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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the Quarter ended March 31, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-14824
PLEXUS CORP.
(Exact name of registrant as specified in charter)
Wisconsin 39-1344447
(State of Incorporation) (IRS Employer Identification No.)
55 Jewelers Park Drive
Neenah, Wisconsin 54957-0156
(Address of principal executive offices)(Zip Code)
Telephone Number (920) 722-3451
(Registrant's telephone number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of May 9, 2000 there were 18,259,233 of Common Stock of the Company
outstanding.
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PLEXUS CORP.
TABLE OF CONTENTS
March 31, 2000
PART I. FINANCIAL INFORMATION....................................................................................3
Item 1. Consolidated Financial Statements...............................................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.................................................3
CONDENSED CONSOLIDATED BALANCE SHEETS...........................................................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........8
GENERAL.........................................................................................8
RESULTS OF OPERATIONS..........................................................................10
LIQUIDITY AND CAPITAL RESOURCES................................................................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................13
PART II - OTHER INFORMATION......................................................................................13
Item 2. Changes in Securities and Use of Proceeds......................................................13
Item 4. Submission of Matter to a Vote of Security Holders.............................................14
Item 5. Other Information..............................................................................14
Item 6. Exhibits and Reports on Form 8-K...............................................................15
SIGNATURE........................................................................................................15
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $ 161,994 $ 119,165 $ 309,088 $ 239,750
Cost of sales 138,891 102,337 265,436 206,018
--------- --------- --------- ---------
Gross profit 23,103 16,828 43,652 33,732
Operating expenses:
Selling and administrative expenses 8,001 6,687 15,163 12,756
Severance costs - 237 - 237
--------- --------- --------- ---------
Total operating expenses 8,001 6,924 15,163 12,993
--------- --------- --------- ---------
Operating income 15,102 9,904 28,489 20,739
Other income (expense):
Interest expense
(2) (66) (4) (151)
Other 486 589 858 1,055
--------- --------- --------- ---------
Income before income taxes 15,586 10,427 29,343 21,643
Income taxes 6,234 4,162 11,737 8,554
--------- --------- --------- ---------
Net income $ 9,352 $ 6,265 $ 17,606 $ 13,089
========= ========= ========= =========
Earnings per share:
Basic $ 0.53 $ 0.36 $ 1.00 $ 0.76
========= ========= ========= =========
Diluted $ 0.49 $ 0.34 $ 0.93 $ 0.71
========= ========= ========= =========
Weighted average shares outstanding:
Basic 17,744 17,298 17,666 17,192
========= ========= ========= =========
Diluted 19,033 18,564 18,881 18,464
========= ========= ========= =========
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited
MARCH 31, SEPTEMBER 30,
2000 1999
-----------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 25,250 $ 15,906
Short-term investments 5,005 17,224
Accounts receivable, net of allowance of $850
and $1,164, respectively 74,963 69,318
Inventories 107,345 79,017
Deferred income taxes 7,184 6,370
Prepaid expenses and other 3,770 3,562
-------- --------
Total current assets 223,517 191,397
Property, plant and equipment, net 42,011 35,868
Other 2,473 2,371
-------- --------
Total assets $268,001 $229,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10 $ 10
Accounts payable 69,043 55,928
Customer deposits 8,758 8,650
Accrued liabilities:
Salaries and wages 12,251 9,820
Other 6,234 6,578
-------- --------
Total current liabilities 96,296 80,986
Long-term debt 137 142
Deferred income taxes 169 215
Other liabilities 2,317 1,890
Stockholders' equity:
Preferred stock $.01 par value, 5,000, shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value, 60,000 shares authorized
17,810 and 17,545 issued and outstanding, respectively 178 175
Additional paid-in capital 56,495 51,425
Retained earnings 112,409 94,803
-------- --------
169,082 146,403
-------- --------
Total liabilities and stockholders' equity $268,001 $229,636
======== ========
