Company Quick10K Filing
Quick10K
Plexus
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$58.79 30 $1,770
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-10-01 Annual: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2016-01-02 Quarter: 2016-01-02
10-K 2015-10-03 Annual: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-Q 2015-01-03 Quarter: 2015-01-03
10-K 2014-09-27 Annual: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
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
TWLO Twilio 16,800
FNB FNB 3,890
HI Hillenbrand 2,490
DRH Diamondrock Hospitality 2,150
MMI Marcus & Millichap 1,390
PESI Perma Fix Environmental Services 48
NVCN Neovasc 38
FTLF Fitlife Brands 0
APRI Apricus Biosciences 0
FPVD Force Protection Video Equipment 0
PLXS 2019-03-30
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 plxsf1910-qq2exhibit101.htm
EX-31.1 plxsf1910-qq2exhibit311.htm
EX-31.2 plxsf1910-qq2exhibit312.htm
EX-32.1 plxsf1910-qq2exhibit321.htm
EX-32.2 plxsf1910-qq2exhibit322.htm
EX-99.1 plxsf1910-qq2exhibit991.htm

Plexus Earnings 2019-03-30

PLXS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 plxsf1910-qq2.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
____________________________________________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________________________________________

ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 30, 2019
OR 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-14423
____________________________________________________________________________________________________________________________________
plxslogoq2f19.gif
PLEXUS CORP.
(Exact name of registrant as specified in charter)
____________________________________________________________________________________________________________________________________

Wisconsin
 
39-1344447
(State of Incorporation)
 
(IRS Employer Identification No.)
One Plexus Way
Neenah, Wisconsin 54957
(Address of principal executive offices)(Zip Code)
Telephone Number (920) 969-6000
(Registrant’s telephone number, including Area Code) 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value
PLXS
The Nasdaq Global Select Market
As of April 30, 2019, there were 30,105,120 shares of common stock outstanding.    



PLEXUS CORP.
TABLE OF CONTENTS
March 30, 2019
 
 
 



PART I.     FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
Unaudited
 
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net sales
 
$
789,051

 
$
698,651

 
$
1,554,595

 
$
1,375,945

Cost of sales
 
718,415

 
645,699

 
1,411,576

 
1,259,470

Gross profit
 
70,636

 
52,952

 
143,019

 
116,475

Selling and administrative expenses
 
37,462

 
35,637

 
72,894

 
67,603

Operating income
 
33,174

 
17,315

 
70,125

 
48,872

Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(3,145
)
 
(3,547
)
 
(5,394
)
 
(7,272
)
Interest income
 
440

 
1,426

 
965

 
2,981

Miscellaneous, net
 
(1,773
)
 
(477
)
 
(2,885
)
 
(823
)
Income before income taxes
 
28,696

 
14,717

 
62,811

 
43,758

Income tax expense
 
3,938

 
2,427

 
15,827

 
129,961

Net income (loss)
 
$
24,758

 
$
12,290

 
$
46,984

 
$
(86,203
)
Earnings (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.81

 
$
0.37

 
$
1.52

 
$
(2.57
)
Diluted
 
$
0.79

 
$
0.36

 
$
1.48

 
$
(2.57
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
30,603

 
33,538

 
31,003

 
33,552

Diluted
 
31,385

 
34,387

 
31,836

 
33,552

Comprehensive income (loss):
 
 
 
 
 
 
 
 
Net income (loss)
 
$
24,758

 
$
12,290

 
$
46,984

 
$
(86,203
)
Other comprehensive income:
 
 
 
 
 
 
 
 
Derivative instrument fair value adjustment
 
1,984

 
1,229

 
2,362

 
2,768

     Foreign currency translation adjustments
 
515

 
4,773

 
(1,356
)
 
6,915

          Other comprehensive income
 
2,499

 
6,002

 
1,006

 
9,683

Total comprehensive income (loss)
 
$
27,257

 
$
18,292

 
$
47,990

 
$
(76,520
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


3


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

 
 
March 30, 2019
 
September 29, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
184,028

 
$
297,269

Restricted cash
 
331

 
417

Accounts receivable, net of allowances of $1,251 and $885, respectively
 
445,053

 
394,827

Contract assets
 
86,803

 

Inventories, net
 
802,261

 
794,346

Prepaid expenses and other
 
30,987

 
30,302

Total current assets
 
1,549,463

 
1,517,161

Property, plant and equipment, net
 
373,918

 
341,306

Deferred income taxes
 
10,889

 
10,825

Intangible assets, net
 
7,511

 
8,239

Other
 
59,070

 
55,111

Total non-current assets
 
451,388

 
415,481

Total assets
 
$
2,000,851

 
$
1,932,642

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt and capital lease obligations
 
$
93,197

 
$
5,532

Accounts payable
 
476,481

 
506,322

Customer deposits
 
129,068

 
90,782

Accrued salaries and wages
 
52,939

 
66,874

Other accrued liabilities
 
92,989

 
68,163

Total current liabilities
 
844,674

 
737,673

Long-term debt and capital lease obligations, net of current portion
 
187,120

 
183,085

Long-term accrued income taxes payable
 
58,296

 
56,130

Deferred income taxes payable
 
14,991

 
14,376

Other liabilities
 
20,326

 
20,235

Total non-current liabilities
 
280,733

 
273,826

Total liabilities
 
1,125,407

 
1,011,499

Commitments and contingencies
 

 

Shareholders’ equity:
 
 
 
 
Preferred stock, $.01 par value, 5,000 shares authorized, none issued or outstanding
 

 

Common stock, $.01 par value, 200,000 shares authorized, 52,832 and 52,567 shares issued, respectively, and 30,241 and 31,838 shares outstanding, respectively
 
528

 
526

Additional paid-in capital
 
586,279

 
581,488

Common stock held in treasury, at cost, 22,591 and 20,729 shares, respectively
 
(817,435
)
 
(711,138
)
Retained earnings
 
1,117,045

 
1,062,246

Accumulated other comprehensive loss
 
(10,973
)
 
(11,979
)
Total shareholders’ equity
 
875,444

 
921,143

Total liabilities and shareholders’ equity
 
$
2,000,851

 
$
1,932,642


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


4


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

 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Common stock - shares outstanding
 
 
 
 
 
 
 
 
Beginning of period
 
30,992

 
33,607

 
31,838

 
33,464

Exercise of stock options and vesting of other stock awards
 
241

 
199

 
265

 
500

Treasury shares purchased
 
(992
)
 
(513
)
 
(1,862
)
 
(671
)
End of period
 
30,241

 
33,293

 
30,241

 
33,293

 
 
 
 
 
 
 
 
 
Total stockholders' equity, beginning of period
 
$
905,163

 
$
933,848

 
$
921,143

 
$
1,025,939

Common stock - par value
 
 
 
 
 
 
 
