What changed in this filing

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Item 1. Financial Statements

2021-09-02 compared with 2021-03-04 · 221 added, 278 removed, 336 unchanged (60% of the section changed)

5 unchanged sentences

Three Months Ended

Nine Months Ended

July 31, 2021

August 1, 2020

Cost of products sold

5 unchanged sentences

Income before income taxes

Income Tax Expense

Income tax expense (benefit)

Basic and diluted income per share:

6 unchanged sentences

Three Months Ended

Nine Months Ended

July 31, 2021

August 1, 2020

Other comprehensive income (loss), net of tax:

7 unchanged sentences

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

July 31, 2021

Current assets:

1 unchanged sentence

Accounts receivable, net

Income Tax Receivable

Income taxes receivable

Prepaid expenses and other current assets

3 unchanged sentences

Other intangible assets, net

Operating Lease Assets, Net

Operating lease right-of-use assets, net

Deferred tax assets

2 unchanged sentences

Total long-term assets

LIABILITIES & SHAREHOLDERS' EQUITY

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

2 unchanged sentences

Other accrued liabilities

Short-term Operating Lease Liability

Short-term operating lease liabilities

Short-term debt

3 unchanged sentences

Long-term debt

Long-term Operating Lease Liability

Long-term Income Tax Payable

Long-term operating lease liabilities

Long-term income taxes payable

Other long-term liabilities

3 unchanged sentences

Shareholders' equity:

Common Stock, $ 0.50 par value, 100,000,000 shares authorized, 39,793,362 shares and 38,438,111 shares issued as of January 30, 2021 and May 2, 2020, respectively

Common stock, $ 0.50 par value, 100,000,000 shares authorized, 39,544,645 shares and 39,644,913 shares issued as of July 31, 2021 and May 1, 2021, respectively

Additional paid-in capital

Accumulated Other Comprehensive Income (Loss)

Treasury Stock, 1,346,624 shares as of January 30, 2021 and May 2, 2020

Accumulated other comprehensive income

Treasury stock, 1,346,624 shares as of July 31, 2021 and May 1, 2021

Retained earnings

6 unchanged sentences

(in millions, except share data)

Three Months Ended January 30, 2021 (13 Weeks)

Three Months Ended July 31, 2021

comprehensive

income (loss)

Balance as of October 31, 2020

shareholders'

Balance as of May 1, 2021

Issuance of restricted stock, net of tax withholding

Stock-based Compensation Expense

Other Comprehensive Income

Dividends on Common Stock

Balance as of January 30, 2021

Three Months Ended February 1, 2020 (14 Weeks)

Comprehensive

Income (Loss)

Balance as of October 26, 2019

Exercise of stock options

Purchases of common stock

Stock-based compensation expense

Other Comprehensive Income

Other comprehensive loss

Dividends on common stock

Balance as of February 1, 2020

Nine Months Ended January 30, 2021 (39 Weeks)

Balance as of July 31, 2021

Three Months Ended August 1, 2020

comprehensive

income (loss)

shareholders'

Balance as of May 2, 2020

4 unchanged sentences

Dividends on common stock

Balance as of January 30, 2021

Nine Months Ended February 1, 2020 (40 Weeks)

Comprehensive

Balance as of April 27, 2019

Issuance of Restricted Stock, Net of Tax Withholding

Stock-based Compensation Expense

Other Comprehensive Loss

Dividends on Common Stock

Balance as of February 1, 2020

Balance as of August 1, 2020

See notes to condensed consolidated financial statements.

3 unchanged sentences

(in millions)

Nine Months Ended

Three Months Ended

July 31, 2021

August 1, 2020

Operating activities:

4 unchanged sentences

Amortization of debt issuance costs

Gain on sale of property, plant and equipment

Change in deferred income taxes

2 unchanged sentences

Prepaid expenses and other assets

Accounts Payable and Other Liabilities

Accounts payable

Other liabilities

Net cash provided by operating activities

1 unchanged sentence

Purchases of property, plant and equipment

Sale of Business/Investment/Property

Sale of property, plant and equipment

Net cash used in investing activities

1 unchanged sentence

Taxes paid related to net share settlement of equity awards

Proceeds from Exercise of Stock Options

Repayments of finance leases

Proceeds from exercise of stock options

Purchases of common stock

Cash dividends

Proceeds from Borrowings

Repayments of borrowings

1 unchanged sentence

Effect of foreign currency exchange rate changes on cash and cash equivalents

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash and Cash Equivalents at Beginning of the Year

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period

10 unchanged sentences

Methode Electronics, Inc.

(the "Company" or "Methode") is a global developer of custom engineered and application specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States.

The Company's primary manufacturing facilities are located in Dongguan and Shanghai, China;

Cairo, Egypt;

Mriehel, Malta;

and Monterrey, Mexico.

The Company designs, manufactures and markets devices employing electrical, electronic, LED lighting, sensors and radio remote control technologies.

