$	(0.3	)	$	2.2

The table below presents restructuring costs by reportable segment:

Table of ~~costs which have been reported~~Contents

	Three Months Ended
(Dollars in Millions)	August 1, 2020		July 27, 2019
Automotive	$	2.0	$	—
Industrial		0.6		—
Interface		0.7		—
Medical		—		—
Eliminations/Corporate		0.1		—
Total Restructuring Costs	$	3.4	$	—

Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in ~~selling and administrative~~estimating restructuring expenses, ~~and $2.6 million~~actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of ~~costs which have been reported in~~previous estimates by adjusting previously established accruals. The Company expects to incur additional restructuring costs of ~~products sold on~~approximately $2.0 million during the ~~condensed consolidated statements of income. Acquisition-related costs for~~current fiscal year related to the ~~six months ended October 27, 2018 included $8.9 million of costs which have been reported~~initiated restructuring programs and may take additional restructuring actions in ~~selling~~future periods based upon market conditions and ~~administrative expenses and $2.6 million of costs which have been reported in costs of products sold on the condensed consolidated statements of income.~~industry trends.

Note 4.

Income Taxes

The following table presents unaudited supplemental pro forma results for the three and six months ended October 27, 2018 as if the Grakon acquisition had occurred as of the beginning of fiscal 2018. The unaudited pro forma information is presented for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time. The unaudited pro forma results presented below primarily include amortization charges for acquired intangible assets, depreciation adjustments for property, plant and equipment that has been revalued, interest expense adjustments due to an increased debt level, adjustments for certain acquisition-related charges and related tax effects.

(Unaudited)
(Dollars in Millions) Three Months Ended October 27, 2018 Six Months Ended October 27, 2018
Net Sales $ 285.5
$ 556.2
Net Income $ 26.1
$ 55.8

5.~~Income Taxes~~

The provision for income taxes for an interim period is based on an estimated annual effective income tax rate ~~for the full fiscal year~~ and ~~applies that~~this rate is applied to ordinary year-to-date earnings or ~~loss.~~losses. The estimated annual effective income tax rate is determined excluding the effects of unusual or significant ~~discrete~~one-time items that are reported net of the related tax effects ~~and~~ in the period in which they occur. In addition, any material effects of enacted tax law or rate changes as well as the Company’s ability to utilize various tax assets is recognized in the period in which the change occurs.

The computation of the estimated annual effective income tax rate at each interim period requires certain estimates and

assumptions including, but not limited to, the expected pre-tax income (or loss) for the year by jurisdiction, certain book to tax adjustments, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s expected pre-tax income (or loss) for the year, which could create volatility in the estimated annual effective income tax rate. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes.

The Company’s income tax (benefit) expense and effective tax rate for the three months ended August 1, 2020 and July 27, 2019 were as follows:

	Three Months Ended
(Dollars in Millions)	August 2, 2020			July 27, 2019
Income before Income Taxes	$	15.6		$	35.6
Income Tax (Benefit) Expense	$	(5.1	)	$	7.3
Effective Tax Rate		(32.7	)%		20.5	%

Three Months Ended Six Months Ended
(Dollars in Millions) October 26,
2019 October 27,
2018 October 26,
2019 October 27,
2018
Income before Income Taxes $ 29.0
$ 17.6
$ 64.6
$ 45.8
Income Tax Expense $ 5.2
$ 3.0
$ 12.5
$ 7.5
Effective Tax Rate 17.9 % 17.0 % 19.3 % 16.4 %

The income tax provision ~~in both~~for the three ~~and six~~ months ended ~~October 26, 2019~~August 1, 2020 was lower than the U.S. statutory tax rate primarily due to ~~foreign investment~~a benefit from tax credits claimed in a foreign jurisdiction of $6.6 million, additional beneficial tax attributes claimed of $1.2 million and income derived from foreign operations with lower statutory rates. The income tax provision ~~in both~~for the three ~~and six~~ months ended ~~October~~July 27, ~~2018~~2019 was lower than the U.S. statutory tax rate primarily due to foreign investment tax credits, foreign operations with lower statutory rates ~~and~~partially offset with the ~~deduction for stock-based compensation.~~

~~Table~~finalization of ~~Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

U.S. Tax Reform.

The Company's unrecognized income tax benefits were ~~$5.2~~$5.3 million and ~~$3.1~~$5.2 million as of ~~October 26, 2019~~August 1, 2020 and ~~April 27, 2019,~~May 2, 2020, respectively. If any portion of the ~~Company's~~Company’s unrecognized tax benefits is recognized, it ~~could~~would impact the ~~Company's~~Company’s effective tax rate. The unrecognized tax ~~reserves~~benefits are reviewed periodically and adjusted ~~considering~~for changing facts and circumstances, such as ~~progress of~~ tax audits, lapse of applicable statutes of limitations and changes in tax law.

Table of Contents

6. Note 5.Balance Sheet Components

Inventories

Inventories are stated at the lower-of-cost or net realizable value. Cost is determined using the first-in, first-out method. Finished products and work-in-process inventories include direct material costs and direct and indirect manufacturing costs. The Company records reserves for inventory that may be obsolete or in excess of current and future market demand. A summary of inventories is shown below:

(Dollars in Millions)	August 1, 2020		May 2, 2020
Finished Products	$	34.2	$	45.7
Work in Process		11.1		10.8
Raw Materials		78.7		74.5
Total Inventories	$	124.0	$	131.0

(Dollars in Millions) October 26,
2019 April 27,
2019
Raw Materials $ 80.4
$ 67.1
Work in Process 11.8
9.4
Finished Products 41.6
40.2
Total Inventories $ 133.8
$ 116.7

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Maintenance and repair costs are expensed as incurred. Depreciation is calculated using the straight-line method using estimated useful lives of 5 to 40 years for buildings and building improvements and 3 to 15 years for machinery and equipment. A summary of property, plant and equipment is shown below:

(Dollars in Millions)	August 1, 2020			May 2, 2020
Land	$	3.3		$	3.3
Buildings and Building Improvements		90.6			87.3
Machinery and Equipment		432.0			412.3
Total Property, Plant and Equipment, Gross		525.9			502.9
Less: Accumulated Depreciation		(317.3	)		(301.0	)
Property, Plant and Equipment, Net	$	208.6		$	201.9

(Dollars in Millions) October 26,
2019 April 27,
2019
Land $ 3.4
$ 3.7
Buildings and Building Improvements 83.9
81.2
Machinery and Equipment 404.2
390.7
Total Property, Plant and Equipment, Gross 491.5
475.6
Less: Accumulated Depreciation 293.4
283.7
Property, Plant and Equipment, Net $ 198.1
$ 191.9

Depreciation expense was ~~$7.2~~$7.4 million and ~~$6.3~~$7.0 million in the three months ended ~~October 26,~~August 1, 2020 and July 27, 2019, ~~and October 27, 2018, respectively. Depreciation expense was $14.2 million and $12.8 million in the six months ended October 26, 2019 and October 27, 2018,~~ respectively. As of ~~October 26, 2019~~August 1, 2020 and ~~April 27, 2019,~~May 2, 2020, capital expenditures recorded in accounts payable totaled ~~$1.5~~$1.9 million and ~~$6.4~~$5.8 million, respectively.

Pre-Production Tooling Costs Related to Long-term Supply Arrangements

The Company incurs pre-production tooling costs related to certain products produced for its customers under long-term supply arrangements. As of ~~October 26, 2019~~August 1, 2020 and ~~April 27, 2019,~~May 2, 2020, the Company had ~~$39.0~~$36.0 million and ~~$32.8~~$37.1 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract. As of ~~October 26, 2019~~August 1, 2020 and ~~April 27, 2019,~~May 2, 2020, the Company had ~~$16.3~~$17.9 million and ~~$15.0~~$19.0 million, respectively, of Company owned pre-production tooling, which is capitalized within property, plant and equipment.

Derivative Instruments

The Company is exposed to foreign currency risks that arise from normal business operations. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through derivative instruments.

On April 14, 2020, the Company entered into a variable-rate, cross-currency swap, maturing on August 31, 2023, with a

notional value of $60.0 million (€54.8 million). The cross-currency swap is designated as a hedge of the Company's net investment in a euro-based subsidiary. The Company entered into the cross-currency swap to mitigate changes in net assets due to changes in U.S.

dollar-euro spot exchange rates. The cross-currency swap was in a net liability position with an aggregate fair value of $5.9 million and $1.3 million as of August 1, 2020 and May 2, 2020, respectively, and is recorded within other long-term liabilities in the condensed consolidated balance sheets.

Table of Contents

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

7.The fair value of the cross-currency swap is classified within Level 2 of the fair value hierarchy. Hedge effectiveness is

assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method. The Company records

changes in fair value attributable to the translation of foreign currencies through accumulated other comprehensive income (loss). The

Company amortizes the impact of all other changes in fair value of the derivative through interest expense, which was not material in the three months ended August 1, 2020.

Note 6.Goodwill and Other Intangible Assets

Goodwill

~~The following table shows~~

A summary of the changes in the carrying amount of goodwill, by ~~segment:~~segment, is shown below:

(Dollars in Millions)	Automotive		Industrial		Total
Balance as of May 2, 2020	$	106.2	$	125.4	$	231.6
Foreign Currency Translation		0.4		1.3		1.7
Balance as of August 1, 2020	$	106.6	$	126.7	$	233.3

(Dollars in Millions) October 26,
2019 April 27,
2019
Automotive $ 106.3
$ 106.3
Industrial 127.3
127.0
Total $ 233.6
$ 233.3

~~Intangible Assets~~

The ~~following tables present details~~Company tests indefinite-lived intangible assets and goodwill for impairment by either performing a qualitative evaluation or a quantitative test at least annually, or more frequently if an indication of impairment arises. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit or asset is less than its carrying amount.

During the first quarter of fiscal 2021, the Company evaluated the effects of the ~~Company's~~COVID-19 pandemic and its negative impact on the global economy on each of the Company’s reporting units and indefinite-lived intangible assets. Management reviewed key assumptions, including revisions of projected future revenues for reporting units and the results of the previous annual impairment testing performed during the fourth quarter of fiscal 2020. The Company did not identify an indication of impairment for any of its reporting units or indefinite-lived intangible assets. Although it was determined that a triggering event had not occurred as of August 1, 2020, management will continue to monitor the impacts of the COVID-19 pandemic on the Company and significant changes in key assumptions that could result in future period impairment charges.

Other Intangible Assets, Net

Details of identifiable intangible ~~assets:~~assets are shown below:

	As of August 1, 2020
(Dollars in Millions)	Gross		Accumulated Amortization			Net		Wtd. Avg. Remaining Amortization Periods (Years)
Definite-lived Intangible Assets:
Customer Relationships and Agreements	$	245.4	$	(44.3	)	$	201.1		16.3
Trade Names, Patents and Technology Licenses		75.8		(36.6	)		39.2		7.6
Total Definite-lived Intangible Assets		321.2		(80.9	)		240.3
Indefinite-lived Intangible Assets:
Trade Names, Patents and Technology Licenses		1.8		—			1.8
Total Indefinite-lived Intangible Assets		1.8		—			1.8
Total Other Intangible Assets	$	323.0	$	(80.9	)	$	242.1

October 26, 2019
(Dollars in Millions) Gross
Accumulated
Amortization
Net
Wtd. Avg. Remaining
Amortization
Periods (Years)
Definite-lived Intangible Assets:
Customer Relationships and Agreements $ 244.8
$ 34.3
$ 210.5
17.0
Trade Names, Patents and Technology Licenses 75.6
32.1
43.5
7.9
Total Definite-lived Intangible Assets 320.4
66.4
254.0

Indefinite-lived Intangible Assets:
Trade Names, Patents and Technology Licenses 1.8
—
1.8

Total Indefinite-lived Intangible Assets 1.8
—
1.8

Total Intangible Assets $ 322.2
$ 66.4
$ 255.8

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

Table of Contents

	As of May 2, 2020
(Dollars in Millions)	Gross		Accumulated Amortization			Net		Wtd. Avg. Remaining Amortization Periods (Years)
Definite-lived Intangible Assets:
Customer Relationships and Agreements	$	243.5	$	(40.8	)	$	202.7		16.5
Trade Names, Patents and Technology Licenses		75.3		(35.0	)		40.3		7.8
Total Definite-lived Intangible Assets		318.8		(75.8	)		243.0
Indefinite-lived Intangible Assets:
Trade Names, Patents and Technology Licenses		1.8		—			1.8
Total Indefinite-lived Intangible Assets		1.8		—			1.8
Total Other Intangible Assets	$	320.6	$	(75.8	)	$	244.8

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Based on the current amount of intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows:

(Dollars in Millions)
Fiscal Year:
Remainder of 2021	$	14.4
2022		19.1
2023		19.0
2024		18.6
2025		18.1
Thereafter		151.1
Total	$	240.3

Note 7.Debt

(Dollars in Millions)
Fiscal Year:
Remainder of 2020 $ 9.6
2021 19.0
2022 19.0
2023 19.0
2024 18.6
Thereafter 168.8
Total $ 254.0

~~8. Debt~~

~~The following table summarizes components~~

A summary of ~~the Company's debt:~~debt is shown below:

(Dollars in Millions)	August 1, 2020			May 2, 2020
Revolving Credit Facility	$	108.5		$	108.5
Term Loan		228.1			231.2
Other Debt		15.2			14.6
Unamortized Debt Issuance Costs		(2.0	)		(2.2	)
Total Debt		349.8			352.1
Less: Current Maturities		(15.4	)		(15.3	)
Total Long-term Debt	$	334.4		$	336.8

Table of Contents

(Dollars in Millions) October 26,
2019 April 27,
2019
Revolving Credit Facility $ 24.6
$ 35.0
Term Loan 237.5
243.7
Other Debt 15.6
16.8
Unamortized Debt Issuance Costs (2.6 ) (2.9 )
Total Debt 275.1
292.6
Less: Current Maturities (15.2 ) (15.7 )
Total Long-term Debt $ 259.9
$ 276.9

Revolving Credit Facility/Term Loan

~~On September 12, 2018, the~~

The Company ~~entered into~~is a ~~five-year~~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 ~~amends~~terminates in September 2023 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 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.

