PLEXUS CORP (PLXS)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Plexus Corp. and its subsidiaries (together "Plexus," the "Company," or "we") help create the products that build a better world. Driven by a passion for excellence, we partner with our customers to design, manufacture and service highly complex products in demanding regulatory environments. Our innovative solutions across the lifecycle of a product converge where advanced technology and human impact intersect. We provide these solutions to market-leading as well as disruptive global companies in the Aerospace/Defense, Healthcare/Life Sciences, and Industrial market sectors supported by a global team of over 20,000 members across our 26 facilities in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East and Africa ("EMEA") regions.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide an analysis of both short-term results and future prospects from management’s perspective, including an assessment of the financial condition and results of operations, events and uncertainties that are not indicative of future operations and any other financial or statistical data that we believe will enhance the understanding of our company’s financial condition, cash flows and other changes in financial condition and results of operations. The information should be read in conjunction with our consolidated financial statements included herein and "Risk Factors" included in Part I, Item 1A herein.

A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 is incorporated herein by reference from Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on the Form 10-K for the fiscal year ended September 30, 2023, which was filed with the SEC on November 17, 2023, and is available on the SEC’s website at www.sec.gov as well as our Investor Relations website at www.plexus.com.

Market Pressures Update

We have experienced market-driven inventory corrections and incrementally weaker demand from our customers in our Healthcare/Lifesciences and Industrial market sectors. While we are starting to see improvements, if market softness continues for extended periods, this would impact our operating results in future periods.

We believe our balance sheet is positioned to support the potential future challenges presented by the macroeconomic pressures we are facing. As of September 28, 2024, cash and cash equivalents and restricted cash were $347 million, while debt, finance lease and other financing obligations were $247 million. Borrowings under our credit facility as of September 28, 2024 were $50 million, leaving $450 million of our revolving commitment of $500 million available for use as of September 28, 2024 as well as the ability to expand our revolving commitment to $750 million upon mutual agreement with our banks. Interest expense could increase above current levels due to increased borrowing under our credit facility associated with working capital investments along with the impact of rising interest rates. Refer to Note 4, "Debt, Finance Lease and Other Financing Obligations," in Notes to Consolidated Financial Statements and "Management’s Discussion and Analysis of Liquidity and Capital Resources" in Part II, Item 7 for further information.

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RESULTS OF OPERATIONS

Consolidated Performance Summary. The following table presents selected consolidated financial data for the indicated fiscal years (dollars in millions, except per share data):

Net sales. Fiscal 2024 net sales decreased $249.5 million, or 5.9%, as compared to fiscal 2023.

Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our global business development strategy is based on our targeted market sectors.

As a percentage of consolidated net sales, net sales attributable to customers representing 10.0% or more of consolidated net sales as well as the percentage of net sales attributable to our ten largest customers for the indicated fiscal years were as follows:

A discussion of net sales by reportable segment is presented below for the indicated fiscal years (in millions):

AMER. Net sales for fiscal 2024 in the AMER segment decreased $234.8 million, or 15.1%, as compared to fiscal 2023. The decrease in net sales was driven by overall net decreased customer end-market demand, inclusive of market-driven inventory corrections at our customers, as well as reductions in inflated component pricing. The decrease was further driven by a decrease of $38.7 million due to disengagements with customers and $35.9 million due to the discontinuation of programs with existing customers. The decrease was partially offset by an increase of $68.8 million due to production ramps of new products for existing customers and $41.4 million due to production ramps for new customers.

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APAC. Net sales for fiscal 2024 in the APAC segment decreased $145.3 million, or 6.2%, as compared to fiscal 2023. The decrease in net sales was driven by overall net decreased customer end-market demand, inclusive of market-driven inventory corrections at our customers, as well as reductions in inflated component pricing. The decrease was further driven by a decrease of $32.5 million for end-of-life products and $8.5 million due to a disengagement with a customer. The decrease was partially offset by an increase of $20.0 million due to production ramps of new products for existing customers.

EMEA. Net sales for fiscal 2024 in the EMEA segment increased $138.6 million, or 34.4%, as compared to fiscal 2023. The increase in net sales was driven by an increase of $89.3 million due to production ramps for new customers, $22.6 million due to production ramps of new products for existing customers and overall net increased customer end-market demand. The increase was partially offset by a decrease of $10.4 million due to the discontinuation of a program with an existing customer and reductions in inflated component pricing.

Our net sales by market sector for the indicated fiscal years were as follows (in millions):

Aerospace/Defense. Net sales for fiscal 2024 in the Aerospace/Defense sector increased $119.5 million, or 20.6%, as compared to fiscal 2023. The increase was driven by overall net increased customer end-market demand, an increase of $32.9 million in production ramps for new customers and $19.7 million in production ramps of new products for existing customers. The increase was partially offset by a decrease of $20.7 million due to disengagements with customers.

Healthcare/Life Sciences. Net sales for fiscal 2024 in the Healthcare/Life Sciences sector decreased $320.0 million, or 17.1%, as compared to fiscal 2023. The decrease in net sales was driven by overall net decreased customer end-market demand, inclusive of market-driven inventory corrections at our customers, as well as a reduction in inflated component pricing. The decrease was further driven by a decrease of $31.9 million for end-of-life products. The decrease was partially offset by an increase of $87.4 million in production ramps of new products for existing customers and $14.3 million in production ramps for new customers.

Industrial. Net sales for fiscal 2024 in the Industrial sector decreased $49.0 million, or 2.8%, as compared to fiscal 2023. The decrease in net sales was driven by overall net decreased customer end-market demand as well as a reductions in inflated component pricing. The decrease was further driven by a decrease of $45.9 million due to the discontinuation of programs with existing customers and $24.1 million due to disengagements with customers. The decrease was partially offset by an increase of $83.3 million in production ramps for a new customer.

Cost of sales. Cost of sales for fiscal 2024 decreased $233.5 million, or 6.1%, as compared to fiscal 2023. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. In both fiscal 2024 and 2023, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 87% of these costs in both fiscal 2024 and 2023 were related to material and component costs.

As compared to fiscal 2023, the decrease in cost of sales in fiscal 2024 was primarily driven by the decrease in net sales and a positive shift in customer mix, partially offset by an increase in fixed costs.

Gross profit. Gross profit for fiscal 2024 decreased $16.1 million, or 4.1%, as compared to fiscal 2023. Gross margin of 9.6% increased 20 basis points compared to fiscal 2023. The primary drivers of the decrease in gross profit as compared to fiscal 2023 were a decrease in net sales and an increase in fixed costs to support new customer program ramps, partially offset by a positive shift in customer mix, which drove the increase in gross margin.

Operating income. Operating income for fiscal 2024 decreased $28.1 million, or 14.4%, as compared to fiscal 2023. Operating margin of 4.2% decreased 50 basis points compared to fiscal 2023. The primary drivers of the decrease in operating income and operating margin as compared to fiscal 2023 was the result of the decrease in gross profit and an increase of $14.9 million in S&A, partially offset by a decrease of $2.8 million in restructuring and other charges. The increase in S&A was primarily due to an increase of $9.0 million in stock-based compensation expense primarily due to $5.1 million of accelerated stock-based compensation expense related to executive retirement agreements. The increase in S&A was further driven by a net increase in compensation costs and an increase in information technology and professional service expenses. The restructuring and other charges for fiscal 2024 consisted of employee severance costs associated with a reduction in the Company's workforce as well

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as closure costs associated with sites in the Company's AMER and EMEA regions, offset by insurance proceeds received in an arbitration decision regarding a contractual matter that took place in the Company's EMEA region in fiscal 2023. The restructuring and other charges for fiscal 2023 consisted of severance from the reduction of the Company's workforce, a lease agreement termination and an arbitration decision regarding a contractual matter that occurred in the Company's EMEA region.

A discussion of operating income by reportable segment for the indicated fiscal years is presented below (in millions):

AMER. Operating income decreased $40.1 million in fiscal 2024 as compared to fiscal 2023, primarily as a result of a decrease in net sales and an increase in S&A, partially offset by a positive shift in customer mix and a decrease in fixed costs.

APAC. Operating income decreased $0.3 million in fiscal 2024 as compared to fiscal 2023, primarily as a result of a decrease in net sales, partially offset by a positive shift in customer mix.

EMEA. Operating income increased $11.8 million in fiscal 2024 as compared to fiscal 2023 primarily as a result of an increase in net sales and a positive shift in customer mix, partially offset by increased fixed costs and an increase in S&A.

Other expense. Other expense for fiscal 2024 increased $3.4 million as compared to fiscal 2023. The increase in other expense for fiscal 2024 was primarily driven by a decrease in other miscellaneous income of $4.9 million as prior year insurance recoveries did not recur and an increase in foreign exchange losses of $1.6 million, partially offset by a decrease in interest expense of $2.7 million due to lower borrowings on our credit facility.

Income taxes. Income tax expense for fiscal 2024 was $17.7 million compared to $21.9 million for fiscal 2023. The decrease is primarily due to a decrease in pre-tax book income and the geographic distribution of worldwide earnings.

Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

We have been granted a tax holiday for a foreign subsidiary operating in the APAC segment. This tax holiday will expire on December 31, 2034, and is subject to certain conditions. In fiscal 2024 and 2023, the holiday resulted in tax reductions, net of the impact of the GILTI provisions of the U.S. Tax Cuts and Jobs Act, of approximately $37.3 million ($1.36 per basic share, $1.34 per diluted share) and $25.9 million ($0.94 per basic share, $0.92 per diluted share), respectively.

See also Note 6, "Income Taxes," in Notes to Consolidated Financial Statements for additional information regarding our tax rate.

The annual effective tax rate for fiscal 2025 is expected to be approximately 14.0% to 16.0%.

Net income. Net income for fiscal 2024 decreased $27.3 million, or 19.6%, from fiscal 2023 to $111.8 million. Net income decreased primarily as a result of the decrease in operating income and the increase in other expense, partially offset by the decrease in tax expense as previously discussed.

Diluted earnings per share. Diluted earnings per share decreased to $4.01 in fiscal 2024 from $4.95 in fiscal 2023, primarily as a result of decreased net income due to the factors discussed above, partially offset by a reduction in diluted shares outstanding.

Return on Invested Capital ("ROIC") and economic return. We use a financial model that is aligned with our business strategy and includes an ROIC goal of 15% which would exceed our weighted average cost of capital ("WACC") by more than 500 basis points and represent positive economic return. Economic return is the amount our ROIC exceeds our WACC.

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Non-GAAP financial measures, including ROIC and economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and economic return because we believe they offer insight into the metrics that are driving management decisions. We view ROIC and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital investments. We also use ROIC as a performance criteria in determining certain elements of compensation as well as economic return performance.

We define ROIC as tax-effected operating income before restructuring and other charges divided by average invested capital over a rolling five-quarter period for the fiscal year. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

We review our internal calculation of WACC annually. Our WACC was 8.2% for fiscal 2024 and 9.0% for fiscal 2023. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. Fiscal 2024 ROIC of 11.8% reflects an economic return of 3.6%, based on our weighted average cost of capital of 8.2%, and fiscal 2023 ROIC of 13.4% reflects an economic return of 4.4%, based on our weighted average cost of capital of 9.0%.

For a reconciliation of ROIC, economic return and adjusted operating income (tax-effected) to our financial statements that were prepared using U.S. GAAP, see Exhibit 99.1 to this annual report on Form 10-K, which exhibit is incorporated herein by reference.

Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal years (dollars in millions):

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LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and restricted cash were $347.5 million as of September 28, 2024, as compared to $256.7 million as of September 30, 2023.

As of September 28, 2024, 88% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs and potential share repurchases, if any, for the next twelve months and for the foreseeable future.

