Plexus(PLXS) - 2022 Q4 - Annual Report

PART I ITEM 1. BUSINESS Plexus is a global EMS provider specializing in complex products for Industrial, Healthcare/Life Sciences, and Aerospace/Defense sectors, targeting 9-12% revenue growth and 15% ROIC Company Overview Plexus is a global EMS provider for complex products in Industrial, Healthcare/Life Sciences, and Aerospace/Defense, targeting 9-12% revenue growth and 15% ROIC - Plexus Corp. is a global Electronic Manufacturing Services (EMS) provider, specializing in highly complex products for Industrial, Healthcare/Life Sciences, and Aerospace/Defense sectors[15] - The company's long-term financial goal is a 9-12% compounded annual revenue growth rate and a 15% Return on Invested Capital (ROIC), exceeding its Weighted Average Cost of Capital (WACC) of 9.3% for fiscal 2022[18][184] Business Strategy and Operations Plexus' strategy emphasizes market leadership, superior execution, a purpose-driven culture, and disciplined financial management, supported by 28 global facilities and 25,000 employees - Plexus' strategy is built on four pillars: market focus (growth markets, leading/disruptive companies), superior execution (zero defects, perfect delivery), passion meets purpose (values-driven actions), and discipline by design (shareholder value, revenue growth, ROIC)[16][20] - The company operates 28 active facilities globally, totaling approximately 5.1 million square feet, with nearly 25,000 employees, including over 4,700 engineers and technologists[19] Solutions and Regulatory Compliance Plexus offers integrated turnkey solutions across the product lifecycle, including design, supply chain, manufacturing, and sustaining services, adhering to stringent regulatory requirements and holding various global certifications - Plexus provides integrated solutions including Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Sustaining Services, primarily on a turnkey basis[23][24][25] - All manufacturing and engineering facilities are certified to ISO9001:2015, with additional certifications such as ISO 13485:2016 (Medical), 21 CFR Part 820 (FDA), and AS9100 (Aerospace) across AMER, APAC, and EMEA regions[25][26] Customers, Market Sectors, and Supply Chain Plexus serves approximately 140 customers, with GE accounting for 12.9% of net sales in fiscal 2022, focusing on Industrial, Healthcare/Life Sciences, and Aerospace/Defense sectors while actively mitigating global supply chain risks - In fiscal 2022, Plexus served approximately 140 customers, with General Electric Company ("GE") accounting for 12.9% of net sales[27] Net Sales Distribution by Market Sector (Fiscal Years 2020-2022) | Industry | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Industrial* | 46% | 46% | 45% | | Healthcare/Life Sciences | 41% | 39% | 37% | | Aerospace/Defense | 13% | 15% | 18% | | Total net sales | 100% | 100% | 100% | - The company purchases raw materials, including electronic and custom-engineered components, from a wide variety of manufacturers and distributors, actively managing supply chain risks such as component shortages, extended lead-times, and price fluctuations[31][32][33][34] Competition and Technology Plexus operates in a highly competitive EMS market, differentiating through complex product solutions, while its robust IT infrastructure supports global operations and data security - Plexus operates in a highly competitive EMS market, competing with numerous global and local providers, as well as the in-house capabilities of current and potential customers[35] - The company's core IT solutions include a single-instance ERP system, product data management, and advanced planning and scheduling systems, supporting global operations and ensuring data security through a robust IT Risk Management Program[38][39] Corporate Responsibility and Human Capital Plexus is committed to global compliance, with an ESG program focusing on sustainability, responsible employment, community partnership, and strong governance, emphasizing a values-driven culture and talent development - Plexus maintains robust internal controls and quality management systems to ensure compliance with a variety of global laws and regulations, including environmental, health, and safety standards[41][42] - The company's ESG program focuses on five key areas: innovator (sustainability), responsible employer (diversity, human rights, development), community partner (STEM, charitable giving), global citizen (waste/emissions reduction), and corporate governance[44][45][46] - Human Capital Management is critical to Plexus' strategy, emphasizing a culture built on values and ethics, quality, customer service excellence, and collaboration. The company