Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
__________________________________ 
FORM 10-Q
(Mark One)
 
x☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended JanuaryJuly 27, 20182019
or
or
o☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934
for the transition period from ______ to ______
 __________________________________ 
Commission file number 0-2816
 
METHODE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)


methodelog080115a14.gif
Delaware 36-2090085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
74018750 West WilsonBryn Mawr Avenue,Suite 1000,Chicago,Illinois 60706-454860631-3518
(Address of principal executive offices) (Zip Code)
(Registrant’s (Registrant’s telephone number, including area code) (708) (708) 867-6777
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: 
Name of each exchange
Title of each ClassTrading Symbol(s)on which registered
Common Stock, $0.50 Par ValueMEINew 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 x☒  No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x☒  No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”filer.” “accelerated filer,” and “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerx
☒ 
Accelerated filer o
☐
Non-accelerated filer o
☐ 
Smaller reporting company o
☐
Emerging Growth Company o
☐  
(Do not check if a smaller reporting company)

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o☐
  No x

☒
At FebruaryAugust 27, 2018,2019, the registrant had 36,846,72937,091,487 shares of common stock outstanding.

METHODE ELECTRONICS, INC.
FORM 10-Q
JanuaryJuly 27, 20182019


TABLE OF CONTENTS
  Page
   
PART I.
FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements
 
   
 
Condensed Consolidated Statements of OperationsIncome (unaudited) - Three and Nine Months Ended JanuaryJuly 27, 20182019 and JanuaryJuly 28, 20172018
2
   
 
Condensed Consolidated Statements of Comprehensive Income (unaudited) - Three and Nine Months Ended JanuaryJuly 27, 20182019 and JanuaryJuly 28, 20172018
3
   
 
Condensed Consolidated Balance Sheets as of JanuaryJuly 27, 20182019 (unaudited) and April 29, 201727, 2019
4
   
 
Condensed Consolidated Statements of Cash FlowsShareholders' Equity (unaudited) - NineThree Months Ended JanuaryJuly 27, 20182019 and JanuaryJuly 28, 20172018
5
   
 
Notes to Condensed Consolidated Financial Statements of Cash Flows (unaudited) - Three Months Ended July 27, 2019 and July 28, 2018
6
   
Item 2.Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1921
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
3828
   
Item 4.
Controls and Procedures
3829
   
PART II.
OTHER INFORMATION
 
   
Item 1A.
Risk Factors
4030
   
Item 6.
Exhibits
4030
   
SIGNATURES
4131



PART I.        FINANCIAL INFORMATION
 
Item 1. Financial Statements
 


METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME (Unaudited)
(Dollars in millions, except per share data)
 Three Months Ended Nine Months Ended Three Months Ended
 January 27,
2018		 January 28,
2017		 January 27,
2018		 January 28,
2017		 July 27,
2019		 July 28,
2018
Net Sales $228.0
 $195.6
 $659.3
 $596.7
 $270.2
 $223.4
            
Cost of Products Sold 167.9
 142.2
 481.6
 433.7
 194.4
 163.3
            
Gross Profit 60.1
 53.4
 177.7
 163.0
 75.8
 60.1
            
Selling and Administrative Expenses 22.5
 23.7
 83.3
 76.4
 32.4
 29.5
Amortization of Intangibles 2.0
 0.6
 3.7
 1.8
 4.8
 1.9
            
Income from Operations 35.6
 29.1
 90.7
 84.8
 38.6
 28.7
            
Interest Expense (Income), Net 0.3
 (0.2) 0.3
 (0.3)
Other Income, Net (3.8) (1.0) (2.6) (2.9)
Interest Expense, Net 2.9
 0.2
Other Expense, Net 0.1
 0.3
            
Income before Income Taxes 39.1
 30.3
 93.0
 88.0
 35.6
 28.2
            
Income Tax Expense 63.4
 6.6
 72.6
 18.3
 7.3
 4.5
            
Net Income (Loss) $(24.3) $23.7
 $20.4
 $69.7
Net Income $28.3
 $23.7
            
Basic and Diluted Income (Loss) per Share:  
  
    
Basic and Diluted Income per Share:    
Basic $(0.65) $0.64
 $0.54
 $1.87
 $0.75
 $0.63
Diluted $(0.65) $0.63
 $0.54
 $1.86
 $0.75
 $0.63
            
Cash Dividends:  
  
    
Common Stock $0.11
 $0.09
 $0.29
 $0.27
        
Weighted Average Number of Common Shares Outstanding:  
  
    
Basic 37,292,934
 37,217,302
 37,275,041
 37,297,757
Diluted 37,292,934
 37,470,653
 37,661,020
 37,477,967
Cash Dividends per Share $0.11
 $0.11
See notes to condensed consolidated financial statements.




METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in millions)
  Three Months Ended Nine Months Ended
  January 27,
2018		 January 28,
2017		 January 27,
2018		 January 28,
2017
Net Income (Loss) $(24.3) $23.7
 $20.4
 $69.7
         
Foreign Currency Translation Adjustment 32.2
 (9.0) 50.3
 (23.7)
Comprehensive Income $7.9
 $14.7
 $70.7
 $46.0
  Three Months Ended
  July 27,
2019		 July 28,
2018
Net Income $28.3
 $23.7
     
Foreign Currency Translation Adjustments (1.6) (17.9)
Total Comprehensive Income $26.7
 $5.8
See notes to condensed consolidated financial statements.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)and per-share data)
  January 27,
2018		 April 29,
2017
  (Unaudited)  
Assets:  
  
Current Assets:  
  
Cash and Cash Equivalents $304.0
 $294.0
Accounts Receivable, Net 201.4
 165.3
Inventories:    
Finished Products 14.6
 10.9
Work in Process 15.6
 8.7
Materials 53.4
 38.3
Total Inventories 83.6
 57.9
Prepaid and Refundable Income Taxes 0.6
 0.6
Prepaid Expenses and Other Current Assets 15.7
 12.5
Total Current Assets 605.3
 530.3
Property Plan and Equipment:    
Land 0.8
 0.6
Buildings and Building Improvements 64.3
 48.2
Machinery and Equipment 364.6
 287.9
Property, Plant and Equipment, Gross 429.7
 336.7
Less: Allowances for Depreciation 276.0
 246.1
Property, Plant and Equipment, Net 153.7
 90.6
Other Assets:    
Goodwill 59.6
 1.6
Other Intangible Assets, Net 65.6
 6.6
Cash Surrender Value of Life Insurance 8.2
 7.8
Deferred Income Taxes 35.9
 40.4
Pre-production Costs 18.0
 15.5
Other 13.5
 11.2
Total Other Assets 200.8
 83.1
Total Assets $959.8
 $704.0
Liabilities and Shareholders' Equity:  
  
Current Liabilities:  
  
Accounts Payable $87.9
 $75.3
Salaries, Wages and Payroll Taxes 20.1
 18.7
Other Accrued Expenses 27.0
 17.7
Short-term Debt 2.9
 —
Income Tax Payable 12.4
 12.7
Total Current Liabilities 150.3
 124.4
Long-term Debt 116.0
 27.0
Long-term Income Taxes Payable 48.3
 —
Other Liabilities 8.2
 2.6
Deferred Income Taxes 19.6
 —
Deferred Compensation 10.2
 8.9
Total Liabilities 352.6
 162.9
Shareholders' Equity:  
  
Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,193,353 and 38,133,925 shares issued as of January 27, 2018 and April 29, 2017, respectively 19.1
 19.1
Additional Paid-in Capital 135.8
 132.2
Accumulated Other Comprehensive Income (Loss) 24.6
 (25.7)
Treasury Stock, 1,346,624 shares as of January 27, 2018 and April 29, 2017 (11.5) (11.5)
Retained Earnings 439.2
 427.0
Total Shareholders' Equity 607.2
 541.1
Total Liabilities and Shareholders' Equity $959.8
 $704.0
  July 27,
2019		 April 27,
2019
  (Unaudited)  
ASSETS  
  
CURRENT ASSETS  
  
Cash and Cash Equivalents $73.8
 $83.2
Accounts Receivable, Net 233.1
 219.3
Inventories 122.0
 116.7
Income Tax Receivable 13.4
 14.3
Prepaid Expenses and Other Current Assets 19.0
 20.0
TOTAL CURRENT ASSETS 461.3
 453.5
LONG-TERM ASSETS    
Property, Plant and Equipment, Net 196.4
 191.9
Goodwill 233.0
 233.3
Other Intangible Assets, Net 260.4
 264.9
Operating Lease Assets, Net 26.1
 —
Deferred Tax Assets 34.1
 34.3
Pre-production Costs 36.5
 32.8
Other Long-term Assets 21.1
 21.0
TOTAL LONG-TERM ASSETS 807.6
 778.2
TOTAL ASSETS $1,268.9
 $1,231.7
     
LIABILITIES & SHAREHOLDERS' EQUITY  
  
CURRENT LIABILITIES  
  
Accounts Payable $90.7
 $91.9
Accrued Employee Liabilities 17.9
 20.1
Other Accrued Expenses 35.8
 33.9
Short-term Operating Lease Liability 6.2
 —
Short-term Debt 15.4
 15.7
Income Tax Payable 14.8
 19.3
TOTAL CURRENT LIABILITIES 180.8
 180.9
LONG-TERM LIABILITIES    
Long-term Debt 267.7
 276.9
Long-term Operating Lease Liability 20.6
 —
Long-term Income Tax Payable 32.4
 33.0
Other Long-term Liabilities 16.7
 14.8
Deferred Tax Liabilities 36.4
 36.4
TOTAL LONG-TERM LIABILITIES 373.8
 361.1
TOTAL LIABILITIES 554.6
 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 July 27, 2019 and April 27, 2019, respectively 19.2
 19.2
Additional Paid-in Capital 152.9
 150.4
Accumulated Other Comprehensive Loss (15.2) (13.6)
Treasury Stock, 1,346,624 shares as of July 27, 2019 and April 27, 2019 (11.5) (11.5)
Retained Earnings 568.9
 545.2
TOTAL SHAREHOLDERS' EQUITY 714.3
 689.7
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,268.9
 $1,231.7
See notes to condensed consolidated financial statements.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(in millions, except share data)
 
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, 201938,333,576
 $19.2
 $150.4
 $(13.6) $(11.5) $545.2
 $689.7
Earned Portion of Restricted Stock, Net of Tax Withholding104,535
 —
 —
 —
 —
 (0.4) (0.4)
Stock-based Compensation Expense—
 —
 2.5
 —
 —
 —
 2.5
Foreign Currency Translation Adjustments—
 —
 —
 (1.6) —
 —
 (1.6)
Net Income—
 —
 —
 —
 —
 28.3
 28.3
Dividends on Common Stock—
 —
 —
 —
 —
 (4.2) (4.2)
Balance as of July 27, 201938,438,111
 $19.2
 $152.9
 $(15.2) $(11.5) $568.9
 $714.3
 
Common
Stock
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Treasury
Stock
 Retained Earnings Total Shareholders Equity
Balance as of April 28, 201838,198,353
 $19.1
 $136.5
 $13.9
 $(11.5) $472.0
 $630.0
Earned Portion of Restricted Stock, Net of Tax Withholding135,223
 0.1
 (0.1) —
 —
 (1.7) (1.7)
Stock-based Compensation Expense—
 —
 2.1
 —
 —
 —
 2.1
Adoption of ASU 2014-09—
 —
 —
 —
 —
 0.1
 0.1
Foreign Currency Translation Adjustments—
 —
 —
 (17.9) —
 —
 (17.9)
Net Income—
 —
 —
 —
 —
 23.7
 23.7
Dividends on Common Stock—
 —
 —
 —
 —
 (4.1) (4.1)
Balance as of July 28, 201838,333,576
 $19.2
 $138.5
 $(4.0) $(11.5) $490.0
 $632.2

See notes to condensed consolidated financial statements.

METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in millions)
  Nine Months Ended
  January 27,
2018		 January 28,
2017
Operating Activities:  
  
Net Income $20.4
 $69.7
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:  
  
Gain on Sale of Licensing Agreement (1.6) —
Provision for Depreciation 16.3
 15.8
Amortization of Intangible Assets 3.7
 1.8
Stock-based Compensation 3.3
 9.8
Provision for Bad Debt 0.1
 —
Change in Deferred Income Taxes (12.2) —
Changes in Operating Assets and Liabilities:    
Accounts Receivable 5.9
 16.5
Inventories (5.8) 3.1
Prepaid Expenses and Other Assets 14.6
 (7.5)
Accounts Payable and Other Expenses 42.4
 (2.5)
Net Cash Provided by Operating Activities 87.1
 106.7
Investing Activities:  
  
Purchases of Property, Plant and Equipment (34.7) (13.2)
Acquisition of Business, Net of Cash Received (129.9) —
Purchases of Technology Licenses, Net (0.7) —
Sale of Business/Investment/Property 0.3
 —
Net Cash Used in Investing Activities (165.0) (13.2)
Financing Activities:  
  
Taxes Paid Related to Net Share Settlement of Equity Awards (0.3) (1.1)
Purchase of Common Stock —
 (9.8)
Proceeds from Exercise of Stock Options 0.2
 2.7
Tax Benefit from Stock Option Exercises —
 0.5
Cash Dividends (10.6) (10.3)
Proceeds from Borrowings 71.3
 —
Repayment of Borrowings (3.0) (20.0)
Net Cash Provided (Used) in Financing Activities 57.6
 (38.0)
Effect of Foreign Currency Exchange Rate Changes on Cash 30.3
 (14.5)
Increase in Cash and Cash Equivalents 10.0
 41.0
Cash and Cash Equivalents at Beginning of Year 294.0
 227.8
Cash and Cash Equivalents at End of Period $304.0
 $268.8
  Three Months Ended
  July 27,
2019		 July 28,
2018
OPERATING ACTIVITIES  
  
Net Income $28.3
 $23.7
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:  
  
Change in Cash Surrender Value of Life Insurance (0.3) (0.4)
Amortization of Debt Issuance Costs 0.2
 —
Depreciation 7.0
 6.5
Amortization of Intangible Assets 4.8
 1.9
Stock-based Compensation Expense 2.5
 2.1
Change in Deferred Income Taxes —
 (0.4)
Changes in Operating Assets and Liabilities:    
Accounts Receivable (12.8) 6.4
Inventories (5.7) (6.1)
Prepaid Expenses and Other Assets 0.7
 (2.9)
Accounts Payable and Other Liabilities (5.6) (10.8)
NET CASH PROVIDED BY OPERATING ACTIVITIES 19.1
 20.0
     
INVESTING ACTIVITIES  
  
Purchases of Property, Plant and Equipment (13.2) (18.2)
NET CASH USED IN INVESTING ACTIVITIES (13.2) (18.2)
     
FINANCING ACTIVITIES  
  
Taxes Paid Related to Net Share Settlement of Equity Awards (0.4) (1.7)
Repayments of Finance Leases (0.2) —
Cash Dividends (4.1) (4.1)
Proceeds from Borrowings 1.0
 —
Repayments of Borrowings (10.7) (3.6)
NET CASH USED IN FINANCING ACTIVITIES (14.4) (9.4)
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents (0.9) (10.0)
DECREASE IN CASH AND CASH EQUIVALENTS (9.4) (17.6)
Cash and Cash Equivalents at Beginning of the Year 83.2
 246.1
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $73.8
 $228.5
See notes to condensed consolidated financial statements.






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METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in millions, except per share data)




1.BASIS OF PRESENTATIONDescription of Business and Summary of Significant Accounting Policies
Description of Business

Methode Electronics, Inc. was incorporated(the "Company" or "Methode") is a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in 1946 as an Illinois corporationBelgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and reincorporatedthe United States. The Company's primary manufacturing facilities are located in Delaware in 1966.  As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc.Dongguan and its subsidiaries.  Our business is managed,Shanghai, China; Cairo, Egypt; Mriehel, Malta; and our financial results are reported, on a segment basis, with those segments being Automotive, Interface, Power ProductsFresnillo and Other.Monterrey, Mexico. The Company designs, manufactures and markets devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing technologies.

Basis of Presentation

The unaudited condensed consolidated financial statements and related disclosures as of January 27, 2018 and results of operations for the three and nine months ended January 27, 2018 and January 28, 2017 are unaudited, pursuant toCompany have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).  The April 29, 2017 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAPaccounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In our opinion, theseThese interim condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments)adjustments, except as otherwise disclosed) that management believes are necessary for thea fair statementpresentation of the results of operations, financial position and cash flows of the Company for the interim periods.periods presented. These financial statements should be read in conjunction with the consolidated financial statements included in ourthe Company's Form 10-K for the year ended April 29, 2017,27, 2019, filed with the SEC on June 22, 2017.20, 2019. Results may vary from quarter-to-quarter for reasons other than seasonality.

2.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSFinancial Reporting Periods
The Company maintains its financial records on the basis of a 52 or 53 week fiscal year ending on the Saturday closest to April 30. The three months ended July 27, 2019 and July 28, 2018 were both 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. There have been no material changes to the significant accounting policies in the three months ended July 27, 2019 other than those noted below.

Recently Adopted Accounting Pronouncements

In February 2018,2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.


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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—ReportingStatement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this update are intended to address a specific consequence of the Tax Cuts and Jobs Act (“U.S. Tax Reform”) by allowingallow 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 is effective for all entities for annual periods beginning after December 15, 2018, with early2018-02 as of April 28, 2019 and the adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate is recognized. Management does not expect this ASU to have a materialhad no impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In May 2017,June 2016, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation2016-13, “Financial Instruments-Credit Losses (Topic 718): Scope326) - Measurement of Modification Accounting."Credit Losses on Financial Instruments.” The amendmentsguidance in this update provide guidance aboutASU 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 changes to the terms or conditionswill result in more timely recognition of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods.credit losses. The standard will be effective for us in fiscal years beginning April 29, 2018. This ASU is not expected to have a material effect on the Company's financial statements. If,Company in the future, Methode makes modifications to its existing share-based payment awards, those modifications will need to be evaluated based onfirst quarter of fiscal 2021. Management is currently assessing the criteria detailed inimpact of the new standard, but does not anticipate that the adoption of this ASU and accounted for accordingly.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” The amendments in this update provide guidance on eight specific cash flow presentation issues that have developed due to diversity in practice. The issues include, but are not limited to, debt prepayment or extinguishment costs, contingent consideration payments made after a business combination, and proceeds from the settlement of insurance claims. The amendments in this ASU, where practicable, are to be applied retrospectively. The standard will be effective for us in fiscal years beginning April 29, 2018. Earlier adoption is permitted. We do not believe this pronouncement will have a material impact on ourthe manner in which it estimates the allowance for doubtful accounts on its trade accounts receivable.

