<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 December 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 February 8, 1999 there were 15,126,063 shares of Common Stock of
the Company outstanding.
<PAGE> 2
PLEXUS CORP.
TABLE OF CONTENTS
December 31, 1998 and 1997
<TABLE>
<S> <C>
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...............................................................................10
RESULTS OF OPERATIONS..........................................................................12
LIQUIDITY AND CAPITAL RESOURCES................................................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................14
PART II - OTHER INFORMATION......................................................................................15
Item 6. Exhibits and Reports on Form 8-K..............................................................15
SIGNATURE........................................................................................................15
</TABLE>
<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
December 31,
--------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 101,729 $ 95,905
Cost of sales 87,446 85,611
------------ ------------
Gross profit 14,283 10,294
Selling and administrative expenses 5,097 4,194
------------ ------------
Operating income 9,186 6,100
Other income (expense):
Interest expense (2) (4)
Other 374 108
------------ ------------
Income before income taxes 9,558 6,204
Provision for income taxes 3,825 2,459
------------ ------------
Net income $ 5,733 $ 3,745
============ ============
Earnings per share:
Basic $ 0.39 $ 0.25
============ ============
Diluted $ 0.36 $ 0.23
============ ============
Weighted average shares outstanding:
Basic 14,890,831 14,795,773
============ ============
Diluted 16,081,091 16,139,244
============ ============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 4
PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Unaudited
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
--------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,488 $ 23,195
Accounts receivable, net of allowance of $565
and $505, respectively 47,243 48,433
Inventories 45,875 44,303
Deferred income taxes 3,867 3,344
Prepaid expenses and other 2,430 1,976
--------- ---------
Total current assets 127,903 121,251
Property, plant and equipment, net 22,471 21,355
Other 1,116 1,059
--------- ---------
Total assets $ 151,490 $ 143,665
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current liabilities
Current portion of long-term debt $ 62 $ 114
Accounts payable 36,220 36,948
Customer deposits 4,418 3,787
Accrued liabilities:
Salaries and wages 4,285 5,161
Other 7,660 6,945
--------- ---------
Total current liabilities 52,645 52,955
Long-term debt 150 152
Deferred income taxes 741 700
Other liabilities 608 519
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,
14,984,748 and 14,830,689 issued, respectively 150 148
Additional paid-in capital 23,898 21,776
Retained earnings 73,372 67,920
Treasury stock, at cost, 2,500 and 28,944 shares, respectively (74) (505)
--------- ---------
97,346 89,339
--------- ---------
Total liabilities and stockholders' equity $ 151,490 $ 143,665
========= =========
</TABLE>
<PAGE> 5
See notes to condensed consolidated financial statements
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,733 $ 3,745
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 1,750 1,427
Deferred income taxes (482) (147)
Changes in assets and liabilities:
Accounts receivable 1,190 5,759
Inventories (1,572) 1,037
Prepaid expenses and other (454) (1,518)
Accounts payable (728) (507)
Customer deposits 631 (1,092)
Accrued liabilities (161) (3,681)
Other (5) (669)
-------- --------
Cash flows provided by operating activities 5,902 4,354
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment (2,845) (3,713)
Other 16 19
-------- --------
Cash flows used in investing activities (2,829) (3,694)
-------- --------
CASH FLOWS FROM FInANCING ACTIVITIES
Payments on debt (54) (3,303)
Proceeds from exercise of stock options 693 425
Tax benefit from stock options exercised 1,150 2,880
Treasury stock purchased (74) (707)
Treasury stock reissued 505 147
-------- --------
Cash flows provided by (used in) financing activities 2,220 (558)
-------- --------
Net increase in cash and cash equivalents 5,293 102
-------- --------
Cash and cash equivalents:
Beginning of period 23,195 3,655
-------- --------
End of period $ 28,488 $ 3,757
======== ========
</TABLE>
<PAGE> 6
See notes to condensed consolidated financial statements
PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 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 December 31, 1998 and the results of
operations for the three months ended December 31, 1998 and 1997 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 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):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Assembly parts $ 27,553 $ 25,165
Work-in-process 16,622 18,089
Finished goods 1,700 1,049
-------- --------
$ 45,875 $ 44,303
======== ========
</TABLE>
<PAGE> 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):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Basic earnings per share:
Net income $ 5,733 $ 3,745
======= =======
Weighted average shares outstanding 14,891 14,796
======= =======
Basic earnings per share $ 0.39 $ 0.25
======= =======
Diluted earnings per share:
Net income $ 5,733 $ 3,745
======= =======
Weighted average shares outstanding 14,891 14,796
Effect of dilutive securities:
Stock options 1,190 1,343
------- -------
Diluted weighted average shares outstanding 16,081 16,139
======= =======
Diluted earnings per share $ 0.36 $ 0.23
======= =======
</TABLE>
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 - RECLASSIFICATIONS AND RESTATEMENTS
Certain amounts in prior years' condensed consolidated financial
statements have been reclassified to conform to the 1999 presentation.
