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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 June 30, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-14824
PLEXUS CORP.
(Exact name of registrant as specified in charter)
Wisconsin 39-1344447
(State of Incorporation) (IRS Employer Identification No.)
55 Jewelers Park Drive
Neenah, Wisconsin 54957-0156
(Address of principal executive offices)(Zip Code)
Telephone Number (920) 722-3451
(Registrant's telephone number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
-----
As of August 8, 2000 there were 18,403,887 of Common Stock of the
Company outstanding.
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PLEXUS CORP.
TABLE OF CONTENTS
June 30, 2000
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION....................................................................................3
Item 1. Consolidated Financial Statements...............................................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.................................................3
CONDENSED CONSOLIDATED BALANCE SHEETS...........................................................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........9
GENERAL.........................................................................................9
RESULTS OF OPERATIONS..........................................................................12
LIQUIDITY AND CAPITAL RESOURCES................................................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................15
PART II - OTHER INFORMATION......................................................................................15
Item 2. Changes in Securities and Use of Proceeds......................................................15
Item 5. Other Information..............................................................................15
Item 6. Exhibits and Reports on Form 8-K...............................................................16
SIGNATURE........................................................................................................18
</TABLE>
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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
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $193,187 $ 120,430 $ 502,275 $ 360,180
Cost of sales 165,168 106,716 430,604 312,734
------- ------- ------- --------
Gross profit 28,019 13,714 71,671 47,446
Operating expenses:
Selling and administrative expenses 9,324 7,107 24,487 19,863
Amortization of goodwill 222 - 222 -
Acquisition costs 1,062 - 1,062 -
Plant closing, relocation and severance - 528 - 765
---------- ----------- ----------- -----------
Total operating expenses 10,608 7,635 25,771 20,628
-------- --------- -------- ---------
Operating income 17,411 6,079 45,900 26,818
Other income (expense):
Interest expense (431) (102) (435) (253)
Other 531 625 1,388 1,680
---------- ---------- --------- ----------
Income before income taxes 17,511 6,602 46,853 28,245
Income taxes 7,093 2,876 18,830 11,430
--------- --------- -------- ----------
Net income $ 10,418 $ 3,726 $ 28,023 $ 16,815
======== ========= ========= ==========
Earnings per share:
Basic $ 0.57 $ 0.21 $ 1.57 $ 0.97
======== ========= ========= ==========
Diluted $ 0.53 $ 0.20 $ 1.46 $ 0.91
======== ========= ========= ==========
Weighted average shares outstanding:
Basic 18,282 17,433 17,870 17,264
============= ============ ============= =============
Diluted 19,651 18,583 19,162 18,492
============= ============ ============= =============
</TABLE>
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
--------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,671 $ 15,906
Short-term investments 3,051 17,224
Accounts receivable, net of allowance of $909
and $1,164, respectively 110,932 69,318
Inventories 169,467 79,017
Deferred income taxes 8,388 6,370
Prepaid expenses and other 4,291 3,562
------------- ------------
Total current assets 301,800 191,397
Property, plant and equipment, net 62,424 35,868
Goodwill, net 26,407 -
Other 2,623 2,371
------------- ------------
Total assets $ 393,254 $ 229,636
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,460 $ 10
Accounts payable 113,304 55,928
Customer deposits 8,707 8,650
Accrued liabilities:
Salaries and wages 14,444 9,820
Other 12,731 6,578
------------- -------------
Total current liabilities 155,646 80,986
Long-term debt 46,893 142
Deferred income taxes 477 215
Other liabilities 2,531 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
18,350 and 17,545 issued and outstanding, respectively 184 175
Additional paid-in capital 63,119 51,425
Retained earnings 124,404 94,803
------------- -----------
187,707 146,403
------------- ----------
Total liabilities and stockholders' equity $ 393,254 $ 229,636
============= ===========
</TABLE>
See notes to condensed consolidated financial statements
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PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
----------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,023 $ 16,815
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 10,630 7,153
Deferred income taxes (1,798) (1,721)
Changes in assets and liabilities:
Accounts receivable (28,684) 3,306
Inventories (75,202) (8,429)
Prepaid expenses and other (300) (3,798)
Accounts payable 49,058 7,395
Customer deposits 57 650
Accrued liabilities 9,811 863
Other 423 (201)
--------- ---------
Cash flows (used in) provided by operating activities (7,982) 22,033
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (48,042) (152,506)
Maturity of investments 62,215 127,512
Payments for property, plant and equipment (24,771) (9,815)
Payments for business acquisition (54,399) -
Other 51 176
--------- ---------
Cash flows used in investing activities (64,946) (34,633)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 96,495 -
Payments on debt (45,505) (788)
Proceeds from exercise of stock options 5,697 2,933
Tax benefit from stock options exercised 6,006 3,873
Issuance of common stock - 649
Treasury stock purchased - (1,159)
Treasury stock reissued - 1,372
--------- ---------
Cash flows provided by financing activities 62,693 6,880
--------- ---------
Net decrease in cash and cash equivalents (10,235) (5,720)
--------- ---------
Cash and cash equivalents:
Beginning of period 15,906 24,106
Effect of SeaMED excluded period - 2,027
--------- ---------
End of period $ 5,671 $ 20,413
========= =========
</TABLE>
See notes to condensed consolidated financial statements
5
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PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by Plexus Corp. ("Plexus" or 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 the Company at June 30,
2000 and the results of its operations and its cash flows for the three months
and nine months ended June 30, 2000 and 1999.
