PLEXUS CORP (PLXS) FY 2021 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") 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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