<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-14824
PLEXUS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WISCONSIN 39-1344447
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
55 JEWELERS PARK DRIVE, NEENAH, WISCONSIN 54957-0156
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (920) 722-3451
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Preferred Stock
Purchase Rights
(Title of Class)
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 shorter period that the
registrant was required to file such reports(s)) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of December 15, 1999, 17,637,644 shares of Common Stock were outstanding,
and the aggregate market value of the shares of Common Stock (based upon the
$41.125 closing sale price on that date, as reported on the NASDAQ National
Market System) held by non-affiliates (excludes shares reported as beneficially
owned by directors and officers - does not constitute an admission as to
affiliate status) was approximately $691 million.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Portions of Document are Incorporated
Proxy Statement for 1999 Annual
Meeting of Shareholders Part III
<PAGE> 2
"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
The statements contained in the Form 10-K which are not historical
facts (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, including, but not limited to, the level of overall growth in
the electronics industry, the Company's ability to integrate acquired
operations, the Company's ability to secure new customers and maintain its
current customer base, the result of cost reduction efforts, material cost
fluctuations and the adequate availability of components and related parts for
production, the risk of customer delays or cancellations in both on-going and
new programs, the timing and mix of production, the effect of start-up costs of
new programs and facilities, capacity utilization, the effect of economic
conditions, the impact of technological changes and increased competition,
design and manufacturing deficiencies and other risks detailed herein and in
the Company's other Securities and Exchange Commissions filings. In addition,
see the Management's Discussion and Analysis of Financial Condition and Results
of Operations in Item 7, particularly "General" and "Year 2000" for a further
discussion of factors which could effect future results.
PART I
ITEM 1. BUSINESS
General Development of the Company
Plexus Corp., through its subsidiaries (together "Plexus" or the
"Company"), provides product realization services to original equipment
manufacturers ("OEMs") in the medical, computer (primarily mainframes, servers
and peripherals), industrial, networking, telecommunications and transportation
electronics industries. Plexus offers a full range of services including
product development and design, material procurement and management,
prototyping, manufacturing and assembly, functional and in-circuit testing,
final system box build, distribution and after-market support.
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
materials necessary for product assembly. Turnkey services include material
procurement and warehousing, in addition to manufacturing, and involve greater
resource investment than consignment services. Other than test equipment
products, the Company does not design or manufacture its own proprietary
products.
Plexus is a Wisconsin corporation incorporated in 1979. Its principle
subsidiaries are Plexus Electronic Assembly Corporation, Plexus Technology
Group, Inc. and SeaMED Corporation. The Company's principle office is located
at 55 Jewelers Park Drive, Neenah, Wisconsin 54957-0156, and its telephone
number is (920) 722-3451.
Acquisitions. In July 1999, the Company acquired SeaMED Corporation
(SeaMED), located in the Seattle, Washington area. Pursuant to the merger
agreement, SeaMED stockholders received approximately 2.27 million shares of
Plexus common stock in exchange for all outstanding shares of SeaMED. All
financial data has been prepared following the pooling of interests method of
accounting and as such all historical data has been restated. SeaMED provides
design and manufacturing services focused primarily on established and emerging
medical technology companies. Additionally, SeaMED can provide these services
to non-medical companies. SeaMED provides expertise in its medical engineering
and regulatory knowledge and its complex higher-level assembly capabilities.
In September 1999, the Company purchased certain printed circuit board
assembly manufacturing assets, located in the Chicago, Illinois area, from
Shure Incorporated, an unrelated party. The manufacturing assets, consisting
principally of inventories and equipment, were purchased at approximately fair
market value for cash.
For further information regarding the Company's fiscal 1999 merger and
acquisition activity, see Notes 1 and 8 in the Notes to Consolidated Financial
Statements.
Product Realization Services
General Background. The Company's services involve product design,
testing, prototyping, materials management, assembly of complete electronic
products and subassemblies, and after market service support of products. In
addition to its general capabilities to develop electronic products for the
broad electronic market, the Company has specific competencies focused on the
medical, networking, telecommunications and wireless product markets.
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The various types of electronic product services offered by the
Company are discussed below. A customer of the Company may utilize any or all
of these services. The Company charges for these services under a variety of
pricing methods that vary according to the customer or type of service
involved.
Product Design and Test Services. The Company, primarily through its
Plexus Technology Group, Inc. and SeaMED Corporation subsidiaries, provides
product design and test engineering services. These services include project
management, initial feasibility studies, product concept definition,
development of specifications for product features and functions, product
engineering specifications, microprocessor design, circuit design, software
design, custom integrated circuit design, printed circuit board layout, product
housing design, development of test specification, product validation test
development and manufacturing test systems. The Company's design services
provide customers with a complete product design which is capable of performing
an intended function and which can be manufactured in an efficient and
economical manner.
The Company's technologies involve the use of computer assisted
electronic design automation tools to shorten the design cycle and improve
design quality. The Company's personnel use a variety of these advanced design
automation tools in the development of electronic products. Custom integrated
circuit design is assisted by circuit synthesis and simulation tools. Software
design is assisted by structured design tools and microprocessor emulation
technologies. Automated component placement and signal routing tools assist
printed circuit board design of complex multi-layered circuit boards. Solids
modeling and structure analysis tools assist product housing design.
The Company believes that its product development engineering and
testing capabilities are significant factors in the success of its business.
The Company maintains a staff of more than 400 employees in its engineering
services operations, including more than 350 engineers and technologists
involved in project management, hardware, software, mechanical, printed circuit
board design, test, prototyping and validation of electronic products and
systems. The Company believes this comprehensive capability provides
significant value to its customers by providing one-stop-shopping for product
design, prototyping, test and manufacturing. The Company believes this
comprehensive service lowers the overall development cost to the customer and
accelerates the time-to-market of the customers' products.
To supplement its internal capabilities, Plexus has formed several
strategic alliances with independent research and development organizations for
cooperative design and marketing programs. The Company believes these alliances
provide complementary technologies and expertise to customers.
Prototyping Services. The Company provides rapid assembly of prototype
products within dedicated assembly facilities. The prototype assembly service
is supplemented by value-added services including materials management,
manufacturing defects analysis, design for manufacturability analysis, design
for testability analysis, and printed circuit board design. This service
provides a bridge between the Company's engineering organization, the
customer's engineering organization, and the Company's manufacturing
organization. This bridge facilitates efficient transitions into manufacturing.
The Company believes the higher-level engineering services offered by the
prototyping organization provide significant value to its customers by
accelerating time-to-production.
Product Manufacture and Assembly. The Company, primarily through its
Plexus Electronic Assembly Corporation and SeaMED Corporation subsidiaries,
manufactures electronic products and assemblies for use in a wide variety of
industries and applications.
The Company's manufacturing services consist primarily of electronic
components assembled on printed circuit boards and programmed to perform
specific functions. Additionally, the assembly may include the incorporation of
the electronic assemblies into a subassembly or the final product housing. The
Company's assembly processes involve the fabrication of products from
components manufactured to specification by others. Printed circuit boards are
the basic element in the manufacture of most electronic products and act as the
interconnection platforms for various integrated circuits and electronic
components. The electronic components include computer memory chips,
microprocessors, integrated circuits, resistors, capacitors, transformers and
switches. The Company believes these products would be available from a variety
of sources and that the loss of any single source of supply would not
materially affect the Company's business. In addition to the Company's ability
to design and manufacture complete electronic products, the Company also has
the capacity of designing and assembling printed circuitry products and
products utilizing circuit boards with multiple layers of circuitry.
The Company's manufacturing operations include printed circuit board
assembly, testing, and final systems box build into the final product housing.
While the Company has automated various aspects of many processes, the assembly
of components into electronic products still requires some labor-intensive
processes generally requiring a high degree of precision and dexterity in the
assembly stage and integration of quality assurance checks into the
manufacturing processes. The final systems box build process is a
2
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mostly manual process with little opportunity for automation. The Company
utilizes specially designed equipment and techniques to maintain its ability to
assemble efficiently a wide variety of electronic products. Additionally, the
Company has developed special processes and tools to enable the assembly of
finished medical devices to meet the US Food and Drug Administration (FDA)
Quality System Regulation (QSR) requirements. One of the Company's Neenah,
Wisconsin operations, and its Seattle, Washington operations (formerly SeaMED),
are registered with the FDA as medical device manufacturers and are subject to
regularly scheduled and unscheduled FDA audits.
The Company also provides service support for manufactured products.
Products, which may or may not be under the customer's warranty, can be
returned for repairs and/or upgrades at the customer's discretion.
Product Testing. The increasingly complex design and assembly
techniques for production of electronic products have created a need for the
Company's services in designing and assembling test equipment for electronic
assemblies. Such test equipment includes functional test fixtures for testing
product assemblies, sub-assemblies or printed circuit assemblies; in-circuit
component measurement testers for testing printed circuit board assemblies; and
intelligent burn-in chambers, which temperature cycle products during
functional test. The Company designs and assembles test systems for testing
customers' products. The Company believes that the design and production of
test equipment is an important factor in its ability to provide products of
consistent and high quality.
Materials and Components
The Company purchases electronic components from component
manufacturers and electronic component distribution companies. Key commodities
purchased include: printed circuit boards (PCBs), specialized components such
as application specific integrated circuits (ASICs), semi-conductors (i.e.,
integrated circuits, primarily memory and logic devices, and discrete devices),
interconnect products, electronic sub-assemblies (including memory modules,
power supply modules, and cable and wire harnesses), resistors, and capacitors.
In addition to electronic components, the Company purchases components
for consumption in its higher level assembly and box-build manufacturing. These
components include: sheet metal fabrications, plastic injection molded parts,
aluminum extrusions, die castings, and various other hardware and fastener
components. The components purchased range from standard to highly custom and
cover the spectrums of market volatility and price.
The Company has strategic suppliers for these components and in
general, the market place for such components has eased over the past few
years. As a result, the Company has not experienced difficulties in obtaining
the components needed for its assemblies. However, during late fiscal 1999 the
market place for such components has tightened from recent periods resulting in
the extension of lead times and increased pricing. Some of these components are
allocated from time to time in response to supply shortages. Supply shortages
could substantially curtail production of some or all assemblies utilizing a
particular component. In addition, at various times industry wide shortages of
electronic components have occurred, particularly of memory and logic devices.
At times, such circumstances can produce short-term interruption of our
operations, and may have a material adverse effect on the results of the
Company. See also Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General."
Customers and Marketing
The Company performs services for a wide variety of customers ranging
from large multi-national companies to smaller companies, including start-ups.
Because of the variety of services it offers, its flexibility in design and
manufacturing, and its ability to timely respond to customer needs, the Company
believes it is well positioned to offer its services to customers in most
market segments. For many customers, the Company functions as both a design and
production arm thus, permitting customers to concentrate on concept
development, distribution and marketing, speeding time-to-market and reducing
their investment in manufacturing capacity. This method provides an economical
and efficient alternative to in-house design and production.
The Company markets its services primarily through its own employees.
Additionally, the Company markets its services through advertisements,
technical articles, trade shows, press releases, the Internet and dissemination
of Company brochures.
