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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________________________________________
(Mark One)

☒ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 1, 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
____________________________________________________________________________________________________________________________________
PLEXUS CORP.
(Exact name of registrant as specified in charter)
____________________________________________________________________________________________________________________________________

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

One Plexus Way
Neenah, Wisconsin 54957
(Address of principal executive offices) (Zip Code)
Telephone Number (920) 969-6000
(Registrant’s telephone number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of February 1, 2022, there were 28,096,789 shares of common stock outstanding.

Table of Contents
PLEXUS CORP.
TABLE OF CONTENTS
January 1, 2022

PART I. FINANCIAL INFORMATION | 3
ITEM 1. FINANCIAL STATEMENTS | 3
Condensed Consolidated Statements of Comprehensive Income | 3
Condensed Consolidated Balance Sheets | 4
Condensed Consolidated Statements of Shareholders' Equity | 5
Condensed Consolidate d S tatements of Cash Flows | 6
Notes to Condensed Consolidated Financial Statements | 7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 18
"Safe Harbor" Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 | 18
Overview | 18
Results of Operations | 21
Liquidity of Capital Resources | 24
Disclosure About Critical Accounting Policies | 29
New Accounting Pronouncements | 29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29
ITEM 4. CONTROLS AND PROCEDURES | 30
PART II. OTHER INFORMATION | 30
ITEM 1A. Risk Factors | 30
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | 30
ITEM 6. Exhibits | 31
SIGNATURES | 32

2

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
Unaudited

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Net sales |  | $ | 817,456 |  |  | $ | 830,355 |
Cost of sales |  | 747,460 |  |  | 751,078 |
Gross profit |  | 69,996 |  |  | 79,277 |
Selling and administrative expenses |  | 37,502 |  |  | 32,411 |
Restructuring and impairment charges |  | 2,021 |  |  | — |
Operating income |  | 30,473 |  |  | 46,866 |
Other income (expense): |  |  |  |
Interest expense |  | (3,046) |  |  | (4,086) |
Interest income |  | 271 |  |  | 374 |
Miscellaneous, net |  | (923) |  |  | (1,518) |
Income before income taxes |  | 26,775 |  |  | 41,636 |
Income tax expense |  | 3,352 |  |  | 5,437 |
Net income |  | $ | 23,423 |  |  | $ | 36,199 |
Earnings per share: |  |  |  |
Basic |  | $ | 0.84 |  |  | $ | 1.25 |
Diluted |  | $ | 0.82 |  |  | $ | 1.23 |
Weighted average shares outstanding: |  |  |  |
Basic |  | 28,018 |  |  | 28,861 |
Diluted |  | 28,709 |  |  | 29,539 |
Comprehensive income: |  |  |  |
Net income |  | $ | 23,423 |  |  | $ | 36,199 |
Other comprehensive (loss) income: |  |  |  |
Derivative instrument and other fair value adjustments |  | 1,272 |  |  | 4,055 |
Foreign currency translation adjustments |  | (1,578) |  |  | 8,700 |
Other comprehensive (loss) income |  | (306) |  |  | 12,755 |
Total comprehensive income |  | $ | 23,117 |  |  | $ | 48,954 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

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

|  | January 1, 2022 |  | October 2, 2021
ASSETS |  |  |  |
Current assets: |  |  |  |
Cash and cash equivalents |  | $ | 217,067 |  |  | $ | 270,172 |
Restricted cash |  | 1,324 |  |  | 341 |
Accounts receivable, net of allowances of $1,753 and $1,188, respectively |  | 589,253 |  |  | 519,684 |
Contract assets |  | 105,450 |  |  | 115,283 |
Inventories, net |  | 1,185,915 |  |  | 972,312 |
Prepaid expenses and other |  | 62,470 |  |  | 53,094 |
Total current assets |  | 2,161,479 |  |  | 1,930,886 |
Property, plant and equipment, net |  | 414,981 |  |  | 395,094 |
Operating lease right-of-use assets |  | 69,519 |  |  | 72,087 |
Deferred income taxes |  | 27,346 |  |  | 27,385 |
Other assets |  | 36,321 |  |  | 36,441 |
Total non-current assets |  | 548,167 |  |  | 531,007 |
Total assets |  | $ | 2,709,646 |  |  | $ | 2,461,893 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |
Current liabilities: |  |  |  |
Current portion of long-term debt and finance lease obligations |  | $ | 151,417 |  |  | $ | 66,313 |
Accounts payable |  | 711,248 |  |  | 634,969 |
Customer deposits |  | 265,759 |  |  | 204,985 |
Accrued salaries and wages |  | 57,221 |  |  | 75,394 |
Other accrued liabilities |  | 180,840 |  |  | 147,042 |
Total current liabilities |  | 1,366,485 |  |  | 1,128,703 |
Long-term debt and finance lease obligations, net of current portion |  | 187,075 |  |  | 187,033 |
Long-term accrued income taxes payable |  | 47,974 |  |  | 47,974 |
Long-term operating lease liabilities |  | 36,343 |  |  | 37,970 |
Deferred income taxes payable |  | 5,307 |  |  | 5,677 |
Other liabilities |  | 22,367 |  |  | 26,304 |
Total non-current liabilities |  | 299,066 |  |  | 304,958 |
Total liabilities |  | 1,665,551 |  |  | 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, 53,909 and 53,849 shares issued, respectively, and 27,997 and 28,047 shares outstanding, respectively |  | 539 |  |  | 538 |
Additional paid-in capital |  | 642,654 |  |  | 639,778 |
Common stock held in treasury, at cost, 25,912 and 25,802 shares, respectively |  | (1,053,222) |  |  | (1,043,091) |
Retained earnings |  | 1,457,414 |  |  | 1,433,991 |
Accumulated other comprehensive loss |  | (3,290) |  |  | (2,984) |
Total shareholders’ equity |  | 1,044,095 |  |  | 1,028,232 |
Total liabilities and shareholders’ equity |  | $ | 2,709,646 |  |  | $ | 2,461,893 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

