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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended February 1, 2025
or
☐ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from ______ to ______
Commission file number 001-33731
METHODE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
36-2090085 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
8750 West Bryn Mawr Avenue, Suite 1000, Chicago, Illinois |
60631-3518 |
(Address of principal executive offices) |
(Zip Code) |
(Registrant’s telephone number, including area code) (708) 867-6777
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, $0.50 Par Value |
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MEI |
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New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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☐ |
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Accelerated filer |
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☒ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At March 3, 2025, the registrant had 35,690,749 shares of common stock outstanding.
METHODE ELECTRONICS, INC.
INDEX
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Page |
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PART I. |
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Item 1. |
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2 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and Nine Months Ended February 1, 2025 and January 27, 2024 |
3 |
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Condensed Consolidated Balance Sheets as of February 1, 2025 (unaudited) and April 27, 2024 |
4 |
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Condensed Consolidated Statements of Shareholders’ Equity (unaudited) - Three and Nine Months Ended February 1, 2025 and January 27, 2024 |
5 |
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Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended February 1, 2025 and January 27, 2024 |
7 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
36 |
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Item 4. |
36 |
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PART II. |
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Item 1 |
Legal Proceedings |
38 |
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Item 1A. |
38 |
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Item 2. |
38 |
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Item 5. |
38 |
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Item 6. |
40 |
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41 |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
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Three Months Ended |
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Nine Months Ended |
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February 1, 2025 |
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January 27, 2024 |
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February 1, 2025 |
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January 27, 2024 |
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(13 Weeks) |
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(13 Weeks) |
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(40 Weeks) |
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(39 Weeks) |
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Net sales |
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$ |
239.9 |
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$ |
259.5 |
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$ |
791.0 |
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$ |
837.2 |
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Cost of products sold |
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198.6 |
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222.5 |
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647.2 |
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693.9 |
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Gross profit |
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41.3 |
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37.0 |
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143.8 |
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143.3 |
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Selling and administrative expenses |
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37.7 |
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33.9 |
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126.5 |
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119.3 |
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Goodwill impairment |
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— |
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— |
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— |
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56.5 |
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Amortization of intangibles |
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5.8 |
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6.1 |
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17.6 |
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18.0 |
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Loss from operations |
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(2.2 |
) |
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(3.0 |
) |
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(0.3 |
) |
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(50.5 |
) |
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Interest expense, net |
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5.5 |
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5.0 |
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16.5 |
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12.2 |
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Other expense, net |
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0.5 |
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2.5 |
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2.9 |
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2.3 |
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Pre-tax loss |
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(8.2 |
) |
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(10.5 |
) |
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(19.7 |
) |
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(65.0 |
) |
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Income tax expense |
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6.2 |
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1.1 |
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14.6 |
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1.0 |
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Net loss |
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$ |
(14.4 |
) |
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$ |
(11.6 |
) |
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$ |
(34.3 |
) |
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$ |
(66.0 |
) |
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Loss per share: |
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Basic |
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$ |
(0.41 |
) |
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$ |
(0.33 |
) |
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$ |
(0.97 |
) |
|
$ |
(1.86 |
) |
Diluted |
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$ |
(0.41 |
) |
|
$ |
(0.33 |
) |
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$ |
(0.97 |
) |
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$ |
(1.86 |
) |
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Cash dividends per share |
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$ |
0.14 |
|
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$ |
0.14 |
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$ |
0.42 |
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$ |
0.42 |
|
See notes to condensed consolidated financial statements.
2
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
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Three Months Ended |
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Nine Months Ended |
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February 1, 2025 |
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January 27, 2024 |
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February 1, 2025 |
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January 27, 2024 |
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(13 Weeks) |
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(13 Weeks) |
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(40 Weeks) |
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(39 Weeks) |
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Net loss |
|
$ |
(14.4 |
) |
|
$ |
(11.6 |
) |
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$ |
(34.3 |
) |
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$ |
(66.0 |
) |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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(15.5 |
) |
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13.7 |
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(13.9 |
) |
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(9.0 |
) |
Derivative financial instruments |
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2.0 |
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(2.0 |
) |
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(0.6 |
) |
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(3.2 |
) |
Other comprehensive (loss) income |
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(13.5 |
) |
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11.7 |
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(14.5 |
) |
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(12.2 |
) |
Comprehensive (loss) income |
|
$ |
(27.9 |
) |
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$ |
0.1 |
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$ |
(48.8 |
) |
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$ |
(78.2 |
) |
See notes to condensed consolidated financial statements.
3
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
|
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February 1, 2025 |
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April 27, 2024 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
103.8 |
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$ |
161.5 |
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Accounts receivable, net |
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220.0 |
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262.6 |
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Inventories |
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218.8 |
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186.2 |
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Income tax receivable |
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4.2 |
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4.0 |
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Prepaid expenses and other current assets |
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22.7 |
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18.7 |
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Assets held for sale |
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2.7 |
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4.7 |
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Total current assets |
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572.2 |
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637.7 |
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Long-term assets: |
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Property, plant and equipment, net |
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208.6 |
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212.1 |
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Goodwill |
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167.4 |
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169.9 |
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Other intangible assets, net |
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235.7 |
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256.7 |
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Operating lease right-of-use assets, net |
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24.9 |
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26.7 |
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Deferred tax assets |
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34.3 |
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34.7 |
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Pre-production costs |
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40.0 |
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44.1 |
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Other long-term assets |
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21.5 |
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21.6 |
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Total long-term assets |
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732.4 |
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765.8 |
|
Total assets |
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$ |
1,304.6 |
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$ |
1,403.5 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
107.7 |
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$ |
132.4 |
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Accrued employee liabilities |
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29.4 |
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38.0 |
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Other accrued liabilities |
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42.3 |
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46.0 |
|
Short-term operating lease liabilities |
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7.5 |
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6.7 |
|
Short-term debt |
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0.2 |
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|
0.2 |
|
Income tax payable |
|
|
14.3 |
|
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8.1 |
|
Total current liabilities |
|
|
201.4 |
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231.4 |
|
Long-term liabilities: |
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Long-term debt |
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327.7 |
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330.7 |
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Long-term operating lease liabilities |
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19.8 |
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20.6 |
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Long-term income tax payable |
|
|
— |
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9.3 |
|
Other long-term liabilities |
|
|
21.7 |
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16.8 |
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Deferred tax liabilities |
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|
29.7 |
|
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28.7 |
|
Total long-term liabilities |
|
|
398.9 |
|
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|
406.1 |
|
Total liabilities |
|
|
600.3 |
|
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|
637.5 |
|
Shareholders' equity: |
|
|
|
|
|
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||
Common stock, $0.50 par value, 100,000,000 shares authorized, 37,004,282 shares and 36,650,909 shares issued as of February 1, 2025 and April 27, 2024, respectively |
|
|
18.5 |
|
|
|
18.3 |
|
Additional paid-in capital |
|
|
190.2 |
|
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|
183.6 |
|
Accumulated other comprehensive loss |
|
|
(51.2 |
) |
|
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(36.7 |
) |
Treasury stock, 1,346,624 shares as of February 1, 2025 and April 27, 2024 |
|
|
(11.5 |
) |
|
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(11.5 |
) |
Retained earnings |
|
|
558.3 |
|
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|
612.3 |
|
Total shareholders' equity |
|
|
704.3 |
|
|
|
766.0 |
|
Total liabilities and shareholders' equity |
|
$ |
1,304.6 |
|
|
$ |
1,403.5 |
|
See notes to condensed consolidated financial statements CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
(in millions, except share data)
|
|
Three Months Ended February 1, 2025 (13 Weeks) |
|
|||||||||||||||||||||||||
|
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Common |
|
|
Common |
|
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Additional |
|
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Accumulated |
|
|
Treasury |
|
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Retained |
|
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Total |
|
|||||||
Balance as of November 2, 2024 |
|
|
36,621,507 |
|
|
$ |
18.3 |
|
|
$ |
188.6 |
|
|
$ |
(37.7 |
) |
|
$ |
(11.5 |
) |
|
$ |
580.6 |
|
|
$ |
738.3 |
|
Issuance of restricted stock, net of tax withholding |
|
|
382,775 |
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.0 |
) |
|
|
(3.0 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13.5 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14.4 |
) |
|
|
(14.4 |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.9 |
) |
|
|
(4.9 |
) |
Balance as of February 1, 2025 |
|
|
37,004,282 |
|
|
$ |
18.5 |
|
|
$ |
190.2 |
|
|
$ |
(51.2 |
) |
|
$ |
(11.5 |
) |
|
$ |
558.3 |
|
|
$ |
704.3 |
|
|
|
Three Months Ended January 27, 2024 (13 Weeks) |
|
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|
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Common |
|
|
Common |
|
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Additional |
|
|
Accumulated |
|
|
Treasury |
|
|
Retained |
|
|
Total |
|
|||||||
Balance as of October 28, 2023 |
|
|
37,034,050 |
|
|
$ |
18.5 |
|
|
$ |
183.8 |
|
|
$ |
(42.9 |
) |
|
$ |
(11.5 |
) |
|
$ |
697.0 |
|
|
$ |
844.9 |
|
Issuance of restricted stock, net of tax withholding |
|
|
65,666 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cancellation of restricted stock |
|
|
(144,000 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchases of common stock |
|
|
(130,592 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.0 |
) |
|
|
(3.0 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
(2.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.2 |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.7 |
|
|
|
— |
|
|
|
— |
|
|
|
11.7 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.6 |
) |
|
|
(11.6 |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.8 |
) |
|
|
(4.8 |
) |
Balance as of January 27, 2024 |
|
|
36,825,124 |
|
|
$ |
18.4 |
|
|
$ |
181.7 |
|
|
$ |
(31.2 |
) |
|
$ |
(11.5 |
) |
|
$ |
677.6 |
|
|
$ |
835.0 |
|
See notes to condensed consolidated financial statements.
5
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (continued)
(in millions, except share data)
|
|
Nine Months Ended February 1, 2025 (40 Weeks) |
|
|||||||||||||||||||||||||||||
|
|
Redeemable noncontrolling interest |
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
Treasury |
|
|
Retained |
|
|
Total |
|
||||||||
Balance as of April 27, 2024 |
|
$ |
— |
|
|
|
36,650,909 |
|
|
$ |
18.3 |
|
|
$ |
183.6 |
|
|
$ |
(36.7 |
) |
|
$ |
(11.5 |
) |
|
$ |
612.3 |
|
|
$ |
766.0 |
|
Issuance of restricted stock, net of tax withholding |
|
|
— |
|
|
|
568,698 |
|
|
|
0.3 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.5 |
) |
|
|
(3.3 |
) |
Cancellation of restricted stock |
|
|
— |
|
|
|
(79,325 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Conversion of cash bonus to RSUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
Purchases of common stock |
|
|
— |
|
|
|
(136,000 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.5 |
) |
|
|
(1.6 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.6 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14.5 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(34.3 |
) |
|
|
(34.3 |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14.7 |
) |
|
|
(14.7 |
) |
Balance as of February 1, 2025 |
|
$ |
— |
|
|
|
37,004,282 |
|
|
$ |
18.5 |
|
|
$ |
190.2 |
|
|
$ |
(51.2 |
) |
|
$ |
(11.5 |
) |
|
$ |
558.3 |
|
|
$ |
704.3 |
|
|
|
Nine Months Ended January 27, 2024 (39 Weeks) |
|
|||||||||||||||||||||||||||||
|
|
Redeemable noncontrolling interest |
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
Treasury |
|
|
Retained |
|
|
Total |
|
||||||||
Balance as of April 29, 2023 |
|
$ |
11.1 |
|
|
|
37,167,375 |
|
|
$ |
18.6 |
|
|
$ |
181.0 |
|
|
$ |
(19.0 |
) |
|
$ |
(11.5 |
) |
|
$ |
772.7 |
|
|
$ |
941.8 |
|
Issuance of restricted stock, net of tax withholding |
|
|
— |
|
|
|
255,120 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
|
|
(3.8 |
) |
Cancellation of restricted stock |
|
|
— |
|
|
|
(144,000 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.0 |
|
Purchase of redeemable noncontrolling interest |
|
|
(11.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchases of common stock |
|
|
— |
|
|
|
(453,371 |
) |
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10.6 |
) |
|
|
(10.8 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.7 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12.2 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(66.0 |
) |
|
|
(66.0 |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14.7 |
) |
|
|
(14.7 |
) |
Balance as of January 27, 2024 |
|
$ |
— |
|
|
|
36,825,124 |
|
|
$ |
18.4 |
|
|
$ |
181.7 |
|
|
$ |
(31.2 |
) |
|
$ |
(11.5 |
) |
|
$ |
677.6 |
|
|
$ |
835.0 |
|
See notes to condensed consolidated financial statements.
6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
|
|
Nine Months Ended |
|
|||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(34.3 |
) |
|
$ |
(66.0 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
42.5 |
|
|
|
43.3 |
|
Stock-based compensation expense |
|
|
5.5 |
|
|
|
1.8 |
|
Amortization of debt issuance costs |
|
|
0.8 |
|
|
|
0.5 |
|
Partial write-off of unamortized debt issuance costs |
|
|
1.2 |
|
|
|
— |
|
(Gain) loss on sale of assets |
|
|
(0.3 |
) |
|
|
0.6 |
|
Impairment of long-lived assets |
|
|
0.4 |
|
|
|
0.7 |
|
Goodwill impairment |
|
|
— |
|
|
|
56.5 |
|
Change in deferred income taxes |
|
|
(0.2 |
) |
|
|
(4.0 |
) |
Other |
|
|
1.1 |
|
|
|
(0.2 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
35.5 |
|
|
|
47.7 |
|
Inventories |
|
|
(34.5 |
) |
|
|
(47.1 |
) |
Prepaid expenses and other assets |
|
|
(0.4 |
) |
|
|
(8.8 |
) |
Accounts payable |
|
|
(19.0 |
) |
|
|
11.0 |
|
Other liabilities |
|
|
(7.3 |
) |
|
|
(13.4 |
) |
Net cash (used in) provided by operating activities |
|
|
(9.0 |
) |
|
|
22.6 |
|
|
|
|
|
|
|
|
||
Investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
(32.5 |
) |
|
|
(41.1 |
) |
Proceeds from settlement of net investment hedge |
|
|
3.1 |
|
|
|
0.6 |
|
Proceeds from disposition of assets |
|
|
2.7 |
|
|
|
1.5 |
|
Net cash used in investing activities |
|
|
(26.7 |
) |
|
|
(39.0 |
) |
|
|
|
|
|
|
|
||
Financing activities: |
|
|
|
|
|
|
||
Taxes paid related to net share settlement of equity awards |
|
|
(3.5 |
) |
|
|
(3.8 |
) |
Repayments of finance leases |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Debt issuance costs |
|
|
(1.8 |
) |
|
|
— |
|
Purchases of common stock |
|
|
(1.6 |
) |
|
|
(10.8 |
) |
Cash dividends |
|
|
(15.3 |
) |
|
|
(15.0 |
) |
Purchase of redeemable noncontrolling interest |
|
|
— |
|
|
|
(10.9 |
) |
Proceeds from borrowings |
|
|
60.0 |
|
|
|
232.9 |
|
Repayments of borrowings |
|
|
(54.2 |
) |
|
|
(207.2 |
) |
Net cash used in financing activities |
|
|
(16.6 |
) |
|
|
(15.0 |
) |
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
|
(5.4 |
) |
|
|
(2.7 |
) |
Decrease in cash and cash equivalents |
|
|
(57.7 |
) |
|
|
(34.1 |
) |
Cash and cash equivalents at beginning of the period |
|
|
161.5 |
|
|
|
157.0 |
|
Cash and cash equivalents at end of the period |
|
$ |
103.8 |
|
|
$ |
122.9 |
|
|
|
|
|
|
|
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Cash paid during the period for: |
|
|
|
|
|
|
||
Interest |
|
$ |
17.5 |
|
|
$ |
12.7 |
|
Income taxes, net of refunds |
|
$ |
17.6 |
|
|
$ |
17.0 |
|
Operating lease obligations |
|
$ |
6.9 |
|
|
$ |
6.9 |
|
See notes to condensed consolidated financial statements.
