1
PLEXUS CORP.
LIST OF FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
CONTENTS
PAGES
-----
Report of Independent Accountants........................... F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the three years
ended September 30, 1999, 1998 and 1997................ F-3
Consolidated Balance Sheets as of September 30, 1999 and
1998................................................... F-4
Consolidated Statements of Stockholders' Equity for the
three years ended September 30, 1999, 1998 and 1997.... F-5
Consolidated Statements of Cash Flows for the three years
ended September 30, 1999, 1998 and 1997................ F-6
Notes to Consolidated Financial Statements................ F-7
F-1
2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Plexus Corp.:
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Plexus Corp. and subsidiaries at
September 30, 1999 and 1998 and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1999 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
merger of SeaMED Corporation on July 23, 1999 in a transaction accounted for as
a pooling of interests, as described in Notes 1 and 8 of notes to consolidated
financial statements. We did not audit the financial statements of SeaMED
Corporation, which statements reflect, after restatement for certain adjustments
as explained in Note 8 of notes to consolidated financial statements, total
assets of $42.9 million as of June 30, 1998 and total revenues of $70.0 million
and $52.1 million for the years ended June 30, 1998 and 1997, respectively.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for SeaMED Corporation is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 26, 1999, except for certain
information in Note 6, as to which
the date is August 31, 2000
F-2
3
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997
-------- -------- --------
Net sales................................................... $492,414 $466,795 $438,565
Cost of sales............................................... 426,005 406,648 387,333
-------- -------- --------
Gross profit......................................... 66,409 60,147 51,232
Operating expenses:
Selling and administrative expenses....................... 26,443 23,754 20,463
Plant closing, relocation and severance................... 981 -- --
Merger costs.............................................. 4,557 -- --
-------- -------- --------
31,981 23,754 20,463
-------- -------- --------
Operating income..................................... 34,428 36,393 30,769
Other income (expense):
Interest expense.......................................... (274) (86) (1,014)
Miscellaneous............................................. 1,995 975 1,160
-------- -------- --------
Income before income taxes........................... 36,149 37,282 30,915
Income taxes................................................ 15,838 14,345 12,022
-------- -------- --------
Net income........................................... $ 20,311 $ 22,937 $ 18,893
======== ======== ========
Earnings per share:
Basic.................................................. $ 0.59 $ 0.68 $ 0.60
======== ======== ========
Diluted................................................ $ 0.55 $ 0.63 $ 0.54
======== ======== ========
Weighted average shares outstanding:
Basic.................................................. 34,646 33,688 30,732
Diluted................................................ 37,021 36,196 35,116
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
4
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
1999 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,906 $ 24,106
Short-term investments.................................... 17,224 5,517
Accounts receivable, net of allowance of $773 and $1,011,
respectively........................................... 69,318 61,622
Inventories............................................... 79,017 57,321
Deferred income taxes..................................... 6,370 5,077
Prepaid expenses and other................................ 3,562 2,201
-------- --------
Total current assets................................. 191,397 155,844
Property, plant and equipment, net.......................... 35,868 26,517
Other....................................................... 2,371 1,993
-------- --------
Total assets......................................... $229,636 $184,354
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 10 $ 672
Accounts payable.......................................... 55,928 41,272
Customer deposits......................................... 8,650 6,635
Accrued liabilities:
Salaries and wages..................................... 9,820 8,447
Other.................................................. 6,578 7,659
-------- --------
Total current liabilities............................ 80,986 64,685
Long-term debt.............................................. 142 2,587
Deferred income taxes....................................... 215 700
Other liabilities........................................... 1,890 519
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized,
none issued or outstanding............................. -- --
Common stock, $.01 par value, 60,000 shares authorized,
35,090 and 17,016 issued, respectively (Note 6)........ 351 170
Additional paid-in capital................................ 51,249 42,478
Note receivable, officer.................................. -- (75)
Retained earnings......................................... 94,803 73,795
Treasury stock, at cost, 0 and 29 shares, respectively.... -- (505)
-------- --------
146,403 115,863
-------- --------
Total liabilities and stockholders' equity........... $229,636 $184,354