focuses on talent development, diversity and inclusion, competitive compensation, and worker rights, with 49.9% female employees and 54.8% of its workforce in APAC[47][48][49][51][52][55][56][59] Additional Information Plexus Corp.'s global headquarters is in Neenah, Wisconsin, and SEC filings and its Code of Conduct are available on its website - Plexus Corp.'s global headquarters is located at One Plexus Way, Neenah, Wisconsin, 54957[60] - SEC filings (Proxy Statements, 10-K, 10-Q, 8-K, etc.) and the company's Code of Conduct and Business Ethics are available online at www.plexus.com and www.sec.gov[60](index=60&type=chunk) ITEM 1A. RISK FACTORS Plexus faces risks across its strategic pillars, including volatile customer demand, intense competition, supply chain disruptions, international operational challenges, human capital management, and financial management issues Risks Impacting Market Focus Market focus risks include volatile customer demand, intense competition, reliance on key customers/sectors, non-compliance with regulations, and challenges in integrating acquisitions - Factors affecting technology-dependent end markets, such as rapidly changing technologies, product obsolescence, and market acceptance, can adversely impact customer demand[63][66] - The company lacks firm, long-term purchase commitments from customers, leading to potential cancellations, changes, or delays in production requirements, which can strain resources and negatively impact revenue and working capital[64][65] - High industry competition from global and local providers, as well as in-house capabilities, may result in reduced demand, lower prices, or loss of market share[67][68] - A majority of net sales come from a small number of customers (Top 10 customers accounted for 56.2% in fiscal 2022) and a limited number of market sectors (Industrial, Healthcare/Life Sciences, Aerospace/Defense), making the company vulnerable to the loss of major customers or sector-specific challenges[69][70][71] - Non-compliance with extensive government regulations, legal requirements, and industry standards (e.g., FDA, Department of Defense) can lead to fines, penalties, reputational damage, and adverse effects on business and customer relationships[75][76][78] Risks Impacting Superior Execution Execution risks include international operational instability, supply chain disruptions, complex business model management, and vulnerability to natural disasters or cybersecurity breaches - Multinational operations, especially with a concentration in the APAC region (Malaysia), expose Plexus to risks such as economic/political instability, civil conflicts (e.g., Russia-Ukraine, China-Taiwan tensions), transportation delays, exchange rate fluctuations, and changes in labor markets or trade policies[81][83][84][86][87] - The company experiences significant component shortages, extended lead-times, price fluctuations, and supplier quality concerns, which can lead to delayed production, increased inventory, and potential loss of business[88][90][91] - Managing inventory for turnkey services involves risks of excess or obsolete inventory due to customer cancellations, delays, or engineering changes, potentially impacting operating results and cash flow[92][93] - The complex business model, focused on highly complex and regulated products, requires effective management of diverse manufacturing, regulatory, and service requirements across multiple global locations. Failure to execute can lead to claims, regulatory violations, and reputational damage[94][95][96] - The business is vulnerable to natural disasters, security breaches, and other uncontrollable events, especially in regions with concentrated production capacity like Penang, Malaysia, which could disrupt operations and supply chains[98][99][100] - Dependence on information systems and the handling of sensitive data expose the company to cybersecurity threats, data breaches, and compliance risks with evolving privacy regulations (e.g., GDPR), potentially leading to financial losses, litigation, and reputational harm[101][102][103][104] - Problems with product design, manufacturing, or servicing can result in liability claims, reduced demand, and reputational damage, particularly for high-risk industries like healthcare and aerospace/defense[105][106] - Non-compliance with customer-driven policies, third-party certification requirements, or intellectual property infringement claims can adversely affect business, customer relationships, and profitability[107][108][109][110] Risks Impacting Passion Meets Purpose Risks to 'Passion Meets Purpose' include the inability to attract and retain qualified personnel, labor availability issues, wage