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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2022
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
____________________________________________________________________________________________________________________________________
plxs-20220702_g1.gif
PLEXUS CORP.
(Exact name of registrant as specified in charter)
____________________________________________________________________________________________________________________________________
Wisconsin39-1344447
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
One Plexus Way
Neenah, Wisconsin 54957
(Address of principal executive offices) (Zip Code)
Telephone Number (920969-6000
(Registrant’s telephone number, including Area Code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valuePLXSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of August 2, 2022, there were 27,712,174 shares of common stock outstanding.    


PLEXUS CORP.
TABLE OF CONTENTS
July 2, 2022
 
2

PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
Unaudited
Three Months EndedNine Months Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Net sales$981,341 $814,387 $2,687,520 $2,525,627 
Cost of sales887,723 740,337 2,447,396 2,281,298 
Gross profit93,618 74,050 240,124 244,329 
Selling and administrative expenses44,057 36,439 122,232 107,136 
Restructuring and impairment charges 1,238 2,021 3,267 
Operating income49,561 36,373 115,871 133,926 
Other income (expense):
Interest expense(3,923)(3,190)(10,314)(11,094)
Interest income318 308 851 1,072 
Miscellaneous, net(2,678)(579)(5,047)(2,922)
Income before income taxes43,278 32,912 101,361 120,982 
Income tax expense5,784 5,303 13,575 15,411 
Net income$37,494 $27,609 $87,786 $105,571 
Earnings per share:
Basic$1.35 $0.97 $3.14 $3.68 
Diluted$1.33 $0.95 $3.09 $3.60 
Weighted average shares outstanding:
Basic27,738 28,529 27,913 28,708 
Diluted28,179 29,068 28,452 29,298 
Comprehensive income:
Net income$37,494 $27,609 $87,786 $105,571 
Other comprehensive (loss) income:
Derivative instrument and other fair value adjustments(3,239)(1,218)(1,531)(1,719)
     Foreign currency translation adjustments(10,873)1,434 (16,779)6,730 
          Other comprehensive (loss) income(14,112)216 (18,310)5,011 
Total comprehensive income$23,382 $27,825 $69,476 $110,582 
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
July 2,
2022
October 2,
2021
ASSETS
Current assets:
Cash and cash equivalents$276,608 $270,172 
Restricted cash1,222 341 
Accounts receivable, net of allowances of $2,499 and $1,188, respectively
613,510 519,684 
Contract assets128,050 115,283 
Inventories, net 1,561,264 972,312 
Prepaid expenses and other73,771 53,094 
Total current assets2,654,425 1,930,886 
Property, plant and equipment, net429,990 395,094 
Operating lease right-of-use assets64,293 72,087 
Deferred income taxes26,919 27,385 
Other assets28,836 36,441 
Total non-current assets550,038 531,007 
Total assets$3,204,463 $2,461,893 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease obligations$250,012 $66,313 
Accounts payable853,203 634,969 
Customer deposits390,779 204,985 
Accrued salaries and wages68,386 75,394 
Other accrued liabilities298,363 147,042 
Total current liabilities1,860,743 1,128,703 
Long-term debt and finance lease obligations, net of current portion184,707 187,033 
Long-term accrued income taxes payable42,167 47,974 
Long-term operating lease liabilities32,270 37,970 
Deferred income taxes payable6,289 5,677 
Other liabilities20,097 26,304 
Total non-current liabilities285,530 304,958 
Total liabilities2,146,273 1,433,661 
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or outstanding
  