Our future cash flows from operating activities will be reduced by $31.4 million due to cash payments for U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining two years (in millions):

Cash Flows. The following table provides a summary of cash flows for fiscal 2024 and 2023 (in millions):

Operating Activities. Cash flows provided by operating activities were $436.5 million for fiscal 2024, as compared to $165.8 million for fiscal 2023. The increase was primarily due to cash flow improvements (reductions) of:

•$(27.3) million decrease in net income.

•$213.7 million in inventory cash flows driven by a larger decrease in inventory in fiscal 2024 as compared to fiscal 2023 due to inventory reduction efforts.

•$139.9 million in accounts payables cash flows primarily driven by the timing of materials procurement and payments to suppliers.

•$24.8 million in contract assets cash flows driven by lower demand from over time customers.

•$(34.1) million in advanced payments from customers cash flows driven by a larger decrease in advanced payments in fiscal 2024 as compared to fiscal 2023.

•$(36.5) million in accounts receivable cash flows driven by timing of shipments and mix of customer payment terms.

•$(23.6) million in other current and non-current asset cash flows primarily driven by an increase in tax prepayments related to timing of payments and an increase in prepayments to suppliers in fiscal 2024 as compared to a decrease in fiscal 2023.

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The following table provides a summary of cash cycle days for the periods indicated (in days):

We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable and advanced payments as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in advanced payments.

As of September 28, 2024, annualized cash cycle days decreased twenty-three days compared to September 30, 2023 due to the following:

Days in accounts receivable for the three months ended September 28, 2024 decreased five days compared to the three months ended September 30, 2023. The decrease is primarily attributable to the timing of customer shipments and payments as well as the mix of customer payment terms.

Days in contract assets for the three months ended September 28, 2024 decreased three days compared to the three months ended September 30, 2023. The decrease is primarily attributable to a decrease in demand from customers with arrangements requiring revenue to be recognized over time as products are produced.

Days in inventory for the three months ended September 28, 2024 decreased twenty-seven days compared to the three months ended September 30, 2023. The decrease is primarily due to inventory reduction efforts.

Days in accounts payable for the three months ended September 28, 2024 decreased five days compared to the three months ended September 30, 2023. The decrease is primarily attributable to timing of materials procurement and payments to suppliers.

Days in advanced payments for the three months ended September 28, 2024 decreased seven days compared to the three months ended September 30, 2023. The decrease was primarily attributable to a return of advanced payments to customers in line with lower inventory balances.

Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow provided by operations less capital expenditures. FCF was $341.3 million for fiscal 2024 compared to $61.8 million for fiscal 2023, an increase of $279.5 million. The improvement in FCF was primarily due to inventory reduction efforts as well as lower working capital investments in inventory to support our customers.

Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.

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A reconciliation of FCF to our financial statements that were prepared using GAAP as follows (in millions):

Investing Activities. Cash flows used in investing activities were $94.9 million for fiscal 2024 compared to $93.3 million for fiscal 2023. The increase in cash used in investing activities was due to $10.8 million from insurance proceeds in fiscal 2023, partially offset by an $8.9 million decrease in capital expenditures.

We utilized available cash and financing cash flows as the sources for funding our operating requirements during fiscal 2024. We currently estimate capital expenditures for fiscal 2025 will be approximately $120.0 million to $150.0 million to support new program ramps and replace older equipment. This estimate also includes $60.0 million related to the footprint expansion on the mainland of Penang, Malaysia.

Financing Activities. Cash flows used in financing activities were $255.6 million for fiscal 2024 compared to $92.7 million for fiscal 2023. The increase was primarily attributable to net repayments on the credit facility in fiscal 2024 of $183.0 million compared to net repayments on the credit facility in 2023 of $30.0 million as well as an increase of $14.7 million in cash used to repurchase our common stock.

On August 18, 2022, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $50.0 million of our common stock (the "2023 Program"). During fiscal 2024 and 2023, we completed the 2023 Program by repurchasing 59,277 and 425,746 shares under this program for $5.7 million and $40.9 million at an average price of $95.59 and $95.96 per share, respectively.

On January 16, 2024, the Company announced a share repurchase program authorized by the Board of Directors under which we were authorized to repurchase up to $50.0 million of our common stock (the "2024 Program"). The 2024 Program commenced upon completion of the 2023 Program. During fiscal 2024, we completed the 2024 Program by repurchasing 477,012 shares under this program for $50.0 million at an average price of $104.82 per share.

On August 14, 2024, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $50.0 million of our common stock (the "2025 Program"). The 2025 Program commenced upon completion of the 2024 Program, and has no expiration. During fiscal 2024, we purchased 151 shares under this program for less than $0.1 million at an average price of $131.78 per share. As of September 28, 2024, $49.9 million of authority remained under the 2025 Program.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

On June 15, 2018, we entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which we issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which we are required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of September 28, 2024, we were in compliance with the covenants under the 2018 NPA.

On June 9, 2022, we refinanced our then-existing senior unsecured revolving credit facility (as amended by that certain Amendment No. 1 to Credit Agreement dated April 29, 2020, the "Prior Credit Facility") by entering into a new 5-year revolving credit facility (collectively with the Prior Credit Facility, referred to as the "Credit Facility"), which expanded the maximum commitment from $350.0 million to $500.0 million and extended the maturity from May 15, 2024 to June 9, 2027. The maximum commitment under the Credit Facility may be further increased to $750.0 million, generally by mutual agreement of the lenders and us, subject to certain customary conditions. During fiscal 2024, the highest daily borrowing was $376.0 million; the average daily balance was $257.8 million. We borrowed $550.5 million and repaid $733.5 million of revolving borrowings ("revolving commitment") under the Credit Facility during fiscal 2024. As of September 28, 2024, we were in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. We are required to pay a commitment fee on the daily unused credit facility based on our leverage ratio; the fee was 0.100% as of September 28, 2024.

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The Credit Facility and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the past. However, we evaluate from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.

We have Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA") and other unaffiliated financial institutions, under which we may elect to sell receivables, at a discount. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of September 28, 2024 is $340.0 million. The maximum facility amount under the HSBC RPA as of September 28, 2024 is $70.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.

We sold $854.7 million and $834.5 million of trade accounts receivable under these programs during fiscal 2024 and 2023, respectively, in exchange for cash proceeds of $844.6 million and $824.6 million, respectively. As of September 28, 2024 and September 30, 2023, $220.2 million and $220.5 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding and had not yet been collected.

In all cases, the sale discount was recorded within "Miscellaneous, net" in the Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note 14, "Trade Accounts Receivable Sale Programs," in Notes to Consolidated Financial Statements.

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execution upon our share repurchase authorizations as management deems appropriate, for the next twelve months. We believe our balance sheet is positioned to support the potential future challenges presented by macroeconomic factors including increased working capital requirements associated with longer lead-times for components, increased component and labor costs, and operating inefficiencies due to supply chain constraints. As of the end of fiscal 2024, cash and cash equivalents and restricted cash were $347 million, while debt, finance lease and other financing obligations were $247 million. If our future financing needs increase, then we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms or at all.

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CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS

Our disclosures regarding contractual obligations and commercial commitments are located in various parts of our regulatory filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of September 28, 2024 (dollars in millions):

1)Debt obligations includes $150.0 million in principal amount of 2018 Notes and $50.0 million of borrowings on the revolving commitment of the Credit Facility, as well as interest.

2)Purchase obligations consist primarily of purchases of inventory and equipment in the ordinary course of business.

3)Repatriation tax on undistributed foreign earnings consists of U.S. federal income taxes on the deemed repatriation of undistributed foreign earnings due to U.S. Tax Reform. Refer to "Liquidity and Capital Resources" above for further detail.

4)Other obligations on the balance sheet included deferred compensation obligations to certain of our former and current executive officers, as well as other key employees, other financing obligations arising from information technology maintenance agreements and asset retirement obligations related to our buildings. We have excluded from the above table the impact of approximately $19.6 million, as of September 28, 2024, related to unrecognized income tax benefits. We cannot make reliable estimates of the future cash flows by period related to these obligations.

5)Other obligations not on the balance sheet consist of guarantees and a commitment for salary continuation and certain benefits in the event employment of one executive officer is terminated without cause. Excluded from the amounts disclosed are certain bonus and incentive compensation amounts, which would be paid on a prorated basis in the year of termination.

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DISCLOSURE ABOUT CRITICAL ACCOUNTING ESTIMATES

Our accounting policies are disclosed in Note 1 "Description of Business and Significant Accounting Policies" of Notes to Consolidated Financial Statements. During fiscal 2024 there were no material changes to these policies. Our critical accounting estimates are described below:

Revenue Recognition: Revenue is recognized over time for arrangements with customers for which: (i) our performance does not create an asset with an alternative use to us, and (ii) we have an enforceable right to payment, including reasonable profit margin, for performance completed to date. If either of the two conditions noted above are not met to recognize revenue over time, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.

For contracts requiring over time revenue recognition, we calculate the revenue to recognize using the costs incurred to date plus a reasonable profit margin. We use historical information to estimate the profit margin associated with the performance obligation that is satisfied over time. We reevaluate our estimate of profit margins on a quarterly basis. While experience has shown that trends in profit margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations for certain performance obligations. As actual experience becomes available, we use the data to update the historical averages and compare the results to estimates. Based on review of profits margins we update our estimate to the model as necessary.

See Note 15 "Revenue from Contracts with Customers" of Notes to Consolidated Financial Statements for further information on our revenue recognition policies.

Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, we take into account such factors as:

•Prior earnings history. A pattern of recent financial reporting losses in a jurisdiction is heavily weighted as a source of negative evidence. We also consider the strength and trend of earnings, as well as other relevant factors. In certain circumstances, historical earnings may not be as relevant due to changes in our business operations;

•Expected future earnings. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary differences are an additional source of positive evidence;

•Tax planning strategies. If necessary and available, tax planning strategies would be implemented to accelerate taxable amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence.

See Note 6 "Income Taxes" of Notes to Consolidated Financial Statements for further information on our income tax policies.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1, "Description of Business and Significant Accounting Policies," in Notes to Consolidated Financial Statements regarding recent accounting pronouncements.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Plexus Corp. and its subsidiaries (together "Plexus," the "Company", "our", or "we") participate in the Electronic Manufacturing Services ("EMS") industry. Since 1979, we have been partnering with companies to create the products that build a better world. We are a global leader with a team of nearly 25,000 individuals who are dedicated to providing Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing and Sustaining Services. We specialize in serving customers in industries with highly complex products and demanding regulatory environments. We deliver customer service excellence to leading global companies in the Healthcare/Life Sciences, Industrial and Aerospace/Defense market sectors by providing innovative, comprehensive solutions throughout the product's lifecycle. We provide these innovative solutions to customers in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East and Africa ("EMEA") regions.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide an analysis of both short-term results and future prospects from management’s perspective, including an assessment of the financial condition and results of operations, events and uncertainties that are not indicative of future operations and any other financial or statistical data that we believe will enhance the understanding of our company’s financial condition, cash flows and other changes in financial condition and results of operations. The information should be read in conjunction with our consolidated financial statements included herein and "Risk Factors" included in Part I, Item 1A herein.

A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is incorporated herein by reference from Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on the Form 10-K for the fiscal year ended October 1, 2022, which was filed with the SEC on November 18, 2022, and is available on the SEC’s website at www.sec.gov as well as our Investor Relations website at www.plexus.com.

Market Pressures Update

We have experienced an inability to procure certain components on a timely basis due to global supply chain constraints. These constraints have impacted our ability to meet customer demand and may inhibit our ability to capture the demand from our customers. The extended lead-times have required us to make additional investments in inventory to satisfy customer demand.

Over the past year, the global supply chain constraints have led to inflation in some of the components we acquire, as well as labor and operating costs. We have also been, and expect to continue to be, subject to such inflationary and general labor cost increases. While we have been largely able to mitigate the impacts of inflation through our contractual rights with customers on pricing, the pricing recoveries received may be dilutive to our operating margin. The inability to offset these costs in future periods or the impacts of continued inflation on end markets and our customers may affect our operating results, cash flows and inventory levels, which could increase as a result of higher component prices or the negative effects of inflation on customer end-market demand.