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. ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and earlier adoption is permitted including adoption in any interim period. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

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. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the provisions of the updated guidance and assessing the impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle is that a company should recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting revenue gross versus net)," which clarifies gross versus net revenue reporting when another party is involved in the transaction. In April 2016, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations and Licensing," which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. The standard will be effective for us in the fiscal years beginning April 29, 2018. Earlier adoption is permitted.

We are currently evaluating the impact this guidance will have on our consolidated financial statements. We continue to progress with our evaluation utilizing third-party consultants who are assisting in the process. We have established a project management team to analyze the impact of this standard by reviewing our current accounting policies and practices and our customer contracts and arrangements to identify potential differences that would result from the application of this standard.


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(Dollar amounts in millions, except per share data)


2.Revenue
The main typesmajority of provisions currently beingthe 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 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 typically negotiate annual price downs. Management has evaluated which could impactthese 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 allocationtransaction price is allocated to the material right and timingrecognized 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 include contractually guaranteed price reductionsrecognized corresponds to the related purchase order. Revenue is adjusted for variable consideration (such as discounts) as described further below. Sales and over-time recognition ofother taxes collected concurrent with revenue-producing activities are excluded from revenue.

Contract Balances
The contractually guaranteed price reductions could result in revenue being deferred as it relates to those material rights, which is a changeCompany receives payment from current practice. Also, the over-time recognition of revenue could result in accelerated revenue recognition for products where revenue is currently being recognized upon shipment. There are two transition methods available under the new standard, either full retrospective or modified retrospective. We expect to adopt the standard utilizing the modified retrospective method and expect enhanced disclosure requirements post-adoption.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (ASC 842)," which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leasescustomers based on the principlecontractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. A contract liability exists when the Company has received consideration or the amount is due from the customer in advance of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use assetrevenue recognition. Contract assets and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The amendments in this updatecontract liabilities are effective for fiscal years beginning after December 15, 2018, which is our fiscal 2020, beginning on April 28, 2019. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The new standard requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financialprepaid expenses and other current assets and financialother long-term liabilities, by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this update are effective for fiscal years beginning after December 15, 2017, which is our fiscal 2019, beginning on April 29, 2018. We are currently evaluating the impact this guidance will have on our consolidated financial statements.    

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350).” The amendments in this ASU simplify goodwill impairment testing by removing the requirement of Step 2 to determine the implied fair value of the goodwill of a business which fails Step 1. The effects of this update resultrespectively, in the amount by which a carrying amount exceedsCompany's condensed consolidated balance sheets.

Unbilled Receivables (Contract Assets) - Unbilled receivables were $0.8 million as of both July 27, 2019 and April 27, 2019. In the business' fair value to be recognizedthree months ended July 27, 2019, $0.8 million of previously unbilled receivables were recorded into accounts receivable. There were no impairments of contract assets as an impairment chargeof July 27, 2019.

Deferred Revenue (Contract Liabilities) - Deferred revenue was $0.3 million as of both July 27, 2019 and April 27, 2019. No previously deferred revenue was recorded into revenue in the period identified. The standard is effective for us for annual and interim goodwill impairment tests in fiscal years beginning May 3, 2020, with early adoption permitted. The Company has adopted this ASU on a prospective basis effective as of April 30, 2017 and has concluded that this pronouncement has no material impact on its consolidated financial statements.three months ended July 27, 2019.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this update clarify the definition of a business, with the objective of assisting entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The clarified definition requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. To be considered a business, an asset must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The amendments are effective for us in fiscal years beginning April 29, 2018, with early adoption permitted. The Company has adopted this ASU effective as of April 30, 2017 on a prospective basis and has concluded that this pronouncement has no material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 impacts the timing of when excess tax benefits are recognized by eliminating the delay in the recognition of a tax benefit until the tax benefit is realized through a reduction to income taxes


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(Dollar amounts in millions, except per share data)


payable. The amendments in this update are effective for annual periods beginning after December 15, 2016, which is our fiscal 2018, which began on April 30, 2017. Disaggregated Revenue Information

The Company appliedviews the modified retrospective transition method andfollowing disaggregated disclosures as useful to understanding the composition of revenue recognized an increase to deferred tax assets and retained earnings of $2.7 million as of April 30, 2017 to recognize excess tax benefits that had been previously delayed. On a prospective basis, all excess tax benefits and tax deficienciesduring the respective reporting periods. Geographic net sales are recognized as income tax expense or benefit in the statement of operations. As a result of applying the modified retrospective transition method, prior periods were not adjusted. Further, the Company will continue to estimate the number of awards that are expected to vest.
In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations Simplifying the Accounting for Measurement-Period Adjustments." The standard requires that an acquirer recognize measurement-period adjustments in the period in which the adjustments are determined. The income effects of such measurement-period adjustments are to be recorded in the same period’s financial statements but calculated as if the accounting had been completed as of the acquisition date. The impact of measurement-period adjustments to earnings that relate to prior period financial statements are to be presented separately on the income statement or disclosed by line item. The Company has adopted this ASU effective April 30, 2017 on a prospective basis. The adoption of this standard did not have a material impactdetermined based on our consolidated financial statements.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.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." This ASU requires an entity to measure inventory at the lower of cost or net realizable value, rather than at the lower of cost or market. The Company has adopted this ASU effective April 30, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.



8
  Three Months Ended July 27, 2019
(Dollars in Millions) Auto Industrial Interface Medical Total
Geographic Net Sales:          
U.S. $100.0
 $42.5
 $12.5
 $0.3
 $155.3
Malta 27.5
 7.5
 0.1
 —
 35.1
Canada 21.5
 6.4
 —
 —
 27.9
China 15.6
 9.5
 —
 —
 25.1
Other 21.6
 4.9
 0.3
 —
 26.8
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

  Three Months Ended July 28, 2018
(Dollars in Millions) Auto Industrial Interface Medical Total
Geographic Net Sales:          
U.S. $77.3
 $12.1
 $15.0
 $0.3
 $104.7
Malta 30.5
 8.3
 0.1
 —
 38.9
China 20.0
 8.8
 —
 —
 28.8
Canada 20.8
 —
 —
 —
 20.8
Other 26.7
 3.0
 0.5
 —
 30.2
Total Net Sales $175.3
 $32.2
 $15.6
 $0.3
 $223.4
           
           
Timing of Revenue Recognition:          
Goods Transferred at a Point in Time $165.5
 $32.2
 $15.6
 $0.3
 $213.6
Goods Transferred Over Time 9.8
 —
 —
 —
 9.8
Total Net Sales $175.3
 $32.2
 $15.6
 $0.3
 $223.4


3.Leases

The Company leases real estate, automobiles and certain equipment under both operating and finance leases. The Company does not have any significant arrangements where it is the lessor. The majority of the Company's global lease portfolio represents leases of real estate, such as manufacturing facilities, warehouses and buildings. The Company's leases have remaining lease terms up to 12 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

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(Dollar amounts
lease will be recorded as lease expense when and as incurred. The Company’s lease payments are largely fixed. As of July 27, 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 $0.9 million are included in millions, except per share data)property, plant and equipment, net on the condensed consolidated balance sheets as of July 27, 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 months ended July 27, 2019.

The components of lease expense were as follows:
(Dollars in Millions) Three Months Ended July 27, 2019
Lease Cost:  
Operating Lease Cost $2.5
Variable Lease Cost 0.2
Total Lease Cost $2.7


Supplemental cash flow and other information related to operating leases was as follows:
(Dollars in Millions) Three Months Ended July 27, 2019
Operating Cash Flows:  
Cash Paid Related to Operating Lease Obligations $2.1
   
Non-cash Activity:  
Right-of-use Assets Obtained in Exchange for Lease Obligations $0.5
   
Weighted-average Remaining Lease Term 6.0 years
Weighted-average Discount Rate 4.64%


Maturities of operating lease liabilities as of July 27, 2019, are shown below:
(Dollars in Millions) Operating Leases
Fiscal Year:  
Remainder of 2020 $5.8
2021 5.5
2022 5.0
2023 4.3
2024 3.1
Thereafter 7.4
Total Lease Payments 31.1
Less: Imputed Interest (4.3)
Present Value of Lease Liabilities $26.8



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3.    ACQUISITIONSDisclosures related to periods prior to the adoption of ASC 842
Fiscal 2018 Acquisitions

Total rent expense was $1.6 million in the three months ended July 28, 2018. Future minimum lease payments for assets under operating leases as of April 27, 2019 were as follows:
Procoplast S.A.
(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 July 27, 2017, weSeptember 12, 2018, the Company acquired 100% of the stock of Procoplast S.A.Grakon Parent, Inc. ("Procoplast"Grakon") for $22.2$422.1 million in cash, net of cash acquired. The business, located near the Belgian-German border,headquartered in Seattle, Washington, is an independenta manufacturer of automotive assemblies.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 ProcoplastGrakon have been included in the Automotive segmentand Industrial segments in the condensed consolidated financial statements from the effective date of the acquisition. For goodwill impairment testing purposes, Procoplast will be included in the Company's European Automotive reporting unit.


The Company has not yet completed the process of estimating the fair value of the Procoplast assets acquired and liabilities assumed. Accordingly, the Company's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as the Company completes the process, which would likely impact the Company's allocation of the purchase price to goodwill. The primary fair value estimates considered preliminary are contingencies and income tax-related items. Based on the Company's preliminary allocation of the purchase price, revised as of JanuaryJuly 27, 2018,2019, goodwill decreased $7.3$0.4 million from the preliminary amount reported in the Company's condensed consolidated financial statements at October 28, 2017.as of April 27, 2019. The revised preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed were:
(Dollars in Millions)  
Cash $6.9
Accounts Receivable 36.1
Inventory 30.8
Prepaid Expenses and Other Current Assets 1.6
Other Intangible Assets 221.9
Goodwill 174.9
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 (29.2)
Total Purchase Price $429.0

(Dollars in Millions)  
Cash $1.3
Accounts Receivable 10.8
Inventory 3.5
Intangible Assets 19.2
Goodwill 8.1
Other Assets 0.1
Property, Plant and Equipment 23.8
Accounts Payable (4.9)
Salaries, Wages and Payroll Taxes (0.8)
Other Accrued Expenses (4.7)
Income Taxes Payable (0.6)
Short-term Debt (1.7)
Other Liabilities (5.6)
Long-term Debt (17.1)
Deferred Income Tax Liability (7.9)
Total Purchase Price $23.5

The Company's condensed consolidated statements of income for the three and six months ended October 28, 2017 were prepared based on provisional amounts for cost of products sold, amortization of intangibles and income tax expense. During the third quarter of fiscal 2018, the Company recognized measurement period adjustments to these provisional amounts. These adjustments were included in earnings for the three months ended January 27, 2018. If the Company had completed the purchase price allocation as of the acquisition date and recognized these measurement period adjustments in its condensed consolidated statements of income for the three and six months ended October 28, 2017, cost of products sold for both the three and six months ended October 28, 2017 would have been $0.6 million lower, amortization of intangibles for both the three and six months ended October 28, 2017 would have been $0.4 million higher, and income tax expense for both the three and six months ended October 28, 2017 would have been $0.1 million lower.



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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
  

(Dollars in Millions) Fair Value at Date of Acquisition Amortization Period
Customer Relationships and Agreements - Significant Customer $12.3
 17.0 years
Customer Relationships and Agreements - All Other Customers 2.8
 11.5 years
Technology Licenses 2.1
 8.5 years
Trade Names 2.0
 8.5 years
Total $19.2
  


No acquisition-related costs were incurred in relation to the acquisition of Procoplast for the three months ended January 27, 2018. Acquisition-related costs of $1.3$0.6 million were incurred in relation to the acquisition of Procoplast forGrakon in the ninethree months ended January 27,July 28, 2018, of which $1.1 million have been reported in selling and administrative expenses and $0.2 million have been reported in costs of products sold on the condensed consolidated statements of operations.income.

Pacific Insight Electronics Corp.
On October 3, 2017, we acquired 100% of the outstanding common shares of Pacific Insight Electronics Corp. ("Pacific Insight") in a cash transaction for $107.7 million, net of cash acquired. Pacific Insight, headquartered in Vancouver, British Columbia, Canada, is a global solutions provider offering design, development, manufacturing and delivery of lighting and electronic products and full-service solutions to the automotive and commercial vehicle markets, and has manufacturing facilities in both Canada and Mexico. Its technology in LED-based ambient and direct lighting will expand our presence within the automotive interior, as well as augment our efforts in overhead console and other areas. The accounts and transactions of Pacific Insight have been included in the Automotive segment in the consolidated financial statements from the effective date of the acquisition. For goodwill impairment testing purposes, Pacific Insight will be included in the Company's North American Automotive reporting unit.

The Company has not yet completed the process of estimating the fair value of the Pacific Insight assets acquired and liabilities assumed. Accordingly, the Company's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as the Company completes the process, which would likely impact the Company's allocation of the purchase price to goodwill. Based on the Company's preliminary allocation of the purchase price, revised as of January 27, 2018, goodwill decreased $2.7 million from the preliminary amount reported in the Company's condensed consolidated financial statements at October 28, 2017. The revised preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed were:

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(Dollars in Millions)  
Cash $4.9
Accounts Receivable 18.3
Inventory 12.7
Prepaid Expenses and Other Current Assets 0.3
Income Taxes Receivable 1.2
Intangible Assets 41.8
Goodwill 48.5
Pre-production Costs 0.8
Property, Plant and Equipment 13.8
Accounts Payable (7.9)
Salaries, Wages and Payroll Taxes (0.8)
Other Accrued Expenses (3.9)
Short-term Debt (0.8)
Long-term Debt (3.4)
Deferred Income Tax Liability (12.9)
Total Purchase Price $112.6
The Company's condensed consolidated statements of income for the three and six months ended October 28, 2017 were prepared based on provisional amounts for cost of products sold, amortization of intangibles and income tax expense. During the third quarter of fiscal 2018, the Company recognized measurement period adjustments to these provisional amounts. These adjustments were included in earnings for the three months ended January 27, 2018. If the Company had completed the purchase price allocation as of the acquisition date and recognized these measurement period adjustments in its condensed consolidated statements of income for the three and six months ended October 28, 2017, the impact would have been insignificant.


The following table presents details of the intangible assets acquired:
(Dollars in Millions) Fair Value at Date of Acquisition Amortization Period
Customer Relationships and Agreements - Automotive $23.7
 11.5 years
Customer Relationships and Agreements - Commercial 10.1
 14.0 years
Trade Names 6.4
 7.5 years
Technology Licenses 1.6
 6.0 years
Total $41.8
  

The Company's results of operations for the three months ended January 27, 2018 included the operating results of Pacific Insight, which was comprised of revenues of $22.0 million and net income of $0.4 million. The Company's results of operations for the nine months ended January 27, 2018 included approximately four months of the operating results of Pacific Insight, which were comprised of revenues of $29.0 million and net income of $0.2 million.

The following table presents the unaudited supplemental pro forma results for the three and nine months ended January 27,July 28, 2018 and January 28, 2017. The unaudited pro forma financial information combinesas if the results of operations of Methode and Pacific Insight as though the companiesGrakon acquisition had been combinedoccurred as of the beginning of fiscal 2017, and the2018. 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 July 28, 2018
Net Sales $270.7
Net Income $29.7


5.Income Taxes
The provision for income taxes for an interim period is based on an estimated effective income tax rate for the full fiscal year and applies that rate to ordinary year-to-date earnings or loss. The estimated annual effective income tax rate is determined excluding the effects of unusual or significant discrete items that are reported net of the related tax effects and in the period in which they occur. In addition, any 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.
11
  Three Months Ended
(Dollars in Millions) July 27,
2019		 July 28,
2018
Income before Income Taxes $35.6
 $28.2
Income Tax Expense $7.3
 $4.5
Effective Tax Rate 20.5% 16.0%


The income tax provision in the three months ended July 27, 2019 was slightly lower than the U.S. statutory tax rate primarily due to foreign investment tax credits and foreign operations with lower statutory rates. The income tax provision in the three months ended July 28, 2018 was lower than the U.S. statutory tax rate primarily due to foreign investment tax credits, foreign operations with lower statutory rates and the deduction for stock compensation. 

The Company's unrecognized income tax benefits were $5.0 million and $3.1 million as of July 27, 2019 and April 27, 2019, respectively. If any portion of the Company's unrecognized tax benefits is recognized, it could impact the Company's effective tax rate. The tax reserves are reviewed periodically and adjusted considering changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in millions, except per share data)


Income Taxes Paid
  (Unaudited)
  Three Months Ended Nine Months Ended
(Dollars in Millions) January 27,
2018		 January 28,
2017		 January 27,
2018		 January 28,
2017
Revenues $227.8
 $217.8
 $698.3
 $666.0
Net Income (Loss) $(24.4) $24.9
 $25.3
 $72.6

No acquisition-related costs were incurredThe Company paid income taxes, net of refunds received, of $7.8 million and $9.3 million in relation to the acquisition of Pacific Insight for the three months ended JanuaryJuly 27, 2018. Acquisition-related costs of $5.5 million were incurred in relation to the acquisition of Pacific Insight for the nine months ended January 27,2019 and July 28, 2018, of which $4.9 million have been reported in selling and administrative expenses and $0.6 million have been reported in costs of products sold on the condensed consolidated statements of operations.respectively. 


