<PAGE> 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, 1998
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, 1998 there were 14,788,306 shares of Common Stock of the
Company outstanding.
<PAGE> 2
PLEXUS CORP.
TABLE OF CONTENTS
<TABLE>
Page Number
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three and Six Months Ended March 31, 1998 and 1997.........................3
Condensed Consolidated Balance Sheets
March 31, 1998 and September 30, 1997......................................4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1998 and 1997...................................5
Notes to Condensed Consolidated Financial Statements.......................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
General....................................................................8
Results of Operations......................................................10
Liquidity and Capital Resources............................................12
Item 3. Qualitative and Quantitative Disclosures about Market Risk..........................13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...................................................13
Signatures..........................................................................14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------- ------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 97,689 $ 96,750 $ 193,594 $ 184,115
Cost of sales 85,847 86,330 171,458 165,042
------------ ------------ ------------ ------------
Gross profit 11,842 10,420 22,136 19,073
Selling and administrative
expenses 4,951 4,272 9,227 8,151
------------ ------------ ------------ ------------
Operating income 6,891 6,148 12,909 10,922
Other income (expense):
Interest expense (3) (298) (7) (541)
Other 284 86 474 251
------------ ------------ ------------ ------------
Income before income taxes 7,172 5,936 13,376 10,632
Provision for income taxes 2,834 2,339 5,293 4,171
------------ ------------ ------------ ------------
Net income $ 4,338 $ 3,597 $ 8,083 $ 6,461
============ ============ ============ ============
Net income per common share:
Basic $ 0.29 $ 0.26 $ 0.55 $ 0.47
============ ============ ============ ============
Diluted $ 0.28 $ 0.23 $ 0.51 $ 0.43
============ ============ ============ ============
Average number of common shares:
Basic 14,742,509 13,688,640 14,769,438 13,365,360
============ ============ ============ ============
Diluted 15,723,493 15,388,552 15,966,573 15,090,573
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
-------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,756 $ 3,655
Accounts receivable, net of allowance of $500
and $360, respectively 45,542 47,648
Inventories 45,887 47,931
Deferred income taxes 3,219 2,571
Prepaid expenses and other 1,759 981
--------- ---------
Total current assets 107,163 102,786
Property, plant and equipment, net 20,575 18,687
Other 1,111 344
--------- ---------
Total assets $ 128,849 $ 121,817
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 216 $ 214
Accounts payable 35,575 35,099
Customer deposits 3,391 3,414
Accrued liabilities:
Salaries and wages 4,496 5,908
Other 5,115 4,893
--------- ---------
Total current liabilities 48,793 49,528
Long-term debt 157 3,516
Deferred income taxes 908 998
Other liabilities 355 192
Stockholders' equity:
Preferred stock $.01 par value, 4,993,000 shares authorized,
none issued or outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized,
14,830,689 and 14,739,914 issued, respectively 148 147
Additional paid-in capital 21,846 17,675
Retained earnings 57,562 49,761
Treasury stock, at cost, 67,882 and 0 shares, respectively (920) -
--------- ---------
78,636 67,583
--------- ---------
Total liabilities and stockholders' equity $ 128,849 $ 121,817
========= =========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 8,083 $ 6,461
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 2,995 1,876
Deferred income taxes (738) (492)
Change in assets and liabilities:
Accounts receivable 2,381 (14,809)
Inventories 2,177 (4,444)
Prepaid expenses and other (592) 760
Accounts payable 364 8,825
Customer deposits (23) (2,306)
Accrued liabilities (1,362) 1,037
Other (115) --
------- --------
Cash flows provided by (used in) operating activities 13,170 (3,092)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment (5,151) (3,735)
Other (531) 13
-------- --------
Cash flows used in investing activities (5,682) (3,722)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt - 72,182
Payments on debt (3,357) (68,271)
Proceeds from exercise of stock options 425 2,083
Tax benefit from stock options exercised 3,690 -
Treasury stock purchased (1,799) -
Treasury stock reissued 654 -
Payments of preferred stock dividends - (338)
-------- --------
Cash flows provided by (used in) financing activities (387) 5,656
-------- --------
Net increase (decrease) in cash and cash equivalents 7,101 (1,158)
-------- --------
Cash and cash equivalents:
Beginning of period 3,655 1,847
-------- --------
End of period $ 10,756 $ 689
======== ========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
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, 1998 and the results of
operations for the three months and six months ended March 31, 1998 and 1997 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 1997 Annual Report.