The Department of Commerce’s export controls restricting the People’s Republic of China’s access to advanced semiconductors, supercomputers, and semiconductor manufacturing equipment has created demand volatility for some of our customers as they adjust their forecasts as a result of these restrictions, which can create operating inefficiencies that may place additional burden on our working capital levels and operating results.

A global minimum tax has been, or is anticipated to be, implemented in many of the countries in which we operate. We anticipate this will materially and unfavorably impact our existing tax holidays and effective tax rate beginning in our fiscal 2025. We will continue to monitor these developments as each jurisdiction incorporates such changes into tax laws.

In fiscal 2023, we paid a one-time, non-recurring payment of $15.8 million related to an arbitration decision in Norway regarding a contractual matter concluded upon in May 2023. Refer to Note 16, "Restructuring and Other Charges," for information regarding total charges. We no longer provide services for this customer and do not expect further charges relating to this matter, but are pursuing insurance recoveries. We do not believe that any other such proceedings, individually or in the aggregate, will have a material positive or adverse effect on the Company's consolidated financial position, results of operations or cash flows. However, legal proceedings and regulatory and governmental matters are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial fines, civil or criminal penalties, and other expenditures.

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We believe our balance sheet is positioned to support the potential future challenges presented by the macroeconomic pressures we are facing. As of September 30, 2023, cash and cash equivalents and restricted cash were $257 million, while debt, finance lease and other financing obligations were $431 million. Borrowings under our credit facility as of September 30, 2023 were $233 million, leaving $267 million of our revolving commitment of $500 million available for use as of September 30, 2023 as well as the ability to expand our revolving commitment to $750 million upon mutual agreement with our banks. Interest expense could increase above current levels due to increased borrowing under our credit facility associated with working capital investments along with the impact of rising interest rates. Refer to Note 4, "Debt, Finance Lease and Other Financing Obligations," in Notes to Consolidated Financial Statements and "Management’s Discussion and Analysis of Liquidity and Capital Resources" in Part II, Item 7 for further information.

RESULTS OF OPERATIONS

Consolidated Performance Summary. The following table presents selected consolidated financial data for the indicated fiscal years (dollars in millions, except per share data):

Net sales. Fiscal 2023 net sales increased $398.9 million, or 10.5%, as compared to fiscal 2022.

Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our global business development strategy is based on our targeted market sectors.

As a percentage of consolidated net sales, net sales attributable to customers representing 10% or more of consolidated net sales as well as the percentage of net sales attributable to our ten largest customers for the indicated fiscal years were as follows:

During fiscal 2023, GE completed the separation of its healthcare business, GEHC, as a stand-alone company.

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A discussion of net sales by reportable segment is presented below for the indicated fiscal years (in millions):

AMER. Net sales for fiscal 2023 in the AMER segment increased $247.5 million, or 18.9%, as compared to fiscal 2022. The increase in net sales was driven by a $219.1 million increase in production ramps of new products for existing customers and overall net increased customer end-market demand, inclusive of a partial easing of supply chain constraints. The increase was also driven by higher pricing associated with inflated component prices and a $24.1 million increase in production ramps for new customers. The increase was partially offset by an $17.9 million decrease due to the discontinuation of a program with an existing customer and an $11.1 million decrease for end-of-life products.

APAC. Net sales for fiscal 2023 in the APAC segment increased $57.8 million, or 2.5%, as compared to fiscal 2022. The increase in net sales was driven by a partial easing of supply chain constraints, a $40.0 million increase in production ramps of new products for existing customers and a $19.8 million increase in production ramps for new customers. The increase was partially offset by overall net decreased customer end-market demand, primarily as a result of the Department of Commerce's export control restrictions on the People's Republic of China, as well as reductions in inflated component pricing and a $5.2 million decrease due to the discontinuation of a program with an existing customer.

EMEA. Net sales for fiscal 2023 in the EMEA segment increased $86.7 million, or 27.4%, as compared to fiscal 2022. The increase in net sales was driven by overall net increased customer end-market demand, inclusive of a partial easing of supply chain constraints as well as a $15.5 million increase in production ramps for new customers.

Our net sales by market sector for the indicated fiscal years were as follows (in millions):

Healthcare/Life Sciences. Net sales for fiscal 2023 in the Healthcare/Life Sciences sector increased $309.0 million, or 19.7%, as compared to fiscal 2022. The increase in net sales was driven by a $187.4 million increase due to production ramps of new products for existing customers and overall net increased customer end-market demand, inclusive of a partial easing of supply chain constraints. The increase was also driven by higher pricing associated with inflated component prices and a $10.8 million increase in production ramps for new customers. The increase was partially offset by a $5.2 million decrease due to the discontinuation of a program with an existing customer.

Industrial. Net sales for fiscal 2023 in the Industrial sector increased $3.8 million, or 0.2%, as compared to fiscal 2022. The increase in net sales was driven by a $63.4 million increase due to production ramps of new products for existing customers, a $42.4 million increase in production ramps for new customers and a partial easing of supply chain constraints. The increase was partially offset by overall net decreased customer end-market demand, primarily as a result of the Department of Commerce's export control restrictions on the People's Republic of China, as well as reductions in inflated component pricing and a $7.8 million decrease for end-of-life products.

Aerospace/Defense. Net sales for fiscal 2023 in the Aerospace/Defense sector increased $86.1 million, or 17.5%, as compared to fiscal 2022. The increase was driven by overall net increased customer end-market demand and higher pricing associated with inflated component prices. The increase was also driven by a $6.9 million increase due to production ramps of new products for existing customers and a $6.7 million increase in production ramps for a new customer. The increase was partially offset by a $17.9 million decrease due to the discontinuation of a program with an existing customer.

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Cost of sales. Cost of sales for fiscal 2023 increased $351.7 million, or 10.2%, as compared to fiscal 2022. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. In both fiscal 2023 and 2022, approximately 90% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 88% of these costs in both fiscal 2023 and 2022 were related to material and component costs.

As compared to fiscal 2022, the increase in cost of sales in fiscal 2023 was primarily driven by the increase in net sales, an increase in fixed costs, reductions in operational efficiencies and increased labor costs, partially offset by a positive shift in customer mix.

Gross profit. Gross profit for fiscal 2023 increased $47.4 million, or 13.7%, as compared to fiscal 2022. Gross margin of 9.4% increased 30 basis points compared to fiscal 2022. The primary drivers of the increase in gross profit and gross margin as compared to fiscal 2022 were the increase in net sales and positive shift in customer mix, partially offset by an increase in fixed costs, reductions in operational efficiencies and increased labor costs.

Operating income. Operating income for fiscal 2023 increased $17.6 million, or 9.9%, as compared to fiscal 2022. Operating margin of 4.7% remained flat compared to fiscal 2022. The primary driver of the increase in operating income as compared to fiscal 2022 was the result of the increase in gross profit, partially offset by a $21.1 million increase in restructuring and other charges primarily due to an arbitration decision in Norway regarding a contractual matter as well as an increase in severance charges. The increase in operating income was also partially offset by an $8.6 million increase in selling and administrative expenses ("S&A"), primarily due to a net increase in compensation costs.

A discussion of operating income by reportable segment for the indicated fiscal years is presented below (in millions):

AMER. Operating income increased $35.0 million in fiscal 2023 as compared to fiscal 2022, primarily as a result of an increase in net sales and improvements in operational efficiencies, partially offset by increased labor costs, a negative shift in customer mix, increased fixed costs, inflated component costs and an increase in S&A.

APAC. Operating income increased $22.3 million in fiscal 2023 as compared to fiscal 2022, primarily as a result of an increase in net sales, a positive shift in customer mix and a reduction in inflated component costs. This was partially offset by reduced operational efficiencies, increased fixed costs and increased labor costs.

EMEA. Operating income decreased $6.4 million in fiscal 2023 as compared to fiscal 2022 primarily as a result of a negative shift in customer mix, increased fixed costs, increased labor costs and reduced operational efficiencies, partially offset by an increase in net sales.

Other expense. Other expense for fiscal 2023 increased $14.9 million as compared to fiscal 2022. The increase in other expense for fiscal 2023 was primarily driven by an increase in interest expense of $15.7 million due to a higher average interest rate and the higher average daily borrowing levels. The increase was also due to an increase in factoring fees of $5.4 million and foreign exchange losses of $1.1 million, partially offset by increases in other miscellaneous income of $5.4 million and interest income of $1.8 million.

Income taxes. Income tax expense for fiscal 2023 was $21.9 million compared to $20.1 million for fiscal 2022. The increase is primarily due to the global intangible low tax income ("GILTI") provisions impact of the research and development capitalization requirement and the geographic distribution of worldwide earnings.

Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

We have been granted a tax holiday for a foreign subsidiary operating in the APAC segment. This tax holiday will expire on December 31, 2034, and is subject to certain conditions with which we expect to continue to comply. In fiscal 2023 and 2022,

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the holiday resulted in tax reductions, net of the impact of the GILTI provisions of the U.S. Tax Cuts and Jobs Act, of approximately $25.9 million ($0.94 per basic share, $0.92 per diluted share) and $35.3 million ($1.27 per basic share, $1.24 per diluted share), respectively.

See also Note 6, "Income Taxes," in Notes to Consolidated Financial Statements for additional information regarding our tax rate.

The annual effective tax rate for fiscal 2024 is expected to be approximately 14.0% to 16.0% assuming no changes to tax laws.

Net Income. Net income for fiscal 2023 increased $0.9 million, or 0.7%, from fiscal 2022 to $139.1 million. Net income increased primarily as a result of the increase in operating income, substantially offset by the increase in other expense and tax expense as previously discussed.

Diluted earnings per share. Diluted earnings per share increased to $4.95 in fiscal 2023 from $4.86 in fiscal 2022, primarily as a result of increased net income due to the factors discussed above and a reduction in diluted shares outstanding due to repurchase activity under our share repurchase plans.

Return on Invested Capital ("ROIC") and economic return. We use a financial model that is aligned with our business strategy and includes an ROIC goal of 15% which would exceed our weighted average cost of capital ("WACC") by more than 500 basis points and represent positive economic return. Economic return is the amount our ROIC exceeds our WACC.

Non-GAAP financial measures, including ROIC and economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and economic return because we believe they offer insight into the metrics that are driving management decisions. We view ROIC and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital investments. We also use ROIC as a performance criteria in determining certain elements of compensation as well as economic return performance.

We define ROIC as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling five-quarter period. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

We review our internal calculation of WACC annually. Our WACC was 9.0% for fiscal 2023 and 9.3% for fiscal 2022. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. Fiscal 2023 ROIC of 13.4% reflects an economic return of 4.4%, based on our weighted average cost of capital of 9.0%, and fiscal 2022 ROIC of 13.0% reflects an economic return of 3.7%, based on our weighted average cost of capital of 9.3%.

For a reconciliation of ROIC, economic return and adjusted operating income (tax-effected) to our financial statements that were prepared using U.S. GAAP, see Exhibit 99.1 to this annual report on Form 10-K, which exhibit is incorporated herein by reference.

Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal years (dollars in millions):

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LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and restricted cash were $256.7 million as of September 30, 2023, as compared to $275.5 million as of October 1, 2022.

As of September 30, 2023, 87% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs and potential share repurchases, if any, for the next twelve months and for the foreseeable future.

Our future cash flows from operating activities will be reduced by $42.0 million due to cash payments for U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining three years (in millions):

Cash Flows. The following table provides a summary of cash flows for fiscal 2023 and 2022 (in millions):

Operating Activities. Cash flows provided by operating activities were $165.8 million for fiscal 2023, as compared to cash flows used in operating activities of $26.2 million for fiscal 2022. The increase was primarily due to cash flow improvements (reductions) of:

•$701.6 million in inventory cash flows driven by a decrease in inventory in fiscal 2023 as compared to an increase in fiscal 2022. In fiscal 2022, inventory levels had primarily increased to support the ramp of customer programs. Inventory level increases in the prior fiscal year were also driven by supply chain constraints which led to inflation in some of the components we acquire.