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During fiscal 1999, the Company's services were sold to approximately
140 customers. Customers representing over 10% of the Company's fiscal year net
sales are as follows:
<TABLE>
<CAPTION>
Fiscal Year % of Net Sales
-------------------------------
Customer 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
Lucent Technologies Inc. (formerly Ascend Communications, Inc.) 16% * *
General Electric Company 12% * 11%
International Business Machines Corporation * * 10%
</TABLE>
*represents sales less than 10%
Many large customers, including those above, contract independently
through multiple divisions, subsidiaries, production facilities or locations.
The Company believes that in many cases its sales to one such subsidiary,
division, facility, or location are not dependent on sales to others. Although
the complete loss of any major customer could have a significant negative
impact on the Company, the Company does not believe the loss of all divisions,
subsidiaries, facilities, or locations of a major customer to be likely. For a
further discussion of sales to these and other large customers, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Net Sales"
Substantially all of Plexus' business is done on a project by project
basis for its customers. Although Plexus has several projects and customers for
which it provides services on a continuing basis, the timing and nature of
particular customer projects can vary significantly from period to period.
Substantial changes in the nature or timing of these projects affect the
Company's sales and profitability from period to period. 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 Company regularly considers strategic acquisitions, joint ventures
and strategic partnerships with other companies. Under certain circumstances,
and subject to identification of appropriate candidates, the Company believes
that such transactions may provide an attractive means of growth by providing
access to additional customers and/or by adding new capabilities, capacity or
locations.
Competition
The market for electronic products and services provided by the
Company is highly competitive, primarily on the basis of engineering, testing
and production capability, technological capabilities and the capacity for
responsiveness, quality and price.
The capability to design in a timely manner and the capacity to
produce quality items and to assure prompt delivery are particularly important
in the electronics industry. The market in which the Company's customers
compete are characterized by rapidly changing technology, evolving industry
standards and continuous improvements in products and services. The average
product designed and assembled by the Company may have a technological useful
life ranging from 18 months to over five years, dependent on the product and
the industry. Through its design and production services, the Company may serve
as an extension or replacement for its customers' engineering, testing and
manufacturing operations.
Competitors in the electronics design and assembly field are numerous
and range in size from several very large multi-national companies with
substantially greater resources than the Company to many smaller companies
competing only in specific aspects of the Company's business. In addition, the
Company competes against foreign low-labor cost manufacturers. However, this
competition tends to focus on commodity and consumer related products, which is
not a focus market for Plexus. As a part of its strategic planning process,
however, the Company considers whether the establishment of foreign assembly
operations could be beneficial to the Company. Under appropriate circumstances
and conditions, the Company would consider establishing or acquiring such
foreign operations. The Company also competes against companies who determine
to design or manufacture items in-house rather than contract with a third-party
manufacturer. The Company estimates that it controls less than one percent of
the global market in the outsource electronics manufacturing services industry.
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Patents And Trademarks
The Company does not own any material patents or copyrights. The
Company owns the servicemark "Plexus" and has applied for (and is using) the
servicemark "Plexus, The Product Realization Company."
Plexus has arranged with another company to offer product development
services relating to a 5GHz radio which Plexus developed for the company. The
radio has potential use in a variety of products, particularly RF/wireless
video products. Plexus made these arrangements in connection with the design
services provided to the other company. While Plexus does not have exclusive
rights to the 5GHz radio, Plexus could generate revenue through the design and
manufacturing of products utilizing the radio. Production and sale of any such
products utilizing this technology has not yet commenced. In addition, there
can be no assurance that Plexus' customers will be able to successfully
commercialize products utilizing this technology.
The Company has had preliminary communications from the Lemelson
Medical, Education & Research Foundation Limited Partnership ("Lemelson")
related to the alleged possible infringement of certain Lemelson patents
relating to machine vision and bar-code technology. Lemelson has pending
litigation with a number of Plexus' competitors and electronics original
equipment manufactures, although no lawsuit has yet been filed against the
Company. Plexus is evaluating Lemelson's claim, but Plexus has not yet
determined if, or to what extent, a license from Lemelson would be required. If
a license is required, based upon Plexus' understanding of the terms of similar
licenses to other parties, Plexus believes (but cannot be certain) that a
license could be obtained on terms that would not have a material adverse
effect on Plexus. However, if a license fee is paid in the future, that could
affect the results for the period or periods in which payment is made or
accrued. Additionally, Plexus believes that it may be contractually indemnified
by the companies from which Plexus purchased the machine vision and bar code
technology equipment.
Environmental Compliance
The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals
used during its manufacturing process. Although the Company believes that it is
in compliance with all federal, state and local environmental laws, and does
not anticipate any significant expenditures in maintaining its compliance,
there can be no assurances that violations will not occur which could have a
material adverse effect on the results of the Company.
Employees
As of December 1, 1999, the Company employed full time approximately
3,150 persons. These employees included approximately 1,450 professional,
technical and engineering employees and approximately 1,700 employees who work
in assembly. The Company also employed 140 temporary employees through various
temporary employment agencies. The Company has never experienced a work
stoppage due to a labor dispute, considers its relations with employees to be
very good, and is not a party to any labor contract. To date, the Company has
had some difficulty fulfilling its employment needs as a result of tightening
labor markets surrounding its primary facilities. The Company is continually
reviewing the employment market and actively making modifications to its
processes and policies in order to competitively attract the necessary
employees. The Company's success depends to a large extent upon the continued
services of key managerial and technical employees. The loss of such personnel
could have a material adverse effect on the Company and its results of
operations.
Year 2000 Issues
The Company's Year 2000 program is discussed in "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Issues."
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ITEM 2. PROPERTIES
Certain information about the Company's facilities is included in the
following table.
<TABLE>
<CAPTION>
PLANT LOCATION PLANT TYPE SIZE (sq. ft.) OWNED/LEASED
-------------- ---------- -------------- ------------
<S> <C> <C> <C>
* Neenah, Wisconsin Manufacturing 285,000 Leased
Green Bay, Wisconsin Manufacturing 110,000 Leased
* Neenah, Wisconsin Manufacturing 95,000 Owned
Bothell, Washington Manufacturing 60,000 Leased
Richmond, Kentucky Manufacturing 45,000 Owned
Wheeling, Illinois Manufacturing 25,000 Leased
Redmond, Washington Manufacturing 21,000 Leased
Blaine, Minnesota Manufacturing 14,000 Owned
** Neenah, Wisconsin Headquarters & Engineering 45,000 Owned
Bothell, Washington Engineering 81,000 Leased
Raleigh, North Carolina Engineering 14,000 Leased
Louisville, Colorado Engineering 14,000 Leased
Milpitas, California Engineering 5,000 Leased
*** Redmond, Washington Office/warehouse 60,000 Leased
* Neenah, Wisconsin Office/warehouse 100,000 Leased
*** Bothell, Washington Office/warehouse 10,000 Leased
Blaine, Minnesota Office/warehouse 5,200 Leased
</TABLE>
* More than one building is included at this site.
** The Technology Center, which provides office, design and testing space
for the Company, is being expanded by approximately 60,000 square feet
to accommodate growth in the engineering subsidiary. The expansion is
expected to be completed in October 2000.
*** Building is being subleased to an unrelated party.
The Company utilizes specialized equipment in its operations. The
Company leases a substantial amount of this equipment. The Company believes
that its equipment and facilities are modern, well maintained and adequate for
its present needs. However, continued expansion of the Company's business may
require additional facility expansion in the future.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings required to be
disclosed herein to which the Company is a party of or which any of its
property is the subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains certain information regarding the present
executive officers of the Company, who are elected by the Board of Directors
after each annual meeting of shareholders for one-year terms or until replaced
by the Board of Directors.
<TABLE>
<CAPTION>
PRESENT OFFICE
NAME AGE POSITION HELD SINCE
---- --- -------- --------------
<S> <C> <C> <C>
Peter Strandwitz 62 Chairman, Chief Executive Officer, Director 1979
John L. Nussbaum 57 President, Chief Operating Officer, Director 1996 (1)
Dean A. Foate 41 Executive Vice President 1999 (2)
Thomas B. Sabol 40 Vice President-Finance and Chief Financial Officer 1996 (3)
Joseph D. Kaufman 42 Vice President, Secretary and General Counsel 1990
J. Robert Kronser 40 Vice President-Sales and Marketing 1999 (4)
Charles C. Williams 63 Vice President 1989
Lisa M. Kelley 33 Treasurer and Chief Accounting Officer 1998 (5)
</TABLE>
(1) Mr. Nussbaum has served as President and a director of the Company since
1980. Mr. Nussbaum became Chief Operating Officer in 1996.
(2) Mr. Foate joined the Company in February 1984, serving various engineering
roles. From 1995 to present, Mr. Foate serves as President of Plexus
Technology Group. Additionally, in May 1999, Mr. Foate became Executive
Vice President.
(3) Mr. Sabol joined the Company in January 1996. From 1993 to 1995, Mr. Sabol
served as Vice President and General Auditor for Kemper Corporation. Prior
to that time Mr. Sabol served as Business Assurance Manager for Coopers &
Lybrand.
(4) Mr. Kronser joined the Company in May 1981, serving various engineering
roles. From 1993 to July 1999, Mr. Kronser managed the Advanced
Manufacturing Center. In May 1999, Mr. Kronser became Vice President of
Sales and Marketing.
(5) Ms. Kelley joined the Company in September 1992. Positions held within the
Company included Manager, Subsidiary Controller, and Assistant Corporate
Controller. In 1997, she became the Corporate Controller. In 1998, Ms.
Kelley became Treasurer.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Information on Common Stock
For the years ended September 30, 1999 and 1998, the Company's Common
Stock has traded on the NASDAQ National Market System; the price information
represents high and low sale prices for each period.
PRICE RANGE OF COMMON STOCK:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1999 Fiscal Year Ended September 30, 1998
------------------------------------ ------------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter 34 3/4 17 First Quarter 35 1/8 13 1/8
Second Quarter 40 1/4 25 5/8 Second Quarter 22 1/2 12 3/8
Third Quarter 34 3/4 26 3/4 Third Quarter 24 16 1/4
Fourth Quarter 34 3/8 27 7/8 Fourth Quarter 22 3/4 13 3/4
Year 40 1/4 17 Year 35 1/8 12 3/8
</TABLE>
As of September 30, 1999, there were approximately 9,000 shareholders
of record.
The Company has not paid any cash dividends. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of the Company's
dividend intentions.
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ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights (1)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended September 30,
Operating Statement Data 1999 1998 1997 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $492,414 $466,795 $438,565 $342,254 $300,795
Gross profit 66,409(3) 60,147 51,232 31,160 26,588
Gross margin 13.5% 12.9% 11.7% 9.1% 8.8%
Operating income 34,428(3) 36,393 30,769 15,614 13,507
Operating margin 7.0% 7.8% 7.0% 4.6% 4.5%
Net income 20,311(3) 22,937 18,893 8,350 7,073
Earnings per share (diluted) (2) $ 1.10(3) $ 1.27 $ 1.08 $ 0.52 $ 0.45
Cash Flow Statement Data
- ------------------------
Cash flows provided by
operations $ 15,157 $ 29,843 $ 18,347 $ 28,947 $ 4,845
Capital equipment additions 18,196 11,997 13,488 5,636 3,291
Balance Sheet Data
- ------------------
Working capital $110,411 $ 91,159 $ 70,544 $ 55,683 $ 75,374
Total assets 229,636 184,354 152,453 122,301 124,345
Long-term debt 142 2,587 3,516 16,658 42,955
Stockholders' equity 146,403 115,863 89,404 53,788 45,826
Return on average assets 9.8% 13.6% 13.8% 6.8% 5.6%
Return on average equity 15.5% 22.3% 26.4% 16.8% 17.0%
Inventory turnover ratio 6.2x 7.1x 6.6x 5.6x 4.8x
</TABLE>
- ---------
(1) As a result of the merger with SeaMED, the historical results have
been restated utilizing the pooling of interests method of accounting.