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
SIX MONTHS ENDED
MARCH 31,
-----------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,606 $ 13,089
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 6,460 4,778
Deferred income taxes (860) (775)
Changes in assets and liabilities:
Accounts receivable (5,645) (3,343)
Inventories (28,328) 6,285
Prepaid expenses and other (209) (3,133)
Accounts payable 13,115 (1,899)
Customer deposits 108 (370)
Accrued liabilities 2,087 (1,566)
Other 351 (85)
-------- --------
Cash flows provided by operating activities 4,685 12,981
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (48,042) (14,680)
Maturity of investments 60,261 2,000
Payments for property, plant and equipment (12,672) (5,865)
Other 44 79
-------- --------
Cash flows used in investing activities (409) (18,466)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (5) (537)
Proceeds from exercise of stock options 2,742 2,493
Tax benefit from stock options exercised 2,331 2,876
Treasury stock purchased -- (1,159)
Treasury stock reissued -- 1,372
-------- --------
Cash flows provided by financing activities 5,068 5,045
-------- --------
Net increase (decrease) in cash and cash equivalents 9,344 (440)
-------- --------
Cash and cash equivalents:
Beginning of period 15,906 24,106
Effect of SeaMED excluded period - 2,027
-------- --------
End of period $ 25,250 $ 25,693
======== ========
See notes to condensed consolidated financial statements
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PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company without audit and pursuant to the rules and
regulations of the United States Securities and Exchange Commission. In the
opinion of the Company, the financial statements reflect all adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
financial position of Plexus Corp. at March 31, 2000 and the results of
operations for the three months and six months ended March 31, 2000 and 1999 and
the cash flows for the same six-month periods.
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 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 financial statements and notes
thereto included in the Company's 1999 Annual Report.
The condensed consolidated balance sheet data at September 30, 1999 was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2 - INVENTORIES
The major classes of inventories are as follows (in thousands):
March 31, September 30,
2000 1999
-------- --------
Assembly parts $ 64,960 $ 40,616
Work-in-process 33,635 27,145
Finished goods 8,750 11,256
-------- --------
$107,345 $ 79,017
======== ========
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NOTE 3 - EARNINGS PER SHARE
The following is a reconciliation of the amounts utilized in the
computation of basic and diluted earnings per share (in thousands except per
share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ------------- -------------- -------------
BASIC EARNINGS PER SHARE:
Net income $ 9,352 $ 6,265 $17,606 $13,089
======= ======= ======= =======
Weighted average shares outstanding 17,744 17,298 17,666 17,192
======= ======= ======= =======
BASIC EARNINGS PER SHARE $ 0.53 $ 0.36 $ 1.00 $ 0.76
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Net income $ 9,352 $ 6,265 $17,606 $13,089
======= ======= ======= =======
Weighted average shares outstanding 17,744 17,298 17,666 17,192
Effect of dilutive securities:
Stock options 1,289 1,266 1,215 1,272
------- ------- ------- -------
Diluted weighted average shares outstanding 19,033 18,564 18,881 18,464
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ 0.49 $ 0.34 $ 0.93 $ 0.71
======= ======= ======= =======
NOTE 4 - MERGER AND ACQUISITIONS
Merger: In July 1999, the Company completed its merger with SeaMED in a
transaction accounted for as a pooling of interests. Accordingly results for the
periods presented for fiscal 1999 have been restated to combine the results of
operations of both Plexus and SeaMED.
Acquisitions: In September 1999, the Company acquired certain printed
circuit board assembly assets in the Chicago, Illinois area, in exchange for
cash. In addition, on December 31, 1999 the Company acquired certain printed
circuit board assembly assets in the Seattle, Washington area, in exchange for
cash. The total purchase price of the net assets acquired in each of the
transactions was not material to the assets, stockholders' equity, or the
operations of the Company. Both acquisitions were accounted for as purchase
transactions, and results from the operation of the acquired assets are
reflected only from the dates of the acquisitions. Pro forma statements of
operations reflecting these acquisition are not shown, as they would not differ
materially from reported results.
