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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 001-14423
____________________________________________________________________________________________________________________________________
https://cdn.kscope.io/031434957f874ce24eabf7628d32cf04-plxs-20210703_g1.gif
PLEXUS CORP.
(Exact name of registrant as specified in charter)
____________________________________________________________________________________________________________________________________
Wisconsin39-1344447
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
One Plexus Way
Neenah, Wisconsin 54957
(Address of principal executive offices) (Zip Code)
Telephone Number (920969-6000
(Registrant’s telephone number, including Area Code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valuePLXSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of August 3 2021, there were 28,250,321 shares of common stock outstanding.


Table of Contents
PLEXUS CORP.
TABLE OF CONTENTS
July 3, 2021
 
2

Table of Contents
PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
Unaudited
Three Months EndedNine Months Ended
July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Net sales$814,387 $857,394 $2,525,627 $2,477,167 
Cost of sales740,337 774,513 2,281,298 2,253,651 
Gross profit74,050 82,881 244,329 223,516 
Selling and administrative expenses36,439 37,028 107,136 114,517 
Restructuring and impairment charges1,238  3,267 6,003 
Operating income36,373 45,853 133,926 102,996 
Other income (expense):
Interest expense(3,190)(3,988)(11,094)(11,934)
Interest income308 368 1,072 1,546 
Miscellaneous, net(579)(600)(2,922)(2,619)
Income before income taxes32,912 41,633 120,982 89,989 
Income tax expense5,303 5,791 15,411 10,215 
Net income$27,609 $35,842 $105,571 $79,774 
Earnings per share:
Basic$0.97 $1.23 $3.68 $2.73 
Diluted$0.95 $1.20 $3.60 $2.66 
Weighted average shares outstanding:
Basic28,529 29,199 28,708 29,210 
Diluted29,068 29,793 29,298 29,936 
Comprehensive income:
Net income$27,609 $35,842 $105,571 $79,774 
Other comprehensive income (loss):
Derivative instrument fair value adjustment(1,218)3,178 (1,719)(1,138)
     Foreign currency translation adjustments1,434 5,586 6,730 3,463 
          Other comprehensive income216 8,764 5,011 2,325 
Total comprehensive income$27,825 $44,606 $110,582 $82,099 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited
July 3,
2021
October 3, 2020
ASSETS
Current assets:
Cash and cash equivalents$303,255 $385,807 
Restricted cash4,242 2,087 
Accounts receivable, net of allowances of $1,623 and $3,597, respectively
469,352 482,086 
Contract assets114,022 113,946 
Inventories, net 874,718 763,461 
Prepaid expenses and other46,151 31,772 
Total current assets1,811,740 1,779,159 
Property, plant and equipment, net380,545 383,661 
Operating lease right-of-use assets66,838 69,879 
Deferred income taxes25,015 21,422 
Other assets37,299 35,727 
Total non-current assets509,697 510,689 
Total assets$2,321,437 $2,289,848 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease obligations$60,468 $146,829 
Accounts payable579,571 516,297 
Customer deposits179,831 159,972 
Accrued salaries and wages67,943 76,927 
Other accrued liabilities113,746 103,492 
Total current liabilities1,001,559 1,003,517 
Long-term debt and finance lease obligations, net of current portion187,690 187,975 
Long-term accrued income taxes payable47,974 53,899 
Long-term operating lease liabilities33,193 36,779 
Deferred income taxes payable6,475 6,433 
Other liabilities24,096 23,765 
Total non-current liabilities299,428 308,851 
Total liabilities1,300,987 1,312,368 
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or outstanding
  