See Notes 1 and 8 in the Notes to Consolidated Financial Statements.
(2) All share and per share information reported throughout this annual
report on Form 10-K has been restated (except where noted) to give
effect to the Company's two-for-one stock split effective August 25,
1997.
(3) In connection with the acquisition of SeaMED Corporation, the Company
recorded merger and other one-time related charges of $7.7 million
($6.0 million after-tax). Excluding this charge, gross profit was
$68.6 million (13.9% of net sales), and operating income was $42.1
million (8.6% of net sales). Net income excluding this charge was
$26.3 million (5.3% of net sales), and diluted earnings per share was
$1.42.
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ITEM 7. 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, are
forward-looking statements (such as statements in the future tense and
statements including "believe", "expect", "intend", "plan", "look forward to",
"anticipate" and similar terms) 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" and "Year 2000 Issues").
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., Plexus Electronic Assembly Corporation, and SeaMED Corporation, the
Company provides product realization services to original equipment
manufacturers in the medical, computer (primarily mainframes, servers and
peripherals), industrial, networking, 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,
distribution and after market support.
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.
Since a substantial portion of the Company's sales are derived from
turnkey manufacturing, net sales can be negatively impacted by component
shortages and their lead-times. Shortages of key electronic components which
are provided directly from customers or suppliers and their lead-times 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
and component shortages and extended lead-time issues can occur with respect to
specific industries or particular components (such as memory and logic
devices). In such cases, supply shortages could substantially curtail
production of some or all assemblies utilizing a particular component. In
addition, at various times industry wide shortages of electronic components
have occurred, particularly of memory and logic devises. Over the past three to
six months the marketplace for certain electronic components, primarily in the
telecommunications and wireless markets (in particular flash memory, tantalum
capacitors, and SAW fibers), has tightened from recent periods. This has
resulted in the extension of certain component lead-times, increased pricing
and in certain instances has resulted in the allocation of such components by
the suppliers. 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 whether further tightening in the marketplace for components
could result in missed deliveries or de-commits form our suppliers, along with
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. In addition, because we provide our customers component procurement
services, we may bear the risk of price increases for these components if we
are unable to purchase them at the same price that we agree with our customer
on the pricing for the components. In order to mitigate the Company's financial
risk of component price increases, the Company regularly reviews and adjusts
for price fluctuations with customers. 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 fiscal 1999,
approximately 4 percent of the Company's total sales were foreign. 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.
9
<PAGE> 11
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. 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 in North Carolina, Colorado and Washington 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 or profitability levels 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.
The Company continues to look for opportunities for geographical
expansion that will improve the Company's ability to provide services to its
customers. Geographical expansion and growth by acquisition can have an effect
on the Company's operations. In addition, should the Company determine to
expand internationally, that foreign expansion could create additional
integration issues as a result of differences in foreign laws and customs, as
well as distance and other factors affecting international trade. The
successful integration and operation of an acquired business, including SeaMED
and the Chicago, Illinois area facility, will require communication and
cooperation among key managers, along with the transition of customer
relationships. Acquisitions also involve risks including the retention of key
personnel and customers, the integration of information systems and purchasing
operations, the management of an increasingly larger and more geographically
dispersed business, and the diversion of management's attention from other
ongoing business concerns. In addition, while the Company anticipates cost
savings, operating efficiencies and other synergies as a result of its
acquisitions, the consolidation of functions and the integration of
departments, systems and procedures present significant management challenges.
The Company cannot assure that it will successfully accomplish those actions as
rapidly as expected. Also, the Company cannot assure the extent to which it
will achieve cost savings and efficiencies in any transaction or expansion.
There can be no assurance that the Company will successfully manage the
integration of new locations or acquired operations, and the Company may
experience certain inefficiencies that could negatively impact the results of
operations or the Company's financial condition. Additionally, no assurance can
be given that any past or future acquisition by the Company, including that of
SeaMED and the Chicago, Illinois area facility, will enhance the Company's
business.
The acquisition of new operations can introduce new types of risks to
the Company's business. For example, additional risk factors specific to
SeaMED's business and its operations include financing issues associated with
SeaMED's emerging medical customers, Food and Drug Administration (FDA)
requirements associated with Class III and pre-market approval (PMA) medical
devices designed and manufactured by SeaMED, and the uncertainty of third party
reimbursement such as Medicare, private health insurance companies or health
maintenance organizations by SeaMED's customers for the cost of their products.
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 significantly greater than the Company's. The Company also faces
competition in the form of current and prospective customers that have the
capabilities to develop and manufacture products internally. In order to remain
a viable alternative, the Company must continue to enhance its total
engineering and manufacturing technologies.
Other factors that could adversely affect forward-looking statements
include the level of overall growth in the electronics industry, the Company's
ability to integrate and extract value from acquired operations, the Company's
ability to secure new customers and maintain its current customer base, the
results of cost reduction efforts, material cost fluctuations and the adequate
availability of components and related parts for production, the effect of
changes in average selling prices, the risk of customer delays
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<PAGE> 12
or cancellations in both on-going and new programs, the effect of start-up
costs related to new programs and facilities, year 2000 compliance issues
(including those discussed below), the overall economic conditions, the impact
of increased competition and other factors and risks detailed herein and in the
Company's other Securities and Exchange Commission filings.
MERGER AND ACQUISITION
On July 23, 1999, Plexus acquired SeaMED through issuance of
approximately 2.27 million shares of its common stock in exchange for all
outstanding common stock of SeaMED. SeaMED stock options outstanding, as of the
merger date, were exchanged for options to acquire approximately 171,764 shares
of Plexus common stock at the same time. SeaMED is a provider of engineering
and manufacturing services, coupled with regulatory expertise, of advanced
medical instruments for medical technology companies. All merger costs and
other one-time expenses related to the SeaMED merger have been expensed as
required under the pooling of interests method of accounting. Certain
merger-related costs, which included charges related to obsolete inventories
and a loss on an engineering contract, have been included in cost of sales in
the consolidated statement of operations. All such costs and expenses amounted
to $6.0 million after income taxes in fiscal 1999 and are reflected in the
financial statements as follows (in thousands):
<TABLE>
<S> <C>
Cost of sales $ 2,177
Plant closing, relocation and severance 981
Merger costs 4,557
-------
7,715
Less: income tax benefit 1,684
-------
Net merger and other one-time charges $ 6,031
=======
</TABLE>
The consolidated financial statements have been prepared following the
pooling of interests method of accounting for the merger and therefore reflect
the combined financial position, operating results and cash flows of the two
companies for all periods presented. SeaMED had a June 30 fiscal year end.
Prior to fiscal 1999, the combined financial statements reflect Plexus'
September 30 financial position and results and SeaMED's June 30 financial
position and results. For fiscal 1999, the combined financial statements
reflect the October 1, 1998 through September 30, 1999 period for both
companies. SeaMED's results of operations and cash flows from July 1, 1998 to
September 30, 1998, which have been excluded from these consolidated financial
statements, are reflected as adjustments in the 1999 consolidated statements of
stockholders' equity and cash flows. Net sales and net income for SeaMED for
the excluded period from July 1, 1998 to September 30, 1998 were $19.4 million
and $1.3 million, respectively.
On September 1, 1999, Plexus Corp. purchased certain printed circuit
board assembly manufacturing assets in the Chicago, Illinois area from an
unrelated party. The manufacturing assets which consisted principally of
equipment and inventories were purchased at approximately fair market value.
The Company also leases a portion of a manufacturing facility owned by the
unrelated party which houses the printed circuit board operations. The Company
has agreed to acquire certain other assets from the same unrelated party in
fiscal 2000. The total purchase price of the net assets acquired in fiscal 1999
and to be acquired in fiscal 2000 is not material to the assets or
stockholders' equity of the Company. Pro forma statements of operations for
fiscal 1999 and 1998 reflecting this acquisition are not shown as they would
not differ materially from the reported results.
YEAR 2000 ISSUES
The Company has a corporate information technology organization whose
primary purpose is to ensure vision and direction of information systems to
meet internal and external needs. The Company must keep pace with rapid
technological developments in its management information systems and its
production facilities and equipment, and can experience costs and conversion
difficulties in connection with the implementation of new systems and
processes. In addition, like all other companies, the Company must assure that
its computer and software systems, and other machinery and systems that depend
upon computer-driven operations or which have embedded chips or
micro-processors, are capable of accurately functioning and accurately
recognizing and processing data in the year 2000 and beyond ("Year 2000
Compliant").
The Company has developed a Year 2000 compliance strategy and
methodology to assure the Company can continue to provide engineering and
manufacturing services in the year 2000 and beyond. All mission critical issues
have met internal documentation, compliancy and testing, including the
Company's A/S400 hardware and software system, which handles virtually all
production data processing and accounting.
The Company's Year 2000 strategy has defined 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 completed
four phases to assure Year 2000 compliance which included a complete inventory
and risk assessment of items or issues (risk assessment defined
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<PAGE> 13
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.
By July 1999, the Company had substantially completed an internal
inventory and risk assessment, remediation and testing of all other mission
critical internal systems including: hardware, software, production and
facility equipment, test equipment and software, engineering development
systems, and embedded chips in components and inventory. The Company
inventoried every significant supplier of goods and services, and considered
the potential impact of Year 2000 compliance on the Company and its customers.
In addition, the Company has evaluated and audited the key suppliers' response
to our mailing surveys. A complete review and test of EDI linkages and data
transmission for its customers and suppliers was also completed.
The Company has established contingency plans to address and
prioritize business recovery and resumption activities of critical functions
should unexpected failure occur. The plan will continue to be updated and
exercised regularly to ensure the ability to meet our customers' requirements,
to minimize financial hardship, or to meet legal obligations.
The costs to date associated with the Company's Year 2000 compliancy
plan have been mostly current internal labor expenses and were not material to
the Company's results. 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 of future costs will prove to be
accurate and actual results could differ materially from those currently
anticipated.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially
adversely impact the Company's results of operations or adversely affect the
Company's relationships with customers, vendors or others. The most reasonably
likely worst case scenario could cause a production shut down in one or more
facilities. The Company would rely on its' standard disaster recovery plan and
Year 2000 contingency plans for such occurrence. Although the plans would seek
to quickly restart or shift production, such an outage could at least
temporarily affect production, sales and the results of operations. 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,
liquidity and financial condition. Additionally, there can be no assurance that
potential future costs of defending and resolving claims will not have a
material adverse impact on the Company's results of operations, liquidity and
financial condition.