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

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Common stock - shares outstanding |  |  |  |
Beginning of period |  | 28,047 |  |  | 29,002 |
Exercise of stock options and vesting of other share-based awards |  | 60 |  |  | 71 |
Treasury shares purchased |  | (110) |  |  | (307) |
End of period |  | 27,997 |  |  | 28,766 |
Total stockholders' equity, beginning of period |  | $ | 1,028,232 |  |  | $ | 977,480 |
Common stock - par value |  |  |  |
Beginning of period |  | 538 |  |  | 535 |
Exercise of stock options and vesting of other share-based awards |  | 1 |  |  | 1 |
End of period |  | 539 |  |  | 536 |
Additional paid-in capital |  |  |  |
Beginning of period |  | 639,778 |  |  | 621,564 |
Share-based compensation expense |  | 6,270 |  |  | 5,349 |
Exercise of stock options and vesting of other share-based awards, including tax withholding |  | (3,394) |  |  | (2,054) |
End of period |  | 642,654 |  |  | 624,859 |
Treasury stock |  |  |  |
Beginning of period |  | (1,043,091) |  |  | (934,639) |
Treasury shares purchased |  | (10,131) |  |  | (22,771) |
End of period |  | (1,053,222) |  |  | (957,410) |
Retained earnings |  |  |  |
Beginning of period |  | 1,433,991 |  |  | 1,295,079 |
Net income |  | 23,423 |  |  | 36,199 |
End of period |  | 1,457,414 |  |  | 1,331,278 |
Accumulated other comprehensive (loss) income |  |  |  |
Beginning of period |  | (2,984) |  |  | (5,059) |
Other comprehensive (loss) income |  | (306) |  |  | 12,755 |
End of period |  | (3,290) |  |  | 7,696 |
Total stockholders' equity, end of period |  | $ | 1,044,095 |  |  | $ | 1,006,959 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Cash flows from operating activities |  |  |  |
Net income |  | $ | 23,423 |  |  | $ | 36,199 |
Adjustments to reconcile net income to net cash flows from operating activities: |  |  |  |
Depreciation and amortization |  | 15,489 |  |  | 14,836 |
Deferred income taxes |  | 35 |  |  | 366 |
Share-based compensation expense and related charges |  | 6,357 |  |  | 5,349 |
Provision for allowance for doubtful accounts |  | — |  |  | (2,346) |
Other, net |  | 567 |  |  | 754 |
Changes in operating assets and liabilities, excluding impacts of acquisition: |  |  |  |
Accounts receivable |  | (70,159) |  |  | 3,585 |
Contract assets |  | 9,904 |  |  | 866 |
Inventories |  | (214,416) |  |  | 3,710 |
Other current and non-current assets |  | (9,436) |  |  | (7,561) |
Accrued income taxes payable |  | 1,121 |  |  | 3,277 |
Accounts payable |  | 76,222 |  |  | (23,514) |
Customer deposits |  | 60,743 |  |  | (5,016) |
Other current and non-current liabilities |  | 11,171 |  |  | (23,789) |
Cash flows (used in) provided by operating activities |  | (88,979) |  |  | 6,716 |
Cash flows from investing activities |  |  |  |
Payments for property, plant and equipment |  | (33,246) |  |  | (15,880) |
Other, net |  | (124) |  |  | 113 |
Cash flows used in investing activities |  | (33,370) |  |  | (15,767) |
Cash flows from financing activities |  |  |  |
Borrowings under debt agreements |  | 181,134 |  |  | 4,177 |
Payments on debt and finance lease obligations |  | (97,565) |  |  | (4,175) |
Repurchases of common stock |  | (10,131) |  |  | (22,771) |
Proceeds from exercise of stock options |  | 307 |  |  | 722 |
Payments related to tax withholding for share-based compensation |  | (3,702) |  |  | (2,775) |
Cash flows provided by (used in) financing activities |  | 70,043 |  |  | (24,822) |
Effect of exchange rate changes on cash and cash equivalents |  | 184 |  |  | 2,912 |
Net decrease in cash and cash equivalents and restricted cash |  | (52,122) |  |  | (30,961) |
Cash and cash equivalents and restricted cash: |  |  |  |
Beginning of period |  | 270,513 |  |  | 387,894 |
End of period |  | $ | 218,391 |  |  | $ | 356,933 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 1, 2022 AND JANUARY 2, 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 January 1, 2022 and October 2, 2021, the results of operations and shareholders' equity for the three months ended January 1, 2022 and January 2, 2021, and the cash flows for the same three month periods.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. 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 the COVID-19 outbreak will impact the Company's business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted. The Company has considered information available as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
Recently 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 January 1, 2022 and October 2, 2021 consisted of the following (in thousands):

|  | January 1, 2022 |  | October 2, 2021
Raw materials |  | $ | 1,051,889 |  |  | $ | 860,538 |
Work-in-process |  | 57,381 |  |  | 48,356 |
Finished goods |  | 76,645 |  |  | 63,418 |
Total inventories, net |  | $ | 1,185,915 |  |  | $ | 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 January 1, 2022 and October 2, 2021 were $260.3 million a nd $200.6 million, respectively.
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3. Debt, Finance Lease Obligations and Other Financing
Debt and finance lease obligations as of January 1, 2022 and October 2, 2021, consisted of the following (in thousands):

|  | January 1, 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 revolving commitment |  | 140,000 |  |  | 55,000 |
Finance lease and other financing obligations |  | 49,353 |  |  | 49,279 |
Unamortized deferred financing fees |  | (861) |  |  | (933) |
Total obligations |  | 338,492 |  |  | 253,346 |
Less: current portion |  | (151,417) |  |  | (66,313) |
Long-term debt and finance lease obligations, net of current portion |  | $ | 187,075 |  |  | $ | 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 January 1, 2022, the Company was in compliance with the covenants under the 2018 NPA.
On May 15, 2019, the Company refinanced its then-existing senior unsecured revolving credit facility by entering into a new 5-year senior unsecured revolving credit facility (referred to as the "Credit Facility"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment under the Credit Facility may be further increased to $600.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the three months ended January 1, 2022, the highest daily borrowing was $186.0 million; the average daily borrowings were $117.9 million. The Company borrowed $181.0 million and repaid $96.0 million of revolving borrowings ("revolving commitment") under the Credit Facility during the three months ended January 1, 2022. As of January 1, 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 revolving commitment based on the Company's leverage ratio; the fee was 0.125% as of January 1, 2022.
The fair value of the Company’s debt, excluding finance lease and other financing obligations, was $298.9 million and $217.1 million as of January 1, 2022 and October 2, 2021, respectively. The carrying value of the Company's debt, excluding finance lease and other financing obligations, was $290.0 million and $205.0 million as of January 1, 2022 and October 2, 2021, respectively. If measured at fair value in the financial stateme nts, 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.
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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 Bala nce Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates t hat $0.2 million of unrealized gains, net of tax, related to 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 $117.9 million as of January 1, 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 $0.2 million asset as of January 1, 2022, and a $1.0 million liability as of October 2, 2021.
The Company had additional forward currency exchange contracts outstanding as of January 1, 2022, with a notional value of $32.3 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 $0.1 million asset as of January 1, 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 Assets |  | Derivative Liabilities
|  |  |  | January 1, 2022 |  | October 2, 2021 |  |  |  | January 1, 2022 |  | October 2, 2021
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 |  | $ | 356 |  |  | $ | 76 |  |  | Other accrued liabilities |  | $ | 127 |  |  | $ | 1,119 |

Fair Values of Derivative Instruments (in thousands)
|  | Derivative Assets |  | Derivative Liabilities
|  |  |  | January 1, 2022 |  | October 2, 2021 |  |  |  | January 1, 2022 |  | October 2, 2021
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 |  | $ | 176 |  |  | $ | 133 |  |  | Other accrued liabilities |  | $ | 112 |  |  | $ | 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 relationships |  | Amount of Gain Recognized in OCL on Derivatives
| January 1, 2022 |  | January 2, 2021
Foreign currency forward contracts |  | $ | 470 |  |  | $ | 4,159 |

