1
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, 1999
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 11, 1999 there were 15,167,511 shares of Common Stock of the
Company outstanding.
2
PLEXUS CORP.
TABLE OF CONTENTS
March 31, 1999 and 1998
PART I. FINANCIAL INFORMATION....................................................................................3
Item 1. Consolidated Financial Statements...............................................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.................................................3
CONDENSED CONSOLIDATED BALANCE SHEETS...........................................................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........8
GENERAL.........................................................................................8
YEAR 2000 ISSUES...............................................................................11
RESULTS OF OPERATIONS..........................................................................13
LIQUIDITY AND CAPITAL RESOURCES................................................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................16
PART II - OTHER INFORMATION......................................................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................17
Item 5. Other Information..............................................................................17
Item 6. Exhibits and Reports on Form 8-K...............................................................17
SIGNATURE........................................................................................................18
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $ 103,388 $ 97,689 $ 205,117 $ 193,594
Cost of sales 88,177 85,847 175,623 171,458
------------ ------------ ------------ ------------
Gross profit 15,211 11,842 29,494 22,136
Selling and administrative
expenses 5,402 4,870 10,499 9,064
------------ ------------ ------------ ------------
Operating income 9,809 6,972 18,995 13,072
Other income (expense):
Interest expense
(2) (3) (5) (7)
Other 478 203 853 311
------------ ------------ ------------ ------------
Income before income taxes 10,285 7,172 19,843 13,376
Income taxes 4,113 2,834 7,938 5,293
------------ ------------ ------------ ------------
Net income $ 6,172 $ 4,338 $ 11,905 $ 8,083
============ ============ ============ ============
Earnings per share:
Basic $ 0.41 $ 0.29 $ 0.79 $ 0.55
============ ============ ============ ============
Diluted $ 0.38 $ 0.28 $ 0.73 $ 0.51
============ ============ ============ ============
Weighted average shares outstanding:
Basic 15,079,918 14,742,509 14,984,335 14,769,438
============ ============ ============ ============
Diluted 16,300,995 15,723,493 16,199,999 15,966,573
============ ============ ============ ============
See notes to condensed consolidated fiancial statements.
3
4
PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Unaudited
MARCH 31, SEPTEMBER 30,
1999 1998
--------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 33,181 $ 23,195
Accounts receivable, net of allowance of $630
and $505, respectively 51,393 48,433
Inventories 41,700 44,303
Deferred income taxes 4,370 3,344
Prepaid expenses and other 4,766 1,976
-------- ---------
Total current assets 135,410 121,251
Property, plant and equipment, net 23,252 21,355
Other 1,173 1,059
-------- ---------
Total assets $159,835 $ 143,665
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10 $ 114
Accounts payable 36,705 36,948
Customer deposits 3,839 3,787
Accrued liabilities:
Salaries and wages 5,858 5,161
Other 5,402 6,945
-------- ---------
Total current liabilities 51,814 52,955
Long-term debt 147 152
Deferred income taxes 951 700
Other liabilities 645 519
Stockholders' equity:
Preferred stock $.01 par value, 5,000,000 shares authorized,
none issued or outstanding - -
Common stock, $.01 par value, 60,000,000 shares authorized,
15,149,764 and 14,830,689 issued, respectively 151 148
Additional paid-in capital 26,875 21,776
Retained earnings 79,252 67,920
Treasury stock, at cost, 0 and 28,944 shares, respectively - (505)
-------- ---------
106,278 89,339
-------- ---------
Total liabilities and stockholders' equity $159,835 $ 143,665
======== =========
See notes to consolidated financial statements.