RESULTS OF OPERATIONS
Net Sales
In fiscal 1999, net sales were $492 million, an increase of $25
million, or 5 percent, over the previous year. Net sales in fiscal 1998 were
$467 million, an increase of $28 million, or 6 percent, over fiscal 1997.
For fiscal 1999, 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 focus to move toward higher technology
business. These factors are expected to continue. In addition, sales by SeaMED
decreased approximately $8 million from fiscal 1998 levels. Although there can
be no assurances, the Company presently anticipates sales volume to increase,
subject to the development and timing of new customers, new programs and future
acquisitions.
Sales for fiscal 1998 increased due to the addition of new programs
and new customers, primarily Lucent Technologies Inc. ("Lucent", previously
Ascend Communications, Inc.). Sales to Lucent exceeded 10% of total sales for
the second half of fiscal 1998. This increase was offset by several factors
including (1) the decision by certain customers to transition manufacturing
into their own in-house manufacturing facilities, primarily Motorola, Inc. (2)
the Company's decision to exit from certain automotive and other
commodity-oriented markets, primarily computer peripherals, whose businesses
are no longer compatible with the Company's long-term growth plans, (3)
decreasing component pricing with related decreases in average selling prices,
(4) a general weakening of certain markets, primarily
industrial-semiconductors, in which the Company operates, and (5) the negative
effects of the strong U.S. dollar and the Southeast Asian market's unfavorable
economic conditions and the impact of such on a few customers.
Sales for fiscal 1999 to the industries the Company services remained
fairly consistent with fiscal 1998, except for the increase in the
networking/telecom industry from 15 percent to 24 percent of total sales which
was offset by a decline in the computer industry to 14 percent from 23 percent
of total sales. The large increase in the networking/telecom industry was
primarily a result of increased sales to Lucent, in fiscal 1999. Sales for
fiscal 1999 for the other industries were as follows: Medical 31 percent (29
percent in fiscal 1998), Industrial 23 percent (20 percent in fiscal 1998),
Transportation 7 percent (11 percent in fiscal 1998), and
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<PAGE> 14
Other 1 percent (2 percent in fiscal 1998). For fiscal 2000, the Company
currently expects sales to the networking/telecom industry to continue to grow.
The Company's largest customers for fiscal 1999 were Lucent (including
two subsidiaries or divisions), which accounted for 16 percent of total sales,
and General Electric Company (GE) (including up to four subsidiaries or
divisions), which accounted for 12 percent of total sales. In fiscal 1998, no
customers accounted for more than 10 percent of the Company's total sales. In
fiscal 1997, GE and International Business Machines Corporation (IBM)
(including up to six subsidiaries or divisions), accounted for 11 percent and
10 percent of total sales, respectively. The Company is dedicated to
diversifying its customer base and decrease its dependence on any particular
customer or customers. The Company believes each division or subsidiary of
these customers contracts independently of the other divisions or subsidiaries.
Currently the Company expects sales from Lucent to grow and from GE to remain
steady in fiscal 2000, although these amounts are subject to future orders and
may vary from the Company's expectations.
Sales to the Company's ten largest customers accounted for 61 percent
of total revenues in each of the fiscal years 1999, 1998, and 1997. While the
Company expects similar results for the total percent of sales accounted for by
the ten largest customers, the continuation of a diversified customer base is
expected to change the customer mix. The Company remains dependent upon
continued sales to Lucent, GE, 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 of $66.4 million increased by $6.3 million, or 10
percent, in fiscal 1999 compared to fiscal 1998, and by $8.9 million, or 17
percent, during fiscal 1998 compared to fiscal 1997. The gross margin increased
to 13.5 percent in fiscal 1999. Excluding the one-time SeaMED merger-related
charges of $2.2 million related to the write down of obsolete inventory and a
loss on an engineering contract, the fiscal 1999 gross profit and margin was
$68.6 million, or 13.9 percent, respectively. In fiscal 1998 and 1997, the
gross profit and margin were $60.1 million, or 12.9 percent, and $51.2 million,
or 11.7 percent, respectively.
The continued improvement in gross margin in fiscal 1999 compared to
fiscal 1998 and fiscal 1997 reflects the Company's focus on business mix,
leading-technology products and markets, and continued operating efficiencies
which were partially offset by increased costs for expansion of engineering and
technical manufacturing capabilities to 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
which can vary from period to period, including product mix, the level of
start-up costs and efficiencies of new programs, product life cycles, sales
volumes, price erosion within the electronics industry, 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. The acquisition of SeaMED has initially reduced gross
margins and is expected to continue to have that effect until synergies and
efficiencies are realized and SeaMED's cost structure is aligned with its
reduced sales volume. 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.
Operating Expenses
Selling and administrative (S&A) expenses increased to $26.4 million
in fiscal 1999, compared to $23.8 million in fiscal 1998, and $20.5 million in
fiscal 1997. As a percentage of sales, S&A expenses were 5.4 percent, 5.1
percent and 4.7 percent in fiscal 1999, 1998 and 1997, respectively. The
increase in S&A expenses was mainly attributable to increased engineering,
sales and marketing, and information systems support. The Company anticipates
future S&A expenses will increase in absolute dollars but should remain around
5.0 percent of sales, as the Company builds the infrastructure necessary to
integrate SeaMED, as well as to continue to support the Company's growth.
In fiscal 1999, the Company also had one-time merger costs of $4.6
million and other one-time merger-related charges (primarily for plant
closings, relocation and severance) of $1.0 million, associated with the
acquisition of SeaMED.
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<PAGE> 15
Other Income (Expense)
Interest expense was $0.3 million in fiscal 1999, compared to $0.1
million in fiscal 1998 and $1.0 million in fiscal 1997. The decrease in
interest expense levels is primarily due to reduced borrowings required to
support working capital and the payment of SeaMED's outstanding bank debt upon
its acquisition by the Company. See "Liquidity and Capital Resources." As a
result of investing excess cash, interest income and gains on investments was
$2.0 million in fiscal 1999, compared to $0.8 million and $0.4 million in
fiscal 1998 and 1997, respectively. Other miscellaneous income in fiscal 1997
included approximately $0.6 million in gains from the buyout and sale of
certain leased manufacturing equipment.
Income Taxes
Income taxes increased to $15.8 million in fiscal 1999, from $14.3
million in fiscal 1998, and $12.0 million in fiscal 1997, as a result of
increased earnings. The Company's effective income tax rate for fiscal 1999
increased as a result of non-tax deductible merger expenses. Excluding these
one-time expenses the effective tax rate has remained constant at rates between
38 percent to 40 percent in fiscal 1999, 1998, and 1997. 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 $15.2 million in fiscal
1999, compared to $29.8 million in fiscal 1998. Cash from operations in fiscal
1999 was provided primarily by net profits and an increase in accounts payable,
offset by increases in inventory and accounts receivable. Inventory turnover
was 6.2 turns as of September 30, 1999, reduced from 7.1 turns as of September
30, 1998, primarily as a result of the Company providing a vendor managed
inventory program for a large customer beginning in the fourth quarter of
fiscal 1999, which was also primarily responsible for the significant increase
in inventory for fiscal 1999.
Cash flows used in investing activities, includes net purchases or
(net sales and maturities) of short-term investments during fiscal 1999, 1998
and 1997 of $11.7 million, ($0.7) million and $6.2 million, respectively.
Investing activities also includes capital additions of $18.2 million, which
includes the Chicago, Illinois area manufacturing equipment, for fiscal 1999
were primarily concentrated in surface mount assembly equipment, engineering
workstations and related software, and management information systems hardware
and software. Payments for property, plant and equipment for fiscal 1998 and
1997 were $12.0 million and $13.5 million, respectively. These acquisitions
were financed from working capital.
In fiscal 1999, the Company obtained approximately $9 million in net
capital as a result of stock option exercises and related tax benefit, which
was offset by the payoff of SeaMED loans following the merger. The Company had
maintained a stock buy-back program, which was rescinded in March 1999 in
contemplation of the acquisition of SeaMED. Prior to rescinding the plan, the
Company had purchased 246,200 shares for $4.6 million.
All such shares have been reissued.
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 capital expenditures for fiscal 2000 to be approximately $25 million,
including the expansion to the Neenah, Wisconsin engineering facility currently
in progress. The Company expects to fund these additions through current cash
and short-term investments, cash flows from operations and the revolving credit
agreement. If the Company were to determine to make an acquisition or a more
significant expansion, additional resources could be required.
An 110,000-square-foot manufacturing facility located in Green Bay,
Wisconsin, began production in April 1997. Annual lease payments by the Company
for the building and the equipment are based on the profitability of the
facility pursuant to a formula defined in the lease agreement. There are no
required minimum lease payments, although it involves a sharing of potential
future profits (if any) from the facility. The Company is a defendant in
litigation relating to this lease filed by an affiliate of the facility owner.
The suit claims that the Company misrepresented the potential profitability of
the facility, and seeks damages. The Company believes that the claims are
without merit, and is defending the action vigorously. However, negative
developments in this litigation could adversely affect the Company's operations
and the results thereof.
There have been no borrowings under the Company's revolving credit
agreement since October 1, 1997 and the Company paid SeaMED's outstanding bank
debt upon the SeaMED merger. The ratio of total debt-to-equity as of September
30, 1999 and 1998, was 0.6 to 1.
Working capital was $110.4 million at September 30, 1999 and $91.2
million at September 30, 1998. The Company's future needs for financial
resources include increases in working capital to support anticipated sales
growth and investment in manufacturing
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<PAGE> 16
and engineering facilities and equipment. However, because of the dynamics of
the Company's industry, the exact timing and amount of these increases cannot
be determined. Currently, the Company anticipates incurring future facility
related expenditures in connection with the expansion of its engineering
headquarters in Neenah, Wisconsin. The Company also intends to actively
evaluate geographical expansion and growth by acquisition.
The Company believes that its $40 million long-term revolving credit
agreement, leasing capabilities, cash and short-term investments and projected
cash from operations will be sufficient to meet its working capital and capital
requirements through fiscal 2000 and the foreseeable future. While there can be
no assurance that future financing will be available on terms acceptable to the
Company, the Company may seek to raise additional capital through the issuance
of either public or private debt or equity securities to finance future
acquisitions. Debt financing may require the Company to pledge assets as
collateral and comply with certain financial ratios and covenants. Equity
financing may result in dilution to stockholders.
The Company has not paid dividends on its common stock, but has
reinvested its earnings to support its working capital and expansion
requirements. The Company intends to continue to utilize its earnings in the
development and expansion of the business and does not expect to pay cash
dividends in the foreseeable future.
NEW ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use", which specifies
the accounting treatment of computer software costs depending upon the type of
costs incurred. This SOP is effective for the Company's fiscal year 2000
financial statements and restatement of prior years will not be required. The
Company does not believe the adoption of this SOP will have a significant
impact on its financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion about the Company's risk-management
activities may include forward-looking statements that involve risk and
uncertainties. Actual results could differ materially from those discussed.
The Company has financial instruments, including cash equivalents,
short-term investments and long-term debt arrangements, which are sensitive to
changes in interest rates. 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
maturities (from one day to less than one year) of its cash equivalents and
short-term investments, and immaterial amount of long-term debt outstanding.