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.~~defined in the Credit Agreement. The weighted-average interest rate on outstanding borrowings under the Credit Agreement was ~~3.32%~~1.67% at ~~October 26, 2019.~~August 1, 2020. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. As of ~~October 26, 2019,~~August 1, 2020, the Company was in compliance with all the covenants in the Credit Agreement.

Other Debt

~~The~~

One of the Company’s ~~subsidiary, Procoplast,~~European subsidiaries has debt that consists of 1714 notes with maturities ranging from ~~2020~~2021 to 2031. The weighted-average interest rate on this debt was approximately ~~1.52%~~1.48% at ~~October 26, 2019~~August 1, 2020 and ~~$2.7~~$2.9 million of the debt was classified as short-term.

Note 8.Shareholders’ Equity

Dividends

The Company paid dividends totaling $5.0 million and $4.1 million in the three months ended August 1, 2020 and July 27, 2019, respectively. Dividends paid in the three months ended August 1, 2020 include $0.9 million of dividends on restricted stock that vested during the period.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. A summary of changes in accumulated other comprehensive income (loss), net of tax is shown below:

	Three Months Ended
(Dollars in Millions)	August 1, 2020			July 27, 2019
Currency Translation Adjustments:
Balance at Beginning of Year	$	(25.9	)	$	(13.6	)
Other Comprehensive Income (Loss) Recognized During the Period, Net of Tax		20.3			(1.6	)
Balance at End of Period		(5.6	)		(15.2	)

Derivative Instruments:
Balance at Beginning of Year		(1.0	)		—
Other Comprehensive Loss Recognized During the Period, Net of Tax		(3.6	)		—
Balance at End of Period		(4.6	)		—

Accumulated Other Comprehensive Loss, End of Period	$	(10.2	)	$	(15.2	)

Table of Contents

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Stock-based Compensation

The Company has granted stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock awards to employees and non-employee directors under the Methode Electronics, Inc. 2014 Omnibus Incentive Plan (“2014 Plan”), the Methode Electronics, Inc. 2010 Stock Plan (“2010 Plan”) ~~and~~, the Methode Electronics, Inc. 2007 Stock Plan (“2007 Plan”)~~. The Company’s stockholders approved~~ and the ~~2014~~Methode Electronics, Inc. 2004 Stock Plan ~~in September 2014.~~(“2004 Plan”). The Company can no longer make grants under the 2010 Plan, or 2007 Plan and 2004 Plan. The number of shares of common stock originally authorized under the 2014 Plan is ~~3,000,000, less one share~~3,000,000. As of August 1, 2020, there was 2,051,588 shares available for ~~every one share of common stock issued or issuable pursuant to awards made after May 3, 2014 under the 2007 Plan or 2010 Plan.~~

~~Restricted Stock Awards~~

~~The RSAs granted~~award under the 2014 Plan are performance-based awards that are scheduled to vest at the end of fiscal 2020 based on the achievement of an EBITDA hurdle. The number of shares ultimately earned could range from 0% to 150% of the target award based on the achievement of the EBITDA performance condition. The fair value of the RSAs granted was based on the closing stock price on the date of grant. All non-vested RSAs accrue dividend equivalents, which are subject to vesting and paid in cash upon release. Accrued dividends are forfeitable to the extent that the underlying awards do not vest.

~~Per ASC 718, "Compensation - Stock Compensation,"~~ compensation expense is recognized for these awards over the vesting period based on the projected probability (70% confidence) of achievement of the EBITDA hurdle in fiscal 2020. In each period, the stock-based compensation expense may be adjusted, as necessary, in response to any changes in the Company’s forecast with respect to achieving the fiscal 2020 EBITDA hurdle. Prior to the second quarter of fiscal 2019, the Company was recognizing stock-based compensation at threshold. During the second quarter of fiscal 2019, the Company determined that the target hurdle would be achieved based on the recent acquisition of Grakon and adjusted its stock-based compensation expense for these awards. The result was an additional expense of $7.4 million. The Company is currently recognizing stock-based compensation at target.

~~The following table summarizes the RSA activity under the 2014 Plan in the six months ended October 26, 2019:~~

RSA Shares Wtd. Avg. Grant Date Fair Value
Non-vested and Unissued at April 27, 2019 1,031,408
$ 34.09
Awarded —
$ —
Vested (11,250 ) $ 33.78
Forfeited (5,670 ) $ 33.78
Non-vested and Unissued at October 26, 2019 1,014,488
$ 34.10

The shares vested and forfeited in the six months ended October 26, 2019 relate to a deceased employee. Under the terms of the RSA award agreements, awards vest immediately at the target level upon the death of an employee.

Plan.

Restricted Stock Units

(“RSUs”)

RSUs granted under the 2014 Plan vest over a pre-determined period of time, generally between three to five years from the date of grant. The fair value of the RSUs are based on the closing stock price on the date of grant.

~~The following table summarizes~~ As of August 1, 2020, there were 3,100 RSUs outstanding.

Under the ~~RSU activity under~~various stock plans, common stock underlying vested RSUs held by certain executives will not be delivered until termination of employment or a change of control of the ~~2014 Plan in~~Company. As of August 1, 2020, common stock to be delivered to these executives totaled 577,055.

Director Awards

In the ~~six~~three months ended ~~October 26, 2019:~~

RSU Shares Wtd. Avg. Grant Date Fair Value
Non-vested at April 27, 2019 187,844
$ 34.55
Awarded —
$ —
Vested (4,500 ) $ 33.78
Forfeited —
$ —
Non-vested at October 26, 2019 183,344
$ 34.57

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~The shares vested in the six months ended October 26,~~August 1, 2020 and July 27, 2019, ~~relate to a deceased employee. Under the terms of the RSU award agreements, awards vest immediately upon the death of an employee.~~

~~Director Awards~~

~~In the six months ended October 26, 2019 and October 27, 2018,~~ the Company granted ~~30,000~~33,000 shares and ~~24,000~~30,000 shares, respectively, of common stock to its non-employee directors under the 2014 Plan. The shares vested immediately upon grant. The fair value was determined based on the closing price of the Company’s stock on the date of grant.

Stock Options

~~As of October 26, 2019, the Company has 72,000~~

The following table summarizes combined stock ~~options outstanding and exercisable~~option activity under the 2010 Plan ~~at a weighted average exercise price of $37.01 per share~~ and ~~34,668 stock options outstanding and exercisable under the~~ 2007 ~~Plan at a weighted average exercise price of $33.20 per share. There were no awards, exercises or forfeitures of stock options in the six months ended October 26, 2019.~~Plan:

	Shares			Wtd. Avg. Exercise Price
Outstanding and Exercisable at May 2, 2020		106,668		$	35.76
Exercised		(5,000	)	$	10.55
Forfeited		—		$	—
Outstanding and Exercisable at August 1, 2020		101,668		$	37.01

Stock-based Compensation Expense

All stock-based awards to employees and non-employee directors are recognized in selling and administrative expenses on the condensed consolidated statements of income.

The table below summarizes the stock-based compensation expense related to the equity awards:

	Three Months Ended
(Dollars in Millions)	August 1, 2020		July 27, 2019
RSAs	$	—	$	1.2
RSUs		—		0.4
Director Awards		0.9		0.9
Total Stock-based Compensation Expense	$	0.9	$	2.5

Table of Contents

Three Months Ended Six Months Ended
(Dollars in Millions) October 26, 2019 October 27, 2018 October 26, 2019 October 27, 2018
RSAs $ 1.1
$ 8.0
$ 2.3
$ 9.1
RSUs 0.4
0.8
0.8
0.9
Director Awards —
—
0.9
0.9
Total Stock-based Compensation Expense $ 1.5
$ 8.8
$ 4.0
$ 10.9

~~10.~~Note 9. Income per Share

Basic income per share is calculated by dividing net income by the weighted average number of common shares outstanding for the applicable period. ~~Diluted income per share is calculated after adjusting~~The weighted average number of common shares used in the ~~denominator of the basic~~diluted income per share calculation ~~for~~is determined using the treasury stock method which includes the effect of all ~~potentially~~potential dilutive common shares outstanding during the period.

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The following table sets forth the computation of basic and diluted income per share:

	Three Months Ended
	August 1, 2020			July 27, 2019
Numerator:
Net Income (in millions)	$	20.7		$	28.3

Denominator:
Denominator for Basic Income per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Units		37,836,543			37,534,451
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units		321,875			132,603
Denominator for Diluted Income per Share		38,158,418			37,667,054

Basic and Diluted Income per Share:
Basic Income per Share	$	0.55		$	0.75
Diluted Income per Share	$	0.54		$	0.75

Number of Anti-dilutive Potentially Issuable Shares Excluded from Diluted Common Shares Outstanding		101,668	��		109,418

Three Months Ended Six Months Ended
October 26,
2019 October 27,
2018 October 26,
2019 October 27,
2018
Numerator:
Net Income (in millions) $ 23.8
$ 14.6
$ 52.1
$ 38.3
Denominator:
Denominator for Basic Income per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Units 37,587,742
37,405,550
37,561,098
37,377,997
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units 151,446
268,172
142,025
270,051
Denominator for Diluted Income per Share 37,739,188
37,673,722
37,703,123
37,648,048

Basic and Diluted Income per Share:

Basic Income per Share $ 0.63
$ 0.39
$ 1.39
$ 1.02
Diluted Income per Share $ 0.63
$ 0.39
$ 1.38
$ 1.02

Note 10.

In the three months ended October 26, 2019, options and RSUs of 101,668 were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive. In the six months ended October 26, 2019, options and RSUs of 105,543 were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive. All RSAs have been excluded in the computation of diluted net income per share in the three and six months ended October 26, 2019 as these awards contain performance conditions that would not have been achieved for the periods presented.

In the three months ended October 27, 2018, options and RSUs of 116,918 were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive. In the six months ended October 27, 2018, the Company had 0 options or RSUs that were excluded from the computation of diluted net income per shares. All RSAs have been excluded in the computation of diluted net income per share in the three and six months ended October 27, 2018, as these awards contain performance conditions that would not have been achieved for the periods presented.

~~11.~~ Segment Information

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the Company’s President and Chief Executive Officer (“CEO”).

~~Effective October 27, 2018, the~~ The Company ~~reorganized its reportable~~has four reporting segments upon the acquisition of Grakon. Prior to the acquisition, the Company's reportable segments were Automotive, Power, Interface and Other. As a result of this change, the Company's reportable segments are now Automotive, Industrial, Interface and Medical. Historical information has been revised to reflect the new reportable segments.

~~A summary of the significant reportable segment changes is~~ as ~~follows:~~

~~Grakon's automotive business has been included in the Automotive segment, while Grakon's non-automotive business has been included in the Industrial segment.~~

~~The busbar business, previously included in the Power segment, is now part of the Industrial segment.~~

~~The radio-remote control business, previously included in the Interface segment, is now part of the Industrial segment.~~

~~The medical devices business, previously included in the Other segment, now makes up the Medical segment.~~

described below.

The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Products include integrated center consoles, hidden switches,

~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

ergonomic switches, transmission lead-frames, LED-based lighting and sensors, which incorporate magneto-elastic sensing and other technologies that monitor the operation or status of a component or system.