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
5
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
COMMON STOCK ADDITIONAL NOTE TREASURY STOCK
---------------- PAID-IN RECEIVABLE RETAINED -----------------
SHARES AMOUNT CAPITAL OFFICER EARNINGS SHARES AMOUNT
------ ------ ---------- ---------- -------- ------ -------
Balances, October 1, 1996, as
previously reported........... 6,501 $ 65 $14,253 $ -- $33,699 -- $ --
Restatement for pooling of
interests with SeaMED......... 134 1 886 (75) (320) -- --
------ ---- ------- ---- ------- ---- -------
BALANCES AT OCTOBER 1, 1996,
RESTATED...................... 6,635 66 15,139 (75) 33,379 -- --
SeaMED initial public
offering...................... 306 3 14,820 -- -- -- --
Exercise of stock options,
including tax benefits........ 372 3 3,999 -- -- -- --
Preferred stock dividends....... -- -- (1,765) -- (338) -- --
Plexus preferred stock
conversion (Series A)......... 554 6 (6) -- -- -- --
SeaMED preferred stock
conversion (Class A, B, C and
D)............................ 587 6 5,274 -- -- -- --
Two-for-one common stock
split......................... 8,391 84 (84) -- -- -- --
Net income...................... -- -- -- -- 18,893 -- --
------ ---- ------- ---- ------- ---- -------
BALANCES, SEPTEMBER 30, 1997.... 16,845 168 37,377 (75) 51,934 -- --
Treasury stock purchased........ -- -- -- -- -- (214) (3,442)
Exercise of stock options,
including tax benefits........ 160 2 5,101 -- (1,024) 132 2,059
Common stock warrants issued.... 11 -- -- -- -- -- --
Other treasury stock
issuances..................... -- -- -- -- (52) 53 878
Net income...................... -- -- -- -- 22,937 -- --
------ ---- ------- ---- ------- ---- -------
BALANCES, SEPTEMBER 30, 1998.... 17,016 170 42,478 (75) 73,795 (29) (505)
Effect of SeaMED excluded
period........................ -- -- 16 -- 1,271 -- --
Treasury stock purchased........ -- -- -- -- -- (32) (1,160)
Exercise of stock options,
including tax benefit......... 529 5 8,931 -- (574) 61 1,665
Payment of note receivable
officer....................... -- -- -- 75 -- -- --
Net income...................... -- -- -- -- 20,311 -- --
Two-for-one common stock split
effective August 31, 2000
(Note 6)...................... 17,545 176 (176) -- -- -- --
------ ---- ------- ---- ------- ---- -------
BALANCES, SEPTEMBER 30, 1999.... 35,090 $351 $51,249 $ -- $94,803 -- $ --
====== ==== ======= ==== ======= ==== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
6
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
1999 1998 1997
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 20,311 $ 22,937 $ 18,893
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization.......................... 9,993 8,372 5,561
Provision for inventories and accounts receivable
allowances........................................... 3,330 4,092 4,911
Deferred income taxes.................................. (1,778) (1,609) (1,049)
Non-operating gains.................................... -- -- (620)
Changes in assets and liabilities:
Accounts receivable.................................. (8,842) (5,547) (15,477)
Inventories.......................................... (25,270) (3,411) (2,376)
Prepaid expenses and other........................... (1,089) (1,283) 230
Accounts payable..................................... 15,569 3,690 7,136
Customer deposits.................................... 1,838 2,466 (5,119)
Accrued liabilities.................................. 869 1,207 6,318
Other................................................ 226 (1,071) (61)
--------- -------- ---------
Cash flows provided by operating activities..... 15,157 29,843 18,347
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments....................... (244,449) (6,632) (7,873)
Sales and maturities of short-term investments............ 232,742 7,319 1,669
Payments for property, plant and equipment................ (18,196) (11,997) (13,488)
Proceeds on sale of property, plant and equipment......... 213 114 724
--------- -------- ---------
Cash flows used in investing activities......... (29,690) (11,196) (18,968)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt........................................ -- 3,125 96,442
Payments on debt.......................................... (4,561) (4,664) (110,644)
Proceeds from exercise of stock options, including tax
benefit................................................ 8,936 4,217 3,555
Issuances of common stock................................. -- 671 15,212
Treasury stock purchased.................................. (1,160) (3,442) --
Treasury stock reissued................................... 1,091 1,861 --
Payments of preferred stock dividends..................... -- -- (2,103)
--------- -------- ---------
Cash flows provided by financing activities..... 4,306 1,768 2,462
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ (10,227) 20,415 1,841
Cash and cash equivalents, beginning of year................ 24,106 3,691 1,850
Effect of SeaMED excluded period............................ 2,027 -- --
--------- -------- ---------
Cash and cash equivalents, end of year...................... $ 15,906 $ 24,106 $ 3,691
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
7
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Plexus Corp. provides product realization services
to original equipment manufacturers (OEMs) 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 services, material procurement
and management, prototyping, manufacturing and assembly, functional and
in-circuit testing, final system box build, distribution and after-market
support.
