UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒	~~Quarterly Report Pursuant to Section~~	QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of~~OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 30, 2019~~January 4, 2020



¨☐	~~Transition Report Pursuant to Section~~	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) ~~of the Securities Exchange Act of~~OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 001-14423

PLEXUS CORP.

(Exact name of registrant as specified in charter)



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

One Plexus Way

Neenah, Wisconsin54957

(Address of principal executive offices)~~(Zip~~ (Zip Code)

Telephone Number ~~(920)~~ (920) 969-6000

(Registrant’s telephone number, including Area Code)

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

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

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



~~Large accelerated filer~~ ý	~~Accelerated filer~~ ¨	~~Non-accelerated filer~~ ¨	~~Smaller reporting company~~ ¨	~~Emerging growth company~~ ¨

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

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

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



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

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

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



Large accelerated filer	x	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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

As of ~~April 30, 2019,~~February 4, 2020, there were ~~30,105,120~~29,355,176 shares of common stock outstanding.

PLEXUS CORP.

TABLE OF CONTENTS

~~March 30, 2019~~January 4, 2020




PART I. FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
Condensed Consolidated Statements of Comprehensive Income (Loss)	3
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Shareholders' Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
ITEM 2. MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2021
"Safe Harbor" Cautionary Statement Under the Private Securities Litigation Reform Act of 1995	20
~~Overview~~	20
~~Results of Operations~~	21
~~Liquidity of Capital Resources~~Overview	2621
Results of Operations	22
Liquidity of Capital Resources	25
Contractual Obligations, Commitments and Off-Balance Sheet Obligations	30
Disclosure About Critical Accounting Policies	31
New Accounting Pronouncements	31
ITEM 3. QUANTITATIVE AND ~~QUALITIATIVE~~QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 4. CONTROLS AND PROCEDURES	32
PART II. OTHER INFORMATION	3334
ITEM 1A. Risk Factors	3334
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	3334
ITEM 6. Exhibits	3335
SIGNATURES	3536

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

Unaudited


	Three Months Ended						Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Net sales	$	789,051		$	698,651		$	1,554,595		$	1,375,945		$	852,409		$	765,544
Cost of sales	718,415			645,699			1,411,576			1,259,470			773,219			693,161
Gross profit	70,636			52,952			143,019			116,475			79,190			72,383
Selling and administrative expenses	37,462			35,637			72,894			67,603			39,256			35,432
Operating income	33,174			17,315			70,125			48,872			39,934			36,951
Other income (expense):
Interest expense	(3,145		)	(3,547		)	(5,394		)	(7,272		)	(4,132		)	(2,249		)
Interest income	440			1,426			965			2,981			645			525
Miscellaneous, net	(1,773		)	(477		)	(2,885		)	(823		)	(2,173		)	(1,112		)
Income before income taxes	28,696			14,717			62,811			43,758			34,274			34,115
Income tax expense	3,938			2,427			15,827			129,961			3,268			11,889
Net income (loss)	$	24,758		$	12,290		$	46,984		$	(86,203	)
Earnings (loss) per share:
Net income													$	31,006		$	22,226
Earnings per share:
Basic	$	0.81		$	0.37		$	1.52		$	(2.57	)	$	1.06		$	0.71
Diluted	$	0.79		$	0.36		$	1.48		$	(2.57	)	$	1.03		$	0.69
Weighted average shares outstanding:
Basic	30,603			33,538			31,003			33,552			29,147			31,403
Diluted	31,385			34,387			31,836			33,552			30,065			32,286
Comprehensive income (loss):
Net income (loss)	$	24,758		$	12,290		$	46,984		$	(86,203	)
Other comprehensive income:
Comprehensive income:
Net income													$	31,006		$	22,226
Other comprehensive income (loss) :
Derivative instrument fair value adjustment	1,984			1,229			2,362			2,768			2,223			378
Foreign currency translation adjustments	515			4,773			(1,356		)	6,915			5,204			(1,871		)
Other comprehensive income	2,499			6,002			1,006			9,683
Total comprehensive income (loss)	$	27,257		$	18,292		$	47,990		$	(76,520	)
Other comprehensive income (loss)													7,427			(1,493		)
Total comprehensive income													$	38,433		$	20,733

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

PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

Unaudited


	March 30, 2019			September 29, 2018			January 4, 2020			September 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	184,028		$	297,269		$	252,914		$	223,761
Restricted cash	331			417			2,208			2,493
Accounts receivable, net of allowances of $1,251 and $885, respectively	445,053			394,827
Accounts receivable, net of allowances of $1,194 and $1,537, respectively							461,705			488,284
Contract assets	86,803			—			107,040			90,841
Inventories, net	802,261			794,346			735,803			700,938
Prepaid expenses and other	30,987			30,302			33,719			31,974
Total current assets	1,549,463			1,517,161			1,593,389			1,538,291
Property, plant and equipment, net	373,918			341,306			387,509			384,224
Operating lease right-of-use assets							79,318			—
Deferred income taxes	10,889			10,825			14,127			13,654
Intangible assets, net	7,511			8,239
Other	59,070			55,111
Other assets							35,761			64,714
Total non-current assets	451,388			415,481			516,715			462,592
Total assets	$	2,000,851		$	1,932,642		$	2,110,104		$	2,000,883

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations	$	93,197		$	5,532
Current portion of long-term debt and finance lease obligations							$	67,847		$	100,702
Accounts payable	476,481			506,322			515,484			444,944
Customer deposits	129,068			90,782			137,014			139,841
Accrued salaries and wages	52,939			66,874			52,527			73,555
Other accrued liabilities	92,989			68,163			116,979			106,461
Total current liabilities	844,674			737,673			889,851			865,503
Long-term debt and capital lease obligations, net of current portion	187,120			183,085
Long-term debt and finance lease obligations, net of current portion							186,827			187,278
Long-term accrued income taxes payable	58,296			56,130			59,572			59,572
Long-term operating lease liabilities							41,764			—
Deferred income taxes payable	14,991			14,376			6,463			5,305
Other liabilities	20,326			20,235			17,255			17,649
Total non-current liabilities	280,733			273,826			311,881			269,804
Total liabilities	1,125,407			1,011,499			1,201,732			1,135,307
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized, none issued or outstanding	—			—			—			—
Common stock, $.01 par value, 200,000 shares authorized, 52,832 and 52,567 shares issued, respectively, and 30,241 and 31,838 shares outstanding, respectively	528			526
Common stock, $.01 par value, 200,000 shares authorized, 53,226 and 52,917 shares issued, respectively, and 29,222 and 29,004 shares outstanding, respectively							532			529
Additional paid-in capital	586,279			581,488			609,168			597,401
Common stock held in treasury, at cost, 22,591 and 20,729 shares, respectively	(817,435		)	(711,138		)
Common stock held in treasury, at cost, 24,004 and 23,913 shares, respectively							(899,577		)	(893,247		)
Retained earnings	1,117,045			1,062,246			1,208,606			1,178,677
Accumulated other comprehensive loss	(10,973		)	(11,979		)	(10,357		)	(17,784		)
Total shareholders’ equity	875,444			921,143			908,372			865,576
Total liabilities and shareholders’ equity	$	2,000,851		$	1,932,642		$	2,110,104		$	2,000,883

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

PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

Unaudited


	Three Months Ended						Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Common stock - shares outstanding
Beginning of period	30,992			33,607			31,838			33,464			29,004			31,838
Exercise of stock options and vesting of other stock awards	241			199			265			500			309			24
Treasury shares purchased	(992		)	(513		)	(1,862		)	(671		)	(91		)	(870		)
End of period	30,241			33,293			30,241			33,293			29,222			30,992

Total stockholders' equity, beginning of period	$	905,163		$	933,848		$	921,143		$	1,025,939		$	865,576		$	921,143
Common stock - par value
Beginning of period	526			522			526			519			529			526
Exercise of stock options and vesting of other stock awards	2			2			2			5			3			—
End of period	528			524			528			524			532			526
Additional paid-in capital
Beginning of period	587,011			567,562			581,488			555,297			597,401			581,488
Stock-based compensation expense	5,176			4,524			9,929			8,420			5,046			4,753
Exercise of stock options and vesting of other stock awards, including tax benefits	(5,908		)	(4,551		)	(5,138		)	3,818			6,721			770
End of period	586,279			567,535			586,279			567,535			609,168			587,011
Treasury stock
Beginning of period	(761,189		)	(583,651		)	(711,138		)	(574,104		)	(893,247		)	(711,138		)
Treasury shares purchased	(56,246		)	(31,612		)	(106,297		)	(41,159		)	(6,330		)	(50,051		)
End of period	(817,435		)	(615,263		)	(817,435		)	(615,263		)	(899,577		)	(761,189		)
Retained earnings
Beginning of period	1,092,287			950,713			1,062,246			1,049,206			1,178,677			1,062,246
Net income (loss)	24,758			12,290			46,984			(86,203		)
Cumulative effect adjustment for adoption of new accounting pronouncement (1)	—			—			7,815			—
Net income													31,006			22,226
Cumulative effect adjustment for adoption of new accounting pronouncements (1)													(1,077		)	7,815
End of period	1,117,045			963,003			1,117,045			963,003			1,208,606			1,092,287
Accumulated other comprehensive income (loss)
Accumulated other comprehensive (loss) income
Beginning of period	(13,472		)	(1,298		)	(11,979		)	(4,979		)	(17,784		)	(11,979		)
Other comprehensive income	2,499			6,002			1,006			9,683
Other comprehensive income (loss)													7,427			(1,493		)
End of period	(10,973		)	4,704			(10,973		)	4,704			(10,357		)	(13,472		)
Total stockholders' equity, end of period	$	875,444		$	920,503		$	875,444		$	920,503		$	908,372		$	905,163

(1) See Note 1, "Basis of Presentation," for a discussion of recently adopted accounting pronouncements.

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

PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited


	Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Cash flows from operating activities
Net income (loss)	$	46,984		$	(86,203	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Net income							$	31,006		$	22,226
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	25,468			23,602			13,965			12,574
Deferred income taxes	1,622			22,326			1,666			943
Share-based compensation expense	9,929			8,420			5,046			4,753
Other, net	92			(45		)	57			51
Changes in operating assets and liabilities, excluding impacts of acquisition:
Accounts receivable	(50,717		)	(32,326		)	28,746			(34,240		)
Contract assets	(10,298		)	—			(15,864		)	(6,339		)
Inventories	(77,917		)	(42,781		)	(31,626		)	(74,344		)
Other current and noncurrent assets	(4,367		)	(4,766		)	(2,829		)	(2,221		)
Accrued income taxes payable	(824		)	102,220			(2,898		)	10,811
Accounts payable	(28,187		)	15,611			64,965			7,928
Customer deposits	38,197			(3,680		)	(3,382		)	22,050
Other current and noncurrent liabilities	15,486			463			(14,140		)	2,467
Cash flows (used in) provided by operating activities	(34,532		)	2,841
Cash flows provided by (used in) operating activities							74,712			(33,341		)
Cash flows from investing activities
Payments for property, plant and equipment	(54,556		)	(29,115		)	(13,675		)	(24,903		)
Proceeds from sales of property, plant and equipment	93			273			283			49
Business acquisition	1,180			—			—			1,180
Cash flows used in investing activities	(53,283		)	(28,842		)	(13,392		)	(23,674		)
Cash flows from financing activities
Borrowings under debt agreements	667,025			504,616			157,020			231,500
Payments on debt and capital lease obligations	(581,360		)	(612,961		)
Payments on debt and finance lease obligations							(190,470		)	(229,469		)
Repurchases of common stock	(106,297		)	(41,159		)	(6,330		)	(50,051		)
Proceeds from exercise of stock options	1,264			9,194			9,850			796
Payments related to tax withholding for share-based compensation	(6,400		)	(5,371		)	(3,126		)	(26		)
Cash flows used in financing activities	(25,768		)	(145,681		)	(33,056		)	(47,250		)
Effect of exchange rate changes on cash and cash equivalents	256			5,743			604			(548		)
Net decrease in cash and cash equivalents and restricted cash	(113,327		)	(165,939		)
Net increase (decrease) in cash and cash equivalents and restricted cash							28,868			(104,813		)
Cash and cash equivalents and restricted cash:
Beginning of period	297,686			569,254			226,254			297,686
End of period	$	184,359		$	403,315		$	255,122		$	192,873

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

PLEXUS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~MARCH 30, 2019~~JANUARY 4, 2020 AND ~~MARCH 31,~~DECEMBER 29, 2018

Unaudited

1. Basis of Presentation

Basis of Presentation:

The accompanying Condensed Consolidated Financial Statements included herein have been prepared by Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”) without audit and pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The accompanying Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the consolidated financial position of the Company as of ~~March 30, 2019~~January 4, 2020 and September ~~29, 2018,~~28, 2019, the results of operations and shareholders' equity for the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018, and the cash flows for the same ~~six~~three month periods.

The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. ~~All~~Fiscal 2020 includes 53 weeks; therefore, the first quarter of fiscal 2020 included 14 weeks while all other fiscal quarters presented herein included 13 weeks.

Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the SEC’s rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s ~~2018~~2019 Annual Report on Form 10-K.

Recently Adopted Accounting Pronouncements:

In October 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-16 related to the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. The Company adopted this guidance under the modified retrospective approach during the first quarter of fiscal 2019. The Company recognized no net impact to its fiscal 2019 opening Retained Earnings balance upon adoption and does not anticipate any material impact to the Company's future Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15 related to the classification of certain cash receipts and cash payments, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new standard addresses certain issues where diversity in practice was identified. It also amends existing guidance, which is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The Company adopted this guidance during the first quarter of fiscal 2019 with no material impact to the Company's Condensed Statements of Cash Flows.

In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue relating to contracts with customers that depicts the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services ("Topic 606"). Topic 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and was effective for the Company beginning in the first quarter of fiscal year 2019.

On September 30, 2018, the Company adopted and applied Topic 606 to all contracts using the modified retrospective method of adoption. Upon adoption, the Company recognized an increase to its fiscal 2019 beginning Retained ~~Earnings~~earnings balance of $7.8 million. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Refer to Note 13, "Revenue from Contracts with Customers," for further information.

