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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in this Annual Report. This discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements because of a variety of factors, including those set forth under Item 1A. “Risk Factors” of this Annual Report. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations.

Overview

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 OEMs utilizing our broad range of technologies for user interface, 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 our four segments being Automotive, Industrial, Interface and Medical. For more information regarding the business and products of these segments, see Item 1. “Business” of this Annual Report.

Impacts of Macroeconomic and Geopolitical Conditions

Adverse macroeconomic conditions, including but not limited to inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, wage and commodity inflation, currency fluctuations and new or increased tariffs, could adversely affect demand for our products. In addition, the Russia/Ukraine conflict has resulted in, among other things, economic sanctions imposed by the international community which have impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Although we have no operations in Russia or Ukraine, certain of our customers and suppliers have been negatively impacted by these events, which in turn has impacted markets where we do business, including Europe and Asia. The economic sanctions imposed on Russia have further increased existing global supply chain, logistics, and inflationary challenges.

Update on the Impact of COVID-19

COVID-19 has continued to evolve since it was declared a global pandemic by the World Health Organization in March 2020. We continue to evaluate the nature and extent of the ongoing impacts of COVID-19 on our business, operations, and financial results. Beginning late in the fourth quarter of fiscal 2022 and continuing into fiscal 2023, various regions in China, including regions where we and our customers have operations, were subjected to lockdowns imposed by governmental authorities to mitigate the spread of COVID-19 in those areas. The resulting industry-wide production interruptions adversely impacted our results of operations in fiscal 2023.

Global Supply Chain Disruptions

Certain direct and indirect adverse impacts of the COVID-19 pandemic have continued to date and are expected to continue in fiscal 2024, including the worldwide semiconductor supply shortage and global supply chain disruptions. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. 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 to have a continued impact on our operating results and financial condition in fiscal 2024.

Acquisition of Nordic Lights

As noted in Part I, Item 1 of this Annual Report, we acquired 92.2% of the outstanding shares of Nordic Lights on April 20, 2023. The results of operations of Nordic Lights are reported within the Industrial segment from the date of acquisition and were immaterial for fiscal 2023. See Note 3, “Acquisition” to our consolidated financial statements in this Annual Report for further information.

Restructuring Actions

In fiscal 2023, we incurred restructuring costs of $1.0 million primarily related to asset impairment charges and severance. In fiscal 2022, we initiated a restructuring plan to consolidate one of our operations within the Industrial segment in response to logistics issues and tariffs. This action resulted in a facility shutdown and consolidation of activities into an existing location and the recognition of $3.6 million of restructuring costs. We may take additional restructuring actions in future periods based upon market conditions and industry trends.

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Outlook

Our current expectations for fiscal 2024 are for net sales to be relatively flat compared to fiscal 2023 and lower net income. Fiscal 2024 sales estimates reflect the full-year inclusion of Nordic Lights and the roll-off of significant programs in the Automotive segment. We expect fiscal 2024 net income to be impacted by additional costs to support new program launches, market headwinds in the higher-margin Industrial segment, higher interest expense and less government assistance.

Consolidated Results of Operations

A detailed comparison of our results of operations between fiscal 2022 and fiscal 2021 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2022 Annual Report on Form 10-K filed with the SEC on June 23, 2022.

The table below compares our results of operations between fiscal 2023 and fiscal 2022:

Fiscal Year Ended

Selling and administrative expenses 154.9 134.1

Amortization of intangibles 18.8 19.1

Interest expense, net 2.7 3.5

Other income, net (2.4 ) (10.3 )

Net sales

Net sales increased $16.0 million, or 1.4%, to $1,179.6 million in fiscal 2023, compared to $1,163.6 million in fiscal 2022. The increase was primarily due to higher sales in the Industrial segment, partially offset by lower sales in the Automotive segment. Net sales were unfavorably impacted by foreign currency translation of $57.3 million, primarily due to the strengthening of the U.S. dollar relative to the euro and Chinese renminbi. Net sales included customer cost recoveries from spot buys of materials and premium freight costs of $20.9 million in fiscal 2023, compared to $22.1 million in in fiscal 2022. Excluding the impact of foreign currency translation and customer cost recoveries, net sales increased $74.5 million, or 6.5%.

Cost of products sold

Cost of products sold increased $16.8 million, or 1.9%, to $915.5 million (77.6% of net sales) in fiscal 2023, compared to $898.7 million (77.2% of net sales) in fiscal 2022. Excluding foreign currency translation, cost of products sold increased $59.4 million. The increase was primarily due to higher material costs, as a result of an increase in sales volumes and material cost inflation, and higher salary and operating expenses, partially offset by lower restructuring costs. Restructuring costs included within cost of products sold were $0.4 million in fiscal 2023, compared to $1.3 million in fiscal 2022.

Gross profit margin

Gross profit margin was 22.4% of net sales in fiscal 2023, compared to 22.8% of net sales in fiscal 2022. The decrease was due to inflationary pressures on material and other manufacturing costs, partially offset by higher sales volumes.

Selling and administrative expenses

Selling and administrative expenses increased $20.8 million, or 15.5%, to $154.9 million (13.1% of net sales) in fiscal 2023, compared to $134.1 million (11.5% of net sales) in fiscal 2022. Excluding foreign currency translation, selling and administrative expenses increased $24.6 million. The increase was primarily due to $6.8 million of acquisition costs related to Nordic Lights, higher compensation expense, professional fees and travel expense, partially offset by lower restructuring costs. Restructuring costs included within selling and administrative expenses were $0.5 million in fiscal 2023, compared to $2.3 million in fiscal 2022.

Amortization of intangibles

Amortization of intangibles decreased $0.3 million, or 1.6%, to $18.8 million in fiscal 2023, compared to $19.1 million in fiscal 2022.

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Interest expense, net

Interest expense, net was $2.7 million in fiscal 2023, compared to $3.5 million in fiscal 2022. The decrease was due to higher interest income of $3.2 million, partially offset by higher interest expense of $2.4 million. Interest income and interest expense increased due to higher interest rates.

Other income, net

Other income, net decreased $7.9 million to $2.4 million in fiscal 2023, compared to $10.3 million in fiscal 2022. Net foreign exchange losses were $7.1 million in fiscal 2023, compared to $1.9 million in fiscal 2022. Net foreign exchange losses were higher in fiscal 2023 due to lower efficiency in our foreign currency balance sheet remeasurement hedging program. In addition, net foreign exchange loss in fiscal 2023 included the recognition of $2.1 million of foreign exchange loss reclassified from accumulated other comprehensive income as the result of a reorganization of a foreign owned subsidiary.

In fiscal 2023, we received $9.7 million of government grants at certain of our international locations, compared to $11.1 million in fiscal 2022. Fiscal 2023 government grants include $6.3 million related to the COVID-19 pandemic and $3.4 million related to maintaining certain employment levels. Fiscal 2022 government grants primarily related to COVID-19 assistance.

