plxs-20220101

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________________________________________________________________

FORM 10-Q

____________________________________________________________________________________________________________________________________

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 1, 2022


☐						TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 001-14423

____________________________________________________________________________________________________________________________________

PLEXUS CORP.

(Exact name of registrant as specified in charter)

____________________________________________________________________________________________________________________________________


Wisconsin						39-1344447
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)

One Plexus Way

Neenah, Wisconsin 54957

(Address of principal executive offices) (Zip Code)

Telephone Number (920) 969-6000

(Registrant’s telephone number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	PLXS	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 1, 2022, there were 28,096,789 shares of common stock outstanding.

Table of Contents

PLEXUS CORP.

TABLE OF CONTENTS

January 1, 2022



PART I. FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Shareholders' Equity			5
Condensed Consolidate d S tatements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18
"Safe Harbor" Cautionary Statement Under the Private Securities Litigation Reform Act of 1995			18
Overview			18
Results of Operations			21
Liquidity of Capital Resources			24
Disclosure About Critical Accounting Policies			29
New Accounting Pronouncements			29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			29
ITEM 4. CONTROLS AND PROCEDURES			30
PART II. OTHER INFORMATION			30
ITEM 1A. Risk Factors			30
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			30
ITEM 6. Exhibits			31
SIGNATURES			32

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

Unaudited


	Three Months Ended
	January 1, 2022		January 2, 2021
Net sales	$	817,456	$	830,355
Cost of sales	747,460		751,078
Gross profit	69,996		79,277
Selling and administrative expenses	37,502		32,411
Restructuring and impairment charges	2,021		—
Operating income	30,473		46,866
Other income (expense):
Interest expense	(3,046)		(4,086)
Interest income	271		374
Miscellaneous, net	(923)		(1,518)
Income before income taxes	26,775		41,636
Income tax expense	3,352		5,437
Net income	$	23,423	$	36,199
Earnings per share:
Basic	$	0.84	$	1.25
Diluted	$	0.82	$	1.23
Weighted average shares outstanding:
Basic	28,018		28,861
Diluted	28,709		29,539
Comprehensive income:
Net income	$	23,423	$	36,199
Other comprehensive (loss) income:
Derivative instrument and other fair value adjustments	1,272		4,055
Foreign currency translation adjustments	(1,578)		8,700
Other comprehensive (loss) income	(306)		12,755
Total comprehensive income	$	23,117	$	48,954

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

Unaudited


	January 1, 2022		October 2, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	217,067	$	270,172
Restricted cash	1,324		341
Accounts receivable, net of allowances of $1,753 and $1,188, respectively	589,253		519,684
Contract assets	105,450		115,283
Inventories, net	1,185,915		972,312
Prepaid expenses and other	62,470		53,094
Total current assets	2,161,479		1,930,886
Property, plant and equipment, net	414,981		395,094
Operating lease right-of-use assets	69,519		72,087
Deferred income taxes	27,346		27,385
Other assets	36,321		36,441
Total non-current assets	548,167		531,007
Total assets	$	2,709,646	$	2,461,893

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease obligations	$	151,417	$	66,313
Accounts payable	711,248		634,969
Customer deposits	265,759		204,985
Accrued salaries and wages	57,221		75,394
Other accrued liabilities	180,840		147,042
Total current liabilities	1,366,485		1,128,703
Long-term debt and finance lease obligations, net of current portion	187,075		187,033
Long-term accrued income taxes payable	47,974		47,974
Long-term operating lease liabilities	36,343		37,970
Deferred income taxes payable	5,307		5,677
Other liabilities	22,367		26,304
Total non-current liabilities	299,066		304,958
Total liabilities	1,665,551		1,433,661
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or outstanding	—		—
Common stock, $0.01 par value, 200,000 shares authorized, 53,909 and 53,849 shares issued, respectively, and 27,997 and 28,047 shares outstanding, respectively	539		538
Additional paid-in capital	642,654		639,778
Common stock held in treasury, at cost, 25,912 and 25,802 shares, respectively	(1,053,222)		(1,043,091)
Retained earnings	1,457,414		1,433,991
Accumulated other comprehensive loss	(3,290)		(2,984)
Total shareholders’ equity	1,044,095		1,028,232
Total liabilities and shareholders’ equity	$	2,709,646	$	2,461,893