7
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of business
Methode Electronics, Inc. (the “Company” or “Methode”) is a leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. The Company designs, engineers and produces mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing its broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and sensor applications.
The Company’s solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment and consumer appliance.
Basis of presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Form 10-K for the year ended April 27, 2024, filed with the SEC on July 11, 2024. Results may vary from quarter to quarter for reasons other than seasonality.
Financial reporting periods
The Company’s fiscal year ends on the Saturday closest to April 30 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. The current fiscal year ending May 3, 2025 is a 53-week fiscal year, with the additional week being included in the second fiscal quarter. The three months ended February 1, 2025 and January 27, 2024 were 13-week periods, while the nine months ended February 1, 2025 and January 27, 2024 were 40 and 39-week periods, respectively.
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. These estimates and assumptions are subject to an inherent degree of uncertainty and may change, as new events occur, and additional information is obtained. As a result, actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.
Accounting pronouncements not yet adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires entities to provide disclosures about their reportable segments’ significant expenses on an interim and annual basis. The updated standard is effective for the Company’s annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU No. 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU No. 2023-09 will become effective for the Company in the first quarter of fiscal 2026 and will be applied on a prospective basis, with a retrospective option. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its financial statement disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures.” ASU 2024-03 requires public entities to disclose more detailed information about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expenses and depreciation. ASU 2024-03 will become effective for the Company’s annual periods beginning in fiscal 2028. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its financial statement disclosures.
8
There have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements. Further, at February 1, 2025, there are no other pronouncements pending adoption that are expected to have a material impact on the Company’s condensed consolidated financial statements.
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, 2024. There have been no material changes to the significant accounting policies in the nine months ended February 1, 2025.
Foreign currency translation.
The functional currencies of the majority of the Company’s foreign subsidiaries are their local currencies. The results of operations of these foreign subsidiaries are translated into U.S. dollars using average monthly rates, while the assets and liabilities are translated using period-end exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains and losses arising from transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions, are included in the condensed consolidated statements of operations in other expense, net. Net foreign exchange loss was $1.3 million in the three months ended February 1, 2025, compared to $2.8 million in the three months ended January 27, 2024. Net foreign exchange loss was $3.6 million in the nine months ended February 1, 2025, compared to $2.2 million in the nine months ended January 27, 2024.
Note 2. Revenue
The Company generates revenue from manufacturing products for customers in diversified global markets under multi-year programs. Typically, these programs do not reach the level of a performance obligation until the Company receives either a purchase order and/or a materials release from the customer for a specific quantity at a specified price, at which point an enforceable contract exists. Contracts may also provide for annual price reductions over the production life of a program, and prices may be adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
The majority of the Company’s revenue is recognized at a point in time. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage. The Company’s revenue also includes customer cost recoveries, which represent reimbursements the Company receives from customers for incremental costs associated with spot purchases of raw materials and premium freight incurred in fulfilling its performance obligation to the customer. Given these cost recoveries are generally negotiated after contract inception, the Company accounts for these cost recoveries as a modification to the existing contract. The Company recognizes cost recoveries as revenue when (or as) the remaining performance obligations per the contract are satisfied, or on the modification date if all performance obligations under the contract have been previously satisfied.
Revenue associated with products which the Company believes have no alternative use (such as highly customized parts), and where the Company has an enforceable right to payment, are recognized on an over time basis. Revenue is recognized based on progress to date, which is typically even over the production process through transfer of control to the customer.
The Company’s payment terms with its customers are typically 30-45 days from the time control transfers. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” to not assess whether a contract has a significant financing component.
Contract balances
The Company receives payment from customers based on the contractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. A contract liability exists when an entity has received consideration, or the amount is due from the customer in advance of revenue recognition. Contract assets and contract liabilities are recognized in other current assets and other accrued liabilities, respectively in the condensed consolidated balance sheets and were immaterial as of February 1, 2025 and April 27, 2024.
9
Disaggregated revenue information
The following table represents a disaggregation of revenue from contracts with customers by segment and geographical location. Net sales are attributed to regions based on the location of production. Though revenue recognition patterns and contracts are generally consistent, the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic and economic factors.
|
|
Three Months Ended February 1, 2025 (13 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
51.8 |
|
|
$ |
38.6 |
|
|
$ |
12.3 |
|
|
$ |
— |
|
|
$ |
102.7 |
|
Europe, the Middle East & Africa ("EMEA") |
|
|
55.9 |
|
|
|
41.4 |
|
|
|
— |
|
|
|
— |
|
|
|
97.3 |
|
Asia |
|
|
8.0 |
|
|
|
31.9 |
|
|
|
— |
|
|
|
— |
|
|
|
39.9 |
|
Total net sales |
|
$ |
115.7 |
|
|
$ |
111.9 |
|
|
$ |
12.3 |
|
|
$ |
— |
|
|
$ |
239.9 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
111.8 |
|
|
$ |
111.9 |
|
|
$ |
12.3 |
|
|
$ |
— |
|
|
$ |
236.0 |
|
Goods transferred over time |
|
|
3.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.9 |
|
Total net sales |
|
$ |
115.7 |
|
|
$ |
111.9 |
|
|
$ |
12.3 |
|
|
$ |
— |
|
|
$ |
239.9 |
|
|
|
Three Months Ended January 27, 2024 (13 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
56.7 |
|
|
$ |
45.6 |
|
|
$ |
12.7 |
|
|
$ |
— |
|
|
$ |
115.0 |
|
EMEA |
|
|
52.0 |
|
|
|
37.5 |
|
|
|
— |
|
|
|
— |
|
|
|
89.5 |
|
Asia |
|
|
31.0 |
|
|
|
24.0 |
|
|
|
— |
|
|
|
— |
|
|
|
55.0 |
|
Total net sales |
|
$ |
139.7 |
|
|
$ |
107.1 |
|
|
$ |
12.7 |
|
|
$ |
— |
|
|
$ |
259.5 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
136.6 |
|
|
$ |
107.1 |
|
|
$ |
12.7 |
|
|
$ |
— |
|
|
$ |
256.4 |
|
Goods transferred over time |
|
|
3.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.1 |
|
Total net sales |
|
$ |
139.7 |
|
|
$ |
107.1 |
|
|
$ |
12.7 |
|
|
$ |
— |
|
|
$ |
259.5 |
|
|
|
Nine Months Ended February 1, 2025 (40 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
187.8 |
|
|
$ |
133.8 |
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
361.8 |
|
EMEA |
|
|
181.7 |
|
|
|
129.5 |
|
|
|
— |
|
|
|
— |
|
|
|
311.2 |
|
Asia |
|
|
26.5 |
|
|
|
91.5 |
|
|
|
— |
|
|
|
— |
|
|
|
118.0 |
|
Total net sales |
|
$ |
396.0 |
|
|
$ |
354.8 |
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
791.0 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
387.2 |
|
|
$ |
354.8 |
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
782.2 |
|
Goods transferred over time |
|
|
8.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.8 |
|
Total net sales |
|
$ |
396.0 |
|
|
$ |
354.8 |
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
791.0 |
|
|
|
Nine Months Ended January 27, 2024 (39 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
194.4 |
|
|
$ |
137.6 |
|
|
$ |
39.6 |
|
|
$ |
2.3 |
|
|
$ |
373.9 |
|
EMEA |
|
|
153.9 |
|
|
|
131.4 |
|
|
|
— |
|
|
|
— |
|
|
|
285.3 |
|
Asia |
|
|
104.0 |
|
|
|
73.9 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
178.0 |
|
Total net sales |
|
$ |
452.3 |
|
|
$ |
342.9 |
|
|
$ |
39.6 |
|
|
$ |
2.4 |
|
|
$ |
837.2 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
440.7 |
|
|
$ |
342.9 |
|
|
$ |
39.6 |
|
|
$ |
2.4 |
|
|
$ |
825.6 |
|
Goods transferred over time |
|
|
11.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.6 |
|
Total net sales |
|
$ |
452.3 |
|
|
$ |
342.9 |
|
|
$ |
39.6 |
|
|
$ |
2.4 |
|
|
$ |
837.2 |
|
10
Note 3. Disposition
In the first quarter of fiscal 2024, the Company made the decision to initiate the discontinuation of the Dabir business in the Medical segment. In fiscal 2024, the Company sold certain assets and contracts of its Dabir business to a third party for consideration of $1.5 million and recorded a loss on the sale, including transaction costs, of $0.6 million. The discontinuation of the Dabir business does not qualify as a discontinued operation as it does not represent a strategic shift that will have a major effect on the Company’s operations or financial results.
Note 4. Income Taxes
For the three and nine months ended February 1, 2025, the Company utilized the discrete effective tax rate method, treating the year-to-date period as if it was the annual period to calculate its interim income tax provision, as allowed by ASC 740-270-30-18, “Income Taxes-Interim Reporting.” The Company concluded it could not use the estimated annual effective tax rate method as it could not calculate a reliable estimate of the annual effective tax rate due to it being highly sensitive to minor changes in the forecasted amounts, thus generating significant variability in the estimated annual effective tax rate and distorting the customary relationship between income tax expense and pre-tax income in interim periods.
The Company’s income tax expense and effective tax rate for the three and nine months ended February 1, 2025 and January 27, 2024 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
($ in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Pre-tax loss |
|
$ |
(8.2 |
) |
|
$ |
(10.5 |
) |
|
$ |
(19.7 |
) |
|
$ |
(65.0 |
) |
Income tax expense |
|
|
6.2 |
|
|
|
1.1 |
|
|
|
14.6 |
|
|
|
1.0 |
|
Effective tax rate |
|
|
(75.6 |
)% |
|
|
(10.5 |
)% |
|
|
(74.1 |
)% |
|
|
(1.5 |
)% |
The effective tax rate for the three and nine months ended February 1, 2025 differs from the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for U.S. deferred tax assets and an unfavorable impact from global intangible low-tax income (“GILTI”), partially offset by the impact of income derived from foreign operations with lower statutory tax rates. The effective tax rate for the three months ended January 27, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to the impact of income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions, offset by GILTI. The effective tax rate for the nine months ended January 27, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to an impairment of goodwill which is non-deductible for tax purposes, income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions, offset by GILTI.
As of February 1, 2025, the Company determined that recovery of some of its U.S. deferred tax assets was not more likely than not, and recorded a valuation allowance to income tax expense of $6.5 million for the three months ended February 1, 2025 and $14.0 million for the nine months ended February 1, 2025. The valuation allowance was recorded based on the evaluation of all available evidence.
The Organization for Economic Cooperation and Development’s (“OECD”) Pillar II Initiative introduced a 15% global minimum tax for certain multinational groups exceeding minimum annual global revenue thresholds. Some countries in which the Company operates have enacted legislation adopting the minimum tax effective January 1, 2024. To date, the Company has determined that there is an immaterial global minimum tax liability as a result of Pillar II, as certain tax jurisdictions either will not have Pillar II enacted until after December 31, 2024, or have satisfied the safe harbor test to prevent any minimum tax under Pillar II. The Company continues to monitor its jurisdictions for any changes and include any appropriate minimum tax throughout the fiscal year.
The Company’s gross unrecognized income tax benefits were $4.5 million and $4.4 million as of February 1, 2025 and April 27, 2024, respectively. If any portion of the Company’s unrecognized tax benefits is recognized, it would impact the Company’s effective tax rate. The unrecognized tax benefits are reviewed periodically and adjusted for changing facts and circumstances, such as tax audits, the lapsing of applicable statutes of limitations and changes in tax law. The Company recognizes interest and penalties related to income tax uncertainties in income tax expense. Accrued interest and penalties were $0.6 million and $0.4 million as of February 1, 2025 and April 27, 2024, respectively.
11
Note 5. Balance Sheet Components
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less. Highly liquid investments include money market funds which are classified within Level 1 of the fair value hierarchy. As of February 1, 2025 and April 27, 2024, the Company had a balance of $0.2 million and $73.2 million, respectively, in money market accounts.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are customer obligations due under normal trade terms and are presented net of an allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on the current expected credit loss impairment model. The Company applies a historical loss rate based on historic write-offs to aging categories. The historical loss rate is adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. The Company may also record a specific reserve for individual accounts when it becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. The allowance for doubtful accounts balance was $2.7 million and $1.4 million as of February 1, 2025 and April 27, 2024, respectively.
Inventories
Inventories are stated at the lower-of-cost or net realizable value. Cost is determined using the first-in, first-out method. Finished products and work-in-process inventories include direct material costs and direct and indirect manufacturing costs. The Company records reserves for inventory that may be obsolete or in excess of current and future market demand. A summary of inventories is shown below:
(in millions) |
|
February 1, 2025 |
|
|
April 27, 2024 |
|
||
Finished products |
|
$ |
47.1 |
|
|
$ |
45.6 |
|
Work in process |
|
|
24.1 |
|
|
|
16.1 |
|
Raw materials |
|
|
147.6 |
|
|
|
124.5 |
|
Total inventories |
|
$ |
218.8 |
|
|
$ |
186.2 |
|
Assets held for sale
The Company classifies long-lived assets to be sold as held for sale in the period in which all of the required criteria under ASC 360 “Property, Plant, and Equipment” are met. The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Upon determining that a long-lived asset meets the criteria to be classified as held for sale, the Company ceases depreciation and reports long-lived assets as “Assets held for sale” on the condensed consolidated balance sheets. Assets held for sale at April 27, 2024 consisted of three non-core real estate assets, two of which were sold in the nine months ended February 1, 2025. The two non-core real estate assets had an aggregate carrying value of $2.0 million and the Company recognized a gain of $0.3 million from these sales. The Company has accepted an offer for the asset held for sale at February 1, 2025, and currently expects the sale to be completed prior to the end of its fourth quarter ending May 3, 2025. The Company expects to recognize an immaterial gain from the sale of this non-core real estate asset.
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:
(in millions) |
|
February 1, 2025 |
|
|
April 27, 2024 |
|
||
Land |
|
$ |
3.3 |
|
|
$ |
3.3 |
|
Buildings and building improvements |
|
|
98.4 |
|
|
|
98.5 |
|
Machinery and equipment |
|
|
395.4 |
|
|
|
394.6 |
|
Construction in progress |
|
|
48.1 |
|
|
|
50.4 |
|
Total property, plant and equipment, gross |
|
|
545.2 |
|
|
|
546.8 |
|
Less: accumulated depreciation |
|
|
(336.6 |
) |
|
|
(334.7 |
) |
Property, plant and equipment, net |
|
$ |
208.6 |
|
|
$ |
212.1 |
|
Depreciation expense was $8.3 million and $8.8 million in the three months ended February 1, 2025 and January 27, 2024, respectively. Depreciation expense was $24.9 million and $25.3 million in the nine months ended February 1, 2025 and January 27, 2024, respectively. As of February 1, 2025 and April 27, 2024, capital expenditures recorded in accounts payable totaled $2.3 million and $6.1 million, respectively.
12
Pre-production tooling costs related to long-term supply arrangements
The Company incurs pre-production tooling costs related to products produced for its customers under long-term supply arrangements. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable by the customer. As of February 1, 2025 and April 27, 2024, the Company had $40.0 million and $44.1 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling.
Costs for molds, dies and other tools used in products produced for its customers under long-term supply arrangements for which the Company has title are capitalized in property, plant and equipment and amortized over the shorter of the life of the arrangement or the estimated useful life of the assets. As of February 1, 2025 and April 27, 2024, Company-owned tooling was $12.5 million and $14.0 million, respectively.
