Company Quick10K Filing
Plexus
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 31 $1,781
10-Q 2020-02-07 Quarter: 2020-01-04
10-K 2019-11-15 Annual: 2019-09-28
10-Q 2019-08-02 Quarter: 2019-06-29
10-Q 2019-05-03 Quarter: 2019-03-30
10-Q 2019-02-01 Quarter: 2018-12-29
10-K 2018-11-16 Annual: 2018-09-29
10-Q 2018-08-03 Quarter: 2018-06-30
10-Q 2018-05-04 Quarter: 2018-03-31
10-Q 2018-02-02 Quarter: 2017-12-30
10-K 2017-11-17 Annual: 2017-09-30
10-Q 2017-08-04 Quarter: 2017-07-01
10-Q 2017-05-05 Quarter: 2017-04-01
10-Q 2017-02-03 Quarter: 2016-12-31
10-K 2016-11-18 Annual: 2016-10-01
10-Q 2016-08-08 Quarter: 2016-07-02
10-Q 2016-05-06 Quarter: 2016-04-02
10-Q 2016-02-08 Quarter: 2016-01-02
10-K 2015-11-20 Annual: 2015-10-03
10-Q 2015-08-07 Quarter: 2015-07-04
10-Q 2015-05-11 Quarter: 2015-04-04
10-Q 2015-02-11 Quarter: 2015-01-03
10-K 2014-11-17 Annual: 2014-09-27
10-Q 2014-07-31 Quarter: 2014-06-28
10-Q 2014-05-01 Quarter: 2014-03-29
10-Q 2014-01-31 Quarter: 2013-12-28
10-K 2013-11-22 Annual: 2013-09-28
10-Q 2013-08-01 Quarter: 2013-06-29
10-Q 2013-05-02 Quarter: 2013-03-30
10-Q 2013-02-01 Quarter: 2012-12-29
10-K 2012-11-19 Annual: 2012-09-29
10-Q 2012-08-02 Quarter: 2012-06-30
10-Q 2012-05-03 Quarter: 2012-03-31
10-Q 2012-02-02 Quarter: 2011-12-31
10-K 2011-11-17 Annual: 2011-10-01
10-Q 2011-08-05 Quarter: 2011-07-02
10-Q 2011-05-05 Quarter: 2011-04-02
10-Q 2011-02-04 Quarter: 2011-01-01
10-K 2010-11-19 Annual: 2010-10-02
10-Q 2010-08-06 Quarter: 2010-07-03
10-Q 2010-05-04 Quarter: 2010-04-03
10-Q 2010-02-04 Quarter: 2010-01-02
8-K 2020-02-12 Shareholder Vote
8-K 2020-01-22 Earnings, Exhibits
8-K 2019-08-20 Regulation FD, Exhibits
8-K 2019-07-17 Earnings, Exhibits
8-K 2019-05-15 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-02-13 Shareholder Vote
8-K 2019-01-16 Earnings, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-06-15 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-03-13 Officers, Amend Bylaw, Exhibits
8-K 2018-02-14 Shareholder Vote
8-K 2018-01-17 Earnings, Exhibits
PLXS 2020-01-04
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 plxsq1f20exhibit101.htm
EX-31.1 plxsq1f20exhibit311.htm
EX-31.2 plxsq1f20exhibit312.htm
EX-32.1 plxsq1f20exhibit321.htm
EX-32.2 plxsq1f20exhibit322.htm
EX-99.1 plxsq1f20exhibit991.htm

Plexus Earnings 2020-01-04

PLXS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
AVX 2,744 2,849 421 1,739 475 271 418 2,414 27% 5.8 9%
VSH 2,675 3,181 1,729 3,063 894 360 624 2,512 29% 4.0 11%
SANM 2,107 4,020 2,392 8,218 571 123 349 2,078 7% 5.9 3%
ITRI 1,843 2,706 1,960 2,433 752 64 264 2,321 31% 8.8 2%
PLXS 1,781 2,016 1,155 3,227 287 145 177 1,902 9% 10.8 7%
MEI 1,384 1,269 555 1,047 282 96 158 1,594 27% 10.1 8%
KEM 1,097 1,391 714 1,400 248 212 255 1,189 18% 4.7 15%
TTMI 1,074 3,440 2,211 2,720 426 80 398 2,290 16% 5.8 2%
BHE 969 1,828 783 2,562 215 65 165 715 8% 4.3 4%
CTS 912 581 185 477 167 51 90 806 35% 9.0 9%

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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 January 4, 2020
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
____________________________________________________________________________________________________________________________________
plxslogoq1f20.gif
PLEXUS CORP.
(Exact name of registrant as specified in charter)
____________________________________________________________________________________________________________________________________
Wisconsin
 
39-1344447
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
One Plexus Way
Neenah, Wisconsin 54957
(Address of principal executive offices) (Zip Code)
Telephone Number (920969-6000
(Registrant’s telephone number, including Area Code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value
PLXS
The Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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 February 4, 2020, there were 29,355,176 shares of common stock outstanding.    