The 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 materials
necessary for product assembly. Turnkey services include material procurement
and warehousing, in addition to manufacturing, and involve greater resource
investment than consignment services. Turnkey manufacturing currently represents
almost all of the Company's sales.
Consolidation Principles: The consolidated financial statements include the
accounts of Plexus Corp. and its subsidiaries (together "the Company"). All
significant intercompany transactions have been eliminated.
As described more fully in Note 8--"Merger and Acquisition," on July 23,
1999, SeaMED Corporation ("SeaMED"), a public company, was merged into Plexus.
The consolidated financial statements have been prepared following the pooling
of interests method of accounting for the merger and therefore reflect the
combined financial position, operating results and cash flows of the two
companies for all periods presented. SeaMED had a June 30 fiscal year end. Prior
to fiscal 1999, the combined financial statements reflect Plexus' September 30
financial position and results and SeaMED's June 30 financial position and
results. For fiscal 1999, the combined financial statements reflect the October
1, 1998 through September 30, 1999 period for both companies. SeaMED's results
of operations and cash flows from July 1, 1998 to September 30, 1998, which have
been excluded from these consolidated financial statements, are reflected as
adjustments in the 1999 consolidated statements of stockholders' equity and cash
flows. Net sales and net income for SeaMED for the excluded period from July 1,
1998 to September 30, 1998 were $19.4 million and $1.3 million, respectively.
Cash Equivalents and Short-Term Investments: Cash equivalents are highly
liquid investments purchased with an original maturity of less than three
months. Short-term investments are investment-grade short-term debt instruments
with original maturities greater than three months. Short-term investments are
generally comprised of securities with contractual maturities greater than one
year but with optional or early redemption provisions within one year.
Investments in debt securities are classified as "available-for-sale." Such
investments are recorded at fair value as determined from quoted market prices,
and the cost of securities sold is determined on the specific identification
method. If material, unrealized gains or losses are reported as a component of
comprehensive income or losses, net of related tax effect. At September 30,
1999, 1998 and 1997, such unrealized gains and losses were not material. In
addition, there were no realized gains or losses in fiscal 1999, 1998 and 1997.
F-7
8
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Short-term investments as of September 30, 1999 and 1998 consist of (in
thousands):
1999 1998
------- ------
U.S. government and agency securities....................... $ -- $5,517
State and municipal securities.............................. 13,675 --
U.S. corporate and bank debt................................ 8,932 --
Other....................................................... 2,000 --
------- ------
$24,607 $5,517
======= ======
Approximately $7.4 million and $0 of the total short-term investments as of
September 30, 1999 and 1998, respectively, are included in cash and cash
equivalents.
Inventories: Inventories are valued primarily at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment and Depreciation: These assets are stated at
cost. Depreciation, determined on the straight-line method, is based on lives
assigned to the major classes of depreciable assets as follows:
Buildings and improvements.................................. 18-40 years
Machinery and equipment..................................... 3-10 years
Revenue Recognition: Revenue is recognized primarily when products are
shipped. Revenue and profit relating to product design and development
contracts, which are short-term in duration, usually less than three months, are
recognized as costs are incurred utilizing the percentage-of-completion method;
any losses are recognized when anticipated. Revenue from design and development
contracts is less than 10% of total revenue in fiscal 1999, 1998, and 1997.
