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Item 7. Management’s Discussion and Analysis

2024-11-27 compared with 2023-11-16 · 110 added, 118 removed, 242 unchanged (49% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

This report on annual report Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These statements relate to our expectations for future events and time periods.

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any statements regarding litigation or pending investigations, claims or disputes;

any statements regarding the timing of closing of, future cash outlays for, and benefits of acquisitions and other strategic transactions, any statements regarding expected restructuring costs and benefits;

any statements regarding the timing of closing of, future cash outlays for, and benefits of acquisitions and other strategic transactions, including our Indian joint venture;

any statements regarding expected restructuring costs and benefits;

any statements concerning the adequacy of our current liquidity and the availability of additional sources of liquidity;

any statements regarding the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition;

any statements regarding the potential impact of any future outbreaks, including outbreaks caused by new variants of COVID-19 on our business, results of operations and financial condition;

any statements regarding the potential impact of supply chain shortages and inflation on our business;

any statements regarding the future impact of tariffs and export controls on our business;

any statements relating to our expectations concerning developments in the audit by the IRS of certain tax returns filed by us;

any statements relating to future tax rates and our expectations concerning developments in the audit by the IRS of certain tax returns filed by us, including the potential impact of the IRS revenue agent’s report received by us in November 2023;

any statements relating to the expected impact of accounting pronouncements not yet adopted;

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2) Components, Products and Services (“CPS”).

Components include printed circuit boards, backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts.

Components include advanced printed circuit boards, backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts.

Products include optical, radio frequency (“RF”) and microelectronic design and manufacturing services from our Advanced Microsystems Technologies division;

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Our CPS business consists of multiple operating segments which do not individually meet the quantitative thresholds for being presented as reportable segments.

Therefore, financial information for these operating segments is combined and presented in a single category entitled “Components, Products and Services”.

Therefore, financial information for these operating segments is combined and presented in a single category entitled “CPS”.

Our strategy is to leverage our comprehensive product and service offerings, advanced technologies and global capabilities to further penetrate diverse end markets that we believe offer significant growth opportunities and have complex products that require higher value-added services.

We believe this strategy differentiates us from our competitors and will help drive more sustainable revenue growth and provide opportunities for us to achieve operating margins that exceed industry standards.

A core component of our business strategy is to establish long-term customer partnerships with companies.

A core component of our business strategy is to establish and retain long-term customer partnerships with companies.

Historically, we have had substantial recurring sales to existing customers.

Sales to our ten largest customers typically represent approximately 50% of our net sales in any given year.

Nokia represented 10% or more of our net sales in 2023, 2022 and 2021.

Motorola represented 10% or more of our net sales in 2022.

We typically enter into supply agreements with our major OEM customers.

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In addition, some customer contracts contain cost reduction objectives, which can have the effect of reducing revenue from such customers.

We typically generate about 80% of our net sales from products manufactured in our foreign operations.

We generate about 80% of our net sales from products manufactured in our foreign operations.

The concentration of foreign operations has resulted primarily from a desire on the part of many of our customers to manufacture in lower-cost locations in regions such as Asia, Latin America and Eastern Europe and we plan to expand our presence as appropriate to meet the needs of our customers.

We also intend to continue to invest in factory automation, process improvements, robotics and artificial intelligence, keeping up with the trends in technology to further enhance our efficiency output.

Trends and Uncertainties

We believe our end-to-end manufacturing solutions combined with our global supply chain management expertise differentiates us from our competitors and enables us to better serve the needs of OEMs.

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Although we believe we are well-positioned in each of our key end markets and offer many advantages compared to our competitors, competition remains intense and profitably growing our revenues has been challenging.

Additionally, we are impacted by macroeconomic challenges such as inflation, market volatility, fluctuations in currency exchange rates, supply chain issues, and actual or threatened wars or conflicts.

These challenges can increase the prices and reduce the availability of components we acquire, as well as increase our labor and operating costs.

We have been able to partially mitigate the impact of rising prices through our contractual pricing rights with customers.

However, further pricing increases may result in a decline in our future profitability and we expect the macroeconomic challenges to continue in the future.

Over the past several years, the U.S., China, the E.U.

and several other countries imposed tariffs impacting certain imported products.

Although our customers are generally liable to us for reimbursement of tariffs we pay on components imported for the manufacture of their products, there can be no assurance that we will be successful in recovering all of the tariffs that are owed to us.