~~Recently Issued Accounting Pronouncements Not Yet Adopted:~~

In February 2016, the FASB issued ASU 2016-02 (“Topic 842”), which ~~requires~~is intended to improve financial reporting of lease transactions by requiring lessees to recognize most leases as a right-of-use (“ROU”) asset and lease liability on their balance sheets for the rights and obligations created by leases, but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the

classification criteria and the accounting for sales-type and direct financing leases. ~~The guidance is effective~~ASU 2016-02 also requires disclosures regarding the amount, timing and judgments related to accounting for an entity’s leases and related cash flows.

On September 29, 2019, the Company ~~beginning in~~adopted Topic 842 using the ~~first quarter~~modified retrospective method of ~~fiscal year 2020. Early~~ adoption, ~~is permitted.~~which allows financial information for comparative periods prior to adoption not to be updated. The Company ~~is currently in the process of assessing the impact of the adoption of the new standard~~recognized right-of-use assets and operating lease liabilities on its Consolidated ~~Financial Statements and plans to adopt~~Balance Sheets, but the standard did not have a material impact on its Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows.

ASC 842 provides optional practical expedients to assist with transition to the new standard. Management elected the package of practical expedients offered, which allows entities to not reassess: (i) whether any contracts prior to the adoption date are or contain leases, (ii) lease classification, and (iii) whether capitalized initial direct costs continue to meet the definition of initial direct costs under the new guidance. For all new and modified leases after adoption, management elected the short-term lease recognition exemption for all of the Company’s leases that qualify, in addition to the ~~first quarter of fiscal year 2020.~~practical expedient to not separate lease and nonlease components. Refer to Note 7, "Leases," for further information.

In August 2017, the FASB issued ASU 2017-12 related to the accounting for hedging activities. The pronouncement expands and refines hedge accounting, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the

assessment of hedge effectiveness. The Company adopted this guidance during the first quarter of fiscal 2020 with no material impact to the Company's Consolidated Financial Statements; however, the impact of the new standard on future periods will depend on the facts and circumstances of future transactions.

Recently Issued Accounting Pronouncements Not Yet Adopted:

In June 2016, the FASB issued ASU 2016-13, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and required consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company beginning in the first quarter of fiscal year ~~2020.~~2021. Early adoption is permitted. The Company is currently in the process of assessing the impact of the adoption of the new standard on its Consolidated Financial ~~Statements and the timing of adoption.~~Statements.

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

2. Inventories

Inventories as of ~~March 30, 2019~~January 4, 2020 and September ~~29, 2018~~28, 2019 consisted of the following (in thousands):



	January 4, 2020		September 28, 2019
Raw materials	$	599,624	$	577,545
Work-in-process	51,732		49,315
Finished goods	84,447		74,078
Total inventories, net	$	735,803	$	700,938

March 30, 2019 September 29, 2018
Raw materials $ 657,125
$ 579,377
Work-in-process 55,888
102,337
Finished goods 89,248
112,632
Total inventories, net $ 802,261
$ 794,346

In certain circumstances, per contractual terms, customer deposits are received by the Company to offset obsolete and excess inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of ~~March 30,~~January 4, 2020 and September 28, 2019 ~~and~~ ~~September 29, 2018~~ was ~~$126.7~~$134.0 million and ~~$87.7~~$136.5 million, respectively.

In the first quarter of fiscal year 2019, the Company adopted and applied Topic 606 to all contracts using the modified retrospective method of adoption. The prior year comparative information has not been restated and continues to be reported under the accounting standards in effect for fiscal 2018. Refer to Note 13, "Revenue from Contracts with Customers," for further information.

3.Debt, ~~Capital~~Finance Lease Obligations and Other Financing

Debt, ~~and capital~~finance lease obligations and other financing as of ~~March 30, 2019~~January 4, 2020 and September ~~29, 2018,~~28, 2019 consisted of the following (in thousands):



	January 4, 2020			September 28, 2019
4.05% Senior Notes, due June 15, 2025	$	100,000		$	100,000
4.22% Senior Notes, due June 15, 2028	50,000			50,000
Borrowings under the credit facility	62,000			95,000
Finance lease and other financing obligations	44,114			44,492
Unamortized deferred financing fees	(1,440		)	(1,512		)
Total obligations	254,674			287,980
Less: current portion	(67,847		)	(100,702		)
Long-term debt and finance lease obligations, net of current portion	$	186,827		$	187,278

March 30, 2019 September 29, 2018
4.05% Senior Notes, due June 15, 2025 $ 100,000
$ 100,000
4.22% Senior Notes, due June 15, 2028 50,000
50,000
Borrowings under the credit facility 87,000
—
Capital lease and other financing obligations 44,413
39,857
Unamortized deferred financing fees (1,096 ) (1,240 )
Total obligations 280,317

188,617
Less: current portion (93,197 ) (5,532 )
Long-term debt and capital lease obligations, net of current portion $ 187,120
$ 183,085

of 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which the Company is required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole

or in part at any time, subject to payment of a make-whole ~~amount. Interest~~amount; interest on the 2018 Notes is payable semiannually. ~~At March 30, 2019,~~As of January 4, 2020, the Company was in compliance with the covenants under the 2018 NPA.

~~The~~On May 15, 2019, the Company ~~also has a~~refinanced its then-existing senior unsecured revolving credit facility (the "Prior Credit Facility") by entering into a new 5-year senior unsecured revolving credit facility (collectively with the Prior Credit Facility, referred to as the "Credit Facility"), ~~with a~~which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment ~~that expires on July 5, 2021. The~~under the Credit Facility may be further increased to ~~$500.0~~$600.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the ~~six~~three months ended ~~March 30, 2019,~~January 4, 2020, the highest daily borrowing was ~~$229.0~~$164.5 million; the average daily borrowings were ~~$98.9~~$128.1 million. The Company borrowed ~~$666.5~~$156.5 million and repaid ~~$579.5~~$189.5 million of revolving borrowings under the Credit Facility during the ~~six~~three months ended ~~March 30, 2019.~~January 4, 2020. As of ~~March 30, 2019,~~January 4, 2020, the Company was in compliance with all financial covenants relating to the Credit ~~Facility,~~Agreement, which are generally consistent with those in the 2018 NPA discussed above. The Company is required to pay a commitment fee on the daily unused revolver credit commitment based on the Company's leverage ratio; the fee was ~~0.175%~~0.125% as of ~~March 30, 2019.~~January 4, 2020.

The fair value of the Company’s debt, excluding ~~capital~~finance leases, was ~~$237.5~~$219.4 million and ~~$151.9~~$252.3 million as of ~~March 30, 2019~~January 4, 2020 and September ~~29, 2018,~~28, 2019, respectively. The carrying value of the Company's debt, excluding ~~capital~~finance leases, was ~~$237.0~~$212.0 million and ~~$150.0~~$245.0 million as of ~~March 30, 2019~~January 4, 2020 and September ~~29, 2018,~~28, 2019, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives," for further information regarding the Company's fair value calculations and classifications.

4. Derivatives

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

The Company designates some foreign currency exchange contracts as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that ~~$0.7~~$1.6 million of unrealized gains, net of tax, related to cash flow hedges will be reclassified from other comprehensive income (loss) into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).

The Company enters into forward currency exchange contracts for its operations in Malaysia and Mexico on a rolling basis. The Company had cash flow hedges outstanding with a notional value of ~~$77.1~~$79.8 million as of ~~March 30, 2019,~~January 4, 2020, and ~~$74.0~~$80.0 million as of September ~~29, 2018.~~28, 2019. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a ~~$0.7~~$1.6 million asset as of ~~March 30, 2019,~~January 4, 2020, and a ~~$1.7~~$0.6 million liability as of September ~~29, 2018.~~28, 2019.

The Company had additional forward currency exchange contracts outstanding as of January 4, 2020, with a notional value of ~~$34.6~~$17.2 million; there were $34.4 million ~~as of March 30, 2019, and $28.6 million~~such contracts outstanding as of September ~~29, 2018.~~28, 2019. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, ~~net" within the Condensed Consolidated Statements of Comprehensive Income (Loss).~~net." The total fair value of these derivatives was a ~~$0.3~~$0.1 million asset as of ~~March 30, 2019,~~January 4, 2020, and a ~~$0.1~~$0.9 million ~~liability~~asset as of September ~~29, 2018.~~28, 2019.

The tables below present information regarding the fair values of derivative instruments and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:

Fair Values of Derivative Instruments (in thousands)

Derivative Assets

Derivative Liabilities

January 4,
2020

September 28,
2019

January 4,
2020

September 28,
2019

Derivatives designated as hedging instruments

Balance Sheet

Classification

Fair Value

Balance Sheet

Classification

Fair Value

Forward currency forward contracts

Prepaid expenses and other

1,581

156

Other accrued liabilities

—

798

Fair Values of Derivative Instruments
In thousands of dollars
   Asset Derivatives Liability Derivatives
      March 30,
2019 September 29,
2018    March 30,
2019 September 29,
2018
Derivatives Designated as Hedging Instruments
Balance Sheet
Classification
Fair Value Fair Value
Balance Sheet
Classification
Fair Value Fair Value
Foreign currency forward contracts Prepaid expenses and other $ 670
$ 292
Other accrued liabilities $ —
$ 1,984

Fair Values of Derivative Instruments (in thousands)

Derivative Assets

Derivative Liabilities

January 4,
2020

September 28,
2019

January 4,
2020

September 28,
2019

Derivatives not designated as hedging instruments

Balance Sheet

Classification

Fair Value

Balance Sheet

Classification

Fair Value

Forward currency forward contracts

Prepaid expenses and other

912

Other accrued liabilities

Fair Values of Derivative Instruments
In thousands of dollars
   Asset Derivatives Liability Derivatives
      March 30,
2019 September 29,
2018    March 30,
2019 September 29,
2018
Derivatives Not Designated as Hedging Instruments
Balance Sheet
Classification
Fair Value Fair Value
Balance Sheet
Classification
Fair Value Fair Value
Foreign currency forward contracts Prepaid expenses and other $ 378
$ 42
Other accrued liabilities $ 62
$ 81



The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) ("OCL") (in thousands)
for the Three Months Ended
Derivatives in Cash Flow Hedging Relationships	Amount of Income (Loss) Recognized in OCL on Derivatives
Derivatives in Cash Flow Hedging Relationships	January 4, 2020		December 29, 2018
Forward currency forward contracts	$	2,185	$	(388	)

Derivative Impact on Accumulated Other Comprehensive Income ("OCI")
for the Three Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in OCI on Derivatives (Effective Portion)
March 30, 2019 March 31, 2018
Foreign currency forward contracts $ 1,241
$ 3,625



Derivative Impact on (Loss) Gain Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Three Months Ended
Derivatives in Cash Flow Hedging Relationships	Classification of Loss Reclassified from Accumulated OCL into Income	Amount of Loss Reclassified from Accumulated OCL into Income
Derivatives in Cash Flow Hedging Relationships		January 4, 2020			December 29, 2018
Forward currency forward contracts	Cost of sales	$	(27	)	$	(684	)
Forward currency forward contracts	Selling and administrative expenses	$	(11	)	$	(82	)

Derivative Impact on Gain (Loss) Recognized in Income
for the Three Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships Classification of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion) Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
March 30, 2019 March 31, 2018
Foreign currency forward contracts Selling and administrative expenses $ (73 ) $ 224
Foreign currency forward contracts Cost of sales $ (670 ) $ 2,091
Treasury Rate Locks Interest expense $ —
$ 81



Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized on Derivatives in Income	Amount of (Loss) Gain on Derivatives Recognized in Income
Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized on Derivatives in Income	January 4, 2020			December 29, 2018
Forward currency forward contracts	Miscellaneous, net	$	(410	)	$	787

Derivatives Not Designated as Hedging Instruments Location of (Loss) Gain Recognized on Derivatives in Income Amount of Gain (Loss) on Derivatives Recognized in Income
March 30, 2019 March 31, 2018
Foreign currency forward contracts Miscellaneous, net $ 843
$ (416 )

Derivative Impact on Accumulated Other Comprehensive Income ("OCI")
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in OCI on Derivatives (Effective Portion)
March 30, 2019 March 31, 2018
Foreign currency forward contracts $ 853
$ 6,339

Derivative Impact on Gain (Loss) Recognized in Income
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships Classification of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion) Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
March 30, 2019 March 31, 2018
Foreign currency forward contracts Selling and administrative expenses $ (155 ) $ 329
Foreign currency forward contracts Cost of sales $ (1,354 ) $ 3,082
Treasury Rate Locks Interest expense $ —
$ 160

Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized on Derivatives in Income Amount of Gain (Loss) on Derivatives Recognized in Income
March 30, 2019 March 31, 2018
Foreign currency forward contracts Miscellaneous, net $ 1,630
$ (951 )

There were no gains or losses recognized in income for derivatives related to ineffective portions and amounts excluded from effectiveness testing for the three or six months ended March 30, 2019 and March 31, 2018.

Fair Value Measurements:

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:

Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

The following table lists the fair values of liabilities of the Company’s derivatives as of ~~March 30, 2019~~January 4, 2020 and September ~~29, 2018,~~28, 2019, by input level:



Fair Value Measurements Using Input Levels Asset/(Liability) (in thousands)
January 4, 2020	Level 1		Level 2		Level 3		Total
Derivatives
Forward currency forward contracts	$	—	$	1,590	$	—	$	1,590

September 28, 2019
Derivatives
Forward currency forward contracts	$	—	$	216	$	—	$	216

Fair Value Measurements Using Input Levels (Liability)/Asset
In thousands of dollars
March 30, 2019 Level 1 Level 2 Level 3 Total
Derivatives
Forward currency forward contracts $ —
$ 986
$ —
$ 986

September 29, 2018
Derivatives
Forward currency forward contracts $ —
$ (1,731 ) $ —
$ (1,731 )

The fair value of foreign currency forward contracts is determined using a market approach, which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.

