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Nov. 19, 2021, 8:19 a.m. EST

10-K: PLEXUS CORP

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(EDGAR Online via COMTEX) -- 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

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

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







                                                                            2021                 2020
        Net sales                                                      $   3,368.9          $   3,390.4
        Cost of sales                                                      3,045.6              3,077.7
        Gross profit                                                         323.3                312.7
        Gross margin                                                           9.6  %               9.2  %
        Operating income                                                     176.3                153.4
        Operating margin                                                       5.2  %               4.5  %
        Other expense                                                         15.9                 18.0
        Income tax expense                                                    21.5                 17.9
        Net income                                                           138.9                117.5
        Diluted earnings per share                                     $      4.76          $      3.93
        Return on invested capital*                                           15.4  %              14.0  %
        Economic return*                                                       7.3  %               5.2  %
        


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







                                                                 2021        2020
                          General Electric Company ("GE")       11.2  %     11.7  %
                          Top 10 customers                      55.2  %     55.2  %
        


Table of Contents







                                                                  2021           2020
                     Net sales:
                     AMER                                      $ 1,317.4      $ 1,327.8
                     APAC                                        1,850.6        1,824.8
                     EMEA                                          312.7          349.1
                     Elimination of inter-segment sales           (111.8)        (111.3)
                     Total net sales                           $ 3,368.9      $ 3,390.4
        


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.







                                         2021           2020
        Net sales:
        Industrial                    $ 1,549.0      $ 1,520.4
        Healthcare/Life Sciences        1,326.9        1,258.4
        Aerospace/Defense                 493.0          611.6
        Total net sales               $ 3,368.9      $ 3,390.4
        


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.







                                                             2021         2020
                            Operating income (loss):
                            AMER                           $  62.3      $  38.1
                            APAC                             238.8        246.6
                            EMEA                              (0.9)         1.5
                            Corporate and other costs       (123.9)      (132.8)
                            Total operating income         $ 176.3      $ 153.4
        


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.







                                                         2021           2020
        Adjusted operating income (tax effected)      $  156.2       $ 137.1
        Average invested capital                       1,014.7         980.0
        After-tax ROIC                                    15.4  %       14.0  %
        WACC                                               8.1  %        8.8  %
        Economic return                                    7.3  %        5.2  %
        


LIQUIDITY AND CAPITAL RESOURCES

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







                                                                              2021                 2020
        Cash provided by operating activities                            $     142.6          $     210.4
        Cash used in investing activities                                      (57.0)               (49.9)
        Cash used in financing activities                                     (203.9)                (1.5)
        Effect of exchange rate changes on cash and cash
        equivalents                                                              0.9                  2.6
           Net increase (decrease) in cash and cash equivalents
        and restricted cash                                              $    (117.4)         $     161.6
        


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.

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                                                              Three Months Ended
                                                       October 2,            October 3,
                                                          2021                  2020
                     Days in accounts receivable           56                    48
                     Days in contract assets               13                    11
                     Days in inventory                    116                    85
                     Days in accounts payable             (76)                  (57)
                     Days in cash deposits                (24)                  (18)
                     Annualized cash cycle                 85                    69
        


We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the . . .

Nov 19, 2021

COMTEX_397271881/2041/2021-11-19T08:19:13

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