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Item 2. Management’s Discussion and Analysis

2021-09-02 compared with 2021-03-04 · 188 added, 370 removed, 99 unchanged (85% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties.

We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations.

Our business is highly dependent upon two large automotive customers and specific makes and models of vehicles.

Our results will be subject to many of the same risks that apply to the automotive, appliance, commercial vehicle, computer and communications industries, such as general economic conditions, interest rate fluctuations, consumer spending patterns and technological changes.

Other factors which may result in materially different results for future periods include the following risk factors.

Additional risks and uncertainties not presently known or that our management currently believe to be insignificant may also adversely affect our financial condition or results of operations.

These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because these factors could cause our actual results and condition to differ materially from those projected in forward-looking statements.

The forward-looking statements in this report are subject to the safe harbor protection provided under the securities laws and are made as of the date of this report.

Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:

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” 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:

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

Dependence on our supply chain, including semiconductor and resin suppliers;

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

Dependence on the automotive and commercial vehicle industries;

Dependence on our supply chain, including semiconductor suppliers;

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

Recognition of goodwill and long-lived asset impairment charges;

Timing and magnitude of costs associated with restructuring activities;

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

Timing, quality and cost of new program launches;

Ability to withstand price pressure, including pricing reductions;

Dependence on the availability and price of materials;

Failure to attract and retain qualified personnel;

Ability to successfully market and sell Dabir Surfaces products;

Currency fluctuations;

Customary risks related to conducting global operations;

Costs associated with environmental, health and safety regulations;

Ability to withstand business interruptions;

Ability to successfully benefit from acquisitions and divestitures;

Timing, quality and cost of new program launches;

Risks related to conducting global operations;

Ability to compete effectively;

Investment in programs prior to the recognition of revenue;

Dependence on the availability and price of materials;

Judgments related to accounting for tax positions;

Income tax rate fluctuations;

Adjustments to compensation expense for performance-based awards;

Ability to keep pace with rapid technological changes;

Ability to withstand pricing pressures, including price reductions;

Impact from production delays or cancelled orders;

Ability to successfully benefit from acquisitions and divestitures;

Ability to withstand business interruptions;

Breaches to our information technology systems;

Ability to avoid design or manufacturing defects;

Ability to compete effectively;

Ability to keep pace with rapid technological changes;

Ability to protect our intellectual property;

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

Costs associated with environmental, health and safety regulations;

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

Impact from climate change and related regulations;

Ability to avoid design or manufacturing defects;

Recognition of goodwill and long-lived asset impairment charges;

Ability to manage our debt levels and any restrictions thereunder;

Currency fluctuations;

Income tax rate fluctuations;

Judgments related to accounting for tax positions;

Adjustments to compensation expense for performance-based awards;

Timing and magnitude of costs associated with restructuring activities;

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

Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those foreseen in such forward-looking statements.

These forward-looking statements speak only

as of the date of the report, press release, statement, document, webcast or oral discussion in which they are made.

We do not intend to update any forward-looking statements, all of which are expressly qualified by the foregoing.

See Part I — Item 1A, Risk Factors of our Form 10-K for the fiscal year ended May 2, 2020 and Part II - Item 1A, Risk Factors of this Form 10-Q for further discussions regarding some of the reasons that actual results may be materially different from those we anticipate.

We are 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.

Our primary manufacturing facilities are located in Dongguan and Shanghai, China;

Cairo, Egypt;

Mriehel, Malta;

and Monterrey, Mexico.

We design, manufacture and market devices employing electrical, electronic, LED lighting, sensors and radio remote control technologies.

Our business is managed, and our financial results are reported, on a segment basis, with those segments being Automotive, Industrial, Interface and Medical.

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

Impact of COVID-19

The COVID-19 global 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.

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

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

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

In the first quarter of fiscal 2021, our operations in North America and Europe gradually resumed operations, however production levels were still significantly reduced, resulting in lower capacity utilization, thus impacting our results of operations during the first quarter of fiscal 2021.

In the second quarter of fiscal 2021, production levels in North America and Europe returned to pre-COVID levels as a result of increased demand from customers and continued into our third quarter of fiscal 2021.

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

The semiconductor supply shortage is impacting our supply chain and our ability to meet demand at some of our non-automotive customers.

We expect this semiconductor shortage will likely have a short-term impact on our operating results and financial condition in the fourth quarter of fiscal 2021, and possibly into fiscal 2022.

In response to the COVID-19 pandemic and business disruption, in March 2020, we implemented certain measures to manage costs, preserve liquidity and enhance employee safety.

These measures included the following:

Reduction of payroll costs through a combination of temporary salary reductions, four-day work weeks and furloughs.

In the second quarter of fiscal 2021, we ceased the salary reductions and resumed five-day work weeks;

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

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

Reduction of non-program related capital expenditures;

Deferral of discretionary spending;

The March 2020 draw-down of $100.0 million under our revolving credit facility, which was repaid in full in the third quarter of fiscal 2021.

The initial draw-down was as a precautionary measure in order to increase our cash position and preserve financial flexibility.

In addition, we initiated certain restructuring actions in the nine months ended January 30, 2021 to rationalize our operations, lower our costs and improve financial performance and long-term cash flow generation‎.

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

In the three months and nine months ended January 30, 2021, we recognized $0.7 million and $8.3 million of restructuring costs, respectively.

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

The extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread of the COVID-19 outbreak within the U.S.

and globally, the impact on capital and financial markets and the related impact on our customers, especially in the automotive and commercial vehicle markets.

These future developments are outside of our control, are highly uncertain and cannot be predicted.

If the impact is further prolonged, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity.

These and other potential impacts of the COVID-19 pandemic, including the resulting global semiconductor chip shortage, may adversely impact our results for the remainder of fiscal 2021 and into fiscal 2022, and that impact could be material.