5. Income Taxes

Income tax expense for the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 was ~~$3.9~~$3.3 million ~~and $15.8 million, respectively,~~ compared to ~~$2.4 million and $130.0~~$11.9 million for the three ~~and six~~ months ended ~~March 31, 2018, respectively.~~December 29, 2018.

The effective tax rates for the three ~~and six~~ months ended ~~March 30, 2019,~~January 4, 2020 and December 29, 2018 were ~~13.7%~~9.5% and ~~25.2%~~34.9%, ~~respectively, compared to the effective tax rates of 16.5% and 297.0% for the three and six months ended March 31, 2018,~~ respectively. The effective tax rate for the three months ended ~~March 30, 2019~~January 4, 2020 decreased from the effective tax rate for the three months ended ~~March 31,~~December 29, 2018, primarily due to the $13.5 million one-time bonus paid to full-time, non-executive employees ("one-time employee bonus") paid during the three months ended March 31, 2018, and the geographical distribution of pre-tax earnings. The effective tax rate for the six months ended March 30, 2019 decreased from the effective tax rate for the six months ended March 31, 2018, primarily due to theadditional impact of the U.S. Tax Cuts & Jobs Act ~~(“Tax Reform”), which was enacted on~~of $7.0 million recorded during the three months ended December ~~22, 2017, and an increase in pre-tax earnings which was impacted~~29, 2018. The Company also recorded a $1.9 million benefit related to guidance issued by the ~~one-time employee bonus in~~U.S. Department of the ~~prior year.~~Treasury regarding foreign tax credits partially offset by $1.1 million of special tax items during the three months ended January 4, 2020.

There were no material additions to the amount of unrecognized tax benefits recorded for uncertain tax positions ~~for the three months ended March 30, 2019. For the six months ended March 30, 2019, the Company recorded an income tax benefit~~as of $1.7 million primarily related to unrecognized tax benefits as the U.S. Department of Treasury issued additional guidance for Tax Reform. The guidance proposed related to the treatment of foreign taxes paid that impacted the tax on the deemed repatriation of historical undistributed foreign earnings.January 4, 2020. The Company recognizes accrued interest and penalties on uncertain tax positions as a component of income tax expense. The amount of interest and penalties recorded for the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 was not material.

One or more uncertain tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company's consolidated results of operations, financial position and cash flows. The Company is not currently under examination by taxing authorities in the U.S. ~~or any~~The Company is under audit in various foreign jurisdictions ~~in which the Company operates.~~but settlement is not expected to have a material impact.

The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended ~~March 30, 2019,~~January 4, 2020, the Company continued to record a full valuation allowance against its net deferred tax assets in certain jurisdictions within the EMEA segment and a partial valuation against its net deferred tax assets in certain jurisdictions within the AMER segment, as it was more likely than not that these assets would not be fully realized based primarily on historical performance. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until it determines it is more likely than not that the deferred tax assets will be realized.

6. Earnings Per Share

The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share for the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018 (in thousands, except per share amounts):



	Three Months Ended
	January 4, 2020		December 29, 2018
Net income	$	31,006	$	22,226
Basic weighted average common shares outstanding	29,147		31,403
Dilutive effect of share-based awards and options outstanding	918		883
Diluted weighted average shares outstanding	30,065		32,286
Earnings per share:
Basic	$	1.06	$	0.71
Diluted	$	1.03	$	0.69

Three Months Ended Six Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Net income (loss) 24,758
12,290
46,984
(86,203 )
Basic weighted average common shares outstanding 30,603
33,538
31,003
33,552
Dilutive effect of share-based awards outstanding 782
849
833
—
Diluted weighted average shares outstanding 31,385
34,387
31,836
33,552
Earnings (loss) per share:
Basic $ 0.81
$ 0.37
$ 1.52
$ (2.57 )
Diluted $ 0.79
$ 0.36
$ 1.48
$ (2.57 )

For ~~both~~ the three ~~and six~~ months ended ~~March 30, 2019,~~January 4, 2020 there were 0 antidilutive awards. For the three months ended December 29, 2018 share-based awards for approximately 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.

For the three months ended March 31, 2018, share-based awards for approximately 0.3 million shares were not included in the computation of diluted earnings per share as they were antidilutive. For the six months ended March 31, 2018, the total number

~~of potentially dilutive share-based awards was 2.0 million; however, these awards were not included in the computation of diluted loss per share, as doing so would have decreased the loss per share.~~

See also Note ~~11,~~12, "Shareholders' Equity," for information regarding the Company's share repurchase plans.

7. Leases

The Company’s lease portfolio includes both real estate and non-real estate type leases which are accounted for as either finance or operating leases. Real estate leases generally include office, warehouse and manufacturing facilities and non-real estate leases generally include office equipment and vehicles. The Company determines if a contract is or contains a lease at inception. The Company’s leases have remaining lease terms of less than 1 year to 41 years. Renewal options that are deemed reasonably certain are included as part of the lease term for purposes of calculating the right-of-use (“ROU”) assets and lease liability. Variable lease payments are generally expensed as incurred and include certain index-based changes in rent, certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. The Company elected the practical expedient to not separate lease and nonlease components, as such non-lease components are included in the calculation of the ROU asset and lease liability and included in the lease expense over the term of the lease. The Company uses a discount rate to calculate the ROU asset and lease liability. When the implicit rate is known or provided in the lease documents, the Company is required to use this rate. In cases in which the implicit rate is not known, the Company uses an estimated incremental borrowing rate.

Operating lease ROU assets and lease liabilities are recorded on the date the Company takes possession of the leased assets with expense recognized on a straight-line basis over the lease term. Leases with an estimated total term of 12 months or less are not recorded on the balance sheet and the lease expense is recognized on a straight-line basis over the lease term. Generally, the Company's lease agreements do not contain material residual value guarantees or material restrictive covenants.

Upon adoption of ASU 2016-02, the Company recorded $45.5 million of right-of-use assets and lease liabilities, related to its existing operating lease portfolio. The Company also reclassified amounts previously held on the balance sheet to right-of-use assets and lease liabilities upon adoption due to existing arrangements subject to the new standard, including $30.2 million of prepaid leases in other non-current assets. The accounting for the Company’s finance leases remained substantially unchanged. In addition, the company recognized a $1.1 million reduction to retained earnings as a result of two existing build-to-suit arrangements for the facilities in Guadalajara, Mexico that were reassessed to be finance leases under the new standard. The adoption of this new standard did not have a material impact on the Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Comprehensive Income.

As a result of the adoption, the following adjustments were made to the opening balances of the Company's Condensed Consolidated Balance Sheets (in thousands):



	September 28, 2019		Impacts due to adoption of Topic 842			September 29, 2019
ASSETS
Prepaid expenses and other	$	31,974	$	(170	)	$	31,804
Operating right-of-use assets	—		75,790			75,790
Property, plant and equipment, net	384,224		(1,833		)	382,391
Deferred income taxes	13,654		432			14,086
Other non-current assets	64,714		(30,193		)	34,521
LIABILITIES AND SHAREHOLDERS' EQUITY
Other accrued liabilities	$	106,461	$	7,939		$	114,400
Long-term debt and finance lease obligations, net of current portion	187,278		(207		)	187,071
Long-term operating lease liabilities	—		37,371			37,371
Retained earnings	1,178,677		(1,077		)	1,177,600

The components of lease expense for three months ended January 4, 2020 were as follows (in thousands):



	Three Months Ended
	January 4, 2020
Finance lease expense:
Amortization of right-of-use assets	$	1,194
Interest on lease liabilities	1,291
Operating lease expense	3,181
Other lease expense	120
Total	$	5,786

Based on the nature of the ROU asset, amortization of finance right-of-use assets, operating lease expense and other lease expense are recorded within either cost of goods sold or selling and administrative expenses and interest on finance lease liabilities is recorded within interest expense on the Condensed Consolidated Statements of Comprehensive Income. Other lease expense includes lease expense for leases with an estimated total term of twelve months or less and variable lease expense related to variations in lease payments as a result of a change in factors or circumstances occurring after the lease possession date.

The following tables sets forth the amount of lease assets and lease liabilities included in the Company’s Condensed Consolidated Balance Sheets was (in thousands):



	Financial Statement Line Item	January 4, 2020
ASSETS
Finance lease assets	Property, plant and equipment, net	$	37,281
Operating lease assets	Right-of-use operating lease assets	79,318
Total lease assets		$	116,599

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Finance lease liabilities	Current portion of long-term debt and finance lease obligations	$	2,718
Operating lease liabilities	Other accrued liabilities	9,102
Non-current
Finance lease liabilities	Long-term debt and finance lease obligations, net of current portion	36,946
Operating lease liabilities	Long-term operating lease liabilities	41,764
Total lease liabilities		$	90,530

Other information related to the Company’s leases was as follows:



	Three Months Ended
	January 4, 2020
Weighted-average remaining lease term (in years)
Finance leases	13.3
Operating leases	17.9
Weighted-average discount rate
Finance leases	17.7		%
Operating leases	3.0		%
Cash paid for amounts included in the measurement of lease liabilities (in thousands)
Operating cash flows used in finance leases	$	1,124
Operating cash flows used in operating leases	3,179
Finance cash flows used in finance leases	719
ROU assets obtained in exchange for lease liabilities (in thousands)
Operating leases	$	7,503
Finance leases	274

Future minimum lease payments required under finance and operating leases as of January 4, 2020, were as follows (in thousands):



	Operating leases			Finance leases
Remaining 2020	$	7,979		$	5,572
2021	8,789			6,555
2022	8,006			6,064
2023	7,575			5,305
2024	5,979			4,988
2025 and thereafter	20,500			98,729
Total minimum lease payments	58,828			127,213
Less: imputed interest	(7,962		)	(87,549		)
Present value of lease liabilities	$	50,866		$	39,664

As of January 4, 2020, the Company’s future operating leases that have not yet commenced are immaterial.

Future minimum lease payments required under long-term operating and capital leases as of September 28, 2019, were as follows (in thousands):



	Operating leases		Capital leases
2020	$	10,395	$	6,734
2021	6,554		3,490
2022	5,584		2,884
2023	5,153		1,652
2024	3,713		958
Thereafter	9,426		34,143
Total	$	40,825	$	49,861

8. Share-Based Compensation

The Company recognized ~~$5.2~~$5.0 million and ~~$9.9~~$4.8 million of compensation expense associated with share-based awards for the three ~~and six~~ months ended ~~March 30, 2019, respectively,~~January 4, 2020 and ~~$4.5 million and $8.4 million for the three and six months ended March 31,~~December 29, 2018, respectively.

The Company uses the Black-Scholes valuation model to determine the fair value of stock options and stock-settled ~~stock~~ appreciation rights ("SARs"). The Company uses its stock price on grant date as the fair value assigned to restricted stock units ("RSUs").

Performance stock units ("PSUs") are payable in shares of the Company's common stock. Beginning for fiscal 2017 grants, PSUs vest based on the relative total shareholder return ("TSR") of the Company's common stock as compared to the companies in the Russell 3000 index, a market condition, and the Company's economic return performance during the three year performance period, a performance condition. The Company uses the Monte Carlo valuation model to determine the fair value of PSUs at the date of grant for PSUs that vest based on the relative TSR of the Company's common stock. The Company uses its stock price on grant date as the fair value assigned to PSUs that vest based on the Company's economic return performance. PSUs granted in fiscal 2016 and prior years vested based solely on the relative TSR of the Company's common stock as compared to companies in the Russell 3000 Index during a three year performance period. The number of shares that may be issued pursuant to PSUs ranges from ~~zero~~0 to 0.5 million and is dependent upon the Company's TSR and economic return performance over the applicable performance periods.

The Company recognizes share-based compensation expense over the share-based awards' vesting period.

Table of Contents

Plexus Corp.

Notes to Consolidated Financial Statements

9. Litigation

The Company is party to lawsuits in the ordinary course of business. Management does not believe that these proceedings, individually or in the aggregate, will have a material positive or adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

9.10. Reportable Segments

Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in assessing performance and allocating resources. The Company uses an internal management reporting system, which provides important financial data to evaluate performance and allocate the Company’s resources on a regional basis. Net sales for the segments are attributed to the region in which the product is manufactured or the service is performed. The services provided, manufacturing processes used, class of customers serviced and order fulfillment processes used are similar and generally interchangeable across the segments. A segment’s performance is evaluated based upon its operating income (loss). A segment’s operating income (loss) includes its net sales less cost of sales and selling and administrative expenses, but excludes corporate and other expenses. Corporate and other expenses primarily represent corporate selling and administrative expenses, and restructuring costs and other charges, if any. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Inter-segment transactions are generally recorded at amounts that approximate arm’s length transactions. The accounting policies for the segments are the same as for the Company taken as a whole.

Information about the Company’s ~~three~~3 reportable segments for the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018, respectively, is as follows (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Net sales:
AMER	$	364,490		$	301,835		$	718,357		$	600,878		$	353,476		$	353,867
APAC	378,441			350,375			756,553			696,498			451,142			378,112
EMEA	75,822			73,942			148,120			137,774			84,477			72,298
Elimination of inter-segment sales	(29,702		)	(27,501		)	(68,435		)	(59,205		)	(36,686		)	(38,733		)
	$	789,051		$	698,651		$	1,554,595		$	1,375,945		$	852,409		$	765,544

Operating income (loss):
AMER	$	14,230		$	10,702		$	28,680		$	21,225		$	12,297		$	14,450
APAC	48,704			49,171			100,515			99,703			62,378			51,811
EMEA	(133		)	389			863			(732		)	(314		)	996
Corporate and other costs	(29,627		)	(42,947		)	(59,933		)	(71,324		)	(34,427		)	(30,306		)
	$	33,174		$	17,315		$	70,125		$	48,872		$	39,934		$	36,951
Other income (expense):
Interest expense	(3,145		)	(3,547		)	(5,394		)	(7,272		)	$	(4,132	)	$	(2,249	)
Interest income	440			1,426			965			2,981			645			525
Miscellaneous, net	(1,773		)	(477		)	(2,885		)	(823		)	(2,173		)	(1,112		)
Income before income taxes	28,696			14,717			62,811			43,758			$	34,274		$	34,115

March 30,
2019 September 29,
2018
Total assets:
AMER $ 733,925
$ 645,791
APAC 980,888
937,510
EMEA 201,627
193,797
Corporate and eliminations 84,411
155,544
$ 2,000,851
$ 1,932,642



	January 4, 2020		September 28, 2019
Total assets:
AMER	$	789,067	$	751,990
APAC	993,354		958,744
EMEA	232,581		209,541
Corporate and eliminations	95,102		80,608
	$	2,110,104	$	2,000,883

~~10.~~11. Guarantees

The Company offers certain indemnifications under its customer manufacturing agreements. In the normal course of business, the Company may from time to time be obligated to indemnify its customers or its customers’ customers against damages or liabilities arising out of the Company’s negligence, misconduct, breach of contract, or infringement of ~~third party~~third-party intellectual property rights. Certain agreements have extended broader indemnification, and while most agreements have contractual limits, some do not. However, the Company generally does not provide for such indemnities and seeks indemnification from its customers for damages or liabilities arising out of the Company’s adherence to customers’ specifications or designs or use of materials furnished, or directed to be used, by its customers. The Company does not believe its obligations under such indemnities are material.