Impact of COVID-19

The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant volatility and disruptions to capital and credit markets in the global financial markets.

The Company began to see the impacts of the COVID-19 pandemic at the beginning of its fourth quarter of fiscal 2020 at its China manufacturing facilities, which were initially closed after the Chinese New Year.

The Company’s manufacturing facilities in China resumed operations later in the fourth quarter of fiscal 2020, but at lower capacity utilization.

However, the major impact to the Company’s business from the COVID-19 pandemic began in mid-March 2020, as the Company’s operations in North America and Europe were adversely impacted by many customers suspending their manufacturing operations due to the COVID-19 pandemic.

In the first quarter of fiscal 2021, the Company’s operations in North America and Europe gradually resumed operations, however production levels were still significantly reduced, resulting in lower capacity utilization.

In the second quarter of fiscal 2021, production levels returned to pre-COVID levels as a result of increased demand from customers, which continued in the third quarter of fiscal 2021.

However, towards the end of the Company’s third quarter of fiscal 2021, many automotive companies announced a slowdown in their production schedules due to a worldwide semiconductor supply shortage.

(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, consumer appliance and medical devices.

Impact of the COVID-19 pandemic

The COVID-19 pandemic and the ongoing measures to reduce its spread have negatively impacted the global economy, disrupted consumer and customer demand and global supply chains, and resulted in manufacturing inefficiencies and increased freight costs due to global capacity constraints.

The Company expects that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact its business and results of operations for the foreseeable future.

The extent of the impact will depend on a number of evolving and uncertain factors, including the duration and spread of COVID-19 (and its variants), the rate of vaccinations, actions taken by governmental authorities to further restrict business operations and social activity and impose travel restrictions, shifting consumer demand, the ability of the Company’s supply chain to deliver in a timely and cost-effective manner, the ability of the Company’s employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of the Company’s customers and suppliers and future access to capital.

While demand for the Company’s products improved, the recovery in demand has had business interruptions, including increased material and logistics costs, and most significantly, impacts from the worldwide semiconductor supply shortage.

The semiconductor supply shortage is due, in part, to increased demand across multiple industries, including the automotive industry, resulting in a slowdown in their production schedules.

The semiconductor supply shortage is also impacting the Company’s supply chain and its ability to meet demand at some of its non-automotive customers.

The Company expects this semiconductor shortage will likely have a short-term impact on its operating results and financial condition in the fourth quarter of fiscal 2021 and possibly into fiscal 2022.

The Company expects this semiconductor shortage will likely have a continued impact on its operating results and financial condition in fiscal 2022.

Various government programs have been enacted to provide assistance to businesses impacted by the COVID-19 pandemic.

The amount of assistance the Company received was $ 2.7 million and $ 8.9 million in the three and nine months ended January 30, 2021, respectively, and has been reported as other income.

The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company's goodwill, identifiable intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of January 30, 2021 and through the date of this report.

As a result of these assessments, the Company concluded that there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company's condensed consolidated financial statements as of January 30, 2021 and for the three and nine months ended January 30, 2021 .

The amount of assistance the Company received was $ 1.9 million and $ 2.9 million in the three months ended July 31, 2021 and August 1, 2020, respectively, and has been reported as other income.

The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company’s goodwill, identifiable intangible assets, and other long-lived assets, and its valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of July 31, 2021 and through the date of this report.

As a result of these assessments, the Company concluded that there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company’s condensed consolidated financial statements as of July 31, 2021 and for the three months then ended.

However, the Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to its consolidated financial statements in future reporting periods.

5 unchanged sentences

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.

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.

3 unchanged sentences

The Company maintains its financial records on the basis of a 52- or 53-week fiscal year ending on the Saturday closest to April 30.

Fiscal 2021 is a 52-week year and fiscal 2020 was a 53-week year.

For the three months ended January 30, 2021 , the Company’s accounting period included 13 weeks compared to 14 weeks for the three months ended February 1, 2020.

For the nine months ended January 30, 2021 , the Company’s accounting period included 39 weeks compared to 40 weeks for the nine months ended February 1, 2020.

The following discussions of comparative results should be reviewed in this context.

The three months ended July 31, 2021 and August 1, 2020 were both 13 week periods.

Use of estimates

3 unchanged sentences

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 May 1, 2021.

There have been no material changes to the significant accounting policies in the nine months ended January 30, 2021 other than those noted below.

There have been no material changes to the significant accounting policies in the three months ended July 31, 2021 other than those noted below.

Recently adopted accounting pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “ Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments .” The guidance in ASU 2016-13 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.

The Company adopted this guidance as of May 3, 2020.

The guidance allows for various methods for measuring expected credit losses.

The Company elected to apply a historical loss rate based on historic write-offs to aging categories.

The historical loss rate will be adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary.

The adoption of the guidance did not have a material impact on the Company's condensed consolidated financial statements.

