UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
(Registrant’s telephone number, including area code) (
(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 |
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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.
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).
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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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
At December 2, 2024, the registrant had
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 Six Months Ended November 2, 2024 and October 28, 2023 |
3 |
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Condensed Consolidated Balance Sheets as of November 2, 2024 (unaudited) and April 27, 2024 |
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Condensed Consolidated Statements of Shareholders’ Equity (unaudited) - Three and Six Months Ended November 2, 2024 and October 28, 2023 |
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Condensed Consolidated Statements of Cash Flows (unaudited) - Six Months Ended November 2, 2024 and October 28, 2023 |
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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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Six Months Ended |
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November 2, 2024 |
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October 28, 2023 |
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November 2, 2024 |
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October 28, 2023 |
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(14 Weeks) |
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(13 Weeks) |
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(27 Weeks) |
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(26 Weeks) |
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Net sales |
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$ |
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$ |
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$ |
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Cost of products sold |
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Gross profit |
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Selling and administrative expenses |
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Goodwill impairment |
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— |
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— |
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Amortization of intangibles |
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Income (loss) from operations |
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Interest expense, net |
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Other expense (income), net |
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Pre-tax income (loss) |
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Income tax expense (benefit) |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Loss per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Cash dividends per share |
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$ |
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$ |
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$ |
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$ |
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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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Six Months Ended |
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November 2, 2024 |
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October 28, 2023 |
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November 2, 2024 |
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October 28, 2023 |
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(14 Weeks) |
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(13 Weeks) |
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(27 Weeks) |
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(26 Weeks) |
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Net loss |
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$ |
( |
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$ |
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$ |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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Derivative financial instruments |
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( |
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( |
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( |
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Other comprehensive loss |
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( |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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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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November 2, 2024 |
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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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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Income tax receivable |
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Prepaid expenses and other current assets |
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Assets held for sale |
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Total current assets |
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Long-term assets: |
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Property, plant and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Operating lease right-of-use assets, net |
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Deferred tax assets |
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Pre-production costs |
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Other long-term assets |
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Total long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued employee liabilities |
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Other accrued liabilities |
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Short-term operating lease liabilities |
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Short-term debt |
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Income tax payable |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt |
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Long-term operating lease liabilities |
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Long-term income tax payable |
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— |
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Other long-term liabilities |
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Deferred tax liabilities |
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Total long-term liabilities |
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Total liabilities |
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Shareholders' equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Treasury stock, |
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( |
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( |
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Retained earnings |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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See notes to condensed consolidated financial statements
4
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(in millions, except share data)
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Three Months Ended November 2, 2024 (14 Weeks) |
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Redeemable noncontrolling interest |
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Common |
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Common |
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Additional |
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Accumulated |
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Treasury |
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Retained |
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Total |
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Balance as of July 27, 2024 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Issuance of restricted stock, net of tax withholding |
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— |
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— |
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— |
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— |
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— |
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Conversion of cash bonus to RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Dividends on common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of November 2, 2024 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Three Months Ended October 28, 2023 (13 Weeks) |
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Redeemable noncontrolling interest |
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Common |
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Common |
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Additional |
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Accumulated |
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Treasury |
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Retained |
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Total |
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Balance as of July 29, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Issuance of restricted stock, net of tax withholding |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Purchase of redeemable noncontrolling interest |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Purchases of common stock |
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— |
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( |
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( |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Dividends on common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance as of October 28, 2023 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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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)
|
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Six Months Ended November 2, 2024 (27 Weeks) |
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Redeemable noncontrolling interest |
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Common |
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Common |
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Additional |
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Accumulated |
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Treasury |
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Retained |
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Total |
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Balance as of April 27, 2024 |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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Issuance of restricted stock, net of tax withholding |
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— |
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— |
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— |
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( |
) |
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( |
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Cancellation of restricted stock |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of cash bonus to RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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Purchases of common stock |
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— |
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( |
) |
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( |
) |
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— |
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— |
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— |
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( |
) |
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( |
) |
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of November 2, 2024 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
Six Months Ended October 28, 2023 (26 Weeks) |
|
|||||||||||||||||||||||||||||
|
|
Redeemable noncontrolling interest |
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
Treasury |
|
|
Retained |
|
|
Total |
|
||||||||
Balance as of April 29, 2023 |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Issuance of restricted stock, net of tax withholding |
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
||
Purchase of redeemable noncontrolling interest |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchases of common stock |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of October 28, 2023 |
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
See notes to condensed consolidated financial statements.