Derivative Impact on Gain (Loss) Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationships |  | Classification of (Loss) Gain Reclassified from Accumulated OCL into Income |  | Amount of (Loss) Gain Reclassified from Accumulated OCL into Income
|  | January 1, 2022 |  | January 2, 2021
Foreign currency forward contracts |  | Cost of sales |  | $ | (743) |  |  | $ | 98 |
Foreign currency forward contracts |  | Selling and administrative expenses |  | $ | (59) |  |  | $ | 6 |

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Derivatives not designated as hedging instruments |  | Location of (Loss) Gain Recognized on Derivatives in Income |  | Amount of (Loss) Gain on Derivatives Recognized in Income
|  | January 1, 2022 |  | January 2, 2021
Foreign currency forward contracts |  | Miscellaneous, net |  | $ | (43) |  |  | $ | 530 |

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 January 1, 2022 and October 2, 2021, by input level:

Fair Value Measurements Using Input Levels Asset/(Liability) (in thousands)
Fiscal year ended January 1, 2022 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Derivatives |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | — |  |  | $ | 293 |  |  | $ | — |  |  | $ | 293 |
Fiscal year ended 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.
5. Income Taxes
Income tax expense for the three months ended January 1, 2022 was $3.4 million compared to $5.4 million for the three months ended January 2, 2021.
The effective tax rates for the three months ended January 1, 2022 and January 2, 2021 were 12.5% and 13.1%, respectively. The effective tax rate for the three months ended January 1, 2022 decreased from the effective tax rate for the three months ended January 2, 2021 primarily due to additional discrete tax benefits of $0.6 million partially offset by a change in the geographic distribution of pre-tax book income.
The amount of unrecognized tax benefits recorded for uncertain tax positions increased by $0.5 million for the three months ended January 1, 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 months ended January 1, 2022 was not material.
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One or more uncertain tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company's consolidated results of operations, financial position and cash flows. The Company is not currently under examination by taxing authorities in the U.S. The Company is under audit in a foreign jurisdiction but a settlement is not expected to have a material impact.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended January 1, 2022, 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 months ended January 1, 2022 and January 2, 2021 (in thousands, except per share amounts):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Net income |  | $ | 23,423 |  |  | $ | 36,199 |
Basic weighted average common shares outstanding |  | 28,018 |  |  | 28,861 |
Dilutive effect of share-based awards and options outstanding |  | 691 |  |  | 678 |
Diluted weighted average shares outstanding |  | 28,709 |  |  | 29,539 |
Earnings per share: |  |  |  |
Basic |  | $ | 0.84 |  |  | $ | 1.25 |
Diluted |  | $ | 0.82 |  |  | $ | 1.23 |

For the three months ended January 1, 2022 and January 2, 2021, there were no antidilutive awards.
See also Note 12, "Shareholders' Equity," for information regarding the Company's share repurchase plans.
7. Leases
The components of lease expense for the three months ended January 1, 2022 and January 2, 2021 were as follows (in thousands):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Finance lease expense: |  |  |  |
Amortization of right-of-use assets |  | $ | 1,693 |  |  | $ | 1,016 |
Interest on lease liabilities |  | 1,222 |  |  | 1,203 |
Operating lease expense |  | 2,857 |  |  | 2,752 |
Other lease expense |  | 1,404 |  |  | 1,253 |
Total |  | $ | 7,176 |  |  | $ | 6,224 |

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

| Financial Statement Line Item | January 1, 2022 |  | October 2, 2021
ASSETS |  |  |  |
Finance lease assets | Property, plant and equipment, net | $ | 38,842 |  |  | $ | 38,657 |
Operating lease assets | Operating lease right-of-use assets | 69,519 |  |  | 72,087 |
Total lease assets |  | $ | 108,361 |  |  | $ | 110,744 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |
Current |  |  |  |
Finance lease liabilities | Current portion of long-term debt and finance lease obligations | $ | 4,586 |  |  | $ | 4,616 |
Operating lease liabilities | Other accrued liabilities | 9,507 |  |  | 9,877 |
Non-current |  |  |  |
Finance lease liabilities | Long-term debt and finance lease obligations, net of current portion | 37,379 |  |  | 36,919 |
Operating lease liabilities | Long-term operating lease liabilities | 36,343 |  |  | 37,970 |
Total lease liabilities |  | $ | 87,815 |  |  | $ | 89,382 |

8. Share-Based Compensation
The Company recognized $6.3 million and $5.3 million of compensation expense associated with share-based awards for the three months ended January 1, 2022 and January 2, 2021, respectively.
Performance stock units ("PSUs") are payable in shares of the Company's common stock. For PSUs issued in fiscal year 2020 and earlier, the PSUs vest based on the relative total shareholder return ("TSR") of the Company's common stock as compared to the companies in the Russell 3000 index, a market condition, and the Company's economic return performance during the performance period of three years, a performance condition. In the first quarter of fiscal 2021, the Company updated the market condition for PSUs based on TSR to the S&P 400 index for all future PSU grants, including those granted in fiscal year 2021. The Company uses the Monte Carlo valuation model to determine the fair value of PSUs at the date of grant for PSUs that vest based on the relative TSR of the Company's common stock. The Company uses its stock price on grant date as the fair value assigned to PSUs that vest based on the Company's economic return performance. The number of shares that may be issued pursuant to 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.
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10. Reportable Segments
Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in assessing performance and allocating resources. The Company uses an internal management reporting system, which provides important financial data to evaluate performance and allocate the Company’s resources on a regional basis. Net sales for the segments are attributed to the region in which the product is manufactured or the service is performed. The services provided, manufacturing processes used, class of customers serviced and order fulfillment processes used are similar and generally interchangeable across the segments. A segment’s performance is evaluated based upon its operating income (loss). A segment’s operating income (loss) includes its net sales less cost of sales and selling and administrative expenses, but excludes corporate and other expenses. Corporate and other expenses primarily represent corporate selling and administrative expenses, and restructuring costs and other charges, if any. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Inter-segment transactions are generally recorded at amounts that approximate arm’s length transactions. The accounting policies for the segments are the same as for the Company taken as a whole.
Information about the Company’s three reportable segments for the three months ended January 1, 2022 and January 2, 2021 is as follows (in thousands):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Net sales: |  |  |  |
AMER |  | $ | 277,346 |  |  | $ | 327,567 |
APAC |  | 491,672 |  |  | 451,302 |
EMEA |  | 72,863 |  |  | 78,723 |
Elimination of inter-segment sales |  | (24,425) |  |  | (27,237) |
|  | $ | 817,456 |  |  | $ | 830,355 |
Operating income (loss): |  |  |  |
AMER |  | $ | 1,790 |  |  | $ | 16,482 |
APAC |  | 60,688 |  |  | 61,542 |
EMEA |  | 956 |  |  | (988) |
Corporate and other costs |  | (32,961) |  |  | (30,170) |
|  | $ | 30,473 |  |  | $ | 46,866 |
Other income (expense): |  |  |  |
Interest expense |  | $ | (3,046) |  |  | $ | (4,086) |
Interest income |  | 271 |  |  | 374 |
Miscellaneous, net |  | (923) |  |  | (1,518) |
Income before income taxes |  | $ | 26,775 |  |  | $ | 41,636 |

|  | January 1, 2022 |  | October 2, 2021
Total assets: |  |  |  |
AMER |  | $ | 869,801 |  |  | $ | 789,385 |
APAC |  | 1,457,341 |  |  | 1,283,124 |
EMEA |  | 276,273 |  |  | 275,122 |
Corporate and eliminations |  | 106,231 |  |  | 114,262 |
|  | $ | 2,709,646 |  |  | $ | 2,461,893 |