 
Beginning of period
 
526

 
522

 
526

 
519

Exercise of stock options and vesting of other stock awards
 
2

 
2

 
2

 
5

End of period
 
528

 
524

 
528

 
524

Additional paid-in capital
 
 
 
 
 
 
 
 
Beginning of period
 
587,011

 
567,562

 
581,488

 
555,297

Stock-based compensation expense
 
5,176

 
4,524

 
9,929

 
8,420

Exercise of stock options and vesting of other stock awards, including tax benefits
 
(5,908
)
 
(4,551
)
 
(5,138
)
 
3,818

End of period
 
586,279

 
567,535

 
586,279

 
567,535

Treasury stock
 
 
 
 
 
 
 
 
Beginning of period
 
(761,189
)
 
(583,651
)
 
(711,138
)
 
(574,104
)
Treasury shares purchased
 
(56,246
)
 
(31,612
)
 
(106,297
)
 
(41,159
)
End of period
 
(817,435
)
 
(615,263
)
 
(817,435
)
 
(615,263
)
Retained earnings
 
 
 
 
 
 
 
 
Beginning of period
 
1,092,287

 
950,713

 
1,062,246

 
1,049,206

Net income (loss)
 
24,758

 
12,290

 
46,984

 
(86,203
)
Cumulative effect adjustment for adoption of new accounting pronouncement (1)
 

 

 
7,815

 

End of period
 
1,117,045

 
963,003

 
1,117,045

 
963,003

Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
Beginning of period
 
(13,472
)
 
(1,298
)
 
(11,979
)
 
(4,979
)
Other comprehensive income
 
2,499

 
6,002

 
1,006

 
9,683

End of period
 
(10,973
)
 
4,704

 
(10,973
)
 
4,704

Total stockholders' equity, end of period
 
$
875,444

 
$
920,503

 
$
875,444

 
$
920,503

(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


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

 
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
Cash flows from operating activities
 
 
 
 
Net income (loss)
 
$
46,984

 
$
(86,203
)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
 
 
 
 
Depreciation and amortization
 
25,468

 
23,602

Deferred income taxes
 
1,622

 
22,326

Share-based compensation expense
 
9,929

 
8,420

Other, net
 
92

 
(45
)
Changes in operating assets and liabilities, excluding impacts of acquisition:
 
 
 
 
Accounts receivable
 
(50,717
)
 
(32,326
)
Contract assets
 
(10,298
)
 

Inventories
 
(77,917
)
 
(42,781
)
Other current and noncurrent assets
 
(4,367
)
 
(4,766
)
Accrued income taxes payable
 
(824
)
 
102,220

Accounts payable
 
(28,187
)
 
15,611

Customer deposits
 
38,197

 
(3,680
)
Other current and noncurrent liabilities
 
15,486

 
463

Cash flows (used in) provided by operating activities
 
(34,532
)
 
2,841

Cash flows from investing activities
 
 
 
 
Payments for property, plant and equipment
 
(54,556
)
 
(29,115
)
Proceeds from sales of property, plant and equipment
 
93

 
273

Business acquisition
 
1,180

 

Cash flows used in investing activities
 
(53,283
)
 
(28,842
)
Cash flows from financing activities
 
 
 
 
Borrowings under debt agreements
 
667,025

 
504,616

Payments on debt and capital lease obligations
 
(581,360
)
 
(612,961
)
Repurchases of common stock
 
(106,297
)
 
(41,159
)
Proceeds from exercise of stock options
 
1,264

 
9,194

Payments related to tax withholding for share-based compensation
 
(6,400
)
 
(5,371
)
Cash flows used in financing activities
 
(25,768
)
 
(145,681
)
Effect of exchange rate changes on cash and cash equivalents
 
256

 
5,743

Net decrease in cash and cash equivalents and restricted cash
 
(113,327
)
 
(165,939
)
Cash and cash equivalents and restricted cash:
 
 
 
 
Beginning of period
 
297,686

 
569,254

End of period
 
$
184,359

 
$
403,315

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




6


PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 30, 2019 AND MARCH 31, 2018
Unaudited

1.    Basis of Presentation
Basis of Presentation:
The accompanying Condensed Consolidated Financial Statements included herein have been prepared by Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”) without audit and pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The accompanying Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the consolidated financial position of the Company as of March 30, 2019 and September 29, 2018, the results of operations and shareholders' equity for the three and six months ended March 30, 2019 and March 31, 2018, and the cash flows for the same six month periods.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. All fiscal quarters presented herein included 13 weeks.
Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the SEC’s rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2018 Annual Report on Form 10-K.
Recently Adopted Accounting Pronouncements:
In October 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-16 related to the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. The Company adopted this guidance under the modified retrospective approach during the first quarter of fiscal 2019. The Company recognized no net impact to its fiscal 2019 opening Retained Earnings balance upon adoption and does not anticipate any material impact to the Company's future Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15 related to the classification of certain cash receipts and cash payments, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new standard addresses certain issues where diversity in practice was identified. It also amends existing guidance, which is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The Company adopted this guidance during the first quarter of fiscal 2019 with no material impact to the Company's Condensed Statements of Cash Flows.
In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue relating to contracts with customers that depicts the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services ("Topic 606"). Topic 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and was effective for the Company beginning in the first quarter of fiscal year 2019.
On September 30, 2018, the Company adopted and applied Topic 606 to all contracts using the modified retrospective method of adoption. Upon adoption, the Company recognized an increase to its beginning Retained Earnings balance of $7.8 million. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Refer to Note 13, "Revenue from Contracts with Customers," for further information.
Recently Issued Accounting Pronouncements Not Yet Adopted:
In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the

7


classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is currently in the process of assessing the impact of the adoption of the new standard on its Consolidated Financial Statements and plans to adopt the standard in the first quarter of fiscal year 2020.
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 guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is currently in the process of assessing the impact of the adoption of the new standard on its Consolidated Financial Statements and the timing of adoption.
The Company believes that no other recently issued accounting standards will have a material impact on its Consolidated Financial Statements, or apply to its operations.
2.    Inventories
Inventories as of March 30, 2019 and September 29, 2018 consisted of the following (in thousands):
 
 
March 30, 2019
 
September 29, 2018
Raw materials
 
$
657,125

 
$
579,377

Work-in-process
 
55,888

 
102,337

Finished goods
 
89,248

 
112,632

Total inventories, net
 
$
802,261

 
$
794,346

In certain circumstances, per contractual terms, customer deposits are received by the Company to offset obsolete and excess inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of March 30, 2019 and September 29, 2018 was $126.7 million and $87.7 million, respectively.
In the first quarter of fiscal year 2019, the Company adopted and applied Topic 606 to all contracts using the modified retrospective method of adoption. The prior year comparative information has not been restated and continues to be reported under the accounting standards in effect for fiscal 2018. Refer to Note 13, "Revenue from Contracts with Customers," for further information.
3.    Debt, Capital Lease Obligations and Other Financing
Debt and capital lease obligations as of March 30, 2019 and September 29, 2018, consisted of the following (in thousands):
 