The Industrial segment manufactures external lighting solutions, industrial safety radio remote controls, braided flexible cables, current-carrying laminated busbars and devices, custom power-product assemblies, such as our PowerRail® solution, high-current low-voltage flexible power cabling systems and powder-coated busbars that are used in various markets and applications, including aerospace, computers, industrial, power conversion, military, telecommunications and transportation.

The Interface segment provides a variety of copper and fiber-optic interface and interface solutions for the appliance, commercial food service, construction, consumer, material handling, point-of-sale and telecommunications markets. Solutions include copper transceivers and solid-state field-effect consumer touch panels.

The Medical segment is made up of the Company's medical device business, Dabir Surfaces, with its surface support technology aimed at pressure injury prevention. Methode has developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures.

Table of Contents

The tables below present information about the Company's reportable ~~segments.~~segments:

	Three Months Ended August 1, 2020
(Dollars in Millions)	Automotive			Industrial			Interface		Medical			Eliminations /Corporate			Consolidated
Net Sales	$	126.4		$	52.4		$	13.4	$	0.4		$	(1.7	)	$	190.9
Transfers between Segments		(1.3	)		(0.4	)		0.0		0.0			1.7			0
Net Sales to Unaffiliated Customers	$	125.1		$	52.0		$	13.4	$	0.4		$	0		$	190.9

Income (Loss) from Operations	$	15.3		$	7.0		$	1.1	$	(1.6	)	$	(8.0	)	$	13.8
Interest Expense, Net																1.6
Other Income, Net																(3.4	)
Income before Income Taxes															$	15.6

	Three Months Ended July 27, 2019
(Dollars in Millions)	Automotive			Industrial			Interface		Medical			Eliminations /Corporate			Consolidated
Net Sales	$	187.5		$	71.6		$	12.9	$	0.3		$	(2.1	)	$	270.2
Transfers between Segments		(1.3	)		(0.8	)		0		0			2.1			0
Net Sales to Unaffiliated Customers	$	186.2		$	70.8		$	12.9	$	0.3		$	0		$	270.2

Income (Loss) from Operations	$	33.1		$	16.5		$	0.2	$	(1.5	)	$	(9.7	)	$	38.6
Interest Expense, Net																2.9
Other Expense, Net																0.1
Income before Income Taxes															$	35.6

(Dollars in Millions)	August 1, 2020		May 2, 2020
Identifiable Assets:
Automotive	$	728.7	$	670.9
Industrial		440.5		421.8
Interface		70.9		71.0
Medical		8.2		8.8
Eliminations/Corporate		169.9		198.1
Total Identifiable Assets	$	1,418.2	$	1,370.6

Three Months Ended October 26, 2019
(Dollars in Millions) Automotive Industrial Interface Medical Eliminations/Corporate Consolidated
Net Sales $ 181.3
$ 65.4
$ 12.0
$ 0.3
$ (1.8 ) $ 257.2
Transfers between Segments (1.2 ) (0.5 ) (0.1 ) —
1.8
—
Net Sales to Unaffiliated Customers $ 180.1
$ 64.9
$ 11.9
$ 0.3
$ —
$ 257.2

Income (Loss) from Operations $ 28.9
$ 15.1
$ (0.2 ) $ (1.8 ) $ (11.3 ) $ 30.7
Interest Expense, Net 2.7
Other Income, Net (1.0 )
Income before Income Taxes $ 29.0

Three Months Ended October 27, 2018
(Dollars in Millions) Automotive Industrial Interface Medical Eliminations/Corporate Consolidated
Net Sales $ 203.5
$ 47.9
$ 14.7
$ 0.3
$ (2.4 ) $ 264.0
Transfers between Segments (1.9 ) (0.5 ) —
—
2.4
—
Net Sales to Unaffiliated Customers $ 201.6
$ 47.4
$ 14.7
$ 0.3
$ —
$ 264.0

Income (Loss) from Operations $ 36.8
$ 5.1
$ (0.6 ) $ (2.5 ) $ (19.7 ) $ 19.1
Interest Expense, Net 1.6
Other Income, Net (0.1 )
Income before Income Taxes $ 17.6

Note 11.~~Table of Contents~~

~~METHODE ELECTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Six Months Ended October 26, 2019
(Dollars in Millions) Automotive Industrial Interface Medical Eliminations/Corporate Consolidated
Net Sales $ 368.8
$ 137.0
$ 24.9
$ 0.6
$ (3.9 ) $ 527.4
Transfers between Segments (2.5 ) (1.3 ) (0.1 ) —
3.9
—
Net Sales to Unaffiliated Customers $ 366.3
$ 135.7
$ 24.8
$ 0.6
$ —
$ 527.4

Income (Loss) from Operations $ 62.0
$ 31.6
$ —
$ (3.3 ) $ (21.0 ) $ 69.3
Interest Expense, Net 5.6
Other Income, Net (0.9 )
Income before Income Taxes $ 64.6

Six Months Ended October 27, 2018
(Dollars in Millions) Automotive Industrial Interface Medical Eliminations/Corporate Consolidated
Net Sales $ 381.0
$ 80.9
$ 30.4
$ 0.6
$ (5.5 ) $ 487.4
Transfers between Segments (4.1 ) (1.3 ) (0.1 ) —
5.5
—
Net Sales to Unaffiliated Customers $ 376.9
$ 79.6
$ 30.3
$ 0.6
$ —
$ 487.4

Income (Loss) from Operations $ 69.7
$ 12.2
$ 0.2
$ (4.6 ) $ (29.7 ) $ 47.8
Interest Expense, Net 1.8
Other Expense, Net 0.2
Income before Income Taxes $ 45.8

~~12.~~ Contingencies

Certain litigation arising in the normal course of business is pending against us. The Company is, from time-to-time, subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, employment-related matters, environmental matters and intellectual property matters. The Company considers insurance coverage and third-party indemnification when determining required accruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot be determined, it is the Company's opinion, based on the information available, that it has adequate reserves for these liabilities.

Table of Contents

Hetronic Germany-GmbH Matters

For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as ~~the Company's~~our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. The Company became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, the Companyterminated all of its agreements with the Fuchs companies. On June 20, 2014, the Company filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants ~~have~~ filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, the Company amended its complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties. ~~The~~A trial with respect to the matter ~~has been set for trial~~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 Company is working with counsel to collect on the judgment though there are challenges in Europe in doing so while the appeal is pending. Like any judgment, particularly any judgment involving defendants outside of the United States, there is no guarantee that the Company will be able to collect the judgment.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations. Our business is highly dependent upon two large automotive customers and specific makes and models of vehicles. Our results will be subject to many of the same risks that apply to the automotive, appliance, commercial vehicle, computer and communications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes. Other factors which may result in materially different results for future periods include the following risk factors. Additional risks and uncertainties not presently known or that our management currently believe to be insignificant may also adversely affect our financial condition or results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements. The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws and are made as of the date of this report. Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:

•

Impact from pandemics, such as the COVID-19 pandemic;

Our business is dependent on two large automotive customers. For our largest customer, our sales primarily consist of integrated center consoles for use in light trucks and SUVs. If we were to lose either of these customers or experienced a significant decline in the volume or price of products purchased by these customers, are not selected to produce products for successor models or if either of the customers declared bankruptcy, our future results could be adversely affected.

•

Dependence on the automotive, appliance, commercial vehicle, computer and communications industries;

Because we derive 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.

•

Dependence on a small number of large customers, including two large automotive customers;

International trade disputes could result in tariffs, 'trade wars,' and other protectionist measures that could adversely affect the Company’s business, including its ability to mitigate tariff costs.

•

Recognition of goodwill and long-lived asset impairment charges;

~~Our inability, or our customers' inability, to effectively manage the timing, quality and cost of new program launches could adversely affect our financial performance.~~

•

Costs associated with restructuring activities;

~~We are subject to continuing pressure to lower our prices.~~

•

International trade disputes resulting in tariffs and our ability to mitigate tariffs;

~~Our Dabir Surfaces medical device products are emerging technologies. Our ability to successfully market and sell these products will depend on acceptance by the medical community.~~

•

Timing, quality and cost of new program launches;

~~A significant fluctuation between the U.S. dollar and other currencies could adversely impact our results of operations and financial condition.~~

•

Ability to withstand price pressure, including pricing reductions;

~~A significant portion of our business activities are conducted in foreign countries, exposing us to additional risks that may not exist in the United States.~~

•

Failure to attract and retain qualified personnel;

Should a catastrophic event or other significant business interruption occur at any of our facilities, we could face significant reconstruction or remediation costs, penalties, third party liability and loss of production capacity, which could adversely affect our business.

•

Ability to successfully market and sell Dabir Surfaces products;

~~Impairment charges relating to our goodwill and long-lived assets could adversely affect our financial statements.~~

•

Currency fluctuations;

~~Our inability to capitalize on prior or future acquisitions or any decision to strategically divest one or more current businesses may adversely affect our business.~~

•

Customary risks related to conducting global operations;

Our ability to market our automotive and commercial vehicle products is subject to a lengthy sales cycle, which requires significant investment prior to significant sales revenues, and there is no assurance that our products will be implemented in any particular vehicle.

•

Costs associated with environmental, health and safety regulations;

~~We are dependent on the availability and price of materials.~~

•

Ability to withstand business interruptions;

~~Our gross profit margins are subject to fluctuations due to many factors.~~

•

Ability to successfully benefit from acquisitions and divestitures;

•

Investment in programs prior to the recognition of revenue;

~~Disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.~~

•

Dependence on the availability and price of materials;

~~Changes in our effective tax rate may harm our results of operations.~~

•

Dependence on our supply chain;

~~We may be unable to keep pace with rapid technological changes, which could adversely affect our business.~~

•

Judgments related to accounting for tax positions;

~~Our information technology (“IT”) systems could be breached.~~

•

Income tax rate fluctuations;

~~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.~~

•

Ability to keep pace with rapid technological changes;

~~Our technology-based businesses and the markets in which we operate are highly competitive. If we are unable to compete effectively, our sales could decline.~~

•

Breaches to our information technology systems;

If we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another person’s intellectual property, our business, financial condition and operating results could be materially adversely affected.

•

Ability to avoid design or manufacturing defects;

~~We cannot guarantee that the acquired Grakon business will be successful or that we can implement and profit from any new applications of the acquired technology.~~

•

Ability to compete effectively;

Our long-term incentive plan could require significant adjustments to compensation expense in our consolidated statements of income if management changes its determinations on the probability of meeting certain performance levels. The adjustments could be material to the financial statements.

•

Ability to protect our intellectual property;

~~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.~~

•

Success of recent acquisitions and/or our ability to implement and profit from new applications of the acquired technology;

Regulations related to the use of conflict-free minerals may increase our costs and expenses, and an inability to certify that our products are conflict-free may adversely affect customer relationships.

•

Ability to manage our debt levels and any restrictions thereunder; and

•

Impact to interest expense from the replacement or modification of LIBOR.

Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those foreseen in such forward-looking statements. These forward-looking statements speak only as of the date of the report, press release, statement, document, webcast or oral discussion in which they are made. We do not intend to

Table of Contents

update any forward-looking statements, all of which are expressly qualified by the foregoing. See Part I — Item 1A, Risk Factors of our Form 10-K for the fiscal year ended ~~April 27, 2019~~May 2, 2020 and Part II - Item 1A, Risk Factors of this Form 10-Q for further discussions regarding some of the reasons that actual results may be materially different from those we anticipate.

Overview

We are a global ~~manufacturer~~developer of ~~component~~custom engineered and ~~subsystem devices~~application specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. Our primary manufacturing facilities are located in Dongguan and Shanghai,China; Cairo, Egypt; Mriehel, Malta; and Fresnillo and Monterrey, Mexico. We design, manufacture and market devices employing electrical, radio remote control, electronic, LED lighting, ~~wireless~~ and sensing technologies.

~~Effective October 27, 2018, we reorganized~~ Our business is managed, and our ~~reportable~~financial results are reported, on a segment basis, with those 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.~~

Our components are found in the primary end-markets of the aerospace, appliance, automotive, commercial vehicle, construction, consumer and industrial equipment, communications (including information processing and storage, networking equipment and wireless and terrestrial voice/data systems), medical, rail and other transportation industries.