The condensed consolidated balance sheet data at September 30, 1997 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,
1998 1997
---------- ------------
Assembly Parts $ 29,813 $ 28,828
Work-in-Process 15,584 18,557
Finished Goods 490 546
---------- ----------
$ 45,887 $ 47,931
========== ==========
NOTE 3 - STOCKHOLDERS' EQUITY
On December 19, 1997, the Company's Board of Directors authorized the
repurchase of up to 2,000,000 shares, or a maximum of $25,000,000, of the
Company's Common Stock on the open market. The Company expects that repurchases
will occur from time to time. The Company anticipates the shares held in
treasury to be used for various purposes in the future, including satisfaction
of requirements for shares under the Company's Employee Stock Savings Plan and
its stock option incentive program. When the treasury shares are reissued, any
excess of the acquisition cost of the shares over the proceeds from reissuance
is charged to retained earnings. Through March 31, 1998, 130,000 shares have
been repurchased, of which 62,118 have been reissued under the Company's stock
option and 401(k) plans.
6
<PAGE> 7
NOTE 4 - NET INCOME PER SHARE
During the year, the Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share", which establishes new
standards for reporting earnings per share. The earnings per share computations
for prior periods have been restated to conform with the provisions of SFAS No.
128.
The following is a reconciliation of the numerators and denominators
for the computation of basic and diluted income per share (in thousands except
per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- -----------------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
BASIC INCOME PER SHARE:
Net income $ 4,338 $ 3,597 $ 8,083 $ 6,461
Less: Preferred stock dividends - (84) - (211)
-------- ------- ------- -------
Income available to common
stockholders (numerator) 4,338 3,513 8,083 6,250
======== ======= ======= =======
Weighted average number of common
shares (denominator) 14,743 13,689 14,769 13,365
======== ======= ======= =======
BASIC INCOME PER SHARE $ 0.29 $ 0.26 $ 0.55 $ 0.47
======== ======= ======= =======
DILUTED INCOME PER SHARE:
Net income (numerator) $ 4,338 $ 3,597 $ 8,083 $ 6,461
======== ======= ======= =======
Weighted average number of common
shares 14,743 13,689 14,769 13,365
Effect of dilutive securities:
Stock options 980 961 1,198 802
Convertible preferred stock - 739 - 924
-------- ------- ------- -------
Diluted weighted average number
of common shares (denominator) 15,723 15,389 15,967 15,091
======== ======= ======= =======
$ 0.28 $ 0.23 $ 0.51 $ 0.43
======== ======= ======= =======
</TABLE>
NOTE 5 - NON-CASH TRANSACTIONS
During the quarter ended March 31, 1998, the Company recorded income
tax benefits of approximately $0.8 million related to stock option exercises.
The income tax benefits are reflected as an increase in additional paid-in
capital.
NOTE 6 - RECLASSIFICATIONS AND RESTATEMENTS
Certain amounts in prior years' condensed consolidated financial
statements have been reclassified to conform to the 1998 presentation. In
addition, prior year share and per share data have been restated for the
Company's two-for-one stock split effective August 25, 1997.
7
<PAGE> 8
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 those
including the terms "believe," "expect," "anticipate," "intend" and similar
terms) which 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 under "General").
GENERAL
Plexus Corp. is a contract provider of design, manufacturing and
testing services to the electronics industry. Headquartered in Neenah,
Wisconsin, the Company provides product realization services and is one of the
largest electronic assembly organizations in the United States. Through its
wholly owned subsidiaries, principally Plexus Technology Group, Inc., and Plexus
Electronic Assembly Corporation, 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. Services are provided to original equipment manufacturers in the
computer (primarily mainframe, server and peripheral products), medical,
industrial, telecommunications and transportation electronics industries. The
Company has operations in Wisconsin, Kentucky, North Carolina, Minnesota and
California.
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. Variations in the Company's turnkey sales have
caused, and could continue to cause, the Company's gross margin and
profitability to fluctuate year to year and quarter to quarter.
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 Company's results. As a result, the Company's sales and
profitability can be affected from period to period.
8
<PAGE> 9
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 the quarter
ending March 31, 1998 and in fiscal 1997, approximately 5 percent and 6 percent,
respectively, of the Company's total sales were foreign, with less than 2
percent in each period 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.
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. 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. Approximately 20 percent 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 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 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 rates will continue.
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.