4.GOODWILL AND INTANGIBLE ASSETS6.     Balance Sheet Components
We review our goodwill and other intangible assets for impairment whenever events
Inventories

Inventories are stated at the lower-of-cost or changes in circumstances indicate thatnet realizable value. Cost is determined using the carrying amount of these assets may not be recoverable, and at least annually in accordance with ASC No. 350, "Intangibles — Goodwill and Others."  The values assigned to goodwill and intangible assets are normally based on estimates and judgments regarding expectations for the success and life cycle offirst-in, first-out method. Finished products and technologies acquired.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 severe declinesummary of inventories is shown below:
(Dollars in Millions) July 27,
2019		 April 27,
2019
Raw Materials $80.3
 $67.1
Work in Process 10.0
 9.4
Finished Products 31.7
 40.2
Total Inventories $122.0
 $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) July 27,
2019		 April 27,
2019
Land $3.7
 $3.7
Buildings and Building Improvements 82.9
 81.2
Machinery and Equipment 398.0
 390.7
Total Property, Plant and Equipment, Gross 484.6
 475.6
Less: Accumulated Depreciation 288.2
 283.7
Property, Plant and Equipment, Net $196.4
 $191.9

Depreciation expense was $7.0 million and $6.5 million in expectations could resultthe three months ended July 27, 2019 and July 28, 2018, respectively. As of July 27, 2019 and April 27, 2019, capital expenditures recorded in significant impairment charges, which could have a material adverse effect on our financial conditionaccounts payable totaled $5.5 million and results$6.4 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 operations.
As part of the acquisitions of ProcoplastJuly 27, 2019 and Pacific Insight in fiscal 2018,April 27, 2019, the Company recorded estimated goodwill of $8.1had $36.5 million and $48.5$32.8 million, respectively, of pre-production tooling costs related to customer-owned tools for which nonereimbursement is expectedcontractually guaranteed by the customer or for which the customer has provided a non-cancelable right to be deductible for income taxes. Asuse the valuation process is still ongoing for both Procoplasttooling.  Engineering, testing and Pacific Insight, these amounts are to be considered preliminary and subject to change. The following table shows the roll-forward of goodwillother costs incurred in the financial statementsdesign and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract. As of JanuaryJuly 27, 2018.
  Automotive Interface 
Power
Products
 Total
Balance as of April 29, 2017 $—
 $0.6
 $1.0
 $1.6
Goodwill Acquired 56.6
 —
 —
 56.6
Foreign Currency Translation 1.3
 0.1
 —
 1.4
Balance as of January 27, 2018 $57.9
 $0.7
 $1.0
 $59.6
As part of the acquisitions of Procoplast2019 and Pacific Insight in fiscal 2018,April 27, 2019, the Company acquired estimated intangible assets of $19.2had $13.9 million and $41.8$15.0 million, respectively. The following tables present detailsrespectively, of the Company’s intangible assets.Company owned pre-production tooling, which is capitalized within property, plant and equipment.

  As of January 27, 2018
  Gross Accumulated Amortization Net Wtd. Avg. Remaining Amortization Periods (Years)
Customer Relationships and Agreements $66.5
 $17.2
 $49.3
 13.0
Trade Names, Patents and Technology Licenses 38.3
 22.0
 16.3
 5.5
Total $104.8
 $39.2
 $65.6
  
  As of April 29, 2017
  Gross Accumulated Amortization Net Wtd. Avg. Remaining Amortization Periods (Years)
Customer Relationships and Agreements $16.3
 $15.6
 $0.7
 6.8
Trade Names, Patents and Technology Licenses 25.8
 19.9
 5.9
 1.4
Covenants Not to Compete 0.1
 0.1
 —
 0.4
Total $42.2
 $35.6
 $6.6
  

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in millions, except per share data)


7.Goodwill and Intangible Assets
Goodwill
The estimated aggregate amortization expense for the current fiscal year and eachfollowing table shows goodwill by segment:
(Dollars in Millions) July 27,
2019		 April 27,
2019
Automotive $106.3
 $106.3
Industrial 126.7
 127.0
Total $233.0
 $233.3

Intangible Assets
The following tables present details of the four succeeding fiscal years is as follows:Company's identifiable intangible assets:
2018 $5.7
2019 $7.7
2020 $5.7
2021 $5.6
2022 $5.6
 July 27, 2019
(Dollars in Millions)Gross 
Accumulated
Amortization
 Net 
Wtd. Avg. Remaining
Amortization
Periods (Years)
Definite-lived Intangible Assets:       
Customer Relationships and Agreements$244.6
 $30.9
 $213.7
 17.2
Trade Names, Patents and Technology Licenses75.6
 30.7
 44.9
 8.1
Total Definite-lived Intangible Assets320.2
 61.6
 258.6
  
Indefinite-lived Intangible Assets:       
Trade Names, Patents and Technology Licenses1.8
 —
 1.8
  
Total Indefinite-lived Intangible Assets1.8
 —
 1.8
  
Total Intangible Assets$322.0
 $61.6
 $260.4
  
As of January 27, 2018 and April 29, 2017, the trade names, patents and technology licenses include $1.8 million of trade names that are not subject to amortization.
5.INCOME TAXES
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“U.S. Tax Reform”) which incorporates significant changes to U.S. corporate income tax laws. This included a reduction in the statutory federal corporate income tax rate from 35% to 21%, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriation tax on deemed repatriated earnings from foreign subsidiaries, immediate expensing of certain depreciable tangible assets, and limiting the deductibility of certain executive compensation.
Under ASC Topic 740 ("ASC 740"), a company is generally required to recognize the effect of changes in tax laws in its financial statements in the period in which the legislation is enacted. The U.S. Tax Reform legislation was signed into law on December 22, 2017. As such, the Company is required to recognize the related impacts to the financial statements in the quarter ended January 27, 2018.
The SEC staff issued Staff Accounting Bulletin ("SAB") 118 to provide certain guidance in determining the accounting for income tax effects of the legislation in the accounting period of enactment as well as provide a one-year measurement period to finalize the effects associated with U.S. Tax Reform. The Company has recognized a discrete estimated net income tax charge with respect to U.S. Tax Reform for the third quarter of fiscal 2018 of $56.8 million. This net income tax charge includes $52.6 million associated with the one-time repatriation tax from the earnings of the Company’s foreign subsidiaries, which is payable over 8 years, and a re-measurement of the Company’s net U.S. deferred tax assets of $4.2 million.
Due to the Company’s fiscal year-end of April 28, 2018 and the timing of the various technical provisions provided for under U.S. Tax Reform, the financial statement impacts recorded in the third quarter of fiscal 2018 relating to U.S. Tax Reform are not deemed to be complete but rather are deemed to be reasonable, provisional estimates based upon the current available information. For example, the re-measurement of the net U.S. deferred tax assets cannot be complete until the underlying timing differences are known, and such timing differences cannot be known until April 28, 2018. Similarly, the Company was required to use certain estimated annual amounts in conjunction with determining the impact of the one-time repatriation tax. Although the Company believes the net income tax expense recognized in the third quarter of fiscal 2018, as outlined above, is a reasonable provisional estimate based upon the available information and analysis completed, these related amounts may change based upon actual results. As such, the Company will update and finalize the accounting for the tax effect of the enactment of U.S. Tax Reform in future quarters in accordance with the guidance as outlined in SAB 118, as deemed necessary.

U.S. Tax Reform includes a new global intangible low-taxed income (“GILTI”) provision which requires the Company to include foreign subsidiary earnings in its U.S. tax return starting in fiscal year 2019. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse in future years or provide for the tax expense in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred and therefore has not included any deferred tax impacts of GILTI in its consolidated financial statements for its fiscal year ending 2018.

The provision for income taxes for all periods presented is based on an estimated effective income tax rate for the respective full fiscal years. As a result of enacted U.S. Tax Reform, the Company's estimated effective income tax rate includes the reduced federal statutory income tax rate of 30%, resulting in an income tax benefit of approximately $0.9 million for the first nine months of fiscal 2018. The estimated annual effective income tax rate is determined excluding the

13
 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 Licenses75.5
 29.2
 46.3
 8.4
Total Definite-lived Intangible Assets320.0
 56.9
 263.1
  
Indefinite-lived Intangible Assets:       
Trade Names, Patents and Technology Licenses1.8
 —
 1.8
  
Total Indefinite-lived Intangible Assets1.8
 —
 1.8
  
Total Intangible Assets$321.8
 $56.9
 $264.9
  


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in millions, except per share data)


effect of significant discrete items or items that are reported net of their related tax effects. The tax effect of significant discrete items is reflected inBased on the period in which they occur. The Company's income tax provision is impacted by a number of factors, including thecurrent amount of taxable earnings derived in foreign jurisdictions with tax rates that are generally lower thanintangible assets subject to amortization, the U.S. federal statutory rate, the effects of tax rate changes, and the Company's ability to utilize various tax credits.

Income taxestimated aggregate amortization expense was $63.4 million in the third quarter of fiscal 2018 compared to an income tax expense of $6.6 million in the third quarter of fiscal 2017. The effective income tax rate for the third quarter of fiscal 2018 was 162.1% versus 21.9% in the third quarter of fiscal 2017. The income tax expense recorded on income before income taxes for the third quarter of fiscal 2018 was primarily due to the one-time repatriation tax from the earningseach of the Company’s foreign subsidiariesfive succeeding fiscal years and the re-measurement of deferred tax assets at the new US tax rate.thereafter is as follows:

(Dollars in Millions) 
Fiscal Year: 
Remainder of 2020$14.3
202119.0
202219.0
202319.0
202418.6
Thereafter168.7
Total$258.6

The income tax expense recorded in the first nine months of fiscal 2018 was $72.6 million compared to an income tax expense of $18.3 million in the first nine months of fiscal 2017. The effective income tax rate for the first nine months of fiscal 2018 was 78.1% versus 20.8% in the first nine months of fiscal 2017. The income tax benefit recorded on income before income taxes for the first nine months of fiscal 2018 was primarily due to the one-time repatriation tax from the earnings of the Company’s foreign subsidiaries and the re-measurement of deferred tax assets.


6.COMMON STOCK AND STOCK-BASED COMPENSATION8.     Debt
Restricted Stock Awards ("RSAs")
In fiscal 2016, the Compensation CommitteeThe following table summarizes components of the Board of Directors authorized a new long-term incentive program (the “LTIP”) for key employees consisting of performance-based restricted stock awards (“RSAs”) and time-based restricted stock units (“RSUs”). Additionally, in the first quarter of fiscalCompany's debt:
(Dollars in Millions) July 27,
2019		 April 27,
2019
Revolving Credit Facility $29.0
 $35.0
Term Loan 240.6
 243.7
Other Debt 16.2
 16.8
Unamortized Debt Issuance Costs (2.7) (2.9)
Total Debt 283.1
 292.6
Less: Current Maturities (15.4) (15.7)
Total Long-term Debt $267.7
 $276.9

Revolving Credit Facility/Term Loan

On September 12, 2018, the Compensation Committee awardedCompany entered into five-year Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America, N.A., as Administrative Agent, and Wells Fargo Bank, N.A. The Credit Agreement amends and restates the credit agreement, dated November 18, 2016, among the Company, Bank of America, N.A. and Wells Fargo Bank, N.A. The Credit Agreement consists of a maximumsenior unsecured revolving credit facility (“Revolving Credit Facility”) of 117,113 RSAs to additional key members$200.0 million and a senior unsecured term loan (“Term Loan”) of management under the LTIP.
$250.0 million. In the aggregate, the number of RSAs earned will vary based on performance relative to established goals for fiscal 2020 EBITDA, with 50% of the target shares earned for threshold performance (representing 410,538 shares), 100% of the target shares earned for target performance (representing 821,075 shares) and 150% of the target shares earned for maximum performance (representing 1,231,613 shares). In prior periods,addition, the Company has been recordingan option to increase the RSA compensation expense based on target performance.
Per ASC 718 accounting guidance, managementsize of the Revolving Credit Facility and Term Loan by up to an additional $200.0 million. The Credit Agreement is guaranteed by the Company’s wholly-owned U.S. subsidiaries. For the Term Loan, the Company is required in each reporting period to determinemake quarterly principal payments of 1.25% of the fiscal 2020 EBITDA level that is "probable" (70% confidence) for which a performance condition will be achieved. Duringoriginal Term Loan ($3.1 million) through maturity, with the third quarter of fiscal 2018, management determined that, mainlyremaining balance due to lower projections for our Dabir business, it is currently not probable thaton September 12, 2023.
Outstanding borrowings under the Company will meet the fiscal 2020 target consolidated EBITDA performance level of $221.0 million. The adverse timing of revenue is a result of hospital adoption patterns (initial care setting penetration and expansion) being slower and more gradual than originally planned for our Dabir Surfaces business. On January 27, 2018, the Company recorded RSA compensation expenseCredit Agreement bear interest at variable rates based on the thresholdtype of borrowing and the Company’s debt to EBITDA performance levelfinancial ratio, as defined. The interest rate on outstanding borrowings under the Credit Agreement was 3.76% at July 27, 2019. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of $198.9 million.default. As a result,of July 27, 2019, the Company recorded a $6.0 million compensation expense reversalwas in compliance with all the covenants in the third quarterCredit Agreement.

Other Debt

The Company’s subsidiary, Procoplast, has debt that consists of fiscal 2018 relatedseventeen notes with maturities ranging from 2019 to prior periods for these performance-based RSAs.
At the threshold level of performance, the expected expense for the RSAs is $12.92031. The weighted-average interest rate was approximately 1.5% at July 27, 2019 and $2.8 million through fiscal 2020. In the three and nine months ended January 27, 2018, the Company recorded a net reversal of expense of $5.4 million and $2.2 million, respectively, in compensation expense related to the RSAs based on threshold levels. These amounts are inclusive of the $6.0 million compensation expense reversal discussed above. During the three and nine months ended January 28, 2017, the Company recorded $1.4 million and $4.4 million, respectively, in compensation expense related to the RSAs, based on target levels.debt was classified as short-term.
In future reporting periods, if management makes a determination that exceeding the threshold level is probable for fiscal 2020, an appropriate adjustment to compensation expense will be recorded in that period. In addition, if management makes a determination that it is not probable the Company will meet the threshold level for fiscal 2020, a reversal of compensation expense will be recorded in that period. The adjustments could be material to the financial statements.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts
Interest Paid
The Company paid interest of $2.9 million and $0.4 million in millions, except perthe three months ended July 27, 2019 and July 28, 2018, respectively.

9.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 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 the 2014 Plan in September 2014. The Company can no longer make grants under the 2010 Plan or 2007 Plan. The number of shares of common stock that may be issued under the 2014 Plan is 3,000,000, less one share data)
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 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. In the three months ended July 28, 2018, the Company recognized stock-based compensation expense for these awards at the threshold level. The Company is currently recognizing stock-based compensation at target.

The following table summarizes the RSA activity under the 2014 Plan in the three months ended July 27, 2019:
 RSA Shares Wtd. Avg. Grant Date Fair Value
Non-vested and Unissued at April 27, 20191,031,408
 $34.09
Awarded—
 $—
Vested(11,250) $33.78
Forfeited(5,670) $33.78
Non-vested and Unissued at July 27, 20191,014,488
 $34.10


The shares vested and forfeited in the three months ended July 27, 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.

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.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table summarizes the RSU activity under the 2014 Plan in the three months ended July 27, 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 July 27, 2019 183,344
 $34.57

The shares vested in the three months ended 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 first quarter of fiscalthree months ended July 27, 2019 and July 28, 2018, the Compensation Committee awarded 23,175 RSUsCompany granted 30,000 shares and 24,000 shares, respectively, of common stock to Methode management. Inits non-employee directors under the aggregate,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 July 27, 2019, the Company has granted 631,175 RSUs to key employees,72,000 stock options outstanding and exercisable under the 2010 Plan at a weighted average exercise price of which 567,175 are still outstanding. The RSUs are subject to$37.01 per share and 34,668 stock options outstanding and exercisable under the 2007 Plan at a vesting period, with 30% vesting on April 28, 2018, 30% vesting on April 27, 2019 and 40% vesting on May 2, 2020. The total expense for the RSUs is expected to be $19.5 million through fiscal 2020. Duringweighted average exercise price of $33.20 per share. There were no awards, exercises or forfeitures of stock options in the three and nine months ended JanuaryJuly 27, 2018,2019.

Stock-based Compensation Expense
All stock-based awards to employees and non-employee directors are recognized in selling and administrative expenses on the Company recorded $1.5 million and $4.5 million, respectively,condensed consolidated statements of income.

The table below summarizes the stock-based compensation expense related to the RSUs. During the three and nine months ended January 28, 2017, the Company recorded $1.4 million and $4.2 million, respectively, in compensation expense related to the RSUs.equity awards:
  Three Months Ended
(Dollars in Millions) July 27, 2019 July 28, 2018
RSAs $1.2
 $1.1
RSUs 0.4
 0.1
Director Awards 0.9
 0.9
Total Stock-based Compensation Expense $2.5
 $2.1

Director Awards
During the first quarter of fiscal 2018, the Company issued 24,000 shares of common stock to our independent directors, all of which vested immediately upon grant. We recorded $1.0 million of compensation expense related to these shares during the nine months ended January 27, 2018.