Common stock, $0.01 par value, 200,000 shares authorized, 53,848 and 53,525 shares issued, respectively, and 28,377 and 29,002 shares outstanding, respectively
538 535 
Additional paid-in capital633,151 621,564 
Common stock held in treasury, at cost, 25,471 and 24,523 shares, respectively
(1,013,841)(934,639)
Retained earnings1,400,650 1,295,079 
Accumulated other comprehensive loss(48)(5,059)
Total shareholders’ equity1,020,450 977,480 
Total liabilities and shareholders’ equity$2,321,437 $2,289,848 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Unaudited
Three Months EndedNine Months Ended
July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Common stock - shares outstanding
Beginning of period28,659 29,186 29,002 29,004 
Exercise of stock options and vesting of other share-based awards10 28 323 526 
Treasury shares purchased(292) (948)(316)
End of period28,377 29,214 28,377 29,214 
Total stockholders' equity, beginning of period$1,013,952 $892,558 $977,480 $865,576 
Common stock - par value
Beginning of period538 534 535 529 
Exercise of stock options and vesting of other share-based awards  3 5 
End of period538 534 538 534 
Additional paid-in capital
Beginning of period627,176 607,446 621,564 597,401 
Share-based compensation expense5,860 6,542 17,682 17,367 
Exercise of stock options and vesting of other share-based awards, including tax withholding115 1,115 (6,095)335 
End of period633,151 615,103 633,151 615,103 
Treasury stock
Beginning of period(986,539)(912,731)(934,639)(893,247)
Treasury shares purchased(27,302) (79,202)(19,484)
End of period(1,013,841)(912,731)(1,013,841)(912,731)
Retained earnings
Beginning of period1,373,041 1,221,532 1,295,079 1,178,677 
Net income27,609 35,842 105,571 79,774 
Cumulative effect adjustment for adoption of new accounting pronouncement (1)— — — (1,077)
End of period1,400,650 1,257,374 1,400,650 1,257,374 
Accumulated other comprehensive loss
Beginning of period(264)(24,223)(5,059)(17,784)
Other comprehensive income216 8,764 5,011 2,325 
End of period(48)(15,459)(48)(15,459)
Total stockholders' equity, end of period$1,020,450 $944,821 $1,020,450 $944,821 

(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.
5

Table of Contents
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
Nine Months Ended
July 3,
2021
July 4,
2020
Cash flows from operating activities
Net income$105,571 $79,774 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization45,785 42,216 
Deferred income taxes(1,032)2,560 
Share-based compensation expense and related charges18,047 17,367 
Provision for allowance for doubtful accounts(2,405)3,155 
Asset impairment charges 3,054 
Other, net1,538 491 
Changes in operating assets and liabilities:
Accounts receivable18,134 (32,299)
Contract assets(66)(25,224)
Inventories(107,066)(116,810)
Other current and non-current assets(19,161)1,758 
Accrued income taxes payable(14,533)(15,202)
Accounts payable62,315 111,634 
Customer deposits18,871 32,962 
Other current and non-current liabilities5,514 (12,917)
Cash flows provided by operating activities131,512 92,519 
Cash flows from investing activities
Payments for property, plant and equipment(34,384)(41,223)
Proceeds from sales of property, plant and equipment244 886 
Other, net(200)(200)
Cash flows used in investing activities(34,340)(40,537)
Cash flows from financing activities
Borrowings under debt agreements242,687 595,240 
Payments on debt and finance lease obligations(336,536)(554,077)
Debt issuance costs (699)
Repurchases of common stock(79,202)(19,484)
Proceeds from exercise of stock options3,555 10,965 
Payments related to tax withholding for share-based compensation(9,647)(10,625)
Cash flows (used in) provided by financing activities(179,143)21,320 
Effect of exchange rate changes on cash and cash equivalents1,574 87 
Net (decrease) increase in cash and cash equivalents and restricted cash(80,397)73,389 
Cash and cash equivalents and restricted cash:
Beginning of period387,894 226,254 
End of period$307,497 $299,643 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 3, 2021 AND JULY 4, 2020
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 July 3, 2021 and October 3, 2020, the results of operations and shareholders' equity for the three and nine months ended July 3, 2021 and July 4, 2020, and the cash flows for the same nine 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. 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 2020 Annual Report on Form 10-K.
Certain prior period amounts have been reclassified to conform to the current period presentation.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and notes thereto. The full extent to which the COVID-19 outbreak will impact the Company's business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted. The Company has considered information available as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
Recently Adopted Accounting Pronouncements:
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. The Company adopted this guidance during the first quarter of fiscal 2021 with no material impact to the Company's Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02 ("Topic 842"), which 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 similar manner. Topic 842 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 adopted Topic 842 using the modified retrospective method of adoption, which allows financial information for comparative periods prior to adoption not to be updated. Upon adoption, the Company recognized a $1.1 million reduction in 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.
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.
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Recently Issued Accounting Pronouncements Not Yet Adopted:
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 July 3, 2021 and October 3, 2020 consisted of the following (in thousands):
July 3,
2021
October 3,
2020
Raw materials$754,762 $630,833 
Work-in-process44,397 53,602 
Finished goods75,559 79,026 
Total inventories, net$874,718 $763,461 
In certain circumstances, per contractual terms, customer deposits are received by the Company to offset inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of July 3, 2021 and October 3, 2020 were $175.4 million and $154.6 million, respectively.

