NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 1, 2017 AND APRIL 2, 2016

Unaudited

1.    Basis of Presentation and Significant Accounting Policies

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”). In the opinion of the Company, the accompanying Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the consolidated financial position of the Company as of April 1, 2017 and October 1, 2016 , and the results of operations for the three and six months ended April 1, 2017 and April 2, 2016 , and the cash flows for the same six month periods.

The Company’s fiscal year ends on the Saturday closest to September 30. The Company also 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, 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 2016 Annual Report on Form 10-K.

The Company’s reportable segments consist of the “Americas” (“AMER”), “Asia-Pacific” (“APAC”) and “Europe, Middle East, and Africa” (“EMEA”) segments. Refer to Note 9, "Reportable Segments," for further details on reportable segments.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents include short-term, highly liquid investments and are classified as Level 1 in the fair value hierarchy described below. Restricted cash represents cash received from customers to settle invoices sold under master accounts receivable purchase agreements and is therefore contractually required to be set aside. The restrictions will lapse when the cash is remitted to the purchaser. This is also classified as Level 1 in the fair value hierarchy described below.

Noncash Supplemental Executive Retirement Plan Transaction

In March 2017, the Company changed trustee for its supplemental executive retirement plan. The change resulted in a settlement and re-investment of $10.3 million , with no actual cash received or distributed by the Company.

Fair Value of Financial Instruments

The Company holds financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable, certain deferred compensation assets held under trust arrangements, accounts payable, debt, derivatives, and capital lease obligations. The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and capital lease obligations as reported in the Condensed Consolidated Financial Statements approximate fair value. Derivatives and certain deferred compensation assets held under trust arrangements are recorded at fair value. Accounts receivable are reflected at net realizable value based on anticipated losses due to potentially uncollectible balances. Anticipated losses are based on management’s analysis of historical losses and changes in customers’ credit status. The fair value of the Company’s long-term debt was $174.0 million and $176.4 million as of April 1, 2017 and October 1, 2016 , respectively. The carrying value of the Company’s long-term debt was $175.0 million as of both April 1, 2017 and October 1, 2016 . The Company uses quoted market prices when available or discounted cash flows to calculate the fair value of its debt. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy described below. Refer to Note 4, "Derivatives and Fair Value Measurements," for further details on derivatives.

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 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.

2.    Inventories

Inventories as of April 1, 2017 and October 1, 2016 consisted of (in thousands):  

Customer deposits are received by the Company for various reasons, including to offset certain obsolete and excess inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of April 1, 2017 and October 1, 2016 was $82.3 million and $74.6 million , respectively.

3.    Debt, Capital Lease Obligations and Other Financing

Debt, capital lease and other obligations as of April 1, 2017 and October 1, 2016 , consisted of the following (in thousands):

The Company has a senior unsecured revolving credit facility (the “Credit Facility”) with a $300.0 million maximum commitment that expires on July 5, 2021 .  The Credit Facility may be further increased to $500.0 million , generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the three and six months ended April 1, 2017 , the highest daily borrowing was $142.0 million and the average daily borrowing was $88.8 million and $103.0 million , respectively. The Company borrowed $23.0 million and repaid $8.0 million of revolving borrowings under the Credit Facility during the three months ended April 1, 2017 . The Company borrowed $96.0 million and repaid $81.0 million of revolving borrowings under the Credit Facility during the six months ended April 1, 2017 .

The financial covenants (as defined under the related Credit Agreement) require that the Company maintain, as of each fiscal quarter end, a maximum total leverage ratio and a minimum interest coverage ratio. As of April 1, 2017 , the Company was in compliance with all financial covenants of the Credit Agreement. Borrowings under the Credit Facility bear interest, at the Company’s option, at a eurocurrency or base rate plus, in each case, an applicable interest rate margin based on the Company’s then-current leverage ratio (as defined in the Credit Agreement). As of April 1, 2017 , the interest rate under the Credit Agreement was LIBOR plus 1.125% (or 2.108% ).