In the normal course of business, the Company also provides its customers a limited warranty covering workmanship, and in some cases materials, on products manufactured by the Company. Such warranty generally provides that products will be free from defects in the Company’s workmanship and meet mutually agreed-upon specifications for periods generally ranging from 12 months to 24 months. The Company’s obligation is generally limited to correcting, at its expense, any defect by repairing or replacing such defective product. The Company’s warranty generally excludes defects resulting from faulty customer-supplied components, design defects or damage caused by any party or ~~cause~~caused other than by the Company.

The Company provides for an estimate of costs that may be incurred under its limited warranty at the time product revenue is recognized and establishes additional reserves for specifically identified product issues. These costs primarily include labor and materials, as necessary, associated with repair or replacement and are included in the Company's accompanying Condensed Consolidated Balance Sheets in ~~"Other~~"other current accrued liabilities." The primary factors that affect the Company’s warranty liability include the value and the number of shipped units and historical and anticipated rates of warranty claims. As these factors are impacted by actual experience and future expectations, the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Below is a table summarizing the activity related to the Company’s limited warranty liability for the ~~six~~three months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018 (in thousands):



	Three Months Ended
	January 4, 2020			December 29, 2018
Reserve balance, beginning of period	$	6,276		$	6,646
Accruals for warranties issued during the period	364			1,900
Settlements (in cash or in kind) during the period	(776		)	(1,255		)
Reserve balance, end of period	$	5,864		$	7,291

Six Months Ended
March 30, 2019 March 31, 2018
Reserve balance, beginning of period $ 6,646
$ 4,756
Accruals for warranties issued during the period 2,374
2,131
Settlements (in cash or in kind) during the period (1,737 ) (1,579 )
Reserve balance, end of period $ 7,283
$ 5,308

~~11.~~12. Shareholders' Equity

On August 20, 2019, the Board of Directors approved a new stock repurchase plan under which the Company is authorized to repurchase $50.0 million of its common stock (the "2019 Program"). The 2019 Program commenced upon completion of the 2018 Program, as defined below. During the three months ended January 4, 2020, the Company repurchased 90,667 shares under the 2019 Program program for $6.3 million at an average price of $69.82 per share. As of January 4, 2020, $40.4 million of authority remained under the 2019 Program.

Table of Contents

Plexus Corp.

Notes to Consolidated Financial Statements

On February 14, 2018, the Board of Directors approved a stock repurchase plan under which the Company iswas authorized to repurchase $200.0 million of its common stock (the "2018 Program"). ~~The 2018 Program commenced upon completion of the 2016 Program, as defined below.~~ During the three months ended ~~March 30, 2019,~~December 29, 2018, the Company repurchased ~~991,683~~869,949 shares under the 2018 Program program for ~~$56.2~~$50.1 million, at an average price of ~~$56.72~~$57.53 per share. ~~During~~The 2018 Program was completed during the ~~six months ended March 30,~~fiscal fourth quarter of 2019, ~~the Company repurchased 1,861,632 shares for $106.3 million, at an average price of $57.10. As of March 30, 2019, $72.5 million of~~when all share repurchase authority ~~remained~~ under ~~the 2018 Program.~~

~~On June 6, 2016, the Board of Directors authorized a multi-year stock repurchase program under which the Company~~it was authorized to repurchase up to $150.0 million of its common stock beginning in fiscal 2017 (the "2016 Program"). During the three months ended March 31, 2018, the Company repurchased 512,943 shares for $31.6 million, at an average price of $61.63 per share. During the six months ended March 31, 2018, the Company repurchased 671,409 shares for $41.2 million, at an average price of $61.30 per share under the 2016 Program.exhausted.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

~~12.~~13. Trade Accounts Receivable Sale Programs

The Company has Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch ~~formerly~~(formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), and HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA"), under which the Company may elect to sell receivables at a ~~discount, on an ongoing basis.~~discount. These facilities are uncommitted facilities. The MUFG RPA was amended on ~~March 20,~~December 23, 2019 to increase the maximum facility amount from ~~$230.0~~$280.0 million to ~~$260.0~~$340.0 million. The maximum facility amount under the HSBC RPA as of ~~March 30, 2019~~January 4, 2020 is $60.0 million. The MUFG RPA ~~is subject to expiration on October 3, 2019, but~~ will be automatically extended ~~for another~~each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG ~~RPA.~~RPA discussed above.

Transfers of receivables under the programs are accounted for as sales and, accordingly, receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. Proceeds from the transfer reflect the face value of the receivables less a discount. The sale discount is recorded within "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income in the period of the sale.

The Company sold ~~$241.9~~$227.8 million and ~~$135.9~~$232.5 million of trade accounts receivable under these programs during the three months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018, respectively, in exchange for cash proceeds of ~~$240.4~~$226.6 million and ~~$135.2~~$231.2 million, respectively.

The Company sold $474.4 million and $298.3 million of trade accounts receivable under these programs during the six months ended March 30, 2019 and March 31, 2018, respectively, in exchange for cash proceeds of $471.6 million and $296.7 million, respectively.

~~13.~~14. Revenue from Contracts with Customers

~~Impact of Adopting Topic 606~~

The Company adopted Topic 606 using the modified retrospective method. The new standard resulted in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue is recognized over time, as products are produced, as opposed to at a point in time based upon shipping terms. As a result of the adoption of Topic 606, the following adjustments were made to the opening balances of the Company's Condensed Consolidated Balance Sheets (in thousands):

Balance at September 29, 2018 Impacts due to adoption of Topic 606 Balance at September 30, 2018
ASSETS
   Contract assets $ —
$ 76,417
$ 76,417
   Inventories 794,346
(68,959 ) 725,387
LIABILITIES AND SHAREHOLDERS' EQUITY
   Other accrued liabilities $ 68,163
$ (357 ) $ 67,806
   Retained earnings 1,062,246
7,815
1,070,061

The cumulative effect of applying the new guidance in Topic 606 resulted in the Company increasing its fiscal 2019 opening Retained Earnings balance by $7.8 million due to certain customer contracts requiring revenue recognition over time. Contract assets in the amount of $76.4 million were recognized due to the recognition of revenue on an over time basis for some customers rather than at a specific point in time. Inventory declined $69.0 million primarily due to earlier recognition of costs related to the contracts for which revenue was recognized on an over time basis. The decline in other accrued liabilities is primarily due to the reclassification of deferred revenue to contract assets for prepayments associated with revenue recognized over time, partially offset by an increase in taxes payable associated with the increase in revenue recognized over time.

~~The effects of the adoption on the Company's Condensed Consolidated Financial Statements for the three and six months ended March 30, 2019 were as follows (in thousands):~~

Three Months Ended
March 30, 2019 As Reported Adjustments due to Topic 606 March 30, 2019 As Adjusted - Without Adoption of Topic 606
Net sales $ 789,051
$ 5,359
$ 783,692
Cost of sales 718,415
4,641
713,774
       Gross profit 70,636
718
69,918
       Operating income 33,174
718
32,456
       Income before income taxes 28,696
718
27,978
Income tax expense 3,938
224
3,714
           Net income $ 24,758
$ 494
$ 24,264

Six Months Ended
March 30, 2019 As Reported Adjustments due to Topic 606 March 30, 2019 As Adjusted - Without Adoption of Topic 606
Net sales $ 1,554,595
$ 11,544
$ 1,543,051
Cost of sales 1,411,576
9,835
1,401,741
       Gross profit 143,019
1,709
141,310
       Operating income 70,125
1,709
68,416
       Income before income taxes 62,811
1,709
61,102
Income tax expense 15,827
418
15,409
           Net income $ 46,984
$ 1,291
$ 45,693

March 30, 2019 As Reported Adjustments due to Topic 606 March 30, 2019 As Adjusted - Without Adoption of Topic 606
ASSETS
   Contract assets $ 86,803
$ 86,803
$ —
   Inventories 802,261
(78,766 ) 881,027
LIABILITIES AND SHAREHOLDERS' EQUITY
   Other accrued liabilities $ 92,989
$ (1,069 ) $ 94,058
   Retained earnings 1,117,045
9,106
1,107,939

Significant Judgments

~~Topic 606 results in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue~~Revenue is ~~now recognized over time as products are produced, as opposed to at a point in time based upon shipping terms. Upon adopting the standard, revenue is now~~ recognized over time for arrangements with customers for which: (i) the Company's performance does not create an asset with an alternative use to the Company, and (ii) the Company has an enforceable right to payment, including reasonable profit margin, for performance completed to date. Revenue recognized over time ~~will be~~is estimated based on costs incurred to date plus a reasonable profit margin. If either of the two conditions noted above are not met to recognize revenue over time, revenue ~~will be~~is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.

The Company recognizes revenue when a contract exists and when, or as, it satisfies a performance obligation by transferring control of a product or service to a customer. Contracts are accounted for when they have approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

The Company generally enters into a master services arrangement that establishes the framework under which business will be conducted. These arrangements represent the master terms and conditions of the Company's services that apply to individual orders, but they do not commit the customer to work with, or to continue to work with, the Company nor do they obligate the customer to any specific volume or pricing of purchases. Moreover, these terms can be amended in appropriate situations. Customer purchase orders are received for specific quantities with predominantly fixed pricing and delivery requirements. Thus, for the majority of our contracts, there is no guarantee of any revenue to the Company until a customer submits a purchase order. As a result, the Company generally considers its arrangement with a customer to be the combination of the master services arrangement and the purchase order. Most of the Company's arrangements with customers create a single performance obligation as the promise to transfer the individual manufactured product or service is capable of being distinct.

Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and is assessed on a contract by contract basis.

Generally, there are no subjective customer acceptance requirements or further obligations related to goods or services provided; if such requirements or obligations exist, then a sale is recognized at the time when such requirements are completed and such obligations are fulfilled.

The Company does not allow for a general right of return. Net sales include amounts billed to customers for shipping and handling and out-of-pocket expenses. The corresponding shipping and handling costs and out-of-pocket expenses are included in cost of sales. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from net sales.

~~Practical Expedients~~

~~The Company applied the following practical expedients during the adoption of Topic 606:~~

~~The Company elected not to disclose information about remaining performance obligations as its performance obligations generally have expected durations of one year or less.~~

~~The Company will account for certain shipping and handling as activities to fulfill the promise to transfer the good, instead of a promised service to its customer.~~

The Company elected not to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less.

Contract Costs

For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date.

There were no other costs to obtain or fulfill customer contracts.

Disaggregated Revenue

The ~~tables~~table below ~~include~~includes the Company’s revenue for the three ~~and six~~ months ended ~~March 30, 2019,~~January 4, 2020 and December 29, 2018, respectively, disaggregated by geographic reportable segment and market sector (in thousands):


	Three Months Ended March 30, 2019								Three Months Ended January 4, 2020
	Reportable Segment:								Reportable Segment:
	AMER		APAC		EMEA		Total		AMER		APAC		EMEA		Total
Market Sector:
Healthcare/Life Sciences	$	125,434	$	141,655	$	32,547	$	299,636	$	124,196	$	149,725	$	38,366	$	312,287
Industrial/Commercial	94,208		131,808		24,220		250,236		91,921		199,346		18,733		310,000
Aerospace/Defense	75,854		47,752		16,904		140,510		105,489		43,249		23,384		172,122
Communications	67,681		29,984		1,004		98,669		27,966		28,691		1,343		58,000
External revenue	$	363,177	$	351,199	$	74,675	$	789,051	349,572		421,011		81,826		852,409
Inter-segment sales	1,313		27,242		1,147		29,702		3,904		30,131		2,651		36,686
Segment revenue	$	364,490	$	378,441	$	75,822	$	818,753	$	353,476	$	451,142	$	84,477	$	889,095



	Three Months Ended December 29, 2018
	Reportable Segment:
	AMER		APAC		EMEA		Total
Market Sector:
Healthcare/Life Sciences	$	115,765	$	152,106	$	32,707	$	300,578
Industrial/Commercial	83,718		116,271		19,153		219,142
Aerospace/Defense	62,373		42,094		17,998		122,465
Communications	90,464		30,975		1,920		123,359
External revenue	352,320		341,446		71,778		765,544
Inter-segment sales	1,547		36,666		520		38,733
Segment revenue	$	353,867	$	378,112	$	72,298	$	804,277

Six Months Ended March 30, 2019
Reportable Segment:
AMER APAC EMEA Total
Market Sector:
Healthcare/Life Sciences $ 241,199
$ 293,761
$ 65,254
$ 600,214
Industrial/Commercial 177,926
248,079
43,373
469,378
Aerospace/Defense 138,227
89,846
34,902
262,975
Communications 158,145
60,959
2,924
222,028
External revenue $ 715,497
$ 692,645
$ 146,453
$ 1,554,595
Inter-segment sales 2,860
63,908
1,667
68,435
Segment revenue $ 718,357
$ 756,553
$ 148,120
$ 1,623,030

For ~~both~~ the three ~~and six~~ months ended ~~March 30, 2019,~~January 4, 2020 and December 29, 2018, approximately ~~90%~~91% and 89%, respectively, of the Company's revenue was recognized as products and services were transferred over ~~time.~~time, respectively.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets, and deferred revenue on the Company’s accompanying Condensed Consolidated Balance Sheets.