Progress towards completion of product design and development contracts is based
on units of work for labor content and cost for component content.
Income Taxes: Deferred income taxes are provided for differences between
the bases of assets and liabilities for financial and tax reporting purposes.
Earnings Per Share: The computation of basic earnings per common share is
based upon the weighted average number of common shares outstanding and net
income reduced for preferred stock dividends. The computation of diluted
earnings per common share reflects additional dilution from stock options and
convertible preferred shares using the if-converted method.
New Accounting Pronouncements: In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which specifies the accounting treatment of computer software
costs depending upon the type of costs incurred. This SOP is effective for the
Company's fiscal year 2000 financial statements and restatement of prior years
will not be required. The Company does not believe the adoption of this SOP will
have a significant impact on its financial position or results of operations.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fair Value of Financial Instruments: Cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued liabilities are
reflected in the consolidated financial statements at cost because of the
short-term duration of these instruments. The fair value of long-term debt
closely
F-8
9
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
approximates its carrying value. The Company uses quoted market prices, when
available, or discounted cash flows to calculate these fair values.
Business and Credit Concentrations: Financial instruments that potentially
subject Plexus to concentrations of credit risk consist of cash, cash
equivalents, short-term investments and trade accounts receivable. Plexus' cash,
cash equivalents and short-term investments are managed by recognized financial
institutions which follow the Company's investment policy. Such investment
policy limits the amount of credit exposure in any one issue and the maturity
date of the investment securities that typically comprise investment grade
short-term debt instruments. Concentrations of credit risk in accounts
receivable resulting from sales to major customers are discussed in Note 11.
Plexus at times requires advanced cash deposits for sales. The Company also
closely monitors extensions of credit and has not experienced significant credit
losses in the past.
Reclassifications: Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to the 1999 presentation.
2. INVENTORIES
Inventories as of September 30, 1999 and 1998 consist of (in thousands):
1999 1998
------- -------
Assembly parts............................................. $40,616 $34,965
Work-in-process............................................ 27,145 21,306
Finished goods............................................. 11,256 1,050
------- -------
$79,017 $57,321
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 1999 and 1998 consist of
(in thousands):
1999 1998
------- -------
Land, buildings and improvements........................... $12,009 $10,792
Machinery and equipment.................................... 68,021 51,965
------- -------
80,030 62,757
Less accumulated depreciation............................ 44,162 36,240
------- -------
$35,868 $26,517
======= =======
4. DEBT
Long-term debt as of September 30, 1999 and 1998 consists of (in
thousands):
1999 1998
---- ------
Notes and obligations with a weighted average interest rate
of 5.0% and 3.2%, respectively............................ $152 $ 266
Unsecured subordinated note payable, paid in 1999........... -- 493
Variable rate note payable, collateralized by equipment,
paid in 1999.............................................. -- 2,500
---- ------
152 3,259
Less current portion........................................ 10 672
---- ------
$142 $2,587
==== ======
F-9
10
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Revolving Credit Agreement: The Company's revolving credit agreement
provides for maximum borrowings of $40 million with all or a portion of the
principal bearing interest at a LIBOR based or a prime based interest rate as
elected by the Company. These rates are LIBOR plus 0.875% and prime less 0.25%.
The credit agreement is unsecured and a commitment fee of 0.125% per annum on
the unused portion of this agreement is payable quarterly. The agreement matures
in July 2003. The revolving credit agreement, as amended, includes covenants
which require the maintenance of various debt to net worth ratios. There were no
borrowings under this credit agreement at September 30, 1999.
Variable Rate Note Payable: During fiscal 1998, the Company borrowed $2.5
million against a SeaMED equipment credit facility. Borrowings under this
agreement bear interest at LIBOR plus 1.4%. At September 30, 1998, the Company
had an interest rate contract with a notional principal amount of $2.5 million
that effectively converts the variable rate note payable to a fixed rate of
7.5%. This contract was terminated during 1999 in conjunction with the pay down
of the related debt.
Cash paid for interest in fiscal 1999, 1998 and 1997 was $274,000, $87,000,
and $1.2 million, respectively.