7.NET INCOME (LOSS) PER SHARE10.Income per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the applicable period.  Diluted net income (loss) per share is calculated after adjusting the denominator of the basic net income (loss) per share calculation for the effect of all potentially dilutive stock compensation awardscommon shares outstanding during the period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table sets forth the computation of basic and diluted net income (loss) per share:
  Three Months Ended
  July 27,
2019		 July 28,
2018
Numerator:    
Net Income (in millions) $28.3
 $23.7
Denominator:    
Denominator for Basic Income per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Units 37,534,451
 37,350,444
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units 132,603
 287,058
Denominator for Diluted Income per Share 37,667,054
 37,637,502
     
Basic and Diluted Income per Share:    
Basic Income per Share $0.75
 $0.63
Diluted Income per Share $0.75
 $0.63

  Three Months Ended Nine Months Ended
  January 27,
2018		 January 28,
2017		 January 27,
2018		 January 28,
2017
Numerator - Net Income (Loss) $(24.3) $23.7
 $20.4
 $69.7
Denominator:        
Denominator for Basic Net Income (Loss) per Share-Weighted Average Shares Outstanding and Vested/Unissued Restricted Stock Awards 37,292,934
 37,217,302
 37,275,041
 37,297,757
Dilutive Potential Common Shares-Employee Stock Options, Restricted Stock Awards and Restricted Stock Units —
 253,351
 385,979
 180,210
Denominator for Diluted Net Income (Loss) per Share 37,292,934
 37,470,653
 37,661,020
 37,477,967
         
Net Income (Loss) per Share:  
  
    
Basic $(0.65) $0.64
 $0.54
 $1.87
Diluted $(0.65) $0.63
 $0.54
 $1.86
ForIn the three months ended JanuaryJuly 27, 2018, potential dilutive shares have been2019, options and RSUs of 109,418 were excluded infrom the computation of diluted net lossincome per share as thetheir effect would have been anti-dilutive. For the nine months ended January 27, 2018, no optionsAll RSAs have been excluded in the computation of diluted net income per share becausein the average market price was greater thanthree months ended July 27, 2019 as these awards contain performance conditions that would not have been achieved as of the exercise price for those periods.three months ended July 27, 2019.
In the three months ended July 28, 2018, the Company had no options or RSUs that were excluded from the computation of diluted net income per shares. All RSAs for 423,038 shares have been excluded in the computation of diluted net income per share forin the ninethree months ended January 27,July 28, 2018, as these awards are contingent on the Company's full-yearcontain performance in fiscal 2020.
Forconditions that would not have been achieved as of the three and nine months ended JanuaryJuly 28, 2017, options to purchase 115,836 shares have been excluded in the computation of diluted net income per share because the exercise price was greater than the average market price for those periods, and therefore, would have been anti-dilutive. RSAs for 822,000 shares have been excluded in the computation of diluted net income per share for the three and nine months ended January 28, 2017, as these awards are contingent on the Company's full-year performance in fiscal 2020.2018.
8.SEGMENT INFORMATION11.Segment Information
     We are a global manufacturer of component and subsystem devices.  We design, manufacture and market devices employing electrical, electronic, wireless, sensing and optical technologies.  Our components are found in the primary end-markets of the automotive, appliance, communications (including information processing and storage, networking equipment and wireless and terrestrial voice/data systems), consumer and industrial equipment, aerospace, rail and other transportation industries.
 ASC No. 280, “Segment Reporting” establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers.     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 as defined by ASC No. 280, is the Company’s President and Chief Executive Officer (“CEO”).
We have multiple operatingEffective October 27, 2018, the Company reorganized its reportable segments that are aggregated into fourupon the acquisition of Grakon. Prior to the acquisition, the Company's reportable segments. Thosesegments 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 Products and Other.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.

The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Our productsProducts include integrated center consoles, hidden switches, ergonomic switches, transmission lead-frames, LED-based lighting and sensors, which incorporate magneto-elastic sensing and other technologies that monitor the operation or status of a component or system.
    

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in millions, except per share data)

The InterfaceIndustrial segment provides a variety of copper and fiber-optic interface and interfacemanufactures external lighting solutions, for the aerospace, appliance, commercial food service, construction, consumer, material handling, medical, military, mining, point-of-sale and telecommunications markets.  Solutions include conductive polymers, industrial safety radio remote controls, optical and copper transceivers and solid-state field-effect consumer touch panels.  Services include the design and installation of fiber-optic and copper infrastructure systems and manufacturing active and passive optical components. Through fiscal 2017, the Interface segment included our Connectivity business, which provided solutions for computer and networking markets, including connectors and custom cable assemblies. This business was shuttered at the end of fiscal 2017 due to market conditions.
The Power Products segment manufactures braided flexible cables, current-carrying laminated busbars and devices, custom power-product assemblies, such as our PowerRail®

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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 OtherInterface 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 primarily made up of ourthe Company's medical device business, Dabir Surfaces, ourits surface support technology aimed at pressure injury prevention. Methode is developinghas developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures. Through fiscal 2017, the Other segment included our Active Energy Solutions business, which provided inverters, battery systems and insulated-gate bipolar transistor solutions. Due to market conditions, this business was shuttered at the end of fiscal 2017.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our Form 10-K for the fiscal year ended April 29, 2017.  We allocate resources to segments based on operating income. Transfers between segments are recorded using internal transfer prices set by us.
The tables below present information about ourthe Company's reportable segments.
  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) —
 —
 2.1
 —
Net Sales to Unaffiliated Customers $186.2
 $70.8
 $12.9
 $0.3
 $—
 $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
 Three Months Ended January 27, 2018 Three Months Ended July 28, 2018
 Automotive Interface 
Power
Products
 Other Eliminations/Corporate Consolidated
(Dollars in Millions) Automotive Industrial Interface Medical Eliminations/Corporate Consolidated
Net Sales $187.7
 $28.0
 $15.2
 $0.1
 $(3.0) $228.0
 $177.5
 $33.0
 $15.7
 $0.3
 $(3.1) $223.4
Transfers between Segments (2.8) (0.1) —
 —
 2.9
 —
 (2.2) (0.8) (0.1) —
 3.1
 —
Net Sales to Unaffiliated Customers $184.9
 $27.9
 $15.2
 $0.1
 $(0.1) $228.0
 $175.3
 $32.2
 $15.6
 $0.3
 $—
 $223.4
                        
Income (Loss) from Operations $39.4
 $1.8
 $3.0
 $(2.3) $(6.3) $35.6
 $32.9
 $7.1
 $0.8
 $(2.1) $(10.0) $28.7
Interest Expense, Net           0.3
           0.2
Other Income, Net           (3.8)
Other Expense, Net           0.3
Income before Income Taxes           $39.1
           $28.2
  Three Months Ended January 28, 2017
  Automotive Interface 
Power
Products
 Other Eliminations/Corporate Consolidated
Net Sales $152.7
 $29.8
 $15.4
 $0.1
 $(2.4) $195.6
Transfers between Segments (2.3) —
 —
 —
 2.3
 —
Net Sales to Unaffiliated Customers $150.4
 $29.8
 $15.4
 $0.1
 $(0.1) $195.6
             
Income (Loss) from Operations $36.9
 $1.3
 $3.2
 $(3.3) $(9.0) $29.1
Interest Income, Net           (0.2)
Other Income, Net           (1.0)
Income before Income Taxes           $30.3

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in millions, except per share data)

  Nine Months Ended January 27, 2018
  Automotive Interface 
Power
Products
 Other Eliminations/Corporate Consolidated
Net Sales $535.4
 $86.4
 $44.9
 $0.2
 $(7.6) $659.3
Transfers between Segments (7.3) (0.1) (0.1) —
 7.5
 —
Net Sales to Unaffiliated Customers $528.1
 $86.3
 $44.8
 $0.2
 $(0.1) $659.3
             
Income (Loss) from Operations $118.1
 $4.0
 $9.3
 $(8.1) $(32.6) $90.7
Interest Expense, Net           0.3
Other Income, Net           (2.6)
Income before Income Taxes           $93.0
  Nine Months Ended January 28, 2017
  Automotive Interface 
Power
Products
 Other Eliminations/Corporate Consolidated
Net Sales $467.9
 $95.6
 $40.0
 $2.1
 $(8.9) $596.7
Transfers between Segments (6.3) (0.7) (0.1) (1.9) 9.0
 —
Net Sales to Unaffiliated Customers $461.6
 $94.9
 $39.9
 $0.2
 $0.1
 $596.7
             
Income (Loss) from Operations $111.2
 $(0.1) $7.7
 $(8.0) $(26.0) $84.8
Interest Income, Net           (0.3)
Other Income, Net           (2.9)
Income before Income Taxes           $88.0

9.    CONTINGENCIES12.    Contingencies
Certain litigation arising in the normal course of business is pending against us.  We are,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.  We considerThe 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 ourthe Company's opinion, based on the information available, that we haveit has adequate reserves for these liabilities.

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Hetronic Germany-GmbH Matters    
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as ourthe Company's distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. WeThe Company became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, wethe Companyterminated all of ourits agreements with the Fuchs companies. On June 20, 2014, wethe 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, wethe Company amended ourits complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties. As of January 27, 2018, theThe matter remainshas been set for trial in the pre-trial stage.February 2020.
10.    PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS
We incur pre-production tooling costs related to certain products produced for our customers under long-term supply agreements.  We had $18.0 million and $15.5 million as of January 27, 2018 and April 29, 2017, 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

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(Dollar amounts in millions, except per share data)

customer contract. We had $7.6 million and $7.1 million at January 27, 2018 and April 29, 2017, respectively, of Company owned pre-production tooling, which is capitalized within property, plant and equipment.
11.    DEBT
We are party to a Credit Agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, and the Lenders named therein (the “Credit Agreement”). The Credit Agreement has a maturity date of November 18, 2021. The credit facility is in the maximum principal amount of $150.0 million, with an option to increase the principal amount by up to an additional $100.0 million, subject to customary conditions and approval of the lender(s) providing new commitment(s). The credit facility is available for general corporate purposes, including working capital and acquisitions. The credit facility provides for variable rates of interest based on the type of borrowing and the Company's debt to EBITDA financial ratio. The Credit Agreement is guaranteed by the Company’s wholly-owned U.S. subsidiaries. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. At January 27, 2018, the interest rate on the credit facility was 1.25% plus LIBOR and we were in compliance with the covenants of the agreement. During the nine months ended January 27, 2018, we had $70.0 million of borrowings and payments of $3.2 million, which includes interest of $1.2 million, under this credit facility. As of January 27, 2018, there were outstanding balances against the credit facility of $95.0 million. We believe the fair value approximates the carrying amount as of January 27, 2018.
Methode's newly acquired subsidiary, Pacific Insight, is party to two separate credit agreements, one with the Bank of Montreal and one with Roynat. The credit agreement with the Bank of Montreal has a maturity date of December 21, 2019 and provides a credit facility in the maximum principal amount of C$10.0 million, with an option to increase the principal amount by up to an additional C$5.0 million. Availability under the facility is determined based upon a percentage of eligible accounts receivable and finished goods inventory balances and funds are available in either Canadian or U.S. currency. Interest is calculated at either the Canadian Dollar Offered Rate plus 1.25%, the Federal Funds Rate plus 1.25% or LIBOR plus 1.75%. As of January 27, 2018, there were no outstanding balances against this credit facility and Pacific Insight was in compliance with the covenants of the agreement.
The credit agreement between Pacific Insight and Roynat has a maturity date of May 24, 2020 and provides a credit facility in the maximum principal amount of$10.0 million, with an option to increase the principal amount by up to an additional $3.5 million. The interest rate on the credit facility is 2.25% plus LIBOR. During the four-month period that Methode has owned Pacific Insight, we have had no borrowings and repayments of $0.2 million under this credit facility. As of January 27, 2018, there were outstanding balances against the credit facility of $3.8 million, of which $0.7 million is due within the next twelve months, and Pacific Insight was in compliance with the covenants of the agreement. We believe the fair value approximates the carrying amount as of January 27, 2018.
Excluding credit facilities, the Company also holds debt that was assumed in the acquisitions of Procoplast and Pacific Insight. As of January 27, 2018, Procoplast holds short-term debt totaling $2.1 million, with a weighted average interest rate of 1.09%. As of January 27, 2018, Procoplast holds long-term debt that consists of twelve notes totaling $17.8 million, with a weighted-average interest rate of 1.32% and maturities ranging from 2019 to 2031. Pacific Insight holds debt in the form of an interest-free loan from the Canadian government that matures in 2019. As of January 27, 2018, $0.1 million is classified as short-term and $0.1 million is classified as long-term.

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:
Our business is highly dependent on two large automotive customers.  If we were to lose either of these customers or experienceexperienced a significant decline in the volume or price of products purchased by these customers, or if either of the customers declaredeclared bankruptcy, our future results could be adversely affected.
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.
OurInternational trade disputes could result in tariffs, 'trade wars,' and other protectionist measures that could adversely affect the Company’s business, including its ability to market our automotive products is subject to a lengthy sales cycle, which requires significant investment prior to significant sales revenues, and there is no assurance that our products will be implemented in any particular vehicle.mitigate tariff costs.
Our Dabir Surface medical device products are emerging technologies. Our ability to successfully market and sell these products, and the timing of such sales, will depend on acceptance by the medical community and other potential customers.
Our long-term incentive plan could require significant adjustments to compensation expense ininability, or our condensed consolidated statements of operations if management changes its determinations on the probability of meeting certain performance levels. The adjustments could be material to the financial statements.
Ourcustomers' inability, to effectively manage the timing, volume, quality and cost of new program launches could adversely affect our financial performance.
We are subject to continuing pressure to lower our prices.
We cannot guarantee thatOur Dabir Surfaces medical device products are emerging technologies. Our ability to successfully market and sell these products will depend on acceptance by the newly acquired Pacific Insightmedical community.
A significant fluctuation between the U.S. dollar and Procoplast businesses will be successful or that we can implementother currencies could adversely impact our results of operations and profit from any new applications of the acquired technology.
We may be required to recognize additional impairment charges on assets, such as goodwill, intangible assets and property, plant and equipment, which could be material to our financial statements.condition.
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.
A significant fluctuation between the U.S. dollar and other currencies could adversely impact our operating results.
Any withdrawal from, or material modifications to, NAFTA and certain other international trade agreements could adversely affect our business, financial condition and results of operations.
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.
Impairment charges relating to our goodwill and long-lived assets could adversely affect our financial statements.

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.
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.
We are dependent on the availability and price of materials.
Our gross profit margins are subject to fluctuations due to many factors.
Disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.

Changes in our effective tax rate may harm our results of operations.
Our information technology (“IT”) systems could be breached.
We are dependent on the availability and price of materials.
We have significant operations in Europe which may be adversely impacted by the continued economic challenges in Europe, including the impact of the referendum in the United Kingdom (“U.K.”) approving the exit of the U.K. from the European Union.
Our gross margins are subject to fluctuations due to many factors such as geographical and vertical market pricing mix, pricing reductions and various manufacturing cost variables.
We may be unable to keep pace with rapid technological changes, which could adversely affect our business.
Our information technology (“IT”) systems could be breached.
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.
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.
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.
ProductsWe cannot guarantee that the recently acquired Grakon business will be successful or that we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services, costs associated with recalls, or liability claims against us.can implement and profit from any new applications of the acquired technology.
Our technology-based businesslong-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.
We have incurred a significant amount of indebtedness, and the markets in which we operate are highly competitive. If we are unable to compete effectively, our saleslevel of indebtedness and restrictions under our indebtedness could decline.
Any decision to strategically divest one or more current businesses or our inability to capitalize on prior or future acquisitions may adversely affect our business.operations and liquidity.
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.
We currently have a significant amount of our cash located outside the U.S. and may be subject to any restrictions foreign governments may place on the expropriation of assets from such countries' jurisdictions.
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 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 29, 2017 and Part II — Item 1A, Risk Factors of this Form 10-Q27, 2019 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 of component and subsystem devices 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, and Fresnilla, Mexico; and Nelson, British Columbia, Canada.Mexico. We design, manufacture and market devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing and optical technologies. Our business is managed on a segment basis, with those

Effective October 27, 2018, we reorganized our reportable segments beingresulting from the acquisition of Grakon. Prior to the Grakon acquisition, our reportable segments were Automotive, Interface, Power, ProductsInterface and Other. For moreAs a result of this change, our reportable segments are now Automotive, Industrial, Interface and Medical. Historical information regardinghas been revised to reflect the business and products of these segments, see “Item 1. Business.” of our Form 10-K for the fiscal year ended April 29, 2017, and the descriptions below regarding the business and products of our newly-acquired Procoplast and Pacific Insight subsidiaries.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 July 27, 2017,September 12, 2018, we acquired 100% of the stock of ProcoplastGrakon for $22.2$422.1 million in cash, net of cash acquired. The business, located near the Belgian-German border,headquartered in Seattle, Washington, is an independenta manufacturer of automotive assemblies. The accountscustom designed exterior lighting solutions and

transactions of Procoplast have been included highly styled engineered components, with locations in Canada, China, the AutomotiveNetherlands and the United Kingdom. Grakon’s manufacturing capabilities and products help diversify our product offerings and expand the Industrial segment, in the consolidated financial statements from the effective date of the acquisition.

On October 3, 2017, Methode acquired 100% of the outstanding common shares of Pacific Insight in a cash transaction for $107.7 million, net of cash acquired.  Pacific Insight, headquartered in Vancouver, British Columbia, Canada,which is a global solutions provider offering design, development, manufacturing and deliverykey component of lighting and electronic products and full-service solutions to the automotive and commercial vehicle markets. Its technology in LED-based ambient and direct lighting will expand our presence within the automotive interior, as well as augment our efforts in overhead console and other areas. The accounts and transactions of Pacific Insight have been included in the Automotive segment in the consolidated financial statements from the effective date of the acquisition.strategic direction.

Plan to Repurchase Common Stock    


In September 2015,connection with the Board of Directors authorized the repurchase of upagreement to $100 million of the Company's outstanding common stock through September 1, 2017. The Company purchased no outstanding common stock during the three and nine months ended January 27, 2018, which leaves the total repurchased under the plan at 2,277,466 shares of outstanding common stock for $71.9 million. The plan expiredpurchase Grakon, on September 1, 2017.

Hetronic Germany-GmbH Matters
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. 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 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, 2015,12, 2018, we amended our complaint against the Fuchs companies to add additional unfair competitioncredit agreement. The credit agreement now has a maturity date of September 12, 2023. The credit agreement includes a senior unsecured revolving credit facility and Lanham Act claimsa senior unsecured term loan, which are guaranteed by our wholly owned U.S. subsidiaries. See “Financial Condition, Liquidity and to add additional affiliated parties. As of January 27, 2018, the matter remains in the pre-trial stage.Capital Resources” below for more information.
We incurred Hetronic-related legal fees of $1.5 million and $1.6 million during the three months ended January 27, 2018 and January 28, 2017, respectively. For the nine months ended January 27, 2018 and January 28, 2017, we incurred Hetronic-related legal fees of $6.0 million and $8.2 million, respectively.
Long-Term Incentive Program (LTIP)
To date, our Compensation Committee has awarded 1,231,613 shares of common stock subject to performance-based restricted stock awards (“RSAs”) under our Long-Term Incentive Program (“LTIP”). The RSAs are earned based on the Company's earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) during the fiscal year ending May 2, 2020 (“fiscal 2020”). RSAs of 410,538 may be earned if threshold fiscal 2020 EBITDA of $198.9 million is achieved, 821,075 RSAs may be earned if target fiscal 2020 EBITDA of $221.0 million is achieved, and the full 1,231,613 RSAs may be earned if the maximum fiscal 2020 EBITDA of $243.1 million is achieved. If the fiscal 2020 EBITDA achieved is less than threshold fiscal 2020 EBITDA, then no shares will vest. If the fiscal 2020 EBITDA achieved falls between either threshold performance and target performance levels, or target performance and maximum performance levels, then shares will be issued on a prorated basis. Fiscal 2020 EBITDA will be adjusted to (i) exclude any EBITDA from acquisitions that close during the five-year period ending with fiscal 2020 that are not accretive in fiscal 2020, (ii) exclude the positive impact of EBITDA from acquisitions that close during fiscal 2019 or fiscal 2020 that are accretive in fiscal 2020 for purposes of determining fiscal 2020 EBITDA above the target level, and (iii) include the final four quarters of EBITDA from reporting unit divestitures that were approved by the Company's Board of Directors and close during the five-year period ending with fiscal 2020.

