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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the quarterly period ended August 1, 2020

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transition period from ______ to ______

 

Commission file number 001-33731

METHODE ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

36-2090085

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

8750 West Bryn Mawr Avenue, Suite 1000, Chicago, Illinois

60631-3518

(Address of principal executive offices)

(Zip Code)

 

(Registrant’s telephone number, including area code) (708) 867-6777

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.50 Par Value

 

MEI

 

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer.” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

 

 

 

 

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

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

At September 1, 2020, the registrant had 37,529,738 shares of common stock outstanding.

 

 


Table of Contents

 

METHODE ELECTRONICS, INC.

 

INDEX

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Statements of Income (unaudited) - Three Months Ended August 1, 2020 and July 27, 2019

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (unaudited) - Three Months Ended August 1, 2020 and July 27, 2019

3

 

 

 

 

Condensed Consolidated Balance Sheets as of August 1, 2020 (unaudited) and May 2, 2020

4

 

 

 

 

Condensed Consolidated Statements of Shareholders' Equity (unaudited) - Three Months Ended August 1, 2020 and July 27, 2019

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) - Three Months Ended August 1, 2020 and July 27, 2019

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

32

 

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in millions, except per share data)

 

 

 

Three Months Ended

 

 

 

August 1,

2020

 

 

July 27,

2019

 

Net Sales

 

$

190.9

 

 

$

270.2

 

 

 

 

 

 

 

 

 

 

Cost of Products Sold

 

 

145.8

 

 

 

194.4

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

45.1

 

 

 

75.8

 

 

 

 

 

 

 

 

 

 

Selling and Administrative Expenses

 

 

26.6

 

 

 

32.4

 

Amortization of Intangibles

 

 

4.7

 

 

 

4.8

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

 

13.8

 

 

 

38.6

 

 

 

 

 

 

 

 

 

 

Interest Expense, Net

 

 

1.6

 

 

 

2.9

 

Other (Income) Expense, Net

 

 

(3.4

)

 

 

0.1

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

15.6

 

 

 

35.6

 

 

 

 

 

 

 

 

 

 

Income Tax (Benefit) Expense

 

 

(5.1

)

 

 

7.3

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

20.7

 

 

$

28.3

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Income per Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.55

 

 

$

0.75

 

Diluted

 

$

0.54

 

 

$

0.75

 

 

 

 

 

 

 

 

 

 

Cash Dividends per Share

 

$

0.11

 

 

$

0.11

 

 

 

See notes to condensed consolidated financial statements.

2


Table of Contents

 

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in millions)

 

 

 

Three Months Ended

 

 

 

August 1,

2020

 

 

July 27,

2019

 

Net Income

 

$

20.7

 

 

$

28.3

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Tax:

 

 

 

 

 

 

 

 

Foreign Currency Translation Adjustments

 

 

20.3

 

 

 

(1.6

)

Derivative Financial Instruments

 

 

(3.6

)

 

 

 

Total Comprehensive Income

 

$

37.4

 

 

$

26.7

 

 

See notes to condensed consolidated financial statements.

3


Table of Contents

 

METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

August 1,

2020

 

 

May 2,

2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

211.0

 

 

$

217.3

 

Accounts Receivable, Net

 

 

233.0

 

 

 

188.5

 

Inventories

 

 

124.0

 

 

 

131.0

 

Income Tax Receivable

 

 

13.6

 

 

 

12.9

 

Prepaid Expenses and Other Current Assets

 

 

16.4

 

 

 

15.9

 

TOTAL CURRENT ASSETS

 

 

598.0

 

 

 

565.6

 

LONG-TERM ASSETS

 

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

 

208.6

 

 

 

201.9

 

Goodwill

 

 

233.3

 

 

 

231.6

 

Other Intangible Assets, Net

 

 

242.1

 

 

 

244.8

 

Operating Lease Assets, Net

 

 

22.1

 

 

 

23.5

 

Deferred Tax Assets

 

 

41.0

 

 

 

31.4

 

Pre-production Costs

 

 

36.0

 

 

 

37.1

 

Other Long-term Assets

 

 

37.1

 

 

 

34.7

 

TOTAL LONG-TERM ASSETS

 

 

820.2

 

 

 

805.0

 

TOTAL ASSETS

 

$

1,418.2

 

 

$

1,370.6

 

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts Payable

 

$

83.2

 

 

$

73.8

 

Accrued Employee Liabilities

 

 

20.0

 

 

 

19.1

 

Other Accrued Expenses

 

 

28.3

 

 

 

18.5

 

Short-term Operating Lease Liability

 

 

5.5

 

 

 

5.5

 

Short-term Debt

 

 

15.4

 

 

 

15.3

 

Income Tax Payable

 

 

7.6

 

 

 

11.6

 

TOTAL CURRENT LIABILITIES

 

 

160.0

 

 

 

143.8

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Long-term Debt

 

 