The Company invests in high credit quality issuers and, by policy, limits the
amount of principal exposure to any one issuer.
The Company's only material interest rate risk associated with its
outstanding debt in fiscal 1999 related to a variable rate note of SeaMED (with
which the Company acquired in fiscal 1999). Such debt was paid in full at the
time of the acquisition. The Company's financing arrangements in place at
September 30, 1999, subject it to future interest rate risk, as such
arrangements include provisions for variable interest rates which would be
based upon market conditions at the time the funds are borrowed. See Note 4 of
Notes to Consolidated Financial Statements, included in Item 8 below, for
further information of the Company's financing arrangements.
The Company does not believe there have been any material changes in
the reported market risks faced by the Company since the end of its most recent
fiscal year September 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See following "List of Financial Statements and Financial Statement
Schedules", and accompanying reports, statements and schedules, which follow
beginning on page 17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is incorporated herein by
reference to "Election of Directors: in the Registrant's Proxy Statement for
its 2000 Annual Meeting of Shareholders" ("2000 Proxy Statement") and from
"Security Ownership of Certain Beneficial Owners and Management--Section 16(a)
Beneficial Ownership Reporting Compliance" in the 2000 Proxy Statement and
"Executive Officers of the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the paragraph under "Election of
Directors - Directors' Compensation" and "Executive Compensation" in the 2000
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to "Security Ownership of Certain
Beneficial Owners and Management" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Incorporated herein by reference to "Certain Transactions" in the 2000
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed:
1. and 2. Financial Statements and Financial Statement
Schedules. See following list of Financial Statements and
Financial Statement Schedules, on page 17 which is
incorporated herein by reference.
3. Exhibits. See Exhibit Index included as the last page of this
report, which index is incorporated herein by reference.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated July 23, 1999, related to
the Company's acquisition of SeaMED Corporation on that date. This
report was amended on October 4, 1999. The report incorporated by
reference the following financial statements:
1. Audited financial statements of SeaMED as of June 30, 1998
and 1997, and for each of the three fiscal years in the
period ended June 30, 1998;
2. Unaudited interim period financial statements of SeaMED as of
March 31, 1999, and for the quarters and nine month periods
ended March 31, 1999 and 1998;
3. Unaudited pro forma financial statements of the Company at
March 31, 1999, for each of the three fiscal years in the
period ended September 30, 1998 and for the six month periods
ended March 31, 1999 and 1998, in each case giving effect to
the SeaMED acquisition.
Amendment No. 1 to the report added a supplemental Plexus unaudited
condensed pro forma statement of income for the six months ended March
31, 1999. The supplemental statement combined Plexus and SeaMED
financial information using the methodology which Plexus subsequently
used when it restated its financial statements for the acquisition,
rather than a different method used in the previous pro forma
statements. The Amendment also included certain unaudited summary
financial information of SeaMED for the fiscal period ended June 30,
1999.
16
<PAGE> 18
PLEXUS CORP. 10-K
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
SEPTEMBER 30, 1999
CONTENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Accountants 18
Consolidated Financial Statements:
Consolidated Statements of Operations for the three years ended
September 30, 1999, 1998 and 1997 19
Consolidated Balance Sheets as of September 30, 1999 and 1998 20
Consolidated Statements of Stockholders' Equity for the three years
ended September 30, 1999, 1998 and 1997 21
Consolidated Statements of Cash Flows for the three years ended
September 30, 1999, 1998 and 1997 22
Notes to Consolidated Financial Statements 23 to 31
Financial Statement Schedules:
Report of Independent Accountants 32
Schedule II - Valuation and Qualifying Accounts 33
Report of Ernst & Young, LLP, Independent Auditors (for SeaMED Corporation) 34
</TABLE>
17
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Plexus Corp.:
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Plexus Corp. and
subsidiaries at September 30, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1999 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to
the merger of SeaMED Corporation on July 23, 1999 in a transaction accounted
for as a pooling of interests, as described in notes 1 and 8 of notes to
consolidated financial statements. We did not audit the financial statements of
SeaMED Corporation, which statements reflect, after restatement for certain
adjustments as explained in note 8 of notes to consolidated financial
statements, total assets of $42.9 million as of June 30, 1998 and total
revenues of $70.0 million and $52.1 million for the years ended June 30, 1998
and 1997, respectively. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for SeaMED Corporation is based
solely on the report of the other auditors. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 26, 1999
18
<PAGE> 20
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended September 30, 1999, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 492,414 $ 466,795 $ 438,565
Cost of sales 426,005 406,648 387,333
---------- ---------- ----------
Gross profit 66,409 60,147 51,232
Operating expenses:
Selling and administrative expenses 26,443 23,754 20,463
Plant closing, relocation and severance 981 -- --
Merger costs 4,557 -- --
---------- ---------- ----------
31,981 23,754 20,463
---------- ---------- ----------
Operating income 36,393 30,769
34,428
Other income (expense):
Interest expense (274) (86) (1,014)
Miscellaneous 1,995 975 1,160
---------- ---------- ----------
Income before income taxes 36,149 37,282 30,915
Income taxes 15,838 14,345 12,022
---------- ---------- ----------
Net income $ 20,311 $ 22,937 $ 18,893
========== ========== ==========
Earnings per share:
Basic $ 1.17 $ 1.36 $ 1.21
========== ========== ==========
Diluted $ 1.10 $ 1.27 $ 1.08
========== ========== ==========
Weighted average shares outstanding:
Basic 17,323 16,844 15,366
Diluted 18,510 18,098 17,558
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE> 21
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of September 30, 1999 and 1998
(in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,906 $ 24,106
Short-term investments 17,224 5,517
Accounts receivable, net of allowance of $773 and $1,011, respectively 69,318 61,622
Inventories 79,017 57,321
Deferred income taxes 6,370 5,077
Prepaid expenses and other 3,562 2,201
---------- ----------
Total current assets 191,397 155,844
Property, plant and equipment, net 35,868 26,517
Other 2,371 1,993
---------- ----------
Total assets $ 229,636 $ 184,354
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10 $ 672
Accounts payable 55,928 41,272
Customer deposits 8,650 6,635
Accrued liabilities:
Salaries and wages 9,820 8,447
Other 6,578 7,659
---------- ----------
Total current liabilities 80,986 64,685
Long-term debt 142 2,587
Deferred income taxes 215 700
Other liabilities 1,890 519
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized, none issued
or outstanding -- --
Common stock, $.01 par value, 60,000 shares authorized,
17,545 and 17,016 issued, respectively 175 170
Additional paid-in capital 51,425 42,478
Note receivable, officer -- (75)
Retained earnings 94,803 73,795
Treasury stock, at cost, 0 and 29 shares, respectively -- (505)
---------- ----------
146,403 115,863
---------- ----------
Total liabilities and stockholders' equity $ 229,636 $ 184,354
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
20
<PAGE> 22
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Note Treasury Stock
------------------- Paid-In Receivable Retained --------------------
Shares Amount Capital Officer Earnings Shares Amount
-------- -------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1996, as previously
reported 6,501 $ 65 $ 14,253 $ -- $ 33,699 -- $ --
Restatement for pooling of interests with
SeaMED 134 1 886 (75) (320) -- --
-------- -------- -------- -------- -------- -------- --------
BALANCES AT OCTOBER 1, 1996, RESTATED 6,635 66 15,139 (75) 33,379 -- --
SeaMED initial public offering 306 3 14,820 -- -- -- --
Exercise of stock options,
including tax benefits 372 3 3,999 -- -- -- --
Preferred stock dividends -- -- (1,765) -- (338) -- --
Plexus preferred stock conversion --
(Series A) 554 6 (6) -- -- -- --
SeaMED preferred stock conversion
(Class A, B, C and D) 587 6 5,274 -- -- -- --
Two-for-one common stock split 8,391 84 (84) -- -- -- --
Net income -- -- -- -- 18,893 -- --
-------- -------- -------- -------- -------- -------- --------
BALANCES, SEPTEMBER 30, 1997 16,845 168 37,377 (75) 51,934 -- --
Treasury stock purchased -- -- -- -- -- (214) (3,442)
Exercise of stock options,
including tax benefits 160 2 5,101 -- (1,024) 132 2,059
Common stock warrants issued 11 -- -- -- -- -- --
Other treasury stock issuances -- -- -- -- (52) 53 878
Net income -- -- -- -- 22,937 -- --
-------- -------- -------- -------- -------- -------- --------
BALANCES, SEPTEMBER 30, 1998 17,016 170 42,478 (75) 73,795 (29) (505)
Effect of SeaMED excluded period -- -- 16 -- 1,271 -- --
Treasury stock purchased -- -- -- -- -- (32) (1,160)
Exercise of stock options,
including tax benefit 529 5 8,931 -- (574) 61 1,665
Payment of note receivable officer -- -- -- 75 -- -- --
Net income
-- -- -- -- 20,311 -- --
-------- -------- -------- -------- -------- -------- --------
BALANCES, SEPTEMBER 30, 1999 $ 17,545 $ 175 $ 51,425 $ -- $ 94,803 -- $ --
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
21
<PAGE> 23
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,311 $ 22,937 $ 18,893
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 9,993 8,372 5,561
Provision for inventories and accounts
receivable allowances 3,330 4,092 4,911
Deferred income taxes (1,778) (1,609) (1,049)
Non-operating gains -- -- (620)
Changes in assets and liabilities:
Accounts receivable (8,842) (5,547) (15,477)
Inventories (25,270) (3,411) (2,376)
Prepaid expenses and other (1,089) (1,283) 230
Accounts payable 15,569 3,690 7,136
Customer deposits 1,838 2,466 (5,119)
Accrued liabilities 869 1,207 6,318
Other 226 (1,071) (61)
---------- ---------- ----------
Cash flows provided by
operating activities 15,157 29,843 18,347
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (244,449) (6,632) (7,873)
Sales and maturities of short-term investments 232,742 7,319 1,669
Payments for property, plant and equipment (18,196) (11,997) (13,488)
Proceeds on sale of property, plant and equipment 213 114 724
---------- ---------- ----------
Cash flows used in
investing activities (29,690) (11,196) (18,968)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt -- 3,125 96,442
Payments on debt (4,561) (4,664) (110,644)
Proceeds from exercise of stock options,
including tax benefit 8,936 4,217 3,555
Issuances of common stock -- 671 15,212
Treasury stock purchased (1,160) (3,442) --
Treasury stock reissued 1,091 1,861 --
Payments of preferred stock dividends -- -- (2,103)
---------- ---------- ----------
Cash flows provided by
financing activities 4,306 1,768 2,462
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (10,227) 20,415 1,841
Cash and cash equivalents, beginning of year 24,106 3,691 1,850
Effect of SeaMED excluded period 2,027 -- --
---------- ---------- ----------
Cash and cash equivalents, end of year $ 15,906 $ 24,106 $ 3,691
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
22
<PAGE> 24
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Plexus Corp. provides product realization
services to original equipment manufacturers (OEMs) in the medical,
computer (primarily mainframes, servers and peripherals), industrial,
networking, telecommunications and transportation electronics
industries. The Company offers a full range of services including
product development and design services, material procurement and
management, prototyping, manufacturing and assembly, functional and
in-circuit testing, final system box build, distribution and
after-market support.