Note 6. Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. All of the Company’s goodwill is in the Industrial segment. A summary of the changes in the carrying amount of goodwill is shown below:
(in millions) |
|
Total |
|
|
Balance as of April 27, 2024 |
|
$ |
169.9 |
|
Foreign currency translation |
|
|
(2.5 |
) |
Balance as of February 1, 2025 |
|
$ |
167.4 |
|
A summary of goodwill by reporting unit is as follows:
(in millions) |
|
February 1, 2025 |
|
|
April 27, 2024 |
|
||
Grakon Industrial |
|
$ |
123.2 |
|
|
$ |
124.4 |
|
Nordic Lights |
|
|
42.6 |
|
|
|
43.9 |
|
Other |
|
|
1.6 |
|
|
|
1.6 |
|
Total |
|
$ |
167.4 |
|
|
$ |
169.9 |
|
The Company tests goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the beginning of the fourth quarter each fiscal year. In addition, the Company continuously monitors for events and circumstances that could negatively impact the key assumptions used in determining fair value and therefore require interim goodwill impairment testing, including long-term revenue growth projections, profitability, discount rates, volatility in the Company's market capitalization, and general industry, market and macroeconomic conditions. No impairment indicators were identified in the third quarter of fiscal 2025.
October 28, 2023 goodwill impairment
During the three months ended October 28, 2023, the Company identified an impairment triggering event associated with a sustained decrease in the Company’s publicly quoted share price, market capitalization and lower than expected operating results. These factors suggested that the fair value of one or more of the Company’s reporting units may have fallen below their carrying amounts. As a result, the Company performed an interim quantitative impairment test and recognized a non-cash goodwill impairment charge of $56.5 million for two reporting units in its Automotive segment.
Other intangible assets, net
Details of identifiable intangible assets are shown below:
|
|
As of February 1, 2025 |
|
|||||||||||||
(in millions) |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted average remaining useful life (years) |
|
||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships and agreements |
|
$ |
303.0 |
|
|
$ |
(96.5 |
) |
|
$ |
206.5 |
|
|
|
14.2 |
|
Trade names, patents and technology licenses |
|
|
74.4 |
|
|
|
(47.0 |
) |
|
|
27.4 |
|
|
|
6.5 |
|
Total amortized intangible assets |
|
|
377.4 |
|
|
|
(143.5 |
) |
|
|
233.9 |
|
|
|
|
|
Unamortized trade name |
|
|
1.8 |
|
|
|
— |
|
|
|
1.8 |
|
|
|
|
|
Total other intangible assets |
|
$ |
379.2 |
|
|
$ |
(143.5 |
) |
|
$ |
235.7 |
|
|
|
|
|
13
|
|
As of April 27, 2024 |
|
|||||||||||||
(in millions) |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted average remaining useful life (years) |
|
||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships and agreements |
|
$ |
306.6 |
|
|
$ |
(84.7 |
) |
|
$ |
221.9 |
|
|
|
14.8 |
|
Trade names, patents and technology licenses |
|
|
75.3 |
|
|
|
(42.3 |
) |
|
|
33.0 |
|
|
|
6.9 |
|
Total amortized intangible assets |
|
|
381.9 |
|
|
|
(127.0 |
) |
|
|
254.9 |
|
|
|
|
|
Unamortized trade name |
|
|
1.8 |
|
|
|
— |
|
|
|
1.8 |
|
|
|
|
|
Total other intangible assets |
|
$ |
383.7 |
|
|
$ |
(127.0 |
) |
|
$ |
256.7 |
|
|
|
|
|
Based on the current amount of intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
(in millions) |
|
|
|
|
Fiscal Year: |
|
|
|
|
Remainder of 2025 |
|
$ |
5.7 |
|
2026 |
|
|
22.3 |
|
2027 |
|
|
21.6 |
|
2028 |
|
|
19.3 |
|
2029 |
|
|
18.1 |
|
Thereafter |
|
|
146.9 |
|
Total |
|
$ |
233.9 |
|
Note 7. Derivative Instruments and Hedging Activities
The Company is exposed to various market risks including, but not limited to, foreign currency exchange rates and market interest rates. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through the use of derivative financial instruments. Derivative financial instruments are measured at fair value on a recurring basis using various pricing models that incorporate observable market parameters, such as interest rate yield curves and foreign currency rates and are classified as Level 2 within the fair value hierarchy.
For a designated cash flow hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded in AOCI in the condensed consolidated balance sheets. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI is recorded in earnings and reflected in the condensed consolidated statements of operations on the same line as the gain or loss on the hedged item attributable to the hedged risk. The gain or loss associated with changes in the fair value of derivatives not designated as hedges are recorded immediately in the condensed consolidated statements of operations on the same line as the associated risk. For a designated net investment hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded as a cumulative translation adjustment in AOCI in the condensed consolidated balance sheets.
Net investment hedges
The Company is exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designates certain qualifying derivative and non-derivative instruments, including cross-currency swaps and foreign currency-denominated debt, as net investment hedges of certain non-U.S. subsidiaries.
The Company had a fixed-rate, cross-currency swap, with a notional value of $60.0 million (€54.8 million), that settled in December 2024 with a gross gain of approximately $3.1 million. The cross-currency swap was designated as a hedge of the Company’s net investment in a euro-based subsidiary. The gain will remain in AOCI until the hedged net investment is sold or substantially liquidated.
Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method. The Company recognizes the impact of all other changes in fair value of the derivative, which represents the interest rate differential of the cross-currency swap, through interest expense. For the three months ended February 1, 2025 and January 27, 2024, the Company recorded a loss of $0.1 million and zero, respectively, in interest expense, net in the condensed consolidated statements of operations. For the nine months ended February 1, 2025 and January 27, 2024, the Company recorded gains of $0.4 million and $1.1 million, respectively, in interest expense, net in the condensed consolidated statements of operations.
14
The Company has €275.0 million of long-term borrowings under its Amended Credit Agreement (see Note 8 “Debt”) which was designated as a net investment hedge of the foreign currency exposure of its investment in its euro-denominated subsidiaries. On December 18, 2024, the Company de-designated these long-term borrowings as a net investment hedge. As of December 18, 2024, the cumulative gain, net of tax, was $9.0 million which will remain in AOCI until there is a substantial liquidation of the Company’s net investment of its euro-denominated subsidiaries. Due to changes in the value of the euro-denominated long-term borrowings designated as a net investment hedge, in the three months ended February 1, 2025 (through the date of de-designation) and January 27, 2024, a gain, net of tax, of $7.7 million and loss, net of tax, of $5.9 million, respectively, were recognized within the currency translation section of other comprehensive income (loss). In the nine months ended February 1, 2025 (through the date of de-designation) and January 27, 2024, a gain, net of tax, of $4.8 million and $1.4 million, respectively, were recognized within the currency translation section of other comprehensive income (loss). Included in AOCI related to this net investment hedge were cumulative gains of $9.0 million and $4.2 million, respectively, as of February 1, 2025 and April 27, 2024. The Company is now managing the related foreign exchange risk of its €275.0 million of long-term borrowings not designated as a net investment hedge through certain Euro denominated financial assets.
Interest rate swaps
The Company utilizes interest rate swaps to limit its exposure to market fluctuations on its variable-rate borrowings. The interest rate swaps effectively convert a portion of the Company's variable rate borrowings to a fixed rate based upon a determined notional amount. The Company has an interest rate swap, maturing on October 31, 2027, with a notional value of $137.0 million (€132.0 million). The interest rate swaps are designated as cash flow hedges.
Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter. The effective portion of the periodic changes in fair value is recognized in AOCI in the condensed consolidated balance sheets. Subsequently, the accumulated gains and losses recorded in AOCI are reclassified to income in the period during which the hedged cash flow impacts earnings, which are expected to be immaterial over the next 12 months. No ineffectiveness was recognized in the three or nine months ended February 1, 2025 and January 27, 2024.
Derivatives not designated as hedges
The Company uses short-term foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-functional currency balance sheet exposures. These forward contracts are not designated as hedging instruments. Gains and losses on these forward contracts are recognized in other expense, net, along with the foreign currency gains and losses on monetary assets and liabilities, in the condensed consolidated statements of operations.
As of February 1, 2025 and April 27, 2024, the Company held foreign currency forward contracts with a notional value of $152.8 million and $110.9 million, respectively. During the three and nine months ended February 1, 2025, the Company recognized a loss of $4.7 million and $4.2 million, respectively, related to foreign currency forward contracts in the condensed consolidated statements of operations. During the three and nine months ended January 27, 2024, the Company recognized a gain of $0.6 million and a loss of $2.1 million, respectively, related to foreign currency forward contracts in the condensed consolidated statements of operations.
Effect of derivative instruments on comprehensive income (loss)
The pre-tax effects of derivative financial instruments recorded in other comprehensive income (loss) were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Net investment hedges |
|
$ |
2.6 |
|
|
$ |
0.3 |
|
|
$ |
1.8 |
|
|
$ |
1.5 |
|
Interest rate swaps |
|
|
0.1 |
|
|
|
(3.1 |
) |
|
|
(2.6 |
) |
|
|
(5.8 |
) |
Total |
|
$ |
2.7 |
|
|
$ |
(2.8 |
) |
|
$ |
(0.8 |
) |
|
$ |
(4.3 |
) |
15
Fair value of derivative instruments on the balance sheet
The fair value of derivative instruments are classified as Level 2 within the fair value hierarchy and are recorded in the condensed consolidated balance sheets as follows:
|
|
|
|
Asset/(Liability) |
|
|||||
(in millions) |
|
Financial Statement Caption |
|
February 1, 2025 |
|
|
April 27, 2024 |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Net investment hedges |
|
Prepaid expenses and other current assets |
|
$ |
— |
|
|
$ |
1.3 |
|
Interest rate swaps |
|
Other long-term liabilities |
|
$ |
(4.7 |
) |
|
$ |
(2.1 |
) |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Foreign currency forward contracts |
|
Other accrued liabilities |
|
$ |
(0.8 |
) |
|
$ |
(0.2 |
) |
Note 8. Debt
A summary of debt is shown below:
(in millions) |
|
February 1, 2025 |
|
|
April 27, 2024 |
|
||
Revolving credit facility |
|
$ |
330.0 |
|
|
$ |
333.0 |
|
Other debt |
|
|
1.3 |
|
|
|
1.5 |
|
Unamortized debt issuance costs |
|
|
(3.4 |
) |
|
|
(3.6 |
) |
Total debt |
|
|
327.9 |
|
|
|
330.9 |
|
Less: current maturities |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Total long-term debt |
|
$ |
327.7 |
|
|
$ |
330.7 |
|
Revolving credit facility
On October 31, 2022, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) among the Company, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders and other parties named therein. On March 6, 2024, the Company entered into a First Amendment to Second Amended and Restated Credit Agreement (the “First Amendment”) and on July 9, 2024, the Company entered into a Second Amendment to Second Amended and Restated Credit Agreement and First Amendment to Second Amended and Restated Guaranty (the “Second Amendment”) among the Company, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, the other Lenders party thereto and other parties thereto.
Among other things, the Second Amendment (i) reduced the revolving credit commitments under the Credit Agreement from $750 million to $500 million, (ii) granted a security interest in substantially all of the personal property of the Company and its U.S. subsidiaries that are guarantors, including 100% of the equity interests of their respective U.S. subsidiaries and 65% of the equity interests of their respective foreign subsidiaries (or such greater amount to the extent such pledge could not reasonably cause adverse tax consequences), (iii) amended the consolidated interest coverage ratio covenant for each quarter in fiscal year 2025, (iv) amended the consolidated leverage ratio covenant for the quarter ending July 27, 2024 and each subsequent fiscal quarter, (v) amended certain interest rate provisions, (vi) added a requirement to provide monthly financial statements to the lenders through the period ending July 25, 2025, (vii) decreased the general basket exceptions to certain covenants restricting certain Company investments, liens and indebtedness for specified periods of time, (viii) increased, for fiscal year 2025, the general basket exception to a covenant restricting certain Company dispositions of property, (ix) added an “anti-cash hoarding” requirement, applicable during the period from the effective date of the Second Amendment until the earlier to occur of (a) the delivery of financial statements and a compliance certificate for the fiscal quarter ending July 25, 2025 and (b) the delivery of compliance certificates for two consecutive fiscal quarters demonstrating that the Company’s consolidated leverage ratio as of the last day of such fiscal quarters was less than 3.00:1.00, that if the Company has cash on hand (subject to certain exceptions) of more than $65 million for 10 consecutive business days, the Company shall prepay the indebtedness under the credit facility by the amount of such excess and (x) made certain other changes to the investment, restricted payment and indebtedness baskets. The Credit Agreement, as amended by the First Amendment and the Second Amendment, is referred to herein as the “Amended Credit Agreement.”
16
The Amended Credit Agreement provides for a secured multicurrency revolving credit facility of $500 million. In addition, the Amended Credit Agreement permits the Company to increase the revolving commitments and/or add one or more tranches of term loans under the Amended Credit Agreement from time to time by up to an amount equal to (i) $250 million plus (ii) an additional amount so long as the consolidated leverage ratio would not exceed 3.00:1.00 on a pro forma basis, subject to, among other things, the receipt of additional commitments from existing and/or new lenders. The Amended Credit Agreement matures on October 31, 2027.
The Second Amendment was accounted for as a debt modification, which resulted in a non-cash loss of $1.2 million in the nine months ended February 1, 2025 related to the partial write-off of unamortized debt issuance costs as a result of the reduction in the credit facility size. The non-cash loss was recognized in other expense, net in the Company’s condensed consolidated statement of operations. Additionally, the Company incurred debt issuance costs of approximately $1.8 million associated with the Second Amendment which were capitalized and, along with the current unamortized debt issuance costs, are being amortized to interest expense on a straight-line basis over remaining term of the Amended Credit Agreement.
Loans denominated in US dollars under the Amended Credit Agreement bear interest at either (a) an adjusted base rate or (b) an adjusted term Secured Overnight Financing Rate (“SOFR”) rate or term SOFR daily floating rate (in each case, as determined in accordance with the provisions of the Amended Credit Agreement in each case plus an applicable rate (the “Applicable Rate”) ranging between 0.375% and 1.75%, in the case of adjusted base rate loans, and between 1.375% and 2.75%, in the case of adjusted term SOFR rate loans and term SOFR daily floating rate loans. Loans denominated in euros will bear interest at the Euro Interbank Offered Rate plus an Applicable Rate ranging between 1.375% and 2.75%. The Applicable Rate is set based on the Company’s consolidated leverage ratio.
As of February 1, 2025, the outstanding balance under the revolving credit facility consisted of $285.0 million (€275.0 million) of euro-denominated borrowings and $45.0 million of US dollar denominated borrowings.
The weighted-average interest rate on outstanding US dollar and euro-denominated borrowings under the Amended Credit Agreement was approximately 7.4% and 5.7% as of February 1, 2025. The Amended Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default.
The Amended Credit Agreement contains various representations and warranties, financial covenants (including covenants requiring the Company to maintain compliance with a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio, in each case as of the end of each fiscal quarter), restrictive and other covenants, and events of default. The covenants in the Amended Credit Agreement include an “anti-cash hoarding” requirement, as discussed above. As of February 1, 2025, the Company was in compliance with all the covenants in the Amended Credit Agreement.
Other debt
One of the Company’s European subsidiaries has debt that consists of one note with a maturity in 2031. The weighted-average interest rate on this debt was approximately 1.8% as of February 1, 2025 and $0.2 million of the debt was classified as short-term.