334.4

 

 

 

336.8

 

Long-term Operating Lease Liability

 

 

18.4

 

 

 

20.4

 

Long-term Income Tax Payable

 

 

29.3

 

 

 

29.3

 

Other Long-term Liabilities

 

 

20.0

 

 

 

15.3

 

Deferred Tax Liabilities

 

 

42.3

 

 

 

41.6

 

TOTAL LONG-TERM LIABILITIES

 

 

444.4

 

 

 

443.4

 

TOTAL LIABILITIES

 

 

604.4

 

 

 

587.2

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Common Stock, $0.50 par value, 100,000,000 shares authorized, 38,876,362 shares and 38,438,111 shares issued as of August 1, 2020 and May 2, 2020, respectively

 

 

19.4

 

 

 

19.2

 

Additional Paid-in Capital

 

 

151.5

 

 

 

150.7

 

Accumulated Other Comprehensive Loss

 

 

(10.2

)

 

 

(26.9

)

Treasury Stock, 1,346,624 shares as of August 1, 2020 and May 2, 2020

 

 

(11.5

)

 

 

(11.5

)

Retained Earnings

 

 

664.6

 

 

 

651.9

 

TOTAL SHAREHOLDERS' EQUITY

 

 

813.8

 

 

 

783.4

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,418.2

 

 

$

1,370.6

 

 

See notes to condensed consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(in millions, except share data)

 

 

 

Three Months Ended August 1, 2020

 

 

 

Common

Stock

Shares

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Total

Equity

 

Balance as of May 2, 2020

 

 

38,438,111

 

 

$

19.2

 

 

$

150.7

 

 

$

(26.9

)

 

$

(11.5

)

 

$

651.9

 

 

$

783.4

 

Earned Portion of Restricted Stock, Net of Tax Withholding

 

 

433,251

 

 

 

0.2

 

 

 

(0.2

)

 

 

 

 

 

 

 

 

(3.9

)

 

 

(3.9

)

Exercise of Stock Options

 

 

5,000

 

 

 

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

Stock-based Compensation Expense

 

 

 

 

 

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

0.9

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

16.7

 

 

 

 

 

 

 

 

 

16.7

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20.7

 

 

 

20.7

 

Dividends on Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4.1

)

 

 

(4.1

)

Balance as of August 1, 2020

 

 

38,876,362

 

 

$

19.4

 

 

$

151.5

 

 

$

(10.2

)

 

$

(11.5

)

 

$

664.6

 

 

$

813.8

 

 

 

 

Three Months Ended July 27, 2019

 

 

 

Common

Stock

Shares

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Total

Equity

 

Balance as of April 27, 2019

 

 

38,333,576

 

 

$

19.2

 

 

$

150.4

 

 

$

(13.6

)

 

$

(11.5

)

 

$

545.2

 

 

$

689.7

 

Earned Portion of Restricted Stock, Net of Tax Withholding

 

 

104,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

 

 

(0.4

)

Stock-based Compensation Expense

 

 

 

 

 

 

 

 

2.5

 

 

 

 

 

 

 

 

 

 

 

 

2.5

 

Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

(1.6

)

 

 

 

 

 

 

 

 

(1.6

)

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28.3

 

 

 

28.3

 

Dividends on Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4.2

)

 

 

(4.2

)

Balance as of July 27, 2019

 

 

38,438,111

 

 

$

19.2

 

 

$

152.9

 

 

$

(15.2

)

 

$

(11.5

)

 

$

568.9

 

 

$

714.3

 

 

See notes to condensed consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

 

 

Three Months Ended

 

 

 

August 1,

2020

 

 

July 27,

2019

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net Income

 

$

20.7

 

 

$

28.3

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

12.1

 

 

 

11.8

 

Stock-based Compensation Expense

 

 

0.9

 

 

 

2.5

 

Change in Cash Surrender Value of Life Insurance

 

 

(0.6

)

 

 

(0.3

)

Amortization of Debt Issuance Costs

 

 

0.2

 

 

 

0.2

 

Change in Deferred Income Taxes

 

 

(6.2

)

 

 

 

Other

 

 

1.0

 

 

 

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(37.3

)

 

 

(12.8

)

Inventories

 

 

9.1

 

 

 

(5.7

)

Prepaid Expenses and Other Assets

 

 

1.5

 

 

 

0.7

 

Accounts Payable and Other Liabilities

 

 

15.0

 

 

 

(5.6

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

16.4

 

 

 

19.1

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of Property, Plant and Equipment

 

 

(11.6

)

 

 

(13.2

)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(11.6

)

 

 

(13.2

)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Taxes Paid Related to Net Share Settlement of Equity Awards

 

 

(3.9

)

 

 

(0.4

)

Proceeds from Exercise of Stock Options

 

 

0.1

 

 

 

 

Repayments of Finance Leases

 

 

(0.1

)

 

 

(0.2

)

Cash Dividends

 