5. INCOME TAXES
Income tax expense (benefit) for fiscal 1999, 1998 and 1997 consists of (in
thousands):
1999 1998 1997
------- ------- -------
Currently payable:
Federal................................................... $14,465 $13,710 $11,332
State..................................................... 3,151 2,244 1,739
------- ------- -------
17,616 15,954 13,071
------- ------- -------
Deferred:
Federal................................................... (1,695) (1,489) (990)
State..................................................... (83) (120) (59)
------- ------- -------
(1,778) (1,609) (1,049)
------- ------- -------
$15,838 $14,345 $12,022
======= ======= =======
Following is a reconciliation of the Federal statutory income tax rate to
the effective tax rates reflected in the consolidated statements of operations
for fiscal 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Federal statutory income tax rate........................... 35.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of Federal income tax benefit..... 5.7 3.9 3.7
Non-deductible merger costs............................... 3.1 -- --
Other, net................................................ -- 0.6 1.2
---- ---- ----
Effective income tax rate................................. 43.8% 38.5% 38.9%
==== ==== ====
F-10
11
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The components of the net deferred income tax asset as of September 30,
1999 and 1998, consist of (in thousands):
1999 1998
------ ------
Deferred tax assets:
Inventories............................................... $3,455 $2,448
Accrued benefits.......................................... 1,331 1,450
Loss carryforwards........................................ 156 154
Other..................................................... 2,044 1,296
------ ------
6,986 5,348
Less valuation allowance.................................. (24) (21)
------ ------
6,962 5,327
Deferred tax liabilities:
Property, plant and equipment............................. 807 950
------ ------
Net deferred income tax asset............................... $6,155 $4,377
====== ======
The Company records a valuation allowance to reflect the estimated amount
of deferred income tax assets which relate to income tax loss carryforwards that
are not expected to be realized.
Cash paid for income taxes in fiscal 1999, 1998 and 1997 was $16.3 million,
$13.0 million and $13.5 million, respectively.
6. STOCKHOLDERS' EQUITY AND SUBSEQUENT EVENT
On August 1, 2000, the Company declared a two-for-one stock split payable
in the form of a stock dividend of one share of common stock for every share of
common stock outstanding. The new stock was issued on August 31, 2000, to
holders of record as of August 22, 2000. Share and per share amounts, where
required, have been restated to reflect this stock split.
On December 19, 1997, the Company's Board of Directors authorized the
repurchase of up to 2,000,000 (pre-split) shares, or a maximum of $25,000,000 of
the Company's common stock on the open market. On March 16, 1999 the Plexus
Corp. Board of Directors rescinded the Company's stock buyback program in
contemplation of the merger with SeaMED.
On July 17, 1997, the Company declared a two-for-one stock split payable in
the form of a stock dividend of one share of common stock for every share of
common stock outstanding. The new stock was issued on August 25, 1997 to holders
of record as of August 14, 1997. Share and per share amounts, where required,
have been restated to reflect this stock split.
On February 28, 1997, the holders of the 7,000 shares of issued and
outstanding Plexus Corp. Series A Preferred Shares converted all such shares, in
accordance with their terms, into a total of 554,454 (pre-splits) shares of the
Company's common stock. In November 1996, the Class A, B, C and D convertible
redeemable preferred stock of SeaMED was converted into a total of 586,806
(pre-splits) shares of the Company's common stock. Also issued was a warrant to
purchase 15,626 (pre-splits) shares of common stock. The warrant was exercised
in March 1998 in a non-cash transaction which resulted in the issuance of 11,158
(pre-split) shares.
In November 1996, SeaMED completed an initial public offering of 305,944
(pre-splits) shares of common stock. Net proceeds were $14.8 million (net of
offering costs and underwriters discount of $2.0 million). SeaMED used $1.8
million of the proceeds to pay previously undeclared cumulative dividends on its
Class A and D convertible redeemable preferred stock.
F-11
12
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Income tax benefits attributable to stock options exercised are recorded as
an increase in additional paid-in capital.