Table of Contents

PLEXUS CORP.
TABLE OF CONTENTS
January 4, 2020
 
 
 


Table of Contents

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
 
 
January 4,
2020
 
December 29,
2018
Net sales
 
$
852,409

 
$
765,544

Cost of sales
 
773,219

 
693,161

Gross profit
 
79,190

 
72,383

Selling and administrative expenses
 
39,256

 
35,432

Operating income
 
39,934

 
36,951

Other income (expense):
 
 
 
 
Interest expense
 
(4,132
)
 
(2,249
)
Interest income
 
645

 
525

Miscellaneous, net
 
(2,173
)
 
(1,112
)
Income before income taxes
 
34,274

 
34,115

Income tax expense
 
3,268

 
11,889

Net income
 
$
31,006

 
$
22,226

Earnings per share:
 
 
 
 
Basic
 
$
1.06

 
$
0.71

Diluted
 
$
1.03

 
$
0.69

Weighted average shares outstanding:
 
 
 
 
Basic
 
29,147

 
31,403

Diluted
 
30,065

 
32,286

Comprehensive income:
 
 
 
 
Net income
 
$
31,006

 
$
22,226

Other comprehensive income (loss) :
 
 
 
 
Derivative instrument fair value adjustment
 
2,223

 
378

     Foreign currency translation adjustments
 
5,204

 
(1,871
)
          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.


3

Table of Contents

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited

 
 
January 4,
2020
 
September 28,
2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
252,914

 
$
223,761

Restricted cash
 
2,208

 
2,493

Accounts receivable, net of allowances of $1,194 and $1,537, respectively
 
461,705

 
488,284

Contract assets
 
107,040

 
90,841

Inventories, net
 
735,803

 
700,938

Prepaid expenses and other
 
33,719

 
31,974

Total current assets
 
1,593,389

 
1,538,291

Property, plant and equipment, net
 
387,509

 
384,224

Operating lease right-of-use assets
 
79,318

 

Deferred income taxes
 
14,127

 
13,654

Other assets
 
35,761

 
64,714

Total non-current assets
 
516,715

 
462,592

Total assets
 
$
2,110,104

 
$
2,000,883

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt and finance lease obligations
 
$
67,847

 
$
100,702

Accounts payable
 
515,484

 
444,944

Customer deposits
 
137,014

 
139,841

Accrued salaries and wages
 
52,527

 
73,555

Other accrued liabilities
 
116,979

 
106,461

Total current liabilities
 
889,851

 
865,503

Long-term debt and finance lease obligations, net of current portion
 
186,827

 
187,278

Long-term accrued income taxes payable
 
59,572

 
59,572

Long-term operating lease liabilities
 
41,764

 

Deferred income taxes payable
 
6,463

 
5,305

Other liabilities
 
17,255

 
17,649

Total non-current liabilities
 
311,881

 
269,804

Total liabilities
 
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, 53,226 and 52,917 shares issued, respectively, and 29,222 and 29,004 shares outstanding, respectively
 
532

 
529

Additional paid-in capital
 
609,168

 
597,401

Common stock held in treasury, at cost, 24,004 and 23,913 shares, respectively
 
(899,577
)
 
(893,247
)
Retained earnings
 
1,208,606

 
1,178,677

Accumulated other comprehensive loss
 
(10,357
)
 
(17,784
)
Total shareholders’ equity
 
908,372

 
865,576

Total liabilities and shareholders’ equity
 
$
2,110,104

 
$
2,000,883

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

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PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Unaudited

 
 
Three Months Ended
 
 
January 4,
2020
 
December 29,
2018
Common stock - shares outstanding
 
 
 
 
Beginning of period
 
29,004

 
31,838

Exercise of stock options and vesting of other stock awards
 
309

 
24

Treasury shares purchased
 
(91
)
 
(870
)
End of period
 
29,222

 
30,992

 
 
 
 
 
Total stockholders' equity, beginning of period
 
$
865,576

 
$
921,143

Common stock - par value
 
 
 
 
Beginning of period
 
529

 
526

Exercise of stock options and vesting of other stock awards
 
3

 

End of period
 
532

 
526

Additional paid-in capital
 
 
 
 
Beginning of period
 
597,401

 
581,488

Stock-based compensation expense
 
5,046

 
4,753

Exercise of stock options and vesting of other stock awards, including tax benefits
 
6,721

 
770

End of period
 
609,168

 
587,011

Treasury stock
 
 
 