Note 9. Shareholders’ Equity
Repurchases of Common Stock
On March 31, 2021, as subsequently amended on June 16, 2022, the Board of Directors authorized the purchase of up to $200.0 million of the Company’s outstanding common stock through June 14, 2024 (the “2021 Buyback Authorization”). On June 13, 2024, the Board of Directors approved a new share buyback authorization, commencing on June 17, 2024, for the purchase of up to $200.0 million of the Company’s outstanding common stock through June 17, 2026 (the “2024 Buyback Authorization”). Purchases may be made on the open market, including pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions.
The following table summarizes activity under the 2021 Buyback Authorization:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions, except share and per share data) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Shares purchased |
|
|
— |
|
|
|
130,592 |
|
|
|
136,000 |
|
|
|
453,371 |
|
Average price per share |
|
$ |
— |
|
|
$ |
22.99 |
|
|
$ |
11.55 |
|
|
$ |
23.73 |
|
Total cost |
|
$ |
— |
|
|
$ |
3.0 |
|
|
$ |
1.6 |
|
|
$ |
10.8 |
|
17
Prior to its expiration, a total of 3,553,961 shares were purchased under the 2021 Buyback Authorization at a total cost of $134.6 million. All purchased shares were retired and are reflected as a reduction of common stock for the par value of shares, with the excess applied as a reduction to retained earnings. In the three and nine months ended February 1, 2025, there were zero and 136,000 shares purchased under the 2021 Buyback Authorization and no shares purchased under the 2024 Buyback Authorization. No further shares can be purchased under the 2021 Buyback Authorization. As of February 1, 2025, the dollar value of shares that remained available to be purchased by the Company under 2024 Buyback Authorization was $200.0 million.
Dividends
The Company paid dividends totaling $5.3 million and $4.9 million in the three months ended February 1, 2025 and January 27, 2024, respectively. The Company paid dividends totaling $15.3 million and $15.0 million in the nine months ended February 1, 2025 and January 27, 2024, respectively. Dividends paid in the three months ended February 1, 2025 include $0.6 million of dividend equivalent payments for restricted stock units that vested. Dividends paid in the nine months ended February 1, 2025 and January 27, 2024, include $0.8 million and $0.4 million of dividend equivalent payments for restricted stock units that vested.
Accumulated other comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. A summary of changes in AOCI, net of tax is shown below:
|
|
Three Months Ended February 1, 2025 (13 Weeks) |
|
|
Nine Months Ended February 1, 2025 (40 Weeks) |
|
||||||||||||||||||
(in millions) |
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
||||||
Balance at beginning of period |
|
$ |
(34.9 |
) |
|
$ |
(2.8 |
) |
|
$ |
(37.7 |
) |
|
$ |
(36.5 |
) |
|
$ |
(0.2 |
) |
|
$ |
(36.7 |
) |
Other comprehensive income (loss) |
|
|
(13.3 |
) |
|
|
2.7 |
|
|
|
(10.6 |
) |
|
|
(12.5 |
) |
|
|
(0.8 |
) |
|
|
(13.3 |
) |
Tax (expense) benefit |
|
|
(2.2 |
) |
|
|
(0.7 |
) |
|
|
(2.9 |
) |
|
|
(1.4 |
) |
|
|
0.2 |
|
|
|
(1.2 |
) |
Net other comprehensive income (loss) |
|
|
(15.5 |
) |
|
|
2.0 |
|
|
|
(13.5 |
) |
|
|
(13.9 |
) |
|
|
(0.6 |
) |
|
|
(14.5 |
) |
Balance at the end of period |
|
$ |
(50.4 |
) |
|
$ |
(0.8 |
) |
|
$ |
(51.2 |
) |
|
$ |
(50.4 |
) |
|
$ |
(0.8 |
) |
|
$ |
(51.2 |
) |
|
|
Three Months Ended January 27, 2024 (13 Weeks) |
|
|
Nine Months Ended January 27, 2024 (39 Weeks) |
|
||||||||||||||||||
(in millions) |
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
||||||
Balance at beginning of period |
|
$ |
(42.5 |
) |
|
$ |
(0.4 |
) |
|
$ |
(42.9 |
) |
|
$ |
(19.8 |
) |
|
$ |
0.8 |
|
|
$ |
(19.0 |
) |
Other comprehensive income (loss) |
|
|
11.7 |
|
|
|
(2.8 |
) |
|
|
8.9 |
|
|
|
(8.6 |
) |
|
|
(4.3 |
) |
|
|
(12.9 |
) |
Tax benefit (expense) |
|
|
2.0 |
|
|
|
0.8 |
|
|
|
2.8 |
|
|
|
(0.4 |
) |
|
|
1.1 |
|
|
|
0.7 |
|
Net other comprehensive income (loss) |
|
|
13.7 |
|
|
|
(2.0 |
) |
|
|
11.7 |
|
|
|
(9.0 |
) |
|
|
(3.2 |
) |
|
|
(12.2 |
) |
Balance at the end of period |
|
$ |
(28.8 |
) |
|
$ |
(2.4 |
) |
|
$ |
(31.2 |
) |
|
$ |
(28.8 |
) |
|
$ |
(2.4 |
) |
|
$ |
(31.2 |
) |
Stock-based compensation
The Company has granted stock options, restricted stock awards (“RSAs”), performance units (“PUs”), restricted stock units (“RSUs”), performance stock units (“PSUs”) and stock awards to employees and non-employee directors under the Methode Electronics, Inc. 2022 Omnibus Incentive Plan (“2022 Plan”), the Methode Electronics, Inc. 2014 Omnibus Incentive Plan (“2014 Plan”), the Methode Electronics, Inc. 2010 Stock Plan (“2010 Plan”), and the Methode Electronics, Inc. 2004 Stock Plan (“2004 Plan”). The Company can no longer make grants under the 2014 Plan, 2010 Plan and 2004 Plan.
Subject to adjustment as provided in the 2022 Plan and the 2022 Plan’s share counting provisions, the number of shares of the Company's common stock that will be available for all awards under the 2022 Plan is 5,550,000, less an amount to reflect shares, options or other awards granted under prior plans after April 30, 2022. As of February 1, 2025, there were approximately 3.6 million shares available for award under the 2022 Plan.
Restricted stock awards and performance units
As of February 1, 2025, the Company had 710,349 RSAs outstanding which may be earned based on the achievement of an earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) measure for fiscal 2025. The RSAs will vest ranging from 0% (for performance below threshold) to 100% (target performance) based on the achievement of the EBITDA performance measure and continued employment. In addition, if the target performance is exceeded, up to an additional 355,175 PUs can be earned that will be settled in cash.
18
The fair value of the RSAs was based on the closing stock price on the date of grant and the RSAs earn dividend equivalents during the vesting period, which are forfeitable if the RSAs do not vest. Compensation expense for the RSAs is recognized when it is probable the minimum threshold performance criteria will be achieved. Compensation expense for the PUs is recognized when it is probable that the target performance criteria will be exceeded. The Company assesses the probability of vesting at each balance sheet date and adjusts compensation costs based on the probability assessment. The cash-settled PUs represent a non-equity unit with a conversion value equal to the fair market value of a share of the Company’s common stock on the vesting date. The PUs are classified as liability awards due to the cash settlement feature and are re-measured at each balance sheet date. In accordance with ASC 718, “Compensation - Stock Compensation” based on projections of the Company’s current business portfolio, no compensation expense has been recognized for the RSAs or PUs to date, as the performance conditions are not probable of being met. Unrecognized stock-based compensation expense at target level of performance is $20.5 million as of February 1, 2025, which, subject to the performance conditions being met, will be recognized through fiscal 2025. The following table summarizes RSA activity:
|
|
Restricted |
|
|
Weighted |
|
||
Non-vested at April 27, 2024 |
|
|
789,674 |
|
|
$ |
28.81 |
|
Awarded |
|
|
— |
|
|
$ |
— |
|
Vested |
|
|
— |
|
|
$ |
— |
|
Forfeited |
|
|
(79,325 |
) |
|
$ |
28.28 |
|
Non-vested at February 1, 2025 |
|
|
710,349 |
|
|
$ |
28.87 |
|
Performance stock units
In the nine months ended February 1, 2025, the Company granted 208,661 PSUs which will vest upon the achievement of a total stockholder return (“TSR”) measure based on the growth in the Company’s stock price over a three-year performance period that ends April 30, 2027. The number of shares to be issued may range from 0% to a maximum of 200% of the PSUs granted. The Company estimated the grant date fair value of the PSUs using the Monte Carlo simulation model, as the TSR metric and changes in stock price are considered market conditions under ASC 718. The following table provides a summary of the weighted-average assumptions for the PSUs granted:
|
|
Assumptions |
|
|
Expected volatility |
|
|
52.40 |
% |
Risk free interest rate |
|
|
4.07 |
% |
Expected term (in years) |
|
|
2.72 |
|
Grant date fair value |
|
$ |
14.09 |
|
The PSUs earn dividend equivalents during the vesting periods, which are forfeitable if the PSUs do not vest. As of February 1, 2025, unrecognized share-based compensation expense for the PSUs was $2.5 million, which is expected to be recognized over a weighted average period of approximately three years. The following table summarizes PSU activity:
|
|
Performance |
|
|
Weighted |
|
||
Non-vested at April 27, 2024 |
|
|
— |
|
|
$ |
— |
|
Awarded |
|
|
208,661 |
|
|
$ |
14.09 |
|
Vested |
|
|
— |
|
|
$ |
— |
|
Forfeited |
|
|
— |
|
|
$ |
— |
|
Non-vested at February 1, 2025 |
|
|
208,661 |
|
|
$ |
14.09 |
|
19
Restricted stock units
RSUs granted vest over a pre-determined period of time, up to five years from the date of grant. The fair value of the RSUs granted are based on the closing stock price on the date of grant and earn dividend equivalents during the vesting periods, which are forfeitable if the RSUs do not vest. The following table summarizes RSU activity:
|
|
Restricted |
|
|
Weighted |
|
||
Non-vested at April 27, 2024 |
|
|
941,640 |
|
|
$ |
26.43 |
|
Awarded |
|
|
326,244 |
|
|
$ |
12.01 |
|
Conversion of cash bonus to RSUs |
|
|
160,401 |
|
|
$ |
12.87 |
|
Vested |
|
|
(396,744 |
) |
|
$ |
28.29 |
|
Forfeited |
|
|
(183,930 |
) |
|
$ |
22.73 |
|
Non-vested at February 1, 2025 |
|
|
847,611 |
|
|
$ |
18.25 |
|
In the nine months ended February 1, 2025, 160,401 RSUs were awarded in exchange for cash bonuses earned by certain employees. These RSUs vest on March 7, 2025. As the expense associated with the cash bonuses was previously recognized in fiscal 2024, there is no incremental expense to be recognized for the RSUs. The Company reclassified $2.1 million from accrued employee liabilities to additional paid-in capital on its condensed consolidated balance sheets related to the conversion of the cash bonuses to RSUs.
Under the various stock plans, RSUs that have vested for certain executives, including Ronald L.G. Tsoumas, the Company’s former CFO, will not be delivered in common stock until the first day of the seventh month following the executive’s termination from the Company or upon a change of control. As of February 1, 2025, common stock to be delivered to these executives totaled 85,553 shares, of which 60,875 shares were delivered on February 4, 2025. The vested deferred RSUs are considered outstanding for earnings per share calculations. As of February 1, 2025, unrecognized share-based compensation expense for RSUs was $4.8 million which will be recognized over a weighted-average amortization period of 1.3 years.
Director awards
The Company grants stock awards to its non-employee directors as a component of their compensation. The stock awards vest immediately upon grant. Non-employee directors may elect to defer receipt of their shares under the Company’s non-qualified deferred compensation plan. The following table summarizes awards granted to non-employee directors:
|
|
Non-employee director awards |
|
|
Deferred non-employee director awards |
|
|
Total |
|
|
Weighted |
|
||||
Outstanding at April 27, 2024 |
|
|
— |
|
|
|
77,319 |
|
|
|
77,319 |
|
|
$ |
37.23 |
|
Awarded |
|
|
56,680 |
|
|
|
90,725 |
|
|
|
147,405 |
|
|
$ |
9.92 |
|
Issued |
|
|
(56,680 |
) |
|
|
(23,756 |
) |
|
|
(80,436 |
) |
|
$ |
10.49 |
|
Outstanding at February 1, 2025 |
|
|
— |
|
|
|
144,288 |
|
|
|
144,288 |
|
|
$ |
22.80 |
|
Stock options
The following table summarizes stock option activity:
|
|
Stock |
|
|
Weighted average exercise price |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Outstanding and exercisable at April 27, 2024 |
|
|
8,000 |
|
|
$ |
37.01 |
|
|
|
0.2 |
|
|
$ |
0.0 |
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
||
Forfeited |
|
|
(8,000 |
) |
|
$ |
37.01 |
|
|
|
|
|
|
|
||
Outstanding and exercisable at February 1, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
0.0 |
|
|
$ |
0.0 |
|
20
Stock-based compensation expense
All stock-based awards to employees and non-employee directors are recognized in selling and administrative expenses on the condensed consolidated statements of operations. Awards subject to graded vesting are recognized using the accelerated recognition method over the requisite service period. The table below summarizes the stock-based compensation expense related to the equity awards:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
RSUs |
|
$ |
1.5 |
|
|
$ |
(2.1 |
) |
|
$ |
3.5 |
|
|
$ |
0.2 |
|
PSUs |
|
|
0.3 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
Deferred non-employee director awards |
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
|
|
1.0 |
|
Non-employee director awards |
|
|
— |
|
|
|
— |
|
|
|
0.6 |
|
|
|
0.6 |
|
Total stock-based compensation expense |
|
$ |
1.8 |
|
|
$ |
(2.1 |
) |
|
$ |
5.5 |
|
|
$ |
1.8 |
|
Note 10. Loss per Share
Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the applicable period, but excludes any contingently issued shares where the contingency has not been resolved. The weighted average number of common shares used in the diluted loss per share calculation is determined using the treasury stock method which includes the effect of all potential dilutive common shares outstanding during the period.
The following table sets forth the computation of basic and diluted loss per share:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
|
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss (in millions) |
|
$ |
(14.4 |
) |
|
$ |
(11.6 |
) |
|
$ |
(34.3 |
) |
|
$ |
(66.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic loss per share - weighted average shares outstanding and vested/unissued restricted stock units |
|
|
35,182,166 |
|
|
|
35,327,995 |
|
|
|
35,370,099 |
|
|
|
35,562,513 |
|
Dilutive potential common shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Denominator for diluted loss per share |
|
|
35,182,166 |
|
|
|
35,327,995 |
|
|
|
35,370,099 |
|
|
|
35,562,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.41 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.97 |
) |
|
$ |
(1.86 |
) |
Diluted |
|
$ |
(0.41 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.97 |
) |
|
$ |
(1.86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding |
|
|
1,303,187 |
|
|
|
1,319,577 |
|
|
|
1,176,069 |
|
|
|
1,463,996 |
|
In the three and nine months ended February 1, 2025 and January 27, 2024, all potential common shares issuable for PSUs and RSUs were excluded from the calculation of diluted loss per share, as the effect of including them would have been anti-dilutive. The dilutive effect of potential common shares issuable for PSUs and RSUs on the weighted-average number of common shares outstanding would have been approximately 362,000 and 503,000 common shares for the three months ended February 1, 2025 and January 27, 2024, respectively. The dilutive effect of potential common shares issuable for PSUs and RSUs on the weighted-average number of common shares outstanding would have been approximately 221,000 and 560,000 common shares for the nine months ended February 1, 2025 and January 27, 2024, respectively.
21
Note 11. Segment Information
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM is the Company’s Chief Executive Officer (“CEO”).
The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Products include integrated overhead and center consoles, hidden and ergonomic switches, transmission lead-frames, insert molded components, LED-based lighting and sensors, which incorporate magneto-elastic sensing and other sensing technologies that monitor the operation or status of a component or system.