The allowance for doubtful accounts balance was $ 0.8 million and $ 0.6 million as of January 30, 2021 and May 2, 2020, respectively .

In August 2018, the FASB issued ASU 2018-15, " Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The guidance in ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements.

The Company adopted this guidance prospectively as of May 3, 2020, and the impact on its condensed consolidated financial statements will depend on the nature of the Company’s future cloud computing arrangements.

In August 2018, the FASB issued ASU 2018-13, “ Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ." The guidance in ASU 2018-13 changes disclosure requirements related to fair value measurements as part of the disclosure framework project.

The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements.

The Company adopted this guidance as of May 3, 2020, and there was no impact on the condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships that reference LIBOR or another rate that is expected to be discontinued , subject to meeting certain criteria .

ASU 2020-04 was effective upon issuance and generally can be applied prospectively through December 31, 2022.

The Company does not expect a material effect from the adoption of this guidance on its cond ensed consolidated financial statements .

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, " Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740) ," which simplifies the accounting for income taxes.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “ Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740) ,” which simplifies the accounting for income taxes.

The new guidance removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740, such as recognizing deferred taxes for equity investments, the incremental approach to performing intraperiod tax allocation and calculating income taxes in interim periods.

The standard also simplifies accounting for income taxes under GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

This guidance is effective for annual periods beginning after December 15, 2020, and interim periods thereafter;

however, early adoption is permitted.

The Company is currently assessing the potential impact of the standard on its condensed consolidated financial statements.

The Company adopted this guidance as of May 2, 2021, and the impact on its condensed consolidated financial statements was not material.

The Company generates revenue from the manufacturing of products for customers in diversified global markets.

The majority of the Company’s revenue is recognized at a point in time.

2 unchanged sentences

Revenue for consignment arrangements is recognized upon the customer’s usage.

Revenues associated with products which the Company believes have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over time basis.

The Company believes the most faithful depiction of the transfer of goods to the customer is based on progress to date, which is typically smooth throughout the production process.

As such, the Company recognizes revenue evenly over the production process through transfer of control to the customer.

Customers typically negotiate annual price downs.

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.

From time to time, customers may negotiate annual price downs.

Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right.

In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.

The Company treats shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation.

Across all products, the amount of revenue recognized corresponds to the related purchase order.

Across all products, the amount of revenue recognized corresponds to the related purchase order and is adjusted for variable consideration (such as discounts).

Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

The Company’s performance obligations are typically short-term in nature.

As a result, the Company has elected the practical expedient that provides an exemption from the disclosure requirements regarding information about remaining performance obligations on contracts that have original expected durations of one year or less.

Contract balances

1 unchanged sentence

A contract liability exists when an entity has received consideration, or the amount is due from the customer in advance of revenue recognition.

The net changes in the contract asset and contract liability balances for the three and nine months ended January 30, 2021 and February 1, 2020 were not material.

Disaggregated Revenue Information

Geographic net sales are determined based on the Company's operational locations.

Though revenue recognition patterns and contract provisions 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 January 30, 2021 (13 Weeks)

(Dollars in Millions)

Geographic Net Sales:

North America

Europe & Africa

Total Net Sales

Timing of Revenue Recognition:

Goods Transferred at a Point in Time

Goods Transferred Over Time

Total Net Sales

Three Months Ended February 1, 2020 (14 Weeks)

(Dollars in Millions)

Geographic Net Sales:

North America

Europe & Africa

Total Net Sales

Timing of Revenue Recognition:

Goods Transferred at a Point in Time

Goods Transferred Over Time

Total Net Sales

Nine Months Ended January 30, 2021 (39 Weeks)

(Dollars in Millions)

The net changes in the contract asset and contract liability balances for the three months ended July 31, 2021 and August 1, 2020 were not material.

Disaggregated r evenue i nformation

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 July 31, 2021

(in millions)

Geographic net sales:

6 unchanged sentences

Total net sales

Nine Months Ended February 1, 2020 (40 Weeks)

(Dollars in Millions)

Three Months Ended August 1, 2020

(in millions)

Geographic net sales:

8 unchanged sentences

The Company continually monitors market factors and industry trends and takes necessary actions to reduce overall costs and improve operational profitability.

In the three and nine months ended January 30, 2021, the Company initiated certain restructuring actions in response to the adverse impacts from the COVID-19 pandemic.

In fiscal 2021, the Company initiated certain restructuring actions in response to the adverse impacts from the COVID-19 pandemic.

These actions included plant consolidations and workforce reductions in the Automotive, Industrial and Interface segments.

In the three months ended January 30, 2021, the Company recognized $ 0.7 million of restructuring costs.

These charges consist of $ 0.4 million recorded in cost of products sold and $ 0.3 million recorded in selling and administrative expenses.

In the nine months ended January 30, 2021, the Company recognized $ 8.3 million of restructuring costs.

These charges consist of $ 5.0 million recorded in cost of products sold and $ 3.3 million recorded in selling and administrative expenses.