~~Recent Transactions~~

~~On September 12, 2018, we acquired 100%~~

Impact of COVID-19

The COVID-19 global pandemic has negatively affected the ~~stock~~global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We began to see the impacts of Grakon for $422.1 million in cash, net of cash acquired. The business, headquartered in Seattle, Washington, is a manufacturer of custom designed exterior lighting solutions and highly styled engineered components, with locations in Canada, China,COVID-19 at the ~~Netherlands and the United Kingdom. Grakon’s~~

~~manufacturing capabilities and products help diversify our product offerings and expand the Industrial segment, which is a key component~~beginning of our ~~strategic direction. Grakon's~~fourth quarter of fiscal 2020 at our China manufacturing facilities, which were initially closed after the Chinese New Year. Our manufacturing facilities in China resumed operations later in the fourth quarter of fiscal 2020, but at lower capacity utilization. However, the major impact to our business from the COVID-19 pandemic began in mid-March 2020, as our operations in North America and Europe were adversely impacted by many of our customers suspending their manufacturing operations due to the COVID-19 pandemic. As a result, production levels at our major North American and European manufacturing facilities were still significantly reduced to well below capacity through early June 2020. In the first quarter of fiscal 2021, our operations in North America and Europe gradually resumed operations, however production levels were still significantly reduced, resulting in lower capacity utilization, thus impacting our results ~~have been~~of operations during the first quarter of fiscal 2021.

In response to the COVID-19 pandemic and business disruption, we implemented certain measures to manage costs, preserve

liquidity and enhance employee safety. These measures included the following:

•

Reduction of payroll costs through a combination of temporary salary reductions, four-day work weeks and furloughs. Since the end of the first quarter of fiscal 2021, we have reinstated some of the salary reductions and resumed five-day work weeks;

•

Elimination of most business travel and restriction of visitors to our facilities;

•

Enhanced cleaning and disinfection procedures at our facilities, temperature checks for our workers before they enter our manufacturing facilities, promotion of social distancing at our facilities and requirements for employees to work from home where possible;

•

Reduction of non-program related capital expenditures;

•

Deferral of discretionary spending; and

•

The March 2020 draw-down of $100.0 million available under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic.

In addition, we initiated certain restructuring actions in the first quarter intended 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 ~~Industrial segments~~Interface segments. In the three months ended August 1, 2020, we recognized $3.4 million of restructuring costs. We currently expect to incur additional restructuring costs of approximately $2.0 million during the current ‎fiscal year related to the initiated restructuring programs and we may take additional restructuring actions in future periods based upon market conditions and industry trends.

Table of Contents

The extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on

future developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the related impact on our customers, especially in the ~~consolidated financial statements from~~automotive and commercial vehicle markets. These future developments are outside of our control, are highly uncertain and cannot be predicted. If the ~~effective date~~impact is further prolonged, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity. These and other potential impacts of the ~~acquisition. Grakon's~~COVID-19 pandemic will adversely impact our results ~~are included~~ for ~~the entire period in the three~~fiscal 2021, and ~~six months ended October 26, 2019 and only included for 1.5 months in the three and six months ended October 27, 2018.~~

In connection with the agreement to purchase Grakon, on September 12, 2018, we amended our credit agreement. The credit agreement now has a maturity date of September 12, 2023. The credit agreement includes a senior unsecured revolving credit facility and a senior unsecured term loan, which are guaranteed by our wholly owned U.S. subsidiaries. See “Financial Condition, Liquidity and Capital Resources” below for more information.

that impact could be material.

Results of Operations for the Three Months Ended ~~October 26, 2019 as Compared~~August 1, 2020 compared to the Three Months Ended ~~October~~July 27, ~~2018~~2019

Consolidated Results

Below is a table summarizing results for the three months ended:


(Dollars in Millions)	August 1, 2020			July 27, 2019			Net Change ($)			Net Change (%)
Net Sales	$	190.9		$	270.2		$	(79.3	)		(29.3	)%
Cost of Products Sold		145.8			194.4			(48.6	)		(25.0	)%
Gross Profit		45.1			75.8			(30.7	)		(40.5	)%
Selling and Administrative Expenses		26.6			32.4			(5.8	)		(17.9	)%
Amortization of Intangibles		4.7			4.8			(0.1	)		(2.1	)%
Interest Expense, Net		1.6			2.9			(1.3	)		(44.8	)%
Other (Income) Expense, Net		(3.4	)		0.1			(3.5	)	N/M*
Income Tax (Benefit) Expense		(5.1	)		7.3			(12.4	)		(169.9	)%
Net Income	$	20.7		$	28.3		$	(7.6	)		(26.9	)%

Percent of sales:	August 1, 2020			July 27, 2019
Net Sales		100.0	%		100.0	%
Cost of Products Sold		76.4	%		71.9	%
Gross Margins		23.6	%		28.1	%
Selling and Administrative Expenses		13.9	%		12.0	%

*N/M equals non-meaningful

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 257.2
$ 264.0
$ (6.8 ) (2.6 )%

Cost of Products Sold 188.6
193.2
(4.6 ) (2.4 )%

Gross Profit 68.6
70.8
(2.2 ) (3.1 )%

Selling and Administrative Expenses 33.2
48.0
(14.8 ) (30.8 )%
Amortization of Intangibles 4.7
3.7
1.0
27.0 %
Interest Expense, Net 2.7
1.6
1.1
68.8 %
Other Income, Net (1.0 ) (0.1 ) (0.9 ) 900.0 %
Income Tax Expense 5.2
3.0
2.2
73.3 %
Net Income $ 23.8
$ 14.6
$ 9.2
63.0 %

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Cost of Products Sold 73.3 % 73.2 %
Gross Margins 26.7 % 26.8 %
Selling and Administrative Expenses 12.9 % 18.2 %
Amortization of Intangibles 1.8 % 1.4 %
Interest Expense, Net 1.0 % 0.6 %
Other Income, Net (0.4 )% — %
Income Tax Expense 2.0 % 1.1 %
Net Income 9.3 % 5.5 %

Net Sales. Consolidated net sales decreased ~~$6.8~~$79.3 million, or ~~2.6%~~29.3%, to ~~$257.2~~$190.9 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$264.0~~$270.2 million in the three months ended ~~October~~July 27, ~~2018.~~2019. The acquisition of Grakon accounted for an increase of $32.3 million, while the impact of foreign currency translation decreased net sales by $3.9 million. The weaker euro and Chinese renminbi impacted foreign currency translation. Excluding Grakon and foreign currency translation, net sales decreased $35.2 million, primarily due to the adverse impact from the United Auto Workers ("UAW") labor strike at General Motors ("GM") of $32.0 million, lower appliance product sales volumes in the Interface segment and lower radio remote control and busbar product sales volumes in the Industrial segment.

~~Cost of Products Sold~~. Consolidated cost of products sold decreased $4.6 million, or 2.4%, to $188.6 million (73.3% of sales) in the three months ended October 26, 2019, compared to $193.2 million (73.2% of sales) in the three months ended

October 27, 2018. The acquisition of Grakon accounted for an increase of $19.9 million, while the impact of foreign currency translation decreased cost of products sold by $2.5 million. Excluding Grakon and foreign currency translation, cost of products sold decreased $22.0 milliondecrease was primarily due to lower sales in the Automotive ~~segment as a result~~and Industrial segments which were negatively impacted by the COVID-19 pandemic. The impact of foreign currency translation was not significant.

Cost of Products Sold. Consolidated cost of products sold decreased $48.6 million, or 25.0%, to $145.8 million (76.4% of sales) in the ~~UAW labor strike at GM,~~three months ended August 1, 2020, compared to $194.4 million (71.9% of sales) in the three months ended July 27, 2019. The decrease was primarily due to lower ~~appliance product~~ sales volumes ~~in the Interface segment~~ and lower ~~radio remote control~~labor costs. As noted above, we instituted four-day work weeks, furloughed certain employees and ~~busbar product sales volumes~~implemented temporary salary reductions in response to impact from the ~~Industrial segment, partially offset by~~COVID-19 pandemic on our production volumes. In the ~~benefits~~three months ended August 1, 2020, we recognized $1.9 million of ~~initiatives~~restructuring costs related to actions taken to reduce overall costs and improve operational ~~profitability taken~~profitability.

Gross Profit. Gross profit decreased $30.7 million, or 40.5%, to $45.1 million (23.6% of sales) in the three months ended August 1, 2020, compared to $75.8 million (28.1% of sales) in the three months ended July 27, 2019. The decrease in gross profit margins were primarily due to lower sales volumes, product mix and restructuring costs, partially offset by lower operating costs.

Selling and Administrative Expenses. Selling and administrative expenses decreased $5.8 million, or 17.9%, to $26.6 million (13.9% of sales) in the three months ended August 1, 2020, compared to $32.4 million (12.0% of sales) in the three months ended July 27, 2019. The decrease was primarily due to lower compensation expense, stock-based compensation expense and travel expense. As

Table of Contents

noted above, we initiated actions which included temporary salary reductions and four-day work weeks and the elimination of most business travel. In addition, stock-based compensation expense was lower by $1.6 million as our five-year, long-term incentive plan concluded in fiscal ~~2019.~~2020. In the three months ended ~~October 27, 2018,~~August 1, 2020, we ~~incurred $1.3~~recognized $1.5 million of ~~expenses~~restructuring costs related to ~~initiatives~~actions taken to reduce overall costs and improve operational ~~profitability versus $0.2 million of expenses incurred in the three months ended October 26, 2019.~~

~~Gross Profit.~~ profitability.Gross profit decreased $2.2 million, or 3.1%, to $68.6 million (26.7% of sales) in the three months ended October 26, 2019, compared to $70.8 million (26.8% of sales) in the three months ended October 27, 2018. The acquisition of Grakon accounted for an increase of $12.4 million (inclusive of net tariff expense of $0.6 million), while foreign currency translation decreased gross profit by $1.4 million. Excluding Grakon and foreign currency translation, gross profit decreased $13.2 million, primarily due to the adverse impact from the UAW labor strike at GM of $9.6 million, lower appliance product sales volumes in the Interface segment and lower radio remote control and busbar product sales volumes in the Industrial segment, partially offset by the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. Gross profit in the three months ended October 27, 2018 also includes $2.6 million of purchase accounting adjustments related to the acquisition of Grakon.

~~Selling and Administrative Expenses~~. Selling and administrative expenses decreased $14.8 million, or 30.8%, to $33.2 million (12.9% of sales) in the three months ended October 26, 2019, compared to $48.0 million (18.2% of sales) in the three months ended October 27, 2018. Selling and administrative expenses decreased primarily due to lower employee compensation, professional fees and stock-based compensation expense. Stock-based compensation expense decreased $7.3 million as the three months ended October 27, 2018 included a $7.4 million accrual adjustment. Professional fees were higher in the three months ended October 27, 2018 primarily due to transaction costs associated with the acquisition of Grakon. Employee compensation was lower due to benefits realized from initiatives taken in fiscal 2019 to reduce overall costs and improve operational profitability. In the three months ended October 27, 2018 we incurred $1.2 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $0.3 million of expenses incurred in the three months ended October 26, 2019.

Amortization of Intangibles. Amortization of intangibles ~~increased $1.0~~decreased $0.1 million, or ~~27.0%~~2.1%, to $4.7 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$3.7~~$4.8 million in the three months ended ~~October~~July 27, ~~2018. The increase was due to amortization expense related to the Grakon acquisition, partially offset by lower amortization expense in the Interface segment.~~2019.

Interest Expense, Net. Interest expense, net was ~~$2.7 million in the three months ended October 26, 2019, compared to~~ $1.6 million in the three months ended ~~October 27, 2018. The increase was due~~August 1, 2020, compared to ~~borrowings made in fiscal 2019 to fund the acquisition of Grakon.~~

~~Other Income, Net.~~ ~~Other income, net was $1.0~~$2.9 million in the three months ended ~~October 26, 2019,~~July 27, 2019. The decrease was due to a lower effective interest rate on outstanding borrowings, offset by higher average borrowings. Average borrowings were higher due to the precautionary $100.0 million draw-dawn in March 2020.

Other (Income) Expense, Net. Other income was $3.4 million in the three months ended August 1, 2020, compared to other expense of $0.1 million in the three months ended ~~October~~July 27, ~~2018. In the~~2019. The three months ended ~~October 26, 2019, we sold assets related~~August 1, 2020 includes $2.9 million of government assistance received by certain of our foreign locations with respect to ~~a previously closed business and recognized a gain on sale of $0.5 million.~~the COVID-19 pandemic. In addition, net foreign exchange gains were ~~$0.4~~$0.7 million in the three months ended ~~October 26, 2019,~~August 1, 2020 compared to a net foreign exchange ~~losses~~loss of ~~$0.4~~$0.2 million in the three months ended ~~October~~July 27, ~~2018.~~2019.