Common stock, $0.01 par value, 200,000 shares authorized, 54,079 and 53,849 shares issued, respectively, and 27,712 and 28,047 shares outstanding, respectively
541 538 
Additional paid-in capital647,169 639,778 
Common stock held in treasury, at cost, 26,367 and 25,802 shares, respectively
(1,090,003)(1,043,091)
Retained earnings1,521,777 1,433,991 
Accumulated other comprehensive loss(21,294)(2,984)
Total shareholders’ equity1,058,190 1,028,232 
Total liabilities and shareholders’ equity$3,204,463 $2,461,893 
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 EndedNine Months Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Common stock - shares outstanding
Beginning of period27,859 28,659 28,047 29,002 
Exercise of stock options and vesting of other share-based awards2 10 230 323 
Treasury shares purchased(149)(292)(565)(948)
End of period27,712 28,377 27,712 28,377 
Total stockholders' equity, beginning of period$1,040,591 $1,013,952 $1,028,232 $977,480 
Common stock - par value
Beginning of period541 538 538 535 
Exercise of stock options and vesting of other share-based awards  3 3 
End of period541 538 541 538 
Additional paid-in capital
Beginning of period641,175 627,176 639,778 621,564 
Share-based compensation expense6,048 5,860 18,226 17,682 
Exercise of stock options and vesting of other share-based awards, including tax withholding(54)115 (10,835)(6,095)
End of period647,169 633,151 647,169 633,151 
Treasury stock
Beginning of period(1,078,226)(986,539)(1,043,091)(934,639)
Treasury shares purchased(11,777)(27,302)(46,912)(79,202)
End of period(1,090,003)(1,013,841)(1,090,003)(1,013,841)
Retained earnings
Beginning of period1,484,283 1,373,041 1,433,991 1,295,079 
Net income37,494 27,609 87,786 105,571 
End of period1,521,777 1,400,650 1,521,777 1,400,650 
Accumulated other comprehensive loss
Beginning of period(7,182)(264)(2,984)(5,059)
Other comprehensive (loss) income(14,112)216 (18,310)5,011 
End of period(21,294)(48)(21,294)(48)
Total stockholders' equity, end of period$1,058,190 $1,020,450 $1,058,190 $1,020,450 

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
Nine Months Ended
July 2,
2022
July 3,
2021
Cash flows from operating activities
Net income$87,786 $105,571 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization46,842 45,785 
Deferred income taxes1,574 (1,032)
Share-based compensation expense and related charges18,254 18,047 
Provision for allowance for doubtful accounts (2,405)
Other, net1,419 1,538 
Changes in operating assets and liabilities, excluding impacts of acquisition:
Accounts receivable(100,850)18,134 
Contract assets(12,672)(66)
Inventories(601,601)(107,066)
Other current and non-current assets(14,681)(19,161)
Accrued income taxes payable(6,707)(14,533)
Accounts payable228,509 62,315 
Customer deposits189,068 18,871 
Other current and non-current liabilities137,211 5,514 
Cash flows (used in) provided by operating activities(25,848)131,512 
Cash flows from investing activities
Payments for property, plant and equipment(85,028)(34,384)
Other, net(105)44 
Cash flows used in investing activities(85,133)(34,340)
Cash flows from financing activities
Borrowings under debt agreements524,000 242,687 
Payments on debt and finance lease obligations(343,207)(336,536)
Debt issuance costs(898) 
Repurchases of common stock(46,912)(79,202)
Proceeds from exercise of stock options307 3,555 
Payments related to tax withholding for share-based compensation(11,142)(9,647)
Cash flows provided by (used in) financing activities122,148 (179,143)
Effect of exchange rate changes on cash and cash equivalents(3,850)1,574 
Net increase (decrease) in cash and cash equivalents and restricted cash7,317 (80,397)
Cash and cash equivalents and restricted cash:
Beginning of period270,513 387,894 
End of period$277,830 $307,497 
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 NINE MONTHS ENDED JULY 2, 2022 AND JULY 3, 2021
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 condensed consolidated financial position of the Company as of July 2, 2022 and October 2, 2021, the results of operations and shareholders' equity for the three and nine months ended July 2, 2022 and July 3, 2021, and the cash flows for the same nine month periods.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. 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 2021 Annual Report on Form 10-K.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and notes thereto. The full extent to which COVID-19 and current global economic conditions will impact the Company's business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted. The Company has considered information available as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
Recently Issued Accounting Pronouncements Not Yet Adopted:
The Company believes that no recently issued accounting standards will have a material impact on its Consolidated Financial Statements, or apply to its operations.

2.    Inventories
Inventories as of July 2, 2022 and October 2, 2021 consisted of the following (in thousands):
July 2,
2022
October 2,
2021
Raw materials$1,404,740 $860,538 
Work-in-process74,586 48,356 
Finished goods81,938 63,418 
Total inventories, net$1,561,264 $972,312 
In certain circumstances, per contractual terms, customer deposits are received by the Company to offset inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of July 2, 2022 and October 2, 2021 were $379.8 million and $200.6 million, respectively.
7