4
5
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
SIX MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,905 $ 8,083
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 3,609 2,995
Deferred income taxes (775) (738)
Changes in assets and liabilities:
Accounts receivable (2,960) 2,106
Inventories 2,603 2,044
Prepaid expenses and other (2,790) (778)
Accounts payable (243) 476
Customer deposits 52 (23)
Accrued liabilities (846) (1,190)
Other (86) (769)
-------- --------
Cash flows provided by operating activities 10,469 12,206
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment (5,486) (4,841)
Other 79 122
-------- --------
Cash flows used in investing activities (5,407) (4,719)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (109) (3,357)
Proceeds from exercise of stock options 1,944 425
Tax benefit from stock options exercised 2,876 3,690
Treasury stock purchased (1,159) (1,799)
Treasury stock reissued 1,372 655
-------- --------
Cash flows provided by (used in) financing activities 4,924 (386)
-------- --------
Net increase in cash and cash equivalents 9,986 7,101
-------- --------
Cash and cash equivalents:
Beginning of period 23,195 3,655
-------- --------
End of period $ 33,181 $ 10,756
======== ========
See notes to condensed consolidated financial statements.
5
6
PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company without audit and pursuant to the rules and
regulations of the United States Securities and Exchange Commission. In the
opinion of the Company, the financial statements reflect all adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
financial position of Plexus Corp. at March 31, 1999 and the results of
operations for the three months and six months ended March 31, 1999 and 1998 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 1998 Annual Report.
The condensed consolidated balance sheet data at September 30, 1998 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,
1999 1998
---------- ------------
Assembly parts $24,466 $25,165
Work-in-process 15,920 18,089
Finished goods 1,314 1,049
------- -------
$41,700 $44,303
======= =======
6
7
NOTE 3 - EARNINGS PER SHARE
The following is a reconciliation of the amounts utilized in the
computation of basic and diluted earnings per share (in thousands except per
share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- ------------------------
1999 1998 1999 1998
--------- ---------- --------- ---------
BASIC EARNINGS PER SHARE:
Net income $6,172 $4,338 $11,905 $8,083
====== ====== ======= ======
Weighted average shares outstanding 15,080 14,743 14,984 14,769
====== ====== ======= ======
BASIC EARNINGS PER SHARE $ 0.41 $ 0.29 $ 0.79 $ 0.55
====== ====== ======= ======
DILUTED EARNINGS PER SHARE:
Net income $6,172 $4,338 $11,905 $8,083
====== ====== ======= ======
Weighted average shares outstanding 15,080 14,743 14,984 14,769
Effect of dilutive securities:
Stock options 1,221 980 1,216 1,198
------ ------ ------- ------
Diluted weighted average shares outstanding 16,301 15,723 16,200 15,967
====== ====== ======= ======
DILUTED EARNINGS PER SHARE $ 0.38 $ 0.28 $ 0.73 $ 0.51
====== ====== ======= ======
NOTE 4 - NEW ACCOUNTING PRINCIPLES
The Company is required to adopt the Statement of Financial Accounting
Standard ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and
Related Information," in fiscal 1999. SFAS No. 131 is not required to be applied
to interim financial statements in the initial year of adoption. The Company is
also required to adopt the American Institute of Certified Public Accountants
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," in fiscal 2000. The Company does not
believe the adoption of these statements will have a significant impact on its
financial position or results of operations.
NOTE 5 - PENDING ACQUISITION
On March 16, 1999, Plexus entered into an Agreement and Plan of Merger
with SeaMED Corporation (SeaMED) providing for the acquisition of SeaMED by
Plexus in a stock-for-stock merger transaction under which each share of SeaMED
Common Stock would be converted into 0.4 (subject to a maximum exchange rate of
0.4444) shares of Plexus Common Stock. The acquisition is subject to several
conditions, including the approval of SeaMED's shareholders. The acquisition is
expected to close late in the third or early in the fourth quarter of fiscal
1999 and will be accounted for as a pooling-of-interests. One-time merger
related costs are currently expected to be approximately $4 million.
7
8
On March 16, 1999, the Plexus Corp. Board of Directors rescinded the
Company's stock buyback program in contemplation of the pending merger with
SeaMED. As of March 29, 1999, all treasury stock shares were reissued.
NOTE 6 - RECLASSIFICATIONS AND RESTATEMENTS
Certain amounts in prior years' condensed consolidated financial
statements have been reclassified to conform to the 1999 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Management's Discussion and Analysis of Financial Condition and Results
of Operations, with the exception of historical matters, contains
forward-looking statements (such as statements in the future tense and
statements including "believe", "expect", "intend", "plan", "look forward to",
"anticipate" and similar terms) are forward-looking statements that involve
risks and uncertainties. Actual results may differ materially from these
statements as a result of various factors, including those discussed in further
detail below (in particular "General").