Contract Assets: For performance obligations satisfied at a point in time, billing occurs subsequent to revenue recognition, at which point the customer has been billed and the resulting asset is recorded within accounts receivable. For performance obligations satisfied over time as work progresses, the Company has an unconditional right to payment, which results in the recognition of contract assets. The following table summarizes the activity in the Company's contract assets ~~during~~for the ~~six~~three months ended ~~March 30, 2019~~January 4, 2020 and December 29, 2018 (in thousands):



	Three Months Ended
	January 4, 2020			December 29, 2018
Contract assets, beginning of period	$	90,841		$	—
Cumulative effect adjustment at September 29, 2018	—			76,417
Revenue recognized during the period	772,708			681,712
Amounts collected or invoiced during the period	(756,509		)	(675,354		)
Contract assets, end of period	$	107,040		$	82,775

Contract Assets
Beginning balance, September 29, 2018 $ —
Cumulative effect adjustment at September 29, 2018 76,417
Revenue recognized 1,393,777
Amounts collected or invoiced (1,383,391 )
Ending balance, March 30, 2019 $ 86,803

Deferred Revenue: Deferred revenue is recorded when consideration is received from a customer prior to transferring goods or services to the customer under the terms of the contract, which is included in other accrued liabilities. As of January 4, 2020 and September 28, 2019 the balance of prepayments from customers that remained in Other accrued liabilities was $74.8 million and $67.9 million, respectively. The advance payment is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract, offset obsolete and excess inventory risks and to protect the company from the other party failing to adequately complete some or all of its obligations under the contract. Deferred revenue is recognized into revenue when all revenue recognition criteria are met. For performance obligations satisfied over time, recognition will occur as work ~~progress,~~progresses; otherwise deferred revenue will be recognized based upon shipping terms.

~~14.~~15. Acquisition

On July 27, 2018, the Company purchased the assets of one of the business lines of Cascade Controls, Inc. ~~("Cascade")~~, a new product introduction company in Portland, Oregon, for $12.4 million in cash, subject to certain customary post-closing adjustments. In the three months ended December 29, 2018, the Company received a $1.2 million purchase price adjustment as a result of a post-closing adjustment.

16. Subsequent Event

On January 22, 2020, the Company announced the decision to close a leased facility within the AMER segment, and transition the service offerings to another Company-owned facility in the region to provide synergies and cost advantages of a campus environment. We are assessing the impacts of the announcement on our Condensed Consolidated Financial Statements.

~~ITEM 2.~~


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

The statements contained in this Form 10-Q that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs, trade disputes, trade agreements and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the risks of concentration of work for certain customers; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the ~~risks of concentration of work for certain customers; the effect~~effects of start-up costs of new programs and facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix ~~low volumes~~ and demanding quality, regulatory, and other requirements; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; risks related to information technology systems and data security; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; ~~risks related to information technology systems and data security;~~ the effects of U.S. Tax Reform and of related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism, global health epidemics and weather events); the impact of increased competition; an inability to successfully manage human capital; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal ~~2018~~2019 Form 10-K).

* * *

OVERVIEW

Plexus Corp. and its subsidiaries (together ~~“Plexus,”~~"Plexus," the ~~“Company,”~~"Company," or "we") participate in the Electronic Manufacturing Services ("EMS") industry. We partner with our customers to create the products that build a better world. Since 1979, Plexus has been partnering with companies to ~~create~~transform concepts into branded products and deliver them to the ~~products that build~~market. From idea to aftermarket and everything in between, Plexus is a ~~better world. We are a team of over 19,000 employees,~~global leader in providing ~~global~~ support for all the facets of the product realization process –- Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket ~~Services – to companies in the Healthcare/Life Sciences, Industrial/Commercial, Communications and Aerospace/Defense market sectors.~~Services. Plexus ~~is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments~~delivers comprehensive end-to-end solutions in the Americas ("AMER"), ~~Asia-Pacific ("APAC") and~~ Europe, Middle East, and Africa ("EMEA") ~~regions. Plexus delivers customer service excellence to leading global companies by providing innovative, comprehensive solutions throughout the product’s lifecycle.~~and Asia-Pacific ("APAC") regions for our customers.

The following information should be read in conjunction with our Condensed Consolidated Financial Statements included herein, the ~~“Risk Factors”~~"Risk Factors" section in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended September ~~29, 2018,~~28, 2019, and our ~~“Safe Harbor”~~"Safe Harbor" Cautionary Statement included above.

RESULTS OF OPERATIONS

Consolidated Performance Summary. The following table presents selected consolidated financial data (dollars in millions, except per share data):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Net sales	$	789.1		$	698.7		$	1,554.6		$	1,375.9		$	852.4		$	765.5
Cost of sales	718.4			645.7			1,411.6			1,259.5			773.2			693.2
Gross profit	70.6			53.0			143.0			116.5			79.2			72.4
Gross margin	9.0		%	7.6		%	9.2		%	8.5		%	9.3		%	9.5		%
Operating income	33.2			17.3			70.1			48.9			39.9			37.0
Operating margin	4.2		%	2.5		%	4.5		%	3.6		%	4.7		%	4.8		%
Net income (loss)	24.8			12.3			47.0			(86.2		)
Diluted earnings (loss) per share	$	0.79		$	0.36		$	1.48		$	(2.57	)
Net income													31.0			22.2
Diluted earnings per share													$	1.03		$	0.69
Return on invested capital*							13.3		%	15.6		%	14.7		%	14.6		%
Economic return*							4.3		%	6.1		%	5.9		%	5.6		%
*Non-GAAP metric; refer to "Return on Invested Capital ("ROIC") and Economic Return" below for more information and Exhibit 99.1 for a reconciliation.

Net sales. For the three months ended ~~March 30, 2019,~~January 4, 2020, net sales increased ~~$90.4~~$86.9 million, or ~~12.9%~~11.4%, as compared to the three months ended ~~March 31,~~December 29, 2018. ~~For the six months ended March 30, 2019, net sales increased $178.7 million, or 13.0%, as compared to the six months ended March 31, 2018.~~

Net sales are analyzed by management by geographic segment, which reflects the Company's reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. The Company’s global business development strategy is based on our targeted market sectors.

A discussion of net sales by reportable segment is presented below (in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Net sales:
AMER	$	364.5		$	301.8		$	718.4		$	600.8		$	353.5		$	353.9
APAC	378.5			350.4			756.6			696.5			451.1			378.1
EMEA	75.8			74.0			148.1			137.8			84.5			72.3
Elimination of inter-segment sales	(29.7		)	(27.5		)	(68.5		)	(59.2		)	(36.7		)	(38.8		)
Total net sales	$	789.1		$	698.7		$	1,554.6		$	1,375.9		$	852.4		$	765.5

AMER. Net sales for the three months ended ~~March 30, 2019,~~January 4, 2020 in the AMER segment ~~increased $62.7~~decreased $0.4 million, or ~~20.8%~~0.1%, as compared to the three months ended ~~March 31,~~December 29, 2018. The decrease in net sales was driven by a reduction in net sales of $16.9 million due to manufacturing transfers to our APAC segment and overall net decreased customer end-market demand in the Communications sector. The decrease was mostly offset by a $52.6 million increase in production ramps of new products for existing customers and an $11.7 million increase in production ramps for new customers.

APAC. Net sales for the three months ended January 4, 2020 in the APAC segment increased $73.0 million, or 19.3%, as compared to the three months ended December 29, 2018. The increase in net sales was driven by a ~~$30.9~~$22.9 million increase ~~due to the ramp~~in production ramps of new products for existing customers, ~~as well as~~a $16.9 million increase due to manufacturing transfers from our AMER segment and overall net increased customer end-market demand.

~~During the six months ended March 30, 2019, net sales in the AMER segment increased $117.6 million, or 19.6%, as compared to the six months ended March 31, 2018.~~ The increase ~~in net sales~~ was ~~driven by a $56.4 million increase due to the ramp of new products for existing customers as well as overall net increased customer end-market demand,~~ partially offset by a ~~$7.4~~$9.3 million ~~reduction due to disengagements with customers.~~decrease for end-of-life products.

~~APAC.~~ EMEA. Net sales for the three months ended ~~March 30, 2019,~~January 4, 2020 in the ~~APAC~~EMEA segment increased ~~$28.1~~$12.2 million, or ~~8.0%~~16.9%, as compared to the three months ended ~~March 31,~~December 29, 2018. The increase in net sales was the result of a ~~$19.0~~$6.0 million increase ~~due to the ramp of new products for existing customers and a $15.9 million increase due to the ramp of~~in production ~~for new customers, partially offset by overall net decreased customer end-market demand.~~

During the six months ended March 30, 2019, net sales in the APAC segment increased $60.1 million, or 8.6%, as compared to the six months ended March 31, 2018. The increase in net sales was the result of a $44.4 million increase due to the ramp of

new products for existing customers, a $23.2 million increase due to the ramp of production for new customers and overall net increased customer end-market demand, partially offset by a $27.7 million reduction due to a disengagement with a customer.

~~EMEA.~~ Net sales for the three months ended March 30, 2019, in the EMEA segment increased $1.8 million, or 2.4%, as compared to the three months ended March 31, 2018. The increase in net sales was primarily due to overall net increased customer end-market demand.

During the six months ended March 30, 2019, net sales in the EMEA segment increased $10.3 million, or 7.5%, as compared to the six months ended March 31, 2018. The increase in net sales was the result of an $8.6 million increase due to the rampramps of new products for existing customers and overall net increased customer end-market ~~demand, partially offset by a $6.4 million temporary reduction of business with an existing customer.~~demand.

~~A discussion of~~

Our net sales by market sector is presented below (in millions):


	Three Months Ended				Six Months Ended				Three Months Ended
	March 30, 2019		March 31, 2018		March 30, 2019		March 31, 2018		January 4, 2020		December 29, 2018
Market Sector:
Healthcare/Life Sciences	$	299.6	$	248.1	$	600.2	$	485.1	$	312.3	$	300.6
Industrial/Commercial	250.3		241.7		469.4		448.5		310.0		219.1
Aerospace/Defense	140.5		110.1		263.0		209.9		172.1		122.5
Communications	98.7		98.8		222.0		232.4		58.0		123.3
Total net sales	$	789.1	$	698.7	$	1,554.6	$	1,375.9	$	852.4	$	765.5

Healthcare/Life Sciences. Net sales for the three months ended ~~March 30, 2019,~~January 4, 2020 in the Healthcare/Life Sciences sector increased ~~$51.5~~$11.7 million, or ~~20.8%~~3.9%, as compared to the three months ended March 31, 2018. The increase was the result of overall net increased customer end-market demand, an $8.3 million increase due to the ramp of production for new customers and a $6.6 million increase due to the ramp of new products for existing customers.

During the six months ended March 30, 2019, net sales in the Healthcare/Life Sciences sector increased $115.1 million, or 23.7%, as compared to the six months ended March 31, 2018. The increase was primarily the result of overall net increased customer end-market demand, a $20.4 million increase due to the ramp of new products for existing customers and $12.8 million increase due to the ramp of production for new customers.

~~Industrial/Commercial~~. Net sales for the three months ended March 30, 2019, in the Industrial/Commercial sector increased $8.6 million, or 3.6%, as compared to the three months ended March 31, 2018. The increase was the result of an $8.0 million increase due to the ramp of new products for existing customers and a $4.1 million increase due to the ramp of production for new customers, partially offset by overall net decreased customer end-market demand.

During the six months ended March 30, 2019, net sales in the Industrial/Commercial sector increased $20.9 million, or 4.7%, as compared to the six months ended March 31, 2018. The increase was the result of an $11.1 million increase due to the ramp of new products for existing customers, a $5.7 million increase due to the ramp of production for new customers and overall net increased customer end-market demand.

~~Aerospace/Defense~~. ~~Net sales for the three months ended March 30, 2019, in the Aerospace/Defense sector increased $30.4 million, or 27.6%, as compared to the three months ended March 31,~~December 29, 2018. The increase was driven by a ~~$30.3~~$15.2 million increase ~~due to the ramp of new products for existing customers.~~

~~During the six months ended March 30, 2019, net sales~~ in ~~the Aerospace/Defense sector increased $53.1 million, or 25.3%, as compared to the six months ended March 31, 2018. The increase was driven by a $50.3 million increase due to the ramp~~production ramps of new products for existing customers and overall net increased customer end-market ~~demand,~~demand. The increase was partially offset by a ~~$6.9~~decrease of $6.4 million ~~temporary reduction of business with an existing customer.~~for end-of-life products.

~~Communications~~Industrial/Commercial. Net sales for the three months ended ~~March 30, 2019,~~January 4, 2020 in the ~~Communications~~Industrial/Commercial sector ~~decreased $0.1~~increased $90.9 million, or ~~0.1%~~41.5%, as compared to the three months ended ~~March 31,~~December 29, 2018. The ~~reduction~~increase was driven by a $28.0 million increase in ~~net sales was the result of a net decrease in overall customer end-market demand, substantially offset by increases in the ramp~~production ramps of new products for existing customers and overall net increased customer end-market demand.

Aerospace/Defense. Net sales for the ~~ramp~~three months ended January 4, 2020 in the Aerospace/Defense sector increased $49.6 million, or 40.5%, as compared to the three months ended December 29, 2018. The increase was driven by a $29.9 million increase in production ramps of new products for existing customers, a $5.1 million increase in production ramps for new ~~customers.~~customers and overall net increased customer end-market demand.