Income Tax (Benefit) Expense. Income tax ~~expense increased $2.2 million, or 73.3%, to $5.2~~benefit was $5.1 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$3.0~~income tax expense of $7.3 million in the three months ended ~~October~~July 27, ~~2018. Our effective~~2019. The income tax ~~rate increased to 17.9%~~benefit in the three months ended ~~October 26, 2019, compared to 17.0%~~August 1, 2020 resulted in ~~the three months ended October 27, 2018. The change in the~~a negative effective tax rate of 32.7% which was primarily due to discrete tax ~~items~~benefits recorded ~~during~~of $7.8 million. These discrete tax benefits include tax credits earned and research deductions claimed in foreign jurisdictions. Excluding the ~~period and~~discrete tax benefits, the ~~level and mix~~effective tax rate would have been 17.2%. In the three months ended July 27, 2019, income tax expense included discrete tax expenses of ~~earnings among~~$1.4 million. Excluding the discrete tax ~~jurisdictions.~~expense, the effective tax rate would have been 16.6% in the three months ended July 27, 2019.

Net Income. Net income ~~was $23.8~~decreased $7.6 million, or 26.9%, to $20.7 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$14.6~~$28.3 million in the three months ended ~~October~~July 27, ~~2018. The acquisition of Grakon accounted for $10.3 million~~2019. Net income decreased as a result of the increase, while the impact of foreign currency translation decreased net income by $0.8 million. Excluding Grakon and foreign currency translation, net income decreased $0.3 million primarily due to the adverse impact of the UAW labor strike at GM, which reduced net income by $7.9 million, higher interest and tax expense, offset by lower stock-based compensation expense.reasons described above.

Operating Segments

Automotive Segment Results

Below is a table summarizing results for the three months ended:

(Dollars in Millions)	August 1, 2020			July 27, 2019			Net Change ($)			Net Change (%)
Net Sales	$	125.1		$	186.2		$	(61.1	)		(32.8	)%
Gross Profit	$	26.2		$	47.4		$	(21.2	)		(44.7	)%
Income from Operations	$	15.3		$	33.1		$	(17.8	)		(53.8	)%
Percent of sales:
Net Sales		100.0	%		100.0	%
Gross Profit		20.9	%		25.5	%
Income from Operations		12.2	%		17.8	%

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 180.1
$ 201.6
$ (21.5 ) (10.7 )%
Gross Profit $ 44.2
$ 54.9
$ (10.7 ) (19.5 )%
Income from Operations $ 28.9
$ 36.8
$ (7.9 ) (21.5 )%

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Gross Profit 24.5 % 27.2 %
Income from Operations 16.0 % 18.3 %

Table of Contents

Net Sales. Automotive segment net sales decreased ~~$21.5~~$61.1 million, or ~~10.7%~~32.8%, to ~~$180.1~~$125.1 million in the three months ended ~~October 26, 2019, from $201.6~~August 1, 2020, compared to $186.2 million in the three months ended ~~October~~July 27, ~~2018.~~2019. Net sales were negatively impacted in the three months ended August 1, 2020 from the COVID-19 pandemic. Many of our automotive customers in North America and Europe began to resume production in the middle of our first quarter and our production gradually resumed, but not at pre-COVID-19 levels. As a result, sales volumes were lower in North America and Europe. Net sales decreased in North America by ~~$21.1~~$45.3 million, or ~~16.5%~~37.3%, to ~~$106.7~~$76.3 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$127.8~~$121.6 million in the three months ended ~~October~~July 27, 2018. The decrease was primarily due to the adverse impact from the UAW labor strike at GM which reduced North American sales by $32.0 million, partially offset by higher sales from Grakon of $12.2 million.2019. Net sales in Europe ~~increased $1.4~~decreased $20.2 million, or ~~2.7%~~41.2%, to ~~$52.7~~$28.8 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$51.3~~$49.0 million in the three months ended ~~October~~July 27, 2018. The impact of the weaker euro decreased net sales in Europe by $2.5 million. Excluding foreign currency translation, European sales increased $3.9 million due to higher sales volumes of sensor products, partially offset by lower switch product sales volumes.2019. Net sales in Asia ~~decreased $1.8~~increased $4.4 million, or ~~8.0%~~28.2%, to ~~$20.7~~$20.0 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$22.5~~$15.6 million in the three months ended ~~October~~July 27, ~~2018,~~2019. The weaker Chinese renminbi decreased net sales in Asia by $0.6 million. Excluding foreign currency translation, Asia net sales increased $5.0 million primarily due to ~~lower sales volumes of our sensor products and a combination of pricing reductions and lower sales volumes of our transmission lead-frame assemblies, partially offset by an increase in~~higher touchscreen sales volumes to an Asian ~~auto OEM. The weaker Chinese renminbi also decreased net sales~~automotive OEM, which launched in ~~Asia by $0.7 million.~~the second half of fiscal 2020.

Gross Profit. Automotive segment gross profit decreased ~~$10.7~~$21.2 million, or ~~19.5%~~44.7%, to ~~$44.2~~$26.2 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$54.9~~$47.4 million in the three months ended ~~October~~July 27, ~~2018. The~~2019. Automotive segment gross profit margins decreased to ~~24.5%~~20.9% in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~27.2%~~25.5% in the three months ended ~~October~~July 27, ~~2018.~~2019. The decrease in gross profit ~~margin~~margins was primarily due to ~~the adverse impact from the UAW labor strike at GM which reduced gross profit by $9.6 million and product mix. Higher gross profit from Grakon of $1.5 million offset~~ the impact of ~~foreign currency translation~~the COVID-19 pandemic and restructuring actions taken in the first quarter of ~~$1.1 million from the weaker euro and Chinese renminbi.~~

~~Income from Operations.~~fiscal 2021. ~~Automotive segment income from operations decreased $7.9 million, or 21.5%, to $28.9 million in~~In the three months ended ~~October 26, 2019, compared~~August 1, 2020, we recognized $1.9 million of restructuring costs related to $36.8 million in the three months ended October 27, 2018. The decrease was primarily due to the adverse impact from the UAW labor strike at GM and foreign currency translation, offset by higher income from operations from Grakon and the benefits realized from initiativesactions taken ~~in fiscal 2019~~ to reduce overall costs and improve operational profitability. ~~In the three months ended October 27, 2018, we incurred $1.3~~

Income from Operations. Automotive segment income from operations decreased $17.8 million, ~~of expenses related~~or 53.8%, to ~~initiatives to reduce overall costs and improve operational profitability versus $0.3~~$15.3 million ~~of expenses incurred~~ in the three months ended ~~October 26,~~August 1, 2020, compared to $33.1 million in the three months ended July 27, 2019. The decrease was primarily due to

lower gross profit, partially offset by lower selling and administrative expenses. Selling and administrative expenses decreased due to lower compensation expense as a result of temporary salary reductions and four-day work weeks.

Industrial Segment Results

Below is a table summarizing results for the three months ended:

(Dollars in Millions)	August 1, 2020			July 27, 2019			Net Change ($)			Net Change (%)
Net Sales	$	52.0		$	70.8		$	(18.8	)		(26.6	)%
Gross Profit	$	16.4		$	26.5		$	(10.1	)		(38.1	)%
Income from Operations	$	7.0		$	16.5		$	(9.5	)		(57.6	)%
Percent of sales:
Net Sales		100.0	%		100.0	%
Gross Profit		31.5	%		37.4	%
Income from Operations		13.5	%		23.3	%

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 64.9
$ 47.4
$ 17.5
36.9 %
Gross Profit $ 24.5
$ 14.2
$ 10.3
72.5 %
Income from Operations $ 15.1
$ 5.1
$ 10.0
196.1 %

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Gross Profit 37.8 % 30.0 %
Income from Operations 23.3 % 10.8 %

Net Sales. Industrial segment net sales ~~increased $17.5~~decreased $18.8 million, or ~~36.9%~~26.6%, to ~~$64.9~~$52.0 million in the three months ended ~~October 26, 2019, from $47.4~~August 1, 2020, compared to $70.8 million in the three months ended ~~October~~July 27, ~~2018.~~2019. The ~~acquisition~~decrease was primarily due to lower sales from commercial vehicle lighting solutions and radio remote control devices which were adversely impacted from the COVID-19 pandemic. This was partially offset by higher sales volumes of ~~Grakon accounted for $20.1 million of the increase, while the~~busbar products. The impact of foreign currency translation decreased net sales by $0.7 million. Excluding the acquisition of Grakon and foreign currency translation, net sales decreased by $1.9 million primarily due to lower sales volumes of radio remote control and busbar products.was not significant.

Gross Profit. Industrial segment gross profit ~~increased $10.3~~decreased $10.1 million, or ~~72.5%~~38.1%, to ~~$24.5~~$16.4 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$14.2~~$26.5 million in the three months ended ~~October~~July 27, ~~2018.~~2019. Gross profit margins ~~increased~~decreased to ~~37.8%~~31.5% in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~30.0%~~37.4% in the three months ended ~~October~~July 27, ~~2018.~~2019. The ~~increase~~decrease in gross profit ~~margin~~margins was primarily due to ~~a favorable sales mix relating to our Grakon business,~~the impact of the COVID-19 pandemic on commercial vehicle lighting solutions and radio remote control product sales. This was partially offset by ~~lower sales volumes of our radio remote control and~~higher gross profit margins from busbar products.

Table of Contents

Income from Operations. Industrial segment income from operations ~~increased $10.0~~decreased $9.5 million, or ~~196.1%~~57.6%, to ~~$15.1~~$7.0 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$5.1~~$16.5 million in the three months ended ~~October~~July 27, ~~2018.~~2019. The ~~increase~~decrease was primarily due to lower gross profit and restructuring actions taken in the first quarter of fiscal 2021. In the three months ended August 1, 2020, we recognized $0.6 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability. This was partially offset by higher income from operations from ~~Grakon, partially offset by lower sales of our radio remote control and~~ busbar ~~products and the impact of foreign currency translation.~~products.

Interface Segment Results

Below is a table summarizing results for the three months ended:

(Dollars in Millions)	August 1, 2020			July 27, 2019			Net Change ($)		Net Change (%)
Net Sales	$	13.4		$	12.9		$	0.5		3.9	%
Gross Profit	$	2.5		$	1.5		$	1.0		66.7	%
Income from Operations	$	1.1		$	0.2		$	0.9		450.0	%
Percent of sales:
Net Sales		100.0	%		100.0	%
Gross Profit		18.7	%		11.6	%
Income from Operations		8.2	%		1.6	%

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 11.9
$ 14.7
$ (2.8 ) (19.0 )%
Gross Profit $ 1.2
$ 1.5
$ (0.3 ) (20.0 )%
Loss from Operations $ (0.2 ) $ (0.6 ) $ 0.4
(66.7 )%

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Gross Profit 10.1 % 10.2 %
Loss from Operations (1.7 )% (4.1 )%

Net Sales. Interface segment net sales ~~decreased $2.8~~increased $0.5 million, or ~~19.0%~~3.9%, to ~~$11.9~~$13.4 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$14.7~~$12.9 million in the three months ended ~~October~~July 27, ~~2018.~~2019. The ~~decrease~~increase was primarily due to ~~lower~~higher sales volumes of our appliance ~~product sales volumes.~~products and our legacy data solutions products.

Gross Profit. Interface segment gross profit ~~decreased $0.3~~increased $1.0 million, or ~~20.0%~~66.7%, to ~~$1.2~~$2.5 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to $1.5 million in the three months ended ~~October~~July 27, ~~2018.~~2019. Gross profit margins ~~decreased slightly~~increased to ~~10.1%~~18.7% in the three months ended ~~October 26, 2019,~~August 1, 2020, from ~~10.2%~~11.6% in the three months ended ~~October~~July 27, ~~2018.~~2019. The ~~decrease~~increase was primarily due to ~~lower~~higher sales volumes of our appliance ~~product sales volumes.~~products and our legacy data solutions products.

~~Loss~~

Income from Operations. Interface segment ~~loss~~income from operations ~~decreased $0.4 million,~~increased to ~~$0.2~~$1.1 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$0.6 million~~$0.2 in the three months ended ~~October~~July 27, ~~2018.~~2019. The ~~decrease~~increase was primarily due to ~~lower intangible amortization expense.~~higher gross profit, partially offset by restructuring

actions taken in the first quarter of fiscal 2021. In the three months ended August 1, 2020, we recognized $0.7 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability.

Medical Segment Results

Below is a table summarizing results for the three months ended:

(Dollars in Millions)	August 1, 2020			July 27, 2019			Net Change ($)			Net Change (%)
Net Sales	$	0.4		$	0.3		$	0.1			33.3	%
Gross Profit	$	(0.6	)	$	(0.4	)	$	(0.2	)		50.0	%
Loss from Operations	$	(1.6	)	$	(1.5	)	$	(0.1	)		6.7	%

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 0.3
$ 0.3
$ —
— %
Gross Profit $ (0.6 ) $ (0.7 ) $ 0.1
(14.3 )%
Loss from Operations $ (1.8 ) $ (2.5 ) $ 0.7
(28.0 )%

Net Sales. The Medical segment had net sales of ~~$0.3~~$0.4 million ~~for both~~in the three months ended ~~October 26, 2019 and October~~August 1, 2020, compared to $0.3 million in the three months ended July 27, ~~2018.~~2019. Net sales in the three months ended August 1, 2020 were negatively impacted by the COVID-19 pandemic as hospitals deferred spending on medical products.