GENERAL
Plexus Corp. is a contract service provider of design, manufacturing
and testing services to the electronics industry, headquartered in Neenah,
Wisconsin. Through its wholly owned subsidiaries, Plexus Technology Group, Inc.,
and Plexus Electronic Assembly Corporation, the Company provides product
realization services to original equipment manufacturers in the medical,
computer (primarily mainframes, servers and peripherals), industrial,
telecommunications and transportation electronics industries. The Company offers
a full range of services including product development and design, material
procurement and management, prototyping, assembly, testing, manufacturing, final
system box build and distribution.
The Company has operations in Wisconsin, Kentucky, North Carolina,
Minnesota and California. The Company expects to open a new engineering facility
in Colorado in May 1999. The Company continues to look for opportunities for
geographical expansion that will improve the Company's ability to provide
services to its customers.
On March 16, 1999, Plexus entered into an Agreement and Plan of Merger
with SeaMED Corporation (SeaMED) providing for the acquisition of SeaMED by
Plexus in a stock-for-stock merger transaction under which each share of SeaMED
Common Stock would be converted into 0.4 (subject to a maximum exchange rate of
0.4444) shares of Plexus Common Stock. The acquisition is subject to several
conditions, including the approval of SeaMED's shareholders. The acquisition is
expected to close late in the third or early in the fourth fiscal quarter of
1999 and will be accounted for as a pooling-of-interests. Additional risk
factors specific to SeaMED's
8
9
business and its operations include financing issues associated with SeaMED's
emerging medical customers, Food and Drug Administration (FDA) requirements
associated with Class III and pre-market approval (PMA) medical devices designed
and manufactured by SeaMED, and the uncertainty of third party reimbursement
such as Medicare, private health insurance companies or health maintenance
organization by SeaMED's customers for the cost of their products.
Geographical expansion and growth by acquisition can have an effect on
the Company's operations. The successful operation of an acquired business,
including SeaMED, will require communication and cooperation among key managers,
along with the transition of customer relationships. There can be no assurance
that the Company will successfully manage the integration of new locations or
acquired operations, and the Company may experience certain inefficiencies that
could negatively impact the results of operations or the Company's financial
condition. Additionally, no assurance can be given that any past or future
acquisition by the Company, including that of SeaMED, will enhance the Company's
business.
The Company's contract manufacturing services are provided on either a
turnkey basis, where the Company procures certain or all of the materials
required for product assembly, or on a consignment basis, where the customer
supplies some, or occasionally all, materials necessary for product assembly.
Turnkey services include material procurement and warehousing, in addition to
manufacturing, and involve greater resource investment and inventory risk
management than consignment services. Turnkey manufacturing currently represents
almost all of the Company's sales. Turnkey sales typically generate higher net
sales and higher gross profit dollars with lower gross margin percentages than
consignment sales due to the inclusion of component costs, and related markup,
in the Company's net sales. However, a change in component costs can directly
impact the average selling price, gross margins and the Company's net sales, and
the Company has added risk of inventory management. Due to the nature of turnkey
manufacturing, the Company's quarterly and annual results are affected by the
level and timing of customer orders, fluctuations in materials costs, and the
degree of automation used in the assembly process.
Since a substantial portion of the Company's sales are derived from
turnkey manufacturing, net sales can be negatively impacted by component
shortages. Shortages of key electronic components which are provided directly
from customers or suppliers can cause manufacturing interruptions, customer
rescheduling issues, production downtime and production set-up and restart
inefficiencies. From time to time, allocations of components can be an integral
part of the electronics industry. While in general the marketplace for such
components has eased, allowing greater availability, key component shortage
issues can still occur with respect to 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 at competitive prices and
mitigate shortages. Strategic relationships have been established with
international purchasing offices to improve shortage and pricing issues.
However, because of the limited number of suppliers for 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
9
10
Company's results. As a result, the Company's sales and profitability can be
affected from period to period.