6
METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
|
|
Six Months Ended |
|
|||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Partial write-off of unamortized debt issuance costs |
|
|
|
|
|
— |
|
|
(Gain) loss on sale of assets |
|
|
( |
) |
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
||
Goodwill impairment |
|
|
— |
|
|
|
|
|
Change in deferred income taxes |
|
|
|
|
|
( |
) |
|
Other |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from settlement of net investment hedge |
|
|
— |
|
|
|
|
|
Proceeds from disposition of assets |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Financing activities: |
|
|
|
|
|
|
||
Taxes paid related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
Repayments of finance leases |
|
|
( |
) |
|
|
( |
) |
Debt issuance costs |
|
|
( |
) |
|
|
— |
|
Purchases of common stock |
|
|
( |
) |
|
|
( |
) |
Cash dividends |
|
|
( |
) |
|
|
( |
) |
Purchase of redeemable noncontrolling interest |
|
|
— |
|
|
|
( |
) |
Proceeds from borrowings |
|
|
|
|
|
|
||
Repayments of borrowings |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of the period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of the period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Cash paid during the period for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes, net of refunds |
|
$ |
|
|
$ |
|
||
Operating lease obligations |
|
$ |
|
|
$ |
|
||
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 current fiscal quarter. The three months ended November 2, 2024 and October 28, 2023 were
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 November 2, 2024, 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 six months ended November 2, 2024.
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 $
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
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 November 2, 2024 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 November 2, 2024 (14 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Europe, the Middle East & Africa ("EMEA") |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Asia |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Goods transferred over time |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
|
|
Three Months Ended October 28, 2023 (13 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
EMEA |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Asia |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Goods transferred over time |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
Six Months Ended November 2, 2024 (27 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
EMEA |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Asia |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Goods transferred over time |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
|
|
Six Months Ended October 28, 2023 (26 Weeks) |
|
|||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Total |
|
|||||
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
EMEA |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Asia |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goods transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Goods transferred over time |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
10
Note 3. Disposition
Note 4. Income Taxes
For the three and six months ended November 2, 2024, 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 six months ended November 2, 2024 and October 28, 2023 were as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
($ in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Pre-tax income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income tax expense (benefit) |
|
|
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
Effective tax rate |
|
|
% |
|
|
% |
|
|
( |
)% |
|
|
% |
|||
The effective tax rate for the three and six months ended November 2, 2024 differs from the U.S. federal statutory tax rate of
As of November 2, 2024, the Company determined that recovery of some of its U.S. deferred tax assets was not more likely than not, and a valuation allowance of $
The Organization for Economic Cooperation and Development’s (“OECD”) Pillar II Initiative introduced a
The Company’s gross unrecognized income tax benefits were $
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 November 2, 2024 and April 27, 2024, the Company had a balance of $
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 $
Inventories
(in millions) |
|
November 2, 2024 |
|
|
April 27, 2024 |
|
||
Finished products |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
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 November 2, 2024 consists of one non-core real estate asset. Assets held for sale at April 27, 2024 consisted of three non-core real estate assets, two of which were sold in the three months ended November 2, 2024. The two non-core real estate assets had an aggregate carrying value of $
Property, plant and equipment
(in millions) |
|
November 2, 2024 |
|
|
April 27, 2024 |
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and building improvements |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total property, plant and equipment, gross |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
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 November 2, 2024 and April 27, 2024, the Company had $
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 November 2, 2024 and April 27, 2024, Company-owned tooling was $
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.
(in millions) |
|
Total |
|
|
Balance as of April 27, 2024 |
|
$ |
|
|
Foreign currency translation |
|
|
|
|
Balance as of November 2, 2024 |
|
$ |
|
|
A summary of goodwill by reporting unit is as follows:
(in millions) |
|
November 2, 2024 |
|
|
April 27, 2024 |
|
||
Grakon Industrial |
|
$ |
|
|
$ |
|
||
Nordic Lights |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
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 second 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 $
Other intangible assets, net
Details of identifiable intangible assets are shown below:
|
|
As of November 2, 2024 |
|
|||||||||||||
(in millions) |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted average remaining useful life (years) |
|
||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships and agreements |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
Trade names, patents and technology licenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total amortized intangible assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Unamortized trade name |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total other intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
13
|
|
As of April 27, 2024 |
|
|||||||||||||
(in millions) |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted average remaining useful life (years) |
|
||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships and agreements |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
Trade names, patents and technology licenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total amortized intangible assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Unamortized trade name |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total other intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
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 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
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 has a fixed-rate, cross-currency swap, maturing on
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 November 2, 2024 and October 28, 2023, the Company recorded gains of $
14
As of November 2, 2024 and April 27, 2024, the Company designated its euro-denominated long-term borrowings of $
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
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 six months ended November 2, 2024 and October 28, 2023.