 
March 30, 2019
 
September 29, 2018
4.05% Senior Notes, due June 15, 2025
 
$
100,000

 
$
100,000

4.22% Senior Notes, due June 15, 2028
 
50,000

 
50,000

Borrowings under the credit facility
 
87,000

 

Capital lease and other financing obligations
 
44,413

 
39,857

Unamortized deferred financing fees
 
(1,096
)
 
(1,240
)
Total obligations
 
280,317


188,617

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

 
$
183,085

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

8


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. At March 30, 2019, the Company was in compliance with the covenants under the 2018 NPA.
The Company also has a senior unsecured revolving credit facility (the "Credit Facility"), with a $300.0 million maximum commitment that expires on July 5, 2021. The Credit Facility may be further increased to $500.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the six months ended March 30, 2019, the highest daily borrowing was $229.0 million; the average daily borrowings were $98.9 million. The Company borrowed $666.5 million and repaid $579.5 million of revolving borrowings under the Credit Facility during the six months ended March 30, 2019. As of March 30, 2019, the Company was in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. The Company is required to pay a commitment fee on the daily unused revolver credit commitment based on the Company's leverage ratio; the fee was 0.175% as of March 30, 2019.
The fair value of the Company’s debt, excluding capital leases, was $237.5 million and $151.9 million as of March 30, 2019 and September 29, 2018, respectively. The carrying value of the Company's debt, excluding capital leases, was $237.0 million and $150.0 million as of March 30, 2019 and September 29, 2018, 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.
Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $0.7 million of unrealized gains, net of tax, related to cash flow hedges will be reclassified from other comprehensive income (loss) into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).
The Company enters into forward currency exchange contracts for its operations in Malaysia and Mexico on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $77.1 million as of March 30, 2019, and $74.0 million as of September 29, 2018. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a $0.7 million asset as of March 30, 2019, and a $1.7 million liability as of September 29, 2018.
The Company had additional forward currency exchange contracts outstanding with a notional value of $34.6 million as of March 30, 2019, and $28.6 million as of September 29, 2018. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net" within the Condensed Consolidated Statements of Comprehensive Income (Loss). The total fair value of these derivatives was a $0.3 million asset as of March 30, 2019, and a $0.1 million liability as of September 29, 2018.





9


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 of dollars
  
 
Asset Derivatives
 
Liability Derivatives
  
 
  
 
March 30,
2019
 
September 29,
2018
 
  
 
March 30,
2019
 
September 29,
2018
Derivatives Designated as Hedging Instruments
 
Balance Sheet
Classification
 
Fair Value
 
Fair Value
 
Balance Sheet
Classification
 
Fair Value
 
Fair Value
Foreign currency forward contracts
 
Prepaid expenses and other
 
$
670

 
$
292

 
Other accrued liabilities
 
$

 
$
1,984

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

 
$
42

 
Other accrued liabilities
 
$
62

 
$
81

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

 
$
3,625

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

Foreign currency forward contracts
 
Cost of sales
 
$
(670
)
 
$
2,091

Treasury Rate Locks
 
Interest expense
 
$

 
$
81

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

 
$
(416
)
Derivative Impact on Accumulated Other Comprehensive Income ("OCI")
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain Recognized in OCI on Derivatives (Effective Portion)  
 
March 30, 2019
 
March 31, 2018
Foreign currency forward contracts
 
$
853

 
$
6,339


10


Derivative Impact on Gain (Loss) Recognized in Income
for the Six Months Ended
In thousands of dollars
Derivatives in Cash Flow Hedging Relationships
 
Classification of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
 
Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
 
 
March 30, 2019
 
March 31, 2018
Foreign currency forward contracts
 
Selling and administrative expenses
 
$
(155
)
 
$
329

Foreign currency forward contracts
 
Cost of sales
 
$
(1,354
)
 
$
3,082

Treasury Rate Locks
 
Interest expense
 
$

 
$
160

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

 
$
(951
)
There were no gains or losses recognized in income for derivatives related to ineffective portions and amounts excluded from effectiveness testing for the three or six months ended March 30, 2019 and March 31, 2018.
Fair Value Measurements:
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:
Level 1:  Quoted (observable) market prices in active markets for identical assets or liabilities.
Level 2:  Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
The following table lists the fair values of liabilities of the Company’s derivatives as of March 30, 2019 and September 29, 2018, by input level:
Fair Value Measurements Using Input Levels (Liability)/Asset
In thousands of dollars
March 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Derivatives
 
 
 
 
 
 
 
 
Forward currency forward contracts
 
$

 
$
986

 
$

 
$
986

 
 
 
 
 
 
 
 
 
September 29, 2018
 
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
 
Forward currency forward contracts
 
$

 
$
(1,731
)
 
$

 
$
(1,731
)
The fair value of foreign currency forward contracts is determined using a market approach, which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.




11


5.    Income Taxes
Income tax expense for the three and six months ended March 30, 2019 was $3.9 million and $15.8 million, respectively, compared to $2.4 million and $130.0 million for the three and six months ended March 31, 2018, respectively.
The effective tax rates for the three and six months ended March 30, 2019, were 13.7% and 25.2%, respectively, compared to the effective tax rates of 16.5% and 297.0% for the three and six months ended March 31, 2018, respectively. The effective tax rate for the three months ended March 30, 2019 decreased from the effective tax rate for the three months ended March 31, 2018, primarily due to the $13.5 million one-time bonus paid to full-time, non-executive employees ("one-time employee bonus") paid during the three months ended March 31, 2018, and the geographical distribution of pre-tax earnings. The effective tax rate for the six months ended March 30, 2019 decreased from the effective tax rate for the six months ended March 31, 2018, primarily due to the impact of the U.S. Tax Cuts & Jobs Act (“Tax Reform”), which was enacted on December 22, 2017, and an increase in pre-tax earnings which was impacted by the one-time employee bonus in the prior year.
There were no material additions to the amount of unrecognized tax benefits recorded for uncertain tax positions for the three months ended March 30, 2019. For the six months ended March 30, 2019, the Company recorded an income tax benefit of $1.7 million primarily related to unrecognized tax benefits as the U.S. Department of Treasury issued additional guidance for Tax Reform. The guidance proposed related to the treatment of foreign taxes paid that impacted the tax on the deemed repatriation of historical undistributed foreign earnings. The Company recognizes accrued interest and penalties on uncertain tax positions as a component of income tax expense. The amount of interest and penalties recorded for the three and six months ended March 30, 2019 was not material.
One or more uncertain tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company's consolidated results of operations, financial position and cash flows. The Company is not currently under examination by taxing authorities in the U.S. or any foreign jurisdictions in which the Company operates.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended March 30, 2019, the Company continued to record a full valuation allowance against its net deferred tax assets in certain jurisdictions within the EMEA segment and a partial valuation against its net deferred tax assets in certain jurisdictions within the AMER segment, as it was more likely than not that these assets would not be fully realized based primarily on historical performance. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until it determines it is more likely than not that the deferred tax assets will be realized.
6.    Earnings Per Share
The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share for the three and six months ended March 30, 2019 and March 31, 2018 (in thousands, except per share amounts):
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net income (loss)
 
