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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, 2001
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 8, 2001 there were 41,370,568 of Common Stock of the Company
outstanding.
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PLEXUS CORP.
TABLE OF CONTENTS
March 31, 2001
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....10
SAFE HARBOR...............................................................................10
OVERVIEW..................................................................................10
MERGERS AND ACQUISITIONS..................................................................10
RESULTS OF OPERATIONS.....................................................................11
LIQUIDITY AND CAPITAL RESOURCES...........................................................13
NEW ACCOUNTING PRONOUNCEMENTS.............................................................14
RISK FACTORS..............................................................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................21
PART II - OTHER INFORMATION..............................................................................22
Item 4. Submission of Matters to a Vote of Security Holders.....................................22
Item 6. Exhibits and Reports on Form 8-K.......................................................22
SIGNATURE................................................................................................22
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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,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $280,284 $161,994 $552,381 $309,088
Cost of sales 246,709 138,891 480,454 265,436
-------- -------- -------- --------
Gross profit 33,575 23,103 71,927 43,652
Operating expenses:
Selling and administrative expenses 13,102 7,968 25,869 15,098
Goodwill amortization 891 33 1,779 65
Merger costs -- -- 1,014 --
-------- -------- -------- --------
13,993 8,001 28,662 15,163
-------- -------- -------- --------
Operating income 19,582 15,102 43,265 28,489
Other income (expense):
Interest expense (1,372) (2) (3,199) (4)
Miscellaneous 1,217 486 2,016 858
-------- -------- -------- --------
Income before income taxes 19,427 15,586 42,082 29,343
Income taxes 7,771 6,234 17,213 11,737
-------- -------- -------- --------
Net income $ 11,656 $ 9,352 $ 24,869 $ 17,606
======== ======== ======== ========
Earnings per share:
Basic $ 0.28 $ 0.26 $ 0.61 $ 0.50
======== ======== ======== ========
Diluted $ 0.27 $ 0.25 $ 0.58 $ 0.47
======== ======== ======== ========
Weighted average shares outstanding:
Basic 41,198 35,488 40,738 35,332
======== ======== ======== ========
Diluted 43,213 38,066 43,097 37,762
======== ======== ======== ========
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,
2001 2000
--------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,213 $ 5,293
Short-term investments 36,225 --
Accounts receivable, net of allowance of $3,584
and $1,522, respectively 131,785 140,048
Inventories 199,329 215,998
Deferred income taxes 10,458 9,109
Prepaid expenses and other 8,558 4,451
--------- ---------
Total current assets 428,568 374,899
Property, plant and equipment, net 117,910 89,500
Goodwill, net 48,394 48,882
Other 3,335 2,327
--------- ---------
Total assets $ 598,207 $ 515,608
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,109 $ 8,365
Accounts payable 89,947 106,257
Customer deposits 11,991 10,126
Accrued liabilities:
Salaries and wages 16,344 19,039
Other 14,078 17,516
--------- ---------
Total current liabilities 140,469 161,303
Long-term debt, net of current portion 49,101 141,409
Deferred income taxes 1,721 1,056
Other liabilities 2,687 2,478
Shareholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value, 200,000 and 60,000 shares
authorized, respectively, 41,234 and 37,054 issued
and outstanding, respectively 412 371
Additional paid-in capital 244,725 72,699
Retained earnings 160,610 136,577
Accumulated other comprehensive loss (1,518) (285)
--------- ---------
404,229 209,362
--------- ---------
Total liabilities and shareholders' equity $ 598,207 $ 515,608
========= =========
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,
--------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 24,869 $ 17,606
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 13,916 6,460
Income tax benefit from stock option award plans 3,735 2,331
Deferred income taxes (688) (860)
Changes in assets and liabilities:
Accounts receivable (18,461) (5,645)
Inventories 16,084 (28,328)
Prepaid expenses and other (4,003) (209)
Accounts payable (16,295) 13,115
Customer deposits 1,871 108
Accrued liabilities (6,300) 2,087
Other (2,948) 351
-------- --------
Cash flows provided by operating activities 11,780 7,016
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (36,700) (48,042)
Sales and maturities of short-term investments 475 60,261
Payments for property, plant and equipment (39,209) (12,672)
Other -- 44
-------- --------
Cash flows used in investing activities (75,434) (409)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 144,077 --
Payments on debt (239,328) (5)
Proceeds from exercise of stock options 1,025 2,742
Asset securitization facility 30,000 --
Proceeds from issuance of common stock 164,829 --
-------- --------
Cash flows provided by financing activities 100,603 2,737
-------- --------
Effect of foreign currency translation on cash (29) --
-------- --------
Net increase in cash and cash equivalents 36,920 9,344
Cash and cash equivalents:
Beginning of period 5,293 15,906
-------- --------
End of period $ 42,213 $ 25,250
======== ========
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, 2001
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by Plexus Corp. ("Plexus" or 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 include normal recurring adjustments, necessary
to present fairly the financial position of the Company as of March 31, 2001 and
the results of operations for the three months and six months ended March 31,
2001 and 2000 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 2000 Annual Report on Form 10-K.
The condensed consolidated balance sheet data as of September 30, 2000
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,
2001 2000
--------- ---------
Assembly parts $144,948 $139,674
Work-in-process 50,053 69,829
Finished goods 4,328 6,495
-------- ---------
$199,329 $ 215,998
======== =========
NOTE 3 - ASSET SECURITIZATION FACILITY
On October 6, 2000, the Company entered into an agreement to sell up to
$50 million of trade accounts receivable without recourse (the "asset
securitization facility") to Plexus ABS Inc. ("ABS"), a wholly owned, limited
purpose subsidiary of the Company. ABS is a separate corporate entity that sells
participation interests in a pool of the Company's accounts receivable to
financial institutions. The financial institutions then receive an ownership and
security interest in the pool of receivables. Accounts receivable sold to
financial institutions, if any, are reflected as a reduction to accounts
receivable in the consolidated balance sheets. The Company has no risk of credit
loss on such receivables as they are sold without recourse. The Company retains
collection and administrative responsibilities on the participation interest
sold as services for ABS and the financial institutions. The agreement expires
in October 2003. As of March 31, 2001, the Company had utilized $30 million of
the asset securitization facility. The Company incurred financing costs of $1.1
million under the asset securitization facility for the six months ended March
31, 2001.