<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
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 has announced plans to open a new
engineering facility in Colorado. The Company continues to look for
opportunities for geographical expansion that will improve the Company's ability
to provide services to its customers.
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. 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.
<PAGE> 9
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.
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 quarter
ending December 31, 1998 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. 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
<PAGE> 10
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.
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 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, year
2000 compliance issues (including those discussed below), 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.
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
<PAGE> 11
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.
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. 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. 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. 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.
<PAGE> 12
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. 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 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 December 31, 1998, increased 6
percent to $101.7 million from $95.9 million for the same period in the prior
fiscal year. 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 conscious decision to move toward higher technology
business. These factors are expected to continue into the second quarter.
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 industry segment, from the same period in the prior
fiscal year, across all industries served, except computer and transportation,
as a result of the Company's successful strategy of shifting our business mix
towards customers with a long-term outsourcing strategy and a need for complex
products requiring the Company's sophisticated technology and engineering
capabilities. Sales for the quarter ending December 31, 1998 and 1997,
respectively, by industry were as follows: Medical 24 percent (20 percent),
Telecommunications 23 percent (12 percent), Industrial 21 percent (21 percent),
Computer 17 percent (29 percent), Transportation 8 percent (15 percent), and
Other 7 percent (3 percent). 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 December 31,
1998 were General Electric Company (GE) and Ascend Communications, Inc. (Ascend)
which accounted for 13 percent and 12 percent of net sales. The Company's
largest customers for the quarter ending December 31, 1997 were GE and
International Business Machines Corporation (IBM) which each accounting for 12
percent of net sales, respectively. No other customers accounted for more than
10 percent of the Company's sales for the three months ended December 31, 1998
or 1997. Sales to the Company's ten largest customers accounted for 67 percent
for the three
<PAGE> 13
months ended December 31, 1998 compared to 72 percent for the same
period in fiscal 1997 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 GE, Ascend, 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 $14.3 million, or 39 percent, for the three
months ended December 31, 1998 from $10.3 million for the same period in the
prior fiscal year. The gross margin increased to 14.0 percent for the three
months ended December 31, 1998 from 10.7 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,
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 $5.1 million for
the three months ended December 31, 1998, compared to $4.2 million for the
comparable prior fiscal year period. As a percentage of sales, S&A expenses were
5.0 percent and 4.4 percent for the first quarter of fiscal 1999 and 1998,
respectively, compared to 4.8 percent for all of fiscal 1998. These increases
reflect the Company's planned expansion of its sales and marketing efforts,
enhancement of its information systems to support the Company's continued
growth, and increase in its customer support function. The Company anticipates
that future S&A expenses will increase in absolute dollars but remain
approximately 5.0 percent of sales, as the Company continues to expand these
support areas.
INCOME TAXES
<PAGE> 14
Income taxes increased to $3.8 million for the three months ended
December 31, 1998 compared to $2.5 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 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 $5.9 million for the three
months ended December 31, 1998 compared to $4.4 million in the comparable period
in fiscal 1998. The increase in cash from operations was provided primarily by
improved net profits. In addition, annualized inventory turnover improved to 7.6
turns as of December 31, 1998, from 7.2 turns as of December 31, 1997 and from
7.5 turns for all of fiscal 1998.
Cash flows used in investing activities totaled $2.8 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 $8 to $10 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 $2.2 million for
the three months ended December 31, 1998, 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 December 31, 1998 and September 30, 1998
was 0.6 to 1.
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.
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
<PAGE> 15
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 December 31, 1998.
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
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.
2/12/99 /s/ Peter Strandwitz
------- -------------------------
Date Peter Strandwitz
Chairman and CEO
2/12/99 /s/ Thomas B. Sabol
------- -------------------------
Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
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0
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