We continue to actively monitor the ongoing potential impacts of COVID-19 and will seek to mitigate and minimize its impact on our business.

Financial Reporting Periods

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

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

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

Results of Operations for the Three Months Ended January 30, 2021 compared to the Three Months Ended February 1, 2020

Consolidated Results

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

(Dollars in Millions)

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 May 1, 2021.

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 disclaims any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

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, consumer appliance and medical devices.

Our business is managed on a segment basis, with those segments being Automotive, Industrial, Interface and Medical.

COVID-19 Pandemic Update

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.

We expect that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact our 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 our supply chain to deliver in a timely and cost-effective manner, the ability of our employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of our customers and suppliers and future access to capital.

We continue to focus on effectively managing the unprecedented challenges and uncertainties of the pandemic on a global basis.

Management has prioritized the health and safety of our employees and their families.

We adopted numerous safety procedures at our global facilities, including hygiene and disinfection protocols, testing and contact tracing, social distancing and wearing personal protective equipment.

We implemented the sharing of best practices throughout our global facilities, resulting in effective and standardized safety guidelines and procedures, updated on a regular basis, promoting the health and safety of our employees.

While demand for our 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 our supply chain and our ability to meet demand at some of our non-automotive customers.

We expect this semiconductor shortage will likely have a continued impact on our operating results and financial condition in fiscal 2022.

Results of Operations for the Three Months Ended July 31, 2021 compared to the Three Months Ended August 1, 2020

Three months ended

(in millions)

July 31, 2021

August 1, 2020

Net Change ($)

5 unchanged sentences

Other income, net

Income Tax Expense

Percent of sales:

Cost of Products Sold

Selling and Administrative Expenses

Amortization of Intangibles

Interest Expense, Net

Other Income, Net

Income Tax Expense

Net sales increased $9.4 million, or 3.3%, to $295.3 million in the three months ended January 30, 2021, compared to $285.9 million in the three months ended February 1, 2020.

Income tax expense (benefit)

Net sales increased $96.9 million, or 50.8%, to $287.8 million in the three months ended July 31, 2021, compared to $190.9 million in the three months ended August 1, 2020.

The impact of foreign currency translation increased net sales by $10.3 million, primarily due to the strengthening of the euro and Chinese renminbi, relative to the U.S.

Excluding the impact of foreign currency translation, net sales were comparable in both periods.

See results by segment for additional details.

Excluding the impact of foreign currency translation, net sales increased by $86.6 million, primarily due to higher sales in the Automotive and Industrial segments.

Cost of products sold .

Cost of products sold increased $16.1 million, or 7.8%, to $222.7 million (75.4% of sales) in the three months ended January 30, 2021, compared to $206.6 million (72.3% of sales) in the three months ended February 1, 2020.

Cost of products sold increased $70.3 million, or 48.2%, to $216.1 million (75.1% of sales) in the three months ended July 31, 2021, compared to $145.8 million (76.4% of sales) in the three months ended August 1, 2020.

The impact of foreign currency translation increased cost of products sold by $7.1 million.

Excluding the impact of foreign currency translation, cost of products sold increased by $9.2 million.

The increase was primarily due to premium freight and factory inefficiencies resulting from supply chain disruptions due to the COVID-19 pandemic and to a lesser extent tariff expense and product sales mix.

Excluding the impact of foreign currency translation, cost of products sold increased by $63.2 million primarily due to higher sales volumes and higher material and logistics costs.

Labor costs were also higher as the three months ended August 1, 2020 included the impact of temporary salary reductions and four-day work weeks in response to the COVID-19 pandemic.

Gross profit.

Gross profit decreased $6.7 million, or 8.4%, to $72.6 million (24.6% of sales) in the three months ended January 30, 2021, compared to $79.3 million (27.7% of sales) in the three months ended February 1, 2020.

Gross profit increased $26.6 million, or 59.0%, to $71.7 million (24.9% of sales) in the three months ended July 31, 2021, compared to $45.1 million (23.6% of sales) in the three months ended August 1, 2020.

The impact of foreign currency translation increased gross profit by $3.2 million.

Excluding the impact of foreign currency translation, gross profit decreased by $9.5 million.

The decrease in gross profit margins was primarily due to premium freight and factory inefficiencies resulting from supply chain disruptions due to the COVID-19 pandemic and to a lesser extent tariff expense and product sales mix.

Selling and Administrative Expenses .

Selling and administrative expenses decreased $0.6 million, or 1.8%, to $32.4 million (11.0% of sales) in the three months ended January 30, 2021, compared to $33.0 million (11.5% of sales) in the three months ended February 1, 2020.

The impact of foreign currency translation increased selling and administrative expenses by $0.7 million.

Excluding the impact of foreign currency translation, selling and administrative expenses decreased by $1.3 million.

The decrease was primarily due to lower compensation expense, travel expense and restructuring costs, partially offset by higher stock-based compensation

The decrease in compensation expense was primarily related to the benefit of restructuring actions taken in the first quarter of fiscal 2021.

In the three months ended January 30, 2021 , we recognized $ 0.

3 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability , compared to $0.

7 million of restructuring costs recognized in the three months ended February 1, 2020 .

Excluding the impact of foreign currency translation, gross profit increased by $23.4 million.

The increase was due to higher sales volumes compared to the three months ended August 1, 2020 which was negatively impacted by the COVID-19 pandemic.

Selling and a dministrative e xpenses .

Selling and administrative expenses increased $6.2 million, or 23.3% , to $32.8 million ( 11.4% of sales) in the three months ended July 31, 2021 , compared to $26.6 million ( 13.9% of sales) in the three months ended August 1, 2020 .

The impact of foreign currency translation increased selling and administrative expenses by $ 0.

