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What changed in SANMINA CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SANMINA CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+335 added−357 removedSource: 10-K (2023-11-16) vs 10-K (2022-11-10)

Top changes in SANMINA CORP's 2023 10-K

335 paragraphs added · 357 removed · 265 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

90 edited+18 added−33 removed64 unchanged
Biggest changeManagement Engagement Practices We believe in a direct management-employee engagement model by which managers and employees maintain a regular dialogue about working conditions, compensation, compliance with laws and applicable standards, safety and advancement opportunities. This model is also reflected in our training and compliance programs, which emphasize the need to report concerns about violations of policy or law.
Biggest changeOur diversity, equity and inclusion principles are reflected in our employee training, in particular with respect to our policies against harassment and bullying and the elimination of bias in the workplace. 14 Table of Contents Management Engagement Practices We believe in a direct management-employee engagement model by which managers and employees maintain a regular dialogue about working conditions, compensation, compliance with laws and applicable standards, safety and advancement opportunities.
When we provide a customer with a number of services, such as component manufacturing or higher value-added solutions, we can often improve our margins and profitability. Consequently, our goal is to increase the number of manufacturing programs for which we provide multiple solutions. To achieve this goal, our sales and marketing organization seeks to cross-sell our solutions to customers.
When we provide a customer with multiple services, such as component manufacturing or higher value-added solutions, we can often improve our margins and profitability. Consequently, our goal is to increase the number of manufacturing programs for which we provide multiple solutions. To achieve this goal, our sales and marketing organization seeks to cross-sell our solutions to customers.
Cable assemblies are used to connect modules, assemblies and subassemblies, including backplane assemblies in electronic systems. We provide a broad range of cable assembly products and services, from cable assemblies and harnesses for automobiles to very complex harnesses for industrial products and semiconductor manufacturing equipment.
Cable Assemblies. Cable assemblies are used to connect modules, assemblies and subassemblies, including backplane assemblies in electronic systems. We provide a broad range of cable assembly products and services, from cable assemblies and harnesses for automobiles to very complex harnesses for industrial products and semiconductor manufacturing equipment.
Parts that are fabricated from metal are often used in sub-assemblies and full enclosures, racks or cabinets that are used to house and protect complex, critical and fragile electronic components, modules and sub-systems so that the system's functional performance is not compromised due to mechanical, environmental or any other use conditions.
Parts that are fabricated from metal are often used in sub-assemblies and full enclosures, racks or cabinets used to house and protect complex, critical and fragile electronic components, modules and sub-systems so that the system's functional performance is not compromised due to mechanical, environmental or any other use conditions.
Mr. Sola also served as our Chief Executive Officer from April 1991 until October 2017, as Chairman of our Board of Directors from April 1991 until December 2001 and from December 2002 until October 2017, and as Co-Chairman of our Board of Directors from December 2001 until December 2002. In 1980, Mr.
Sola also served as our Chief Executive Officer from April 1991 until October 2017, as Chairman of our Board of Directors from April 1991 until December 2001 and from December 2002 until October 2017, and as Co-Chairman of our Board of Directors from December 2001 until December 2002. In 1980, Mr.
Standardized processes and procedures make transitioning of products easier for our customers. Our worldwide engineering teams support designers in Design for Manufacturability (DFM) analysis and assemblers with field applications support. Backplanes and Backplane Assemblies. Backplanes are typically very large printed circuit boards that serve as the backbones of sophisticated electronics products, such as internet routers.
Standardized processes and procedures make transitioning of products easier for our customers. Our worldwide engineering teams support designers in Design for Manufacturability analysis and assemblers with field applications support. Backplanes and Backplane Assemblies. Backplanes are typically very large printed circuit boards that serve as the backbones of sophisticated electronics products, such as internet routers.
In these engagement models, our customers bring market knowledge and product requirements and we provide complete design engineering and new product introductions (NPI) services. For JDM products, the intellectual property is typically jointly owned by us and the customer, and we perform manufacturing and logistics services. For CDM projects, customers pay for all services and own the intellectual property.
In these engagement models, our customers bring market knowledge and product requirements and we provide complete design engineering and new product introductions services. For JDM products, the intellectual property is typically jointly owned by us and the customer, and we perform manufacturing and logistics services. For CDM projects, customers pay for all services and own the intellectual property.
Finally, the design, manufacture and repair of products that we conduct for the medical industry often requires compliance with domestic and foreign regulations, including the Food and Drug Administration’s (FDA’s) quality system regulations and the European Union’s medical device directive.
Finally, the design, manufacture and repair of products that we conduct for the medical industry often requires compliance with domestic and foreign regulations, including the Food and Drug Administration’s quality system regulations and the European Union’s medical device directive.
Key system components we manufacture include high-technology printed circuit boards and printed circuit board assemblies, backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, plastic injected molded parts, and optical and RF modules and memory modules.
Key system components we manufacture include high-technology printed circuit boards, printed circuit board assemblies, backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, plastic injected molded parts, memory modules, and optical, RF microelectronics modules.
Extending Our Technology Capabilities. We rely on advanced processes and technologies to provide our products, components and vertically integrated manufacturing solutions. We continually improve our manufacturing processes and develop more advanced technologies, providing a competitive advantage to our customers.
Extending Our Technology Capabilities. We rely on advanced processes and technologies to provide our products, components and vertically integrated manufacturing solutions. We continually improve our manufacturing processes and develop more advanced technologies, providing a competitive advantage for our customers.
We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.
We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.
Item 1. Business Overview Sanmina Corporation (“we” or “Sanmina” or the “Company”) is a leading global provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. We provide these comprehensive offerings primarily to original equipment manufacturers, or OEMs, in the following industries: industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure.
Item 1. Business Overview Sanmina Corporation (“we” or “Sanmina” or the “Company”) is a leading global provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. We provide these comprehensive offerings primarily to original equipment manufacturers (“OEMs”) in the following industries: industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure.
Adzema held the positions of Vice President of Strategy and Corporate Development at Finisar, which he joined in 2005. Prior to joining Finisar, Mr.
Adzema held the positions of Vice President of Strategy and Corporate Development at Finisar, which he joined in January 2005. Prior to joining Finisar, Mr.
As such, they require global solutions that include regional manufacturing for selected end markets, especially when time to market, local manufacturing or content and low cost solutions are critical objectives. Our global network of manufacturing facilities provides our customers a combination of sites to maximize both the benefits of regional and low cost manufacturing solutions and repair services.
As such, they require global solutions that include regional manufacturing for selected end markets, especially when time to market, local manufacturing or content and best cost solutions are critical objectives. Our global network of manufacturing facilities provides our customers a combination of sites to maximize both the benefits of regional and best cost manufacturing solutions and repair services.
We believe our end-to-end solutions allow us to develop closer relationships with our customers and more effectively compete for their future business. Product Design and Engineering Resources. We provide product design and engineering services for new product designs, cost reductions and Design-for-Manufacturability/Assembly/Test (DFx). Our engineers work with our customers during the complete product life cycle.
We believe our end-to-end solutions allow us to develop closer relationships with our customers and more effectively compete for their future business. Product Design and Engineering Resources. We provide product design and engineering services for new product designs, cost reductions and Design-for-Manufacturability/Assembly/Test (“DFx”). Our engineers work with our customers during the complete product life cycle.
Diversity, Equity and Inclusion At Sanmina, we are focused on creating a culture of belonging where employees can be their authentic selves and cultivate a workplace where everyone has an opportunity to succeed. Recognizing and respecting our global presence, we strive to maintain a diverse, equitable and inclusive workforce everywhere we operate.
Diversity, Equity and Inclusion We are focused on creating a culture of belonging where employees can be their authentic selves and cultivate a workplace where everyone has an opportunity to succeed. Recognizing and respecting our global presence, we strive to maintain a diverse, equitable and inclusive workforce everywhere we operate.
Our mechanical systems manufacturing services are capable of fabricating mechanical components that range from single parts to complex enclosures, racks or cabinets and we often integrate these with various electronic components and sub-systems including backplane assemblies and cables with power and thermal management, and other sensor and control systems.
Our mechanical systems manufacturing services are capable of fabricating mechanical components that range from single parts to complex enclosures, racks or cabinets and we often integrate these with various electronic components and sub-systems including backplane assemblies and cables with power and thermal management, and other sensor and control systems. Precision Machined Parts.
The most common technologies used to attach components to printed circuit boards employ surface mount technology (SMT) and pin-through-hole assembly (PTH) and press-fit technology for connectors. We use SMT, PTH, press-fit and other attachment technologies focused on miniaturization and increasing the density of component placement on printed circuit boards.
The most common technologies used to attach components to printed circuit boards employ surface mount technology (“SMT”) and pin-through-hole assembly (“PTH”) and press-fit technology for connectors. We use SMT, PTH, press-fit and other attachment technologies focused on miniaturization and increasing the density of component placement on printed circuit boards.
Our facilities also support full system level assembly and test and logistic support for a variety of complex electronic systems, including radio base stations and transmission equipment for 5G wireless networks, optical central offices and wireline switching and routing hardware, server and storage systems for data centers, carriers central offices and video streaming service providers, surgical controllers, ultrasound systems, patient monitoring systems, automotive sensor assemblies, and electric 7 Table of Contents vehicle power control systems and modules.
Our facilities also support full system level assembly and test and logistic support for a variety of complex electronic systems, including radio base stations and transmission equipment for 5G wireless networks, optical central offices and wireline switching and routing hardware, server and storage systems for data centers, carriers central offices and video streaming service providers, surgical controllers, ultrasound systems, patient monitoring systems, automotive sensor assemblies, and electric vehicle power control systems and modules.
To manage and coordinate our global operations, we employ an enterprise-wide Enterprise Resource Planning (ERP) system at substantially all of our manufacturing locations that operates on a single IT platform and provides us with company-wide inventory planning and purchasing capabilities.
To manage and coordinate our global operations, we employ an enterprise-wide Enterprise Resource Planning (“ERP”) system at substantially all of our manufacturing locations that operates on a single IT platform and provides us with company-wide inventory planning and purchasing capabilities.
We also provide mechanical assembly and integration services where we often assemble, integrate and test cables with electromechanical systems or sub-systems. We design and manufacture a broad range of high-speed data, radio frequency and fiber optic cabling products. We build cable assemblies that are used in power systems typically classified as low and medium voltage.
We also provide mechanical assembly and integration services where we often assemble, integrate and test cables with electromechanical systems or sub-systems. We design and manufacture a broad range of high-speed data, radio frequency and fiber optic cabling products. We build cable assemblies that are used in power systems typically classified as low and medium voltage. Fabricated Metal Parts.
We purchase large quantities of electronic components and other materials from a wide range of suppliers. We are committed to selecting ethical business partners that adhere to the Responsible Business Alliance (RBA) Code of Conduct.
We purchase large quantities of electronic components and other materials from a wide range of suppliers. We are committed to selecting ethical business partners that adhere to the Responsible Business Alliance (“RBA”) Code of Conduct.
Backplanes provide interconnections for printed circuit board assemblies, power supplies, and other electronic components. We fabricate backplanes in our printed circuit board factories. Backplane fabrication is significantly more complex than printed circuit board fabrication due to the large size and thickness of the backplanes. We manufacture backplane assemblies by press-fitting high density connectors into plated through-holes in the fabricated backplane.
Backplanes provide interconnections for printed circuit board assemblies, power supplies, and other electronic components. Backplane fabrication is significantly more complex than printed circuit board fabrication due to the large size and thickness of the backplanes. We manufacture backplane assemblies by press-fitting high-density connectors into plated through-holes in the fabricated backplane.
Our end-to-end solutions are among the most comprehensive in the industry because we focus on adding value before and after the actual manufacturing of our customers' products.
We believe our end-to-end solutions are among the most comprehensive in the industry because we focus on adding value before, during and after the actual manufacturing of our customers' products.
We support our direct-order-fulfillment services with logistics that include delivery of parts and assemblies to the final assembly site, distribution and shipment of finished systems and processing of customer returns. Components, Products and Services includes: Product Design and Engineering.
We support our direct-order-fulfillment services with logistics that include delivery of parts and assemblies to the final assembly site, distribution and shipment of finished systems and processing of customer returns. 8 Table of Contents Components, Products and Services includes: Product Design and Engineering.
To date, lead dust remediation costs have not been material to our results of operations. We also monitor for airborne concentrations of lead in our buildings and are unaware of any significant lead concentrations in excess of the applicable OSHA or other local standards.
To date, lead dust remediation costs have not been material to our results of operations. We also monitor for airborne concentrations of lead in our buildings and are unaware of any significant lead concentrations that exceed the applicable OSHA or other local standards.
Hiring Practices We recruit the best people for the job without regard to gender, ethnicity or other protected traits and it is our policy to comply fully with all domestic, foreign and local laws relating to discrimination in the workplace.
Hiring Practices We recruit the best people for the job without regard to gender, ethnicity or other protected characteristics and it is our policy to comply fully with all domestic, foreign and local laws relating to discrimination in hiring.
The average tenure of our employees is approximately seven years and approximately 30% of our employees have been employed by us for more than ten years.
The average tenure of our employees is approximately eight years and approximately 30% of our employees have been employed by us for more than ten years.
For example, almost all of our manufacturing facilities are certified under ISO 14001, a set of standards and procedures relating to environmental compliance management. In addition, the electronics industry must adhere to the European Union's Restrictions of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE).
For example, almost all of our manufacturing facilities are certified under ISO 14001, a set of standards and procedures relating to environmental compliance management. In addition, the electronics industry must adhere to the European Union's Restrictions of Hazardous Substances (“RoHS”) and Waste Electrical and Electronic Equipment (“WEEE”).
With our extensive market knowledge and global/regional footprint, we can align these solutions to our facilities in each region around the world. Sales to our ten largest customers typically represent approximately 50% of our net sales. Nokia and Motorola each represented 10% or more of our net sales in 2022.
With our extensive market knowledge and global/regional footprint, we can align these solutions to our facilities in each region around the world. Sales to our ten largest customers typically represent approximately 50% of our net sales. Nokia represented 10% or more of our net sales in 2023 and 2021.
These are among the largest and most complex commercially manufactured backplanes and the test equipment we have ensures the quality and performance of these backplane systems is “world class.” We are capable of testing the signal integrity of these backplanes, and often also utilize state of the art x-ray equipment to verify defect-free installation of the new high density/high speed connectors. 8 Table of Contents Cable Assemblies.
These are among the largest and most complex commercially manufactured backplanes and the test equipment we have ensures the quality and performance of these backplane systems is “world class.” We are capable of testing the signal integrity of these backplanes, and often also utilize state of the art x-ray equipment to verify defect-free installation of the new high density/high speed connectors.
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 (“PCBs”), backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts.
The performance reviews enable ongoing assessments, reviews, and mentoring to identify career development and learning opportunities for our employees. Our emphasis on employee retention, talent reviews, employee evaluations and succession planning contributed to a promotion rate of approximately 5% in 2022.
The performance reviews enable ongoing assessments, reviews, and mentoring to identify career development and learning opportunities for our employees. Our emphasis on employee retention, talent reviews, employee evaluations and succession planning contributed to a promotion rate of approximately 9% in 2023.
We have implemented procedures intended to ensure our manufacturing processes are compliant with RoHS and the European Union's Registration, Evaluation and Authorization of Chemicals (REACH) legislation, when required. WEEE compliance is primarily the responsibility of OEMs. Asbestos containing materials, or ACM, are present at several of our manufacturing facilities.