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 November 2, 2024 and April 27, 2024, the Company held foreign currency forward contracts with a notional value of $
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Net investment hedges |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Interest rate swaps |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
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 |
|
November 2, 2024 |
|
|
April 27, 2024 |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Net investment hedges |
|
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Interest rate swaps |
|
Other long-term liabilities |
|
$ |
( |
) |
|
$ |
( |
) |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Foreign currency forward contracts |
|
Other accrued liabilities |
|
$ |
( |
) |
|
$ |
( |
) |
Note 8. Debt
A summary of debt is shown below:
(in millions) |
|
November 2, 2024 |
|
|
April 27, 2024 |
|
||
Revolving credit facility |
|
$ |
|
|
$ |
|
||
Other debt |
|
|
|
|
|
|
||
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total debt |
|
|
|
|
|
|
||
Less: current maturities |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
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 $
16
The Amended Credit Agreement provides for a secured multicurrency revolving credit facility of $
The Second Amendment was accounted for as a debt modification, which resulted in a non-cash loss of $
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
As of November 2, 2024, the outstanding balance under the revolving credit facility consisted of $
The weighted-average interest rate on outstanding US dollar and euro-denominated borrowings under the Amended Credit Agreement was approximately
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 of the Company), 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 November 2, 2024, 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
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 $
The following table summarizes activity under the 2021 Buyback Authorization:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions, except share and per share data) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average price per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
17
Prior to its expiration, a total of
Dividends
The Company paid dividends totaling $
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.
|
|
Three Months Ended November 2, 2024 (14 Weeks) |
|
|
Six Months Ended November 2, 2024 (27 Weeks) |
|
||||||||||||||||||
(in millions) |
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
||||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Tax expense (benefit) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at the end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Three Months Ended October 28, 2023 (13 Weeks) |
|
|
Six Months Ended October 28, 2023 (26 Weeks) |
|
||||||||||||||||||
(in millions) |
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
|
Currency translation adjustments |
|
|
Derivative instruments |
|
|
Total |
|
||||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Tax expense (benefit) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at the end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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,
Restricted stock awards and performance units
As of November 2, 2024, the Company had
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 $
|
|
Restricted |
|
|
Weighted |
|
||
Non-vested at April 27, 2024 |
|
|
|
|
$ |
|
||
Awarded |
|
|
|
|
$ |
|
||
Vested |
|
|
|
|
$ |
|
||
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested at November 2, 2024 |
|
|
|
|
$ |
|
||
Performance stock units
In the six months ended November 2, 2024, the Company granted
|
|
Assumptions |
|
|
Expected volatility |
|
|
% |
|
Risk free interest rate |
|
|
% |
|
Expected term (in years) |
|
|
|
|
Grant date fair value |
|
$ |
|
|
The PSUs earn dividend equivalents during the vesting periods, which are forfeitable if the PSUs do not vest. Unrecognized compensation expense for the PSUs was $
|
|
Performance |
|
|
Weighted |
|
||
Non-vested at April 27, 2024 |
|
|
|
|
$ |
|
||
Awarded |
|
|
|
|
$ |
|
||
Vested |
|
|
|
|
$ |
|
||
Forfeited |
|
|
|
|
$ |
|
||
Non-vested at November 2, 2024 |
|
|
|
|
$ |
|
||
19
Restricted stock units
RSUs granted vest over a pre-determined period of time, up to
|
|
Restricted |
|
|
Weighted |
|
||
Non-vested at April 27, 2024 |
|
|
|
|
$ |
|
||
Awarded |
|
|
|
|
$ |
|
||
Conversion of cash bonus to RSUs |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested at November 2, 2024 |
|
|
|
|
$ |
|
||
In the six months ended November 2, 2024,
Under the various stock plans, RSUs that have vested for certain executives, including Donald W. Duda, the Company’s former CEO, and 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 November 2, 2024, common stock to be delivered to these executives totaled
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.
|
|
Non-employee director awards |
|
|
Deferred non-employee director awards |
|
|
Total |
|
|
Weighted |
|
||||
Outstanding at April 27, 2024 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Awarded |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Issued |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
Outstanding at November 2, 2024 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Stock options
The following table summarizes stock option activity:
|
|
Stock |
|
|
Weighted average exercise price |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Outstanding and exercisable at April 27, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercised |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Outstanding and exercisable at November 2, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
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.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
RSUs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
PSUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred non-employee director awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-employee director awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
|
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss (in millions) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic loss per share - weighted average shares outstanding and vested/unissued restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for diluted loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
In the three and six months ended November 2, 2024 and October 28, 2023, 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
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 November 2, 2024 (14 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations/ |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Transfers between segments |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to unaffiliated customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pre-tax income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||||
|
|
Three Months Ended October 28, 2023 (13 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Transfers between segments |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to unaffiliated customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Goodwill impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
22
|
|
Six Months Ended November 2, 2024 (27 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations/ |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Transfers between segments |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales to unaffiliated customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|||||
|
|
Six Months Ended October 28, 2023 (26 Weeks) |
|
|||||||||||||||||||||
(in millions) |
|
Automotive |
|
|
Industrial |
|
|
Interface |
|
|
Medical |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Transfers between segments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net sales to unaffiliated customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||||
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Goodwill impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
(in millions) |
|
November 2, 2024 |
|
|
April 27, 2024 |
|
||
Identifiable assets: |
|
|
|
|
|
|
||
Automotive |
|
$ |
|
|
$ |
|
||
Industrial |
|
|
|
|
|
|
||
Interface |
|
|
|
|
|
|
||
Medical |
|
|
|
|
|
|
||
Eliminations/Corporate |
|
|
|
|
|
|
||
Total identifiable assets |
|
$ |
|
|
$ |
|
||
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 $
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, on November 26, 2024, a purported shareholder filed a derivative lawsuit 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 lawsuit is entitled Ray Homsi v. Donald Duda, et al. (together 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 |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Employee termination benefits |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Asset impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
25
The table below presents restructuring and asset impairment charges by reportable segment.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Automotive |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interface |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medical |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Eliminations/Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Recognized in: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of products sold |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Selling and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company’s restructuring liability was $
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 currently provides 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 six months ended November 2, 2024, the Company recognized $
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 1, Item 1A of our Annual Report on Form 10-K for the year ended April 27, 2024. 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.