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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.
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 three months ended January 1, 2022 and January 2, 2021 (in thousands):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Reserve balance, beginning of period |  | $ | 6,645 |  |  | $ | 6,386 |
Accruals for warranties issued during the period |  | 1,258 |  |  | 465 |
Settlements (in cash or in kind) during the period |  | (741) |  |  | (1,066) |
Reserve balance, end of period |  | $ | 7,162 |  |  | $ | 5,785 |

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 three months ended January 2, 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 existing 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 January 2, 2021, the Company repurchased 233,511 shares under this program for $17.5 million at an average price of $74.70 per share.
On August 11, 2021, the Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program. The 2022 Program has no expiration. During the three months ended January 1, 2022, the Company repurchased 110,440 shares under this program for $10.2 million at an average price of $91.74 per share. As of January 1, 2022, $36.7 million of authority remained under the 2022 Program.
All shares repurchased under the aforementioned programs were recorded as treasury stock.
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13. Trade Accounts Receivable Sale Programs
The Company has Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), 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 R PA as of January 1, 2022 is $340.0 million. The maximum facility amount under the HSBC RPA as of January 1, 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 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, 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 months ended January 1, 2022 and January 2, 2021 were not material.
The Company sold $148.0 million and $198.4 million of trade accounts receivable under these programs, or their predecessors, during the three months ended January 1, 2022 and January 2, 2021, respectively, in exchange for cash proceeds of $147.5 million and $197.8 million, respectively. As of January 1, 2022 and October 2, 2021, $151.0 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.
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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 in cost of sales. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from net sales.
Contract Costs
For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date.
There were no other costs to obtain or fulfill customer contracts.
Disaggregated Revenue
The table below includes the Company’s revenue for the three months ended January 1, 2022 and January 2, 2021 and disaggregated by geographic reportable segment and market sector (in thousands):

|  | Three Months Ended
|  | January 1, 2022
|  | Reportable Segment:
|  | AMER |  | APAC |  | EMEA |  | Total
Market Sector: |  |  |  |  |  |  |  |
Industrial |  | $ | 83,245 |  |  | $ | 265,275 |  |  | $ | 15,307 |  |  | $ | 363,827 |
Healthcare/Life Sciences |  | 135,962 |  |  | 169,237 |  |  | 39,266 |  |  | 344,465 |
Aerospace/Defense |  | 55,750 |  |  | 35,743 |  |  | 17,671 |  |  | 109,164 |
External revenue |  | 274,957 |  |  | 470,255 |  |  | 72,244 |  |  | 817,456 |
Inter-segment sales |  | 2,389 |  |  | 21,417 |  |  | 619 |  |  | 24,425 |
Segment revenue |  | $ | 277,346 |  |  | $ | 491,672 |  |  | $ | 72,863 |  |  | $ | 841,881 |

|  | Three Months Ended
|  | January 2, 2021
|  | Reportable Segment:
|  | AMER |  | APAC |  | EMEA |  | Total
Market Sector: |  |  |  |  |  |  |  |
Industrial |  | $ | 122,026 |  |  | $ | 238,248 |  |  | $ | 17,768 |  |  | $ | 378,042 |
Healthcare/Life Sciences |  | 126,439 |  |  | 154,046 |  |  | 38,828 |  |  | 319,313 |
Aerospace/Defense |  | 76,980 |  |  | 34,259 |  |  | 21,761 |  |  | 133,000 |
External revenue |  | 325,445 |  |  | 426,553 |  |  | 78,357 |  |  | 830,355 |
Inter-segment sales |  | 2,122 |  |  | 24,749 |  |  | 366 |  |  | 27,237 |
Segment revenue |  | $ | 327,567 |  |  | $ | 451,302 |  |  | $ | 78,723 |  |  | $ | 857,592 |

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For each of the three months ended January 1, 2022 and January 2, 2021, approximately 87% and 91% of the Company's revenue, respectively, was recognized as the performance obligations for 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 three months ended January 1, 2022 and January 2, 2021 (in thousands):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Contract assets, beginning of period |  | $ | 115,283 |  |  | $ | 113,946 |
Revenue recognized during the period |  | 709,723 |  |  | 753,565 |
Amounts collected or invoiced during the period |  | (719,556) |  |  | (754,286) |
Contract assets, end of period |  | $ | 105,450 |  |  | $ | 113,225 |

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 on the Condensed Consolidated Balance Sheets. As of January 1, 2022 and October 2, 2021 the balance of advance payments from customers that remained in other accrued liabilities was $133.2 million and $101.1 million, respectively. The advance payment is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract 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 progresses; otherwise deferred revenue will be recognized based upon shipping terms.
15. Restructuring and Impairment Charges
During the first quarter of fiscal 2022, the Company recorded $2.0 million of restructuring and impairment charges primarily due to employee severance costs associated with a facility transition in our APAC region. These charges are recorded within restructuring and impairment charges on the Condensed Consolidated Statements of Comprehensive Income. Restructuring liabilities are recorded within other accrued liabilities on the Condensed Consolidated Balance Sheets.
The Company recognized a tax benefit of $0.2 million related to restructuring and impairment charges in the three months ended January 1, 2022.
The Company's restructuring accrual activity for the three months ended January 1, 2022 is included in the table below (in thousands):

|  | Fixed Asset and Operating ROU Asset Impairment |  | Employee Termination and Severance Costs |  | Total
Accrual balance, as of October 2, 2021 |  | $ | — |  |  | $ | 71 |  |  | $ | 71 |
Restructuring and impairment costs |  | 255 |  |  | 1,766 |  |  | 2,021 |
Amounts utilized |  | (255) |  |  | (75) |  |  | (330) |
Accrual balance, as of January 1, 2022 |  | $ | — |  |  | $ | 1,762 |  |  | $ | 1,762 |