Unrecovered tariffs paid on behalf of our customers reduce our gross margins.

Also, although we are required to pay tariffs upon importation of components, we may not recover these amounts from customers until sometime later, which adversely impacts our operating cash flow in a given period.

However, the net impact of tariffs, after recovery from customers, has not been, and is not expected to be, material to us.

Overall, we strive to manage the challenges posed by the economy and competition, by focusing on improving our operations, building flexibility and efficiencies in our processes and adjusting our business models to changing circumstances.

Given that maintaining low costs is the cornerstone of our success and growth, we are proactively handling cost impacts through a combination of well-calibrated pricing actions and targeted cost-saving measures to enhance overall stockholder value.

Additionally, we are impacted by macroeconomic challenges such as inflation, supply chain constraints, foreign currency fluctuations, high interest rates, market volatility, recession concerns, tariffs and other factors that have been and could be in the future exacerbated by geopolitical conflicts such as the war in Ukraine, conflict in the Middle East and results of the U.S.

presidential election.

Although supply chain constraints have been easing, we expect headwinds to our revenue growth that will continue in 2025 due to customers absorbing their finished goods inventory in some of our end markets.

Despite these challenges, we remain focused on improving our operations, building flexibility and efficiencies in our processes and adjusting our business models to changing circumstances.

We intend to continue diversifying into mission critical markets and creating a portfolio of more complex, higher technology products with longer product life cycles.

As our end markets evolve and grow, our ability to optimize our product and portfolio mix towards higher value opportunities will continue to be an important driver for our business going forward.

Critical Accounting Policies and Estimates

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Revenue Recognition.

We derive revenue principally from sales of integrated manufacturing solutions, components and Company-proprietary products.

Other sources of revenue include logistic and repair services;

design, development and engineering services;

defense and aerospace programs;

and sales of raw materials to customers whose requirements change after we have procured inventory to fulfill the customer’s forecasted demand.

For purposes of determining when to recognize revenue, and in what amount, we apply a 5-step model:

(1) identify the contract with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when (or as) we satisfy a performance obligation.

Each of these steps may involve the use of significant judgments.

We recognize revenue for the majority of our contracts on an over time basis.

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For these contracts, revenue is recognized on an over time basis using the cost-to-cost method (ratio of costs incurred to date to total estimated costs at completion) which we believe best depicts the transfer of control to the customer.

Revenue streams for which revenue is recognized on an over time basis include sales of vertically integrated manufacturing solutions (integrated manufacturing solutions and components);

logistics and repair services;

design, development and engineering services;

and defense and aerospace programs.

Application of the cost-to-cost method for government contracts in our Defense and Aerospace division requires the use of significant judgments with respect to estimated materials, labor and subcontractor costs included in the total estimated costs at completion.

In our Defense and Aerospace division, we apply the cost-to-cost method for government contracts which requires the use of significant judgments with respect to estimated materials, labor and subcontractor costs included in the total estimated costs at completion.

Additionally, we evaluate whether contract modifications for claims have been approved and, if so, estimate the amount, if any, of variable consideration that can be included in the transaction price of the contract.

This division is an operating segment whose results are combined with thirteen other operating segments and reported under CPS.

In 2023, CPS revenue and gross profit were $1.6 billion and $202 million, respectively.

Estimates of materials, labor and subcontractor costs expected to be incurred to satisfy a performance obligation are updated on a quarterly basis.

These estimates consider costs incurred to date and estimated costs to be incurred over the remaining expected period of performance to satisfy a performance obligation.

Such estimates are reviewed each quarter by a group of employees that includes representatives from numerous functions such as engineering, materials, contracts, manufacturing, program management, finance and senior management.

There is inherent uncertainty in estimating the amount of costs that will be required to complete a contract.

Factors that contribute to the inherent uncertainty in estimates include, among others, (1) the long-term duration of contracts, (2) the highly-complex nature of the products we manufacture, (3) the readiness of our customer’s design for manufacturing, (4) the cost and availability of purchased materials, (5) labor cost, availability and productivity, (6) subcontractor performance and (7) the risk of delayed performance/completion.

Therefore, such estimates are reviewed each quarter by a group of employees that includes representatives from numerous functions such as engineering, materials, contracts, manufacturing, program management, finance and senior management.