As of April 1, 2017 , $75.0 million of the total $90.0 million of outstanding borrowings under the Credit Facility is effectively at a fixed interest rate as a result of a $75.0 million interest rate swap contract discussed in Note 4, "Derivatives and Fair Value Measurements." The Company is required to pay an annual commitment fee based on the daily unused revolver credit commitment based on the Company's leverage ratio; the fee was 0.175% as of April 1, 2017 .

The Company also has outstanding 5.20% senior notes, due on June 15, 2018 (the “Notes”). As of April 1, 2017 and October 1, 2016 , $175.0 million of Notes was outstanding, and the Company was in compliance with all financial covenants relating to the Notes, which are generally consistent with those in the Credit Agreement discussed above.

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 and interest rates. The Company has cash flow hedges related to variable rate debt and 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.

ASC Topic 815-10, “Derivatives and Hedging,” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with ASC Topic 815-10, the Company designates some foreign currency exchange contracts and float-to-fixed interest rate derivative contracts as cash flow hedges of forecasted foreign currency expenses and of variable rate interest payments, respectively.

Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $2.7 million of unrealized losses , net of tax, related to cash flow hedges will be reclassified from other comprehensive income (loss) into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous income (expense)" in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company enters into forward currency exchange contracts for its Malaysian operations on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $67.0 million as of April 1, 2017 and $73.7 million as of October 1, 2016 . 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 cash flow hedges was a $2.7 million liability as of April 1, 2017 and a $0.5 million liability as of October 1, 2016 .

The Company had additional forward currency exchange contracts outstanding with a notional value of $117.7 million as of April 1, 2017 and $109.6 million as of October 1, 2016 . The Company did not designate these derivative instruments as hedging instruments. In accordance with ASC Topic 815-10, 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 income (expense)." The total fair value of these derivatives was a net $0.4 million asset as of April 1, 2017 and a net $0.1 million asset as of October 1, 2016 .

In 2013, the Company entered into a $75.0 million notional amount interest rate swap contract, which expires on May 5, 2017, related to $75.0 million of borrowings outstanding under the Credit Facility. This interest rate swap pays the Company variable interest at the one month LIBOR rate, and the Company pays the counterparty a fixed interest rate. The fixed interest rate for the contract is 0.875% . Based on the terms of the interest rate swap contract and the underlying borrowings outstanding under the Credit Facility, the interest rate contract was determined to be effective, and thus qualifies as a cash flow hedge. As such, any changes in the fair value of the interest rate swap are recorded in "Accumulated other comprehensive income (loss)" on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The total fair value of the interest rate swap contract as of both April 1, 2017  and October 1, 2016 , was approximately a $0.0 million asset and a $0.1 million liability, respectively. The notional amount of the Company’s interest rate swap was $75.0 million as of both April 1, 2017 and October 1, 2016 .

The tables below present information regarding the fair values of derivative instruments (as defined in Note 1, "Basis of Presentation and Significant Accounting Policies") and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:  

 

 

There were no gains or losses recognized in income for derivatives related to ineffective portions or amounts excluded from effectiveness testing for the three or six months ended April 1, 2017 and April 2, 2016 .

The following table lists the fair values of assets/(liabilities) of the Company’s derivatives as of April 1, 2017 and October 1, 2016 , by input level, as defined in Note 1, "Basis of Presentation and Significant Accounting Policies":

The fair value of interest rate swaps and 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. The primary input in the fair value of the interest rate swaps is the relevant LIBOR forward curve. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.

5.    Income Taxes

Income tax expense for the three and six months ended April 1, 2017 was $3.1 million and $6.0 million , respectively. The effective tax rates for the three and six months ended April 1, 2017 were 9.6% and 9.4% , respectively, compared to the effective tax rates of 14.2%  and  15.3% for the  three and six  months ended  April 2, 2016 , respectively.