There was no material restructuring activity for the three months ended January 2, 2021.
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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 the evolving effect, which may intensify, of COVID-19 on our employees, customers, suppliers, and logistics providers, including the impact of governmental actions being taken to curtail the spread of the virus. Other risks and uncertainties include, but are not limited to: the effect of inflationary pressures on our costs of production, profitability, and on the economic outlook of our markets; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; 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 tariffs, trade disputes, trade agreements and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the risks of concentration of work for certain customers; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the effects of start-up costs of new programs and facilities or the costs associated with the closure or consolidation of 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 and demanding quality, regulatory, and other requirements; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; risks related to information technology systems and data security; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; the effects of U.S. Tax Reform, any tax law changes as a result of change in U.S. presidential administration, 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 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 exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism, global health epidemics and weather events); the impact of increased competition; an inability to successfully manage human capital; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings, particularly in Risk Factors in our fiscal 2021 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, we have been partnering with companies to create the products that Build a Better World by providing Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing and Aftermarket Services. We are a global leader that specializes in serving customers in industries with highly complex products and demanding regulatory environments. Plexus delivers customer service excellence to leading companies by providing innovative, comprehensive solutions throughout a product’s lifecycle. We engineer innovative solutions for customers in growth markets and focus on partnering with leading global companies in the Industrial, Healthcare/Life Sciences and Aerospace/Defense market sectors. We deliver comprehensive end-to-end solutions in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East and Africa ("EMEA") regions.
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The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide an analysis of both short-term results and future prospects from management’s perspective, including an assessment of the financial condition and results of operations, events and uncertainties that are not indicative of future operations and any other financial or statistical data that we believe will enhance the understanding of our company’s financial condition, cash flows and other changes in financial condition and results of operations.
The following information should be read in conjunction with our condensed consolidated financial statements included herein and "Risk Factors" included in Part II, Item 1A included herein as well as Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 2, 2021, and our "Safe Harbor" Cautionary Statement included above .
COVID-19 Update
We continue to monitor the global outbreak and spread of COVID-19 and take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts.
The health and safety of our employees is a top priority for us. We have progressively implemented measures to safeguard our employees from the COVID-19 infection and exposure and have made significant efforts to mitigate the effects of regulatory authority restrictions on our operations through a combination of adjustments in our shift patterns, flexible work arrangements, productivity improvements, facility enhancements to support social distancing and optimizing employee capability to work from home, if needed. These efforts will continue as requirements change, new risks are identified and infections impact us.
We have experienced labor shortages due to COVID-19 quarantines or workforce curtailments, particularly in Malaysia during fiscal 2021, as the virus spread. The spread and resurgence of the COVID-19 virus from new variants in jurisdictions we operate may make our ability to mitigate the impacts of the pandemic on our productivity more challenging.
We remain in close contact with our suppliers to understand the impacts of COVID-19 on their businesses and operations. Our suppliers may face challenges in maintaining an adequate workforce or securing materials from their own suppliers as a result of COVID-19. We have experienced, and expect to continue to experience during the remainder of fiscal 2022, an inability to procure certain components and materials on a timely basis due to worsening supply chain shortages likely as a result of the COVID-19 pandemic. We continue to take steps to validate our suppliers’ ability to deliver to us on time. However, the extended lead times have required us to make additional investments in inventory to satisfy customer demand, which we expect to persist.
Worsening supply chain constraints have impacted our ability to meet customer demand, and as a result, negatively impacted revenue compared to expectations. The global supply chain constraints will limit our ability to capture the demand from our customers during fiscal 2022. We continue to maintain additional resources to help mitigate component constraint challenges and the operating inefficiencies COVID-19 has created, but note these inefficiencies place additional burden on operating results.
The global supply chain constraints have led to inflation in many of the components we acquire, as well as labor and operating costs. While we have been largely able to mitigate the impacts of inflation through our contractual rights with customers on pricing, the inability to offset these costs in future periods or the impacts of continued inflation on end markets and our customers may affect our operating results and inventory levels, which could increase as a result of higher component prices or the negative effects of inflation on customer demand.
We believe we are positioned with a strong balance sheet to face the potential future challenges presented by COVID-19. As of the first quarter of fiscal 2022, cash and cash equivalents and restricted cash were $218 million, while debt, finance lease obligations and other financing were $338 million. Borrowings under our Credit Facility as of January 1, 2022 were $140 million, leaving $210 million of our revolving commitment of $350 million available for use as of January 1, 2022 as well as the ability to expand our revolving commitment to $600 million upon mutual agreement with the bank. Refer to Note 3, "Debt, Finance Lease Obligations and Other Financing," in Notes to Condensed Consolidated Financial Statements and "Management’s Discussion and Analysis Liquidity and Capital Resources" in Part I, Item 2 for further information.
See "Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021, "Our financial condition and results of operations may be materially adversely affected by the ongoing coronavirus (COVID-19) outbreak" and "We experience component shortages, price fluctuations and supplier quality concerns."
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RESULTS OF OPERATIONS
Consolidated Performance Summary. The following table presents selected consolidated financial data (dollars in millions, except per share data):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Net sales |  | $ | 817.5 |  |  | $ | 830.4 |
Cost of sales |  | 747.5 |  |  | 751.1 |
Gross profit |  | 70.0 |  |  | 79.3 |
Gross margin |  | 8.6 | % |  | 9.5 | %
Operating income |  | 30.5 |  |  | 46.9 |
Operating margin |  | 3.7 | % |  | 5.6 | %
Other expense |  | 3.7 |  |  | 5.2 |
Income tax expense |  | 3.4 |  |  | 5.4 |
Net income |  | 23.4 |  |  | 36.2 |
Diluted earnings per share |  | $ | 0.82 |  |  | $ | 1.23 |
Return on invested capital* |  | 10.0 | % |  | 16.3 | %
Economic return* |  | 0.7 | % |  | 8.2 | %
*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 January 1, 2022, net sales decreased $12.9 million, or 1.6%, as compared to the three months ended January 2, 2021. The decrease in net sales was primarily driven by supply chain constraints, which has created limitations with meeting available customer demand and ramping new programs, partially offset by an increase in production ramps of new products with existing customers.
Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our 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
|  | January 1, 2022 |  | January 2, 2021
Net sales: |  |  |  |
AMER |  | $ | 277.3 |  |  | $ | 327.6 |
APAC |  | 491.7 |  |  | 451.3 |
EMEA |  | 72.9 |  |  | 78.7 |
Elimination of inter-segment sales |  | (24.4) |  |  | (27.2) |
Total net sales |  | $ | 817.5 |  |  | $ | 830.4 |

AMER. Net sales for the three months ended January 1, 2022 in the AMER segment decreased $50.3 million, or 15.4%, as compared to the three months ended January 2, 2021. The decrease in net sales was driven by overall net decreased customer end-market demand, inclusive of the impact of supply chain constraints that have created limitations with meeting available customer demand and ramping new programs. The decrease in net sales was also driven by a $6.8 million decrease due to a disengagement with a customer. These decreases were partially offset by a $12.4 million increase in production ramps of new products for existing customers.
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APAC. Net sales for the three months ended January 1, 2022 in the APAC segment increased $40.4 million, or 9.0%, as compared to the three months ended January 2, 2021. The increase in net sales was driven by overall net increased customer end-market demand, partially offset by the impact of supply chain constraints that have created limitations with meeting available customer demand and ramping new programs. The increase was also driven by a $20.2 million increase in production ramps of new products for existing customers. These increases were partially offset by a $7.2 million decrease for end-of-life products.
EMEA. Net sales for the three months ended January 1, 2022 in the EMEA segment decreased $5.8 million, or 7.4%, as compared to the three months ended January 2, 2021. The decrease in net sales was driven by overall net decreased customer end-market demand.
Our net sales by market sector were as follows (in millions):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Net sales: |  |  |  |
Industrial |  | $ | 363.8 |  |  | $ | 378.1 |
Healthcare/Life Sciences |  | 344.5 |  |  | 319.3 |
Aerospace/Defense |  | 109.2 |  |  | 133.0 |
Total net sales |  | $ | 817.5 |  |  | $ | 830.4 |