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):
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------- --------
<S> <C> <C>
Assembly parts $114,650 $ 40,616
Work-in-process 49,149 27,145
Finished goods 5,668 11,256
-------- --------
$169,467 $ 79,017
======== ========
</TABLE>
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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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 10,418 $ 3,726 $ 28,023 $16,815
========= ======== ========== =======
Weighted average shares outstanding 18,282 17,433 17,870 17,264
========= ======== ========== =======
BASIC EARNINGS PER SHARE $ 0.57 $ 0.21 $ 1.57 $ 0.97
========= ======== ========== =======
DILUTED EARNINGS PER SHARE:
Net income $ 10,418 $ 3,726 $ 28,023 $16,815
========= ======== ========== =======
Weighted average shares outstanding 18,282 17,433 17,870 17,264
Effect of dilutive securities:
Stock options 1,369 1,150 1,292 1,228
--------- -------- ---------- -------
Diluted weighted average shares outstanding 19,651 18,583 19,162 18,492
========= ======== ========== =======
DILUTED EARNINGS PER SHARE $ 0.53 $ 0.20 $ 1.46 $ 0.91
========= ======== ========== =======
</TABLE>
NOTE 4 - MERGER AND ACQUISITIONS
Merger: In July 1999, the Company completed its merger with SeaMED
Corporation (SeaMED) in a transaction accounted for as a pooling of interests.
Accordingly results for the periods presented for 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 the results from the operations 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.
On April 28, 2000, the Company completed its acquisition of Agility,
Incorporated a privately-held, Boston-area electronic manufacturing services
provider for stock through the issuance of 374,997 shares of Plexus Corp. common
stock. The transaction is being accounted for as a pooling of interests. Pro
forma statements of operations reflecting this acquisition are not shown and
prior results are not restated, as they would not differ materially from
reported results.
On May 23, 2000, the Company completed its acquisition of the
Electronic Manufacturing Services operations (EMS) of Elamex, S.A. de C.V.
(Elamex) pursuant to a Stock Purchase Agreement dated March 30, 2000
(Agreement). In accordance with the Agreement, Elamex transferred, on April 1,
2000, specified tangible and intangible assets and certain liabilities of its
turnkey EMS operation in Juarez, Mexico to two newly formed corporations. The
Company then purchased the stock of these corporations for approximately $53.7
million (USD); subject to adjustment upon the final determination of the net
assets of these corporations. The purchase price was paid in cash.
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The Company is accounting for the acquisition of EMS using the purchase
method of accounting. The cost of the acquisition has been allocated on the
basis of the estimated fair values of the assets acquired and the liabilities
assumed. The preliminary estimate of the excess of the cost over the fair value
of the net assets is approximately $26.4 million and is being amortized over 15
years. The results of EMS's operations subsequent to the date of the acquisition
have been included in the Condensed Consolidated Statements of Operations and of
Cash Flows for the periods subsequent to May 23, 2000.