Geographical expansion and growth by acquisition can have an effect on
the Company's operations. The successful operation of an acquired business 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 may experience certain inefficiencies which could negatively impact the
results of operations. Additionally, no assurance can be given that any past or
future acquisition by the Company will enhance the Company's business.
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
9
<PAGE> 10
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 Company expects to be Year 2000 Compliant in
mid 1999, although certain functions are subject to the efforts of third-party
suppliers. The costs associated with implementing year 2000 applications
currently are not expected to be material, although there can be no assurances.
Material costs or consequences of incomplete or untimely resolution of year 2000
issues currently are not expected, although no assurances can be given that it
would not negatively impact the results of operations.
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 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 March 31, 1998 increased slightly
to $97.7 million from $96.7 million for the same period in the prior fiscal
year. Sales for the six months ended March 31, 1998 increased 5 percent to
$193.6 million from $184.1 million in March 31, 1997. Sales were impacted by
customers' decision to move certain programs back in house because of available
internal capacity, adjustments to near term production schedules, slower than
anticipated ramp up of certain new customers and new programs caused by design
changes or other customer-specific factors, and the negative effects of the
strong U.S. dollar that has impacted a few customers. The factors that affected
second quarter sales are not expected to be as significant in the third quarter.
Although there can be no assurances, the Company presently anticipates
sequential sales growth in the second half of fiscal 1998, subject to the
ultimate development and timing of new customers and new programs.
By industry segment, sales increased, from the same six month period to
the prior fiscal year, for the transportation, telecommunications and industrial
markets which were offset by declines in the medical and other markets. Sales
for the quarter by industry were as follows: Computer 33 percent, Industrial 18
percent, Medical 21 percent, Transportation 14 percent, Telecommunications 12
percent, and Other 2 percent. Currently, the Company expects telecommunications
sales to increase for the second half of fiscal 1998. However, the Company does
not expect there will be any other material changes in the breakdown of its
sales by industry in fiscal 1998.
The Company's largest customers continue to be International Business
Machines Corporation (IBM) and General Electric Company (GE) who each accounted
for approximately 12 percent of sales in
10
<PAGE> 11
each of the six months ended March 31, 1998 and 1997. Sales to Unisys
Corporation (Unisys) were just slightly less than 10 percent of total sales for
the six month period ended March 31, 1998 compared to 11 percent in the same
period in fiscal 1997. Sales in dollar terms and percent to IBM, GE and Unisys
were comparable to the prior year period. The Company believes that sales to IBM
will decrease due to the potential transfer of business from one of IBM's
divisions, which may not be fully offset by increases in other IBM programs, as
well as certain programs going end of life. No other customers had sales over 10
percent for the six months ended March 31, 1998 or 1997. The Company is
continuing to focus on enhancing the customer mix and sales through new programs
with current and new customers.
Sales to the Company's ten largest customers accounted for 71 percent
of net sales for the six months ended March 31, 1998 compared to 68 percent for
the same period in fiscal 1997 and all of fiscal 1997. The Company remains
dependent upon continued sales to IBM, GE, Unisys and its other 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 to $22.1 million, or 16 percent, for the six
months ended March 31, 1998 from $19.1 million for the same period in the prior
fiscal year. The gross margin for the six months ended March 31, 1998 and 1997,
was 11.4 percent and 10.4 percent, respectively. The gross margin for the three
month periods ended March 31, 1998 and 1997 was 12.1 percent and 10.8 percent,
respectively. The increase in gross margin in the three and six month periods
ended March 31, 1998 compared to the same periods in fiscal 1997 reflects the
leverage generated by improved product mix, continued operational improvements
and cost controls, and better component pricing. These were partially offset by
increased start-up costs associated with new programs and increased hiring in
the Company's engineering and technical manufacturing areas in order to continue
to expand its capabilities and meet customer demands.
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,
including product mix, the level of start-up costs and efficiencies of new
programs, sales volumes, capacity utilization of surface mount and other
equipment, labor costs and efficiencies, the management of inventories,
component pricing and shortages, 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 $9.2 million, or
4.8 percent of sales, for the six months ended March 31, 1998, compared to $8.2
million, or 4.4 percent, for the comparable prior fiscal year period. For the
quarter ended March 31, 1998 and 1997, S&A expenses were $5.0 million, or 5.1
percent of sales, and $4.3 million, or 4.4 percent, respectively. These
increases reflect the Company's planned expansion of its engineering
infrastructure, sales and marketing efforts, and enhancements of its information
systems and customer support function. In addition, during the quarter
11
<PAGE> 12
ended March 31, 1998 certain non-recurring charges for relocation and
recruitment costs resulted in an increase in the percentage of S&A expenses. The
Company anticipates that future S&A expenses will increase in absolute dollars
but remain between 4.5 percent and 4.8 percent of annual sales, as the Company
continues to expand these support areas.