If a change in estimate is deemed necessary, the impact of the change is recognized in the period of change.

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If it is determined that a claim has been approved, the amount of the claim, if any, that can be included in transaction price is estimated considering a number of factors such as the length of time expected to lapse until uncertainty about the claim has been resolved and the extent to which our experience with claims for similar contracts has predictive value.

Changes in our estimates of transaction price and/or costs to complete result in a favorable or unfavorable impact to revenue and operating income.

The impact of changes in estimates on revenue and operating income resulting from application of the cost-to-cost method for recognizing revenue was as follows:

September 28,

2024 September 30,

2023 October 1,

(In thousands)

Favorable $ 12,220 $ 6,023 $ 5,403

Unfavorable (2,697) (2,556) (162)

Total $ 9,523 $ 3,467 $ 5,241

September 28,

2024 September 30,

2023 October 1,

Operating Income:

(In thousands)

Favorable $ 21,229 $ 8,657 $ 7,025

Unfavorable (16,102) (44,838) (20,737)

Total $ 5,127 $ (36,181) $ (13,712)

For contracts for which revenue is required to be recognized at a point-in-time, we recognize revenue when we have transferred control of the related goods, which generally occurs upon shipment or delivery of the goods to the customer.

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• declines in the market value of inventory.

Our raw materials inventories are generally acquired in anticipation of specific customer orders and pursuant to customer-specific design specifications.

When we and our customers agree that the quantity of customer-specific inventory is in excess of anticipated demand, we may transfer control of those inventories to our customers in exchange for a cash payment.

These transactions are reported as transfers of non-financial assets – i.e., reported on a net basis in the income statement.

Long-lived Assets — We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

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In connection with RSBVL’s investment, we entered into a management services contract pursuant to which we have the unilateral ability to make the significant financial and operating decisions made in the ordinary course of SIPL’s business.

We determined the voting interest model was applicable under ASC 810 and concluded that, despite not having a majority ownership interest, we have a controlling financial interest in SIPL through the management services contract.

We determined the voting interest model was applicable under ASC 810 and

concluded that, despite not having a majority ownership interest, we have a controlling financial interest in SIPL through the management services contract.

Therefore, we have, by contract, the unilateral ability to control the significant decisions made in the ordinary course of SIPL’s business and, as such, we consolidate SIPL.

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Refer to Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Amendment No.

1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended October 1, 2022 filed with the SEC on May 22, 2023 for discussion of our results of operations for the fiscal year ended October 1, 2022 compared to the fiscal year ended October 2, 2021.

“Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in our annual report on Form 10-K for the fiscal year ended September 30, 2023 filed with the SEC on November 16, 2023 for discussion of our results of operations for the fiscal year ended September 30, 2023 compared to the fiscal year ended October 1, 2022.

The following table presents our key operating results.

September 28,

2023 October 1,

2024 September 30,

2023 October 1,

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Net income attributable to common shareholders $ 222,536 $ 309,970 $ 240,384

Net sales increased from $7.9 billion for 2022 to $8.9 billion for 2023, an increase of 12.8%.

Net sales decreased from $8.9 billion for 2023 to $7.6 billion for 2024, a decrease of 15.3%.

Net sales increased from $7.9 billion for 2022 to $8.9 billion for 2023, an increase of 12.8%.

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September 28,

2023 October 1,

2024 September 30,

2023 October 1,

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Comparison of 2024 to 2023 by End Market

Sales in both our industrial, medical, defense and automotive end market, as well as our communications networks and cloud infrastructure end market, increased primarily as a result of stronger overall demand, particularly in the first half of the year, improved material availability resulting from easing of supply chain challenges and a ramp up of certain new customer programs.

The decrease in sales was primarily due to reduced demand caused by customers in some end markets, particularly communications networks, making adjustments to absorb their finished goods inventory.

The impact of this was partially offset by new program wins and program ramps in our automotive and communications networks end markets.

Gross margin was 8.5%, 8.3% and 7.9% in 2024, 2023 and 2022, respectively.

IMS gross margin increased to 7.7% in 2023 from 7.2% in 2022, primarily due to increased operating efficiencies from higher volume.

CPS gross margin increased to 11.6% in 2023 from 10.6% in 2022, primarily due to improved operating efficiencies and a favorable mix of products, the effects of which were partially offset by losses on certain fixed-price customer contracts.