Excluding the impact of foreign currency translation, selling and administrative expenses in creased by $ 5.4 million.

The increase was primarily due to higher stock-based compensation expense and salary expense, partially offset by lower restructuring costs.

Stock-based compensation expense increased by $ 3.

1 million as our long-term incentive plan was not introduced until the second quarter of fiscal 202 1.

Salary expense was higher as the three months ended August 1, 2020 included the impact of temporary salary reductions and four-day work weeks in response to the COVID-19 pandemic.

In the three months ended August 1, 2020 , we recognized $ 1.5 million of restructuring costs .

Amortization of intangibles .

Amortization of intangibles was unchanged at $4.8 million in both the three months ended January 30, 2021 and February 1, 2020.

Amortization of intangibles was $4.8 million and $4.7 million in the three months ended July 31, 2021 and August 1, 2020, respectively.

Interest expense, net.

Interest expense, net was $1.3 million in the three months ended January 30, 2021, compared to $2.4 million in the three months ended February 1, 2020.

The decrease was due to a lower effective interest rate on outstanding borrowings, partially offset by higher average borrowings.

Average borrowings were higher due to the precautionary $100.0 million draw-down in March 2020, which was fully repaid in the three months ended January 30, 2021.

Interest expense, net was $1.1 million in the three months ended July 31, 2021, compared to $1.6 million in the three months ended August 1, 2020.

The decrease was primarily due to lower average borrowings.

Average borrowings were lower as the three months ended August 1, 2020 included the precautionary $100.0 million draw-down in March 2020, which was fully repaid in the third quarter of fiscal 2021.

Other income, net.

Other income, net was $2.4 million in the three months ended January 30, 2021, compared to $4.9 million in the three months ended February 1, 2020.

In the three months ended January 30, 2021, we received $2.7 million of government assistance at certain of our international locations with respect to the COVID-19 pandemic.

The three months ended February 1, 2020 includes $5.6 million for an international government grant for maintaining certain employment levels during those periods.

Income Tax Expense.

Income tax expense was $4.6 million (12.6% effective tax rate) in the three months ended January 30, 2021, compared to $2.8 million (6.4% effective tax rate) in the three months ended February 1, 2020.

The effective tax rate in the three months ended January 30, 2021 was lower than the U.S.

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

The effective tax rate in the three 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.

Net income decreased $9.3 million, or 22.6%, to $31.9 million in the three months ended January 30, 2021, compared to $41.2 million in the three months ended February 1, 2020.

Net income decreased as a result of the reasons described above, partially offset by favorable foreign currency translation of $1.8 million.

Other income, net was $1.8 million in the three months ended July 31, 2021, compared to $3.4 million in the three months ended August 1, 2020.

In the three months ended July 31, 2021, we received $1.9 million of government assistance at certain of our international locations with respect to the COVID-19 pandemic, compared to $2.9 million in the three months ended August 1, 2020.

Net foreign exchange losses were $0.2 million in the three months ended July 31, 2021, compared to net foreign exchange gains of $0.7 million in the three months ended August 1, 2020.

Income tax expense (benefit).

Income tax expense was $5.7 million (16.4% effective tax rate) in the three months ended July 31, 2021, compared to an income tax benefit of $5.1 million in the three months ended August 1, 2020.

The income tax benefit in the three months ended August 1, 2020 resulted in a negative effective tax rate of 32.7% which was 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.

Excluding the discrete tax benefits, the effective tax rate would have been 17.2%.

Net income increased $8.4 million, or 40.6%, to $29.1 million in the three months ended July 31, 2021, compared to $20.7 million in the three months ended August 1, 2020.

Net income increased as a result of the reasons described above and a favorable foreign currency translation of $1.9 million.

Operating Segments

Automotive Segment Results

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

(Dollars in Millions)

Three months ended

(in millions)

July 31, 2021

August 1, 2020

Net Change ($)

Net Change (%)

Income from Operations

Percent of sales:

As a percent of net sales

Income from operations

Automotive segment net sales increased $0.2 million, or 0.1%, to $210.5 million in the three months ended January 30, 2021, compared to $210.3 million in the three months ended February 1, 2020.

As a percent of net sales

Automotive segment net sales increased $70.7 million, or 56.5%, to $195.8 million in the three months ended July 31, 2021, compared to $125.1 million in the three months ended August 1, 2020.

The impact of foreign currency translation increased net sales by $7.1 million.

Excluding the impact of foreign currency translation, net sales decreased by $7.3 million.

Net sales in North America decreased $22.6 million, or 17.3%, to $107.7 million in the three months ended January 30, 2021, compared to $130.3 million in the three months ended February 1, 2020.

The decrease was primarily due to lower electric vehicle product sales, which shifted from North America to Asia, and lower lighting product sales volumes.

Net sales in Europe increased $2.9 million, or 5.1%, to $60.1 million in the three months ended January 30, 2021, compared to $57.2 million in the three months ended February 1, 2020.

Excluding the impact of foreign currency translation, net sales increased by $63.6 million.

Net sales in the three months ended August 1, 2020 were negatively impacted by the COVID-19 pandemic, resulting in lower demand from our automotive customers, primarily in North America and Europe.

Net sales in North America increased $22.8 million, or 29.9%, to $99.1 million in the three months ended July 31, 2021, compared to $76.3 million in the three months ended August 1, 2020.

Net sales in Europe increased $29.0 million, or 100.7%, to $57.8 million in the three months ended July 31, 2021, compared to $28.8 million in the three months ended August 1, 2020.

The stronger euro, relative to the U.S.

dollar, increased net sales in Europe by $3.6 million.

Excluding the impact of foreign currency translation, Europe net sales decreased $1.8 million primarily due to product mix.

Net sales in Asia increased $19.9 million, or 87.3%, to $42.7 million in the three months ended January 30, 2021, compared to $22.8 million in the three months ended February 1, 2020.