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 materials necessary for product assembly. Turnkey
services include material procurement and warehousing, in addition to
manufacturing, and involve greater resource investment than
consignment services. Turnkey manufacturing currently represents
almost all of the Company's sales.
Consolidation Principles: The consolidated financial statements
include the accounts of Plexus Corp. and its subsidiaries (together
"the Company"). All significant intercompany transactions have been
eliminated.
As described more fully in note 8 - "Merger and Acquisition," on July
23, 1999, SeaMED Corporation ("SeaMED"), a public company, was merged
into Plexus. The consolidated financial statements have been prepared
following the pooling of interests method of accounting for the merger
and therefore reflect the combined financial position, operating
results and cash flows of the two companies for all periods presented.
SeaMED had a June 30 fiscal year end. Prior to fiscal 1999, the
combined financial statements reflect Plexus' September 30 financial
position and results and SeaMED's June 30 financial position and
results. For fiscal 1999, the combined financial statements reflect
the October 1, 1998 through September 30, 1999 period for both
companies. SeaMED's results of operations and cash flows from July 1,
1998 to September 30, 1998, which have been excluded from these
consolidated financial statements, are reflected as adjustments in the
1999 consolidated statements of stockholders' equity and cash flows.
Net sales and net income for SeaMED for the excluded period from July
1, 1998 to September 30, 1998 were $19.4 million and $1.3 million,
respectively.
Cash Equivalents and Short-Term Investments: Cash equivalents are
highly liquid investments purchased with an original maturity of less
than three months. Short-term investments are investment-grade
short-term debt instruments with original maturities greater than
three months. Short-term investments are generally comprised of
securities with contractual maturities greater than one year but with
optional or early redemption provisions within one year.
Investments in debt securities are classified as "available-for-sale."
Such investments are recorded at fair value as determined from quoted
market prices, and the cost of securities sold is determined on the
specific identification method. If material, unrealized gains or
losses are reported as a component of comprehensive income or losses,
net of related tax effect. At September 30, 1999, 1998 and 1997, such
unrealized gains and losses were not material. In addition, there were
no realized gains or losses in fiscal 1999, 1998 and 1997.
Short-term investments as of September 30, 1999 and 1998 consist of
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
U.S. government and agency securities $ -- $ 5,517
State and municipal securities 13,675 --
U.S. corporate and bank debt 8,932 --
Other 2,000 --
-------- --------
$ 24,607 $ 5,517
======== ========
</TABLE>
Approximately $7.4 million and $0 of the total short-term investments
as of September 30 1999 and 1998, respectively, are included in cash
and cash equivalents.
Inventories: Inventories are valued primarily at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method.
23
<PAGE> 25
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Property, Plant and Equipment and Depreciation: These assets are
stated at cost. Depreciation, determined on the straight-line method,
is based on lives assigned to the major classes of depreciable assets
as follows:
<TABLE>
<S> <C>
Buildings and improvements 18-40 years
Machinery and equipment 3-10 years
</TABLE>
Revenue Recognition: Revenue is recognized primarily when products are
shipped. Revenue and profit relating to product design and development
contracts, which are short-term in duration, usually less than three
months, are recognized as costs are incurred utilizing the
percentage-of-completion method; any losses are recognized when
anticipated. Revenue from design and development contracts is less
than 10% of total revenue in fiscal 1999, 1998, and 1997. Progress
towards completion of product design and development contracts is
based on units of work for labor content and cost for component
content.
Income Taxes: Deferred income taxes are provided for differences
between the bases of assets and liabilities for financial and tax
reporting purposes.
Earnings Per Share: The computation of basic earnings per common share
is based upon the weighted average number of common shares outstanding
and net income reduced for preferred stock dividends. The computation
of diluted earnings per common share reflects additional dilution from
stock options and convertible preferred shares using the if-converted
method.
New Accounting Pronouncements: In March 1998, the American Institute
of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use", which specifies the accounting
treatment of computer software costs depending upon the type of costs
incurred. This SOP is effective for the Company's fiscal year 2000
financial statements and restatement of prior years will not be
required. The Company does not believe the adoption of this SOP will
have a significant impact on its financial position or results of
operations.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Fair Value of Financial Instruments: Cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and
accrued liabilities are reflected in the consolidated financial
statements at cost because of the short-term duration of these
instruments. The fair value of long-term debt closely approximates its
carrying value. The Company uses quoted market prices, when available,
or discounted cash flows to calculate these fair values.
Business and Credit Concentrations: Financial instruments that
potentially subject Plexus to concentrations of credit risk consist of
cash, cash equivalents, short-term investments and trade accounts
receivable. Plexus' cash, cash equivalents and short-term investments
are managed by recognized financial institutions which follow the
Company's investment policy. Such investment policy limits the amount
of credit exposure in any one issue and the maturity date of the
investment securities that typically comprise investment grade
short-term debt instruments. Concentrations of credit risk in accounts
receivable resulting from sales to major customers are discussed in
Note 11. Plexus at times requires advanced cash deposits for sales.
The Company also closely monitors extensions of credit and has not
experienced significant credit losses in the past.
Reclassifications: Certain amounts in prior years' consolidated
financial statements have been reclassified to conform to the 1999
presentation.
2. INVENTORIES
Inventories as of September 30, 1999 and 1998 consist of (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assembly parts $ 40,616 $ 34,965
Work-in-process 27,145 21,306
Finished goods 11,256 1,050
-------- --------
$ 79,017 $ 57,321
======== ========
</TABLE>
24
<PAGE> 26
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 1999 and 1998
consist of (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land, buildings and improvements $ 12,009 $ 10,792
Machinery and equipment 68,021 51,965
-------- --------
80,030 62,757
Less accumulated depreciation 44,162 36,240
-------- --------
$ 35,868 $ 26,517
======== ========
</TABLE>
4. DEBT
Long-term debt as of September 30, 1999 and 1998 consists of (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Notes and obligations with a weighted
average interest rate of 5.0% and 3.2%, respectively $ 152 $ 266
Unsecured subordinated note payable, paid in 1999 -- 493
Variable rate note payable, collateralized by equipment,
paid in 1999 -- 2,500
-------- --------
152 3,259
Less current portion 10 672
-------- --------
$ 142 $ 2,587
======== ========
</TABLE>
Revolving Credit Agreement: The Company's revolving credit agreement
provides for maximum borrowings of $40 million with all or a portion
of the principal bearing interest at a LIBOR based or a prime based
interest rate as elected by the Company. These rates are LIBOR plus
0.875% and prime less 0.25%. The credit agreement is unsecured and a
commitment fee of 0.125% per annum on the unused portion of this
agreement is payable quarterly. The agreement matures in July 2003.
The revolving credit agreement, as amended, includes covenants which
require the maintenance of various debt to net worth ratios. There
were no borrowings under this credit agreement at September 30, 1999.
Variable Rate Note Payable: During fiscal 1998, the Company borrowed
$2.5 million against a SeaMED equipment credit facility. Borrowings
under this agreement bear interest at LIBOR plus 1.4%. At September
30, 1998, the Company had an interest rate contract with a notional
principal amount of $2.5 million that effectively converts the
variable rate note payable to a fixed rate of 7.5%. This contract was
terminated during 1999 in conjunction with the pay down of the related
debt.
Cash paid for interest in fiscal 1999, 1998 and 1997 was $274,000,
$87,000, and $1.2 million, respectively.
5. INCOME TAXES
Income tax expense (benefit) for fiscal 1999, 1998 and 1997 consists
of (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal $ 14,465 $ 13,710 $ 11,332
State 3,151 2,244 1,739
-------- -------- --------
17,616 15,954 13,071
-------- -------- --------
Deferred:
Federal (1,695) (1,489) (990)
State (83) (120) (59)
-------- -------- --------
(1,778) (1,609) (1,049)
-------- -------- --------
$ 15,838 $ 14,345 $ 12,022
======== ======== ========
</TABLE>
25
<PAGE> 27
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Following is a reconciliation of the Federal statutory income tax rate
to the effective tax rates reflected in the consolidated statements of
operations for fiscal 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of Federal
income tax benefit 5.7 3.9 3.7
Non-deductible merger costs 3.1 -- --
Other, net -- 0.6 1.2
------ ------ ------
Effective income tax rate 43.8% 38.5% 38.9%
====== ====== ======
</TABLE>
The components of the net deferred income tax asset as of September
30, 1999 and 1998, consist of (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
Deferred tax assets:
<S> <C> <C>
Inventories $ 3,455 $ 2,448
Accrued benefits 1,331 1,450
Loss carryforwards 156 154
Other 2,044 1,296
-------- --------
6,986 5,348
Less valuation allowance (24) (21)
-------- --------
6,962 5,327
Deferred tax liabilities:
Property, plant and equipment 807 950
-------- --------
Net deferred income tax asset $ 6,155 $ 4,377
======== ========
</TABLE>
The Company records a valuation allowance to reflect the estimated
amount of deferred income tax assets which relate to income tax loss
carryforwards that are not expected to be realized.
Cash paid for income taxes in fiscal 1999, 1998 and 1997 was $16.3
million, $13.0 million and $13.5 million, respectively.
6. 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. On March 16, 1999 the
Plexus Corp. Board of Directors rescinded the Company's stock buyback
program in contemplation of the merger with SeaMED.
On July 17, 1997, the Company declared a two-for-one stock split
payable in the form of a stock dividend of one share of common stock
for every share of common stock outstanding. The new stock was issued
on August 25, 1997 to holders of record as of August 14, 1997. Share
and per share amounts, where required, have been restated to reflect
this stock split.
On February 28, 1997, the holders of the 7,000 shares of issued and
outstanding Plexus Corp. Series A Preferred Shares converted all such
shares, in accordance with their terms, into a total of 554,454
(pre-split) shares of the Company's common stock. In November 1996,
the Class A, B, C and D convertible redeemable preferred stock of
SeaMED was converted into a total of 586,806 (pre-split) shares of the
Company's common stock. Also issued was a warrant to purchase 15,626
(pre-split) shares of common stock. The warrant was exercised in March
1998 in a non-cash transaction which resulted in the issuance of
11,158 shares.
In November 1996, SeaMED completed an initial public offering of
305,944 (pre-split) shares of common stock. Net proceeds were $14.8
million (net of offering costs and underwriters discount of $2.0
million). SeaMED used $1.8 million of the proceeds to pay previously
undeclared cumulative dividends on its Class A and D convertible
redeemable preferred stock.
Income tax benefits attributable to stock options exercised are
recorded as an increase in additional paid-in capital.