In the three months ended August 1, 2020, the Company recognized $ 3.4 million of restructuring costs, of which $ 1.9 million was recorded in cost of products sold and $ 1.5 million was recorded in selling and administrative expenses.

Employee termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable.

1 unchanged sentence

Contract termination costs are recorded when notification of termination is given to the other party.

The following is a rollforward of the Company's restructuring activity for the nine months ended January 30, 2021:

(Dollars in Millions)

Accrual as of

January 30, 2021

The table below presents restructuring costs by reportable segment:

Three Months Ended August 1, 2020

(in millions)

Employee termination benefits

1 unchanged sentence

Contract termination costs

The table below presents restructuring costs by reportable segment:

Three Months Ended

Nine Months Ended

(Dollars in Millions)

Eliminations/Corporate

Total Restructuring Costs

The Company’s restructuring liability was $ 0.2 million and $ 1.2 million as of July 31, 2021 and May 1, 2021, respectively.

Estimates of restructuring costs are based on information available at the time such charges are recorded.

1 unchanged sentence

Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.

The Company expects to incur additional restructuring costs of approximately $ 0.2 million during the current fiscal year related to the initiated restructuring programs and may take additional restructuring actions in future periods based upon market conditions and industry trends.

The provision for income taxes for an interim period is based on an estimated annual effective income tax rate and this rate is applied to ordinary year-to-date earnings or losses.

The estimated annual effective income tax rate is determined excluding the effects of unusual or significant one-time items that are reported net of the related tax effects in the period in which they occur.

any material effects of enacted tax law or rate changes as well as the Company’s ability to utilize various tax assets is recognized in the period in which the change occurs.

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

assumptions including, but not limited to, the expected pre-tax income (or loss) for the year by jurisdiction, certain book to tax adjustments, and the likelihood of the realizability of deferred tax assets generated in the current year.

The volatile global economic conditions resulting from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s expected pre-tax income (or loss) for the year, which could create volatility in the estimated annual effective income tax rate.

In addition, any material effects of enacted tax law or rate changes as well as the Company’s ability to utilize various tax assets is recognized in the period in which the change occurs.

The computation of the estimated annual effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year by jurisdiction, certain book to tax adjustments, and the likelihood of the realizability of deferred tax assets generated in the current year.

The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes.

The Company’s income tax expense and effective tax rate for the three and nine months ended January 30, 2021 and February 1, 2020 were as follows:

The Company’s income tax expense and effective tax rate for the three months ended July 31, 2021 and August 1, 2020 were as follows:

Three Months Ended

Nine Months Ended

(Dollars in Millions)

(in millions)

July 31, 2021

August 1, 2020

Income before income taxes

Income Tax Expense

Income tax expense (benefit)

Effective tax rate

The income tax provision for the three months ended January 30, 2021 was lower than the U.S.

The income tax provision for the three months ended July 31, 2021 was lower than the U.S.

statutory tax rate primarily due to foreign operations with lower statutory tax rates.

The income tax provision for the nine months ended January 30, 2021 benefited from various tax credits earned in foreign jurisdictions and foreign operations with lower statutory tax rates.

The income tax provision for both the three and nine months ended February 1, 2020 was lower than the U.S.

statutory tax rate primarily due to beneficial changes related to U.S.

Tax Reform and foreign operations with lower statutory rates.

The Company's unrecognized income tax benefits were $ 5.2 million as of both January 30, 2021 and May 2, 2020.

The income tax provision for the three months ended August 1, 2020 was lower than the U.S.

statutory tax rate primarily due to a benefit from tax credits claimed in a foreign jurisdiction of $ 6.6 million, additional beneficial tax attributes claimed of $ 1.2 million and income derived from foreign operations with lower statutory rates.

The Company’s unrecognized income tax benefits were $ 5.3 million as of both July 31, 2021 and May 1, 2021.

If any portion of the Company’s unrecognized tax benefits is recognized, it would impact the Company’s effective tax rate.

1 unchanged sentence

Balance Sheet Components

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 (“CECL”).

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 $ 0.8 million and $ 0.7 million as of July 31, 2021 and May 1, 2021, respectively.

Inventories are stated at the lower-of-cost or net realizable value.

3 unchanged sentences

A summary of inventories is shown below:

(Dollars in Millions)

(in millions)

July 31, 2021

Finished products

7 unchanged sentences

A summary of property, plant and equipment is shown below:

(Dollars in Millions)

(in millions)

July 31, 2021

Buildings and building improvements

Machinery and equipment

Construction in progress

Total property, plant and equipment, gross

1 unchanged sentence

Property, plant and equipment, net

Depreciation expense was $ 8.7 million and $ 7.5 million in the three months ended January 30, 2021 and February 1, 2020, respectively.

Depreciation expense was $ 23.7 million and $ 21.7 million in the nine months ended January 30, 2021 and February 1, 2020, respectively.