Many of the industries for which the Company currently provides
electronic products are subject to rapid technological changes, product
obsolescence, increased competition, and pricing pressures. In both the three
and six months ending March 31, 1999 and in fiscal 1998, approximately 4 percent
of the Company's total sales were foreign, with less than 2 percent going into
the Southeast Asian market, which is currently experiencing unfavorable currency
and economic conditions. These and other factors which affect the industries or
the markets that the Company serves, and which affect any of the Company's major
customers in particular, could have a material adverse effect on the Company's
results of operations.
The Company has no long-term volume commitments from its customers, and
lead-times for customer orders and product-life cycles continue to contract.
Although the Company obtains firm purchase orders from its customers, they
typically do not make firm orders for delivery of products more than 30 to 90
days in advance. The Company does not believe that the backlog of expected
product sales covered by firm purchase orders is a meaningful measure of future
sales since orders may be canceled and volume levels can be changed or delayed
at any time. The timely replacement of delayed, canceled or reduced programs
with new business cannot be assured. Because of these and other factors, there
can be no assurance that the Company's historical sales growth rate will
continue. In addition, fixed costs may not be fully recovered as a result of
cancelled, delayed or reduced programs and therefore, could impact results of
operations. See "Results of Operations -- Net Sales" below for certain factors
affecting net sales to the Company's largest customers.
The Company believes that its growth has been achieved in significant
part by its approach to partnering with customers mainly through its product
design and development services coupled with the Company's strategy of focusing
on those customers with a long-term outsourcing strategy and a need for complex
products requiring the Company's sophisticated technology and engineering
capabilities. Approximately 15 to 20 percent of the Company's contract
manufacturing sales are a direct result of the product design and development
services. The Company intends to continue to leverage this aspect of its product
design and development services for continued growth in contract manufacturing
revenues. Currently, the design and development services are less than 10
percent of total sales. In order to achieve expanded sales growth, the Company
must continue to generate additional sales from existing customers from both
current and future programs, and must successfully market to new customers. The
Company must also successfully integrate and leverage its new, and any future,
regional product design centers into this strategy. In addition, the Company
must continue to attract and retain top quality product development engineers in
order to continue to expand its design and development services. Because of
these and other factors, there can be no assurance that the Company's historic
growth rate will continue.
10
11
Start-up costs, the management of labor and equipment efficiencies for
new programs and new customers, and the need to estimate required resources in
advance can have an effect on the Company's gross margins. These factors can
negatively impact gross margins early on in the life cycle of new programs. In
addition, labor efficiency and equipment utilization rates ultimately achieved
and maintained by the Company for new and current programs impact the Company's
gross margins.
The Company operates in a highly competitive industry. The Company
faces competition from a number of domestic and foreign electronic manufacturing
services companies, some with financial and manufacturing resources greater than
the Company's. The Company also faces competition in the form of current and
prospective customers that have the capabilities to develop and manufacture
products internally. In order to remain a viable alternative, the Company must
continue to enhance its total engineering and manufacturing technologies.
Other factors that could adversely affect forward-looking statements
include the level of overall growth in the electronics industry, the Company's
ability to complete the SeaMED transaction and integrate acquired operations,
the Company's ability to maintain and expand its customer base, 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 related to new facilities, year 2000 compliance issues (including
those discussed below), the overall economic conditions, the impact of increased
competition and other factors and risks detailed herein and in the Company's
other Securities and Exchange Commission filings.
YEAR 2000 ISSUES
The Company has a corporate information technology organization whose
primary purpose is to ensure vision and direction of information systems to meet
internal and external needs. The Company must keep pace with rapid technological
developments in its management information systems and its production facilities
and equipment, and can experience costs and conversion difficulties in
connection with the implementation of new systems and processes. In addition,
like all other companies, the Company must assure that its computer and software
systems, and other machinery and systems that depend upon computer-driven
operations or which have embedded chips or micro-processors, are capable of
accurately functioning and accurately recognizing and processing data in the
year 2000 and beyond ("Year 2000 Compliant").