26
<PAGE> 28
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. 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>
September 30,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 20,311 $ 22,937 $ 18,893
Less: Preferred stock dividends -- -- 312
-------- -------- --------
Income available to common $ 20,311 $ 22,937 $ 18,581
stockholders ======== ======== ========
Basic weighted average shares outstanding 17,323 16,844 15,366
======== ======== ========
BASIC EARNINGS PER SHARE $ 1.17 $ 1.36 $ 1.21
======== ======== ========
DILUTED EARNINGS PER SHARE:
Net income $ 20,311 $ 22,937 $ 18,893
======== ======== ========
Weighted average shares outstanding 17,323 16,844 15,366
Effect of dilutive securities:
Stock options 1,187 1,245 1,269
Stock warrants -- 9 9
Convertible preferred stock -- -- 914
-------- -------- --------
Diluted weighted average shares outstanding 18,510 18,098 17,558
======== ======== ========
DILUTED EARNINGS PER SHARE $ 1.10 $ 1.27 $ 1.08
======== ======== ========
</TABLE>
8. MERGER AND ACQUISITION
Merger: In July 1999, Plexus acquired SeaMED. Pursuant to the merger
agreement, SeaMED stockholders received 0.40 of a share of Plexus
common stock for each share of SeaMED common stock. Plexus issued
approximately 2.27 million shares of its common stock in exchange for
all outstanding common stock of SeaMED. SeaMED stock options
outstanding, as of the merger date, were exchanged for options to
acquire approximately 171,764 shares of Plexus common stock at the
same time. SeaMED is a provider of engineering and manufacturing
services, coupled with regulatory expertise, of advanced medical
instruments for medical technology companies. All merger costs and
other one-time expenses related to the SeaMED merger have been
expensed as required under the pooling of interests method of
accounting. Certain merger-related costs, which included charges
related to obsolete inventories and a loss on an engineering contract,
have been included in cost of sales in the consolidated statement of
operations. All such costs and expenses amounted to $6.0 million after
income taxes in fiscal 1999 and are reflected in the financial
statements as follows (in thousands):
<TABLE>
<S> <C>
Cost of sales $ 2,177
Plant closing, relocation and severance 981
Merger costs 4,557
--------
7,715
Less: income tax benefit 1,684
--------
Net merger and other one-time charges $ 6,031
========
</TABLE>
27
<PAGE> 29
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The results of operations previously reported by the separate
companies and the combined amounts presented in the accompanying
consolidated financial statements are reconciled below (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
June 30, 1999 1998 1997
-----------------------------------------------
(unaudited)
Net sales:
<S> <C> <C> <C>
Plexus $ 310,717 $ 396,815 $ 386,431
SeaMED 49,463 69,980 52,134
---------- ---------- ----------
Combined $ 360,180 $ 466,795 $ 438,565
========== ========== ==========
Net income:
Plexus $ 18,228 $ 19,235 $ 16,400
---------- ---------- ----------
SeaMED:
As previously reported (1,813) 4,139 2,726
Conforming accounting adjustments 401 (437) (233)
---------- ---------- ----------
Restated (1,412) 3,702 2,493
---------- ---------- ----------
Restated $ 16,816 $ 22,937 $ 18,893
========== ========== ==========
</TABLE>
The adjustments above conform SeaMED's method of accounting for
inventory with that of Plexus, net of related tax effect.
Acquisition: On September 1, 1999, Plexus Corp. purchased certain
printed circuit board assembly manufacturing assets from an unrelated
party. The manufacturing assets which consisted principally of
equipment and inventories were purchased at approximately fair market
value. The Company also leases a portion of a manufacturing facility
owned by the unrelated party which houses the printed circuit board
operations. The Company has agreed to acquire certain other assets
from the same unrelated party in fiscal 2000. The total purchase price
of the net assets acquired in fiscal 1999 and to be acquired in fiscal
2000 is not material to the assets or stockholders' equity of the
Company. Pro forma statements of operations for fiscal 1999 and 1998
reflecting this acquisition are not shown as they would not differ
materially from the reported results.
9. LEASE COMMITMENTS
The Company has a number of operating lease agreements primarily
involving manufacturing facilities, manufacturing equipment and
computerized design equipment. These leases are non-cancelable and
expire on various dates through 2014. Rent expense under all operating
leases for fiscal 1999, 1998 and 1997 was approximately $11.3 million,
$10.2 million and $11.5 million, respectively. Renewal and purchase
options are available on certain of these leases. The sale of
equipment obtained through the exercise of the purchase option on
certain leases resulted in miscellaneous income of $620,000 in fiscal
1997.
In April 1997, the Company began leasing a new 110,000-square-foot
manufacturing facility located in Green Bay, Wisconsin. The facility
was constructed and equipped by Oneida Nation Electronics (ONE), a
corporation chartered by the Oneida Tribe of Indians of Wisconsin. All
lease payments for the building and equipment are based on the
profitability of the facility pursuant to a formula defined in the
lease agreement. There are no required minimum lease payments.
Future minimum annual payments on operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
2000 $ 8,437
2001 5,632
2002 5,037
2003 5,001
2004 4,823
Thereafter 19,702
-------
$48,632
=======
</TABLE>
28
<PAGE> 30
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. BENEFIT PLANS
401(k) Savings Plans: The Company's 401(k) savings plans cover
substantially all eligible employees. The Company matches employee
contributions, based on years of service, up to 2.5% of eligible
earnings. The Company's contributions for fiscal 1999, 1998 and 1997
totaled $1.6 million, $1.4 million and $1.2 million, respectively.
Stock Option Plans: The Company has reserved 6.0 million shares of
common stock for grant to officers and key employees under an employee
stock option plan, of which 4.1 million shares have been granted. The
exercise price of each option granted shall not be less than the fair
market value on the date of grant and options vest over a three year
period from date of grant. The plan also authorizes the Company to
grant 600,000 stock appreciation rights, none of which have been
granted.
In connection with the SeaMED merger occurring in fiscal 1999 (see
note 8 - "Merger and Acquisition"), all of the options outstanding
under the former SeaMED stock option plans were assumed by the Company
and converted into options to purchase shares of the Company's Common
Stock on terms adjusted to reflect the Merger exchange ratio. Options
to acquire a total of 429,410 SeaMED shares were converted into
options to acquire a total of 171,764 Plexus shares. The SeaMED stock
option plans are similar to the Plexus plans above and options vest
over a four year period from date of grant. These plans have been
terminated; however, the outstanding options, as so adjusted, retain
all of the rights, terms and conditions of the respective plans under
which they were originally granted until their expiration.
Under a separate plan, each independent outside director is granted
1,500 stock options each December 1, with option pricing similar to
the employee plans. These options are fully vested upon grant and can
be exercised after a minimum six-month holding period. The 200,000
shares of common stock authorized under this plan may come from any
combination of authorized but unissued shares, treasury stock or the
open market.
A summary of the stock option activity follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
(IN THOUSANDS) EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Options outstanding at October 1, 1996 2,239 $ 6.13
Granted 698 $ 13.84
Canceled (34) $ 6.69
Exercised (667) $ 5.35
----------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1997 2,236 $ 8.76
Granted 406 $ 23.60
Canceled (43) $ 12.26
Exercised (281) $ 6.15
----------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1998 2,318 $ 11.62
Effect of SeaMED excluded period 31 $ 46.69
Granted 490 $ 30.58
Canceled (82) $ 32.42
Exercised (546) $ 7.61
----------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1999 2,211 $ 16.52
==========
OPTIONS EXERCISABLE AT:
SEPTEMBER 30, 1997 957 $ 6.02
========== ==========
SEPTEMBER 30, 1998 1,250 $ 7.40
========== ==========
SEPTEMBER 30, 1999 1,259 $ 10.42
========== ==========
</TABLE>
29
<PAGE> 31
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes outstanding stock option information at
September 30, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Range of Number Weighted Average Weighted Average Number Average
Exercise Prices Outstanding Exercise Price Remaining Life Exercisable Exercise Price
---------------- ----------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.25 - $ 7.50 704 $ 6.14 5.6 years 700 $ 6.14
$ 8.30 - $12.50 605 $11.81 6.8 years 397 $11.55
$18.50 - $29.00 365 $21.33 8.3 years 121 $21.38
$29.50 - $45.00 537 $32.17 8.8 years 41 $40.29
$ 1.25 - $45.00 2,211 $16.52 7.2 YEARS 1,259 $10.42
</TABLE>
The Company has elected to account for its stock option plans under
the guidelines of Accounting Principles Board Opinion No. 25.
Accordingly, no compensation cost related to the stock option plans
has been recognized in the consolidated statements of operations. Had
the Company recognized compensation expense based on the fair value at
the grant date for awards under the plans, the Company's net income
for fiscal 1999, 1998 and 1997 would have been reduced by
approximately $2.8 million, $2.9 million and $1.5 million,
respectively. Basic earnings per share would have been reduced by
$0.16, $0.17 and $0.10 in fiscal 1999, 1998 and 1997, respectively.
These pro forma results will not be representative of the impact in
future years because only grants made since October 1, 1995 were
considered.
The weighted average fair value of options granted per share during
fiscal 1999, 1998 and 1997 is $16.82, $13.21, $6.62, respectively. The
fair value of each option grant is estimated at the date of grant
using the Black-Scholes prorated straight line option-pricing method
with the following assumption ranges: 45% to 61% volatility, risk free
interest rates ranging from 4.1% to 6.6%, expected option life of 4.5
to 6.0 years, and no expected dividends.
Deferred Compensation Plan: In September 1996, the Company entered
into agreements with certain of its officers under a nonqualified
deferred compensation plan. Under the plan, the Company has agreed to
pay certain amounts annually for the first 15 years subsequent to
retirement or to a designated beneficiary upon death. It is
management's intent that life insurance contracts owned by the Company
will fund this plan. Expense for this plan totaled $361,000, $343,000
and $315,000 in fiscal 1999, 1998, and 1997, respectively.
Other: The Company is not obligated to provide any post-retirement
medical or life insurance benefits to employees.
11. BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosure about Segments of an Enterprise and
Related Information" in fiscal 1999. SFAS No. 131 establishes
standards for the way public business enterprises are to report
information about operating segments in annual financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic area and major
customers.
The Company and its subsidiaries operate in one business segment, the
production and sale of electronic products including the designing,
manufacturing, programming and testing of computerized electronic
assemblies. Additionally all of the Company's operations are located
in the United States.
The following table summarizes the percentage of net sales to
customers that account for more than 10% of net sales in fiscal 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Lucent Technologies Inc. 16% * *
General Electric Company 12% * 11%
International Business Machines Corporation * * 10%
</TABLE>
(* represents sales less than 10%)
Accounts receivable related to Lucent and General Electric represent
14% and 7%, respectively, of the Company's trade accounts receivable
as of September 30, 1999.
30
<PAGE> 32
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1999 and 1998 consists
of (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Total
------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $120,585 $119,165 $120,430 $132,234 $492,414
Gross profit 16,904 16,828 13,714 18,963 66,409
Net income 6,825 6,265 3,726 3,495 20,311
Earnings per share
Basic $ 0.40 $ 0.36 $ 0.21 $ 0.20 $ 1.17
Diluted $ 0.37 $ 0.34 $ 0.20 $ 0.19 $ 1.10
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Total
------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $111,935 $113,948 $116,827 $124,085 $466,795
Gross profit 12,426 14,104 15,870 17,747 60,147
Net income 4,462 5,128 6,207 7,140 22,937
Earnings per share
Basic $ 0.26 $ 0.30 $ 0.37 $ 0.42 $ 1.36
Diluted $ 0.24 $ 0.29 $ 0.34 $ 0.40 $ 1.27
</TABLE>
Earnings per share is computed independently for each quarter. The
annual per share amount may not equal the sum of the quarterly amounts
due to rounding.