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. We could also be impacted by changes in government regulations in areas including, but not limited to, trade and tariff regulations, which would 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.
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. For the three months ended November 2, 2024, our accounting period included 14 weeks compared to 13 weeks for the three months ended October 28, 2023. For the six months ended November 2, 2024, our accounting period included 27 weeks compared to 26 weeks for the six months ended October 28, 2023. The following discussions of comparative results among periods should be reviewed in this context.
28
The table below compares our results of operations between the three and six months ended November 2, 2024 and the three and six months ended October 28, 2023:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Net sales |
|
$ |
292.6 |
|
|
$ |
288.0 |
|
|
$ |
551.1 |
|
|
$ |
577.7 |
|
Cost of products sold |
|
|
234.7 |
|
|
|
235.7 |
|
|
|
448.6 |
|
|
|
471.4 |
|
Gross profit |
|
|
57.9 |
|
|
|
52.3 |
|
|
|
102.5 |
|
|
|
106.3 |
|
Selling and administrative expenses |
|
|
42.6 |
|
|
|
40.9 |
|
|
|
88.8 |
|
|
|
85.4 |
|
Goodwill impairment |
|
|
— |
|
|
|
56.5 |
|
|
|
— |
|
|
|
56.5 |
|
Amortization of intangibles |
|
|
5.9 |
|
|
|
6.2 |
|
|
|
11.8 |
|
|
|
11.9 |
|
Interest expense, net |
|
|
6.2 |
|
|
|
4.4 |
|
|
|
11.0 |
|
|
|
7.2 |
|
Other expense (income), net |
|
|
1.6 |
|
|
|
(0.2 |
) |
|
|
2.4 |
|
|
|
(0.2 |
) |
Income tax expense (benefit) |
|
|
3.2 |
|
|
|
(0.2 |
) |
|
|
8.4 |
|
|
|
(0.1 |
) |
Net loss |
|
$ |
(1.6 |
) |
|
$ |
(55.3 |
) |
|
$ |
(19.9 |
) |
|
$ |
(54.4 |
) |
Net sales
Net sales increased $4.6 million, or 1.6%, to $292.6 million in the three months ended November 2, 2024, compared to $288.0 million in the three months ended October 28, 2023. Foreign currency translation increased net sales by $4.3 million. Excluding foreign currency translation, net sales increased $0.3 million. The increase was primarily due to higher sales volumes in the Industrial segment, partially offset by lower sales volumes in the Automotive segment.
Net sales decreased $26.6 million, or 4.6%, to $551.1 million in the six months ended November 2, 2024, compared to $577.7 million in the six months ended October 28, 2023. Foreign currency translation increased net sales by $2.6 million. Excluding foreign currency translation, net sales decreased $29.2 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 $1.0 million, or 0.4%, to $234.7 million (80.2% of net sales) in the three months ended November 2, 2024, compared to $235.7 million (81.8% of net sales) in the three months ended October 28, 2023. Foreign currency translation increased cost of products sold by $3.3 million. Excluding foreign currency translation, cost of products sold decreased $4.3 million. The decrease was primarily due to lower freight and warranty costs, partially offset by higher salary expense.
Cost of products sold decreased $22.8 million, or 4.8%, to $448.6 million (81.4% of net sales) in the six months ended November 2, 2024, compared to $471.4 million (81.6% of net sales) in the six months ended October 28, 2023. Foreign currency translation increased cost of products sold by $2.0 million. Excluding foreign currency translation, cost of products sold decreased $24.8 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 expense. Restructuring and asset impairment charges included within cost of products sold were $0.4 million in the six months ended November 2, 2024, compared to $0.8 million in the six months ended October 28, 2023.