pressures, and evolving ESG expectations impacting culture and operations - Inability to attract, develop, and retain qualified personnel, including key leadership and technical roles, due to labor availability issues, wage pressure, and high turnover rates, can adversely affect operations and financial results[111] - A failure to foster a strong, healthy workplace culture, or to adopt competitive policies related to diversity, inclusion, and employee benefits, could negatively impact talent attraction and retention[112][113] - Evolving stakeholder expectations and increasing regulatory requirements regarding Environmental, Social, and Governance (ESG) matters, including global climate change, could necessitate additional investments, impact profitability, and affect customer/investor relationships if not adequately met[115][116][117] Risks Impacting Discipline By Design Discipline By Design risks include challenges with new programs, managing growth/contraction, tax law changes, global health crises, and securing necessary financing, all impacting financial results and liquidity - Engaging new customers or programs, or providing new services, presents challenges related to prudent engagement decisions, establishing appropriate contractual terms, and managing start-up costs and inefficiencies, which can extend for significant periods and impact profitability[118][119][120] - The company must effectively manage periods of growth and contraction, including facility expansions (e.g., new manufacturing facility in Bangkok, Thailand) and consolidations, to avoid excess or insufficient resources and associated costs[123][124][125][126] - Changes in tax laws, potential tax disputes (e.g., transfer pricing, BEPS project), and developments affecting deferred tax assets (e.g., valuation allowances) can materially impact the effective tax rate and operating results[127][128][129] - Global health crises (such as COVID-19) can lead to business disruptions, restrictions on activities, increased costs, and potential impacts on liquidity and access to capital[130][131][132][133][134] - The company's future success depends on its ability to secure or maintain necessary additional financing or capital, as existing credit arrangements may not provide sufficient capacity, and interest expense is subject to increase with variable rates[135][136][137] ITEM 1B. UNRESOLVED SEC STAFF COMMENTS The company reported no unresolved comments from the SEC staff - There are no unresolved SEC staff comments[138] ITEM 2. PROPERTIES Plexus operates 28 global manufacturing and engineering facilities, totaling 5.1 million square feet across AMER, APAC, and EMEA, including a new leased facility in Portland, Oregon - Plexus operates 28 active manufacturing and engineering facilities globally, totaling approximately 5.1 million square feet[140] Active Facilities by Location and Type (as of October 1, 2022) | Location | Type | Size (sq. ft.) | Owned/Leased | | :--- | :--- | :--- | :--- | | AMER | | | | | Neenah, Wisconsin | Manufacturing | 418,000 | Owned | | Guadalajara, Mexico (1) | Manufacturing/Engineering | 741,000 | Leased | | Nampa, Idaho | Manufacturing | 216,000 | Owned | | Appleton, Wisconsin | Manufacturing | 205,000 | Owned | | Buffalo Grove, Illinois (1) | Manufacturing | 189,000 | Leased | | Neenah, Wisconsin | Global Headquarters | 104,000 | Owned | | Neenah, Wisconsin | Engineering | 90,000 | Leased | | Raleigh, North Carolina | Engineering | 41,000 | Leased | | Portland, Oregon | Manufacturing | 29,000 | Leased | | APAC | | | | | Penang, Malaysia (1) | Manufacturing/Engineering | 1,530,000 | Owned | | Bangkok, Thailand | Manufacturing | 400,000 | Owned | | Hangzhou, China (1) | Manufacturing | 245,000 | Leased | | Haining, China | Manufacturing | 202,000 | Leased | | Xiamen, China | Manufacturing | 133,000 | Owned | | Xiamen, China (1) | Manufacturing | 122,000 | Leased | | EMEA | | | | | Oradea, Romania | Manufacturing/Engineering | 296,000 | Owned | | Livingston, Scotland | Manufacturing/Engineering | 62,000 | Leased | | Kelso, Scotland | Manufacturing | 57,000 | Owned | | Darmstadt, Germany | Engineering | 21,000 | Leased | - A new leased manufacturing facility in Portland, Oregon, was taken possession of in Q4 fiscal 2022 and is expected to become active in fiscal 2023[141] ITEM 3. LEGAL PROCEEDINGS Plexus is involved in routine legal proceedings, but management does not anticipate any material adverse effect on its financial position or operations - Plexus is party to certain lawsuits and legal proceedings in the ordinary course of business[142] - Management does not believe these proceedings will have a material adverse effect on the consolidated financial