OTHER INCOME (EXPENSE)
Interest expense was $3,000 and $7,000 for the three and six months
ended March 31, 1998 compared to $298,000 and $541,000 in the comparable period
in fiscal 1997. The decrease in interest expense is primarily due to reduced
borrowings required to support working capital. See "Liquidity and Capital
Resources."
INCOME TAXES
Income taxes increased to $2.8 million and $5.3 million for the three
and six months ended March 31, 1998 compared to $2.3 million and $4.2 million in
the comparable period in fiscal 1997, as a result of increased earnings. The
Company's effective income tax rate has remained constant at rates between 38
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 $13.2 million for the six
months ended March 31, 1998 compared to cash flows used in operating activities
of $3.1 million in the comparable period in fiscal 1997. Cash from operations
was provided primarily by improved net profits, accounts receivable collections,
and inventory management. Inventory turnover improved to 7.3 turns as of March
31, 1998, from 5.8 turns as of March 31, 1997 and from 6.7 turns for all of
fiscal 1997. The cash generated from operating activities was utilized primarily
to purchase additional manufacturing equipment and facilities and to reduce
outstanding debt.
Cash flows used in investing activities for the first half of fiscal
1998 totaled $5.7 million and were utilized primarily for capital additions,
including the acquisition of the majority of assets of NEI Electronics, Inc., a
contract electronics manufacturer located in Minneapolis, and Tertronics, Inc.,
a Silicon Valley electronic design and quick-turn company.
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. The Company estimates that capital expenditures for fiscal 1998 will
be similar to fiscal 1997, at approximately $10 to $12 million, which the
Company expects to fund through cash flows from operations and its $40 million
long-term revolving credit agreement.
Cash flows used in financing activities totaled $0.4 million for the
six months ended March 31, 1998, primarily representing the paydown of the
Company's long-term revolving credit facility offset by the tax benefit of stock
options exercised. Through April 30, 1998 there were no borrowings under the
Company's $40 million long-term revolving credit agreement. The ratio of total
debt-to-equity as of March 31, 1998, was 0.6 to 1, compared to 0.8 to 1 as of
September 30, 1997.
12
<PAGE> 13
The Company anticipates increases in working capital in order to
facilitate growth. However, because of the dynamics of the Company's industry,
the exact timing and amount of these increases cannot be determined. The Company
believes that its credit facilities, leasing capabilities and projected cash
flows from operations will be sufficient to meet its anticipated working capital
needs and its anticipated short-term and long-term capital requirements.
On December 19, 1997, the Company's Board of Directors authorized the
repurchase of up to 2,000,000 shares, or a maximum of $25,000,000, of the
Company's Common Stock on the open market. The Company expects that repurchases
will occur from time to time. The Company anticipates the shares held in
treasury to be used for various purposes in the future, including satisfaction
of requirements for shares under the Company's Employee Stock Savings Plan and
its stock option incentive program. Through April 30, 1998, the Company
repurchased 130,000 shares for approximately $1.8 million.
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
Requirements not yet applicable to the Company.
* * * * *
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
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.
5/13/98 /s/ Peter Strandwitz
- ------- -----------------------------
Date Peter Strandwitz
Chairman and CEO
5/13/98 /s/ Thomas B. Sabol
- ------- -----------------------------
Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,756
<SECURITIES> 0
<RECEIVABLES> 45,542
<ALLOWANCES> 500
<INVENTORY> 45,887
<CURRENT-ASSETS> 107,163
<PP&E> 48,588
<DEPRECIATION> 28,588
<TOTAL-ASSETS> 128,849
<CURRENT-LIABILITIES> 48,793
<BONDS> 0
0
0
<COMMON> 148
<OTHER-SE> 78,488
<TOTAL-LIABILITY-AND-EQUITY> 128,849
<SALES> 97,689
<TOTAL-REVENUES> 97,689
<CGS> 85,847
<TOTAL-COSTS> 85,847
<OTHER-EXPENSES> 4,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 7,172
<INCOME-TAX> 2,834
<INCOME-CONTINUING> 4,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,338
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
</TABLE>