Excluding the impact of foreign currency translation, net sales in Europe increased by $25.4 million.

Net sales in Asia increased $18.9 million, or 94.5%, to $38.9 million in the three months ended July 31, 2021, compared to $20.0 million in the three months ended August 1, 2020.

The stronger Chinese renminbi, relative to the U.S.

dollar, increased net sales in Asia by $3.5 million.

Excluding foreign currency translation, Asia net sales increased $17.1 million primarily due to higher sales of electric vehicle products which shifted from North America to Asia and higher leadframe sales volumes.

Gross Profit.

Automotive segment gross profit decreased $10.9 million, or 19.8%, to $44.1 million in the three months ended January 30, 2021, compared to $55.0 million in the three months ended February 1, 2020.

Excluding foreign currency translation, net sales in Asia increased by $15.4 million primarily due to higher sales of electric vehicle products which shifted from North America to Asia.

Gross p rofit .

Automotive segment gross profit increased $15.5 million, or 59.2% , to $41.7 million in the three months ended July 31, 2021 , compared to $26.2 million in the three months ended August 1, 2020 .

The impact of foreign currency translation increased gross profit by $ 1.8 million.

Excluding the impact of foreign currency translation, gross profit decreased by $12.7 million.

Automotive segment gross profit margins decreased to 21.0% in the three months ended January 30, 2021, compared to 26.2% in the three months ended February 1, 2020.

Excluding the impact of foreign currency translation, gross profit in creased by $1 3 .7 million.

Automotive segment gross profit margins increased to 21.3% in the three months ended July 31, 2021 , compared to 20.9% in the three months ended August 1, 2020 .

The in crease in gross profit margins was primarily due to higher sales, partially offset by higher costs for premium freight and factory inefficiencies resulting from supply chain disruptions due to the COVID-19 pandemic .

Income from operations.

Automotive segment income from operations decreased $9.6 million, or 24.5%, to $29.6 million in the three months ended January 30, 2021, compared to $39.2 million in the three months ended February 1, 2020.

Automotive segment income from operations increased $12.0 million, or 78.4%, to $27.3 million in the three months ended July 31, 2021, compared to $15.3 million in the three months ended August 1, 2020.

The impact of foreign currency translation increased income from operations by $1.1 million.

Excluding the impact of foreign currency translation, income from operations decreased by $10.9 million.

The decrease was primarily due to lower gross profit, partially offset by lower selling and administrative expenses.

Selling and administrative expenses decreased primarily due to lower compensation expense.

Industrial Segment Results

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

(Dollars in Millions)

Excluding the impact of foreign currency translation, income from operations increased by $10.9 million.

The increase was primarily due to higher gross profit, partially offset by higher selling and administrative expenses.

Selling and administrative expenses were lower in the three months ended August 1, 2020 due to the impact of salary reductions and other cost saving measures in response to the COVID-19 pandemic.

Three months ended

(in millions)

July 31, 2021

August 1, 2020

Net Change ($)

Net Change (%)

Income from Operations

Percent of sales:

As a percent of net sales

Income from operations

Industrial segment net sales increased $6.4 million, or 10.6%, to $66.5 million in the three months ended January 30, 2021, compared to $60.1 million in the three months ended February 1, 2020.

As a percent of net sales

Industrial segment net sales increased $26.5 million, or 51.0%, to $78.5 million in the three months ended July 31, 2021, compared to $52.0 million in the three months ended August 1, 2020.

Foreign currency translation increased net sales by $3.2 million.

Excluding foreign currency translation, net sales increased by $4.2 million primarily due to higher sales volumes of electric vehicle busbar products and radio remote control devices, partially offset by lower sales from commercial vehicle lighting solutions .

Excluding foreign currency translation, net sales increased by $23.3 million primarily due to higher sales volumes of all product categories in the Industrial segment.

Net sales in the three months ended August 1, 2020 for commercial vehicle lighting solutions and radio remote control devices were negatively impacted by the COVID-19 pandemic, resulting in lower demand from customers.

Gross profit.

Industrial segment gross profit increased $2.8 million, or 12.8%, to $24.7 million in the three months ended January 30, 2021, compared to $21.9 million in the three months ended February 1, 2020.

Gross profit margins increased to 37.1% in the three months ended January 30, 2021, compared to 36.4% in the three months ended February 1, 2020.

The increase in gross profit

margin s was primarily due to higher sales of busbar products and radio remote control devices .

This was partially offset by lower gross profit margins from commercial vehicle lighting solutions due to higher operational costs.

Industrial segment gross profit increased $12.1 million, or 73.8%, to $28.5 million in the three months ended July 31, 2021, compared to $16.4 million in the three months ended August 1, 2020.

Foreign currency translation increased gross profit by $1.4 million.

Excluding foreign currency translation, gross profit increased by $10.7 million.

Gross profit margins increased to 36.3% in the three months ended July 31, 2021, compared to 31.5% in the three months ended August 1, 2020.

The increase in gross profit margins was primarily due to higher sales from commercial vehicle lighting solutions and radio remote control devices.

This was partially offset by lower gross profit margins from busbar products due to higher materials costs.

Income from operations.

Industrial segment income from operations increased $3.7 million, or 28.0%, to $16.9 million in the three months ended January 30, 2021, compared to $13.2 million in the three months ended February 1, 2020.

The increase was primarily due to higher gross profit, lower selling and administrative expenses and favorable foreign currency translation.

Selling and administrative expenses decreased due to lower compensation expense.

Industrial segment income from operations increased $13.2 million, or 188.6%, to $20.2 million in the three months ended July 31, 2021, compared to $7.0 million in the three months ended August 1, 2020.

Foreign currency translation increased income from operations by $1.3 million.