Income tax expense

Income tax expense decreased $3.3 million, or 20.2%, to $13.0 million in fiscal 2023, compared to $16.3 million in fiscal 2022. Our effective tax rate increased to 14.4% in fiscal 2023, compared to 13.8% in fiscal 2022. In fiscal 2023, the effective income tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates and a tax benefit of $7.3 million associated with the reorganization of a foreign owned subsidiary, partially offset by a reduction in foreign investment tax credits of $5.0 million and non-deductible acquisition costs of $1.4 million. In fiscal 2022, the effective income tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates, the release of a valuation allowance of approximately $2.0 million due to a tax law change, and less U.S. tax on foreign income of $1.7 million attributable to lower earnings in non-U.S. jurisdictions, partially offset with non-deductible compensation of $2.1 million.

Net income

Net income decreased $25.1 million, or 24.6%, to $77.1 million in fiscal 2023, compared to $102.2 million in fiscal 2022. The impact of foreign currency translation decreased net income in fiscal 2023 by $10.3 million. Excluding foreign currency translation, net income decreased $14.8 million as a result of the reasons described above.

Operating Segments

Automotive

Fiscal Year Ended

Net sales

Europe, the Middle East & Africa ("EMEA") 231.2 216.5

As a percent of net sales 17.1 % 19.2 %

Income from operations $ 67.0 $ 92.6

As a percent of net sales 9.1 % 11.8 %

Customer cost recoveries:

North America $ 9.7 $ 10.1

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Net sales

Automotive segment net sales decreased $45.3 million, or 5.8%, to $736.2 million in fiscal 2023, compared to $781.5 million in fiscal 2022. Net sales were unfavorably impacted by foreign currency translation of $35.4 million and the roll-off of a major program in North America. Excluding foreign currency translation and customer cost recoveries, net sales decreased $10.7 million, or 1.4%.

Net sales in North America decreased $51.9 million, or 12.9%, to $349.0 million in fiscal 2023, compared to $400.9 million in fiscal 2022. Excluding customer cost recoveries, net sales decreased $51.5 million primarily due to lower sales volumes from a major program roll-off. Net sales in EMEA increased $14.7 million, or 6.8%, to $231.2 million in fiscal 2023, compared to $216.5 million in fiscal 2022. The weaker euro, relative to the U.S. dollar, decreased net sales in EMEA by $23.3 million. Excluding foreign currency translation and customer cost recoveries, net sales in EMEA increased $36.9 million primarily due to higher sales volumes of user interface and switch products. Net sales in Asia decreased $8.1 million, or 4.9%, to $156.0 million in fiscal 2023, compared to $164.1 million in fiscal 2022. The weaker Chinese renminbi, relative to the U.S. dollar, decreased net sales in Asia by $12.1 million. Excluding foreign currency translation and customer cost recoveries, net sales in Asia increased $3.9 million primarily due to higher electric vehicle product sales volumes, partially offset by lower overhead console sales volumes.

Gross profit

Automotive segment gross profit decreased $23.8 million, or 15.9%, to $126.2 million in fiscal 2023, compared to $150.0 million in fiscal 2022. Excluding the impact of foreign currency translation, gross profit decreased $16.4 million. Gross profit margins decreased to 17.1% in fiscal 2023, from 19.2% in fiscal 2022. The decrease in gross profit margins was due to lower sales volumes and inflationary pressures on material and other manufacturing costs.

Income from operations

Automotive segment income from operations decreased $25.6 million, or 27.6%, to $67.0 million in fiscal 2023, compared to $92.6 million in fiscal 2022. Excluding the impact of foreign currency translation, income from operations decreased $21.2 million. The decrease was primarily due to lower gross profit and higher selling and administrative expenses. Selling and administrative expenses increased due to higher compensation expense, professional fees and travel expense.

Industrial

Fiscal Year Ended

As a percent of net sales 33.2 % 31.9 %

Income from operations $ 93.1 $ 67.1

As a percent of net sales 24.2 % 21.1 %

Customer cost recoveries $ 4.7 $ 7.6

Net sales

Industrial segment net sales increased $66.8 million, or 21.0%, to $384.9 million in fiscal 2023, compared to $318.1 million in fiscal 2022. Net sales were unfavorably impacted by foreign currency translation of $21.9 million. Excluding the impact of foreign currency translation and customer cost recoveries, net sales increased $91.6 million, or 29.5%, primarily due to higher sales volumes of power distribution solutions for data centers and of commercial vehicle lighting solutions products.

Gross profit

Industrial segment gross profit increased $26.3 million, or 25.9%, to $127.8 million in fiscal 2023, compared to $101.5 million in fiscal 2022. Excluding the impact of foreign currency translation, gross profit increased $33.6 million. Gross profit margin increased to 33.2% in fiscal 2023, from 31.9% in fiscal 2022. The increase in gross profit margins was due to higher sales volumes and lower restructuring costs. Gross profit in fiscal 2022 included restructuring costs of $1.2 million, compared to $0.1 million in fiscal 2023.

Income from operations

Industrial segment income from operations increased $26.0 million, or 38.7%, to $93.1 million in fiscal 2023, compared to $67.1 million in fiscal 2022. Excluding the impact of foreign currency translation, income from operations increased $32.1 million. The increase was primarily due to higher gross profit, partially offset by an increase in selling and administrative expenses. Selling and administrative expenses in fiscal 2022 included restructuring costs of $2.2 million, compared to $0.4 million in fiscal 2023.

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Interface

Fiscal Year Ended

As a percent of net sales 16.9 % 21.1 %

Income from operations $ 5.5 $ 9.9

As a percent of net sales 10.0 % 16.6 %

Customer cost recoveries $ 2.2 $ 1.3

Net sales

Interface segment net sales decreased $4.9 million, or 8.2%, to $54.9 million in fiscal 2023, compared to $59.8 million in fiscal 2022. Excluding customer cost recoveries, net sales decreased $5.8 million, or 9.9%. The decrease was primarily due to lower sales volumes of appliance products which were negatively impacted by consumer demand, partially offset by higher sales volumes of digital data products.

Gross profit

Interface segment gross profit decreased $3.3 million, or 26.2%, to $9.3 million in fiscal 2023, compared to $12.6 million in fiscal 2022. Gross profit margin decreased to 16.9% in fiscal 2023, from 21.1% in fiscal 2022. The decrease in gross profit margins was primarily due to lower sales volumes of appliance products.

Income from operations

Interface segment income from operations decreased $4.4 million, or 44.4%, to $5.5 million in fiscal 2023, compared to $9.9 million in fiscal 2022. The decrease was due to lower gross profit and higher selling and administrative expenses, primarily compensation expense and professional fees.

Medical

Fiscal Year Ended

Net sales $ 3.6 $ 4.2

Gross profit $ (0.5 ) $ (0.4 )

Loss from operations $ (6.1 ) $ (5.5 )

Net sales

Medical segment net sales decreased $0.6 million, or 14.3%, to $3.6 million in fiscal 2023, compared to $4.2 million in fiscal 2022. The decrease was due to lower product demand.

Gross profit

Medical segment gross profit was a loss of $0.5 million in fiscal 2023, compared to a loss of $0.4 million in fiscal 2022. Gross profit decreased due to lower net sales.

Loss from operations

Medical segment loss from operations increased $0.6 million, or 10.9%, to $6.1 million in fiscal 2023, compared to $5.5 million in fiscal 2022. The increase in the loss was due to higher selling and administrative expenses, primarily higher marketing expenses.