~~During~~Communications. Net sales for the ~~six~~three months ended ~~March 30, 2019, net sales~~January 4, 2020 in the Communications sector decreased ~~$10.4~~$65.3 million, or ~~4.5%~~53.0%, as compared to the ~~six~~three months ended ~~March 31,~~December 29, 2018. The decrease was driven by ~~a $32.8 million reduction due to~~overall net decreased customer end-market demand.

disengagements with customers, partially offset by a $17.7 million increase due to the ramp of new products for existing customers and a $4.0 million increase due to the ramp of production for new customers.

Cost of sales. Cost of sales for the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 increased ~~$72.7~~$80.0 million, ~~and $152.1 million, respectively,~~or 11.5%, as compared to the three ~~and six~~ months ended ~~March 31,~~December 29, 2018. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018, approximately 89% and 90%, respectively, of the total cost of sales was variable in nature and fluctuated with sales volumes. Of ~~this amount,~~these amounts, approximately 89% ~~for the three months ended March 30, 2019,~~and 90% ~~for the six months ended March 30, 2019 and 91% for the three and six months ended March 31, 2018~~, respectively, of these costs in each period were related to material and component costs.

As compared to the prior year ~~periods,~~period, the increase in cost of sales for ~~both~~ the three ~~and six~~ months ended ~~March 30, 2019~~January 4, 2020 was primarily due to the increase in net sales and ~~customer mix changes that resulted in cost inefficiencies, partially offset by a $13.5 million one-time bonus paid~~fixed costs to ~~full-time, non-executive employees ("one-time employee bonus") that was approved and paid during the three months ended March 31, 2018, of which $12.6 million impacted cost of sales in that period.~~support new program ramps.

Gross profit. Gross profit for the three months ended ~~March 30, 2019~~January 4, 2020 increased ~~$17.6~~$6.8 million, or 9.4%, as compared to the three months ended ~~March 31, 2018. Gross profit for the six months ended March 30, 2019 increased $26.5 million as compared to the six months ended March 31,~~December 29, 2018. Gross margin ~~increased 140 and 70~~of 9.3% decreased by 20 basis points as compared to the three ~~and six~~ months ended ~~March 31, 2018, respectively.~~December 29, 2018. The primary ~~drivers~~driver of the increase in gross profit ~~and gross margin for both periods were~~was the increase in net sales, ~~increase, as noted above,~~partially offset by higher fixed costs to support new program ramps and a negative shift in customer mix, which drove the ~~one-time employee bonus that was approved and paid during the three months ended March 31, 2018, as noted above.~~decrease in gross margin.

Operating income. Operating income for the three months ended ~~March 30, 2019~~January 4, 2020 increased ~~$15.9~~$2.9 million, or ~~91.9%~~7.8%, as compared to the three months ended ~~March 31,~~December 29, 2018 as a result of the increase in gross ~~profit. This was~~profit, partially offset by a ~~$1.8~~$3.8 million increase in selling and administrative expenses ("S&A") that was primarily due to an increase in compensation ~~expense, partially offset by $0.9 million due to the one-time employee bonus paid during the three months ended March 31, 2018.~~expense. Operating margin of ~~4.2% increased 170~~4.7% decreased 10 basis points as compared to the three months ended ~~March 31, 2018.~~

~~Operating income for the six months ended March 30, 2019 increased $21.2 million, or 43.4%, as compared~~December 29, 2018 primarily due to the ~~six months ended March 31, 2018~~decrease in gross margin as a result of the increase in gross profit. This was partially offset by a $5.3 million increase in S&A primarily due to an increase in compensation expense, partially offset by $0.9 million due to the one-time employee bonus paid during the three months ended March 31, 2018. Operating margin of 4.5% increased 90 basis points as compared to the six months ended March 31, 2018.factors discussed above.

A discussion of operating income by reportable segment is presented below (in millions):


	Three Months Ended						Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Operating income (loss):
AMER	$	14.2		$	10.7		$	28.7		$	21.2		$	12.3		$	14.5
APAC	48.7			49.1			100.4			99.7			62.4			51.8
EMEA	(0.1		)	0.4			0.9			(0.7		)	(0.3		)	1.0
Corporate and other costs ~~(1)~~	(29.6		)	(42.9		)	(59.9		)	(71.3		)	(34.5		)	(30.3		)
Total operating income	$	33.2		$	17.3		$	70.1		$	48.9		$	39.9		$	37.0
(1) The three and six months ended March 31, 2018, include the $13.5 million one-time employee bonus.

AMER. Operating income for the three months ended ~~March 30, 2019, in the AMER segment increased $3.5~~January 4, 2020 decreased $2.2 million as compared to the three months ended ~~March 31,~~December 29, 2018, primarily as a result of ~~the increase in net sales, partially offset by~~ increased fixed costs to support new program ramps and an increase in S&A primarily due to an increase in compensation expense, partially offset by a ~~negative~~positive shift in customer mix.

During the six months ended March 30, 2019, operating income in the AMER segment increased $7.5 million as compared to the six months ended March 31, 2018, primarily as a result of the increase in net sales, partially offset by increased costs to support new program ramps.

APAC. Operating income for the three months ended ~~March 30, 2019, in the APAC segment decreased $0.4~~January 4, 2020 increased $10.6 million as compared to the three months ended ~~March 31, 2018, primarily as a result of a negative shift in customer mix and increased costs to support new program ramps, partially offset by the increase in net sales.~~

~~During the six months ended March 30, 2019, operating income in the APAC segment increased $0.7 million as compared to the six months ended March 31,~~December 29, 2018, primarily as a result of the increase in net sales, partially offset by a negative shift in customer mix and increased fixed costs to support new program ramps.

EMEA. Operating income for the three months ended ~~March 30, 2019, in the EMEA segment~~January 4, 2020 decreased ~~$0.5~~$1.3 million as compared to the three months ended ~~March 31,~~December 29, 2018, primarily ~~due to~~as a ~~negative shift in customer mix and~~result of increased fixed costs to support new program ramps ~~partially offset by the increase in net sales.~~

During the six months ended March 30, 2019, operating income in the EMEA segment increased $1.6 million as compared to the six months ended March 31, 2018, primarily as a result of the increase in net sales and a ~~positive~~negative shift in customer mix, partially offset by ~~increased costs to support new program ramps.~~an increase in net sales.

Other expense. Other expense for the three months ended ~~March 30, 2019~~January 4, 2020 increased ~~$1.9~~$2.8 million as compared to the three months ended ~~March 31,~~December 29, 2018, primarily due to ~~a decrease in interest income of $1.0 million and~~ an increase of ~~$0.8~~$1.9 million in ~~factoring fees related to~~interest expense and the ~~Company's accounts receivable sale programs for~~impact of foreign exchange volatility, which resulted in a foreign exchange loss of $0.9 million during the three months ended ~~March 30, 2019.~~

~~Other expense for the six months ended March 30, 2019 increased $2.2 million~~January 4, 2020 as compared to a $0.2 million foreign exchange gain during the ~~six~~three months ended March 31, 2018, due to a decrease in interest income of $2.0 million and an increase of $1.3 million in factoring fees related to the Company's accounts receivable sale programs, partially offset by a decrease in interest expense for the six months ended March 30, 2019.December 29, 2018.

Income taxes. Income tax expense and effective income tax rates ~~for the indicated periods were as follows:~~is presented below (dollars in millions):

Three Months Ended Six Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Income tax expense, as reported $ 3.9
$ 2.4
$ 15.8
$ 130.0
Impact of Tax Reform —
—
(7.0 ) (124.5 )
Impact of one-time employee bonus —
0.4
—
0.3
Income tax expense, as adjusted (1) $ 3.9
$ 2.8
$ 8.8
$ 5.8



	Three Months Ended
	January 4, 2020		December 29, 2018
Income tax expense, as reported (GAAP)	$	3.3	$	11.9
Special tax items	0.8		(7.0		)
Income tax expense, as adjusted (non-GAAP) (1)	$	4.1	$	4.9

Three Months Ended Six Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Effective tax rate, as reported 13.7 % 16.5 % 25.2 % 297.0 %
Impact of Tax Reform —
—
(11.2 ) (284.6 )
Impact of one-time employee bonus —
(6.7 ) —
(2.3 )
Effective tax rate, as adjusted (1) 13.7 % 9.8 % 14.0 % 10.1 %

(1) We believe the non-GAAP presentation of income tax expense and the effective tax rate excluding the impact of Tax Reform and the one-time employee bonus provides additional insight over the change from the comparative reporting periods by excluding these non-recurring expenses. In addition, the Company believes that its effective tax rate, as adjusted, enhances the ability of investors to analyze the Company’s operating performance and supplements, but does not replace, its effective tax rate calculated in accordance with U.S. GAAP.



	Three Months Ended
	January 4, 2020		December 29, 2018
Effective tax rate, as reported (GAAP)	9.5	%	34.9	%
Special tax items	2.4		(20.7	)
Effective tax rate, as adjusted (non-GAAP) (1)	11.9	%	14.2	%

~~The~~(1) We believe the non-GAAP presentation of income tax expense and the effective tax rate excluding special tax items provides additional insight into the change between comparative reporting periods by isolating the impact of these significant, special items. In addition, we believe that our income tax expense, as adjusted, and effective tax rate, as ~~reported,~~adjusted, enhance the ability of investors to analyze our operating performance and supplement, but do not replace, income tax expense and effective tax rate calculated in accordance with U.S. GAAP.

For the three months ended January 4, 2020, we recorded a tax benefit of $1.9 million benefit related to guidance issued by the U.S. Department of the Treasury regarding foreign tax credits partially offset by $1.1 million of other special tax items. For the three months ended December 29, 2018, we recorded a $7.0 million adjustment to income tax expense, inclusive of unrecognized tax benefits, as a result of proposed additional guidance issued by the U.S. Department of the Treasury, related to the U.S. Tax Cuts and Jobs Act ("Tax Reform").

Income tax expense for the three months ended ~~March 30, 2019 decreased from~~January 4, 2020 and December 29, 2018 was $3.3 million and $11.9 million, respectively. The decrease in income tax expense and the effective tax rate as reported, for the three months ended March 31, 2018, primarily due to the $13.5 million one-time employee bonus paid during the three months ended March 31, 2018, and geographical distribution of pre-tax earnings. The effective tax rate, as reported, for the six months ended March 30, 2019 decreased from the effective tax rate, as reported for the six months ended March 31, 2018,is primarily due to the impact of Tax Reform recorded in the three months ended December 29, 2018. During the three months ended January 4, 2020, we recorded a benefit related to guidance issued by the U.S. ~~Tax Cuts & Jobs Act (“Tax Reform”), which was enacted on December 22, 2017, and an increase in pre-tax earnings, which was impacted~~Department of the Treasury regarding foreign tax credits partially offset by ~~a one-time employee bonus paid in the second quarter of fiscal 2018.~~special tax items.

~~As a result of Tax Reform, our~~Our U.S. statutory tax rate for fiscal ~~2019~~2020 is 21%. Our effective tax rate varies from our blended U.S. statutory rate primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary within our APAC segment, where we derive a significant portion of our earnings. In addition, our effective tax rate has been impacted by changes due to Tax Reform discussed above. Our effective tax rate may be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

~~The estimated effective tax rate, as reported, for fiscal 2019 is expected to be between 19% and 21%.~~ The estimated effective income tax rate ~~as adjusted,~~ for fiscal ~~2019,~~2020 is expected to be between 13% and 15%. ~~The difference is due to the impact of Tax Reform recorded in the first quarter of fiscal 2019.~~

Net ~~income (loss).~~income. Net income for the three months ended ~~March 30, 2019~~January 4, 2020 increased ~~$12.5~~$8.8 million, ~~to $24.8 million as compared to net income of $12.3 million for~~or 39.6%, from the three months ended ~~March 31, 2018. Net income increased primarily due~~December 29, 2018 to ~~the increase in operating income discussed above.~~

~~Net income for the six months ended March 30, 2019 increased $133.2 million to $47.0 million as compared to the net loss of $86.2 million for the six months ended March 31, 2018.~~$31.0 million. Net income increased primarily as a result of the ~~$114.2 million~~increase in operating income and decrease in income tax expense ~~which,~~ as ~~noted above, was substantially due to the impact of Tax Reform and the one-time employee bonus, as well as the increase in operating income discussed above.~~previously discussed.

Diluted earnings ~~(loss)~~ per share. Diluted earnings per share for the three months ended ~~March 30, 2019 was $0.79, a $0.43 increase~~January 4, 2020 increased to $1.03 from ~~diluted earnings per share of $0.36~~$0.69 for the three months ended ~~March 31,~~December 29, 2018, primarily as a result of increased net income due to the factors discussed above and a reduction in diluted shares outstanding due to repurchase activity under the ~~three months ended March 30, 2019, as noted above.~~Company's stock repurchase plans.

Diluted earnings per share for the six months ended March 30, 2019 was $1.48, as compared to diluted loss per share of $2.57 for the six months ended March 31, 2018, primarily as a result of decreased tax expense related to Tax Reform and increased net income in the six months ended March 30, 2019, as noted above.

Return on Invested Capital ("ROIC") and ~~Economic Return.~~economic return. We use a financial model that is aligned with our business strategy and includes a ROIC goal of 500 basis points over our weighted average cost of capital ("WACC"), which we refer to as ~~"Economic Return,~~"economic return." and a 4.7% to 5.0% operating margin target. Our primary focus is on our Economic Return goal of 5.0%, which is designed to create shareholder value and generate sufficient cash to self-fund our targeted organic revenue growth rate of 12.0%. ROIC and Economic Return are non-GAAP financial measures.

Non-GAAP financial measures, including ROIC and ~~Economic Return,~~economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and ~~Economic Return~~economic return because we believe they offer insight into the metrics that are driving management decisions because we view ROIC and ~~Economic Return~~economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements. We also use a derivative measure of ROIC as a performance criteria in determining certain elements of compensation, and certain compensation incentives are based on ~~Economic Return~~economic return performance.