Industrial. Net sales for the three months ended January 1, 2022 in the Industrial sector decreased $14.3 million, or 3.8%, as compared to the three months ended January 2, 2021. The decrease was driven by supply chain constraints that have created limitations with meeting available customer demand and ramping new programs, partially offset by overall net increased customer end-market demand, and a $6.8 million decrease due to a disengagement with a customer. The decrease was partially offset by an increase of $14.0 million due to production ramps of new products with existing customers.
Healthcare/Life Sciences. Net sales for the three months ended January 1, 2022 in the Healthcare/Life Sciences sector increased $25.2 million, or 7.9%, as compared to the three months ended January 2, 2021. The increase in net sales was driven by a $21.2 million increase in production ramps of new products with existing customers as well as overall net increased customer end-market demand, partially offset by the impact of supply chain constraints that have created limitations with meeting available customer demand and ramping new programs. The increase was partially offset by a $7.2 million decrease for end-of-life products, primarily as a result of decreased demand in critical care products likely due to COVID-19.
Aerospace/Defense. Net sales for the three months ended January 1, 2022 in the Aerospace/Defense sector decreased $23.8 million, or 17.9%, as compared to the three months ended January 2, 2021. The decrease was driven by net decreased customer end-market demand, primarily with commercial aerospace customers likely due to COVID-19, as well as the impact of supply chain constraints that have created limitations with meeting available customer demand and ramping new programs.
Cost of sales. Cost of sales for the three months ended January 1, 2022 decreased $3.6 million, or 0.5%, as compared to the three months ended January 2, 2021. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For the three months ended January 1, 2022 and January 2, 2021, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 87% of these costs were related to material and component costs.
As compared to the three months ended January 2, 2021, the decrease in cost of sales for the three months ended January 1, 2022 was primarily driven by the decrease in net sales. This was partially offset by an increase in fixed costs, reduced labor productivity and operational inefficiencies associated with supply chain constraints.
Gross profit. Gross profit for the three months ended January 1, 2022 decreased $9.3 million, or 11.7%, as compared to the three months ended January 2, 2021. Gross margin of 8.6% for the three months ended January 1, 2022 decreased 90 basis points compared to the three months ended January 2, 2021. The primary driver of the decrease in gross profit and gross margin as compared to fiscal 2021 was the decrease in net sales as well as the increase in fixed costs, reduced labor productivity and operational inefficiencies associated with supply chain constraints.
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Operating income. Operating income for the three months ended January 1, 2022 decreased $16.4 million, or 35.0%, as compared to the three months ended January 2, 2021 as a result of the decrease in gross profit, a $5.1 million increase in selling and administrative expenses ("S&A") and a $2.0 million increase in restructuring and impairment charges. The increase in S&A was primarily due to an increase in bad debt expense compared to recovery of a previously reserved customer receivable received during the three months ended January 2, 2021, as well as increased compensation costs. Operating margin of 3.7% for the three months ended January 1, 2022 decreased 190 basis points compared to the three months ended January 2, 2021, primarily due to the decrease in gross margin as a result of the factors previously discussed, the increase in S&A expenses and increased restructuring and impairment charges associated with employee severance costs for a facility transition in the APAC region.
A discussion of operating income by reportable segment is presented below (in millions):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Operating income (loss): |  |  |  |
AMER |  | $ | 1.8 |  |  | $ | 16.5 |
APAC |  | 60.7 |  |  | 61.5 |
EMEA |  | 1.0 |  |  | (1.0) |
Corporate and other costs |  | (33.0) |  |  | (30.1) |
Total operating income |  | $ | 30.5 |  |  | $ | 46.9 |

AMER. Operating income decreased $14.7 million for the three months ended January 1, 2022 as compared to the three months ended January 2, 2021, primarily as a result of a decrease in net sales, reductions in labor productivity attributable to supply chain constraints, an increase in bad debt expense compared to recovery of a previously reserved customer receivable for the three months ended January 2, 2021, and increased fixed costs. This was partially offset by a positive shift in customer mix.
APAC. Operating income decreased $0.8 million for the three months ended January 1, 2022 as compared to the three months ended January 2, 2021, primarily as a result of reductions in labor productivity attributable to supply chain constraints, an increase in fixed costs and a negative shift in customer mix. This was partially offset by an increase in net sales.
EMEA. Operating income increased $2.0 million for the three months ended January 1, 2022 as compared to the three months ended January 2, 2021 primarily as a result of a positive shift in customer mix. This was partially offset by a decrease in net sales.
Other expense. Other expense for the three months ended January 1, 2022 decreased $1.5 million as compared to the three months ended January 2, 2021. The decrease in other expense was primarily due to the decrease in interest expense of $1.0 million and a decrease of $0.5 million in foreign exchange losses.
Income taxes. Income tax expense for the three months ended January 1, 2022 was $3.4 million compared to $5.4 million for the three months ended January 2, 2021. The decrease is primarily due to a decrease in income before taxes as well as additional discrete tax benefits of $0.6 million, partially offset by a change in the geographic distribution of worldwide earnings.
Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.
The annual effective tax rate for fiscal 2022 is expected to be approximately 13.0% to 15.0% assuming no changes to tax laws.
Net Income. Net income for the three months ended January 1, 2022 decreased $12.8 million, or 35.4%, from the three months ended January 2, 2021 to $23.4 million. Net income decreased primarily as a result of the decrease in operating income, partially offset by the decrease in other expense and tax expense as previously discussed.
Diluted earnings per share. Diluted earnings per share decreased to $0.82 for the three months ended January 1, 2022 from $1.23 for the three months ended January 2, 2021 primarily as a result of decreased net income due to the factors discussed above, partially offset by a reduction in diluted shares outstanding due to repurchase activity under our share repurchase plans.
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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 15%.
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 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 two-quarter period for the first quarter. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). We define economic return as ROIC less our weighted average cost of capital ("WACC").
We review our internal calculation of WACC annually. Our WACC is 9.3% for fiscal 2022 as compared to 8.1% for fiscal 2021. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. For the three months ended January 1, 2022, ROIC of 10.0% reflects an economic return of 0.7%, based on our weighted average cost of capital of 9.3%. For the three months ended January 2, 2021, ROIC of 16.3% reflects an economic return of 8.2%, based on our weighted average cost of capital of 8.1% for that fiscal year.
For a reconciliation of ROIC, economic return and adjusted operating income (tax effected) to our financial statements that were prepared using GAAP, see Exhibit 99.1 to this quarterly report on Form 10-Q, which exhibit is incorporated herein by reference.
Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal years (dollars in millions):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Adjusted operating income (tax effected) |  | $ | 113.1 |  |  | $ | 163.1 |
Average invested capital |  | 1,135.3 |  |  | 1,002.1 |
After-tax ROIC |  | 10.0 | % |  | 16.3 | %
WACC |  | 9.3 | % |  | 8.1 | %
Economic return |  | 0.7 | % |  | 8.2 | %

LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and restricted cash were $218.4 million as of January 1, 2022, as compared to $270.5 million as of October 2, 2021.
As of January 1, 2022, 90.4% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs and potential share repurchases, if any, for the next twelve months and for the foreseeable future.
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Our future cash flows from operating activities will be reduced by $53.6 million due to cash payments for U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining five years (in millions):

Remaining 2022 | $ | 5.6 |
2023 | 5.6 |
2024 | 10.6 |
2025 | 14.2 |
2026 | 17.6 |
Total | $ | 53.6 |

Cash Flows. The following table provides a summary of cash flows (in millions):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Cash(used in) provided by operating activities |  | $ | (89.0) |  |  | $ | 6.7 |
Cash used in investing activities |  | (33.4) |  |  | (15.8) |
Cash provided by (used in) financing activities |  | 70.0 |  |  | (24.8) |

Operating Activities. Cash flows used by operating activities were $89.0 million for the three months ended January 1, 2022, as compared to cash flows provided by operating activities of $6.7 million for the three months ended January 2, 2021. The decrease was primarily due to cash flow (reductions) improvements of:
•$(12.8) million decrease in net income.
•$(218.1) million in inventory cash flows driven by increased inventory levels to support the ramp of customer programs. In addition, there are longer lead times for certain components as a result of supply chain constraints heightened by the COVID-19 outbreak increasing our inventory level as we maintain components for remainder of the product.
•$(73.7) million in accounts receivable cash flows driven by timing of customer shipments, mix of customer payment terms and payments as well as decreased factoring activity.
•$99.7 million in accounts payables cash flows driven by increased purchasing activity to support the ramp of customer programs.
•$65.8 million in customer deposit cash flows driven by significant deposits received from four customers in the current year to cover certain inventory balances associated with longer lead times as a result of supply chain constraints heightened by the COVID-19 outbreak.
•$35.0 million in other current and non-current liabilities cash flows driven by an increase in advance payments from customers.
•$9.0 million in contract assets cash flows driven by decreased demand from customers who recognize revenue over time in the current year compared to consistent demand in the prior year.
The following table provides a summary of cash cycle days for the periods indicated (in days):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Days in accounts receivable |  | 66 |  | 53
Days in contract assets |  | 12 |  | 12
Days in inventory |  | 145 |  | 93
Days in accounts payable |  | (87) |  | (59)
Days in cash deposits |  | (33) |  | (19)
Annualized cash cycle |  | 103 |  | 80

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We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable and cash deposits as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in cash deposits.
As of January 1, 2022, annualized cash cycle days increased twenty-three days compared to January 2, 2021 due to the following:
Days in accounts receivable for the three months ended January 1, 2022 increased thirteen days compared to the three months ended January 2, 2021. The increase is primarily attributable to the timing of customer shipments and payments, mix of customer payment terms and a decrease in factored receivables.
Days in contract assets for the three months ended January 1, 2022 remained flat compared to the three months ended January 2, 2021.
Days in inventory for the three months ended January 1, 2022 increased fifty-two days compared to the three months ended January 2, 2021. The increase is primarily attributable to increased inventory levels to support the ramp of customer programs, as well as the decrease in net sales. In addition, there are longer lead times for certain components as a result of supply chain constraints heightened by the COVID-19 outbreak increasing our inventory level as we maintain components for remainder of the product.
Days in accounts payable for the three months ended January 1, 2022 increased twenty-eight days compared to the three months ended January 2, 2021. The increase is primarily attributable to increased purchasing activity and supply chain constraints to obtain certain components heightened by the COVID-19 outbreak, as well as the decrease in net sales.
Days in cash deposits for the three months ended January 1, 2022 increased fourteen days compared to the three months ended January 2, 2021. The increase was primarily attributable to significant deposits received from four customers to cover certain inventory balances.
Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow (used in) provided by operations less capital expenditures. FCF was $(122.2) million for the three months ended January 1, 2022 compared to $(9.2) million for the three months ended January 2, 2021, a decrease of $113.0 million.
Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.
A reconciliation of FCF to our financial statements that were prepared using GAAP follows (in millions):

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Cash flows (used in) provided by operating activities |  | $ | (89.0) |  |  | $ | 6.7 |
Payments for property, plant and equipment |  | (33.2) |  |  | (15.9) |
Free cash flow |  | $ | (122.2) |  |  | $ | (9.2) |