IMS gross margin decreased slightly to 7.5% in 2024 from 7.7% in 2023.

CPS gross margin increased to 12.8% in 2024 from 11.6% in 2023, primarily due to significant losses recognized on certain fixed-price customer contracts in 2023 compared to 2024, the effect of which was partially offset by unfavorable product mix.

We have experienced fluctuations in gross margin in the past and may continue to do so in the future.

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As a percentage of net sales, selling, general and administrative expenses were 3.5%, 2.9% and 3.1% for 2024, 2023 and 2022, respectively.

The increase in absolute dollars in 2023 from 2022 was primarily due to an increase in our deferred compensation liability resulting from an increase in the market value of participant investment accounts and higher professional fees.

The increase in absolute dollars in 2024 from 2023 was primarily due to higher stock compensation expense from new equity grants, higher variable compensation and an increase in deferred compensation caused by strong stock market performance that increased the market value of participant investment accounts, partially offset by lower professional fees.

Research and Development

Research and development expenses were $29 million, $26 million and $21 million in 2024, 2023 and 2022, respectively.

As a percentage of net sales, Research and Development expenses were 0.3% for 2023, 2022 and 2021.

The increase in absolute dollars in 2023 from 2022 was primarily due to higher expense for additional design support on projects and higher material costs as we continue to focus on supporting customer requirements.

Restructuring and Other

Restructuring costs were $6 million, $11 million, and $15 million in 2023, 2022, and 2021, respectively.

The decrease in restructuring cost in 2023 compared to 2022 was primarily due to an increase in 2022 in our environmental remediation liability for a former site.

Interest Income

Interest income was $14 million, $2 million and $1 million in 2023, 2022 and 2021, respectively.

Interest income increased $12 million in 2023 primarily due to interest earned on investments purchased with a portion of the cash proceeds received from the sale of an equity interest related to a joint venture transaction that closed on October 3, 2022 as well as higher interest earned on cash deposits.

Interest Expense

Interest expense was $36 million, $22 million and $20 million in 2023, 2022 and 2021, respectively.

Interest expense increased $14 million in 2023 due to higher interest rates and increased utilization of our revolving credit facility.

Other Income (Expense), net

Other income (expense), net was $(20) million in 2023, $(26) million in 2022 and a $44 million in 2021.

Other income (expense), net, decreased $6 million in 2023 due primarily to a gain of $5 million in the market value of participant investment accounts in our deferred compensation plan in 2023 compared to a loss of $6 million in 2022, a $7 million allowance in 2022 that was provided for a note receivable compared to none in 2023, partially offset by a $13 million increase in fees in 2023 for accounts receivable factoring.

As a percentage of net sales, research and development expenses were 0.4% for 2024 and 0.3% for 2023 and 2022.

The increase in absolute dollars in 2024 from 2023 was primarily due to higher expenses for design and engineering support for existing and new projects.

Other Expense

Other expense was $1 million in 2024, $20 million in 2023 and a $26 million in 2022.

The decrease in other expense in 2024 was primarily caused by a $12 million decrease in discount of sold receivables in 2024 due to significantly lower factoring levels and an incremental gain of $5 million in the market value of participant investment accounts in our deferred compensation plan.

Provision for Income Taxes

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Our effective tax rate was 25%, 21% and 20% for 2024, 2023 and 2022, respectively.

The increase in tax in absolute dollars for 2023 was primarily due to increased profit before tax.

We are currently being audited by the Internal Revenue Service (“IRS”) for fiscal years 2008 through 2010.

September 26, 2023, we received a final Notice of Proposed Adjustment from the IRS related to a worthless stock deduction and disallowance of the resulting net operating loss carryforward in the 2009 fiscal year.

We disagree with the IRS’s proposed adjustment and intend to vigorously contest this matter through the applicable IRS administrative and judicial procedures, as appropriate.

In the future, we expect to receive a Revenue Agent Report including the IRS’s calculation of the tax assessment related to this matter.

Although the final resolution of this proposed adjustment remains uncertain, we continue to believe that it is more likely than not that our tax position will be sustained.

An unfavorable resolution of this matter could have a material, adverse impact on our Consolidated Financial Statements.