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NOTE 4 - 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,
-------------------------- ---------------------------
2001 2000 2001 2000
---- ---- ---- ----
BASIC EARNINGS PER SHARE:
Net income $11,656 $ 9,352 $24,869 $17,606
======= ======= ======= =======
Basic weighted average shares
outstanding 41,198 35,488 40,738 35,332
======= ======= ======= =======
BASIC EARNINGS PER SHARE $ 0.28 $ 0.26 $ 0.61 $ 0.50
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Net income $11,656 $ 9,352 $24,869 $17,606
======= ======= ======= =======
Weighted average shares outstanding 41,198 35,488 40,738 35,332
Dilutive effect of stock options 2,015 2,578 2,359 2,430
------- ------- ------- -------
Diluted weighted average shares
outstanding 43,213 38,066 43,097 37,762
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ 0.27 $ 0.25 $ 0.58 $ 0.47
======= ======= ======= =======
NOTE 5 - MERGER AND ACQUISITION
On May 1, 2001, the Company signed a definitive agreement to acquire
Qtron, Inc., a privately held electronic manufacturing service provider located
in San Diego, California. The purchase price is estimated at approximately $30
million in cash, subject to potential reductions provided in the agreement. The
transaction is expected to close during the Company's third fiscal quarter and
will be accounted for as a purchase transaction. The transaction remains subject
to closing conditions provided in the agreement.
On December 21, 2000, the Company acquired e2E Corporation ("e2E")
through the issuance of 462,625 shares of its common stock. The transaction is
being accounted for as a pooling of interests. Costs associated with this merger
in the amount of $1.0 million have been expensed as required. Pro forma
statements of operations reflecting this transaction are not shown and prior
results are not restated, as they would not differ materially from reported
results.
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NOTE 6 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one business segment. The Company provides
product realization services to electronic original equipment manufactures
("OEMs"). The Company has two reportable geographic regions: North America and
Europe. The Company has 23 manufacturing and engineering facilities in North
America and Europe to serve these OEMs. The Company uses an internal management
reporting system, which provides important financial data, to evaluate
performance and allocate the Company's resources on a geographic basis.
Interregion transactions are generally recorded at amounts that approximate
arm's length transactions. Certain corporate expenses are allocated to these
regions and are included for performance evaluation. The accounting policies for
the regions are the same as for the Company taken as a whole. Geographic net
sales information reflects the origin of the product shipped. Assets information
is based on the physical location of the asset.
Three months ended Six Months ended
March 31, March 31,
----------- ----------- ----------- -----------
2001 2000 2001 2000
---- ---- ---- ----
Net sales: (in thousands)
North America $257,113 $161,994 $507,607 $309,088
Europe 23,171 - 44,774 -
-------- -------- -------- --------
$280,284 $161,994 $552,381 $309,088
======== ======== ======== ========
Net income:
North America $11,638 $ 9,352 $24,715 $17,606
Europe (499) - (847) -
Interregion adjustments 517 - 1,001 -
--------- -------- -------- --------
$11,656 $9,352 $24,869 $17,606
========= ======== ======== ========
March 31, September 30,
2001 2000
---- ----
Total assets: (in thousands)
North America $526,004 $462,355
Europe 72,203 53,253
-------- --------
$598,207 $515,608
======== ========
NOTE 7 - SHAREHOLDERS' EQUITY
During the first quarter of fiscal 2001, the Company issued 3.45 million
shares of common stock at an offering price to the public of $50 per share. The
Company received net proceeds of approximately $164.3 million after discounts
and commissions to the underwriters of approximately $7.1 million. Additional
expenses were approximately $0.6 million.
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 common 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.
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NOTE 8 - COMPREHENSIVE INCOME/LOSS
The Company's accumulated other comprehensive income (loss) is composed
of the cumulative effect of the foreign currency translation adjustment. For the
three months ended March 31, 2001 and 2000, the Company recorded foreign
currency translation adjustments of approximately ($1.5) million and $0,
respectively. For the six months ended March 31, 2001 and 2000, the Company
recorded foreign currency translation adjustments of approximately ($1.2)
million and $0, respectively.
NOTE 9 - CONTINGENCY
The Company (along with hundreds of other companies) has been sued by
the Lemelson Medical, Education & Research Foundation Limited Partnership
("Lemelson") related to alleged possible infringement of certain Lemelson
patents. The Company has requested a stay of action pending developments in
other related litigation. The Company believes the vendors from whom the
patent-related equipment was purchased may contractually indemnify the Company.
If a judgment is rendered and/or a license fee required, it is the opinion of
management of the Company that such judgment would not be material to the
consolidated financial position of the Company or the results of its operations.
NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS
In October 2000, Statement of Financial Accounting Standards ("SFAS")
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of SFAS No. 125" was issued. This
statement revises the standards for accounting for securitizations and other
transfers of financial assets and collateral, and requires certain disclosures
and it continues most of SFAS No. 125's provisions without reconsideration. SFAS
No. 140 will be effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001, and is not
expected to have a significant material effect on the Company's financial
position, results of operations or cash flows.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. As amended, SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The Company adopted
SFAS No. 133, as amended, on October 1, 2000. The adoption of this statement did
not have a material impact on the Company's financial position, results of
operations or cash flows.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff for
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 will be effective for the Company's fourth
quarter of fiscal 2001 and is not expected to have a significant material effect
on the Company's financial statements.