Per ASC 718 accounting guidance, management is required in each reporting period to determine the fiscal 2020 EBITDA level that is "probable" (70% confidence level) for which a performance condition will be achieved. Prior to the third quarter of fiscal 2018, the Company was recording the RSA compensation expense based on target performance. Given recent changes in our current expectations regarding our fiscal 2020 EBITDA estimates, management determined that it is not probable that the Company will meet the target level of performance for fiscal 2020. This is primarily due to the adverse timing of revenue as a result of hospital adoption patterns (initial care setting penetration and expansion) being slower and mo

re gradual than originally planned for our Dabir Surfaces business. Based on the new expectations, the Company believes it is now probable that we will achieve the threshold level for our fiscal 2020 EBITDA. As a result, the Company recorded a reversal of RSA compensation expense relating to prior periods in both the three and nine months ended January 27, 2018 of $6.0 million, reflected in the selling and administrative expenses section of our statements of operations.
In future periods, if management makes a determination that exceeding the threshold level is probable for fiscal 2020, a catch-up adjustment to compensation expense will be recorded in that period. Such determination could be based on a number of factors, including an accretive acquisition or a favorable change in expectations regarding Dabir Surfaces’ fiscal 2020 revenues and resultant EBITDA. If management makes a determination that it is not probable the Company will meet the threshold level for fiscal 2020, a reversal of compensation expense will be recorded in that period.


Results of Operations for the
Three Months Ended JanuaryJuly 27, 2018 as Compared to the2019 vs. Three Months Ended JanuaryJuly 28, 20172018
Consolidated Results
Below is a table summarizing results for the three months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%)  July 27,
2019		 July 28,
2018		 Net Change ($) Net Change (%)
Net Sales $228.0
 $195.6
 $32.4
 16.6 %  $270.2
 $223.4
 $46.8
 20.9 %
                 
Cost of Products Sold 167.9
 142.2
 25.7
 18.1 %  194.4
 163.3
 31.1
 19.0 %
                 
Gross Profit 60.1
 53.4
 6.7
 12.5 %  75.8
 60.1
 15.7
 26.1 %
                 
Selling and Administrative Expenses 22.5
 23.7
 (1.2) (5.1)%  32.4
 29.5
 2.9
 9.8 %
Amortization of Intangibles 2.0
 0.6
 1.4
 233.3 %  4.8
 1.9
 2.9
 152.6 %
Interest (Income) Expense, Net 0.3
 (0.2) 0.5
 N/M
*
Other Income, Net (3.8) (1.0) (2.8) N/M
*
Interest Expense, Net 2.9
 0.2
 2.7
 1,350.0 %
Other Expense, Net 0.1
 0.3
 (0.2) (66.7)%
Income Tax Expense 63.4
 6.6
 56.8
 860.6 %  7.3
 4.5
 2.8
 62.2 %
Net Income (Loss) $(24.3) $23.7
 $(48.0) (202.5)% 
Net Income $28.3
 $23.7
 $4.6
 19.4 %
                 
Percent of sales: January 27,
2018		 January 28,
2017		      July 27,
2019		 July 28,
2018		    
Net Sales 100.0 % 100.0 %      100.0% 100.0%    
Cost of Products Sold 73.6 % 72.7 %      71.9% 73.1%    
Gross Margins 26.4 % 27.3 %     
Gross Profit 28.1% 26.9%    
Selling and Administrative Expenses 9.9 % 12.1 %      12.0% 13.2%    
Amortization of Intangibles 0.9 % 0.3 %      1.8% 0.9%    
Interest (Income) Expense, Net 0.1 % (0.1)%     
Other Income, Net (1.7)% (0.5)%     
Interest Expense, Net 1.1% 0.1%    
Other Expense, Net —% 0.1%    
Income Tax Expense 27.8 % 3.4 %      2.7% 2.0%    
Net Income (Loss) (10.7)% 12.1 %     
         
* N/M equals non-meaningful         
Net Income 10.5% 10.6%    
Net Sales.  Consolidated net sales increased $32.4$46.8 million, or 16.6%20.9%, to $228.0$270.2 million forin the three months ended JanuaryJuly 27, 2018, from $195.62019, compared to $223.4 million forin the three months ended JanuaryJuly 28, 2017.2018.  The Automotive segmentacquisition of Grakon accounted for

$54.3 million of the increase, while the impact of foreign currency translation decreased net sales increased $34.5 million, or 22.9%, to $184.9 million for the third quarter of fiscal 2018, from $150.4 million for the third quarter of fiscal 2017.by $4.3 million. The Interface segmentweaker euro and Chinese renminbi impacted foreign currency translation. Excluding Grakon and foreign currency translation, net sales decreased $1.9by $3.2 million, or 6.4%, to $27.9 million for the third quarter of fiscal 2018, from $29.8 million for the third quarter of fiscal 2017. The Power Products segment net sales decreased $0.2 million, or 1.3%, to $15.2 million for the third quarter of fiscal 2018, compared to $15.4 million for the third quarter of fiscal 2017.  Translation of foreign operations' net sales for the three months ended January 27, 2018 increased reported net sales by $4.4 million, or 1.9%, due to average currency rate fluctuations in the third quarter of fiscal 2018, compared to the third quarter of fiscal 2017, primarily due to lower radio remote control product sales volumes in the strengthening ofIndustrial segment and lower appliance and data solution product sales volumes in the euro compared to the U.S. dollar.Interface segment.
Cost of Products Sold.  Consolidated cost of products sold increased $25.7$31.1 million, or 18.1%19.0%, to $167.9$194.4 million for(71.9% of sales) in the three months ended JanuaryJuly 27, 2018,2019, compared to $142.2$163.3 million for(73.1% of sales) in the three months ended JanuaryJuly 28, 2017.  Consolidated2018.  The acquisition of Grakon accounted for $34.7 million of the increase, while the impact of foreign currency translation decreased cost of products sold as a percentage of net salesby $2.7 million. Foreign currency translation was 73.6% foralso negatively impacted from the third quarter of fiscal 2018, compared to 72.7% for the third quarter of fiscal 2017.  The Automotive segment cost of products sold as a percentage of net sales increased primarily due to the unfavorablestronger Mexican peso. Excluding Grakon and foreign currency impact due to the strengthening of the Mexican peso during the period as compared to the U.S. dollar, warranty expense of $1.0 million, and pricing reductions on certain products. The Interface segment cost of products sold as a percentage of net sales was favorably impacted in the third quarter of fiscal 2018 by increased sales volumes of radio remote control products. This was partially offset by an unfavorable currency impact for appliance products due to the strengthening of

the Mexican peso as compared to the U.S. dollar. The Power Products segment cost of products sold as a percentage of net sales increased primarily due to increased copper prices. The Other segmenttranslation, cost of products sold decreased by $0.9 million primarily due to the battery systems business that closed atbenefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019, lower radio remote control product sales volumes in the end of fiscal 2017, partially offset with higher researchIndustrial segment and development initiatives forlower appliance and data solution product sales volumes in the medical devices business.Interface segment.

Gross Profit. Consolidated grossGross profit increased $6.7$15.7 million, or 12.5%26.1%, to $60.1$75.8 million for(28.1% of sales) in the three months ended JanuaryJuly 27, 2018, as2019, compared to $53.4$60.1 million for(26.9% of sales) in the three months ended JanuaryJuly 28, 2017.  Gross margins as a percentage2018. The acquisition of Grakon accounted for $19.6 million of the increase (inclusive of net sales decreased to 26.4% for the three months ended January 27, 2018, compared to 27.3% for the three months ended January 28, 2017.  The Automotive segment gross margins as a percentage of net sales were negatively impacted by sales mix related to our newly acquired businesses, warrantytariff expense of $1.0$0.3 million), while foreign currency translation decreased gross profit by $1.6 million. Excluding Grakon and foreign currency translation, gross profit decreased by $2.3 million, unfavorable currency impact and pricing reductions. The Interface segment gross margins were unfavorably impactedprimarily due to lower radio remote control product sales volumes in the third quarter of fiscal 2018 by pricing reductions on certainIndustrial segment and lower appliance and data solution products and an unfavorable currency impact for appliance products due toproduct sales volumes in the strengthening of the Mexican peso as compared to the U.S. dollar. This wasInterface segment, partially offset by increased sales volumesthe benefits of radio remote control products. The Power Product segment gross margins as a percentage of sales decreased primarily due the increased cost of copper. The Other segment gross profit was positively impacted dueinitiatives to the battery systems business that closed at the end ofreduce overall costs and improve operational profitability taken in fiscal 2017, partially offset by increased research and development cost initiatives in our medical devices business.2019.
Selling and Administrative Expenses.  Selling and administrative expenses decreased by $1.2increased $2.9 million, or 5.1%9.8%, to $22.5$32.4 million for(12.0% of sales) in the three months ended JanuaryJuly 27, 2018,2019, compared to $23.7$29.5 million for(13.2% of sales) in the three months ended JanuaryJuly 28, 2017.  Selling2018.  The acquisition of Grakon accounted for $4.8 million of the increase, while the impact of foreign currency translation decreased selling and administrative expenses as a percentage of net sales decreased to 9.9% forby $0.4 million. In addition, the three months ended January 27,July 28, 2018 from 12.1% for the three months ended January 28, 2017. The stock award amortization for the three months ended January 27, 2018, was a net reversalincluded $0.7 million of expense of $3.8 million, which includes a reversal of expense of $6.0 million relatingcosts related to prior periods (See Footnote 6 for more information). The stock award amortization expense for the three months ended January 28, 2017 was $2.7 million. The third quarter of fiscal 2017 included $0.8 million ofinitiatives to reduce overall costs and improve operational profitability. Excluding Grakon, foreign currency translation and costs related to initiatives to reduce overall costs and improve operational profitability, selling and administrative expenses from businesses that were closed atdecreased by $0.8 million. The decrease was primarily due to the endbenefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2017. Aside from the discrete items mentioned above, the third quarter2019 and lower acquisition-related costs of fiscal 2018 also includes $3.7$0.6 million, of selling and administrative expenses from our newly acquired businesses, as well as higher wages and travel expenses of $1.6 million andpartially offset by a $0.4 million respectively.increase in stock-based compensation expense.
Amortization of Intangibles.  Amortization of intangibles increased $1.4$2.9 million, or 233.3%152.6%, to $2.0$4.8 million forin the three months ended JanuaryJuly 27, 2018,2019, compared to $0.6$1.9 million forin the three months ended JanuaryJuly 28, 2017.2018. The increase iswas due to the amortization expense related to our newly acquired businesses.the Grakon acquisition, partially offset by lower amortization expense in the Interface segment.
Interest (Income) Expense, Net.  Interest (income) expense, net was an expense of $0.3$2.9 million forin the three months ended JanuaryJuly 27, 2018, as2019, compared to income of $0.2 million forin the three months ended JanuaryJuly 28, 2017.2018. The increase in expense primarily relateswas due to increased debt levelsborrowings made in the thirdsecond quarter of fiscal 2018, compared2019 to fund the third quarteracquisition of fiscal 2017.Grakon.
Other Income,Expense, Net. Other income,expense, net was $3.8decreased $0.2 million forto $0.1 million in the three months ended JanuaryJuly 27, 2018, as2019, compared to $1.0$0.3 million forin the three months ended JanuaryJuly 28, 2017. In2018. Net foreign exchange losses were $0.2 million in the third quarter of fiscal 2018, the Company recordedthree months ended July 27, 2019, compared to a foreign exchange gain of $1.6$0.2 million related toin the sale of exclusive rights for a licensing agreement. The third quarter of fiscal 2018 and the third quarter of fiscal 2017 includes $3.6 million and $1.5 million, respectively, for an international government grant for maintaining certain employment levels during those periods. All other amounts for both the third quarter of fiscal 2018 and the third quarter of fiscal 2017 relate to currency rate fluctuations. The functional currencies of our operations are the British pound, Canadian dollar, Chinese yuan, euro, Indian rupee, Mexican peso, Singapore dollar and Swiss franc. Some foreign operations have transactions denominated in currencies other than their functional currencies, primarily sales in U.S. dollars, euros and Chinese yuan, creating exchange rate sensitivities.three months ended July 28, 2018.
Income Tax Expense.  Income tax expense increased $56.8$2.8 million, or 860.6%62.2%, to $63.4$7.3 million forin the three months ended JanuaryJuly 27, 2018,2019, compared to $6.6$4.5 million forin the three months ended JanuaryJuly 28, 2017.  The Company's2018.  Our effective tax rate increased to 162.1%20.5% in the third quarter of fiscal 2018,three months ended July 27, 2019, compared to 21.9%16.0% in the third quarter of fiscal 2017.three months ended July 28, 2018. The change in the effective tax rate was primarily due to the enactment of U.S. Tax Reform. Of the total incomediscrete tax expense of $63.4 millionitems recorded during the period and the level and mix of earnings among tax jurisdictions.
Net Income.  Net income increased $4.6 million, or 19.4%, to $28.3 million in the three months ended JanuaryJuly 27, 2018, $56.82019, compared to $23.7 million relates to U.S. Tax Reform. This can be further broken down into a provisional estimate of $52.6 million for a one-time repatriation tax and $4.2 million for the re-measurement of U.S. deferred tax assets in the consolidated financial statement. In addition, there were favorable discrete tax impacts primarily related to tax rate changes through the third quarter of fiscal 2018. For further details regarding the impacts of U.S. Tax Reform during the three months ended January 27, 2018, referJuly 28, 2018. The acquisition of Grakon accounted for $8.9 million of the increase, while the impact of foreign currency translation decreased net income by $1.0 million. Excluding Grakon and foreign currency translation, net income decreased by $3.3 million primarily due to Note 5, “Income Taxes.”
Net Income (Loss).  Net income (loss) was a loss of $24.3 million for the three months ended January 27, 2018, compared to income of $23.7 million for the three months ended January 28, 2017. Net income was unfavorably impacted by increasedlower gross profit, higher interest expense and higher tax expense, due to the enactment of U.S. Tax Reform, higher intangible asset amortization, higher warranty expense,

customer pricing reductions, higher wages and higher interest expenses. These were partially offset withby the reversalbenefits of expense for stock award amortization relatedinitiatives to our long-term incentive program, increased government grants, increased sales volumesreduce overall costs and net income from our new acquisitions and the gain on the sale of a licensing agreement.improve operational profitability taken in fiscal 2019.

Operating Segments
Automotive Segment Results
Below is a table summarizing results for the three months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%) July 27,
2019		 July 28,
2018		 Net Change ($) Net Change (%)
Net Sales $184.9
 $150.4
 $34.5
 22.9% $186.2
 $175.3
 $10.9
 6.2%
        
Cost of Products Sold 133.4
 105.6
 27.8
 26.3%
        
Gross Profit 51.5
 44.8
 6.7
 15.0% $47.4
 $47.0
 $0.4
 0.9%
        
Selling and Administrative Expenses 12.1
 7.9
 4.2
 53.2%
        
Income from Operations $39.4
 $36.9
 $2.5
 6.8% $33.1
 $32.9
 $0.2
 0.6%
                
Percent of sales: January 27,
2018		 January 28,
2017		     July 27,
2019		 July 28,
2018		    
Net Sales 100.0% 100.0%     100.0% 100.0%    
Cost of Products Sold 72.1% 70.2%    
Gross Margins 27.9% 29.8%    
Selling and Administrative Expenses 6.5% 5.3%    
Gross Profit 25.5% 26.8%    
Income from Operations 21.3% 24.5%     17.8% 18.8%    
Net Sales.  Automotive segment net sales increased $34.5$10.9 million, or 22.9%6.2%, to $184.9$186.2 million forin the three months ended JanuaryJuly 27, 2018, from $150.42019, compared to $175.3 million forin the three months ended JanuaryJuly 28, 2017.2018.  Net sales increased in North America by $18.2increased $17.8 million, or 21.6%17.1%, to $102.6$121.6 million in the third quarter of fiscal 2018,three months ended July 27, 2019, compared to $84.4$103.8 million in the third quarter of fiscal 2017.three months ended July 28, 2018. North American Automotive sales in the third quarter of fiscal 2018 include $22.0included $13.8 million from Pacific Insight,Grakon, which was acquired in the second quarter of fiscal 2018.2019. Other North American sales decreased forincreased from our human machine interface assembly products due to recent program launches. Sales also increased from our integrated center stack products primarily due primarily to higher sales volumes, partially offset by pricing reductions. Sales forfrom our transmission lead-frame assemblies decreased due to pricing reductions and lower sales volumes in the third quarter of fiscal 2018, compared to the third quarter of fiscal 2017. Sales of our user interface assemblies products increased primarily due to new program launches in fiscal 2018.volumes. Net sales in Europe increased $19.0decreased $2.5 million, or 53.1%4.9%, to $54.8$49.0 million in the third quarter of fiscal 2018,three months ended July 27, 2019, compared to $35.8$51.5 million in the third quarterthree months ended July 28, 2018. The impact of fiscal 2017.the weaker euro decreased net sales in Europe by $2.2 million. The increasedecrease in European sales includes $8.5 million from our newly acquired business, Procoplast, which was acquired in the first quarter of fiscal 2018. Other European sales increased primarilyalso due to increased customer funded tooling and design fees, favorable currency rate fluctuations and higherlower sales volumes of hidden switches, andpartially offset by higher sales volumes of sensor products. Net sales in Asia decreased $2.7$4.4 million, or 8.9%22.0%, to $27.5$15.6 million in the third quarter of fiscal 2018,three months ended July 27, 2019, compared to $30.2$20.0 million in the third quarter of fiscal 2017,three months ended July 28, 2018, primarily due to lower sales volumes of our transmission lead-frame assemblies due tosensor products and a combination of pricing reductions and lower sales volumes. In addition, sales volumes for steering angle sensor products were lower, as the products approach end of production. Translation of foreign operations'our transmission lead-frame assemblies. The weaker Chinese renminbi decreased net sales for the three months ended January 27, 2018 increased reported net salesin Asia by $4.4 million, or 2.4%, due to average currency rates in the third quarter of fiscal 2018, compared to the average currency rates in the third quarter of fiscal 2017, primarily due to the strengthening of the euro and Chinese yuan as compared to the U.S. dollar.$0.9 million.
Cost of Products Sold.  Automotive segment cost of products sold increased $27.8 million, or 26.3%, to $133.4 million for the three months ended January 27, 2018, compared to $105.6 million for the three months ended January 28, 2017.  The Automotive segment cost of products sold as a percentage of net sales increased to 72.1% in the third quarter of fiscal 2018, compared to 70.2% in the third quarter of fiscal 2017.  The cost of products sold as a percentage of net sales increased primarily due to the strengthening of the Mexican peso during the period as compared to the U.S. dollar, warranty expense of $1.0 million and pricing reductions on certain products.