Gross profit margin
Gross profit margin was 19.8% of net sales in the three months ended November 2, 2024, compared to 18.2% of net sales in the three months ended October 28, 2023. Gross profit margin was 18.6% of net sales in the six months ended November 2, 2024, compared to 18.4% of net sales in the six months ended October 28, 2023.
The increase in gross profit margin in both periods was primarily a result of product mix from higher sales in the Industrial segment and lower operating expenses.
Selling and administrative expenses
Selling and administrative expenses increased $1.7 million, or 4.2%, to $42.6 million (14.6% of net sales) in the three months ended November 2, 2024, compared to $40.9 million (14.2% of net sales) in the three months ended October 28, 2023. The increase was due to higher incentive compensation expense and professional fees, partially offset by lower salary expense. Professional fees include $5.4 million for consulting and interim executive services provided by AlixPartners.
Selling and administrative expenses increased $3.4 million, or 4.0%, to $88.8 million (16.1% of net sales) in the six months ended November 2, 2024, compared to $85.4 million (14.8% of net sales) in the six months ended October 28, 2023. The increase was primarily due to higher professional fees and incentive compensation expense, partially offset by lower salary expense. Professional fees include $8.9 million for consulting and interim executive services provided by AlixPartners.
29
Goodwill impairment
In the three and six months ended October 28, 2023, 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 Report.
Amortization of intangibles
Amortization of intangibles was $5.9 million in the three months ended November 2, 2024, compared to $6.2 million in the three months ended October 28, 2023. Amortization of intangibles was $11.8 million in the six months ended November 2, 2024, compared to $11.9 million in the six months ended October 28, 2023.
Interest expense, net
Interest expense, net was $6.2 million in the three months ended November 2, 2024, compared to $4.4 million in the three months ended October 28, 2023. Interest expense, net was $11.0 million in the six months ended November 2, 2024, compared to $7.2 million in the six months ended October 28, 2023. The increase in both periods was due to a higher level of borrowings and increased interest rates.
Other expense (income), net
Other expense, net was $1.6 million in the three months ended November 2, 2024, compared to other income, net of $0.2 million in the three months ended October 28, 2023. Net foreign exchange loss was $1.7 million in the three months ended November 2, 2024, compared to net foreign exchange gain of $0.3 million in the three months ended October 28, 2023.
Other expense, net was $2.4 million in the six months ended November 2, 2024, compared to other income, net of $0.2 million in the six months ended October 28, 2023. Other expense, net in the six months ended November 2, 2024 includes a non-cash write-off of $1.2 million of unamortized debt issuance costs. Net foreign exchange loss was $2.3 million in the six months ended November 2, 2024, compared to net foreign exchange gain of $0.5 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we received $1.0 million of international government assistance.
Income tax expense
Income tax expense was $3.2 million (200.0% effective tax rate) in the three months ended November 2, 2024, compared to an income tax benefit of $0.2 million (0.4% effective tax rate) in the three months ended October 28, 2023. Income tax expense was $8.4 million (-73.0% effective tax rate) in the six months ended November 2, 2024, compared to an income tax benefit of $0.1 million (0.2% effective tax rate) in the six months ended October 28, 2023.
The effective tax rate for the three and six months ended November 2, 2024 was higher than 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 global intangible low-tax income, partially offset by the impact of income derived from foreign operations with lower statutory tax rates, research deductions claimed in foreign jurisdictions and foreign exchange loss. The effective tax rate for the three and six months ended October 28, 2023 was lower than 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 $1.6 million in the three months ended November 2, 2024, compared to $55.3 million in the three months ended October 28, 2023. Net loss was $19.9 million in the six months ended November 2, 2024, compared to $54.4 million in the six months ended October 28, 2023. The net loss was a result of the reasons described above.
30
Reportable Operating Segments
Automotive
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
($ in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
69.7 |
|
|
$ |
70.9 |
|
|
$ |
136.0 |
|
|
$ |
137.7 |
|
Europe, the Middle East & Africa ("EMEA") |
|
|
66.5 |
|
|
|
49.7 |
|
|
|
125.8 |
|
|
|
101.9 |
|
Asia |
|
|
9.3 |
|
|
|
33.7 |
|
|
|
18.5 |
|
|
|
73.0 |
|
Net sales |
|
|
145.5 |
|
|
|
154.3 |
|
|
|
280.3 |
|
|
|
312.6 |
|
Gross profit |
|
$ |
14.2 |
|
|
$ |
11.6 |
|
|
$ |
22.8 |
|
|
$ |
26.9 |
|
As a percent of net sales |
|
|
9.8 |
% |
|
|
7.5 |
% |
|
|
8.1 |
% |
|
|
8.6 |
% |
Income (loss) from operations |
|
$ |
0.7 |
|
|
$ |
(61.5 |
) |
|
$ |
(5.0 |
) |
|
$ |
(64.3 |
) |
As a percent of net sales |
|
|
0.5 |
% |
|
|
(39.9 |
)% |
|
|
(1.8 |
)% |
|
|
(20.6 |
)% |
Net sales
Automotive segment net sales decreased $8.8 million, or 5.7%, to $145.5 million in the three months ended November 2, 2024, compared to $154.3 million in the three months ended October 28, 2023. Excluding foreign currency translation, net sales decreased $10.9 million.