The Industrial segment manufactures exterior and interior lighting solutions, industrial safety radio remote controls, braided flexible cables, current-carrying laminated busbars and devices, custom power-product assemblies, such as our PowerRail® solution, high-current high-voltage flexible power cabling systems and powder-coated busbars that are used in various markets and applications, including aerospace, commercial vehicles, data centers, industrial equipment, power conversion, military, telecommunications and transportation.
The Interface segment provides a variety of high-speed digital communication over copper media solutions for the data center and broadband markets, and interface panel solutions for the appliance market. Solutions include copper transceivers, distribution point units, and solid-state field-effect consumer touch panels.
The Medical segment was made up of the Company’s medical device business, Dabir Surfaces, with its surface support technology aimed at pressure injury prevention. In the first quarter of fiscal 2024, the Company made the decision to initiate the discontinuation of Dabir Surfaces. In the second quarter of fiscal 2024, the Company sold certain assets of its Dabir Surfaces business. See Note 3, “Disposition” for more information.
The tables below present information about the Company’s reportable segments:
|
|
Three Months Ended February 1, 2025 (13 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations/ |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
120.1 |
|
|
$ |
119.3 |
|
|
$ |
12.3 |
|
|
$ |
— |
|
|
$ |
(11.8 |
) |
|
$ |
239.9 |
|
Transfers between segments |
|
|
(4.4 |
) |
|
|
(7.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
11.8 |
|
|
|
— |
|
Net sales to unaffiliated customers |
|
$ |
115.7 |
|
|
$ |
111.9 |
|
|
$ |
12.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
239.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
(9.0 |
) |
|
$ |
22.6 |
|
|
$ |
2.2 |
|
|
$ |
— |
|
|
$ |
(18.0 |
) |
|
$ |
(2.2 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5 |
|
|||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8.2 |
) |
|||||
|
|
Three Months Ended January 27, 2024 (13 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
142.4 |
|
|
$ |
117.1 |
|
|
$ |
12.7 |
|
|
$ |
— |
|
|
$ |
(12.7 |
) |
|
$ |
259.5 |
|
Transfers between segments |
|
|
(2.7 |
) |
|
|
(10.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
12.7 |
|
|
|
— |
|
Net sales to unaffiliated customers |
|
$ |
139.7 |
|
|
$ |
107.1 |
|
|
$ |
12.7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
259.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
(11.0 |
) |
|
$ |
18.9 |
|
|
$ |
1.5 |
|
|
$ |
(0.1 |
) |
|
$ |
(12.3 |
) |
|
$ |
(3.0 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0 |
|
|||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10.5 |
) |
|||||
22
|
|
Nine Months Ended February 1, 2025 (40 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations/ |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
404.9 |
|
|
$ |
375.8 |
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
(29.9 |
) |
|
$ |
791.0 |
|
Transfers between segments |
|
|
(8.9 |
) |
|
|
(21.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
29.9 |
|
|
|
— |
|
Net sales to unaffiliated customers |
|
$ |
396.0 |
|
|
$ |
354.8 |
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
791.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
(14.0 |
) |
|
$ |
63.8 |
|
|
$ |
8.8 |
|
|
$ |
— |
|
|
$ |
(58.9 |
) |
|
$ |
(0.3 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.5 |
|
|||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9 |
|
|||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(19.7 |
) |
|||||
|
|
Nine Months Ended January 27, 2024 (39 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
461.5 |
|
|
$ |
367.7 |
|
|
$ |
39.7 |
|
|
$ |
2.4 |
|
|
$ |
(34.1 |
) |
|
$ |
837.2 |
|
Transfers between segments |
|
|
(9.2 |
) |
|
|
(24.8 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
|
34.1 |
|
|
|
— |
|
Net sales to unaffiliated customers |
|
$ |
452.3 |
|
|
$ |
342.9 |
|
|
$ |
39.6 |
|
|
$ |
2.4 |
|
|
$ |
— |
|
|
$ |
837.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
(75.3 |
) |
|
$ |
68.8 |
|
|
$ |
5.4 |
|
|
$ |
(3.0 |
) |
|
$ |
(46.4 |
) |
|
$ |
(50.5 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2 |
|
|||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(65.0 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Goodwill impairment |
|
$ |
56.5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
56.5 |
|
(in millions) |
|
February 1, 2025 |
|
|
April 27, 2024 |
|
||
Identifiable assets: |
|
|
|
|
|
|
||
Automotive |
|
$ |
592.9 |
|
|
$ |
592.7 |
|
Industrial |
|
|
583.4 |
|
|
|
604.5 |
|
Interface |
|
|
66.6 |
|
|
|
67.1 |
|
Medical |
|
|
— |
|
|
|
0.2 |
|
Eliminations/Corporate |
|
|
61.7 |
|
|
|
139.0 |
|
Total identifiable assets |
|
$ |
1,304.6 |
|
|
$ |
1,403.5 |
|
Note 12. Contingencies
Certain litigation arising in the normal course of business is pending against us. The Company is, from time-to-time, subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, breach of contracts, employment-related matters, environmental matters and intellectual property matters. The Company has established loss provisions for matters in which losses are deemed probable and reasonably estimable. The Company considers insurance coverage and third-party indemnification, among other things, when determining required accruals for pending litigation and claims. Although the outcome of potential legal actions and claims cannot be predicted with certainty, it is the Company's opinion, based on the information available, that it has adequate reserves for these liabilities. However, the ultimate outcome of any matter could require payment in excess of any amount that the Company may have accrued.
23
Hetronic Germany-GmbH Matters
For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. The Company became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, the Company terminated all of its agreements with the Fuchs companies. On June 20, 2014, the Company filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, the Company amended its complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties.
A trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in favor of the Company. The verdict included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 22, 2020, the District Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic’s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the District Court held defendants in contempt for violating the permanent injunction and entered the final judgment. Defendants appealed entry of the final monetary judgment as well. The appeal of the permanent injunction and the appeal of the final judgment were consolidated into a single appeal before the U.S. Court of Appeals for the Tenth Circuit. On August 24, 2021, the Tenth Circuit issued a decision affirming the lower court’s ruling with the exception that it instructed the District Court to modify the injunction from the entire world to all of the countries in which Hetronic sells its products. On April 20 and 21, 2022, the District Court held a hearing related to modifying the injunction pursuant to the Tenth Circuit’s opinion, and the parties have filed post-hearing briefs. The defendants also filed a petition for certiorari with the United States Supreme Court seeking to further appeal the extraterritorial application of the Lanham Act in this case. The Company opposed that petition. The Supreme Court requested the views of the Solicitor General on the petition for certiorari, and the Solicitor General recommended granting the petition. On November 4, 2022, the Supreme Court granted the petition. The Supreme Court heard arguments in this matter on March 21, 2023. On June 29, 2023, the Supreme Court vacated the Tenth Circuit’s August 2021 decision and remanded the matter back to the Tenth Circuit for further proceedings. On September 1, 2023, the Tenth Circuit requested supplemental briefing from the parties regarding the effect of the Supreme Court’s decision on the appeal and the proper course of further proceedings. That briefing was thereafter submitted, and the Tenth Circuit heard argument in this matter on January 24, 2024. On April 23, 2024, the Tenth Circuit issued an opinion affirming the District Court’s final judgment on the state law breach of contract and tort claims (this affirmed final judgment amount represents only approximately $22.5 million of the vacated original $113 million final judgment that had been entered in 2020) and remanding for further non-trial proceedings with respect to the appropriate remedies for the Lanham Act claims in light of the Supreme’s Court ruling that the Lanham Act does not apply extraterritorially. On August 5, 2024, the District Court entered an amended permanent injunction and amended final judgment. The amended permanent injunction limited the geographic reach of the permanent injunction barring defendants from selling infringing products so that it only applies in the United States and reaffirmed the court’s prior order requiring defendants to return Hetronic’s confidential information. The amended final judgment reaffirmed the final judgment of approximately $22.5 million plus interest for the state law breach of contract and tort claims and entered judgment in an amended amount of approximately $0.3 million plus interest for the infringing U.S. sales under the Lanham Act. The deadline for any appeals of the District Court’s orders was September 4, 2024 and no appeal of those orders was filed before that deadline.
The Company has not received payment of any portion of the judgment from the defendants. Like any judgment, particularly a judgment involving defendants outside of the United States, there is no guarantee that the Company will be able to collect all or any portion of the judgment. Furthermore, defendants Abitron Germany and Hetronic Germany filed for insolvency in German court in September and October 2023 respectively, and the Germany insolvency court then appointed a receiver. These insolvency proceedings could potentially adversely impact our ability to enforce or collect upon the judgment or portions of the judgment or otherwise pursue or enforce claims or rights against those defendants.
24
Stockholder Litigation
On August 26, 2024, a putative class action lawsuit on behalf of purchasers of Company common stock between June 23, 2022 and March 6, 2024, inclusive, entitled Marie Salem v. Methode Electronics, Inc. et al. was filed in the U.S. District Court for the Northern District of Illinois against the Company, a former Chief Executive Officer, President and director of the Company and a former Chief Financial Officer of the Company. The complaint alleges, among other things, that the defendants made false and/or misleading statements relating to the Company’s business, operations and prospects, including in respect of the Company’s transition to production of more specialized components for manufacturers of electric vehicles and the Company’s operations at its facility in Monterrey, Mexico, in violation of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks, among other things, unspecified money damages along with equitable relief and costs and expenses, including counsel fees and expert fees. Another purported shareholder filed a substantially similar action in the U.S. District Court for the Northern District of Illinois on October 7, 2024 against the same defendants and a former Chief Operating Officer of the Company, in a case entitled City of Cape Coral Municipal General Employees Retirement Plan v. Methode Electronics, Inc., et al. The second securities class action was filed on behalf of a broader putative class of purchasers of Company common stock between December 2, 2021 and March 6, 2024. In addition, two purported shareholders filed derivative lawsuits on November 26, 2024 and February 4, 2025, respectively. The derivative lawsuits were filed on behalf of the Company in the U.S. District Court for the Northern District of Illinois against the current members of the Company’s Board of Directors, as well as certain former directors and executives, alleging that the defendants breached their fiduciary duties by allowing the Company to issue various statements that are alleged to have been false or misleading for the same reasons alleged in the securities class action complaints. The derivative lawsuits are entitled Ray Homsi v. Donald Duda, et al. and Kevin D. Murphy v. Mark D. Schwabero, et al. (collectively with the Salem and City of Cape Coral matters, the “Stockholder Actions”).
The Company disagrees with and intends to vigorously defend against the Stockholder Actions. The Stockholder Actions could result in costs and losses to the Company, including potential costs associated with the indemnification of the other defendants. At this time, given the current status of the Stockholder Actions, the Company is unable to reasonably estimate an amount or range of reasonably possible loss, if any, that may result from the Stockholder Actions.
SEC Investigation
The Company received a subpoena from the SEC dated November 1, 2024 seeking documents and information relating to, among other things, the Company’s operations in certain foreign countries, certain financial and accounting matters relating thereto, compliance with the Foreign Corrupt Practices Act and other anti-corruption laws, and material weaknesses in the Company’s internal control over financial reporting previously reported in its public filings. The Company is cooperating with the SEC. The subpoena and related investigation or other future requests for information could result in costs to the Company, including the expenditure of financial and managerial resources. In addition, this request may lead to the assertion of claims or the commencement of legal proceedings against the Company, which in turn may lead to material fines, penalties or other liabilities. However, at this time, the Company is unable to reasonably estimate an amount or range of reasonably possible loss, if any, that may result from these matters.
Note 13. Restructuring and Asset Impairment Charges
Restructuring and asset impairment charges includes costs related to restructuring actions taken by the Company as well as long-lived asset impairments.
The Company continually monitors market factors and industry trends and takes restructuring actions to reduce overall costs and improve operational profitability as appropriate. Restructuring actions generally result in charges for employee termination benefits, plant closures, asset impairments and contract termination costs.
Components of restructuring and asset impairment charges were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Employee termination benefits |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.3 |
|
|
$ |
0.7 |
|
Asset impairment charges |
|
|
— |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
0.7 |
|
Total |
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
0.7 |
|
|
$ |
1.4 |
|
25
The table below presents restructuring and asset impairment charges by reportable segment.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Automotive |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.3 |
|
|
$ |
0.2 |
|
Industrial |
|
|
— |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Interface |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Medical |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
Eliminations/Corporate |
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
0.7 |
|
|
$ |
1.4 |
|
Recognized in: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of products sold |
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
$ |
0.9 |
|
Selling and administrative expenses |
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
0.7 |
|
|
$ |
1.4 |
|
The Company’s restructuring liability was $0.0 million and $0.7 million as of February 1, 2025 and April 27, 2024, respectively. Estimates of restructuring costs are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring costs, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals. The Company may take additional restructuring actions in future periods based upon market conditions and industry trends.
Note 14. Related Party Transactions
The Company’s former Interim Chief Financial Officer, David Rawden, is a director of AlixPartners, LLP (“AlixPartners”), a business advisory firm that provided a number of consulting services to the Company. The Company’s former Interim Chief Executive Officer, Kevin Nystrom, is a partner and managing director of AlixPartners. In the three and nine months ended February 1, 2025, the Company recognized $0.9 million and $9.8 million, respectively, of expense for consulting services provided by AlixPartners. As of February 1, 2025, $0.4 million was payable to AlixPartners which was reflected in accounts payable on the condensed consolidated balance sheets. As of April 27, 2024, $1.4 million was payable to AlixPartners which was reflected in other accrued liabilities on the condensed consolidated balance sheets.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or our strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook,” “upcoming,” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:
Additional details and factors are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended April 27, 2024 and in Part II, Item 1A of this Quarterly Report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Any forward-looking statements made by us speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
27
Overview
We are a leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. We design, engineer and produce mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing our broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and sensor applications.
Our solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment and consumer appliance.
Trade Policy/Tariffs
We are exposed to market risk with respect to duties currently assessed on raw materials, component parts and finished goods we import into the U.S. Since February 1, 2025 and up to March 4, 2025, the United States has announced and implemented various tariffs, including 25% tariffs on all products from Canada and Mexico, modifying the steel and aluminum tariffs that were imposed in 2018, and charging reciprocal tariffs against countries that tax or limit markets for U.S. goods.
The current situation is dynamic and we are continuing to assess the full implications of the newly announced tariffs. Given our sizable manufacturing operations in Mexico, China, Europe and Canada, should these enacted tariffs continue, raw materials and finished goods that we import will face higher prices, which could lead to reduced margins or increased prices that could cause decreased customer demand. We continue to monitor similar actions by other countries with which we do business. It is possible other countries may impose retaliatory tariffs on goods imported into their countries from the U.S. We will seek price increases from our customers to offset these incremental costs. If we are unable to obtain price increases, the impact of new or higher tariffs could have a material impact on our results of operations.
Macroeconomic Conditions
The global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets, arising from a combination of geopolitical events and various economic and financial factors. These disruptions have affected our operations and may continue to affect our business, financial condition and results of operations. As a result of continued inflation, we have implemented measures to mitigate certain adverse effects of higher costs. However, we have been unable to fully mitigate or pass through the increases in our costs to our customers, which will likely continue in the future.
Our business in the future will be impacted by the broad trend of electrification. The adoption of EVs has been slower than anticipated, which may impact our financial condition and results of operations. In addition, there are various government policies, subsidies, and economic incentives designed to increase EV adoption. There is no guarantee these incentive programs will be available in the future.
Geopolitical Conditions
Russia’s invasion of Ukraine and the resulting economic sanctions imposed by the international community impacted the global economy and gave rise to potential global security issues that may adversely affect international business and economic conditions. Given our manufacturing operations in the Middle East and Asia, the continuation of the military conflict between Russia and Ukraine, the escalation or expansion of the Israel-Hamas war, or renewed terrorist attacks on Red Sea shipping, such as those by the Houthi, could lead to other supply chain disruptions, increased inflationary pressures, higher freight costs and volatility in global markets and industries that could negatively impact our operations. The full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor the conflicts and assess the related restrictions and other effects on our employees, customers, suppliers and business.