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's manufacturing, design and testing equipment, computer programs or
computer hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather that the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to operate
equipment, process transactions or engage in similar normal business activities.
11
12
The Company has developed a Year 2000 compliance strategy and
methodology to help assure the Company can continue to provide engineering and
manufacturing services in the year 2000 and beyond. The Company's A/S400
hardware and software system, which handles virtually all production data
processing and accounting, has been tested and documented to be Year 2000
compliant. Internal final compliancy approval was completed in December 1998.
The Company is targeting June 30, 1999 to be compliant on all other mission
critical items.
The Company's Year 2000 strategy defines focus teams responsible for
information systems including hardware and software; production and facility
equipment and systems; test equipment and software; engineering development
systems; component and inventory issues; customer and supplier issues; and third
party agents and extended enterprises. Each team will complete four phases to
assure Year 2000 compliance which include a complete inventory and risk
assessment of items or issues (risk assessment defined as mission critical, non
mission critical, or not date sensitive); a strategy plan including
contingencies or remediation; the actual conversion or remediation including
testing and documentation; and compliancy approval.
The first phase of the plan (inventory and risk assessment) was
completed in December of 1998. The overall strategy has been determined and the
initial contingency plans are in various stages of completion. The actual
conversion, remediation and testing has commenced and is expected to continue
through May 1999. Internal final compliancy approval is expected to be completed
by the end of June 1999. Final contingency plans are scheduled to be in place by
September 1999 for any remaining or unexpected items.
The Company believes the costs associated with the Year 2000 compliancy
plan will be mostly current internal labor expenses and are not expected to
materially increase. Costs to date have not been material, and future compliancy
costs have not been determined, but are not expected to be material. Other
non-Year 2000 efforts have not been materially delayed or impacted by Year 2000
compliancy plan initiatives. There can be no assurance that these estimates will
prove to be accurate and actual results could differ materially from those
currently anticipated.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors or others. The most reasonably likely
worst case scenario could cause a production shut down in one or more
facilities. The Company has not yet completed a contingency plan for such
occurrence, but has included completion of a contingency plan in its Year 2000
planning as discussed above. In addition, there can be no assurance that one or
more of the Company's suppliers or customers will not have material Year 20000
compliance problems. There can be no assurance that the Year 2000 issues of
other entities will not have a material adverse impact on the Company's systems
or results of operations. Additionally, there can be no assurance that potential
future costs of defending and
12
13
resolving claims, if any, will not have a material adverse impact on the
Company's results of operations.
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended March 31, 1999, increased 6
percent to $103.4 million from $97.7 million for the same period in the prior
fiscal year. Sales for the six months ended March 31, 1999 increased 6 percent
to $205.1 million from $193.6 million in March 31, 1998. Unit volume sales were
strong; however, sales growth was impacted by industry-wide pressure on average
selling prices, component prices, and on the Company's continued decision to
move toward higher technology business. These factors are expected to continue.
Although there can be no assurances, the Company presently anticipates sales
volume to remain steady, subject to the development and timing of new customers
and new programs.
Sales increased by customer industry group, from the same period in the
prior fiscal year, for all groups except for computer and transportation. This
reflects the Company's ongoing migration toward a more attractive mix of
business, with strength in the networking/telecom and medical markets. The
Company has transitioned away from the more commodity-related
computer-peripheral and automotive markets. The Company continues its strategy
of shifting the business mix towards customers with a long-term outsourcing
strategy and a need for complex products requiring the Company's advanced
technology solutions and engineering capabilities. Sales for the quarter ending
March 31, 1999 and 1998, respectively, by industry were as follows:
Telecommunications 28 percent (12 percent), Medical 24 percent (21 percent),
Industrial 18 percent (18 percent), Computer 18 percent (33 percent),
Transportation 9 percent (14 percent), and Other 3 percent (2 percent).
Currently, the Company does not expect there will be any material changes in the
breakdown of its sales by industry in fiscal 1999 from the current fiscal
quarter.