3.    Debt, Finance Lease and Other Financing Obligations
Debt, finance lease and other financing obligations as of July 3, 2021 and October 3, 2020, consisted of the following (in thousands):
July 3,
2021
October 3,
2020
4.05% Senior Notes, due June 15, 2025
$100,000 $100,000 
4.22% Senior Notes, due June 15, 2028
50,000 50,000 
Borrowings under the revolving commitment50,000  
Term Loans, due April 28, 2021138,000 
Finance lease and other financing obligations49,164 48,435 
Unamortized deferred financing fees(1,006)(1,631)
 Total obligations248,158 334,804 
Less: current portion(60,468)(146,829)
 Long-term debt, finance lease and other financing obligations, net of current portion$187,690 $187,975 
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 July 3, 2021, the Company was in compliance with the covenants under the 2018 NPA.
On May 15, 2019, the Company refinanced its then-existing senior unsecured revolving credit facility by entering into a new 5-year senior unsecured revolving credit facility (referred to as the "Credit Facility"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment under the Credit Facility may be further increased to $600.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the nine months ended July 3, 2021, the highest daily borrowing was $148.0 million and the average daily borrowings were $59.8 million. The Company borrowed $243.0 million and repaid $193.0 million of revolving borrowings ("revolving commitment") under the Credit Facility during the nine months
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ended July 3, 2021. As of July 3, 2021, the Company was in compliance with all financial covenants relating to the Credit 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 revolving commitment based on the Company's leverage ratio; the fee was 0.10% as of July 3, 2021.
To further ensure the Company's ability to meet its working capital and fixed capital requirements, on April 29, 2020, the Company entered into Amendment No. 1 to the Credit Agreement (the "Amendment") in response to the COVID-19 outbreak, which amended the Credit Agreement, dated as of May 15, 2019. The Amendment modified certain provisions of the Credit Facility to, among other things, provide for a 364 day unsecured delayed draw term loans ("Term Loans") for $138.0 million. Term Loans borrowed under the new facility were funded in a single draw on May 4, 2020 and were scheduled to mature on April 28, 2021. On January 29, 2021, the Company terminated the Term Loans through repayment of the $138.0 million outstanding using borrowings from the revolving commitment under the Credit Facility. Outstanding Term Loans bore interest, at the Company’s option, at a eurocurrency rate (subject to a floor of 1.0%) plus a margin of 1.75% per annum or at a base rate (subject to a floor of 2.0%) plus a margin of 0.75% per annum.
The fair value of the Company’s debt, excluding finance lease and other financing obligations, was $212.0 million and $299.3 million as of July 3, 2021 and October 3, 2020, respectively. The carrying value of the Company's debt, excluding finance lease and other financing obligations, was $200.0 million and $288.0 million as of July 3, 2021 and October 3, 2020, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives and Fair Value Measurements," for further information regarding the Company's fair value calculations and classifications.

