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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended December 31, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 000-14824
PLEXUS CORP.
(Exact name of registrant as specified in charter)
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<S> <C>
Wisconsin 39-1344447
(State of Incorporation) (IRS Employer Identification No.)
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55 Jewelers Park Drive
Neenah, Wisconsin 54957-0156
(Address of principal executive offices) (Zip Code)
Telephone Number (920) 722-3451
(Registrant's telephone number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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Yes x No
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As of February 7, 2000 there were 17,737,124 of Common Stock of the
Company outstanding.
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PLEXUS CORP.
TABLE OF CONTENTS
December 31, 1999
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PART I. FINANCIAL INFORMATION.............................................................................. 3
Item 1. Consolidated Financial Statements......................................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS........................................... 3
CONDENSED CONSOLIDATED BALANCE SHEETS..................................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS........................................... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 8
GENERAL................................................................................... 8
YEAR 2000 ISSUES.......................................................................... 10
RESULTS OF OPERATIONS..................................................................... 11
LIQUIDITY AND CAPITAL RESOURCES........................................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................ 13
PART II. OTHER INFORMATION.................................................................................. 13
Item 6. Exhibits and Reports on Form 8-K.......................................................... 13
SIGNATURE.................................................................................................. 13
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited
[CAPTION]
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Three Months Ended
December 31,
--------------------------
1999 1998
---- ----
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Net sales $147,094 $120,585
Cost of sales 126,545 103,681
-------- --------
Gross profit 20,549 16,904
Selling and administrative expenses 7,162 6,069
-------- --------
Operating income 13,387 10,835
Other income (expense):
Interest expense (2) (85)
Miscellaneous 372 466
-------- --------
Income before income taxes 13,757 11,216
Income taxes 5,503 4,391
-------- --------
Net income $ 8,254 $ 6,825
======== ========
Earnings per share:
Basic $ 0.47 $ 0.40
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Diluted $ 0.44 $ 0.37
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Weighted average shares outstanding:
Basic 17,591 17,088
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Diluted 18,739 18,345
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See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited
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December 31, September 30,
1999 1999
------------ -------------
ASSETS
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Current assets:
Cash and cash equivalents $ 25,678 $ 15,906
Short-term investments 2,527 17,224
Accounts receivable, net of allowance
of $782 and $1,100, respectively 73,434 69,318
Inventories 82,327 79,017
Deferred income taxes 6,515 6,370
Prepaid expenses and other 3,485 3,562
-------- --------
Total current assets 193,966 191,397
Property, plant and equipment, net 37,838 35,868
Other 2,608 2,371
-------- --------
Total assets $234,412 $229,636
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10 $ 10
Accounts payable 49,621 55,928
Customer deposits 7,411 8,650
Accrued liabilities:
Salaries and wages 8,914 9,820
Other 9,867 6,578
-------- --------
Total current liabilities 75,823 80,986
Long-term debt 139 142
Deferred income taxes 104 215
Other liabilities 2,106 1,890
Stockholders' equity:
Preferred stock $.01 par value, 5,000 shares
authorized, none issued or outstanding -- --
Common stock, $.01 par value, 60,000 shares
authorized, 17,638 and 17,545 issued,
respectively 176 175
Additional paid-in capital 53,007 51,425
Retained earnings 103,057 94,803
-------- --------
156,240 146,403
-------- --------
Total liabilities and stockholders' equity $234,412 $229,636
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See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
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Three Months Ended
December 31,
------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,254 $ 6,825
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 3,109 2,342
Deferred income taxes (256) (482)
Changes in assets and liabilities:
Accounts receivable (4,116) (883)
Inventories (3,310) 818
Prepaid expenses and other 77 (316)
Accounts payable (6,307) (1,574)
Customer deposits (1,239) (369)
Accrued liabilities 2,383 (319)
Other 98 (48)
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Cash flows provided by (used in) operating activities (1,307) 5,994
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (18,441) (2,344)
Sales and maturities of short-term investments 33,138 --
Payments for property, plant and equipment (5,205) (3,117)
Other 6 16
--------- ---------
Cash flows provided by (used in) investing activities 9,498 (5,445)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (2) (213)
Proceeds from exercise of stock options, including tax benefit 1,583 2,270
Treasury stock purchased -- (74)
Treasury stock reissued -- 505
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Cash flows provided by financing activities 1,581 2,488
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Net increase in cash and cash equivalents 9,772 3,037
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Cash and cash equivalents:
Beginning of period 15,906 24,106
Effect of SeaMED excluded period -- 2,027
--------- ---------
End of period $ 25,678 $ 29,170
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See notes to condensed consolidated financial statements
5
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PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company without audit and pursuant to the rules and
regulations of the United States Securities and Exchange Commission. In the
opinion of the Company, the financial statements reflect all adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
financial position of Plexus Corp. at December 31, 1999 and the results of
operations for the three months ended December 31, 1999 and 1998 and the cash
flows for the same three-month periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC rules and
regulations dealing with interim financial statements. However, the Company
believes that the disclosures made in the condensed consolidated financial
statements included herein are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Annual Report.