We have implemented procedures intended to ensure our manufacturing processes are compliant with RoHS and the European Union's Registration, Evaluation and Authorization of Chemicals (“REACH”) legislation, when required. WEEE compliance is primarily the responsibility of OEMs. Asbestos containing materials (“ACM”) are present at several of our manufacturing facilities.
This system enables us to forecast 6 Table of Contents future supply and demand imbalances and develop strategies to help our customers manage their component requirements, especially during supply shortages that have affected our industry in the recent past.
This system enables us to forecast future supply and demand imbalances and develop strategies to help our customers manage their component requirements, especially during supply shortages that have affected our industry in the recent past.
Nokia represented 10% or more of our net sales in 2021 and 2020. We typically enter into supply agreements with our major OEM customers with terms ranging from three to five years. Our supply agreements generally do not obligate the customer to purchase minimum quantities of products.
Nokia and Motorola each represented 10% or more of our net sales in 2022. We typically enter into supply agreements with our major OEM customers with terms ranging from three to five years. Our supply agreements generally do not obligate the customer to purchase minimum quantities of products.
A number of our patents have expired or will expire in the near term. The expiration and abandonment of patents reduces our ability to assert claims against competitors or others who use similar technologies and to license such patents to third parties. We have registered a number of trademarks and have pending trademark applications in both the U.S. and internationally.
The expiration and abandonment of patents reduces our ability to assert claims against competitors or others who use similar technologies and to license such patents to third parties. We have registered a number of trademarks and have pending trademark applications in both the U.S. and internationally.
For the medical end market, we develop components and subassemblies that support Sanmina’s medical manufacturing operations for products such as blood analyzers, food contamination analyzers, and specialized optical spectrometers and fluorometers utilizing the latest optical technologies. In the 9 Table of Contents automotive and industrial end markets, we are working with customers on next generation photonics based Lidar product offerings.
For the medical end market, we develop components and subassemblies that support Sanmina’s medical manufacturing operations for products such as blood analyzers, food contamination analyzers, and specialized optical spectrometers and fluorometers utilizing the latest optical technologies. In the automotive and industrial end markets, we are working with customers on next generation photonics based LIDAR product offerings. Viking Technology.
Region Approximate Breakdown of Employees Americas 51 % APAC 37 % EMEA 12 % Total 100 % Core Principles At Sanmina, we believe our employees are the key to our success. We cultivate an agile, innovative workplace culture fueled by collaboration, diversity, equity and inclusion. Having highly engaged employees is essential to our culture and achieving our mission.
Region Approximate Breakdown of Employees Americas 56 % APAC 33 % EMEA 11 % Total 100 % Core Principles At Sanmina, we believe our employees are the key to our success. We cultivate an agile, innovative workplace culture fueled by collaboration, diversity, equity and inclusion. Having highly engaged employees is essential to our culture and achieving our mission.
Leveraging our portfolio of proven product designs, Viking Enterprise Solutions provides advanced data center products, including NVMe flash memory and disk-based storage server appliances, JBOD storage systems and related products for a variety of storage and data center applications including rack scale solutions.
Leveraging our portfolio of proven product designs, VES provides advanced data center products, including NVMe flash memory and disk-based storage server appliances, JBOD storage systems and related products for a variety of storage and data center applications including rack scale and AI/ML solutions.
These solutions also enable us to 1) provide our customers with a single source of supply for their design, supply chain and manufacturing needs, 2) reduce the time required to bring products to market and 3) lower product costs, while allowing our customers to focus on those activities they expect to add the highest value to their business.
These solutions also enable us to 1) provide our customers with a single source of supply for their design, supply chain and manufacturing needs, 2) accelerate time to market and time to volume production and 3) lower product costs, while allowing our customers to focus on those activities they expect to add the highest value to their business.
In addition, we have been named in a lawsuit alleging operations at our current and former facilities in Orange County, California contributed to groundwater contamination, and also have ongoing investigation activities at and adjacent to a former facility to determine the extent of any soil, soil vapor, and groundwater contamination.
In addition, we have been found liable in a lawsuit alleging operations at our current and former facilities in Orange County, California contributed to groundwater contamination, 12 Table of Contents and also have ongoing investigation activities at and adjacent to a former facility to determine the extent of any soil, soil vapor, and groundwater contamination.
A core component of our strategy is to attract, build and retain long-term partnerships with companies in growth industries that will benefit from our global/regional footprint and unique value proposition in advanced electronics manufacturing. Promoting New Product Introduction (NPI) and Joint Design Manufacturing (JDM) Solutions.
A core component of our strategy is to attract, build and retain long-term partnerships with companies in growth industries that will benefit from our global/regional footprint and unique value proposition in advanced electronics manufacturing. 5 Table of Contents Promoting New Product Introduction (“NPI”) and Joint Design Manufacturing (“JDM”) Solutions.
However, we cannot predict whether this trend will continue. Backlog We generally do not obtain firm, long-term commitments from our customers and our customers usually do not make firm orders for product delivery more than thirty to ninety days in advance. Additionally, customers may cancel or postpone scheduled deliveries, in some cases without significant penalty.
Backlog We generally do not obtain firm, long-term commitments from our customers and our customers usually do not make firm orders for product delivery more than thirty to ninety days in advance. Additionally, customers may cancel or postpone scheduled deliveries, in some cases without significant penalty.
We focus our marketing and sales efforts on major end markets within the electronics technology industry. We target markets we believe offer significant growth opportunities and for which OEMs sell mission critical products that are subject to strict regulatory requirements and/or rapid technological change because the 4 Table of Contents manufacturing of these products requires higher value-added services.
We focus our marketing and sales efforts on end markets that we believe offer significant growth opportunities and for which OEMs sell mission critical products that are subject to strict regulatory requirements and/or rapid technological change because the manufacturing of these products requires higher value-added services.
Viking Enterprise Solutions (VES) is a market leader in high-performance storage platforms for hyperscale and enterprise data centers worldwide.
Our Viking Enterprise Solutions division (“VES”) is a market leader in high-performance storage platforms for hyperscale and enterprise data centers worldwide.
Any of such results would increase our expenses, reduce our revenue and damage our reputation as both a commercial and government supplier. Human Capital Resources General Information About Our Human Capital Resources As of October 1, 2022, we had approximately 34,000 employees and approximately 4,000 temporary employees, in 24 countries.
Any of such results would increase our expenses, reduce our revenue and damage our reputation as both a commercial and government supplier. Human Capital Resources General Information About Our Human Capital Resources As of September 30, 2023, we had approximately 34,000 employees and approximately 4,000 temporary employees, in 21 countries.
We operate in the Electronics Manufacturing Services (EMS) industry and manage our operations as two businesses: 1) Integrated Manufacturing Solutions (IMS). Our IMS business consists of printed circuit board assembly and test, high-level assembly and test and direct-order-fulfillment. This segment generated approximately 80% of our total revenue in 2022. 2) Components, Products and Services (CPS).
We manage our operations as two businesses: 1) Integrated Manufacturing Solutions (“IMS”). Our IMS business consists of printed circuit board assembly and test, high-level assembly and test and direct-order-fulfillment. This segment generated approximately 80% of our total revenue in 2023. 2) Components, Products and Services (“CPS”).
Plastic injection molded parts are used to create a vast array of everyday items, from very small intricate plastic parts to cosmetic enclosures designed to protect sensitive electronic equipment. Our diverse capability within the plastic injection molding space spans all major markets and industries.
Plastic injection molded parts are used to create a vast array of everyday items, from very small intricate plastic parts to enclosures designed to protect sensitive electronic equipment. Our diverse capability within the plastic injection molding space spans all major markets and industries. We are equipped with nearly 80 plastic injection molding machines with a wide variety of clamping pressures.
Finally, there are some sites, including our acquired facility in Gunzenhausen, Germany, which are known to have groundwater contamination caused by a third-party, and that third-party has provided indemnification to us for the related liability.
Finally, there are some sites, including our acquired facility in Gunzenhausen, Germany, which are known to have groundwater contamination caused by a third-party, and that third-party has provided indemnification to us for the related liability. However, in certain situations, third-party indemnities may not be effective to reduce our liability for environmental contamination.
Intellectual Property We hold U.S. and foreign patents and patent applications relating to, among other things, printed circuit board manufacturing technology, enclosures, cables, memory modules, optical technology, medical devices and computing and 11 Table of Contents storage. For other proprietary processes, we rely primarily on trade secret protection.
Intellectual Property We hold U.S. and foreign patents and patent applications relating to, among other things, printed circuit board manufacturing technology, enclosures, cables, memory modules, optical technology, medical devices and computing and storage. For other proprietary processes, we rely primarily on trade secret protection. A number of our patents have expired or will expire in the near term.
In addition to our manufacturing and repair locations, we support our customers’ logistics and repair requirements through a certified partner network.
In addition to our manufacturing and repair locations, we support our customers’ logistics and repair requirements through a certified partner network. Comprehensive IT Systems and Global Supply Chain Management.
Sanmina Global Services complements our end-to-end manufacturing strategy by integrating engineering, supply chain, manufacturing, logistics, repair and environmentally friendly disposition into a seamless solution for customers, for both Sanmina manufactured, and non-Sanmina manufactured products around the world.
SCI has the infrastructure and facility security clearance to support the stringent certifications, regulations, processes and procedures required by these customers. Global Services. Sanmina Global Services complements our end-to-end manufacturing strategy by integrating engineering, supply chain, manufacturing, logistics, repair and environmentally friendly disposition into a seamless solution for customers, for both Sanmina manufactured, and non-Sanmina manufactured products around the world.
These components and sub-assemblies are integrated into a final product or system, configured and tested to our customer’s or the end-customer’s specifications and delivered to the final point of use, with us managing the entire supply chain.
These components and sub-assemblies are integrated into a final product or system, configured and tested to our customer’s or the end-customer’s specifications and delivered to the final point of use, with us managing the entire supply chain. By manufacturing system components and subassemblies ourselves, we enhance continuity of supply and reduce costs for our customers. Advanced Component Technologies.
These advanced technologies include the fabrication of complex printed circuit boards, backplanes and backplane assemblies, cable assemblies fabricated metal parts, precision machined parts, plastic injected molded parts, memory modules, and optical, RF and microelectronics modules.
We provide advanced component technologies, which we believe allow us to differentiate ourselves from our competitors. These advanced technologies include the fabrication of complex printed circuit boards, printed circuit board assemblies, backplanes and backplane assemblies, cable assemblies fabricated metal parts, precision machined parts, plastic injected molded parts, memory modules, and optical, RF and microelectronics modules.
Products include memory solutions from our Viking Technology division; high-performance storage platforms for hyperscale and enterprise solutions from our Viking Enterprise Solutions (VES) division; optical, radio frequency (RF) and microelectronic (microE) design and manufacturing services from Advanced Microsystems Technologies; defense and aerospace products from SCI Technology; and cloud-based manufacturing execution software from our 42Q division.
Products include optical, radio frequency (“RF”) and microelectronic design and manufacturing services from our Advanced Microsystems Technologies division; multi-chip package memory solutions from our Viking Technology division; high-performance storage platforms for hyperscale and enterprise solutions from our Viking Enterprise Solutions division; defense and aerospace products, design, manufacturing, repair and refurbishment services from our SCI Technology, Inc.
These products may require us to use some or all of our end-to-end solutions, including design, component technologies and logistics and repair services. Integrated Manufacturing Solutions includes: Printed Circuit Board Assembly and Test. To meet the ever-changing needs across our diverse customer base, we continue to evolve in support of their current and future requirements.
Our Products and Solutions Integrated Manufacturing Solutions includes: Printed Circuit Board Assembly (“PCBA”) and Test. To meet the ever-changing needs across our diverse customer base, we continue to evolve in support of their current and future requirements.
We believe OEMs will continue to outsource manufacturing because it allows them to: • focus on core competencies; • access leading design and engineering capabilities; • optimize their supply chain while reducing risk and maximizing purchasing power; • reduce operating costs and capital investment; • access global manufacturing services; and • accelerate time to market.
Over the long term, we believe our customers and potential customers rely on our industry’s services to: • focus on their core competencies; • access leading design and engineering capabilities; • optimize their supply chain while reducing risk and maximizing purchasing power; • reduce their fixed and operating costs and capital investment; • access global manufacturing services; and • accelerate their time to market and time to volume.
We have aligned our work programs, processes and procedures to the RBA Code of Conduct to help ensure a safe and positive work environment for our employees that emphasizes learning and professional development, respect for individuals and ethical conduct, and that is facilitated by a direct management-employee engagement model. 13 Table of Contents For over a decade, we have tracked human capital metrics that we consider to be key to our business, including health and safety, career growth and development, turnover, hiring and diversity, equity and inclusion.
We have aligned our work programs, processes and procedures to the RBA Code of Conduct to help ensure a safe and positive work environment for our employees that emphasizes learning and professional development, respect for individuals and ethical conduct, and that is facilitated by a direct management-employee engagement model.
As a founding member of the Responsible Business Alliance (“RBA”), the principles of the RBA are fundamental to our corporate culture and core values and are reflected in our commitments to our customers, stakeholders, employees and communities in which we do business around the world.
We embrace diverse perspectives and empower our employees to improve our organization, help us innovate, and continuously strengthen our workplace. 13 Table of Contents As a founding member of the RBA, its principles are fundamental to our corporate culture and core values and are reflected in our commitments to our customers, stakeholders, employees and communities in which we do business around the world.
Our design and NPI centers provide turnkey system design services, including: electrical, mechanical, thermal, software, layout, simulation, test development, design verification, validation, regulatory compliance and testing services. We design high-speed digital, analog, radio frequency, mixed-signal, wired, wireless, optical and electro-mechanical modules and systems.
Our design and NPI centers provide turnkey system design services, including: electrical, mechanical, thermal, software, layout, simulation, test development, design verification, validation, regulatory compliance and testing services.
We seek to diversify our business across market segments and customers to reduce our dependence on any particular market or customer. Pursuing Strategic Transactions. We continually seek to identify and undertake strategic transactions that give us the opportunity to grow our business by accessing new customers' products, manufacturing solutions, repair service capabilities, intellectual property, technologies and geographic markets.
We continually seek to identify and undertake strategic transactions that give us the opportunity to grow our business by accessing new customers' products, manufacturing solutions, repair service capabilities, intellectual property, technologies and geographic markets. Continuing to Seek Cost Savings and Efficiency Improvements. We seek to optimize our facilities to provide cost-effective services for our customers.
Account teams led by global account managers are directly responsible for account management. Global account managers coordinate the additional resources required to facilitate customer-specific solutions. As needed, these teams may include subject matter experts in design, specific technology components, services, products, and supply chain.
Global account managers coordinate the additional resources required to facilitate customer-specific solutions. These teams may include subject matter experts in design, specific technology components, services, products, and supply chain. These teams create a hub for interaction between the customer and our locations, providing local support to customers worldwide. End-to-End Solutions.
We maintain extensive operations in lower cost locations, including Latin America, Eastern Europe, China, Southeast Asia and India, and we plan to expand our presence in these lower cost locations as appropriate to meet the needs of our customers. We believe we are well positioned to take advantage of future opportunities on a global/regional basis.
We continue to invest in factory automation, process improvements, robotics and artificial intelligence (“AI”) to further enhance our efficiency output. We maintain extensive operations in lower-cost locations and we plan to expand our presence as appropriate to meet the needs of our customers. We believe we are well positioned to take advantage of future opportunities on a global/regional basis.
We also have helium and hydrostatic leak-test capabilities. By leveraging our established supply chain, we oversee lapping, anodizing, electrical discharge machining (EDM), heat-treating, cleaning, laser inspection, painting and packaging.
