FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

12 Months Ended

Sep. 28, 2024

Financial Instruments and Concentration of Credit Risk

Fair Value Measurements

Fair Value of Financial Instruments

The fair values of cash equivalents (representing 23% of cash and cash equivalents), accounts receivable, accounts payable and short-term debt approximate carrying value due to the short-term duration of these instruments. Additionally, the fair value of variable rate long-term debt approximates carrying value as of September 28, 2024. The Company’s cash equivalents are classified as Level 1 in the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s primary financial assets and financial liabilities measured at fair value on a recurring basis are deferred compensation plan assets and defined benefit plan assets, which are both measured using Level 1 inputs. See Note 15 “Employee Benefit Plans”. Other financial assets and financial liabilities measured at fair value on a recurring basis include foreign exchange contracts and interest rate swaps, which are both measured using Level 2 inputs. Interest rate swaps are valued based on a discounted cash flow analysis that incorporates observable (Level 2) market inputs such as interest rate yield curves and credit spreads. For currency contracts, Level 2 inputs include foreign currency spot and forward rates and interest rates at commonly quoted intervals. Foreign exchange contracts were not material as of September 28, 2024 or September 30, 2023.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Other non-financial assets, such as goodwill and other long-lived assets, are measured at fair value as of the date such assets are acquired or in the period an impairment is recorded.

Offsetting Derivative Assets and Liabilities

The Company has entered into master netting arrangements with each of its derivative counterparties that allows net settlement of derivative assets and liabilities under certain conditions, such as multiple transactions with the same currency maturing on the same date. The Company presents its derivative assets and derivative liabilities on a gross basis on the consolidated balance sheets.

The following table presents the location and fair values of derivative financial instruments included in our consolidated balance sheets.


	As of
	September 28, 2024		September 30, 2023
	(In thousands)
Derivatives Designated as Accounting Hedges:
Prepaid expenses and other current assets	$	2,277	$	6,179
Other assets	$	21	$	6,351
Accrued liabilities	$	53	$	213
Other	$	1,771	$	—
Derivatives Not Designated as Accounting Hedges:
Prepaid expenses and other current assets	$	3,229	$	1,164
Accrued liabilities	$	2,265	$	4,685

Derivative Instruments

Foreign Exchange Rate Risk

The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency exchange risk.

Forward contracts on various foreign currencies are used to manage foreign currency risk associated with forecasted foreign currency transactions and certain monetary assets and liabilities denominated in non-functional currencies. The Company’s primary foreign currency cash flows are in India, Mexico and China.

The Company had the following outstanding foreign currency forward contracts to hedge foreign currency exposures:


	As of
	September 28, 2024		September 30, 2023
Derivatives Designated as Accounting Hedges:
Notional amount (in thousands)	$	117,015	$	125,758
Number of contracts	47		50
Derivatives Not Designated as Accounting Hedges:
Notional amount (in thousands)	$	366,425	$	338,283
Number of contracts	38		42

The Company utilizes foreign currency forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. Such exposures generally result from (1) forecasted non-functional currency sales and (2) forecasted non-functional currency materials, labor, overhead and other expenses. These contracts are designated as cash flow hedges for accounting purposes and are generally one to two months in duration but, by policy, may be up to twelve months in duration. The amount of gain or loss recognized in other comprehensive income on derivative instruments and the amount of gain or loss reclassified from AOCI into income were not material for any period presented herein and is included as a component of cost of sales in the consolidated statements of income.

The Company enters into short-term foreign currency forward contracts to hedge foreign currency exposures associated with certain monetary assets and liabilities denominated in non-functional currencies. These contracts have maturities of up to two months and are not designated as accounting hedges. Accordingly, these contracts are marked-to-market at the end of each period with unrealized gains and losses recorded in other expense, in the consolidated statements of income. The amount of gains or losses associated with these forward contracts was not material for any period presented herein. From an economic perspective, the objective of the Company’s hedging program is for gains and losses on forward contracts to substantially offset gains and losses on the underlying hedged items. In addition to the contracts disclosed in the table above, the Company has numerous contracts that have been closed from an economic and financial accounting perspective and will settle early in the first month of the following quarter. Since these offsetting contracts do not expose the Company to risk of fluctuations in exchange rates, these contracts have been excluded from the above table.

Interest Rate Risk

The Company enters into forward interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in Secured Overnight Financing Rate benchmark interest rate (“SOFR”) associated with anticipated variable rate borrowings. These interest rate swaps have a maturity date of September 27, 2027 and effectively convert a portion of the Company’s variable interest rate obligations to fixed interest rate obligations. These swaps are accounted for as cash flow hedges under ASC Topic 815, Derivatives and Hedging. Interest rate swaps with an aggregate notional amount of $300 million and $650 million were outstanding as of September 28, 2024 and September 30, 2023, respectively. The aggregate effective interest rate of these swaps as of September 28, 2024 was approximately 4.7%.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of cash, cash equivalents, trade accounts receivable, foreign currency forward contracts and interest rate swap agreements. The Company maintains its cash and cash equivalents with recognized financial institutions, both domestic and foreign. Cash and cash equivalents may exceed the amount of insurance provided on such deposits, but may generally be redeemed upon demand. Periodic evaluations of the relative credit standing of the financial institutions are performed and the Company attempts to limit its exposure with any one institution. One of the Company’s most significant credit risks is the ultimate realization of accounts receivable. This risk is mitigated by ongoing credit evaluations of, and frequent contact with, the Company’s customers, especially its most significant customers, thus enabling it to monitor changes in business operations and respond accordingly. The Company generally does not require collateral for sales on credit. The Company considers these concentrations of credit risks when estimating its allowance for doubtful accounts. Foreign currency forward contracts and interest rate swaps are maintained with high quality counterparties to reduce the Company’s credit risk and are recorded on the Company’s balance sheets at fair value.

Sales to the Company’s ten largest customers represented 47% of net sales in 2024. Net sales from these customers are derived from multiple segments. The following table presents the percentage of total net sales to each significant customer that represented 10% or more of the Company’s net sales.


	Year Ended
	September 28, 2024		September 30, 2023		October 1, 2022
Nokia:
IMS	*		12.6	%	13.6	%
CPS	*		0.6	%	1.0	%
Total	*		13.2	%	14.6	%

Motorola:
IMS	9.9	%	*		10.1	%
CPS	0.2	%	*		0.2	%
Total	10.1	%	*		10.3	%

* Less than 10% of the Company’s net sales.

Nokia represented 10% or more of the Company’s gross accounts receivable as of September 28, 2024. No customer represented 10% or more of the Company’s gross accounts receivable as of September 30, 2023.