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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 December 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
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As of February 5, 1997 there were 6,675,000 shares of Common Stock of the
Company outstanding.
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PLEXUS CORP.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three Months Ended December 31, 1996 and 1995..............3
Condensed Consolidated Balance Sheets
December 31, 1996 and September 30, 1996...................4
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 1996 and 1995..............5
Notes to Condensed Consolidated Financial Statements.......6
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 2. Changes in Securities.............................................11
Item 4. Submission of Matters to a Vote of Security Holders...............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
DECEMBER 31,
-------------------------------
1996 1995
-------------- ---------------
Net sales $87,366 $71,308
Cost of sales 78,713 66,635
-------------- ---------------
Gross profit 8,653 4,673
Selling and administrative
expenses 3,879 2,895
-------------- ---------------
Operating income 4,774 1,778
-------------- ---------------
Other income (expense):
Interest (243) (574)
Other 165 115
-------------- ---------------
(78) (459)
-------------- ---------------
Income before income taxes 4,696 1,319
Provision for income taxes 1,832 514
-------------- ---------------
Net income $ 2,864 805
============== ===============
Net income per common and common
equivalent share:
Primary $ 0.40 $ 0.11
============== ===============
Fully diluted $ 0.39 $ 0.11
============== ===============
Average number of common and common
equivalent shares outstanding:
Primary 6,786,083 6,712,839
============== ===============
Fully diluted 7,342,894 7,267,348
============== ===============
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31, September 30,
1996 1996
----------------------------
(Unaudited) (Audited
ASSETS
Current Assets:
Cash and cash equivalents $ 3,808 $ 1,847
Accounts receivable, net of allowance of $285
and $275, respectively 40,706 35,312
Inventories 59,768 54,386
Deferred income taxes 1,902 1,753
Prepaid expenses and other 2,836 1,451
-------------- --------------
Total current assets 109,020 94,749
Property, plant and equipment, net 12,848 12,423
Other 200 202
-------------- --------------
Total assets $ 122,068 $ 107,374
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 193 $ 63
Accounts payable 33,477 27,758
Customer deposits 8,161 8,614
Accrued liabilities:
Salaries and wages 4,041 3,148
Other 4,979 3,741
-------------- --------------
Total current liabilities 50,851 43,324
Long-term debt 19,424 15,372
Deferred income taxes 665 661
Deferred compensation 16 -
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 or outstanding - -
Common stock, $.01 par value,
30,000,000 shares authorized,
6,543,804 and 6,501,196 issued
and outstanding, respectively 65 65
Additional paid-in capital 14,738 14,253
Retained earnings 36,309 33,699
-------------- --------------
51,112 48,017
-------------- --------------
Total liabilities and stockholders' equity $ 122,068 $ 107,374
============== ==============
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
THREE MONTHS ENDED
DECEMBER 31
-----------------------
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,864 $ 805
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 894 812
Deferred income taxes (145) -
Change in assets and liabilities:
Accounts receivable (5,394) 9,266
Inventories (5,382) (6,622)
Prepaid expenses and other (1,385) (1,339)
Accounts payable 5,719 4,988
Customer deposits (453) 1,874
Accrued liabilities 2,131 384
Other 18 33
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Cash flows provided by (used in)
operating activities (1,123) 10,201
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CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment (1,319) (596)
----------- ----------
Cash flows provided by (used in)
investing activities (1,329) (596)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 31,983 200
Payments on debt (27,801) (11,725)
Issuance of common stock 485 22
Payments of preferred stock dividends (254) (263)
----------- ----------
Cash flows provided by (used in)
financing activities 4,413 (11,766)
----------- ----------
Net increase (decrease) in cash and
cash equivalents 1,961 (2,161)
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Cash and cash equivalents:
Beginning of period 1,847 3,569
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End of period $ 3,808 $ 1,408
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See notes to condensed consolidated financial statements
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PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 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 December 31, 1996 and the results of operations for the three
months ended December 31, 1996 and 1995 and the cash flows for the same
three-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 1996 Annual Report.
The condensed consolidated balance sheet data at September 30, 1996 was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principals.
NOTE (2) - INVENTORIES
The major classes of inventories are as follows:
December 31, September 30,
1996 1996
--------------- -----------------
Assembly Parts $38,287 $37,941
Work-in-Process 21,087 16,281
Finished Goods 394 164
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$59,768 $54,386
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NOTE (3) - RECLASSIFICATIONS
Certain amounts in prior years' condensed consolidated financial
statements have been reclassified to conform to the 1997 presentation.
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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 including the terms "believe", "expect",
"anticipate" and similar concepts) which involve risks and uncertainties.
Actual results may differ materially from these statements as a result of
various factors, including those discussed herein.