24,758

 
12,290

 
46,984

 
(86,203
)
Basic weighted average common shares outstanding
 
30,603

 
33,538

 
31,003

 
33,552

Dilutive effect of share-based awards outstanding
 
782

 
849

 
833

 

Diluted weighted average shares outstanding
 
31,385

 
34,387

 
31,836

 
33,552

Earnings (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.81

 
$
0.37

 
$
1.52

 
$
(2.57
)
Diluted
 
$
0.79

 
$
0.36

 
$
1.48

 
$
(2.57
)
For both the three and six months ended March 30, 2019, share-based awards for approximately 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.
For the three months ended March 31, 2018, share-based awards for approximately 0.3 million shares were not included in the computation of diluted earnings per share as they were antidilutive. For the six months ended March 31, 2018, the total number

12


of potentially dilutive share-based awards was 2.0 million; however, these awards were not included in the computation of diluted loss per share, as doing so would have decreased the loss per share.
See also Note 11, "Shareholders' Equity," for information regarding the Company's share repurchase plans.
7.    Share-Based Compensation
The Company recognized $5.2 million and $9.9 million of compensation expense associated with share-based awards for the three and six months ended March 30, 2019, respectively, and $4.5 million and $8.4 million for the three and six months ended March 31, 2018, respectively.
The Company uses the Black-Scholes valuation model to determine the fair value of stock options and stock-settled stock appreciation rights ("SARs"). The Company uses its stock price on grant date as the fair value assigned to restricted stock units ("RSUs").
Performance stock units ("PSUs") are payable in shares of the Company's common stock. Beginning for fiscal 2017 grants, PSUs vest based on the relative total shareholder return ("TSR") of the Company's common stock as compared to the companies in the Russell 3000 index, a market condition, and the Company's economic return performance during the three year performance period, a performance condition. The Company uses the Monte Carlo valuation model to determine the fair value of PSUs at the date of grant for PSUs that vest based on the relative TSR of the Company's common stock. The Company uses its stock price on grant date as the fair value assigned to PSUs that vest based on the Company's economic return performance. PSUs granted in fiscal 2016 and prior years vested based solely on the relative TSR of the Company's common stock as compared to companies in the Russell 3000 Index during a three year performance period. The number of shares that may be issued pursuant to PSUs ranges from zero 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.
8.    Litigation
The Company is party to lawsuits in the ordinary course of business. Management does not believe that these proceedings, individually or in the aggregate, will have a material positive or adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
9.    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.






13


Information about the Company’s three reportable segments for the three and six months ended March 30, 2019 and March 31, 2018, respectively, is as follows (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net sales:
 
 
 
 
 
 
 
 
AMER
 
$
364,490

 
$
301,835

 
$
718,357

 
$
600,878

APAC
 
378,441

 
350,375

 
756,553

 
696,498

EMEA
 
75,822

 
73,942

 
148,120

 
137,774

Elimination of inter-segment sales
 
(29,702
)
 
(27,501
)
 
(68,435
)
 
(59,205
)
 
 
$
789,051

 
$
698,651

 
$
1,554,595

 
$
1,375,945

 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
 
AMER
 
$
14,230

 
$
10,702

 
$
28,680

 
$
21,225

APAC
 
48,704

 
49,171

 
100,515

 
99,703

EMEA
 
(133
)
 
389

 
863

 
(732
)
Corporate and other costs
 
(29,627
)
 
(42,947
)
 
(59,933
)
 
(71,324
)
 
 
$
33,174

 
$
17,315

 
$
70,125

 
$
48,872

Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(3,145
)
 
(3,547
)
 
(5,394
)
 
(7,272
)
Interest income
 
440

 
1,426

 
965

 
2,981

Miscellaneous, net
 
(1,773
)
 
(477
)
 
(2,885
)
 
(823
)
Income before income taxes
 
28,696

 
14,717

 
62,811

 
43,758

 
 
 
 
 
 
 
 
 
 
 
March 30,
2019
 
September 29,
2018
Total assets:
 
 
 
 
AMER
 
$
733,925

 
$
645,791

APAC
 
980,888

 
937,510

EMEA
 
201,627

 
193,797

Corporate and eliminations
 
84,411

 
155,544

 
 
$
2,000,851

 
$
1,932,642

 
 
 
 
 
10.    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 cause other than the Company.

14


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 six months ended March 30, 2019 and March 31, 2018 (in thousands):
 
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
Reserve balance, beginning of period
 
$
6,646

 
$
4,756

Accruals for warranties issued during the period
 
2,374

 
2,131

Settlements (in cash or in kind) during the period
 
(1,737
)
 
(1,579
)
Reserve balance, end of period
 
$
7,283

 
$
5,308

11.    Shareholders' Equity
On February 14, 2018, the Board of Directors approved a stock repurchase plan under which the Company is authorized to repurchase $200.0 million of its common stock (the "2018 Program"). The 2018 Program commenced upon completion of the 2016 Program, as defined below. During the three months ended March 30, 2019, the Company repurchased 991,683 shares for $56.2 million, at an average price of $56.72 per share. During the six months ended March 30, 2019, the Company repurchased 1,861,632 shares for $106.3 million, at an average price of $57.10. As of March 30, 2019$72.5 million of authority remained under the 2018 Program.
On June 6, 2016, the Board of Directors authorized a multi-year stock repurchase program under which the Company was authorized to repurchase up to $150.0 million of its common stock beginning in fiscal 2017 (the "2016 Program"). During the three months ended March 31, 2018, the Company repurchased 512,943 shares for $31.6 million, at an average price of $61.63 per share. During the six months ended March 31, 2018, the Company repurchased 671,409 shares for $41.2 million, at an average price of $61.30 per share under the 2016 Program.
All shares repurchased under the aforementioned programs were recorded as treasury stock.
12.    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, on an ongoing basis. The MUFG RPA was amended on March 20, 2019, to increase the maximum facility amount from $230.0 million to $260.0 million. The maximum facility amount under the HSBC RPA as of March 30, 2019 is $60.0 million. The MUFG RPA is subject to expiration on October 3, 2019, but will be automatically extended for another 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.
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.