The Company's largest customers for the quarter ending March 31, 1999
were Ascend Communications, Inc. (Ascend) and General Electric Company (GE)
which accounted for 17 percent and 13 percent of sales respectively. For the six
months ended March 31, 1999 sales to Ascend and GE were 15 percent and 13
percent of sales, respectively. The Company's largest customers for the
six-months ending March 31, 1998 were International Business Machines
Corporation and GE which each accounted for 12 percent of sales. No other
customers accounted for more than 10 percent of the Company's sales for the six
months ended March 31, 1999 or 1998. Sales to the Company's ten largest
customers accounted for 66 percent for the six months ended March 31, 1999
compared to 71 percent for the same period in fiscal 1998 and 70 percent for all
of fiscal 1998. These results reflect the Company's dedication to continue to
diversifying its customer base and decreasing its dependence on any particular
customer or customers. The Company remains dependent upon continued sales to
Ascend, GE, and its other
13
14
significant customers. Any material change in orders from these or other
customers could have a material effect on the Company's results of operations.
GROSS PROFIT
Gross profit increased 33 percent to $29.5 million, for the six months
ended March 31, 1999 from $22.1 million for the same period in the prior fiscal
year. The gross margin for the six months ended March 31, 1999 and 1998, was
14.4 percent and 11.4 percent, respectively. The gross margin increased to 14.7
percent for the three months ended March 31, 1999 from 12.1 percent for the same
period in the prior fiscal year, compared to 12.6 percent for all of fiscal
1998. The increase in gross margin primarily reflects the shift in business mix
to leading-technology products and markets and continued operating efficiencies.
Most of the research and development conducted by the Company is paid
for by customers and is, therefore, included in cost of sales. Other research
and development is conducted by the Company, but is not specifically identified
as the Company believes such expenses are less than 1 percent of its total
sales.
The Company's gross margin also reflects a number of other factors
which can vary from period to period, including product mix, the level of
start-up costs and efficiencies of new programs, product life cycles, sales
volumes, capacity utilization of surface mount and other equipment, labor costs
and efficiencies, the management of inventories, component pricing and
shortages, average sales prices, the mix of turnkey and consignment business,
fluctuations and timing of customer orders, changing demand for customer's
products and competition within the electronics business. These and other
factors can cause variations in the Company's operating results. While the
Company's focus is on maintaining and expanding gross margins, there can be no
assurance that gross margins will not decrease in future periods.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative (S&A) expenses increased to $10.5 million,
or 5.1 percent of sales for the six months ended March 31, 1999, compared to
$9.1 million, or 4.7 percent of sales, for the comparable prior fiscal year
period. For the quarters ended March 31, 1999 and 1998, S&A expenses were $5.4
million, or 5.2 percent of sales, and $4.9 million, or 5.0 percent of sales,
respectively. The increase in expenses was mainly attributable to increased
engineering, sales and marketing, and information systems support. The Company
anticipates future S&A expenses will increase in absolute dollars but remain
steady at approximately 5 percent of sales, as the Company continues to expand
these support areas. The Company will have one-time merger related expenses
associated with the acquisition of SeaMED at the time of closing.
14
15
INCOME TAXES
Income taxes increased to $4.1 million and $7.9 million for the three
and six months ended March 31, 1999 compared to $2.8 million and $5.3 million in
the comparable period in fiscal 1998, as a result of increased earnings. The
Company's effective income tax rate has remained constant at rates between 39
percent to 40 percent. These rates approximate the blended Federal and state
statutory rate as a result of the Company's operations being located within the
United States.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $10.5 million for the six
months ended March 31, 1999 compared to $12.2 million in the comparable period
in fiscal 1998. The decrease in cash from operations was a result of increased
net income offset by changes in accounts receivables and prepaid expenses
compared to the prior fiscal year. Annualized inventory turnover improved to
8.2 turns as of March 31, 1999, from 7.3 turns as of March 31, 1998 and from 7.5
turns for all of fiscal 1998.
Cash flows used in investing activities totaled $5.4 million and was
utilized primarily to purchase additional manufacturing equipment.