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, Technology Group, Inc. and
Electronic Assembly Corporation, the Company offers a full range of services
including product development, printed circuit board (PCB) design, material
procurement and management, PCB and higher level assembly, functional and
in-circuit testing, final system box build and distribution. Services are
provided to original equipment manufacturers in the computer (primarily
mainframe and peripheral products), medical, industrial, telecommunications and
transportation/automotive electronics industries. The Company has operations
in Neenah, Wisconsin and Richmond, Kentucky.
The contract manufacturing services are provided on either a turnkey
basis, where the Company procures certain or all of the materials required for
product assembly, or on a consignment basis, where the customer supplies 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 mark-up,
in the Company's net sales. Variations in the Company's turnkey sales have
caused and could continue to cause the Company's gross margin to fluctuate year
to year and quarter to quarter.
Many of the industries for which the Company currently provides electronic
products are subject to rapid technological change, product obsolescence,
increased competition, and pricing pressures. These and other factors which
affect the industries 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.
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.
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The Company's 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. Allocations of components are an integral part of the
electronics industry. Shortages that occurred in the past few years including
the first half of fiscal 1996, mainly in logic and memory devices, have been
mitigated over the past nine months due to a shift in the supply-demand cycle
for such components. 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. 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.
Start-up costs and the management of labor and equipment efficiencies for
new programs and new customers can have an effect on the Company's gross
margins. Due to these and other factors, gross margins can be negatively
impacted early on in the life cycle of new programs. In addition, labor
efficiency and equipment utilization rates ultimately achieved and maintained
by the Company for new and current programs impact the Company's gross margins.
The Company operates in a highly competitive industry. The Company faces
competition from a number of 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 Company's ability to maintain and expand its customer base, gross
margin pressures, the effect of start-up costs related to new facilities, the
overall economic conditions affecting the electronics industry, and other
factors and risks detailed herein and in the Company's other Securities and
Exchange Commission filings.
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended December 31, 1996, increased 22.5% to
record quarterly sales of $87.4 million from $71.3 million for the same period
in the prior fiscal year. The increase in net sales was due to increased
orders from existing customers, including on-going and new programs, and the
addition of new customers, primarily Unisys Corporation (Unisys). However, net
sales to International Business Machines Corporation (IBM), the Company's
largest customer, were below the prior year as certain low-margin programs
transitioned to low-cost labor markets overseas and a few other programs
reached end-of-life status,
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resulting in reduced sales. The reduction in IBM net sales was more
than offset by the above mentioned sales gains with other current and new
customers. By industry segment, net sales increased across all industries
served, except computer, with growth more pronounced in the telecommunications
and medical segment markets.
The Company's two largest customers continue to be IBM and General
Electric Company (GE) who each accounted for approximately 12% of net sales in
the quarter ended December 31, 1996. This compares to net sales of 34% and 14%
to IBM and GE, respectively, in the same period in the prior fiscal year. The
reduction in IBM sales was discussed above, while net sales in dollar terms to
GE remained relatively flat from the year ago period. Joining IBM and GE as
customers who accounted for more than 10% of the Company's net sales in the
most recent quarter were Motorola, Inc. and Unisys. Motorola accounted for 11%
of the Company's net sales in the first quarter of fiscal 1997, while Unisys
accounted for just over 10%. In the prior fiscal year period net sales to
Motorola were less than 10%, while this was the first quarter in which the
Company had net sales to Unisys. The Company believes that net sales to each
of these four customers should exceed 10% of net sales for fiscal 1997, except
for Motorola. Motorola's net sales are expected to decline in the near-term
due to the loss of a program to a Motorola in-house manufacturing facility
during the second quarter of fiscal 1997. However, the Company continues to
serve a number of other programs with Motorola.
The Company's top ten customers accounted for approximately 68% of total
net sales for the three months ended December 31, 1996 compared to 82% for the
same period in fiscal 1996 and 70% for all of fiscal 1996. The Company also
generated net sales in excess of $1 million during the most recent quarter from
23 customers as compared to 12 such customers in the same period in fiscal
1996. These trends reflect the Company's continued focus of penetrating and
expanding its customer base.
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'
current and future programs, and must successfully market to new customers.
GROSS PROFIT
The Company's gross profit for the three months ended December 31, 1996
increased 85.2% to $8.7 million from $4.7 million for the same period in the
prior fiscal year. Gross margins increased to 9.9% for the three months ended
December 31, 1996 from 6.6% for the same period in fiscal 1996 but decreased
from the 11.4% level in the fourth quarter of fiscal 1996. The increase in
gross margins from a year ago reflects the leverage generated by higher sales
volumes, the continued cost savings from the Company's cost-saving efforts
instituted during the second quarter of fiscal 1996, the increased utilization
of our Advanced Manufacturing Facility, better component pricing and the
Company's integration of its flexible labor force within its Wisconsin
operations. These were offset by increased start-up costs associated with new
programs, primarily Unisys, resulting in the decrease in gross margins from the
levels attained in the fourth quarter of fiscal 1996.