•$311.6 million in accounts receivable cash flows driven by timing of shipments and payments as well as a mix of customer payment terms.

•$20.3 million in contract assets cash flows, driven by increases in advanced payments received from customers who recognize revenue over time.

•$10.4 million in other current and non-current asset cash flows, primarily driven by the timing of receipt of refund for indirect taxes.

•$(501.5) million in advanced payments from customers cash flows driven by a decrease in advanced payments in fiscal 2023 as compared to an increase in fiscal 2022, consistent with inventory cash flows. Advanced payments increases in fiscal 2022 were primarily to cover certain inventory balances.

•$(346.7) million in accounts payables cash flows primarily driven by the timing of materials procurement and payments to suppliers.

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The following table provides a summary of cash cycle days for the periods indicated (in days):

We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable and advanced payments as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in advanced payments.

As of September 30, 2023, annualized cash cycle days increased fourteen days compared to October 1, 2022 due to the following:

Days in accounts receivable for the three months ended September 30, 2023 decreased one day compared to the three months ended October 1, 2022. The decrease is primarily attributable to the timing of customer shipments and payments as well as the mix of customer payment terms.

Days in contract assets for the three months ended September 30, 2023 increased two days compared to the three months ended October 1, 2022. The increase is primarily attributable to increased demand, partially offset by an increase in advanced payments from customers with arrangements requiring revenue to be recognized over time as products are produced.

Days in inventory for the three months ended September 30, 2023 increased ten days compared to the three months ended October 1, 2022. The increase is primarily due to lower sales in the fiscal fourth quarter of 2023 compared to the prior year, partially offset by lower inventory.

Days in accounts payable for the three months ended September 30, 2023 decreased eight days compared to the three months ended October 1, 2022. The decrease is primarily attributable to timing of materials procurement and payments to suppliers.

Days in advanced payments for the three months ended September 30, 2023 increased five days compared to the three months ended October 1, 2022. The increase was primarily attributable to lower sales in the fiscal fourth quarter of 2023 compared to the prior year, partially offset by a decrease in advanced payments received from customers to cover certain inventory balances.

Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow provided by (used in) operations less capital expenditures. FCF was $61.8 million for fiscal 2023 compared to $(127.9) million for fiscal 2022, an increase of $189.7 million. The improvement in FCF was primarily due to lower working capital investments in inventory to support our customers.

Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.

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A reconciliation of FCF to our financial statements that were prepared using GAAP as follows (in millions):

Investing Activities. Cash flows used in investing activities were $93.3 million for fiscal 2023 compared to $101.6 million for fiscal 2022. The decrease in cash used in investing activities was due to $10.8 million from insurance proceeds, partially offset by a $2.4 million increase in capital expenditures.

We utilized available cash and financing cash flows as the sources for funding our operating requirements during fiscal 2023. We currently estimate capital expenditures for fiscal 2024 will be approximately $100.0 million to $120.0 million to support new program ramps and replace older equipment. This estimate does not include any site expansions.

Financing Activities. Cash flows used in financing activities were $92.7 million for fiscal 2023 compared to cash flows provided by financing activities of $139.3 million for fiscal 2022. The decrease was primarily attributable to net repayments on the credit facility in fiscal 2023 of $30.0 million compared to net borrowings on the credit facility in 2022 of $208.0 million as well as a decrease of $9.4 million in cash used to repurchase our common stock.

On August 11, 2021, the Board of Directors approved a share repurchase program under which we were authorized to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program. During fiscal 2022 and 2021, we completed the 2022 Program by repurchasing 564,718 and 34,381 shares under this program for $46.9 million and $3.1 million at an average price of $83.07 and $90.16 per share, respectively.

On August 18, 2022, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $50.0 million of its common stock (the "2023 Program"). The 2023 Program became effective immediately and has no expiration. During fiscal 2023 and 2022, we purchased 425,746 and 38,397 shares under this program for $40.9 million and $3.5 million at an average price of $95.96 and $90.63 per share. As of September 30, 2023, $5.7 million of authority remained under the 2023 Program.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

On June 15, 2018, we entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which we issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which we are required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of September 30, 2023, we were in compliance with the covenants under the 2018 NPA.

On June 9, 2022, we refinanced our then-existing senior unsecured revolving credit facility (as amended by that certain Amendment No. 1 to Credit Agreement dated April 29, 2020, the "Prior Credit Facility") by entering into a new 5-year revolving credit facility (collectively with the Prior Credit Facility, referred to as the "Credit Facility"), which expanded the maximum commitment from $350.0 million to $500.0 million and extended the maturity from May 15, 2024 to June 9, 2027. The maximum commitment under the Credit Facility may be further increased to $750.0 million, generally by mutual agreement of the lenders and us, subject to certain customary conditions. During fiscal 2023, the highest daily borrowing was $412.0 million; the average daily balance was $338.1 million. We borrowed $748.5 million and repaid $778.5 million of revolving borrowings ("revolving commitment") under the Credit Facility during fiscal 2023. As of September 30, 2023, we were in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. We are required to pay a commitment fee on the daily unused credit facility based on our leverage ratio; the fee was 0.125% as of September 30, 2023.

The Credit Facility and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the past. However, we evaluate from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.

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We have Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA") and other unaffiliated financial institutions, under which we may elect to sell receivables, at a discount. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of September 30, 2023 is $340.0 million. The maximum facility amount under the HSBC RPA as of September 30, 2023 is $60.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.

We sold $834.5 million and $787.5 million of trade accounts receivable under these programs during fiscal 2023 and 2022, respectively, in exchange for cash proceeds of $824.6 million and $783.1 million, respectively. As of September 30, 2023 and October 1, 2022, $220.5 million and $222.5 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding and had not yet been collected.

In all cases, the sale discount was recorded within "Miscellaneous, net" in the Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note 14, "Trade Accounts Receivable Sale Programs," in Notes to Consolidated Financial Statements.

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execution upon our share repurchase authorizations as management deems appropriate, for the next twelve months. We believe our balance sheet is positioned to support the potential future challenges presented by macroeconomic factors including increased working capital requirements associated with longer lead-times for components, increased component and labor costs, and operating inefficiencies due to supply chain constraints. As of the end of fiscal 2023, cash and cash equivalents and restricted cash were $257 million, while debt, finance lease and other financing obligations were $431 million. If our future financing needs increase, then we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms or at all.

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CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS

Our disclosures regarding contractual obligations and commercial commitments are located in various parts of our regulatory filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of September 30, 2023 (dollars in millions):

1)Debt obligations includes $150.0 million in principal amount of 2018 Notes and $233.0 million of borrowings on the revolving commitment of the Credit Facility, as well as interest.

2)Purchase obligations consist primarily of purchases of inventory and equipment in the ordinary course of business.

3)Repatriation tax on undistributed foreign earnings consists of U.S. federal income taxes on the deemed repatriation of undistributed foreign earnings due to U.S. Tax Reform. Refer to "Liquidity and Capital Resources" above for further detail.

4)Other obligations on the balance sheet included deferred compensation obligations to certain of our former and current executive officers, as well as other key employees, other financing obligations arising from information technology maintenance agreements and asset retirement obligations related to our buildings. We have excluded from the above table the impact of approximately $14.0 million, as of September 30, 2023, related to unrecognized income tax benefits. We cannot make reliable estimates of the future cash flows by period related to these obligations.

5)Other obligations not on the balance sheet consist of guarantees and a commitment for salary continuation and certain benefits in the event employment of one executive officer is terminated without cause. Excluded from the amounts disclosed are certain bonus and incentive compensation amounts, which would be paid on a prorated basis in the year of termination.

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DISCLOSURE ABOUT CRITICAL ACCOUNTING ESTIMATES

Our accounting policies are disclosed in Note 1 "Description of Business and Significant Accounting Policies" of Notes to Consolidated Financial Statements. During fiscal 2023 there were no material changes to these policies. Our critical accounting estimates are described below:

Revenue Recognition: Revenue is recognized over time for arrangements with customers for which: (i) our performance does not create an asset with an alternative use to us, and (ii) we have an enforceable right to payment, including reasonable profit margin, for performance completed to date. If either of the two conditions noted above are not met to recognize revenue over time, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.

For contracts requiring over time revenue recognition, we calculate the revenue to recognize using the costs incurred to date plus a reasonable profit margin. We use historical information to estimate the profit margin associated with the performance obligation that is satisfied over time. We reevaluate our estimate of profit margins on a quarterly basis. While experience has shown that trends in profit margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations for certain performance obligations. As actual experience becomes available, we use the data to update the historical averages and compare the results to estimates. Based on review of profits margins we update our estimate to the model as necessary.

See Note 15 "Revenue from Contracts with Customers" of Notes to Consolidated Financial Statements for further information on our revenue recognition policies.

Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, we take into account such factors as:

•Prior earnings history. A pattern of recent financial reporting losses in a jurisdiction is heavily weighted as a source of negative evidence. We also consider the strength and trend of earnings, as well as other relevant factors. In certain circumstances, historical earnings may not be as relevant due to changes in our business operations;

•Expected future earnings. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary differences are an additional source of positive evidence;

•Tax planning strategies. If necessary and available, tax planning strategies would be implemented to accelerate taxable amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence.

See Note 6 "Income Taxes" of Notes to Consolidated Financial Statements for further information on our income tax policies.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1, "Description of Business and Significant Accounting Policies," in Notes to Consolidated Financial Statements regarding recent accounting pronouncements.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Plexus Corp. and its subsidiaries (together "Plexus," the "Company", "our", or "we") participate in the Electronic Manufacturing Services ("EMS") industry. Since 1979, we have been partnering with companies to create the products that build a better world. We are a global leader with a team of nearly 25,000 individuals who are dedicated to providing Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing and Sustaining Services. We specialize in serving customers in industries with highly complex products and demanding regulatory environments. We deliver customer service excellence to leading global companies in the Industrial, Healthcare/Life Sciences and Aerospace/Defense market sectors by providing innovative, comprehensive solutions throughout the product's lifecycle. We provide these innovative solutions to customers in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East and Africa ("EMEA") regions.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide an analysis of both short-term results and future prospects from management’s perspective, including an assessment of the financial condition and results of operations, events and uncertainties that are not indicative of future operations and any other financial or statistical data that we believe will enhance the understanding of our company’s financial condition, cash flows and other changes in financial condition and results of operations. The information should be read in conjunction with our consolidated financial statements included herein and "Risk Factors" included in Part I, Item 1A herein.

A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 is incorporated herein by reference from Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on the Form 10-K for the fiscal year ended October 2, 2021, which was filed with the SEC on November 19, 2021, and is available on the SEC’s website at www.sec.gov as well as our Investor Relations website at www.plexus.com.

Market Pressures Update

We have experienced, and expect to continue to experience, an inability to procure certain components on a timely basis due to global supply chain constraints. These constraints have impacted our ability to meet customer demand and may inhibit our ability to capture the demand from our customers. We remain in close contact with our suppliers to understand the impacts on their businesses and operations and continue to take steps to validate their ability to deliver to us on time. However, the extended lead-times have required us to make additional investments in inventory to satisfy customer demand, which we expect to persist.

Over the past few quarters, the global supply chain constraints have led to inflation in some of the components we acquire, as well as labor and operating costs. We expect the increase in costs, including labor-related issues which have become more pronounced, to continue in the near future. We have been, and expect to continue to be, subject to such inflationary and general labor cost increases including in our Malaysia operations where the government has imposed a mandatory increase to the minimum wage that went into effect in our third quarter of fiscal 2022. While we have been largely able to mitigate the impacts of inflation through our contractual rights with customers on pricing, the pricing recoveries received may be dilutive to our operating margin. The inability to offset these costs in future periods or the impacts of continued inflation on end markets and our customers may affect our operating results, cash flows and inventory levels, which could increase as a result of higher component prices or the negative effects of inflation on customer end-market demand.