NOTE 11 - RECLASSIFICATIONS
Certain amounts in the prior year's consolidated financial statements
have been reclassified to conform to the fiscal 2001 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
The statements contained in the Form 10-Q which are not historical facts (such
as statements in the future tense and statements including "believe," "expect,"
"intend," "anticipate" and similar concepts) are forward-looking statements that
involve risks and uncertainties, including, but not limited to, the economic
performance of the electronics and technology industries, the risk of customer
delays, changes, or cancellations in both on-going and new programs, the
Company's ability to complete acquisition transactions and integrate acquired
operations, the Company's ability to secure new customers and maintain its and
acquired operations' 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 effect of start-up costs of new programs and facilities, the effect
of general economic conditions, the impact of increased competition and other
risks detailed in the Company's Securities and Exchange Commission filings.
OVERVIEW
Plexus provides product realization services to OEMs in the
networking/datacommunications, medical, industrial, computer and transportation
industries. We provide advanced electronics design, manufacturing and testing
services to our customers and focus on complex, high-end products. We offer our
customers the ability to outsource all stages of product realization, including:
development and design, materials procurement and management, prototyping and
new product introduction, testing, manufacturing and after-market support. The
following information should be read in conjunction with our condensed
consolidated financial statements included herein and the "Risk Factors" section
beginning on page 14.
We provide contract manufacturing services on either a turnkey basis,
where we procure some 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 materials
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 our net sales, except
for raw material pass-through sales discussed below. Turnkey sales typically
generate higher 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 our net sales. However, turnkey manufacturing involves the
risk of inventory management, and a change in component costs can directly
impact average selling prices, gross margins and our net sales. Due to the
nature of turnkey manufacturing, our 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.
MERGERS AND ACQUISITIONS
On May 1, 2001, the Company signed a definitive agreement to acquire
Qtron, Inc., a privately held electronic manufacturing service provider, located
in San Diego, California. The purchase price is estimated at approximately $30
million in cash, subject to potential reductions provided in the agreement. The
transaction is expected to close during the Company's third fiscal quarter and
will be accounted for as a purchase transaction. The transaction remains subject
to closing conditions provided in the agreement. The company anticipates taking
a one-time charge in the quarter ending June 30, 2001 for relocating Qtron's
operations into two new facilities totaling 163,000 square feet.
On December 21, 2000, we acquired e2E, a privately held circuit board
design and engineering service provider for electronic OEMs. This transaction
was accounted for as a pooling of interests. However, our prior results were not
restated, as they would not differ materially from reported results. e2E's
results are included for the
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six months ended March 31, 2001. The addition of e2E has significantly increased
the Company's printed circuit board design and engineering capabilities as well
as its geographic reach.
On July 14, 2000, we acquired all of the outstanding capital stock of
Keltek (Holdings) Limited ("Keltek"), headquartered in Kelso, Scotland, with an
additional facility in Maldon, England. We accounted for the acquisition of
Keltek using the purchase method of accounting. The results of Keltek's
operations have been included in our results from the date of acquisition. The
acquisition of Keltek has provided us with a presence in Western Europe to serve
both current and new customers.
On May 23, 2000, we completed our acquisition of the turnkey electronics
manufacturing services operations of Elamex, S.A. de C.V. ("Mexico turnkey
operations") located in Juarez, Mexico. We accounted for this acquisition using
the purchase method of accounting, and the Mexico turnkey operations' results
are included in our results from the date of acquisition. The Mexico turnkey
operations have provided our existing and potential customers with a proven
low-cost-labor solution for many of our product realization services. In
addition, the acquisition has provided the existing customers of the Mexico
turnkey operations with access to our engineering, test and technology
capabilities.
On April 28, 2000, we acquired Agility Incorporated ("Agility"), a
privately held, Boston-based electronic manufacturing services ("EMS") provider.
This transaction was accounted for as a pooling of interests. However, our prior
results were not restated, as they would not differ materially from reported
results. The addition of Agility has established a stronger presence with our
current East Coast customers and increased our capacity to assemble complex
printed circuit boards with complete final product and system box build.
RESULTS OF OPERATIONS
Net sales
Net sales for the three months ended March 31, 2001, increased 73
percent to $280 million from $162 million for the three months ended March 31,
2000. Net sales for the six months ended March 31, 2001, increased 79 percent to
$552 million from $309 million for the six months ended March 31, 2000. Our
acquisitions, since October 1, 1999, accounted for slightly less than 50 percent
of sales growth for the three and six month periods ended March 31, 2001.
Plexus' sales have been affected by the impact of the overall slow-down in the
economy as a whole, and in particular in the networking/datacommunications
infrastructure spend with some of our customers, resulting in these customers'
forecasts and orders becoming more cautious. In addition, sales of approximately
$30 million in the second quarter and six months ended March 31, 2001 were raw
material pass-through sales, sold to customers with minimal mark-up and without
the customary value added services, due to order cancellations.
Our largest customer for the three months ended March 31, 2001, was
Cisco Systems, Inc., which accounted for 12 percent of sales, compared to the
three months ended March 31, 2000, when Lucent Technologies, Inc., and General
Electric Company accounted for 22 percent and 12 percent of sales, respectively.
Our largest customer for the six months ended March 31, 2001 was Cisco Systems,
which accounted for 12 percent of sales compared to Lucent Technologies and
General Electric which accounted for 24 percent and 12 percent of sales,
respectively, for the six months ended March 31, 2000. No other customers
accounted for more than 10 percent of the Company's sales for the three and six
months ended March 31, 2001 or 2000. Based on recently revised customer
forecasts, sales to each of Cisco and Lucent are expected to be significantly
below 10 percent of the Company's sales in its fiscal third quarter.
Sales to our ten largest customers accounted for 54 percent of sales for
the three months ended March 31, 2001, compared to 69 percent for the three
months ended March 31, 2000. Sales to our largest ten customers accounted for 55
percent of sales for the six months ended March 31, 2001 compared to 69 percent
for the six months ended March 31, 2000. As with sales to most of our customers,
sales to our largest customers may vary from time to time depending on the size
and timing of customer program commencement, termination, delays, modifications
and transitions. We remain dependent on continued sales to Lucent Technologies,
Cisco Systems, General Electric and our other significant customers, and we
generally do not obtain firm, long-term purchase commitments from our customers.
In addition, we expect an increasing percentage of our sales will come from
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emerging technology companies, including start-ups, mainly in the
networking/datacommunications market sector. Customer forecasts can and do
change as a result of their end-market demand and other factors. Although any
material change in orders from these or other customers could materially affect
our results of operations, we are dedicated to diversifying our customer base
and decreasing our dependence on any particular customer or customers.
Our sales for the three months ended March 31, 2001 and 2000,
respectively, by industry were as follows: networking/datacommunications 41
percent (34 percent), medical 22 percent (32 percent), industrial 18 percent (19
percent), computer 13 percent (10 percent) and transportation/other 6 percent (5
percent). Based upon current forecasts from our customers, we expect our
industry sales breakdown in our fiscal third quarter to be similar to our second
quarter results. Upon the completion of the Qtron transaction, the percent of
Plexus' sales to the networking/datacommunications industry should increase
because the substantial majority of Qtron's sales are to the wireless
infrastructure equipment industry.
Gross profit
Gross profit for the three months ended March 31, 2001, increased 45
percent to $33.6 million from $23.1 million for the three months ended March 31,
2000. Gross profit for the six months ended March 31, 2001, increased 65 percent
to $71.9 million from $43.7 million for the six months ended March 31, 2000. The
gross margin for the three months ended March 31, 2001, was 12.0 percent,
compared to 14.3 percent for the three months ended March 31, 2000. The gross
margins for the six months ended March 31, 2001, was 13.0 percent compared to
14.1 percent for the six months ended March 31, 2000.
Our gross margin reflects a number of factors that 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
customers' products and competition within the electronics industry. Gross
margin for the three months ended March 31, 2001 was affected by a slowdown in
the end-market demand particularly in the networking/datacommunications sector
which resulted in lower production capacity at our manufacturing sites.
In addition, gross margins continue to be affected by acquisitions. In
particular, gross margins resulting from the Mexico turnkey operations and
Keltek are below our historical gross margins as we work to integrate these
acquisitions into our product realization model and increase their capacity
utilization. These and other factors can cause variations in our operating
results. Although our focus is on maintaining and expanding gross margins, there
can be no assurance that gross margins will not decrease in future periods.
Gross margins are expected to decrease from fiscal 2000 results due to the
impact of the Company's recent acquisitions and its reduced manufacturing
capacity utilization.
Most of the research and development we conduct is paid for by out
customers and is, therefore, included in the cost of sales. We conduct other
research and development, but the research and development is not specifically
identified and we believe such expenses are less than one percent of our net
sales.
Operating expenses
Selling and administrative (S&A) expenses for the three months ended
March 31, 2001, increased to $13.1 million from $8.0 million for the three
months ended March 31, 2000. S&A expenses for the six months ended March 31,
2001, increased to $25.9 million from $15.1 million for the six months ended
March 31, 2000. As a percentage of sales, S&A expenses were 4.7 percent for the
three months and six months ended March 31, 2001, compared to 4.9 percent for
the three months and six months ended March 31, 2000. The increase in dollar
terms was due primarily to increases in our sales and marketing efforts and
information systems infrastructure to support our growth and global expansion.
In response to the anticipated reduction in our expected sales levels
and our reduced capacity utilization, the Company reduced its work force by
approximately five percent, or approximately 300 employees, in April 2001.
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The Company expects to take a one-time charge of less than $1 million associated
with the work force reduction in our fiscal third quarter. We anticipate that
future S&A expenses will remain at, or somewhat above, five percent of net
sales.
Income taxes
Income taxes increased to $7.8 million for the three months ended March
31, 2001, from $6.2 million for the three months ended March 31, 2000. Income
taxes increased to $17.2 million for the six months ended March 31, 2001, from
$11.7 million for the six months ended March 31, 2000. Our effective income tax
rate has remained at approximately 40 percent excluding non-tax-deductible
merger expenses. This rate approximates the blended federal and state statutory
rate. The effective tax rate increased slightly upon the completion of the
Mexico turnkey operations and Keltek acquisitions arising from the tax treatment
of goodwill and slightly impacted the second quarter of 2001. For fiscal 2001,
we expect the annual effective tax rate to decrease slightly as foreign
operations increase as a percentage of the Company's total operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $11.8 million for the
six months ended March 31, 2001, compared to cash flows provided by operating
activities of $7.0 million for the six months ended March 31, 2000. During the
period, cash provided by operating activities primarily related to increased net
income, the effect of non-cash expense items such as depreciation and the income
tax benefit from stock option award plans, and decreased inventory. This was
offset in part by increases in accounts receivable, and decreases in accounts
payable and accrued liabilities.
Cash flows used in investing activities totaled $75.4 million for the
six months ended March 31, 2001. The primary uses were payments for property,
plant and equipment, including plant expansions and additional manufacturing
equipment and purchasing short-term investments.
We utilize available cash, debt and operating leases to fund our
operating requirements. We utilize operating leases primarily in situations
where technical obsolescence concerns are determined to outweigh the benefits of
financing the equipment purchase. We currently estimate capital expenditures for
fiscal 2001 will be approximately $65 million to $70 million. This includes
planned expansions at our manufacturing facilities in Kentucky and Illinois and
additional manufacturing equipment. This estimate reflects a reduction from
prior expectations as the Company has pushed out certain capital requirements
due to the reduction in anticipated sales levels. In addition, this estimate
does not include any acquisitions which Plexus may undertake, including Qtron.
The Company intends to finance the pending Qtron acquisition through
existing capital resources. In addition to the purchase price, the Company will
either repay or assume Qtron indebtedness of approximately $16 million to
$20million (in addition to Qtron's ordinary trade payables).
Cash flows provided by financing activities totaled $100.6 million for
the six months ended March 31, 2001, primarily representing net proceeds from
the issuance of common stock and proceeds from our asset securitization
facility, offset by net payments on debt. The ratio of total debt to equity was
0.5 to 1 as of March 31, 2001 compared to 1.5 to 1 as of September 30, 2000.
On October 25, 2000, Plexus entered into a new unsecured revolving
credit facility (the "Credit Facility") with a group of banks. The Credit
Facility allows us to borrow up to $250 million. Borrowing capacity utilized
under the Credit Facility will be either through revolving or other loans or
through guarantees of commercial paper. Interest on borrowings is computed at
the applicable Eurocurrency rate on the agreed currency, plus any commitment
fees. The Credit Facility matures on October 25, 2003, and requires among other
things maintenance of minimum interest expense coverage and maximum leverage
ratios.
Pursuant to a public offering of shares of common stock in the first
quarter of fiscal 2001, Plexus issued 3.45 million shares of common stock for
$50 per share, with an underwriters discount of $2.375 per share. The Company
received net proceeds of approximately $164.3 million, after discounts and
commissions to the
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underwriters of approximately $8.2 million. Additional expenses were
approximately $0.6 million. The aggregate net proceeds from the offering were
used to pay down, in part, existing debt and are being or will be used to
finance capital expenditures, capacity expansion, potential future acquisitions
and for general corporate purposes and working capital.
On October 6, 2000, Plexus entered into an agreement to sell up to $50
million of trade accounts receivable without recourse (the "asset securitization
facility") to Plexus ABS Inc. ("ABS"), a wholly owned, limited purpose
subsidiary of the Company. ABS is a separate corporate entity that sells
participating interests in a pool of the Company's accounts receivable to
financial institutions. The financial institutions then receive an ownership and
security interest in the pool of receivables.
Our credit facilities, leasing capabilities, the asset securitization
facility, the proceeds of our October 2000 offering, cash and short-term
investments and projected cash from operations should be sufficient to meet our
working capital and capital requirements through fiscal 2001 and the foreseeable
future, including the cash required for the Qtron acquisition. We have not paid
cash dividends in the past, and do not anticipate paying them in the foreseeable
future. We anticipate using earnings to support our business.
NEW ACCOUNTING PRONOUNCEMENTS
In October 2000, SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS
No. 125" was issued. This statement revises the standards for accounting for
securitizations and other transfers of financial assets and collateral, and
requires certain disclosures and it continues most of SFAS No. 125's provisions
without reconsideration. SFAS No. 140 will be effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001, and is not expected to have a significant material effect on the
Company's financial position, results of operations or cash flows.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. As amended, SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The Company adopted
SFAS No. 133, as amended, on October 1, 2000. The adoption of this statement did
not have a material impact on our financial position, results of operations or
cash flows.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff for
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 will be effective for the Company's fourth
quarter of fiscal 2001 and is not expected to have a significant material effect
on the Company's financial statements.
RISK FACTORS
OUR CUSTOMER REQUIREMENTS AND OPERATING RESULTS VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER, WHICH COULD NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.
Our quarterly and annual results may vary significantly depending on
various factors, many of which are beyond our control. These factors include:
- the volume of customer orders relative to our capacity
- the timing of customer orders, particularly in light of the fact that
some of our customers release a significant percentage of their orders
during the last few weeks of a quarter
- the typical short life cycle of our customers' products
- market acceptance of and demand for our customers' products
- changes in our sales mix to our customers
- the timing of our expenditures in anticipation of future orders
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- our effectiveness in managing manufacturing processes
- changes in cost and availability of labor and components
- changes in economic conditions
- local events that may affect our production volume, such as local
holidays.
The EMS industry is impacted by the state of the U.S. and global
economies. Any slow-down in the U.S. or global economies, or in particular in
the industries served by us, may result in our customers reducing their
forecasts. The Company's sales growth has been, and is expected to continue to
be, impacted by the slow down in the networking/datacommunications market, as
well as the economy in general. As a result, the demand for our services could
decrease, which in turn would impact our sales.
Due to the nature of turnkey manufacturing services, our quarterly and
annual results are affected by the level and timing of customer orders,
fluctuations in material costs and availability, and the degree of automation
used in the manufacturing process.
OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
PRODUCTION.
Electronics manufacturing service providers must provide increasingly
rapid product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers and we continue to experience
reduced lead-times in customer orders. Customers may cancel their orders, change
production quantities or delay production for a number of reasons. The success
of our customers' products in the market affects our business. Cancellations,
reductions or delays by a significant customer or by a group of customers could
seriously harm our operating results. Such cancellations, reductions or delays
have occurred and may continue to occur in response to the slow down in the
networking/datacommunications market and other sectors of the economy.
In addition, we make significant decisions, including determining the
levels of business that we will seek and accept, production schedules, component
procurement commitments, personnel needs and other resource requirements, based
on our estimates of customer requirements. The short-term nature of our
customers' commitments and the possibility of rapid changes in demand for their
products reduces our ability to estimate accurately the future requirements of
those customers.
On occasion, customers may require rapid increases in production, which
can stress our resources and reduce operating margins. Although we have
increased our manufacturing capacity and plan further increases, we may not have
sufficient capacity at any given time to meet all of our customers' demands. In
addition, because many of our costs and operating expenses are relatively fixed,
a reduction in customer demand can harm our gross margins and operating results.
WE MAY NOT BE ABLE TO OBTAIN RAW MATERIALS OR COMPONENTS FOR OUR ASSEMBLIES ON A
TIMELY BASIS OR AT ALL.
We rely on a limited number of suppliers for many components used in the
assembly process. We do not have any long-term supply agreements. At various
times, there have been shortages of some of the electronic components that we
use, and suppliers of some components have lacked sufficient capacity to meet
the demand for these components. Over the past 18 months, component shortages
have become more prevalent in our industry. In some cases, supply shortages and
delays in deliveries of particular components have resulted in curtailed
production, or delays in production, of assemblies using that component, which
has contributed to an increase in our inventory levels. We expect that shortages
and delays in deliveries of some components may continue. If we are unable to
obtain sufficient components on a timely basis, we may experience manufacturing
and shipping delays, which could harm our relationships with customers and
reduce our sales.
A significant portion of our sales is derived from turnkey manufacturing
in which we provide materials procurement. While most of our customer contracts
permit quarterly or other periodic adjustments to pricing based on decreases and
increases in component prices and other factors, we typically bear the risk of
component price increases that occur between any such repricings or, if such
repricing is not permitted, during the balance of the term
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of the particular customer contract. Accordingly, component price increases
could adversely affect our operating results.
THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS AND IF WE LOSE
ANY OF THESE CUSTOMERS, OUR SALES AND OPERATING RESULTS COULD DECLINE
SIGNIFICANTLY.
Sales to our ten largest customers have represented a majority of our
sales in recent periods. Our ten largest customers accounted for approximately
54% of our net sales for the three months ended March 31, and 55% for the first
six months of fiscal 2001. Our ten largest customers represented 63% of our
sales for fiscal 2000. The identities of our principal customers have varied
from year to year, and our principal customers may not continue to purchase
services from us at current levels, if at all. Significant reductions in sales
to any of these customers, or the loss of major customers, could seriously harm
our business. If we are not able to timely replace expired, canceled or reduced
contracts with new business, our sales will decrease.
WE MAY HAVE INCREASING NEW CUSTOMER RELATIONSHIPS WITH EMERGING COMPANIES, WHICH
MAY PRESENT MORE RISKS THAN WITH ESTABLISHED COMPANIES.
We currently anticipate that an increasing percentage of our sales will
be to emerging companies, including start-ups, particularly in the
networking/datacommunications market. However, similar to our other customer
relationships, there are no volume purchase commitments under these new
programs, and the revenues we actually achieve may not meet our expectations. In
anticipation of future activities under these programs, we incur substantial
expenses as we add personnel and manufacturing capacity and procure materials.
Because emerging companies do not have a history of operations, it will be
harder for us to anticipate needs and requirements than with established
customers. Our operating results will be harmed if sales do not develop to the
extent and within the time frame we anticipate.
Customer relationships with emerging companies also present special
risks. For example, because they do not have an extensive product history, there
is less demonstration of market acceptance of their products. Additionally, the
typical lack of prior earnings, and the frequent dependence on financing of
these companies, increases their credit risks.
WE MAY FAIL TO COMPLETE SUCCESSFULLY FUTURE ACQUISITIONS AND MAY NOT INTEGRATE
SUCCESSFULLY ACQUIRED BUSINESSES, WHICH COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
We have pursued a strategy that has included growth through
acquisitions. We cannot assure you that we will be able to complete successfully
future acquisitions, due primarily to increased competition for the acquisition
of electronics manufacturing service operations. If we are unable to acquire
additional businesses, our growth could be inhibited. Similarly, we cannot
assure you that we will be able to integrate successfully the operations and
management of our recent acquisitions or future acquisitions. Acquisitions
involve significant risks that could have a material adverse effect on us. These
risks include:
OPERATING RISKS, SUCH AS THE:
- inability to integrate successfully our acquired operations'
businesses and personnel
- inability to realize anticipated synergies, economies of scale
or other value
- difficulties in scaling up production and coordinating
management of operations at new sites
- strain placed on our personnel, systems and resources
- possible modification or termination of an acquired business
customer program, including cancellation of current or
anticipated programs
- loss of key employees of acquired businesses.
FINANCIAL RISKS, SUCH AS THE:
- dilutive effect of the issuance of additional equity securities
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- incurrence of additional debt and related interest costs
- inability to achieve expected operating margins to offset the
increased fixed costs associated with acquisitions
- incurrence of large write-offs or write-downs
- amortization of goodwill or other intangible assets
- unforeseen liabilities of the acquired businesses.
EXPANSION OF OUR BUSINESS AND OPERATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.
We may expand our operations by establishing or acquiring new facilities
or by expanding capacity in our current facilities. We may expand both in
geographical areas in which we currently operate and in new geographical areas
within the United States and internationally. However, we may not be able to
find suitable facilities on a timely basis or on terms satisfactory to us.
Expansion of our business and operations involves numerous business risks,
including the:
- inability to integrate successfully additional facilities or
capacity and to realize anticipated synergies, economies of
scale or other value
- additional fixed costs which may not be fully absorbed by the
new business
- difficulties in the timing of expansions, including delays in
the implementation of construction and manufacturing plans
- diversion of management's attention from other business areas
during the planning and implementation of expansions
- strain placed on our operational, financial, management,
technical and information systems and resources
- disruption in manufacturing operations
- incurrence of significant costs and expenses
- inability to locate enough customers or employees to support the
expansion.
In addition, Qtron is expected to move to a new facility about the time
of its acquisition by Plexus. That move could be disruptive to Qtron's
operation, and make the integration process more difficult. Further Qtron's
operations (and Plexus' other California operations) may be effected by the
power shortages in that state.
OPERATING IN FOREIGN COUNTRIES EXPOSES US TO INCREASED RISKS.
We have acquired operations in Mexico and the United Kingdom. We may in
the future expand into other international regions. We have limited experience
in managing geographically dispersed operations and in operating in Mexico and
the United Kingdom. We also purchase a significant number of components
manufactured in foreign countries. Because of these international aspects of our
operations, we are subject to the following risks that could materially impact
our operating results:
- economic or political instability
- transportation delays or interruptions and other effects of less
developed infrastructure in many countries
- foreign exchange rate fluctuations
- utilization of different systems and equipment
- difficulties in staffing and managing foreign personnel and
diverse cultures.
In addition, changes in policies by the U.S. or foreign governments
could negatively affect our operating results due to changes in duties, tariffs,
taxes or limitations on currency or fund transfers. Also, our Mexico based
operation utilizes the Maquiladora program, which provides reduced tariffs and
eases import regulations, and we could be adversely affected by changes in that
program.
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WE MAY NOT BE ABLE TO MAINTAIN OUR ENGINEERING, TECHNOLOGICAL AND MANUFACTURING
PROCESS EXPERTISE.
The markets for our manufacturing and engineering services are
characterized by rapidly changing technology and evolving process development.
The continued success of our business will depend upon our ability to:
- hire, retain and expand our qualified engineering and technical
personnel
- maintain and enhance our technological capabilities
- develop and market manufacturing services which meet changing customer
needs
- successfully anticipate or respond to technological changes in
manufacturing processes on a cost-effective and timely basis.
Although we believe that our operations utilize the assembly and testing
technologies, equipment and processes that are currently required by our
customers, we cannot be certain that we will develop the capabilities required
by our customers in the future. The emergence of new technology industry
standards or customer requirements may render our equipment, inventory or
processes obsolete or noncompetitive. In addition, we may have to acquire new
assembly and testing technologies and equipment to remain competitive. The
acquisition and implementation of new technologies and equipment may require
significant expense or capital investment which could reduce our operating
margins and our operating results. Our failure to anticipate and adapt to our
customers' changing technological needs and requirements could have an adverse
effect on our business.
FAILURE TO MANAGE OUR GROWTH MAY SERIOUSLY HARM OUR BUSINESS.
We have experienced rapid growth, both internally and through
acquisitions. This growth has placed, and will continue to place, significant
strain on our operations. To manage our growth effectively, we must continue to
improve and expand our financial, operational and management information
systems; continue to develop the management skills of our managers and
supervisors; and continue to train, manage and motivate our employees. If we are
unable to manage our growth effectively, our operating results could be harmed.
Plexus has recently entered into a licensing arrangement for new ERP
software and related information systems. The Company is in the process of
developing its global model and expects site conversions to begin in early
fiscal 2002. Conversions to new software and systems are complicated processes,
and can cause management and operational disruptions which may affect Plexus.
Information flow and production could also be affected if the new software and
systems do not perform as Plexus expects.
OUR TURNKEY MANUFACTURING SERVICES INVOLVE INVENTORY RISK.
Some of our contract manufacturing services are provided on a turnkey
basis, where we purchase some or all of the materials required for designing,
product assembling and manufacturing. These services involve greater resource
investment and inventory risk management than consignment services, where the
customer provides these materials. Accordingly, various component price
increases and inventory obsolescence could adversely affect our selling price,
gross margins and operating results. We also have the risk that customers may
not honor their commitments to reimburse the Company for excess inventory
purchases if the customers cancel orders.
START-UP COSTS AND INEFFICIENCIES RELATED TO NEW PROGRAMS CAN ADVERSELY AFFECT
OUR OPERATING RESULTS.
Start-up costs, the management of labor and equipment resources in
connection with the establishment of new programs and new customer
relationships, and the need to estimate required resources in advance can
adversely affect our gross margins and operating results. These factors are
particularly evident in the early stages of the life cycle of new products and
new programs. These factors also affect our ability to efficiently use labor and
equipment. In addition, if any of these new programs or new customer
relationships were terminated, our operating results could be harmed,
particularly in the short term.
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WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS.
We are also subject to environmental regulations relating to the use,
storage, discharge, recycling and disposal of hazardous chemicals used in our
manufacturing process. If we fail to comply with present and future regulations,
we could be subject to future liabilities or the suspension of business. These
regulations could restrict our ability to expand our facilities or require us to
acquire costly equipment or incur significant expense. While we are not
currently aware of any material violations, we may have to spend funds to comply
with present and future regulations or be required to perform site remediation.
In addition, our medical device business, which represented
approximately 22% of our sales for the three months ended March 31, 2001, and
32% for fiscal 2000, is subject to substantial government regulation, primarily
from the FDA and similar regulatory bodies in other countries. We must comply
with statutes and regulations covering the design, development, testing,
manufacturing and labeling of medical devices and the reporting of certain
information regarding their safety. Noncompliance with these rules can result
in, among other things, us and our customers being subject to fines,
injunctions, civil penalties, criminal prosecution, recall or seizure of
devices, total or partial suspension of production, failure of the government to
grant pre-market clearance or record approvals for projections or the withdrawal
of marketing approvals. The FDA also has the authority to require repair or
replacement of equipment, or refund of the cost of a device manufactured or
distributed by our customers. In addition, the failure or noncompliance could
have an adverse effect on our reputation.
OUR PRODUCTS ARE FOR THE ELECTRONICS INDUSTRY, WHICH PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES.
Factors affecting the electronics industry, in particular the short life
cycle of products, could seriously harm our customers and, as a result, us.
These factors include:
- the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which result in short product life
cycles
- the inability of our customers to develop and market their products,
some of which are new and untested
- the potential that our customers' products may become obsolete or the
failure of our customers' products to gain widespread commercial
acceptance.
INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND OR PRICES FOR OUR SERVICES.
The electronics manufacturing services industry is highly competitive.
We compete against numerous U.S. and foreign electronics manufacturing services
providers with global operations, as well as those who operate on a local or
regional basis. In addition, current and prospective customers continually
evaluate the merits of manufacturing products internally. Consolidation in the
electronics manufacturing services industry results in a continually changing
competitive landscape. The consolidation trend in the industry also results in
larger and more geographically diverse competitors who have significant combined
resources with which to compete against us.
Some of our competitors have substantially greater managerial,
manufacturing, engineering, technical, financial, systems, sales and marketing
resources than we do. These competitors may:
- respond more quickly to new or emerging technologies
- have greater name recognition, critical mass and geographic and market
presence
- be better able to take advantage of acquisition opportunities
- adapt more quickly to changes in customer requirements
- devote greater resources to the development, promotion and sale of their
services
- be better positioned to compete on price for their services.
We may be operating at a cost disadvantage compared to manufacturers who
have greater direct buying power from component suppliers, distributors and raw
material suppliers or who have lower cost structures. As a result, competitors
may procure a competitive advantage and obtain business from our customers. Our
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manufacturing processes are generally not subject to significant proprietary
protection, and companies with greater resources or a greater market presence
may enter our market or increase their competition with us. Increased
competition could result in price reductions, reduced sales and margins or loss
of market share.
WE MAY FAIL TO SECURE NECESSARY ADDITIONAL FINANCING.
We have made and intend to continue to make substantial capital
expenditures to expand our operations, acquire businesses and remain competitive
in the rapidly changing electronics manufacturing services industry. Our future
success may depend on our ability to obtain additional financing and capital to
support our continued growth and operations, including our working capital
needs. We may seek to raise capital by:
- issuing additional common stock or other equity securities
- issuing debt securities
- increasing available borrowings under our existing credit facility or
obtaining new credit facilities
- obtaining off-balance-sheet financing.
We may not be able to obtain additional capital when we want or need it,
and capital may not be available on satisfactory terms. If we issue additional
equity securities or convertible debt to raise capital, it may be dilutive to
your ownership interest. Furthermore, any additional financing and capital may
have terms and conditions that adversely affect our business, such as
restrictive financial or operating covenants.
WE DEPEND ON CERTAIN KEY PERSONNEL, AND THE LOSS OF KEY PERSONNEL MAY HARM OUR
BUSINESS.
Our future success depends in large part on the continued service of our
key technical and management personnel and on our ability to continue to attract
and retain qualified employees, particularly those highly skilled design,
process and test engineers involved in the manufacture of existing products and
the development of new products and processes. The competition for these
individuals is intense, and the loss of key employees, generally none of whom is
subject to an employment agreement for a specified term or a post-employment
non-competition agreement, could harm our business. We believe that we have a
relatively small management group whose resources could be strained as a result
of expansion of our business.
PRODUCTS WE MANUFACTURE MAY CONTAIN DESIGN OR MANUFACTURING DEFECTS WHICH COULD
RESULT IN REDUCED DEMAND FOR OUR SERVICES AND LIABILITY CLAIMS AGAINST US.
We manufacture products to our customers' specifications which are
highly complex and may at times contain design or manufacturing errors or
failures. Defects have been discovered in products we manufactured in the past
and, despite our quality control and quality assurance efforts, defects may
occur in the future. Defects in the products we manufacture, whether caused by a
design, manufacturing or component failure or error, may result in delayed
shipments to customers or reduced or cancelled customer orders. If these defects
occur in large quantities or too frequently, our business reputation may also be
impaired. In addition, these defects may result in liability claims against us.
The FDA investigates and checks, occasionally on a random basis, compliance with
statutory and regulatory requirements. Violations may lead to penalties or
shutdowns of a program or a facility.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
Our stock price has fluctuated significantly. The price of our common
stock may fluctuate significantly in response to a number of events and factors
relating to our company, our competitors and the market for our services, many
of which are beyond our control.
In addition, the stock market in general, and especially the NASDAQ
National Market along with market prices for technology companies, in
particular, have experienced extreme volatility and weakness that has often been
unrelated to the operating performance of these companies. These broad market
and industry fluctuations may adversely affect the market price of our common
stock, regardless of our operating results.
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Among other things, volatility in Plexus' stock price could mean that
investors will not be able to sell their shares at or above the prices which
they pay. The volatility also could impair Plexus' ability in the future to
offer common stock as a source of additional capital and/or as consideration in
the acquisition of other businesses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in foreign exchange and
interest rates. To reduce such risks, we selectively use financial instruments.
FOREIGN CURRENCY RISK
We do not use derivative financial instruments for speculative purposes.
Our policy is to selectively hedge certain foreign currency denominated
transactions in a manner that substantially offsets the effects of changes in
foreign currency exchange rates. Presently, we use foreign currency forward
contracts to hedge only those currency exposures associated with certain assets
and liabilities denominated in non-functional currencies. Corresponding gains
and losses on the underlying transaction generally offset the gains and losses
on these foreign currency hedges. As of March 31, 2001, the foreign currency
forward contracts were scheduled to mature in less than three months and were
not material.
INTEREST RATE RISK
We have financial instruments, including cash equivalents, short-term
investments, long-term debt and our asset securitization facility, which are
sensitive to changes in interest rates. We consider the use of interest-rate
swaps based on existing market conditions. We currently do not use any
interest-rate swaps or other types of derivative financial instruments.
The primary objective of our investment activities is to preserve
principal, while maximizing yields without significantly increasing market risk.
To achieve this, we maintain our portfolio of cash equivalents and short-term
investments in a variety of securities such as money market funds and
certificates of deposit and limit the amount of principal exposure to any one
issuer.
Our only material interest rate risk is associated with our credit
facilities and asset securitization facility. Interest on borrowings is computed
at the applicable Eurocurrency rate on the agreed currency. A 10 percent change
in our weighted average interest rate on average borrowings would have impacted
net interest expense by approximately $0.1 million and $0.3 million for the
three months and six months ended March 31, 2001, respectively.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders on March 7, 2001, the
eight management nominees were re-elected to the board. The nominees/directors
were re-elected with the following votes:
Authority for
Director's Name Votes "For" Voting Withheld
--------------- ----------- ---------------
David J. Drury 40,454,288 96,360
Dean A. Foate 40,470,468 80,120
Harold R. Miller 40,467,772 82,816
John L. Nussbaum 40,470,129 80,459
Thomas J. Prosser 40,469,818 80,770
Agustin A. Ramirez 40,468,258 96,330
Peter Strandwitz 40,468,793 81,795
Jan VerHagen 40,454,886 95,702
In addition, at the annual meeting, shareholders approved amending the
Company's Articles of Incorporation to increase the number of authorized share,
and the restatement of Articles as so amended. The vote on the proposal was as
follows:
For: 23,968,023 Against: 14,225,087 Abstain: 71,442 Broker Non-Votes: 2,286,036
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Restated Articles of Incorporation of Plexus Corp., as
amended through March 13, 2001
3(ii) Amended and Restated Bylaws of Plexus Corp., as amended
through March 7, 2001
(b) Plexus did not file any reports on Form 8-K during this period.
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.
5/14/01 /s/ John L. Nussbaum
- ---------------- ---------------------------------------------
Date John L. Nussbaum
President and Chief Executive Officer
5/14/01 /s/ Thomas B. Sabol
- ---------- ----------------------------------------------
Date Thomas B. Sabol
Executive Vice President and
Chief Financial Officer
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