Global Supply Chain Disruptions
Although we saw improvements in our supply chain in fiscal 2024, including easing of the worldwide semiconductor supply shortage, new supply chain disruptions may occur in the future. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. Changes in government regulations in areas including, but not limited to, trade and tariff regulations as noted above, could also increase our costs. We continue to work closely with suppliers and customers to minimize the potential adverse impact from global supply chain disruptions. However, if we are not able to mitigate any direct or indirect supply chain disruptions, this may have a material adverse impact on our financial condition, results of operations and cash flows.
28
Consolidated Results of Operations
We maintain our financial records on the basis of a 52 or 53-week fiscal year ending on the Saturday closest to April 30. Fiscal 2025 is a 53-week year and fiscal 2024 was a 52-week year. The three months ended February 1, 2025 and January 27, 2024 were 13-week periods, while the nine months ended February 1, 2025 and January 27, 2024, were 40 and 39-week periods, respectively. The following discussions of comparative results among periods should be reviewed in this context.
The table below compares our results of operations between the three and nine months ended February 1, 2025 and the three and nine months ended January 27, 2024:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Net sales |
|
$ |
239.9 |
|
|
$ |
259.5 |
|
|
$ |
791.0 |
|
|
$ |
837.2 |
|
Cost of products sold |
|
|
198.6 |
|
|
|
222.5 |
|
|
|
647.2 |
|
|
|
693.9 |
|
Gross profit |
|
|
41.3 |
|
|
|
37.0 |
|
|
|
143.8 |
|
|
|
143.3 |
|
Selling and administrative expenses |
|
|
37.7 |
|
|
|
33.9 |
|
|
|
126.5 |
|
|
|
119.3 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
56.5 |
|
Amortization of intangibles |
|
|
5.8 |
|
|
|
6.1 |
|
|
|
17.6 |
|
|
|
18.0 |
|
Interest expense, net |
|
|
5.5 |
|
|
|
5.0 |
|
|
|
16.5 |
|
|
|
12.2 |
|
Other expense, net |
|
|
0.5 |
|
|
|
2.5 |
|
|
|
2.9 |
|
|
|
2.3 |
|
Income tax expense |
|
|
6.2 |
|
|
|
1.1 |
|
|
|
14.6 |
|
|
|
1.0 |
|
Net loss |
|
$ |
(14.4 |
) |
|
$ |
(11.6 |
) |
|
$ |
(34.3 |
) |
|
$ |
(66.0 |
) |
Net sales
Net sales decreased $19.6 million, or 7.6%, to $239.9 million in the three months ended February 1, 2025, compared to $259.5 million in the three months ended January 27, 2024. Foreign currency translation decreased net sales by $3.3 million. Excluding foreign currency translation, net sales decreased $16.3 million. The decrease was primarily due to lower sales volumes in the Automotive segment, partially offset by higher sales volumes in the Industrial segment.
Net sales decreased $46.2 million, or 5.5%, to $791.0 million in the nine months ended February 1, 2025, compared to $837.2 million in the nine months ended January 27, 2024. Foreign currency translation decreased net sales by $0.7 million. Excluding foreign currency translation, net sales decreased $45.5 million. The decrease was primarily due to lower sales volumes in the Automotive segment, partially offset by higher sales volumes in the Industrial segment.
Cost of products sold
Cost of products sold decreased $23.9 million, or 10.7%, to $198.6 million (82.8% of net sales) in the three months ended February 1, 2025, compared to $222.5 million (85.7% of net sales) in the three months ended January 27, 2024. Foreign currency translation decreased cost of products sold by $2.3 million. Excluding foreign currency translation, cost of products sold decreased $21.6 million. The decrease was primarily due to lower material and freight costs as a result of lower sales volumes.
Cost of products sold decreased $46.7 million, or 6.7%, to $647.2 million (81.8% of net sales) in the nine months ended February 1, 2025, compared to $693.9 million (82.9% of net sales) in the nine months ended January 27, 2024. Foreign currency translation decreased cost of products sold by $0.3 million. Excluding foreign currency translation, cost of products sold decreased $46.4 million. The decrease was primarily due to lower material and freight costs as a result of a decrease in sales volumes, partially offset by higher salary and warranty expense. Restructuring and asset impairment charges included within cost of products sold were $0.4 million in the nine months ended February 1, 2025, compared to $0.9 million in the nine months ended January 27, 2024.
Gross profit margin
Gross profit margin was 17.2% of net sales in the three months ended February 1, 2025, compared to 14.3% of net sales in the three months ended January 27, 2024. Gross profit margin was 18.2% of net sales in the nine months ended February 1, 2025, compared to 17.1% of net sales in the nine months ended January 27, 2024.
The increase in gross profit margin in both periods was primarily a result of product mix from higher sales in the Industrial segment.
29
Selling and administrative expenses
Selling and administrative expenses increased $3.8 million, or 11.2%, to $37.7 million (15.7% of net sales) in the three months ended February 1, 2025, compared to $33.9 million (13.1% of net sales) in the three months ended January 27, 2024. Excluding foreign currency translation, selling and administrative expenses increased $4.1 million. The increase was due to higher stock-based compensation expense and professional fees. Stock-based compensation expense was higher as the three months ended January 27, 2024 included a $3.6 million expense reversal due to forfeitures in that period. Professional fees in the three months ended February 1, 2025 include $0.9 million for consulting services provided by AlixPartners.
Selling and administrative expenses increased $7.2 million, or 6.0%, to $126.5 million (16.0% of net sales) in the nine months ended February 1, 2025, compared to $119.3 million (14.2% of net sales) in the nine months ended January 27, 2024. Excluding foreign currency translation, selling and administrative expenses increased $7.3 million. The increase was primarily due to higher professional fees and incentive compensation expense, partially offset by lower salary expense. Professional fees in the nine months ended February 1, 2025 include $9.8 million for consulting and interim executive services provided by AlixPartners.
Goodwill impairment
In the nine months ended January 27, 2024, we recognized a goodwill impairment of $56.5 million in the Automotive segment. For further information, see Note 6, “Goodwill and Other Intangible Assets” to the condensed consolidated financial statements included in this Quarterly Report.
Amortization of intangibles
Amortization of intangibles was $5.8 million in the three months ended February 1, 2025, compared to $6.1 million in the three months ended January 27, 2024. Amortization of intangibles was $17.6 million in the nine months ended February 1, 2025, compared to $18.0 million in the nine months ended January 27, 2024.
Interest expense, net
Interest expense, net was $5.5 million in the three months ended February 1, 2025, compared to $5.0 million in the three months ended January 27, 2024. Interest expense, net was $16.5 million in the nine months ended February 1, 2025, compared to $12.2 million in the nine months ended January 27, 2024. The increase in both periods was due to a higher level of borrowings and increased interest rates.
Other expense, net
Other expense, net was $0.5 million in the three months ended February 1, 2025, compared to $2.5 million in the three months ended January 27, 2024. Net foreign exchange loss was $1.3 million in the three months ended February 1, 2025, compared to $2.8 million in the three months ended January 27, 2024. In the three months ended February 1, 2025, we received $0.8 million of international government assistance, compared to $0.2 million in the three months ended January 27, 2024.
Other expense, net was $2.9 million in the nine months ended February 1, 2025, compared to $2.3 million in the nine months ended January 27, 2024. Other expense, net in the nine months ended February 1, 2025 includes a non-cash write-off of $1.2 million of unamortized debt issuance costs. Net foreign exchange loss was $3.6 million in the nine months ended February 1, 2025, compared to $2.2 million in the nine months ended January 27, 2024. In the nine months ended February 1, 2025, we received $1.8 million of international government assistance, compared to $0.3 million in the nine months ended January 27, 2024.
Income tax expense
Income tax expense was $6.2 million (-75.6% effective tax rate) in the three months ended February 1, 2025, compared to $1.1 million (-10.5% effective tax rate) in the three months ended January 27, 2024. Income tax expense was $14.6 million (-74.1% effective tax rate) in the nine months ended February 1, 2025, compared to $1.0 million (-1.5% effective tax rate) in the nine months ended January 27, 2024.
The effective tax rate for the three and nine months ended February 1, 2025 differs from the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for U.S. deferred tax assets and an unfavorable impact from global intangible low-tax income, partially offset by the impact of income derived from foreign operations with lower statutory tax rates. The effective tax rate for the three and nine months ended January 27, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions, partially offset by global intangible low-tax income and non-deductible expenses.
Net loss
Net loss was $14.4 million in the three months ended February 1, 2025, compared to $11.6 million in the three months ended January 27, 2024. Net loss was $34.3 million in the nine months ended February 1, 2025, compared to $66.0 million in the nine months ended January 27, 2024. The net loss was a result of the reasons described above.
30
Reportable Operating Segments
Automotive
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
($ in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
51.8 |
|
|
$ |
56.7 |
|
|
$ |
187.8 |
|
|
$ |
194.4 |
|
Europe, the Middle East & Africa ("EMEA") |
|
|
55.9 |
|
|
|
52.0 |
|
|
|
181.7 |
|
|
|
153.9 |
|
Asia |
|
|
8.0 |
|
|
|
31.0 |
|
|
|
26.5 |
|
|
|
104.0 |
|
Net sales |
|
|
115.7 |
|
|
|
139.7 |
|
|
|
396.0 |
|
|
|
452.3 |
|
Gross profit |
|
$ |
3.0 |
|
|
$ |
4.5 |
|
|
$ |
25.8 |
|
|
$ |
31.4 |
|
As a percent of net sales |
|
|
2.6 |
% |
|
|
3.2 |
% |
|
|
6.5 |
% |
|
|
6.9 |
% |
Loss from operations |
|
$ |
(9.0 |
) |
|
$ |
(11.0 |
) |
|
$ |
(14.0 |
) |
|
$ |
(75.3 |
) |
As a percent of net sales |
|
|
(7.8 |
)% |
|
|
(7.9 |
)% |
|
|
(3.5 |
)% |
|
|
(16.6 |
)% |
Net sales
Automotive segment net sales decreased $24.0 million, or 17.2%, to $115.7 million in the three months ended February 1, 2025, compared to $139.7 million in the three months ended January 27, 2024. Excluding foreign currency translation, net sales decreased $22.3 million.
Net sales in North America decreased $4.9 million to $51.8 million in the three months ended February 1, 2025, compared to $56.7 million in the three months ended January 27, 2024. The decrease was due to the roll-off of legacy programs, partially offset by new program launches. Net sales in EMEA increased $3.9 million to $55.9 million in the three months ended February 1, 2025, compared to $52.0 million in the three months ended January 27, 2024. Excluding foreign currency translation, net sales in EMEA increased $5.4 million due to new program launches, partially offset by lower sales volumes of sensor products. Net sales in Asia decreased $23.0 million to $8.0 million in the three months ended February 1, 2025, compared to $31.0 million in the three months ended January 27, 2024. Excluding foreign currency translation, net sales in Asia decreased $22.8 million primarily due to a program roll-off.
Automotive segment net sales decreased $56.3 million, or 12.4%, to $396.0 million in the nine months ended February 1, 2025, compared to $452.3 million in the nine months ended January 27, 2024. Excluding foreign currency translation, net sales decreased $55.8 million.
Net sales in North America decreased $6.6 million to $187.8 million in the nine months ended February 1, 2025, compared to $194.4 million in the nine months ended January 27, 2024. The decrease was due to the roll-off of legacy programs, partially offset by new program launches. Net sales in EMEA increased $27.8 million to $181.7 million in the nine months ended February 1, 2025, compared to $153.9 million in the nine months ended January 27, 2024. Excluding foreign currency translation, net sales in EMEA increased $28.2 million due to new program launches, partially offset by lower sales volumes of sensor products. Net sales in Asia decreased $77.5 million to $26.5 million in the nine months ended February 1, 2025, compared to $104.0 million in the nine months ended January 27, 2024. Excluding foreign currency translation, net sales in Asia decreased $77.4 million primarily due to a program roll-off.
Gross profit
Automotive segment gross profit decreased $1.5 million, or 33.3%, to $3.0 million in the three months ended February 1, 2025, compared to $4.5 million in the three months ended January 27, 2024. Excluding foreign currency translation, gross profit decreased $1.1 million. Gross profit margins decreased to 2.6% in the three months ended February 1, 2025, compared to 3.2% in the three months ended January 27, 2024. The decrease in gross profit was primarily due to lower sales volumes in Asia, partially offset by lower freight costs.
Automotive segment gross profit decreased $5.6 million, or 17.8%, to $25.8 million in the nine months ended February 1, 2025, compared to $31.4 million in the nine months ended January 27, 2024. Gross profit margins decreased to 6.5% in the nine months ended February 1, 2025, compared to 6.9% in the nine months ended January 27, 2024. The decrease in gross profit was due to lower sales volumes in Asia and higher salary and warranty expense, partially offset by lower freight costs.
31
Loss from operations
Automotive segment loss from operations was $9.0 million in the three months ended February 1, 2025, compared to $11.0 million in the three months ended January 27, 2024. The improvement was due to lower selling and administrative expenses, partially offset by lower gross profit. Selling and administrative expenses decreased due to lower compensation expense.
Automotive segment loss from operations was $14.0 million in the nine months ended February 1, 2025, compared to $75.3 million in the nine months ended January 27, 2024. Loss from operations in the nine months ended January 27, 2024, included goodwill impairment of $56.5 million. Excluding goodwill impairment, loss from operations decreased $4.8 million. The improvement was due to lower selling and administrative expenses, partially offset by lower gross profit. Selling and administrative expenses decreased due to lower outbound freight, travel and entertainment expense, compensation expense and professional fees.
Industrial
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
($ in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Net sales |
|
$ |
111.9 |
|
|
$ |
107.1 |
|
|
$ |
354.8 |
|
|
$ |
342.9 |
|
Gross profit |
|
$ |
35.2 |
|
|
$ |
30.3 |
|
|
$ |
106.0 |
|
|
$ |
103.8 |
|
As a percent of net sales |
|
|
31.5 |
% |
|
|
28.3 |
% |
|
|
29.9 |
% |
|
|
30.3 |
% |
Income from operations |
|
$ |
22.6 |
|
|
$ |
18.9 |
|
|
$ |
63.8 |
|
|
$ |
68.8 |
|
As a percent of net sales |
|
|
20.2 |
% |
|
|
17.6 |
% |
|
|
18.0 |
% |
|
|
20.1 |
% |
Net sales
Industrial segment net sales increased $4.8 million, or 4.5%, to $111.9 million in the three months ended February 1, 2025, compared to $107.1 million in the three months ended January 27, 2024. Excluding foreign currency translation, net sales increased $6.4 million.
Industrial segment net sales increased $11.9 million, or 3.5%, to $354.8 million in the nine months ended February 1, 2025, compared to $342.9 million in the nine months ended January 27, 2024. Excluding foreign currency translation, net sales increased $12.1 million.
The increase in both periods was due to higher sales volumes of power distribution products for data centers, partially offset by lower sales volumes for lighting products in the commercial vehicle and off-road equipment markets.
Gross profit
Industrial segment gross profit increased $4.9 million, or 16.2%, to $35.2 million in the three months ended February 1, 2025, compared to $30.3 million in the three months ended January 27, 2024. Excluding foreign currency translation, gross profit increased $5.5 million. Gross profit margins increased to 31.5% in the three months ended February 1, 2025, compared to 28.3% in the three months ended January 27, 2024. Gross profit improved due to higher sales volumes and lower operating expenses.