Investing Activities. Cash flows used in investing activities were $33.4 million for the three months ended January 1, 2022 compared to $15.8 million for the three months ended January 2, 2021. The increase in cash used in investing activities was due to a $17.4 million increase in capital expenditures, primarily due to our manufacturing footprint expansion in Bangkok, Thailand.
We estimate funded capital expenditures for fiscal 2022 will be approximately $100.0 million to $120.0 million, of which $33.2 million was utilized through the first three months of fiscal 2022. The remaining fiscal 2022 capital expenditures are anticipated to be used primarily for our manufacturing footprint expansion in Bangkok, Thailand, and to support new program ramps and replace older equipment.
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Financing Activities. Cash flows provided by financing activities were $70.0 million for the three months ended January 1, 2022 compared to cash flows used in financing activities of $24.8 million for the three months ended January 2, 2021. The increase was primarily attributable to an increase of $83.6 million in net borrowings on the Credit Facility and a decrease of $12.6 million in cash used to repurchase our common stock.
On August 20, 2019, the Board of Directors approved a share repurchase program under which we were authorized to repurchase $50.0 million of our common stock (the "2019 Program"). During the three months ended January 2, 2021, we 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 we were authorized to repurchase up to $50.0 million of our 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 existing 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 January 2, 2021, we repurchased 233,511 shares under this program for $17.5 million at an average price of $74.70 per share.
On August 11, 2021, the Board of Directors approved a new share repurchase program under which we were authorized to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program. The 2022 Program has no expiration. During the three months ended January 1, 2022, we repurchased 110,440 shares under this program for $10.2 million at an average price of $91.74 per share. As of January 1, 2022, $36.7 million of authority remained under the 2022 Program.
All shares repurchased under the aforementioned programs were recorded as treasury stock.
On June 15, 2018, we entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which we issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount 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 we are 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 January 1, 2022, we were in compliance with the covenants under the 2018 NPA.
On May 15, 2019, we refinanced our then-existing senior unsecured revolving credit facility by entering into a new five-year senior unsecured revolving credit facility (referred to as the "Credit Facility"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment under the Credit Facility may be further increased to $600.0 million, generally by mutual agreement of the lenders and us, subject to certain customary conditions. During fiscal 2022, the highest daily borrowing was $186.0 million; the average daily borrowings were $117.9 million. We borrowed $181.0 million and repaid $96.0 million of revolving borrowings ("revolving commitment") under the Credit Facility during fiscal 2022. As of January 1, 2022, we were in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA discussed above. We are required to pay a commitment fee on the daily unused revolving commitment based on our leverage ratio; the fee was 0.125% as of January 1, 2022.
To further ensure our ability to meet our working capital and fixed capital requirements, on April 29, 2020, we entered into Amendment No. 1 to the Credit Facility (the "Amendment") in response to the COVID-19 outbreak, which amended the Credit Facility, dated as of May 15, 2019. The Amendment modified certain provisions of the Credit Facility to, among other things, provide Term Loans for $138.0 million. Term Loans borrowed under the new facility were funded in a single draw on May 4, 2020 and were scheduled to mature on April 28, 2021. On January 29, 2021, we terminated the Term Loans through repayment of the $138.0 million outstanding using borrowings from the revolving commitment under the Credit Facility. Outstanding Term Loans bore interest, at our option, at a eurocurrency rate (subject to a floor of 1.0%) plus a margin of 1.75% per annum or at a base rate (subject to a floor of 2.0%) plus a margin of 0.75% per annum.
The Credit Facility and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the past. However, we evaluate from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.
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We have 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 we may elect to sell receivables, at a discount, on an ongoing basis. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of January 1, 2022 is $340.0 million. The maximum facility amount under the HSBC RPA as of January 1, 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.
We sold $148.0 million and $198.4 million of trade accounts receivable under these programs during the three months ended January 1, 2022 and January 2, 2021, respectively, in exchange for cash proceeds of $147.5 million and $197.8 million, respectively. As of January 1, 2022 and October 2, 2021, $151.0 million and $176.0 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding and had not yet been collected.
In all cases, the sale discount was recorded within "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note 13, "Trade Accounts Receivable Sale Programs," in Notes to Condensed Consolidated Financial Statements.
Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execution upon our share repurchase authorizations as management deems appropriate, for the next twelve months. We believe our balance sheet is positioned to support the potential future challenges presented by COVID-19, including increased working capital requirements associated with longer lead time for components, increased component and labor costs, and operating inefficiencies due to supply chain constraints or workplace safety restrictions. As of the end of the first quarter of fiscal 2022, cash and cash equivalents and restricted cash were $218 million, while debt, finance lease obligations and other financing were $338 million. We have significant funding availability through our Credit Facility, should future needs arise. If our future financing needs increase, then we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms.
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DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are disclosed in our 2021 Annual Report on Form 10-K. During the first quarter of fiscal 2022, there were no material changes.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1, "Basis of Presentation," in Notes to Condensed Consolidated Financial Statements regarding recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in foreign exchange and interest rates. We selectively use financial instruments to reduce such risks. We do not use derivative financial instruments for speculative purposes.
Foreign Currency Risk
Our international operations create potential foreign exchange risk. Our policy is to selectively hedge our foreign currency denominated transactions in a manner that partially offsets the effects of changes in foreign currency exchange rates. We typically use foreign currency contracts to hedge only those currency exposures associated with certain assets and liabilities denominated in non-functional currencies. Corresponding gains and losses on the underlying transaction generally offset the gains and losses on these foreign currency hedges. We cannot predict changes in currency rates, nor the degree to which we will be able to manage the impacts of currency exchange rate changes, including the impacts on currency exchange rates related to the COVID-19 outbreak. Such changes could have a material effect on our business, results of operations and financial condition.
Our percentages of transactions denominated in currencies other than the U.S. dollar for the indicated periods were as follows:

|  | Three Months Ended
|  | January 1, 2022 |  | January 2, 2021
Net Sales |  | 10% |  | 10%
Total Costs |  | 18% |  | 16%

We have evaluated the potential foreign currency exchange rate risk on transactions denominated in currencies other than the U.S. dollar for the periods presented above. Based on our overall currency exposure, as of January 1, 2022, a 10.0% change in the value of the U.S. dollar relative to our other transactional currencies would not have a material effect on our financial position, results of operations, or cash flows.
Interest Rate Risk
We have financial instruments, including cash equivalents and debt, which are sensitive to changes in interest rates. The primary objective of our investment activities is to preserve principal, while maximizing yields without significantly increasing market risk. To achieve this, we limit the amount of principal exposure to any one issuer. We cannot predict changes in interest rates, including the impacts on interest rates related to the COVID-19 outbreak.
As of January 1, 2022, our only material interest rate risk is associated with our Credit Facility. Revolving commitments under the Credit Facility bear interest, at our option, at a eurocurrency or base rate plus, in each case, an applicable interest rate margin based on our then-current leverage ratio (as defined in the Credit Facility). As of January 1, 2022, the borrowing rate under the Credit Facility was LIBOR plus 1.10%. Borrowings under the 2018 NPA are based on a fixed interest rate, thus mitigating much of our interest rate risk. Based on our overall interest rate exposure, as of January 1, 2022, a 10.0% change in interest rates would not have a material effect on our financial position, results of operations, or cash flows.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported on a timely basis. The Company’s Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have reviewed and evaluated, with the participation of the Company’s management, the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report (the "Evaluation Date"). Based on such evaluation, the CEO and CFO have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective, at the reasonable assurance level, (a) in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act, and (b) in assuring that information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the first quarter of fiscal 2022 there have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors
In addition to the risks and uncertainties discussed herein, particularly those discussed in the “Safe Harbor” Cautionary Statement and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part I, Item 2, see the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 2, 2021 that have had no material changes.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides the specified information about the repurchases of shares by us during the three months ended January 1, 2022:

Period |  | Total number of shares purchased |  | Average price paid per share |  | Total number of shares purchased as part of publicly announced plans or programs |  | Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (1)
October 3, 2021 - October 30, 2021 |  | 31,216 |  |  | $ | 93.41 |  |  | 31,216 |  |  | $ | 43,960,950 |
October 31, 2021 - November 27, 2021 |  | 37,160 |  |  | 91.40 |  |  | 37,160 |  |  | 40,564,577 |
November 28, 2021 - January 1, 2022 |  | 42,064 |  |  | 90.79 |  |  | 42,064 |  |  | $ | 36,745,401 |
|  | 110,440 |  |  | $ | 91.74 |  |  | 110,440 |  |  |

(1) On August 11, 2021, the Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its common stock (the "2022 Program"). The 2022 Program commenced upon completion of the 2021 Program during the fourth quarter of fiscal 2021. The 2022 Program has no expiration. The table above reflects the maximum dollar amount remaining available for purchase under the 2022 Program as of January 1, 2022.
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ITEM 6. EXHIBITS
The list of exhibits is included below:

Exhibit No. |  | Exhibit
10.1 |  | Suspension of Rights under Credit Agreement relating to LIBOR.
10.2 |  | Summary of Directors' Compensation effective January 1, 2022.*
31.1 |  | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1 |  | Certification of the CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 |  | Certification of the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 |  | Reconciliation of ROIC to GAAP and Economic Return Financial Statements.
101 |  | The following materials from Plexus Corp.’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2022, formatted in Inline Extensible Business Reporting Language ("XBRL"): (i) the Condensed Consolidated Statements of Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Shareholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.
101.INS |  | Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document).
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
104 |  | The cover page from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2022, formatted in Inline XBRL and contained in Exhibit 101.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|  |  | Plexus Corp. |
|  |  | Registrant |
Date: | February 4, 2022 |  | /s/ Todd P. Kelsey |
|  |  | Todd P. Kelsey |
|  |  | Chief Executive Officer |
Date: | February 4, 2022 |  | /s/ Patrick J. Jermain |
|  |  | Patrick J. Jermain |
|  |  | Executive Vice President and Chief Financial Officer |

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