We define ROIC as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling ~~three-quarter~~two-quarter period for the ~~second~~first quarter. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

We review our internal calculation of WACC annually, and our estimated WACC is ~~9.0%~~8.8% for fiscal ~~2019.~~2020. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. ROIC was ~~13.3%~~14.7% and ~~15.6%~~14.6% for the ~~six~~three months ended ~~March 30, 2019~~January 4, 2020 and ~~March 31,~~December 29, 2018, respectively.

For a reconciliation of ROIC and ~~Economic Return~~economic return to our financial statements that were prepared using ~~U.S.~~ GAAP, see Exhibit 99.1 to this quarterly report on Form 10-Q, which is incorporated herein by reference.

Refer to the table below, which includes the calculation of ROIC and ~~Economic Return~~economic return (dollars in millions) for the indicated periods:

Six Months Ended
March 30, 2019 March 31, 2018
Annualized operating income (tax effected) $ 119.2
$ 111.0
Average invested capital 898.9
709.8
After-tax ROIC 13.3 % 15.6 %
WACC 9.0 % 9.5 %
Economic Return 4.3 % 6.1 %



	Three Months Ended
	January 4, 2020			December 29, 2018
Adjusted operating income (tax-effected)	$	139.0		$	125.6
Average invested capital	945.4			862.5
ROIC	14.7		%	14.6		%
WACC	8.8		%	9.0		%
Economic return	5.9		%	5.6		%

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and restricted cash were ~~$184.4~~$255.1 million as of ~~March 30, 2019,~~January 4, 2020, as compared to ~~$297.7~~$226.3 million as of September ~~29, 2018.~~28, 2019.

As of ~~March 30, 2019, 88.5%~~January 4, 2020, 94% of our cash balance was held outside of the U.S. by our foreign subsidiaries. With the enactment of Tax Reform, we believe that our offshore cash can be accessed in a more tax efficient manner than before Tax Reform. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs ~~including~~and potential share repurchases, if any, for the next twelve months and for the foreseeable future.

Our future cash flows from operating activities will be reduced by ~~$73.8~~$65.1 million due to cash payments for accrued income taxes related to Tax Reform. The table below provides the expected timing of these future cash outflows, excluding $10.0 million of foreign withholding taxes on the deemed repatriation of undistributed foreign earnings since the exact timing of the payments is unknown as of March 30, 2019. The remaining $63.8 million represents U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining seven years (in millions):


2020	$	5.6
Remaining 2020			$	5.5
2021	5.6		5.7
2022	5.6		5.7
2023	5.6		5.7
2024	10.4		10.6
2025	13.9		14.2
2026	17.1		17.7
Total	$	63.8	$	65.1

Cash Flows. The following table provides a summary of cash flows for the periods presented, excluding the effect of exchange rates on cash and cash equivalents and restricted cash (in millions):


	Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Cash (used in) provided by operating activities	$	(34.5	)	$	2.8
Cash provided by (used in) operating activities							$	74.7		$	(33.3	)
Cash used in investing activities	$	(53.3	)	$	(28.8	)	$	(13.4	)	$	(23.7	)
Cash used in financing activities	$	(25.8	)	$	(145.7	)	$	(33.1	)	$	(47.3	)

Operating Activities. Cash flows provided by operating activities were $74.7 million for the three months ended January 4, 2020, as compared to cash flows used in operating activities ~~were $34.5~~of $33.3 million for the ~~six~~three months ended ~~March 30, 2019, as compared to cash flows provided by operating activities of $2.8 million for the six months ended March 31,~~December 29, 2018. The ~~decrease~~increase was primarily due to cash flow improvements (reductions) ~~improvements~~ of:

$~~(43.8) million in accounts payable cash flows driven by reduced purchasing activity.~~

~~$(35.1) million in inventory cash flows driven by increased inventory levels to support the ramp of customer programs and continued longer lead times for certain components.~~

~~$(18.4)~~63.0 million in accounts receivable cash flows, which resulted primarily from the ~~increase in net sales and the~~ timing of ~~shipments~~shipments.

$57.0 million in ~~the quarter.~~accounts payables cash flows driven by increased purchasing activity to support increased net sales.

$~~41.9~~42.7 million in inventory cash flows driven by inventory management efforts.

$(25.4) million in customer deposit cash flows driven by a significant ~~deposits~~deposit received from ~~three~~one customer in the prior year.

$(16.6) million in other current and noncurrent liabilities cash flows driven by decreases in advance payments from customers ~~during~~and accrued salaries and wages due to timing of the ~~six months ended March 30, 2019.~~quarter-end.

The following table provides a summary of cash cycle days for the periods indicated (in days):


	Three Months Ended		Three Months Ended
	March 30, 2019	March 31, 2018	January 4, 2020	December 29, 2018
Days in accounts receivable	51	52	49	51
Days in contract assets	10	—	12	10
Days in inventory	102	100	87	105
Days in accounts payable	(61)	(61)	(61)	(68)
Days in cash deposits	(16)	(15)	(16)	(15)
Annualized cash cycle	86	76	71	83

We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable, and cash deposits as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in cash deposits. On September 30, 2018, the Company adopted Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue Recognition (Topic 606). For the three months ended March 30, 2019, cash cycle days include contract assets and an associated reduction in inventory. As the guidance was adopted using a modified retrospective approach, no impact to prior periods was required to be recognized.

As of ~~March 30, 2019,~~January 4, 2020, annualized cash cycle days ~~increased ten~~decreased twelve days compared to ~~March 31,~~December 29, 2018 due to the following factors:

Days in accounts receivable for the three months ended ~~March 30, 2019~~January 4, 2020 decreased ~~one day~~2 days compared to the three months ended ~~March 31,~~December 29, 2018. The decrease is primarily attributable to ~~an increase~~the timing of customer shipments with the additional week in ~~accounts receivable sold under factoring programs.~~the quarter.

Days in contract assets for the three months ended ~~March 30, 2019~~January 4, 2020 increased ~~ten~~2 days compared to the three months ended ~~March 31, 2018~~December 29, 2018. The increase is due to ~~the adoption of Topic 606.~~increased demand from customers with arrangements requiring revenue to be recognized over time as products are produced.

Days in inventory for the three months ended ~~March 30, 2019 increased two~~January 4, 2020 decreased eighteen days compared to the three months ended ~~March 31,~~December 29, 2018. The ~~increase~~decrease is primarily attributable to ~~increased~~ inventory levels to support the ramp of customer programs and continued longer lead times for certain components, partially offset by inventory that was recognized with over time revenue as part of our adoption of Topic 606.management efforts.

Days in accounts payable for the three months ended ~~March 30, 2019 remained consistent~~January 4, 2020 decreased 7 days compared to the three months ended ~~March 31,~~December 29, 2018. The decrease is primarily attributable to reduced purchasing activity in connection with our inventory management efforts.

Days in cash deposits for the three months ended ~~March 30, 2019~~January 4, 2020 increased 1 day compared to the three months ended ~~March 31, 2018,~~December 29, 2018. The increase was primarily ~~driven by a deposit~~attributable to significant deposits received from ~~one customer.~~two customers to cover higher inventory balances.

Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash ~~flows~~flow provided by (used in) operations less capital expenditures. FCF was ~~$(89.1)~~$61.0 million for the ~~six~~three months ended ~~March 30, 2019,~~January 4, 2020 compared to ~~$(26.3)~~$(58.2) million for the ~~six~~three months ended ~~March 31,~~December 29, 2018, ~~a decrease~~an increase of ~~$62.8 million, primarily due to a $37.4 million decrease in cash flows provided by operations due to the factors discussed above, and a $25.4 million increase in capital expenditures, discussed below.~~$119.2 million.

Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.

A reconciliation of FCF to our financial statements that were prepared using GAAP follows (in millions):


	Six Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			January 4, 2020			December 29, 2018
Cash flows (used in) provided by operating activities	$	(34.5	)	$	2.8
Cash flows provided by (used in) operating activities							$	74.7		$	(33.3	)
Payments for property, plant and equipment	(54.6		)	(29.1		)	(13.7		)	(24.9		)
Free cash flow	$	(89.1	)	$	(26.3	)	$	61.0		$	(58.2	)

Investing Activities. Cash flows used in investing activities were ~~$53.3~~$13.4 million for the ~~six~~three months ended ~~March 30, 2019~~January 4, 2020 compared to ~~$28.8~~$23.7 million for the ~~six~~three months ended ~~March 31,~~December 29, 2018. The ~~increase~~decrease in cash used in investing activities was due to a ~~$25.4~~$11.2 million ~~increase~~decrease in capital expenditures, primarily due to ~~fund both the purchase of equipment and building improvements for our new manufacturing facility in Penang, Malaysia, and~~ the construction of a second manufacturing facility in Guadalajara, Mexico ~~as well as to support new capabilities, new program ramps, and replace older equipment.~~which was completed in the fiscal first quarter of 2020.

We estimate funded capital expenditures for fiscal ~~2019~~2020 to be approximately ~~$70.0~~$55.0 to ~~$90.0~~$70.0 million, of which ~~$54.6~~$13.7 million was utilized through the first ~~six~~three months of fiscal ~~2019.~~2020. The remaining fiscal ~~2019~~2020 capital expenditures are anticipated to be used primarily ~~in the construction of the second manufacturing facility in Guadalajara, Mexico, and~~ to support new program ramps as well as to replace older equipment. We believe our estimated capital expenditures will continue to be funded from cash flows provided by operations, and may be supplemented by available cash or borrowings, if required.

Financing Activities.Cash flows used in financing activities were ~~$25.8~~$33.1 million for the ~~six~~three months ended ~~March 30, 2019~~January 4, 2020 compared to ~~$145.7~~cash flows used in financing activities of $47.3 million for the ~~six~~three months ended ~~March 31,~~December 29, 2018. The decrease was primarily attributable to a ~~$195.0~~$43.7 million decrease ~~in pay-downs on our Credit Facility partially offset by a $65.1 million increase~~ in cash used to repurchase our common stock and a ~~$7.9~~$9.1 million increase ~~related to~~in proceeds from the exercise of stock options. This change was partially offset by an increase of $36.0 million in pay-downs on our revolving credit facility.

On August 20, 2019, the Board of Directors approved a new stock repurchase plan, pursuant to which the Company is authorized to repurchase $50.0 million of its common stock (the "2019 Program"). The 2019 Program commenced upon completion of the 2018 Program, as defined below. During the three months ended January 4, 2020, the Company repurchased 90,667 shares under the 2019 Program for $6.3 million at an average price of $69.82. As of January 4, 2020, $40.4 million of authority remained under the 2019 Program.

On February 14, 2018, the Board of Directors approved a stock repurchase plan under which the Company iswas authorized to repurchase $200.0 million of its common stock (the "2018 Program"). ~~The 2018 Program commenced upon completion of the 2016 Program, as defined below.~~ During the ~~six~~three months ended ~~March 30, 2019,~~December 29, 2018, the Company repurchased ~~1,861,632~~869,949 shares under this program for ~~$106.3~~$50.1 million, at an average price of ~~$57.10~~$57.53 per share. AsThe 2018 Program was completed during the fiscal fourth quarter of ~~March 30,~~ 2019, ~~$72.5 million of~~when all share repurchase authority ~~remained~~ under ~~the 2018 Program.~~

~~On June 6, 2016, the Board of Directors authorized a multi-year stock repurchase program under which the Company~~it was authorized to repurchase up to $150.0 million of its common stock beginning in fiscal 2017 (the "2016 Program"). During the six months ended March 31, 2018, the Company repurchased 671,409 shares for $41.2 million, at an average price of $61.30 per share under the 2016 Program.exhausted.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

On June 15, 2018, the Company entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which it issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount of 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which the Company is required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of ~~March 30, 2019,~~January 4, 2020, the Company was in compliance with the covenants under the 2018 NPA.

~~The Company's~~On May 15, 2019, the Company refinanced its then-existing senior unsecured revolving credit facility (the "Prior Credit Facility") by entering into a new 5-year senior unsecured revolving credit facility (collectively with the Prior Credit Facility, ~~has a~~referred to as the "Credit Facility"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment ~~that expires on July 5, 2021. The~~under the Credit Facility may be further increased to ~~$500.0~~$600.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. ~~For further information regarding~~During the three months ended January 4, 2020, the highest daily borrowing was $164.5 million; the average daily borrowings were $128.1 million. The Company borrowed $156.5 million and repaid $189.5 million of revolving borrowings under the Credit Facility ~~see Note 3, "Debt, Capital Lease Obligations and Other Financing" in Notes to Condensed Consolidated Financial Statements. The financial covenants (as defined under~~during the ~~related Credit Agreement) require, among other covenants, that the Company maintain, as of each fiscal quarter end, a maximum total leverage ratio and a minimum interest coverage ratio.~~three months ended January 4, 2020. As of ~~March 30, 2019,~~January 4, 2020, the Company was in compliance with all financial covenants ofrelating to the Credit ~~Facility.~~Agreement, which are generally consistent with those in the 2018 NPA discussed above. The Company is required to pay a commitment fee on the daily unused revolver credit commitment based on the Company's leverage ratio; the fee was 0.175% as of January 4, 2020.

The Credit ~~Facility~~Agreement and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the ~~past and do not currently anticipate paying~~

~~them in~~past. However, the ~~future. However, we evaluate~~Board of Directors of the Company evaluates from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.

In all cases, the sale discount was recorded within "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note ~~12,~~14, "Trade Accounts Receivable Sale Programs," in Notes to Condensed Consolidated Financial Statements.