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

Unaudited


	Three Months Ended
	January 1, 2022		January 2, 2021
Common stock - shares outstanding
Beginning of period	28,047		29,002
Exercise of stock options and vesting of other share-based awards	60		71
Treasury shares purchased	(110)		(307)
End of period	27,997		28,766

Total stockholders' equity, beginning of period	$	1,028,232	$	977,480
Common stock - par value
Beginning of period	538		535
Exercise of stock options and vesting of other share-based awards	1		1
End of period	539		536
Additional paid-in capital
Beginning of period	639,778		621,564
Share-based compensation expense	6,270		5,349
Exercise of stock options and vesting of other share-based awards, including tax withholding	(3,394)		(2,054)
End of period	642,654		624,859
Treasury stock
Beginning of period	(1,043,091)		(934,639)
Treasury shares purchased	(10,131)		(22,771)
End of period	(1,053,222)		(957,410)
Retained earnings
Beginning of period	1,433,991		1,295,079
Net income	23,423		36,199
End of period	1,457,414		1,331,278
Accumulated other comprehensive (loss) income
Beginning of period	(2,984)		(5,059)
Other comprehensive (loss) income	(306)		12,755
End of period	(3,290)		7,696
Total stockholders' equity, end of period	$	1,044,095	$	1,006,959

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited


	Three Months Ended
	January 1, 2022		January 2, 2021
Cash flows from operating activities
Net income	$	23,423	$	36,199
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	15,489		14,836
Deferred income taxes	35		366
Share-based compensation expense and related charges	6,357		5,349
Provision for allowance for doubtful accounts	—		(2,346)
Other, net	567		754
Changes in operating assets and liabilities, excluding impacts of acquisition:
Accounts receivable	(70,159)		3,585
Contract assets	9,904		866
Inventories	(214,416)		3,710
Other current and non-current assets	(9,436)		(7,561)
Accrued income taxes payable	1,121		3,277
Accounts payable	76,222		(23,514)
Customer deposits	60,743		(5,016)
Other current and non-current liabilities	11,171		(23,789)
Cash flows (used in) provided by operating activities	(88,979)		6,716
Cash flows from investing activities
Payments for property, plant and equipment	(33,246)		(15,880)
Other, net	(124)		113
Cash flows used in investing activities	(33,370)		(15,767)
Cash flows from financing activities
Borrowings under debt agreements	181,134		4,177
Payments on debt and finance lease obligations	(97,565)		(4,175)
Repurchases of common stock	(10,131)		(22,771)
Proceeds from exercise of stock options	307		722
Payments related to tax withholding for share-based compensation	(3,702)		(2,775)
Cash flows provided by (used in) financing activities	70,043		(24,822)
Effect of exchange rate changes on cash and cash equivalents	184		2,912
Net decrease in cash and cash equivalents and restricted cash	(52,122)		(30,961)
Cash and cash equivalents and restricted cash:
Beginning of period	270,513		387,894
End of period	$	218,391	$	356,933

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 1, 2022 AND JANUARY 2, 2021

Unaudited

1. Basis of Presentation

Basis of Presentation:

The accompanying Condensed Consolidated Financial Statements included herein have been prepared by Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”) without audit and pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The accompanying Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the condensed consolidated financial position of the Company as of January 1, 2022 and October 2, 2021, the results of operations and shareholders' equity for the three months ended January 1, 2022 and January 2, 2021, and the cash flows for the same three month periods.

The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. All fiscal quarters presented herein included 13 weeks.

Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the SEC’s rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and notes thereto. The full extent to which the COVID-19 outbreak will impact the Company's business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted. The Company has considered information available as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.

Recently Issued Accounting Pronouncements Not Yet Adopted:

The Company believes that no recently issued accounting standards will have a material impact on its Consolidated Financial Statements, or apply to its operations.