We continue to monitor the global impacts of COVID-19 and take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts. These efforts will continue as requirements change, new risks are identified and infections impact us. The spread and resurgence of COVID-19 from new variants in jurisdictions where we operate may make our ability to mitigate the impacts of the spread of the virus on our productivity more challenging.

The recent conflict between Russia and Ukraine has negatively impacted the global economy and led to various economic sanctions being imposed by the U.S., United Kingdom, European Union and other countries against Russia. While the impacts of the conflict have not been material on our operating results, as we do not have operations or material customers or suppliers in either country, it is not possible to predict the broader consequences of this conflict. Changing U.S. government export regulations, particularly relating to advanced semiconductors and chip-manufacturing equipment, may limit the ability to ship certain customer product to China, and source the components necessary to manufacture customer product in China.

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We believe our balance sheet is positioned to support the potential future challenges presented by the macro-economic pressures we are facing. As of October 1, 2022, cash and cash equivalents and restricted cash were $275 million, while debt, finance lease obligations and other financing were $462 million. To further ensure our ability to meet the needs of working capital investments to support anticipated revenue growth, we refinanced our revolving credit facility, expanding the maximum commitment from $350 million to $500 million during the third quarter of fiscal 2022. Borrowings under our Credit Facility as of October 1, 2022 were $263 million, leaving $237 million of our revolving commitment of $500 million available for use as of October 1, 2022 as well as the ability to expand our revolving commitment to $750 million upon mutual agreement with the bank. Refer to Note 4, "Debt, Finance Lease Obligations and Other Financing," in Notes to Consolidated Financial Statements and "Management’s Discussion and Analysis Liquidity and Capital Resources" in Part II, Item 7 for further information.

RESULTS OF OPERATIONS

Consolidated Performance Summary. The following table presents selected consolidated financial data for the indicated fiscal years (dollars in millions, except per share data):

Net sales. Fiscal 2022 net sales increased $442.5 million, or 13.1%, as compared to fiscal 2021.

Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our global business development strategy is based on our targeted market sectors.

As a percentage of consolidated net sales, net sales attributable to customers representing 10% or more of consolidated net sales as well as the percentage of net sales attributable to our ten largest customers for the indicated fiscal years were as follows:

A discussion of net sales by reportable segment is presented below for the indicated fiscal years (in millions):

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AMER. Net sales for fiscal 2022 in the AMER segment decreased $6.7 million, or 0.5%, as compared to fiscal 2021. The decrease in net sales was driven by net decreased customer end-market demand, a $49.4 million decrease for end-of-life products, a $41.1 million decrease due to the discontinuation of programs with existing customers and the impact of supply chain constraints that have created limitations with meeting available customer demand. These decreases were substantially offset by a $118.4 million increase in production ramps of new products for existing customers and a $43.8 million increase in production ramps for new customers, as well as increased pricing associated with inflated component prices.

APAC. Net sales for fiscal 2022 in the APAC segment increased $450.0 million, or 24.3%, as compared to fiscal 2021. The increase in net sales was driven by overall net increased customer end-market demand and increased pricing associated with inflated component prices, a $97.8 million increase in production ramps of new products for existing customers, an $8.8 million increase in production ramps for new customers and a partial recovery of supply chain constraints that had previously created limitations with meeting available customer demand. These increases were partially offset by a $33.1 million decrease for end-of-life products and a $6.9 million decrease due to the discontinuation of a program with an existing customer.

EMEA. Net sales for fiscal 2022 in the EMEA segment increased $3.6 million, or 1.2%, as compared to fiscal 2021. The increase in net sales was driven by a $10.0 million increase in production ramps of new products for existing customers, partially offset by overall net decreased customer end-market demand.

Our net sales by market sector for the indicated fiscal years were as follows (in millions):

Industrial. Net sales for fiscal 2022 in the Industrial sector increased $203.7 million, or 13.2%, as compared to fiscal 2021. The increase in net sales was driven by overall net increased customer end-market demand and increased pricing associated with inflated component prices, a $73.8 million increase due to production ramps of new products for existing customers and a $41.1 million increase in production ramps for new customers, partially offset by the impact of supply chain constraints that have created limitations with meeting available customer demand. The increase was further offset by a $41.7 million decrease due to the discontinuation of programs with existing customers and an $18.6 million decrease for end-of-life products.

Healthcare/Life Sciences. Net sales for fiscal 2022 in the Healthcare/Life Sciences sector increased $238.9 million, or 18.0%, as compared to fiscal 2021. The increase in net sales was driven by overall net increased customer end-market demand and increased pricing associated with inflated component prices, a $115.2 million increase due to production ramps of new products for existing customers and a partial recovery of supply chain constraints that had previously created limitations with meeting available customer demand. These increases were partially offset by a $55.1 million decrease for end-of-life products and a $6.9 million decrease due to the discontinuation of a program with an existing customer.

Aerospace/Defense. Net sales for fiscal 2022 in the Aerospace/Defense sector decreased $0.1 million, or less than 0.1%, as compared to fiscal 2021. The decrease was driven by net decreased customer end-market demand and a $9.1 million decrease due to end-of-life products. These decreases were substantially offset by a $37.2 million increase due to production ramps of new products for existing customers and an $8.2 million increase in production ramps for new customers.

Cost of sales. Cost of sales for fiscal 2022 increased $418.5 million, or 13.7%, as compared to fiscal 2021. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. In fiscal 2022 and 2021, approximately 89% to 90% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 88% of these costs in fiscal 2022 and 2021 were related to material and component costs.

As compared to fiscal 2021, the increase in cost of sales in fiscal 2022 was primarily driven by the increase in net sales, inflated component costs, an increase in fixed costs, reduced operational efficiencies and increased labor costs.

Gross profit. Gross profit for fiscal 2022 increased $23.9 million, or 7.4%, as compared to fiscal 2021. Gross margin of 9.1% decreased 50 basis points compared to fiscal 2021. The primary driver of the increase in gross profit as compared to fiscal 2021 was the increase in net sales and reduced employee compensation and supplies costs associated with COVID-19, partially offset by inflated component costs, increased fixed costs, reduced operational efficiencies and increased labor costs. The decrease in gross margin was primarily driven by pass-through effects of recoveries from inflated components and increased labor costs, partially offset by fixed cost leverage.

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Operating income. Operating income for fiscal 2022 increased $1.9 million, or 1.1%, as compared to fiscal 2021. Operating margin of 4.7% decreased 50 basis points compared to fiscal 2021. The primary driver of the increase in operating income as compared to fiscal 2021 was the result of the increase in gross profit along with a $1.2 million decrease in restructuring and impairment charges, partially offset by a $22.0 million increase in selling and administrative expenses ("S&A"). The increase in S&A was primarily due to an increase in compensation costs. The decrease in operating margin was primarily driven by the decrease in gross margin, driven by the factors previously discussed.

A discussion of operating income by reportable segment for the indicated fiscal years is presented below (in millions):

AMER. Operating income decreased $17.6 million in fiscal 2022 as compared to fiscal 2021, primarily as a result of a decrease in net sales, inflated component costs, increased fixed costs, reductions in operational efficiencies and increased labor costs. There was also an increase in bad debt expense compared to recovery of a previously reserved customer receivable in fiscal 2021. This was partially offset by a positive shift in customer mix.

APAC. Operating income increased $28.5 million in fiscal 2022 as compared to fiscal 2021, primarily as a result of an increase in net sales, partially offset by inflated component costs, increased fixed costs, increased labor costs and an increase in S&A.

EMEA. Operating income increased $8.9 million in fiscal 2022 as compared to fiscal 2021 primarily as a result of an increase in net sales, positive shift in customer mix, and a reduction in fixed costs. This was partially offset by an increase in S&A.

Other expense. Other expense for fiscal 2022 increased $4.0 million as compared to fiscal 2021. The increase in other expense for fiscal 2022 was primarily due to the increase in factoring fees of $2.4 million and interest expense of $1.6 million.

Income taxes. Income tax expense for fiscal 2022 was $20.1 million compared to $21.5 million for fiscal 2021. The decrease is primarily due to claiming a U.S. Research & Development tax credit and the geographic distribution of worldwide earnings.

Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

We have been granted a tax holiday for a foreign subsidiary operating in the APAC segment. This tax holiday will expire on December 31, 2034, and is subject to certain conditions with which we expect to continue to comply. In fiscal 2022 and 2021, the holiday resulted in tax reductions, net of the impact of the global intangible low-taxed income provisions of the U.S. Tax Cuts and Jobs Act, of approximately $35.3 million ($1.27 per basic share, $1.24 per diluted share) and $34.4 million ($1.20 per basic share, $1.18 per diluted share), respectively.

See also Note 6, "Income Taxes," in Notes to Consolidated Financial Statements for additional information regarding our tax rate.

The annual effective tax rate for fiscal 2023 is expected to be approximately 14.0% to 16.0% assuming no changes to tax laws.

Net Income. Net income for fiscal 2022 decreased $0.7 million, or 0.5%, from fiscal 2021 to $138.2 million. Net income decreased primarily as a result of the increase in other expense, partially offset by the increase in operating income and decrease in tax expense as previously discussed.

Diluted earnings per share. Diluted earnings per share increased to $4.86 in fiscal 2022 from $4.76 in fiscal 2021, primarily as a result of a reduction in diluted shares outstanding due to repurchase activity under our share repurchase plans, partially offset by decreased net income due to the factors discussed above.

Return on Invested Capital ("ROIC") and economic return. We use a financial model that is aligned with our business strategy and includes an ROIC goal of 15% which would exceed our weighted average cost of capital ("WACC") and represent positive economic return. Economic return is the amount our ROIC exceeds our WACC.

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Non-GAAP financial measures, including ROIC and economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and economic return because we believe they offer insight into the metrics that are driving management decisions. We view ROIC and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital investments. We also use ROIC as a performance criteria in determining certain elements of compensation as well as economic return performance.

We define ROIC as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling five-quarter period. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

We review our internal calculation of WACC annually. Our WACC was 9.3% for fiscal 2022 and 8.1% for fiscal 2021. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. Fiscal 2022 ROIC of 13.0% reflects an economic return of 3.7%, based on our weighted average cost of capital of 9.3%, and fiscal 2021 ROIC of 15.4% reflects an economic return of 7.3%, based on our weighted average cost of capital of 8.1%.

For a reconciliation of ROIC, economic return and adjusted operating income (tax effected) to our financial statements that were prepared using GAAP, see Exhibit 99.1 to this annual report on Form 10-K, which exhibit is incorporated herein by reference.

Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal years (dollars in millions):

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and restricted cash were $275.5 million as of October 1, 2022, as compared to $270.5 million as of October 2, 2021.

As of October 1, 2022, 78% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs and potential share repurchases, if any, for the next twelve months and for the foreseeable future.

Our future cash flows from operating activities will be reduced by $47.7 million due to cash payments for U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining four years (in millions):

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Cash Flows. The following table provides a summary of cash flows for fiscal 2022 and 2021 (in millions):

Operating Activities. Cash flows used in operating activities were $26.2 million for fiscal 2022, as compared to cash flows provided by operating activities of $142.6 million for fiscal 2021. The decrease was primarily due to cash flow (reductions) improvements of:

•$(446.5) million in inventory cash flows primarily attributable to longer lead times for certain components as a result of supply chain constraints, increasing our inventory as we retain components until the entirety of the assembly's materials are received. Supply chain constraints have also led to inflation in some of the components we acquire, increasing inventory. In addition, inventory levels have increased to support the ramp of customer programs.

•$(196.5) million in accounts receivable cash flows driven by increased net sales as well as timing of customer shipments and payments.