4.    Derivatives and Fair Value Measurements
All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations, in addition to non-designated hedges to manage foreign currency exposures associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes.
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 $0.5 million of unrealized losses, 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.
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 $107.2 million as of July 3, 2021, and a notional value of $96.8 million as of October 3, 2020. 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 $0.5 million liability as of July 3, 2021, and a $1.2 million asset as of October 3, 2020.
The Company had additional forward currency exchange contracts outstanding as of July 3, 2021, with a notional value of $30.4 million; there were $15.8 million of such contracts outstanding as of October 3, 2020. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income. The total fair value of these derivatives was a $0.3 million liability as of July 3, 2021, and a less than $0.1 million asset as of October 3, 2020.



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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 AssetsDerivative Liabilities
    July 3,
2021
October 3,
2020
  July 3,
2021
October 3,
2020
Derivatives designated as hedging instrumentsBalance sheet
classification
Fair ValueFair ValueBalance sheet
classification
Fair ValueFair Value
Foreign currency forward contractsPrepaid expenses and other$506 $1,830 Other accrued liabilities$1,036 $641 
Fair Values of Derivative Instruments (in thousands)
  Derivative AssetsDerivative Liabilities
    July 3,
2021
October 3,
2020
  July 3,
2021
October 3,
2020
Derivatives not designated as hedging instrumentsBalance sheet
classification
Fair ValueFair ValueBalance sheet
classification
Fair ValueFair Value
Foreign currency forward contractsPrepaid expenses and other$36 $70 Other accrued liabilities$369 $58 
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss ("OCL") (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationshipsAmount of Gain Recognized in OCL on Derivatives
July 3, 2021July 4, 2020
Foreign currency forward contracts$164 $1,990 
Derivative Impact on Gain (Loss) Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationshipsClassification of Gain (Loss) Reclassified from Accumulated OCL into IncomeAmount of Gain (Loss) Reclassified from Accumulated OCL into Income 
July 3, 2021July 4, 2020
Foreign currency forward contractsCost of sales$1,290 $(1,102)
Foreign currency forward contractsSelling and administrative expenses$92 $(86)
Derivatives not designated as hedging instrumentsLocation of Gain Recognized on Derivatives in IncomeAmount of Gain on Derivatives Recognized in Income
July 3, 2021July 4, 2020
Foreign currency forward contractsMiscellaneous, net$83 $166 
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss ("OCL") (in thousands)
for the Nine Months Ended
Derivatives in cash flow hedging relationshipsAmount of Gain (Loss) Recognized in OCL on Derivatives
July 3, 2021July 4, 2020
Foreign currency forward contracts$1,575 $(2,150)
Derivative Impact on Gain (Loss) Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Nine Months Ended
Derivatives in cash flow hedging relationshipsClassification of Gain (Loss) Reclassified from Accumulated OCL into IncomeAmount of Gain (Loss) Reclassified from Accumulated OCL into Income 
July 3, 2021July 4, 2020
Foreign currency forward contractsCost of sales$3,031 $(925)
Foreign currency forward contractsSelling and administrative expenses$263 $(87)
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Derivatives not designated as hedging instrumentsLocation of Gain (Loss) Recognized on Derivatives in IncomeAmount of Gain (Loss) on Derivatives Recognized in Income
July 3, 2021July 4, 2020
Foreign currency forward contractsMiscellaneous, net$380 $(467)
Fair Value Measurements:
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:
Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
The following table lists the fair values of liabilities and assets of the Company’s derivatives as of July 3, 2021 and October 3, 2020, by input level:
Fair Value Measurements Using Input Levels (Liability)/Asset (in thousands)
July 3, 2021
Level 1Level 2Level 3Total
Derivatives    
Foreign currency forward contracts$ $(863)$ $(863)
October 3, 2020
Derivatives
Foreign currency forward contracts$ $1,201 $ $1,201 
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.