Unaudited pro forma revenue, net income and earnings per share are as
follows (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Net sales:
Plexus $ 502,275 $ 360,180
EMS 36,482 52,992
--------- ---------
Total sales $ 538,757 $ 413,172
========= =========
Net income:
Plexus $ 28,023 $ 16,815
EMS (887) (1,041)
--------- ----------
$ 27,136 $ 15,774
========= ==========
Earnings per share:
Basic $ 1.52 $ 0.91
========= ==========
Diluted $ 1.42 $ 0.85
========= ==========
</TABLE>
On July 14, 2000, the Company completed its acquisition of Keltek
(Holdings) Limited (Keltek) pursuant to a Share Purchase Agreement dated as of
June 26, 2000. Under the agreement, the Company acquired all of the outstanding
shares of Keltek for $29.4 million (USD). Of that amount, the Company paid $18.7
million (USD) to Keltek shareholders in cash, assumed obligations of
approximately $3.6 million (USD) and issued loan notes with a principal balance
of $7.1 million (USD).
The Company is accounting for the Keltek acquisition using the purchase
method of accounting. As a result, the effects of the acquisition will be
reflected in the Company's financial statements from and subsequent to the date
of acquisition.
NOTE 5 - SEGMENT INFORMATION
The Company derives its revenue from providing manufacturing services
as a single business unit to electronic original equipment manufacturers (OEMs).
Approximately 96% of these services are provided to OEMs (or directly to their
customers) within North America. The Company expects the percentage of its
services to locations outside North America will increase in the near term due
to its recent Keltek acquisition.
NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS
SEC Staff Accounting Bulletin Number 101 - Revenue Recognition in
Financial Statements requires the Company to implement this bulletin in the
fourth fiscal quarter of our fiscal year ending September 30, 2001. The Company
has historically recognized revenue in accordance with the provisions of this
bulletin and does not anticipate that the adoption of the bulletin will have a
material impact on its consolidated financial statements.
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NOTE 7 - STOCKHOLDER'S EQUITY
On August 1, 2000, the Company declared a two-for-one stock split
payable in the form of a stock dividend for one share of common stock for every
one share of common stock outstanding. The issuance of the new stock from the
2-for-1 split will be on August 31, 2000 to holders of record as of August 22,
2000. The stock split will increase the number of common shares outstanding to
approximately 36.8 million from 18.4 million; outstanding options are also being
adjusted to reflect the stock split. Share and per share information will be
restated in future SEC filings to reflect the split.
NOTE 8 - RECLASSIFICATIONS
Certain amounts in the prior year's consolidated financial statements
have been reclassified to conform to the fiscal 2000 presentation.
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, Plexus International Services, Inc.,
SeaMED Corporation, and Agility, Incorporated, the Company provides product
realization services to original equipment manufacturers in the
networking/telecom, medical, computer (primarily mainframes, servers and
peripherals), industrial, 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 takes on the risk of inventory
management, 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
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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 for memory and logic devices. Over the past twelve plus
months the marketplace for certain electronic components, primarily in the
telecommunications and wireless markets (in particular flash memory, tantalum
capacitors, and SAW filters), has tightened from recent periods. In addition,
recent tightening has occurred with complex, high layer count (12 layers and
above) raw printed circuit boards (PCBs). 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. The Company
has established strategic relationships 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 for the components. As a
result, the Company's sales and profitability can be affected from period to
period. In order to attempt to mitigate the Company's financial risk of
component price increases, the Company regularly reviews and adjusts for price
fluctuations with customers.
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 nine months
ending June 30, 2000, less than 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.
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 and/or schedules 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, an increasing
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.
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On April 28, 2000, the Company acquired Agility, Incorporated, a
privately-held, Boston-area electronic manufacturing services provider. The
transaction is being accounted for as a pooling of interests. However, prior
results have not been restated, as they would not differ materially from
reported results. Agility results are included only for the third fiscal quarter
of 2000. The addition of Agility establishes a stronger presence with current
New England area customers of Plexus, as well as increases the Company's
capacity to assemble complex printed circuit boards with complete box and system
build.
On May 23, 2000, the Company completed its acquisition of the
Electronic Manufacturing Services operations (EMS) of Elamex, S.A. de C.V.
(Elamex) for cash. The Company is accounting for the acquisition of EMS using
the purchase method of accounting, and EMS results are included from the date of
acquisition.
The EMS acquisition represented the Company's initial expansion outside
of the U.S. We anticipate that the acquired Mexican operations, located in
Juarez, will provide Plexus' existing and potential customers with a proven
low-cost labor solution. In addition, EMS acquisition will provide Elamex's
existing customers access to the Company's leading-edge engineering, test and
technology capabilities.
On July 14, 2000, the Company completed its previously announced
acquisition of Keltek (Holdings) Limited (Keltek). The Company is accounting for
the Keltek acquisition using the purchase method of accounting. As a result, the
effects of the acquisition will be reflected in the Company's financial
statements from and subsequent to the date of acquisition.