As of January 30, 2021 and May 2, 2020, capital expenditures recorded in accounts payable totaled $ 1.1 million and $ 5.8 million, respectively.

Depreciation expense was $ 7.8 million and $ 7.4 million in the three months ended July 31, 2021 and August 1, 2020, respectively.

As of July 31, 2021 and May 1, 2021, capital expenditures recorded in accounts payable totaled $ 2.5 million and $ 5.5 million, respectively.

Pre-production tooling costs related to long-term supply arrangements

The Company incurs pre-production tooling costs related to certain products produced for its customers under long-term supply arrangements.

As of January 30, 2021 and May 2, 2020, the Company had $ 22.6 million and $ 37.1 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling.

Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract.

As of January 30, 2021 and May 2, 2020, the Company had $ 16.3 million and $ 19.0 million, respectively, of Company owned pre-production tooling, which is capitalized within property, plant and equipment.

Derivative Instruments and Hedging Activities

The Company is exposed to foreign currency risks that arise from normal business operations.

The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through derivative instruments.

The Company does not hold derivative instruments for trading or speculative purposes.

The Company recognizes derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value and classifies the derivatives within Level 2 in the fair value hierarchy.

Net Investment Hedges

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

notional value of $ 60.0 million (€ 54.8 million).

The cross-currency swap is designated as a hedge of the Company's net investment in a euro-based subsidiary.

The Company entered into the cross-currency swap to mitigate changes in net assets due to changes in U.S.

dollar-euro spot exchange rates.

T he cross-currency swap was in a liability position with an aggregate fair value of $ 7.5 million and $ 1.3 million as of January 30, 2021 and May 2, 2020 , respectively, and is recorded within other long-term liabilities in the condensed consolidated balance sheets.

Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method.

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

The Company recognizes the impact of all other changes in fair value of the derivative through interest expense, which was not material in the three and nine months ended January 30, 2021.

Derivatives Not Designated as Hedges

In January 2021, the Company began to use 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 co ntracts are recognized in other income (expense), net, along with the foreign currency gains and losses on monetary assets and liabilities in the condensed consolidated statements of income .

As of January 30, 2021 , the Company held foreign currency forward contracts with a notional value of $ 21.9 million.

The forward contracts were in a liability position with an aggregate fair value of $ 0.2 million as of January 30, 2021 and are recorded within other accrued liabilities in the condensed consolidated balance sheets.

During both the three and nine months ended January 30, 2021, losses of $ 0.2 million were recorded in earnings within other income (expense), net in the condensed consolidated statements of income.

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 July 31, 2021 and May 1, 2021, the Company had $ 27.8 million and $ 25.0 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling.

Costs for molds, dies and other tools used in products produced for its customers under long-term supply arrangements for which the Company has title are capitalized in property, plant and equipment and amortized over the shorter of the life of the arrangement or over the estimated useful life of the assets.

As of July 31, 2021 and May 1, 2021, Company-owned tooling was $ 16.7 million and $ 17.0 million, respectively.

Goodwill and Other Intangible Assets

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

(Dollars in Millions)

(in millions)

Balance as of May 1, 2021

Foreign currency translation

Balance as of January 30, 2021

Balance as of July 31, 2021

The Company tests indefinite-lived intangible assets and goodwill for impairment by either performing a qualitative evaluation or a quantitative test at least annually, or more frequently if an indication of impairment arises.

The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit or asset is less than its carrying amount.

During the third quarter of fiscal 2021, the Company evaluated the effects of the COVID-19 pandemic and its negative impact on the global economy on each of the Company’s reporting units and indefinite-lived intangible assets.

Management reviewed key assumptions, including revisions of projected future revenues for reporting units and the results of the previous annual impairment testing performed during the fourth quarter of fiscal 2020.

The Company did not identify an indication of impairment for any of its reporting units or indefinite-lived intangible assets.

Although it was determined that a triggering event had not occurred as of January 30, 2021, management will continue to monitor the impacts of the COVID-19 pandemic on the Company and significant changes in key assumptions that could result in future period impairment charges.

Other Intangible Assets, Net

No impairment indicators were identified in the first quarter of fiscal 2022.

Other i ntangible a ssets, n et

Details of identifiable intangible assets are shown below:

As of January 30, 2021

(Dollars in Millions)

Definite-lived Intangible Assets:

As of July 31, 2021

(in millions)

average useful

Amortized intangible assets:

Customer relationships and agreements

Trade names, patents and technology licenses

Total Definite-lived Intangible Assets

Indefinite-lived Intangible Assets:

Trade Names, Patents and Technology Licenses

Total Indefinite-lived Intangible Assets

Total amortized intangible assets

Unamortized trade name

Total other intangible assets

As of May 1, 2021

(Dollars in Millions)

Definite-lived Intangible Assets:

(in millions)

average useful

Amortized intangible assets:

Customer relationships and agreements

Trade names, patents and technology licenses

Total Definite-lived Intangible Assets

Indefinite-lived Intangible Assets:

Trade Names, Patents and Technology Licenses

Total Indefinite-lived Intangible Assets

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:

(Dollars in Millions)

(in millions)

Remainder of 2022

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.