Gross Profit. Automotive segment gross profit increased $6.7$0.4 million, or 15.0%0.9%, to $51.5$47.4 million forin the three months ended JanuaryJuly 27, 2018, as2019, compared to $44.8$47.0 million forin the three months ended JanuaryJuly 28, 2017.2018.  The Automotive segment gross margins as a percentage of net salesprofit margin decreased to 27.9% for25.5% in the three months ended JanuaryJuly 27, 2018, as2019, compared to 29.8% for26.8% in the three months ended JanuaryJuly 28, 2017.2018.  Gross profit margin decreased primarily due to decreases in sales volumes in both Asia and Europe, which generally operate at higher gross profit margins as a percentage of net sales were negatively impacted by sales mix related tothan our newly acquired businesses, warranty expense of $1.0 million and pricing reductions.
Selling and Administrative Expenses.  Selling and administrative expenses increased $4.2 million, or 53.2%, to $12.1 million for the three months ended January 27, 2018, as compared to $7.9 million for the three months ended January 28, 2017.  Selling and administrative expenses as a percentage of net sales increased to 6.5% for the three months ended January 27, 2018, from 5.3% for the three months ended January 28, 2017. The amounts for the third quarter of fiscal 2018 include $5.1 million related to our newly acquiredNorth American businesses. The $5.1 million includes $1.4 milliongross profit margin was also impacted from pricing reductions on certain products, the benefits of intangible asset amortization expense. Excluding the activity from our newly acquired businesses, expenses decreased $1.2 million dueinitiatives to the reductionreduce overall costs and improve operational profitability taken in stock award amortization expense for our long-term incentive program, partially offset with increased wages of $0.3 million.
Income from Operations. Automotive segment income from operations increased $2.5 million, or 6.8%, to $39.4 million for the three months ended January 27, 2018, compared to $36.9 million for the three months ended January 28, 2017. Income from operations for the third quarter of fiscal 2018 increased due to sales and income from operations from our newly acquired businesses and the reversal of the long-term incentive expense, partially offset with increased intangible asset amortization expense, increased warranty expense, pricing reductions2019 and the strengthening of the Mexican peso as compared to the U.S. dollar.dollar during the period.
InterfaceIncome from Operations. Automotive segment income from operations increased $0.2 million, or 0.6%, to $33.1 million in the three months ended July 27, 2019, compared to $32.9 million in the three months ended July 28, 2018. The increase was primarily due to the acquisition of Grakon and the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019, offset by the impact of foreign currency translation due to the strengthening U.S. dollar compared to the euro and Chinese renminbi during the period.

Industrial Segment Results
Below is a table summarizing results forin the three months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%) July 27,
2019		 July 28,
2018		 Net Change ($) Net Change (%)
Net Sales $27.9
 $29.8
 $(1.9) (6.4)% $70.8
 $32.2
 $38.6
 119.9%
        
Cost of Products Sold 21.8
 23.0
 (1.2) (5.2)%
        
Gross Profit 6.1
 6.8
 (0.7) (10.3)% $26.5
 $10.4
 $16.1
 154.8%
        
Selling and Administrative Expenses 4.3
 5.5
 (1.2) (21.8)%
        
Income from Operations $1.8
 $1.3
 $0.5
 38.5 % $16.5
 $7.1
 $9.4
 132.4%
                
Percent of sales: January 27,
2018		 January 28,
2017		     July 27,
2019		 July 28,
2018		    
Net Sales 100.0% 100.0%     100.0% 100.0%    
Cost of Products Sold 78.1% 77.2%    
Gross Margins 21.9% 22.8%    
Selling and Administrative Expenses 15.4% 18.5%    
Gross Profit 37.4% 32.3%    
Income from Operations 6.5% 4.4%     23.3% 22.0%    
Net Sales.  InterfaceIndustrial segment net sales decreased $1.9increased $38.6 million, or 6.4%119.9%, to $27.9$70.8 million forin the three months ended JanuaryJuly 27, 2018, from $29.82019, compared to $32.2 million forin the three months ended JanuaryJuly 28, 2017.  Net2018.  The acquisition of Grakon accounted for $40.5 million of the increase, while the impact of foreign currency translation decreased net sales decreased in North America by $1.5 million, or 6.7%, to $21.0 million in$1.3 million. Excluding the third quarteracquisition of fiscal 2018, compared to $22.5 million in the third quarter of fiscal 2017. North AmericanGrakon and foreign currency translation, net sales decreased by $3.1$0.6 million primarily due to our Connectivity business. The Company exited this business at the end of fiscal 2017 due to adverse business conditions. Excluding the $3.1 million of lower net sales for Connectivity, North American sales increased by $1.6 million due to increased sales volumes of radio remote control and data solutionsbypass switch products. Sales of North American appliance products were flat in the third quarter of fiscal 2018, compared
Gross Profit. Industrial segment gross profit increased $16.1 million, or 154.8%, to the third quarter of fiscal 2017. Net sales in Europe were flat at $6.3$26.5 million in the third quarter of fiscal 2018 and the third quarter of fiscal 2017. Sales of radio remote control products increased, however, the increase was offset with lower data solution products. Net sales in Asia decreased $0.4 million, or 40.0%, to $0.6 million in the third quarter of fiscal 2018, compared to $1.0 million in the third quarter of fiscal 2017, primarily due to lower sales volumes of legacy products.

Cost of Products Sold.  Interface segment cost of products sold decreased $1.2 million, or 5.2%, to $21.8 million for the three months ended JanuaryJuly 27, 2018,2019, compared to $23.0$10.4 million forin the three months ended JanuaryJuly 28, 2017.  Interface segment cost of products sold as a percentage of net sales2018. Gross profit margins increased to 78.1% for37.4% in the three months ended JanuaryJuly 27, 2018,2019, compared to 77.2% for32.3% in the three months ended JanuaryJuly 28, 2017. Cost of products sold as a percentage of net sales was unfavorably impacted in the third quarter of fiscal 2018 by an unfavorable currency impact for appliance products2018. Gross profit margins increased primarily due to the strengthening of the Mexican peso as compareda favorable sales mix relating to the U.S. dollar. This wasour Grakon business, partially offset by increasedlower sales volumes of our radio remote control products.
Gross Profit. Interface segment In addition, gross profit decreased $0.7 million, or 10.3%, to $6.1 million forin the three months ended JanuaryJuly 27, 2018, compared to $6.8 million for the three months ended January 28, 2017.  Gross margins as a percentage2019 was impacted by net tariff expense on imported Chinese goods of net sales decreased to 21.9% for the three months ended January 27, 2018, compared to 22.8% for the three months ended January 28, 2017.  Gross margins were negatively impacted in the third quarter of fiscal 2018 by pricing reductions on certain data solution products and an unfavorable currency impact for appliance products due to the strengthening of the Mexican peso as compared to the U.S. dollar. This was partially offset by increased sales volumes of radio remote control products.$0.3 million.
Selling and Administrative Expenses.  Selling and administrative expenses decreased $1.2 million, or 21.8%, to $4.3 million for the three months ended January 27, 2018, compared to $5.5 million for the three months ended January 28, 2017.  Selling and administrative expenses as a percentage of net sales decreased to 15.4% for the three months ended January 27, 2018, from 18.5% for the three months ended January 28, 2017. The third quarter of fiscal 2017 included $0.8 million of selling and administrative expenses for our Connectivity business that was shut down at the end of fiscal 2017 due to adverse business conditions. The third quarter of fiscal 2018 benefitted from the reversal of stock award amortization expense for our long-term incentive program and lower legal fees.
Income from Operations. InterfaceIndustrial segment income from operations increased $0.5$9.4 million, or 38.5%132.4%, to $1.8$16.5 million forin the three months ended JanuaryJuly 27, 2018,2019, compared to $1.3$7.1 million forin the three months ended JanuaryJuly 28, 2017. Income2018. The increase was primarily due to income from operations increased due primarily to lower legal fees and the reversal of long-term incentive expense,from Grakon, partially offset by lower sales volumes and an unfavorable currency impact on certain appliance products.
Power Products Segment Results
Below is a table summarizing results for the three months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%)
Net Sales $15.2
 $15.4
 $(0.2) (1.3)%
         
Cost of Products Sold 11.6
 11.3
 0.3
 2.7 %
         
Gross Profit 3.6
 4.1
 (0.5) (12.2)%
         
Selling and Administrative Expenses 0.6
 0.9
 (0.3) (33.3)%
         
Income from Operations $3.0
 $3.2
 $(0.2) (6.3)%
         
Percent of sales: January 27,
2018		 January 28,
2017		    
Net Sales 100.0% 100.0%    
Cost of Products Sold 76.3% 73.4%    
Gross Margins 23.7% 26.6%    
Selling and Administrative Expenses 3.9% 5.8%    
Income from Operations 19.7% 20.8%    
Net Sales.  Power Products segment net sales decreased $0.2 million, or 1.3%, to $15.2 million for the three months ended January 27, 2018, compared to $15.4 million for the three months ended January 28, 2017.  Net sales decreased in North America by $0.5 million, or 8.8%, to $5.2 million in the third quarter of fiscal 2018, compared to $5.7 million in the third quarter of fiscal 2017, primarily due to lower sales volumes of PowerRail® and other busbar products. Net sales in Europe

increased by $0.2 million, or 10.5%, to $2.1 million in the third quarter of fiscal 2018, compared to $1.9 million in the third quarter of fiscal 2017, primarily due to increased sales of our EPS connector program, partially offset by lower sales volumes of bypass switches. Net sales in Asia remained constant at $7.8 million in the third quarter of fiscal 2018 and the third quarter of fiscal 2017.
Cost of Products Sold.  Power Products segment cost of products sold increased $0.3 million, or 2.7%, to $11.6 million for the three months ended January 27, 2018, compared to $11.3 million for the three months ended January 28, 2017.  The Power Products segment cost of products sold as a percentage of net sales increased to 76.3% for the three months ended January 27, 2018, from 73.4% for the three months ended January 28, 2017.  The increase primarily relates to higher copper prices during the period.
Gross Profit.  Power Products segment gross profit decreased $0.5 million, or 12.2%, to $3.6 million in the third quarter of fiscal 2018, compared to $4.1 million in the third quarter of fiscal 2017.  Gross margins as a percentage of net sales decreased to 23.7% for the three months ended January 27, 2018, from 26.6% for the three months ended January 28, 2017. The decrease primarily relates to higher copper prices during the period.
Selling and Administrative Expenses.  Selling and administrative expenses decreased $0.3 million, or 33.3%, to $0.6 million for the three months ended January 27, 2018, compared to $0.9 million for the three months ended January 28, 2017.  Selling and administrative expenses as a percentage of net sales decreased to 3.9% for the three months ended January 27, 2018, from 5.8% for the three months ended January 28, 2017. Selling and administrative expenses decreased primarily due to the reversal of stock award amortization expense related to our long-term incentive program and lower bad debt expense.
Income From Operations. Power Products segment income from operations decreased $0.2 million, or 6.3%, to $3.0 million for the three months ended January 27, 2018, compared to $3.2 million for the three months ended January 28, 2017. Income from operations decreased due primarily to lower sales volumes and unfavorable sales mix, partially offset with the reversal of the long-term incentive accrual and lower bad debt expense.
Other Segment Results
Below is a table summarizing results for the three months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($)
Net Sales $0.1
 $0.1
 $—
       
Cost of Products Sold 0.8
 1.7
 (0.9)
       
Gross Profit (0.7) (1.6) 0.9
       
Selling and Administrative Expenses 1.6
 1.7
 (0.1)
       
Loss from Operations $(2.3) $(3.3) $1.0
Net Sales.  The businesses in this segment, medical devices and inverters and battery systems, had minimal net sales in the third quarter of fiscal 2018 and the third quarter of fiscal 2017 due to newly launched products. The inverter and battery system business was closed at the end of fiscal 2017 due to adverse business conditions.
Cost of Products Sold.  Other segment cost of products sold was $0.8 million for the three months ended January 27, 2018, compared to $1.7 million for the three months ended January 28, 2017. The decrease primarily relates to the inverter and battery system business that was closed at the end of fiscal 2017. The decrease was partially offset by the vertical manufacturing integration of some key components in medical device products, and research efforts to expand the product offerings.
Gross Profit. The Other segment gross profit was a loss of $0.7 million and $1.6 million for the three months ended January 27, 2018 and January 28, 2017, respectively.  The decreased loss primarily relates to the inverter and battery system business that was closed at the end of fiscal 2017. The decrease was partially offset by the vertical manufacturing integration of some key components in medical device products and research efforts to expand the product offerings.

Selling and Administrative Expenses.  Selling and administrative expenses decreased $0.1 million, to $1.6 million for the three months ended January 27, 2018, compared to $1.7 million for the three months ended January 28, 2017. The third quarter of fiscal 2017 includes $0.2 million of selling and administrative expenses for our inverter and battery systems business, which was closed at the end of fiscal 2017. The increase in selling and administrative expenses for the third quarter of fiscal 2018 primarily relates to higher outside professional fees and marketing expenses related to new product introductions, partially offset by the reversal of stock award amortization expense for our long-term incentive program.
Loss From Operations The Other segment loss from operations decreased $1.0 million, to $2.3 million for the three months ended January 27, 2018, compared to $3.3 million for the three months ended January 28, 2017. The decreased loss relates to lower selling and administrative expenses for the inverter and battery system business closed at the end of fiscal 2017, partially offset by higher outside professional fees, research and development and marketing expenses in the third quarter of fiscal 2018.

Results of Operations for the Nine Months Ended January 27, 2018 as Compared to the Nine Months Ended January 28, 2017
Consolidated Results
Below is a table summarizing results for the nine months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%) 
Net Sales $659.3
 $596.7
 $62.6
 10.5 % 
          
Cost of Products Sold 481.6
 433.7
 47.9
 11.0 % 
          
Gross Profit 177.7
 163.0
 14.7
 9.0 % 
          
Selling and Administrative Expenses 83.3
 76.4
 6.9
 9.0 % 
Amortization of Intangibles 3.7
 1.8
 1.9
 105.6 % 
Interest (Income) Expense, Net 0.3
 (0.3) 0.6
 N/M
*
Other Income, Net (2.6) (2.9) 0.3
 N/M
*
Income Tax Expense 72.6
 18.3
 54.3
 296.7 % 
Net Income $20.4
 $69.7
 $(49.3) (70.7)% 
          
Percent of sales: January 27,
2018		 January 28,
2017		     
Net Sales 100.0 % 100.0 %     
Cost of Products Sold 73.0 % 72.7 %     
Gross Margins 27.0 % 27.3 %     
Selling and Administrative Expenses 12.6 % 12.8 %     
Amortization of Intangibles 0.6 % 0.3 %     
Interest (Income) Expense, Net — % (0.1)%     
Other Income, Net (0.4)% (0.5)%     
Income Tax Expense 11.0 % 3.1 %     
Net Income 3.1 % 11.7 %     
          