On March 3, 2000, Plexus entered into an agreement to acquire Agility,
Incorporated a privately-held, Boston-area electronic manufacturing services
provider for stock. The transaction closed on April 28, 2000 with the issuance
of 374,997 shares of Plexus Corp. common stock. The transaction is being
accounted for as a pooling of interests. Pro forma statements of operations
reflecting this acquisition are not shown and prior results will not be
restated, as they would not differ materially from reported results.
On March 30, 2000, Plexus signed a definitive agreement to acquire all
of the turnkey electronic manufacturing operations of Elamex, S.A. de C.V. The
purchase price is estimated at approximately $52 to $53 million in either all
cash, or a substantial majority in cash with the remaining consideration in
Plexus common stock. The transaction is expected to close during Plexus' third
fiscal quarter and will be accounted for as a purchase transaction.
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NOTE 5 - RECLASSIFICATIONS
Certain amounts in the prior year's consolidated financial statements
have been reclassified to conform to the fiscal 2000 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Management's Discussion and Analysis of Financial Condition and Results
of Operations, with the exception of historical matters, contains
forward-looking statements (such as statements in the future tense and
statements including "believe", "expect", "intend", "plan", "look forward to",
"anticipate" and similar terms) are forward-looking statements that involve
risks and uncertainties. Actual results may differ materially from these
statements as a result of various factors, including those discussed in further
detail below (in particular "General").
GENERAL
Plexus Corp. is a contract service provider of design, manufacturing
and testing services to the electronics industry, headquartered in Neenah,
Wisconsin. Through its wholly owned subsidiaries, Plexus Technology Group, Inc.,
Plexus Electronic Assembly Corporation, SeaMED Corporation, and Agility,
Incorporated, the Company provides product realization services to original
equipment manufacturers in the medical, computer (primarily mainframes, servers
and peripherals), industrial, networking, telecommunications and transportation
electronics industries. The Company offers a full range of services including
product development and design, material procurement and management,
prototyping, assembly, testing, manufacturing, final system box build,
distribution and after market support.
The Company's contract manufacturing services are provided on either a
turnkey basis, where the Company procures certain or all of the materials
required for product assembly, or on a consignment basis, where the customer
supplies some, or occasionally all, materials necessary for product assembly.
Turnkey services include material procurement and warehousing, in addition to
manufacturing, and involve greater resource investment and inventory risk
management than consignment services. Turnkey manufacturing currently represents
almost all of the Company's sales. Turnkey sales typically generate higher net
sales and higher gross profit dollars with lower gross margin percentages than
consignment sales due to the inclusion of component costs, and related markup,
in the Company's net sales. However, the Company takes on the risk of inventory
management, and a change in component costs can directly impact the average
selling price, gross margins and the Company's net sales. Due to the nature of
turnkey manufacturing, the Company's quarterly and annual results are affected
by the level and timing of customer orders, fluctuations in materials costs, and
the degree of automation used in the assembly process.
Since a substantial portion of the Company's sales are derived from
turnkey manufacturing, net sales can be negatively impacted by component
shortages and their lead-times. Shortages of key electronic components which are
provided directly from customers or suppliers and their lead-times can cause
manufacturing interruptions, customer rescheduling issues, production downtime
and production set-up and restart inefficiencies. From time to time, allocations
of components can be an integral part of the electronics industry and component
shortages and extended lead-time issues can occur with respect to specific
industries or particular components (such as memory and logic devices). In such
cases, supply shortages could substantially curtail production of some or all
assemblies utilizing a particular component. In addition, at various times
industry wide shortages of electronic components have occurred, particularly for
memory and logic devises. Over the past six to twelve months the marketplace for
certain electronic components, primarily in the telecommunications and wireless
markets (in particular flash memory, tantalum capacitors, and SAW fibers), has
tightened from recent periods. This has resulted in the extension of certain
component lead-times, increased pricing and in certain instances has resulted in
the allocation of such components by the suppliers. In response to this dynamic
environment, the Company has a corporate procurement organization whose primary
purpose is to create strong supplier alliances to assure a steady flow of
components at competitive prices and mitigate shortages. Strategic relationships
have been established with international purchasing offices to improve shortage
and pricing issues. However, because of the limited number of suppliers for
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certain electronic components and whether further tightening in the marketplace
for components could result in missed deliveries or de-commits from our
suppliers, along with other supply and demand concerns, the Company can neither
eliminate component shortages nor determine the timing or impact of such
shortages on the Company's results. In addition, because we provide our
customers component procurement services, we may bear the risk of price
increases for these components if we are unable to purchase them at the same
price that we agree with our customer on the pricing for the components. In
order to mitigate the Company's financial risk of component price increases, the
Company regularly reviews and adjusts for price fluctuations with customers. As
a result, the Company's sales and profitability can be affected from period to
period.