Interface Segment Results

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

(Dollars in Millions)

Net Change ($)

Net Change (%)

Income from Operations

Percent of sales:

Income from Operations

Interface segment net sales increased $2.7 million, or 18.1%, to $17.6 million in the three months ended January 30, 2021, compared to $14.9 million in the three months ended February 1, 2020.

The increase was primarily due to higher sales volumes of appliance products, partially offset by a decrease in legacy data solutions products.

Gross Profit.

Interface segment gross profit increased $2.2 million, or 122.2%, to $4.0 million in the three months ended January 30, 2021, compared to $1.8 million in the three months ended February 1, 2020.

Gross profit margins increased to 22.7% in the three months ended January 30, 2021, from 12.1% in the three months ended February 1, 2020.

The increase was primarily due to higher sales and lower direct labor costs.

Income from Operations.

Interface segment income from operations was $3.2 million in the three months ended January 30, 2021, compared to $0.7 million in the three months ended February 1, 2020.

Excluding foreign currency translation, income from operations increased by $11.9 million.

The increase was primarily due to higher gross profit and lower selling and administrative expenses.

Selling and administrative expenses decreased due to lower compensation expense which benefitted from restructuring actions taken in the first quarter of fiscal 2021.

Medical Segment Results

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

(Dollars in Millions)

Net Change ($)

Net Change (%)

Loss from Operations

The Medical segment had net sales of $0.7 million in the three months ended January 30, 2021, compared to $0.6 million in the three months ended February 1, 2020.

Gross Profit.

Medical segment gross profit was breakeven in the three months ended January 30, 2021 , compared to a loss of $0.3 million in the three months ended February 1, 2020 .

The improvement was primarily due to lower cost of products sold and higher net sales.

Loss from Operations.

Medical segment loss from operations decreased $0.6 million, to $1.0 million in the three months ended January 30, 2021, compared to $1.6 million in the three months ended February 1, 2020.

The improvement was due to lower selling and administrative expenses and higher gross profit.

Results of Operations for the Nine Months Ended January 30, 2021 compared to the Nine Months Ended February 1, 2020

Consolidated Results

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

(Dollars in Millions)

Net Change ($)

Net Change (%)

Cost of Products Sold

Selling and Administrative Expenses

Amortization of Intangibles

Interest Expense, Net

Other Income, Net

Income Tax Expense

Percent of sales:

Cost of Products Sold

Selling and Administrative Expenses

Amortization of Intangibles

Interest Expense, Net

Other Income, Net

Income Tax Expense

Net sales decreased $26.3 million, or 3.2%, to $787.0 million in the nine months ended January 30, 2021, compared to $813.3 million in the nine months ended February 1, 2020.

The impact of foreign currency translation increased net sales by $15.2 million.

Excluding foreign currency translation, net sales decreased $41.5 million as a result of lower sales in the Automotive and Industrial segments, which were negatively impacted by the COVID-19 pandemic, primarily in the first quarter of fiscal 2021.

Net sales in the nine months ended February 1, 2020 were negatively impacted by $28.7 million due to the United Auto Workers (“UAW”) labor strike at General Motors (“GM”).

Cost of Products Sold .

Cost of products sold decreased $1.1 million, or 0.2%, to $588.5 million (74.8% of sales) in the nine months ended January 30, 2021, compared to $589.6 million (72.5% of sales) in the nine months ended February 1, 2020.

The impact of foreign currency translation increased cost of products sold by $11.0 million.

Excluding foreign currency translation, cost of products sold decreased $12.1 million.

The decrease was primarily due to lower sales volumes and lower labor costs, partially offset by restructuring costs.

Labor costs were lower as a result of actions taken in fiscal 2020 in response to the impact from the COVID-19 pandemic on our production volumes.

In the nine months ended January 30, 2021, we recognized $5.0 million of restructuring costs

related to actions taken to reduce overall costs and improve operational profitability , compared to $0.

6 million of restructuring costs recognized in the nine months ended February 1, 2020 .

Gross Profit.

Gross profit decreased $25.2 million, or 11.3%, to $198.5 million (25.2% of sales) in the nine months ended January 30, 2021, compared to $223.7 million (27.5% of sales) in the nine months ended February 1, 2020.

The impact of foreign currency translation increased gross profit by $4.2 million.

Excluding foreign currency translation, gross profit decreased $29.4 million.

The decrease in gross profit margins was primarily due to lower sales volumes, product sales mix and restructuring costs, partially offset by lower operational costs.

Selling and Administrative Expenses .

Selling and administrative expenses decreased $8.8 million, or 8.9%, to $89.8 million (11.4% of sales) in the nine months ended January 30, 2021, compared to $98.6 million (12.1% of sales) in the nine months ended February 1, 2020.

The impact of foreign currency translation increased selling and administrative expenses by $0.7 million.

Excluding foreign currency translation, selling and administrative expenses decreased $9.5 million.

The decrease was primarily due to lower compensation expense, stock-based compensation expense and travel expense, partially offset by higher restructuring costs.

As noted above, we initiated actions which included temporary salary reductions and four-day work weeks (which ended in the second quarter of fiscal 2021) and the elimination of most business travel.

In addition, stock-based compensation expense was lower by $1.3 million as our five-year, long-term incentive plan concluded in fiscal 2020 and a new long-term incentive plan was not introduced until September 27, 2020.

In the nine months ended January 30, 2021, we recognized $3.3 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $1.0 million of restructuring costs recognized in the nine months ended February 1, 2020.

Amortization of Intangibles .

Amortization of intangibles increased $0.2 million, or 1.4%, to $14.5 million in the nine months ended January 30, 2021, compared to $14.3 million in the nine months ended February 1, 2020.

Interest Expense, Net.

Interest expense, net was $4.3 million in the nine months ended January 30, 2021, compared to $8.0 million in the nine months ended February 1, 2020.