Gross Profit. Medical segment gross profit was a loss of $0.6 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to a loss of ~~$0.7~~$0.4 million in the three months ended ~~October~~July 27, ~~2018. The improvement primarily relates to lower employee compensation incurred during the period.~~2019.

Table of Contents

Loss ~~From~~from Operations. Medical segment loss from operations ~~decreased $0.7~~increased $0.1 million, to ~~$1.8~~$1.6 million in the three months ended ~~October 26, 2019,~~August 1, 2020, compared to ~~$2.5~~$1.5 million in the three months ended ~~October~~July 27, 2018. The decrease was due to lower selling and administrative expense. Selling and administrative expenses were reduced by the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. In the three months ended October 27, 2018, we incurred $0.7 million of expenses related to initiatives to reduce overall costs and improve operational profitability.

~~Results of Operations~~

~~Six Months Ended October 26, 2019 vs. Six Months Ended October 27, 2018~~

~~Consolidated Results~~

~~Below is a table summarizing results for the six months ended:~~

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 527.4
$ 487.4
$ 40.0
8.2 %

Cost of Products Sold 383.0
356.5
26.5
7.4 %

Gross Profit 144.4
130.9
13.5
10.3 %

Selling and Administrative Expenses 65.6
77.5
(11.9 ) (15.4 )%
Amortization of Intangibles 9.5
5.6
3.9
69.6 %
Interest Expense, Net 5.6
1.8
3.8
211.1 %
Other (Income) Expense, Net (0.9 ) 0.2
(1.1 ) (550.0 )%
Income Tax Expense 12.5
7.5
5.0
66.7 %
Net Income $ 52.1
$ 38.3
$ 13.8
36.0 %

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Cost of Products Sold 72.6 % 73.1 %
Gross Profit 27.4 % 26.9 %
Selling and Administrative Expenses 12.4 % 15.9 %
Amortization of Intangibles 1.8 % 1.1 %
Interest Expense, Net 1.1 % 0.4 %
Other (Income) Expense, Net (0.2 )% — %
Income Tax Expense 2.4 % 1.5 %
Net Income 9.9 % 7.9 %

~~Net Sales~~. Consolidated net sales increased $40.0 million, or 8.2%, to $527.4 million in the six months ended October 26, 2019, compared to $487.4 million in the six months ended October 27, 2018. The acquisition of Grakon accounted for $86.6 million of the increase, while the impact of foreign currency translation decreased net sales by $8.2 million. The weaker euro and Chinese renminbi impacted foreign currency translation. Excluding Grakon and foreign currency translation, net sales decreased $38.4 million, primarily due to the adverse impact from the UAW labor strike at GM of $32.0 million, lower appliance product sales volumes in the Interface segment and lower radio remote control and busbar product sales volumes in the Industrial segment.

~~Cost of Products Sold~~. Consolidated cost of products sold increased $26.5 million, or 7.4%, to $383.0 million (72.6% of sales) in the six months ended October 26, 2019, compared to $356.5 million (73.1% of sales) in the six months ended October 27, 2018. The acquisition of Grakon accounted for $54.6 million of the increase, while the impact of foreign currency translation decreased cost of products sold by $5.2 million. Excluding Grakon and foreign currency translation, cost of products sold decreased $22.9 million primarily due to lower sales in the Automotive segment as a result of the UAW labor strike at GM, lower appliance product sales volumes in the Interface segment and lower radio remote control and busbar product sales volumes in the Industrial segment, partially offset by the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. In the six months ended October 27, 2018, we incurred $1.5 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $0.2 million of expenses incurred in the six months ended October 26, 2019.

~~Gross Profit.~~ Gross profit increased $13.5 million, or 10.3%, to $144.4 million (27.4% of sales) in the six months ended October 26, 2019, compared to $130.9 million (26.9% of sales) in the six months ended October 27, 2018. The

acquisition of Grakon accounted for $32.0 million of the increase (inclusive of net tariff expense of $0.9 million), while foreign currency translation decreased gross profit by $3.0 million. Excluding Grakon and foreign currency translation, gross profit decreased $15.5 million, primarily due to the adverse impact from the UAW labor strike at GM of $9.6 million, lower appliance product sales volumes in the Interface segment and lower radio remote control product sales volume in the Industrial segment, partially offset by the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. Gross profit in the six months ended October 27, 2018 also includes $2.6 million of purchase accounting adjustments related to the acquisition of Grakon.

~~Selling and Administrative Expenses~~. Selling and administrative expenses decreased $11.9 million, or 15.4%, to $65.6 million (12.4% of sales) in the six months ended October 26, 2019, compared to $77.5 million (15.9% of sales) in the six months ended October 27, 2018. The acquisition of Grakon accounted for an increase of $5.9 million, while the impact of foreign currency translation decreased selling and administrative expenses by $0.8 million. Excluding Grakon and foreign currency translation, selling and administrative expenses decreased $15.2 million. The decrease was primarily due to lower employee compensation, professional fees and stock-based compensation expense. Stock-based compensation expense decreased $6.9 million, as the six months ended October 27, 2018 included a $7.4 million accrual adjustment. Professional fees were higher in the six months ended October 27, 2018 primarily due to transaction costs associated with the acquisition of Grakon. Employee compensation was lower due to benefits realized from initiatives taken in fiscal 2019 to reduce overall costs and improve operational profitability. In the six months ended October 27, 2018, we incurred $1.8 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $0.3 million of expenses incurred in the six months ended October 26, 2019.

~~Amortization of Intangibles~~. Amortization of intangibles increased $3.9 million, or 69.6%, to $9.5 million in the six months ended October 26, 2019, compared to $5.6 million in the six months ended October 27, 2018. The increase was due to amortization expense related to the Grakon acquisition, partially offset by lower amortization expense in the Interface segment.

~~Interest Expense, Net.~~ Interest expense, net was $5.6 million in the six months ended October 26, 2019, compared to $1.8 million in the six months ended October 27, 2018. The increase was due to borrowings made in the second quarter of fiscal 2019 to fund the acquisition of Grakon.

~~Other (Income) Expense, Net.~~ Other income was $0.9 million in the six months ended October 26, 2019, compared to other expense of $0.2 million in the six months ended October 27, 2018. In the six months ended October 26, 2019, we sold assets related to a previously closed business and recognized a gain on sale of $0.5 million. In addition, net foreign exchange gains were $0.2 million in the six months ended October 26, 2019, compared to net foreign exchange losses of $0.2 million in the six months ended October 27, 2018.

~~Income Tax Expense.~~ Income tax expense increased $5.0 million, or 66.7%, to $12.5 million in the six months ended October 26, 2019, compared to $7.5 million in the six months ended October 27, 2018. Our effective tax rate increased to 19.3% in the six months ended October 26, 2019, compared to 16.4% in the six months ended October 27, 2018. The change in the effective tax rate was primarily due to discrete tax items recorded during the period and the level and mix of earnings among tax jurisdictions.

~~Net Income.~~ Net income increased $13.8 million, or 36.0%, to $52.1 million in the six months ended October 26, 2019, compared to $38.3 million in the six months ended October 27, 2018. The acquisition of Grakon accounted for $19.3 million of the increase, while the impact of foreign currency translation decreased net income by $1.7 million. Excluding Grakon and foreign currency translation, net income decreased $3.8 million primarily due to the adverse impact of the UAW labor strike at GM, which reduced net income by $7.9 million, higher interest and tax expense, partially offset by lower selling and administrative expenses.

~~Operating Segments~~

~~Automotive Segment Results~~

~~Below is a table summarizing results for the six months ended:~~

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 366.3
$ 376.9
$ (10.6 ) (2.8 )%
Gross Profit $ 91.6
$ 101.9
$ (10.3 ) (10.1 )%
Income from Operations $ 62.0
$ 69.7
$ (7.7 ) (11.0 )%

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Gross Profit 25.0 % 27.0 %
Income from Operations 16.9 % 18.5 %

~~Net Sales~~. Automotive segment net sales decreased $10.6 million, or 2.8%, to $366.3 million in the six months ended October 26, 2019, compared to $376.9 million in the six months ended October 27, 2018. Net sales in North America decreased $3.3 million, or 1.4%, to $228.3 million in the six months ended October 26, 2019, compared to $231.6 million in the six months ended October 27, 2018. The decrease was primarily due to the adverse impact from the UAW labor strike at GM which reduced North American sales by $32.0 million, partially offset by higher sales from Grakon of $26.0 million. Other North American sales increased from our human machine interface assembly products due to recent program launches. Sales from our transmission lead-frame assemblies decreased due to lower sales volumes. Net sales in Europe decreased $1.1 million, or 1.1%, to $101.7 million in the six months ended October 26, 2019, compared to $102.8 million in the six months ended October 27, 2018. The impact of the weaker euro decreased net sales in Europe by $4.5 million. Excluding the impact of foreign exchange translation, net sales in Europe increased $3.4 million primarily due to higher sales volumes of sensor products, partially offset by lower sales volumes of switches. Net sales in Asia decreased $6.2 million, or 14.6%, to $36.3 million in the six months ended October 26, 2019, compared to $42.5 million in the six months ended October 27, 2018, primarily due to lower sales volumes of our switch and sensor products and a combination of pricing reductions and lower sales volumes of our transmission lead-frame assemblies. The weaker Chinese renminbi also decreased net sales in Asia by $1.6 million.

~~Gross Profit.~~ Automotive segment gross profit decreased $10.3 million, or 10.1%, to $91.6 million in the six months ended October 26, 2019, compared to $101.9 million in the six months ended October 27, 2018. The Automotive segment gross profit margin decreased to 25.0% in the six months ended October 26, 2019, compared to 27.0% in the six months ended October 27, 2018. The decrease in gross profit margin was primarily due to the adverse impact from the UAW labor strike at GM which decreased gross profit by $9.6 million and product mix. Gross profit was also negatively impacted by $2.1 million from the weaker euro and Chinese renminbi. This was partially offset by higher gross profit from Grakon of $3.4 million and the benefits realized from initiatives taken in fiscal 2019 to reduce overall costs and improve operational profitability. In the six months ended October 27, 2018, we incurred $1.5 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $0.3 million of expenses incurred in the six months ended October 26, 2019.

~~Income from Operations.~~ Automotive segment income from operations decreased $7.7 million, or 11.0%, to $62.0 million in the six months ended October 26, 2019, compared to $69.7 million in the six months ended October 27, 2018. The decrease was primarily due to the adverse impact from the UAW labor strike at GM and foreign currency translation, offset by higher income from operations from Grakon and the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019.

~~Industrial Segment Results~~

~~Below is a table summarizing results in the six months ended:~~

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 135.7
$ 79.6
$ 56.1
70.5 %
Gross Profit $ 51.0
$ 24.6
$ 26.4
107.3 %
Income from Operations $ 31.6
$ 12.2
$ 19.4
159.0 %

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Gross Profit 37.6 % 30.9 %
Income from Operations 23.3 % 15.3 %

~~Net Sales~~. Industrial segment net sales increased $56.1 million, or 70.5%, to $135.7 million in the six months ended October 26, 2019, compared to $79.6 million in the six months ended October 27, 2018. The acquisition of Grakon accounted for $60.6 million of the increase, while the impact of foreign currency translation decreased net sales by $2.0 million. Excluding the acquisition of Grakon and foreign currency translation, net sales decreased $2.5 million primarily due to lower sales volumes of radio remote control and busbar products.

~~Gross Profit.~~ Industrial segment gross profit increased $26.4 million, or 107.3%, to $51.0 million in the six months ended October 26, 2019, compared to $24.6 million in the six months ended October 27, 2018. Gross profit margins increased to 37.6% in the six months ended October 26, 2019, compared to 30.9% in the six months ended October 27, 2018. The increase in gross profit margin was primarily due to a favorable sales mix relating to our Grakon business, partially offset by lower sales of our radio remote control and busbar products. Gross profit in the six months ended October 27, 2018 also includes $2.6 million of purchase accounting adjustments related to the acquisition of Grakon.

~~Income from Operations.~~ Industrial segment income from operations increased $19.4 million, or 159.0%, to $31.6 million in the six months ended October 26, 2019, compared to $12.2 million in the six months ended October 27, 2018. The increase was primarily due to income from operations from Grakon, partially offset by lower sales of our radio remote control and busbar products and the impact of foreign currency translation.