* N/M equals non-meaningful         
Net Sales.  Consolidated net sales increased by $62.6 million, or 10.5%, to $659.3 million for the nine months ended January 27, 2018, from $596.7 million for the nine months ended January 28, 2017.  The Automotive segment net sales increased $66.5 million, or 14.4%, to $528.1 million for the nine months ended January 27, 2018, from $461.6 million for the nine months ended January 28, 2017.  The Interface segment net sales decreased $8.6 million, or 9.1%, to $86.3 million for the nine months ended January 27, 2018, compared to $94.9 million for the nine months ended January 28, 2017. The Power Products segment net sales increased $4.9 million, or 12.3%, to $44.8 million for the nine months ended January 27, 2018, compared to $39.9 million for the nine months ended January 28, 2017. Translation of foreign operations' net sales for the nine months ended January 27, 2018 increased net sales by $6.5 million, or 1.0%, compared to the average currency rates in the nine months ended January 28, 2017, primarily due to the strengthening of the euro and Chinese yuan as compared to the U.S. dollar.
Cost of Products Sold.  Consolidated cost of products sold increased $47.9 million, or 11.0%, to $481.6 million for the nine months ended January 27, 2018, compared to $433.7 million for the nine months ended January 28, 2017.  Consolidated cost of products sold as a percentage of net sales were consistent at 73.0% for both the nine months ended January 27, 2018 and January 28, 2017.  The Automotive segment cost of products sold for the first nine months of fiscal 2017 included $1.0 million of commodity pricing adjustments and the reversal of accruals of $1.0 million related to resolved customer commercial issues. The Automotive segment costs of products sold as a percentage of net sales for the first nine months of fiscal 2018 increased primarily due to unfavorable sales mix related to our newly acquired businesses, warranty expense of $1.0 million, the inclusion

of $0.8 million of purchase accounting adjustments related to our new acquisitions, pricing reductions on certainradio remote control products and the unfavorable currency impact due to the strengthening of the Mexican peso during the period as compared to the U.S. dollar. The Interface segment cost of products sold as a percentage of net sales decreased, primarily due to favorable sales mix, partially offset with lower sales volumes. The Power Products segment cost of products sold as a percentage of net sales increase primarily due to the higher cost of copper, partially offset by higher sales volumes. The Other segment experienced lower costs of products sold primarily due to a shuttered business which was closed at the end of fiscal 2017, partially offset with increased research and development initiatives for the medical devices business.
Gross Profit. Consolidated gross profit increased $14.7 million, or 9.0%, to $177.7 million for the nine months ended January 27, 2018, as compared to $163.0 million for the nine months ended January 28, 2017.  Gross margins as a percentage of net sales decreased to 27.0% for nine months ended January 27, 2018, compared to 27.3% for the nine months ended January 28, 2017.  The Automotive segment gross margins as a percentage of net sales for the first nine months of fiscal 2017 were favorably impacted by $1.0 million of commodity pricing adjustments and the reversal of accruals of $1.0 million related to resolved customer commercial issues. The gross margins as a percentage of net sales for the first nine months of fiscal 2018 were unfavorably impacted by unfavorable sales mix related to our new acquisitions, warranty expense of $1.0 million, $0.8 million of one-time purchase accounting adjustments and the unfavorable currency impact due to the strengthening of the Mexican peso during the period as compared to the U.S. dollar. The Interface segment gross margins as a percentage of net sales for the first nine months of fiscal 2018 increased primarily due to favorable sales mix, partially offset with lower sales volumes and price reductions on certain products. The Power Products segment gross margins as a percentage of net sales decreased primarily due to the higher cost of copper, partially offset by higher sales volumes.
Selling and Administrative Expenses.  Selling and administrative expenses increased $6.9 million, or 9.0%, to $83.3 million for the nine months ended January 27, 2018, compared to $76.4 million for the nine months ended January 28, 2017.  Selling and administrative expenses as a percentage of net sales decreased to 12.6% for the nine months ended January 27, 2018 from 12.8% for the nine months ended January 28, 2017. The first nine months of fiscal 2017 included $2.8 million of selling and administrative expenses from businesses that were closed at the end of fiscal 2017. The first nine months of fiscal 2018 includes $5.5 million of selling and administrative expenses from our newly acquired businesses. In addition, the first nine months of fiscal 2018 includes $6.0 million of fees related to the acquisitions. Selling and administrative expenses for the nine months ended January 27, 2018 also increased due to higher wages of $2.1 million and higher travel expense of $1.0 million. The stock award amortization for the nine months ended January 27, 2018, was an expense of $3.3 million, which includes a reversal of expense of $6.0 million relating to prior periods (See Note 6, "Common Stock and Stock-based Compensation"). The stock award amortization expense for the nine months ended January 28, 2017 was $9.5 million.
Amortization of Intangibles.  Amortization of intangibles increased $1.9 million, or 105.6%, to $3.7 million for the nine months ended January 27, 2018, compared to $1.8 million for the nine months ended January 28, 2017. The increase is due to the amortization expense related to our newly acquired businesses.
Interest (Income) Expense, Net.  Interest (income) expense, net was an expense of $0.3 million for the nine months ended January 27, 2018, compared to interest income of $0.3 million for the nine months ended January 28, 2017. This change is due to the increased debt levels during the period.
Other Income, Net. Other income, net decreased 0.3 million to $2.6 million for the nine months ended January 27, 2018, compared to $2.9 million for the nine months ended January 28, 2017. During the nine months ended January 27, 2018, the Company recorded a gain of $1.6 million related to the sale of exclusive rights for a licensing agreement.The first nine months of fiscal 2018 and the first nine months of fiscal 2017 include $3.6 million and $3.0 million, respectively, for an international government grant for maintaining certain employment levels during those periods. All other amounts for both the first nine months of fiscal 2018 and the first nine months of fiscal 2017 relate to currency rate fluctuations. The functional currencies of our operations are the British pound, Canadian dollar, Chinese yuan, euro, Indian rupee, Mexican peso, Singapore dollar and Swiss franc. Some foreign operations have transactions denominated in currencies other than their functional currencies, primarily sales in U.S. dollars and euros, creating exchange rate sensitivities.
Income Tax Expense.  Income tax expense increased $54.3 million, or 296.7%, to $72.6 million for the nine months ended January 27, 2018, compared to $18.3 million for the nine months ended January 28, 2017.  The Company's effective tax rate increased to 78.1% for the nine months ended January 27, 2018, compared to 20.8% for the nine months ended January 28, 2017. The change in the effective tax rate was primarily due to the enactment of U.S. Tax Reform. Of the total income tax expense of $72.6 million recorded during the nine months ended January 27, 2018, $56.8 million relates to U.S. Tax Reform. This can be further broken down into a provisional estimate of $52.6 million for a one-time repatriation tax and $4.2 million for the re-measurement of U.S. deferred tax assets in the consolidated financial statement. In addition, there were favorable

discrete tax impacts primarily related to tax rate changes through the first nine months of fiscal 2018. For further details, regarding the impacts of U.S. Tax Reform during the nine months ended January 27, 2018, refer to Note 5, “Income Taxes.”
Net Income.  Net income decreased $49.3 million, or 70.7%, to $20.4 million for the nine months ended January 27, 2018, compared to $69.7 million for the nine months ended January 28, 2017. Net income for the nine months ended January 27, 2018 was unfavorably impacted by increased tax expense due to the enactment of U.S. Tax Reform, higher intangible asset amortization, customer pricing reductions, acquisition fees and purchase accounting adjustments, increased research and development initiatives for the medical devices business, higher wages and higher interest expenses. These were partially offset by the reversal of expense for stock award amortization related to our long-term incentive program, increased government grants, increased sales volumes from our new acquisitions and the gain on the sale of a licensing agreement. Net income for the nine months ended January 28, 2017 was favorably impacted due to adjustments for commodity pricing and the reversal of accruals related to resolved customer commercial issues.
Operating Segments
Automotive Segment Results
Below is a table summarizing results for the nine months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%)
Net Sales $528.1
 $461.6
 $66.5
 14.4%
         
Cost of Products Sold 377.9
 325.5
 52.4
 16.1%
         
Gross Profit 150.2
 136.1
 14.1
 10.4%
         
Selling and Administrative Expenses 32.1
 24.9
 7.2
 28.9%
         
Income from Operations $118.1
 $111.2
 $6.9
 6.2%
         
Percent of sales: January 27,
2018		 January 28,
2017		    
Net Sales 100.0% 100.0%    
Cost of Products Sold 71.6% 70.5%    
Gross Margins 28.4% 29.5%    
Selling and Administrative Expenses 6.1% 5.4%    
Income from Operations 22.4% 24.1%    
Net Sales.  Automotive segment net sales increased $66.5 million, or 14.4%, to $528.1 million for the nine months ended January 27, 2018, from $461.6 million for the nine months ended January 28, 2017.  Net sales increased in North America by $28.5 million, or 10.5%, to $299.0 million for the nine months ended January 27, 2018, compared to $270.5 million for the nine months ended January 28, 2017. North American Automotive sales included $29.0 million from our newly acquired business, Pacific Insight, which was acquired in the second quarter of fiscal 2018. Other North American sales increased for our user interface assemblies due to new program launches in fiscal 2018. Sales declined for our integrated center stack products primarily due to pricing reductions, partially offset by higher sales volumes. Sales for our transmission lead-frame assemblies decreased due to a combination of pricing reductions and lower sales volumes in the first nine months of fiscal 2018, compared to the first nine months of fiscal 2017. Net sales increased in Europe by $45.3 million, or 41.6%, to $154.1 million for the nine months ended January 27, 2018, compared to $108.8 million for the nine months ended January 28, 2017. The increase in the European sales includes $17.6 million from our newly acquired business, Procoplast, which was acquired in the first quarter of fiscal 2018. Other European sales increased primarily due to increased customer funded tooling and design fees, favorable currency rate fluctuations and higher sales volumes of hidden switches and sensor products. Net sales in Asia decreased $7.3 million, or 8.9%, to $75.0 million for the nine months ended January 27, 2018, compared to $82.3 million for the nine months ended January 28, 2017, primarily due to lower sales of our transmission lead-frame assemblies due to a combination of pricing reductions and lower sales volumes. We also experienced lower sales volumes for our steering angle sensor products, as the products approach end of production. Translation of foreign operations' net sales increased

reported net sales by $6.5 million, or 1.2%, for the nine months ended January 27, 2018, compared to the average currency rates for the nine months ended January 28, 2017, primarily due to the strengthening of the euro and Chinese yuan as compared to the U.S. dollar.translation.
Cost of Products Sold.  Automotive segment cost of products sold increased $52.4 million, or 16.1%, to $377.9 million for the nine months ended January 27, 2018, from $325.5 million for the nine months ended January 28, 2017.  The Automotive segment cost of products sold as a percentage of net sales increased to 71.6% for the nine months ended January 27, 2018, compared to 70.5% for the nine months ended January 28, 2017.  The cost of products sold as a percentage of sales increased primarily due to unfavorable sales mix related to our newly acquired businesses, warranty expense of $1.0 million, the inclusion of $0.8 million of purchase accounting adjustments related to our new acquisitions, pricing reductions on certain products and the strengthening of the Mexican peso during the period as compared to the U.S. dollar. The results for the first nine months of fiscal 2017 include a favorable $1.0 million of commodity pricing adjustments and the reversal of accruals of $1.0 million related to resolved customer commercial issues.
Gross Profit. Automotive segment gross profit increased $14.1 million, or 10.4%, to $150.2 million for the nine months ended January 27, 2018, as compared to $136.1 million for the nine months ended January 28, 2017.  The Automotive segment gross margins as a percentage of net sales decreased to 28.4% for the nine months ended January 27, 2018, as compared to 29.5% for the nine months ended January 28, 2017.  Gross margins as a percentage of net sales decreased primarily due to unfavorable sales mix related to our newly acquired businesses, warranty expense of $1.0 million, the inclusion of $0.8 million of purchase accounting adjustments related to our new acquisitions, pricing reductions on certain products and the strengthening of the Mexican peso during the period as compared to the U.S. dollar. The results for the first nine months of fiscal 2017 include a favorable $1.0 million of commodity pricing adjustments and the reversal of accruals of $1.0 million related to resolved customer commercial issues.
Selling and Administrative Expenses.  Selling and administrative expenses increased $7.2 million, or 28.9%, to $32.1 million for the nine months ended January 27, 2018, compared to $24.9 million for the nine months ended January 28, 2017.  Selling and administrative expenses as a percentage of net sales were 6.1% for the nine months ended January 27, 2018, compared to 5.4% for the nine months ended January 28, 2017. The amounts for the first nine months of fiscal 2018 include $7.5 million related to our newly acquired businesses. The $7.5 million includes $2.0 million of intangible asset amortization expense. Excluding the activity from our newly acquired businesses, selling and administrative expenses decreased $0.3 million due to the reversal of stock award amortization expense for our long-term incentive program, partially offset with increased severance and travel expense.
Income from Operations. Automotive segment income from operations increased $6.9 million, or 6.2%, to $118.1 million for the nine months ended January 27, 2018, compared to $111.2 million for the nine months ended January 28, 2017. Income from operations for the first nine months of fiscal 2018 increased due to sales and income from operations from our newly acquired businesses and the reversal of the stock award amortization expense, partially offset with increased warranty expense, pricing reductions, the strengthening of the Mexican peso as compared to the U.S. dollar, higher intangible asset amortization expense and higher severance and travel expenses. Net income for the nine months ended January 28, 2017 was favorably impacted due to adjustments for commodity pricing and the reversal of accruals related to resolved customer commercial issues.

Interface Segment Results
Below is a table summarizing results forin the ninethree months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%) 
Net Sales $86.3
 $94.9
 $(8.6) (9.1)% 
          
Cost of Products Sold 67.4
 74.4
 (7.0) (9.4)% 
          
Gross Profit 18.9
 20.5
 (1.6) (7.8)% 
          
Selling and Administrative Expenses 14.9
 20.6
 (5.7) (27.7)% 
          
Income (Loss) from Operations $4.0
 $(0.1) $4.1
 N/M
*
          
Percent of sales: January 27,
2018		 January 28,
2017		     
Net Sales 100.0% 100.0 %     
Cost of Products Sold 78.1% 78.4 %     
Gross Margins 21.9% 21.6 %     
Selling and Administrative Expenses 17.3% 21.7 %     
Income (Loss) from Operations 4.6% (0.1)%     
          
* N/M equals non-meaningful         
(Dollars in Millions) July 27,
2019		 July 28,
2018		 Net Change ($) Net Change (%)
Net Sales $12.9
 $15.6
 $(2.7) (17.3)%
Gross Profit $1.5
 $2.9
 $(1.4) (48.3)%
Income from Operations $0.2
 $0.8
 $(0.6) (75.0)%
         
Percent of sales: July 27,
2019		 July 28,
2018		    
Net Sales 100.0% 100.0%    
Gross Profit 11.6% 18.6%    
Income from Operations 1.6% 5.1%    
Net Sales.  Interface segment net sales decreased $8.6$2.7 million, or 9.1%17.3%, to $86.3$12.9 million forin the ninethree months ended JanuaryJuly 27, 2018, from $94.92019, compared to $15.6 million forin the ninethree months ended JanuaryJuly 28, 2017.  Net sales decreased in North America by $9.3 million, or 12.7%, to $64.2 million for the nine months ended January 27, 2018, compared to $73.5 million for the nine months ended January 28, 2017. North American net sales decreased by $11.5 million2018.  The decrease was primarily due to our Connectivity business. The Company exited this business at the end of fiscal 2017 due to adverse business conditions. Excluding the $11.5 million of lower appliance product sales for Connectivity, North American sales increased by $2.2 million due to increasedand reduced sales volumes of radio remote control andlegacy data solutionssolution products. Net sales in Europe increased $1.9
Gross Profit.  Interface segment gross profit decreased $1.4 million, or 10.3%48.3%, to $20.4$1.5 million forin the ninethree months ended JanuaryJuly 27, 2018 compared to $18.5 million for the nine months ended January 28, 2017, primarily due to higher sales volumes of radio remote control products, partially offset with lower sales volumes and price reductions on certain of our data solutions products. Net sales in Asia decreased $1.2 million, or 41.4%, to $1.7 million for the nine months ended January 27, 2018,2019, compared to $2.9 million forin the ninethree months ended JanuaryJuly 28, 2017, 2018.  Gross profit margin decreased to 11.6% in the three months ended July 27, 2019, compared to 18.6% in the three months ended July 28, 2018. The decrease

primarily duerelates to lower sales volumes of legacy products.
Cost of Products Sold.  Interface segment cost ofour appliance products, sold decreased $7.0 million, or 9.4%, to $67.4 million for the nine months ended January 27, 2018, compared to $74.4 million for the nine months ended January 28, 2017.  Interface segment cost of products sold as a percentage of net sales decreased to 78.1% for the nine months ended January 27, 2018, compared to 78.4% for the nine months ended January 28, 2017.  The decrease is primarily due to favorable sales mix, partially offset with lower sales volumes. The lower sales volumes are primarily from our Connectivity business unit, which was closed at the end of fiscal 2017.
Gross Profit. Interface segment gross profit decreased $1.6 million, or 7.8%, to $18.9 million for the nine months ended January 27, 2018, compared to $20.5 million for the nine months ended January 28, 2017.  Gross margins as a percentage of net sales increased to 21.9% for the nine months ended January 27, 2018, from 21.6% for the nine months ended January 28, 2017.  The increase is primarily due to favorable sales mix, partially offset with lower sales volumes and price reductions on certain products. The lowerunfavorable sales volumes are primarily frommix of our Connectivity business unit that was closed atdata solutions products, and the endstrengthening of fiscal 2017.
Selling and Administrative Expenses.  Selling and administrative expenses decreased $5.7 million, or 27.7%, to $14.9 million for the nine months ended January 27, 2018,Mexican peso as compared to $20.6 million for the nine months ended January 28, 2017. U.S. dollar during the period.

Selling and administrative expenses as a percentage of net sales decreased to 17.3% for the nine months ended January 27, 2018, from 21.7% for the nine months ended January 28, 2017. The first nine months of fiscal 2017 included $2.7 million of selling and administrative expenses for our Connectivity business. Excluding the lower expenses related to the Connectivity business, the first nine months of fiscal 2018 benefitted from lower legal expenses and the reversal of stock award amortization expense for our long-term incentive program.
Income (Loss) from Operations. Interface segment income (loss) from operations was income of $4.0decreased $0.6 million, foror 75.0%, to $0.2 million in the ninethree months ended JanuaryJuly 27, 2018,2019, compared to a loss of $0.1$0.8 million forin the ninethree months ended JanuaryJuly 28, 2017, primarily2018. The decrease was due to lower expenses relatedgross profit, offset by the benefits of initiatives to the Connectivity business, lower legal expenses, the reversal of stock award amortization expense for our long-term incentive programreduce overall costs and a favorable sales mix, partially offset with lower sales volumes.improve operational profitability taken in fiscal 2019.
Power ProductsMedical Segment Results
Below is a table summarizing results forin the ninethree months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%)
Net Sales $44.8
 $39.9
 $4.9
 12.3 %
         
Cost of Products Sold 33.2
 29.4
 3.8
 12.9 %
         
Gross Profit 11.6
 10.5
 1.1
 10.5 %
         
Selling and Administrative Expenses 2.3
 2.8
 (0.5) (17.9)%
         
Income from Operations $9.3
 $7.7
 $1.6
 20.8 %
         
Percent of sales: January 27,
2018		 January 28,
2017		    
Net Sales 100.0% 100.0%    
Cost of Products Sold 74.1% 73.7%    
Gross Margins 25.9% 26.3%    
Selling and Administrative Expenses 5.1% 7.0%    
Income from Operations 20.8% 19.3%    
(Dollars in Millions) July 27,
2019		 July 28,
2018		 Net Change ($) Net Change (%)
Net Sales $0.3
 $0.3
 $—
 —%
Gross Profit $(0.4) $(0.7) $0.3
 42.9%
Loss from Operations $(1.5) $(2.1) $0.6
 28.6%
Net Sales.  Power ProductsThe Medical segment net sales increased $4.9had $0.3 million or 12.3%, to $44.8 million for the nine months ended January 27, 2018, compared to $39.9 million for the nine months ended January 28, 2017.  Net sales decreased in North America by $0.5 million, or 2.9%, to $16.8 million for the nine months of fiscal 2018, compared to $18.3 million for first nine months of fiscal 2017. Net sales in Europe increased $4.0 million, or 93.0%, to $8.3 million for the nine months ended January 27, 2018, compared to $4.3 million for the nine months ended January 28, 2017, primarily due to higher sales volumes of bypass switches. Net sales in Asia increased $1.3 million, or 7.1%, to $19.6 million for the nine months ended January 27, 2018, compared to $18.3 million for the nine months ended January 28, 2017, due to higher sales volumes of busbar products.
Cost of Products Sold.  Power Products segment cost of products sold increased $3.8 million, or 12.9%, to $33.2 million for the nine months ended January 27, 2018, compared to $29.4 million for the nine months ended January 28, 2017.  The Power Products segment cost of products sold as a percentage of net sales increased to 74.1% forin both the ninethree months ended JanuaryJuly 27, 2018, from 73.7% for the nine months ended January2019 and July 28, 2017.  The increase primarily relates to the higher cost of copper, partially offset by higher sales volumes.2018.
Gross Profit.  Power Products segment gross profit increased $1.1 million, or 10.5%, to $11.6 million for the nine months ended January 27, 2018, compared to $10.5 million for the nine months ended January 28, 2017.  Gross margins as a percentage of net sales decreased to 25.9% for the nine months ended January 27, 2018 from 26.3% for the nine months ended January 28, 2017. The decrease primarily relates to the higher cost of copper, partially offset by higher sales volumes.
Selling and Administrative Expenses.  Selling and administrative expenses decreased $0.5 million, or 17.9%, to $2.3 million for the nine months ended January 27, 2018, compared to $2.8 million for the six months ended January 28, 2017.