15


The Company sold $241.9 million and $135.9 million of trade accounts receivable under these programs during the three months ended March 30, 2019 and March 31, 2018, respectively, in exchange for cash proceeds of $240.4 million and $135.2 million, respectively.
The Company sold $474.4 million and $298.3 million of trade accounts receivable under these programs during the six months ended March 30, 2019 and March 31, 2018, respectively, in exchange for cash proceeds of $471.6 million and $296.7 million, respectively.
13.    Revenue from Contracts with Customers
Impact of Adopting Topic 606
The Company adopted Topic 606 using the modified retrospective method. The new standard resulted in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue is recognized over time, as products are produced, as opposed to at a point in time based upon shipping terms. As a result of the adoption of Topic 606, the following adjustments were made to the opening balances of the Company's Condensed Consolidated Balance Sheets (in thousands):
 
Balance at September 29, 2018
 
Impacts due to adoption of Topic 606
 
Balance at September 30, 2018
ASSETS
 
 
 
 
 
   Contract assets
$

 
$
76,417

 
$
76,417

   Inventories
794,346

 
(68,959
)
 
725,387

LIABILITIES AND SHAREHOLDERS' EQUITY
   Other accrued liabilities
$
68,163

 
$
(357
)
 
$
67,806

   Retained earnings
1,062,246

 
7,815

 
1,070,061

The cumulative effect of applying the new guidance in Topic 606 resulted in the Company increasing its fiscal 2019 opening Retained Earnings balance by $7.8 million due to certain customer contracts requiring revenue recognition over time. Contract assets in the amount of $76.4 million were recognized due to the recognition of revenue on an over time basis for some customers rather than at a specific point in time. Inventory declined $69.0 million primarily due to earlier recognition of costs related to the contracts for which revenue was recognized on an over time basis. The decline in other accrued liabilities is primarily due to the reclassification of deferred revenue to contract assets for prepayments associated with revenue recognized over time, partially offset by an increase in taxes payable associated with the increase in revenue recognized over time.
The effects of the adoption on the Company's Condensed Consolidated Financial Statements for the three and six months ended March 30, 2019 were as follows (in thousands):
 
Three Months Ended
 
March 30, 2019 As Reported
 
Adjustments due to Topic 606
 
March 30, 2019 As Adjusted - Without Adoption of Topic 606
Net sales
$
789,051

 
$
5,359

 
$
783,692

Cost of sales
718,415

 
4,641

 
713,774

       Gross profit
70,636

 
718

 
69,918

       Operating income
33,174

 
718

 
32,456

       Income before income taxes
28,696

 
718

 
27,978

Income tax expense
3,938

 
224

 
3,714

           Net income
$
24,758

 
$
494

 
$
24,264


16


 
Six Months Ended
 
March 30, 2019 As Reported
 
Adjustments due to Topic 606
 
March 30, 2019 As Adjusted - Without Adoption of Topic 606
Net sales
$
1,554,595

 
$
11,544

 
$
1,543,051

Cost of sales
1,411,576

 
9,835

 
1,401,741

       Gross profit
143,019

 
1,709

 
141,310

       Operating income
70,125

 
1,709

 
68,416

       Income before income taxes
62,811

 
1,709

 
61,102

Income tax expense
15,827

 
418

 
15,409

           Net income
$
46,984

 
$
1,291

 
$
45,693

 
March 30, 2019 As Reported
 
Adjustments due to Topic 606
 
March 30, 2019 As Adjusted - Without Adoption of Topic 606
ASSETS
 
 
 
 
 
   Contract assets
$
86,803

 
$
86,803

 
$

   Inventories
802,261

 
(78,766
)
 
881,027

LIABILITIES AND SHAREHOLDERS' EQUITY
   Other accrued liabilities
$
92,989

 
$
(1,069
)
 
$
94,058

   Retained earnings
1,117,045

 
9,106

 
1,107,939

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

17


Generally, there are no subjective customer acceptance requirements or further obligations related to goods or services provided; if such requirements or obligations exist, then a sale is recognized at the time when such requirements are completed and such obligations are fulfilled.
The Company does not allow for a general right of return. Net sales include amounts billed to customers for shipping and handling and out-of-pocket expenses. The corresponding shipping and handling costs and out-of-pocket expenses are included in cost of sales. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from net sales.
Practical Expedients
The Company applied the following practical expedients during the adoption of Topic 606:
The Company elected not to disclose information about remaining performance obligations as its performance obligations generally have expected durations of one year or less.
The Company will account for certain shipping and handling as activities to fulfill the promise to transfer the good, instead of a promised service to its customer.
The Company elected not to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less.
Contract Costs
For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date.
There were no other costs to obtain or fulfill customer contracts.
Disaggregated Revenue
The tables below include the Company’s revenue for the three and six months ended March 30, 2019, disaggregated by geographic reportable segment and market sector (in thousands):
 
 
Three Months Ended March 30, 2019
 
 
Reportable Segment:
 
 
AMER
 
APAC
 
EMEA
 
Total
Market Sector:
 
 
 
 
 
 
 
 
Healthcare/Life Sciences
 
$
125,434

 
$
141,655

 
$
32,547

 
$
299,636

Industrial/Commercial
 
94,208

 
131,808

 
24,220

 
250,236

Aerospace/Defense
 
75,854

 
47,752

 
16,904

 
140,510

Communications
 
67,681

 
29,984

 
1,004

 
98,669

     External revenue
 
$
363,177

 
$
351,199

 
$
74,675

 
$
789,051

Inter-segment sales
 
1,313

 
27,242

 
1,147

 
29,702

      Segment revenue
 
$
364,490

 
$
378,441

 
$
75,822

 
$
818,753


18


 
 
Six Months Ended March 30, 2019
 
 
Reportable Segment:
 
 
AMER
 
APAC
 
EMEA
 
Total
Market Sector:
 
 
 
 
 
 
 
 
Healthcare/Life Sciences
 
$
241,199

 
$
293,761

 
$
65,254

 
$
600,214

Industrial/Commercial
 
177,926

 
248,079

 
43,373

 
469,378

Aerospace/Defense
 
138,227

 
89,846

 
34,902

 
262,975

Communications
 
158,145

 
60,959

 
2,924

 
222,028

     External revenue
 
$
715,497

 
$
692,645

 
$
146,453

 
$
1,554,595

Inter-segment sales
 
2,860

 
63,908

 
1,667

 
68,435

    Segment revenue
 
$
718,357

 
$
756,553

 
$
148,120

 
$
1,623,030

For both the three and six months ended March 30, 2019, approximately 90% of the Company's revenue was recognized as products and services were transferred over time.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets, and deferred revenue on the Company’s accompanying Condensed Consolidated Balance Sheets.
Contract Assets: For performance obligations satisfied at a point in time, billing occurs subsequent to revenue recognition, at which point the customer has been billed and the resulting asset is recorded within accounts receivable. For performance obligations satisfied over time as work progresses, the Company has an unconditional right to payment, which results in the recognition of contract assets. The following table summarizes the activity in the Company's contract assets during the six months ended March 30, 2019 (in thousands):
 
 
Contract Assets
Beginning balance, September 29, 2018
 
$

Cumulative effect adjustment at September 29, 2018
 
76,417

Revenue recognized
 
1,393,777

Amounts collected or invoiced
 
(1,383,391
)
Ending balance, March 30, 2019
 
$
86,803

Deferred Revenue: Deferred revenue is recorded when consideration is received from a customer prior to transferring goods or services to the customer under the terms of the contract, which is included in other accrued liabilities. The advance payment is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract, offset obsolete and excess inventory risks and to protect the company from the other party failing to adequately complete some or all of its obligations under the contract. Deferred revenue is recognized into revenue when all revenue recognition criteria are met. For performance obligations satisfied over time, recognition will occur as work progress, otherwise deferred revenue will be recognized based upon shipping terms.
14.    Acquisition
On July 27, 2018, the Company purchased the assets of one of the business lines of Cascade Controls, Inc. ("Cascade"), a new product introduction company in Portland, Oregon, for $12.4 million in cash, subject to certain customary post-closing adjustments. In the three months ended December 29, 2018, the Company received a $1.2 million purchase price adjustment as a result of a post-closing adjustment.