Many of the industries for which the Company currently provides
electronic products are subject to rapid technological changes, product
obsolescence, increased competition, and pricing pressures. In the six months
ending March 31, 2000, less than 4 percent of the Company's total sales were
foreign. These and other factors which affect the industries or the markets that
the Company serves, and which affect any of the Company's major customers in
particular, could have a material adverse effect on the Company's results of
operations.
The Company has no long-term volume commitments from its customers, and
lead-times for customer orders and product-life cycles continue to contract.
Although the Company obtains firm purchase orders from its customers, they
typically do not make firm orders for delivery of products more than 30 to 90
days in advance. The Company does not believe that the backlog of expected
product sales covered by firm purchase orders is a meaningful measure of future
sales since orders may be canceled and volume levels can be changed or delayed
at any time. The timely replacement of delayed, canceled or reduced programs
with new business cannot be assured. In recent periods, an increasing percentage
of the Company's sales have been sales to its largest customers, which may
increase the Company's dependence upon them. Because of these and other factors,
there can be no assurance that the Company's historical sales growth rate will
continue. See "Results of Operations -- Net Sales" below for certain factors
affecting net sales to the Company's largest customers.
The Company believes that its growth has been achieved in significant
part by its approach to partnering with customers mainly through its product
design and development services. Approximately 15 to 20 percent of the Company's
contract manufacturing sales are a direct result of these services. The Company
intends to continue to leverage this aspect of its product design and
development services for continued growth in contract manufacturing revenues.
Currently, the design and development services are less than 10 percent of total
sales. In order to achieve expanded sales growth, the Company must continue to
generate additional sales from existing customers from both current and future
programs, and must successfully market to new customers. The Company must also
successfully integrate and leverage its new regional product design centers in
North Carolina, Colorado and Washington into this strategy. In addition, the
Company must continue to attract and retain top quality product development
engineers in order to continue to expand its design and development services.
Because of these and other factors, there can be no assurance that the Company's
historic growth rate or profitability levels will continue.
Start-up costs and the management of labor and equipment efficiencies
for new programs and new customers can have an effect on the Company's gross
margins. Due to these and other factors, gross margins can be negatively
impacted early on in the life cycle of new programs. In addition, labor
efficiency and equipment utilization rates ultimately achieved and maintained by
the Company for new and current programs impact the Company's gross margins.
On March 3, 2000, the Company agreed to acquire Agility, Incorporated,
a privately-held, Boston-area electronic manufacturing services provider. This
transaction was closed on April 28, 2000 through the issuance of 375,000 shares
of Plexus Corp. common stock. The transaction is being accounted for as a
pooling of interests however, prior results will not be restated, as they would
not differ materially from reported results. The addition of Agility establishes
a stronger presence with current New England area customers of Plexus, as well
as increases the Company's capacity to assemble complex printed circuit boards
with complete box and system build.
On March 30, 2000, the Company signed a definitive agreement to acquire
all of the turnkey electronic manufacturing operations of Elamex, S.A. de C.V.
The acquisition will represent Plexus' initial expansion outside of the U.S. The
acquired Mexican operations, located in Juarez, will provide Plexus' existing
and potential customers with a proven low-cost labor solution. In addition,
Plexus will provide Elamex's existing customers access to its
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leading-edge engineering, test and technology capabilities. The purchase price
is estimated at approximately $52 to $53 million, subject to certain closing
adjustments. The transaction will be either all cash, or a substantial majority
in cash with the remaining consideration in Plexus common stock. Subject to
various closing conditions, the transaction is expected to close during Plexus'
third fiscal quarter and will be accounted for as a purchase.