7. 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):
SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- ------- -------
BASIC EARNINGS PER SHARE (NOTE 6):
Net income................................................ $20,311 $22,937 $18,893
Less: Preferred stock dividends........................... -- -- 312
------- ------- -------
Income available to common stockholders................... $20,311 $22,937 $18,581
======= ======= =======
Basic weighted average shares outstanding................. 34,646 33,688 30,732
======= ======= =======
BASIC EARNINGS PER SHARE.................................... $ 0.59 $ 0.68 $ 0.60
======= ======= =======
DILUTED EARNINGS PER SHARE (NOTE 6):
Net income................................................ $20,311 $22,937 $18,893
======= ======= =======
Weighted average shares outstanding....................... 34,646 33,688 30,732
Effect of dilutive securities:
Stock options........................................ 2,375 2,490 2,538
Stock warrants....................................... -- 18 18
Convertible preferred stock.......................... -- -- 1,828
------- ------- -------
Diluted weighted average shares outstanding............ 37,021 36,196 35,116
======= ======= =======
DILUTED EARNINGS PER SHARE.................................. $ 0.55 $ 0.63 $ 0.54
======= ======= =======
8. MERGER AND ACQUISITION
Merger: In July 1999, Plexus acquired SeaMED. Pursuant to the merger
agreement, SeaMED stockholders received 0.40 of a share of Plexus common stock
(pre-split) for each share of SeaMED common stock. Plexus issued approximately
2.27 million shares of its common stock (pre-split) in exchange for all
outstanding common stock of SeaMED. SeaMED stock options outstanding, as of the
merger date, were exchanged for options to acquire approximately 171,764 shares
of Plexus common stock (pre-split) at the same time. SeaMED is a provider of
engineering and manufacturing services, coupled with regulatory expertise, of
advanced medical instruments for medical technology companies. All merger costs
and other one-time expenses related to the SeaMED merger have been expensed as
required under the pooling of interests method of accounting. Certain
merger-related costs, which included charges related to obsolete inventories and
a loss on an engineering contract, have been included in cost of sales in the
consolidated statement of operations. All such costs and expenses amounted to
$6.0 million after income taxes in fiscal 1999 and are reflected in the
financial statements as follows (in thousands):
Cost of sales............................................... $2,177
Plant closing, relocation and severance..................... 981
Merger costs................................................ 4,557
------
7,715
Less: income tax benefit.................................... 1,684
------
Net merger and other one-time charges....................... $6,031
======
F-12
13
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The results of operations previously reported by the separate companies and
the combined amounts presented in the accompanying consolidated financial
statements are reconciled below (in thousands):
SEPTEMBER 30,
NINE MONTHS ENDED --------------------
JUNE 30, 1999 1998 1997
----------------- -------- --------
(UNAUDITED)
Net sales:
Plexus................................................ $310,717 $396,815 $386,431
SeaMED................................................ 49,463 69,980 52,134
-------- -------- --------
Combined.............................................. $360,180 $466,795 $438,565
======== ======== ========
Net income:
Plexus................................................ $ 18,228 $ 19,235 $ 16,400
-------- -------- --------
SeaMED:
As previously reported............................. (1,813) 4,139 2,726
Conforming accounting adjustments.................. 401 (437) (233)
-------- -------- --------
Restated......................................... (1,412) 3,702 2,493
-------- -------- --------
Combined......................................... $ 16,816 $ 22,937 $ 18,893
======== ======== ========
The adjustments above conform SeaMED's method of accounting for inventory
with that of Plexus, net of related tax effect.
Acquisition: On September 1, 1999, Plexus Corp. purchased certain printed
circuit board assembly manufacturing assets from an unrelated party. The
manufacturing assets which consisted principally of equipment and inventories
were purchased at approximately fair market value. The Company also leases a
portion of a manufacturing facility owned by the unrelated party which houses
the printed circuit board operations. The Company has agreed to acquire certain
other assets from the same unrelated party in fiscal 2000. The total purchase
price of the net assets acquired in fiscal 1999 and to be acquired in fiscal
2000 is not material to the assets or stockholders' equity of the Company. Pro
forma statements of operations for fiscal 1999 and 1998 reflecting this
acquisition are not shown as they would not differ materially from the reported
results.
