PLEXUS CORP (PLXS) FY 2024 MD&A

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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