Our capabilities 9 Table of Contents include complex medium and large format mill and lathe machining of aluminum, stainless steel, plastics, ferrous and nonferrous alloys and exotic alloys. We also have helium and hydrostatic leak-test capabilities. By leveraging our established supply chain, we oversee lapping, anodizing, electrical discharge machining, heat-treating, cleaning, laser inspection, painting and packaging.
Reid held various roles in operations and human resources with The BOC Group PLC. (British Oxygen Company), a global industrial gases and engineering company, from September 1986 to June 2000. 16 Table of Contents
Reid held various roles in operations and human resources with The BOC Group PLC. (British Oxygen Company), a global industrial gases and engineering company, from September 1986 to June 2000. Charles C. Mason has served as our Executive Vice President, Worldwide Sales since March 2023. Mr.
In particular, our sales activities must comply with restrictions relating to the export of controlled technology and sales to denied or sanctioned parties contained in the U.S. International Traffic in Arms Regulations (ITAR), U.S. Export Administration Regulations and sanctions administered by the Office of Foreign Asset Controls of the U.S. Treasury Department (OFAC).
Other Regulations We are also subject to a number of domestic and foreign regulations relating to our operations worldwide. In particular, our sales activities must comply with restrictions relating to the export of controlled technology and sales to denied or sanctioned parties contained in the U.S. International Traffic in Arms Regulations, U.S.
Our diversification across end markets reduces our dependence upon any one customer or end market. In order to service to the specialized needs of customers in particular market segments, we have dedicated personnel, and in some cases facilities, with industry-specific capabilities and expertise. Expertise in Industry Standards and Regulatory Requirements.
In order to service to the specialized needs of customers in particular market segments, we have dedicated personnel, and in some cases facilities, with industry-specific capabilities and expertise. Expertise in Industry Standards and Regulatory Requirements. We maintain compliance with industry standards and regulatory requirements applicable to certain markets, including, among others, medical, automotive and defense and aerospace.
Competition For our integrated manufacturing solutions business, we face competition from other major global EMS companies such as Benchmark Electronics, Inc., Celestica, Inc., Flex Ltd., Hon Hai Precision Industry Co., Ltd. (Foxconn), Jabil Inc. and Plexus Corp. Our components, products and services business faces competition from EMS and non-EMS companies that often have a regional product, service or industry-specific focus.
Competition Our business is highly competitive. We compete against numerous domestic and foreign electronic manufacturing service providers, diversified manufacturing service providers and design providers. For our integrated manufacturing solutions business, we face competition from other major global EMS companies such as Benchmark Electronics, Inc., Celestica, Inc., Flex Ltd., Hon Hai Precision Industry Co., Ltd. (Foxconn), Jabil Inc. and Plexus Corp.
Our capital expenditures for environmental control facilities were not material in any of the last three fiscal years and we do not expect to make material expenditures for this purpose during the current fiscal year. Other Regulations We are also subject to a number of domestic and foreign regulations relating to our operations worldwide.
We consider their recommendations together with other information when determining the appropriate amount to accrue for environmental liabilities. Our capital expenditures for environmental control facilities were not material in any of the last three fiscal years and we do not expect to make material expenditures for this purpose during the current fiscal year.
Name Age Position Jure Sola 71 Chairman and Chief Executive Officer Kurt Adzema 53 Executive Vice President, Chief Financial Officer Alan Reid 59 Executive Vice President, Global Human Resources Jure Sola has served as our Chairman and Chief Executive Officer since August 2020. Prior to that time, from October 2017 until August 2020, Mr. Sola served as our Executive Chairman.
Name Age Position Jure Sola 72 Chairman and Chief Executive Officer Kurt Adzema 54 Executive Vice President, Chief Financial Officer Alan Reid 60 Executive Vice President, Global Human Resources Charles C. Mason 58 Executive Vice President, Worldwide Sales Jure Sola has served as our Chairman and Chief Executive Officer since August 2020.
Our mission is to deliver leading-edge technology solutions that enable our customer products while optimizing the value and performance of our customers’ applications.
Our mission is to deliver leading-edge technology solutions that enable our customer products while optimizing the value and performance of our customers’ applications. We currently supply a wide range of optical products from 10G to 800G supporting optical communication, AI, high performance computing and data center marketplaces.
We use advanced numerically controlled machines enabling the manufacture of components that are machined to very tight tolerances and we often perform further assembly services with these components in clean-room environments. Our capabilities include complex medium and large format mill and lathe machining of aluminum, stainless steel, plastics, ferrous and nonferrous alloys and exotic alloys.
We offer a suite of world-class precision machining services in the U.S. and Israel. We use advanced numerically controlled machines enabling the manufacture of components that are machined to very tight tolerances and we often perform further assembly services with these components in clean-room environments.
As the EMS industry has evolved, OEMs have increased their reliance on EMS companies for end-to-end services including product design and engineering, manufacturing, high-level assembly and test, direct-order-fulfillment and logistics services, after-market product service and support, and global supply chain management.
In recent years, the industry has expanded to respond to customer demands for products and services beyond electronic components, including product design and engineering, manufacturing, high-level assembly and test, direct order fulfillment and logistics services, after-market product services and support, and global supply chain management.
We provide a wide range of services, including new product introduction, high-level assembly, distribution services and warranty management, life-extension services and end-of-life management as well as programs that focus on reuse, repair, refurbishment, recycle, recover and redesign. 42Q. 42Q provides an innovative, world-class cloud-based manufacturing execution solution (MES) that is scalable, flexible, secure and easy to implement.
We provide a wide range of services, including new product introduction, high-level assembly, distribution services and warranty management, life-extension services and end-of-life management as well as programs that focus on reuse, repair, refurbishment, recycle, recover and redesign. Our reverse logistics services include detailed failure analysis and feedback to enhance product design and product quality.
We are equipped with nearly 80 plastic injection molding machines with a wide variety of clamping pressures. Our experienced tooling, process, quality and resin engineers work concurrently using a scientific molding approach to develop cost-effective, highly reliable manufacturing solutions for medical, industrial, defense, multimedia, computing and data storage customers.
Our experienced tooling, process, quality and resin engineers work concurrently using a scientific molding approach to develop cost-effective, highly reliable manufacturing solutions for medical, industrial, defense, multimedia, computing and data storage customers. Advanced Microsystems Technologies . Our Advanced Microsystems Technologies product technology and engineering division focuses on optical, RF and microelectronics design and manufacturing services.
All reports we file with the SEC are also available free of charge via EDGAR through the SEC's website at http://www.sec.gov . 15 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth the name, position and age of our current executive officers and their ages as of October 1, 2022.
All reports we file with the SEC are also available free of charge via EDGAR through the SEC's website at http://www.sec.gov . 16 Table of Contents
In addition, our potential customers may also compare the benefits of outsourcing their manufacturing to us with the merits of manufacturing products themselves. We compete with different companies depending on the type of solution or geographic area. We believe the primary competitive factors in our industry include manufacturing technology, quality, global/regional footprint, delivery, responsiveness, provision of value-added solutions and price.
Our components, products and services business faces competition from EMS and non-EMS companies that often have a regional product, service or industry-specific focus. In addition, our potential customers may also compare the benefits of outsourcing their manufacturing to us with the merits of manufacturing products themselves. We compete with different companies depending on the type of solution or geographic area.
Our consultants provide information regarding the nature and extent of site contamination, acceptable remediation alternatives and estimated costs associated with each remediation alternative. We consider their recommendations together with other information when determining the appropriate amount to accrue for environmental liabilities.
We use environmental consultants primarily for risk assessments and remediation, including remedial investigation and feasibility studies, remedial action planning and design and site remediation. Our consultants provide information regarding the nature and extent of site contamination, acceptable remediation alternatives and estimated costs associated with each remediation alternative.
With advances in interconnect speeds and architectural changes to disaggregate storage and compute for scale, Viking Enterprise Solutions is well positioned with a product portfolio to take advantage of these trends. VES provides end-to-end, design and manufacturing solutions for both platform-based and fully customized data center products.
With advances in interconnect speeds and architectural changes to disaggregate storage and compute for scale, VES is well positioned with a product portfolio to take advantage of these trends. SCI. Our SCI subsidiary has provided engineering services, products, manufacturing, test, and depot and repair solutions to the global defense and aerospace industry for nearly 60 years.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur operating results can vary due to a number of significant uncertainties, including: • our ability to replace declining sales from end-of-life programs and customer disengagements with new business wins; • conditions in the global economy as a whole and in the industries we serve, which have been significantly impacted by the COVID-19 pandemic; • fluctuations in component prices, component shortages and extended component lead times caused by high demand and supply chain constraints, disruptions relating to the COVID-19 pandemic, geopolitical events, such as the war in Ukraine, natural disasters or otherwise; • timing and success of new product developments and ramps by our customers, which create demand for our services, but which can also require us to incur start-up costs relating to new tooling and processes; • levels of demand in the end markets served by our customers; • timing of orders from customers and the accuracy of their forecasts; • our inventory levels, which have been driven higher as a result of ongoing supply chain disruptions, with higher levels of inventory reducing our operating cash flow; • customer payment terms and the extent to which we factor customer receivables during the quarter; • increasing labor costs in the regions in which we operate; • mix of products ordered by and shipped to major customers, as high volume and low complexity manufacturing services typically have lower gross margins than more complex and lower volume services; • our ability to pass tariffs and price increases of components through to our customers; • resolution of quality or other claims made by our customers; • the degree to which we are able to fully utilize our available manufacturing capacity; • customer insolvencies resulting in bad debt or inventory exposures that are in excess of our reserves; • our ability to efficiently move manufacturing operations to lower cost regions when requested by our customers; • changes in our tax provision due to changes in our estimates of pre-tax income in the jurisdictions in which we operate, uncertain tax positions and our continued ability to utilize our deferred tax assets; and • political and economic developments in countries in which we or our customers or our suppliers have operations, which could restrict our operations or those of our suppliers and/or customers or increase our costs.
Biggest changeOur operating results can vary due to a number of significant uncertainties, including: • our ability to replace declining sales from end-of-life programs and customer disengagements with new business wins; • conditions in the global economy as a whole and in the industries we serve, which have been significantly impacted by the COVID-19 pandemic, supply chain disruptions, inflationary pressures and rising interest rates; • fluctuations in component prices, component shortages and extended component lead times caused by high demand and supply chain constraints, disruptions relating to the COVID-19 pandemic, geopolitical events, such as the war in Ukraine and conflict in the Middle East, natural disasters or otherwise; • timing and success of new product developments and ramps by our customers, which create demand for our services, but which can also require us to incur start-up costs relating to new tooling and processes; • levels of demand in the end markets served by our customers; • timing of orders from customers, the accuracy of their forecasts which drive the amount of components we order and the extent to which customers reschedule or cancel their orders; • our inventory levels, which have been driven higher as a result of ongoing supply chain disruptions, with higher levels of inventory reducing our operating cash flow; • customer payment terms and the extent to which we factor customer receivables during the quarter; • increasing labor costs in the regions in which we operate; • mix of products ordered by and shipped to major customers, as high volume and low complexity manufacturing services typically have lower gross margins than more complex and lower volume services; • our ability to pass tariffs and price increases of components through to our customers; • resolution of quality or other claims made by our customers; • the degree to which we are able to fully utilize our available manufacturing capacity or expand, when necessary to satisfy customer demand; • customer insolvencies resulting in bad debt or inventory exposures that are in excess of our reserves; 17 Table of Contents • our ability to efficiently move manufacturing operations to lower cost regions when requested by our customers; • changes in our tax provision due to changes in our estimates of pre-tax income in the jurisdictions in which we operate, uncertain tax positions and our continued ability to utilize our deferred tax assets; • political and economic developments in countries in which we or our customers or our suppliers have operations, which could restrict our operations or those of our suppliers and/or customers or increase our costs; and • Accuracy of management’s estimates for materials, labor and subcontractor costs relating to long-term contracts particularly for new products, as any impact due to changes in estimates must be recognized in the period of change.
These conditions have limited our ability to manufacture and ship all of the products for which we have demand and that require these components and have resulted in an increase in our inventories of other components that cannot be assembled into finished products without these components.
These conditions limited our ability to manufacture and ship all of the products for which we have demand and that require these components and have resulted in an increase in our inventories of other components that cannot be assembled into finished products without these components.
Although customers are generally liable for components we procure on their behalf, finished goods and work-in-process at the time of cancellation, customers may fail to honor this commitment or we may be unable or, for other business reasons, choose not to enforce our contractual rights.
Although customers are generally liable for components we procure on their behalf, finished goods and work-in-process at the time of cancellation, customers may fail to honor this commitment or we may be unable to, or, for other business reasons, choose not to, enforce our contractual rights.
These laws and regulations are complex, require extensive compliance efforts and expenditures in the form of additional systems and personnel, and, in some cases, 20 Table of Contents require us to ensure that our suppliers adhere to such regulations. Furthermore, our compliance with such regulations is subject to audit or investigation by governmental authorities.
These laws and regulations are complex, require extensive compliance efforts and expenditures in the form of additional systems and personnel, and, in some cases, require us to ensure that our suppliers adhere to such regulations. Furthermore, our compliance with such regulations is subject 20 Table of Contents to audit or investigation by governmental authorities.
Global, national and corporate initiatives addressing climate change could increase our costs. Concern over climate change may lead to state, federal and international legislative and regulatory initiatives aimed at reducing carbon dioxide and other greenhouse gas emissions through incentives, taxes or mandates and there is increased stockholder interest generally in voluntary corporate commitments to reduce the generation of greenhouse gases.
Global, national and corporate initiatives addressing climate change could increase our costs. Concern over climate change may lead to state, federal and international legislative and regulatory initiatives aimed at reducing carbon dioxide and other greenhouse gas emissions through incentives, taxes or mandates and there is increased interest generally in voluntary corporate commitments to reduce the generation of greenhouse gases.
Our competitors include major global EMS providers, including Benchmark Electronics, Inc., Celestica, Inc., Flex Ltd., Hon Hai Precision Industry Co., Ltd. (Foxconn), Jabil Circuit, Inc. and Plexus Corp., as well as other companies that have a regional, product, service or industry-specific focus.
Our competitors include major global EMS providers, including Benchmark Electronics, Inc., Celestica, Inc., Flex Ltd., Hon Hai Precision Industry Co., Ltd. (Foxconn), Jabil Inc. and Plexus Corp., as well as other companies that have a regional, product, service or industry-specific focus.
Although our customers are generally liable for tariffs we pay on their behalf on importation of components used in the manufacture of their products, our gross margins would be reduced in the event we were for any reason unable to recover tariffs or duties from our customers.
Although our customers are generally liable for tariffs we pay on their behalf on importation of components used in the manufacture of their products, our gross margins would be reduced in the event we are for any reason unable to recover tariffs or duties from our customers.
Hacking, malware and other cybersecurity attacks, if not prevented, could lead to the collection and disclosure of sensitive personal or confidential information relating to our customers, employees or others, exposing us to legal liability and causing us to suffer reputational damage.
Hacking, malware and other cybersecurity attacks, if not prevented, could lead to the collection and disclosure of sensitive personal or confidential information relating to our business, customers, employees or others, exposing us to legal liability and causing us to suffer reputational damage.
Finally, such facility includes covenants requiring, among other things, that we file quarterly and annual financial statements with the SEC, comply with all laws, pay all taxes and maintain casualty insurance.