5.    Income Taxes
Income tax expense for the three and nine months ended July 3, 2021 was $5.3 million and $15.4 million, respectively, compared to $5.8 million and $10.2 million for the three and nine months ended July 4, 2020, respectively.
The effective tax rates for the three and nine months ended July 3, 2021 were 16.1% and 12.7%, respectively, compared to the effective tax rates of 13.9% and 11.4% for the three and nine months ended July 4, 2020. The effective tax rate for the three and nine months ended July 3, 2021 increased from the effective tax rate for the three and nine months ended July 4, 2020, primarily due to the geographic distribution of pre-tax book income and a net $0.8 million benefit for 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 as of July 3, 2021. 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 nine months ended July 3, 2021 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
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not currently under examination by taxing authorities in the U.S. The Company is under audit in various foreign jurisdictions 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 July 3, 2021, 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 nine months ended July 3, 2021 and July 4, 2020 (in thousands, except per share amounts):
Three Months EndedNine Months Ended
 July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Net income$27,609 $35,842 $105,571 $79,774 
Basic weighted average common shares outstanding28,529 29,199 28,708 29,210 
Dilutive effect of share-based awards and options outstanding539 594 590 726 
Diluted weighted average shares outstanding29,068 29,793 29,298 29,936 
Earnings per share:
Basic$0.97 $1.23 $3.68 $2.73 
Diluted$0.95 $1.20 $3.60 $2.66 
For the three and nine months ended July 3, 2021, share-based awards for less than 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.
For the three and nine months ended July 4, 2020, share-based awards for approximately 0.3 million and 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.
See also Note 12, "Shareholders' Equity," for information regarding the Company's share repurchase plans.

7.    Leases
The components of lease expense for the three and nine months and ended July 3, 2021 and July 4, 2020 were as follows (in thousands):
Three Months EndedNine Months Ended
July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Finance lease expense:
   Amortization of right-of-use assets$1,541 $951 $4,692 $3,220 
   Interest on lease liabilities1,229 1,236 3,669 3,738 
Operating lease expense2,697 2,898 8,146 8,977 
Other lease expense1,024 957 3,543 2,216 
Total$6,491 $6,042 $20,050 $18,151 
Based on the nature of the ROU asset, amortization of finance ROU 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
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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 (in thousands):
Financial Statement Line ItemJuly 3, 2021October 3, 2020
ASSETS
   Finance lease assetsProperty, plant and equipment, net$39,655 $36,408 
   Operating lease assetsOperating lease right-of-use assets66,838 69,879 
      Total lease assets$106,493 $106,287 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
  Finance lease liabilitiesCurrent portion of long-term debt and finance lease obligations$4,753 $2,700 
  Operating lease liabilitiesOther accrued liabilities9,130 7,724 
Non-current
  Finance lease liabilitiesLong-term debt and finance lease obligations, net of current portion37,355 37,033 
  Operating lease liabilitiesLong-term operating lease liabilities33,193 36,779 
        Total lease liabilities$84,431 $84,236 


8.    Share-Based Compensation
The Company recognized $6.3 million and $18.1 million of compensation expense associated with share-based awards for the three and nine months ended July 3, 2021, respectively, and $6.6 million and $17.4 million for the three and nine months ended July 4, 2020, respectively.
Performance stock units ("PSUs") are payable in shares of the Company's common stock. For PSUs issued in fiscal year 2020 and earlier, the 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 performance period of three years, a performance condition. In the first quarter of fiscal 2021, the Company updated the market condition for PSUs based on TSR to the S&P 400 index for all future PSU grants, including those granted in 2021. 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. The number of shares that may be issued pursuant to PSU grants that have not fully vested ranges from zero to 0.4 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.

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.