3.    Debt, Finance Lease Obligations and Other Financing
Debt and finance lease obligations as of July 2, 2022 and October 2, 2021, consisted of the following (in thousands):
July 2,
2022
October 2,
2021
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 Facility240,000 55,000 
Finance lease and other financing obligations46,328 49,279 
Unamortized deferred financing fees(1,609)(933)
Total obligations434,719 253,346 
Less: current portion(250,012)(66,313)
Long-term debt and finance lease obligations, net of current portion$184,707 $187,033 
On June 15, 2018, the Company entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which it issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount of 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which the Company is required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of July 2, 2022, the Company was in compliance with the covenants under the 2018 NPA.
On June 9, 2022, the Company refinanced its then-existing senior unsecured revolving credit facility (as amended by that certain Amendment No. 1 to Credit Agreement dated April 29, 2020, the "Prior Credit Facility") by entering into a new 5-year revolving credit facility (collectively with the Prior Credit Facility, referred to as the "Credit Facility"), which expanded the maximum commitment from $350.0 million to $500.0 million and extended the maturity from May 15, 2024 to June 9, 2027. The maximum commitment under the Credit Facility may be further increased to $750.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the nine months ended July 2, 2022, the highest daily borrowing was $327.0 million; the average daily borrowings were $204.9 million. The Company borrowed $524.0 million and repaid $339.0 million of revolving borrowings under the Credit Facility during the nine months ended July 2, 2022. As of July 2, 2022, 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 Credit Facility based on the Company's leverage ratio; the fee was 0.125% as of July 2, 2022.
The fair value of the Company’s debt, excluding finance lease and other financing obligations, was $383.5 million and $217.1 million as of July 2, 2022 and October 2, 2021, respectively. The carrying value of the Company's debt, excluding finance lease and other financing obligations, was $390.0 million and $205.0 million as of July 2, 2022 and October 2, 2021, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives and Fair Value Measurements," for further information regarding the Company's fair value calculations and classifications.

4.    Derivatives and Fair Value Measurements
All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations, in addition to non-designated hedges to manage foreign currency exposures associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes.
The Company designates some foreign currency exchange contracts as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $2.6 million of unrealized losses, net of tax, related to
8

cash flow hedges will be reclassified from other comprehensive (loss) income into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company enters into forward currency exchange contracts for its operations in Malaysia and Mexico on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $141.4 million as of July 2, 2022, and a notional value of $107.4 million as of October 2, 2021. 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 $2.6 million liability as of July 2, 2022, and a $1.0 million liability as of October 2, 2021.
The Company had additional forward currency exchange contracts outstanding as of July 2, 2022, with a notional value of $52.4 million; there were $38.6 million such contracts outstanding as of October 2, 2021. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income. The total fair value of these derivatives was a $0.4 million liability as of July 2, 2022, and a $0.2 million liability as of October 2, 2021.
The tables below present information regarding the fair values of derivative instruments (as defined in Note 1, "Description of Business and Significant Accounting Policies") and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:
Fair Values of Derivative Instruments (in thousands)
  Derivative AssetsDerivative Liabilities
    July 2,
2022
October 2,
2021
  July 2,
2022
October 2,
2021
Derivatives designated as hedging instrumentsBalance sheet
classification
Fair ValueFair ValueBalance sheet
classification
Fair ValueFair Value
Foreign currency forward contractsPrepaid expenses and other$534 $76 Other accrued liabilities$3,108 $1,119 
Fair Values of Derivative Instruments (in thousands)
  Derivative AssetsDerivative Liabilities
    July 2,
2022
October 2,
2021
  July 2,
2022
October 2,
2021
Derivatives not designated as hedging instrumentsBalance sheet
classification
Fair ValueFair ValueBalance sheet
classification
Fair ValueFair Value
Foreign currency forward contractsPrepaid expenses and other$153 $133 Other accrued liabilities$566 $356 
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss ("OCL") (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationshipsAmount of (Loss) Gain Recognized in OCL on Derivatives
July 2, 2022July 3, 2021
Foreign currency forward contracts$(3,588)$164 
Derivative Impact on (Loss) Gain Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationshipsClassification of (Loss) Gain Reclassified from Accumulated OCL into IncomeAmount of (Loss) Gain Reclassified from Accumulated OCL into Income 
July 2, 2022July 3, 2021
Foreign currency forward contractsCost of sales$(322)$1,290 
Foreign currency forward contractsSelling and administrative expenses$(27)$92 
Derivatives not designated as hedging instrumentsLocation of (Loss) Gain Recognized on Derivatives in IncomeAmount of (Loss) Gain on Derivatives Recognized in Income
July 2, 2022July 3, 2021
Foreign currency forward contractsMiscellaneous, net$(790)$83 
9