Financial Condition, Liquidity and Capital Resources

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 stock repurchases. Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement. We believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months. However, if economic conditions remain impacted for longer than we expect due to inflationary pressure, supply chain disruptions, the COVID-19 pandemic, or other geopolitical risks, including the Russia-Ukraine war, our liquidity position could be severely impacted.

At April 29, 2023, we had $157.0 million of cash and cash equivalents, of which $146.3 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.

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Share Buyback Program

On March 31, 2021, the Board of Directors authorized the purchase of up to $100.0 million of our common stock. On June 16, 2022, the Board of Directors authorized an increase in the existing share buyback program of an additional $100.0 million, and extended the expiration of the program to June 14, 2024. 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 April 29, 2023, a total of 2,790,375 shares had been purchased at a total cost of $119.3 million since the commencement of the share buyback program. As of April 29, 2023, the dollar value of shares that remained available to be purchased under this share buyback program was approximately $80.7 million.

Credit Agreement

On October 31, 2022, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders and other parties named therein. The Credit Agreement amends and restates the Amended and Restated Credit Agreement, dated September 12, 2018 and as previously amended (the “Prior Credit Agreement”), with Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, and the Lenders named therein. Among other things, the Credit Agreement (i) increased the multicurrency revolving credit commitments under the Prior Credit Agreement to $750,000,000, (ii) refinanced in full and terminated the term loan facility under the Prior Credit Agreement, and (iii) made certain other changes to the covenants, terms, and conditions under the Prior Credit Agreement. In addition, the Credit Agreement permits us to increase the revolving commitments and/or add one or more tranches of term loans under the Credit Agreement from time to time by up to an amount equal to (i) $250,000,000 plus (ii) an additional amount so long as the leverage ratio would not exceed 3.00:1.00 on a pro forma basis, subject to, among other things, the receipt of additional commitments from existing and/or new lenders. The Credit Agreement matures on October 31, 2027.

As of April 29, 2023, $305.4 million was outstanding under the revolving credit facility. We were in compliance with all covenants under the Credit Agreement as of April 29, 2023. For further information, see Note 10, “Debt” to the consolidated financial statements included in this Annual Report.

Cash Flows

Fiscal Year Ended

Operating activities:

Changes in operating assets and liabilities (3.5 ) (69.8 )

Net cash provided by operating activities 132.8 98.8

Net cash used in investing activities (153.1 ) (37.4 )

Net cash provided by (used in) financing activities 3.2 (114.6 )

Decrease in cash and cash equivalents (15.0 ) (61.2 )

Cash and cash equivalents at beginning of the period 172.0 233.2

Cash and cash equivalents at end of the period $ 157.0 $ 172.0

Operating activities

Net cash provided by operating activities increased $34.0 million to $132.8 million in fiscal 2023, compared to $98.8 million in fiscal 2022. The increase was due to lower cash outflows related to changes in operating assets and liabilities, partially offset by lower net income adjusted for non-cash items. The $3.5 million of cash outflows for operating assets and liabilities in fiscal 2023 was primarily due to higher accounts receivable, prepaid expenses and other assets, partially offset by lower inventory, and higher accounts payable and other liabilities.

Investing activities

Net cash used in investing activities was $153.1 million in fiscal 2023, compared to $37.4 million in fiscal 2022. In fiscal 2023, we paid $114.6 million of cash, net of cash acquired, for the acquisition of Nordic Lights. Capital expenditures in fiscal 2023 were $42.0 million, compared to $38.0 million in fiscal 2022. We received $3.5 million of cash from the sale of property, plant and equipment in fiscal 2023.

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Financing activities

Net cash provided by financing activities was $3.2 million in fiscal 2023, compared to net cash used in financing activities of $114.6 million in fiscal 2022. In fiscal 2023, we paid $48.1 million of cash for the repurchase of our shares under our share buyback program, compared to $64.5 million in fiscal 2022. We paid cash dividends of $19.8 million in fiscal 2023, compared to $20.4 million in fiscal 2022. In fiscal 2023, we had net borrowings of $73.7 million primarily to fund the acquisition of Nordic Lights. In fiscal 2022, we had net repayments on our borrowings of $29.2 million. In connection with our Credit Agreement, we paid debt issuance costs of $3.2 million.

Contractual Obligations

The following table summarizes our significant known contractual cash obligations and commercial commitments as of April 29, 2023:

Payments Due By Period

(in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years

Finance leases $ 0.6 $ 0.2 $ 0.3 $ 0.1 $ —

(1) Assumes the outstanding borrowings under the revolving credit facility will be repaid upon maturity of the credit agreement in October 2027.

(2) Based on interest rates in effect as of April 29, 2023 (including the impact of interest rate swaps).

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined under SEC rules.

Legal Matters

For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. We became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, weterminated all of our agreements with the Fuchs companies. On June 20, 2014, we filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, we amended our complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties.

A trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in favor of the Company. The verdict included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 22, 2020, the Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic’s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the Court held defendants in contempt for violating the permanent injunction and entered the final judgment. Defendants appealed entry of the final monetary judgment as well. 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 instructed the District Court to modify the injunction from the entire world to all of the countries in which Hetronic sells its products. On April 20 and 21, 2022, the District Court held a hearing related to modifying the injunction pursuant to the Tenth Circuit’s opinion, and the parties have filed post-hearing briefs. The defendants also filed a petition for certiorari with the United States Supreme Court seeking to further appeal the extraterritorial application of the Lanham Act in this case. We opposed that petition. The Supreme Court requested the views of the Solicitor General on the petition for certiorari, and the Solicitor General recommended granting the petition. On November 4, 2022, the Supreme Court granted the petition. The Supreme Court heard arguments in this matter on March 21, 2023. At the conclusion of the hearing, the Supreme Court took the matter under advisement. Like any judgment, particularly a judgment involving defendants outside of the United States, there is no guarantee that we will be able to collect all or any portion of the judgment.

We incurred legal fees of $3.9 million, $3.3 million and $5.7 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, related to the lawsuits. These amounts are included in the selling and administrative expenses and as part of the Industrial segment.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that can affect amounts reported in the consolidated financial statements and notes. In preparing our consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. To the extent that there are differences between these estimates and actual results, our consolidated financial statements may be materially affected. Below are the estimates that we believe are critical to the understanding of our results of operations and financial condition. Other accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” to the consolidated financial statements included in this Annual Report.

Revenue recognition. Most of our revenue is recognized at a point in time. We have 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 we transfer products to a customer location but retain ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.

Revenue associated with products which we believe have no alternative use, and where we have an enforceable right to payment, are recognized on an over time basis. Revenue is recognized based on progress to date, which is typically even over the production process through transfer of control to the customer.

In addition, from time to time, customers may negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.

Goodwill. Goodwill is not amortized but is tested for impairment on at least an annual basis. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit to its carrying amount including goodwill. An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit. In performing the goodwill impairment test, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount.

Qualitative factors include, but are not limited to, the results of prior year fair value calculations, the movement of our share price and market capitalization, the reporting unit and overall financial performance, and macroeconomic and industry conditions. We consider the qualitative factors and weight of the evidence obtained to determine if it is more likely than not that a reporting unit’s fair value is less than the carrying amount. If, after assessing the qualitative factors, we were to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is performed. We may also elect to proceed directly to the quantitative assessment without considering such qualitative factors.