Net Income Attributable to Noncontrolling Interest

On October 3, 2022 (“Transaction Date”), we completed a joint venture transaction pursuant to a Share Subscription and Purchase Agreement (the “SSPA”) and a Joint Venture and Shareholders’ Agreement (the “Shareholders’ Agreement”) previously entered into with Reliance Strategic Business Ventures Limited (“RSBVL”), a wholly owned subsidiary of Reliance Industries Limited.

Pursuant to the SSPA and the Shareholders’ Agreement, the parties established Sanmina SCI India Private Limited (“SIPL”), our existing Indian manufacturing entity, as a joint venture to engage in manufacturing in India of telecommunications equipment, data center and internet equipment, medical equipment, clean technology equipment and other high-tech equipment.

This partnership leverages our advanced manufacturing experience and RSBVL’s expertise and leadership in the Indian business ecosystem.

In addition to supporting our current customer base, the joint venture will create a state-of-the-art “Manufacturing Technology Center of Excellence" that will serve as an incubation center to support the product development and hardware start-up ecosystem in India, as well as promote research and innovation of leading-edge technologies.

As a result of the transaction, RSBVL acquired shares of SIPL for approximately $216 million of cash such that RSBVL holds 50.1% of the outstanding shares of SIPL and we hold the remaining 49.9% of the outstanding shares of SIPL.

In connection with RSBVL’s investment, we and RSBVL entered into a management services contract pursuant to which we have the unilateral ability to make the significant financial and operating decisions made in the ordinary course of SIPL’s business.

In accordance with ASC Topic 810, Consolidation (“ASC 810”), we are required to consolidate entities in which we have a controlling financial interest.

Therefore, we have, by contract, the unilateral ability to control the significant decisions made in the ordinary course of SIPL’s business.

Because we have a controlling financial interest in SIPL, we consolidate SIPL.

Net income attributable to noncontrolling interest was $18 million in 2023.

The tax rate was lower in 2023 and 2022 primarily due to larger discrete items, including recognized tax benefits from the release of certain foreign tax reserves due to lapse of time and expiration of statutes of limitations.

As a result of an audit by the Internal Revenue Service (“IRS”) for fiscal 2008 through 2010, we received a Revenue Agent’s Report (“RAR”) on November 17, 2023 asserting an underpayment of tax of approximately $8 million for fiscal 2009.

The asserted underpayment results from the IRS’s proposed disallowance of a $503 million worthless stock deduction in fiscal 2009.

Such disallowance, if upheld, would reduce our available net operating loss carryforwards and result in additional tax and interest attributable to fiscal 2021 and later years, which could be material.

We disagree with the IRS’s position as asserted in the RAR and are vigorously contesting this matter through the applicable IRS administrative and judicial procedures, as appropriate.

We do not expect resolution of this matter within twelve months and cannot predict with any certainty the timing of such resolution.

Although the final resolution of this matter remains uncertain, we continue to believe that it is more likely than not our tax position will be sustained.

However, an unfavorable resolution of this matter could have a material adverse impact on our consolidated financial statements.

The Organization for Economic Co-operation and Development (“OECD”), an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles, namely, its Pillar Two framework, which imposes a global minimum corporate tax rate of 15%.

Various countries have enacted or have announced plans to enact new tax laws to implement the global minimum tax and where enacted, the rules begin to be effective for us in fiscal 2025.

The Pillar Two rules are considered an alternative minimum tax and therefore deferred taxes would not be recognized or adjusted for the estimated effects of the future minimum tax.

The adoption and effective dates of these rules may vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes.

We do not expect any material impact from these tax law changes in fiscal 2025.

Liquidity and Capital Resources

September 28,

2023 October 1,

2024 September 30,

2023 October 1,

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September 28,

2023 October 1,

2024 September 30,

Days sales outstanding (1) 56 55

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(6) Cash cycle days (a measure of how quickly we convert investments in inventory to cash) is calculated as days inventory on hand plus days sales outstanding minus accounts payable days.

Cash and cash equivalents were $668 million at September 30, 2023 and $530 million at October 1, 2022.

This increase was driven largely by our receipt of approximately $216 million from the sale of shares of SIPL to RSBVL in fiscal 2023.

* Certain prior period ratios reflect immaterial updates due to reclassifications of certain financial statement amounts to conform to the current period presentation.

Cash and cash equivalents were $626 million at September 28, 2024 and $668 million at September 30, 2023.

Our cash levels vary during any given period depending on the timing of collections from customers and payments to suppliers, borrowings under credit facilities, sales of accounts receivable under numerous programs we utilize, repurchases of capital stock and other factors.