For a designated cash flow hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded in Accumulated Other Comprehensive Income (“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 income on the same line as the gain or loss on the hedged item attributable to the hedged risk.

The gain or loss associated with changes in the fair value of derivatives not designated as hedges are recorded immediately in the condensed consolidated statements of income on the same line as the associated risk.

For a designated net investment hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded as a cumulative translation adjustment in AOCI in the condensed consolidated balance sheets.

Net i nvestment h edges

The Company has a variable-rate, cross-currency swap, maturing on August 31, 2023 , with a notional value of $ 60.0 million (€ 54.8 million).

The Company entered into the cross-currency swap to mitigate changes in net assets due to changes in U.S.

dollar-euro spot exchange rates.

The cross-currency swap is designated as a hedge of the Company’s net investment in a euro-based subsidiary.

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

Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method.

The Company recognizes the impact of all other changes in fair value of the derivative through interest expense, which was not material in either the three months ended July 31, 2021 or August 1, 2020.

As of July 31, 2021 and May 1, 2021, the cross-currency swap was in a net liability position with an aggregate fair value of $ 5.7 million and $ 6.8 million, respectively, and is recorded within other long-term liabilities in the condensed consolidated balance sheets.

Interest rate swaps

In April 2021, the Company entered into interest rate swaps, maturing on August 31, 2023 , with a notional value of $ 100.0 million, to manage its exposure and to mitigate the impact of interest rate variability.

The interest rate swaps are designated as cash flow hedges.

The fair value of the interest rate swap is classified within Level 2 of the fair value hierarchy.

Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter.

The effective portion of the periodic changes in fair value is recognized in AOCI.

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.

As of July 31, 2021 and May 1, 2021, the interest rate swap was in a net liability position with an aggregate fair value of $ 0.3 million and $ 0.2 million, respectively, and is recorded within other long-term liabilities in the condensed consolidated balance sheets.

No ineffectiveness was recognized in the three months ended July 31, 2021.

Derivatives not designated as hedges

The Company uses short-term foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-functional currency balance sheet exposures.

These forward contracts are not designated as hedging instruments.

Gains and losses on these forward contracts are recognized in other income, net, along with the foreign currency gains and losses on monetary assets and liabilities in the condensed consolidated statements of income.

As of July 31, 2021 and May 1, 2021, the Company held foreign currency forward contracts with a notional value of $ 19.3 million and $ 14.8 million, respectively.

The forward contracts were in a net liability position with an aggregate fair value of $ 36 thousand and $ 22 thousand as of July 31, 2021, and May 1, 2021, respectively, and are recorded within other accrued liabilities in the condensed consolidated balance sheets.

During the three months ended July 31, 2021, an immaterial gain was recognized in the condensed consolidated statements of income.

A summary of debt is shown below:

(Dollars in Millions)

January 30, 2021

(in millions)

July 31, 2021

Revolving credit facility

10 unchanged sentences

Outstanding borrowings under the Credit Agreement bear interest at variable rates based on the type of borrowing and the Company’s debt to EBITDA financial ratio, as defined in the Credit Agreement.

The weighted-average interest rate on outstanding borrowings under the Credit Agreement was 1.63 % at January 30, 2021.

The weighted-average interest rate on outstanding borrowings under the Credit Agreement was approximately 1.3 % as of July 31, 2021.

The Credit Agreement contains customary representations and warranties, financial covenants, restrictive covenants and events of default.

As of January 30, 2021, the Company was in compliance with all the covenants in the Credit Agreement.

As of July 31, 2021, the Company was in compliance with all the covenants in the Credit Agreement.

One of the Company’s European subsidiaries has debt that consists of 11 notes with maturities ranging from 2021 to 2031.

The weighted-average interest rate on this debt was approximately 1.47 % at January 30, 2021 and $ 2.9 million of the debt was classified as short-term.

The weighted-average interest rate on this debt was approximately 1.5 % at July 31, 2021 and $ 2.3 million of the debt was classified as short-term.

Shareholders’ Equity

The Company paid dividends totaling $ 4.1 million and $ 4.0 million in the three months ended January 30, 2021 and February 1, 2020, respectively.

The Company paid dividends totaling $ 13.2 million and $ 12.2 million in the nine months ended January 30, 2021 and February 1, 2020, respectively.

Dividends paid in the nine months ended January 30, 2021 include $ 0.9 million of dividends on restricted stock that vested during the period.

Share buyback program

On March 31, 2021, the Board of Directors authorized the purchase of up to $ 100.0 million of the Company’s outstanding common stock through March 31, 2023.

Such purchases may be made on the open market, in private transactions or pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934.

In the three months ended July 31, 2021, the Company purchased 157,513 shares at a cost of $ 7.6 million.