Industrial segment gross profit increased $2.2 million, or 2.1%, to $106.0 million in the nine months ended February 1, 2025, compared to $103.8 million in the nine months ended January 27, 2024. Excluding foreign currency translation, gross profit increased $2.5 million. Gross profit improved due to higher sales volumes and lower operating expenses. Gross profit margins decreased to 29.9% in the nine months ended February 1, 2025, compared to 30.3% in the nine months ended January 27, 2024 due to product mix.
Income from operations
Industrial segment income from operations increased $3.7 million, or 19.6%, to $22.6 million in the three months ended February 1, 2025, compared to $18.9 million in the three months ended January 27, 2024. Excluding foreign currency translation, income from operations increased $4.1 million. The increase was primarily due to higher gross profit, partially offset by higher selling and administrative expenses. The increase in selling and administrative expenses was primarily due to higher compensation expense, partially offset by lower legal fees.
Industrial segment income from operations decreased $5.0 million, or 7.3%, to $63.8 million in the nine months ended February 1, 2025, compared to $68.8 million in the nine months ended January 27, 2024. Excluding foreign currency translation, income from operations decreased $4.9 million. The decrease was primarily due to higher selling and administrative expenses, partially offset by higher gross profit. The increase in selling and administrative expenses was primarily due to higher legal fees and compensation expense.
32
Interface
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
($ in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Net sales |
|
$ |
12.3 |
|
|
$ |
12.7 |
|
|
$ |
40.2 |
|
|
$ |
39.6 |
|
Gross profit |
|
$ |
2.9 |
|
|
$ |
2.2 |
|
|
$ |
10.7 |
|
|
$ |
7.7 |
|
As a percent of net sales |
|
|
23.6 |
% |
|
|
17.3 |
% |
|
|
26.6 |
% |
|
|
19.4 |
% |
Income from operations |
|
$ |
2.2 |
|
|
$ |
1.5 |
|
|
$ |
8.8 |
|
|
$ |
5.4 |
|
As a percent of net sales |
|
|
17.9 |
% |
|
|
11.8 |
% |
|
|
21.9 |
% |
|
|
13.6 |
% |
Net sales
Interface segment net sales decreased $0.4 million, or 3.1% to $12.3 million in the three months ended February 1, 2025, compared to $12.7 million in the three months ended January 27, 2024. The decrease was primarily due to lower sales volumes of transceivers for servers, partially offset by higher sales volumes for touch panels for appliances.
Interface segment net sales increased $0.6 million, or 1.5%, to $40.2 million in the nine months ended February 1, 2025, compared to $39.6 million in the nine months ended January 27, 2024. The increase was due to higher sales volumes of touch panels for appliances.
Gross profit
Interface segment gross profit increased $0.7 million, or 31.8%, to $2.9 million in the three months ended February 1, 2025, compared to $2.2 million in the three months ended January 27, 2024. Gross profit margins increased to 23.6% in the three months ended February 1, 2025, compared to 17.3% in the three months ended January 27, 2024. The improvement was due to product mix.
Interface segment gross profit increased $3.0 million, or 39.0%, to $10.7 million in the nine months ended February 1, 2025, compared to $7.7 million in the nine months ended January 27, 2024. Gross profit margins increased to 26.6% in the nine months ended February 1, 2025, compared to 19.4% in the nine months ended January 27, 2024. The improvement was primarily due to higher sales volumes and product mix.
Income from operations
Interface segment income from operations increased $0.7 million, or 46.7%, to $2.2 million in the three months ended February 1, 2025, compared to $1.5 million in the three months ended January 27, 2024.
Interface segment income from operations increased $3.4 million, or 63.0%, to $8.8 million in the nine months ended February 1, 2025, compared to $5.4 million in the nine months ended January 27, 2024.
The increase in both periods was primarily due to higher gross profit and slightly lower selling and administrative expenses.
Medical
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||||
(in millions) |
|
(13 Weeks) |
|
|
(13 Weeks) |
|
|
(40 Weeks) |
|
|
(39 Weeks) |
|
||||
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2.4 |
|
Gross profit |
|
$ |
— |
|
|
$ |
(0.1 |
) |
|
$ |
— |
|
|
$ |
(0.2 |
) |
Loss from operations |
|
$ |
— |
|
|
$ |
(0.1 |
) |
|
$ |
— |
|
|
$ |
(3.0 |
) |
In the first quarter of fiscal 2024, we made the decision to initiate the discontinuation of the Dabir business (which accounts for all of the Medical segment's financial results). Towards the end of the second quarter of fiscal 2024, we sold certain assets of the Dabir business and have now exited this business, which accounts for the variances in the table above.
33
Financial Condition, Liquidity and Capital Resources
Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements, dividends and stock repurchases. Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior secured credit agreement. We believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months. However, if economic conditions remain impacted for longer than we expect due to supply chain disruptions, inflationary pressure or other geopolitical risks, or if we are unable to maintain compliance with our debt covenants, our liquidity position could be severely impacted.
As of February 1, 2025, we had $103.8 million of cash and cash equivalents, of which $71.4 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, without creating material additional income tax expense.
Repurchases of Common Stock
On March 31, 2021, as subsequently amended on June 16, 2022, the Board of Directors authorized the purchase of up to $200.0 million of our outstanding common stock through June 14, 2024 (the “2021 Buyback Authorization”). On June 13, 2024, the Board of Directors approved a new share buyback authorization, commencing on June 17, 2024, for the purchase of up to $200.0 million of our outstanding common stock through June 17, 2026 (the “2024 Buyback Authorization”). Purchases may be made on the open market, including pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions. Prior to its expiration, a total of 3,553,961 shares were purchased under the 2021 Buyback Authorization at a total cost of $134.6 million. No further shares can be purchased under the 2021 Buyback Authorization. In the three and nine months ended February 1, 2025, zero and 136,000 shares were purchased under the 2021 Buyback Authorization and no shares were purchased under the 2024 Buyback Authorization. As of February 1, 2025, the dollar value of shares that remained available to be purchased under 2024 Buyback Authorization was $200.0 million.
Amended Credit Agreement
On October 31, 2022, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders and other parties named therein. On March 6, 2024, we entered into a First Amendment to Second Amended and Restated Credit Agreement (the “First Amendment”) and on July 9, 2024, we entered into a Second Amendment to Second Amended and Restated Credit Agreement and First Amendment to Second Amended and Restated Guaranty (the “Second Amendment”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, the other Lenders party thereto and other parties thereto.
Among other things, the Second Amendment (i) reduced the revolving credit commitments under the Credit Agreement from $750 million to $500 million, (ii) granted a security interest in substantially all of the personal property of the Company and our U.S. subsidiaries that are guarantors, including 100% of the equity interests of their respective U.S. subsidiaries and 65% of the equity interests of their respective foreign subsidiaries (or such greater amount to the extent such pledge could not reasonably cause adverse tax consequences), (iii) amended the consolidated interest coverage ratio covenant for each quarter in fiscal year 2025, (iv) amended the consolidated leverage ratio covenant for the quarter ending July 27, 2024 and each subsequent fiscal quarter, (v) amended certain interest rate provisions, (vi) added a requirement to provide monthly financial statements to the lenders through the period ending July 25, 2025, (vii) decreased the general basket exceptions to certain covenants restricting certain Company investments, liens and indebtedness for specified periods of time, (viii) increased, for fiscal year 2025, the general basket exception to a covenant restricting certain Company dispositions of property, (ix) added an “anti-cash hoarding” requirement, applicable during the period from the effective date of the Second Amendment until the earlier to occur of (a) the delivery of financial statements and a compliance certificate for the fiscal quarter ending July 25, 2025 and (b) the delivery of compliance certificates for two consecutive fiscal quarters demonstrating that our consolidated leverage ratio as of the last day of such fiscal quarters was less than 3.00:1.00, that if we have cash on hand (subject to certain exceptions) of more than $65 million for 10 consecutive business days, we shall prepay the indebtedness under the credit facility by the amount of such excess and (x) made certain other changes to the investment, restricted payment and indebtedness baskets. The Credit Agreement, as amended by the First Amendment and the Second Amendment, is referred to herein as the “Amended Credit Agreement.”
The Amended Credit Agreement provides for a secured multicurrency revolving credit facility of $500 million. In addition, the Amended Credit Agreement permits us to increase the revolving commitments and/or add one or more tranches of term loans under the Amended Credit Agreement from time to time by up to an amount equal to (i) $250 million plus (ii) an additional amount so long as the consolidated leverage ratio would not exceed 3.00:1.00 on a pro forma basis, subject to, among other things, the receipt of additional commitments from existing and/or new lenders. The Amended Credit Agreement matures on October 31, 2027.
34
As of February 1, 2025, the outstanding balance under the revolving credit facility consisted of $285.0 million (€275.0 million) of euro-denominated borrowings and $45.0 million of US denominated borrowings. The Amended Credit Agreement contains various representations and warranties, financial covenants (including covenants requiring us to maintain compliance with a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio, in each case as of the end of each fiscal quarter), restrictive and other covenants, and events of default. The covenants in the Amended Credit Agreement include an “anti-cash hoarding” requirement, as discussed above. As of February 1, 2025, we were in compliance with all the covenants in the Amended Credit Agreement. For further information, see Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report.
Although we currently anticipate, based on our current projections and analyses, that we will be in compliance with the financial covenants contained in the Amended Credit Agreement, no assurance can be given that we will be and remain in compliance with such covenants in the future. Factors that could increase our risk of future non-compliance include those identified in Part I – Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended April 27, 2024, as supplemented by subsequent filings with the Securities and Exchange Commission, including under Part II – Item 1A, “Risk Factors” of this Quarterly Report.
Cash Flows
|
|
Nine Months Ended |
|
|||||
(in millions) |
|
February 1, 2025 |
|
|
January 27, 2024 |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(34.3 |
) |
|
$ |
(66.0 |
) |
Non-cash items |
|
|
51.0 |
|
|
|
99.2 |
|
Changes in operating assets and liabilities |
|
|
(25.7 |
) |
|
|
(10.6 |
) |
Net cash (used in) provided by operating activities |
|
|
(9.0 |
) |
|
|
22.6 |
|
Net cash used in investing activities |
|
|
(26.7 |
) |
|
|
(39.0 |
) |
Net cash used in financing activities |
|
|
(16.6 |
) |
|
|
(15.0 |
) |
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
|
(5.4 |
) |
|
|
(2.7 |
) |
Decrease in cash and cash equivalents |
|
|
(57.7 |
) |
|
|
(34.1 |
) |
Cash and cash equivalents at beginning of the period |
|
|
161.5 |
|
|
|
157.0 |
|
Cash and cash equivalents at end of the period |
|
$ |
103.8 |
|
|
$ |
122.9 |
|
Operating activities
Net cash used in operating activities was $9.0 million in the nine months ended February 1, 2025, compared to net cash provided by operating activities of $22.6 million in the nine months ended January 27, 2024. The decrease was due to lower net loss adjusted for non-cash items and higher cash outflows from operating assets and liabilities. The $25.7 million of cash outflows for operating assets and liabilities in the nine months ended February 1, 2025 was primarily due to higher inventory and lower accounts payable, partially offset by lower accounts receivable.
Investing activities
Net cash used in investing activities was $26.7 million in the nine months ended February 1, 2025, compared to $39.0 million in the nine months ended January 27, 2024. Capital expenditures were $32.5 million in the nine months ended February 1, 2025, compared to $41.1 million in the nine months ended January 27, 2024. In the nine months ended February 1, 2025, we received proceeds of $2.7 million from the sale of assets, compared to $1.5 million in the nine months ended January 27, 2024. In the nine months ended February 1, 2025, we received proceeds of $3.1 million from the settlement of a net investment hedge as compared to $0.6 million in the nine months ended January 27, 2024.
Financing activities
Net cash used in financing activities was $16.6 million in the nine months ended February 1, 2025, compared to $15.0 million in the nine months ended January 27, 2024. We paid cash dividends of $15.3 million in the nine months ended February 1, 2025, compared to $15.0 million in the nine months ended January 27, 2024. In the nine months ended February 1, 2025, we had net proceeds from borrowings of $5.8 million, compared to net proceeds from borrowings of $25.7 million in the nine months ended January 27, 2024. In the nine months ended February 1, 2025, we paid $1.8 million of debt issuance costs associated with the Second Amendment. In the nine months ended February 1, 2025, we used $1.6 million of cash for the purchase of shares under the 2021 Buyback Authorization, compared to $10.8 million in the nine months ended January 27, 2024. In the nine months ended January 27, 2024, we paid $10.9 million for the purchase of redeemable noncontrolling interests related to Nordic Lights.
35
Recent Accounting Pronouncements
See Note 1, “Description of Business and Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in Item 1.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined under SEC rules.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks from foreign currency exchange, interest rates, and commodity prices, which could affect our operating results, financial position and cash flows. We manage a portion of these risks through use of derivative financial instruments in accordance with our policies. We do not enter into derivative financial instruments for speculative or trading purposes.
There has been no significant change in our exposure to market risk during the nine months ended February 1, 2025. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended April 27, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, we performed an evaluation under the supervision and with the participation of the Company’s management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our 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 CEO and CFO concluded that our disclosure controls and procedures were not effective as of February 1, 2025 due to the material weaknesses that were previously reported in our Annual Report on Form 10-K for the year ended April 27, 2024.
Notwithstanding the ineffectiveness of our disclosure controls and procedures due to the material weaknesses in our internal control over financial reporting, we believe there are no material inaccuracies or omissions of material fact in this Quarterly Report, and, to the best of our knowledge, we believe that the condensed consolidated financial statements in this Quarterly Report fairly present in all material aspects our financial condition, results of operations and cash flows in conformity with GAAP.
Previously Disclosed Material Weaknesses
As previously disclosed in our Annual Report on Form 10-K for the year ended April 27, 2024, our management concluded that our internal controls over financial reporting were not effective due to a material weakness associated with ineffective information technology general controls (ITGCs) over one of its information technology (IT) systems that is relevant to the preparation of the financial information at a substantial portion of the Company’s subsidiaries throughout the year ended April 27, 2024, which resulted in ineffective business process controls (automated and IT-dependent manual controls) that could result in misstatements potentially impacting significant financial statement accounts and disclosures. Specifically, management did not design and execute program change management controls to provide reasonable assurance that IT program changes affecting financial applications are authorized, tested, and implemented appropriately. As a result, business process controls (automated and IT-dependent manual controls) that are reliant on the affected ITGCs, or that use data produced from the affected systems, were deemed ineffective at April 27, 2024.
Management also identified a material weakness associated with ineffective controls over its impairment analyses for goodwill. Specifically, management did not retain sufficient contemporaneous documentation to demonstrate the operation of sufficiently precise review controls over certain significant assumptions used in the determination of fair value of its reporting units.
Management also identified a material weakness associated with ineffective controls related to the application of GAAP to non-routine events and conditions. Specifically, we did not design and maintain controls to properly evaluate all of the events and conditions relevant to the Company’s going concern evaluation, including the assessment and disclosure of management’s plans in accordance with GAAP.
We are committed to maintaining a strong internal control environment. We and our Board of Directors treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is committed to the planning and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These remediation efforts are intended to both address the identified material weaknesses and to enhance our overall financial control environment.
36
Our remediation efforts include, among other items, (1) enhancing the design and operating effectiveness of internal controls over IT change management, review of significant assumptions used in goodwill impairment analyses, and the application of GAAP to non-routine events and conditions; and (2) developing and deploying additional training programs around the operation and importance of these controls.
As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above. When fully implemented and operational, we believe the controls we have designed or plan to design will remediate the control deficiencies that led to the material weaknesses we have identified and strengthen our internal controls over financial reporting. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as described above, there have been no changes in our internal control over financial reporting during the three months ended February 1, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12, “Contingencies” to the condensed consolidated financial statements included in this Quarterly Report for a description of certain of our pending legal proceedings.