The decrease was due to a lower effective interest rate on outstanding borrowings, partially offset by higher average borrowings.

Average borrowings were higher due to the precautionary $100.0 million draw-dawn in March 2020, which was fully repaid in the three months ended January 30, 2021.

Other Income, Net.

Other income, net was $8.4 million in the nine months ended January 30, 2021, compared to $5.8 million in the nine months ended February 1, 2020.

In the nine months ended January 30, 2021, we received $8.9 million of government assistance at certain of our international locations with respect to the COVID-19 pandemic.

The nine months ended February 1, 2020 includes $5.6 million for an international government grant for maintaining certain employment levels during those periods.

In the nine months ended February 1, 2020, we sold assets related to a previously closed business and recognized a gain on sale of $0.5 million.

Income Tax Expense.

Income tax expense was $7.1 million (7.2% effective tax rate) in the nine months ended January 30, 2021, compared to $15.3 million (14.1% effective tax rate) in the nine months ended February 1, 2020.

The lower effective tax rate in the nine months ended January 30, 2021 was primarily due to discrete tax benefits recorded of $7.6 million.

These discrete tax benefits included tax credits earned and research deductions claimed in foreign jurisdictions.

Excluding the discrete tax benefits, the effective tax rate would have been 15.0%.

In the nine months ended February 1, 2020, income tax expense included discrete tax expenses of $1.5 million.

Excluding the discrete tax expense, the effective tax rate would have been 15.5%.

Net income decreased $2.1 million, or 2.3%, to $91.2 million in the nine months ended January 30, 2021, compared to $93.3 million in the nine months ended February 1, 2020.

Net income decreased as a result of the reasons described above, partially offset by favorable foreign currency translation of $3.3 million.

Operating Segments

Automotive Segment Results

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

(Dollars in Millions)

Net Change ($)

Net Change (%)

Income from Operations

Percent of sales:

Income from Operations

Automotive segment net sales decreased $25.3 million, or 4.4%, to $551.3 million in the nine months ended January 30, 2021, compared to $576.6 million in the nine months ended February 1, 2020.

The impact of foreign currency translation increased net sales by $12.4 million.

Excluding foreign currency translation, net sales decreased $37.7 million.

Net sales were negatively impacted in our first quarter of fiscal 2021 from the COVID-19 pandemic, which was partially offset by higher sales in our second quarter of fiscal 2021 as a result of pent-up demand.

Net sales in North America decreased $56.8 million, or 15.8%, to $301.8 million in the nine months ended January 30, 2021, compared to $358.6 million in the nine months ended February 1, 2020.

The decrease was due to lower electric vehicle product sales which shifted from North America to Asia and lower lighting product sales volumes.

Net sales in the nine months ended February 1, 2020 were negatively impacted by $28.7 million due to the UAW labor strike at GM.

Net sales in Europe decreased $11.8 million, or 7.4%, to $147.1 million in the nine months ended January 30, 2021, compared to $158.9 million in the nine months ended February 1, 2020.

The stronger euro, relative to the U.S.

dollar, increased net sales by $8.4 million.

Excluding foreign currency translation, net sales in Europe decreased $20.2 million due to lower sales volumes, primarily in the first quarter of fiscal 2021, as a result of the COVID-19 pandemic.

Net sales in Asia increased $43.3 million, or 73.3%, to $102.4 million in the nine months ended January 30, 2021, compared to $59.1 million in the nine months ended February 1, 2020.

The stronger Chinese renminbi, relative to the U.S.

dollar, increased net sales in Asia by $4.0 million.

Excluding foreign currency translation, Asia net sales increased $39.3 million primarily due to higher electric vehicle product sales volumes which were transferred from North America, higher leadframe sales volumes and higher touchscreen sales volumes to an Asian automotive OEM, which launched in the second half of fiscal 2020.

Gross Profit.

Automotive segment gross profit decreased $23.4 million, or 16.0%, to $123.2 million in the nine months ended January 30, 2021, compared to $146.6 million in the nine months ended February 1, 2020.

Automotive segment gross profit margins decreased to 22.3% in the nine months ended January 30, 2021, compared to 25.4% in the nine months ended February 1, 2020.

The decrease in gross profit margins was primarily due to the impact of the COVID-19 pandemic on sales volumes and restructuring actions taken in fiscal 2021.

In the nine months ended January 30, 2021, we recognized $5.0 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $0.6 million of restructuring costs recognized in the nine months ended February 1, 2020.

Income from Operations.

Automotive segment income from operations decreased $17.5 million, or 17.3%, to $83.7 million in the nine months ended January 30, 2021, compared to $101.2 million in the nine months ended February 1, 2020.

The impact of foreign currency translation increased automotive segment income from operations by $2.3 million.

Excluding foreign currency translation, automotive segment income from operations decreased $19.8 million.

The decrease was primarily due to lower gross profit, partially offset by lower selling and administrative expenses.

Selling and administrative expenses decreased due to lower compensation expense, partially offset by restructuring costs.

Total restructuring costs related to actions taken to reduce overall costs and improve operational profitability were $6.4 million in the nine months ended January 30, 2021, compared to $0.7 million of restructuring costs in the nine months ended February 1, 2020.

Industrial Segment Results

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

(Dollars in Millions)

Net Change ($)

Net Change (%)

Income from Operations

Percent of sales:

Income from Operations

Industrial segment net sales decreased $9.4 million, or 4.8%, to $186.4 million in the nine months ended January 30, 2021, compared to $195.8 million in the nine months ended February 1, 2020.

The impact of foreign currency translation increased net sales by $2.8 million.

Excluding foreign currency translation, net sales decreased $12.2 million.

The decrease was primarily due to lower sales from commercial vehicle lighting solutions and radio remote control devices which were adversely impacted from the COVID-19 pandemic .