position, results of operations, or cash flows[142] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to Plexus Corp - Item 4, Mine Safety Disclosures, is not applicable to the registrant[143] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Plexus common stock trades on Nasdaq (PLXS), with 27.6 million shares outstanding as of November 2022; the company does not pay cash dividends but repurchased $3.5 million in shares in fiscal 2022 - Plexus common stock trades on the Nasdaq Global Select Market under the symbol PLXS[3] - As of November 14, 2022, there were 376 shareholders of record and 27,627,292 shares of common stock outstanding[6][149] - The company has not paid cash dividends in the past and anticipates retaining earnings for business development, capital expenditures, and working capital, but the Board evaluates potential future dividends or additional share repurchases[150][151] Issuer Purchases of Equity Securities (Three Months Ended October 1, 2022) | Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (1) | | :--- | :--- | :--- | :--- | :--- | | July 3, 2022 to July 30, 2022 | — | $ — | — | $ — | | July 31, 2022 to August 27, 2022 | — | $ — | — | $ 50,000,000 | | August 28, 2022 to October 1, 2022 | 38,397 | $ 90.63 | 38,397 | $ 46,520,133 | | Total | 38,397 | $ 90.63 | 38,397 | | (1) On August 18, 2022, the Board of Directors approved a new share repurchase program (the "2023 Program") authorizing up to $50.0 million of common stock, effective immediately with no expiration. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Plexus faced significant supply chain and inflation pressures in fiscal 2022, increasing net sales by 13.1% to $3,811.4 million but decreasing gross and operating margins, with negative operating cash flow due to inventory investments and a refinanced credit facility for liquidity Executive Summary and Market Pressures Plexus faced significant supply chain constraints, component shortages, and inflation in fiscal 2022, necessitating inventory investments and potentially diluting operating margins, while a refinanced $500 million credit facility supports liquidity - Plexus experienced global supply chain constraints, component shortages, and inflation in material, labor, and operating costs in fiscal 2022, impacting its ability to meet customer demand and requiring additional inventory investments[156][157] - The company largely mitigated inflation impacts through contractual pricing rights, but these recoveries may be dilutive to operating margins[157] - As of October 1, 2022, cash and cash equivalents and restricted cash totaled $275 million, with debt and other financing at $462 million. The revolving credit facility was refinanced and expanded to $500 million (with an option to increase to $750 million) to support working capital needs[160] Consolidated Financial Performance In fiscal 2022, net sales increased by 13.1% to $3,811.4 million, but gross margin declined to 9.1% and operating margin to 4.7% due to inflated costs, resulting in a slight net income decrease but higher diluted EPS Consolidated Performance Summary (Fiscal Years 2021-2022) | Metric | 2022 (in millions) | 2021 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $3,811.4 | $3,368.9 | 13.1% | | Cost of sales | $3,464.1 | $3,045.6 | 13.7% | | Gross profit | $347.2 | $323.3 | 7.4% | | Gross margin | 9.1% | 9.6% | (0.5) pp | | Operating income | $178.2 | $176.3 | 1.1% | | Operating margin | 4.7% | 5.2% | (0.5) pp | | Other expense | $19.9 | $15.9 | 25.2% | | Income tax expense | $20.1 | $21.5 | (6.6)% | | Net income | $138.2 | $138.9 | (0.5)% | | Diluted earnings per share | $4.86 | $4.76 | 2.1% | | Return on invested capital* | 13.0% | 15.4% | (2.4) pp | | Economic return* | 3.7% | 7.3% | (3.6) pp | *Non-GAAP metric Net Sales by Reportable Segment (Fiscal Years 2021-2022) | Segment | 2022 (in millions) | 2021 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | AMER | $1,310.7 | $1,317.4 | (0.5)% | | APAC | $2,300.6 | $1,850.6 | 24.3% | | EMEA | $316.3 | $312.7 | 1.2% | | Elimination of inter-segment sales | $(116.2) | $(111.8) | 3.9% | | Total net sales | $3,811.4 | $3,368.9 | 13.1% | Net Sales by Market Sector (Fiscal Years 2021-2022) | Market Sector | 2022 (in millions) | 2021 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Industrial | $1,752.7 | $1,549.0 | 13.2% | | Healthcare/Life Sciences | $1,565.8 | $1,326.9 | 18.0% | | Aerospace/Defense | $492.9 | $493.0 | (0.0)% | | Total net sales | $3,811.4 | $3,368.9 | 13.1% | - Income tax expense decreased to $20.1 million in fiscal 2022 from $21.5 million in fiscal 2021, primarily due to claiming a U.S. Research & Development tax credit and the geographic distribution of