Finally, such facility includes covenants requiring, among other things, that we timely file quarterly and annual financial statements with the SEC, comply with all laws, pay all taxes and maintain casualty insurance.
Should we be found to have violated one or more of such laws or regulations, we could become subject to civil damages (which in some cases could be trebled) or criminal penalties and administrative sanctions, including appointment of government monitors, termination of our government contracts and, ultimately, debarment from doing further business with the U.S. government.
Should we be found to have violated one or more government contracting laws or regulations, we could become subject to civil damages (which in some cases could be trebled) or criminal penalties and administrative sanctions, including appointment of government monitors, termination of our government contracts and, ultimately, debarment from doing further business with the U.S. government.
For example, in the first quarter of 2022, we paid approximately $4 million in a judicially approved settlement in connection with a lawsuit against the Company alleging violations of California Labor Code provisions governing overtime, meal and rest periods, wages, wage statements and reimbursements of business expenses.
For example, in the first quarter of 2022, we paid approximately $4 million in a judicially approved settlement in connection with a lawsuit against us alleging violations of California Labor Code provisions governing overtime, meal and rest periods, wages, wage statements and reimbursements of business expenses.
Developments in these or future audits could adversely affect our tax provisions, including through the disallowance or reduction of deferred tax assets or the assessment of back taxes, interest and penalties, any of which could result in an increase to income tax expense and therefore a decrease in our net income.
Developments in these or future audits could adversely affect our tax provisions, including through the disallowance or reduction of deferred tax assets or the assessment of back taxes, interest and penalties, any of which could result in a material increase to income tax expense and therefore a material decrease in our net income.
We also face competition from current and potential OEM customers who may elect to manufacture their own products internally rather than outsourcing to EMS providers. Competition is based on a number of factors, including end markets served, price and quality.
We also face competition from current and potential OEM customers who may elect to manufacture their own products internally rather than outsource to EMS providers. Competition is based on a number of factors, including end markets served, price and quality.
In addition, in order to grow this portion of our business profitably, we must continually make substantial investments in the development of our product development capabilities, research and development activities, test and tooling equipment and skilled personnel, all of which reduce our operating results in the short term.
In addition, in order to grow this portion of our business profitably, we must continue to make substantial investments in the development of our product development capabilities, research and development activities, test and tooling equipment and skilled personnel, all of which reduce our operating results in the short term.
As a result, we are or can be negatively impacted by economic, political and other conditions in the foreign countries in which we do business, including: 18 Table of Contents • changes in trade and tax laws that may result in us or our customers being subject to increased taxes, duties and tariffs and import and export restrictions, which could increase our costs and/or reduce our customers’ willingness to use our services in countries in which we are currently manufacturing their products; • compliance with foreign laws, including labor laws that generally provide for increased notice, severance and consultation requirements compared to U.S. labor laws; • labor unrest, including strikes; • difficulties in staffing due to immigration or travel restrictions imposed by national governments, including the U.S.; • security concerns; • political instability and/or regional military tension or hostilities, such as the war in Ukraine, the possibility of such conflict broadening to areas outside of Ukraine, and the actions taken by national governments in response to such hostilities, such as sanctions and export bans; • fluctuations in currency exchange rates, which may either increase or decrease our operating costs and for which we have significant exposure; • the imposition of currency controls, which would have the effect of preventing us from repatriating profits from our foreign subsidiaries; • exposure to heightened corruption risks; • aggressive, selective or lax enforcement of laws and regulations by national governmental authorities; and • potentially increased risk of misappropriation of intellectual property.
As a result, we are or can be negatively impacted by economic, political and other conditions in the foreign countries in which we do business, including: • changes in trade and tax laws that may result in us or our customers being subject to increased taxes, duties and tariffs and import and export restrictions, which could increase our costs and/or reduce our customers’ willingness to use our services in countries in which we are currently manufacturing their products; • compliance with foreign laws, including labor laws that generally provide for increased notice, severance and consultation requirements compared to U.S. labor laws; • labor unrest, including strikes; • difficulties in staffing due to immigration or travel restrictions imposed by national governments, including the U.S.; • security concerns; • political instability and/or regional military tension or hostilities, such as the war in Ukraine and conflict in the Middle East, the possibility of such conflicts broadening to areas outside the area of immediate hostilities and the actions taken by national governments in response to such hostilities; • fluctuations in currency exchange rates, which may either increase or decrease our operating costs and for which we have significant exposure; • the imposition of currency controls, which would have the effect of preventing us from repatriating profits from our foreign subsidiaries; • exposure to heightened corruption risks; • aggressive, selective or lax enforcement of laws and regulations by national governmental authorities; and • potentially increased risk of misappropriation of intellectual property.
Finally, customer products can experience quality problems or failures as a result of defects in the components they specify to be included in the products we manufacture for them.
Finally, customer products can experience quality problems or failures as a result of defects in the components customers specify to be included in the products we manufacture for them.
Factors that can cause such fluctuations include announcements by our customers, suppliers, competitors or other events affecting companies in the electronics industry, such as component shortages, currency fluctuations, the impact of natural disasters and global events, such as the COVID-19 pandemic, geopolitical tensions, such as the war in Ukraine, general market fluctuations and macroeconomic conditions, including concerns about inflation and recession, any of which may cause the market price of our common stock to fluctuate widely. 27 Table of Contents
Factors that can cause such fluctuations include announcements by our customers, suppliers, competitors or other events affecting companies in the electronics industry, such as component shortages, currency fluctuations, the impact of natural disasters and global events, such as the COVID-19 pandemic, geopolitical tensions, such as the war in Ukraine and conflict in the Middle East, general market fluctuations and macroeconomic conditions, including concerns about inflation and recession, any of which may cause the market price of our common stock to fluctuate widely. 27 Table of Contents Item 1B.
Adverse changes in any of these end markets could reduce 17 Table of Contents demand for our customers’ products or make these customers more sensitive to the cost of our products and services, either of which could reduce our sales, gross margins and net income.
Adverse changes in any of these end markets could reduce demand for our customers’ products or make these customers more sensitive to the cost of our products and services, either of which could reduce our sales, gross margins and net income.
We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, generation, storage, discharge and disposal of hazardous substances and waste in the ordinary course of our manufacturing operations.
We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, generation, storage, discharge and disposal of hazardous substances and waste in the ordinary course of our 22 Table of Contents manufacturing operations.
If we violate environmental laws or if we own or operate, or owned or operated in the past, a site at which we or a predecessor company caused contamination, we may be held liable for damages and the costs of remedial 22 Table of Contents actions.
If we violate environmental laws or if we own or operate, or owned or operated in the past, a site at which we or a predecessor company caused contamination, we may be held liable for damages and the costs of remedial actions.
In addition, despite the implementation of numerous network security measures, both our internal and our cloud-based infrastructure may also be vulnerable to hacking, computer viruses, the installation of malware and similar disruptions either by third parties or employees with access to key IT infrastructure.
Despite the implementation of numerous network security measures, both our internal and our cloud-based infrastructure may also be vulnerable to such hacking attempts, the installation of computer viruses, malware or similar disruptions either by third parties or employees with access to key IT infrastructure.
Increasing regulatory burdens and corporate governance requirements could also make it more difficult for us to attract and retain qualified members of our Board of Directors and qualified executive officers. 23 Table of Contents Liquidity and Credit Risks Our customers could experience credit problems, which could reduce our future revenues and net income.
Increasing regulatory burdens and corporate governance requirements could make it more difficult for us to attract and retain qualified members of our Board of Directors and qualified executive officers. Liquidity and Credit Risks Our customers could experience credit problems, which could reduce our future revenues and net income.
These factors include: • intense competition among our customers and their competitors, leading to reductions in prices for their products and increases in pricing pressure placed on us; • failure of our customers’ products to gain widespread commercial acceptance, which could decrease the volume of orders our customers place with us; • changes in regulatory requirements affecting the products we build for our customers, leading to product redesigns or obsolescence and potentially causing us to lose business; and • the negative effects of inflation and any potential resultant recession on customer demand.
These factors include: • intense competition among our customers and their competitors, leading to reductions in prices for their products and increases in pricing pressure placed on us; • failure of our customers’ products to gain widespread commercial acceptance, which could decrease the volume of orders our customers place with us; • changes in regulatory requirements affecting the products we build for our customers, leading to product redesigns or obsolescence and potentially causing us to lose business; and • the negative effects of inflation, rising interest rates and any potential resultant recession on customers’ end markets and their demand for our products and services.
Our system of internal and disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives. However, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected.
Our system of internal and disclosure controls and procedures was designed to provide reasonable assurance of achieving its objectives. However, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected.
Although we believe our existing cash resources and sources of liquidity, together with cash generated from operations, will be sufficient to meet our working capital requirements for at least the next 12 months, should demand for our services increase significantly over the next 12 months or should we experience significant increases in delinquent or uncollectible accounts receivable for any reason, including in particular worsening economic conditions caused by the COVID-19 pandemic or otherwise, 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.
Although we believe our existing cash resources and sources of liquidity, together with cash generated from operations, will be sufficient to meet our working capital requirements for at least the next 12 months, should demand for our services increase significantly over the next 12 months or should we experience significant increases in delinquent or uncollectible accounts receivable for any reason, including recessionary economic conditions, 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.
In addition, inflationary pressures resulting from supply chain constraints and generally improved economic conditions are leading to sustained increases in the prices we pay for components and materials used in production and in our labor and transportation costs.
In addition, inflationary pressures resulting from supply chain constraints and generally improved economic conditions have led to sustained increases in the prices we pay for components and materials used in production and in our labor and transportation costs.
Allegations that we have violated labor laws could lead to damages being awarded to employees or fines from or settlements with plaintiffs or federal, state or foreign regulatory authorities, the amounts of which could be substantial, and which would reduce our net income.
We may be required to defend against allegations that we have violated such laws. Allegations that we have violated labor laws could lead to damages being awarded to employees or fines from or settlements with plaintiffs or federal, state or foreign regulatory authorities, the amounts of which could be substantial, and which would reduce our net income.
We may be unable to generate sufficient liquidity to maintain or expand our operations, which would reduce the amount of business our customers and vendors are able to do with us and impact our ability to continue operations at current levels without seeking additional funding; we could experience losses if one or more financial institutions holding our cash or other financial counterparties were to fail; repatriation of foreign cash could increase our taxes.
We may be unable to generate sufficient liquidity to maintain or expand our operations, which would reduce the amount of business our customers and vendors are able to do with us and impact our ability to continue operations at current levels without seeking additional funding; increasing interest rates will reduce our net income and operating cash flow; we could experience losses if one or more financial institutions holding our cash or other financial counterparties were to fail; repatriation of foreign cash could increase our taxes.
A decrease in orders for these components, products and services can have a disproportionately adverse impact on our profitability since these components, products and services generally carry higher than average contribution margins than our core IMS business.
A decrease in orders for these components, products and services can have a disproportionately adverse impact on our profitability since these components, products and services generally yield higher margins than our core IMS business.
As our key employees choose to retire or terminate their employment with us, we will be required to replace them with new employees with the required experience. This has become more difficult in the U.S. recently due to the strong employment market.
As our key employees choose to retire or terminate their employment with us, we will be required to replace them with new employees with the required experience, which has become challenging in the U.S. recently due to the strong employment market.
Regulatory, Compliance and Litigation Risks We are subject to a number of U.S. export control and other regulatory requirements, with which the failure to comply could result in fines and reduction of future revenue.
Regulatory, Compliance and Litigation Risks We are subject to a number of U.S. export control and regulatory requirements relating to our defense business, with which the failure to comply could result in fines and reduction of future revenue.
Our Amended Cash Flow Revolver contains covenants that may adversely impact our business; the failure to comply with such covenants or the occurrence of an event of default could cause us to be unable to borrow additional funds and cause our outstanding debt to become immediately payable.
Our credit agreement contains covenants that may adversely impact our business; the failure to comply with such covenants or the occurrence of an event of default could cause us to be unable to borrow additional funds and cause our outstanding debt to become immediately payable.
A key part of our strategy to capitalize on our ability to provide end-to-end manufacturing solutions is to grow our Components, Products and Services (“CPS”) businesses, which supplies printed circuit boards, backplane and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts, memory, RF, optical and microelectronic solutions, and data storage solutions and design, engineering, logistics and repair services and our SCI defense and aerospace products.
A key part of our strategy of providing end-to-end manufacturing solutions is to grow our CPS businesses, which supplies printed circuit boards, backplane and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts, memory, RF, optical and microelectronic solutions, and data storage solutions and design, engineering, logistics and repair services and our SCI defense and aerospace products.
If we are not able to comply with these covenants or if an event of default were to occur and not be 24 Table of Contents cured, all of our outstanding debt would become immediately due and payable and the incurrence of additional debt under our Amended Cash Flow Revolver would not be allowed, either of which would have a material adverse effect on our liquidity and ability to continue to conduct our business.
If we are not able to comply with these covenants or if an event of default were to occur and not be cured, all of our outstanding debt would become immediately due and payable and the incurrence of additional debt under our Credit Agreement would not be allowed, either of which would have a material adverse effect on our liquidity and ability to continue to conduct our business.
Changes in financial accounting standards or policies have affected, and in the future may affect, our reported financial condition or results of operations; there are inherent limitations to our system of internal controls; changes in corporate governance policies and practices may impact our business . We prepare our consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”).
Changes in financial accounting standards or policies have affected, and in the future may affect, our reported financial condition or results of operations; there are inherent limitations to our system of internal controls; changes in corporate governance requirements, policies and practices may impact our business . We prepare our consolidated financial statements in conformity with GAAP.
Adverse changes in the key end markets we target could harm our business by reducing our sales. We provide products and services to companies that serve the industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure industries.
Item 1A. Risk Factors End Market and Operational Risks Adverse changes in the key end markets we target could harm our business by reducing our sales. We provide products and services to companies that serve the industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure industries.
The COVID-19 pandemic has had, and may continue to have, a significant impact on our results of operations and financial condition by reducing demand from our customers, interrupting the flow of components needed for our customers’ products, limiting the operations or productivity of our manufacturing facilities and creating health risks to our employees.
The COVID-19 pandemic had, and any future outbreak could have, a significant impact on our results of operations and financial condition by reducing demand from our customers, interrupting the flow of components needed for our customers’ products, limiting the operations and productivity of our manufacturing facilities and creating health risks to our employees.
As a result, we are experiencing delays in delivery and shortages of certain components, particularly certain types of capacitors, resistors and discrete semiconductors needed for many of the products we manufacture.
As a result, we have experienced and continue to experience delays in delivery and shortages of certain components, particularly certain types of capacitors, resistors and discrete semiconductors needed for many of the products we manufacture.
Any of these factors could reduce the revenue and margins of our CPS businesses, which in turn would have an adverse and potentially disproportionate effect on our overall revenues and profitability. Customer requirements to transfer business may increase our costs.
Any of these factors could reduce the revenue and margins of our CPS businesses, which in turn would have an adverse and potentially disproportionate effect on our overall revenues and profitability.
For example, in June 2022, a court issued a tentative ruling finding us liable for certain investigation costs relating to a site owned by a predecessor company in Southern California at which a disposal was alleged to have occurred.
For example, in April 2023, a court issued a ruling finding us and other defendants liable for certain investigation and remediation costs relating to a site owned by a predecessor company in Southern California at which a disposal was alleged to have occurred.