The effective tax rate for both the three and six months ended April 1, 2017 decreased from the effective tax rate for the three and six months ended April 2, 2016 , primarily due to an increase in pre-tax earnings in lower tax-rate jurisdictions and in

jurisdictions where the Company maintains a valuation allowance. The Company’s effective tax rate will fluctuate with the geographic distribution of its worldwide earnings, changes in tax laws, disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

There were no material additions to the amount of unrecognized tax benefits recorded for uncertain tax positions as of April 1, 2017 , as compared to October 1, 2016 . The Company recognizes accrued interest and penalties on uncertain tax positions as a component of income tax expense. The amount of interest and penalties recorded for the three and six months ended April 1, 2017 was not material.

It is possible that one or more uncertain tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company's consolidated results of operations, financial position and cash flows. The Company is not currently under examination by taxing authorities in the U.S. or any foreign jurisdictions in which the Company operates.

The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended April 1, 2017 , the Company continued to record a full valuation allowance against its net deferred tax assets in certain jurisdictions within the AMER and EMEA segments, as it was more likely than not that these assets would not be fully realized based primarily on historical performance. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until it determines it is more likely than not that the deferred tax assets will be realized.

6.    Earnings Per Share

The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share for the three and six months ended April 1, 2017 and April 2, 2016 (in thousands, except per share amounts):

For the three and six months ended April 1, 2017 and April 2, 2016 share-based awards for approximately 0.1 million and 0.9 million shares, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.

7.      Share-Based Compensation

The Company recognized $4.4 million and $8.0 million of compensation expense associated with share-based awards for the three and six months ended April 1, 2017 , respectively, and $3.6 million and $7.0 million for the three and six months ended April 2, 2016 , respectively.

The Company uses the Black-Scholes valuation model to determine the fair value of stock options and stock-settled stock appreciation rights ("SARs"). The Company uses its stock price on grant date as the fair value assigned to restricted stock units ("RSUs").

The Company uses the Monte Carlo valuation model to determine the fair value of performance stock units ("PSUs") at the date of grant. PSUs are payable in shares of the Company's common stock. Beginning for fiscal 2017 grants, PSUs vest based on the relative total shareholder return ("TSR") of the Company's common stock as compared to the companies in the Russell 3000 index and economic return performance during the three year performance period. The PSUs granted in fiscal 2016 and prior years vest based on the relative TSR of the Company's common stock as compared to companies in the Russell 3000 Index during a three year performance period. The number of shares that may be issued pursuant to PSUs ranges from zero to 0.4 million .

The Company recognizes share-based compensation expense over the share-based awards' vesting period.

8.    Litigation

The Company is party to lawsuits in the ordinary course of business. Management does not believe that these proceedings, individually or in the aggregate, will have a material positive or adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

9.    Reportable Segments

Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in assessing performance and allocating resources. The Company uses an internal management reporting system, which provides important financial data to evaluate performance and allocate the Company’s resources on a regional basis. Net sales for 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 and other charges, if any. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Inter-segment transactions are generally recorded at amounts that approximate arm’s length transactions. The accounting policies for the segments are the same as for the Company taken as a whole.

Information about the Company’s three reportable segments for the three and six months ended April 1, 2017 and April 2, 2016 , respectively, is as follows (in thousands):

10.    Guarantees

The Company offers certain indemnifications under its customer manufacturing agreements. In the normal course of business, the Company may from time to time be obligated to indemnify its customers or its customers’ customers against damages or liabilities arising out of the Company’s negligence, misconduct, breach of contract, or infringement of third party intellectual property rights. Certain agreements have extended broader indemnification, and while most agreements have contractual limits, some do not. However, the Company generally does not provide for such indemnities and seeks indemnification from its customers for damages or liabilities arising out of the Company’s adherence to customers’ specifications or designs or use of materials furnished, or directed to be used, by its customers. The Company does not believe its obligations under such indemnities are material.