The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss ("OCL") (in thousands)
for the Nine Months Ended
Derivatives in cash flow hedging relationshipsAmount of (Loss) Gain Recognized in OCL on Derivatives
July 2, 2022July 3, 2021
Foreign currency forward contracts$(2,801)$1,575 
Derivative Impact on (Loss) Gain Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Nine Months Ended
Derivatives in cash flow hedging relationshipsClassification of (Loss) Gain Reclassified from Accumulated OCL into IncomeAmount of (Loss) Gain Reclassified from Accumulated OCL into Income 
July 2, 2022July 3, 2021
Foreign currency forward contractsCost of sales$(1,174)$3,031 
Foreign currency forward contractsSelling and administrative expenses$(96)$263 
Derivatives not designated as hedging instrumentsLocation of (Loss) Gain Recognized on Derivatives in IncomeAmount of (Loss) Gain on Derivatives Recognized in Income
July 2, 2022July 3, 2021
Foreign currency forward contractsMiscellaneous, net$(1,615)$380 
Fair Value Measurements:
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:
Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
The following table lists the fair values of assets of the Company’s derivatives as of July 2, 2022 and October 2, 2021, by input level:
Fair Value Measurements Using Input Levels Asset/(Liability) (in thousands)
July 2, 2022
Level 1Level 2Level 3Total
Derivatives    
Foreign currency forward contracts$ $(2,987)$ $(2,987)
October 2, 2021
Derivatives
Foreign currency forward contracts$ $(1,266)$ $(1,266)
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.
10


5.    Income Taxes
Income tax expense for the three and nine months ended July 2, 2022 was $5.8 million and $13.6 million, respectively, compared to $5.3 million and $15.4 million for the three and nine months ended July 3, 2021, respectively.
The effective tax rate for the three and nine months ended July 2, 2022 was 13.4% compared to the effective tax rates of 16.1% and 12.7% for the three and nine months ended July 3, 2021, respectively. The decrease for the three months ended July 2, 2022 compared to the three months ended July 3, 2021, was due to a change in the geographic distribution of pre-tax book income, partially offset by an increase in discrete tax expenses of $1.4 million. The increase for the nine months ended July 2, 2022 compared to the nine months ended July 3, 2021, was due to a change in the geographic distribution of pre-tax book income and an increase in discrete tax expenses of $2.0 million.
The amount of unrecognized tax benefits recorded for uncertain tax positions increased by $1.5 million for the three months ended July 2, 2022. The Company recognizes accrued interest and penalties on uncertain tax positions as a component of income tax expense. The amount of interest and penalties recorded for the three and nine months ended July 2, 2022 was $0.2 million.
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 jurisdiction.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended July 2, 2022, the Company released a full valuation allowance for a jurisdiction within the EMEA segment related to the settlement of an income tax audit. The company continued to record a full valuation allowance against its net deferred tax assets in certain jurisdictions within the EMEA segment and a partial valuation against its net deferred tax assets in certain jurisdictions within the AMER segment, as it was more likely than not that these assets would not be fully realized based primarily on historical performance. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until it determines it is more likely than not that the deferred tax assets will be realized.

6.    Earnings Per Share
The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share for the three and nine months ended July 2, 2022 and July 3, 2021 (in thousands, except per share amounts):
Three Months EndedNine Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Net income$37,494 $27,609 $87,786 $105,571 
Basic weighted average common shares outstanding27,738 28,529 27,913 28,708 
Dilutive effect of share-based awards and options outstanding441 539 539 590 
Diluted weighted average shares outstanding28,179 29,068 28,452 29,298 
Earnings per share:
Basic$1.35 $0.97 $3.14 $3.68 
Diluted$1.33 $0.95 $3.09 $3.60 
For the three and nine months ended July 2, 2022 there were no anti-dilutive shares. For the three and nine months ended July 3, 2021, share-based awards for less than 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.
See also Note 12, "Shareholders' Equity," for information regarding the Company's share repurchase plans.
11