For the quantitative assessment, we utilize either, or a combination of, the income approach and market approach to estimate the fair value of the reporting unit. The income approach uses a discounted cash flow method and the market approach uses appropriate valuation multiples observed for the reporting unit’s guideline public companies. The determination of discounted cash flows are based on management’s estimates of revenue growth rates and earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins, taking into consideration business and market conditions for the countries and markets in which the reporting unit operates. We calculate the discount rate based on a market-participant, risk-adjusted weighted average cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size, geography and other factors specific to the reporting unit. Long-range forecasting involves uncertainty which increases with each successive period. Revenue growth rates and profitability assumptions, especially in the outer years, involve a greater degree of uncertainty.

Impairment of long-lived assets. We evaluate whether events and circumstances have occurred which indicate that the remaining estimated useful lives of our intangible assets, excluding goodwill, and other long-lived assets, may warrant revision or that the remaining balance of such assets may not be recoverable. If impairment indicators exist, we perform an impairment analysis by comparing the undiscounted cash flows resulting from the use of the asset group to the carrying amount. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized based on the excess of the asset’s carrying amount over its fair value.

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Income taxes. Our income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax provision and in evaluating income tax uncertainties.

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We report tax-related interest and penalties as a component of income tax expense.

Our deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. We adjust these amounts to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be recorded to income tax expense in the period such determination was made.

We provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings thatwe consider to be permanently reinvested. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. We have no plans to dispose of any of our foreign subsidiaries and are not recording deferred taxes on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.

Business combinations. We account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses are expensed as incurred.

Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. The valuation of assets acquired, and liabilities assumed requires a number of judgments and is subject to revision as additional information about the fair values becomes available. We recognize any adjustments to provisional amounts that are identified during the period not to exceed twelve months from the acquisition date in which the adjustments are determined. The results of operations of businesses acquired are included in the consolidated financial statements from their dates of acquisition.

Contingencies. We are subject to various investigations, claims and legal and administrative proceedings covering a wide range of matters that arise in the ordinary course of business activities. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. For those matters that we can estimate a range of loss, we have established reserves at levels within that range to provide for the most likely scenario based upon available information. The valuation of reserves for contingencies is reviewed on a quarterly basis to ensure that we are properly reserved. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While we believe that the current level of reserves is adequate, changes in the future could impact these determinations.

New Accounting Pronouncements

For more information regarding new applicable accounting pronouncements, see Note 1, “Description of Business and Summary of Significant Accounting Policies” to the consolidated financial statements included in this Annual Report.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks from foreign currency exchange, interest rates, and commodity prices, which could affect our operating results, financial position and cash flows. We manage a portion of these risks through use of derivative financial instruments in accordance with our policies. We do not enter into derivative financial instruments for speculative or trading purposes.

Foreign currency risk

We are exposed to foreign currency risk on sales, costs and assets and liabilities denominated in currencies other than the U.S. dollar. We seek to manage our foreign exchange risk largely through operational means, including matching revenue with same-currency costs and assets with same-currency liabilities. We currently transact business in eight primary currencies worldwide, of which the most significant are the U.S. dollar, the euro, the Chinese renminbi and the Mexican peso.

A portion of our balance sheet is exposed to foreign currency exchange rate fluctuations, which may result in non-operating foreign currency exchange gains or losses upon remeasurement. We use foreign currency forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. The forward contracts have a maturity of less than three months and are not designated as hedging instruments. As of April 29, 2023, the notional value of these outstanding contracts was $59.9 million. These hedges are intended to reduce, but may not entirely eliminate, foreign currency exchange risk. The impact of a change in the foreign currency exchange rates on our foreign currency forward contracts will generally be offset against the gain or loss from the re-measurement of the underlying balance sheet exposure.

The translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates as of the end of the reporting period. Translation adjustments are not included in determining net income but are included in accumulated other comprehensive income (loss) within shareholders’ equity on the consolidated balance sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. As of April 29, 2023, the cumulative net currency translation adjustments decreased shareholders’ equity by $19.8 million. As described in Note 8, "Derivative Financial Instruments and Hedging Activities" to our consolidated financial statements included in this Annual Report, in order to manage certain translational exposure to the euro, we have designated euro-denominated borrowings of $145.4 million as a net investment hedge in our euro-denominated subsidiaries. We have also entered into a euro-denominated cross-currency swap which is designated as a net investment hedge in our euro-denominated subsidiaries. The effective portion of the gains or losses designated as net investment hedges are recognized within the cumulative translation adjustment component in the consolidated statements of comprehensive income to offset changes in the value of the net investment in these foreign currency-denominated operations.

Interest rate risk

We are exposed to interest rate risk on borrowings under our Credit Agreement which are based on variable rates. As of April 29, 2023, we had $305.4 million of borrowings under our Credit Agreement. We manage our interest rate exposures through the use of interest rate swaps to effectively convert a portion of our variable-rate debt to a fixed rate. The notional amount of our interest rate swaps was $100.0 million as of April 29, 2023. Based on borrowings outstanding under our Credit Agreement at April 29, 2023, net of the interest rate swaps, we estimate that a 1% increase in interest rates would result in increased annual interest expense of $3.1 million.

Commodity price risk

We are exposed to commodity price risk primarily on our raw material purchases. These raw materials are not rare or unique to our industry. The cost of copper, resins, and other commodities, such as fuel and energy, has fluctuated in recent years due to changes in global supply and demand. Our gross margins could be affected if these types of costs continue to fluctuate. We actively manage these raw material costs through global sourcing initiatives and price increases on our products where possible. However, in the short-term, further increases in raw material costs can be very difficult to fully offset with price increases because of contractual agreements with our customers, which would unfavorably impact our gross margins.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data are filed within this Annual Report under Item 15, “Exhibits, Financial Statement Schedules.”

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of April 29, 2023. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and procedures designed to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s applicable rules and forms. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of April 29, 2023 due to a material weakness in internal control over financial reporting, as described below.

Notwithstanding the ineffectiveness of our disclosure controls and procedures as well as the material weakness in our internal control over financial reporting as of April 29, 2023, we believe there are no material inaccuracies or omissions of material fact in this Form 10-K and, to the best of our knowledge, we believe that the consolidated financial statements in this Form 10-K fairly present in all material aspects our financial condition, results of operations and cash flows in conformity with GAAP.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 29, 2023 based on the guidelines established in Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

Management's assessment of the effectiveness of the Company’s internal control over financial reporting as of April 29, 2023 excludes the internal control over financial reporting for Nordic Lights which is included in our consolidated financial statements for the year ending April 29, 2023, and was acquired on April 20, 2023. Nordic Lights' total assets and net assets (excluding goodwill and intangibles) represented 4.2% and 2.9% of our consolidated total assets and consolidated net assets, respectively, as of April 29, 2023. Companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company under guidelines established by the Securities and Exchange Commission.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified a material weakness in its control environment related to revenue at a business unit in our Automotive segment. Specifically, we did not maintain effective review, approval and validation controls over pricing data entered into the business unit's financial system and non-standard contract terms. This control deficiency did not result in a material misstatement to our consolidated financial statements as of and for the year ended April 29, 2023. However, this control deficiency could have resulted in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.

Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of April 29, 2023. Management reviewed the results of its assessment with the Audit Committee. Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on our internal control over financial reporting. This report is included on page F-4 of this Annual Report.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

We and our Board of Directors treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is committed to the planning and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and to enhance our overall financial control environment. We will not consider the material weakness remediated until the enhanced controls are operational for a sufficient period of time and tested, enabling us to conclude that the enhanced controls are operating effectively.

We are committed to maintaining a strong internal control environment. Our remediation efforts will include, among other items, (1) enhancing the design and operating effectiveness of internal controls over the review, approval and validation of customer pricing data and non-standard contract terms; and (2) developing and deploying additional training programs around the operation and importance of internal controls. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by a management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item regarding our directors and corporate governance matters is incorporated by reference herein to the definitive proxy statement for our 2023 annual meeting under the captions “Proposal One Election of Directors” and “Corporate Governance.” The information required by this item regarding our executive officers appears as a supplementary item following Item 4 under Part I of this Annual Report. The information required by this item regarding compliance with Section 16(a) of the Exchange Act and information regarding our Audit Committee is incorporated by reference herein to the definitive proxy statement for our 2023 annual meeting under the captions “Delinquent Section 16(a) Reports” and “Audit Committee Matters,” respectively.

We have adopted a Code of Business Conduct (the “Code”) that applies to our directors, our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, as well as other employees. The Code is publicly available on our website at www.methode.com. If we make any substantive amendments to the Code or grant any waiver, including any implicit waiver, from a provision of the Code to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations. The information contained on our website is not incorporated by reference into this Annual Report.

Item 11. Executive Compensation

The information required by this item is incorporated by reference herein to the definitive proxy statement for our 2023 annual meeting under the captions “Compensation Discussion and Analysis”, “Compensation Committee Report”, “Executive Compensation Tables”, “CEO Pay Ratio”, and “Director Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference herein to the definitive proxy statement for our 2023 annual meeting under the caption “Security Ownership.”

Equity Compensation Plan Information

The following table provides information about our equity compensation plans as of April 29, 2023. All outstanding awards relate to our common stock. Shares issued under all of the following plans may be from our treasury, newly issued or both.

Equity compensation plans not approved by security holders — — —

(1)

The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock awards and restricted stock units, since recipients are not required to pay an exercise price to receive the shares subject to these awards.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference herein to the definitive proxy statement for our 2023 annual meeting under the caption “Corporate Governance.”

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference herein to the definitive proxy statement for our 2023 annual meeting under the caption “Audit Committee Matters.”

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PART IV

Item 15. Exhibit and Financial Statement Schedules

(a)

(1) Consolidated Financial Statements.

Reference is made to the Index to Consolidated Financial Statements on Page F-1.

(2) Consolidated Financial Statement Schedule.

Reference is made to the Index to Financial Statement Schedule on Page F-1.

(3) Exhibits.

EXHIBIT INDEX

ExhibitNumber Description

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21 Subsidiaries of Methode Electronics, Inc.

23 Consent of Ernst & Young LLP.

31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL Document)

* Management Compensatory Plan

** Indicates that the exhibit is being furnished with this report and not filed as part of it.

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

METHODE ELECTRONICS, INC.

(Registrant)

By: /s/ RONALD L.G. TSOUMAS

Ronald L.G. Tsoumas

Chief Financial Officer

(Principal Financial Officer)

Dated: June 27, 2023

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Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ WALTER J. ASPATORE Chairman of the Board June 27, 2023

Walter J. Aspatore

/s/ LAWRENCE B. SKATOFF Vice Chairman of the Board June 27, 2023

Lawrence B. Skatoff

/s/ DONALD W. DUDA Chief Executive Officer, President & Director June 27, 2023

Donald W. Duda (Principal Executive Officer)

/s/ RONALD L.G. TSOUMAS Chief Financial Officer June 27, 2023

Ronald L.G. Tsoumas (Principal Financial Officer)

/s/ AMIT N. PATEL Chief Accounting Officer June 27, 2023

Amit N. Patel (Principal Accounting Officer)

/s/ DAVID P. BLOM Director June 27, 2023

David P. Blom

/s/ THERESE M. BOBEK Director June 27, 2023

Therese M. Bobek

/s/ BRIAN J. CADWALLADER Director June 27, 2023

Brian J. Cadwallader

/s/ BRUCE K. CROWTHER Director June 27, 2023

Bruce K. Crowther

/s/ DARREN M. DAWSON Director June 27, 2023

Darren M. Dawson

/s/ JANIE GODDARD Director June 27, 2023

Janie Goddard

/s/ MARY A. LINDSEY Director June 27, 2023

Mary A. Lindsey

/s/ ANGELO V. PANTALEO Director June 27, 2023

Angelo V. Pantaleo

/s/ MARK D. SCHWABERO Director June 27, 2023

Mark D. Schwabero

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

Consolidated Financial Statements: Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-2

Consolidated Balance Sheets — April 29, 2023 and April 30, 2022 F-6

Notes to Consolidated Financial Statements F-11

Consolidated Financial Statement Schedule:

Schedule II — Valuation and Qualifying Accounts F-37

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are immaterial and, therefore, have been omitted.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Methode Electronics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Methode Electronics, Inc. and subsidiaries(the Company) as of April 29, 2023 and April 30, 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended April 29, 2023, and the related notesand financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 29, 2023 and April 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 29, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 27, 2023 expressed an adverse opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation of Reporting Units Goodwill

F-2

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/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1966.

Chicago, Illinois

June 27, 2023

F-3

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Methode Electronics, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Methode Electronics, Inc. and subsidiaries’ internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Methode Electronics, Inc. and Subsidiaries (the Company) has not maintained effective internal control over financial reporting as of April 29, 2023, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls related to revenue at a business unit in the Automotive segment.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Nordic Lights Group Corporation, which is included in the 2023 consolidated financial statements of the Company and constituted 4.2% and 2.9% of total assets and net assets, respectively, excluding goodwill and intangibles, as of April 29, 2023. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Nordic Lights Group Corporation.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated June 27, 2023, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

F-4

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chicago, Illinois

June 27, 2023

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents $ 157.0 $ 172.0

Income tax receivable 12.9 8.3

Prepaid expenses and other current assets 20.5 16.9

Long-term assets:

Property, plant and equipment, net 220.3 197.0

Operating lease right-of-use assets, net 28.4 20.0

Other long-term assets 37.7 38.4

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS' EQUITY

Current liabilities:

Accrued employee liabilities 36.7 30.0

Other accrued liabilities 34.5 24.5

Short-term operating lease liabilities 6.8 6.0

Income tax payable 8.1 6.6

Long-term liabilities:

Long-term operating lease liabilities 21.8 14.8

Long-term income tax payable 16.7 22.1

Other long-term liabilities 14.3 14.0

Deferred tax liabilities 41.8 38.3

Redeemable noncontrolling interest 11.1 —

Shareholders' equity:

Accumulated other comprehensive loss (19.0 ) (26.8 )

See notes to consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data)

Fiscal Year Ended

Interest expense, net 2.7 3.5 5.2

Net income attributable to redeemable noncontrolling interest — — —

Net income attributable to Methode $ 77.1 $ 102.2 $ 122.3

Basic and diluted income per share attributable to Methode:

See notes to consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Fiscal Year Ended

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 10.7 (42.0 ) 37.4

Derivative financial instruments (2.9 ) 9.1 (4.4 )