Our liquidity is dependent on a number of factors, including profitability, business volume, inventory requirements, the extension of trade credit by our suppliers, the degree of alignment of payment terms from our suppliers with payment terms granted to our customers, the amount we invest in our facilities and equipment, the timing of acquisitions and divestitures, the schedule for repayment of our outstanding indebtedness, the timing of stock repurchases, availability under the Fifth Amended and Restated Credit Agreement, dated as of September 27, 2022, as amended (the “Amended Cash Flow Revolver”), and the amount of accounts receivable eligible for sale under our factoring programs.
Our liquidity is dependent on a number of factors, including profitability, business volume, inventory levels, the extension of trade credit by our suppliers, the degree of alignment of payment terms from our suppliers with payment terms granted to our customers, the amount we invest in our facilities and equipment, the timing of acquisitions and divestitures, the schedule for repayment of our outstanding indebtedness, the timing of stock repurchases, the amount available to borrow under our credit agreement and the amount of accounts receivable eligible for sale under our factoring programs.
Further, although we are required to pay tariffs upon importation of the components, we may not be able to recover these amounts from customers until sometime later, if at all, which would adversely impact our operating cash flow in a given period. Customer order cancellations, push-outs and reduced forecasts could reduce our sales, net income and liquidity.
Further, although we are required to pay tariffs upon importation of the components, we may not be able to recover these amounts from our customers until sometime later, if at all, which would adversely impact our operating cash flow in a given period.
Even when our customers are contractually responsible for defects in the design of a product and defects in components used in the manufacture of such products, there is no guarantee that these customers will have the financial resources to indemnify us for such liabilities and we could nonetheless be required to expend significant resources to defend ourselves if named in a product liability suit over such defects.
Even when our customers or suppliers are contractually responsible for defects in the design of a product and defects in components used in the manufacture of such products, there is no guarantee that any indemnities provided by such parties will be adequate to cover all damages to which we may become subject or that these parties will have the financial resources to indemnify us for such liabilities, in which case we could be required to expend significant resources to defend ourselves if named in a product liability suit over such defects.
Finally, if one or more counterparties to our interest rate or foreign currency hedging instruments were to fail, we could suffer losses and our hedging of risk could become less effective. Approximately 50% of our cash is held in foreign jurisdictions.
Finally, if one or more counterparties to our interest rate or foreign currency hedging instruments were to fail, we could suffer losses and our hedging of risk could become less effective. 24 Table of Contents As of September 30, 2023, approximately 59% of our cash was held in foreign jurisdictions.
In addition, certain countries in which we operate have adopted currency controls requiring that local transactions be settled only in local currency rather than in our functional currency, which is generally different than the local currency.
If our hedging activities are not successful, our net income may be reduced. In addition, certain countries in which we operate have adopted currency controls requiring that local transactions be settled only in local currency rather than in our functional currency, which is generally different than the local currency.
Despite our business continuity planning, including maintaining redundant data sites and network availability, both our internal and cloud-based infrastructure may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events.
Despite our business continuity planning, including maintaining redundant data sites and network availability, both our internal and cloud-based infrastructure may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. In addition, our systems, like those of other large companies, are regularly subject to third party hacking attempts.
Our Amended Cash Flow Revolver contains a maximum leverage and minimum interest coverage ratio, in both cases measured on the basis of a trailing 12-month look-back period, and a number of restrictive covenants, including restrictions on incurring additional debt, making investments and other restricted payments, selling assets and paying dividends, subject to certain exceptions, with which we must comply.
Our credit agreement contains a maximum leverage and minimum interest coverage ratio and a number of restrictive covenants, including restrictions on incurring additional debt, making investments and other restricted payments, selling assets and paying dividends, subject to certain exceptions, with which we must comply.
Risk Factors End Market and Operational Risks Worldwide supply chain shortages caused by supply/demand imbalances, most notably in the semiconductor industry, the COVID-19 pandemic and geopolitical events are collectively limiting our ability to manufacture and ship all of the products, for which we have demand; our profitability will be reduced if we are unable to pass on increasing component costs.
Worldwide supply chain shortages caused by the COVID-19 pandemic, the resumption of strong worldwide demand for electronic products and components and geopolitical events have collectively limited our ability to manufacture and ship all of the products for which we have demand; our profitability will be reduced if we are unable to continue to pass on increasing component costs.
Our customers sometimes require that we transfer the manufacturing of their products from one of our facilities to another to achieve cost reductions, tariff reductions and other objectives.
Transfers of business or operations may increase our costs and cause disruptions in our ability to service our customers. Our customers sometimes require that we transfer the manufacturing of their products from one of our facilities to another to achieve cost reductions, tariff reductions and other objectives.
We may be required to relocate additional manufacturing operations in the future and, accordingly, we may incur additional costs that decrease our net income. Transfers of our operations to other facilities caused by lease terminations could cause disruptions in our ability to service our customers Certain of our foreign manufacturing facilities are leased from third parties.
We may be required to relocate or close additional manufacturing operations in the future and, accordingly, we may incur additional costs that decrease our net income. In addition, certain of our foreign manufacturing facilities are leased from third parties.
We may not be successful in implementing and integrating strategic transactions or in divesting assets or businesses, which could harm our operating results; we could become required to book a charge to earnings should we determine that goodwill and other acquired assets are impaired.
Should we be unable to recruit new employees to fill key positions with us, our operations and growth prospects could be negatively impacted. 26 Table of Contents We may not be successful in implementing and integrating strategic transactions or in divesting assets or businesses, which could harm our operating results; we could become required to book a charge to earnings should we determine that goodwill and other acquired assets are impaired.
Our activities, including manufacturing, administration and information technology management, can be adversely affected by natural disasters such as major earthquakes, hurricanes, floods, tsunamis, tornadoes, fires and epidemics or pandemics, such as the COVID-19 pandemic. Climate change may cause these events to become more severe and therefore more damaging.
We are subject to risks associated with natural disasters and global events. Our activities, including manufacturing, administration and information technology management, can be adversely affected by natural disasters such as major earthquakes, hurricanes, floods, tsunamis, tornadoes, fires and epidemics or pandemics, such as the COVID-19 pandemic.
Strategic transactions involve a number of risks, uncertainties and costs, including integrating acquired operations and workforce, businesses and products, resolving quality issues involving acquired products, incurring severance and other restructuring costs, diverting management attention from their normal operational duties, maintaining customer, supplier or other favorable business relationships of acquired operations, terminating unfavorable commercial arrangements, losing key employees, integrating the systems of acquired operations into our management information systems and satisfying the liabilities of acquired businesses, including liability for past violations of law and material environmental liabilities.
The success of this joint venture is subject to a number of risks and uncertainties, including the timing of the joint venture obtaining “Trusted Source” designation under the India government’s “Make in India” initiative, adverse changes in the key markets the joint venture will target and the risks described above under the caption “We are subject to risks arising from our international operations.” Strategic transactions involve a number of risks, uncertainties and costs, including integrating acquired operations and workforce, businesses and products, resolving quality issues involving acquired products, incurring severance and other restructuring costs, diverting management attention from their normal operational duties, maintaining customer, supplier or other favorable business relationships of acquired operations, terminating unfavorable commercial arrangements, losing key employees, integrating the systems of acquired operations into our management information systems and satisfying the liabilities of acquired businesses, including liability for past violations of law and material environmental liabilities.
We generally do not obtain firm, long-term purchase commitments from our customers and our bookings may generally be canceled prior to the scheduled shipment date.
Customer order cancellations, push-outs and reduced forecasts could reduce our sales, net income and liquidity. We generally do not obtain firm, long-term purchase commitments from our customers and our bookings may generally be canceled prior to the scheduled shipment date.
Our business, operations and results of operations were significantly and negatively impacted by the COVID-19 pandemic over the past two years.
Our business, operations and results of operations were significantly and negatively impacted by the COVID-19 pandemic over the past three years and may continue to be impacted in the future to some degree.
We can experience losses due to foreign exchange rate fluctuations and currency controls, which could reduce our net income and impact our ability to repatriate funds.
Certain foreign NOLs will begin expiring in 2024. As and when the NOLs begin expiring, our federal and state income tax rates will increase, which will reduce our net income. We can experience losses due to foreign exchange rate fluctuations and currency controls, which could reduce our net income and impact our ability to repatriate funds.
In the event of a major natural disaster affecting one or more of our facilities, our operations and management information systems, which control our worldwide procurement, inventory management, shipping and billing activities, could be significantly disrupted. Such events could delay or prevent product manufacturing for an extended period of time.
Climate change may cause certain of these events to become more severe and therefore more damaging. In the event of a major natural disaster affecting one or more of our facilities, our operations and management information systems, which control our worldwide procurement, inventory management, shipping and billing activities, could be significantly disrupted.
These factors are exacerbated by the fact that we are dependent on a number of limited and sole source suppliers to provide key components, which we incorporate into our products.
These factors are exacerbated by the fact that we are dependent on a number of limited and sole source suppliers to provide key components that we incorporate into our products. Although conditions have recently improved, we expect some level of delays and shortages to continue to persist in some form in the short to medium term.
We sometimes design products on a contract basis or jointly with our customers. In such situations, we may become subject to claims that products we design infringe third party intellectual property rights and may also be required to indemnify our customer against liability caused by such claims.
In such situations, we may become subject to claims that products we design infringe third party intellectual property rights and may also be required to indemnify our customer against liability caused by such claims. 21 Table of Contents Any of these events could reduce our revenue, increase our costs and damage our reputation with our customers.
We expect these delays and shortages to persist through at least the remainder of calendar year 2022 and that such shortages could result in delays in shipments to our customers during the period of such shortages. Any such delays would reduce our revenue, margins and operating cash flow for the periods affected.
Any such shortages could result in delays in shipments to our customers, which would reduce our revenue, margins and operating cash flow for the periods affected.
We use financial instruments, primarily short-term foreign currency forward contracts, to hedge our exposure to exchange rate fluctuations. However, the success of our foreign currency hedging activities in preventing foreign exchange losses depends largely upon the accuracy of our forecasts of future sales, 25 Table of Contents expenses, capital expenditures and assets and liabilities.
However, the success of our foreign currency hedging activities in preventing foreign exchange losses depends largely upon the accuracy of our forecasts of future sales, expenses, capital expenditures and assets and liabilities. As such, our foreign currency hedging program may not fully cover all of our exposure to exchange rate fluctuations.
Should we determine in the future that our goodwill or other intangible assets have become impaired, an impairment charge to earnings would become necessary, which could be significant.
Should we determine in the future that our goodwill or other intangible assets have become impaired, an impairment charge to earnings would become necessary, which could be significant. For example, during our fiscal 2018 annual goodwill impairment analysis, we fully impaired goodwill of $31 million associated with the acquisition of a storage software business we purchased in 2016.
We are or may become subject to income, sales, value-added, goods and services, withholding and other taxes in the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for taxes and, in the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.
Significant judgment is required in determining our worldwide provision for taxes and, in the ordinary course of business, there are many transactions and calculations for which the ultimate tax 25 Table of Contents determination is uncertain.
Cancellations, reductions or push-outs of orders by customers and reduced customer forecasts customers could cause our inventory levels to increase, consuming working capital, lead to write-offs of inventory that customers fail to purchase for any reason and reduce our sales, net income and liquidity. 19 Table of Contents Our strategy to pursue higher margin business depends in part on the success of our CPS businesses, which, if not successful, could cause our future gross margins and operating results to be lower.
Cancellations, reductions or 18 Table of Contents push-outs of orders by customers and reduced customer forecasts, whether due to changes in individual customer circumstances or end market changes or recessionary conditions in general, could cause our inventory levels to increase, consume working capital, lead to write-offs of inventory that customers fail to purchase for any reason, which could reduce our sales, net income and liquidity.
Although we distribute such funds among a number of financial institutions that we believe to be of high quality, there can be no assurance that one or more of such institutions will not become insolvent in the future, in which case all or a portion of our uninsured funds on deposit with such institutions could be lost.
Although we distribute such funds among a number of financial institutions that we believe to be of high quality, there can be no assurance that one or more of such institutions will not become insolvent in the future. For example, in the spring of 2023, three mid-sized regional banks failed and were placed under the temporary control of federal regulators.
We are subject to a variety of domestic and foreign employment laws, including those related to safety, wages and overtime, discrimination, harassment, organizing, whistleblowing, classification of employees, privacy and severance payments. We may be required to defend against allegations that we have violated such laws.
Allegations of failures to comply with domestic or international employment and related laws could result in the payment of significant damages, which would reduce our net income. We are subject to a variety of domestic and foreign employment laws, including those related to safety, wages and overtime, discrimination, harassment, organizing, whistleblowing, classification of employees, privacy and severance payments.
Our supply chain is being significantly impacted by a number of factors, including supply/demand imbalances, most notably in the semiconductor industry, interruptions in supplier and port operations due to the COVID-19 pandemic during a time when strong worldwide demand for electronic products and components has resumed and geopolitical events, such as the war in Ukraine.
Over the past three years, our supply chain has been significantly impacted by interruptions in supplier and port operations resulting from the COVID-19 pandemic, the resumption of strong worldwide demand for electronic products and components following the easing of COVID-19 restrictions, and geopolitical events, such as the war in Ukraine and the conflict in the Middle East.
Because we manufacture and sell the majority of our products abroad, our operating results can be negatively impacted due to fluctuations in foreign currency exchange rates, particularly in volatile currencies to which we are exposed, such as the Euro, Mexican peso, Malaysian ringgit and Chinese renminbi.
Because we manufacture the majority of our products abroad, our operating results can be negatively impacted due to fluctuations in foreign currency exchange rates. We use financial instruments, primarily short-term foreign currency forward contracts, to hedge our exposure to exchange rate fluctuations.
Cybersecurity attacks can come in many forms, including distributed denial of service attacks, advanced persistent threat, phishing, business email compromise efforts and ransomware attacks. Recently, a cyberattack involving malware delivered through network monitoring software sold by SolarWinds resulted in the penetration of the systems of a multitude of governmental and commercial entities.
Cybersecurity attacks can come in many forms, including distributed denial of service attacks, advanced persistent threat, phishing, business email compromise efforts and ransomware attacks. There can be no assurance that a future malware attack or hacking attempt will not be successful in breaching our systems.
Unanticipated changes in our income tax rates or exposure to additional tax liabilities could increase our taxes and decrease our net income; our projections of future taxable income that drove the release of our valuation allowance in prior years could prove to be incorrect, which could cause a charge to earnings.
Unanticipated changes in our income tax rates or exposure to additional tax liabilities or expiration of our net operating loss carryforwards could increase our taxes and decrease our net income; developments in pending audits could result in an increase in our tax expenses which would decrease our net income.
Any extended inability to continue our operations at affected facilities following such an event could reduce our revenue. Risks of Investing in Our Stock The market price of our common stock is volatile and is impacted by factors other than our financial performance.
Such events could delay or prevent product manufacturing for an extended period of time. Any extended inability to continue our operations at affected facilities following such an event could reduce our revenue.
Although conditions have improved in many of the regions in which we operate, we cannot predict when the COVID-19 pandemic will cease to present risks to our business due to a large number of uncertainties, including the duration of ongoing supply chain constraints directly and indirectly caused by the pandemic, the extent of the impact of the pandemic on our customers’ businesses, the number of our employees who may become infected, the continued efficacy and availability of COVID-19 vaccines and treatments, the geographic locations of any future outbreaks, including outbreaks caused by variants of COVID-19, such as the Omicron variant of COVID-19 and its subvariants, and actions that government authorities may take in response.
Although conditions have improved, our operations could again be similarly and negatively impacted in the event of any future outbreaks, including outbreaks caused by variants of COVID-19, such as the Omicron variant of COVID-19 and its subvariants, and actions that government authorities may take in response.