9. LEASE COMMITMENTS
The Company has a number of operating lease agreements primarily involving
manufacturing facilities, manufacturing equipment and computerized design
equipment. These leases are non-cancelable and expire on various dates through
2014. Rent expense under all operating leases for fiscal 1999, 1998 and 1997 was
approximately $11.3 million, $10.2 million and $11.5 million, respectively.
Renewal and purchase options are available on certain of these leases. The sale
of equipment obtained through the exercise of the purchase option on certain
leases resulted in miscellaneous income of $620,000 in fiscal 1997.
In April 1997, the Company began leasing a new 110,000-square-foot
manufacturing facility located in Green Bay, Wisconsin. The facility was
constructed and equipped by Oneida Nation Electronics (ONE), a corporation
chartered by the Oneida Tribe of Indians of Wisconsin. All lease payments for
the building and equipment are based on the profitability of the facility
pursuant to a formula defined in the lease agreement. There are no required
minimum lease payments.
F-13
14
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Future minimum annual payments on operating leases are as follows (in
thousands):
2000................... $ 8,437
2001................... 5,632
2002................... 5,037
2003................... 5,001
2004................... 4,823
Thereafter............. 19,702
-------
$48,632
=======
10. BENEFIT PLANS
401(k) Savings Plans: The Company's 401(k) savings plans cover
substantially all eligible employees. The Company matches employee
contributions, based on years of service, up to 2.5% of eligible earnings. The
Company's contributions for fiscal 1999, 1998 and 1997 totaled $1.6 million,
$1.4 million and $1.2 million, respectively.
Stock Option Plans: The Company has reserved 12.0 million shares of common
stock for grant to officers and key employees under an employee stock option
plan, of which 8.2 million shares have been granted. The exercise price of each
option granted shall not be less than the fair market value on the date of grant
and options vest over a three year period from date of grant. The plan also
authorizes the Company to grant 600,000 stock appreciation rights, none of which
have been granted.
In connection with the SeaMED merger occurring in fiscal 1999 (see Note
8--"Merger and Acquisition"), all of the options outstanding under the former
SeaMED stock option plans were assumed by the Company and converted into options
to purchase shares of the Company's Common Stock on terms adjusted to reflect
the Merger exchange ratio. Options to acquire a total of 429,410 SeaMED shares
were converted into options to acquire a total of 171,764 Plexus shares
(pre-split). The SeaMED stock option plans are similar to the Plexus plans above
and options vest over a four year period from date of grant. These plans have
been terminated; however, the outstanding options, as so adjusted, retain all of
the rights, terms and conditions of the respective plans under which they were
originally granted until their expiration.
Under a separate plan, each independent outside director is granted 1,500
stock options each December 1, with option pricing similar to the employee
plans. These options are fully vested upon grant and can be exercised after a
minimum six-month holding period. The 400,000 shares of common stock authorized
under this plan may come from any combination of authorized but unissued shares,
treasury stock or the open market.
F-14
15
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
A summary of the stock option activity follows:
SHARES WEIGHTED AVERAGE
(IN THOUSANDS) EXERCISE PRICE
-------------- ----------------
Options outstanding at October 1, 1996............ 4,478 $ 3.07
Granted........................................... 1,396 $ 6.92
Canceled.......................................... (68) $ 3.35
Exercised......................................... (1,334) $ 2.68
------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1997......... 4,472 $ 4.38
Granted........................................... 812 $11.80
Canceled.......................................... (86) $ 6.13
Exercised......................................... (562) $ 3.08
------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1998......... 4,636 $ 5.81
Effect of SeaMED excluded period.................. 62 $23.35
Granted........................................... 980 $15.29
Canceled.......................................... (164) $16.21
Exercised......................................... (1,092) $ 3.81
------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1999......... 4,422 $ 8.26
======
OPTIONS EXERCISABLE AT:
September 30, 1997.............................. 1,914 $ 3.01
====== ======
September 30, 1998.............................. 2,500 $ 3.70
====== ======
September 30, 1999.............................. 2,518 $ 5.21
====== ======
The following table summarizes outstanding stock option information at
September 30, 1999 (shares in thousands):
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
$ 0.63 - $ 3.75 1,408 $ 3.07 5.6 years 1,400 $ 3.07
$ 4.15 - $ 6.25 1,210 $ 5.91 6.8 years 794 $ 5.78
$ 9.25 - $14.50 730 $10.67 8.3 years 242 $10.69
$14.75 - $22.50 1,074 $16.09 8.8 years 82 $20.15
$ 0.63 - $22.50 4,422 $ 8.26 7.2 YEARS 2,518 $ 5.21
The Company has elected to account for its stock option plans under the
guidelines of Accounting Principles Board Opinion No. 25. Accordingly, no
compensation cost related to the stock option plans has been recognized in the
consolidated statements of operations. Had the Company recognized compensation
expense based on the fair value at the grant date for awards under the plans,
the Company's net income for fiscal 1999, 1998 and 1997 would have been reduced
by approximately $2.8 million, $2.9 million and $1.5 million, respectively.