As of July 31, 2021, a total of 325,462 shares have been purchased at a total cost of $ 15.1 million since the commencement of the share buyback program.

All purchased shares were retired and are reflected as a reduction of common stock for the par value of the shares, with the excess applied as a reduction to retained earnings.

As of July 31, 2021, the dollar value of shares that remained available to be purchased by the Company under this share buyback program was approximately $ 84.9 million.

The Company paid dividends totaling $ 5.2 million and $ 5.0 million in the three months ended July 31, 2021 and August 1, 2020, respectively.

Dividends paid in the three months ended August 1, 2020 include $ 0.9 million of dividends on restricted stock that vested during the period.

The Company increased its quarterly dividend from $0.11 per share to $0.14 per share in the three months ended July 31, 2021.

Accumulated other comprehensive income (loss)

2 unchanged sentences

Three Months Ended

Nine Months Ended

January 30, 2021

February 1, 2020

January 30, 2021

February 1, 2020

(Dollars in Millions)

(in millions)

July 31, 2021

August 1, 2020

Currency Translation Adjustments:

Balance at beginning of period

Other Comprehensive Income (Loss) Recognized During the Period, Net of Tax Expense of $0.3 million;

Other comprehensive (loss) income recognized during the period, net of tax (expense)/ benefit of $( 0.2 ) million;

$ 0.3 million

2 unchanged sentences

Balance at beginning of period

Other Comprehensive Loss Recognized During the Period, Net of Tax Benefit of $0.6 million;

Other comprehensive income (loss) recognized during the period, net of tax (expense)/benefit of $( 0.2 ) million;

$ 1.1 million

2 unchanged sentences

Stock-based compensation

The Company has granted stock options, performance-based restricted stock (“PSAs”), performance units (“PUs”), restricted stock units (“RSUs”) and stock awards to employees and non-employee directors under the Methode Electronics, Inc.

The Company has granted stock options, restricted stock awards (“RSAs”), performance units (“PUs”), restricted stock units (“RSUs”) and stock awards to employees and non-employee directors under the Methode Electronics, Inc.

2014 Omnibus Incentive Plan (“2014 Plan”), the Methode Electronics, Inc.

4 unchanged sentences

The number of shares of common stock originally authorized under the 2014 Plan is 3,000,000 .

As of January 30, 2021, there were 196,288 shares available for award under the 2014 Plan.

The Company accounts for stock-based compensation under the fair-value method.

Accordingly, equity-classified stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as compensation cost over the requisite service period.

The requisite service period generally matches the stated vesting period of the award but may be shorter if the employee is retirement-eligible and, under the award’s terms, may fully vest upon retirement from the Company.

The Company recognizes compensation cost for awards that have graded vesting features under the graded vesting method, which considers each separately vesting tranche as though they were, in substance, multiple awards.

Performance-based Restricted Stock (“PSAs”) and Performance Units (“PUs”)

In the second quarter of fiscal 2021, the Company granted 917,000 PSAs to executive officers and certain non-executives which will be earned based on the achievement of an earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) measure for fiscal 2025.

The PSAs will vest ranging from 0 % (for performance below threshold) to 100 % (target performance) based on the achievement of the EBITDA performance measure and continued employment.

As of July 31, 2021, there were 101,750 shares available for award under the 2014 Plan.

Restricted stock awards and performance units

As of July 31, 2021, the Company had 928,412 RSAs outstanding which will be earned based on the achievement of an earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) measure for fiscal 2025.

The RSAs will vest ranging from 0 % (for performance below threshold) to 100 % (target performance) based on the achievement of the EBITDA performance measure and continued employment.

In addition, if the target performance is exceeded, an additional 464,206 PUs can be earned that will be settled in cash.

At the discretion of the Compensation Committee, the PUs may be settled in shares of common stock.

The fair value of the PSAs was based on the closing stock price on the date of grant and earn dividend equivalents during the vesting period, which are forfeitable if the PSAs do not vest.

Compensation expense for PSAs are recognized when it is probable the minimum threshold performance criteria will be achieved.

Compensation expense for the PUs are recognized when it is probable that the target performance criteria will be achieved.

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 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 achieved.

The Company assesses the probability of vesting at each balance sheet date and adjusts compensation costs based on the probability assessment.

1 unchanged sentence

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, based on projections of the Company’s current business portfolio, compensation expense has not been recognized for the PSAs or PUs in the three and nine months ended January 30, 2021, as the performance conditions are not probable of being met.

Restricted Stock Units (“RSUs”)

RSUs granted under the 2014 Plan vest over a pre-determined period of time, up to five years .

In the second quarter of fiscal 2021, the Company granted 938,300 RSUs to executive officers and certain non-executives.

The fair value of the RSUs was based on the closing stock price on the date of grant and earn dividend equivalents during the vesting periods, which are forfeitable if the RSUs don’t vest.