The Company continues to look for opportunities for geographical
expansion that will improve the Company's ability to provide services to its
customers. Specifically, the Company is currently focused on adding a presence
in western Europe to service both current and new customers. Geographical
expansion and growth by acquisition can have an effect on the Company's
operations. In addition, as the Company expands internationally, that foreign
expansion could create additional integration issues as a result of differences
in foreign laws and customs, as well as distance and other factors affecting
international trade. The successful integration and operation of an acquired
business, requires communication and cooperation among key managers, along with
the transition of customer relationships. Acquisitions also involve risks
including the retention of key personnel and customers, the integration of
information systems and purchasing operations, the management of an increasingly
larger and more geographically dispersed business, and the diversion of
management's attention from other ongoing business concerns. In addition, while
the Company anticipates cost savings, operating efficiencies and other synergies
as a result of its acquisitions, the consolidation of functions and the
integration of departments, systems and procedures present significant
management challenges. The Company cannot assure that it will successfully
accomplish those actions as rapidly as expected. Also, the Company cannot assure
the extent to which it will achieve cost savings and efficiencies in any
transaction or expansion. There can be no assurance that the Company will
successfully manage the integration of new locations or acquired operations, and
the Company may experience certain inefficiencies that could negatively impact
the results of operations or the Company's financial condition. Additionally, no
assurance can be given that any past or future acquisition by the Company will
enhance the Company's business.
The acquisition of new operations can introduce new types of risks to
the Company's business. Additional risk factors specific to SeaMED's business
and its operations include financing issues associated with SeaMED's emerging
medical customers, Food and Drug Administration (FDA) requirements associated
with Class III and pre-market approval (PMA) medical devices designed and
manufactured by SeaMED, and the uncertainty of third party reimbursement such as
Medicare, private health insurance companies or health maintenance organizations
by SeaMED's customers for the cost of their products. Specific risk factors
related to the pending acquisition of the Juarez, Mexico operations and other
foreign acquisitions will include foreign currency exchange, local customs and
practices, and management integration challenges.
The Company operates in a highly competitive industry. The Company
faces competition from a number of domestic and foreign electronic manufacturing
services companies, some with financial and manufacturing resources
significantly greater than the Company's. The Company also faces competition in
the form of current and prospective customers that have the capabilities to
develop and manufacture products internally. In order to remain a viable
alternative, the Company must continue to enhance its total engineering and
manufacturing technologies.
Other factors that could adversely affect forward-looking statements
include the level of overall growth in the electronics industry, the Company's
ability to integrate and extract value from acquired operations, the Company's
ability to secure new customers and maintain its current customer base, the
results of cost reduction efforts, material cost fluctuations and the adequate
availability of components and related parts for production, the effect of
changes in average selling prices, the risk of customer delays or cancellations
in both on-going and new programs, the effect of start-up costs related to new
programs and facilities, year 2000 compliance issues, the overall economic
conditions, the impact of increased competition and other factors and risks
detailed herein and in the Company's other Securities and Exchange Commission
filings.
RESULTS OF OPERATIONS
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In July 1999, the Company completed its merger with SeaMED in a
transaction accounted for as a pooling of interests. Accordingly results for the
periods presented for fiscal 1999 have been restated to combine the results of
operations of both Plexus and SeaMED; the results of other prior acquisitions,
which were accounted for using purchase accounting, are reflected only from the
dates of acquisition. The effects of the Agility acquisition are not yet
reflected, as it was completed after March 31, 2000.
NET SALES
Net sales for the three months ended March 31, 2000, increased 36
percent to $162.0 million from $119.2 million for the same period in the prior
fiscal year. Net sales for the six months ended March 31, 2000, increased 29
percent to $309.1 million from $239.8 million. The increase in net sales was due
primarily to steady growth in the networking/telecom and medical sectors from
both existing and new customers obtained through internal growth and the
Illinois and Washington asset acquisitions. The growth in the networking/telecom
and medical industries were offset somewhat by a reduction in sales to the
computer and transportation industries and reduced sales volumes at its SeaMED
subsidiary. The Company believes that its overall sales growth reflects the
continuing trend towards outsourcing within the electronics industry.