The condensed consolidated balance sheet data at September 30, 1999 was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2 - INVENTORIES
The major classes of inventories are as follows (in thousands):
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December 31, September 30,
1999 1999
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Assembly parts $51,850 $40,616
Work-in-process 24,672 27,145
Finished goods 5,805 11,256
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$82,327 $79,017
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NOTE 3 - EARNINGS PER SHARE
The following is a reconciliation of the amounts utilized in the
computation of basic and diluted earnings per share (in thousands except per
share amounts):
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Three Months Ended
December 31,
------------------
1999 1998
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BASIC EARNINGS PER SHARE:
Net income $ 8,254 $ 6,825
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Basic weighted average shares outstanding 17,591 17,088
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BASIC EARNINGS PER SHARE $ 0.47 $ 0.40
======= =======
DILUTED EARNINGS PER SHARE:
Net income $ 8,254 $ 6,825
======= =======
Weighted average shares outstanding 17,591 17,088
Effect of dilutive securities:
Stock options 1,148 1,257
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Diluted weighted average shares outstanding 18,739 18,345
======= =======
DILUTED EARNINGS PER SHARE $ 0.44 $ 0.37
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NOTE 4 - MERGER AND ACQUISITIONS
MERGER: In July 1999, the Company completed its merger with SeaMED in a
transaction accounted for as a pooling of interests. Accordingly results for
the first quarter of fiscal 1999 have been restated to combine the results of
operations of both Plexus and SeaMED.
ACQUISITIONS: In September 1999, the Company acquired certain printed
circuit board assembly assets in the Chicago, Illinois area, in exchange for
cash. In addition, on December 31, 1999 the Company acquired certain printed
circuit board assembly assets in the Seattle, Washington area, in exchange for
cash. The total purchase price of the net assets acquired in each of the
transactions was not material to the assets, stockholders' equity, or the
operations of the Company. Both acquisitions were accounted for as purchase
transactions, and results from the operation of the acquired assets are
reflected only from the dates of the acquisitions. Pro forma statements of
operations reflecting these acquisition are not shown, as they would not differ
materially from reported results.
NOTE 5 - RECLASSIFICATIONS
Certain amounts in the prior year's consolidated financial statements have
been reclassified to conform to the fiscal 2000 presentation
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Management's Discussion and Analysis of Financial Condition and Results of
Operations, with the exception of historical matters, contains forward-looking
statements (such as statements in the future tense and statements including
"believe", "expect", "intend", "plan", "look forward to", "anticipate" and
similar terms) are forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from these statements as a
result of various factors, including those discussed in further detail below (in
particular "General").
GENERAL
Plexus Corp. is a contract service provider of design, manufacturing and
testing services to the electronics industry, headquartered in Neenah,
Wisconsin. Through its wholly owned subsidiaries, Plexus Technology Group,
Inc., 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, the Company becomes
subject to more inventory management issues, and 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 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 from 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
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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 the quarter ending December
31, 1999, less than 3 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.
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. In recent periods, a higher percentage of
the Company's sales have been sales to its largest customers, which may increase
the Company's dependence upon them. 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 15 to 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
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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 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.
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 developed a Year 2000 compliance strategy
and methodology ("Year 2000 Compliant") to assure the Company can continue to
provide engineering and manufacturing services in the year 2000 and beyond.
The Company was successful entering the Year 2000. No mission critical
issues were impacted, including the Company's A/S400 hardware and software
system, which handles virtually all production data processing and accounting.
To date, the Company also has not experienced material effects from the failure
of suppliers or customers to be Year 2000 compliant.
The Company has established contingency plans to address and prioritize
business recovery and resumption activities of critical functions should
unexpected failures yet occur. The plan will continue to be updated as necessary
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
were mostly current internal labor expenses and were not material to the
Company's results. 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.
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RESULTS OF OPERATIONS
In July 1999, the Company completed its merger with SeaMED in a transaction
accounted for as a pooling of interests. Accordingly results for the first
quarter of fiscal 1999 have been restated to combine the results of operations
of both Plexus and SeaMED; the results of other acquisitions, which were
accounted for using purchase accounting, are reflected only from the dates of
acquisition.
NET Sales
Net sales for the three months ended December 31, 1999, increased
22 percent to $147.1 million from $120.6 million for the same period in the
prior fiscal year. The increase in net sales was due primarily to increased
shipments to both existing and new customers obtained through internal growth
and the Illinois asset acquisition. The Company experienced growth primarily in
the Networking/telecom, Medical and Industrial industries, offset somewhat by
a reduction in sales to the Computer industry and reduced sales volumes at its
SeaMED subsidiary. Growth was more pronounced in the Networking/telecom
industry, primarily with increased sales to Lucent Technologies, Inc. (Lucent)
and a number of smaller, well-funded companies. The Company believes that its
overall sales growth reflects the continuing trend towards outsourcing within
the electronics industry.