Other comprehensive income (loss): 7.8 (32.9 ) 33.0

Comprehensive income attributable to redeemable noncontrolling interest — — —

Total comprehensive income attributable to Methode $ 84.9 $ 69.3 $ 155.3

See notes to consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions, except share data)

Stock-based compensation expense — — — 6.8 — — — 6.8

Exercise of stock options — 24,500 — 0.8 — — — 0.8

Purchases of common stock — (167,949 ) (0.1 ) — — — (7.4 ) (7.5 )

Other comprehensive income — — — — 33.0 — — 33.0

Dividends on common stock — — — — — — (16.9 ) (16.9 )

Stock-based compensation expense — — — 11.0 — — — 11.0

Exercise of stock options — 13,000 — 0.5 — — — 0.5

Other comprehensive loss — — — — (32.9 ) — — (32.9 )

Dividends on common stock — — — — — — (21.0 ) (21.0 )

Stock-based compensation expense — — — 10.5 — — — 10.5

Exercise of stock options — 40,000 — 1.5 — — — 1.5

Acquired redeemable noncontrolling interest 11.3 — — — — — — —

Other comprehensive income — — — — 7.8 — — 7.8

Net income — — — — — — 77.1 77.1

Dividend declared to noncontrolling interest (0.2 ) — — — — — — —

Dividends on common stock — — — — — — (20.3 ) (20.3 )

See notes to consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Fiscal Year Ended

Operating activities:

Stock-based compensation expense 11.5 11.8 6.8

Change in cash surrender value of life insurance 0.3 0.1 (2.0 )

Amortization of debt issuance costs 0.7 0.7 0.7

Loss (gain) on sale of property, plant and equipment 0.6 (0.3 ) 1.3

Impairment of long-lived assets 0.7 3.1 0.6

Change in deferred income taxes (4.6 ) (2.1 ) (9.6 )

Changes in operating assets and liabilities:

Accounts receivable (21.0 ) (2.0 ) (81.9 )

Prepaid expenses and other assets (25.4 ) 1.5 17.9

Net cash provided by operating activities 132.8 98.8 179.8

Investing activities:

Purchases of property, plant and equipment (42.0 ) (38.0 ) (24.9 )

Acquisition of business, net of cash acquired (114.6 ) — —

Proceeds from disposition of property, plant and equipment 3.5 0.6 0.1

Net cash used in investing activities (153.1 ) (37.4 ) (24.8 )

Financing activities:

Taxes paid related to net share settlement of equity awards (0.5 ) (0.3 ) (3.9 )

Repayments of finance leases (0.4 ) (0.7 ) (0.5 )

Debt issuance costs (3.2 ) — —

Proceeds from exercise of stock options 1.5 0.5 0.8

Purchases of common stock (48.1 ) (64.5 ) (6.7 )

Proceeds from borrowings 344.7 — 1.5

Net cash provided by (used in) financing activities 3.2 (114.6 ) (142.9 )

(Decrease) increase in cash and cash equivalents (15.0 ) (61.2 ) 15.9

Cash and cash equivalents at beginning of the year 172.0 233.2 217.3

Cash and cash equivalents at end of the year $ 157.0 $ 172.0 $ 233.2

Supplemental cash flow information:

Cash paid during the period for:

Income taxes, net of refunds $ 25.6 $ 32.3 $ 16.0

See notes to consolidated financial statements.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.Description of Business and Summary of Significant Accounting Policies

Methode Electronics, Inc. (the “Company” or “Methode”) is a leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. The Company designs, engineers and produces mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing its broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and sensor applications.

The Company’s solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices.

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. Fiscal 2023 ended on April 29, 2023, fiscal 2022 ended on April 30, 2022 and fiscal 2021 ended on May 1, 2021, and each represented 52 weeks of results.

Basis of presentation. The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts and operations of the Company and its wholly and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Impact of global supply chain disruptions, geopolitical conditions and the COVID-19 pandemic. Fiscal 2023 was marked by global economic uncertainty, supply chain interruptions, which have been impacted by inflationary cost pressures, ongoing recovery from the COVID-19 pandemic, and geopolitical instability due to the military conflict between Russia and Ukraine. The Company experienced increased inflationary cost pressures in fiscal 2023 resulting from global supply chain disruptions impacting the availability and price of materials (primarily semiconductors) and logistics costs. Geopolitical instability exacerbated inflationary cost pressures, which the Company expects to continue for the foreseeable future. The Company has not experienced significant direct impacts from the Russia-Ukraine conflict, as it does not have operations nor sales in either Russia or Ukraine.

While much of the Company's customer demand and shipments have recovered from the impact of the COVID-19 pandemic, the Company cannot predict the overall extent of the impact of any resurgence of COVID-19, its variants or any future pandemic on its operating results, cash flows, liquidity, and financial condition, which will depend on certain developments, including the duration and spread of such outbreak and its impact on the Company's customers, employees, suppliers, and other partners.

Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Due to impacts from the worldwide semiconductor shortage, geopolitical conflicts (including the Russian invasion of Ukraine) and the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets. The Company has made estimates and assumptions taking into consideration certain possible impacts due to the COVID-19 pandemic and the Russian invasion of Ukraine. These estimates may change, as new events occur, and additional information is obtained. Actual results may differ from previously estimated amounts, and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.

Cash and cash equivalents. Cash and cash equivalents consist of cash and highly liquid investments with a maturity of three months or less. Highly liquid investments include money market funds which are classified within Level 1 of the fair value hierarchy. As of April 29, 2023 and April 30, 2022, the Company had a balance of $1.3 million and $40.0 million, respectively, in money market accounts.

Accounts receivable and allowance for doubtful accounts. Accounts receivable are customer obligations due under normal trade terms and are presented net of an allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on the current expected credit loss impairment model. The Company applies a historical loss rate based on historic write-offs to aging categories. The historical loss rate is adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. The Company may also record a specific reserve for individual accounts when it becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. The allowance for doubtful accounts balance was $1.3 million and $1.0 million as of April 29, 2023 and April 30, 2022, respectively.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of credit risk. Financial assets that subject the Company to concentration of credit risk consist primarily of cash equivalents, derivative contracts, and accounts receivable. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. However, the balances with U.S. financial institutions often exceed the amount of insurance provided on such accounts by the Federal Deposit Insurance Corporation.

For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers. The Company generally does not require collateral, but rather performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customers’ current credit worthiness. The following customers in the Automotive segment accounted for more than 10% of net sales:

Fiscal Year Ended

Customer B 10.8 % * *

* less than 10%

At April 29, 2023, no customer accounted for greater than 10% of the Company's accounts receivable. At April 30, 2022, Customer A accounted for approximately 15.4% of the Company's accounts receivable.

Inventories. Inventories are stated at the lower-of-cost or net realizable value. Cost is determined using the first-in, first-out method. Finished products and work-in-process inventories include direct material costs and direct and indirect manufacturing costs. The Company records reserves for inventory that may be obsolete or in excess of current and future market demand. See Note 5, “Inventory” for additional information.