This was partially offset by higher sales volumes of electric vehicle busbar products.

Gross Profit.

Industrial segment gross profit decreased $7.4 million, or 10.2%, to $65.5 million in the nine months ended January 30, 2021, compared to $72.9 million in the nine months ended February 1, 2020.

Gross profit margins decreased to 35.1% in the nine months ended January 30, 2021, compared to 37.2% in the nine months ended February 1, 2020.

The decrease in gross profit margins was primarily due to the impact of the COVID-19 pandemic on commercial vehicle lighting solutions and radio remote control product sales.

This was partially offset by higher gross profit margins from busbar products.

Income from Operations.

Industrial segment income from operations decreased $4.8 million, or 10.7%, to $40.0 million in the nine months ended January 30, 2021, compared to $44.8 million in the nine months ended February 1, 2020.

The decrease was primarily due to lower gross profit, higher legal fees and restructuring costs, partially offset by higher income from operations from busbar products.

In the nine months ended January 30, 2021, we recognized $0.9 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability, compared to $0.4 million of restructuring costs recognized in the nine months ended February 1, 2020 .

Interface Segment Results

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

(Dollars in Millions)

Selling and administrative expenses were lower primarily due to lower legal expenses and restructuring costs.

In the three months ended August 1, 2020, restructuring costs were $0.6 million.

Three months ended

(in millions)

July 31, 2021

August 1, 2020

Net Change ($)

Net Change (%)

Income from Operations

Percent of sales:

As a percent of net sales

Income from operations

*N/M equals non-meaningful

Interface segment net sales increased $7.7 million, or 19.4%, to $47.4 million in the nine months ended January 30, 2021, compared to $39.7 million in the nine months ended February 1, 2020.

The increase was primarily due to higher sales volumes of appliance products, partially offset by lower sales volumes of legacy data solutions products.

As a percent of net sales

Interface segment net sales decreased $0.7 million, or 5.2%, to $12.7 million in the three months ended July 31, 2021, compared to $13.4 million in the three months ended August 1, 2020.

The decrease was primarily due to lower sales volumes of appliance products and data solutions products, which were negatively impacted by a shortage of semiconductor chips.

Gross profit.

Interface segment gross profit increased $5.6 million, or 124.4% , to $10.1 million in the nine months ended January 30, 2021 , compared to $4.5 million in the nine months ended February 1, 2020 .

Gross profit margins increased to 21.3% in the nine months ended January 30, 2021 , from 11.3% in the nine months ended February 1, 2020 .

The increase was primarily due to higher sales volumes of appliance products and lower operati onal costs.

Income from Operations.

Interface segment income from operations increased $6.7 million to $7.4 million in the nine months ended January 30, 2021, compared to $0.7 million in the nine months ended February 1, 2020.

The increase was primarily due to higher gross profit and lower selling and administrative expenses, partially offset by restructuring costs recognized in the first quarter of fiscal 2021.

Selling and administrative expenses in the nine months ended January 30, 2021 benefitted from restructuring actions taken in the first quarter of fiscal 2021.

In the nine months ended January 30, 2021, we recognized $0.7 million of restructuring costs related to actions taken to reduce overall costs and improve operational profitability.

Medical Segment Results

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

(Dollars in Millions)

Interface segment gross profit decreased $0.8 million, or 32.0%, to $1.7 million in the three months ended July 31, 2021, compared to $2.5 million in the three months ended August 1, 2020.

Gross profit margins decreased to 13.4% in the three months ended July 31, 2021, from 18.7% in the three months ended August 1, 2020.

The decrease in gross profit margins was due to lower sales volumes and higher material costs.

Income from o perations.

Interface segment income from operations was $1.1 million in the three months ended July 31, 2021 , unchanged from the three months ended August 1, 2020 .

Lower gross profit of $0.8 million was offset by l ower selling and administrative expense s .

Selling and administrative expenses decreased as the three months ended August 1, 2020 included $0.8 million of restructuring costs.

Three months ended

(in millions)

July 31, 2021

August 1, 2020

Net Change ($)

1 unchanged sentence

Loss from operations

The Medical segment had net sales of $1.9 million in the nine months ended January 30, 2021, compared to $1.2 million in the nine months ended February 1, 2020.

The Medical segment had net sales of $0.8 million in the three months ended July 31, 2021, compared to $0.4 million in the three months ended August 1, 2020.

Net sales increased due to higher product demand.

Gross profit.

Medical segment gross profit was a loss of $1.0 million in the nine months ended January 30, 2021, compared to a loss of $1.3 million in the nine months ended February 1, 2020.

The improvement was due to higher net sales.

Medical segment gross profit was breakeven in the three months ended July 31, 2021, compared to a loss of $0.6 million in the three months ended August 1, 2020.

The improvement was primarily due to higher net sales.

Loss from operations.

Medical segment loss from operations was $4.1 million in the nine months ended January 30, 2021, compared to $4.9 million in the nine months ended February 1, 2020.

The improvement was due to higher net sales and lower selling and administrative costs.

Medical segment loss from operations decreased $0.4 million, to $1.2 million in the three months ended July 31, 2021, compared to $1.6 million in the three months ended August 1, 2020.

The improvement was due to higher gross profit, partially offset by higher selling and administrative expenses.

Financial Condition, Liquidity and Capital Resources

Credit Agreement

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 share buybacks.

Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement.

1 unchanged sentence

However, if economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic, our liquidity position could be severely impacted.

As of July 31, 2021, we had $207.9 million of cash and cash equivalents, of which $97.4 million was held in subsidiaries outside the U.S.

Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, without creating material additional income tax expense.

Share Buyback Program

On March 31, 2021, the Board of Directors authorized the purchase of up to $100.0 million of our common stock.

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.

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.