The Company utilizes available cash, debt and operating leases to fund
its manufacturing equipment needs. The Company utilizes operating leases
primarily in situations where technical obsolescence concerns are determined to
outweigh the benefits of financing the equipment purchase. The Company estimates
that capital expenditures for fiscal 1999 to be similar to fiscal 1998 at
approximately $10 to $12 million, which the Company expects to fund through cash
flows from operations and, if needed, its $40 million long-term revolving credit
agreement.
Cash flows provided by financing activities totaled $4.9 million for
the six months ended March 31, 1999, primarily representing the proceeds and tax
benefit from the exercise of stock options. There have been no borrowings under
the Company's revolving credit agreement since October 1, 1997. The ratio of
total debt-to-equity as of March 31, 1999 and September 30, 1998 was 0.5 to 1
and 0.6 to 1, respectively.
The Company's future needs for financial resources include increases in
working capital to support anticipated sales growth and investment in
manufacturing and engineering facilities and equipment. However, because of the
dynamics of the Company's industry, the exact timing and amount of increases in
working capital cannot be determined. Currently, the Company anticipates
incurring future facility related expenditures in connection with the expansion
of its engineering headquarters in Neenah, Wisconsin and additional regional
engineering facilities.
Working capital was $83.6 million at March 31, 1999 and $68.3 million
at September 30, 1998. The Company has and will continue to evaluate
geographical expansion and growth by acquisition.
15
16
The Company believes that its $40 million long-term revolving credit
agreement, leasing capabilities and projected cash from operations will be
sufficient to meet its working capital and capital requirements through fiscal
1999 and the foreseeable future. While there can be no assurance that future
financing will be available on terms acceptable to the Company, the Company may
seek to raise additional capital through the issuance of either public or
private debt or equity securities. Debt financing may require the Company to
pledge assets as collateral and comply with certain financial ratios and
covenants. Equity financing may result in dilution to stockholders.
The Company has not paid dividends on its common stock, but has
reinvested its earnings to support its working capital and expansion
requirements. The Company intends to continue to utilize its earnings in the
development and expansion of the business and does not expect to pay cash
dividends in the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities
may include forward-looking statements that involve risk and uncertainties.
Actual results could differ materially from those discussed.
The Company has financial instruments, including short-term cash
investments and long-term debt, which are sensitive to changes in interest
rates. However, the Company currently does not use any interest-rate swaps or
other types of derivative financial instruments to limit its sensitivity to
changes in interest rates because of the relatively short-term nature of its
cash investments and immaterial amount of its long-term debt.
The Company does not believe there has been any material changes in the
reported market risks faced by the Company since the end of its most recent
quarter March 31, 1999.
16
17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders on March 3, 1999, the
seven continuing directors who were management's nominees for re-election were
re-elected. The nominees/directors were re-elected with the following votes:
Authority for
Director's Name Votes "For" Voting Withheld
- --------------- ----------- ---------------
David J. Drury 14,091,377 32,156
Harold R. Miller 14,120,238 3,295
John L. Nussbaum 14,115,529 8,004
Gerald A. Pitner 14,106,380 17,153
Thomas J. Prosser 14,122,905 628
Peter Strandwitz 14,117,532 6,001
Jan VerHagen 14,094,057 29,476
ITEM 5. OTHER INFORMATION
The Company has been named as a defendant in The Oneida Tribe of
Indians of Wisconsin vs. Plexus Corp., filed in Wisconsin Circuit Court for
Brown County on April 9, 1999. The suit claims that the Company misrepresented
the potential profitability of the Green Bay facility built by Oneida Nation
Electronics, a tribally chartered corporation, and operated by the Company. The
Company believes that the claims are without merit, and intends to defend the
action vigorously. The Company has chosen to provide information about this
matter even though it does not believe that the claim is material to the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2.1 - Agreement and Plan of Merger
dated March 16, 1999 among the
Company, PS Acquisition Corp. and
SeaMED Corporation.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
17
18
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.
5/13/99 /s/ Peter Strandwitz
------- ------------------------------
Date Peter Strandwitz
Chairman and CEO
(Principal Executive Officer)
5/13/99 /s/ Thomas B. Sabol
------- ------------------------------
Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
(Principal Financial Officer)
18