7.    Leases
The components of lease expense for the three and nine months ended July 2, 2022 and July 3, 2021 were as follows (in thousands):
Three Months EndedNine Months Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Finance lease expense:
   Amortization of right-of-use assets$1,606 $1,541 $4,966 $4,692 
   Interest on lease liabilities1,262 1,229 3,713 3,669 
Operating lease expense2,912 2,697 8,607 8,146 
Other lease expense1,712 1,024 4,559 3,543 
Total$7,492 $6,491 $21,845 $20,050 
Based on the nature of the right-of-use ("ROU") asset, amortization of finance lease ROU assets, operating lease expense and other lease expense are recorded within either cost of goods sold or selling and administrative expenses and interest on finance lease liabilities is recorded within interest expense on the Condensed Consolidated Statements of Comprehensive Income. Other lease expense includes lease expense for leases with an estimated total term of twelve months or less and variable lease expense related to variations in lease payments as a result of a change in factors or circumstances occurring after the lease possession date.
The following tables sets forth the amount of lease assets and lease liabilities included in the Company’s Condensed Consolidated Balance Sheets (in thousands):
Financial Statement Line ItemJuly 2,
2022
October 2,
2021
ASSETS
   Finance lease assetsProperty, plant and equipment, net$36,099 $38,657 
   Operating lease assetsOperating lease right-of-use assets64,293 72,087 
      Total lease assets$100,392 $110,744 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Finance lease liabilitiesCurrent portion of long-term debt and finance lease obligations$3,705 $4,616 
Operating lease liabilitiesOther accrued liabilities8,640 9,877 
Non-current
  Finance lease liabilitiesLong-term debt and finance lease obligations, net of current portion36,173 36,919 
  Operating lease liabilitiesLong-term operating lease liabilities32,270 37,970 
        Total lease liabilities$80,788 $89,382 
As of July 2, 2022 we had $8.1 million of payments related to leases signed but not yet commenced. These leases will commence in the next twelve months, with lease terms between 3 and 25 years.

8.    Share-Based Compensation
The Company recognized $6.0 million and $18.2 million of compensation expense associated with share-based awards for the three and nine months ended July 2, 2022, respectively, and $6.3 million and $18.1 million for the three and nine months ended July 3, 2021, respectively.
12

Performance stock units ("PSUs") are payable in shares of the Company's common stock and have a performance period of three years. For PSUs, 50% 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 for grants issued in fiscal 2020 and prior and the S&P 400 Index for grants issued in fiscal 2021 and beyond. Both are a market condition. The remaining 50% of PSUs vest based upon a three-point annual average of the Company's absolute economic return, a performance condition, with grants made in fiscal 2021 and beyond being subject to an individual year minimum and maximum absolute economic return. The vesting and payout of awards will range between 0% and 200% of the shares granted based upon metrics during a performance period for PSUs based on economic return and PSUs based on TSR compared to the Russell 3000 Index. For PSUs based on TSR compared to the S&P 400 Index, the vesting and payout of awards will range between 0% and 150% of shares granted. Payout at target, 100% of the shares granted, will occur if the TSR of Plexus stock is at the 50th percentile of companies in the Russell 3000 Index or S&P 400 Index during the performance period and if a 2.5% average economic return is achieved over the performance period of three years. 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.

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.

13

Information about the Company’s three reportable segments for the three and nine months ended July 2, 2022 and July 3, 2021 is as follows (in thousands):
Three Months EndedNine Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Net sales:
AMER$342,572 $318,898 $931,123 $1,011,162 
APAC586,305 446,915 1,611,862 1,357,089 
EMEA84,177 76,519 230,742 238,564 
Elimination of inter-segment sales(31,713)(27,945)(86,207)(81,188)
$981,341 $814,387 $2,687,520 $2,525,627 
  
Operating income (loss):
AMER$16,976 $9,191 $26,535 $51,876 
APAC67,286 57,068 188,834 176,722 
EMEA2,597 58 4,043 (2,548)
Corporate and other costs(37,298)(29,944)(103,541)(92,124)
$49,561 $36,373 $115,871 $133,926 
Other income (expense):
Interest expense$(3,923)$(3,190)$(10,314)$(11,094)
Interest income318 308 851 1,072 
Miscellaneous, net(2,678)(579)(5,047)(2,922)
Income before income taxes$43,278 $32,912 $101,361 $120,982 
  
 July 2,
2022
October 2,
2021
Total assets:
AMER$1,054,665 $789,385 
APAC1,763,076 1,283,124 
EMEA296,689 275,122 
Corporate and eliminations90,033 114,262 
$3,204,463 $2,461,893 
  