Our working capital was approximately $1.8 billion and $1.4 billion as of September 30, 2023 and October 1, 2022, respectively.

Our working capital was approximately $1.9 billion and $1.8 billion as of September 28, 2024 and September 30, 2023, respectively.

Net cash provided by operating activities was $340 million, $235 million and $331 million for 2024, 2023 and 2022, respectively.

Our working capital metrics tend to fluctuate from quarter-to-quarter based on factors such as the linearity of our shipments to customers and purchases from suppliers, customer and supplier mix, and payment terms with customers and suppliers.

Our working capital metrics tend to fluctuate from quarter-to-quarter based on factors such as the linearity of our

shipments to customers and purchases from suppliers, customer and supplier mix, and payment terms with customers and suppliers.

These fluctuations can significantly affect our cash flows from operating activities.

During 2024, we generated $447 million of cash from earnings, excluding non-cash items, and used $107 million of cash primarily because of a decrease in accounts payable of $112 million, an increase in accrued liabilities of $12 million and an increase in accounts receivable of $104 million, partially offset by a decrease in inventories of $36 million.

The decrease in accounts payable was primarily attributable to an unfavorable mix of supplier payment terms and lower inventory receipts, resulting in DPO decreasing from 80 days in 2023 to 71 days in 2024.

The increase in accrued liabilities was due primarily to customer payments for certain inventory partially offset by a decrease in amounts collected under our accounts receivable factoring program that had not been remitted as of the end of the period to the financial institutions that purchased the receivables.

The increase in accounts receivable was primarily attributable to unfavorable customer payment terms mix.

The decrease in inventories is primarily due to our ongoing efforts to reduce inventory to more appropriate levels primarily by working with customers to ensure their demand forecasts are reasonable and incorporate appropriate lead times to secure materials.

During 2023, we generated $527 million of cash from earnings, excluding non-cash items, and used $292 million of cash primarily because of a decrease in accounts payable of $418 million and an increase in accounts receivable of $89 million, partially offset by a decrease in inventories of $210 million.

The decrease in accounts payable is primarily attributable to lower inventory receipts and an unfavorable mix of supplier payment terms, resulting in DPO decreasing from 90 days in 2022 to 81 days in 2023.

The decrease in inventories is primarily due to lower business volume and our efforts to reduce inventory to more appropriate levels by working with customers to ensure their demand forecasts are reasonable and incorporate appropriate lead times to secure materials.

The increase in accounts receivable is primarily attributable to lower business volume as well as an unfavorable customer payment terms mix.

The decrease in accounts payable was primarily attributable to lower inventory receipts and an unfavorable mix of supplier payment terms, resulting in DPO decreasing from 90 days in 2022 to 80 days in 2023.

The decrease in inventories was primarily due to lower business volume and our efforts to reduce inventory to more appropriate levels primarily by working with customers to ensure their demand forecasts are reasonable and incorporate appropriate lead times to secure materials.

The increase in accounts receivable was primarily attributable to higher business volume and unfavorable customer payment terms mix.

Net cash used in investing activities was $114 million, $192 million and $132 million for 2024, 2023 and 2022, respectively.

In 2023 and 2022, we used $191 million and $139 million of cash for capital expenditures respectively.

In 2024 and 2023, we used $111 million and $191 million, respectively, of cash for capital expenditures.

Net cash provided by (used in) financing activities was $(270) million, $95 million and $(314) million for 2024, 2023 and 2022, respectively.

in connection with a previous business combination, received $216 million from sale of shares of SIPL to RSBVL, received $8 million proceeds from short-term borrowing and received $3 million of proceeds from issuances of common stock pursuant to stock option exercises.

In 2022, we repurchased $331 million of common stock (including $14 million in settlement of employee tax withholding obligations), repaid an aggregate of $333 million of long-term debt, using $350 million of proceeds from issuances of a term loan, incurred $3 million of costs in connection with the amendment to the term loan and received $2 million of proceeds from issuances of common stock pursuant to stock option exercises.

In 2024, we repurchased $254 million of common stock (including $26 million in settlement of employee tax withholding obligations), repaid an aggregate of $22 million of long-term debt and received $6 million of proceeds from issuances of common stock pursuant to stock option exercises.