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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, labor efficiencies,
and pricing within the electronics industry.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative (S&A) expenses for the three months ended
December 31, 1996 increased approximately $1 million from the comparable prior
fiscal year period. As a percentage of net sales, S&A expenses increased
slightly to 4.4% of net sales from 4.1% for the comparable prior fiscal year
period and from 4.2% for all of fiscal 1996. This increase reflects the
Company's continued expansion of its sales and marketing and customer support
functions, along with enhancements to its information systems in order to
support prospective revenue growth and the increase in the Company's customer
base. The Company believes that future S&A expenses will increase in terms of
absolute dollars but should not increase as a percentage of net sales as the
Company continues to expand the above noted support areas.
INTEREST EXPENSE
Interest expense was $0.2 million in the three months ended December 31,
1996, compared to $0.6 million in the first quarter of fiscal 1996. The
decrease in interest expense was primarily due to reduced borrowings required
to support working capital, coupled with lower interest rates on the Company's
long-term revolving credit agreement.
INCOME TAXES
Income taxes increased to $1.8 million for the three months ended December
31, 1996 from $0.5 million in the first quarter of fiscal 1996. The Company's
effective income tax rate has remained relatively constant at rates between 38%
to 40%. 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 used in operating activities totaled $1.1 million for the three
months ended December 31, 1996. Cash used in operations was attributed to
increased working capital requirements, specifically accounts receivable and
inventories offset by increases in accounts payable, in order to facilitate the
Company's revenue growth.
Cash flows used in investing activities totaled $1.3 million and were
utilized for capital additions primarily concentrated in the upgrading of the
Company's computer hardware equipment and new manufacturing equipment. The
Company anticipates future capital additions to increase due to the number of
operating leases expiring through the remainder of fiscal 1997 and increased
manufacturing equipment requirements necessary to handle projected future
growth. The Company
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estimates that capital expenditures for fiscal 1997 should approximate
$10 - $12 million which the company expects to fund through cash flows from
operations and the Company's $40 million revolving credit agreement.
The new 110,000 square foot manufacturing facility located in the Green
Bay, Wisconsin area is currently expected to be available for production
beginning with the Company's third fiscal 1997 quarter. The facility is the
result of a partnership with Oneida Nation Electronics (ONE), a corporation
chartered by the Oneida Tribe of Indians of Wisconsin. Pursuant to a lease
agreement, ONE will construct and equip the facility for use by the Company.
Annual lease payments by the Company for the building and equipment will be
based on the profitability of the facility pursuant to a formula defined in the
lease agreement.
Financing activities provided $4.4 million of net cash for the first
quarter of fiscal 1997. This primarily represented the increase in net
proceeds under the Company's long-term revolving credit agreement, which are
not netted on the condensed consolidated statements of cash flows.
The Company has given notice to the holders of its outstanding shares of
Series A Preferred Stock that it will redeem such shares on February 28, 1997
unless they are converted, pursuant to their terms, prior to that date. See
Part II, Item 2 hereof. While the Company expects that such shares will in
fact be converted into Company Common Stock, it believes that it has sufficient
additional borrowing capacity under its existing long-term revolving credit
agreement to effect a cash redemption, if required.
The ratio of total debt-to-equity as of December 31, 1996 was 1.4 to 1
compared to 1.2 to 1 as of September 30, 1996.
The Company believes that its credit facilities, leasing capabilities and
projected cash flows from operations will be sufficient to meet its anticipated
short-term and long-term capital requirements.
* * * * *
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 4, 1997, the Company gave notice to the holders of its
outstanding shares of Series A Preferred Stock ("Preferred Shares"), pursuant
to the terms of the Preferred Shares, that the Preferred Shares would be
redeemed by the Company on February 28, 1997 unless the Preferred Shares were
converted into shares of Company Common Stock prior to that date. Although the
Company has not received conversion notices from the holders of the Preferred
Shares, the Company believes it is likely that the shares will be converted
because the conversion price is below the current market value of the Company's
Common Stock. Assuming full conversion of the outstanding Preferred Shares,
the Company would issue 554,455 shares of Common Stock.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders on February 12, 1997, 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
- --------------- ----------- ---------------
Rudolph T. Hoppe 6,027,085 17,980
John J. McDonough 6,028,685 16,380
Harold R. Miller 6,027,585 17,480
John L. Nussbaum 6,028,670 16,395
Gerald A. Pitner 6,028,745 16,320
Thomas J. Prosser 6,026,363 18,702
Peter Strandwitz 6,028,745 16,320
Because there were no other matters voted upon, there were no "broker
non-votes".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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.
2/14/97 /s/ Peter Strandwitz
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Date Peter Strandwitz
Chairman and CEO
2/14/97 /s/ Thomas B. Sabol
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Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
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