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements for the next twelve months. If our future financing needs increase, we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS

Our disclosures regarding contractual obligations and commercial commitments are located in ~~various parts of~~ our ~~regulatory~~SEC filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of ~~March 30, 2019~~January 4, 2020 (dollars in millions):


	Payments Due by Fiscal Year										Payments Due by Fiscal Year
Contractual Obligations	Total		Remaining2019		2020-2021		2022-2023		2024 and thereafter		Total		Remaining 2020		2021-2022		2023-2024		2025 and thereafter
Debt Obligations (1)	$	283.4	$	90.1	$	12.4	$	12.2	$	168.7	$	252.2	$	65.1	$	12.4	$	12.2	$	162.5
Capital Lease Obligations (2)	50.4		4.9		6.9		3.8		34.8
Finance Lease Obligations											127.2		5.6		12.6		10.3		98.7
Operating Lease Obligations	37.4		4.9		15.0		8.0		9.5		58.8		8.0		16.8		13.6		20.4
Purchase Obligations ~~(3)~~(2)	653.1		546.8		103.4		2.8		0.1		638.4		604.5		33.4		0.4		0.1
Repatriation Tax on Undistributed Foreign Earnings ~~(4)~~(3)	63.8		—		11.2		11.0		41.6		65.1		5.5		11.4		16.3		31.9
Other Liabilities on the Balance Sheet ~~(5)~~(4)	14.6		1.5		3.0		2.9		7.2		17.6		3.0		5.6		0.9		8.1
Other Liabilities not on the Balance Sheet ~~(6)~~(5)	8.9		0.3		1.7		1.4		5.5		8.1		4.0		0.2		0.5		3.4
Other Financing Obligations (7)	121.7		2.6		8.7		9.3		101.1
Total Contractual Cash Obligations	$	1,233.3	$	651.1	$	162.3	$	51.4	$	368.5	$	1,167.4	$	695.7	$	92.4	$	54.2	$	325.1


1)	~~Includes~~As of January 4, 2020, debt obligations includes $150.0 million in principal amount of 2018 Notes as well as interest; see Note 3, "Debt, ~~Capital~~Finance Lease Obligations and Other ~~Financing"~~Financing," in Notes to Condensed Consolidated Financial Statements for further information.


2)	As of ~~March 30, 2019, capital lease obligations consists of capital lease payments and interest as well as the non-cash financing obligation related to the failed sale-leasebacks in Guadalajara, Mexico.~~


3)	~~As of March 30, 2019,~~January 4, 2020, purchase obligations consist primarily of purchases of inventory and equipment in the ordinary course of business.


4)3)	~~Consists~~As of January 4, 2020, repatriation tax on undistributed foreign earnings consists of U.S. federal income taxes on the deemed repatriation of undistributed foreign earnings due to Tax Reform. Refer to "Liquidity and Capital Resources" above for further detail.

5)4)

As of ~~March 30, 2019,~~January 4, 2020, other obligations on the balance sheet included deferred compensation obligations to certain of our former and current executive officers, as well as other key employees, other financing obligations arising from information technology maintenance agreements, and an asset retirement ~~obligation.~~obligations related to our buildings. We have excluded from the above table the impact of approximately ~~$4.2~~$2.2 million, as of ~~March 30, 2019,~~January 4, 2020, related to unrecognized income tax benefits. The Company cannot make reliable estimates of the future cash flows by period related to these obligations.

6)5)

As of ~~March 30, 2019,~~January 4, 2020, other obligations not on the balance sheet consist of guarantees and a commitment for salary continuation and certain benefits in the event employment of one executive officer of the Company is terminated without cause. Excluded from the amounts disclosed are certain bonus and incentive compensation amounts, which would be paid on a prorated basis in the year of termination.


7)	~~Includes future minimum lease payments for two facilities in Guadalajara, Mexico, leased under 10-year and 15-year base lease agreements, both of which include two 5-year renewal options.~~

DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are disclosed in our ~~2018~~2019 annual report on Form 10-K. ~~Other than~~During the ~~item noted below,~~first quarter of fiscal 2020, there were no material ~~changes to these policies.~~

~~Revenue Recognition~~: Topic 606 results in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue is now recognized over time as products are produced, as opposed to at a point in time based upon shipping terms. Upon adopting the standard, revenue is now recognized over time for arrangements with customers for which: (i) the Company's performance does not create an asset with an alternative use to the Company, and (ii) the Company has an enforceable right to payment for performance completed to date. Revenue recognized over time will be estimated based on costs incurred to date plus a reasonable profit margin. If either of the two conditions noted above are not met to recognize revenue over time, revenue will be recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.

The Company’s performance obligations are satisfied over time as work progresses or at a point in time. A performance obligation is satisfied over time if the Company has an enforceable right to payment, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and is assessed on a contract by contract basis.

If an enforceable right to payment for work-in-process does not exist, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1, "Basis of Presentation," in Notes to Condensed Consolidated Financial Statements for further information regarding new accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in foreign exchange and interest rates. We selectively use financial instruments to reduce such risks. We do not use derivative financial instruments for speculative purposes.

Foreign Currency Risk

Our international operations create potential foreign exchange risk. Our policy is to selectively hedge our foreign currency denominated transactions in a manner that partially offsets the effects of changes in foreign currency exchange rates. We typically use foreign currency contracts to hedge only those currency exposures associated with certain assets and liabilities denominated in non-functional currencies. Corresponding gains and losses on the underlying transaction generally offset the gains and losses on these foreign currency hedges.

Our percentages of transactions denominated in currencies other than the U.S. dollar for the indicated periods were as follows:


	Three Months Ended		Three Months Ended
	March 30, 2019	March 31, 2018	January 4, 2020	December 29, 2018
Net Sales	9.2%	10.3%	10.3%	9.3%
Total Costs	15.8%	15.0%	16.0%	15.6%

The Company has evaluated the potential foreign currency exchange rate risk on transactions denominated in currencies other than the U.S. dollar for the periods presented above. Based on the Company’s overall currency exposure, as of ~~March 30, 2019,~~January 4, 2020, a ~~10.0%~~10% change in the value of the U.S. dollar relative to our other transactional currencies would not have a material effect on the Company’s financial position, results of operations, or cash flows.

Interest Rate Risk

We have financial instruments, including cash equivalents and debt, which are sensitive to changes in interest rates. The primary objective of our investment activities is to preserve principal, while maximizing yields without significantly increasing market risk. To achieve this, we maintain our portfolio of cash equivalents in a variety of highly rated securities, money market funds and certificates of deposit, and limit the amount of principal exposure to any one issuer. ~~In addition, debt and other financing obligations primarily~~

As of January 4, 2020, our only material interest rate risk is associated with our Credit Facility. Borrowings under the Credit Facility bear interest, at the Company's option, at a eurocurrency or base rate plus, in each case, an applicable interest rate margin based on the Company's then-current leverage ratio (as defined in the Credit Agreement). As of January 4, 2020, the borrowing rate under the Credit Agreement was LIBOR plus 1.10%. The Company is monitoring developments related to LIBOR; see also Part I, Item 1A "Risk Factors" of our annual report on Form 10-K for the fiscal year ended September 28, 2019 for more information. Borrowings under the 2018 NPA are based on a fixed interest rate, thus mitigating much of our interest rate risk. Based on the Company's overall interest rate exposure, as of January 4, 2020, a 10.0% change in interest rates would not have ~~fixed rates to further limit exposure.~~a material effect on the Company's financial position, results of operations, or cash flows.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported on a timely basis. The Company’s Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have reviewed and evaluated, with the participation of the Company’s management, the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report (the "Evaluation Date"). Based on such evaluation, the CEO and CFO have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective, at the reasonable assurance level, (a) in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act, and (b) in assuring that information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the ~~second~~first quarter of fiscal ~~2019~~2020, other than explained below, there have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Effective September 29, 2019, we adopted the new leasing standard under ASC 2016-02, Leasing, using the modified retrospective method of adoption. The adoption of this guidance required changes to our processes, policies and internal controls to meet the impact of the new standard and disclosure requirements.

PART II. OTHER INFORMATION

~~ITEM 1A. Risk Factors~~


ITEM 1A.	Risk Factors

In addition to the risks and uncertainties discussed herein, particularly those discussed in the “Safe Harbor” Cautionary Statement and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part I, Item 2, see the risk factors set forth in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended September ~~29, 2018.~~28, 2019 that have had no material changes, except as set forth below.

The impact of the coronavirus on our operations, and the operations of our customers, suppliers and logistics providers, may harm our business.

We are actively assessing and responding where possible to the potential impact of the coronavirus outbreak in China. This includes evaluating the impact on our employees, customers, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus. The significance of the impact on Plexus is yet uncertain; however, a material adverse effect on our employees, customers, suppliers, and logistics providers could have a material adverse effect on Plexus. In addition, supply chain or logistics disruptions could materially impact our operations outside China since we purchase a meaningful level of components from Chinese suppliers for our sites in other countries.

~~ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds~~


ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides the specified information about the repurchases of shares by the Company during the three months ended ~~March 30, 2019.~~January 4, 2020.

Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum approximate dollar value of shares that may yet be purchased under the plans or programs*
December 30, 2018 to January 26, 2019 342,862
$ 52.87
342,862
$ 110,650,567
January 27, 2019 to February 23, 2019 344,501
$ 56.55
344,501
$ 91,169,139
February 24, 2019 to March 30, 2019 304,320
$ 61.24
304,320
$ 72,533,037
Total 991,683
$ 56.72
991,683



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum approximate dollar value of shares that may yet be purchased under the plans or programs*
September 29, 2019 to November 2, 2019	47,306	$	63.68	47,306	$	43,708,530
November 3, 2019 to November 30, 2019	18,262	$	75.35	18,262	$	42,332,408
December 1, 2019 to January 4, 2020	25,099	$	77.36	25,099	$	40,390,820
Total	90,667	$	69.82	90,667

* On ~~February 14, 2018,~~August 20, 2019, the Board of Directors approved a new stock repurchase plan under which the Company is authorized to repurchase ~~$200.0~~$50.0 million of its common stock (the ~~"2018~~"2019 Program"). AsThe 2019 Program commenced upon completion of ~~March 30, 2019, $72.5~~the stock repurchase plan approved by the Board of Directors on February 14, 2018, pursuant to which the Company was authorized to repurchase $200.0 million of ~~authority remained under that Program.~~its common stock. The 2019 Program has no expiration.


~~ITEM 6.~~	~~Exhibits~~

ITEM 6. EXHIBITS

The list of exhibits is included below:



Exhibit No.		Exhibit
10.1		Amendment No. 810 to Amended and Restated Master Accounts Receivable Purchase Agreement between Plexus Corp. and Plexus Manufacturing Sdn. Bhd., Plexus Intl. Sales & Logistics, LLC, Plexus Services Ro SRL, Plexus Corp. (UK) Limited and each additional seller party thereto from time to time as the Sellers, Plexus Corp., as Seller Representative, and MUFG Bank Ltd. (f/k/a The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch), as the Purchaser, dated as of ~~March 20,~~December 23, 2019.*
31.1		Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Reconciliation of ROIC to GAAP and ~~Economic Return Financial Statements~~economic return financial statements
101		The following materials from Plexus Corp.’s Quarterly Report on Form 10-Q for the quarter ended ~~December 29, 2018,~~January 4, 2020, formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of ~~Shareholders'~~Shareholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.
101.INS		Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104
*Reflects non-material changes finalizedCover Page Interactive Data File (formatted as Inline XBRL and contained in ~~March 2019.~~Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




		Plexus Corp.
		Registrant

Date: ~~5/3/19~~	2/7/2020	/s/ Todd P. Kelsey
		Todd P. Kelsey
		President and Chief Executive Officer

Date: ~~5/3/19~~	2/7/2020	/s/ Patrick J. Jermain
		Patrick J. Jermain
		Executive Vice President and Chief Financial Officer

3536



Derivative Impact on Accumulated Other Comprehensive Income ("OCI")
for the Three Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in OCI on Derivatives (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	March 30, 2019		March 31, 2018
Foreign currency forward contracts	$	1,241	$	3,625



Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized on Derivatives in Income	Amount of Gain (Loss) on Derivatives Recognized in Income
Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized on Derivatives in Income	March 30, 2019		March 31, 2018
Foreign currency forward contracts	Miscellaneous, net	$	843	$	(416	)



Derivative Impact on Accumulated Other Comprehensive Income ("OCI")
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in OCI on Derivatives (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	March 30, 2019		March 31, 2018
Foreign currency forward contracts	$	853	$	6,339



Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized on Derivatives in Income	Amount of Gain (Loss) on Derivatives Recognized in Income
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized on Derivatives in Income	March 30, 2019		March 31, 2018
Foreign currency forward contracts	Miscellaneous, net	$	1,630	$	(951	)



	March 30, 2019		September 29, 2018
Total assets:
AMER	$	733,925	$	645,791
APAC	980,888		937,510
EMEA	201,627		193,797
Corporate and eliminations	84,411		155,544
	$	2,000,851	$	1,932,642



	Balance at September 29, 2018		Impacts due to adoption of Topic 606			Balance at September 30, 2018
ASSETS
Contract assets	$	—	$	76,417		$	76,417
Inventories	794,346		(68,959		)	725,387
LIABILITIES AND SHAREHOLDERS' EQUITY
Other accrued liabilities	$	68,163	$	(357	)	$	67,806
Retained earnings	1,062,246		7,815			1,070,061



	Three Months Ended
	March 30, 2019 As Reported		Adjustments due to Topic 606		March 30, 2019 As Adjusted - Without Adoption of Topic 606
Net sales	$	789,051	$	5,359	$	783,692
Cost of sales	718,415		4,641		713,774
Gross profit	70,636		718		69,918
Operating income	33,174		718		32,456
Income before income taxes	28,696		718		27,978
Income tax expense	3,938		224		3,714
Net income	$	24,758	$	494	$	24,264



	Six Months Ended March 30, 2019
	Reportable Segment:
	AMER		APAC		EMEA		Total
Market Sector:
Healthcare/Life Sciences	$	241,199	$	293,761	$	65,254	$	600,214
Industrial/Commercial	177,926		248,079		43,373		469,378
Aerospace/Defense	138,227		89,846		34,902		262,975
Communications	158,145		60,959		2,924		222,028
External revenue	$	715,497	$	692,645	$	146,453	$	1,554,595
Inter-segment sales	2,860		63,908		1,667		68,435
Segment revenue	$	718,357	$	756,553	$	148,120	$	1,623,030



	Contract Assets
Beginning balance, September 29, 2018	$	—
Cumulative effect adjustment at September 29, 2018	76,417
Revenue recognized	1,393,777
Amounts collected or invoiced	(1,383,391		)
Ending balance, March 30, 2019	$	86,803