19


ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
The statements contained in this Form 10-Q that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the risks of concentration of work for certain customers; the effect of start-up costs of new programs and facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix, low volumes and demanding quality, regulatory, and other requirements; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; risks related to information technology systems and data security; the effects of U.S. Tax Reform and of related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism and weather events); the impact of increased competition; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2018 Form 10-K).
 
*    *    *

OVERVIEW
Plexus Corp. and its subsidiaries (together “Plexus,” the “Company,” or "we") participate in the Electronic Manufacturing Services ("EMS") industry. Since 1979, Plexus has been partnering with companies to create the products that build a better world. We are a team of over 19,000 employees, providing global support for all facets of the product realization process – Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services – to companies in the Healthcare/Life Sciences, Industrial/Commercial, Communications and Aerospace/Defense market sectors. Plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East, and Africa ("EMEA") regions. Plexus delivers customer service excellence to leading global companies by providing innovative, comprehensive solutions throughout the product’s lifecycle.
The following information should be read in conjunction with our Condensed Consolidated Financial Statements included herein, the “Risk Factors” section in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended September 29, 2018, and our “Safe Harbor” Cautionary Statement included above.

20


RESULTS OF OPERATIONS
Consolidated Performance Summary. The following table presents selected consolidated financial data (dollars in millions, except per share data):
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net sales
 
$
789.1

 
$
698.7

 
$
1,554.6

 
$
1,375.9

Cost of sales
 
718.4

 
645.7

 
1,411.6

 
1,259.5

Gross profit
 
70.6

 
53.0

 
143.0

 
116.5

Gross margin
 
9.0
%
 
7.6
%
 
9.2
%
 
8.5
%
Operating income
 
33.2

 
17.3

 
70.1

 
48.9

Operating margin
 
4.2
%
 
2.5
%
 
4.5
%
 
3.6
%
Net income (loss)
 
24.8

 
12.3

 
47.0

 
(86.2
)
Diluted earnings (loss) per share
 
$
0.79

 
$
0.36

 
$
1.48

 
$
(2.57
)
Return on invested capital*
 
 
 
 
 
13.3
%
 
15.6
%
Economic return*
 
 
 
 
 
4.3
%
 
6.1
%
*Non-GAAP metric; refer to "Return on Invested Capital ("ROIC") and Economic Return" below for more information and Exhibit 99.1 for a reconciliation.
Net sales. For the three months ended March 30, 2019, net sales increased $90.4 million, or 12.9%, as compared to the three months ended March 31, 2018. For the six months ended March 30, 2019, net sales increased $178.7 million, or 13.0%, as compared to the six months ended March 31, 2018.
Net sales are analyzed by management by geographic segment, which reflects the Company's reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. The Company’s global business development strategy is based on our targeted market sectors.
A discussion of net sales by reportable segment is presented below (in millions):
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Net sales:
 
 
 
 
 
 
 
 
AMER
 
$
364.5

 
$
301.8

 
$
718.4

 
$
600.8

APAC
 
378.5

 
350.4

 
756.6

 
696.5

EMEA
 
75.8

 
74.0

 
148.1

 
137.8

Elimination of inter-segment sales
 
(29.7
)
 
(27.5
)
 
(68.5
)
 
(59.2
)
Total net sales
 
$
789.1

 
$
698.7

 
$
1,554.6

 
$
1,375.9

AMER. Net sales for the three months ended March 30, 2019, in the AMER segment increased $62.7 million, or 20.8%, as compared to the three months ended March 31, 2018. The increase in net sales was driven by a $30.9 million increase due to the ramp of new products for existing customers as well as overall net increased customer end-market demand.
During the six months ended March 30, 2019, net sales in the AMER segment increased $117.6 million, or 19.6%, as compared to the six months ended March 31, 2018. The increase in net sales was driven by a $56.4 million increase due to the ramp of new products for existing customers as well as overall net increased customer end-market demand, partially offset by a $7.4 million reduction due to disengagements with customers.
APAC. Net sales for the three months ended March 30, 2019, in the APAC segment increased $28.1 million, or 8.0%, as compared to the three months ended March 31, 2018. The increase in net sales was the result of a $19.0 million increase due to the ramp of new products for existing customers and a $15.9 million increase due to the ramp of production for new customers, partially offset by overall net decreased customer end-market demand.
During the six months ended March 30, 2019, net sales in the APAC segment increased $60.1 million, or 8.6%, as compared to the six months ended March 31, 2018. The increase in net sales was the result of a $44.4 million increase due to the ramp of

21


new products for existing customers, a $23.2 million increase due to the ramp of production for new customers and overall net increased customer end-market demand, partially offset by a $27.7 million reduction due to a disengagement with a customer.
EMEA. Net sales for the three months ended March 30, 2019, in the EMEA segment increased $1.8 million, or 2.4%, as compared to the three months ended March 31, 2018. The increase in net sales was primarily due to overall net increased customer end-market demand.
During the six months ended March 30, 2019, net sales in the EMEA segment increased $10.3 million, or 7.5%, as compared to the six months ended March 31, 2018. The increase in net sales was the result of an $8.6 million increase due to the ramp of new products for existing customers and overall net increased customer end-market demand, partially offset by a $6.4 million temporary reduction of business with an existing customer.
A discussion of net sales by market sector is presented below (in millions):
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Market Sector:
 
 
 
 
 
 
 