The acquisition provided the Company with its first assembly facilities
outside of North America. The acquired Scottish operations are headquartered in
Kelso, Scotland and have an additional facility in Maldon, England. The addition
of Keltek provides the Company with a presence in Western Europe to service both
current and new customers.
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, as the Company expands
internationally, 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, requires 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 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.
Specific risk factors related to the acquisitions of the Juarez, Mexico and
Kelso, Scotland operations and other potential foreign acquisitions will include
foreign currency exchange, local customs and practices, and management
integration challenges.
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
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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, the overall economic conditions, the impact of
increased competition, the ability to attract and retain both technical and
management personnel and other factors and risks detailed herein and in the
Company's other Securities and Exchange Commission filings.
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
periods presented for fiscal 1999 have been restated to combine the results of
operations of both Plexus and SeaMED; the results of other prior acquisitions,
which were accounted for using purchase accounting, or using pooling accounting
but for which prior periods were not restated are reflected only from the dates
of acquisition. The effects of the Keltek acquisition are not yet reflected, as
it was completed after June 30, 2000.
NET SALES
Net sales for the three months ended June 30, 2000, increased 60
percent to $193.2 million from $120.4 million for the same period in the prior
fiscal year. Net sales for the nine months ended June 30, 2000, increased 39
percent to $502.3 million from $360.2 million. The increase in net sales was due
primarily to steady growth in the networking/telecom and medical sectors from
both existing and new customers obtained through internal growth and the
Illinois, Massachusetts, Washington and Mexico acquisitions. These acquisitions
accounted for slightly more than ten percent of sales in the third quarter of
fiscal 2000. The growth in the networking/telecom and medical industries were
offset somewhat by a reduction in sales to the computer and transportation
industries and reduced sales volumes at its SeaMED subsidiary. The Company
believes that its overall sales growth reflects the continuing trend towards
outsourcing within the electronics industry.
Sales for the quarter ended June 30, 2000 and 1999, respectively, by
industry were as follows: Networking/telecom 38 percent (28 percent), Medical 26
percent (30 percent), Industrial 18 percent (20 percent), Computer 11 percent
(13 percent), Transportation 4 percent (7 percent), and Other 3 percent (2
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 ended June 30, 2000
were Lucent Technologies, Inc. (Lucent) and General Electric Company (GE) which
accounted for 24 percent and 9 percent of net sales, respectively, compared to
the quarter ended June 30, 1999 when Lucent and GE accounted for 23 percent and
14 percent of net sales, respectively. The Company's largest customers for the
nine months ending June 30, 2000 were Lucent and GE which accounted for 24
percent and 11 percent of net sales, respectively, compared to the nine months
ending June 30, 1999 when Lucent and GE accounted for 19 percent and 13 percent
of net sales, respectively. No other customers accounted for more than 10
percent of the Company's sales for the three or nine months ended June 30, 2000
or 1999. Sales to the Company's ten largest customers accounted for 67 percent
of sales for the nine months ended June 30, 2000 compared to 64 percent for the
same period in fiscal 1999 and 61 percent for all of fiscal 1999. As with most
of its customers, sales to the Company's largest customers may vary from time to
time depending upon the size and timing of customer program commencement,
termination, modifications and transitions. For example, in reviewing
anticipated future program changes over the next six to nine months for Lucent,
the Company believes that sales to Lucent may decrease somewhat, even though
Lucent should remain a 10 percent plus customer. The Company remains dependent
upon continued sales to Lucent, GE
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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 $28.0 million, or 104 percent, for the three
months ended June 30, 2000 from $13.7 million for the same period in the prior
fiscal year. The gross profit for the nine months ended June 30, 2000 increased
51 percent to $71.7 million from $47.4 million for the nine months ended June
30, 1999. The gross margin increased from 11.4 percent for the three months
ended June 30, 1999 to 14.5 percent for the three months ended June 30, 2000.
The gross margin for the nine months ended June 30, 2000 was 14.3 percent,
compared to 13.2 percent for the nine months ended June 30, 1999. The gross
margin increase was primarily the result of the fiscal 1999 periods including a
$2.2 million one time SeaMED merger-related charge related to the write down of
obsolete inventory and a loss on an engineering contract.
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 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. In addition, gross margins resulting
from the EMS and Keltek acquisitions are expected to be below Plexus' historical
operating margins. 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. Gross margins are expected to decrease in the near-term due to
the recent acquisitions.