In 2023, we repurchased $107 million of common stock (including $23 million in settlement of employee tax withholding obligations), repaid an aggregate of $18 million of long-term debt, paid a final payment of $9 million in connection with a previous business combination, received $216 million from sale of shares of SIPL to RSBVL and received $8 million proceeds from short-term borrowing.

Revolving Credit Facility.

Our Credit Agreement provides for an $800 million revolving credit facility and a $350 million secured term loan (the “Term Loan Due 2027”), together with an accordion feature by which we can obtain, subject to the satisfaction of specified conditions and commitment of the lenders, additional revolving commitments in an aggregate amount of up to $200 million.

The Fifth Amended and Restated Credit Agreement, dated as of September 27, 2022, as amended, (the “Credit Agreement”), provides for an $800 million revolving credit facility and a $350 million secured term loan (the “Term Loan Due 2027”), together with an accordion feature by which we can obtain, subject to the satisfaction of specified conditions and commitment of the lenders, additional revolving commitments in an aggregate amount of up to $200 million.

As of September 28, 2024, no borrowings and $14 million of letters of credit were outstanding under the Credit Agreement, under which $786 million was available to borrow.

There were no borrowings outstanding under the Credit Agreement as of October 1, 2022.

There were no borrowings outstanding under the Credit Agreement as of September 30, 2023.

Short-term Borrowing Facilities.

We had $8 million of short-term borrowings outstanding as of September 30, 2023.

We had no short-term borrowings outstanding as of September 28, 2024 and $8 million of short-term borrowings outstanding as of September 30, 2023.

Additionally, certain of our foreign subsidiaries had a total of $71 million of short-term borrowing facilities available, under which no borrowings were outstanding as of September 28, 2024.

These facilities expire at various dates through the first quarter of 2025.

Some of these facilities expire at various dates through the second quarter of 2025 and are expected to be renewed.

Other Liquidity Matters

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As of September 28, 2024, an aggregate of $53 million remains available under these programs.

We are party to a Receivables Purchase Agreement (the “RPA”) with certain third-party banking institutions for the sale of trade receivables generated from sales to certain customers.

We are party to a Receivables Purchase Agreement (the “RPA”) with certain third-party banking institutions for the sale of accounts receivable generated from sales to certain customers.

The amount available under the RPA is uncommitted and, as such, is available at the discretion of our third-party banking institutions.

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Therefore, as of September 28, 2024, a maximum of $490 million of sold receivables could be outstanding at any point in time under this program, as amended, as required by our Credit Agreement.

Trade receivables sold pursuant to the RPA are serviced by us.

In addition to the RPA, we participate in trade receivables sales programs that have been implemented by certain of our customers, as in effect from time to time.

We do not service trade receivables sold under these other programs.

Accounts receivables sold pursuant to the RPA are serviced by us.

In addition to the RPA, we participate in accounts receivable sales programs that have been implemented by certain of our customers, as in effect from time to time.

We do not service accounts receivable sold under these other programs.

The sale of receivables under all of these programs is subject to the approval of the banks or customers involved and there can be no assurance that we will be able to sell the maximum amount of receivables permitted by these programs when desired.

Under each of the programs noted above, we sell our entire interest in a trade receivable for 100% of face value, less a discount.

For the years ended September 30, 2023 and October 1, 2022, we sold approximately $3 billion and $2 billion, respectively, of accounts receivable under these programs.

As of September 30, 2023 and October 1, 2022, $162 million and $194 million, respectively, of accounts receivable sold under the RPA and subject to servicing by us remained outstanding and had not yet been collected.

Under each of the programs noted above, we sell our entire interest in an accounts receivable for 100% of face value, less a discount.

For the years ended September 28, 2024 and September 30, 2023, we sold approximately $1.1 billion and $2.6 billion, respectively, of accounts receivable under these programs.

As of September 28, 2024 and September 30, 2023, $34 million and $162 million, respectively, of accounts receivable sold under the RPA and subject to servicing by us remained outstanding and had not yet been collected.

Our sole risk with respect to receivables we service is with respect to commercial disputes regarding such receivables.

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Additionally, we are required to remit amounts collected as servicer on a weekly basis to the financial institutions that purchased the receivables.

As of September 30, 2023 and October 1, 2022, $33 million and $49 million, respectively, had been collected but not yet remitted.

As of September 28, 2024 and September 30, 2023, $3 million and $33 million, respectively, had been collected but not yet remitted.