From time to time, we receive formal and informal inquiries from government agencies and regulators regarding our compliance.
From time to time, we receive formal and informal inquiries from government agencies and regulators regarding our compliance. For example, we have received and are responding to several Civil Investigative Demands from the U.S. Department of Justice relating to certain contracts, projects, proposals, and business activities of our SCI subsidiary.
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Among other impacts, the pandemic: • Resulted in the temporary closure of certain of our facilities; • Temporarily reduced the amount of staffing at certain of our plants; • Required us in some cases to pay staff who are not able to work due to government orders or illness; • Limited the capacity of logistics providers to deliver the components we use and ship the products we manufacture; • Reduced demand for certain of our customers’ products; • Resulted in interruptions in supply of components, either because our suppliers have themselves been prevented from operating or because major distribution channels (e.g. sea transport) were disrupted by the pandemic; and • Resulted in certain of our customers and suppliers experiencing financial difficulties, which could impact their ability or willingness to satisfy their payment or delivery obligations, respectively, to us in the future.
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Our strategy to pursue higher margin business depends in part on the success of our CPS businesses, which, if not successful, could cause our future gross margins and operating results to be lower.
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For example, China continues to maintain a “zero tolerance” policy towards COVID-19 infections, which has disrupted and could continue to disrupt our operations and our suppliers operations there. Thus, we believe that the pandemic could continue to have a negative impact on our business, results of operations and financial condition for the foreseeable future.
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The COVID-19 pandemic 1) caused our customers to reduce their demand from us, 2) interrupted the availability of components we need for our customers’ 19 Table of Contents products, 3) limited the operations and productivity of our manufacturing resources and 4) created health risks to our employees.
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Any of these events could reduce our revenue, increase our costs and damage our reputation with our customers. 21 Table of Contents Allegations of failures to comply with domestic or international employment and related laws could result in the payment of significant damages, which would reduce our net income.
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We sometimes design products on a contract basis or jointly with our customers.
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While we were not affected by this cyberattack, there can be no assurance that a future malware attack will not be successful in breaching our systems.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeCertain markets, such as telecommunications, medical, defense, aerospace, automotive and oil and gas, require adherence to industry-specific standards. Substantially all of our manufacturing facilities are certified to ISO 9001:2015, a standard published by the International Organization for Standardization.
Biggest changeSubstantially all of our manufacturing facilities are certified to ISO 9001:2015, a standard published by the International Organization for Standardization. As part of the ISO 9001:2015 certification process, we have a highly developed quality management system and continually improve its effectiveness in accordance with its requirements.
These defense and aerospace operations are AS9100 2016 certified and maintain other certifications in accordance with various U.S. military specifications, ANSI and other standards as appropriate for defense and aerospace suppliers. Other selected operations around the world are also AS9100 Rev. D certified. Our automotive facilities are strategically located worldwide.
These operations are AS9100 Rev D, 2016 certified and maintain other certifications in accordance with various U.S. military specifications, ANSI and other standards as appropriate for defense and aerospace suppliers. Other selected operations around the world are also AS9100 Rev. D certified. Our automotive facilities are strategically located worldwide.
The majority of our facilities are also compliant with the standards set by Underwriters Laboratories (UL). These standards define requirements for quality, manufacturing process control and manufacturing documentation and are required by many OEMs in the communications sector of the electronics industry. Our medical systems division has identified certain manufacturing facilities to be centers of excellence for medical products manufacturing.
The majority of our facilities are also compliant with the standards set by Underwriters Laboratories. These standards define requirements for quality, manufacturing process control and manufacturing documentation and are required by many OEMs in the communications sector of the electronics industry. Our medical systems division has identified certain manufacturing facilities to be centers of excellence for medical products manufacturing.
These facilities are ISO 13485:2016 certified and, where appropriate, FDA registered and MDSAP certified. All such facilities are fully compliant with the FDA's quality systems regulations. Our defense and aerospace operations are headquartered in Huntsville, Alabama in a facility dedicated to meeting the specialized needs of our defense and aerospace customers.
These facilities are ISO 13485:2016 certified and, where appropriate, FDA registered and MDSAP certified. All such facilities are fully compliant with the FDA's quality systems regulations. Our SCI Technology defense and aerospace operations are headquartered in Huntsville, Alabama in a facility dedicated to meeting the specialized needs of our defense and aerospace customers.
In addition to ISO 9001:2015, many of our facilities are TL 9000 6.3 certified. The TL 9000 quality system requirements and quality system metrics are designed specifically for the telecommunications industry to promote consistency and efficiency, reduce redundancy and improve customer satisfaction. Included in the TL 9000 system are performance-based metrics that quantify reliability and quality performance of the product.
The TL 9000 quality system requirements and quality system metrics are designed specifically for the telecommunications industry to promote consistency and efficiency, reduce redundancy and improve customer satisfaction. Included in the TL 9000 system are performance-based metrics that quantify reliability and quality performance of the product.
As of October 1, 2022, the approximate square footage of our active manufacturing facilities by region was as follows: Approximate Square Footage Americas 5,717,385 APAC 3,938,308 EMEA 1,640,780 Total 11,296,473 As of October 1, 2022, our active manufacturing facilities consist of nine million square feet in facilities that we own and two million square feet in leased facilities with lease terms expiring between 2022 and 2042.
As of September 30, 2023, the approximate square footage of our active manufacturing facilities by region was as follows: Approximate Square Footage Americas 5,706,824 APAC 4,252,032 EMEA 1,372,443 Total 11,331,299 As of September 30, 2023, our active manufacturing facilities consist of nine million square feet in facilities that we own and two million square feet in leased facilities with lease terms expiring between 2023 and 2042.
Substantially all of our automotive facilities are certified to IATF16949:2016, the automotive industry standard. 29 Table of Contents Our oil and gas related manufacturing operations are, as applicable, certified to American Petroleum Institute (API) requirements.
Substantially all of our automotive facilities are certified to IATF16949:2016, the automotive industry standard. Our oil and gas related manufacturing operations are, as applicable, certified to American Petroleum Institute requirements. Other certifications and registrations are obtained and maintained at our sites in accordance with specific customer requirements.
As part of the ISO 9001:2015 certification process, we have a highly developed quality management system and continually improve its effectiveness in accordance with its requirements. We use this certification to demonstrate our ability to consistently provide product that meets customer and applicable regulatory requirements and enhance customer satisfaction through its effective application.
We use this certification to demonstrate our ability to consistently provide product that meets customer and applicable regulatory requirements and enhance customer satisfaction through its effective application. In addition to ISO 9001:2015, many of our facilities are TL 9000 6.3 certified.
We regularly evaluate our expected future facilities requirements and believe our existing facilities are adequate to meet our requirements for the next 12 months. Certifications and Registrations. Certifications and registrations under industry standards are important to our business because many customers rely on them to confirm our adherence to manufacturing process and quality standards.
Certifications and Registrations. Certifications and registrations under industry standards are important to our business because many customers rely on them to confirm our adherence to manufacturing process and quality standards. Certain markets, such as telecommunications, medical, defense, aerospace, automotive and oil and gas, require adherence to industry-specific standards.
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Item 2. Properties Facilities. Our customers sell their products throughout the world and therefore need access to manufacturing services globally. For this reason, we maintain facilities both near our major customers and their end markets and also in lower cost locations, including Latin America, Eastern Europe, China, India and Southeast Asia.
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Item 2. Properties We own or lease facilities located primarily in the geographies listed below. We believe that our properties are generally in good condition, are well maintained and are generally suitable and adequate to carry out our business at expected capacity for the foreseeable future.
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Many of our plants located near customers or their end markets are focused primarily on new product introduction and high-level assembly and test, and plants located in lower cost areas are engaged primarily in higher volume, less complex component and subsystem manufacturing and assembly.
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We continually evaluate our global manufacturing operations and adjust our facilities and operations to keep our manufacturing capacity in line with demand and our manufacturing strategy and to provide cost efficient services to our customers.
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As a result, we have closed certain facilities not required to satisfy current demand levels in the past and may continue to do so in the future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAll rights reserved. 9/30/2017 9/29/2018 9/28/2019 10/3/2020 10/2/2021 10/1/2022 Sanmina Corporation 100.00 74.29 86.46 71.47 105.46 124.04 S&P 500 100.00 117.91 122.93 141.55 184.02 155.55 NASDAQ Electronic Components 100.00 114.71 119.95 174.67 250.16 176.17 Sanmina's stock price performance included in this graph is not necessarily indicative of future stock price performance. 31 Table of Contents Dividends We have never declared or paid cash dividends on our common stock.
Biggest changeAll rights reserved. 31 Table of Contents 9/29/2018 9/28/2019 10/3/2020 10/2/2021 10/1/2022 9/30/2023 Sanmina Corporation 100.00 116.38 96.20 141.96 166.96 196.67 S&P 500 100.00 104.25 120.05 156.07 131.92 160.44 Peer Group 100.00 99.51 101.04 160.44 151.51 276.77 Sanmina's stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol SANM. As of November 3, 2022, we had approximately 789 holders of record of our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol SANM. As of November 9, 2023, we had approximately 739 holders of record of our common stock.
An investment of $100 (with reinvestment of all dividends, if any) is assumed to have been made in our common stock on September 30, 2017 and in each of such indices at month end starting on September 30, 2017 and its relative performance is tracked through October 1, 2022. * $100 invested on 9/30/2017, including reinvestment of dividends, as applicable.
An investment of $100 (with reinvestment of all dividends, if any) is assumed to have been made in our common stock on September 29, 2018 and in each of such indices at month end starting on September 29, 2018 and its relative performance is tracked through September 30, 2023. * $100 invested on 9/29/2018 in stock or index, including reinvestment of dividends.
(2) Amounts do not include commissions payable on shares repurchased. The total average price paid per share is a weighted average based on the total number of shares repurchased during the period.
(2) Amounts do not include commissions payable on shares repurchased. The total average price paid per share is a weighted average based on the total number of shares repurchased during the period and does not include the effect of the excise tax under the provision of the Inflation Reduction Act.
Indexes calculated on a month-end basis. Copyright @ 2022 Standard & Poor's, a division of S&P Global.
Index performance is calculated on a month-end basis. Copyright @ 2023 Standard & Poor's, a division of S&P Global.
The following graph compares the cumulative 5-year total stockholder return on our common stock relative to the cumulative total returns of the S&P 500 index and the NASDAQ Electronic Components index.
The following graph compares the cumulative 5-year total stockholder return on our common stock relative to the cumulative total returns of the S&P 500 index and a new peer group index consisting of Flex Ltd., Jabil Inc., Celestica Inc., Benchmark Electronics, Inc., and Plexus Corp. In previous years, we compared our cumulative total returns to the NASDAQ Electronic Components index.
We currently expect to retain future earnings for use in our operations, for expansion of our business, and potentially for share repurchases and do not anticipate paying cash dividends in the foreseeable future. Additionally, our ability to pay dividends is limited pursuant to covenants contained in our various debt agreements.
Dividends We have never declared or paid cash dividends on our common stock. We currently expect to retain future earnings for use in our operations, for expansion of our business, share repurchases and debt repayment and do not anticipate paying cash dividends in the foreseeable future.
(3) During the third quarter of 2022, our Board of Directors authorized us to repurchase up to $200 million of our common stock in the open market or in negotiated transactions off the market. This program has no expiration date.
See also “Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.” Stock Repurchases During the third quarter of 2023, our Board of Directors authorized us to repurchase up to $200 million of our common stock in the open market or in negotiated private transactions. This program has no expiration date.
See also “Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.” Stock Repurchases The table below sets forth information regarding repurchases of our common stock during the fourth quarter of 2022.
The table below sets forth information regarding repurchases of our common stock during the fourth quarter of 2023.
Period (1) TOTAL NUMBER OF SHARES PURCHASED AVERAGE PRICE PAID PER SHARE (2) TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PROGRAMS (3) MAXIMUM DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PROGRAMS (2) Month #1 July 3, 2022 through July 30, 2022 131,756 $ 39.79 131,756 $ 182,312,678 Month #2 July 31, 2022 through August 27, 2022 — $ — — $ 182,312,678 Month #3 August 28, 2022 through October 1, 2022 402,765 $ 46.19 402,765 $ 163,710,163 Total 534,521 $ 44.61 534,521 (1) All months shown are our fiscal months.
Period (1) Total Number of Shares Purchased Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value of Shares That May Yet Be Purchased Under The Programs (2) July 2, 2023 - July 29, 2023 — $ — — $ 312,321,196 July 30, 2023 - August 26, 2023 458,368 $ 55.17 458,368 $ 287,034,902 August 27, 2023 - September 30, 2023 145,408 $ 52.99 145,408 $ 279,329,725 Total 603,776 $ 54.64 603,776 (1) All months shown are our fiscal months.
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This year, we have elected to replace such index with the new peer group index, as the NASDAQ Electronic Components index was discontinued in December 2022 and is no longer available for comparison this year, and because the companies included in the new peer group are in the same industry as we are.
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Additionally, our ability to pay dividends is limited pursuant to covenants contained in our credit agreements.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

76 edited+34 added−47 removed41 unchanged
Biggest changeSales by end market were as follows: Year Ended 2022 vs. 2021 2021 vs. 2020 October 1, 2022 October 2, 2021 October 3, 2020 Increase/(Decrease) Increase/(Decrease) (Dollars in thousands) Industrial, Defense, Medical and Automotive $ 4,714,941 $ 3,890,041 $ 4,127,720 $ 824,900 21.2 % $ (237,679) (5.8) % Communications Networks and Cloud Infrastructure 3,175,534 2,866,602 2,832,650 308,932 10.8 % 33,952 1.2 % Total $ 7,890,475 $ 6,756,643 $ 6,960,370 $ 1,133,832 16.8 % $ (203,727) (2.9) % Comparison of 2022 to 2021 by End Market The increase in sales was primarily due to three factors.
Biggest changeSales by end market were as follows: Year Ended 2023 vs. 2022 2022 vs. 2021 September 30, 2023 October 1, 2022 October 2, 2021 Increase/(Decrease) Increase/(Decrease) (Dollars in thousands) Industrial, Medical, Defense and Aerospace, and Automotive $ 5,388,877 $ 4,744,088 $ 3,871,754 $ 644,789 13.6 % $ 872,334 22.5 % Communications Networks and Cloud Infrastructure 3,546,171 3,175,534 2,866,602 370,637 11.7 % 308,932 10.8 % Total $ 8,935,048 $ 7,919,622 $ 6,738,356 $ 1,015,426 12.8 % $ 1,181,266 17.5 % Comparison of 2023 to 2022 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 Credit Agreement provides for an $800 million revolving credit facility and a $350 million secured term loan (“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.
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.
As a result, actual results could vary materially from those suggested by the forward looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission.
As a result, actual results could vary materially from those suggested by the forward looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission (the “SEC”).
Commercial disputes include billing errors, returns and similar matters. To date, we have not been required to repurchase any receivable we have sold due to a commercial dispute. Additionally, we are required to remit amounts collected by us as servicer on a weekly basis to the financial institutions that purchased the receivables.
Commercial disputes include billing errors, returns and similar matters. To date, we have not been required to repurchase any receivable we have sold due to a commercial dispute. Additionally, we are required to remit amounts collected as servicer on a weekly basis to the financial institutions that purchased the receivables.
Our IMS segment consists of printed circuit board assembly and test, high-level assembly and test and direct-order-fulfillment. 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.
Our IMS segment consists of printed circuit board assembly and test, high-level assembly and test and direct-order-fulfillment. 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.