Sales for the quarter ended March 31, 2000 and 1999, respectively, by
industry were as follows: Networking/telecom 34 percent (24 percent), Medical 32
percent (31 percent), Industrial 19 percent (21 percent), Computer 10 percent
(15 percent), Transportation 4 percent (8 percent), and Other 1 percent (1
percent). The Company currently expects the percentage of sales to the
Networking/telecom industry to continue to grow in fiscal 2000.
The Company's largest customers for the quarter ended March 31, 2000
were Lucent Technologies, Inc. (Lucent) and General Electric Company (GE) which
accounted for 22 percent and 12 percent of net sales, respectively, compared to
the quarter ended March 31, 1999 when Lucent and GE accounted for 16 percent and
12 percent of net sales, respectively. The Company's largest customers for the
six months ending March 31, 2000 were Lucent and General Electric Company (GE)
which accounted for 24 percent and 12 percent of net sales, respectively,
compared to the six months ending March 31, 1999 when Lucent and GE accounted
for 14 percent and 11 percent of net sales, respectively. No other customers
accounted for more than 10 percent of the Company's sales for the three or six
months ended March 31, 2000 or 1999. Sales to the Company's ten largest
customers accounted for 69 percent of sales for the six months ended March 31,
2000 compared to 59 percent for the same period in fiscal 1999 and 61 percent
for all of fiscal 1999. The Company remains dependent upon continued sales to
Lucent, GE and its other significant customers. Any material change in orders
from these or other customers could have a material effect on the Company's
results of operations.
GROSS PROFIT
Gross profit increased to $23.1 million, or 37 percent, for the three
months ended March 31, 2000 from $16.8 million for the same period in the prior
fiscal year. The gross profit for the six months ended March 31, 2000 increased
29 percent to $43.7 million from $33.7 million for the six months ended March
31, 1999. The gross margin increased slightly from 14.1 percent for the three
months ended March 31, 1999 to 14.3 percent for the three months ended March 31,
2000. The gross margin for the six months ended March 31, 2000 was 14.1 percent,
compared to 13.5 percent for all of fiscal 1999.
Most of the research and development conducted by the Company is paid
for by customers and is, therefore, included in cost of sales. Other research
and development is conducted by the Company, but is not specifically identified,
as the Company believes such expenses are less than 1 percent of its total
sales.
The Company's gross margin also reflects a number of other factors
which can vary from period to period, including product mix, the level of
start-up costs and efficiencies of new programs, product life cycles, sales
volumes, price erosion within the electronics industry, capacity utilization of
surface mount and other equipment, labor costs and efficiencies, the management
of inventories, component pricing and shortages, average sales prices, the mix
of turnkey and consignment business, fluctuations and timing of customer orders,
changing demand for customer's products and competition within the electronics
business. Overall gross margins continue to be affected
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by SeaMED's reduced sales volume, the effect of which may continue until
synergies and efficiencies are realized and SeaMED's cost structure is aligned
with its reduced sales volume, or until sales volumes increase. In addition,
gross margins resulting from the Juarez, Mexico acquisition are expected to be
below Plexus' historical operating margins. These and other factors can cause
variations in the Company's operating results. While the Company's focus is on
maintaining and expanding gross margins, there can be no assurance that gross
margins will not decrease in future periods.
OPERATING EXPENSES
Selling and administrative (S&A) expenses increased to $8.0 million for
the three months ended March 31, 2000, compared to $6.7 million for the
comparable prior fiscal year period. S&A expenses for the six months ended March
31, 2000 and 1999 were $15.2 million and 12.8 million, respectively. As a
percentage of sales, S&A expenses were 4.9 percent for the three and six months
ended March 31, 2000 compared to 5.6 percent and 5.3 percent for the three and
six months ended March 31, 1999, respectively. S&A expenses were 5.4 percent for
all of fiscal 1999. The increases in absolute dollars reflect the Company's
planned increases in its sales and marketing efforts and information systems
support, while the decrease as a percentage of sales was attributable to the
increased leverage of additional sales. The Company anticipates that future S&A
expenses will increase in absolute dollars but remain approximately 5.0 percent
of sales, as the Company continues to expand these support areas.