•$(22.1) million in contract assets cash flows, driven by increased demand from customers who recognize revenue over time in the current year compared to consistent demand in the prior year.

•$24.8 million in other current and non-current asset cash flows, driven by a greater increase in prepaid expenses and miscellaneous receivables in the prior year.

•$64.3 million in accounts payables cash flows driven by increased purchasing activity to support the ramp of customer programs as well as supply chain constraints leading to inflation in some of the components we acquire.

•$167.8 million in other current and non-current liabilities cash flows driven by an increase in advance payments from customers to cover inflated component prices driven by supply chain constraints.

•$237.7 million in customer deposit cash flows driven by significant deposits received from customers in the current year to cover certain inventory balances associated with longer lead-times and inflation in some of the components we acquire as a result of supply chain constraints.

The following table provides a summary of cash cycle days for the periods indicated (in days):

We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable and cash deposits as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in cash deposits.

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As of October 1, 2022, annualized cash cycle days increased fifteen days compared to October 2, 2021 due to the following:

Days in accounts receivable for the three months ended October 1, 2022 increased four days compared to the three months ended October 2, 2021. The increase is primarily attributable to the timing of customer shipments and payments and mix of customer payment terms, partially offset by an increase in factored receivables.

Days in contract assets for the three months ended October 1, 2022 decreased two days compared to the three months ended October 2, 2021. The decrease is primarily attributable to increased net sales, partially offset by increased demand from customers with arrangements requiring revenue to be recognized over time as products are produced.

Days in inventory for the three months ended October 1, 2022 increased twenty-eight days compared to the three months ended October 2, 2021. The increase is primarily attributable to longer lead times for certain components as a result of supply chain constraints, increasing our inventory level as we retain components until the entirety of the assembly's materials are received. Supply chain constraints have also led to inflation in some of the components we acquire, increasing inventory. In addition, inventory levels have increased to support the ramp of customer programs.

Days in accounts payable for the three months ended October 1, 2022 decreased four days compared to the three months ended October 2, 2021. The decrease is primarily attributable to timing of materials procurement and payments to suppliers, as well as increased net sales.

Days in cash deposits for the three months ended October 1, 2022 increased nineteen days compared to the three months ended October 2, 2021. The increase was primarily attributable to significant deposits received from customers to cover certain increasing inventory balances.

Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow (used in) provided by operations less capital expenditures. FCF was $(127.9) million for fiscal 2022 compared to $85.5 million for fiscal 2021, a decrease of $213.4 million. The decrease in FCF was primarily due to working capital investments, particularly in inventory, to support our customers.

Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.

A reconciliation of FCF to our financial statements that were prepared using GAAP as follows (in millions):

Investing Activities. Cash flows used in investing activities were $101.6 million for fiscal 2022 compared to $57.0 million for fiscal 2021. The increase in cash used in investing activities was due to a $44.5 million increase in capital expenditures, primarily due to our manufacturing footprint expansion in Bangkok, Thailand.

We utilized available cash and financing cash flows as the sources for funding our operating requirements during fiscal 2022. We currently estimate capital expenditures for fiscal 2023 will be approximately $110.0 million to $130.0 million to support new program ramps and replace older equipment. This estimate does not contemplate any site expansions.

Financing Activities. Cash flows provided by financing activities were $139.3 million for fiscal 2022 compared to cash flows used in financing activities of $203.9 million for fiscal 2021. The increase was primarily attributable to an increase of $291.0 million in net borrowings on the credit facility and a decrease of $58.1 million in cash used to repurchase our common stock.

On August 20, 2019, the Board of Directors approved a share repurchase program under which we were authorized to repurchase $50.0 million of our common stock (the "2019 Program"). The 2019 Program commenced upon completion of previous share repurchase programs. During fiscal 2021, we repurchased 73,560 shares under this program for $5.3 million at an average price of $72.44 per share.

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On August 13, 2020, the Board of Directors approved a share repurchase program under which we were authorized to repurchase up to $50.0 million of our common stock (the "2021 Program"). On November 18, 2020, the Board of Directors approved an additional $50.0 million in share repurchase authority under the existing 2021 Program such that there then existed a total of $100.0 million in share repurchase authority under the program. The 2021 program commenced upon completion of the 2019 Program. During fiscal 2021, we completed the 2021 Program by repurchasing 1,171,246 shares under this program for $100.0 million at an average price of $85.40 per share.

On August 11, 2021, the Board of Directors approved a share repurchase program under which we were authorized to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program. During fiscal 2022 and 2021, we completed the 2022 Program by repurchasing 564,718 and 34,381 shares under this program for $46.9 million and $3.1 million at an average price of $83.07 and $90.16 per share, respectively.

On August 18, 2022, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $50.0 million of its common stock (the "2023 Program"). The 2023 Program became effective immediately and has no expiration. During fiscal 2022, we purchased 38,397 shares under this program for $3.5 million at an average price of $90.63 per share. As of October 1, 2022, $46.5 million of authority remained under the 2023 Program.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

On June 15, 2018, we entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which we issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which we are required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of October 1, 2022, we were in compliance with the covenants under the 2018 NPA.

On June 9, 2022, we refinanced our then-existing senior unsecured revolving credit facility (as amended by that certain Amendment No. 1 to Credit Agreement dated April 29, 2020, the "Prior Credit Facility") by entering into a new 5-year revolving credit facility (collectively with the Prior Credit Facility, referred to as the "Credit Facility"), which expanded the maximum commitment from $350.0 million to $500.0 million and extended the maturity from May 15, 2024 to June 9, 2027. The maximum commitment under the Credit Facility may be further increased to $750.0 million, generally by mutual agreement of the lenders and us, subject to certain customary conditions. During fiscal 2022, the highest daily borrowing was $385.0 million; the average daily borrowings were $232.1 million. We borrowed $758.0 million and repaid $550.0 million of revolving borrowings ("revolving commitment") under the Credit Facility during fiscal 2022. As of October 1, 2022, we were in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. We are required to pay a commitment fee on the daily unused credit facility based on our leverage ratio; the fee was 0.125% as of October 1, 2022.

The Credit Facility and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the past. However, we evaluate from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.

We have Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA") and other unaffiliated financial institutions, under which we may elect to sell receivables, at a discount. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of October 1, 2022 is $340.0 million. The maximum facility amount under the HSBC RPA as of October 1, 2022 is $60.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.

We sold $787.5 million and $730.5 million of trade accounts receivable under these programs during fiscal 2022 and 2021, respectively, in exchange for cash proceeds of $783.1 million and $728.4 million, respectively. As of October 1, 2022 and October 2, 2021, $222.5 million and $176.0 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding and had not yet been collected.

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In all cases, the sale discount was recorded within "Miscellaneous, net" in the Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note 14, "Trade Accounts Receivable Sale Programs," in Notes to Consolidated Financial Statements.

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execution upon our share repurchase authorizations as management deems appropriate, for the next twelve months. We believe our balance sheet is positioned to support the potential future challenges presented by macro-economic factors including increased working capital requirements associated with longer lead-times for components, increased component and labor costs, and operating inefficiencies due to supply chain constraints or workplace safety restrictions. As of the end of the fourth quarter of fiscal 2022, cash and cash equivalents and restricted cash were $275 million, while debt, finance lease obligations and other financing were $462 million. To further ensure our ability to meet the needs of working capital investments to support anticipated revenue growth, we refinanced our credit facility, expanding the maximum commitment from $350.0 million to $500.0 million, as discussed above. If our future financing needs increase, then we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms or at all.

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CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS

Our disclosures regarding contractual obligations and commercial commitments are located in various parts of our regulatory filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of October 1, 2022 (dollars in millions):

1)Debt obligations includes $150.0 million in principal amount of 2018 Notes and $263.0 million of borrowings on the revolving commitment of the Credit Facility, as well as interest.

2)Purchase obligations consist primarily of purchases of inventory and equipment in the ordinary course of business.

3)Repatriation tax on undistributed foreign earnings consists of U.S. federal income taxes on the deemed repatriation of undistributed foreign earnings due to U.S. Tax Reform. Refer to "Liquidity and Capital Resources" above for further detail.

4)Other obligations on the balance sheet included deferred compensation obligations to certain of our former and current executive officers, as well as other key employees, other financing obligations arising from information technology maintenance agreements and asset retirement obligations related to our buildings. We have excluded from the above table the impact of approximately $9.0 million, as of October 1, 2022, related to unrecognized income tax benefits. We cannot make reliable estimates of the future cash flows by period related to these obligations.

5)Other obligations not on the balance sheet consist of guarantees and a commitment for salary continuation and certain benefits in the event employment of one executive officer is terminated without cause. Excluded from the amounts disclosed are certain bonus and incentive compensation amounts, which would be paid on a prorated basis in the year of termination.

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DISCLOSURE ABOUT CRITICAL ACCOUNTING ESTIMATES

Our accounting policies are disclosed in Note 1 "Description of Business and Significant Accounting Policies" of Notes to Consolidated Financial Statements. During fiscal 2022 there were no material changes to these policies. Our critical accounting estimates are described below:

Revenue Recognition: Revenue is recognized over time for arrangements with customers for which: (i) our performance does not create an asset with an alternative use to us, and (ii) we have an enforceable right to payment, including reasonable profit margin, for performance completed to date. If either of the two conditions noted above are not met to recognize revenue over time, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.

For contracts requiring over time revenue recognition, we calculate the revenue to recognize using the costs incurred to date plus a reasonable profit margin. We use historical information to estimate the profit margin associated with the performance obligation that is satisfied over time. We reevaluate our estimate of profit margins on a quarterly basis. While experience has shown that trends in profit margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations for certain performance obligations. As actual experience becomes available, we use the data to update the historical averages and compare the results to estimates. Based on review of profits margins we update our estimate to the model as necessary.

See Note 15 "Revenue from Contracts with Customers" of Notes to Consolidated Financial Statements for further information on our revenue recognition policies.

Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, we take into account such factors as:

•Prior earnings history. A pattern of recent financial reporting losses in a jurisdiction is heavily weighted as a source of negative evidence. We also consider the strength and trend of earnings, as well as other relevant factors. In certain circumstances, historical earnings may not be as relevant due to changes in our business operations;

•Expected future earnings. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary differences are an additional source of positive evidence;

•Tax planning strategies. If necessary and available, tax planning strategies would be implemented to accelerate taxable amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence.

See Note 6 "Income Taxes" of Notes to Consolidated Financial Statements for further information on our income tax policies.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1, "Description of Business and Significant Accounting Policies," in Notes to Consolidated Financial Statements regarding recent accounting pronouncements.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Plexus Corp. and its subsidiaries (together "Plexus," the "Company," or "we") participate in the Electronic Manufacturing Services ("EMS") industry. Since 1979, we have been partnering with companies to create the products that build a better world. We are a team of approximately 19,200 individuals who are dedicated to providing Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing and Aftermarket Services. We are a global leader that specializes in serving customers in industries with highly complex products and demanding regulatory environments. Plexus delivers customer service excellence to leading companies by providing innovative, comprehensive solutions throughout a product’s lifecycle. We engineer innovative solutions for customers in growth markets and focus on partnering with leading global companies in the Industrial, Healthcare/Life Sciences and Aerospace/Defense market sectors. We deliver comprehensive end-to-end solutions in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East and Africa ("EMEA") regions.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide an analysis of both short-term results and future prospects from management’s perspective, including an assessment of the financial condition and results of operations, events and uncertainties that are not indicative of future operations and any other financial or statistical data that we believe will enhance the understanding of our company’s financial condition, cash flows and other changes in financial condition and results of operations. The information should be read in conjunction with our consolidated financial statements included herein and "Risk Factors" included in Part I, Item 1A herein.

A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019 can be found under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on the Form 10-K for the fiscal year ended October 3, 2020, which was filed with the SEC on November 20, 2020, and is available on the SEC’s website at www.sec.gov as well as our Inventor Relations website at www.plexus.com.