worldwide earnings. The effective tax rate was 12.7% in fiscal 2022, down from 13.4% in fiscal 2021[175][305] - A tax holiday for a Malaysian subsidiary resulted in tax reductions of approximately $35.3 million ($1.24 per diluted share) in fiscal 2022, compared to $34.4 million ($1.18 per diluted share) in fiscal 2021[177][312] Liquidity and Capital Resources Cash and equivalents increased slightly to $275.5 million, but operating cash flow turned negative by $26.2 million due to inventory investments, leading to a significant decrease in Free Cash Flow and increased borrowings Cash and Cash Equivalents and Restricted Cash (Fiscal Years 2021-2022) | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents and restricted cash | $275.5 | $270.5 | - 78% of cash and cash equivalents were held outside of the U.S. by foreign subsidiaries as of October 1, 2022[187] Summary of Cash Flows (Fiscal Years 2021-2022) | Cash Flow Type | 2022 (in millions) | 2021 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating activities | $(26.2) | $142.6 | $(168.8) | | Investing activities | $(101.6) | $(57.0) | $(44.6) | | Financing activities | $139.3 | $(203.9) | $343.2 | | Effect of exchange rate changes | $(6.5) | $0.9 | $(7.4) | | Net increase (decrease) | $5.0 | $(117.4) | $122.4 | - The decrease in cash from operating activities was primarily due to a $(446.5) million impact from inventory cash flows, driven by longer lead times, inflation, and new program ramps, and a $(196.5) million impact from accounts receivable cash flows[190] Annualized Cash Cycle Days (Q4 Fiscal 2021-2022) | Metric | October 1, 2022 | October 2, 2021 | Change (days) | | :--- | :--- | :--- | :--- | | Days in accounts receivable | 60 | 56 | +4 | | Days in contract assets | 11 | 13 | -2 | | Days in inventory | 144 | 116 | +28 | | Days in accounts payable | (72) | (76) | +4 | | Days in cash deposits | (43) | (24) | -19 | | Annualized cash cycle | 100 | 85 | +15 | Free Cash Flow (Fiscal Years 2021-2022) | Metric | 2022 (in millions) | 2021 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Cash flows (used in) provided by operating activities | $(26.3) | $142.6 | $(168.9) | | Payments for property, plant and equipment | $(101.6) | $(57.1) | $(44.5) | | Free cash flow | $(127.9) | $85.5 | $(213.4) | - Capital expenditures increased by $44.5 million to $101.6 million in fiscal 2022, primarily due to manufacturing footprint expansion in Bangkok, Thailand. Fiscal 2023 capital expenditures are estimated at $110.0 million to $130.0 million[198][199] - Financing activities provided $139.3 million in fiscal 2022, driven by a $291.0 million increase in net borrowings on the credit facility and a $58.1 million decrease in common stock repurchases[200] - The company sold $787.5 million of trade accounts receivable in fiscal 2022 (vs. $730.5 million in 2021) under uncommitted purchase agreements, receiving $783.1 million in cash proceeds[210] Contractual Obligations and Accounting Estimates As of October 1, 2022, Plexus had $2,669.7 million in contractual obligations, primarily purchase and debt, with critical accounting estimates for revenue recognition and income taxes, and no material policy changes in fiscal 2022 Contractual Cash Obligations (as of October 1, 2022) | Contractual Obligations | Total (in millions) | 2023 (in millions) | 2024-2025 (in millions) | 2026-2027 (in millions) | 2028 and thereafter (in millions) | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt Obligations (1) | $437.9 | $269.2 | $112.4 | $4.2 | $52.1 | | Finance Lease Obligations | $119.5 | $10.2 | $14.5 | $10.3 | $84.5 | | Operating Lease Obligations | $48.1 | $9.5 | $14.0 | $10.1 | $14.5 | | Purchase Obligations (2) | $1,992.5 | $1,609.3 | $370.3 | $5.4 | $7.5 | | Repatriation Tax on Undistributed Foreign Earnings (3) | $47.7 | $5.7 | $24.7 | $17.3 | $— | | Other Liabilities on the Balance Sheet (4) | $12.9 | $1.7 | $1.3 | $0.1 | $9.8 | | Other Liabilities not on the Balance Sheet (5) | $11.1 | $6.5 | $— | $1.2 | $3.4 | | Total Contractual Cash Obligations | $2,669.7 | $1,912.1 | $537.2 | $48.6 | $171.8 | - Critical accounting estimates include revenue recognition (over time based on costs incurred plus a reasonable profit margin) and income taxes (deferred tax assets/liabilities and valuation allowances)[216][217][219] - No material changes to accounting policies occurred in fiscal 2022. New accounting guidance on supplier finance programs (ASU 2022-04) will be effective for the company in the first quarter of fiscal 2024[216][288] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Plexus manages foreign exchange and interest rate risks through selective hedging, with a 10.0% change in either not materially