Methode Electronics(MEI) - 2025 Q4 - Annual Report

Part I Business Methode Electronics, Inc. is a global supplier of custom-engineered mechatronic products for OEMs across diverse markets, operating through Automotive, Industrial, and Interface segments - The company designs, engineers, and produces mechatronic products for OEMs, focusing on user interface, LED lighting, power distribution, and sensor applications across transportation, cloud computing, construction, and consumer appliance end markets[20][21] - The company operates through three primary segments: Automotive (electronic/electro-mechanical devices), Industrial (lighting, safety controls, power products), and Interface (data center and appliance solutions), with the Medical segment discontinued in October 2023[23][24][27] - As of May 3, 2025, the company's global workforce totaled approximately 6,500 employees and 800 contractors, with about 95% located outside the U.S.[40] Net Sales by Segment (Fiscal Years 2023-2025) | | Fiscal Year Ended | | | |---|---|---|---| | | May 3, 2025 | April 27, 2024 | April 29, 2023 | | Automotive | 48.6% | 53.7% | 62.4% | | Industrial | 46.5% | 41.3% | 32.6% | | Interface | 4.9% | 4.8% | 4.7% | | Medical | —% | 0.2% | 0.3% | Research and Development Expenditures (Fiscal Years 2023-2025) | Fiscal Year | R&D Costs (in millions) | |---|---| | 2025 | $41.8 | | 2024 | $49.1 | | 2023 | $35.0 | Risk Factors The company faces significant operational, financial, legal, and technological risks, including automotive industry dependence, debt covenant non-compliance, and ongoing litigation - A substantial portion of revenue comes from the automotive, commercial vehicle, and construction industries, making the company susceptible to cyclical downturns and factors like changing EV demand, which has recently softened[51][54] - The five largest customers accounted for approximately 36% of consolidated net sales in fiscal 2025, highlighting customer concentration risk due to significant program roll-offs[64][76] - The company is exposed to financial risks from its debt, having been non-compliant with leverage and interest coverage ratio covenants as of May 3, 2025, though an amendment was secured to waive the default and relax future covenants[83] - The company recorded a significant non-cash goodwill impairment charge of $105.9 million in fiscal 2024 and inventory obsolescence charges of $20.4 million in fiscal 2025[87][89] - The company is subject to a putative shareholder class action lawsuit and an ongoing SEC investigation concerning foreign operations, financial reporting, and internal controls[96][97] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[107] Cybersecurity The company manages cybersecurity risks through a dedicated program with Board and Audit Committee oversight, led by the CIO/CISO - The Board of Directors and Audit Committee provide oversight for cybersecurity, receiving regular updates from the Chief Information Officer (CIO), who also serves as the Chief Information Security Officer (CISO)[108][112] - The company utilizes third-party firms for assessments and has an incident response plan to manage and mitigate threats, led by the CIO/CISO with over 25 years of experience[109][114] - To date, the company has not experienced a cybersecurity incident that has materially affected its business strategy, results of operations, or financial condition[111] Properties The company's corporate headquarters is in Chicago, Illinois, operating 31 global facilities, including key manufacturing sites in China, Mexico, Malta, and Egypt Significant Properties as of May 3, 2025 | Location | Use | Owned/Leased | Approx. Sq. Footage | |---|---|---|---| | Lontzen, Belgium | Manufacturing/Warehousing | Owned | 135,500 | | Dongguan, China | Manufacturing | Leased | 324,000 | | Shanghai, China | Manufacturing | Leased | 50,000 | | Suzhou, China | Manufacturing | Leased | 376,000 | | Cairo, Egypt | Manufacturing | Leased | 330,000 | | Chicago, Illinois | Corporate Headquarters | Leased | 24,000 | | McAllen, Texas | Warehousing | Leased | 230,000 | | Mriehel, Malta | Manufacturing | Leased | 383,000 | | Monterrey, Mexico | Manufacturing | Leased | 379,000 | | Santa Catarina Nuevo León, Mexico | Manufacturing | Leased | 158,000 | Legal Proceedings The company is involved in various legal matters, with significant pending proceedings detailed in Note 12 to the consolidated financial statements - The company is involved in various litigation matters, with details on pending legal proceedings available in Note 12, 'Commitments and Contingencies' in the consolidated financial statements[118] Mine Safety Disclosures This item is not applicable to the company - Not applicable[119] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Methode's common stock trades on the NYSE under 'MEI', with a new $200.0 million share buyback authorized, though stock performance has significantly underperformed benchmarks - In June 2024, the Board approved a new share buyback authorization for up to $200.0 million of common stock, effective through June 17, 2026, with no purchases made under this new authorization[125] - The company's stock performance shows a cumulative total return of $26.53 on an initial $100 investment from May 2020 to May 2025, significantly underperforming the Russell 2000 Index ($171.33) and its peer