In the normal course of business, the Company also provides its customers a limited warranty covering workmanship, and in some cases materials, on products manufactured by the Company. Such warranty generally provides that products will be free from defects in the Company’s workmanship and meet mutually agreed-upon specifications for periods generally ranging from 12 months to 24 months. If a product fails to comply with the Company’s limited warranty, 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, customer 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 regularly 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 fiscal 2016 and the six months ended April 1, 2017 (in thousands):  

11.    Shareholders' Equity

On June 6, 2016, the Board of Directors approved a stock repurchase program under which the Company is authorized to repurchase up to $ 150.0 million of its common stock beginning in fiscal 2017.  During the  three months ended   April 1, 2017 , the Company repurchased  123,082  shares for approximately  $6.8 million , at an average price of  $55.61  per share. During the six months ended April 1, 2017 , the Company repurchased  267,811 shares for approximately $13.9 million at an average price of $51.93 per share.

On August 20, 2015, the Board of Directors approved a stock repurchase program under which the Company was authorized to repurchase up to $30.0 million of its common stock during fiscal 2016. During the three months ended April 2, 2016 , the Company repurchased 208,569 shares for approximately $7.3 million , at an average price of $34.88 per share. During the six months ended April 2, 2016 , the Company repurchased  435,881 shares for approximately $15.7 million at an average price of $36.11 per share.

All shares repurchased under the aforementioned programs were recorded as treasury stock.

12.    Trade Accounts Receivable Sale Programs

The Company has a Master Accounts Receivable Purchase Agreement (the “BTMU RPA”) with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (the “Purchaser”), which was amended on March 28, 2017, to, among other changes, increase the

maximum facility amount from $100.0 million to $120.0 million . Pursuant to the BTMU RPA, the Company and certain of its subsidiaries (each, a “Seller”) may sell to the Purchaser up to an aggregate of $120.0 million in accounts receivable owed to such Sellers by specified customers. In exchange, the Purchaser pays a purchase price for each purchased receivable equal to the net face value of the receivable less an agreed-upon discount. The BTMU RPA represents a non-committed facility. The Purchaser pays an agreed-upon servicing fee to each Seller with respect to each purchased receivable sold by such Seller, consistent with common market practices. The BTMU RPA contains representations, warranties, covenants, and termination events that are customary for factoring transactions of this type. The BTMU RPA is subject to expiration on October 3, 2017, but will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended.

On March 17, 2017, the Company entered into a Master Accounts Receivable Purchase Agreement (the "HSBC RPA") with HSBC Bank (China) Company Limited, Xiamen branch (the “HSBC Purchaser”). Pursuant to the HSBC RPA, the Company and certain of its subsidiaries (each, a “Seller”) may sell to the HSBC Purchaser up to an aggregate of $30.0 million in accounts receivable owed to such Sellers by specified customers. The terms of the HSBC RPA are generally consistent with the terms of the BTMU RPA discussed above.

During the three months ended April 2, 2016 , the Company sold receivables under a former trade accounts receivable sale program that expired during the first fiscal quarter of 2017.

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 expense" in the Condensed Consolidated Statements of Comprehensive Income in the period of the sale.

The Company sold $91.5 million and $19.2 million of trade accounts receivable during the three months ended April 1, 2017 and April 2, 2016 , respectively, and in exchange, received cash proceeds of $91.1 million and $19.0 million , respectively.

The Company sold $169.3 million and $41.5 million of trade accounts receivable during the six months ended April 1, 2017 and April 2, 2016 , respectively, and in exchange, received cash proceeds of $168.5 million and $41.2 million , respectively.

13.    Restructuring and Other Charges

The Company incurred no restructuring and other charges during the three months ended April 1, 2017 . For the three months ended April 2, 2016 , the Company incurred restructuring and other charges of $1.9 million , which consisted of $1.7 million of employee termination and severance costs and $0.3 million of other exit costs.