Severance costs of $237,000 for the quarter and six-month period ended
March 31, 1999 related to a staff reduction at the Company's SeaMED subsidiary,
prior to its agreement to be acquired by the Company, due to reduced sales
volume.
INCOME TAXES
Income taxes increased to $6.2 million and $11.7 million for the three
and six months ended March 31, 2000 compared to $4.2 million and $8.6 million in
the comparable period in fiscal 1999, as a result of increased earnings. The
Company's effective income tax rate has remained constant at rates between 38
percent to 40 percent. These rates approximate the blended Federal and state
statutory rate as a result of all of the Company's operations currently being
located within the United States. This will change upon the completion of the
Mexican acquisition, although the Company does expect the effect to be material.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $4.7 million for the
six months ended March 31, 2000 compared to $13.0 million in the comparable
period in fiscal 1999. Cash from operations was provided primarily by increased
net income and increased accounts payable offset by increases in accounts
receivable and inventory to support increased sales. The increase in the
Company's inventory levels are due to the Company's decision to support
anticipated future sales growth, as well as to maintain an ample supply of
components going forward in view of the tightening of certain component markets.
As a result, during the quarter, annualized inventory turnover decreased to 5.2
turns as of March 31, 2000, from 8.2 turns as of March 31, 1999 and from 6.2
turns for all of fiscal 1999.
Cash flows used in investing activities totaled $0.4 million for the
six months ended March 31, 2000 and was primarily from maturity of short-term
investments offset by purchases of additional manufacturing equipment and
short-term investments.
The Company utilizes available cash, debt and operating leases to fund
its manufacturing equipment needs. The Company utilizes operating leases
primarily in situations where technical obsolescence concerns are determined to
outweigh the benefits of financing the equipment purchase. Absent significant
acquisitions, the Company estimates capital expenditures for fiscal 2000 to be
approximately $25 million, including the expansion to the Neenah, Wisconsin
engineering facility currently in progress. The Company expects to fund these
additions and the pending Mexican acquisition through current cash and
short-term investments, cash flows from operations and the
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revolving credit agreement. The Company is currently renegotiating and looking
to increase its $40 million long-term revolving credit agreement to provide for
sufficient funding levels after the Mexican acquisition. If the Company were to
determine to make additional acquisitions or a more significant expansion,
additional resources would likely be required.
Cash flows provided by financing activities totaled $5.1 million for
the six months ended March 31, 2000, primarily representing the proceeds and tax
benefit from the exercise of stock options. There have been no borrowings under
the Company's revolving credit agreement since October 1, 1997. The ratio of
total debt-to-equity as of March 31, 2000 and September 30, 1999 was 0.6 to 1.
The Company believes that it will be successful in renegotiating and
increasing its $40 million long-term revolving credit agreement. Included with
the Company's credit facility, its' leasing capabilities, cash and short-term
investments and projected cash from operations should be sufficient to meet its
working capital and capital requirements through fiscal 2000 and the foreseeable
future. While there can be no assurance that future financing will be available
on terms acceptable to the Company, the Company may seek to raise additional
capital through the issuance of either public or private debt or equity
securities to finance future acquisitions. Debt financing may require the
Company to pledge assets as collateral and comply with certain financial ratios
and covenants. Equity financing may result in dilution to stockholders.
The Company has not paid dividends on its common stock, but has
reinvested its earnings to support its working capital and expansion
requirements. The Company intends to continue to utilize its earnings in the
development and expansion of the business and does not expect to pay cash
dividends in the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities
may include forward-looking statements that involve risk and uncertainties.
Actual results could differ materially from those discussed.