groups[131] Issuer Purchases of Equity Securities (Q4 FY2025) | Period | Total number of shares purchased | Average price paid per share | Approximate dollar value of shares that may yet be purchased (in millions) | |---|---|---|---| | Feb 2 - Mar 1, 2025 | 27,784 | $10.80 | $200.0 | | Mar 2 - Apr 5, 2025 | 63,799 | $6.55 | $200.0 | | Apr 6 - May 3, 2025 | 13,445 | $6.27 | $200.0 | Note: All shares purchased were surrendered by employees to satisfy tax withholding on vested RSUs, not as part of a publicly announced plan Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 net sales decreased by 6.0% to $1,048.1 million, driven by Automotive declines offset by Industrial growth, resulting in a net loss of $62.6 million Consolidated Results of Operations - Net sales decreased by $66.4 million (6.0%) in fiscal 2025, primarily due to lower sales in the Automotive segment, partially offset by higher sales in the Industrial segment[143] - Gross profit margin decreased from 16.0% to 15.6%, mainly due to $10.0 million in higher inventory obsolescence expense, partially offset by a favorable product mix[144][145] - Selling and administrative expenses increased by $3.0 million, driven by higher professional fees of $9.8 million for consulting and interim executive services from AlixPartners[146] - The net loss of $62.6 million in fiscal 2025 was an improvement over the $123.3 million net loss in fiscal 2024, which was heavily impacted by a $105.9 million goodwill impairment charge[147][154] Consolidated Results of Operations (FY2025 vs. FY2024) | (in millions) | Fiscal Year Ended May 3, 2025 (53 Weeks) | Fiscal Year Ended April 27, 2024 (52 Weeks) | |---|---|---| | Net sales | $1,048.1 | $1,114.5 | | Gross profit | $163.4 | $178.8 | | Goodwill impairment | $— | $105.9 | | Net loss | $(62.6) | $(123.3) | Operating Segments - Automotive net sales fell 14.9% due to program roll-offs and lower volumes in North America and Asia, despite growth in EMEA from new program launches[156][157] - Industrial net sales grew 5.9%, driven by higher sales of power distribution products for data centers, which offset lower sales in commercial vehicle and off-road equipment markets[161] - The Medical segment (Dabir Surfaces business) was discontinued in Q1 fiscal 2024 and certain assets were sold, resulting in no sales or operations for this segment in fiscal 2025[167] Automotive Segment Performance (FY2025 vs. FY2024) | (in millions) | FY2025 | FY2024 | |---|---|---| | Net sales | $508.9 | $598.2 | | Gross profit | $4.7 | $30.4 | | Loss from operations | $(47.7) | $(140.2) | Industrial Segment Performance (FY2025 vs. FY2024) | (in millions) | FY2025 | FY2024 | |---|---|---| | Net sales | $487.4 | $460.1 | | Gross profit | $144.2 | $137.7 | | Income from operations | $90.0 | $88.8 | Interface Segment Performance (FY2025 vs. FY2024) | (in millions) | FY2025 | FY2024 | |---|---|---| | Net sales | $51.8 | $53.8 | | Gross profit | $12.7 | $10.3 | | Income from operations | $10.3 | $6.9 | Financial Condition, Liquidity and Capital Resources - As of May 3, 2025, the company was not in compliance with its credit agreement's consolidated leverage and interest coverage ratio covenants, but subsequently entered a Third Amendment on July 7, 2025, which waived the default, reduced the revolving credit facility from $500 million to $400 million, and relaxed future covenants[173][388] - The Amended Credit Agreement, maturing in October 2027, now includes stricter terms such as an 'anti-cash hoarding' requirement and increased interest rates during a specified 'Third Amendment Period'[172][173][174] - Net cash from operating activities decreased by $21.1 million, primarily due to lower net income (adjusted for non-cash items) and smaller favorable changes in working capital[179] Cash Flow Summary (FY2025 vs. FY2024) | (in millions) | FY2025 | FY2024 | |---|---|---| | Net cash provided by operating activities | $26.4 | $47.5 | | Net cash used in investing activities | $(32.9) | $(17.5) | | Net cash used in financing activities | $(58.9) | $(18.9) | | (Decrease) increase in cash and cash equivalents | $(57.9) | $4.5 | Critical Accounting Policies and Estimates - Goodwill impairment testing is a critical estimate, with the fair value of the Nordic Lights unit exceeding its carrying value by less than 10%[186][188] - A sensitivity analysis for the Nordic Lights reporting unit indicated that a 100 basis point increase in the discount rate would result in a goodwill impairment of approximately $7.3 million[188] - Income tax accounting requires significant judgment, particularly in evaluating the realizability of deferred tax assets, with a valuation allowance of $20.7 million as of May 3, 2025[191][193] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency, interest rates, and commodity prices using derivative instruments, not for speculation - The company uses foreign currency forward contracts to hedge balance sheet exposure, with a notional value of $107.2 million as of May 3, 2025[198] - The company is exposed to interest rate risk on its $319.4 million of variable-rate borrowings, using interest rate swaps to manage this, where a hypothetical 1% increase in interest rates would increase annual interest expense by an estimated $1.7 million, net of swaps[200] - The company faces commodity price risk for materials like copper and resins, where