Sales for the quarter ending December 31, 1999 and 1998, respectively, by
industry were as follows: Networking/telecom 33 percent (20 percent), Medical 30
percent (33 percent), Industrial 21 percent (25 percent), Computer 9 percent (14
percent), Transportation 6 percent (7 percent), and Other 1 percent (1 percent).
The Company currently expects the percentage of sales to the Networking/telecom
industry to continue to grow in fiscal 2000.
The Company's largest customers for the quarter ending December 31, 1999
were Lucent and General Electric Company (GE) which accounted for 25 percent and
12 percent of net sales, respectively. The Company's largest customers for the
quarter ending December 31, 1998 were Lucent and GE which accounted for
12 percent and 11 percent of net sales, respectively. No other customers
accounted for more than 10 percent of the Company's sales for the three months
ended December 31, 1999 or 1998. Sales to the Company's ten largest customers
accounted for 69 percent for the three months ended December 31, 1999 compared
to 58 percent for the same period in fiscal 1999 and 61 percent for all of
fiscal 1999. 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 increased to $20.5 million, or 22 percent, for the three
months ended December 31, 1999 from $16.9 million for the same period in the
prior fiscal year. The gross margin remained steady at 14.0 percent for the
three months ended December 31, 1999 and 1998, compared to 13.5 percent for all
of fiscal 1999.
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. Overall gross margins continue to be affected by SeaMED's reduced
sales volume; the effect of which may continue until synergies and efficiencies
are realized and SeaMED's cost structure is aligned with its reduced sales
volume, or until sales volumes increase. 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.
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SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative (S&A) expenses increased to $7.2 million for the
three months ended December 31, 1999, compared to $6.1 million for the
comparable prior fiscal year period. As a percentage of sales, S&A expenses were
4.9 percent and 5.0 percent for the first quarter of fiscal 2000 and 1999,
respectively, compared to 5.4 percent for all of fiscal 1999. The increases in
absolute dollars reflect the Company's planned increases in its sales and
marketing efforts and information systems support. The Company anticipates that
future S&A expenses will increase in absolute dollars but remain approximately
5.0 percent of sales, as the Company continues to expand these support areas.
INCOME TAXES
Income taxes increased to $5.5 million for the three months ended
December 31, 1999 compared to $4.4 million in the comparable period in
fiscal 1999, as a result of increased earnings. The Company's effective income
tax rate has remained constant at rates between 38 percent to 40 percent. These
rates approximate the blended Federal and state statutory rate as a result of
the Company's operations being located within the United States.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $1.3 million for the three
months ended December 31, 1999 compared to $6.0 million of cash flows provided
by operations in the comparable period in fiscal 1999. Cash from operations was
used primarily to support increased sales resulting in increased accounts
receivable. In addition, the increase in the Company's inventory levels are due
to the Company's decision to maintain an ample supply of components going
forward in view of the tightening of certain component markets, as well as to
support anticipated future sales growth. During the quarter, annualized
inventory turnover improved to 6.1 turns as of December 31, 1999, from 5.7 turns
as of December 31, 1998 but decreased slightly from 6.2 turns for all of fiscal
1999.
Cash flows from investing activities totaled $9.5 million and was provided
primarily from net sales of short- term investments slightly offset by purchases
of additional manufacturing equipment.
The Company utilizes available cash, debt and operating leases to fund its
manufacturing equipment needs. The Company utilizes operating leases primarily
in situations where technical obsolescence concerns are determined to outweigh
the benefits of financing the equipment purchase. Absent significant
acquisitions, 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
would likely be required.
Cash flows provided by financing activities totaled $1.6 million for the
three months ended December 31, 1999, primarily representing the proceeds and
tax benefit from the exercise of stock options. There have been no borrowings
under the Company's revolving credit agreement since October 1, 1997. The ratio
of total debt-to-equity as of December 31, 1999 was 0.5 to 1 compared to 0.6
to 1 as of September 30, 1999.
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.
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The Company has not paid dividends on its common stock, but has reinvested
its earnings to support its working capital and expansion requirements.
The Company intends to continue to utilize its earnings in the development and
expansion of the business and does not expect to pay cash dividends in the
foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities may
include forward-looking statements that involve risk and uncertainties. Actual
results could differ materially from those discussed.
The Company has financial instruments, including 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 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
quarter December 31, 1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
2/11/2000 /s/ Peter Strandwitz
- --------- ---------------------------
Date Peter Strandwitz
Chairman and CEO
2/11/2000 /s/ Thomas B. Sabol
- --------- ---------------------------
Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
13
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