The Company has financial instruments, including cash equivalents,
short-term investments and long-term debt arrangements, which are sensitive to
changes in interest rates. The Company currently does not use any interest-rate
swaps or other types of derivative financial instruments to limit its
sensitivity to changes in interest rates because of the relatively short-term
maturities (from one day to less than one year) of its cash equivalents and
short-term investments, and immaterial amount of long-term debt outstanding. The
Company invests in high credit quality issuers and, by policy, limits the amount
of principal exposure to any one issuer.
The Company does not believe there have been any material changes in
the reported market risks faced by the Company since the end of its most recent
quarter March 31, 2000.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 28, 2000, the Company issued 374,997 shares of common stock to
the six shareholders of Agility, Incorporated in connection with the Company's
acquisition of Agility. The securities were issued in consideration of all
outstanding securities of Agility. The transaction was exempt from registration
pursuant to Section 4(2) of the Securities Act and/or Regulation D thereunder as
it involved a private placement of securities to a limited group of people who
were capable of evaluating the risks and other attributes of the transaction.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
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At the Company's annual meeting of shareholders on March 1, 2000, the
eight management nominees were elected to the board. The nominees/directors were
elected with the following votes:
Authority for
Director's Name Votes "For" Voting Withheld
David J. Drury 14,932,394 5,322
Dean A. Foate 14,932,380 5,336
Harold R. Miller 14,929,350 8,366
John L. Nussbaum 14,932,465 5,251
Thomas J. Prosser 14,929,450 8,266
Agustin A. Ramirez 14,932,396 5,320
Peter Strandwitz 14,932,465 5,251
Jan VerHagen 14,932,399 5,317
In addition, at the annual meeting, shareholders approved the Company's
proposed 2000 Stock Purchase Plan. Vote on the plan was as follows:
For: 10,338,637 Against: 637,471 Abstain: 40,694 Broker Non-Votes: 3,920,914
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ITEM 5. OTHER INFORMATION
The Company has settled the previously disclosed litigation, The Oneida
Tribe of Indians of Wisconsin vs. Plexus Corp. In connection with the
settlement, among other things, Plexus has ceased leasing the Green Bay facility
which was built by Oneida Nation Electronics, a tribally chartered corporation,
and previously was leased and operated by the Company. The Company does not
believe that the settlement of this matter will have a material affect upon its
business, operations or results.
The Company has been named, along with several hundred other parties,
as defendant in an action by the Lemelson Medical, Education & Research
Foundation Limited Partnership ("Lemelson") related to the alleged possible
infringement of certain Lemelson patents relating to machine vision and bar-code
technology. Lemelson also has pending litigation with a number of the Company's
competitors and electronics original equipment manufacturers. Prior to the suit,
Plexus was evaluating Lemelson's claim, but Plexus had not yet determined if, or
to what extent, a license from Lemelson would be required. If a license is
required, based upon Plexus' understanding of the terms of similar licenses to
other parties, the Company believes (but cannot be certain) that a license could
be obtained on terms that would not have a material adverse effect on the
Company. However, if a license fee is paid in the future, that could affect the
results for the period or periods in which payment is made or accrued.
Additionally, the Company believes that it may be contractually indemnified by
the companies from which the Company purchased the machine vision and bar code
technology equipment, although certain of those manufacturers have disputed the
Company's indemnification claims. Plexus has not yet been served in the
litigation, and has not yet determined whether the fact of the commencement of
litigation will affect its position. The Company has chosen to provide
information on this matter, in part to update prior disclosures, even though it
does not believe that this matter will have a material affect on the Company
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2.1 - Stock Purchase Agreement between
the Company and Elamex, dated March
30, 2000
Exhibit 10.1 - Promissory Note dated March 13, 2000
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K - None filed during the quarter although the
Company did file a Form 8-K dated April 28, 2000 reporting its
acquisition of Agility, Incorporated
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
5/12/2000 /s/ Peter Strandwitz
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Date Peter Strandwitz
Chairman and CEO
5/12/2000 /s/ Thomas B. Sabol
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Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
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