~~Interface Segment Results~~

~~Below is a table summarizing results in the six months ended:~~

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 24.8
$ 30.3
$ (5.5 ) (18.2 )%
Gross Profit $ 2.7
$ 4.4
$ (1.7 ) (38.6 )%
Income from Operations $ —
$ 0.2
$ (0.2 ) (100.0 )%

Percent of sales: October 26,
2019 October 27,
2018
Net Sales 100.0 % 100.0 %
Gross Profit 10.9 % 14.5 %
Income from Operations — % 0.7 %

~~Net Sales~~. Interface segment net sales decreased $5.5 million, or 18.2%, to $24.8 million in the six months ended October 26, 2019, compared to $30.3 million in the six months ended October 27, 2018. The decrease was primarily due to lower appliance product sales volumes.

~~Gross Profit.~~ Interface segment gross profit decreased $1.7 million, or 38.6%, to $2.7 million in the six months ended October 26, 2019, compared to $4.4 million in the six months ended October 27, 2018. Gross profit margin decreased to 10.9% in the six months ended October 26, 2019, compared to 14.5% in the six months ended October 27, 2018. The decrease in gross profit margin was primarily due to lower appliance product sales volumes.

~~Income from Operations.~~ Interface segment income from operations decreased $0.2 million, or 100.0%, to break-even levels in the six months ended October 26, 2019, compared to $0.2 million in the six months ended October 27, 2018. The decrease was due to lower gross profit, offset by lower intangible amortization expense and the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019.

~~Medical Segment Results~~

~~Below is a table summarizing results in the six months ended:~~

(Dollars in Millions) October 26,
2019 October 27,
2018 Net Change ($) Net Change (%)
Net Sales $ 0.6
$ 0.6
$ —
— %
Gross Profit $ (1.0 ) $ (1.4 ) $ 0.4
28.6 %
Loss from Operations $ (3.3 ) $ (4.6 ) $ 1.3
28.3 %

~~Net Sales. The Medical segment had $0.6 million of net sales in both the six months ended October 26, 2019 and October 27, 2018.~~

~~Gross Profit.~~ Medical segment gross profit was a loss of $1.0 million in the six months ended October 26, 2019, compared to a loss of $1.4 million in the six months ended October 27, 2018. The improvement primarily relates to lower engineering costs and wages incurred during the period.

~~Loss from Operations.~~ Medical segment loss from operations decreased $1.3 million to $3.3 million in the six months ended October 26, 2019, compared to $4.6 million in the six months ended October 27, 2018. The decrease was due to an improvement in gross profit and lower selling and administrative expense. Selling and administrative expenses were reduced by lower professional fees and the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. In the six months ended October 27, 2018, we incurred $0.9 million of expenses related to initiatives to reduce overall costs and improve operational profitability.

Financial Condition, Liquidity and Capital Resources

Credit Agreement

Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement. The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We believe our ~~current world-wide cash balances together with expected future cash flows to be generated from operations and our committed credit facility~~liquidity position will be sufficient to ~~support~~fund our existing operations and current ~~operations. A significant amount of cash and expected future cash flows are located outside of~~commitments for at least the U.S. Of the $95.6 million of cash and cash equivalents as of October 26, 2019, $86.9 million was held in subsidiaries outside the U.S. and can be repatriated, primarily through the repayment of intercompany loans and the payment of dividends, without creating material additional income tax expense.

~~Cash flow is summarized below:~~

Three Months Ended
(Dollars in Millions) October 26,
2019 October 27,
2018
Operating activities:
Net Income $ 52.1
$ 38.3
Non-cash Items 27.6
28.5
Changes in Operating Assets and Liabilities (11.9 ) (30.6 )
Net Cash Provided by Operating Activities 67.8
36.2
Net Cash Used in Investing Activities (26.2 ) (449.5 )
Net Cash (Used in) Provided by Financing Activities (26.7 ) 291.1
Effect of Exchange Rate Changes on Cash and Cash Equivalents (2.5 ) (13.0 )
Net Decrease in Cash and Cash Equivalents 12.4
(135.2 )
Cash and Cash Equivalents at Beginning of the Year 83.2
246.1
Cash and Cash Equivalents at End of the Period $ 95.6
$ 110.9

~~Operating Activities~~

~~Net cash provided by operating activities increased $31.6 million to $67.8 million~~next twelve months. However, in the ~~six months ended October 26, 2019, compared to $36.2 million in the six months ended October 27, 2018. The increase was~~event that economic conditions remain impacted for longer than we expect due to lower cash outflows related to changes in operating assets and liabilities and increased net income adjusted for non-cash items. The $11.9 million of cash outflows for operating assets and liabilities was primarily due to higher inventory and higher prepaid expenses and other assets, partially offset by lower accounts receivable and higher accounts payable and other liabilities.

~~Investing Activities~~

~~Net cash used in investing activities was $26.2 million in~~ the six months ended October 26, 2019, compared to $449.5 million in the six months ended October 27, 2018. The activity in the six months ended October 26, 2019 primarily relates to purchases of property, plant and equipment. The activity in the six months ended October 27, 2018 primarily relates to the $421.6 million of cash used to purchase Grakon.

~~Financing Activities~~

Net cash used in financing activities was $26.7 million in the six months ended October 26, 2019, compared to net cash provided by financing activities of $291.1 million in the six months ended October 27, 2018. In the six months ended October 26, 2019, we had net repayments onCOVID-19 pandemic, our borrowings of $17.8 million, compared to net borrowings of $301.4 million in the six months ended October 27, 2018. The borrowings in the six months ended October 27, 2018 were primarily used to fund the acquisition of Grakon. We paid dividends of $8.2 million in the six months ended October 26, 2019, compared to $8.6 million in the six months ended October 27, 2018.

~~Credit Agreement~~

~~On September 12, 2018, we entered into a~~liquidity position could be severely impacted.

Our senior unsecured credit agreement ~~that provided~~provides for a $200.0 million revolving credit facility and a $250.0 million term loan. ~~In addition,~~On March 23, 2020, we ~~have an option~~drew down $100.0 million under our revolving credit facility as a precautionary measure in order to increase ~~the size~~our cash position and preserve financial flexibility in light of the ~~senior unsecured credit agreement by up to an additional $200.0 million, subject to customary conditions and approval of~~uncertainty in the ~~lenders providing new commitments.~~global markets resulting from the COVID-19 pandemic. As of ~~October 26, 2019, $262.1~~August 1, 2020, $108.5 million in principal was outstanding under the revolving credit ~~agreement.~~facility and we have $91.4 million of availability under the revolving credit facility. As of August 1, 2020, $228.1 million in principal was outstanding under the term loan. The term loan matures in September 2023 and requires quarterly principal payments of $3.1 million over the five-year term, with the remaining balance due upon maturity. We were in compliance with all covenants under the senior unsecured credit agreement as of ~~October~~ August 1, 2020. For further information, see Note 7, "Debt," to the condensed consolidated financial statements included in this Quarterly Report.

Borrowings under our senior unsecured credit agreement bear interest at rates equal to the London Interbank Offered Rate (“LIBOR”) plus an applicable margin. LIBOR is expected to be phased out by the end of 2021, which is before the maturity of our senior unsecured credit agreement. At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate; however, we continue to monitor the efforts of various parties, including government agencies, seeking to identify an alternative rate to replace LIBOR. The consequences of the discontinuance of LIBOR cannot be entirely predicted but could result in an increase in our interest expense.

Our senior unsecured credit agreement provides an option to increase the size of our revolving credit facility and term loan by an additional $200.0 million, subject to customary conditions and approval of the lenders providing the new commitments. There can be no assurance that lenders will approve additional commitments under current circumstances. As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and our access to, and cost of, financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our future prospects.

At August 1, 2020, we had $211.0 million of cash and cash equivalents, of which $66.0 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the repayment of intercompany loans and the payment of dividends, without creating material additional income tax expense.

Table of Contents

Cash Flows

Cash flow is summarized below:

	Three Months Ended
(Dollars in Millions)	August 1, 2020			July 27, 2019
Operating activities:
Net Income	$	20.7		$	28.3
Non-cash Items		7.4			14.2
Changes in Operating Assets and Liabilities		(11.7	)		(23.4	)
Net Cash Provided by Operating Activities		16.4			19.1
Net Cash Used in Investing Activities		(11.6	)		(13.2	)
Net Cash Used in Financing Activities		(13.0	)		(14.4	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		1.9			(0.9	)
Net Decrease in Cash and Cash Equivalents		(6.3	)		(9.4	)
Cash and Cash Equivalents at Beginning of the Year		217.3			83.2
Cash and Cash Equivalents at End of the Period	$	211.0		$	73.8

Operating Activities

Net cash provided by operating activities decreased $2.7 million to $16.4 million in the three months ended August 1, 2020, compared to $19.1 million in the three months ended July 27, 2019.

The decrease was due to lower net income adjusted for non-cash items, partially offset by lower cash outflows related to changes in operating assets and liabilities. The $11.7 million of cash outflows for operating assets and liabilities in the three months ended August 1, 2020 was primarily due to higher accounts receivable, partially offset by higher accounts payable and other liabilities, lower inventory and lower prepaid expenses and other assets.

Investing Activities

Net cash used in investing activities was $11.6 million in the three months ended August 1, 2020, compared to $13.2 million in the three months ended July 27, 2019. The activity in both the three months ended August 1, 2020 and July 27, 2019 relates to purchases of property, plant and equipment.

Financing Activities

Net cash used in financing activities was $13.0 million in the three months ended August 1, 2020, compared to $14.4 million in the three months ended July 27, 2019. We paid dividends of $5.0 million in the three months ended August 1, 2020, compared to $4.1 million in the three months ended July 27, 2019. In the three months ended August 1, 2020, we paid $3.9 million in taxes related to the net share settlement of equity awards compared to $0.4 million in the three months ended July 27, 2019. In the three months ended August 1, 2020, we had net repayments on our borrowings of $4.1 million, compared to $9.7 million in the three months ended July 27, 2019.

Recent Accounting Pronouncements

See Note 1, "Description of Business and Summary of Significant Accounting Policies" to the condensed consolidated financial statements included in Item 1.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined under SEC rules.

Table of Contents

Legal Matters

For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. We became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, weterminated all of our agreements with the Fuchs companies. On June 20, 2014, we filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants ~~have~~ filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, we amended our complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties. ~~This~~A trial with respect to the matter ~~has been set for trial~~began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in our favor. The verdict included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 22, 2020, the Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic’s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the Court held defendants in contempt for violating the permanent injunction and entered the final judgment. Defendants appealed entry of the final monetary judgment as well. We are working with counsel to collect on the judgment though there are challenges in Europe in doing so while the appeal is pending. Like any judgment, particularly any judgment involving defendants outside of the United States, there is no guarantee that we will be able to collect the judgment

In the ~~six~~three months ended ~~October 26,~~August 1, 2020 and July 27, 2019, ~~and October 27, 2018,~~ we incurred Hetronic-related legal fees of ~~$2.2~~$1.9 million and ~~$1.9~~$0.8 million, respectively. These amounts are included in the selling and administrative expenses in the Industrial segment.

Table of Contents

Item 3. Quantitative ~~And~~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 not~~manage a portion of these risks through use ~~any~~of derivative financial instruments ~~to manage these risks.~~

in accordance with our policies. We do not enter into derivative financial instruments for trading purposes.

Foreign Currency Risk

We are exposed to foreign currency risk on sales, costs and assets and liabilities denominated in currencies other than the U.S. dollar. We seek to manage our foreign exchange risk largely through operational means, including matching revenue with same-currency costs and assets with same-currency liabilities. We currently transact business in eight primary currencies worldwide, of which the most significant were the U.S. dollar, the euro, the Mexican peso, and the Chinese renminbi. A hypothetical 10% adverse change in foreign currency exchange rates could have impacted our income before income taxes by ~~$4.2~~$1.4 million in the ~~six~~three months ended ~~October 26, 2019.~~August 1, 2020. However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency.

The translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates as of the end of the reporting period. Translation adjustments are not included in determining net income but are included in accumulated other comprehensive ~~loss~~income (loss) within shareholders’ equity on the condensed consolidated balance sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. As of ~~October 26, 2019,~~August 1, 2020, the cumulative net currency translation adjustments reduced shareholders’ equity by ~~$18.0~~$5.6 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 August 1, 2020, we recorded a deferred loss, net of tax, of $4.6 million ~~and as of April 27, 2019,~~related to the ~~cumulative net currency translation adjustments reduced shareholders’ equity by $13.6 million.~~

cross-currency swap.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. The interest rate risk for our senior unsecured credit agreement, under which we had ~~$262.1~~$336.6 million of net borrowings as of ~~October 26, 2019,~~August 1, 2020, is variable and is based on LIBOR. We estimate that a 1% increase in interest rates under our senior unsecured credit agreement would result in increased annual interest expense of ~~$2.6~~$3.4 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. 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. However, in the short-term, rapid increases in raw material costs can be very difficult to offset with price increases because of contractual agreements with our customers.