cost fluctuations can impact gross margins due to difficulties in passing on increases to customers[201] Financial Statements and Supplementary Data This section indicates that the consolidated financial statements and supplementary data are filed under Item 15 of the report - The consolidated financial statements and supplementary data are filed under Item 15, 'Exhibits, Financial Statement Schedules'[202] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[202] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of May 3, 2025, having remediated prior material weaknesses - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of May 3, 2025[203] - Three material weaknesses identified in fiscal 2024 were successfully remediated in fiscal 2025, relating to ineffective IT general controls, goodwill impairment analyses, and GAAP application to non-routine events[208][210] - Management concluded that the company's internal control over financial reporting was effective as of May 3, 2025, based on the COSO framework[205] Other Information This section details the Third Amendment to the company's credit agreement, which waived a financial covenant default and adjusted terms - On July 7, 2025, the company entered into a Third Amendment to its credit agreement, disclosed under Item 9B due to its timing within four business days of the 10-K filing[213][214] - The amendment waived a default for non-compliance with financial covenants for the quarter ended May 3, 2025[216] - Key terms of the amendment include reducing revolving credit commitments from $500 million to $400 million, relaxing financial covenants, increasing interest rates, and extending an 'anti-cash hoarding' requirement[215][216] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance matters is incorporated by reference from the company's 2025 annual shareholders' meeting proxy statement - Information is incorporated by reference from the 2025 annual meeting proxy statement[221] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2025 annual shareholders' meeting proxy statement - Information is incorporated by reference from the 2025 annual meeting proxy statement[222] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2025 proxy statement, including details on equity compensation plans Equity Compensation Plan Information as of May 3, 2025 | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |---|---|---|---| | Equity compensation plans approved by security holders | 1,686,872 | $ — | 3,497,871 | | Equity compensation plans not approved by security holders | — | $ — | — | | Total | 1,686,872 | $ — | 3,497,871 | Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2025 annual shareholders' meeting proxy statement - Information is incorporated by reference from the 2025 annual meeting proxy statement[225] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2025 annual shareholders' meeting proxy statement - Information is incorporated by reference from the 2025 annual meeting proxy statement[225] Part IV Exhibits and Financial Statement Schedules This section contains the index to the consolidated financial statements, the financial statement schedule, and a comprehensive list of all exhibits filed with the 10-K Report of Independent Registered Public Accounting Firm - Ernst & Young LLP issued an unqualified opinion, stating that the consolidated financial statements are presented fairly, in all material respects, in conformity with U.S. GAAP[244] - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of May 3, 2025, based on the COSO framework[245][255] - A Critical Audit Matter (CAM) was identified related to the Goodwill Impairment Assessment of the Nordic Lights Reporting Unit, due to the complex and highly judgmental estimation required for fair value determination[249][250] Consolidated Financial Statements Consolidated Balance Sheets (in millions) | | May 3, 2025 | April 27, 2024 | |---|---|---| | Total current assets | $559.9 | $637.7 | | Total assets | $1,305.8 | $1,403.5 | | Total current liabilities | $233.2 | $231.4 | | Total liabilities | $612.5 | $637.5 | | Total shareholders' equity | $693.3 | $766.0 | Consolidated Statements of Operations (in millions) | | FY2025 | FY2024 | FY2023 | |---|---|---|---| | Net sales | $1,048.1 | $1,114.5 | $1,179.6 | | Gross profit | $163.4 | $178.8 | $264.1 | | (Loss) income from operations | $(23.9) | $(112.0) | $90.4 | | Net (loss) income attributable to Methode | $(62.6) | $(123.3) | $77.1 | | Diluted (loss) income per share | $(1.77) | $(3.48) | $2.10 | Consolidated Statements of Cash Flows (in millions) | | FY2025 | FY2024 | FY2023 | |---|---|---|---| | Net cash provided by operating activities | $26.4 | $47.5 | $132.8 | | Net cash used in investing activities | $(32.9) | $(17.5) | $(153.1) | | Net cash (used in) provided by financing activities | $(58.9) | $(18.9) | $3.2 | | (Decrease) increase in cash and cash equivalents | $(57.9) | $4.5 | $(15.0) | Schedule II — Valuation and Qualifying Accounts Valuation and Qualifying Accounts (in millions) | Description | Balance at beginning of FY2025 | Charges to income | Deductions | Balance at end of FY2025 | |---|---|---|---|---| | Allowance for uncollectible accounts | $1.4 | $2.7 | $(1.1) | $3.0 | | Inventory obsolescence reserves | $25.9 | $20.4 | $(17.8) | $28.9 | | Deferred tax valuation allowance | $5.8 | $14.9 | $— | $20.7 |