Property, plant and equipment. Property, plant and equipment are recorded at cost less accumulated depreciation, with the exception of assets acquired through acquisitions, which are initially recorded at fair value. Equipment acquired under a finance lease is recorded at the present value of the future minimum lease payments. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 40 years for buildings and building improvements and 3 to 15 years for machinery and equipment. Costs of additions and major improvements are capitalized, whereas maintenance and repairs that do not improve or extend the life of the asset are charged to expense as incurred. See Note 6, “Property, Plant and Equipment” for additional information.

Business combinations. The Company accounts for business combinations using the acquisition method. The purchase price of an acquired business is allocated to its identifiable assets and liabilities based on estimated fair values. Determining the fair values of assets acquired and liabilities assumed requires management’s judgment, the utilization of independent appraisal firms and often involves the use of significant estimates and assumptions with respect to the timing and amount of future cash flows, market rate assumptions, actuarial assumptions, and appropriate discount rates, among other items. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. See Note 3, “Acquisition” for additional information.

Goodwill. Goodwill is not amortized but is tested for impairment on at least an annual basis. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount including goodwill. An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit.

In performing the goodwill impairment test, the Company may first assess qualitative factors to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. See Note 7, “Goodwill and Other Intangible Assets” for additional information regarding the Company’s goodwill impairment assessment for fiscal 2023.

Amortizable intangible assets. Amortizable intangible assets consist primarily of fair values assigned to customer relationships and trade names. Amortization is recognized over the useful lives of the intangible assets, generally up to 20 years, using the straight-line method. See Note 7, “Goodwill and Other Intangible Assets” for additional information.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment of long-lived assets. The Company evaluates whether events and circumstances have occurred which indicate that the remaining estimated useful lives of its intangible assets, excluding goodwill, and other long-lived assets, may warrant revision or that the remaining balance of such assets may not be recoverable. If impairment indicators exist, the Company performs an impairment analysis by comparing the undiscounted cash flows resulting from the use of the asset group to the carrying amount. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized based on the excess of the asset’s carrying amount over its fair value.

Pre-production costs related to long-term supply arrangements. The Company incurs pre-production tooling costs related to products produced for its customers under long-term supply arrangements. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable by the customer. As of April 29, 2023 and April 30, 2022, the Company had $36.1 million and $27.2 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling.

Costs for molds, dies and other tools used in products produced for its customers under long-term supply arrangements for which the Company has title are capitalized in property, plant and equipment and amortized over the shorter of the life of the arrangement or over the estimated useful life of the assets. Company owned tooling was $12.2 million and $14.6 million as of April 29, 2023 and April 30, 2022, respectively.

Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company estimates the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company utilizes certain practical expedients, including the election not to reassess its prior conclusions about lease identification, lease classification and initial direct costs, as well as the election not to separate lease and non-lease components for arrangements where the Company is a lessee. The Company elects to recognize a right-of-use asset and related lease liability for leases with a lease term of 12 months or less for all classes of underlying assets. Lease expense is recognized on a straight-line basis over the lease term. See Note 16, “Leases” for additional information.

Derivative financial instruments. The Company uses derivative financial instruments, including swaps and forward contracts, to manage exposures to changes in currency exchange rates and interest rates. The Company does not enter into or hold derivative financial instruments for trading or speculative purposes. See Note 8, “Derivative Financial Instruments and Hedging Activities” for additional information.

Redeemable noncontrolling interest. The Company reports noncontrolling interests in the mezzanine (“temporary equity”) section, between liabilities and equity, of the consolidated balance sheets, to the extent that such noncontrolling interests have redemption features that are not solely within the control of the Company. The carrying amount of the redeemable noncontrolling interest, initially valued at fair value as part of acquisition accounting, is adjusted each reporting period to equal the greater of the (i) redemption value or (ii) carrying value of the noncontrolling interest, adjusted each reporting period for income or loss attributable to the noncontrolling interest and any distributions made to date. Refer to Note 3, “Acquisition” for additional information.

Income taxes. Income taxes are calculated using the asset and liability method, under which deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. See Note 11, “Income Taxes” for additional information.

Revenue recognition. Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.”Revenue ismeasured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. From time to time, customers may negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Across all products, the amount of revenue recognized corresponds to the related purchase order and is adjusted for variable consideration (such as discounts). Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

The Company’s performance obligations are typically short-term in nature. As a result, the Company has elected the practical expedient that provides an exemption from the disclosure requirements regarding information about remaining performance obligations on contracts that have original expected durations of one year or less. See Note 2, “Revenue” for further information.

Shipping and handling fees and costs. Shipping and handling fees billed to customers are included in net sales, and the related costs are included in cost of products sold.

Restructuring expense. Restructuring expense includes costs directly associated with exit or disposal activities. Such costs include employee severance and termination benefits, asset impairment charges, contract termination fees, and other exit or disposal costs. Employee termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable. Asset impairment charges relate to the impairment of ROU lease assets and equipment. Contract termination costs are recorded when notification of termination is given to the other party. See Note 4, “Restructuring” for additional information.

Foreign currency translation. The functional currencies of the majority of the Company’s foreign subsidiaries are their local currencies. The results of operations of these foreign subsidiaries are translated into U.S. dollars using average monthly rates, while the assets and liabilities are translated using period-end exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains and losses arising from transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions, are included in the consolidated statements of income in other income, net.

Government incentives and grants. From time to time, the Company receives government grants in the form of cash grants and other incentives in return for past or future compliance with certain conditions. The Company accounts for funds received from government grants by analogy to International Accounting Standards 20, “Accounting for Government Grants and Disclosure of Government Assistance.”Accordingly, the Company recognizes government grants in the consolidated statement of income when there is reasonable assurance that it will comply with the conditions associated with the grant and the grants will be received.

Government grants are recorded in the consolidated financial statements in accordance with their purpose as a reduction of expenses, a reduction of asset costs, or other income. Incentives related to specific operating activities are offset against the related expense in the period the expense is incurred. The Company recorded $9.7 million of government grants as other income, net in fiscal 2023. The Company recorded $0.6 million of government grants as a reduction of cost of goods sold and selling and administrative expense in fiscal 2023.

Some government grants are paid over a period of years and are recorded at amortized cost on the Company’s consolidated balance sheets. As of April 29, 2023 and April 30, 2022, grant receivables outstanding were $17.8 million and $12.7 million, respectively. The short-term and long-term portion of grant receivables are recorded on the consolidated balance sheets within accounts receivable, net and other long-term assets, respectively.

Research and development costs. Costs associated with the enhancement of existing products and the development of new products are charged to expense when incurred. Research and development expenses primarily relate to product engineering and design and development expenses and are classified as a component of cost of goods sold on the consolidated statements of income. Research and development costs were $35.0 million, $35.7 million and $37.1 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

Stock-based compensation. The Company recognizes compensation expense for the cost of awards of equity compensation using a fair value method in accordance with ASC 718, “Stock-based Compensation.” See Note 13, “Shareholders’ Equity” for additional information.

Product warranty. The Company’s warranties are standard, assurance-type warranties only. The Company does not offer any additional service or extended term warranties to its customers. As such, warranty obligations are accrued when its probable that a liability has been incurred and the related amounts are reasonably estimable.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value measurement. ASC 820, “Fair Value Measurement,” provides a framework for measuring fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy under ASC 820 requires an entity to maximize the use of observable inputs. The Company groups assets and liabilities at fair value in three levels as follows:

•

Level 1 - Quoted prices in active markets for identical assets or liabilities;

•

Level 2 - Observable inputs for similar assets or liabilities adjusted for terms specific to the asset or liability;

•

Level 3 - Unobservable inputs in which little or no market activity exists, requiring the Company to develop its own assumptions that market participants would use to value the asset or liability.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes to the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments.