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. In 2022, we generated $331 million of cash from operations.
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. In 2023, we generated $235 million of cash from operations.
All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including any statements regarding trends in future revenue or results of operations, gross margin, operating margin, expenses, earnings or losses from operations, or cash flow; any statements of the plans, strategies and objectives of management for future operations and the anticipated benefits of such plans, strategies and objectives; any statements regarding future economic conditions or performance; 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 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 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 the expected impact of accounting pronouncements not yet adopted; any statements regarding future repurchases of our common stock; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.
All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including any statements regarding trends in future revenue or results of operations, gross margin, operating margin, expenses, earnings or losses from operations, or cash flow; any statements of the plans, strategies and objectives of management for future operations and the anticipated benefits of such plans, strategies and objectives; any statements regarding future economic conditions or performance; 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 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 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 the expected impact of accounting pronouncements not yet adopted; any statements regarding future repurchases of our common stock; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.
Our revenue is generated from sales of our products and services primarily to original equipment manufacturers (OEMs) that serve the industrial, medical, defense and aerospace, automotive, communications networks and cloud solutions industries. Our operations are managed as two businesses: 1) Integrated Manufacturing Solutions (IMS).
Our revenue is generated from sales of our products and services primarily to original equipment manufacturers (“OEMs”) that serve the industrial, medical, defense and aerospace, automotive, communications networks and cloud solutions industries. Our operations are managed as two businesses: 1) Integrated Manufacturing Solutions (“IMS”).
Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. We must also make judgments regarding the realizability of deferred tax assets.
Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. 36 Table of Contents We must also make judgments regarding the realizability of deferred tax assets.
We distribute our cash among a number of financial institutions that we believe to be of high quality. However, there can be no assurance that one or more of such institutions will not become insolvent in the future, in which case all or a portion of our uninsured funds on deposit with such institutions could be lost.
We invest our cash in numerous financial institutions that we believe to be of high quality. However, there can be no assurance that one or more of such institutions will not become insolvent in the future, in which case all or a portion of our uninsured funds on deposit with such institutions could be lost.
We believe that cash held in the United States, together with liquidity available under our Amended Cash Flow Revolver 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.
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.
Off-Balance Sheet Arrangements As of October 1, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. 45 Table of Contents
Off-Balance Sheet Arrangements As of September 30, 2023, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. 44 Table of Contents
In addition to the RPA, we have the option to 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.
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.
Revenue streams for which revenue is recognized at a point-in-time include Company-proprietary products and sales of raw materials. Inventories— We state inventories at the lower of cost (first-in, first-out method) and net realizable value. Cost includes raw materials, labor and manufacturing overhead.
Revenue streams for which revenue is recognized at a point-in-time include our proprietary products and sales of raw materials. Inventories— We state inventories at the lower of cost (based on standard cost, which approximates first-in, first-out method) and net realizable value. Cost includes raw materials, labor and manufacturing overhead.
As of October 1, 2022 and October 2, 2021, $194 million and $7 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.
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. Our sole risk with respect to receivables we service is with respect to commercial disputes regarding such receivables.
We have considered information available to us as of the date of issuance of these financial statements and, other than the impairments described in Note 5, are not aware of any specific events or circumstances that would require an update to our estimates or judgments, or a revision to the carrying value of our assets or liabilities.
We have considered information available to us as of the date of issuance of these financial statements and are not aware of any specific events or circumstances that would require an update to our estimates or judgments, or a revision to the carrying value of our assets or liabilities.
Fluctuations in our gross margin may be caused by a number of factors, including: • the ongoing impacts of the COVID-19 pandemic and related supply chain constraints on our operations, the operations of our suppliers and on our customers' businesses; • capacity utilization which, if lower, results in lower margins due to fixed costs being absorbed by lower volumes; • changes in the mix of high and low margin products demanded by our customers; • competition in the EMS industry and pricing pressures from OEMs due to greater focus on cost reduction; • the amount of our provisions for excess and obsolete inventory, including those associated with distressed customers; • levels of operational efficiency and production yields; and • our ability to transition the location of and ramp manufacturing and assembly operations when requested by a customer in a timely and cost-effective manner.
Fluctuations in our gross margin may be caused by a number of factors, including: • the impacts of supply chain constraints on our operations, the operations of our suppliers and on our customers’ businesses; • capacity utilization which, if lower, results in lower margins due to fixed costs being absorbed by lower volumes; 38 Table of Contents • changes in the mix of high and low margin products demanded by our customers; • competition in the EMS industry and pricing pressures from OEMs due to greater focus on cost reduction; • the amount of our provisions for excess and obsolete inventory, including those associated with distressed customers; • levels of operational efficiency and production yields; • our performance on long-term contracts, including our ability to recover claims for cost overruns; and • our ability to transition the location of and ramp up manufacturing and assembly operations when requested by a customer in a timely and cost-effective manner.
(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 $530 million at October 1, 2022 and $650 million at October 2, 2021.
(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.
Other Liquidity Matters During 2022 and 2021 we repurchased 8.0 million shares and 1.5 million shares of our common stock for $317 million and $54 million (including commissions), respectively, under stock repurchase programs authorized by the Board of Directors.
Other Liquidity Matters During 2023 and 2022 we repurchased 1.6 million shares and 8.0 million shares of our common stock for $84 million and $317 million (including commissions), respectively, under stock repurchase programs authorized by the Board of Directors.
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 $1.5 billion as of October 1, 2022 and October 2, 2021.
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.
These agreements generally have terms ranging from three to five years and cover the manufacture of a range of products. Under these agreements, a customer typically purchases its requirements for specific products in particular geographic areas from us.
These agreements generally have terms ranging from three to five years and cover the manufacture of a range of products. Under these agreements, a customer typically purchases its requirements for specific products in particular geographic areas from us. However, these agreements generally do not obligate the customer to purchase minimum quantities of products.
As of October 1, 2022, approximately 50% of our cash balance was held in the United States. 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.
As of September 30, 2023, approximately 41% of our cash balance was held in the United States. 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.
Our primary sources of liquidity as of October 1, 2022 consisted of (1) cash and cash equivalents of $530 million; (2) our Credit Agreement, under which $791 million, net of outstanding borrowings and letters of credit, was available; (3) our foreign short-term borrowing facilities of $70 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.
Our primary sources of liquidity as of September 30, 2023 consisted of (1) cash and cash equivalents of $668 million; (2) our Credit Agreement, under which $787 million, net of outstanding borrowings and letters of credit, was available; (3) our foreign short-term borrowing facilities of $72 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.
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 October 1, 2022 and October 2, 2021, we sold $1.9 billion and $0.5 billion, respectively, of accounts receivable under these programs.
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 a result, the timing of future repurchases depends upon our future capital needs, market conditions and other factors. As of October 1, 2022, an aggregate of $164 million remains available under these programs.
As a result, the timing of future repurchases depends upon our future capital needs, market conditions and other factors. As of September 30, 2023, an aggregate of $279 million remains available under these programs.
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 proceed from the issuance of a term loan, incurred $3 million of costs in connection with the amendment of the Fourth Amended and Restated Loan Agreement, dated as of November 30, 2018 (the “Existing Credit Agreement”) and received $2 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.
This is due to the fact that 1) we do not have an alternative use for the end products we manufacture for our customers and have an enforceable right to payment, including a reasonable profit, for work-in-progress upon a customer’s cancellation of a contract for convenience or 2) our customer simultaneously receives and consumes the benefits provided by our services.
This is primarily due to the fact that we do not have an alternative use for the end products we manufacture for our customers and have an enforceable right to payment, including a reasonable profit, for work-in-progress upon a customer's cancellation of a contract for convenience.
As a result of the transaction, RSBVL acquired shares of SIPL for approximately $215 million of cash such that immediately after the closing of the transaction, RSBVL holds 50.1% of the outstanding shares of SIPL and Sanmina holds the remaining 49.9% of the outstanding shares of SIPL.
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.
Our effective tax rate is highly dependent upon the amount and geographic distribution of our worldwide income or losses, the tax regulations, rates and holidays in each geographic region, the utilization of net operating losses, the availability of tax credits and carryforwards, and the effectiveness of our tax planning strategies. 37 Table of Contents Results of Operations Years Ended October 1, 2022, October 2, 2021 and October 3, 2020.
Our effective tax rate is highly dependent upon the amount and geographic distribution of our worldwide income or losses, the tax regulations, rates and holidays in each geographic region, the utilization of net operating losses, the availability of tax credits and carryforwards, and the effectiveness of our tax planning strategies. 37 Table of Contents Results of Operations Refer to Item 7.
As of October 1, 2022, certain of our foreign subsidiaries had a total of $70 million of short-term borrowing facilities available, under which no borrowings were outstanding. These facilities expire at various dates through the second quarter of 2024.
Additionally, certain of our foreign subsidiaries had a total of $72 million of short-term borrowing facilities available, under which no borrowings were outstanding as of September 30, 2023. These facilities expire at various dates through the first quarter of 2025.
Selling, General and Administrative Selling, general and administrative expenses were $244.6 million, $234.5 million and $240.9 million in 2022, 2021 and 2020, respectively. As a percentage of net sales, selling, general and administrative expenses were 3.1%, 3.5% and 3.5% for 2022, 2021 and 2020, respectively.
Selling, General and Administrative Selling, general and administrative expenses were $255 million, $245 million and $235 million in 2023, 2022 and 2021, respectively. As a percentage of net sales, selling, general and administrative expenses were 2.9%, 3.1% and 3.5% for 2023, 2022 and 2021, respectively.
We cannot accurately predict the outcome of these matters or the amount or timing of cash flows that may be required to defend ourselves or to settle such matters or that these reserves will be sufficient to fully satisfy our contingent liabilities. As of October 1, 2022, we had a liability of $65 million for uncertain tax positions.
As of September 30, 2023, we had accrued liabilities of $34 million related to such matters. We cannot accurately predict the outcome of these matters or the amount or timing of cash flows that may be required to defend ourselves or to settle such matters or that these reserves will be sufficient to fully satisfy our contingent liabilities.
This amount is classified in accrued liabilities on the consolidated balance sheets. 43 Table of Contents 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.
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.
We also have outstanding firm purchase orders with certain suppliers for the purchase of inventory, which are not included in the table above. These purchase orders are generally short-term in nature. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty.
The statutes of limitations for these matters range up to 10 years, and unsettled liabilities are released upon expiration of the statutes. We also have outstanding firm purchase orders with certain suppliers for the purchase of inventory which are generally short-term in nature. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty.
Products include memory solutions from our Viking Technology division; high-performance storage platforms for hyperscale and enterprise solutions from our Viking Enterprise Solutions (VES) division; optical, radio frequency (RF) and microelectronic (microE) design and manufacturing services from Advanced Microsystems Technologies; defense and aerospace products from SCI Technology; and cloud-based manufacturing execution software from our 42Q division.
Products include optical, radio frequency (“RF”) and microelectronic design and manufacturing services from our Advanced Microsystems Technologies division; multi-chip package memory solutions from our Viking Technology division; high-performance storage platforms for hyperscale and enterprise solutions from our Viking Enterprise Solutions division; defense and aerospace product, design, manufacturing, repair and refurbishment services from our SCI Technology Inc.
The U.S., China, the E.U. and several other countries have 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.
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.
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.
Net cash provided by operating activities was $235 million, $331 million and $338 million for 2023, 2022 and 2021, 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.
As of October 1, 2022, no borrowings and $9 million of letters of credit were outstanding under the Credit Agreement, under which $791 million was available to borrow. There were no borrowings outstanding under the Credit Agreement as of October 2, 2021. 42 Table of Contents Short-term Borrowing Facilities .
As of September 30, 2023, no borrowings and $13 million of letters of credit were outstanding under the Credit Agreement, under which $787 million was available to borrow. There were no borrowings outstanding under the Credit Agreement as of October 1, 2022. Short-term Borrowing Facilities . We had $8 million of short-term borrowings outstanding as of September 30, 2023.
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.
Therefore, financial information for these operating segments is combined and presented in a single category entitled “Components, Products and Services”. 33 Table of Contents 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.
Unrecovered tariffs paid on behalf of our customers reduce our gross margins. Also, although we are required to pay tariffs upon importation of the components, we may not recover these amounts from customers until sometime later, which adversely impacts our operating cash flow in a given period.
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.
Our effective tax rates for 2022 and 2021 were lower than the expected U.S. statutory rate of 21.0% primarily due to a $16 million and $43 million tax benefit, respectively, resulting from the release of foreign tax reserves due to lapse of time and expiration of statutes of limitations. 40 Table of Contents Liquidity and Capital Resources Year Ended October 1, 2022 October 2, 2021 October 3, 2020 (In thousands) Net cash provided by (used in): Operating activities $ 330,854 $ 338,342 $ 300,555 Investing activities (132,214) (91,325) (64,409) Financing activities (314,299) (77,318) (210,280) Effect of exchange rate changes (4,510) (199) (81) Increase (decrease) in cash and cash equivalents $ (120,169) $ 169,500 $ 25,785 Key Working Capital Management Measures As of October 1, 2022 October 2, 2021 Days sales outstanding (1) 48 64 Contract asset days (2) 20 19 Inventory turns (3) 4.9 6.3 Days inventory on hand (4) 74 58 Accounts payable days (5) 90 83 Cash cycle days (6) 52 58 (1) Days sales outstanding (a measure of how quickly we collect our accounts receivable), or “DSO”, is calculated as the ratio of average accounts receivable, net, to average daily net sales for the quarter.
Liquidity and Capital Resources Year Ended September 30, 2023 October 1, 2022 October 2, 2021 (In thousands) Net cash provided by (used in): Operating activities $ 235,168 $ 330,854 $ 338,342 Investing activities (192,458) (132,214) (91,325) Financing activities 94,505 (314,299) (77,318) Effect of exchange rate changes 498 (4,510) (199) Increase (decrease) in cash and cash equivalents $ 137,713 $ (120,169) $ 169,500 40 Table of Contents Key Working Capital Management Measures As of September 30, 2023 October 1, 2022 Days sales outstanding (1) 55 48 Contract asset days (2) 20 19 Inventory turns (3) 5.1 5.0 Days inventory on hand (4) 72 73 Accounts payable days (5) 81 90 Cash cycle days (6) 66 50 (1) Days sales outstanding (a measure of how quickly we collect our accounts receivable), or “DSO”, is calculated as the ratio of average accounts receivable, net, to average daily net sales for the quarter.
We have defined benefit pension plans with an underfunded amount of $34 million as of October 1, 2022. We will be required to provide additional funding to these plans in the future if our returns on plan assets are not sufficient to meet our funding obligations.
We will be required to provide additional funding to these plans in the future if our returns on plan assets are not sufficient to meet our funding obligations.
The ultimate realization of 36 Table of Contents inventory carrying amounts is affected by changes in customer demand for inventory that customers are not contractually obligated to purchase and inventory held for specific customers who are experiencing financial difficulties.
We regularly evaluate the carrying value of our inventories and make provisions to reduce excess and obsolete inventories to their estimated net realizable values. The ultimate realization of inventory carrying amounts is affected by changes in customer demand for inventory that customers are not contractually obligated to purchase and inventory held for specific customers who are experiencing financial difficulties.
For other assets, we estimate fair value based on projected discounted future net cash flows, which requires significant judgment. Income Taxes— We estimate our income tax provision or benefit in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities.
Income Taxes— We estimate our income tax provision or benefit in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities.