2. Inventories

Inventories as of January 1, 2022 and October 2, 2021 consisted of the following (in thousands):


	January 1, 2022		October 2, 2021
Raw materials	$	1,051,889	$	860,538
Work-in-process	57,381		48,356
Finished goods	76,645		63,418
Total inventories, net	$	1,185,915	$	972,312

In certain circumstances, per contractual terms, customer deposits are received by the Company to offset inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of January 1, 2022 and October 2, 2021 were $260.3 million and $200.6 million, respectively.

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3. Debt, Finance Lease Obligations and Other Financing

Debt and finance lease obligations as of January 1, 2022 and October 2, 2021, consisted of the following (in thousands):


	January 1, 2022		October 2, 2021
4.05% Senior Notes, due June 15, 2025	$	100,000	$	100,000
4.22% Senior Notes, due June 15, 2028	50,000		50,000
Borrowings under the revolving commitment	140,000		55,000
Finance lease and other financing obligations	49,353		49,279
Unamortized deferred financing fees	(861)		(933)
Total obligations	338,492		253,346
Less: current portion	(151,417)		(66,313)
Long-term debt and finance lease obligations, net of current portion	$	187,075	$	187,033

On June 15, 2018, the Company entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which it issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount of 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 the Company is 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 January 1, 2022, the Company was in compliance with the covenants under the 2018 NPA.

On May 15, 2019, the Company refinanced its then-existing senior unsecured revolving credit facility by entering into a new 5-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 Company and the lenders, subject to certain customary conditions. During the three months ended January 1, 2022, the highest daily borrowing was $186.0 million; the average daily borrowings were $117.9 million. The Company borrowed $181.0 million and repaid $96.0 million of revolving borrowings ("revolving commitment") under the Credit Facility during the three months ended January 1, 2022. As of January 1, 2022, the Company was in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. The Company is required to pay a commitment fee on the daily unused revolving commitment based on the Company's leverage ratio; the fee was 0.125% as of January 1, 2022.

The fair value of the Company’s debt, excluding finance lease and other financing obligations, was $298.9 million and $217.1 million as of January 1, 2022 and October 2, 2021, respectively. The carrying value of the Company's debt, excluding finance lease and other financing obligations, was $290.0 million and $205.0 million as of January 1, 2022 and October 2, 2021, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives and Fair Value Measurements," for further information regarding the Company's fair value calculations and classifications.

4. Derivatives and Fair Value Measurements

All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations, in addition to non-designated hedges to manage foreign currency exposures associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes.

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The Company designates some foreign currency exchange contracts as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $0.2 million of unrealized gains, net of tax, related to cash flow hedges will be reclassified from other comprehensive (loss) income into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company enters into forward currency exchange contracts for its operations in Malaysia and Mexico on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $117.9 million as of January 1, 2022, and a notional value of $107.4 million as of October 2, 2021. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a $0.2 million asset as of January 1, 2022, and a $1.0 million liability as of October 2, 2021.

The Company had additional forward currency exchange contracts outstanding as of January 1, 2022, with a notional value of $32.3 million; there were $38.6 million such contracts outstanding as of October 2, 2021. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive income. The total fair value of these derivatives was a $0.1 million asset as of January 1, 2022, and a $0.2 million liability as of October 2, 2021.

The tables below present information regarding the fair values of derivative instruments (as defined in Note 1, "Description of Business and Significant Accounting Policies") and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:

Fair Values of Derivative Instruments (in thousands)

Derivative Assets

Derivative Liabilities

January 1,
2022

October 2,
2021

January 1,
2022

October 2,
2021

Derivatives designated as hedging instruments

Balance sheet
classification

Fair Value

Balance sheet
classification

Fair Value

Foreign currency forward contracts

Prepaid expenses and other

356

Other accrued liabilities

127

1,119

Fair Values of Derivative Instruments (in thousands)

Derivative Assets

Derivative Liabilities

January 1,
2022

October 2,
2021

January 1,
2022

October 2,
2021

Derivatives not designated as hedging instruments

Balance sheet
classification

Fair Value