 
Beginning of period
 
(893,247
)
 
(711,138
)
Treasury shares purchased
 
(6,330
)
 
(50,051
)
End of period
 
(899,577
)
 
(761,189
)
Retained earnings
 
 
 
 
Beginning of period
 
1,178,677

 
1,062,246

Net income
 
31,006

 
22,226

Cumulative effect adjustment for adoption of new accounting pronouncements (1)
 
(1,077
)
 
7,815

End of period
 
1,208,606

 
1,092,287

Accumulated other comprehensive (loss) income
 
 
 
 
Beginning of period
 
(17,784
)
 
(11,979
)
Other comprehensive income (loss)
 
7,427

 
(1,493
)
End of period
 
(10,357
)
 
(13,472
)
Total stockholders' equity, end of period
 
$
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.

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PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited

 
 
Three Months Ended
 
 
January 4,
2020
 
December 29,
2018
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
 
13,965

 
12,574

Deferred income taxes
 
1,666

 
943

Share-based compensation expense
 
5,046

 
4,753

Other, net
 
57

 
51

Changes in operating assets and liabilities, excluding impacts of acquisition:
 
 
 
 
Accounts receivable
 
28,746

 
(34,240
)
Contract assets
 
(15,864
)
 
(6,339
)
Inventories
 
(31,626
)
 
(74,344
)
Other current and noncurrent assets
 
(2,829
)
 
(2,221
)
Accrued income taxes payable
 
(2,898
)
 
10,811

Accounts payable
 
64,965

 
7,928

Customer deposits
 
(3,382
)
 
22,050

Other current and noncurrent liabilities
 
(14,140
)
 
2,467

Cash flows provided by (used in) operating activities
 
74,712

 
(33,341
)
Cash flows from investing activities
 
 
 
 
Payments for property, plant and equipment
 
(13,675
)
 
(24,903
)
Proceeds from sales of property, plant and equipment
 
283

 
49

Business acquisition
 

 
1,180

Cash flows used in investing activities
 
(13,392
)
 
(23,674
)
Cash flows from financing activities
 
 
 
 
Borrowings under debt agreements
 
157,020

 
231,500

Payments on debt and finance lease obligations
 
(190,470
)
 
(229,469
)
Repurchases of common stock
 
(6,330
)
 
(50,051
)
Proceeds from exercise of stock options
 
9,850

 
796

Payments related to tax withholding for share-based compensation
 
(3,126
)
 
(26
)
Cash flows used in financing activities
 
(33,056
)
 
(47,250
)
Effect of exchange rate changes on cash and cash equivalents
 
604

 
(548
)
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
 
226,254

 
297,686

End of period
 
$
255,122

 
$
192,873

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


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PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 4, 2020 AND 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 January 4, 2020 and September 28, 2019, the results of operations and shareholders' equity for the three months ended January 4, 2020 and December 29, 2018, and the cash flows for the same three month periods.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. 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 2019 Annual Report on Form 10-K.
Recently Adopted Accounting Pronouncements:
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"). 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 balance of $7.8 million.
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 manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. 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 adopted Topic 842 using the modified retrospective method of adoption, which allows financial information for comparative periods prior to adoption not to be updated. The Company recognized right-of-use assets and operating lease liabilities on its Consolidated 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 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

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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 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.
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 January 4, 2020 and September 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


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 January 4, 2020 and September 28, 2019 was $134.0 million and $136.5 million, respectively.

3.    Debt, Finance Lease Obligations and Other Financing
Debt, finance lease obligations and other financing as of January 4, 2020 and September 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


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

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or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of January 4, 2020, 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 (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"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment under the Credit Facility may be further increased to $600.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the three months ended January 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 during the three months ended January 4, 2020. As of January 4, 2020, 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 revolver credit commitment based on the Company's leverage ratio; the fee was 0.125% as of January 4, 2020.
The fair value of the Company’s debt, excluding finance leases, was $219.4 million and $252.3 million as of January 4, 2020 and September 28, 2019, respectively. The carrying value of the Company's debt, excluding finance leases, was $212.0 million and $245.0 million as of January 4, 2020 and September 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 $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 $79.8 million as of January 4, 2020, and $80.0 million as of September 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 $1.6 million asset as of January 4, 2020, and a $0.6 million liability as of September 28, 2019.
The Company had additional forward currency exchange contracts outstanding as of January 4, 2020, with a notional value of $17.2 million; there were $34.4 million such contracts outstanding as of September 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." The total fair value of these derivatives was a $0.1 million asset as of January 4, 2020, and a $0.9 million asset as of September 28, 2019.