affecting its financial position, results, or cash flows - Plexus is exposed to market risk from changes in foreign exchange and interest rates, and selectively uses financial instruments (e.g., foreign currency contracts, interest rate swaps) to reduce these risks, not for speculative purposes[223][224] Percentage of Transactions Denominated in Non-U.S. Dollar Currencies (Fiscal Years 2021-2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Sales | 9% | 10% | | Total Costs | 16% | 16% | - A 10.0% change in the U.S. dollar's value relative to our other transactional currencies would not have a material effect on our financial position, results of operations, or cash flows[225] - The primary interest rate risk is associated with the Credit Facility (variable rate), while 2018 Notes are fixed-rate. A 10.0% change in interest rates would not materially affect our financial position, results of operations, or cash flows[227] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents Plexus Corp.'s audited consolidated financial statements for fiscal years 2020-2022, including comprehensive income, balance sheets, shareholders' equity, cash flows, and detailed notes, along with the independent auditor's report Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on Plexus Corp.'s consolidated financial statements and internal controls for fiscal 2022, identifying revenue recognition as a critical audit matter - PricewaterhouseCoopers LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of October 1, 2022[235] - Revenue recognition was identified as a critical audit matter due to the significant audit effort required for procedures related to the company's revenue recognition process[241][242][243] Consolidated Financial Statements This section presents Plexus Corp.'s Consolidated Statements of Comprehensive Income, Balance Sheets, Shareholders' Equity, and Cash Flows for fiscal years 2020-2022 Consolidated Statements of Comprehensive Income (Fiscal Years 2020-2022) | Metric (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net sales | $3,811,368 | $3,368,865 | $3,390,394 | | Cost of sales | $3,464,139 | $3,045,569 | $3,077,688 | | Gross profit | $347,229 | $323,296 | $312,706 | | Selling and administrative expenses | $167,023 | $143,761 | $153,331 | | Restructuring and impairment charges | $2,021 | $3,267 | $6,003 | | Operating income | $178,185 | $176,268 | $153,372 | | Interest expense | $(15,858) | $(14,253) | $(16,162) | | Interest income | $1,305 | $1,372 | $1,878 | | Miscellaneous, net | $(5,329) | $(2,976) | $(3,691) | | Income before income taxes | $158,303 | $160,411 | $135,397 | | Income tax expense | $20,060 | $21,499 | $17,918 | | Net income | $138,243 | $138,912 | $117,479 | | Basic EPS | $4.96 | $4.86 | $4.02 | | Diluted EPS | $4.86 | $4.76 | $3.93 | | Total comprehensive income | $105,199 | $140,987 | $130,204 | Consolidated Balance Sheets (as of October 1, 2022 and October 2, 2021) | Asset (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $274,805 | $270,172 | | Restricted cash | $665 | $341 | | Accounts receivable, net | $737,696 | $519,684 | | Contract assets | $138,540 | $115,283 | | Inventories, net | $1,602,783 | $972,312 | | Total current assets | $2,816,122 | $1,930,886 | | Property, plant and equipment, net | $444,705 | $395,094 | | Total assets | $3,393,225 | $2,461,893 | | Liabilities (in thousands) | 2022 | 2021 | | Current portion of long-term debt and finance lease obligations | $273,971 | $66,313 | | Accounts payable | $805,583 | $634,969 | | Customer deposits | $480,486 | $204,985 | | Total current liabilities | $2,006,189 | $1,128,703 | | Long-term debt and finance lease obligations, net | $187,776 | $187,033 | | Total liabilities | $2,297,494 | $1,433,661 | | Shareholders' Equity (in thousands) | 2022 | 2021 | | Total shareholders' equity | $1,095,731 | $1,028,232 | Consolidated Statements of Cash Flows (Fiscal Years 2020-2022) | Cash Flow Type (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash flows (used in) provided by operating activities | $(26,240) | $142,577 | $210,368 | | Cash flows used in investing activities | $(101,561) | $(56,973) | $(49,851) | | Cash flows provided by (used in) financing activities | $139,295 | $(203,885) | $(1,458) | | Effect of exchange rate changes on cash | $(6,537) | $900 | $2,581 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $4,957 | $(117,381) | $161,640 | | Cash and cash equivalents and restricted cash, end of period | $275,470 | $270,513 | $387,894 | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering significant accounting policies, inventories, debt, income taxes, leases, segments, and revenue recognition - Significant accounting policies