Basic earnings per share would have been reduced by $0.08, $0.09 and $0.05 in
fiscal 1999, 1998 and 1997, respectively. These pro forma results will not be
representative of the impact in future years because only grants made since
October 1, 1995 were considered.
The weighted average fair value of options granted per share during fiscal
1999, 1998 and 1997 is $8.41, $6.61, $3.31, respectively. The fair value of each
option grant is estimated at the date of grant using the Black-Scholes prorated
straight line option-pricing method with the following assumption ranges: 45% to
61% volatility, risk free interest rates ranging from 4.1% to 6.6%, expected
option life of 4.5 to 6.0 years, and no expected dividends.
F-15
16
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Deferred Compensation Plan: In September 1996, the Company entered into
agreements with certain of its officers under a nonqualified deferred
compensation plan. Under the plan, the Company has agreed to pay certain amounts
annually for the first 15 years subsequent to retirement or to a designated
beneficiary upon death. It is management's intent that life insurance contracts
owned by the Company will fund this plan. Expense for this plan totaled
$361,000, $343,000 and $315,000 in fiscal 1999, 1998, and 1997, respectively.
Other: The Company is not obligated to provide any post-retirement medical
or life insurance benefits to employees.
11. BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosure about Segments of an Enterprise and Related Information" in
fiscal 1999. SFAS No. 131 establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic area and major
customers.
The Company and its subsidiaries operate in one business segment, the
production and sale of electronic products including the designing,
manufacturing, programming and testing of computerized electronic assemblies.
Additionally all of the Company's operations are located in the United States.
The following table summarizes the percentage of net sales to customers
that account for more than 10% of net sales in fiscal 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Lucent Technologies Inc................................ 16% * *
General Electric Company............................... 12% * 11%
International Business Machines Corporation............ * * 10%
(* represents sales less than 10%)
Accounts receivable related to Lucent and General Electric represent 14%
and 7%, respectively, of the Company's trade accounts receivable as of September
30, 1999.
F-16
17
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1999 and 1998 consists of
(in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER TOTAL
---- -------- -------- -------- -------- --------
Net sales................................. $120,585 $119,165 $120,430 $132,234 $492,414
Gross profit.............................. 16,904 16,828 13,714 18,963 66,409
Net income................................ 6,825 6,265 3,726 3,495 20,311
Earnings per share
Basic................................... $ 0.20 $ 0.18 $ 0.11 $ 0.10 $ 0.59
Diluted................................. $ 0.19 $ 0.17 $ 0.10 $ 0.09 $ 0.55
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER TOTAL
---- -------- -------- -------- -------- --------
Net sales................................. $111,935 $113,948 $116,827 $124,085 $466,795
Gross profit.............................. 12,426 14,104 15,870 17,747 60,147
Net income................................ 4,462 5,128 6,207 7,140 22,937
Earnings per share
Basic................................... $ 0.13 $ 0.15 $ 0.18 $ 0.21 $ 0.68
Diluted................................. $ 0.12 $ 0.14 $ 0.17 $ 0.20 $ 0.63
Earnings per share is computed independently for each quarter. The annual
per share amount may not equal the sum of the quarterly amounts due to rounding.
F-17