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 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 nine months ended July 2, 2022 and July 3, 2021 (in thousands):
Nine Months Ended
July 2,
2022
July 3,
2021
Reserve balance, beginning of period$6,645 $6,386 
Accruals for warranties issued during the period2,431 2,102 
Settlements (in cash or in kind) during the period(2,032)(2,434)
Reserve balance, end of period$7,044 $6,054 

12.    Shareholders' Equity
On August 20, 2019, the Board of Directors approved a share repurchase program under which the Company is authorized to repurchase $50.0 million of its common stock (the "2019 Program"). During the nine months ended July 3, 2021, the Company completed the 2019 Program by repurchasing 73,560 shares under this program for $5.3 million at an average price of $72.44 per share.
On August 13, 2020, the Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $50.0 million of its common stock (the "2021 Program"). On November 18, 2020, the Board of Directors approved an additional $50.0 million in share repurchase authority under the 2021 Program such that there then existed a total of $100.0 million in share repurchase authority under the program. The 2021 Program commenced upon completion of the 2019 Program. During the three months ended July 3, 2021, the Company repurchased 291,898 shares under this program for $27.3 million at an average price of $93.53 per share. During the nine months ended July 3, 2021, the Company repurchased 874,706 shares under this program for $73.9 million at an average price of $84.45 per share.
On August 11, 2021, the Board of Directors approved a share repurchase program that authorizes the Company to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program. During the three months ended July 2, 2022, the Company repurchased 148,571 shares under this program for $11.7 million at an average price of $79.27 per share. During the nine months ended July 2, 2022, the Company repurchased 564,718 shares under this program for $46.9 million at an average price of $83.07 per share. As of July 2, 2022, the Company completed the 2022 Program, and there is no remaining authority for share repurchases.
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"), HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA") and other unaffiliated financial institutions, under which the Company may elect to sell receivables; at a discount. All facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of July 2, 2022 is $340.0 million. The maximum facility amount under the HSBC RPA as of July 2, 2022 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 previously discussed.
Transfers of receivables under the programs are accounted for as sales and, accordingly, receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by
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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 continues servicing receivables sold and performing all accounts receivable administrative functions, and in exchange receives a servicing fee, under both the MUFG RPA and HSBC RPA. Servicing fees related to trade accounts receivable programs recognized during the three and nine months ended July 2, 2022 and July 3, 2021 were not material.

The Company sold $213.6 million and $180.6 million of trade accounts receivable under these programs, or their predecessors, during the three months ended July 2, 2022 and July 3, 2021, respectively, in exchange for cash proceeds of $212.3 million and $180.1 million, respectively.

The Company sold $563.8 million and $574.6 million of trade accounts receivable under these programs, or their predecessors, during the nine months ended July 2, 2022 and July 3, 2021, respectively, in exchange for cash proceeds of $561.3 million and $573.0 million, respectively.

As of July 2, 2022 and October 2, 2021, $216.9 million and $176.0 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by the Company remained outstanding and had not yet been collected.

14.    Revenue from Contracts with Customers
Significant Judgments
Revenue is recognized over time for arrangements with customers for which: (i) the Company's performance does not create an asset with an alternative use to the Company, and (ii) the Company has an enforceable right to payment, including reasonable profit margin, for performance completed to date. Revenue recognized over time is estimated based on costs incurred to date plus a reasonable profit margin. If either of the two conditions noted above are not met to recognize revenue over time, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.
The Company recognizes revenue when a contract exists and when, or as, it satisfies a performance obligation by transferring control of a product or service to a customer. Contracts are accounted for when they have approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.
The Company generally enters into a master services arrangement that establishes the framework under which business will be conducted. These arrangements represent the master terms and conditions of the Company's services that apply to individual orders, but they do not commit the customer to work with, or to continue to work with, the Company nor do they obligate the customer to any specific volume or pricing of purchases. Moreover, these terms can be amended in appropriate situations.
Customer purchase orders are received for specific quantities with predominantly fixed pricing and delivery requirements. Thus, for the majority of our contracts, there is no guarantee of any revenue to the Company until a customer submits a purchase order. As a result, the Company generally considers its arrangement with a customer to be the combination of the master services arrangement and the purchase order. Most of the Company's arrangements with customers create a single performance obligation as the promise to transfer the individual manufactured product or service is capable of being distinct.
The Company’s performance obligations are satisfied over time as work progresses or at a point in time. A performance obligation is satisfied over time if the Company has an enforceable right to payment, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and is assessed on a contract by contract basis.
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