The restructuring and other charges for the three months ended April 2, 2016 , were incurred primarily in the AMER segment and related largely to the Company's closure of its manufacturing facility in Fremont, California as a result of the Company’s optimization of its capacity to better reflect customer demand. The Company also recorded restructuring and other charges in the EMEA segment related to the partial closure of its Livingston, Scotland facility to align with reduced end-market demand, particularly in the oil and gas industry. These charges are recorded within "Restructuring and other charges" on the Condensed Consolidated Statements of Comprehensive Income. Restructuring liabilities are recorded within "Other accrued liabilities" in the Condensed Consolidated Balance Sheets.

The Company incurred no restructuring and other charges during the six months ended April 1, 2017 , For the six months ended  April 2, 2016 , the Company incurred restructuring costs of  $3.4 million , which consisted of  $3.1 million  of employee termination and severance costs, primarily related to the Company's workforce in Fremont and Livingston, and  $0.4 million  of other exit costs.

In the three and six months ended April 1, 2017 and April 2, 2016 , the Company did not recognize an income tax benefit for these restructuring and other charges due to tax losses in the jurisdictions where the restructuring and other charges occurred.

The Company's restructuring accrual activity for fiscal 2016 and the three and six months ended April 1, 2017 follows (in thousands):

	Employee Termination and Severance Costs				Other Exit Costs				Total
Accrued balance, October 3, 2015	$	—			$	—			$	—
Restructuring and other charges	5,255				1,779				7,034
Amounts utilized	(4,571		)		(1,621		)		(6,192		)
Accrued balance, October 1, 2016	$	684			$	158			$	842
Restructuring and other charges	—				—				—
Amounts utilized	(525		)		(106		)		(631		)
Accrued balance, December 31, 2016	$	159			$	52			$	211
Restructuring and other charges	—				—				—
Amounts utilized	(97		)		(7		)		(104		)
Accrued balance, April 1, 2017	$	62			$	45			$	107

The restructuring accrual balance is expected to be utilized by the end of the third fiscal quarter of 2017.

14.    New Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“FASB”) issued amendments to its guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows. The Company adopted this guidance retrospectively during the first quarter of fiscal 2017 and, as a result, the Company included restricted cash within the Consolidated Statements of Cash Flows; such amounts were not material. The retrospective adoption did not impact the prior period Consolidated Statements of Cash Flows since there was no restricted cash during any of the prior periods presented. Amounts included in restricted cash represent cash received from customers to settle invoices sold under the trade accounts receivable sale programs and is therefore contractually required to be set aside. The restrictions will lapse when the cash is remitted to the purchaser.

In October 2016, the FASB issued a new accounting standard intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and early adoption is permitted. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.

In August 2016, the FASB issued new guidance related to the classification of certain cash receipts and cash payments, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new standard addresses certain issues where diversity in practice was identified. It also amends existing guidance, which is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019, and will generally require retrospective adoption. Early adoption is permitted. The Company is currently assessing the impact this new standard may have on its Consolidated Statements of Cash Flows.

In March 2016, the FASB issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The Company adopted this guidance prospectively during the first fiscal quarter of 2017. As such, beginning in the first fiscal quarter of 2017, the Company recognizes all excess tax benefits and tax deficiencies as income tax benefit or expense as a discrete item. An income tax benefit of approximately $4.9 million was recognized upon adoption, and for the three and six months ended April 1, 2017 , benefits of $1.2 million and $1.8 million , respectively, were also recognized. Due to the Company having a valuation allowance in the jurisdictions in which the income tax benefit was recorded, the income tax benefit was directly offset

by an increase to the Company's valuation allowance resulting in no financial statement impact. The adoption did not have any other material impacts and will not materially impact the Company's future financial statements as long as the Company remains in a valuation allowance in the jurisdictions in which share based compensation awards and options vest and are exercised, respectively.

In February 2016, the FASB issued guidance that primarily requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently in the process of assessing the impact of the adoption of the new standard on its Consolidated Financial Statements and the timing of adoption.

In May 2014, the FASB issued amended guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new standard will become effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption of this guidance on its Consolidated Financial Statements.