Net sales in North America decreased $1.2 million to $69.7 million in the three months ended November 2, 2024, compared to $70.9 million in the three months ended October 28, 2023. The decrease was due to the roll off of legacy programs offset by new program launches. Net sales in EMEA increased $16.8 million to $66.5 million in the three months ended November 2, 2024, compared to $49.7 million in the three months ended October 28, 2023. The stronger euro, relative to the U.S. dollar, increased net sales in EMEA by $1.9 million. Excluding foreign currency translation, net sales in EMEA were higher due to new program launches, partially offset by lower sales volumes of sensor products. Net sales in Asia decreased $24.4 million to $9.3 million in the three months ended November 2, 2024, compared to $33.7 million in the three months ended October 28, 2023. The stronger Chinese renminbi, relative to the U.S. dollar, increased net sales in Asia by $0.2 million. Excluding foreign currency translation, net sales in Asia decreased primarily due to a program roll-off.
Automotive segment net sales decreased $32.3 million, or 10.3%, to $280.3 million in the six months ended November 2, 2024, compared to $312.6 million in the six months ended October 28, 2023. Excluding foreign currency translation, net sales decreased $33.6 million.
Net sales in North America decreased $1.7 million to $136.0 million in the six months ended November 2, 2024, compared to $137.7 million in the six months ended October 28, 2023. The decrease was due to the roll off of legacy programs offset by new program launches. Net sales in EMEA increased $23.9 million to $125.8 million in the six months ended November 2, 2024, compared to $101.9 million in the six months ended October 28, 2023. The stronger euro, relative to the U.S. dollar, increased net sales in EMEA by $1.3 million. Excluding foreign currency translation, net sales in EMEA were higher due to new program launches, partially offset by lower sales volumes of sensor products. Net sales in Asia decreased $54.5 million to $18.5 million in the six months ended November 2, 2024, compared to $73.0 million in the six months ended October 28, 2023. The decrease was primarily due to a program roll-off.
Gross profit
Automotive segment gross profit increased $2.6 million, or 22.4%, to $14.2 million in the three months ended November 2, 2024, compared to $11.6 million in the three months ended October 28, 2023. Excluding foreign currency translation, gross profit increased $2.3 million. Gross profit margins increased to 9.8% in the three months ended November 2, 2024, compared to 7.5% in the three months ended October 28, 2023. The increase in gross profit was primarily due to higher sales volumes in EMEA and lower freight and warranty costs.
Automotive segment gross profit decreased $4.1 million, or 15.2%, to $22.8 million in the six months ended November 2, 2024, compared to $26.9 million in the six months ended October 28, 2023. Excluding foreign currency translation, gross profit decreased $4.4 million. Gross profit margins decreased to 8.1% in the six months ended November 2, 2024, compared to 8.6% in the six months ended October 28, 2023. The decrease in gross profit was due to lower sales volumes and higher salary expense, partially offset by lower freight and warranty costs.
31
Income (loss) from operations
Automotive segment income from operations was $0.7 million in the three months ended November 2, 2024, compared to a loss of $61.5 million in the three months ended October 28, 2023. Loss from operations in the three months ended October 28, 2023, includes goodwill impairment of $56.5 million. Excluding goodwill impairment and foreign currency translation, income from operations increased $5.6 million. The improvement was due to higher gross profit and lower selling and administrative expenses. Selling and administrative expenses decreased due to lower compensation expense, travel and entertainment expense, and professional fees.
Automotive segment loss from operations was $5.0 million in the six months ended November 2, 2024, compared to $64.3 million in the six months ended October 28, 2023. Loss from operations in the six months ended October 28, 2023, includes goodwill impairment of $56.5 million. Excluding goodwill impairment and foreign currency translation, loss from operations decreased $2.8 million. The improvement was due to lower selling and administrative expenses, partially offset by lower gross profit. Selling and administrative expenses decreased due to lower outbound freight, travel and entertainment expense, compensation expense and professional fees.
Industrial
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
($ in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Net sales |
|
$ |
131.4 |
|
|
$ |
120.4 |
|
|
$ |
242.9 |
|
|
$ |
235.8 |
|
Gross profit |
|
$ |
38.0 |
|
|
$ |
37.9 |
|
|
$ |
70.8 |
|
|
$ |
73.5 |
|
As a percent of net sales |
|
|
28.9 |
% |
|
|
31.5 |
% |
|
|
29.1 |
% |
|
|
31.2 |
% |
Income from operations |
|
$ |
24.3 |
|
|
$ |
25.7 |
|
|
$ |
41.2 |
|
|
$ |
49.9 |
|
As a percent of net sales |
|
|
18.5 |
% |
|
|
21.3 |
% |
|
|
17.0 |
% |
|
|
21.2 |
% |
Net sales
Industrial segment net sales increased $11.0 million, or 9.1%, to $131.4 million in the three months ended November 2, 2024, compared to $120.4 million in the three months ended October 28, 2023. Excluding foreign currency translation, net sales increased $8.8 million.