COVID-19 Update

We continue to monitor the global outbreak and spread of COVID-19 and take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts.

The health and safety of our employees is a top priority for us. We have progressively implemented measures to safeguard our employees from the COVID-19 infection and exposure and have made significant efforts to mitigate the effects of regulatory authority restrictions on our operations through a combination of adjustments in our shift patterns, flexible work arrangements, productivity improvements, facility enhancements to support social distancing and optimizing employee capability to work from home, if needed. These efforts will continue as requirements change, new risks are identified and infections impact us.

We have experienced labor shortages due to COVID-19 quarantines or workforce curtailments, particularly in Malaysia during the latter half of fiscal 2021, as the virus spread. Due to high vaccination rates among our team in Malaysia recently achieved, we do not expect the labor challenges in the region to persist. However, the spread and resurgence of the COVID-19 virus in other jurisdictions we operate may make our ability to mitigate the impacts of the pandemic on our productivity more challenging.

We remain in close contact with our suppliers to understand the impacts of COVID-19 on their businesses and operations. Our suppliers may face challenges in maintaining an adequate workforce or securing materials from their own suppliers as a result of COVID-19. We have experienced, and expect to continue to experience in fiscal 2022, an inability to procure certain components and materials on a timely basis due to worsening supply chain shortages likely as a result of the COVID-19 pandemic. We continue to take steps to validate our suppliers’ ability to deliver to us on time, but anticipate that the extended lead times will require us to make additional investments in inventory to satisfy customer demand.

The combination of labor reductions, particularly in Malaysia, and worsening supply chain constraints has impacted our ability to meet customer demand, and as a result, negatively impacted revenue compared to expectations. The global supply chain constraints will limit our ability to capture the robust demand from our customers entering fiscal 2022. We continue to maintain additional resources to help mitigate component constraint challenges and the operating inefficiencies COVID-19 has created, but note these inefficiencies place additional burden on operating results.

The global supply chain constraints have led to inflation in many of the components we acquire, as well as labor and operating costs. While we have been largely able to mitigate the impacts of inflation through our contractual rights with customers on

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pricing, the inability to offset these costs in future periods or the impacts of continued inflation on end markets and our customers may affect our operating results.

We believe we are positioned with a strong balance sheet. As of the end of fiscal 2021, cash and cash equivalents and restricted cash were $271 million, while debt, finance lease obligations and other financing were $253 million. Borrowings under our Credit Facility as of October 2, 2021 were $55 million, leaving $295 million of our revolving commitment of $350 million available for use as of October 2, 2021. Refer to Note 4, "Debt, Finance Lease Obligations and Other Financing," in Notes to Consolidated Financial Statements and "Management’s Discussion and Analysis Liquidity and Capital Resources" in Part II, Item 7 for further information.

RESULTS OF OPERATIONS

Consolidated Performance Summary. The following table presents selected consolidated financial data for the indicated fiscal years (dollars in millions, except per share data):

Net sales. Fiscal 2021 net sales decreased $21.5 million, or 0.6%, as compared to fiscal 2020.

Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our global business development strategy is based on our targeted market sectors. Beginning in fiscal 2021, we consolidated the previously reported Industrial/Commercial and Communications market sectors to form the Industrial market sector. Prior period amounts have been reclassified to conform to the current period presentation.

As a percentage of consolidated net sales, net sales attributable to customers representing 10% or more of consolidated net sales as well as the percentage of net sales attributable to our ten largest customers for the indicated fiscal years were as follows:

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A discussion of net sales by reportable segment is presented below for the indicated fiscal years (in millions):

AMER. Net sales for fiscal 2021 in the AMER segment decreased $10.4 million, or 0.8%, as compared to fiscal 2020. The decrease in net sales was driven by overall net decreased customer end-market demand, primarily within the Healthcare/Life Sciences sector and with commercial aerospace customers in the Aerospace/Defense sector likely as a result of COVID-19. The decrease was also driven by a reduction in net sales of $12.6 million due to disengagements with customers and a $14.1 million decrease for end-of-life products. These decreases were partially offset by a $72.9 million increase in production ramps for new customers, partially inclusive of increased demand likely as a result of COVID-19, and a $30.4 million increase in production ramps of new products for existing customers.

APAC. Net sales for fiscal 2021 in the APAC segment increased $25.8 million, or 1.4%, as compared to fiscal 2020. The increase in net sales was driven by a $19.5 million increase in production ramps of new products for existing customers and overall net increased customer end-market demand, partially inclusive of decreased demand likely as a result of COVID-19. These increases were partially offset by a $6.0 million decrease in the partial loss of a program with an existing customer, a $5.4 million decrease for an end-of-life product as well as reduced operating capacity due to mandated workforce curtailments for manufacturers in certain parts of the region.

EMEA. Net sales for fiscal 2021 in the EMEA segment decreased $36.4 million, or 10.4%, as compared to fiscal 2020. The decrease in net sales was driven by overall net decreased customer end-market demand, inclusive of decreased demand likely as a result of COVID-19, and a $14.0 million decrease for an end-of-life product likely as a result of COVID-19.

Our net sales by market sector for the indicated fiscal years were as follows (in millions):

Industrial. Net sales for fiscal 2021 in the Industrial sector increased $28.6 million, or 1.9%, as compared to fiscal 2020. The increase was driven by overall net increased customer end-market demand, a $23.8 million increase in production ramps for new customers and a $6.6 million increase in production ramps of new products for existing customers. The increase was partially offset by a decrease of $16.1 million due to disengagements with customers, a $5.4 million decrease for end-of-life products as well as reduced operating capacity due to mandated workforce curtailments for manufacturers in certain parts of the APAC region.

Healthcare/Life Sciences. Net sales for fiscal 2021 in the Healthcare/Life Sciences sector increased $68.5 million, or 5.4%, as compared to fiscal 2020. The increase in net sales was driven by a $40.2 million increase in production ramps of new products for existing customers. The increase was also due to a $37.8 million increase in production ramps for a new customer and overall net increased customer end-market demand, both inclusive of increased demand likely as a result of COVID-19. The increase was partially offset by a $28.1 million decrease for end-of-life products, partially as a result decreased demand in critical care products likely due to COVID-19, a $6.0 million decrease due to the partial loss of a program with an existing customer as well as reduced operating capacity due to mandated workforce curtailments for manufacturers in certain parts of the APAC region.

Aerospace/Defense. Net sales for fiscal 2021 in the Aerospace/Defense sector decreased $118.6 million, or 19.4%, as compared to fiscal 2020. The decrease was driven by net decreased customer end-market demand, primarily with commercial aerospace customers likely due to COVID-19. The decrease was partially offset by a $20.0 million increase in production ramps for new customers.

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Cost of sales. Cost of sales for fiscal 2021 decreased $32.1 million, or 1.0%, as compared to fiscal 2020. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. In fiscal 2021 and 2020, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 88% of these costs in fiscal 2021 and 87% of these costs in 2020 were related to material and component costs.

As compared to fiscal 2020, the decrease in cost of sales in fiscal 2021 was primarily driven by the decrease in net sales, favorable customer mix and decreased costs associated with COVID-19. These decreases were partially offset by an increase in fixed costs.

Gross profit. Gross profit for fiscal 2021 increased $10.6 million, or 3.4%, as compared to fiscal 2020. Gross margin of 9.6% increased 40 basis points compared to fiscal 2020. The primary driver of the increase in gross profit and gross margin as compared to fiscal 2020 was the favorable customer mix as well as decreased employee compensation and supplies costs associated with COVID-19. This was partially offset by the decrease in net sales and an increase in fixed costs.

Operating income. Operating income for fiscal 2021 increased $22.9 million, or 14.9%, as compared to fiscal 2020 as a result of the increase in gross profit, a $9.6 million decrease in selling and administrative expenses ("S&A") and a $2.7 million decrease in restructuring and impairment charges. The decrease in S&A was primarily due to a decrease in bad debt expense and a decrease in incentive compensation expenses. Operating margin of 5.2% increased 70 basis points compared to fiscal 2020, primarily due to the increase in gross margin and reduction of S&A as a result of factors previously discussed.

A discussion of operating income by reportable segment for the indicated fiscal years is presented below (in millions):

AMER. Operating income increased $24.2 million in fiscal 2021 as compared to fiscal 2020, primarily as a result of a positive shift in customer mix, improvements in labor productivity, reduced fixed costs and decreased costs associated with COVID-19. In addition, there was a decrease in S&A primarily due to a decrease in bad debt expense. This was partially offset by a decrease in net sales.

APAC. Operating income decreased $7.8 million in fiscal 2021 as compared to fiscal 2020, primarily as a result of reductions in labor productivity, an increase in fixed costs to support new program ramps and a negative shift in customer mix. This was partially offset by an increase in net sales and a decrease in S&A.

EMEA. Operating income decreased $2.4 million in fiscal 2021 as compared to fiscal 2020 primarily as a result of decreased net sales, a decrease in labor productivity and an increase in S&A. This was partially offset by a positive shift in customer mix.

Other expense. Other expense for fiscal 2021 decreased $2.1 million as compared to fiscal 2020. The decrease in other expense for fiscal 2021 was primarily due to the decrease in interest expense of $1.9 million and factoring fees of $1.2 million. The decrease was partially offset by an increase of $0.6 million in foreign exchange losses as well as a decrease of $0.5 million in interest income.

Income taxes. Income tax expense for fiscal 2021 was $21.5 million compared to $17.9 million for fiscal 2020. The increase is primarily due to the geographic distribution of worldwide earnings and an increase in pre-tax income.

Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

We have been granted a tax holiday for a foreign subsidiary operating in the APAC segment. This tax holiday will expire on December 31, 2034, and is subject to certain conditions with which we expect to continue to comply. In fiscal 2021 and 2020, the holiday resulted in tax reductions, net of the impact of the global intangible low-taxed income ("GILTI") provisions of the U.S. Tax Cuts and Jobs Act ("U.S. Tax Reform"), of approximately $34.4 million ($1.20 per basic share, $1.18 per diluted share) and $28.3 million ($0.97 per basic share, $0.95 per diluted share), respectively.

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See also Note 6, "Income Taxes," in Notes to Consolidated Financial Statements for additional information regarding our tax rate.

The annual effective tax rate for fiscal 2022 is expected to be approximately 13.0% to 15.0% assuming no changes to tax laws.

Net Income. Net income for fiscal 2021 increased $21.4 million, or 18.2%, from fiscal 2020 to $138.9 million. Net income increased primarily as a result of the increase in operating income, partially offset by the increase in tax expense as previously discussed.

Diluted earnings per share. Diluted earnings per share increased to $4.76 in fiscal 2021 from $3.93 in fiscal 2020 primarily as a result of increased net income due to the factors discussed above and a reduction in diluted shares outstanding due to repurchase activity under our share repurchase plans.

Return on Invested Capital ("ROIC") and economic return. We use a financial model that is aligned with our business strategy and includes a ROIC goal of 500 basis points over our weighted average cost of capital ("WACC"), which we refer to as "economic return."

Non-GAAP financial measures, including ROIC and economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and economic return because we believe they offer insight into the metrics that are driving management decisions because we view ROIC and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements. We also use ROIC as a performance criteria in determining certain elements of compensation and certain compensation incentives are based on economic return performance.

We define ROIC as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling five-quarter period for the fiscal year. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

We review our internal calculation of WACC annually. Our WACC was 8.1% for fiscal 2021 and 8.8% for fiscal 2020. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. Fiscal 2021 ROIC of 15.4% reflects an economic return of 7.3%, based on our weighted average cost of capital of 8.1%, and fiscal 2020 ROIC of 14.0% reflects an economic return of 5.2%, based on our weighted average cost of capital of 8.8% for that fiscal year.