Item 4. Controls ~~And~~and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, we performed an evaluation under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). The Company’s disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s applicable rules and forms. As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

There have been no changes in our internal control over financial reporting during the quarter ended ~~October 26, 2019~~August 1, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1A. Risk Factors

The Company's business, financial condition, results of operations and cash flows are subject to various ~~risks~~‎risks which could cause actual results to vary from recent results or from anticipated future results. ~~Materials risks~~There have ‎been no material changes to the ~~Company are described~~risk factors disclosed in Part I - Item 1A, Risk Factors of our Form 10-K for the ~~fiscal~~‎fiscal year ended ~~April 27, 2019.~~

May 2, 2020 except as set forth below.‎

The effects of the COVID-19 pandemic has had and could continue to have a material adverse impact on our business, results of operations and financial condition.

The COVID-19 pandemic continues to impact worldwide economic activity. As a result of the COVID-19 pandemic, we, our employees, our suppliers, our customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be requested or mandated by governmental authorities.

While we have implemented measures to mitigate the impact of the COVID-19 pandemic, we expect our fiscal 2021 results of operations to be adversely affected by the COVID-19 pandemic. The extent of the impact on our business will depend on a number of evolving factors, including the duration and spread of the pandemic, as well as the possibility of the pandemic re-occurring, actions taken by governmental authorities to restrict certain business operations and social activity and impose travel restrictions, the impact of the pandemic on economic activity and whether recessionary conditions will persist, consumer demand, the ability of our supply chain to deliver in a timely and cost-effective manner, the ability of our employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of our customers and suppliers and future access to capital, all of which remain uncertain. As a result, the magnitude and duration of the impact on our business, results of operations and financial condition cannot be determined at this time.

The automotive and commercial vehicle industries are our primary markets. The COVID-19 pandemic has significantly disrupted, and is expected to continue to significantly disrupt, the global automotive and commercial vehicle industries and customer sales, production volumes and purchases of vehicles by end consumers. In addition, the spread of COVID-19 has created a significant disruption in the manufacturing, delivery and overall supply chain of automobile and commercial vehicle manufacturers and suppliers. Further, the COVID-19 pandemic has resulted in a temporary shutdown of substantially all of the major OEMs in our markets at various times in calendar 2020. This has significantly reduced our fiscal 2021 year-to-date sales volumes and future sales volumes and revenue remain highly uncertain. Although automotive and commercial vehicle production has resumed, customer sales and production volumes may significantly decrease or may be very volatile due to global economic impacts and uncertainties.

In addition to the risks specifically described above, the COVID-19 pandemic has exacerbated and precipitated the other risks described in our Annual Report on Form 10-K for the year ended May 2, 2020, and may continue to do so, in ways that we are not currently able to predict, any of which could significantly adversely affect our business, results of operations, financial condition, cash flows, liquidity or stock price.

Item 6. Exhibits

Exhibit Number		Description
10.1		Form of Transition Award Agreement (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on June 30, 2020)
~~Exhibit~~ ~~Number~~ 10.2		~~Description~~ Change of Control Agreement dated as of June 26, 2020 between the Company and Joseph Khoury (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on June 30, 2020)
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
101.1		Inline XBRL Instance
101.2		Inline XBRL Taxonomy Extension Schema Document

Table of Contents

101.3		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.4		Inline XBRL Taxonomy Extension Label Linkbase Document
101.5		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.6		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~October 26, 2019,~~August 1, 2020, formatted as Inline XBRL and contained in Exhibit 101

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			METHODE ELECTRONICS, INC.

			~~By:~~	By:	/s/ Ronald L.G. Tsoumas
					Ronald L.G. Tsoumas
					Chief Financial Officer
					(~~principal financial officer)~~Principal Financial Officer)

Dated:	~~December 5, 2019~~	September 3, 2020



	Three Months Ended						Six Months Ended
	October 26, 2019			October 27, 2018			October 26, 2019			October 27, 2018
Net Sales	$	257.2		$	264.0		$	527.4		$	487.4

Cost of Products Sold	188.6			193.2			383.0			356.5

Gross Profit	68.6			70.8			144.4			130.9

Selling and Administrative Expenses	33.2			48.0			65.6			77.5
Amortization of Intangibles	4.7			3.7			9.5			5.6

Income from Operations	30.7			19.1			69.3			47.8

Interest Expense, Net	2.7			1.6			5.6			1.8
Other (Income) Expense, Net	(1.0		)	(0.1		)	(0.9		)	0.2

Income before Income Taxes	29.0			17.6			64.6			45.8

Income Tax Expense	5.2			3.0			12.5			7.5

Net Income	$	23.8		$	14.6		$	52.1		$	38.3

Basic and Diluted Income per Share:
Basic	$	0.63		$	0.39		$	1.39		$	1.02
Diluted	$	0.63		$	0.39		$	1.38		$	1.02

Cash Dividends per Share	$	0.11		$	0.11		$	0.22		$	0.22



	October 26, 2019			April 27, 2019
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	95.6		$	83.2
Accounts Receivable, Net	205.3			219.3
Inventories	133.8			116.7
Income Tax Receivable	12.0			14.3
Prepaid Expenses and Other Current Assets	18.7			20.0
TOTAL CURRENT ASSETS	465.4			453.5
LONG-TERM ASSETS
Property, Plant and Equipment, Net	198.1			191.9
Goodwill	233.6			233.3
Other Intangible Assets, Net	255.8			264.9
Operating Lease Assets, Net	28.6			—
Deferred Tax Assets	34.1			34.3
Pre-production Costs	39.0			32.8
Other Long-term Assets	28.1			21.0
TOTAL LONG-TERM ASSETS	817.3			778.2
TOTAL ASSETS	$	1,282.7		$	1,231.7

LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	97.1		$	91.9
Accrued Employee Liabilities	22.5			20.1
Other Accrued Expenses	27.8			33.9
Short-term Operating Lease Liability	6.5			—
Short-term Debt	15.2			15.7
Income Tax Payable	15.2			19.3
TOTAL CURRENT LIABILITIES	184.3			180.9
LONG-TERM LIABILITIES
Long-term Debt	259.9			276.9
Long-term Operating Lease Liability	22.8			—
Long-term Income Tax Payable	29.3			33.0
Other Long-term Liabilities	17.0			14.8
Deferred Tax Liabilities	36.8			36.4
TOTAL LONG-TERM LIABILITIES	365.8			361.1
TOTAL LIABILITIES	550.1			542.0
SHAREHOLDERS' EQUITY
Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,438,111 shares and 38,333,576 shares issued as of October 26, 2019 and April 27, 2019, respectively	19.2			19.2
Additional Paid-in Capital	154.4			150.4
Accumulated Other Comprehensive Loss	(18.0		)	(13.6		)
Treasury Stock, 1,346,624 shares as of October 26, 2019 and April 27, 2019	(11.5		)	(11.5		)
Retained Earnings	588.5			545.2
TOTAL SHAREHOLDERS' EQUITY	732.6			689.7
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,282.7		$	1,231.7



Three Months Ended October 26, 2019
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Treasury Stock			Retained Earnings			Total Shareholders Equity
Balance as of July 27, 2019	38,438,111	$	19.2	$	152.9	$	(15.2	)	$	(11.5	)	$	568.9		$	714.3
Stock-based Compensation Expense	—	—		1.5		—			—			—			1.5
Foreign Currency Translation Adjustments	—	—		—		(2.8		)	—			—			(2.8		)
Net Income	—	—		—		—			—			23.8			23.8
Dividends on Common Stock	—	—		—		—			—			(4.2		)	(4.2		)
Balance as of October 26, 2019	38,438,111	$	19.2	$	154.4	$	(18.0	)	$	(11.5	)	$	588.5		$	732.6



Three Months Ended October 27, 2018
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Retained Earnings			Total Shareholders Equity
Balance as of July 28, 2018	38,333,576	$	19.2	$	138.5	$	(4.0	)	$	(11.5	)	$	490.0		$	632.2
Stock-based Compensation Expense	—	—		8.8		—			—			—			8.8
Foreign Currency Translation Adjustments	—	—		—		(7.7		)	—			—			(7.7		)
Net Income	—	—		—		—			—			14.6			14.6
Dividends on Common Stock	—	—		—		—			—			(4.6		)	(4.6		)
Balance as of October 27, 2018	38,333,576	$	19.2	$	147.3	$	(11.7	)	$	(11.5	)	$	500.0		$	643.3



Six Months Ended October 26, 2019
	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Treasury Stock			Retained Earnings			Total Shareholders Equity
Balance as of April 27, 2019	38,333,576	$	19.2	$	150.4	$	(13.6	)	$	(11.5	)	$	545.2		$	689.7
Earned Portion of Restricted Stock, Net of Tax Withholding	104,535	—		—		—			—			(0.4		)	(0.4		)
Stock-based Compensation Expense	—	—		4.0		—			—			—			4.0
Foreign Currency Translation Adjustments	—	—		—		(4.4		)	—			—			(4.4		)
Net Income	—	—		—		—			—			52.1			52.1
Dividends on Common Stock	—	—		—		—			—			(8.4		)	(8.4		)
Balance as of October 26, 2019	38,438,111	$	19.2	$	154.4	$	(18.0	)	$	(11.5	)	$	588.5		$	732.6



Six Months Ended October 27, 2018
	Common Stock Shares	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Treasury Stock			Retained Earnings			Total Shareholders Equity
Balance as of April 28, 2018	38,198,353	$	19.1	$	136.5		$	13.9		$	(11.5	)	$	472.0		$	630.0
Earned Portion of Restricted Stock, Net of Tax Withholding	135,223	0.1		(0.1		)	—			—			(1.7		)	(1.7		)
Stock-based Compensation Expense	—	—		10.9			—			—			—			10.9
Adoption of ASU 2014-09	—	—		—			—			—			0.1			0.1
Foreign Currency Translation Adjustments	—	—		—			(25.6		)	—			—			(25.6		)
Net Income	—	—		—			—			—			38.3			38.3
Dividends on Common Stock	—	—		—			—			—			(8.7		)	(8.7		)
Balance as of October 27, 2018	38,333,576	$	19.2	$	147.3		$	(11.7	)	$	(11.5	)	$	500.0		$	643.3



(Dollars in Millions)	Six Months Ended October 26, 2019
Operating Cash Flows:
Cash Paid Related to Operating Lease Obligations	$	4.3

Non-cash Activity:
Right-of-use Assets Obtained in Exchange for Lease Obligations	$	5.1

Weighted-average Remaining Lease Term	5.8 years
Weighted-average Discount Rate	4.67		%



(Dollars in Millions)	Operating Leases
Fiscal Year:
Remainder of 2020	$	4.2
2021	6.4
2022	5.9
2023	5.2
2024	4.0
Thereafter	8.0
Total Lease Payments	33.7
Less: Imputed Interest	(4.4		)
Present Value of Lease Liabilities	$	29.3



(Dollars in Millions)	Operating Leases
Fiscal Years:
2020	$	7.8
2021	5.6
2022	4.9
2023	4.2
2024	3.3
Thereafter	8.4
Net Minimum Lease Payments	$	34.2



(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



	October 26, 2019
(Dollars in Millions)	Gross		Accumulated Amortization		Net		Wtd. Avg. Remaining Amortization Periods (Years)
Definite-lived Intangible Assets:
Customer Relationships and Agreements	$	244.8	$	34.3	$	210.5	17.0
Trade Names, Patents and Technology Licenses	75.6		32.1		43.5		7.9
Total Definite-lived Intangible Assets	320.4		66.4		254.0
Indefinite-lived Intangible Assets:
Trade Names, Patents and Technology Licenses	1.8		—		1.8
Total Indefinite-lived Intangible Assets	1.8		—		1.8
Total Intangible Assets	$	322.2	$	66.4	$	255.8



	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



	RSA Shares		Wtd. Avg. Grant Date Fair Value
Non-vested and Unissued at April 27, 2019	1,031,408		$	34.09
Awarded	—		$	—
Vested	(11,250	)	$	33.78
Forfeited	(5,670	)	$	33.78
Non-vested and Unissued at October 26, 2019	1,014,488		$	34.10



	RSU Shares		Wtd. Avg. Grant Date Fair Value
Non-vested at April 27, 2019	187,844		$	34.55
Awarded	—		$	—
Vested	(4,500	)	$	33.78
Forfeited	—		$	—
Non-vested at October 26, 2019	183,344		$	34.57