 
Healthcare/Life Sciences
 
$
299.6

 
$
248.1

 
$
600.2

 
$
485.1

Industrial/Commercial
 
250.3

 
241.7

 
469.4

 
448.5

Aerospace/Defense
 
140.5

 
110.1

 
263.0

 
209.9

Communications
 
98.7

 
98.8

 
222.0

 
232.4

Total net sales
 
$
789.1

 
$
698.7

 
$
1,554.6

 
$
1,375.9

Healthcare/Life Sciences. Net sales for the three months ended March 30, 2019, in the Healthcare/Life Sciences sector increased $51.5 million, or 20.8%, as compared to the three months ended March 31, 2018. The increase was the result of overall net increased customer end-market demand, an $8.3 million increase due to the ramp of production for new customers and a $6.6 million increase due to the ramp of new products for existing customers.
During the six months ended March 30, 2019, net sales in the Healthcare/Life Sciences sector increased $115.1 million, or 23.7%, as compared to the six months ended March 31, 2018. The increase was primarily the result of overall net increased customer end-market demand, a $20.4 million increase due to the ramp of new products for existing customers and $12.8 million increase due to the ramp of production for new customers.
Industrial/Commercial. Net sales for the three months ended March 30, 2019, in the Industrial/Commercial sector increased $8.6 million, or 3.6%, as compared to the three months ended March 31, 2018. The increase was the result of an $8.0 million increase due to the ramp of new products for existing customers and a $4.1 million increase due to the ramp of production for new customers, partially offset by overall net decreased customer end-market demand.
During the six months ended March 30, 2019, net sales in the Industrial/Commercial sector increased $20.9 million, or 4.7%, as compared to the six months ended March 31, 2018. The increase was the result of an $11.1 million increase due to the ramp of new products for existing customers, a $5.7 million increase due to the ramp of production for new customers and overall net increased customer end-market demand.
Aerospace/Defense. Net sales for the three months ended March 30, 2019, in the Aerospace/Defense sector increased $30.4 million, or 27.6%, as compared to the three months ended March 31, 2018. The increase was driven by a $30.3 million increase due to the ramp of new products for existing customers.
During the six months ended March 30, 2019, net sales in the Aerospace/Defense sector increased $53.1 million, or 25.3%, as compared to the six months ended March 31, 2018. The increase was driven by a $50.3 million increase due to the ramp of new products for existing customers and overall net increased customer end-market demand, partially offset by a $6.9 million temporary reduction of business with an existing customer.
Communications. Net sales for the three months ended March 30, 2019, in the Communications sector decreased $0.1 million, or 0.1%, as compared to the three months ended March 31, 2018. The reduction in net sales was the result of a net decrease in overall customer end-market demand, substantially offset by increases in the ramp of new products for existing customers and the ramp of production for new customers.
During the six months ended March 30, 2019, net sales in the Communications sector decreased $10.4 million, or 4.5%, as compared to the six months ended March 31, 2018. The decrease was driven by a $32.8 million reduction due to

22


disengagements with customers, partially offset by a $17.7 million increase due to the ramp of new products for existing customers and a $4.0 million increase due to the ramp of production for new customers.
Cost of sales. Cost of sales for the three and six months ended March 30, 2019 increased $72.7 million and $152.1 million, respectively, as compared to the three and six months ended March 31, 2018. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For the three and six months ended March 30, 2019 and March 31, 2018, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Of this amount, approximately 89% for the three months ended March 30, 2019, 90% for the six months ended March 30, 2019 and 91% for the three and six months ended March 31, 2018 of these costs were related to material and component costs.
As compared to the prior year periods, the increase in cost of sales for both the three and six months ended March 30, 2019 was primarily due to the increase in net sales and customer mix changes that resulted in cost inefficiencies, partially offset by a $13.5 million one-time bonus paid to full-time, non-executive employees ("one-time employee bonus") that was approved and paid during the three months ended March 31, 2018, of which $12.6 million impacted cost of sales in that period.
Gross profit. Gross profit for the three months ended March 30, 2019 increased $17.6 million as compared to the three months ended March 31, 2018. Gross profit for the six months ended March 30, 2019 increased $26.5 million as compared to the six months ended March 31, 2018. Gross margin increased 140 and 70 basis points as compared to the three and six months ended March 31, 2018, respectively. The primary drivers of the increase in gross profit and gross margin for both periods were the net sales increase, as noted above, and the one-time employee bonus that was approved and paid during the three months ended March 31, 2018, as noted above.
Operating income. Operating income for the three months ended March 30, 2019 increased $15.9 million, or 91.9% as compared to the three months ended March 31, 2018 as a result of the increase in gross profit. This was partially offset by a $1.8 million increase in selling and administrative expenses ("S&A") primarily due to an increase in compensation expense, partially offset by $0.9 million due to the one-time employee bonus paid during the three months ended March 31, 2018. Operating margin of 4.2% increased 170 basis points as compared to the three months ended March 31, 2018.
Operating income for the six months ended March 30, 2019 increased $21.2 million, or 43.4%, as compared to the six months ended March 31, 2018 as a result of the increase in gross profit. This was partially offset by a $5.3 million increase in S&A primarily due to an increase in compensation expense, partially offset by $0.9 million due to the one-time employee bonus paid during the three months ended March 31, 2018. Operating margin of 4.5% increased 90 basis points as compared to the six months ended March 31, 2018.
A discussion of operating income by reportable segment is presented below (in millions):
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Operating income (loss):
 
 
 
 
 
 
 
 
AMER
 
$
14.2

 
$
10.7

 
$
28.7

 
$
21.2

APAC
 
48.7

 
49.1

 
100.4

 
99.7

EMEA
 
(0.1
)
 
0.4

 
0.9

 
(0.7
)
Corporate and other costs (1)
 
(29.6
)
 
(42.9
)
 
(59.9
)
 
(71.3
)
Total operating income
 
$
33.2

 
$
17.3

 
$
70.1

 
$
48.9

(1) The three and six months ended March 31, 2018, include the $13.5 million one-time employee bonus.
AMER. Operating income for the three months ended March 30, 2019, in the AMER segment increased $3.5 million as compared to the three months ended March 31, 2018, primarily as a result of the increase in net sales, partially offset by increased costs to support new program ramps and a negative shift in customer mix.
During the six months ended March 30, 2019, operating income in the AMER segment increased $7.5 million as compared to the six months ended March 31, 2018, primarily as a result of the increase in net sales, partially offset by increased costs to support new program ramps.
APAC. Operating income for the three months ended March 30, 2019, in the APAC segment decreased $0.4 million as compared to the three months ended March 31, 2018, primarily as a result of a negative shift in customer mix and increased costs to support new program ramps, partially offset by the increase in net sales.