Industrial segment net sales increased $7.1 million, or 3.0%, to $242.9 million in the six months ended November 2, 2024, compared to $235.8 million in the six months ended October 28, 2023. Excluding foreign currency translation, net sales increased $5.8 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 $0.1 million, or 0.3%, to $38.0 million in the three months ended November 2, 2024, compared to $37.9 million in the three months ended October 28, 2023. Excluding foreign currency translation, gross profit decreased $0.6 million. Gross profit margins decreased to 28.9% in the three months ended November 2, 2024, compared to 31.5% in the three months ended October 28, 2023. Gross profit margins were impacted by product mix and higher operating expenses.
Industrial segment gross profit decreased $2.7 million, or 3.7%, to $70.8 million in the six months ended November 2, 2024, compared to $73.5 million in the six months ended October 28, 2023. Excluding foreign currency translation, gross profit decreased $3.0 million. Gross profit margins decreased to 29.1% in the six months ended November 2, 2024, compared to 31.2% in the six months ended October 28, 2023. Gross profit margins were impacted by product mix.
Income from operations
Industrial segment income from operations decreased $1.4 million, or 5.4%, to $24.3 million in the three months ended November 2, 2024, compared to $25.7 million in the three months ended October 28, 2023. Excluding foreign currency translation, income from operations decreased $1.9 million. The decrease was primarily due to lower gross profit and 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 $8.7 million, or 17.4%, to $41.2 million in the six months ended November 2, 2024, compared to $49.9 million in the six months ended October 28, 2023. Excluding foreign currency translation, income from operations decreased $9.0 million. The decrease was primarily due to lower gross profit and higher selling and administrative expenses. The increase in selling and administrative expenses was primarily due to higher legal fees and compensation expense.
32
Interface
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
($ in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Net sales |
|
$ |
15.7 |
|
|
$ |
11.7 |
|
|
$ |
27.9 |
|
|
$ |
26.9 |
|
Gross profit |
|
$ |
5.2 |
|
|
$ |
1.9 |
|
|
$ |
7.8 |
|
|
$ |
5.5 |
|
As a percent of net sales |
|
|
33.1 |
% |
|
|
16.2 |
% |
|
|
28.0 |
% |
|
|
20.4 |
% |
Income from operations |
|
$ |
4.7 |
|
|
$ |
1.0 |
|
|
$ |
6.6 |
|
|
$ |
3.9 |
|
As a percent of net sales |
|
|
29.9 |
% |
|
|
8.5 |
% |
|
|
23.7 |
% |
|
|
14.5 |
% |
Net sales
Interface segment net sales increased $4.0 million, or 34.2% to $15.7 million in the three months ended November 2, 2024, compared to $11.7 million in the three months ended October 28, 2023. The increase was primarily due to higher sales volumes of transceivers for servers and touch panels for appliances.
Interface segment net sales increased $1.0 million, or 3.7%, to $27.9 million in the six months ended November 2, 2024, compared to $26.9 million in the six months ended October 28, 2023. The increase was due to higher sales volumes of transceivers for servers, partially offset by lower sales volumes of touch panels for appliances.
Gross profit
Interface segment gross profit increased $3.3 million, or 173.7%, to $5.2 million in the three months ended November 2, 2024, compared to $1.9 million in the three months ended October 28, 2023. Gross profit margins increased to 33.1% in the three months ended November 2, 2024, compared to 16.2% in the three months ended October 28, 2023.
Interface segment gross profit increased $2.3 million, or 41.8%, to $7.8 million in the six months ended November 2, 2024, compared to $5.5 million in the six months ended October 28, 2023. Gross profit margins increased to 28.0% in the six months ended November 2, 2024, compared to 20.4% in the six months ended October 28, 2023.
The increase in gross profit and gross profit margins in both periods was primarily due to higher sales volumes and an inventory reserve reduction.
Income from operations
Interface segment income from operations increased $3.7 million, or 370.0%, to $4.7 million in the three months ended November 2, 2024, compared to $1.0 million in the three months ended October 28, 2023.
Interface segment income from operations increased $2.7 million, or 69.2%, to $6.6 million in the six months ended November 2, 2024, compared to $3.9 million in the six months ended October 28, 2023.
The increase in both periods was primarily due to higher gross profit and slightly lower selling and administrative expenses.