 

(5.0

)

 

 

(4.1

)

Proceeds from Borrowings

 

 

 

 

 

1.0

 

Repayments of Borrowings

 

 

(4.1

)

 

 

(10.7

)

NET CASH USED IN FINANCING ACTIVITIES

 

 

(13.0

)

 

 

(14.4

)

Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents

 

 

1.9

 

 

 

(0.9

)

DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(6.3

)

 

 

(9.4

)

Cash and Cash Equivalents at Beginning of the Year

 

 

217.3

 

 

 

83.2

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

 

$

211.0

 

 

$

73.8

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash Paid During the Period For:

 

 

 

 

 

 

 

 

Interest

 

$

1.5

 

 

$

2.9

 

Income Taxes, Net of Refunds

 

$

4.8

 

 

$

7.8

 

Operating Lease Obligations

 

$

2.1

 

 

$

2.1

 

 

 

 

See notes to condensed consolidated financial statements.

 

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Note 1.

Description of Business and Summary of Significant Accounting Policies

 

Description of Business

Methode Electronics, Inc. (the "Company" or "Methode") is a 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 Fresnillo and Monterrey, Mexico. The Company designs, manufactures and markets devices employing electrical, radio remote control, electronic, LED lighting, wireless and sensing technologies.

 

Impact of COVID-19

The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. The Company expects the disruptions caused by the COVID-19 pandemic to continue to have an adverse impact on the Company's operating results across all segments for the remainder of fiscal 2021. 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. As a result, production levels at the Company’s major North American and European manufacturing facilities were still significantly reduced to well below capacity through early June 2020. 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. Some of the Company’s international locations received government assistance with respect to wages and other expenses. The amount of assistance received was $2.9 million in the three months ended August 1, 2020 and have 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, 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 August 1, 2020 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 and for the three months ended August 1, 2020. 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.

 

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements included in the Company's Form 10-K for the year ended May 2, 2020, filed with the SEC on June 30, 2020. Results may vary from quarter-to-quarter for reasons other than seasonality.

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Financial Reporting Periods

The Company maintains its financial records on the basis of a 52- or 53-week fiscal year ending on the Saturday closest to April 30. The three months ended August 1, 2020 and July 27, 2019 were both 13 week periods.

 

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from these estimates.

 

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, "Description of Business and Summary of Significant Accounting Policies," to the consolidated financial statements included in the Company's Form 10-K for the year ended May 2, 2020. There have been no material changes to the significant accounting policies in the three months ended August 1, 2020 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 August 1, 2020 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.

 

New Accounting Pronouncements Not 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. 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

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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.

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 will be in effect through December 31, 2022. The Company is currently assessing the potential impact of the standard on its condensed consolidated financial statements.

 

Note 2.

Revenue

The majority of the Company's revenue is recognized at a point in time. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.

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

Contract Balances

A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. A contract liability exists when an entity has received consideration, or the amount is due from the customer in advance of revenue recognition. The net change in the contract asset and contract liability balances for the three months ended August 1, 2020 and July 27, 2019 were not material.

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Disaggregated Revenue Information

Geographic net sales are determined based on the Company's operational locations. Though revenue recognition patterns and contracts are generally consistent, the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic and economic factors.

 

 

 

Three Months Ended August 1, 2020

 

(Dollars in Millions)

 

Auto

 

 

Industrial

 

 

Interface

 

 

Medical

 

 

Total

 

Geographic Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

76.3

 

 

$

20.6

 

 

$

13.2

 

 

$

0.4

 

 

$

110.5

 

Europe & Africa

 

 

28.8

 

 

 

12.8

 

 

 

 

 

 

 

 

 

41.6

 

Asia

 

 

20.0

 

 

 

18.6

 

 

 

0.2

 

 

 

 

 

 

38.8

 

Total Net Sales

 

$

125.1

 

 

$

52.0

 

 

$

13.4

 

 

$

0.4

 

 

$

190.9

 

Timing of Revenue Recognition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods Transferred at a Point in Time

 

$

120.1

 

 

$

52.0

 

 

$

13.4

 

 

$

0.4

 

 

$

185.9

 

Goods Transferred Over Time

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

5.0

 

Total Net Sales

 

$

125.1

 

 

$

52.0

 

 

$

13.4

 

 

$

0.4

 

 

$

190.9

 

 

 

 

Three Months Ended July 27, 2019

 

(Dollars in Millions)

 

Auto

 

 

Industrial

 

 

Interface

 

 

Medical

 

 

Total

 

Geographic Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

121.6

 

 

$

48.9

 

 

$

12.5

 

 

$

0.3

 

 

$

183.3

 

Europe & Africa

 

 

49.0

 

 

 

12.5

 

 

 

0.1

 

 

 

 

 

 

61.6

 

Asia

 

 

15.6

 

 

 

9.4

 

 

 

0.3

 

 

 

 

 

 

25.3