METHODE ELECTRONICS INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

As used herein, “we”, “us”, “our”, the “Company” or “Method” means Electronic Method, 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 which, when made, reflect our current views regarding current events and financial performance. . These forward-looking statements are subject to numerous risks, uncertainties and factors relating to our operations and our business environment, which may cause our actual results to differ materially from any future results, expressed or implied, by these forward-looking statements. All statements that address future operational, 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”, “could”, “will”, “should”, “expect”, “plan”, “intend”, “anticipates”, “believes”, “estimates”, “forecasts”, “projects”, “potential”, “prospects” or “continues” and other comparable terms. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

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Dependence on our supply chain, including semiconductor suppliers;
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Impact from pandemics, such as the COVID-19 pandemic;
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Dependence on the automotive and commercial vehicle industries;
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Impact from inflation;
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Dependence on a small number of large customers, including one large automotive
customer;
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Dependence on the availability and price of materials;
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Risks related to conducting global operations;
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Ability to withstand pricing pressures, including price reductions;
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Currency fluctuations;
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Timing and magnitude of costs associated with restructuring activities;
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Failure to attract and retain qualified personnel;
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Recognition of goodwill and other intangible asset impairment charges;
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Timing, quality and cost of new program launches;
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International trade disputes resulting in tariffs and our ability to mitigate
tariffs;
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Adjustments to compensation expense for performance-based awards;
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Investment in programs prior to the recognition of revenue;
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Ability to compete effectively;
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Impact from production delays or cancelled orders;
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Ability to withstand business interruptions;
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Ability to keep pace with rapid technological changes;
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Breaches to our information technology systems;
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Ability to avoid design or manufacturing defects;
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Ability to manage our debt levels and any restrictions thereunder;
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Income tax rate fluctuations;
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Ability to protect our intellectual property;
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Ability to successfully benefit from acquisitions and divestitures;
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Impact from climate change and related regulations;
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Judgments related to accounting for tax positions; and
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Costs associated with environmental, health and safety regulations.

Additional details and factors are discussed under “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended. April 30, 2022. 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. All forward-looking statements made by us speak only as of the date on which they are made. We are under no obligation to update or change our forward-looking statements, and we expressly disclaim any obligation, whether as a result of new information, subsequent events or otherwise.

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  Table of Contents


Overview

We are one of the world’s leading providers 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 (“OEM”) using our wide range of technologies for user interface, light emitting diode (“LED”) illumination system, power distribution and sensor applications.

Our solutions are found in transportation end markets (including automotive, utility vehicles, e-bikes, aerospace, bus and rail), cloud computing infrastructure, construction equipment, large appliances public and medical devices. Our business is managed by segment, these segments being automotive, industrial, interface and medical.

Impact of the COVID-19 pandemic

The COVID-19 pandemic and 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 a increased transportation costs due to global capacity constraints. Beginning at the end of the fourth quarter of Fiscal 2022 and continuing through the first quarter of Fiscal 2023, various regions of China, including the regions where we and our customers operate, have been subject to lockdowns imposed by government authorities to mitigate the spread of COVID-19 in those regions. The resulting industry-wide production outages adversely impacted our operating results in the three months July 30, 2022.

Any future resurgence of COVID-19 and its related impacts could negatively impact our future business and operating results. The magnitude of the impact will depend on a number of evolving and uncertain factors, including the duration and spread of COVID-19 (and its variants), vaccination rate, measures taken by government authorities to restrict further business operations and social activity and impose travel restrictions, changing consumer demand, the ability of our supply chain to deliver in a timely and cost-effective manner, the ability of our employees and our manufacturing facilities to operate effectively and efficiently, 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 global pandemic.

Global supply chain disruptions

We continue to experience business disruptions, including customer shutdowns and increased material and logistics costs, labor shortages and, most importantly, the effects of the global shortage of semiconductors. The semiconductor supply shortage is due, in part, to increased demand in several industries, including the automotive industry, causing their production schedules to slow down. The semiconductor supply shortage is also impacting our supply chain and our ability to meet demand from some of our non-automotive customers. We expect this semiconductor shortage to have a continued impact on our results of operations and financial condition for the remainder of fiscal 2023.

Impacts of macroeconomic and geopolitical conditions

Adverse macroeconomic conditions, including but not limited to inflation, slower growth or recession, new or increased tariffs, changes in fiscal and monetary policy, higher interest rates, wage and commodity inflation and currency fluctuations could adversely affect demand for our products. Moreover, the
Russia/Ukraine The conflict has resulted in, among other things, economic sanctions imposed by the international community that have impacted the global economy and given rise to potential global security issues that could adversely affect international trade and economic conditions. Although we have no activity in Russia Where Ukrainesome of our customers and suppliers were negatively affected by these events, which in turn impacted the markets in which we operate, including Europe and Asia. The economic sanctions imposed on Russia
further increased the existing global supply chain, logistics and inflationary challenges. For example, in response to the sanctions imposed on Russia by western countries, Russia reduced the volume of natural gas it sends to European countries, which has caused and may continue to cause increased energy costs for our EMEA operations. Whether Russia further reduces or shuts off the power supply to Europeour EMEA operations could be adversely affected.

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Contents

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