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
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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 Company operates in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East, and Africa ("EMEA"). 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, restructuring and impairment charges 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 reportable segments for the three and nine months ended July 3, 2021 and July 4, 2020, respectively, is as follows (in thousands):
Three Months EndedNine Months Ended
 July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Net sales:
AMER$318,898 $305,941 $1,011,162 $993,871 
APAC446,915 482,267 1,357,089 1,321,254 
EMEA76,519 91,846 238,564 250,326 
Elimination of inter-segment sales(27,945)(22,660)(81,188)(88,284)
$814,387 $857,394 $2,525,627 $2,477,167 
  
Operating income (loss):
AMER$9,191 $8,516 $51,876 $21,102 
APAC57,068 66,297 176,722 178,549 
EMEA58 1,115 (2,548)257 
Corporate and other expenses(29,944)(30,075)(92,124)(96,912)
$36,373 $45,853 $133,926 $102,996 
Other income (expense):
Interest expense$(3,190)$(3,988)$(11,094)$(11,934)
Interest income308 368 1,072 1,546 
Miscellaneous, net(579)(600)(2,922)(2,619)
Income before income taxes$32,912 $41,633 $120,982 $89,989 
  
 July 3,
2021
October 3,
2020
Total assets:
AMER$756,076 $759,030 
APAC1,188,842 1,073,951 
EMEA270,103 279,757 
Corporate and eliminations106,416 177,110 
$2,321,437 $2,289,848 
  

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 intellectual
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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 other than 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 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 nine months ended July 3, 2021 and July 4, 2020 (in thousands):
Nine Months Ended
July 3,
2021
July 4,
2020
Reserve balance, beginning of period$6,386 $6,276 
Accruals for warranties issued during the period2,102 2,323 
Settlements (in cash or in kind) during the period(2,434)(1,712)
Reserve balance, end of period$6,054 $6,887 


12.    Shareholders' Equity
On August 20, 2019, the Board of Directors approved a share repurchase plan under which the Company is authorized to repurchase $50.0 million of its common stock (the "2019 Program"). During the nine months ended July 3, 2021, the Company completed the 2019 Program by repurchasing 73,560 shares under this program for $5.3 million and at an average price of $72.44. During the three months ended July 4, 2020, the Company had no share repurchases under the 2019 Program. During the nine months ended July 4, 2020, the Company repurchased 315,231 shares under this program for $19.5 million at an average price of $61.81 per share.
On August 13, 2020, the Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its common stock (the "2021 Program") beginning upon expiration of the Company’s 2019 Program. On November 18, 2020, the Board of Directors approved an additional $50.0 million in share repurchase authority under the existing 2021 Program such that there now exists a total of $100.0 million in share repurchase authority under the program. During the three months ended July 3, 2021, the Company repurchased 291,898 shares under this program for $27.3 million at an average price of $93.53 per share. During the nine months ended July 3, 2021, the Company repurchased 874,706 shares under this program for $73.9 million at an average price of $84.45 per share. As of July 3, 2021, $26.1 million of authority remained under the 2021 Program. The 2021 Program has no expiration.
All shares repurchased under the aforementioned programs were recorded as treasury stock.



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13.    Trade Accounts Receivable Sale Programs
The Company has Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (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. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of July 3, 2021 is $340.0 million. The maximum facility amount under the HSBC RPA as of July 3, 2021 is $60.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The contract length terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.
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 $180.6 million and $189.9 million of trade accounts receivable under these programs, or their predecessors, during the three months ended July 3, 2021 and July 4, 2020, respectively, in exchange for cash proceeds of $180.1 million and $189.4 million, respectively.
The Company sold $574.6 million and $606.0 million of trade accounts receivable under these programs, or their predecessors, during the nine months ended July 3, 2021 and July 4, 2020, respectively, in exchange for cash proceeds of $573.0 million and $603.4 million, respectively.

14.    Revenue from Contracts with Customers
Significant Judgments
Revenue is 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 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 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.
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.
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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.
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 table below includes the Company’s revenue for the three and nine months ended July 3, 2021 and July 4, 2020, disaggregated by geographic reportable segment and market sector (in thousands):
Three Months Ended
 July 3, 2021
Reportable Segment:
AMERAPACEMEATotal
Market Sector:
Industrial$109,672 $243,121 $19,126 $371,919 
Healthcare/Life Sciences