Medical
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||||
(in millions) |
|
(14 Weeks) |
|
|
(13 Weeks) |
|
|
(27 Weeks) |
|
|
(26 Weeks) |
|
||||
Net sales |
|
$ |
— |
|
|
$ |
1.6 |
|
|
$ |
— |
|
|
$ |
2.4 |
|
Gross profit |
|
$ |
— |
|
|
$ |
0.6 |
|
|
$ |
— |
|
|
$ |
(0.1 |
) |
Loss from operations |
|
$ |
— |
|
|
$ |
(0.7 |
) |
|
$ |
— |
|
|
$ |
(2.9 |
) |
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 November 2, 2024, we had $97.0 million of cash and cash equivalents, of which $49.8 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 six months ended November 2, 2024, zero and 136,000 shares were purchased under the 2021 Buyback Authorization and no shares were purchased under the 2024 Buyback Authorization. As of November 2, 2024, 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 the quarters ending July 27, 2024, November 2, 2024, January 25, 2025 and May 3, 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 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 November 2, 2024, the outstanding balance under the revolving credit facility consisted of $297.9 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 of the Company), 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 November 2, 2024, 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 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
|
|
Six Months Ended |
|
|||||
(in millions) |
|
November 2, 2024 |
|
|
October 28, 2023 |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(19.9 |
) |
|
$ |
(54.4 |
) |
Non-cash items |
|
|
37.5 |
|
|
|
89.9 |
|
Changes in operating assets and liabilities |
|
|
(54.7 |
) |
|
|
(41.7 |
) |
Net cash used in operating activities |
|
|
(37.1 |
) |
|
|
(6.2 |
) |
Net cash used in investing activities |
|
|
(21.0 |
) |
|
|
(22.3 |
) |
Net cash (used in) provided by financing activities |
|
|
(8.1 |
) |
|
|
1.9 |
|
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
|
1.7 |
|
|
|
(7.9 |
) |
Decrease in cash and cash equivalents |
|
|
(64.5 |
) |
|
|
(34.5 |
) |
Cash and cash equivalents at beginning of the period |
|
|
161.5 |
|
|
|
157.0 |
|
Cash and cash equivalents at end of the period |
|
$ |
97.0 |
|
|
$ |
122.5 |
|
Operating activities
Net cash used in operating activities was $37.1 million in the six months ended November 2, 2024, compared to $6.2 million in the six months ended October 28, 2023. The increase was due to a higher net loss adjusted for non-cash items and higher cash outflows from operating assets and liabilities. The $54.7 million of cash outflows for operating assets and liabilities in the six months ended November 2, 2024 was primarily due to higher inventory and lower other liabilities, partially offset by lower accounts receivable.
Investing activities
Net cash used in investing activities was $21.0 million in the six months ended November 2, 2024, compared to $22.3 million in the six months ended October 28, 2023. Capital expenditures were $24.0 million in the six months ended November 2, 2024, compared to $24.5 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we received proceeds of $3.0 million from the sale of assets, compared to $1.6 million in the six months ended October 28, 2023.
Financing activities
Net cash used in financing activities was $8.1 million in the six months ended November 2, 2024, compared to net cash provided by financing activities of $1.9 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we used $1.6 million of cash for the purchase of shares under the 2021 Buyback Authorization, compared to $7.8 million in the six months ended October 28, 2023. We paid cash dividends of $10.0 million in the six months ended November 2, 2024, compared to $10.1 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we had net proceeds from borrowings of $5.9 million, compared to net proceeds from borrowings of $34.6 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we paid $1.8 million of debt issuance costs associated with the Second Amendment. In the six months ended October 28, 2023, 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 six months ended November 2, 2024. 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 on Form 10-Q, we performed an evaluation under the supervision and with the participation of the Company’s management, including our Chief Executive Officer (“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 November 2, 2024 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 this Quarterly Report, and, to the best of our knowledge, we believe that the condensed consolidated financial statements in this Form 10-Q 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 November 2, 2024 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 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 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, a purported shareholder filed a derivative lawsuit 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
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 November 2, 2024.
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) |
|
||||
July 28, 2024 through August 24, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
200.0 |
|
August 25, 2024 through September 28, 2024 |
|
|
3,229 |
|
|
$ |
10.96 |
|
|
|
— |
|
|
$ |
200.0 |
|
September 29, 2024 through November 2, 2024 |
|
|
218 |
|
|
$ |
11.08 |
|
|
|
— |
|
|
$ |
200.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Represents 3,447 shares of common stock that were surrendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units. |
|
|||||||||||||||
39
Item 5. Other Information
During our last fiscal quarter,
Item 6. Exhibits
Exhibit Number |
|
Description |
10.1** |
|
|
10.2** |
|
|
10.3** |
|
|
10.4** |
|
|
10.5** |
|
|
10.6** |
|
|
10.7** |
|
Form of Annual Bonus Performance Grant Award Agreement (Fiscal 2025). |
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: |
|
December 5, 2024 |
|
|
|
|
41