Selling and administrative expenses as a percentage of net sales decreased to 5.1% for the nine months ended January 27, 2018 from 7.0% for the nine months ended January 28, 2017, due to the reversal of stock award amortization expense for our long-term incentive program and lower legal expenses.
Income From Operations. Power Products segment income from operations increased $1.6 million, or 20.8%, to $9.3 million for the nine months ended January 27, 2018, compared to $7.7 million for the nine months ended January 28, 2017, due primarily to increased sales volumes, the reversal of stock award amortization expense for our long-term incentive program and lower legal expenses, partially offset with the higher cost of copper.
Other Segment Results
Below is a table summarizing results for the nine months ended:
(Dollars in Millions) January 27,
2018		 January 28,
2017		 Net Change ($) Net Change (%)
Net Sales $0.2
 $0.2
 $—
 — %
         
Cost of Products Sold 2.4
 3.8
 (1.4) (36.8)%
         
Gross Profit (2.2) (3.6) 1.4
 (38.9)%
         
Selling and Administrative Expenses 5.9
 4.4
 1.5
 34.1 %
         
Loss from Operations $(8.1) $(8.0) $(0.1) 1.3 %
Net Sales.  The businesses in this segment were medical devices and inverters and battery systems. The inverters and battery systems business was shuttered at the end of fiscal 2017 due to adverse business conditions. Both businesses had minimal net sales in the nine months ended January 27, 2018 and January 28, 2017, respectively, due to newly launched products.
Cost of Products Sold.  Other segment cost of products sold was $2.4 million for the nine months ended January 27, 2018, compared to $3.8 million for the nine months ended January 28, 2017. The decrease primarily relates to the shuttered business that was closed at the end of fiscal 2017. The decrease was partially offset by the vertical manufacturing integration of some key components in medical device products and research efforts to expand the product offerings.
Gross Profit. The OtherMedical segment gross profit was a loss of $2.2$0.4 million and $3.6 million forin the ninethree months ended JanuaryJuly 27, 2018 and January2019, compared to a loss of $0.7 million in the three months ended July 28, 2017, respectively.2018. The decreased lossimprovement primarily relates to lower engineering costs and wages incurred during the shuttered business, partially offset with increased researchperiod.
Loss from Operations. Medical segment loss from operations decreased $0.6 million to $1.5 million in the three months ended July 27, 2019, compared to $2.1 million in the three months ended July 28, 2018.  The decrease was due to an improvement in gross profit and development initiatives for medical devices.
Sellinglower selling and Administrative Expenses.administrative expense. Selling and administrative expenses increased $1.5 million, or 34.1%,were reduced by lower professional fees, the benefits of initiatives to $5.9 million forreduce overall costs and improve operational profitability taken in fiscal 2019, as well as the ninecosts incurred in the three months ended January 27,July 28, 2018 comparedrelating to $4.4 million for the nine months ended January 28, 2017. The first nine months fiscal 2017 includes $0.3 million of sellinginitiatives to reduce overall costs and administrative expenses for our inverter and battery systems business, which was closed at the end of fiscal 2017. The increase in the first nine months of fiscal 2018 is primarily due to higher investment in sales and marketing, clinical resources and professional services in our medical device business, partially offset with lower selling and administrative expenses related to the shuttered business.improve operational profitability.
Loss From Operations The Other segment loss from operations increased $0.1 million to $8.1 million for the nine months ended January 27, 2018, compared to $8.0 million for the nine months ended January 28, 2017.  The increased loss relates to higher outside professional fees, research and development and marketing expenses in the first nine months of fiscal 2018, partially offset by lower selling and administrative expenses for the inverter and battery system business closed at the end of fiscal 2017.

Financial Condition, Liquidity and Capital Resources
We believe our current world-wide cash balances together with expected future cash flows to be generated from operations and our committed credit facility will be sufficient to support current operations. A significant amount of cash and expected future cash flows are located outside of the U.S. Of the $304.0$73.8 million of cash and cash equivalents as of JanuaryJuly 27, 2018, $299.92019, $68.8 million was held in subsidiaries outside the U.S. and allcan be repatriated, primarily through the repayment of this amount is deemed to be permanently reinvested.
We are party to a Credit Agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer,intercompany loans and the Lenders named therein (the “Credit Agreement”). The Credit Agreement has a maturity datepayment of November 18, 2021. The credit facilitydividends, without creating material additional income tax expense.
Cash flow is in the maximum principal amount of $150.0 million, with an option to increase the principal amount by up to an additional $100.0 million, subject to customary conditions and approval of the lender(s) providing new commitment(s). The credit facility is available for general corporate purposes, including working capital and acquisitions. The credit facility provides for variable rates of interest based on the type of borrowing and the Company's debt to EBITDA financial ratio. The Credit Agreement is guaranteed by the Company’s wholly-owned U.S. subsidiaries. The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default. At January 27, 2018, the interest rate on the credit facility was 1.25% plus LIBOR and we were in compliance with the covenants of the agreement. During the nine months ended January 27, 2018, we had $70.0 million of borrowings and payments of $3.2 million, which includes interest of $1.2 million, under this credit facility. As of January 27, 2018, there were outstanding balances against the credit facility of $95.0 million.summarized below:
Methode's newly acquired subsidiary, Pacific Insight, is party to two separate credit agreements, one with the Bank of Montreal and one with Roynat. The credit agreement with the Bank of Montreal has a maturity date of December 21, 2019 and provides a credit facility in the maximum principal amount of C$10.0 million, with an option to increase the principal amount by up to an additional C$5.0 million. Availability under the facility is determined based upon a percentage of eligible accounts receivable and finished goods inventory balances and funds are available in either Canadian or U.S. currency. Interest is calculated at either the Canadian Dollar Offered Rate plus 1.25%, the Federal Funds Rate plus 1.25% or LIBOR plus 1.75%. As of January 27, 2018, there were no outstanding balances against this credit facility and Pacific Insight was in compliance with the covenants of the agreement.
  Three Months Ended
(Dollars in Millions) July 27,
2019		 July 28,
2018
Operating activities:    
Net Income $28.3
 $23.7
Non-cash Items 14.2
 9.7
Changes in Operating Assets and Liabilities (23.4) (13.4)
Net Cash Provided by Operating Activities 19.1
 20.0
Net Cash Used in Investing Activities (13.2) (18.2)
Net Cash Used in Financing Activities (14.4) (9.4)
Effect of Exchange Rate Changes on Cash and Cash Equivalents (0.9) (10.0)
Net Decrease in Cash and Cash Equivalents (9.4) (17.6)
Cash and Cash Equivalents at Beginning of the Year 83.2
 246.1
Cash and Cash Equivalents at End of the Period $73.8
 $228.5
The credit agreement between Pacific Insight and Roynat has a maturity date of May 24, 2020 and provides a credit facility in the maximum principal amount of $10.0 million, with an option to increase the principal amount by up to an additional $3.5 million. The interest rate on the credit facility is 2.25% plus LIBOR. During the four-month period that Methode has owned Pacific Insight, we have had no borrowings and repayments of $0.2 million under this credit facility. As of January 27, 2018, there were outstanding balances against the credit facility of $3.8 million, of which $0.7 million is due within the next twelve months, and Pacific Insight was in compliance with the covenants of the agreement. We believe the fair value approximates the carrying amount as of January 27, 2018.
Excluding credit facilities, the Company also holds debt that was assumed in the acquisitions of Procoplast and Pacific Insight. As of January 27, 2018, Procoplast holds short-term debt totaling $2.1 million, with a weighted average interest rate of 1.09%. As of January 27, 2018, Procoplast holds long-term debt that consists of twelve notes totaling $17.8 million, with a weighted-average interest rate of 1.32% and maturities ranging from 2019 to 2031. Pacific Insight holds debt in the form of an interest-free loan from the Canadian government that matures in 2019. As of January 27, 2018, $0.1 million is classified as short-term and $0.1 million is classified as long-term.
Cash Flow - Operating Activities
Net cash provided by operating activities decreased $19.6$0.9 million to $87.1$19.1 million forin the ninethree months ended JanuaryJuly 27, 2018,2019, compared to $106.7$20.0 million forin the ninethree months ended JanuaryJuly 28, 2017, primarily2018. The decrease was due to a decrease in our net income, adjusted for depreciation, amortization, deferred tax expense, stock-based compensation and the provision for bad debt, partially offset by the changes in operating assets and liabilities. The change in deferred tax expense resultedlower cash generated from the re-measurement of deferred tax assets due to the enactment of U.S. Tax Reform. For the nine months ended January 27, 2018, net changes in operating assets and liabilities, resulted inpartially offset by higher net income adjusted for non-cash items. The $23.4 million of cash provided of $55.5 million,outflows for operating assets and liabilities was primarily due to an increase inhigher accounts receivable, higher inventory and lower accounts payable and other expenses, a decrease in prepaid expenses and other assets and the timing of receivable collections, partially offset by an increase in inventory levels. The change in accounts payable and other expenses was driven by the enactment of U.S. Tax Reform, specifically from the deemed repatriation of foreign earnings. Any taxes stemming from the deemed repatriation of foreign earnings are payable over an eight-year period. For the nine months ended January 28, 2017, net changes in operating assets and liabilities resulted in cash provided of $9.6 million, primarily due to the timing of receivable collections and a decrease in inventory levels, partially offset by an increase in prepaid expenses and a decrease in accounts payable.liabilities.

Cash Flow - Investing Activities
Net cash used in investing activities was $165.0$13.2 million forin the ninethree months ended JanuaryJuly 27, 2018,2019, compared to $13.2$18.2 million forin the ninethree months ended JanuaryJuly 28, 2017, due primarily2018. The activity relates to the acquisition of Pacific Insight for $107.7 million, net of cash received, the purchasepurchases of property, plant and equipment for $34.7 million and the acquisition of Procoplast for $22.2 million, net of cash received. equipment.
Cash Flow - Financing Activities
Net cash provided byused in financing activities increased $95.6$5.0 million to $57.6$14.4 million forin the ninethree months ended JanuaryJuly 27, 2018,2019, compared to $9.4 million in the three months ended July 28, 2018.  In the three months ended July 27, 2019, we had net repayments on our borrowings of $9.7 million, compared to net cash usedrepayments on our borrowings of $38.0$3.6 million forin the ninethree months ended JanuaryJuly 28, 2017.  During the nine months ended January 27, 2018, the Company had borrowings against credit facilities of $70.0 million, compared to no borrowings during the nine months ended January 28, 2017. During the nine months ended January 27, 2018, the Company had repayments of borrowings against credit facilities of $2.2 million, compared to $20.0 million during the nine months ended January 28, 2017.2018. We paid dividends of $10.6 million and $10.3$4.1 million in the nine months ended Januaryboth periods.
Credit Agreement
On September 12, 2018, we entered into a senior unsecured credit agreement that provided a $200.0 million revolving credit facility and a $250.0 million term loan. As of July 27, 2018 and January 28, 2017, respectively. The Company had no repurchases of common stock during the nine months ended January 27, 2018, compared to paying $9.8 million for the repurchase of common stock during the nine months ended January 28, 2017. The first nine months of fiscal 2018 included $0.3 million of taxes paid related to net share settlement of equity awards, compared to $1.1 million during the first nine months of fiscal 2017. There were $0.2 million of proceeds from the exercise of stock options in the first nine months of fiscal 2018 and $2.72019, $269.6 million in principal was outstanding under the first nine monthscredit agreement.  The term loan matures in September 2023 and requires quarterly principal payments of fiscal 2017. The first nine months$3.1 million over the five-year term, with the remaining balance due upon maturity. We were in compliance with all covenants under the credit agreement as of fiscal 2017 included $0.5 millionJuly 27, 2019.
Recent Accounting Pronouncements
See Note 1, "Description of excess tax benefit on equity shares issuedBusiness and on stock options exercised during that period. PursuantSummary of Significant Accounting Policies" to the adoption of ASU No. 2016-09 on April 30, 2017, going forward the Company will no longer separately report the tax benefit on equity shares issued and stock option exercises as a separate line item in the financing activities section of the condensed consolidated financial statements of cash flows. That activity will now run through the operating activities section of the condensed consolidated statements of cash flows as a changeincluded in operating assets and liabilities.Item 1.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined under SEC rules.
Legal Matters
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other than operating leasescentral and purchase obligations entered intoeastern 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 normal courseFederal District Court for the Western District of business.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 matter has been set for trial in February 2020.
In the three months ended July 27, 2019 and July 28, 2018, we incurred Hetronic-related legal fees of $0.8 million and $0.9 million, respectively. These amounts are included in the selling and administrative expenses in the Interface segment.
Item 3.  Quantitative And Qualitative Disclosures About Market Risk
Certain ofWe 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 use any derivative financial instruments to manage these risks.


Foreign Currency Risk

We are exposed to foreign operations enter into transactionscurrency risk on sales, costs and assets and liabilities denominated in currencies other than their functional currency, primarilythe 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 euro.Chinese renminbi. A hypothetical 10% adverse change in foreign currency exchange rates from balance sheet date levels could impacthave impacted our income before income taxes by $5.1$2.1 million as of Januaryin the three months ended July 27, 20182019. However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that rates can move in opposite directions and $13.1 million as of April 29, 2017.  We also have foreignthat gains from one currency exposure arisingmay or may not be offset by losses from theanother currency.

The translation of the assets and liabilities of our net equity investment in our foreign operations to U.S. dollars.  We generally view our investments in foreign operations with functional currencies other thaninternational subsidiaries is made using the U.S. dollar as long-term.  The currencies to which we are exposed are the British pound, Canadian dollar, Chinese yuan, euro, Indian rupee, Mexican peso, Singapore dollar and Swiss franc.  A 10% change in foreign currency exchange rates fromas of the end of the reporting period. Translation adjustments are not included in determining net income but are included in accumulated other comprehensive loss within shareholders’ equity on the condensed consolidated balance sheet date levels could impact oursheets until a sale or substantially complete liquidation of the net foreign investmentsinvestment in the international subsidiary takes place. As of July 27, 2019, the cumulative net currency translation adjustments reduced shareholders’ equity by $61.9$15.2 million at Januaryand as of April 27, 2018 and $41.1 million at April 29, 2017.2019, the cumulative net currency translation adjustments reduced shareholders’ equity by $13.6 million.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. The interest rate risk for our credit agreements,agreement, under which we had $98.8$269.6 million of net borrowings at Januaryas of July 27, 2018,2019, is variable and is determined based on LIBOR. We estimate that a one percentage point change1% increase in interest rates under our credit agreement would not have a material impactresult in increased annual interest expense of $2.7 million.
Commodity Price Risk

We are exposed to commodity price risk primarily on our resultsraw material purchases. These raw materials are not rare or unique to our industry. The cost of operations for fiscal 2018 based uponcopper, 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 current and expected levelsproducts. However, in the short-term, rapid increases in raw material costs can be very difficult to offset with price increases because of debt.contractual agreements with our customers.

Item 4.  Controls 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 JanuaryJuly 27, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION
Item 1A.    Risk Factors
Other than the supplemental risk factors set forth below, thereThere have been no material changes to the risk factors disclosed in Part I - Item 1A, Risk Factors of our Form 10-K for the fiscal year ended April 29, 2017.
We cannot guarantee that the newly acquired Pacific Insight or Procoplast businesses will be successful or that we can implement and profit from any new applications of the acquired technology.
We acquired Pacific Insight on October 3, 2017 and Procoplast on July 27, 2017.  As a result of these acquisitions, we now manufacture LED-based lighting in North America and automotive assemblies on mainland Europe, which are expected to aid in our expansion in the automotive sector. The markets for the products these companies produce are competitive and rapidly changing.  If we do not keep pace with technological innovations in the industry, our products may not be competitive and our revenue and operating results may suffer.  Furthermore, while we intend to expand these businesses by integrating the acquired technologies into additional automotive and other applications, we can make no guarantee that such ventures will be successful or profitable.
Our long-term incentive plan could require significant adjustments to compensation expense in our condensed consolidated statements of operations if management changes its determinations on the probability of meeting certain performance levels. The adjustments could be material to the financial statements.
In the third quarter of fiscal 2018, management determined that it is not probable that the Company will meet the target level of performance for fiscal 2020 under its long-term incentive plan. Based on the new expectations, the Company believes it is now probable that it will achieve the threshold level for our fiscal 2020 EBITDA. As a result, the Company recorded a reversal of RSA compensation expense relating to prior periods of $6.0 million.
In future periods, if management makes a determination that exceeding the threshold level is probable for fiscal 2020, a catch-up adjustment to compensation expense will be recorded in that period, which could be material to the financial statements. Such determination could be based on a number of factors, including an accretive acquisition or a favorable change in expectations regarding Dabir Surfaces’ fiscal 2020 revenues and resultant EBITDA.

2019.
Item 6.          Exhibits
Exhibit
Number
 Description
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 XBRL Instance
101.2 XBRL Taxonomy Extension Schema Document
101.3 XBRL Taxonomy Extension Calculation Linkbase Document
101.4 XBRL Taxonomy Extension Label Linkbase Document
101.5 XBRL Taxonomy Extension Presentation Linkbase Document
101.6 XBRL Taxonomy Extension Definition Linkbase Document

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:/s/ John R. HrudickaRonald L.G. Tsoumas
    John R. HrudickaRonald L.G. Tsoumas
    Chief Financial Officer
    (principal financial officer)
    
Dated:March 1, 2018August 29, 2019  


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