This amount is classified in accrued liabilities on the consolidated balance sheets.

We enter into forward interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in the benchmark interest rate (Term SOFR) associated with anticipated variable rate borrowings.

See Note 5, “Financial Instruments” of the notes to the Consolidated Financial Statements contained in this report for details.

We enter into forward interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in Secured Overnight Financing Rate benchmark interest rate associated with anticipated variable rate borrowings.

See Note 5 “Financial Instruments and Concentration of Credit Risk” of the notes to the Consolidated Financial Statements contained in this report for details.

In the ordinary course of business, we are or may become party to legal proceedings, claims and other contingencies, including environmental, warranty and employee matters and examinations by government agencies.

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Therefore, the amount of future cash flows associated with uncertain tax positions may be significantly higher or lower than our recorded liability and we are unable to reliably estimate when cash settlement may occur.

It is reasonably possible that the balance of gross unrecognized tax benefits could decrease in the next 12 months by approximately $8 million due to payments, the resolution of audits and expiration of statutes of limitations.

In addition, there could be a corresponding decrease in accrued interest and penalties of approximately $2 million.

Our liquidity is largely dependent on changes in our working capital, including sales of accounts receivable under our receivables sales programs and the extension of trade credit by our suppliers, investments in manufacturing inventory, facilities and equipment, repayments of obligations under outstanding indebtedness and repurchases of common stock.

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(3) our foreign short-term borrowing facilities of $71 million, all of which was available;

(4) proceeds from the sale of accounts receivable under our receivables sales programs and (5) cash generated from operations.

(4) proceeds from the sale of accounts receivable under our receivables sales programs;

and (5) cash generated from operations.

Subject to satisfaction of certain conditions, including obtaining additional commitments from existing and/or new lenders, we may increase the revolver commitments under the Credit Agreement by an additional $200 million.

We believe our existing cash resources and other sources of liquidity, together with cash generated from operations, will be sufficient to meet our working capital requirements through at least the next 12 months.

However, should demand for our services decrease significantly over the next 12 months, should we be unable to recover on inventory obligations owed to us by our customers or should we experience significant increases in delinquent or uncollectible accounts receivable for any reason, our cash provided by operations could decrease significantly and we could be required to seek additional sources of liquidity to continue our operations at their current level.

However, should demand for our services decrease significantly over the next 12 months, should we be unable to recover on inventory obligations owed to us

by our customers or should we experience significant increases in delinquent or uncollectible accounts receivable for any reason, our cash provided by operations could decrease significantly and we could be required to seek additional sources of liquidity to continue our operations at their current level.

We invest our cash in numerous financial institutions that we believe to be of high quality.

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Should we choose or need to remit cash to the United States from our foreign locations, we may incur tax obligations which would reduce the amount of cash ultimately available to the United States.

We believe that cash held in the United States, together with liquidity available under our Credit Agreement and cash from foreign subsidiaries that could be remitted to the United States without tax consequences, will be sufficient to meet our United States liquidity needs for at least the next twelve months.

SIPL’s cash and cash equivalents balance of $200 million as of September 28, 2024 is not available for general corporate purposes and must be retained in SIPL to fund its operations.

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These obligations impact our liquidity and capital resource needs.

Our estimated future obligations consist of leases, the Term Loan Due 2027, pension plan funding obligations and unrecognized tax benefits as of September 30, 2023.

Our estimated future obligations consist of leases, our Term Loan Due 2027, pension plan funding obligations and unrecognized tax benefits as of September 28, 2024.

A summary of our operating lease obligations as of September 28, 2024 can be found in Note 7 “Leases” of the notes to the Consolidated Financial Statements contained in this report.

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See Note 15 “Employee Benefit Plans” of the notes to the Consolidated Financial Statements contained in this report.

As of September 30, 2023, we were unable to reliably estimate when cash settlements or closure of audits with taxing authorities may occur with respect to our long-term liabilities arising from unrecognized tax benefits of $53 million.

The statutes of limitations for these matters range up to 10 years, and unsettled liabilities are released upon expiration of the statutes.

The Company’s long-term liabilities arising from unrecognized tax benefits can be found in Note 10 “Income Tax” of the notes to the Consolidated Financial Statements contained in this report.

We also have outstanding firm purchase orders with certain suppliers for the purchase of inventory which are generally short-term in nature.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis