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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, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-14824
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 (414) 722-3451
(Registrant's telephone number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
As of May 9, 1996 there were 6,497,697 shares of Common Stock of the
Company outstanding.
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PLEXUS CORP.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
March 31, 1996 and 1995....................................3
Condensed Consolidated Balance Sheets
March 31, 1996 and September 30, 1995......................4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1996 and 1995...................5
Notes to Condensed Consolidated Financial Statements.....6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
General..................................................7-8
Results of Operations...................................8-10
Liquidity and Capital Resources........................10-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders......11-12
Item 6. Exhibits and Reports on Form 8-K..........................12
Signatures................................................12
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales $75,286 $69,380 $146,594 $134,721
Cost of sales 70,110 63,442 136,745 124,425
--------- --------- --------- ---------
Gross profit 5,176 5,938 9,849 10,296
Selling and administrative
expenses 3,234 2,939 6,129 5,357
--------- --------- --------- ---------
Operating income 1,942 2,999 3,720 4,939
--------- --------- --------- ---------
Other income (expense):
Interest expense (504) (715) (1,078) (1,457)
Other (19) 126 96 396
--------- --------- --------- ---------
(523) (589) (982) (1,061)
--------- --------- --------- ---------
Income before income taxes 1,419 2,410 2,738 3,878
Provision for income taxes 580 940 1,094 1,513
--------- --------- --------- ---------
Net Income $ 839 $ 1,470 $ 1,644 $ 2,365
========= ========= ========= =========
Net income per common share
primary and fully diluted $.12 $.21 $.23 $.33
========= ========= ========= =========
Average number of common
and common equivalent
shares outstanding:
Primary 7,182,822 7,106,850 7,232,878 7,088,537
========= ========= ========= =========
Fully diluted 7,182,822 7,119,953 7,232,878 7,119,953
========= ========= ========= =========
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,144 $ 3,569
Accounts receivable, net
of allowance of $145 36,137 47,560
Inventories 62,031 48,966
Deferred income taxes 904 904
Prepaid expenses and other 1,815 1,930
-------- --------
Total current assets 104,031 102,929
Property, plant and equipment, net 11,182 11,829
Other 262 330
-------- --------
Total assets $115,475 $115,088
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 101 $ 107
Accounts payable 28,808 23,279
Customer deposits 7,447 3,530
Accrued liabilities:
Salaries and wages 2,881 2,618
Other 1,889 2,093
-------- --------
Total current liabilities 41,126 31,627
Long-term debt 31,188 41,734
Deferred income taxes 718 718
Stockholders' equity:
Series A preferred stock, $.01 par value,
$1,000 face value, 7,000 shares
authorized, issued and outstanding
(aggregate liquidation preference
of $7 million) 0 0
Preferred stock $.01 par value,
4,993,000 shares authorized,
none issued - -
Common Stock, $.01 par value,
30,000,000 shares authorized,
6,497,697 and 6,491,345 issued
and outstanding, respectively 65 65
Additional paid-in capital 14,212 14,160
Retained earnings 28,166 26,784
-------- --------
42,443 41,009
-------- --------
Total liabilities and
stockholders' equity $115,475 $115,088
======== ========
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
SIX MONTHS ENDED
MARCH 31,
------------------
1996 1995
-------- --------
Cash Flows From Operating Activities
Net Income $ 1,644 $ 2,365
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 1,556 1,484
Change in assets and liabilities:
Accounts receivable, net 11,423 5,609
Inventories (13,065) 824
Prepaid expenses and other 115 1,507
Accounts payable 5,529 (8,166)
Customer deposits 3,917 680
Accrued liabilities 59 (105)
Other 68 (3)
-------- -------
Net cash flows provided by operating
activities 11,246 4,195
-------- -------
Cash Flows From Investing Activities
Payments for property, plant and equipment (921) (942)
Other, net 12 2
-------- -------
Net cash flows used for investing
activities (909) (940)
-------- -------
Cash Flows From Financing Activities
Net decrease in outstanding debt (10,552) (2,950)
Issuance of common stock 52 -
Payments of preferred dividends (262) (262)
-------- -------
Net cash flows used for financing
activities (10,762) (3,212)
-------- -------
Net increase (decrease) in cash and
cash equivalents (425) 43
Cash and cash equivalents:
Beginning of period 3,569 1,081
-------- -------
End of period $ 3,144 $ 1,124
======== =======
See notes to condensed consolidated financial statements
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PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1996
NOTE (1) - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company without audit and pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of the Company, the
financial statements reflect all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly the financial position of
Plexus Corp. at March 31, 1996 and the results of operations for the three
months and six months ended March 31, 1996 and 1995 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 1995 Annual Report.
The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principals.
NOTE (2) - REVENUE RECOGNITION
Revenue is recognized primarily when inventory is shipped. Revenue
relating to product design and development contracts (such sales are less than
10% of total revenue) is recognized as costs are incurred utilizing the
percentage-of-completion method. Progress toward completion of product design
and development contracts are consistently based on units of work for labor
content and cost for component content.
NOTE (3) - CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
NOTE (4) - INVENTORIES
The major classes of inventories are as follows:
March 31, September 30,
1996 1995
--------- -------------
Assembly Parts $37,165 $33,950
Work-in-Process 24,777 14,782
Finished Goods 89 234
------- -------
$62,031 $48,966
======= =======
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NOTE (5) - DEBT
In March 1996, the Company's revolving credit agreement was amended and
restated resulting in decreases in the Company's borrowing rates, while all
other major terms were unchanged from the previous agreement. The new rates
range from prime to prime plus 1/4% and from LIBOR plus 1% to LIBOR plus 2%,
depending on the Company's consolidated debt-to-worth ratio, as defined by the
Amended and Restated Revolving Credit Agreement.
NOTE (6) - RECLASSIFICATIONS
Certain amounts in prior years' condensed consolidated financial
statements have been reclassified to conform to the 1996 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Plexus Corp. is a contract provider of design, manufacturing and testing
services to the electronics industry. Headquartered in Neenah, Wisconsin, the
Company is the largest electronic assembly organization in the Midwest.
Through its two wholly-owned subsidiaries, Plexus Technology Group, Inc. and
Plexus Electronic Assembly, the Company develops, assembles and tests a variety
of electronic component and subsystem products for major corporation in
industries such as computer (primarily mainframe and peripheral products),
medical, telecommunications and automotive. The Company operates manufacturing
facilities in Neenah, Wisconsin and Richmond, Kentucky.
Many of the industries which the Company currently provides electronic products
are subject to rapid technological change, product obsolescence, as well as
increased competition. These and other factors which affect the industries the
Company provides services for, and which affect any of the Company's major
customers in particular, could have a material adverse effect on the Company's
results of operations.
The Company has no long-term volume commitments from its customers, and
lead-times for customer orders and product-life cycles continue to contract.
Customer programs can be canceled and volume levels can be changed or delayed
at any time. The timely replacement of delayed, canceled or reduced programs
with new business cannot be assured. Because of these and other factors, there
can be no assurance that the Company's recent historical sales growth rate will
continue.
The Company's sales can be negatively impacted by component shortages.
Semiconductor manufacturers, in particular, are allocating product to a limited
number of customers. Shortages of key electronic components (logic and memory
devices) which are provided directly from customers or suppliers can cause
manufacturing interruptions, customer rescheduling issues, production downtime
and production set-up and restart inefficiencies. While in general the
marketplace for such components has eased allowing greater availability, key
component shortage issues can still occur with respect to
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specific industries or particular components. In response to this dynamic
environment, the Company has a corporate procurement organization whose primary
purpose is to create strong supplier alliances to assure a steady flow of
components and mitigate shortages. However, because of the limited number of
suppliers for certain electronic components and other supply and demand
concerns, the Company can neither eliminate component shortages nor determine
the timing or impact of such shortages on the Company's results. As a result,
the Company's sales and profitability can be affected from period to period.
The discussion of the Company's results of operations and financial condition
should be read in conjunction with the condensed consolidated financial
statements and the notes thereto appearing elsewhere in this Form 10-Q.
"Safe Harbor" Cautionary Statement under the Private Securities Litigation
Reform Act of 1995: The statements contained in this Form 10-Q which are not
historical facts are forward looking statements that involve risks and
uncertainties, including, but not limited to, the Company's ability to secure
new customers and maintain its current customer base, the risk of customer
reductions, delays or cancellations in both on-going and new programs, the
results of cost reduction efforts, the adequate availability of components and
related parts for production, the effect of economic conditions, the impact of
technological changes and increased competition, and other risks detailed
herein and in the Company's other Securities and Exchange Commissions filings.
RESULTS OF OPERATIONS
Net Sales
Net sales for the three and six months ended March 31, 1996, increased $5.9
million or 8.5% and $11.9 million or 8.8%, respectively, compared to net sales
for the same periods in the prior fiscal year. The increases in net sales were
due to increased orders from existing customers, including on-going and new
programs, and the addition of new customers. However, the increases were not
as extensive as anticipated by Company management due to a number of factors.
First, the Company continues to be affected by delays in several major new
programs from certain new and existing customers, especially at its Advanced
Manufacturing Facility. These delays have occurred primarily due to customer
cutbacks in original forecasts, component shortages and customer time-to-market
issues caused by design changes or other factors. Secondly, certain on-going
programs have seen reductions in volume levels from prior years based on
revised customer forecasts and reduced manufacturing outsourcing by certain
customers.
The Company's two largest customers during the first six months of fiscal 1996
continue to be International Business Machines Corporation (IBM) and General
Electric Company (GE). Net sales to IBM (including up to six subsidiaries or
divisions) for the six months ended March 31, 1996 and 1995 were 29.5% and
30.2%, respectively, of total net sales. Net sales to GE (including up to five
subsidiaries or divisions) for the six months ended March 31, 1996 and 1995
were 14.5% and 17.1%, respectively, of total net sales. Each division or
subsidiary of these companies contracts independently of the other division or
subsidiary, and the Company does not believe that sales to any particular
division or subsidiary depends upon sales to any other. While the combined net
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sales for these two customers increased in absolute amounts during the six
months ended March 31, 1996 compared to the same period in the prior fiscal
year, the Company has continued to obtain new business from other customers.
Net sales to the Company's top ten customers accounted for approximately 72%
and 75%, of total net sales for the six months ended March 31, 1996 and 1995,
respectively. The Company is dependent upon continued sales to IBM, GE and the
rest of its significant customers. Any material change in orders from these or
other customers could have a material effect on the Company's results of
operations.
Except for the past six months, the Company's sales have grown at double-digit
annual growth rates over the past few years. The Company believes that its
growth has been achieved in significant part by its approach to partnering with
customers mainly through its product design and development services.
Approximately 20% of the Company's contract manufacturing sales are a direct
result of these services. The Company intends to continue to leverage this
aspect of its product design and development services for continued growth. In
order to achieve expanded sales growth, the Company must continue to generate
additional sales from existing customers from both current and future programs,
and must successfully market to new customers.
Gross Profit
The Company's gross profit for the three and six months ended March 31, 1996
decreased $762,000 or 12.8% and $447,000 or 4.3%, respectively, compared to
gross profits for the same periods in the prior fiscal year. Gross margins
decreased from 8.6% to 6.9% of net sales for the three months, and from 7.6% to
6.7% for the six months ended March 31, 1996, respectively, as compared to the
same periods in fiscal 1995. The decrease in gross margins in fiscal 1996
compared to fiscal 1995 was primarily attributed to increases in variable and
fixed costs in connection with increased manufacturing capacity in anticipation
of higher sales volumes. Such costs related mainly to labor and recent surface
mount equipment additions. In addition, start-up costs and manufacturing labor
inefficiencies associated with several new programs impacted negatively on
gross margins.
In order to realign costs with revenues, the Company has implemented a number
of initiatives designed to enhance profitability at current and near-term sales
levels. Specifically, the Company has reduced production and administrative
personnel by approximately 140 since February 1, 1996, through layoffs and
attrition. These reductions amounted to an approximate 6% decrease in overall
employment at the Company. Severance and related costs with respect to the
staff reductions were not material. In addition to the staffing decreases, the
Company reduced fixed expenses, primarily through equipment lease reductions.
Based on the actions taken, the Company's goal is to realize at least
$3,000,000 of annual cost savings, on a pretax basis, beginning with its third
fiscal quarter, although that is dependent on the Company's ability to maintain
realigned expense levels, and that cannot be assured. The Company has also
implemented tighter controls over the monitoring and addition of variable and
fixed costs.
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The Company's gross margin reflects a number of factors including product mix,
the level of start up costs and efficiencies associated with new programs,
capacity utilization of surface mount and other equipment, and pricing within
the electronics industry.
Selling and Administrative Expenses
Selling and administrative (S&A) expenses for the three and six months ended
March 31, 1996 increased $0.3 million or 10.0% and $0.7 million or 14.4%,
respectively, from the comparable prior periods. As a percentage of net sales,
S&A expenses increased to 4.3% from 4.2% for the three months, and to 4.2% from
4.0% for the six months ended March 31, 1996 and 1995, respectively. The
increases in S&A expenses were due primarily to increased staffing and
increased investments in information systems to support higher revenue levels.
The Company anticipates future S&A expenses will increase in absolute dollar
amounts, and may increase as a percentage of net sales over the near term, as
the Company expands its marketing efforts, systems development and customer
support.
Interest Expense
Interest expense was $0.5 million and $1.1 million, respectively, for the three
and six months ended March 31, 1996, compared to $0.7 million and $1.5 million
for the comparable periods in fiscal 1995. The decrease in interest expense is
primarily due to reduced borrowings required to support working capital,
coupled with lower interest rates.
In March 1996, the Company's revolving credit agreement was amended and
restated resulting in a reduction in the Company's borrowing rates. All other
major terms were unchanged from the previous agreement. The new rates range
from prime to prime plus 1/4% and from LIBOR plus 1% to LIBOR plus 2%,
depending on the Company's consolidated debt-to-worth ratio, as defined by the
Amended and Restated Revolving Credit Agreement.
Income Taxes
The Company's effective tax rate was 40.8% and 40.0% for the three and six
months ended March 31, 1996, respectively, as compared to a tax rate of 39.0%
for the three and six months ended March 31, 1995. These rates approximate the
blended Federal and state statutory rate as a result of all of the Company's
operations being located within the United States.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $11.2 million and $4.2 million for
the six months ended March 31, 1996 and 1995, respectively. Cash from
operations was provided primarily by decreases in accounts receivable and
increases in accounts payable and customer deposits offset by an increase in
inventories. Increases in inventories continue to be influenced mainly by
customer-imposed program reductions or delays. The Company is attempting to
mitigate the impact of such reductions or delays by obtaining customer
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deposits for inventories carried by the Company in situations of this nature.
The cash generated from operating activities was utilized primarily to reduce
outstanding debt.
Capital additions of $0.9 million for the six months ended March 31, 1996 were
primarily concentrated in surface mount assembly equipment and management
information systems hardware and software. The Company has historically
utilized operating leases to fund the majority of its manufacturing equipment
needs. The Company now anticipates utilizing operating leases primarily in
situations where technical obsolescence concerns are determined to outweigh the
benefits of financing the equipment purchase. Due to this change in strategy,
the Company anticipates increased future capital additions due to the number of
operating leases expiring through the remainder of fiscal 1996 and fiscal 1997.
In February, 1996, the Company entered into a lease agreement with Oneida
Nation Electronics of Green Bay, Wisconsin. Pursuant to the lease agreement,
Oneida Nation Electronics has agreed to construct and equip an approximately
111,000 square foot manufacturing facility located in Green Bay, Wisconsin for
the use of the Company. Based on current construction plans, this facility is
expected to be completed in early calendar 1997. Annual lease payments for the
building and equipment will be based on the profitability of the facility
pursuant to a formula defined in the lease agreement. There are no required
minimum lease payments. Company management believes this lease provides a
financial arrangement under which the Company's earnings would be less likely
to be negatively impacted during the start-up phase of the facility and capital
commitments would be minimized, although it involves a sharing of future
profits.
The total debt to equity ratio as of March 31, 1996 was 1.6 to 1 compared to
1.8 to 1 at September 30, 1995.
The Company believes that its credit facilities, leasing capabilities and
projected cash flows from operations will be sufficient to meets its
anticipated short-term and long-term capital requirements.
* * * * *
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on February 14, 1996,
management's nominees named below were elected as directors by the indicated
votes cast for and withheld with respect to each nominee. Of the 6,342,148
shares of Common Stock which were represented at the meeting, at least
6,273,881 shares (98.9%) were voted for the election of all of management's
nominees. There were no abstentions or broker non-votes with respect to the
election of directors.
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Name of Nominee For Withheld
- --------------- --- --------
Robert A. Cooper 6,276,381 65,767
Rudolph T. Hoppe 6,274,531 67,617
Harold R. Miller 6,276,181 65,967
Allan C. Mulder 6,275,406 66,742
John L. Nussbaum 6,277,931 64,217
Gerald A. Pitner 6,277,831 64,317
Thomas J. Prosser 6,277,300 64,848
Peter Strandwitz 6,273,881 68,267
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.16- Lease Agreement between Plexus Corp.
and Oneida Nation Electronics dated
February 12, 1996*
Exhibit 10.17- Amended and Restated Revolving Credit
Agreement dated March 18, 1996*
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
--None--
* - Without schedules
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.
5/9/96 /s/ Peter Strandwitz
- ------ ------------------------
Date Peter Strandwitz
Chairman and CEO
5/9/96 /s/ Thomas B. Sabol
- ------ ------------------------
Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
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