31
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Plexus Corp.:
Our audits of the consolidated financial statements of Plexus Corp. and
subsidiaries referred to in our report dated October 26, 1999 (which is
included on page 18 of the Form 10-K) also included an audit of the financial
schedules listed in the index on page 17 of this Form 10-K. In our opinion,
these financial statement schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 26, 1999
32
<PAGE> 34
PLEXUS CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS BALANCE AT END
DESCRIPTIONS PERIOD AND EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 993(1) $ 319 $ 539 $ 773
Allowance for inventory obsolescence (deducted
from the asset to which it relates)
5,685(1) 3,011 1,836 6,860
-------- -------- -------- --------
$ 6,678 $ 3,330 $ 2,375 $ 7,633
======== ======== ======== ========
1998:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates)
$ 738 $ 454 $ 181 $ 1,011
Allowance for inventory obsolescence
(deducted from the asset to which it relates) 4,495 3,638 2,567 5,566
-------- -------- -------- --------
$ 5,233 $ 4,092 $ 2,748 $ 6,577
======== ======== ======== ========
1997:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates)
$ 527 $ 227 $ 16 $ 738
Allowance for inventory obsolescence
(deducted from the asset to which it relates) 1,864 4,684 2,053 4,495
-------- -------- -------- --------
$ 2,391 $ 4,911 $ 2,069 $ 5,233
======== ======== ======== ========
</TABLE>
- ------------------
(1) These balances do not agree to the prior year-end balances as they include
the effects of the SeaMED Corporation excluded period (see Note 1 to Notes
to Consolidated Financial Statements). The net effect of the SeaMED
excluded period on allowance for losses on accounts receivable and
inventory obsolescence was ($18,000) and $119,000, respectively.
33
<PAGE> 35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors SeaMED Corporation
We have audited the balance sheet of SeaMED Corporation as of June 30, 1998 and
the related statements of income, shareholders' equity, and cash flows for each
of the two years in the period ended June 30, 1998 (not presented separately
herein). These financial statements and related schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and schedules referred to above
present fairly, in all material respects, the financial position of SeaMED
Corporation as of June 30, 1998 and the results of its operations and its cash
flows for each of the two years in the period ended June 30, 1998, in
conformity with generally accepted accounting principals.
ERNST & YOUNG LLP
Seattle, Washington
August 13, 1998
34
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
By: PLEXUS CORP. (Registrant)
/s/ Peter Strandwitz
--------------------
Peter Strandwitz, Chairman
December 22, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Peter Strandwitz, John L. Nussbaum and
Joseph D. Kaufman, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same will all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and any other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirement of the Security Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.*
SIGNATURE AND TITLE
<TABLE>
<S> <C>
/s/ Peter Strandwitz /s/ David J. Drury
- ------------------------------------------------------------ --------------------------------------------------
Peter Strandwitz, Chairman and Chief Executive Officer, David J. Drury, Director
and Director
/s/ John L. Nussbaum /s/ Harold R. Miller
- ------------------------------------------------------------ --------------------------------------------------
John L. Nussbaum, President and Chief Operating Officer, Harold R. Miller, Director
and Director
/s/ Thomas B. Sabol /s/ Gerald A. Pitner
- ------------------------------------------------------------ --------------------------------------------------
Thomas B. Sabol, Vice President-Finance and Chief Gerald A. Pitner, Director
Financial Officer
/s/ Lisa M. Kelley /s/ Thomas J. Prosser
- ------------------------------------------------------------ --------------------------------------------------
Lisa M. Kelley, Treasurer and Chief Accounting Officer Thomas J. Prosser, Director
/s/ Jan Ver Hagen
--------------------------------------------------
Jan Ver Hagen, Director
</TABLE>
* Each of the above signatures is affixed as of December 22, 1999.
35
<PAGE> 37
EXHIBIT INDEX
PLEXUS CORP.
10-K FOR YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
INCORPORATED BY FILED
EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH
----------- ------- --------------- --------
<S> <C> <C> <C>
3(i) Restated Articles of Plexus Corp., as Exhibit 3(i) to Plexus' Report on
amended through August 13, 1998 Form 10-K for the year ended
September 30, 1998 ("1998 10-K")
3(ii) Bylaws of Plexus Corp., as amended Exhibit 3(ii) to Plexus' Report on
through November 14, 1996 Form 10-K for the year ended
September 30, 1996 ("1996 10-K")
4.1 Restated Articles of Incorporation of Exhibit 3(i) above
Plexus Corp.
4.2 Shareholder Rights Agreement, dated as Exhibit 4.1 to Plexus' Report on
of August 13, 1998 between Plexus and Form 8-K dated August 13, 1998 (the
Firstar Trust Company as Rights Agent "8/13/98 8-K")
4.3 Form of Rights Certificate Exhibit 4.2 to 8/13/98 8-K
10.1 Supplemental Executive Retirement
Agreements dated as of September 19,
1996**
(a) Peter Strandwitz Exhibit 10.1(a) to 1996 10-K
(b) John Nussbaum Exhibit 10.1(b) to 1996 10-K
(c) Gerald Pitner Exhibit 10.1(c) to Plexus'
Report on Form 10-K for the
year ended September 30, 1997
("1997 10-K")
10.2 Change of Control Agreements dated
August 1, 1998 with **
(a) Peter Strandwitz Exhibit 10.2(a) to 1998 10-K
John L. Nussbaum
Thomas B. Sabol
Charles C. Williams
Joseph D. Kaufman
Dean A. Foate
J. Robert Kronser
(b) Lisa M. Kelley Exhibit 10.2(b) to 1998 10-K
10.3 Employee Savings Plan and Trust**:
(a) Plan Document Exhibit 10.3(a) to 1996 10-K
(b) Non-Standardized Form Adoption Agreement Exhibit 10.3(b) to 1996 10-K
</TABLE>
36
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
10.4 Plexus Corp. 1998 Option Plan** Exhibit A to the Registrant's
definitive proxy statement for its
1998 Annual Meeting of Shareholders
10.5(a) Credit Agreement dated as of March 20, Exhibit 10.5(a) to 1997 10-K
1997 among Firstar Bank Milwaukee,
National Association, Harris Trust and
Savings Bank, and Bank One, Wisconsin
(the "Credit Agreement")*
(b) Corporate Guarantee Agreements related Exhibits 10.5(b)(i) and (ii) to
thereto dated as of March 20, 1997 by 1997 10-K
Electronic Assembly Corporation ("EAC")
and Technology Group, Inc.
10.6(a) Lease Agreement between Neenah (WI) QRS Exhibit 10.8(a) to Plexus' Report
11-31, Inc. ("QRS: 11-31") and EAC, on Form 10-K for the year ended
dated August 11, 1994* September 30, 1994 ("1994 10-K")
(b) Guaranty and Suretyship Agreement Exhibit 10.8(c) to 1994 10-K
between Plexus Corp. and QRS: 11-31
dated August 11, 1994, together with
related Guarantor's Certificate of
Plexus Corp.
10.7 Plexus Corp. 1995 Directors' Stock Exhibit 10.10 to 1994 10-K
Option Plan**
10.8 Plexus Corp. 1998 Management Incentive Exhibit 10.10 to 1997 10-K
Compensation Plan**
10.9 Lease Agreement dated February 12, 1996 Exhibit 10.16 to Plexus' Quarterly
between Plexus and Oneida Nation Report on Form 10-Q for the quarter
Electronics ended March 31, 1996
10.10 Agreement and Plan of Merger between Exhibit 2.1 to Plexus' Quarterly
Plexus Corp. and SeaMED Corporation and Report on Form 10-Q for the quarter
PS Acquisition Corp. dated as of March ended March 31, 1999
16, 1999
21 List of Subsidiaries X
23 Consent of PricewaterhouseCoopers LLP X
24 Power of Attorney (Signature Page
Hereto)
27 Financial Data Schedules X
</TABLE>
- ----------------------
* Excludes certain schedules and/or exhibits, which will be furnished to the
Commission upon request.
** Designates management compensatory plans or agreements.
37
<PAGE> 1
EXHIBIT 21
PLEXUS 1999 10-K
SUBSIDIARIES OF PLEXUS CORP.
1. Electronic Assembly Corporation, a Wisconsin corporation
2. Technology Group Inc., a Wisconsin corporation
3. SeaMED Corporation, a Washington corporation
<PAGE> 1
PLEXUS 1999 10-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Plexus Corp. and subsidiaries on Form S-8 (File No.'s 333-06469, 333-76245,
333-84583, 33-23490, 33-28309, 33-56932, 33-89862 and 33-89864) and on Form S-3
(File No. 333-880957) of Plexus Corp. and subsidiaries of our reports dated
October 26, 1999 relating to the consolidated financial statements and the
financial statement schedules which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
December 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 15,906
<SECURITIES> 17,224
<RECEIVABLES> 70,091
<ALLOWANCES> 773
<INVENTORY> 79,017
<CURRENT-ASSETS> 191,397
<PP&E> 80,030
<DEPRECIATION> 44,162
<TOTAL-ASSETS> 229,636
<CURRENT-LIABILITIES> 80,986
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 146,228
<TOTAL-LIABILITY-AND-EQUITY> 229,636
<SALES> 492,414
<TOTAL-REVENUES> 492,414
<CGS> 426,005
<TOTAL-COSTS> 426,005
<OTHER-EXPENSES> 29,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 36,149
<INCOME-TAX> 15,838
<INCOME-CONTINUING> 20,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,311
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 24,106
<SECURITIES> 5,517
<RECEIVABLES> 62,633
<ALLOWANCES> 1,011
<INVENTORY> 57,321
<CURRENT-ASSETS> 155,844
<PP&E> 62,757
<DEPRECIATION> 36,240
<TOTAL-ASSETS> 184,354
<CURRENT-LIABILITIES> 64,685
<BONDS> 0
0
0
<COMMON> 170
<OTHER-SE> 115,693
<TOTAL-LIABILITY-AND-EQUITY> 184,354
<SALES> 466,795
<TOTAL-REVENUES> 466,795
<CGS> 406,648
<TOTAL-COSTS> 406,648
<OTHER-EXPENSES> 22,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 37,282
<INCOME-TAX> 14,345
<INCOME-CONTINUING> 22,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,937
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,691
<SECURITIES> 6,204
<RECEIVABLES> 57,181
<ALLOWANCES> 738
<INVENTORY> 57,634
<CURRENT-ASSETS> 128,887
<PP&E> 50,950
<DEPRECIATION> 27,931
<TOTAL-ASSETS> 152,453
<CURRENT-LIABILITIES> 58,343
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 89,236
<TOTAL-LIABILITY-AND-EQUITY> 152,453
<SALES> 438,565
<TOTAL-REVENUES> 438,565
<CGS> 387,333
<TOTAL-COSTS> 387,333
<OTHER-EXPENSES> 19,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,014
<INCOME-PRETAX> 30,915
<INCOME-TAX> 12,022
<INCOME-CONTINUING> 18,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,893
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.08
</TABLE>