include revenue recognition (over time or at point of transfer), inventory valuation (lower of cost or market, FIFO), property/plant/equipment depreciation (straight-line), and impairment of long-lived assets[259][263][265][267][268] Inventories, Net (as of October 1, 2022 and October 2, 2021) | Category (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Raw materials | $1,433,353 | $860,538 | | Work-in-process | $81,207 | $48,356 | | Finished goods | $88,223 | $63,418 | | Total inventories, net | $1,602,783 | $972,312 | - Total customer deposits related to inventory were $463.2 million as of October 1, 2022, up from $200.6 million in 2021[290] Debt and Finance Lease Obligations (as of October 1, 2022 and October 2, 2021) | Obligation (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | 4.05% Senior Notes, due June 15, 2025 | $100,000 | $100,000 | | 4.22% Senior Notes, due June 15, 2028 | $50,000 | $50,000 | | Borrowings under the Credit Facility | $263,000 | $55,000 | | Finance lease and other financing obligations | $50,269 | $49,279 | | Unamortized deferred financing fees | $(1,522) | $(933) | | Total obligations | $461,747 | $253,346 | - The company refinanced its revolving credit facility on June 9, 2022, expanding the maximum commitment from $350.0 million to $500.0 million and extending maturity to June 9, 2027[294] - Plexus uses forward currency exchange contracts as cash flow hedges for forecasted foreign currency obligations and non-designated hedges for foreign currency denominated assets and liabilities[296][297] Effective Income Tax Rates Reconciliation (Fiscal Years 2020-2022) | Factor | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Federal statutory income tax rate | 21.0 % | 21.0 % | 21.0 % | | Foreign tax rate differences | (23.2) | (20.3) | (24.0) | | GILTI | 10.4 | 6.4 | 13.8 | | Tax credits, net | (1.9) | — | — | | Effective income tax rate | 12.7 % | 13.4 % | 13.2 % | - The tax holiday for a foreign subsidiary in the APAC segment, expiring December 31, 2034, resulted in tax reductions of approximately $35.3 million in fiscal 2022[312] Net Sales by Geographic Location (Fiscal Years 2020-2022) | Location (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | United States | $869,144 | $914,360 | $989,888 | | Malaysia | $1,846,086 | $1,495,049 | $1,432,154 | | China | $453,591 | $355,554 | $392,677 | | Mexico | $441,543 | $403,044 | $337,961 | | Romania | $217,052 | $202,649 | $217,295 | | United Kingdom | $91,137 | $99,365 | $118,463 | | Germany | $8,126 | $10,655 | $13,344 | | Thailand | $963 | $— | $— | | Elimination of inter-country sales | $(116,274) | $(111,811) | $(111,388) | | Total net sales | $3,811,368 | $3,368,865 | $3,390,394 | - Approximately 84% of revenue in fiscal 2022 (91% in 2021 and 2020) was recognized over time as products and services were transferred[370] Restructuring and Impairment Charges (Fiscal Years 2020-2022) | Category (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Restructuring and impairment costs | $2,021 | $3,267 | $6,003 | | Amounts utilized | $(1,980) | $(3,232) | $(7,264) | | Accrual balance, end of period | $112 | $71 | $36 | Schedule II - Valuation and Qualifying Accounts This schedule details the allowance for accounts receivable losses and valuation allowance on deferred income tax assets for fiscal years 2020-2022 Schedule II – Valuation and Qualifying Accounts (Fiscal Years 2020-2022) | Description (in thousands) | Balance at beginning of period | Additions charged to costs and expenses | Additions charged to other accounts | Deductions | Balance at end of period | | :--- | :--- | :--- | :--- | :--- | :--- | | Fiscal Year 2022: | | | | | | | Allowance for losses on accounts receivable | $1,188 | $2,117 | $— | $(1,344) | $1,961 | | Valuation allowance on deferred income tax assets | $30,321 | $1,338 | $— | $(6,097) | $25,562 | | Fiscal Year 2021: | | | | | | | Allowance for losses on accounts receivable | $3,597 | $1,232 | $— | $(3,641) | $1,188 | | Valuation allowance on deferred income tax assets | $34,948 | $4,499 | $— | $(9,126) | $30,321 | | Fiscal Year 2020: | | | | | | | Allowance for losses on accounts receivable | $1,537 | $4,051 | $— | $(1,991) | $3,597 | | Valuation allowance on deferred income tax assets | $29,170 | $5,778 | $— | $— | $34,948 | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Plexus Corp. reported no changes in or disagreements with accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[376] ITEM 9A. CONTROLS AND PROCEDURES As of October 1, 2022, Plexus' CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective, with no material changes in the recent fiscal quarter - As of October 1, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[377] - Management