Item 1A. Risk Factors
Our business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary from recent results or from anticipated future results. Please refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended April 27, 2024, for a description of certain material risks and uncertainties to which our business, financial condition and results of operations are subject. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Except as updated below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended April 27, 2024:
We are, and in the future may be, subject to securities class action and other litigation, as well as government investigations and inquiries, which may harm our business and results of operations.
We are involved in legal proceedings related to various matters, including securities litigation, and may become involved in other legal proceedings, as well as government investigations and inquiries, that arise from time to time in the future. For example, as discussed further in Note 12, “Contingencies” to the unaudited interim condensed consolidated financial statements contained in this Quarterly Report, on August 26, 2024, a purported shareholder of the Company filed a putative class action lawsuit alleging that the Company, its former Chief Executive Officer, and its former Chief Financial Officer violated the federal securities laws by making false and/or misleading statements relating to our business, operations and prospects, including in respect of our transition to production of more specialized components for manufacturers of electric vehicles and our operations at our facility in Monterrey, Mexico. The complaint seeks unspecified money damages along with equitable relief and costs and expenses, including counsel fees and expert fees. Another purported shareholder filed a substantially similar action against the same defendants and a former Chief Operating Officer of the Company on October 7, 2024. In addition, on November 26, 2024 and February 4, 2025, respectively, two purported shareholders filed derivative lawsuits on behalf of the Company against the current members of the Company’s Board of Directors, as well as certain former directors and executives, alleging that the defendants breached their fiduciary duties by allowing the Company to issue various statements that are alleged to have been false or misleading for the same reasons alleged in the securities class action complaints. The Company intends to vigorously defend itself against the allegations but there can be no assurance as to outcome. An unfavorable outcome in this litigation and other legal proceedings may have a material adverse effect on the consolidated financial position, results of operations, cash flows or liquidity of the Company. This type of litigation can also result in substantial costs, and a diversion of management’s attention and resources, which could adversely affect our business, operating results, or financial condition. In addition, the Company received a subpoena from the Securities and Exchange Commission dated November 1, 2024 seeking documents and information relating to, among other things, the Company’s operations in certain foreign countries, and certain financial reporting and accounting relating thereto, compliance with the Foreign Corrupt Practices Act and other anti-corruption laws, and material weaknesses in the Company’s internal control over financial reporting previously reported in its public filings. This request may lead to the assertion of claims or the commencement of legal proceedings against the Company, which in turn may lead to material fines, penalties or other liabilities. The subpoena and similar requests could result in costs to the Company, including the expenditure of financial and managerial resources in connection with responding to the subpoena and related investigation or any other future requests for information or investigations. Additionally, the dramatic increase in the cost of directors’ and officers’ liability insurance may cause us to opt for lower overall policy limits or to forgo insurance that we may otherwise rely on to cover any significant defense costs, settlements, and damages awarded to plaintiffs, or incur substantially higher costs to maintain the same or similar coverage. These factors may make it more difficult to attract and retain qualified executive officers and members of our board of directors.
38
We operate our business on a global basis and changes to trade policy, including tariffs and customs regulations, could have a material and adverse effect on our business.
We manufacture and sell our products globally and rely on a global supply chain to deliver the required raw materials, components, and parts, as well as the final products to our customers. Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries or geographic regions where we manufacture products, such as Canada, China, Egypt, Europe and Mexico, could have a material adverse effect on our business, financial condition and operating results. The U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive and commercial vehicle industries, the U.S. imposed tariffs on imports of electric vehicles and certain steel, aluminum and automotive components, and China imposed retaliatory tariffs on imports of U.S. vehicles and certain automotive components. The U.S. has also ordered an investigation into the imports of copper, particularly from China. Depending upon their continued duration and potential expansion, these tariffs and other regulatory actions could materially affect our business, including in the form of an increase in cost of goods sold, decreased margins, increased pricing for customers, and reduced sales.
As of March 4, 2025, the U.S. has enacted a 25% tariff on all goods imported from Mexico and Canada, and an additional 20% tariff on goods imported from China. Canada has announced a plan to imminently introduce 25% tariffs on a rolling schedule on a variety of U.S. goods, and Mexico has also indicated that it intends to impose retaliatory tariffs on U.S. goods. We do not know when such tariffs will take effect, how long any of these tariffs will last, or if some products may initially or eventually be subject to a different rate or be exempted. We continue to monitor statements made and actions taken by the U.S. government regarding tariffs on goods imported into the U.S. from Mexico, Canada, and other countries. We continue to also monitor similar actions by other countries with which we do business. It is possible other countries may impose retaliatory tariffs on goods imported into their countries from the U.S.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 13, 2024, the Board of Directors approved a share buyback authorization, commencing on June 17, 2024, for the purchase of up to $200.0 million of our outstanding common stock through June 17, 2026 (the “2024 Buyback Authorization”). Purchases under the 2024 Buyback Authorization may be made on the open market, including pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions. We have not made any purchases under the 2024 Buyback Authorization.
The following table provides information about our purchases of equity securities during the three months ended February 1, 2025.
Period |
|
Total number of shares purchased1 |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced plan |
|
|
Approximate dollar value of shares that may yet be purchased under the program (in millions) |
|
||||
November 3, 2024 through November 30, 2024 |
|
|
325,816 |
|
|
$ |
9.03 |
|
|
|
— |
|
|
$ |
200.0 |
|
December 1, 2024 through January 4, 2025 |
|
|
296 |
|
|
$ |
12.73 |
|
|
|
— |
|
|
$ |
200.0 |
|
January 5, 2025 through February 1, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
200.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Represents 326,112 shares of common stock that were surrendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units. |
|
|||||||||||||||
Item 5. Other Information
During our last fiscal quarter, no director or officer of the Company, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K.
39
Item 6. Exhibits
|
Exhibit Number |
|
Description |
10.1** |
|
Amendment to Offer Letter dated June 24, 2024 between Methode Electronics, Inc. and John DeGaynor. |
10.2** |
|
|
10.3** |
|
Settlement Agreement and Release between Methode Electronics, Inc. and Avinash Avula. |
10.4** |
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. |
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. |
32* |
|
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350. |
101.INS |
|
Inline XBRL Instance Document |
101.SCH |
|
Inline XBRL Taxonomy Schema With Embedded Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
* |
|
Indicates that the exhibit is being furnished with this report and not filed as part of it. |
** |
|
Management compensatory plan. |
|
|
|
40
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/ Laura Kowalchik |
|
|
|
|
|
|
Laura Kowalchik |
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
Dated: |
|
March 5, 2025 |
|
|
|
|
41
Exhibit 10.1
Methode Electronics, Inc.
8750 West Bryn Mawr Avenue, Suite 1000
Chicago, Illinois 60131
January 21, 2025
Dear Jon:
By this letter (this “Offer Letter Amendment”), we agree to amend certain terms of your Offer Letter dated as of June 24, 2024 (the “Offer Letter”) as follows.
The first sentence in the Offer Letter next to the heading “Relocation and Personal Travel” (which now reads “Temporary housing will be covered for a period of up to twelve (12) months.”) is deleted and replaced with the following sentence:
Temporary housing will be covered for a period of up to twelve (12) months, and any amounts paid to you for such temporary housing shall be grossed up for applicable income and employment taxes.
Except as modified by this Offer Letter Amendment, the Offer Letter shall remain in full force and effect.
Please sign, date and return a copy of this Offer Letter Amendment to Ms. Andrea Barry at the Company, and retain a copy for your records.
Sincerely,
METHODE ELECTRONICS, INC.
By: /s/ Bruce Crowther
Bruce Crowther
Chair of the Compensation Committee
ACKNOWLEDGMENT AND AGREEMENT
I have read and agree to the above terms and conditions.
/s/ Jonathan DeGaynor January 21, 2025
Jonathan DeGaynor Date
Exhibit 10.2
Methode Electronics, Inc.
8750 West Bryn Mawr Avenue, Suite 1000
Chicago, Illinois 60131
January 21, 2025
Dear Laura:
By this letter (this “Offer Letter Amendment”), we agree to amend certain terms of your Offer Letter dated as of August 27, 2024 (the “Offer Letter”) as follows.
The first sentence in the Offer Letter next to the heading “Relocation and Personal Travel” (which now reads “Temporary housing will be covered for a period of up to six (6) months.”) is deleted and replaced with the following sentence:
Temporary housing will be covered for a period of up to six (6) months, and any amounts paid to you for such temporary housing shall be grossed up for applicable income and employment taxes.
Except as modified by this Offer Letter Amendment, the Offer Letter shall remain in full force and effect.
Please sign, date and return a copy of this Offer Letter Amendment to Ms. Andrea Barry at the Company, and retain a copy for your records.
Sincerely,
METHODE ELECTRONICS, INC.
By: /s/ Bruce Crowther
Bruce Crowther
Chair of the Compensation Committee
ACKNOWLEDGMENT AND AGREEMENT
I have read and agree to the above terms and conditions.
/s/ Laura Kowalchik January 21, 2025
Laura Kowalchik Date
Exhibit 10.3
SETTLEMENT AGREEMENT AND RELEASE
This SETTLEMENT AGREEMENT AND RELEASE (this “Agreement”) is made and entered into between AVINASH AVULA (“Executive”) and METHODE ELECTRONICS, INC. (the “Company”) (Executive and the Company hereinafter being sometimes collectively referred to as the “Parties” and, individually, as a “Party”).
RECITALS
WHEREAS, disputes have arisen between Executive and the Company which are the subject of multiple claims asserted in: (1) a Complaint filed by Executive in The Superior Court of California San Mateo County, captioned Avinash Avula v. Methode Electronics, Inc., Case No. 24-CIV-05348 (“Lawsuit”); (2) a Demand for Arbitration filed by the Company with the American Arbitration Association (AAA) (“Demand”) and styled as Methode Electronics, Inc. v. Avinash Avula, AAA Case No. 01-24-0006-4787; and (3) a Motion to Compel Arbitration filed by the Company in the Circuit Court of Cook County, Illinois, captioned Methode Electronics, Inc. v. Avinash Avula, Case No. 2024CH09426 (“Motion”) (the Lawsuit, Demand, and Motion being sometimes collectively referred to herein as the “Proceedings”);
WHEREAS, the Company and Executive dispute the claims and allegations made in these Proceedings and deny any and all wrongdoing or liability whatsoever;
WHEREAS, in exchange for good and valuable consideration the receipt of which is hereby acknowledged, the Parties, by this Agreement, intend to settle, compromise and release, fully and completely, all existing and potential disputes, claims and controversies of any type or nature that may effectively be released under the law and which could be asserted relating to Executive’s relationship with the Company or otherwise, including without limitation the claims made in the Proceedings, with each of the Parties to bear his/its own costs and attorneys’ fees; and
NOW THEREFORE, for and in consideration of the representations, promises, covenants, agreements and acknowledgments made herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
COVENANTS
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A general release does not extend to claims which the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.
Executive agrees that he is waiving any and all rights he may have under California Civil Code Section 1542 with respect to the general release of claims in this Section 3. In connection with this waiver, Executive acknowledges that he may hereafter discover claims presently unknown or unsuspected, or facts in addition to or different from those which he may now know or believe to be true, with respect to the claims released pursuant to this Section 3. Nevertheless, Executive intends to and does by this Agreement release, fully, finally and forever, in the manner described in this Section 3, all such claims as provided therein. This Agreement shall constitute the full and absolute release of all claims and rights released in this Agreement, notwithstanding the discovery or existence of any additional or different claims or facts relating thereto.
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(a) ADEA Claims Released. Executive understands that the general release set forth in Section 3 above includes a release of any claims he may have, if any, against the Releasees under the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”). Executive understands that his waiver of rights and claims under the ADEA does not extend to any ADEA rights or claims arising after the date he signs this Agreement and he is not prohibited from challenging the validity of this release and waiver of claims under the ADEA.
(b) Consideration Period. Executive acknowledges that he has been given a period of at least twenty-one (21) days from the date this Agreement was initially delivered to him to decide whether to sign this Agreement. If he decides to sign this Agreement before the expiration of the consideration period, which is solely his choice, he represents that his decision is knowing and voluntary. Executive agrees that any revisions made to this Agreement after it was initially delivered to him were either not material or were requested by Executive, and do not re-start the consideration period. Executive is hereby advised to consult with his counsel prior to signing this Agreement.
(c) Revocation Period; Effective Date. Executive understands that he may revoke this Agreement within seven (7) days after he has signed it (the “Revocation Period”). In the event he chooses to revoke this Agreement, Executive must notify the Company in writing in accordance with Section 4(d) below, in which case this Agreement shall have no force or effect. This Agreement will become effective on the date immediately following the expiration of the Revocation Period (the “Effective Date”).
(d) Revocation Notice to Company. Any revocation of this Agreement pursuant to the foregoing Section 4(c) must be received by the Company’s Counsel, Bilal Zaheer, at bilal.zaheer@lockelord.com, in accordance hereof on or before 5:00 p.m. Central Time before expiration of the Revocation Period stated in Section (4)(c).
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The Parties represent and warrant that:
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(a) For purposes of this Agreement, the term “Confidential Information” means the Company’s trade secrets as defined under applicable law, as well as any other Company information or material that is not generally known to the public and which:
(i) is generated, collected by, or utilized in the operations of the Company’s business or relates to the actual or anticipated business products, research, or development of the Company or its customers or suppliers; or
(ii) is suggested by or results from any task assigned to Executive by the Company or work performed by Executive for or on behalf of the Company.
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Confidential Information shall not be considered generally known to the public if Executive or others improperly reveal such information to the public without the Company’s express written consent and/or in violation of an obligation of confidentiality owed to the Company. Examples of Confidential Information include, but are not limited to, all customer, client, supplier and vendor lists, budget information, contents of any database, contracts, product designs, technical know-how, engineering data and/or drawings, specifications, pricing and cost information, performance standards, productivity standards, research and development work, software, business plans, proprietary data, projections, market research, strategic plans, marketing information, financial information (including financial statements), sales information, training manuals, employee lists and compensation of employees, and all other competitively sensitive information with respect to the Company, whether or not it is in tangible form, and including without limitation any of the foregoing contained or described on paper or in computer software or other storage devices, as the same may exist from time to time. Confidential Information does not include: (a) information about Executive’s own wages, hours, and other terms and conditions of employment; and (b) information regarding the wages, hours, and other terms and conditions of employment for other employees of the Company, except where Executive has access to such information only because of the nature of Executive’s job functions or where Executive’s job functions include safeguarding employee personnel information.
Nicholas Anaclerio
Vedder Price P.C.
222 N. La Salle Street Notice to the Company shall be sent to the “Company’s Counsel” as follows:
Chicago, Illinois 60601
Phone: (312) 609-7538
nanaclerio@vedderprice.com
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Bilal Zaheer
Locke Lord LLP
111 S. Wacker Drive, Suite 4100
Chicago, Illinois 60606
Phone: (312) 201-2875
Bilal.zaheer@lockelord.com
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[Signatures on following page.]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement.
Executive Methode Electronics, Inc.
/s/ Avinash Avula /s/ Kerry Vyverberg
Avinash Avula By_Kerry Vyverberg
[spell name]
Its __General Counsel
[title]
and fully-authorized agent
Dated: November 8, 2024 Dated: November 11, 2024
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Exhibit 31.1
CERTIFICATION
I, Jonathan DeGaynor, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 5, 2025 |
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By: |
/s/ Jonathan DeGaynor |
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Jonathan DeGaynor |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Laura Kowalchik, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 5, 2025 |
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By: |
/s/ Laura Kowalchik |
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Laura Kowalchik |
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Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Methode Electronics, Inc. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarter ended February 1, 2025 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 5, 2025 |
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By: |
/s/ Jonathan DeGaynor |
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Jonathan DeGaynor Chief Executive Officer |
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Date: March 5, 2025 |
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By: |
/s/ Laura Kowalchik |
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Laura Kowalchik |
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Chief Financial Officer |