For a reconciliation of ROIC, economic return and adjusted operating income (tax effected) to our financial statements that were prepared using GAAP, see Exhibit 99.1 to this annual report on Form 10-K, which exhibit is incorporated herein by reference.

Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal years (dollars in millions):

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and restricted cash were $270.5 million as of October 2, 2021, as compared to $387.9 million as of October 3, 2020.

As of October 2, 2021, 88% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. With the enactment of U.S. Tax Reform, we believe that our offshore cash can be accessed in a more tax efficient manner than before U.S. Tax Reform. Currently, we believe that our cash balance, together with cash available under our Credit Facility,

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will be sufficient to meet our liquidity needs and potential share repurchases, if any, for the next twelve months and for the foreseeable future.

Our future cash flows from operating activities will be reduced by $53.6 million due to cash payments for U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining five years (in millions):

Cash Flows. The following table provides a summary of cash flows for fiscal 2021 and 2020 (in millions):

Operating Activities. Cash flows provided by operating activities were $142.6 million for fiscal 2021, as compared to $210.4 million for fiscal 2020. The decrease was primarily due to cash flow (reductions) improvements of:

•$21.4 million increase in net income.

•$(150.1) million in inventory cash flows driven by increased inventory levels to support the ramp of customer programs and longer lead times for certain components as a result of supply chain constraints heightened by the COVID-19 outbreak.

•$(42.3) million in accounts receivable cash flows, which resulted from decreased factoring activity, the timing of customer shipments and payments as well as the mix of customer payment terms.

•$(29.4) million in other current and non-current asset cash flows, driven by an increase in prepaid expenses and miscellaneous receivables.

•$40.8 million in other current and non-current liabilities cash flows driven by an increase in advance payments from customers.

•$46.7 million in accounts payables cash flows driven by increased purchasing activity to support the ramp of customer programs and supply chain constraints to obtain certain components heightened by the COVID-19 outbreak.

•$25.5 million in customer deposit cash flows driven by significant deposits received from two customers in the current year to cover certain inventory balances, partially offset by three significant deposits received in the prior year.

•$21.1 million in contract assets cash flows, driven by consistent demand from customers who recognized revenue over time in the current year compared to growing demand in the prior year.

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The following table provides a summary of cash cycle days for the periods indicated (in days):

We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable and cash deposits as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in cash deposits.

As of October 2, 2021, annualized cash cycle days increased sixteen days compared to October 3, 2020 due to the following:

Days in accounts receivable for the three months ended October 2, 2021 increased eight days compared to the three months ended October 3, 2020. The increase is primarily attributable to the timing of customer shipments and payments, mix of customer payment terms and a decrease in factored receivables.

Days in contract assets for the three months ended October 2, 2021 increased two days compared to the three months ended October 3, 2020. The increase is primarily attributable to overall decreased net sales.

Days in inventory for the three months ended October 2, 2021 increased thirty-one days compared to the three months ended October 3, 2020. The increase is due to increased inventory levels to support the ramp of customer programs and longer lead times for certain components as a result of supply chain constraints heightened by the COVID-19 outbreak, as well as the decrease in net sales.

Days in accounts payable for the three months ended October 2, 2021 increased nineteen days compared to the three months ended October 3, 2020. The increase is due to increased purchasing activity and supply chain constraints to obtain certain components heightened by the COVID-19 outbreak, as well as the decrease in net sales.

Days in cash deposits for the three months ended October 2, 2021 increased six days compared to the three months ended October 3, 2020. The increase was primarily attributable to significant deposits received from three customers to cover certain inventory balances.

Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow provided by operations less capital expenditures. FCF was $85.5 million for fiscal 2021 compared to $160.3 million for fiscal 2020, a decrease of $74.8 million.

Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.

A reconciliation of FCF to our financial statements that were prepared using GAAP follows (in millions):

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Investing Activities. Cash flows used in investing activities were $57.0 million for fiscal 2021 compared to $49.9 million for fiscal 2020. The increase in cash used in investing activities was due to a $7.0 million increase in capital expenditures, primarily due to our manufacturing footprint expansion in Bangkok, Thailand.

We utilized available cash and operating cash flows as the sources for funding our operating requirements during fiscal 2021. We currently estimate capital expenditures for fiscal 2022 will be approximately $100.0 million to $120.0 million, with manufacturing footprint expansion in Bangkok, Thailand, being the primary use of our capital expenditures. The remainder is expected to be used to support new program ramps and replace older equipment.

Financing Activities. Cash flows used in financing activities were $203.9 million for fiscal 2021 compared to $1.5 million for fiscal 2020. The increase was primarily attributable to an increase in net payments on the Credit Facility of $126.0 million, an increase of $67.1 million in cash used to repurchase our common stock and a $9.3 million decrease in proceeds from the exercise of stock options.

On August 20, 2019, the Board of Directors approved a share repurchase program under which we were authorized to repurchase $50.0 million of our common stock (the "2019 Program"). The 2019 Program commenced upon completion of share repurchase programs. During fiscal 2021 and 2020, the Company repurchased 73,560 and 609,935 shares under this program for $5.3 million and $41.4 million at an average price of $72.44 and $67.86 per share, respectively.

On August 13, 2020, the Board of Directors approved a share repurchase program under which we were authorized to repurchase up to $50.0 million of our common stock (the "2021 Program"). On November 18, 2020, the Board of Directors approved an additional $50.0 million in share repurchase authority under the existing 2021 Program such that there then existed a total of $100.0 million in share repurchase authority under the program. The 2021 program commenced upon completion of the 2019 Program during the first quarter of fiscal 2021. During fiscal 2021, the Company repurchased 1,171,246 shares under this program for $100.0 million at an average price of $85.40 per share.

On August 11, 2021, the Board of Directors approved a new share repurchase program under which we were authorized to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program. The 2022 Program has no expiration. During fiscal 2021, the Company repurchased 34,381 shares under this program for $3.1 million at an average price of $90.16 per share. As of October 2, 2021, $46.9 million of authority remained under the 2022 Program.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

On June 15, 2018, we entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which we issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which we are required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of October 2, 2021, we were in compliance with the covenants under the 2018 NPA.

On May 15, 2019, we refinanced our then-existing senior unsecured revolving credit facility by entering into a new five-year senior unsecured revolving credit facility (referred to as the "Credit Facility"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment under the Credit Facility may be further increased to $600.0 million, generally by mutual agreement of the lenders and us, subject to certain customary conditions. During fiscal 2021, the highest daily borrowing was $148.0 million; the average daily borrowings were $70.0 million. We borrowed $376.0 million and repaid $321.0 million of revolving borrowings ("revolving commitment") under the Credit Facility during fiscal 2021. As of October 2, 2021, we were in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. We are required to pay a commitment fee on the daily unused revolving commitment based on our leverage ratio; the fee was 0.10% as of October 2, 2021.

To further ensure our ability to meet our working capital and fixed capital requirements, on April 29, 2020, we entered into Amendment No. 1 to the Credit Facility (the "Amendment") in response to the COVID-19 outbreak, which amended the Credit Facility, dated as of May 15, 2019. The Amendment modified certain provisions of the Credit Facility to, among other things, provide Term Loans for $138.0 million. Term Loans borrowed under the new facility were funded in a single draw on May 4, 2020 and were scheduled to mature on April 28, 2021. On January 29, 2021, we terminated the Term Loans through repayment of the $138.0 million outstanding using borrowings from the revolving commitment under the Credit Facility. Outstanding

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Term Loans bore interest, at our option, at a eurocurrency rate (subject to a floor of 1.0%) plus a margin of 1.75% per annum or at a base rate (subject to a floor of 2.0%) plus a margin of 0.75% per annum.

The Credit Facility and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the past. However, we evaluate from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.

We have Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA") and other agreements with banks, under which we may elect to sell receivables, at a discount, on an ongoing basis. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of October 2, 2021 is $340.0 million. The maximum facility amount under the HSBC RPA as of October 2, 2021 is $60.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.

We sold $730.5 million and $834.4 million of trade accounts receivable under these programs during fiscal 2021 and 2020, respectively, in exchange for cash proceeds of $728.4 million and $831.2 million, respectively. As of October 2, 2021 and October 3, 2020, $176.0 million and $244.3 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding and had not yet been collected.

In all cases, the sale discount was recorded within "Miscellaneous, net" in the Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note 14, "Trade Accounts Receivable Sale Programs," in Notes to Consolidated Financial Statements.

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execution upon our share repurchase authorizations as management deems appropriate, for the next twelve months. We believe we are positioned with a strong balance sheet as we face the future challenges presented by COVID-19. As of the end of the fourth quarter of fiscal 2021, cash and cash equivalents and restricted cash were $271 million, while debt, finance lease obligations and other financing were $253 million. In addition to our strong balance sheet, we have significant funding availability through our Credit Facility, should future needs arise. If our future financing needs increase, then we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms.

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CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS

Our disclosures regarding contractual obligations and commercial commitments are located in various parts of our regulatory filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of October 2, 2021 (dollars in millions):

1)Debt obligations includes $150.0 million in principal amount of 2018 Notes and $55.0 million of borrowings on the revolving commitment of the Credit Facility, as well as interest.

2)Purchase obligations consist primarily of purchases of inventory and equipment in the ordinary course of business.

3)Repatriation tax on undistributed foreign earnings consists of U.S. federal income taxes on the deemed repatriation of undistributed foreign earnings due to U.S. Tax Reform. Refer to "Liquidity and Capital Resources" above for further detail.

4)Other obligations on the balance sheet included deferred compensation obligations to certain of our former and current executive officers, as well as other key employees, other financing obligations arising from information technology maintenance agreements and asset retirement obligations related to our buildings. We have excluded from the above table the impact of approximately $4.6 million, as of October 2, 2021, related to unrecognized income tax benefits. We cannot make reliable estimates of the future cash flows by period related to these obligations.

5)Other obligations not on the balance sheet consist of guarantees and a commitment for salary continuation and certain benefits in the event employment of one executive officer is terminated without cause. Excluded from the amounts disclosed are certain bonus and incentive compensation amounts, which would be paid on a prorated basis in the year of termination.

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DISCLOSURE ABOUT CRITICAL ACCOUNTING ESTIMATES

Our accounting policies are disclosed in Note 1 "Description of Business and Significant Accounting Policies" of Notes to Consolidated Financial Statements. During fiscal 2021 there were no material changes to these policies. Our more critical accounting estimates are described below:

Revenue Recognition: Revenue is recognized over time for arrangements with customers for which: (i) our performance does not create an asset with an alternative use to us, and (ii) we have an enforceable right to payment, including reasonable profit margin, for performance completed to date. If either of the two conditions noted above are not met to recognize revenue over time, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.

For contracts requiring over time revenue recognition, we calculate the revenue to recognize using the costs incurred to date plus a reasonable profit margin. We use historical information to estimate the profit margin associated with the performance obligation that is satisfied over time. We reevaluate our estimate of profit margins on a quarterly basis. While experience has shown that trends in profit margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations for certain performance obligations. As actual experience becomes available, we use the data to update the historical averages and compare the results to estimates. Based on review of profits margins we update our estimate to the model as necessary.

See Note 15 "Revenue from Contracts with Customers" of Notes to Consolidated Financial Statements for further information on our revenue recognition policies.

Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, we take into account such factors as:

•Prior earnings history. A pattern of recent financial reporting losses in a jurisdiction is heavily weighted as a source of negative evidence. We also consider the strength and trend of earnings, as well as other relevant factors. In certain circumstances, historical earnings may not be as relevant due to changes in our business operations;

•Expected future earnings. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary differences are an additional source of positive evidence;

•Tax planning strategies. If necessary and available, tax planning strategies would be implemented to accelerate taxable amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence.

See Note 6 "Income Taxes" of Notes to Consolidated Financial Statements for further information on our income tax policies.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1, "Description of Business and Significant Accounting Policies," in Notes to Consolidated Financial Statements regarding recent accounting pronouncements.

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