assessed and concluded that the company's internal control over financial reporting was effective as of October 1, 2022, based on COSO (2013) criteria[378] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[380] ITEM 9B. OTHER INFORMATION Plexus Corp. reported no other information required under this item - No other information is required under this item[382] ITEM 9C. FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to Plexus Corp - Item 9C, Foreign Jurisdictions That Prevent Inspections, is not applicable to the registrant[383] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, with the company's Code of Conduct available online - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement[385] - The company's Code of Conduct and Business Ethics, applicable to all board members, officers, and employees, is posted on its website[386] Key Executive Officers (as of November 18, 2022) | Name | Age | Position | | :--- | :--- | :--- | | Todd P. Kelsey | 57 | Chief Executive Officer | | Steven J. Frisch | 56 | President and Chief Strategy Officer | | Patrick J. Jermain | 56 | Executive Vice President and Chief Financial Officer | | Oliver K. Mihm | 50 | Executive Vice President and Chief Operating Officer | | Angelo M. Ninivaggi | 55 | Executive Vice President, Chief Administrative Officer, General Counsel and Secretary | | Ronnie Darroch | 57 | Executive Vice President – Global Operations and Regional President – EMEA | | Scott Theune | 58 | Regional President – AMER | | Victor Tan | 58 | Regional President – APAC | ITEM 11. EXECUTIVE COMPENSATION Executive compensation information is incorporated by reference from various sections of the 2023 Proxy Statement - Executive compensation information is incorporated by reference from the 2023 Proxy Statement[395] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security ownership information is incorporated by reference from the 2023 Proxy Statement, with 803,127 securities issuable upon exercise of outstanding options as of October 1, 2022 - Security ownership information for beneficial owners and management is incorporated by reference from the 2023 Proxy Statement[396] Equity Compensation Plan Information (as of October 1, 2022) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted-average exercise price of outstanding options, warrants and rights (2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in 1st column) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 803,127 | $44.02 | $979,811 | | Equity compensation plans not approved by security holders | — | n/a | — | | Total | 803,127 | $44.02 | $979,811 | (1) Represents options, stock-settled SARs, PSUs and RSUs granted under the 2016 Omnibus Incentive Plan and the 2008 Long-Term Incentive Plan. (2) The weighted average exercise prices exclude PSUs and RSUs. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement[399] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement, with PricewaterhouseCoopers LLP as the independent auditor - Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement[400] - PricewaterhouseCoopers LLP, Milwaukee, Wisconsin, is the independent registered public accounting firm (Auditor Firm ID: 238)[400] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists all documents filed as part of the Form 10-K, including financial statements, Schedule II, and a comprehensive list of exhibits covering corporate governance, agreements, and certifications - This section includes financial statements, financial statement schedules (Schedule II - Valuation and Qualifying Accounts), and a list of exhibits[402] - Exhibits cover corporate governance documents (Restated Articles of Incorporation, Bylaws), credit agreements, note purchase agreements, master accounts receivable purchase agreements, executive compensation plans, and various certifications (e.g., CEO/CFO certifications under Sarbanes-Oxley Act)[402][403][404][405] ITEM 16. FORM 10-K SUMMARY The company did not provide a Form 10-K summary in this report - No Form 10-K summary is provided in this report[406] SIGNATURES Signatures and Power of Attorney The Form 10-K report was signed by CEO Todd P. Kelsey on November 18, 2022, with a Power of Attorney granted for filing amendments, and includes signatures from other executive officers and directors - The report was signed by Todd P. Kelsey, Chief Executive Officer, on November 18, 2022[409] - A Power of Attorney grants Todd P. Kelsey, Patrick J. Jermain, and Angelo M. Ninivaggi authority to sign and file amendments to the report[411] - The report includes signatures from the Chief Executive Officer, Executive Vice President and Chief Financial Officer, and other directors[413]