23


During the six months ended March 30, 2019, operating income in the APAC segment increased $0.7 million as compared to the six months ended March 31, 2018, primarily as a result of the increase in net sales, partially offset by a negative shift in customer mix and increased costs to support new program ramps.
EMEA. Operating income for the three months ended March 30, 2019, in the EMEA segment decreased $0.5 million as compared to the three months ended March 31, 2018, primarily due to a negative shift in customer mix and increased costs to support new program ramps, partially offset by the increase in net sales.
During the six months ended March 30, 2019, operating income in the EMEA segment increased $1.6 million as compared to the six months ended March 31, 2018, primarily as a result of the increase in net sales and a positive shift in customer mix, partially offset by increased costs to support new program ramps.
Other expense. Other expense for the three months ended March 30, 2019 increased $1.9 million as compared to the three months ended March 31, 2018 due to a decrease in interest income of $1.0 million and an increase of $0.8 million in factoring fees related to the Company's accounts receivable sale programs for the three months ended March 30, 2019.
Other expense for the six months ended March 30, 2019 increased $2.2 million as compared to the six months ended March 31, 2018, due to a decrease in interest income of $2.0 million and an increase of $1.3 million in factoring fees related to the Company's accounts receivable sale programs, partially offset by a decrease in interest expense for the six months ended March 30, 2019.
Income taxes. Income tax expense and effective income tax rates for the indicated periods were as follows: 
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Income tax expense, as reported
 
$
3.9

 
$
2.4

 
$
15.8

 
$
130.0

Impact of Tax Reform
 

 

 
(7.0
)
 
(124.5
)
Impact of one-time employee bonus
 

 
0.4

 

 
0.3

Income tax expense, as adjusted (1)
 
$
3.9

 
$
2.8

 
$
8.8

 
$
5.8

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Effective tax rate, as reported
 
13.7
%
 
16.5
 %
 
25.2
 %
 
297.0
 %
Impact of Tax Reform
 

 

 
(11.2
)
 
(284.6
)
Impact of one-time employee bonus
 

 
(6.7
)
 

 
(2.3
)
Effective tax rate, as adjusted (1)
 
13.7
%
 
9.8
 %
 
14.0
 %
 
10.1
 %
 
 
 
 
 
 
 
 
 
(1) We believe the non-GAAP presentation of income tax expense and the effective tax rate excluding the impact of Tax Reform and the one-time employee bonus provides additional insight over the change from the comparative reporting periods by excluding these non-recurring expenses. In addition, the Company believes that its effective tax rate, as adjusted, enhances the ability of investors to analyze the Company’s operating performance and supplements, but does not replace, its effective tax rate calculated in accordance with U.S. GAAP.
The effective tax rate, as reported, for the three months ended March 30, 2019 decreased from the effective tax rate, as reported, for the three months ended March 31, 2018, primarily due to the $13.5 million one-time employee bonus paid during the three months ended March 31, 2018, and geographical distribution of pre-tax earnings. The effective tax rate, as reported, for the six months ended March 30, 2019 decreased from the effective tax rate, as reported for the six months ended March 31, 2018, primarily due to the impact of the U.S. Tax Cuts & Jobs Act (“Tax Reform”), which was enacted on December 22, 2017, and an increase in pre-tax earnings, which was impacted by a one-time employee bonus paid in the second quarter of fiscal 2018.
As a result of Tax Reform, our U.S. statutory tax rate for fiscal 2019 is 21%. Our effective tax rate varies from our blended U.S. statutory rate primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary within our APAC segment, where we derive a significant portion of our earnings. In addition, our effective tax rate has been impacted by changes due to Tax Reform discussed above. Our effective tax rate may be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

24


The estimated effective tax rate, as reported, for fiscal 2019 is expected to be between 19% and 21%. The estimated effective income tax rate, as adjusted, for fiscal 2019, is expected to be between 13% and 15%. The difference is due to the impact of Tax Reform recorded in the first quarter of fiscal 2019.
Net income (loss). Net income for the three months ended March 30, 2019 increased $12.5 million to $24.8 million as compared to net income of $12.3 million for the three months ended March 31, 2018. Net income increased primarily due to the increase in operating income discussed above.
Net income for the six months ended March 30, 2019 increased $133.2 million to $47.0 million as compared to the net loss of $86.2 million for the six months ended March 31, 2018. Net income increased primarily as a result of the $114.2 million decrease in income tax expense, which, as noted above, was substantially due to the impact of Tax Reform and the one-time employee bonus, as well as the increase in operating income discussed above.
Diluted earnings (loss) per share. Diluted earnings per share for the three months ended March 30, 2019 was $0.79, a $0.43 increase from diluted earnings per share of $0.36 for the three months ended March 31, 2018, primarily as a result of increased net income in the three months ended March 30, 2019, as noted above.
Diluted earnings per share for the six months ended March 30, 2019 was $1.48, as compared to diluted loss per share of $2.57 for the six months ended March 31, 2018, primarily as a result of decreased tax expense related to Tax Reform and increased net income in the six months ended March 30, 2019, as noted above.
Return on Invested Capital ("ROIC") and Economic Return. We use a financial model that is aligned with our business strategy and includes a ROIC goal of 500 basis points over our weighted average cost of capital ("WACC"), which we refer to as "Economic Return," and a 4.7% to 5.0% operating margin target. Our primary focus is on our Economic Return goal of 5.0%, which is designed to create shareholder value and generate sufficient cash to self-fund our targeted organic revenue growth rate of 12.0%. ROIC and Economic Return are non-GAAP financial measures.
Non-GAAP financial measures, including ROIC and Economic Return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and Economic Return because we believe they offer insight into the metrics that are driving management decisions because we view ROIC and Economic Return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements. We also use a derivative measure of ROIC as a performance criteria in determining certain elements of compensation, and certain compensation incentives are based on Economic Return performance.
We define ROIC as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling three-quarter period for the second quarter. Invested capital is defined as equity plus debt, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("GAAP").
We review our internal calculation of WACC annually, and our estimated WACC is 9.0% for fiscal 2019. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. ROIC was 13.3% and 15.6% for the six months ended March 30, 2019 and March 31, 2018, respectively.
For a reconciliation of ROIC and Economic Return to our financial statements that were prepared using U.S. GAAP, see Exhibit 99.1 to this quarterly report on Form 10-Q, which is incorporated herein by reference.
Refer to the table below, which includes the calculation of ROIC and Economic Return (dollars in millions) for the indicated periods:
 
 
Six Months Ended
 
 
March 30, 2019
 
March 31, 2018
Annualized operating income (tax effected)
 
$
119.2

 
$
111.0

Average invested capital
 
898.9

 
709.8

After-tax ROIC
 
13.3
%
 
15.6
%
WACC
 
9.0
%
 
9.5
%
Economic Return
 
4.3
%
 
6.1
%

25


LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and restricted cash were $184.4 million as of March 30, 2019, as compared to $297.7 million as of September 29, 2018.
As of March 30, 2019, 88.5% of our cash balance was held outside of the U.S. by our foreign subsidiaries. With the enactment of Tax Reform, we believe that our offshore cash can be accessed in a more tax efficient manner than before Tax Reform. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs, including potential share repurchases, for the next twelve months and for the foreseeable future.
Our future cash flows from operating activities will be reduced by $73.8 million due to cash payments for accrued income taxes related to Tax Reform. The table below provides the expected timing of these future cash outflows, excluding $10.0 million of foreign withholding taxes on the deemed repatriation of undistributed foreign earnings since the exact timing of the payments is unknown as of March 30, 2019. The remaining $63.8 million represents U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period in accordance with the following installment schedule (in millions):
2020
$
5.6

2021
5.6

2022
5.6

2023