OPERATING EXPENSES
Selling and administrative (S&A) expenses increased to $9.3 million for
the three months ended June 30, 2000, compared to $7.1 million for the
comparable prior fiscal year period. S&A expenses for the nine months ended June
30, 2000 and 1999 were $24.5 million and $19.9 million, respectively. As a
percentage of sales, S&A expenses were 4.8 percent and 4.9 percent for the three
and nine months ended June 30, 2000 compared to 5.9 percent and 5.5 percent for
the three and nine months ended June 30, 1999, respectively. S&A expenses were
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, while the decrease as a percentage of sales was
attributable to the increased leverage of additional sales. 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.
Acquisition costs of $1,062,000 for both the three and nine months
ended June 30, 2000 related to costs associated with the Agility and EMS
acquisitions.
Plant closing, relocation and severance costs of $528,000 and $765,000
for the three and nine months ended June 30, 1999, respectively, relate to the
plant closing, relocation costs and staff reduction at the Company's SeaMED
subsidiary, prior to its agreement to be acquired by the Company, due to reduced
sales volume.
INCOME TAXES
Income taxes increased to $7.1 million and $18.8 million for the three
and nine months ended June 30, 2000 compared to $2.9 million and $11.4 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 approximately 40
percent. These rates
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approximate the blended Federal and state statutory rate as a result of all of
the Company's operations currently being located within the United States.
The effective tax rate has increased slightly upon the completion of
the Mexican acquisition and is expected to increase again in the fourth quarter
of 2000, however the overall impact is not expected to be material to the
Company. In fiscal year 2001, the Company expects the effective tax rate to
decrease as foreign operations increase.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $8.0 million for the nine
months ended June 30, 2000 compared to operating cash flows providing $22.0
million in the comparable period in fiscal 1999. Cash from operations was used
primarily by increases in accounts receivable and inventory to support increased
sales offset by increases in net income, accounts payable and accrued
liabilities. The increase in the Company's inventory levels are due to the
Company's decision to support anticipated future sales growth, as well as to
maintain an ample supply of components going forward in view of the tightening
of certain component markets. The increase also reflects lower inventory turns
at the new Mexican operations. As a result, during the quarter, annualized
inventory turnover decreased to 3.9 turns as of June 30, 2000, from 6.7 turns as
of June 30, 1999 and from 6.2 turns for all of fiscal 1999. Due to the increase
in sales for both the three month and nine month periods ended June 30, 2000,
accounts receivable and accounts payable have increased significantly.
Cash flows used in investing activities totaled $64.9 million for the
nine months ended June 30, 2000 were for the payments for the Mexican operations
acquisition, purchases of short-term investments, payments for additional
property, plant and equipment and were offset by the maturity of short-term
investments.
The Company utilizes available cash, debt and operating leases to fund
its operational needs. The Company utilizes operating leases primarily in
situations where technical obsolescence concerns are determined to out weigh the
benefits of financing the equipment purchase. Absent significant acquisitions,
the Company estimates capital expenditures for fiscal 2000 to be approximately
$50 million, including the expansion to its Neenah, Wisconsin engineering
facility currently in progress, the purchase of an existing manufacturing
facility in Appleton, Wisconsin, and the purchase of additional equipment for
existing locations. The Company also currently expects fiscal 2001 capital
expenditures to increase to approximately $60 million to support anticipated
sales growth. This includes planned expansions at its manufacturing facilities
in Kentucky and Illinois and additional manufacturing equipment. The Company
expects to fund these additions and the Keltek acquisition through the use of
available cash, short-term investments, cash flows from operations and the
amended and restated credit agreement.
Cash flows provided by the financing activities totaled $62.7 million
for the nine months ended June 30, 2000, primarily representing the proceeds
from debt and proceeds from the exercise of stock options (including the related
tax benefit) and were offset by payments on debt. The ratio of total debt-to-
equity as of June 30, 2000 was 1.1 to 1 and 0.6 to 1 as of June 30, 2000 and
September 30, 1999, respectively.
On June 15, 2000, the Company entered into an amended and restated
credit agreement which provides the Company with a $100 million credit facility.
On July 24, 2000, the Company also entered into a demand note agreement for an
additional $20 million of available credit. On July 31, 2000, the Company had
approximately $89 million of outstanding debt on the credit facility. Because
the Company's cash needs have increased significantly, the Company expects to
renegotiate and increase the size of its credit agreements with its banks in the
near term so as to provide sufficient funding levels for anticipated working
capital needs to support growth, significant expansion of its current facilities
and for potential additional acquisitions. The Company's credit facilities, its
leasing capabilities, cash and short-term investments and projected cash from
operations should be sufficient to meet its working capital and capital
requirements through fiscal 2000 and the foreseeable future. As the Company
reviews its capital needs, the Company may seek to raise additional capital
through the issuance of either public or private equity securities to finance
anticipated future growth.