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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 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
 
Fair Value
 
Balance Sheet
Classification
 
Fair Value
 
Fair Value
Forward currency forward contracts
 
Prepaid expenses and other
 
$
1,581

 
$
156

 
Other accrued liabilities
 
$

 
$
798


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
 
Fair Value
 
Balance Sheet
Classification
 
Fair Value
 
Fair Value
Forward currency forward contracts
 
Prepaid expenses and other
 
$
81

 
$
912

 
Other accrued liabilities
 
$
72

 
$
54


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
 
January 4, 2020
 
December 29, 2018
Forward currency forward contracts
 
$
2,185

 
$
(388
)

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
 
 
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
)

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


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.

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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 January 4, 2020 and September 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


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 months ended January 4, 2020 was $3.3 million compared to $11.9 million for the three months ended December 29, 2018.
The effective tax rates for the three months ended January 4, 2020 and December 29, 2018 were 9.5% and 34.9%, respectively. The effective tax rate for the three months ended January 4, 2020 decreased from the effective tax rate for the three months ended December 29, 2018, primarily due to the additional impact of the U.S. Tax Cuts & Jobs Act of $7.0 million recorded during the three months ended December 29, 2018. The Company also recorded a $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 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 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 months ended 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. 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 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.







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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 months ended January 4, 2020 and 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


For the three months ended January 4, 2020 there were no 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.
See also Note 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.






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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.


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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



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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 $5.0 million and $4.8 million of compensation expense associated with share-based awards for the three months ended January 4, 2020 and December 29, 2018, respectively.
The Company uses the Black-Scholes valuation model to determine the fair value of stock options and stock-settled 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. The number of shares that may be issued pursuant to PSUs ranges from zero 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.




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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.

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 reportable segments for the three months ended January 4, 2020 and December 29, 2018, respectively, is as follows (in thousands):
 
 
Three Months Ended
 
 
January 4,
2020
 
December 29,
2018
Net sales:
 
 
 
 
AMER
 
$
353,476

 
$
353,867

APAC
 
451,142

 
378,112

EMEA
 
84,477

 
72,298

Elimination of inter-segment sales
 
(36,686
)
 
(38,733
)
 
 
$
852,409

 
$
765,544

 
 
 
 
 
Operating income (loss):
 
 
 
 
AMER
 
$
12,297

 
$
14,450

APAC
 
62,378

 
51,811

EMEA
 
(314
)
 
996

Corporate and other costs
 
(34,427
)
 
(30,306
)
 
 
$
39,934

 
$
36,951

Other income (expense):
 
 
 
 
Interest expense
 
$
(4,132
)
 
$
(2,249
)
Interest income
 
645

 
525

Miscellaneous, net
 
(2,173
)
 
(1,112
)
Income before income taxes
 
$
34,274

 
$
34,115

 
 
 
 
 



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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

 
 
 
 
 


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 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 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 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 three months ended January 4, 2020 and 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



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.

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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 was authorized to repurchase $200.0 million of its common stock (the "2018 Program"). During the three months ended December 29, 2018, the Company repurchased 869,949 shares under the 2018 Program program for $50.1 million, at an average price of $57.53 per share. The 2018 Program was completed during the fiscal fourth quarter of 2019, when all share repurchase authority under it was exhausted.
All shares repurchased under the aforementioned programs were recorded as treasury stock.

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 MUFG RPA was amended on December 23, 2019 to increase the maximum facility amount from $280.0 million to $340.0 million. The maximum facility amount under the HSBC RPA as of January 4, 2020 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 terms of the HSBC RPA are generally consistent with the terms of the MUFG 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 $227.8 million and $232.5 million of trade accounts receivable under these programs during the three months ended January 4, 2020 and December 29, 2018, respectively, in exchange for cash proceeds of $226.6 million and $231.2 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.

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Table of Contents

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.
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 months ended January 4, 2020 and December 29, 2018, respectively, disaggregated by geographic reportable segment and market sector (in thousands):
 
 
Three Months Ended
January 4, 2020
 
 
Reportable Segment:
 
 
AMER
 
APAC
 
EMEA
 
Total
Market Sector:
 
 
 
 
 
 
 
 
Healthcare/Life Sciences
 
$
124,196

 
$
149,725

 
$
38,366

 
$
312,287

Industrial/Commercial
 
91,921

 
199,346

 
18,733

 
310,000

Aerospace/Defense
 
105,489

 
43,249

 
23,384

 
172,122

Communications
 
27,966

 
28,691

 
1,343

 
58,000

     External revenue
 
349,572

 
421,011

 
81,826

 
852,409

Inter-segment sales
 
3,904

 
30,131

 
2,651

 
36,686

    Segment revenue
 
$
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



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Table of Contents

For the three months ended January 4, 2020 and December 29, 2018, approximately 91% and 89%, respectively, of the Company's revenue was recognized as products and services were transferred over 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 for the three months ended 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


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