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832),” which requires annual disclosures when an entity has received government assistance. This guidance is intended to improve the transparency of government assistance received by requiring disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on the registrant’s financial statements. The Company adopted this standard effective April 29, 2023 on a prospective basis. See related policy discussion above.

New Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured at the acquisition date in accordance with ASC 606, as if the acquirer had originated the contracts. Prior to the issuance of this ASU, contract assets and liabilities were recognized at fair value on the acquisition date. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within that fiscal year, with early adoption permitted, and should be applied on a prospective basis. This ASU will be effective for the Company in the first quarter of fiscal 2024. The Company believes the adoption of this ASU will not have a material impact on its consolidated financial statements.

Note 2.Revenue

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

Revenue associated with products which the Company believes have no alternative use (such as highly customized parts), and where the Company has an enforceable right to payment, are recognized on an over time basis. Revenue is recognized based on progress to date, which is typically even over the production process through transfer of control to the customer.

Estimating total contract revenue may require judgment as certain contracts contain pricing discount structures, early payment discounts or other provisions that can impact the transaction price. The Company generally estimates variable consideration utilizing the most likely amount to which it expects to be entitled. When the contract provides the customer with the right to return eligible products, the Company reduces revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns. The Company adjusts these estimates at the earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time. The Company’s payment terms with its customers are typically 30-45 days from the time control transfers. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606 to not assess whether a contract has a significant financing component.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Costs to fulfill/obtain a contract

The Company incurs pre-production tooling costs related to products produced for customers under long-term supply arrangements. These costs are capitalized and recognized into income upon acceptance. The Company concluded that pre-production tooling and engineering costs do not represent a promised good or service under ASC 606, and as such, reimbursements received are accounted for as a reimbursement of the expense, not revenue.

The Company has not historically incurred material costs to obtain a contract. In the instances that costs to obtain contracts are incurred, the Company will capitalize and amortize those over the life of the contract.

Contract balances

The Company receives payment from customers based on the contractual billing schedule and specific performance requirements established in the contract. Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. 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 the Company has received consideration, or the amount is due from the customer in advance of revenue recognition. Contract assets and contract liabilities are recognized in other current assets and other liabilities, respectively, in the Company's consolidated balance sheets.

Unbilled receivables (contract assets) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized over time. Unbilled receivables were $0.5 million and $0.4 million as of April 29, 2023 and April 30, 2022, respectively. During fiscal 2023, $0.4 million of previously unbilled receivables were recorded into accounts receivable. There were no impairments of contract assets as of April 29, 2023 or April 30, 2022.

Deferred revenue (contract liabilities) - For certain of the price reductions offered by the Company, the amount of the reduction cannot be attributed entirely to production efficiencies gained. In these cases, the annual price-downs are considered to be material rights as the customer, as part of their current contract, are purchasing an option that they would not have received without the contract to purchase future product. When a contract contains a material right, a portion of the transaction price is allocated to the material right for which revenue recognition is deferred until the customer exercises its option. Deferred revenue was $0.1 million and $0.2 million as of April 29, 2023 and April 30, 2022, respectively. Previously deferred revenue of $0.1 million was recorded into revenue during fiscal 2023.

Disaggregated revenue information

The following table represents a disaggregation of revenue from contracts with customers by segment and geographical location. Net sales are attributed to regions based on the location of production. Though revenue recognition patterns and contracts are generally consistent, the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic and economic factors.

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Year Ended April 29, 2023

(in millions) Automotive Industrial Interface Medical Total

Geographic net sales:

Europe, the Middle East & Africa ("EMEA") 231.2 139.9 — — 371.1

Timing of revenue recognition:

Goods transferred over time 18.8 — — — 18.8

Fiscal Year Ended April 30, 2022

(in millions) Automotive Industrial Interface Medical Total

Geographic net sales:

Timing of revenue recognition:

Goods transferred over time 23.1 — — — 23.1

Fiscal Year Ended May 1, 2021

(in millions) Automotive Industrial Interface Medical Total

Geographic net sales:

Timing of revenue recognition:

Goods transferred over time 33.6 — — — 33.6

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METHODE ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Acquisition

On April 20, 2023, the Company acquired 92.2% of the outstanding shares in Nordic Lights Group Corporation (“Nordic Lights”), a premium provider of high-quality lighting solutions for heavy duty equipment headquartered in Finland, for €121.8 million ($134.2 million) in cash. The acquisition of Nordic Lights complements the Company’s existing LED lighting solution offerings.

The acquisition was funded through a combination of borrowings under the Company's revolving credit facility and cash on hand. The results of the operations of Nordic Lights are reported within the Industrial segment from the date of acquisition. The acquisition was accounted for as a business combination. The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase price, were as follows:

(in millions)

Cash and cash equivalents $ 19.6

Accounts receivable 17.1

Inventories 9.6

Property, plant and equipment 12.9

Identifiable intangible assets 68.1

Accounts payable (10.8 )

Long-term debt (24.4 )

Other assets and liabilities, net (2.8 )

Deferred tax liabilities (13.4 )

Total identifiable net assets acquired 75.9

Total fair value of net assets acquired 145.5

Less: redeemable noncontrolling interest (11.3 )

Total purchase price $ 134.2

The noncontrolling interest was recognized at fair value, which was determined to be the noncontrolling interest’s proportionate share of the fair value of net assets acquired, as of the acquisition date. The noncontrolling interest is classified as a redeemable noncontrolling interest on the consolidated balance sheets as minority shareholders owning less than 10% of the outstanding shares in a company in Finland have the right to require the Company to redeem their shares.

As of April 29, 2023, the Company considered these amounts to be provisional because it is still in the process of gathering and reviewing information to support the valuations of the assets acquired, liabilities assumed and related tax positions. Goodwill arising from the acquisition was included in the Industrial segment as of April 29, 2023 and was attributable to potential synergies and an assembled workforce. The Company does not expect any recognized goodwill from this acquisition to be deductible for income tax purposes.

Intangible assets primarily include customer relationships, technology licenses and trademarks. The weighted average amortization period for the acquired intangible assets is approximately 16.4 years. On April 24, 2023, the Company paid off the long-term debt acquired from Nordic Lights utilizing borrowings under the Company's revolving credit facility and cash on hand.

The results of operations for Nordic Lights from the acquisition date through April 29, 2023 were not material. The pro-forma effects of this acquisition would not materially impact the Company’s operating results for any period presented, and as a result no pro-forma financial statements were presented. Acquisition costs of $6.8 million were incurred in relation to the acquisition of Nordic Lights and were reported in selling and administrative expenses.

From May 1, 2023 to June 16, 2023, the Company acquired an additional 7.2% of the outstanding shares of Nordic Lights for €9.3 million ($10.2 million) increasing the Company’s ownership to 99.4%. The Company has commenced redemption proceedings in order to obtain ownership of all the issued and outstanding shares in Nordic Lights. The Company expects the redemption proceedings to be completed by October 31, 2023.

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