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
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securities to finance future acquisitions. Debt financing may require the
Company to pledge assets as collateral. Equity financing may result in dilution
to stockholders. Failure to arrange additional financing could affect the
Company's ability to continue to expand its operations.
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. The Company is currently evaluating its current interest
rates on 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 June 30, 2000.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 28, 2000, Plexus issued 374,997 shares of its common stock,
$.01 par value, in a private placement transaction pursuant to Section 4(2) of
the Securities Act and Regulation D thereunder. The shares of Plexus common
stock were issued to the six shareholders of Agility, Incorporated in connection
with Plexus' acquisition of Agility, in exchange for the entire outstanding
equity of Agility.
On August 1, 2000, the Company declared a two-for-one stock split
payable in the form of a stock dividend for one share of common stock for every
one share of common stock outstanding. The issuance of the new stock from the
2-for-1 split will be on August 31, 2000 to holders of record as of August 22,
2000. The stock split will increase the number of common shares outstanding to
approximately 36.8 million from 18.4 million; outstanding options are also being
adjusted to reflect the stock split. Share and per share information will be
restated in future SEC filings to reflect the split.
ITEM 5. OTHER INFORMATION
The Company has been named, along with several hundred other parties,
as defendant in an action by 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 also has pending litigation with a number of the Company's
competitors and electronics original equipment manufacturers. Prior to the suit,
Plexus was evaluating Lemelson's claim, but Plexus had 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, the Company believes (but cannot be certain) that a license could
be obtained on terms that would not have a material adverse effect on the
Company. 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, the Company believes that it may be contractually indemnified by
the companies from which the Company purchased the machine vision and bar code
technology equipment, although certain of those manufacturers have disputed the
Company's indemnification claims. Plexus has not yet determined whether the fact
of the
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commencement of litigation will affect its position. The Company has chosen to
provide information on this matter, in part to update prior disclosures, even
though it does not believe that this matter will have a material affect on the
Company. On August 1, 2000, Plexus was formally served with a summons and
complaint for the Lemelson claim.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Demand Note date July 24, 2000
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
Plexus filed two reports on Form 8-K during the third quarter
of fiscal 2000, both reporting acquisitions under Item 2 of
Form 8-K, as follows:
1. Dated April 28, 2000, reporting its acquisition of
Agility, Incorporated.
2. Dated May 23, 2000, reporting its acquisition of the
turnkey electronic contract manufacturing operations,
of Elamex, S.A. de. C.V. (the "Elamex Operations").
Amendment No. 1 to that report was filed on August 7,
2000, to provide financial statements that were not
available at the time of the initial filing. The
financial statements filed pursuant to Item 7 of Form
8-K were:
Elamex Operations:
Audited Financial Statements:
Independent Auditors' Report
Balance Sheet at December 31, 1999
Statement of Income and Changes in Parent
Company's Investment and Net Advances
for the year ended December 31, 1999
Statement of Cash Flows for the year ended
December 31, 1999
Notes to Financial Statements
Unaudited Condensed Interim Financial Statements:
Statements of Operations for the quarters
ended March 31, 2000 and 1999
Balance Sheets at March 31, 2000 and
December 31, 1999
Statements of Cash Flows for the quarters
ended March 31, 2000 and 1999
Notes to Unaudited Condensed Financial
Statements
Plexus pro forma:
Unaudited Pro Forma Condensed Combined Financial
Information:
Statement of Operations for the six months
ended March 31, 2000
Statement of Operations for the year ended
September 30, 1999
Balance Sheet at March 31, 2000
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
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In addition, after the end of the third fiscal quarter, Plexus
filed a Report on Form 8-K dated July 14, 2000, reporting its
acquisition of Keltek (Holdings) Ltd., also under Item 2. Further,
Plexus' restated credit agreement was filed as an exhibit to the July
14, 2000 report.
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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.
8/14/2000 /s/ Peter Strandwitz
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Date Peter Strandwitz
Chairman and CEO
8/14/2000 /s/ Thomas B. Sabol
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Date Thomas B. Sabol
Vice President-Finance &
Chief Financial Officer
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