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

Credit Agreement

Our senior unsecured credit agreement provides for a $200.0 million revolving credit facility and a $250.0 million term loan.

In March 2020, as a precautionary measure in response to the COVID-19 pandemic, we drew down $100.0 million under our revolving credit facility, which we repaid in the third quarter of fiscal 2021.

As of January 30, 2021, $9.7 million in principal was outstanding under the revolving credit facility and we have $190.1 million of availability under the revolving credit facility.

As of January 30, 2021, $221.9 million in principal was outstanding under the term loan.

As of July 31, 2021, $8.7 million in principal was outstanding under the revolving credit facility and we have $191.3 million of availability under the revolving credit facility.

As of July 31, 2021, $215.6 million in principal was outstanding under the term loan.

The term loan matures in September 2023 and requires quarterly principal payments of $3.1 million over the five-year term, with the remaining balance due upon maturity.

We were in compliance with all covenants under the senior unsecured credit agreement as of January 30, 2021.

We were in compliance with all covenants under the senior unsecured credit agreement as of July 31, 2021.

For further information, see Note 8, “Debt” to the condensed consolidated financial statements included in this Quarterly Report.

Borrowings under our senior unsecured credit agreement bear interest at rates equal to the London Interbank Offered Rate (“LIBOR”) plus an applicable margin.

Borrowings under our senior unsecured credit agreement bear interest at rates equal to LIBOR plus an applicable margin.

LIBOR is expected to be phased out by the end of 2021, which is before the maturity of our senior unsecured credit agreement.

At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate;

however, we continue to monitor the efforts of various parties, including government agencies, seeking to

identify an alternative rate to replace LIBOR.

however, we continue to monitor the efforts of various parties, including government agencies, seeking to identify an alternative rate to replace LIBOR.

The consequences of the discontinuance of LIBOR cannot be entirely predicted but could result in an increase in our interest expense.

2 unchanged sentences

As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and our access to, and cost of, financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our future prospects.

At January 30, 2021, we had $218.7 million of cash and cash equivalents, of which $132.6 million was held in subsidiaries outside the U.S.

Cash flow is summarized below:

Nine Months Ended

(Dollars in Millions)

Three Months Ended

(in millions)

July 31, 2021

August 1, 2020

Operating activities:

5 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net 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

Operating activities

Net cash provided by operating activities increased $61.2 million to $143.8 million in the nine months ended January 30, 2021, compared to $82.6 million in the nine months ended February 1, 2020.

The increase was due to higher cash inflows related to changes in operating assets and liabilities, partially offset by lower net income adjusted for non-cash items.

The $15.3 million of cash inflows for operating assets and liabilities in the nine months ended January 30, 2021 was primarily due to higher accounts payable, lower prepaid expenses and other assets and lower inventory, partially offset by higher accounts receivable.

Net cash provided by operating activities decreased $6.7 million to $9.7 million in the three months ended July 31, 2021, from $16.4 million in the three months ended August 1, 2020.

The decrease was due to higher cash outflows related to changes in operating assets and liabilities, partially offset by higher net income adjusted for non-cash items.

The $35.4 million of cash outflows for operating assets and liabilities in the three months ended July 31, 2021 was primarily due to lower accounts payable and other liabilities and higher inventory and prepaid expenses and other assets, partially offset by lower accounts receivable.

Investing activities

Net cash used in investing activities was $20.0 million in the nine months ended January 30, 2021, compared to $34.4 million in the nine months ended February 1, 2020.

The activity in both the nine months ended January 30, 2021 and February 1, 2020 relates primarily to purchases of property, plant and equipment.

Net cash used in investing activities was $15.4 million in the three months ended July 31, 2021, compared to $11.6 million in the three months ended August 1, 2020.

Capital expenditures were $15.9 million and $11.6 million in the three months ended July 31, 2021 and August 1, 2020, respectively.

We received $0.5 million of cash from the sale of property, plant and equipment in the three months ended July 31, 2021.

Financing activities

Net cash used in financing activities was $127.8 million in the nine months ended January 30, 2021, compared to $49.7 million in the nine months ended February 1, 2020.

We paid dividends of $13.2 million in the nine months ended January 30, 2021, compared to $12.2 million in the nine months ended February 1, 2020.

In the nine months ended January 30, 2021, we paid $3.9 million in taxes related to the net share settlement of equity awards compared to $0.4 million in the nine months ended February 1, 2020.

In the nine months ended January 30, 2021, we had net repayments on our borrowings of $110.4 million, which included the repayment of the $100.0 million pre-cautionary draw-down on our revolving credit facility in March 2020.

In the nine months ended February 1, 2020, net repayments on our borrowings were $36.6 million.

Net cash used in financing activities was $18.3 million in the three months ended July 31, 2021, compared to $13.0 million in the three months ended August 1, 2020.

We paid cash dividends of $5.2 million in the three months ended July 31, 2021, compared to $5.0 million in the three months ended August 1, 2020.

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

In the three months ended July 31, 2021, we paid $0.3 million in taxes related to the net share settlement of equity awards compared to $3.9 million in the three months ended August 1, 2020.

We also spent $8.4 million of cash for the purchase of shares under our share buyback program.

In the three months ended July 31, 2021, we had net repayments on our borrowings of $4.7 million, compared to $4.1 million in the three months ended August 1, 2020.

Recent Accounting Pronouncements

17 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.

We are 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 we will be able to collect the judgment.

In the nine months ended January 30, 2021 and February 1, 2020, we incurred Hetronic-related legal fees of $4.8 million and $3.3 million, respectively.

In the three months ended July 31, 2021 and August 1, 2020, we incurred Hetronic-related legal fees of $0.7 million and $1.9 million, respectively.

These amounts are included in the selling and administrative expenses in the Industrial segment.

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 2. Management’s Discussion and Analysis