A summary of our operating lease obligations as of October 1, 2022 can be found in Note 8, “Leases”, to the Consolidated Financial Statements contained in this report. 44 Table of Contents A summary of our long-term debt obligations as of October 1, 2022 can be found in Note 7, “Debt”, to the Consolidated Financial Statements contained in this report.
A summary of our operating lease obligations as of September 30, 2023 can be found in Note 8, “Leases” of the notes to the Consolidated Financial Statements contained in this report.
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. Historically, we have had substantial recurring sales to existing customers. We typically enter into supply agreements with our major OEM customers.
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.
On an ongoing basis, we evaluate the process used to develop estimates related to accounts receivable, inventories, income taxes, environmental matters, litigation and other contingencies.
On an ongoing basis, we evaluate the process used to develop estimates related to accounts receivable, inventories, income taxes, environmental matters, litigation and other contingencies, as well as estimates related to costs expected to be incurred to satisfy performance obligations under long-term contracts and variable consideration related to such contracts.
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, subject to acceptance by, and a funding commitment from, the banks that are party to the RPA.
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. The amount available under the RPA is uncommitted and, as such, is available at the discretion of our third-party banking institutions.
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. This division is an operating segment whose results are combined with eleven other operating segments and reported under CPS.
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.
These fluctuations can significantly affect our cash flows from operating activities. 41 Table of Contents During 2022, we generated $446 million of cash from earnings, excluding non-cash items, and used $115 million of cash because of an increase in our net operating assets and liabilities, resulting primarily from increases in inventories and contract assets of $663 million and $155 million, respectively, partially offset by increases in accounts payable and accrued liabilities of $554 million and $134 million, respectively.
These fluctuations can significantly affect our cash flows from operating activities. 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 $414 million and an increase in accounts receivable of $89 million, partially offset by a decrease in inventories of $210 million.
However the net impact of tariffs, after recovery from customers, has not been, and is not expected to be, material to us. 34 Table of Contents On October 3, 2022, subsequent to the end of the fourth quarter of 2022, we completed a joint venture transaction in which we entered into a Share Subscription and Purchase Agreement (the “SSPA”) and a Joint Venture and Shareholders’ Agreement (the “Shareholders’ Agreement”) with Reliance Strategic Business Ventures Limited (“RSBVL”), a wholly owned subsidiary of Reliance Industries Limited.
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.
The increase in absolute dollars in 2022 was primarily due to higher incentive compensation, partially offset by a decrease in our deferred compensation liability resulting from a decline in the market value of participant investment accounts in 2022.
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. Research and Development Research and Development expenses were $26 million, $21 million and $21 million in 2023, 2022 and 2021, respectively.
Contractual Obligations As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. Our estimated future obligations consist of leases, the Term Loan, pension plan funding obligations and unrecognized tax benefits as of October 1, 2022.
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.
Services include design, engineering and logistics and repair. Our only reportable segment for financial reporting purposes is IMS, which represented approximately 80% of our total revenue in 2022. Our CPS business consists of multiple operating segments which do not individually meet the quantitative thresholds for being presented as reportable segments.
Our CPS business consists of multiple operating segments which do not individually meet the quantitative thresholds for being presented as reportable segments.
We believe this strategy differentiates us from our competitors and will help drive more sustainable revenue growth and provide opportunities for us to ultimately achieve operating margins that exceed industry standards. There are many challenges to successfully executing our strategy. For example, we compete with a number of companies in each of our key end markets.
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. Historically, we have had substantial recurring sales to existing customers.
Net cash provided by operating activities was $331 million, $338 million and $301 million for 2022, 2021 and 2020, respectively.
Net cash provided by (used in) financing activities was $95 million, $(314) million and $(77) million for 2023, 2022 and 2021, respectively.
Under the Credit Agreement, the percentage of our total accounts receivable that can be sold and outstanding at any time is 50%. Trade receivables sold pursuant to the RPA are serviced by us.
Under the Credit Agreement, the percentage of our total accounts receivable that can be sold and outstanding at any time is 50%. Therefore, as of September 30, 2023, a maximum of $450 million of sold receivables could be outstanding at any point in time under this program, as amended, as required by our Credit Agreement.
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. As of October 1, 2022, we had accrued liabilities of $38 million related to such matters.
See Note 5, “Financial Instruments” of the notes to the Consolidated Financial Statements contained in this report for details. 42 Table of Contents 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.
Interest Expense Interest expense was $22.5 million, $19.6 million and $28.9 million in 2022, 2021 and 2020, respectively. Interest expense increased $3 million in 2022 primarily due to higher daily average borrowings under our revolving credit facility.
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.
Given the terms of the agreements entered into by the parties concerning management of the joint venture, we expect to continue to consolidate SIPL in future periods. 35 Table of Contents Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
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. 34 Table of Contents Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
In 2021, we repurchased $64 million of common stock (including $10 million in settlement of employee tax withholding obligations), repaid an aggregate of $19 million of long-term debt, received $3 million of proceeds from issuances of common stock pursuant to stock option exercises and received $3 million of installment payments from the sale of certain intellectual property assets.
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 41 Table of Contents 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.
Net sales decreased from $7.0 billion for 2020 to $6.8 billion for 2021, a decrease of 2.9%.
Net sales increased from $6.7 billion for 2021 to $7.9 billion for 2022, an increase of 17.5%.
As of October 1, 2022 and October 2, 2021, $49 million and $18 million, respectively, had been collected but not yet remitted.
As of September 30, 2023 and October 1, 2022, $33 million and $49 million, respectively, had been collected but not yet remitted. This amount is classified in accrued liabilities on the consolidated balance sheets.
However, these agreements generally do not obligate the customer to purchase minimum quantities of products, which can have the effect of reducing revenue and profitability. In addition, some customer contracts contain cost reduction objectives, which can also have the effect of reducing revenue from such customers.
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.
DSO decreased from 64 days as of 2021 to 48 days as of 2022 due primarily to an increase in accounts receivable factoring. Net cash used in investing activities was $132 million, $91 million and $64 million for 2022, 2021 and 2020, respectively.
The increase in accounts receivable is primarily attributable to lower business volume as well as an unfavorable customer payment terms mix. Net cash used in investing activities was $192 million, $132 million and $91 million for 2023, 2022 and 2021, respectively. In 2023 and 2022, we used $191 million and $139 million of cash for capital expenditures respectively.
In 2022, CPS revenue and gross profit were $1.5 billion and $194 million, respectively. We update our estimates of materials, labor and subcontractor costs on a quarterly basis. These updated 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.
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.
Provision for Income Taxes We recorded income tax expense of $64.5 million, $38.0 million and $61.0 million in 2022, 2021 and 2020, respectively. Our effective tax rate was 20.1%, 12.4% and 30.4% for 2022, 2021 and 2020, respectively.
Provision for Income Taxes We recorded income tax expense of $85 million, $62 million and $32 million in 2023, 2022 and 2021, respectively. Our effective tax rate was 21%, 20% and 11% for 2023, 2022 and 2021, respectively. The increase in tax in absolute dollars for 2023 was primarily due to increased profit before tax.
Additionally, as of October 1, 2022, 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 $65 million. The statutes of limitations for these matters range up to 10 years, and unsettled liabilities are released upon expiration of the statutes.
See Note 17, “Employee Benefit Plans” of the notes to the Consolidated Financial Statements contained in this report. 43 Table of Contents 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.
If a change in estimate is deemed necessary, the impact of the change is recognized in the period of change. 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.
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. 35 Table of Contents 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.
CPS gross margin increased to 12.7% in 2021 from 11.5% in 2020, primarily due to increased volume, operational efficiencies, favorable product mix and the benefit of cost reduction and containment efforts described above. We have experienced fluctuations in gross margin in the past and may continue to do so in the future.
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. We have experienced fluctuations in gross margin in the past and may continue to do so in the future.
This includes companies that are much larger than we are and smaller companies that focus on a particular niche. Although we believe we are well-positioned in each of our key end markets and seek to differentiate ourselves from our competitors, competition remains intense and profitably growing our revenues has been challenging.
However, our business faces many challenges. For example, we compete with a number of companies in each of our key end markets. This includes companies that are much larger than we are and smaller companies that focus on a particular niche product, service or end market.
Sales to Nokia and Motorola each represented 10% or more of our net sales in 2022. Nokia represented 10% or more of our net sales in 2021 and 2020. We typically generate about 80% of our net sales from products manufactured in our foreign operations.
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.
Interest expense decreased $9 million in 2021 compared to 2020 due primarily to lower daily average borrowings under our revolving credit facility in 2021. Other Income (Expense), net Other income (expense), net was $(26.3) million in 2022, $44.3 million in 2021 and a $(0.3) million in 2020.
Other Income (Expense), net Other income (expense), net was $(20) million in 2023, $(26) million in 2022 and a $44 million in 2021.
The slight increase in sales in our communications networks and cloud infrastructure end market was primarily due to a more significant impact from the COVID-19 pandemic in 2020 than in 2021. Gross Margin Gross margin was 8.1%, 8.2% and 7.6% in 2022, 2021 and 2020, respectively. IMS gross margin increased to 7.2% in 2022 from 7.1% in 2021.
Gross Margin Gross margin was 8.3%, 7.9% and 7.8% in 2023, 2022 and 2021, respectively. IMS gross margin increased to 7.7% in 2023 from 7.2% in 2022, primarily due to increased operating efficiencies from higher volume.
Other income (expense), net of $(26.3) million in 2022 consists primarily of a $7 million allowance that was provided for a note receivable from the 2021 sale of certain intellectual property assets based on our expectation that we will incur credit losses with the counterparty, a $6 million decline in the market value of participant investment accounts in our deferred compensation plan in 2022, $5 million in fees for sales of accounts receivable, a pension settlement charge of $2 million for the termination of our frozen U.S. defined benefit plan and a loss on extinguishment of debt of $1 million consisting of a write-off of unamortized debt issuance costs.
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.
Year Ended October 1, 2022 October 2, 2021 October 3, 2020 (In thousands) Net sales $ 7,890,475 $ 6,756,643 $ 6,960,370 Gross profit $ 640,514 $ 551,805 $ 525,707 Gross margin 8.1 % 8.2 % 7.6 % Operating expenses $ 272,727 $ 270,505 $ 298,020 Operating income $ 367,787 $ 281,300 $ 227,687 Operating margin 4.7 % 4.2 % 3.3 % Net income $ 256,121 $ 268,998 $ 139,713 Net Sales Net sales increased from $6.8 billion for 2021 to $7.9 billion for 2022, an increase of 16.8%.
Year Ended September 30, 2023 October 1, 2022 October 2, 2021 (In thousands) Net sales $ 8,935,048 $ 7,919,622 $ 6,738,356 Gross profit $ 743,211 $ 622,206 $ 526,441 Gross margin 8.3 % 7.9 % 7.8 % Operating expenses $ 287,553 $ 272,727 $ 270,505 Operating income $ 455,658 $ 349,479 $ 255,936 Operating margin 5.1 % 4.4 % 3.8 % Net income attributable to common shareholders $ 309,970 $ 240,384 $ 249,546 Net Sales Net sales increased from $7.9 billion for 2022 to $8.9 billion for 2023, an increase of 12.8%.
Removed
Therefore, financial information for these operating segments is combined and presented in a single category entitled “Components, Products and Services”. 33 Table of Contents All references in this section to years refer to our fiscal years ending on the Saturday nearest to September 30.
Added
(“SCI”) subsidiary; and cloud-based smart manufacturing execution software from our 42Q division. Services include design, engineering, and logistics and repair. Our only reportable segment for financial reporting purposes is IMS, which represented approximately 80% of our total revenue in 2023.
Removed
Fiscal 2022 and 2021 were each 52-weeks and fiscal 2020 was a 53-week year, with the extra week occurring during the fourth quarter of fiscal 2020. All references to years relate to fiscal years unless otherwise noted.
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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. 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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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAll outstanding foreign currency forward contracts are marked-to-market at the end of the period with unrealized gains and losses included in other income (expense), net, in the consolidated statements of income. As of October 1, 2022, we had outstanding foreign currency forward contracts to exchange various foreign currencies for U.S. dollars in an aggregate notional amount of $532 million.
Biggest changeAccordingly, all outstanding foreign currency forward contracts are marked-to-market at the end of the period with unrealized gains and losses included in other income (expense), net, in the consolidated statements of income.
We had forward contracts related to cash flow hedges in various foreign currencies in an aggregate notional amount of $123 million as of October 1, 2022. The net impact of an immediate 10 percent change in exchange rates would not be material to our consolidated financial statements, provided we accurately forecast and estimate our foreign currency exposure.
We had forward contracts related to cash flow hedges in various foreign currencies in an aggregate notional amount of $126 million as of September 30, 2023. The net impact of an immediate 10 percent change in exchange rates would not be material to our consolidated financial statements, provided we accurately forecast and estimate our foreign currency exposure.
We enter into short-term foreign currency forward contracts to hedge currency exposures associated with certain monetary assets and liabilities denominated in non-functional currencies. These contracts generally have maturities of up to two months. Accordingly, these forward contracts are not designated as part of a hedging relationship for accounting purposes.
We enter into short-term foreign currency forward contracts to hedge currency exposures associated with certain monetary assets and liabilities denominated in non-functional currencies such as Mexican peso, Chinese renminbi and Indian rupee. These contracts generally have maturities of up to two months and these forward contracts are not designated as part of a hedging relationship for accounting purposes.
Foreign Currency Exchange Risk We transact business in foreign currencies. Our foreign exchange policy requires that we take certain steps to limit our foreign exchange exposures resulting from certain assets and liabilities and forecasted cash flows. However, our policy does not require us to hedge all foreign exchange exposures.
Our foreign exchange policy requires that we take certain steps to limit our foreign exchange exposures resulting from certain assets and liabilities and forecasted cash flows. However, our policy does not require us to hedge all foreign exchange exposures.
Furthermore, our foreign currency hedges are based on forecasted transactions and estimated balances, the amount of which may differ from that actually incurred. As a result, we can experience foreign exchange gains and losses in our results of operations. Our primary foreign currency cash flows are in certain Asian and European countries, Israel, Brazil and Mexico.
Furthermore, our foreign currency hedges are based on forecasted transactions and estimated balances, the amount of which may differ from that actually incurred. As a result, we can experience foreign exchange gains and losses in our results of operations.
As of October 1, 2022, we had interest rate swaps with an aggregate notional amount of $350 million that effectively convert $350 million of our outstanding floating rate debt to fixed rate debt. An immediate 10 percent change in interest rates would not have a significant impact on our results of operations.
As of September 30, 2023, we had interest rate swaps with an aggregate notional amount of $650 million that effectively convert our floating rate Term Loan Due 2027 to a fixed rate term loan. An immediate 10 percent change in interest rates would not have a significant impact on our results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our primary exposure to market risk for changes in interest rates relates to our Term Loan of $350 million under our Credit Agreement for which the interest rate we pay is determined at the time of borrowing based on a floating index.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our primary exposure to market risk for changes in interest rates relates to our Term Loan Due 2027, under which $333 million is currently outstanding, and borrowings under our revolving credit facility, for which the interest rate we pay is based on a floating index.
Added
For more information about our debt and derivative instruments, see Note 5 “Financial Instruments” and Note 7 “Debt” of the notes to the Consolidated Financial Statements included in this report. Foreign Currency Exchange Risk We transact business in foreign currencies.
Added
From an economic perspective, the objective of our hedging program is for gains or losses on forward contracts to substantially offset gains and losses on the underlying hedged items. As of September 30, 2023, we had outstanding foreign currency forward contracts to exchange various foreign currencies for U.S. dollars in an aggregate notional amount of $338 million.

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