In accordance with ASC 718, based on projections of the Company’s current business portfolio, compensation expense has not been recognized for the RSAs or PUs in the three months ended July 31, 2021, as the performance conditions are not probable of being met.

Unrecognized stock-based compensation expense at target level of performance is $ 26.5 million as of July 31, 2021.

Restricted stock units

RSUs granted under the 2014 Plan vest over a pre-determined period of time, up to five years from the date of grant.

The fair value of the RSUs granted was based on the closing stock price on the date of grant and earn dividend equivalents during the vesting periods, which are forfeitable if the RSUs don’t vest.

The following table summarizes RSU activity under the 2014 Plan:

Restricted Stock

average grant

date fair value

Non-vested at May 1, 2021

Non-vested at January 30, 2021

Non-vested at July 31, 2021

Under the various stock plans, common stock underlying vested RSUs held by certain executives will not be delivered until termination of employment or a change of control of the Company.

As of January 30, 2021, common stock to be delivered to these executives totaled 577,055 shares.

As of July 31, 2021, common stock to be delivered to these executives totaled 577,055 shares.

Director awards

In the nine months ended January 30, 2021 and February 1, 2020, the Company granted 33,000 shares and 30,000 shares, respectively, of common stock to its non-employee directors under the 2014 Plan.

In the three months ended July 31, 2021 and August 1, 2020, the Company granted 32,505 shares and 33,000 shares, respectively, of common stock to its non-employee directors under the 2014 Plan.

The shares vested immediately upon grant.

The fair value was determined based on the closing price of the Company’s stock on the date of grant.

Non-employee directors may elect to defer receipt of their shares under the Company’s non-qualified deferred compensation plan.

In the three months ended July 31, 2021, a total of 17,730 shares were deferred.

The fair value of shares granted was determined based on the closing price of the Company’s stock on the date of grant.

Stock options

The following table summarizes combined stock option activity under the 2010 Plan and 2007 Plan:

Exercise Price

Weighted average exercise price

intrinsic value

(in millions)

Outstanding and exercisable at May 1, 2021

Outstanding and Exercisable at January 30, 2021

Outstanding and exercisable at July 31, 2021

The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that date.

The total intrinsic value of options exercised in the three months ended July 31, 2021 was $ 0.2 million.

Stock-based compensation expense

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

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

Awards subject to graded vesting are recognized using the accelerated recognition method over the requisite service period.

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

Three Months Ended

Nine Months Ended

(Dollars in Millions)

(in millions)

July 31, 2021

August 1, 2020

Director awards

5 unchanged sentences

Three Months Ended

Nine Months Ended

July 31, 2021

August 1, 2020

Net income (in millions)

Denominator for Basic Income per Share-Weighted Average Shares Outstanding and Vested/Unissued RSUs

Dilutive Potential Common Shares-Employee Stock Options, PSAs and RSUs

Denominator for basic income per share - weighted average shares outstanding and vested/unissued restricted stock units

Dilutive potential common shares

Denominator for diluted income per share

15 unchanged sentences

The tables below present information about the Company’s reportable segments:

Three Months Ended January 30, 2021 (13 Weeks)

(Dollars in Millions)

Transfers between Segments

Net Sales to Unaffiliated Customers

Income (Loss) from Operations

Interest Expense, Net

Other Income, Net

Income before Income Taxes

Three Months Ended February 1, 2020 (14 Weeks)

(Dollars in Millions)

Transfers between Segments

Net Sales to Unaffiliated Customers

Income (Loss) from Operations

Interest Expense, Net

Other Income, Net

Income before Income Taxes

Nine Months Ended January 30, 2021 (39 Weeks)

(Dollars in Millions)

Three Months Ended July 31, 2021

(in millions)

Transfers between segments

4 unchanged sentences

Income before income taxes

Nine Months Ended February 1, 2020 (40 Weeks)

(Dollars in Millions)

Three Months Ended August 1, 2020

(in millions)

Transfers between segments

4 unchanged sentences

Income before income taxes

(Dollars in Millions)

(in millions)

July 31, 2021

Identifiable assets:

21 unchanged sentences

Defendants appealed entry of the final monetary judgment as well.

The appeal of the permanent injunction and the appeal of the final judgment have been consolidated into a single appeal.

That appeal is fully briefed and has been set for argument on March 8, 2021.

The Court will issue a decision sometime thereafter.

The Company is working with counsel to collect on the judgment though there are challenges in Europe in doing so while the appeal is pending.

The appeal of the permanent injunction and the appeal of the final judgment were consolidated into a single appeal before the U.S.

Court of Appeals for the Tenth Circuit.

On August 24, 2021, the Tenth Circuit issued a decision affirming the lower court’s ruling with the exception that it modified the injunction from the entire world to all of the countries in which Hetronic sells its products.

It is possible that the defendants may seek to further appeal this decision and these matters.

Like any judgment, particularly any judgment involving defendants outside of the United States, there is no guarantee that the Company will be able to collect the judgment.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements