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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
-------- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
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)
WISCONSIN 39-1344447
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
55 JEWELERS PARK DRIVE
NEENAH, WISCONSIN 54957-0156
(920) 722-3451
(Address, including zip code, of principal executive offices and
Registrant's telephone number, including area code)
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 under the Exchange Act).
Yes X No
------ ------
As of December 9, 2002, 42,127,947 shares of Common Stock were outstanding,
and the aggregate market value of the shares of Common Stock (based upon the
$12.53 closing sale price on that date, as reported on the NASDAQ Stock Market)
held by non-affiliates (excludes shares reported as beneficially owned by
directors and executive officers - does not constitute an admission as to
affiliate status) was approximately $519.6 million.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Portions of Document are Incorporated
-------- -------------------------------------
Proxy Statement for 2003 Annual
Meeting of Shareholders Part III
"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," "anticipate" and similar words and concepts, and statements in
"Additional Disclosures Concerning Liquidity and Capital Resources, Including
Off-Balance Sheet Arrangements") are forward-looking statements that involve
risks and uncertainties, including, but not limited to:
- the continued weak economic performance of the electronics
and technology industries,
- the risk of customer delays, changes or cancellations in
both ongoing and new programs,
- our ability to integrate MCMS' and other acquired companies'
operations,
- our ability to secure new customers and maintain our, MCMS's
and other acquired operations' current customer base,
- the results of cost reduction efforts,
- the impact of capacity utilization and our ability to manage
fixed costs,
- material cost fluctuations and the adequate availability of
components and related parts for production,
- the effect of changes in average selling prices,
- the effect of start-up costs of new programs and facilities,
- the effect of general economic conditions and world events
and
- the effect of the impact of increased competition.
In addition, see the Management's Discussion and Analysis of
Financial Condition and Results of Operations in Item 7, particularly "General"
and "Risk Factors" for a further discussion of some of the factors which could
affect future results.
* * *
PART 1
ITEM 1. BUSINESS
OVERVIEW
Plexus Corp. and its subsidiaries (together "Plexus," the "Company," or
"we") provide product realization services to original equipment manufacturers,
or OEMs, in the networking/datacommunications/telecom, medical,
industrial/commercial, computer and transportation industries. We provide
advanced electronics design, manufacturing and testing services to our customers
with a focus on complex, high-end products. We offer our customers the ability
to outsource all stages of product realization, including: development and
design, materials procurement and management, prototyping and new product
introduction, testing, manufacturing configuration, logistics and test/repair.
We believe that our broad service offerings with respect to the design
and realization of complex, high-end products within the electronics
manufacturing services, or EMS, industry provide us with a significant
competitive advantage. Through a staff of over 400 engineers and technologists,
we offer a complete menu of engineering services, including ASIC digital and
analog design, mechanical and industrial design, embedded software design,
printed circuit board design, test equipment and software development, product
verification and new product introduction services. Our manufacturing services
include printed circuit board assembly, product configuration, testing, final
product and system box build and test/repair. Throughout the production process,
we offer logistics services such as materials procurement, inventory management,
packaging and distribution.
Our customers include both industry-leading OEMs and emerging technology
companies. Due to our focus on serving OEMs in emerging technology and medical
sectors, our business is influenced by major technological trends such as the
level and rate of development of fiber optics and RF/wireless infrastructure,
the expansion of network computing and Internet use, and the expansion of
outsourcing by OEMs generally.
2
Established in 1979 as a Wisconsin corporation, we have approximately
5,700 full-time employees and 26 facilities in 20 locations, totaling
approximately 2.3 million square feet. Over the past few years, we have expanded
our capacity and geographic reach through a series of strategic acquisitions.
Through these transactions, we have enhanced our access to, and ability to
provide services within, important technology corridors in Boston, Chicago, San
Diego and Seattle; established bases in Europe, Mexico and Asia; significantly
increased the size and capabilities of our medical services offerings;
significantly expanded our capacity with respect to the assembly of
configured-to-order wireless products and printed circuit board ("PCB") design
services; and acquired proven low-cost manufacturing operations in Asia and
Mexico.
We maintain a website at www.plexus.com. We make available through that
website, free of charge, copies of our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those
reports, as soon as reasonably practical after we electronically file those
materials with, or furnish them to, the Securities and Exchange Commission. You
may access those reports by following the links under "Investors" at our
website.
SERVICES
Plexus offers a broad range of integrated services that provide
customers with a total design, new product introduction and manufacturing
solution to take a product from initial design through production to
test/repair. Our customers may utilize any or all of the following services and
tend to use more of these services as their outsourcing strategies mature:
Product development and design. We provide comprehensive product
development and design and test engineering services. These services include
project management, initial feasibility studies, product concept definition,
specifications for product features and functions, product engineering
specifications, microprocessor selection, circuit design, software design,
application-specific integrated circuit design, printed circuit board layout,
product housing design, development of test specifications and product
validation testing. Through our product development and design services, we
provide customers with a complete product design that can be manufactured
efficiently.
Prototyping and new product introduction services. We provide assembly
of prototype products within our dedicated, streamlined New Product Introduction
(NPI) Plus centers. We supplement our prototype assembly services with
value-added services, including printed circuit board design, materials
management, manufacturing defects analysis, analysis of the manufacturability
and testability of a design, test implementation and pilot production runs
leading to volume production. These services link our engineering organization,
our customers' engineering organizations and our volume manufacturing
organization. This link facilitates an efficient transition to manufacturing. We
believe that these services provide significant value to our customers by
accelerating their products' time-to-market schedule.
Test development and product testing. Because product functionality has
driven components and assembly techniques to become increasingly complex, there
is a need to design and assemble increasingly complex in-circuit and functional
test equipment for electronic products and assemblies. Our internal development
of this test equipment allows us to rapidly implement test solutions and
efficiently test printed circuit assemblies, subassemblies, system assemblies
and finished product. We also develop and utilize specialized equipment that
allows us to environmentally stress-test products during functional testing to
assure reliability. We believe that the design and production of test equipment
is an important factor in our ability to provide technology-driven products of
consistent and high quality.
Manufacturing and assembly. We provide turnkey and consigned
manufacturing services for a variety of electronic products to diverse
industries. These services, which we endeavor to provide on an agile and rapid
basis, include developing and implementing a materials strategy that meets
customers' demand and flexibility requirements, assembling printed circuit
boards utilizing a wide range of assembly technologies, building and configuring
final product and system boxes and testing assemblies to meet customers'
requirements. We have the expertise to assemble very complex electronic products
that utilize multiple printed circuit boards and subassemblies. These complex
products are typically configured to fulfill unique customer requirements and
many are shipped directly to our customers' end users. In addition, we have
developed special processes and tools to meet
3
industry-specific requirements. Among these are the tools and processes to
assemble finished medical devices that meet U.S. Food and Drug Administration
Quality Systems Regulation requirements and similar regulatory requirements of
other countries.
After-market support. We provide service support for manufactured
products. In this context, supported products, which may or may not be under the
customer's warranty, may be returned for repairs or upgrades at the customer's
discretion.
COMBINATIONS AND ACQUISITIONS
Since fiscal 1999, we have completed nine acquisitions that have added
facilities totaling approximately 1.1 million square feet and over 3,900 new
employees. We have actively pursued combinations and acquisitions to expand our
geographic reach, increase our design, engineering and manufacturing capability
and breadth of service offerings and strengthen and broaden our customer
relationships. Since fiscal 1999, we have completed the following acquisitions
(information is as of the respective acquisition dates):
ACQUIRED COMPANY/ FACILITIES
DATE OPERATIONS SQUARE FOOTAGE EMPLOYEES LOCATION(S)
- ---- ---------- -------------- --------- -----------
January 2002 Selected operations of MCMS, Inc. 397,000 1,125 Penang, Malaysia
Xiamen China
Nampa, Idaho
May 2001 Qtron, Inc. 163,000 279 San Diego, California (1)
December 2000 e2E Corporation 33,000 127 Portland, Oregon
Nashua, New Hampshire
and other smaller offices
July 2000 Keltek (Holdings) Limited 77,000 461 Kelso, Scotland
Maldon, England
May 2000 Turnkey electronics 250,000 1,394 Juarez, Mexico
manufacturing operations of
Elamex, S.A. de C.V.
April 2000 Agility, Incorporated 25,000 98 Ayer, Massachusetts
December 1999 Printed circuit board operations -- 45 Everett, Washington (2)
of Intermec Technologies
Corporation
September 1999 Printed circuit board operations 25,000 125 Wheeling, Illinois (3)
of Shure, Incorporated
July 1999 SeaMED Corporation 162,000 301 Bothell, Washington
- ----------
(1) We have announced plans to close this facility.
(2) Combined with our existing Bothell, Washington, operations.
(3) Facility relocated to Buffalo Grove, Illinois in December 2001.
4
CUSTOMERS AND INDUSTRIES SERVED
We provide services to a wide variety of customers, ranging from large
multinational companies to smaller emerging technology companies, including
start-ups. During fiscal 2002, we provided services to over 200 customers.
Because of the variety of services we offer, our flexibility in design and
manufacturing and our ability to respond to customer needs in a timely fashion,
we believe that we are well positioned to offer our services to customers in
most market segments. For many customers, we serve both a design and production
function, thereby permitting customers to concentrate on concept development,
distribution and marketing, while accelerating their time to market, reducing
their investment in engineering and manufacturing capacity and optimizing total
product cost.
No customer represented more than 10 percent of net sales in either
fiscal 2002 or 2001. Lucent Technologies Inc. represented 23 percent of our net
sales in fiscal 2000.
Many of our large customers contract independently through multiple
divisions, subsidiaries, production facilities or locations. We believe that in
most cases our sales to one such subsidiary, division, facility or location are
not dependent on sales to others. The complete loss of any major customer could
have a significant negative impact on us. In December 2002, the primary customer
of our San Diego facility provided notice of its intent to move two new
programs to other non-Plexus facilities during our second fiscal quarter of
2003.
We provided services within the following industries in the following
proportions:
INDUSTRY 2002 2001 2000
- -------- ---- ---- ----
Networking/Datacommunications/Telecom 36% 40% 36%
Medical 28% 22% 27%
Industrial/Commercial 20% 20% 19%
Computer 11% 10% 10%
Transportation/Other 5% 8% 8%
MATERIALS AND SUPPLIERS
We purchase raw materials and electronic components from manufacturers
and distribution companies. The key electronic components we purchase include
printed circuit boards, specialized components such as application-specific
integrated circuits, semiconductors, interconnect products, electronic
subassemblies (including memory modules, power supply modules and cable and wire
harnesses), resistors and capacitors. Along with these electronic components, we
also purchase components for use in higher-level assembly and manufacturing.
These components include injection-molded plastic, pressure-formed plastics,
vacuum-formed plastics, sheet metal fabrications, aluminum extrusions, die
castings and various other hardware and fastener components. These components
range from standard to highly customized and they vary widely in terms of market
volatility and price.
From time to time, allocation of components becomes an integral part of
the electronics industry, and component shortages can occur with respect to
particular components. In response, we actively manage our business in a way
that minimizes our exposure to materials and component shortages. We have
developed a corporate procurement organization whose primary purpose is to
create strong supplier alliances to ensure, as much as possible, a steady flow
of components at competitive prices. Because we design products and can
influence what components are used in some new products, components
manufacturers often provide us with priority access to a supply of materials and
components, even during shortages. We have also established and continue to
expand strategic relationships with international purchasing offices, and we
attempt to leverage our design position with suppliers. Beyond this, we have
undertaken a series of flexibility initiatives, including the utilization of
in-plant stores, point-of-use programs, assured supply programs and similar
efforts. All of these undertakings seek to improve our overall supply chain
flexibility and to accommodate the current marketplace.
SALES AND MARKETING
We market our services primarily through our sales and marketing
organization of approximately 68 people, which includes sales account managers,
strategic customer managers, market sector specialists, technology
5
specialists and advertising and other corporate communications personnel. Our
sales and marketing efforts focus on generating new customers and pursuing
profitable opportunities. We use our ability to provide a full range of product
realization services as a marketing tool, and our technology specialists
participate in marketing through direct customer contact and participation in
industry symposia and seminars. Our sales force is integrated with the rest of
our business and is aligned geographically within important technology
corridors.
COMPETITION
The market for the products and services we provide is highly
competitive. We compete primarily on the basis of engineering, testing and
production capabilities, technological capabilities and the capacity for
responsiveness, quality and price. There are many competitors in the electronics
design and assembly industry. Larger and more geographically diverse competitors
have substantially more resources than we do. Other, smaller competitors compete
only in specific sectors within limited geographical areas. We also compete
against companies that design or manufacture items in-house rather than by
outsourcing. In addition, we compete against foreign, low-labor-cost
manufacturers. This foreign, low-labor-cost competition tends to focus on
commodity and consumer-related products, which is not our primary focus.
INTELLECTUAL PROPERTY
We own various servicemarks, including "Plexus," and "Plexus, The
Product Realization Company." Although we own certain patents, they are not
currently material to our business. We do not have material copyrights.
We (along with many other companies) have been sued 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. We had requested a stay of
action pending developments in other Lemelson litigation, which has been
granted. We believe the vendors from whom the patent-related equipment was
purchased may contractually indemnify us. If a judgment is rendered and/or a
license fee required, it is the opinion of management that such judgment would
not be material to our consolidated financial position or results of operations.
To augment our management information systems, in the first quarter of
fiscal 2001, we entered into a license agreement with JD Edwards for enterprise
resource planning ("ERP") software and systems to enhance and standardize our
ability to globally translate information from production facilities into
financial and managerial reporting and create a consistent set of core business
applications at our worldwide facilities. The conversion timetable remains
subject to change; however, we have developed a global model and converted two
manufacturing facilities in late fiscal 2002. The process to convert all
remaining sites and business units is expected to continue for at least two
years.
ENVIRONMENTAL COMPLIANCE
We are subject to a variety of environmental regulations relating to
the use, storage, discharge and disposal of hazardous chemicals used during our
manufacturing process. Although we believe that we are in compliance with all
federal, state and local environmental laws, and do not anticipate any
significant expenditures in maintaining our compliance, there can be no
assurances that violations will not occur which could have a material adverse
effect on our results.
EMPLOYEES
Our employees are one of our primary strengths, and we make
considerable efforts to maintain a well-qualified staff. We have been able to
offer enhanced career opportunities to many of our employees. Our human
resources department identifies career objectives and monitors specific skill
development for employees with management and technical potential for
advancement. We invest in training at all levels to ensure that employees are
well trained. We have a policy of involvement and consultation with employees in
every facility and strive for continuous improvement at all levels.
6
We employ approximately 5,700 full-time employees. Given the quick
response time required by our customers, we seek to maintain flexibility to
scale our operations as necessary to maximize efficiency. To do so, we use
skilled temporary labor. In Europe, approximately 40 of our employees are
covered by union agreements. These union agreements are typically renewed at the
beginning of each year, although in a few cases these agreements may last two or
more years. None of our employees in the United States, China, Malaysia and
Mexico is covered by union agreements. We have no history of labor disputes at
any of our facilities. We believe that our employee relationships are good.
ITEM 2. PROPERTIES
Our facilities comprise an integrated network of technology and
manufacturing centers, with corporate headquarters located in our engineering
facility in Neenah, Wisconsin. We own or lease facilities with approximately 2.3
million square feet of capacity. This includes approximately 1.8 million square
feet in the United States, approximately 0.2 million square feet in Mexico,
approximately 0.2 million square feet in Asia and approximately 0.1 million
square feet in Europe. The geographic diversity of our technology and
manufacturing centers allows us to offer services from locations near our
customers and major electronics markets. We believe that this approach reduces
material and transportation costs, simplifies logistics and communications and
improves inventory management. This enables us to provide customers with a
responsive, more complete, cost-effective solution. Our facilities are described
in the following table:
LOCATION TYPE SIZE (SQ. FT.) OWNED/LEASED
- -------- --------- -------------- ------------
Neenah, Wisconsin (1) Manufacturing 277,000 Leased
Juarez, Mexico (1) (2) Manufacturing 250,000 Leased
Nampa, Idaho Manufacturing 216,000 Owned
San Diego, California (1) (3) Manufacturing 198,000 Leased
Buffalo Grove, Illinois Manufacturing 141,000 Leased
Penang, Malaysia Manufacturing 118,000 Leased
Richmond, Kentucky Manufacturing 108,000 Owned
Neenah, Wisconsin (1) (4) Manufacturing 84,000 Owned
Xiamen, China Manufacturing 63,000 Leased
Kelso, Scotland Manufacturing 60,000 Leased
Maldon, England Manufacturing 40,000 Owned
Bothell, Washington NPI Plus Center 97,000 Leased
Appleton, Wisconsin NPI Plus Center 67,000 Owned
Ayer, Massachusetts NPI Plus Center 65,000 Leased
Freemont, California NPI Plus Center 25,000 Leased
Woodinville, Washington NPI Plus Center 17,000 Leased
Neenah, Wisconsin Engineering 105,000 Owned
Bothell, Washington (5) Engineering 81,000 Leased
Louisville, Colorado Engineering 16,000 Leased
Raleigh, North Carolina Engineering 14,000 Leased
Kelso, Scotland (1) (6) Engineering 5,000 Leased
Nashua, New Hampshire (7) PCB Design 10,000 Leased
Hillsboro, Oregon (7) PCB Design 9,000 Leased
Neenah, Wisconsin Office/Warehouse 93,000 Leased
El Paso, Texas Office/Warehouse 13,000 Leased
Redmond, Washington (8) Other 60,000 Leased
Bothell, Washington (9) Other 60,000 Leased
Bothell, Washington (8) Other 10,000 Leased
San Diego, California (10) Other 36,000 Leased
7
(1) Includes more than one building.
(2) The lease for approximately 40,000 square feet of lease space terminates in
December 2002 and will not be renewed.
(3) Approximately 71,000 square feet of lease space will be subleased to a
third party commencing in December 2002. We intend to close the remaining
portion of the facility in fiscal 2003, and seek to also sublease that
portion.
(4) One facility will be phased-out of operations by mid-fiscal 2003.
(5) We have announced plans to combine operations of this facility into our
other Bothell facility in fiscal 2003. We will attempt to sublease this
facility.
(6) Commencing in December 2002, operations in two facilities are being
consolidated into one, leaving one facility of approximately 2,500 square
feet unoccupied. We are attempting to sublease this facility.
(7) These locations were part of the e2E merger. Other locations total
approximately 14,000 additional square feet, with no one location having
more than 3,000 square feet.
(8) These buildings are being subleased to an unrelated third party and no
longer used in our business operations.
(9) We are currently seeking to sublease this facility.
(10) This facility was acquired as part of the Qtron acquisition. We are no
longer using this facility and are seeking to sublease the facility.
Currently, the prior owners of Qtron are reimbursing us for the lease
payments from funds held in escrow.
ITEM 3. LEGAL PROCEEDINGS
We are party to certain lawsuits in the ordinary course of business. We
do not believe that these proceedings individually or in the aggregate, will
have a material adverse effect on our financial position, results of operations
or cash flows.
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 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth our executive officers, their ages and
the positions currently held by each person:
NAME AGE POSITION
---- --- --------
Dean A. Foate 44 President and Chief Executive Officer and Director
Thomas B. Sabol 43 Executive Vice President and Chief Operating Officer
F. Gordon Bitter 59 Vice President and Chief Financial Officer
David A. Clark 38 Vice President and Vice President-Materials, Plexus
Corp. Electronic Assembly
Thomas J. Czajkowski 38 Vice President and Chief Information Officer
Paul L. Ehlers 46 Senior Vice President, and President of Plexus Electronic
Assembly
Joseph D. Kaufman 45 Senior Vice President, Secretary and Chief Legal Officer
Lisa M. Kelley 36 Vice President - Corporate Development
J. Robert Kronser 43 Executive Vice President and Chief Technology &
Strategy Officer
David H. Rust 55 Vice President - Human Resources
George W.F. Setton 56 Corporate Treasurer and Chief Treasury Officer
Michael Verstegen 44 Vice President, and President of Plexus Technology Group
Dean A. Foate joined Plexus in 1984 and has served as President and Chief
Executive Officer since 2002, and as a director since 2000; previously Chief
Operating Officer from 2001 to 2002, Executive Vice President from 1999 to 2001
and President of Plexus Technology Group prior thereto.
8
Thomas B. Sabol joined Plexus in 1996 and has served as the Executive Vice
President and Chief Operating Officer since 2002. Previously Mr. Sabol served as
the Company's Chief Financial Officer from 1996 to 2002. Formerly, Mr. Sabol
served as Vice President and General Auditor for Kemper Corporation, and before
that as Business Assurance Manager for Coopers & Lybrand.
F. Gordon Bitter joined Plexus out of retirement on October 31, 2002 as Vice
President and Chief Financial Officer. Previously, Mr. Bitter was the Senior
Vice President-Finance and Administration and Chief Financial Officer for Hadco
Corporation, an electronics contract manufacturer, from 1998 to 2000. From 1997
to 1998, Mr. Bitter was CEO and CFO of Molten Metal Technology, a recycler of
industrial wastes. Prior to that, Mr. Bitter had held numerous senior financial
and operational positions in various industrial companies.
David A. Clark joined Plexus in 1995 and has served as Vice President since
2002. In 1999, Mr. Clark took the position of Vice President-Materials for
Plexus Electronic Assembly, a position he continues to hold. Prior to that, he
was Director of Purchasing for Plexus Electronic Assembly.
Thomas J. Czajkowski joined Plexus in 2001 and has served as Vice President and
Chief Information Officer since 2002. Prior to that, Mr. Czajkowski served as
Chief Information Officer. Prior to joining Plexus, Mr. Czajkowski was a Senior
Manager at Deloitte Consulting from 1993 to 2001.
Paul L. Ehlers joined Plexus in 1980 and has served as Senior Vice President
since 2002. In 2001, Mr. Ehlers served as Vice President. In addition, Mr.
Ehlers has served as President of Plexus Electronic Assembly since 2000. From
1995 to 1999, Mr. Ehlers managed various manufacturing facilities.
Joseph D. Kaufman joined Plexus in 1986 and has served as Senior Vice President,
Secretary and Chief Legal Officer since 2001, and as Vice President, Secretary
and General Counsel of Plexus from 1990 to 2001.
Lisa M. Kelley joined Plexus in 1992 and has served as Vice President -
Corporate Development since 2001. Ms. Kelley has also served as Treasurer from
1998 to 2001 and Vice President - Finance from 2000 to 2001. Other positions
held within Plexus included Manager, Subsidiary Controller and Corporate
Controller.
J. Robert Kronser joined Plexus in 1981 serving in various engineering roles and
has served as an Executive Vice President and Chief Technology and Strategy
Officer since 2001. From 1999 to 2001, Mr. Kronser served as Vice President of
Sales and Marketing. From 1993 to 1999, Mr. Kronser managed the Advanced
Manufacturing Center.
David H. Rust joined Plexus in 2001 as Vice President - Human Resources.
Previously, Mr. Rust served as Vice President and Chief Human Resources Officer
from 1990 to 2001 for Menasha Corporation.
George W.F. Setton joined Plexus in 2001 as Corporate Treasurer and Chief
Treasury Officer. Previously, from 2000 to 2001, Mr. Setton was a partner in
Euram, Inc., a financial consulting firm, and from 1997 to 1999, Mr. Setton
served as Group Treasurer for Carr Futures, Inc. He previously held various
positions at Square D/Groupe Schneider, including Assistant Treasurer of
Schneider North America, Tresorier Adjoint of Groupe Schneider, and Assistant
Treasurer of Square D Company.
Michael Verstegen joined Plexus in 1983 and has served as Vice-President since
2002. In addition, Mr. Verstegen served as President of Plexus Technology Group
since 2001. Mr. Verstegen has held various management positions within the
engineering business unit from 1995 to 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
For the years ended September 30, 2002 and 2001, the Company's Common
Stock has traded on the NASDAQ Stock Market. The price information below
represents high and low sale prices for each period.
9
Fiscal Year Ended September 30, 2002 Fiscal Year Ended September 30, 2001
------------------------------------ ------------------------------------
High Low High Low
---- --- ---- ---
First Quarter $36.74 $21.30 First Quarter $78.38 $21.13
Second Quarter $29.94 $20.96 Second Quarter $49.38 $19.94
Third Quarter $28.49 $14.59 Third Quarter $39.37 $20.44
Fourth Quarter $18.15 $ 9.15 Fourth Quarter $41.70 $21.55
As of December 9, 2002, there were approximately 807 shareholders of
record.
During fiscal 2002, we designated American Stock Transfer & Trust
Company ("AST") as the new transfer agent for our common stock. As a consequence
of that change, AST has been substituted for US Bank NA (f/k/a Firstar Bank NA)
as Rights Agent under Plexus' Shareholder Rights Plan.
We have not paid any cash dividends. We anticipate that all earnings in
the foreseeable future will be retained to finance the development of our
business. See also 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.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS (1)
(dollars in thousands, except per share amounts)
FOR THE YEARS ENDED SEPTEMBER 30,
OPERATING STATEMENT DATA 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net sales $ 883,603 $1,062,304 $ 751,639 $ 492,414 $ 466,795
Gross profit 81,320 131,790 107,164 66,409 (5) 60,147
Gross margin percentage 9.2% 12.4% 14.3% 13.5% 12.9%
Operating income (loss) (3,636) (2) 68,388 (3) 69,870 (4) 34,428 (5) 36,393
Operating margin percentage (0.4%) 6.4% 9.3% 7.0% 7.8%
Net income (loss) (4,073) (2) 39,150 (3) 40,196 (4) 20,311 (5) 22,937
Earnings per share (diluted) $ (0.10) (2) $ 0.91 (3) $ 1.04 (4) $ 0.55 (5) $ 0.63
CASH FLOW STATEMENT DATA
Cash flows provided by (used in) operations $ 130,455 $ 119,479 $ (51,392) $ 19,727 $ 33,520
Capital equipment additions 30,760 54,560 44,228 18,196 11,997
BALANCE SHEET DATA
Working capital $ 219,854 $ 277,055 $ 213,596 $ 110,411 $ 91,159
Total assets 583,945 602,525 515,608 229,636 184,354
Long-term debt and capital lease obligations 25,356 70,016 141,409 142 2,587
Shareholders' equity 430,689 426,852 209,362 146,403 115,863
Return on average assets (0.7%) 7.0% 10.8% 9.8% 13.6%
Return on average equity (0.9%) 12.3% 22.6% 15.5% 22.3%
Inventory turnover ratio 7.0x 5.3x 4.4x 6.2x 7.1x
10
(1) As a result of the fiscal 1999 merger with SeaMED Corporation
("SeaMED"), prior historical results have been restated utilizing the
pooling-of-interests method of accounting. Historical results have not
been restated for the fiscal 2001 merger with e2E Corporation ("e2E")
and the fiscal 2000 merger with Agility, Incorporated ("Agility") as
they would not differ materially from reported results. (See Note 8 in
the Notes to Consolidated Financial Statements.)
(2) In January 2002, we completed the acquisition of certain assets of
MCMS, Inc. ("MCMS"). The results from operations of the assets acquired
from MCMS are reflected in our financial statements from the date of
acquisition. No goodwill resulted from the acquisition. We incurred
approximately $0.3 million of acquisition costs in fiscal 2002
associated with the acquisition of the MCMS operations. In response to
the reduction in our sales and reduced capacity utilization, we also
recorded fiscal 2002 restructuring costs of approximately $12.6
million. Together, these costs totaled approximately $8.3 million
after-tax. Excluding these costs, operating income would have been $9.2
million (1.0 percent of sales), net income would have been $4.2 million
and diluted earnings per share would have been $0.10.
(3) In connection with the acquisition of Qtron Inc. ("Qtron") and merger
with e2E and the economic slowdown, we recorded acquisition and merger
costs of approximately $1.6 million ($1.4 million after-tax) and
restructuring costs of approximately $1.9 million ($1.1 million
after-tax). Excluding these costs, operating income would have been
$71.9 million (6.8 percent of sales), net income would have been $41.7
million (3.9 percent of sales) and diluted earnings per share would
have been $0.96.
(4) In connection with the merger with Agility and the acquisitions of
Keltek (Holdings) Limited ("Keltek"), and the turnkey electronics
manufacturing services operations of Elamex, S.A. de C.V. ("Mexico
turnkey operations"), Plexus recorded acquisition and merger costs of
$1.1 million ($0.9 million after-tax). Excluding these costs, operating
income would have been $71 million (9.4 percent of sales), net income
would have been $41.1 million (5.5 percent of sales) and diluted
earnings per share would have been $1.06.
(5) In connection with the merger with SeaMED, Plexus recorded merger and
other related charges of $7.7 million ($6.0 million after-tax).
Excluding these costs, gross profit would have been $68.6 million (13.9
percent of sales), and operating income would have been $42.1 million
(8.6 percent of sales). Net income excluding these costs would have
been $26.3 million (5.3 percent of sales), and diluted earnings per
share would have been $0.71.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide product realization services to original equipment
manufacturers, or OEMs, in the networking/datacommunications/telecom, medical,
industrial/commercial, computer and transportation industries. We provide
advanced electronics design, manufacturing and testing services to our customers
with a focus on complex, high-end products. We offer our customers the ability
to outsource all stages of product realization, including: development and
design, materials procurement and management, prototyping and new product
introduction, testing, manufacturing configuration, logistics and test/repair.
The following information should be read in conjunction with our consolidated
financial statements included herein and the "Risk Factors" section beginning on
page 21.
We provide contract manufacturing services on either a turnkey basis,
where we procure some 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 materials
procurement and warehousing in addition to manufacturing and involve greater
resource investment and inventory risk management than consignment services.
Turnkey manufacturing currently represents over 90 percent of our net sales.
Turnkey sales typically generate higher 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 our net sales. However, turnkey
manufacturing involves the risk of inventory management, and a change in
component costs can directly impact average selling prices, gross margins and
net sales. Due to the nature of turnkey manufacturing, our quarterly and
11
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.
MERGERS AND ACQUISITIONS
In January 2002, we acquired certain assets of MCMS, Inc. ("MCMS"), an
electronics manufacturing services provider, for approximately $42.0 million in
cash. The assets purchased from MCMS include manufacturing operations in Penang,
Malaysia; Xiamen, China; and Nampa, Idaho. We acquired these assets primarily to
provide electronic manufacturing services in Asia and to increase our customer
base. The acquisition did not include the assumption of any interest-bearing
debt, but included the assumption of total liabilities of approximately $7.2
million. We recorded the acquisition utilizing the accounting principles
promulgated by Statement of Financial Accounting Standards ("SFAS") No.'s 141
and 142. The results from MCMS' operations are reflected in our financial
statements from the date of acquisition. No goodwill resulted from this
acquisition. We incurred approximately $0.3 million of acquisition costs during
the second quarter of fiscal 2002 associated with the acquisition of the MCMS
operations.
On May 23, 2001, we acquired Qtron, Inc. ("Qtron"), a privately held
EMS provider located in San Diego, California. We purchased all of the
outstanding shares of Qtron for approximately $29.0 million in cash, paid
outstanding Qtron notes payable of $3.6 million to Qtron shareholders and
thereby assumed liabilities of $47.4 million, including capital lease
obligations of $18.8 million for a new manufacturing facility. The results of
Qtron's operations have been reflected in our financial statements from the date
of acquisition. The excess of the cost over the fair value of the net assets
acquired of approximately $24 million has been recorded as goodwill. Through
September 30, 2002, we were amortizing the goodwill over 15 years. Effective the
first quarter of fiscal 2003, in accordance with SFAS 142, goodwill is no longer
amortized. See "New Accounting Pronouncements" on page 19 regarding the periodic
requirement to review goodwill for impairment under SFAS No. 142.
In December 2002, the primary customer of our San Diego facility
provided notice of its intent to move two new programs to other non-Plexus
facilities during our second fiscal quarter of 2003. As a consequence, we intend
to close the San Diego facility by the end of June 2003. We anticipate recording
pre-tax non-recurring charges of approximately $35 million to $45 million in the
first quarter of fiscal 2003 associated with the closing of the San Diego
facility. These non-recurring charges will include both an additional impairment
of goodwill and the initial SFAS No. 142 impairment evaluation as of October 1,
2002. As of September 30, 2002, we have unamortized goodwill of approximately
$20.4 million associated with the San Diego facility. As a result of these
actions and the newly required periodic review of goodwill under SFAS No. 142,
this amount will be fully written off in the first quarter of fiscal 2003.
On December 21, 2000, we merged with e2E Corporation ("e2E"), a
privately held PCB design and engineering service provider for electronic OEMs,
through the issuance of 462,625 shares of its common stock. The transaction was
accounted for as a pooling-of-interests. Costs associated with this merger in
the amount of $1.0 million have been expensed as required. Prior results were
not restated, as they would not differ materially from reported results.
During fiscal 2000, we also acquired operations in Massachusetts,
Mexico and the United Kingdom (See Note 8 in the Notes to Consolidated Financial
Statements).
RESULTS OF OPERATIONS
Net sales. Net sales for the year ended September 30, 2002 decreased 17
percent to $883.6 million from $1.1 billion for the year ended September 30,
2001. Net sales for fiscal 2002 included approximately $71 million, or 8 percent
of sales, related to the acquired MCMS operations. Our reduced sales levels
reflect the continued slowdown in technology markets, primarily in the
network/datacommunications/telecom, industrial/commercial and computer
industries, which have been further impacted by reduced end-market demand and
reduced availability to companies in these industries of capital resources to
fund existing and emerging technologies. We were also affected by a relatively
sharp downturn of orders and forecasts, particularly in engineering, subsequent
to the September 11, 2001 attacks, as a consequence of the economic
uncertainties resulting from the attacks and their aftermath. These factors
resulted in customers becoming more cautious in placing new orders. Based on our
current customers' orders and
12
forecasts, we currently expect first quarter fiscal 2003 sales to be in the
bottom part of the range of $205 million to $215 million and second quarter
fiscal 2003 sales to be in the range of $190 million to $200 million. Our second
quarter fiscal 2003 will be impacted by the loss of our primary customer in our
San Diego operations. However, our results will ultimately depend on the actual
shipment levels. See "Risk Factors" below for other factors which could affect
sales.
Net sales for the year ended September 30, 2001, increased 41 percent
to $1.1 billion from $752 million for the year ended September 30, 2000. Our
sales growth was due to sales increases in all end-markets but primarily due to
the networking/datacommunications/telecom and industrial/commercial end-markets.
Our acquisitions during fiscal 2001 accounted for slightly less than 5 percent
of sales for the year ended September 30, 2001.
We had no customers which represented more than 10 percent of sales for
the years ended September 30, 2002 and 2001. Lucent Technologies accounted for
23 percent of sales for the year ended September 30, 2000. Sales to our ten
largest customers accounted for 48 percent of sales for the year ended September
30, 2002, compared to 51 percent and 63 percent for the years ended September
30, 2001 and 2000, respectively. As with sales to most of our customers, sales
to our largest customers may vary from time to time depending on the size and
timing of customer program commencement, termination, delays, modifications and
transitions. We remain dependent on continued sales to our significant
customers, and we generally do not obtain firm, long-term purchase commitments
from our customers. Customer forecasts can and do change as a result of their
end-market demand and other factors. Although any material change in orders from
these or other customers could materially affect our results of operations, we
are dedicated to diversifying our customer base and decreasing our dependence on
any particular customer or customers.
Our sales for the years ended September 30, 2002, 2001 and 2000,
respectively, by industry were as follows:
INDUSTRY 2002 2001 2000
- -------- ---- ---- ----
Networking/Datacommunications/Telecom 36% 40% 36%
Medical 28% 22% 27%
Industrial/Commercial 20% 20% 19%
Computer 11% 10% 10%
Transportation/Other 5% 8% 8%
Gross profit. Gross profit for the year ended September 30, 2002,
decreased 38 percent to $81.3 million from $131.8 million for the year ended
September 30, 2001. The gross margin for the year ended September 30, 2002, was
9.2 percent, compared to 12.4 percent for the year ended September 30, 2001.
Gross margins have decreased from fiscal 2001 results due primarily to our
reduced manufacturing and engineering capacity utilization.
Overall gross margins continue to be affected by our lower sales levels
as a result of a slowdown in end-market demand, particularly in the
networking/datacommunications/telecom and industrial/commercial industries, and
its impact on our capacity utilization. Our gross margins reflect a number of
factors that can vary from period to period, including product and service 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 customers' products and competition within
the electronics industry. These and other factors can cause variations in our
operating results. Although our focus is on maintaining and expanding gross
margins, there can be no assurance that gross margins will not decrease in
future periods.
Gross profit for the year ended September 30, 2001, increased 23
percent to $131.8 million from $107.2 million for the year ended September 30,
2000. The gross margin for the year ended September 30, 2001, was 12.4 percent,
compared to 14.3 percent for the year ended September 30, 2000. The decline in
gross margin in fiscal 2001 compared to fiscal 2000 was due to the negative
affect of acquisitions and reduced manufacturing capacity utilization. In
particular, gross margins resulting from the acquisition of the Mexico turnkey
operations of Elamex, Keltek and Qtron operations were below our historical
gross margins as we worked to integrate these acquisitions into our product
realization model and increase their capacity utilization.
13
Most of the research and development we conduct is paid for by our
customers and is therefore included in both sales and cost of sales. We conduct
our own research and development, but that research and development is not
specifically identified and we believe such expenses are less than one percent
of our sales.
Operating expenses. Selling and administrative (S&A) expenses for the
year ended September 30, 2002, increased to $66.9 million from $55.8 million and
$35.0 million for the years ended September 30, 2001 and 2000, respectively. As
a percentage of net sales, S&A expenses were 7.6 percent for the year ended
September 30, 2002, compared to 5.3 percent and 4.7 percent for the years ended
September 30, 2001 and 2000, respectively. The increase in dollar terms and
percentage of net sales was due primarily to increased sales and marketing
efforts and additional investment for information technology systems support
related to the roll-out of our new enterprise resource planning ("ERP")
platform. In late fiscal 2002, we converted two manufacturing facilities to the
new platform, which resulted in additional training and implementation costs.
Training and implementation cost are expected to continue over the next two
years as we convert our remaining facilities to the new ERP platform. Staffing
levels also increased during fiscal 2002 as a result of the acquisition of the
MCMS operations.
Amortization of goodwill increased to $5.2 million for the year ended
September 30, 2002 from $4.0 million and $1.1 million for the years ended
September 30, 2001 and 2000, respectively. This was a result of the acquisitions
of the Mexico turnkey operations, Keltek and Qtron operations which resulted in
additional goodwill. Commencing in the first quarter of fiscal 2003, we will
adopt SFAS No. 142, the impact of which will result in eliminating approximately
$5.1 million of annual amortization of goodwill. See "New Accounting
Pronouncements" on page 19 regarding the periodic requirement to review goodwill
for impairment under SFAS No. 142.
For the year ended September 30, 2002, we recorded a series of
restructuring charges totaling $12.6 million. These charges were taken in
response to the reduction in our sales levels and reduced capacity utilization.
We evaluated our cost structure compared to anticipated sales levels and
determined that reductions of our workforce, consolidation of certain leased
facilities, write-downs of certain underutilized assets to fair value and
planned facility closures were necessary to reduce costs to more appropriate
levels in line with current and expected customer demand. One facility, located
near Minneapolis, Minnesota, was closed in late fiscal 2002. Another facility,
which is one of four located in Neenah, Wisconsin, will be phased out of
operations by mid-fiscal 2003. Both facilities represent older, owned facilities
that are no longer sufficient to service our customers' needs and would have
required significant investment to upgrade or replace them. The Minneapolis
facility was sold in October 2002.
In December 2002, we announced our intent to take further global
restructuring actions including the closure of our San Diego, California
manufacturing facility and the consolidation of our Seattle, Washington
facilities. The decision to close the San Diego facility was made in response to
a decision of the facility's major customer to transition two new programs to
non-Plexus facilities. Approximately 400 employees will be affected by these
actions, along with more than 100 employees from previously announced
restructurings. Currently, we estimate total pre-tax non-recurring charges of
approximately $50 million to $60 million to be recorded in our first fiscal
quarter ending December 31, 2002.
For the year ended September 30, 2002, we incurred approximately $0.3
million of acquisition costs related to the MCMS acquisition. Acquisition and
merger costs of approximately $1.6 million for the year ended September 30, 2001
were related to the Qtron and e2E acquisitions. For the year ended September 30,
2000, we also had merger and acquisition costs of $1.1 million related to
Agility, Keltek and the Mexico turnkey operations acquisitions.
For the year ended September 30, 2001, we recorded pre-tax
restructuring costs of $1.9 million. We reduced our cost structure through the
reduction of our work force and writing off certain under-utilized assets in
response to the reduction in our sales levels and reduced capacity utilization.
Income taxes. Income taxes decreased to a $1.8 million tax benefit for
the year ended September 30, 2002, from $26.2 million and $28.4 million of
income tax expense for the years ended September 30, 2001 and 2000,
14
respectively. Our effective income tax rate has decreased to 30%, due to the
effect of non-tax-deductible goodwill and merger expenses and our loss before
income taxes being close to break-even.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $130.5 million for the
year ended September 30, 2002, compared to cash flows provided by/(used in)
operating activities of $119.5 million and ($51.4) million for the years ended
September 30, 2001 and 2000, respectively. During fiscal 2002, cash provided by
operating activities was primarily related to decreases in accounts receivable
and inventories, and increases in accounts payable and accrued liabilities. For
the year ended September 30, 2002, actual days sales outstanding represented by
our accounts receivable improved to 46.5 days from 47.1 days for the year ended
September 30, 2001. Included in this calculation is the addback of amounts
utilized under the securitization facility to accounts receivable in the
determination of days sales outstanding (this amount was $16.6 million and $22.9
million as of September 30, 2002 and 2001, respectively). An improvement in our
annualized inventory turns to 7.0 turns for the year ended September 30, 2002
from 5.3 turns for the year ended September 30, 2001 resulted in a decrease in
our inventory levels. This increase in inventory turns was primarily the result
of an improved marketplace for components and improved inventory management.
Cash flows used in investing activities totaled $104.4 million for the
year ended September 30, 2002. The primary uses included payments of $42.0
million for the acquisition of MCMS assets, $30.8 million for the purchase of
property, plant and equipment, and net payments of $32.3 million for short-term
investments.
We utilize available cash, debt and leases to fund our operating
requirements. We utilize operating leases primarily in situations where
technical obsolescence concerns are determined to outweigh the benefits of
financing the equipment purchase. We currently estimate capital expenditures for
fiscal 2003 will be approximately $30 million to $35 million. This estimate does
not include any acquisitions which we may undertake. The level of capital
expenditures for fiscal 2003 will be heavily dependent on anticipated 2003 sales
levels.
Cash flows used in financing activities totaling $48.7 million for the
year ended September 30, 2002 primarily represent net payments on our credit
facilities. The ratio of total liabilities to equity was 0.36 to 1 and 0.41 to 1
as of September 30, 2002 and 2001, respectively.
We have an unsecured revolving credit facility (the "Credit Facility")
with a group of banks. Effective November 9, 2002, we reduced our maximum
borrowing capacity to $150 million from $250 million. As of September 30, 2002,
no amounts were outstanding; our available borrowing capacity was approximately
$52 million. Borrowing capacity utilized under the Credit Facility will be
either through revolving or other loans or through guarantees of commercial
paper. Interest on borrowings is computed at the applicable eurocurrency rate on
the agreed currency, plus any commitment fees. The Credit Facility matures on
October 25, 2003, and requires among other things maintenance of minimum
interest expense coverage and maximum leverage ratios. During fiscal 2002,
Plexus, along with our banking partners, amended our credit facility to allow us
to revise certain covenants and be in compliance with these covenants. The
amendment was occasioned by the effect of our restructuring costs and
acquisition and merger costs on compliance with the prior covenants.
In December 2002, we announced our intent to take further global
restructuring actions including the closure of our San Diego manufacturing
facility and the consolidation of our Seattle facilities. Currently, the Company
estimates total pre-tax restructuring charges of approximately $50 million to
$60 million to be recorded in its first fiscal quarter ending December 31, 2002.
As a result of these restructuring charges, we anticipate that we will not meet
certain financial covenants of our Credit Facility for the quarter ending
December 31, 2002. We therefore plan to terminate our Credit Facility prior to
December 31, 2002. It is our intention to seek to replace the existing Credit
Facility with a comparable facility. However, we cannot assure whether, or under
what terms, a new credit facility will be available.
Pursuant to a public offering of shares of common stock in the first
quarter of fiscal 2001, we issued 3.45 million shares of common stock for $50
per share, with an underwriters discount of $2.375 per share. We received net
proceeds of approximately $164.3 million, after discounts and commissions to the
underwriters of approximately $8.2 million. Additional expenses were
approximately $0.6 million. The net proceeds from the offering were
15
utilized to refinance, in part, existing debt and to finance capital
expenditures, capacity expansion and the Qtron acquisition. The remaining net
proceeds were used for general corporate purposes and working capital.
We have agreed to sell up to $50 million of trade accounts receivable
without recourse to Plexus ABS Inc. ("ABS"), a wholly owned, limited purpose
subsidiary. ABS is a separate corporate entity that sells participating
interests in a pool of our accounts receivable to financial institutions. The
financial institutions then receive an ownership and security interest in the
pool of receivables. As of September 30, 2002, the total available funding
amount under the asset securitization facility was approximately $24 million, of
which $16.6 million was utilized. As a result, accounts receivable has been
reduced by $16.6 million as of September 30, 2002, while long-term debt and
capital lease obligations does not include this $16.6 million of off-balance
sheet financing. In April and December 2002, we, along with our banking
partners, amended our receivables purchase agreement to allow us to revise
certain covenants and be in compliance with these covenants.
Our leasing capabilities, cash and short-term investments and projected
cash from operations should be sufficient to meet our working capital and
capital requirements through fiscal 2003 and the foreseeable future. We
anticipate negotiation during fiscal 2003 to replace our Credit Facility,
although we cannot assure whether, or under what terms, a new or extended credit
facility will be available. While the availability of a credit facility
facilitates corporate operations, we do not believe that lack of such a facility
would materially affect our operations or financial condition in the foreseeable
future.
We have not paid cash dividends in the past and do not anticipate
paying them in the foreseeable future. We anticipate using earnings to support
our business.
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
On December 12, 2001, the SEC issued FR-60, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies." FR-60 is an
intermediate step to alert companies to the need for greater investor awareness
of the sensitivity of financial statements to the methods, assumptions, and
estimates underlying their preparation, including the judgments and
uncertainties affecting the application of those policies, and the likelihood
that materially different amounts would be reported under different conditions
or using different assumptions.
Our accounting policies are disclosed in Note 1 to the Consolidated
Financial Statements. The more critical of these policies are as follows:
Revenue Recognition - We continued to recognize revenues primarily when
products are shipped. Revenue and profit relating to product design and
development contracts are generally recognized utilizing the
percentage-of-completion method. The use of percentage-of-completion accounting
does involve the use of estimates, but accounts for less than 10 percent of our
total revenues. Our revenue recognition policies are in accordance with Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements."
Inventories - We value inventories primarily at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method. Valuing
inventories at the lower of cost or market requires the use of estimates and
judgment. As discussed later under "Risk Factors," our customers may cancel
their orders, change production quantities or delay production for a number of
reasons which are beyond our control. Any of these, or certain additional
actions, could impact the valuation of our inventory. We continued to use the
same techniques to value our inventory as we have in the past. Any actions taken
by our customers that could impact the value of our inventory are considered
when determining the lower of cost or market valuations.
Accounts Receivable - We value accounts receivable net of an allowance
for uncollectible accounts. This allowance is based on our estimate of the
portion of the receivables that will not be collected in the future. However,
the ultimate collectibility of a receivable is dependent upon the financial
condition of an individual customer, which could change rapidly and without
advance warning. During fiscal 2002, we converted $1.2 million of accounts
receivable from a related party customer into a minority equity interest. In
addition, we accepted stock warrants in exchange for $1.1 million of accounts
receivable from another customer during fiscal 2002. The conversion of accounts
receivable to a minority equity interest and the acceptance of stock warrants
represented full and final settlement of all accounts receivable with such
customers. As of September 30, 2002, the minority equity
16
interest and the stock warrants are recorded net of a $1.2 million and $1.1
million reserve, respectively, in other assets in the accompanying Consolidated
Balance Sheets.
Impairment of Long-Lived Assets - We review property, plant and
equipment for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
property, plant and equipment is measured by comparison of its carrying amount
to future net cash flows which the property, plant and equipment are expected to
generate. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of property,
plant and equipment, if any, exceeds its fair market value. We assess the
recoverability of goodwill by determining whether the unamortized goodwill
balance can be recovered through undiscounted future net cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future net cash flows using a discount rate reflecting
our average cost of funds. As of September 30, 2002, no adjustments to the
carrying value of our long-lived assets were required. In December 2002, we
announced restructuring actions planned for the first fiscal quarter ending
December 31, 2002 which will result in significant adjustments to the carrying
value of certain of our long-term assets. See Notes 1 and 14 to the Notes to
Consolidated Financial Statements.
Restructuring Costs - From time to time, we have recorded restructuring
costs in response to the reduction in our sales levels and reduced capacity
utilization. These restructuring charges included employee severance and benefit
costs, costs related to plant closings, including leased facilities that will be
abandoned (and subleased, as applicable), and impairment of equipment. Severance
and benefit costs are recorded when incurred. For leased facilities that will be
abandoned and subleased, the estimated lease loss is accrued for future lease
payments subsequent to abandonment, less estimated sublease income. For
equipment, the impairment losses recognized are based on the fair value
estimated using existing market prices for similar assets less costs to sell. In
December 2002, we announced our intent to take further global restructuring
actions including the closure of our San Diego, California manufacturing
facility and the consolidation of our Seattle, Washington facilities. See Notes
10 and 14 in the Notes to Consolidated Financial Statements.
ADDITIONAL DISCLOSURES CONCERNING LIQUIDITY AND CAPITAL RESOURCES, INCLUDING
OFF-BALANCE SHEET ARRANGEMENTS
On January 22, 2002, the SEC issued FR-61, "Commission Statement about
Management's Discussion and Analysis of Financial Condition and Results of
Operations." The purpose of this statement is to suggest steps that issuers
should consider in meeting their current disclosure obligations with respect to
the topics described.
1. Liquidity Disclosures
We include a discussion of liquidity and capital resources in
Management's Discussion and Analysis. More specifically, FR-61 requires
management to consider the following to identify trends, demands, commitments,
events and uncertainties that require disclosure:
a. Provisions in financial guarantees or commitments, debt or lease
agreements or other arrangements that could trigger a requirement for an
early payment, additional collateral support, changes in terms,
acceleration of maturity, or the creation of an additional financial
obligation, such as adverse changes in the registrant's credit rating,
financial ratios, earnings, cash flows, or stock price, or changes in
the value of underlying, linked or indexed assets.
Our Credit Facility requires us to maintain certain financial ratios to
comply with the terms of the agreement. No amounts are outstanding under
the Credit Facility at September 30, 2002 and we do not currently
anticipate the need to borrow on the Credit Facility in the near term.
We, along with our banking partners, have amended our Credit Facility to
allow us to revise certain covenants and be in compliance with these
covenants. The amendment was occasioned by the effect of our
restructuring costs and acquisition and merger costs on compliance with
the prior covenants.
17
In December 2002, we announced our intent to take further global
restructuring actions including the closure of our San Diego
manufacturing facility and the consolidation of our Seattle facilities.
Currently, the Company estimates total pre-tax restructuring charges of
approximately $50 million to $60 million to be recorded in its first
fiscal quarter ending December 31, 2002. As a result of these
restructuring charges, we anticipate that we will not meet certain
financial covenants of our Credit Facility for the quarter ending
December 31, 2002. We therefore plan to terminate our Credit Facility
prior to December 31, 2002. It is our intention to seek to replace the
existing Credit Facility with a comparable facility. However, we cannot
assure whether, or under what terms, a new credit facility will be
available. While the availability of a credit facility facilitates
corporate operations, we do not believe that lack of such a facility
would materially affect our operations or financial condition in the
foreseeable future.
b. Circumstances that could impair our ability to continue to engage in
transactions that have been integral to historical operations or are
financially or operationally essential, or that could render that
activity commercially impracticable, such as the inability to maintain a
specified investment grade credit rating, level of earnings, earnings
per share, financial ratios, or collateral.
We are not aware of any specific factor or factors that could reasonably
be expected to impair our ability to continue to engage in our
historical operations at this time.
c. Factors specific to us and our markets that we expect to be given
significant weight in the determination of our credit rating or will
otherwise affect the registrant's ability to raise short-term and
long-term financing.
We are not aware of anything that could reasonably be given significant
weight in the determination of our credit rating or will otherwise
affect our ability to raise short-term and long-term financing.
d. Guarantees of debt or other commitments to third parties. We do not have
any significant guarantees of debt or other commitments to third
parties.
e. Written options on non-financial assets (for example, real estate puts).
We do not have any written options on non-financial assets.
2. Off-Balance Sheet Arrangements
FR-61 indicates that registrants should consider the need to provide disclosures
concerning transactions, arrangements and other relationships with
unconsolidated entities or other persons that are reasonably likely to affect
materially liquidity or the availability of or requirements for capital
resources. We disclosed in Note 4 to the Consolidated Financial Statements in
this 2002 report on Form 10-K, an asset securitization facility that Plexus
entered into in fiscal 2001. Plexus's wholly owned, limited-purpose subsidiary,
Plexus ABS Inc., has agreed to purchase up to $50 million of receivables from
Plexus and sell participating interests to financial institutions. As of
September 30, 2002, the total available funding amount under the asset
securitization facility was approximately $24 million, of which $16.6 million
was utilized. Any interests sold to the financial institutions are removed from
the balance sheet as we have no risk of loss on such receivables since they are
sold without recourse. In April and December 2002, we, along with our banking
partners, amended our receivables purchase agreement to allow us to revise
certain covenants and be in compliance with these covenants.
We also lease various assets under both capital and operating leases.
The aggregate payments under the capital leases and operating leases are
disclosed in Notes 4 and 9, respectively, to our Consolidated Financial
Statements in this 2002 Report on Form 10-K. There were no significant changes
to these lease arrangements during fiscal 2002, with the exception of certain
operating leases assumed by us associated with our January 2002 acquisition of
certain assets of MCMS. These leases primarily relate to production facilities
and equipment in Malaysia and China.
18
3. Disclosures about Contractual Obligations and Commercial Commitments
In FR-61, the SEC notes that current accounting standards require
disclosure concerning a registrant's obligations and commitments to make future
payments under contracts, such as debt and lease agreements, and under
contingent commitments, such as debt guarantees. They also indicate that the
disclosures responsive to these requirements usually are located in various
parts of a registrant's filings. The SEC believes that investors would find it
beneficial if aggregated information about contractual obligations and
commercial commitments were provided in a single location so that a total
picture of obligations would be readily available. They further suggested that
one useful aid to presenting the total picture of a registrant's liquidity and
capital resources and the integral role of on- and off-balance sheet
arrangements may be schedules of contractual obligations and commercial
commitments as of the latest balance sheet date.
We are no different from most other registrants in that our disclosures
are located in various parts of our regulatory filings, including Notes 1, 4, 6,
9, and 11 to our Consolidated Financial Statements in this 2002 Report on Form
10-K. In addition, we prepared schedules as of September 30, 2002 suggested by
the SEC in FR -61. Information in the following table is in thousands as of
September 30, 2002:
PAYMENTS DUE BY PERIOD
2008 AND
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004-2005 2006-2007 THEREAFTER
GROSS CAPITAL LEASE OBLIGATIONS $ 48,656 $ 4,048 $ 7,364 $ 5,897 $ 31,347
OPERATING LEASES 97,250 15,883 26,011 19,994 35,362
UNCONDITIONAL PURCHASE OBLIGATIONS* -- -- -- -- --
-------- -------- -------- -------- --------
TOTAL CONTRACTUAL CASH OBLIGATIONS $145,906 $ 19,931 $ 33,375 $ 25,891 $ 66,709
-------- -------- -------- -------- --------
* - There are no unconditional purchase obligations other than inventory and
property, plant and equipment purchases in the ordinary course of business.
As of September 30, 2002, other than our off-balance sheet asset
securitization facility ($16.6 million as of September 30, 2002), we did not
have, and were not subject to, any other lines of credit, standby letters of
credit, guarantees, standby repurchase obligations, or other commercial
commitments.
DISCLOSURES ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED
CONTRACTS ACCOUNTED FOR AT FAIR VALUE
We do not have any trading activities that include non-exchange traded
contracts accounted for at fair value.
DISCLOSURES ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
We have disclosed the effects of transactions with a related party in
Note 1 to our Consolidated Financial Statements in this 2002 Report on Form
10-K. There were no other significant transactions with related and certain
other parties.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, SFAS No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets" were issued. The statements eliminate the
pooling-of-interests method of accounting for business combinations and require
that goodwill and certain intangible assets not be amortized. Instead, these
assets will be reviewed for impairment annually with any related losses
recognized in earnings when incurred. SFAS No. 141 was effective for us for
business combinations completed subsequent to June 30, 2001. SFAS No. 142 will
be effective for our first quarter of fiscal 2003 for existing goodwill and
intangible assets. The impact of SFAS No. 142 will result in eliminating
approximately $5.1 million of annual amortization of goodwill. However, we will
be required
19
to perform annual impairment tests to determine goodwill impairment, if any,
which could materially affect the results in any given period.
SFAS No. 142 requires that we perform a transitional goodwill
impairment evaluation. Step one of the evaluation requires that we perform an
assessment of whether there was an indication that goodwill was impaired as of
the date of adoption. We are required to adopt SFAS No. 142 effective October 1,
2002 and to complete our step one evaluation by March 31, 2003.
Subsequent to September 30, 2002, we completed step one of the
evaluation and concluded that we have material goodwill impairment, since the
estimated fair value based on expected future discounted cash flows to be
generated from each location was significantly less than the carrying values.
We are in the process of completing the second step of the transitional
impairment test for these locations. In the second step, we must compare the
implied fair value of each location's goodwill, determined by allocating its
fair value to all of its assets (recognized and unrecognized) and liabilities in
a manner similar to a purchase price allocation for an acquired business, to its
carrying amount, both of which would be measured at the date of adoption. The
second step of the evaluation is required to be completed as soon as possible,
but no later than September 30, 2003. In connection with allocating the fair
value of the locations to the various assets and liabilities, we are in the
process of obtaining independent valuations of unrecognized intangible assets
and fixed assets. Upon completion of step two, any transitional impairment loss
will be recognized as the cumulative effect of a change in accounting principle
in our statement of operations.
In December 2002, the primary customer of our San Diego facility
provided notice of its intent to move two new programs to other non-Plexus
facilities during our second fiscal quarter of 2003. As a consequence, we intend
to close the San Diego facility by the end of June 2003. We anticipate recording
pre-tax restructuring charges of approximately $35 million to $45 million
associated with the closing of the San Diego facility in the first quarter of
fiscal 2003. These restructuring charges will include both an additional
impairment of goodwill and the initial SFAS No. 142 impairment evaluation as of
October 1, 2002. As of September 30, 2002, we have unamortized goodwill of
approximately $20.4 million associated with the San Diego facility. As a result
of these actions and the newly required periodic review of goodwill under SFAS
No. 142, this amount will be fully written off in the first quarter of fiscal
2003.
In August 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations" was issued. SFAS No. 143 sets forth the financial accounting and
reporting to be followed for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are to
be capitalized as part of the carrying amount of the long-lived asset.
Subsequently, the recorded liability will be accreted to its present value and
the capitalized costs will be depreciated. SFAS No. 143 will be effective for
our first quarter of fiscal 2003 and is not expected to have a material effect
on our financial position or results of operations.
In October 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued. SFAS No. 144 modifies and expands the
financial accounting and reporting for the impairment or disposal of long-lived
assets other than goodwill, which is specifically addressed by SFAS No. 142.
SFAS No. 144 maintains the requirement that an impairment loss be recognized for
a long-lived asset to be held and used if its carrying value is not recoverable
from its undiscounted cash flows, with the recognized impairment being the
difference between the carrying amount and fair value of the asset. With respect
to long-lived assets to be disposed of other than by sale, SFAS No. 144 requires
that the asset be considered held and used until it is actually disposed of, but
requires that its depreciable life be revised in accordance with APB Opinion No.
20, "Accounting Changes." SFAS No. 144 also requires that an impairment loss be
recognized at the date a long-lived asset is exchanged for a similar productive
asset. SFAS No. 144 will be effective for our first quarter of fiscal 2003. We
are currently evaluating the impact of SFAS No. 144.
In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was
issued. The Statement rescinds SFAS No. 4 and requires that
20
only unusual or infrequent gains and losses from extinguishment of debt should
be classified as extraordinary items, consistent with APB 30. This statement
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends certain
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 will be
effective for our first quarter of fiscal 2003 and are not expected to have a
material effect on our financial position or result of operations. The remaining
provisions of this statement became effective for us starting May 15, 2002 and
did not have a material effect on our financial position or results of
operations.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities," was issued. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This Statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3, a liability for an exit cost as defined
in Issue 94-3 was recognized at the date of an entity's commitment to an exit
plan. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. We are currently evaluating the impact of SFAS No. 146.
Restructuring charges recorded in fiscal 2002 and 2001, as discussed in Note 10,
were recorded in accordance with Issue 94-3.
RISK FACTORS
OUR CUSTOMER REQUIREMENTS AND OPERATING RESULTS VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER, WHICH COULD NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.
Our quarterly and annual results may vary significantly depending on
various factors, many of which are beyond our control. These factors include:
- the volume of customer orders relative to our capacity
- the level and timing of customer orders, particularly in light of the
fact that some of our customers release a significant percentage of
their orders during the last few weeks of a quarter
- the typical short life cycle of our customers' products
- market acceptance of and demand for our customers' products
- changes in our sales mix to our customers
- the timing of our expenditures in anticipation of future orders
- our effectiveness in managing manufacturing processes
- changes in cost and availability of labor and components
- changes in economic conditions
- local events that may affect our production volume, such as local
holidays.
The EMS industry is impacted by the state of the U.S. and global
economies and world events. A continued slowdown in the U.S. or global
economies, or in particular in the industries served by us, may result in our
customers further reducing their forecasts. Our sales have been, and are
expected to continue to be, impacted by the slowdown in the
networking/datacommunications, industrial and computer markets, which more
recently have been further impacted by reduced end-market demand and reduced
availability of capital resources to fund existing and emerging technologies.
These factors contributed substantially to the decline in our fiscal 2002 net
sales. As a result, the demand for our services could continue to be weak or
decrease, which in turn would impact our sales, capacity utilization, margins
and results.
Due to the nature of turnkey manufacturing services, our quarterly and
annual results are affected by the level and timing of customer orders,
fluctuations in material costs and availability, and the degree of capacity
utilization in the manufacturing process.
21
THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS AND IF WE LOSE
ANY OF THESE CUSTOMERS, OUR SALES AND OPERATING RESULTS COULD DECLINE
SIGNIFICANTLY.
Sales to our ten largest customers have represented a majority or near
majority of our sales in recent periods. Our ten largest customers accounted for
approximately 48 percent, 51 percent and 63 percent of our net sales for the
years ended September 30, 2002, 2001 and 2000, respectively. The identities of
our principal customers have varied from year to year, and our principal
customers may not continue to purchase services from us at current levels, if at
all. Significant reductions in sales to any of these customers, or the loss of
major customers, could seriously harm our business. For example, the primary
customer of our San Diego, California facility provided us notice in December
2002 of its intent to move two new programs to other non-Plexus facilities
during our second fiscal quarter of 2003; as a consequence, we are closing that
facility and taking significant restructuring charges in the first quarter of
fiscal 2003. If we are not able to replace expired, canceled or reduced
contracts with new business on a timely basis, our sales will decrease.
OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
PRODUCTION.
Electronics manufacturing service providers must provide increasingly
rapid product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers and we continue to experience
reduced lead-times in customer orders. Customers may cancel their orders, change
production quantities or delay production for a number of reasons which are
beyond our control. The success of our customers' products in the market and the
strength of the markets themselves affect our business. Cancellations,
reductions or delays by a significant customer or by a group of customers could
seriously harm our operating results. Such cancellations, reductions or delays
have occurred and may continue to occur in response to the slowdown in the
networking/datacommunications/telecom, industrial/commercial and computer
industries as a result of the overall weakness of the economy.
In addition, we make significant decisions, including determining the
levels of business that we will seek and accept, production schedules, component
procurement commitments, facility requirements, personnel needs and other
resource requirements, based on our estimates of customer requirements. The
short-term nature of our customers' commitments and the possibility of rapid
changes in demand for their products reduce our ability to estimate accurately
the future requirements of those customers. Because many of our costs and
operating expenses are relatively fixed, a reduction in customer demand can harm
our gross margins and operating results.
On occasion, customers may require rapid increases in production, which
can stress our resources and reduce operating margins. Although we have had a
net increase in our manufacturing capacity over the past few fiscal years, we
may not have sufficient capacity at any given time to meet all of our customers'
demands or to meet the requirements of a specific project.
WE MAY HAVE SIGNIFICANT NEW CUSTOMER RELATIONSHIPS WITH EMERGING COMPANIES,
WHICH MAY PRESENT MORE RISKS THAN WITH ESTABLISHED COMPANIES.
We currently anticipate that a significant percentage of our sales will
continue to be to emerging companies, including start-ups, particularly in the
networking/datacommunications market. However, similar to our other customer
relationships, there are no volume purchase commitments under these new
programs, and the revenues we actually achieve may not meet our expectations. In
anticipation of future activities under these programs, we incur substantial
expenses as we add personnel and manufacturing capacity and procure materials.
Because emerging companies do not have a history of operations, it will be
harder for us to anticipate needs and requirements than with established
customers. Our operating results will be harmed if sales do not develop to the
extent and within the time frame we anticipate.
Customer relationships with emerging companies also present special
risks. For example, because they do not have an extensive product history, there
is less demonstration of market acceptance of their products. Also, due to the
current economic environment, additional funding for such companies may be more
difficult to obtain and these customer relationships may not continue or
materialize to the extent we plan or we previously experienced. This tightening
of financing for start-up customers, together with many start-up customers' lack
of prior earnings and unproven product markets increase our credit risk,
especially in accounts receivable and inventories. Although
22
we adjust our reserves for accounts receivable and inventories for all
customers, including start-up customers, based on the information available,
these reserves may not be adequate.
FAILURE TO MANAGE OUR GROWTH AND OUR CONTRACTION MAY SERIOUSLY HARM OUR
BUSINESS.
We have experienced rapid growth in recent years, both internally and
through acquisitions, even though the most recent periods have seen reductions
in sales levels. This growth has placed, and will continue to place, significant
strain on our operations. To manage our growth effectively, we must continue to
improve and expand our financial, operational and management information
systems; continue to develop the management skills of our managers and
supervisors; and continue to train, manage and motivate our employees. If we are
unable to manage our growth effectively, our operating results could be harmed.
Periods of contraction or reduced sales, such as fiscal 2002, also
create tensions and challenges. We must determine whether all facilities remain
productive and determine how to respond to changing levels of customer demand.
While maintenance of facilities increases short-term costs, too much capacity
reduction could impair our ability to respond to later market improvements or to
maintain customer relationships. Our decisions as to how to reduce costs and
capacity can affect our results in both the short-term and long-term.
We have a licensing arrangement for new ERP software and related
information systems. Conversions to new software and systems are complicated
processes, and can cause management and operational disruptions which may affect
us. Information flow and production could also be affected if the new software
and systems do not perform as we expect.
WE MAY FAIL TO SUCCESSFULLY COMPLETE FUTURE ACQUISITIONS AND MAY NOT
SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES, WHICH COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
We have pursued a strategy that has included growth through
acquisitions. We cannot assure you that we will be able to successfully complete
future acquisitions, due primarily to increased competition for the acquisition
of electronics manufacturing service operations. If we are unable to acquire
additional businesses, our growth could be inhibited. Similarly, we cannot
assure you that we will be able to successfully integrate the operations and
management of our recent acquisitions, such as MCMS or future acquisitions.
Acquisitions involve significant risks that could have a material adverse effect
on us. These risks include:
OPERATING RISKS, SUCH AS THE:
- inability to integrate successfully our acquired operations'
businesses and personnel
- inability to realize anticipated synergies, economies of scale or
other value
- difficulties in scaling up production and coordinating management
of operations at new sites
- strain placed on our personnel, systems and resources
- possible modification or termination of an acquired business
customer programs, including cancellation of current or
anticipated programs
- loss of key employees of acquired businesses.
FINANCIAL RISKS, SUCH AS THE:
- use of cash resources, or incurrence of additional debt and
related interest costs
- dilutive effect of the issuance of additional equity securities
- inability to achieve expected operating margins to offset the
increased fixed costs associated with acquisitions, and/or
inability to increase margins at acquired entities to Plexus'
desired levels
- incurrence of large write-offs or write-downs
- impairment of goodwill and amortization of other intangible
assets
- unforeseen liabilities of the acquired businesses.
23
EXPANSION OF OUR BUSINESS AND OPERATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.
We may expand our operations by establishing or acquiring new
facilities or by expanding capacity in our current facilities. We may expand
both in geographical areas in which we currently operate and in new geographical
areas within the United States and internationally. We may not be able to find
suitable facilities on a timely basis or on terms satisfactory to us. Expansion
of our business and operations involves numerous business risks, including the:
- inability to successfully integrate additional facilities or capacity
and to realize anticipated synergies, economies of scale or other value
- additional fixed costs which may not be fully absorbed by the new
business
- difficulties in the timing of expansions, including delays in the
implementation of construction and manufacturing plans
- creation of excess capacity, and the need to reduce capacity elsewhere
if anticipated sales or opportunities do not materialize
- diversion of management's attention from other business areas during
the planning and implementation of expansions
- strain placed on our operational, financial, management, technical and
information systems and resources
- disruption in manufacturing operations
- incurrence of significant costs and expenses
- inability to locate enough customers or employees to support the
expansion.
OPERATING IN FOREIGN COUNTRIES EXPOSES US TO INCREASED RISKS.
As part of the MCMS acquisition in January 2002, we acquired operations
located in China and Malaysia. In addition, we acquired operations in Mexico and
the United Kingdom in fiscal 2000. We may in the future expand into other
international regions. We have limited experience in managing geographically
dispersed operations and in operating in Mexico and the United Kingdom, and had
no prior experience in China and Malaysia. We also purchase a significant number
of components manufactured in foreign countries. Because of these international
aspects of our operations, we are subject to the following risks that could
materially impact our operating results:
- economic or political instability
- transportation delays or interruptions and other effects of less
developed infrastructure in many countries
- foreign exchange rate fluctuations
- utilization of different systems and equipment
- difficulties in staffing and managing foreign personnel and diverse
cultures
- the effects of international political developments.
In addition, changes in policies by the U.S. or foreign governments
could negatively affect our operating results due to changes in duties, tariffs,
taxes or limitations on currency or fund transfers. For example, our Mexico
based operation utilizes the Maquiladora program, which provides reduced tariffs
and eases import regulations, and we could be adversely affected by changes in
that program. Also, the newly acquired Chinese and Malaysian subsidiaries
currently receive favorable tax treatment from the governments in those
countries for approximately 4 to 10 years, which may or may not be renewed.
WE MAY NOT BE ABLE TO MAINTAIN OUR ENGINEERING, TECHNOLOGICAL AND MANUFACTURING
PROCESS EXPERTISE.
The markets for our manufacturing and engineering services are
characterized by rapidly changing technology and evolving process development.
The continued success of our business will depend upon our ability to:
- hire, retain and expand our qualified engineering and technical
personnel
- maintain and enhance our technological capabilities
- develop and market manufacturing services which meet changing customer
needs
- successfully anticipate or respond to technological changes in
manufacturing processes on a cost-effective and timely basis.
24
Although we believe that our operations utilize the assembly and
testing technologies, equipment and processes that are currently required by our
customers, we cannot be certain that we will develop the capabilities required
by our customers in the future. The emergence of new technology industry
standards or customer requirements may render our equipment, inventory or
processes obsolete or noncompetitive. In addition, we may have to acquire new
assembly and testing technologies and equipment to remain competitive. The
acquisition and implementation of new technologies and equipment may require
significant expense or capital investment which could reduce our operating
margins and our operating results. Our failure to anticipate and adapt to our
customers' changing technological needs and requirements could have an adverse
effect on our business.
WE MAY NOT BE ABLE TO OBTAIN RAW MATERIALS OR COMPONENTS FOR OUR ASSEMBLIES ON A
TIMELY BASIS OR AT ALL.
We rely on a limited number of suppliers for many components used in
the assembly process. We do not have any long-term supply agreements. At various
times, there have been shortages of some of the electronic components that we
use, and suppliers of some components have lacked sufficient capacity to meet
the demand for these components. During fiscal 2000 and early fiscal 2001,
component shortages were prevalent in our industry, and in certain areas recur
from time to time. In some cases, supply shortages and delays in deliveries of
particular components have resulted in curtailed production, or delays in
production, of assemblies using that component, which contributed to an increase
in our inventory levels. We expect that shortages and delays in deliveries of
some components will continue from time to time. An increase in economic
activity could also result in shortages, if manufacturers of components do not
adequately anticipate the increased orders. If we are unable to obtain
sufficient components on a timely basis, we may experience manufacturing and
shipping delays, which could harm our relationships with customers and reduce
our sales.
A significant portion of our sales is derived from turnkey manufacturing in
which we provide materials procurement. While most of our customer contracts
permit quarterly or other periodic adjustments to pricing based on decreases and
increases in component prices and other factors, we typically bear the risk of
component price increases that occur between any such repricings or, if such
repricing is not permitted, during the balance of the term of the particular
customer contract. Accordingly, component price increases could adversely affect
our operating results.
OUR TURNKEY MANUFACTURING SERVICES INVOLVE INVENTORY RISK.
Most of our contract manufacturing services are provided on a turnkey
basis, where we purchase some or all of the materials required for designing,
product assembling and manufacturing. These services involve greater resource
investment and inventory risk management than consignment services, where the
customer provides these materials. Accordingly, various component price
increases and inventory obsolescence could adversely affect our selling price,
gross margins and operating results.
In our turnkey operations, we need to order parts and supplies based on
customer forecasts, which may be for a larger quantity of product than is
included in the firm orders ultimately received from those customers. Customers'
cancellation or reduction of orders can result in expenses to us. While many of
our customer agreements include provisions which require customers to reimburse
us for excess inventory specifically ordered to meet their forecasts, we may not
actually be reimbursed or be able to collect on these obligations. In that case,
we could have excess inventory and/or cancellation or return charges from our
supplies.
START-UP COSTS AND INEFFICIENCIES RELATED TO NEW PROGRAMS CAN ADVERSELY AFFECT
OUR OPERATING RESULTS.
Start-up costs, the management of labor and equipment resources in
connection with the establishment of new programs and new customer
relationships, and the need to estimate required resources in advance can
adversely affect our gross margins and operating results. These factors are
particularly evident in the early stages of the life cycle of new products and
new programs. These factors also affect our ability to efficiently use labor and
equipment. In addition, if any of these new programs or new customer
relationships were terminated, our operating results could be harmed,
particularly in the short term.
25
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS.
We are also subject to environmental regulations relating to the use,
storage, discharge, recycling and disposal of hazardous chemicals used in our
manufacturing process. If we fail to comply with present and future regulations,
we could be subject to future liabilities or the suspension of business. These
regulations could restrict our ability to expand our facilities or require us to
acquire costly equipment or incur significant expense. While we are not
currently aware of any material violations, we may have to spend funds to comply
with present and future regulations or be required to perform site remediation.
In addition, our medical device business, which represented
approximately 28 percent of our fiscal year 2002 sales, is subject to
substantial government regulation, primarily from the FDA and similar regulatory
bodies in other countries. We must comply with statutes and regulations covering
the design, development, testing, manufacturing and labeling of medical devices
and the reporting of certain information regarding their safety. Failure to
comply with these rules can result in, among other things, our and our
customers' being subject to fines, injunctions, civil penalties, criminal
prosecution, recall or seizure of devices, total or partial suspension of
production, failure of the government to grant pre-market clearance or record
approvals for projections or the withdrawal of marketing approvals. The FDA also
has the authority to require repair or replacement of equipment, or refund of
the cost of a device manufactured or distributed by our customers. Violations
may lead to penalties or shutdowns of a program or a facility. In addition, the
failure or noncompliance could have an adverse effect on our reputation.
PRODUCTS WE MANUFACTURE MAY CONTAIN DESIGN OR MANUFACTURING DEFECTS WHICH COULD
RESULT IN REDUCED DEMAND FOR OUR SERVICES AND LIABILITY CLAIMS AGAINST US.
We manufacture products to our customers' specifications which are
highly complex and may at times contain design or manufacturing errors or
failures. Defects have been discovered in products we manufactured in the past
and, despite our quality control and quality assurance efforts, defects may
occur in the future. Defects in the products we manufacture, whether caused by a
design, manufacturing or component failure or error, may result in delayed
shipments to customers or reduced or cancelled customer orders. If these defects
occur in large quantities or too frequently, our business reputation may also be
impaired. In addition, these defects may result in liability claims against us.
Even if customers are responsible for the defects, they may or may not be able
to assume responsibility for any costs or payments.
OUR PRODUCTS ARE FOR THE ELECTRONICS INDUSTRY, WHICH PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES.
Factors affecting the electronics industry, in particular the short
life cycle of products, could seriously harm our customers and, as a result, us.
These factors include:
- the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which result in short product life
cycles
- the inability of our customers to develop and market their products,
some of which are new and untested
- the potential that our customers' products may become obsolete or the
failure of our customers' products to gain widespread commercial
acceptance.
INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND OR PRICES FOR OUR SERVICES.
The electronics manufacturing services industry is highly competitive.
We compete against numerous U.S. and foreign electronics manufacturing services
providers with global operations, as well as those who operate on a local or
regional basis. In addition, current and prospective customers continually
evaluate the merits of manufacturing products internally. Consolidations and
other changes in the electronics manufacturing services industry result in a
continually changing competitive landscape. The consolidation trend in the
industry also results in larger and more geographically diverse competitors who
have significant combined resources with which to compete against us.
26
Some of our competitors have substantially greater managerial,
manufacturing, engineering, technical, financial, systems, sales and marketing
resources than we do. These competitors may:
- respond more quickly to new or emerging technologies
- have greater name recognition, critical mass and geographic and market
presence
- be better able to take advantage of acquisition opportunities
- adapt more quickly to changes in customer requirements
- devote greater resources to the development, promotion and sale of
their services
- be better positioned to compete on price for their services.
We may be operating at a cost disadvantage compared to manufacturers
who have greater direct buying power from component suppliers, distributors and
raw material suppliers or who have lower cost structures. As a result,
competitors may procure a competitive advantage and obtain business from our
customers. Our manufacturing processes are generally not subject to significant
proprietary protection, and companies with greater resources or a greater market
presence may enter our market or increase their competition with us. Increased
competition could result in price reductions, reduced sales and margins or loss
of market share.
WE MAY FAIL TO SECURE OR MAINTAIN NECESSARY FINANCING.
We have made and intend to continue to make substantial capital
expenditures to expand our operations, acquire businesses and remain competitive
in the rapidly changing electronics manufacturing services industry. Our ability
to borrow under our current credit facility is dependent upon compliance with
various financial covenants. As a result of first quarter 2003 restructuring
charges, we anticipate that we will not meet certain financial covenants of our
unsecured revolving credit facility for the quarter ending December 31, 2002. We
therefore plan to terminate our unsecured revolving credit facility prior to
December 31, 2002. It is our intention to seek to replace the revolving credit
facility. However we cannot assure whether, or under what terms, a new credit
facility will be available.
Our future success may depend on our ability to obtain financing and
capital to support our continued growth and operations, including our working
capital needs. We may seek to raise capital by:
- issuing additional common stock or other equity securities
- issuing debt securities
- obtaining new credit facilities
- obtaining off-balance-sheet financing.
We may not be able to obtain capital when we want or need it, and
capital may not be available on satisfactory terms. If we issue additional
equity securities or convertible debt to raise capital, it may be dilutive to
your ownership interest. Furthermore, any additional financing and capital may
have terms and conditions that adversely affect our business, such as
restrictive financial or operating covenants, and our ability to meet any
financing covenants will largely depend on our financial performance, which in
turn will be subject to general economic conditions and financial, business and
other factors.
WE DEPEND ON CERTAIN KEY PERSONNEL, AND THE LOSS OF KEY PERSONNEL MAY HARM OUR
BUSINESS.
Our future success depends in large part on the continued service of
our key technical and management personnel, and on our ability to continue to
attract and retain qualified employees, particularly those highly skilled
design, process and test engineers involved in the development of new products
and processes and the manufacture of existing products. The competition for
these individuals is significant, and the loss of key employees, generally none
of whom is subject to an employment agreement for a specified term or a
post-employment non-competition agreement, could harm our business.
27
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
Our stock price has fluctuated significantly and experienced declines
in recent periods. The price of our common stock may fluctuate significantly in
response to a number of events and factors relating to our company, our
competitors and the market for our services, many of which are beyond our
control.
In addition, the stock market in general, and especially the Nasdaq
Stock Market along with market prices for technology companies in particular,
have experienced extreme volatility and weakness that has often been unrelated
to the operating performance of these companies. These broad market and industry
fluctuations may adversely affect the market price of our common stock,
regardless of our operating results.
Among other things, volatility and weakness in Plexus' stock price
could mean that investors will not be able to sell their shares at or above the
prices which they pay. The volatility and weakness could also impair Plexus'
ability in the future to offer common stock or convertible securities as a
source of additional capital and/or as consideration in the acquisition of other
businesses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in foreign exchange and
interest rates. To reduce such risks, we selectively use financial instruments.
A discussion of our accounting policy for derivative financial instruments is
incorporated by reference from our Consolidated Financial Statements and Notes
thereto, in this Form 10-K, within Note 1--"Description of Business and
Significant Accounting Policies."
FOREIGN CURRENCY RISK
We do not use derivative financial instruments for speculative
purposes. Our policy is to selectively hedge our foreign currency denominated
transactions in a manner that substantially offsets the effects of changes in
foreign currency exchange rates. Presently, we use foreign currency contracts to
hedge only those currency exposures associated with certain assets and
liabilities denominated in non-functional currencies. Corresponding gains and
losses on the underlying transaction generally offset the gains and losses on
these foreign currency hedges. Our fiscal 2002 expansion into additional
international markets (Malaysia and China) may increase the complexity and size
of our foreign exchange risk. As of September 30, 2002, our foreign currency
contracts were scheduled to mature in less than three months and were not
material.
INTEREST RATE RISK
We have financial instruments, including cash equivalents and
short-term investments, which are sensitive to changes in interest rates. We
consider the use of interest-rate swaps based on existing market conditions. We
currently do not use any interest-rate swaps or other types of derivative
financial instruments to hedge interest rate risk.
The primary objective of our investment activities is to preserve
principal, while maximizing yields without significantly increasing market risk.
To achieve this, we maintain our portfolio of cash equivalents and short-term
investments in a variety of highly rated securities, money market funds and
certificates of deposit and limit the amount of principal exposure to any one
issuer.
Our only material interest rate risk is associated with our credit
facilities and asset securitization facility. Interest on borrowings is computed
at the applicable Eurocurrency rate on the agreed currency. A 10 percent change
in our weighted average interest rate on average long-term borrowings would have
impacted net interest expense by approximately $0.4 million, $0.6 million and
$0.3 million for fiscal 2002, 2001 and 2000 respectively.
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 31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
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
2003 Annual Meeting of Shareholders ("2003 Proxy Statement") and from "Security
Ownership of Certain Beneficial Owners and Management--Section 16(a) Beneficial
Ownership Reporting Compliance" in the 2003 Proxy Statement and "Executive
Officers of the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to "Election of Directors - Directors'
Compensation" and "Executive Compensation" in the 2003 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 2003 Proxy Statement.
EQUITY COMPENSATION PLAN INFORMATION
The following chart gives aggregate information regarding grants under
all Plexus equity compensation plans through September 30, 2002).
Number of securities
remaining available
Number of securities for future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected
Plan category warrants and rights (1) warrants and rights in 1st column) (2)
------------- ----------------------- ------------------- ------------------
Equity compensation plans approved
by securityholders 4,481,949 $ 19.40 2,476,951
Equity compensation plans not
approved by securityholders -0- n/a -0-
--------- ----------- ---------
Total (3) 4,481,949 $ 19.40 2,476,951
========= =========== =========
- ------------------
(1) Represents options granted under the Plexus 1998 Stock Option Plan or
the 1995 Directors' Stock Option Plan (the "Option Plans"), which were
approved by shareholders.
(2) Includes additional options which may be granted under the Option
Plans, and authorized shares which have not yet been purchased by
employees under the Plexus 2000 Employee Stock Purchase Plan.
(3) In addition, there are outstanding options to purchase 61,791 shares,
at a weighted average price of $17.54, under option plans of acquired
companies. Options under these plans were converted into options to
acquire Plexus stock in the respective mergers. Plexus cannot grant
additional options under the plans of the acquired companies.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Incorporated herein by reference to "Certain Transactions" in
the 2003 Proxy Statement.
29
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Plexus and the
certifying officers of this report have implemented disclosure controls
and procedures, as defined in Rules 13d - 14(c) and 15d - 14(c) under
the Securities Exchange Act of 1934 (the "Exchange Act") to ensure that
material information relating to Plexus is made known to the signing
officers, and consequently reflected in periodic SEC reports. These
controls and procedures have been augmented and further formalized in
part in response to the adoption of the Sarbanes-Oxley Act of 2002, but
build upon already existing practices. Plexus and those officers have
evaluated for this report the effectiveness of those disclosure
controls and procedures within 90 days prior to filing of this report,
and will similarly review them for future filings. Based upon this
evaluation, Plexus and the certifying officers believe that these
disclosure controls and procedures are effective, in bringing to their
attention on a timely basis, material information relating to Plexus
required to be included in Plexus' periodic filings under the Exchange
Act.
(b) Changes in internal controls. During the period since the evaluation
referred to above, there were not any significant changes in Plexus's
internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including
any corrective actions with respect to significant deficiencies and
material weaknesses.
(c) Asset-backed issuers. Not applicable.
PART IV
ITEM 15. 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 31 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. Plexus did not file any Reports on Form 8-K in the
fourth quarter of fiscal 2002.
30
PLEXUS CORP.
LIST OF FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
CONTENTS PAGES
- -------- -----
Report of Independent Accountants ........................................................... 32
Consolidated Financial Statements:
Consolidated Statements of Operations for the three years ended
September 30, 2002, 2001 and 2000 .................................................. 33
Consolidated Balance Sheets as of September 30, 2002 and 2001....................... 34
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
for the three years ended September 30, 2002, 2001 and 2000......................... 35
Consolidated Statements of Cash Flows for the three years ended
September 30, 2002, 2001 and 2000................................................... 36
Notes to Consolidated Financial Statements .................................................. 37-51
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the three years ended
September 30, 2002, 2001 and 2000................................................... 52
31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
of Plexus Corp.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Plexus
Corp. and its subsidiaries at September 30, 2002 and September 30, 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, 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 provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Milwaukee, WI
October 24, 2002, except for certain
information in Notes 4 and 14 as to
which the date is December 13, 2002.
32
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2002 2001 2000
----------- ----------- -----------
Net sales $ 883,603 $ 1,062,304 $ 751,639
Cost of sales 802,283 930,514 644,475
----------- ----------- -----------
Gross profit 81,320 131,790 107,164
Operating expenses:
Selling and administrative expenses 66,921 55,844 35,049
Amortization of goodwill 5,203 4,022 1,114
Restructuring costs 12,581 1,926 --
Acquisition and merger costs 251 1,610 1,131
----------- ----------- -----------
84,956 63,402 37,294
----------- ----------- -----------
Operating income (loss) (3,636) 68,388 69,870
Other income (expense):
Interest expense (3,821) (6,448) (2,579)
Miscellaneous 1,631 3,426 1,338
----------- ----------- -----------
Income (loss) before income taxes (5,826) 65,366 68,629
Income tax expense (benefit) (1,753) 26,216 28,433
----------- ----------- -----------
Net income (loss) $ (4,073) $ 39,150 $ 40,196
=========== =========== ===========
Earnings per share:
Basic $ (0.10) $ 0.95 $ 1.12
=========== =========== ===========
Diluted $ (0.10) $ 0.91 $ 1.04
=========== =========== ===========
Weighted average shares outstanding:
Basic 41,895 41,129 36,026
=========== =========== ===========
Diluted 41,895 43,230 38,732
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
33
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 63,347 $ 84,591
Short-term investments 53,025 20,775
Accounts receivable, net of allowances of $4,200 and $6,500, respectively 95,903 114,055
Inventories 94,032 135,409
Deferred income taxes 21,283 13,662
Prepaid expenses and other 14,221 10,317
--------- ---------
Total current assets 341,811 378,809
Property, plant and equipment, net 170,834 145,928
Goodwill, net 64,957 70,514
Deferred income taxes 355 3,624
Other 5,988 3,650
--------- ---------
Total assets $ 583,945 $ 602,525
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,652 $ 8,175
Accounts payable 67,310 52,307
Customer deposits 13,904 16,051
Accrued liabilities:
Salaries and wages 17,505 15,505
Other 21,586 9,716
--------- ---------
Total current liabilities 121,957 101,754
Long-term debt and capital lease obligations, net of current portion 25,356 70,016
Other liabilities 5,943 3,903
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized, none issued
or outstanding -- --
Common stock, $.01 par value, 200,000 shares authorized,
and 42,030 and 41,757 issued and outstanding, respectively 420 418
Additional paid-in capital 256,584 251,932
Retained earnings 170,818 174,891
Accumulated other comprehensive income (loss) 2,867 (389)
--------- ---------
430,689 426,852
--------- ---------
Total liabilities and shareholders' equity $ 583,945 $ 602,525
========= =========
The accompanying notes are an integral part of these consolidated
financial statements
34
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED
SEPTEMBER 30, 2002, 2001 AND 2000
(IN THOUSANDS)
Accumulated
Common Stock Additional Other
----------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
--------------------------------------------------------------------------
BALANCES, OCTOBER 1, 1999 17,545 $ 175 $ 51,425 $ 94,803 $ -- $ 146,403
Comprehensive income:
Net income -- -- -- 40,196 -- 40,196
Foreign currency translation adjustments -- -- -- -- (285) (285)
---------
Total comprehensive income 39,911
Effect of Agility pooling 375 4 3 1,578 -- 1,585
Exercise of stock options, including tax benefits 623 6 21,457 -- -- 21,463
Two-for-one common stock split, August 31, 2000 18,511 186 (186) -- -- --
------ --------- --------- --------- --------- ---------
BALANCES, SEPTEMBER 30, 2000 37,054 371 72,699 136,577 (285) 209,362
Comprehensive income:
Net income -- -- -- 39,150 -- 39,150
Foreign currency hedges and translation adjustments -- -- -- -- (104) (104)
---------
Total comprehensive income 39,046
Issuances of common stock 3,544 35 166,140 -- -- 166,175
Effect of e2E pooling 463 5 2,473 (836) -- 1,642
Exercise of stock options, including tax benefits 696 7 10,620 -- -- 10,627
------ --------- --------- --------- --------- ---------
BALANCES, SEPTEMBER 30, 2001 41,757 418 251,932 174,891 (389) 426,852
Comprehensive income (loss):
Net loss -- -- -- (4,073) -- (4,073)
Foreign currency hedges and translation adjustments 3,277 3,277
Other -- -- -- -- (21) (21)
---------
Total comprehensive loss (817)
Issuances of common stock 132 1 2,398 -- -- 2,399
Exercise of stock options, including tax benefits 141 1 2,254 -- -- 2,255
------ --------- --------- --------- --------- ---------
BALANCES, SEPTEMBER 30, 2002 42,030 $ 420 $ 256,584 $ 170,818 $ 2,867 $ 430,689
====== ========= ========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
35
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
(IN THOUSANDS)
2002 2001 2000
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,073) $ 39,150 $ 40,196
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization 36,604 29,890 16,307
Non-cash restructuring charges 4,890 103 --
Net (repayments) borrowings under asset securitization facility (6,305) 22,916 --
Income tax benefit of stock option exercises 984 7,420 13,123
Provision for inventories and accounts receivable allowances 19,190 17,584 6,849
Deferred income taxes (4,352) (1,287) (1,924)
Changes in assets and liabilities:
Accounts receivable 33,444 11,334 (51,204)
Inventories 34,414 78,455 (118,102)
Prepaid expenses and other (3,462) (6,087) (61)
Accounts payable 7,504 (66,825) 27,623
Customer deposits (2,152) 5,624 1,087
Accrued liabilities 14,388 (14,244) 14,351
Other (619) (4,554) 363
--------- --------- ---------
Cash flows provided by (used in) operating activities 130,455 119,479 (51,392)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (52,550) (57,475) (48,042)
Sales and maturities of short-term investments 20,300 36,700 65,266
Payments for property, plant and equipment (30,760) (54,560) (44,228)
Proceeds on sale of property, plant and equipment 561 48 52
Payments for business acquisitions, net of cash acquired (41,985) (32,600) (73,388)
--------- --------- ---------
Cash flows used in investing activities (104,434) (107,887) (100,340)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 190,437 167,361 265,268
Payments on debt and capital lease obligations (242,797) (269,018) (132,204)
Proceeds from exercise of stock options 1,271 3,207 8,347
Issuances of common stock 2,399 166,175 --
--------- --------- ---------
Cash flows provided by (used in) financing activities (48,690) 67,725 141,411
--------- --------- ---------
Effect of foreign currency translation on cash 1,425 (19) (292)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (21,244) 79,298 (10,613)
Cash and cash equivalents, beginning of year 84,591 5,293 15,906
--------- --------- ---------
Cash and cash equivalents, end of year $ 63,347 $ 84,591 $ 5,293
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements
36
PLEXUS CORP.
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
networking/datacommunications, medical, industrial, computer and
transportation 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
test/repair.
The contract manufacturing services are provided on either a
turnkey basis, whereby 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 over
90 percent 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.
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 include 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 or rate reset 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 loss, net of the related income tax effect. At September 30,
2002, 2001 and 2000, such unrealized gains and losses were not
material. In addition, there were no realized gains or losses in fiscal
2002, 2001 and 2000.
Short-term investments as of September 30, 2002 and 2001
consist primarily of state and municipal securities. As of September
30, 2002 and 2001 cash and cash equivalents included the following
securities:
2002 2001
------- -------
Money market funds and other $20,154 $64,031
U.S. corporate and bank debt 15,083 11,094
State and municipal securities -- 5,160
------- -------
$35,237 $80,285
======= =======
Inventories: Inventories are valued primarily at the lower of
cost or market. Cost is determined by the first-in, first-out (FIFO)
method. Valuing inventories at the lower of cost or market requires the
use of estimates and judgment. Customers may cancel their orders,
change production quantities or delay production for a number of
reasons which are beyond the Company's control. Any of these, or
certain additional actions, could impact the valuation of inventory.
Any actions taken by the Company's customers that could impact the
value of its inventory are considered when determining the lower of
cost or market valuations.
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:
Buildings and improvements 15-40 years
Machinery and equipment 3-10 years
37
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Certain facilities and equipment held under capital leases are
classified as property, plant and equipment and amortized using the
straight-line method over the lease terms and the related obligations
are recorded as liabilities. Lease amortization is included in
depreciation expense.
Goodwill, net: Goodwill associated with acquisitions completed
prior to June 30, 2001 is amortized using the straight-line method for
periods of up to 15 years. As of September 30, 2002 and 2001, goodwill
is recorded net of accumulated amortization of $11.9 million and $5.6
million, respectively.
Impairment of Long-Lived Assets: The Company reviews property,
plant and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of property, plant and equipment is
measured by comparison of its carrying amount to future net cash flows
which the property, plant and equipment are expected to generate. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the property, plant and equipment, if any, exceeds its fair market
value. The Company assesses the recoverability of goodwill by
determining whether the unamortized goodwill balance can be recovered
through undiscounted future net cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on
projected discounted future net cash flows using a discount rate
reflecting the Company's average cost of funds. As of September 30,
2002, no adjustments to the carrying value of the Company's long-lived
assets were required.
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 twelve
months or less, 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 percent of total revenue in fiscal 2002, 2001 and 2000. Progress
towards completion of product design and development contracts is based
on units of work for labor content and costs incurred for component
content.
Restructuring Costs: From time to time, the Company has
recorded restructuring costs in response to the reduction in its sales
levels and reduced capacity utilization. These restructuring costs
included employee severance and benefit costs, costs related to plant
closings, including leased facilities that will be abandoned (and
subleased, as applicable), and impairment of equipment. These charges
were incurred pursuant to plans developed by management. The
recognition of these charges required that the Company make certain
judgments and estimates regarding the nature, timing and amount of
costs associated with the planned exit activities. The estimates of
future liabilities may change, requiring the recording of additional
charges or reductions of liabilities recorded. Severance and benefit
costs are recorded when the Company has committed to a restructuring
plan. For leased facilities that will be abandoned and subleased, the
estimated lease loss is accrued for future lease payments subsequent to
abandonment, less estimated sublease income at the commitment date. For
equipment, the impairment losses recognized are based on the fair value
estimated using existing market prices for similar assets less costs to
sell.
Income Taxes: Deferred income taxes are provided for
differences between the bases of assets and liabilities for financial
and income tax reporting purposes.
Foreign Currency: For foreign subsidiaries using the local
currency as their functional currency, assets and liabilities are
translated at exchange rates in effect at year-end, with revenues,
expenses and cash flows translated at the average of the monthly
exchange rates. Adjustments resulting from translation of the financial
statements are recorded as a component of accumulated other
comprehensive income. Exchange gains and losses arising from
transactions denominated in a currency other than the functional
currency of the entity involved and remeasurement adjustments for
foreign operations where the U.S. dollar is the functional currency are
included in the statement of operations. Exchange gains and losses on
foreign currency transactions were not significant for the years ended
September 30, 2002, 2001 and 2000, respectively.
38
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Derivatives: The Company periodically enters into derivative
contracts, primarily foreign currency forward, call and put contracts
which are designated as cash-flow hedges. The changes in fair value of
these contracts, to the extent the hedges are effective, are recognized
in other comprehensive income until the hedged item is recognized in
earnings.
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. The computation of diluted earnings per
common share reflects additional dilution from stock options, unless
such shares are antidilutive.
New Accounting Pronouncements: In July 2001, SFAS No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets" were issued. The statements eliminate the pooling-of-interests
method of accounting for business combinations and require that
goodwill and certain intangible assets not be amortized. Instead, these
assets will be reviewed for impairment annually with any related losses
recognized in earnings when incurred. SFAS No. 141 was effective for
business combinations completed subsequent to June 30, 2001. SFAS No.
142 will be effective for the Company's first quarter of fiscal 2003
for existing goodwill and intangible assets. The impact of SFAS 142
will result in eliminating approximately $5.1 million of annual
amortization of goodwill. However, the Company will need to perform
annual impairment tests to determine goodwill impairment, if any, which
could materially effect the results in any given period.
In August 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations" was issued. SFAS No. 143 sets forth the financial
accounting and reporting to be followed for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period
in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are to be capitalized as
part of the carrying amount of the long-lived asset. Subsequently, the
recorded liability will be accreted to its present value and the
capitalized costs will be depreciated. SFAS No. 143 will be effective
for the Company's first quarter of fiscal 2003 and is not expected to
have a material effect on its financial position or results of
operations.
In October 2001, SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" was issued. SFAS No. 144 modifies and
expands the financial accounting and reporting for the impairment or
disposal of long-lived assets other than goodwill, which is
specifically addressed by SFAS No. 142. SFAS No. 144 maintains the
requirement that an impairment loss be recognized for a long-lived
asset to be held and used if its carrying value is not recoverable from
its undiscounted cash flows, with the recognized impairment being the
difference between the carrying amount and fair value of the asset.
With respect to long-lived assets to be disposed of other than by sale,
SFAS No. 144 requires that the asset be considered held and used until
it is actually disposed of, but requires that its depreciable life be
revised in accordance with APB Opinion No. 20, "Accounting Changes."
SFAS No. 144 also requires that an impairment loss be recognized at the
date a long-lived asset is exchanged for a similar productive asset.
SFAS No. 144 will be effective for the Company's first quarter of
fiscal 2003. The Company is currently evaluating the impact of SFAS No.
144.
In May 2002, SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" was issued. The Statement rescinds SFAS No. 4 and requires
that only unusual or infrequent gains and losses from extinguishment of
debt should be classified as extraordinary items, consistent with APB
30. This statement amends SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends certain
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions of this Statement related to the
rescission of SFAS No. 4 will be effective for the Company's first
quarter of fiscal 2003 and are not expected to have a material effect
on the Company's financial position or result of operations. The
remaining provisions of this statement became effective for the Company
starting May 15, 2002 and did not have a material effect on the
Company's financial position or results of operations.
39
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In June 2002, SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," was issued. This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and replaces Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." This Statement requires that a liability
for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an
exit cost as defined in Issue 94-3 was recognized at the date of an
entity's commitment to an exit plan. The provisions of this Statement
are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company is
currently evaluating the impact of SFAS No. 146.
Use of Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States 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: 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 and
capital lease obligation is approximately $20.6 million as of September
30, 2002. 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 the Company to concentrations of credit risk
consist of cash, cash equivalents, short-term investments and trade
accounts receivable. The Company's 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 13. The Company, at times, requires advanced cash
deposits for services performed. The Company also closely monitors
extensions of credit.
Related Party Transactions: The Company has provided certain
engineering design and development services for MemoryLink Corp.
("MemoryLink"), which develops electronic products. The former Chairman
of the Board of the Company is a shareholder and director of
MemoryLink. The Company had no sales to MemoryLink during fiscal 2002
and $0.9 million and $2.9 million in fiscal 2001 and 2000,
respectively. At September 30, 2001, the Company had accounts
receivable of $1.5 million from MemoryLink, which was fully reserved in
its allowance for doubtful accounts. During fiscal 2002, the Company
received cash payments totaling $0.3 million and converted the
remaining accounts receivable into a minority equity interest in
MemoryLink valued at $1.3 million for purposes of the exchange. As of
September 30, 2002, the minority equity interest is recorded net of a
$1.3 million reserve in other assets in the accompanying Consolidated
Balance Sheets.
Reclassifications: Certain amounts in prior years'
consolidated financial statements have been reclassified to conform to
the 2002 presentation.
2. INVENTORIES
Inventories as of September 30, 2002 and 2001, consist of (in
thousands):
2002 2001
-------- --------
Assembly parts $ 64,085 $ 98,483
Work-in-process 24,507 31,911
Finished goods 5,440 5,015
-------- --------
$ 94,032 $135,409
======== ========
40
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 2002 and
2001, consist of (in thousands):
2002 2001
-------- --------
Land, buildings and improvements $ 74,541 $ 58,073
Machinery and equipment 183,408 153,982
Construction in progress 33,236 14,506
-------- --------
291,185 226,561
Less accumulated depreciation and amortization 120,351 80,633
-------- --------
$170,834 $145,928
======== ========
Included in construction in process is $17.1 million and $7.1
million, respectively of unamortized software implementation costs as
of September 30, 2002 and 2001.
Assets held under capital leases and included in property,
plant and equipment as of September 30, 2002 and 2001, consist of (in
thousands):
2002 2001
------- -------
Buildings and improvements $23,691 $21,880
Machinery and equipment 7,494 7,220
------- -------
31,185 29,100
Less accumulated amortization 5,667 3,012
------- -------
$25,518 $26,088
======= =======
Amortization of assets held under capital leases totaled $2.7
million and $2.8 million for fiscal 2002 and 2001, respectively.
Capital lease additions of $1.5 million, $22.4 million and $6.7 million
for fiscal 2002, 2001 and 2000, respectively, have been treated as
non-cash transactions for purposes of the Consolidated Statements of
Cash Flows.
4. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt as of September 30, 2002 and 2001, consists of (in
thousands):
2002 2001
------- -------
Capital lease obligations with a weighted
average interest rate of 9.3% and
9.5%, respectively $27,008 $26,544
Unsecured revolving credit facility with a
weighted average interest rate of 2.9% and
5.0%, respectively -- 44,601
Notes payable on demand to the former
shareholders of Keltek with a weighted
average interest rate of 4.4% -- 6,915
Other notes and obligations -- 131
------- -------
27,008 78,191
Less current portion 1,652 8,175
------- -------
$25,356 $70,016
======= =======
On October 25, 2000, the Company entered into an unsecured
revolving credit facility (the "Credit Facility") with a group of
banks. Effective November 9, 2002, the Company reduced its maximum
borrowing capacity to $150 million from $250 million. As of September
30, 2002, no amounts were
41
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
outstanding and the available borrowing capacity was approximately $52
million. Borrowing capacity utilized under the Credit Facility will be
either through revolving or other loans or through guarantees of
commercial paper issued by the Company. Interest on borrowings is
computed at the applicable eurocurrency rate on the agreed currency,
plus margin and any commitment fee. The Credit Facility matures on
October 25, 2003 and requires among other things maintenance of minimum
interest expense coverage and maximum leverage ratios. During fiscal
2002, Plexus, along with its banking partners, amended the Credit
Facility to allow the Company to revise certain covenants and be in
compliance with these covenants. The amendment was occasioned by the
effect of the Company's restructuring costs and acquisition and merger
costs on compliance with prior covenants.
On July 14, 2000, the Company acquired all the outstanding
capital stock of Keltek (Holdings) Limited ("Keltek"). In connection
with this acquisition, the Company issued a note payable on demand.
Interest was computed at 1 percent below three-month sterling LIBOR
borrowing. The note payable was repaid in April 2002.
The Company leases certain equipment and manufacturing
facilities, located in Europe and California, which have been recorded
as capital leases and expire on various dates through 2016 subject to
renewal options.
There was no debt outstanding as of September 30, 2002. The
aggregate scheduled maturities of the Company's debt and its
obligations under capital leases as of September 30, 2002, are as
follows (in thousands):
2003 $ 4,048
2004 3,908
2005 3,456
2006 2,927
2007 2,970
Thereafter 31,347
---------
48,656
Interest portion of capital leases 21,648
---------
Total $ 27,008
=========
In fiscal 2001, the Company entered into and amended an
agreement to sell up to $50 million of trade accounts receivable
without recourse to Plexus ABS Inc. ("ABS"), a wholly owned
limited-purpose subsidiary of the Company. As of September 30, 2002,
the total available funding amount under the asset securitization
facility was approximately $24 million, of which $16.6 million was
utilized. As a result, accounts receivable has been reduced by $16.6
million of off-balance sheet financing. ABS is a separate corporate
entity that sells participating interests in a pool of the Company's
accounts receivable to financial institutions. The financial
institutions then receive an ownership and security interest in the
pool of receivables. Accounts receivable sold to financial
institutions, if any, are reflected as a reduction to accounts
receivable in the consolidated balance sheets. The Company has no risk
of credit loss on such receivables as they are sold without recourse.
The Company retains collection and administrative responsibilities on
the participation interest sold as services for ABS and the financial
institutions. The agreement expires in September 2003. For the fiscal
years ended September 30, 2002 and 2001, the Company incurred financing
costs of $0.6 million and $1.9 million, respectively. These financing
costs are included in interest expense in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss). In addition,
the net borrowings/(repayments) under the agreement are included in the
cash flows from operating activities in the accompanying Consolidated
Statements of Cash Flows.
In April and December 2002, we, along with our banking
partners, amended our receivables purchase agreement to allow us to
revise certain covenants and be in compliance with these covenants.
Cash paid for interest in fiscal 2002, 2001 and 2000 was $4.4
million, $7.3 million and $1.1 million, respectively.
42
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES
Income tax expense for fiscal 2002, 2001 and 2000 consists of
(in thousands):
2002 2001 2000
-------- -------- --------
Currently payable:
Federal $ 1,835 $ 22,006 $ 23,895
State 97 3,211 6,207
Foreign 1,361 2,286 255
-------- -------- --------
3,293 27,503 30,357
-------- -------- --------
Deferred:
Federal expense (benefit) 322 (904) (1,552)
State benefit (3,902) (383) (372)
Foreign benefit (1,466) -- --
-------- -------- --------
(5,046) (1,287) (1,924)
-------- -------- --------
$ (1,753) $ 26,216 $ 28,433
======== ======== ========
Following is a reconciliation of the federal statutory income
tax rate to the effective income tax rates reflected in the
Consolidated Statements of Operations for fiscal 2002, 2001 and 2000:
2002 2001 2000
------ ------ ------
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase resulting from:
State income taxes, net of Federal
income tax benefit 26.4 2.8 5.4
Non-deductible goodwill and merger costs (21.8) 1.0 --
Other, net (9.6) 1.3 1.0
------ ------ ------
Effective income tax rate 30.0% 40.1% 41.4%
====== ====== ======
The components of the net deferred income tax asset as of
September 30, 2002 and 2001, consist of (in thousands):
2002 2001
------- -------
Deferred income tax assets:
Inventories $ 7,577 $ 7,679
Accrued benefits 3,335 2,377
Allowance for bad debts 2,118 1,394
Loss carryforwards 14,894 6,255
Other 3,346 3,174
------- -------
31,270 20,879
Deferred income tax liabilities:
Property, plant and equipment 9,632 3,593
------- -------
Net deferred income tax asset $21,638 $17,286
======= =======
The Company does not provide for taxes which would be payable
if undistributed earnings of foreign subsidiaries were remitted because
the Company either considers these earnings to be invested for an
indefinite period or anticipates that when such earnings are
distributed, the U.S. income taxes payable would be substantially
offset by foreign tax credits.
As of September 30, 2002, the Company has approximately $17.3
million of state net operating loss carryforwards, which are available
to reduce future state tax liabilities. The Company has acquired
federal net operating losses of $17.0 million which are available to
reduce future federal taxable income. The
43
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Company also has federal net operating losses totaling $20.5 million,
which will be carried back to offset prior years' taxes. These loss
carryforwards expire in varying amounts through 2022.
Cash paid for income taxes in fiscal 2002, 2001 and 2000 was
$5.2 million, $23.4 million and $15.1 million, respectively.
6. SHAREHOLDERS' EQUITY
In October 2001, pursuant to Board of Directors approval, the
Company announced a common stock buyback program which permits it to
acquire up to 1.0 million shares for an amount not to exceed $25.0
million. In October 2002, the Board of Directors lifted the share limit
to 6.0 million shares. To date, no shares have been repurchased.
During the first quarter of fiscal 2001, the Company issued
3.45 million shares of common stock at an offering price to the public
of $50 per share. The Company received net proceeds of approximately
$164.3 million after discounts and commissions to the underwriters of
approximately $8.2 million. Additional expenses were approximately $0.6
million.
On August 1, 2000, 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 common stock
was issued on August 31, 2000, to holders of record as of August 22,
2000. Share and per share amounts, where required, have been restated
to reflect this stock split.
Income tax benefits attributable to stock options exercised
are recorded as an increase in additional paid-in capital.
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):
Year ended September 30,
------------------------------------
2002 2001 2000
------------------------------------
Basic earnings per share:
Net income (loss) $ (4,073) $39,150 $40,196
=========== ======= =======
Basic weighted average shares outstanding 41,895 41,129 36,026
=========== ======= =======
Basic earnings per share $ (0.10) $ 0.95 $ 1.12
=========== ======= =======
Diluted earnings per share:
Net income (loss) $ (4,073) $39,150 $40,196
=========== ======= =======
Weighted average shares outstanding 41,895 41,129 36,026
Dilutive effect of stock options -- 2,101 2,706
----------- ------- -------
Diluted weighted average shares outstanding 41,895 43,230 38,732
=========== ======= =======
Diluted earnings per share $ (0.10) $ 0.91 $ 1.04
=========== ======= =======
For the years ended September 30, 2002 and 2001, stock options
to purchase approximately 1.8 million and 85,000 shares of common
stock, respectively, were outstanding, but were not included in the
computation of diluted earnings per share because the exercise price of
the stock options was greater than the average market price of the
common shares, and therefore their effect would be antidilutive. There
were no antidilutive stock options for the year ended September 30,
2000.
44
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. ACQUISITIONS AND MERGERS
Acquisitions: In January 2002, the Company acquired certain
assets of MCMS, Inc. ("MCMS"), an electronics manufacturing services
provider, for approximately $42 million in cash. The assets purchased
from MCMS include manufacturing operations in Penang, Malaysia; Xiamen,
China; and Nampa, Idaho. The Company acquired these assets primarily to
provide electronic manufacturing services in Asia and increase its
customer base. The Company recorded the acquisition utilizing the
accounting principles promulgated by Statement of Financial Accounting
Standards ("SFAS") No.s 141 and 142. The acquisition did not include
any interest-bearing debt, but included the assumption of total
liabilities of approximately $7.2 million. Based on a third-party
valuation, the purchase price was primarily allocated to accounts
receivable, inventory and property, plant and equipment. The results
from MCMS' operations are reflected in the Company's financial
statements from the date of acquisition. No goodwill resulted from this
acquisition. The Company incurred approximately $0.3 million of
acquisition costs during fiscal 2002 associated with the acquisition of
the MCMS operations. Due to unique aspects of this acquisition, pro
forma financial information is not meaningful and is therefore not
presented. The factors leading to this determination included the
selective MCMS assets acquired by the Company, the limited assumption
of liabilities and the exclusion of certain customer relationships
which were formerly significant to MCMS.
On May 23, 2001, the Company acquired Qtron, Inc., ("Qtron") a
privately held electronics manufacturing service provider located in
San Diego, California. The Company purchased all of the outstanding
shares of Qtron for approximately $29.0 million in cash, paid
outstanding Qtron notes payable of $3.6 million to Qtron shareholders
and assumed liabilities of $47.4 million, including capital lease
obligations of $18.8 million for a new manufacturing facility. The
excess of the cost over the fair value of the net assets acquired of
approximately $24 million has been recorded as goodwill and is being
amortized over 15 years. The results of Qtron's operations have been
reflected in the Company's financial statements from the date of
acquisition. See Note 14.
On July 14, 2000, the Company acquired all of the outstanding
capital stock of Keltek, headquartered in Kelso, Scotland, with an
additional facility in Maldon, England. The purchase price of $28.9
million consisted of a cash payment of $19.1 million, the assumption of
additional liabilities of $2.7 million and the issuance of a $7.1
million note payable. The Company accounted for the acquisition of
Keltek 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 excess
of the net assets acquired of $22.2 million was recorded as goodwill
and is being amortized over 15 years. The results of Keltek's
operations have been included in the Consolidated Statement of
Operations and of Cash Flows for the periods subsequent to July 14,
2000.
On May 23, 2000, the Company acquired the turnkey electronics
manufacturing services operations of Elamex, S.A. de C.V. ("the Mexican
turnkey operations"), located in Juarez, Mexico for approximately $54.3
million in cash. The Company accounted for the acquisition 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 excess of the cost over fair
value of the net assets acquired has been recorded as goodwill and is
being amortized over 15 years. The results of the Mexican turnkey
operations have been included in the Consolidated Statement of
Operations and of Cash Flows for the periods subsequent to May 23,
2000.
Unaudited pro forma revenue, net income, earnings per
share-basic and earnings per share-diluted for fiscal 2001 and 2000 as
if Qtron, Keltek and the Mexican turnkey operations had been acquired
at the beginning of the respective periods were as follows (in
thousands, except per share data):
45
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Twelve Months ended Twelve Months ended
September 30, 2001 September 30, 2000
------------------ ------------------
Net sales:
Plexus $ 1,046,862 $ 751,639
Qtron 74,355 55,802
Keltek and Mexican turnkey operations -- 70,161
----------- -----------
$ 1,121,217 $ 877,602
=========== ===========
Net income:
Plexus $ 40,723 $ 40,196
Qtron (3,296) 158
Keltek and Mexican turnkey operations -- (1,696)
----------- -----------
$ 37,427 $ 38,658
=========== ===========
Earnings per share:
Basic $ 0.91 $ 1.07
=========== ===========
Diluted $ 0.87 $ 1.00
=========== ===========
The unaudited pro forma financial information is not
necessarily indicative of either the results of operations that would
have occurred had the acquisitions been made during the periods
presented or the future results of the combined operations.
On December 31, 1999, the Company acquired certain printed
circuit board assembly manufacturing assets in the Seattle, Washington,
area from an unrelated party. The total purchase price of the net
assets acquired was not material to the assets, shareholders' equity or
the operations of the Company. The acquisition was accounted for as a
purchase transaction and the results from operations of the acquired
assets are reflected only from the date of acquisition.
Mergers: On December 21, 2000, the Company merged with e2E
Corporation ("e2E"), a privately held printed circuit board design and
engineering service provider for electronic OEMs, through the issuance
of 462,625 shares of its common stock. The transaction was accounted
for as a pooling-of-interests. Costs associated with this merger in the
amount of $1.0 million have been expensed as required. Prior results
were not restated, as they would not differ materially from reported
results. The net assets of e2E as of the acquisition date have been
recorded in the Consolidated Statement of Shareholders' Equity and
Comprehensive Income in 2001.
On April 28, 2000, the Company merged with Agility,
Incorporated, located in Boston, Massachusetts, through the issuance of
374,997 (pre-split) shares of its common stock. The transaction is
being accounted for as a pooling-of-interests. Costs associated with
this merger in the amount of $0.7 million ($0.6 million net of income
tax benefit) have been expensed as required. Prior results are not
restated, as they would not differ materially from reported results.
9. OPERATING 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 2016. Rent expense under all operating
leases for fiscal 2002, 2001 and 2000 was approximately $14.6 million,
$10.9 million and $12.1 million, respectively. Renewal and purchase
options are available on certain of these leases. Rental income from
subleases amounted to $1.0 million, $1.0 million and $0.9 million in
fiscal 2002, 2001 and 2000, respectively.
46
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Future minimum annual payments on operating leases are as follows (in
thousands):
2003 $15,883
2004 13,724
2005 12,287
2006 10,817
2007 9,177
Thereafter 35,362
-------
$97,250
=======
10. RESTRUCTURING COSTS
During fiscal 2002 and 2001, the Company recorded a series of
restructuring charges totaling $12.6 million and $1.9 million,
respectively. These charges were taken in response to the reduction in
the Company's sales levels and reduced capacity utilization. The
Company evaluated its cost structure compared to anticipated sales
levels and determined that reductions of its work force, consolidation
of certain leased facilities, write-downs of certain underutilized
assets to fair value and facility closures were necessary to reduce
costs to more appropriate levels in line with current and expected
customer demand. One facility, located in Minneapolis, Minnesota, was
closed in late fiscal 2002 and sold in October 2002. The other
facility, which is one of four located in Neenah, Wisconsin, will be
phased out of operations by mid-fiscal 2003. Both facilities represent
older, owned facilities that are no longer sufficient to service
customers' needs and would have required significant investment to
upgrade or replace them.
The fiscal 2002 employee termination and severance costs
related to the elimination of approximately 700 employees, of which
approximately 60 terminations occurred subsequent to September 30,
2002. The fiscal 2001 employee termination and severance costs related
to the elimination of approximately 50 employees.
Below are tables summarizing the restructuring activity for
fiscal 2002 and 2001:
EMPLOYEE LEASE OBLIGATIONS
TERMINATION AND AND OTHER NON-CASH ASSET
SEVERANCE COSTS EXIT COSTS WRITE-DOWNS TOTAL
--------------- ---------- ----------- -----
Accrued balance, October 1, 2000 $ -- $ -- $ -- $ --
Restructuring charges 642 1,182 102 1,926
Amounts utilized (563) (1,182) (102) (1,847)
-------- -------- -------- --------
Accrued balance, September 30, 2001 79 -- -- 79
Restructuring charges 3,819 3,872 4,890 12,581
Amounts utilized (3,358) (915) (4,890) (9,163)
-------- -------- -------- --------
Accrued balance, September 30, 2002 $ 540 $ 2,957 $ -- $ 3,497
======== ======== ======== ========
11. BENEFIT PLANS
Employee Stock Purchase Plan: On March 1, 2000, the Company
established a qualified Employee Stock Purchase Plan, the terms of
which allow for qualified employees to participate in the purchase of
the Company's common stock at a price equal to the lower of 85 percent
of the average high and low stock price at the beginning or end of each
semi-annual stock purchase period. The Company may issue up to 2.0
million shares of its common stock under the plan. The Company issued
approximately 132,000 shares of common stock for $2.4 million under the
plan during fiscal 2002 and approximately 95,000 shares of common stock
for $2.5 million under the plan during fiscal 2001.
47
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
401(k) Savings Plans: The Company's 401(k) savings plans cover
all eligible employees. The Company matches employee contributions,
after one year of service, up to 2.5 percent of eligible earnings. The
Company's contributions for fiscal 2002, 2001 and 2000 totaled $2.2
million, $2.1 million and $1.8 million, respectively.
Stock Option Plans: The Company has reserved 12.0 million
shares of common stock for grant to officers and key employees under an
employee stock option plan, of which options for 10.8 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,
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 (pre-split) 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 stock option plan, each outside director of
the Company is granted 1,500 stock options each December 1, with the
option pricing similar to the employee plan. These options vest and can
be exercised after a minimum six-month holding period. The 400,000
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:
SHARES WEIGHTED AVERAGE
(IN THOUSANDS) EXERCISE PRICE
-------------- --------------
Options outstanding as of October 1, 1999 4,422 $ 8.26
Granted 974 36.13
Cancelled (126) 18.18
Exercised (1,220) 6.93
------
Options outstanding as of September 30, 2000 4,050 15.03
Granted 659 24.44
Cancelled (117) 27.59
Exercised (721) 5.41
------
Options outstanding as of September 30, 2001 3,871 18.04
Granted 915 25.23
Cancelled (163) 29.43
Exercised (141) 9.01
------
Options outstanding as of September 30, 2002 4,482 $19.40
======
Options exercisable as of:
September 30, 2000 2,259 $ 6.49
====== ======
September 30, 2001 2,364 $12.20
====== ======
September 30, 2002 2,954 $15.55
====== ======
48
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes outstanding stock option information as of
September 30, 2002 (shares in thousands):
Weighted
Range of Number Weighted Average Weighted Average Number Average
Exercise Prices Outstanding Exercise Price Remaining Life Exercisable Exercise Price
--------------- ----------- -------------- -------------- ----------- --------------
$ 0.63 - $ 7.86 1,053 $ 4.81 3.9 1,053 $ 4.81
$ 7.87 - $15.71 1,085 $13.27 6.1 1,066 $10.67
$15.72 - $23.57 617 $23.11 8.0 259 $ 4.44
$23.58 - $39.28 1,680 $30.30 8.6 542 $35.42
$39.29 - $70.71 47 $50.12 7.7 34 $49.55
$0.63 - $70.71 4,482 $19.40 6.8 2,954 $15.55
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 2002, 2001 and 2000 would have been reduced by approximately
$7.7 million, $6.7 million, and $4.8 million, respectively. Diluted
earnings per share would have been reduced by $0.18, $0.15 and $0.12 in
fiscal 2002, 2001 and 2000, 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 2002, 2001 and 2000 is $15.55, $16.00 and $20.30,
respectively. The fair value of each option grant is estimated at the
date of grant using the Black-Scholes option-pricing method with the
following assumption ranges: 76 percent to 85 percent volatility,
risk-free interest rates ranging from 2.7 percent to 4.7 percent,
expected option life of 4.7 to 6.6 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
approximately $1.8 million, $0.7 million and $0.5 million in fiscal
2002, 2001, and 2000, respectively.
Other: The Company is not obligated to provide any
post-retirement medical or life insurance benefits to employees.
12. CONTINGENCY
The Company (along with many other companies) has been sued by
the Lemelson Medical, Education & Research Foundation Limited
Partnership ("Lemelson") related to alleged possible infringement of
certain Lemelson patents. The Company had requested a stay of action
pending developments in other related litigation, which has been
granted. The Company believes the vendors from whom the patent
equipment was purchased may contractually indemnify the Company. If a
judgment is rendered and/or a license fee required, it is the opinion
of management of the Company that such judgment would not be material
to the consolidated financial position of the Company or the results of
its operations.
In addition, the Company is party to other certain lawsuits in
the ordinary course of business. Management does not believe that these
proceedings, individually or in the aggregate, will have a material
adverse effect on the Company's financial position, results of
operations or cash flows.
13. BUSINESS SEGMENT, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates in one business segment. The Company
provides product realization services to electronic OEMs. The Company
has three reportable geographic regions: North America, Europe and
Asia. The Company has 26 manufacturing and engineering facilities in
North America, Europe and Asia to serve these OEMs. The Company uses an
internal management reporting system, which provides
49
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
important financial data, to evaluate performance and allocate the
Company's resources on a geographic basis. Interregion transactions are
generally recorded at amounts that approximate arm's length
transactions. Certain corporate expenses are allocated to these regions
and are included for performance evaluation. The accounting policies
for the regions are the same as for the Company taken as a whole.
Geographic net sales information reflects the origin of the product
shipped. Assets information is based on the physical location of the
asset.
Year ended September 30,
--------------------------------------------------
Net sales: 2002 2001 2000
---------- ---------- ----------
(in thousands)
North America $ 783,660 $ 972,363 $ 734,485
Europe 78,826 89,941 17,154
Asia 21,117 -- --
---------- ---------- ----------
$ 883,603 $1,062,304 $ 751,639
========== ========== ==========
Long-lived assets:
North America $ 199,478 $ 183,065
Europe 35,796 37,027
Asia 6,505 --
---------- ----------
$ 241,779 $ 220,092
========== ==========
No customers accounted for more than 10 percent of net sales
in fiscal 2002 and 2001 Lucent Technologies Inc. accounted for 23
percent of net sales in fiscal 2000.
14. SUBSEQUENT EVENTS
SFAS No. 142 requires the Company to perform a transitional
goodwill impairment evaluation. Step one of the evaluation requires the
Company to perform an assessment of whether there was an indication
that goodwill was impaired as of the date of adoption. The Company is
required to adopt SFAS No. 142 effective October 1, 2002 and to
complete its step one evaluation by March 31, 2003.
Subsequent to September 30, 2002, the Company completed step
one of the evaluation and concluded that it has material goodwill
impairment, since the estimated fair value based on expected future
discounted cash flows to be generated from each location was
significantly less than the carrying values.
The Company is in the process of completing the second step of
the transitional impairment test for these locations. In the second
step, the Company must compare the implied fair value of each
location's goodwill, determined by allocating its fair value to all of
its assets (recognized and unrecognized) and liabilities in a manner
similar to a purchase price allocation for an acquired business, to its
carrying amount, both of which would be measured at the date of
adoption. The second step of the evaluation is required to be completed
as soon as possible, but no later than September 30, 2003. In
connection with allocating the fair value of the locations to the
various assets and liabilities, the Company is in the process of
obtaining independent valuations of unrecognized intangible assets and
fixed assets. Upon completion of step two, any transitional impairment
loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of operations.
In December 2002, the Company announced its intent to take
further global restructuring actions including the closure of its San
Diego, California manufacturing facility and the consolidation of its
Seattle, Washington facilities. As of September 30, 2002, we had
unamortized goodwill of approximately $20.4 million associated with the
San Diego facility. As a result of these actions and the newly required
periodic review of goodwill under SFAS No. 142, this amount will be
fully written off in the first quarter of fiscal 2003.
50
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 2002 and 2001
consists of (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
2002 QUARTER QUARTER QUARTER QUARTER TOTAL
------------------------------------------------------------------------------------------------------
Net sales $ 200,218 $ 231,162 $ 234,749 $ 217,475 $ 883,603
Gross profit 15,471 20,471 23,077 22,301 81,320
Net income (loss) (2,023) (2,154) 656 (552) (4,073)
Earnings per share:
Basic $ (0.05) $ (0.05) $ 0.02 $ (0.01) $ (0.10)
Diluted $ (0.05) $ (0.05) $ 0.02 $ (0.01) $ (0.10)
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER TOTAL
------------------------------------------------------------------------------------------------------
Net sales $ 272,097 $ 280,284 $ 253,172 $ 256,751 $ 1,062,304
Gross profit 38,352 33,575 29,819 30,044 131,790
Net income 13,213 11,656 7,362 6,919 39,150
Earnings per share:
Basic $ 0.33 $ 0.28 $ 0.18 $ 0.17 $ 0.95
Diluted $ 0.31 $ 0.27 $ 0.17 $ 0.16 $ 0.91
Earnings per share is computed independently for each quarter.
The annual earnings per share may not equal the sum of the quarterly
amounts due to rounding.
In the first, second, third and fourth fiscal quarters of
2002, the Company recorded pre-tax restructuring charges of $2.8
million, $4.7 million, $2.7 million and $2.4 million, respectively.
These charges were taken in response to the reduction in the Company's
sales levels and reduced capacity utilization. The Company evaluated
its cost structure compared to anticipated sales levels and determined
that reductions of its work force, consolidation of certain leased
facilities, write-downs of certain underutilized assets to fair value
and facility closures were necessary to reduce costs to more
appropriate levels in line with current and expected customer demand.
In addition, the Company incurred approximately $0.3 million of
acquisition costs associated with the acquisition of the MCMS
operations in the second fiscal quarter of 2002.
In the third quarter of fiscal 2001, the Company recorded
pre-tax restructuring charges of $1.9 million. These charges were taken
in response to the reduction in the Company's sales level and reduced
capacity utilization and consisted primarily of costs related to its
work force reduction and the write-off of certain under-utilized
assets. In addition, the Company incurred $0.6 million of pre-tax
charges related to its acquisition of Qtron.
In the first quarter of fiscal 2001, the Company expensed
$1.0 million of acquisition costs associated with the Company's merger
with e2E Corporation.
* * * * *
51
PLEXUS CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 2002, 2001 and 2000
(in thousands)
ADDITIONS
CHARGED TO
BALANCE AT COSTS AND BALANCE AT END
DESCRIPTIONS BEGINNING OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- -------------------------------------------------------------------------------------------------------------------------
Fiscal Year 2002:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 6,500 $ 3,045 (1) $ 5,345 $ 4,200
Allowance for inventory obsolescence
(deducted from the asset to which it relates) 16,469 16,949 (1) 15,657 17,761
-------------------------------------------------------------
$22,969 $19,994 $21,002 $21,961
=============================================================
Fiscal Year 2001:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 1,522 $ 6,017 (1) $ 1,039 $ 6,500
Allowance for inventory obsolescence
(deducted from the asset to which it relates) 9,406 15,149 (1) 8,086 16,469
-------------------------------------------------------------
$10,928 $21,166 $ 9,125 $22,969
=============================================================
Fiscal Year 2000:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 773 $ 777 (1) $ 28 $ 1,522
Allowance for inventory obsolescence
(deducted from the asset to which it relates) 6,860 6,492 (1) 3,946 9,406
-------------------------------------------------------------
$ 7,633 $ 7,269 $ 3,974 $10,928
=============================================================
- ----------
(1) These amounts do not agree to the amounts appearing in the Consolidated
Statements of Cash Flows as the amounts include beginning balances related
to companies acquired during fiscal 2002, 2001 and 2000.
52
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/ Dean A. Foate
-----------------
Dean A. Foate, President and Chief Executive Officer
December 20, 2002
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dean A. Foate, F. Gordon Bitter 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 with 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
/s/ Dean A. Foate /s/ David J. Drury
- ------------------------------------------------------------ --------------------------------------------------
Dean A. Foate, President and Chief Executive Officer, David J. Drury, Director
and Director
/s/ F. Gordon Bitter /s/ Harold R. Miller
- ------------------------------------------------------------ --------------------------------------------------
F. Gordon Bitter, Vice President and Chief Financial Harold R. Miller, Director
Officer
/s/ George W. F. Setton /s/ Thomas J. Prosser
- ------------------------------------------------------------ --------------------------------------------------
George W. F. Setton, Corporate Treasurer and Chief Thomas J. Prosser, Director
Treasury Officer (Principal Accounting Officer)
/s/ John L. Nussbaum /s/ Dr. Charles M. Strother
- ------------------------------------------------------------ --------------------------------------------------
John L. Nussbaum, Chairman Dr. Charles M. Strother, Director
/s/ Jan K. Ver Hagen
- ------------------------------------------------------------ --------------------------------------------------
Jan K. Ver Hagen, Director
* Each of the above signatures is affixed as of December 20, 2002.
53
I, Dean A. Foate, certify that:
1. I have reviewed this annual report on Form 10-K of Plexus Corp.
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c. Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluations, including any corrective actions with regard to
significant deficiencies and material weaknesses.
December 20, 2002
/s/ Dean A. Foate
-------------------------------------
Dean A. Foate
President and Chief Executive Officer
54
I, Gordon Bitter, certify that:
1. I have reviewed this annual report on Form 10-K of Plexus Corp.
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c. Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluations, including any corrective actions with regard to
significant deficiencies and material weaknesses.
December 20, 2002
/s/ F. Gordon Bitter
-----------------------------------
F. Gordon Bitter
Chief Financial Officer
55
EXHIBIT INDEX
PLEXUS CORP.
10-K FOR YEAR ENDED SEPTEMBER 30, 2002
INCORPORATED BY FILED
EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH
----------- ------- ------------ --------
3(i) Restated Articles of Incorporation of Exhibit 3(i) to Plexus' Report on
Plexus Corp., as amended through March Form 10-Q for the quarter ended
13, 2001 March 31, 2001 ("3/31/01")
3(ii) Bylaws of Plexus Corp., as amended Exhibit 3(ii) to the 3/31/01 10-Q
through March 7, 2001
4.1 Restated Articles of Incorporation of Exhibit 3(i) above
Plexus Corp.
4.2 (a) Amended and Restated Shareholder Exhibit 1 to Plexus'
Rights Agreement, dated as of Form 8-A/A filed
August 13, 1998, (as amended through on December 6, 2000
November 14, 2000) between Plexus
and Firstar Bank, N.A. (n/k/a US Bank,
N.A.) as Rights Agent, including form
of Rights Certificates
(b) Agreement of Substitution and First
Amendment to the Amended and Restated
Shareholder Rights Agreement dated as
of December 5, 2002 X
10.1 Supplemental Executive Retirement
Agreements dated as of September 19, 1996**:
(a) Peter Strandwitz Exhibit 10.1(a) to Plexus' Report
on Form 10-K for the fiscal year
ended September 30, 1996 ("1996
10-K")
(b) John Nussbaum Exhibit 10.1(b) to 1996 10-K
(c) First Amendment Agreement to Exhibit 10.1 to
Plexus' Quarterly Supplemental Retirement Agreement
Report on Form 10-Q for the between Plexus and John
Nussbaum, as quarter ended December 31, 2000 of
September 1, 1999, executed
December 29, 2000
10.2 Forms of Change of Control
Agreements dated August 1, 1998 (or
thereafter) with **
Peter Strandwitz Exhibit 10.2 to Plexus' Report on
John L. Nussbaum Form 10-K for the fiscal year ended
Dean A. Foate September 30, 1998 ("1998
56
Thomas B. Sabol 10-K")
F. Gordon Bitter (10/31/02)
David Clark
Thomas Czajkowski
Paul L. Ehlers
Joseph D. Kaufman
Lisa M. Kelley
J. Robert Kronser
David Rust (11/26/01)
George W. F. Setton (8/1/02)
Michael Verstegen
10.3 Plexus Corp. 1998 Option Plan** Exhibit A to the Registrant's
definitive proxy statement for its
1998 Annual Meeting of
Shareholders
10.4 (a) Credit Agreement dates as of Exhibit 10.6(a) to Plexus' Annual
October 25, 2000, among Plexus, certain Report on Form 10-K for the fiscal
Plexus subsidiaries and various year ended September 30, 2000
signatory lending institutions whose ("2000 10-K")
agents are ABN Amro Bank N.V.,
Firstar Bank, N.A. (n/k/a US Bank,
N.A.) and Bank One, N.A.
(b) Exhibits thereto Exhibit 10.6(b) to 2000 10-K
(c) First Agreement to Credit Exhibit 10.1 to Plexus' Quarterly
Agreement and Waiver dated as of May Report on Form 10-Q for the
13, 2002 quarter ended March 31, 2002
(d) Notice of Plexus dated November 9, X
2002, reducing credit line.
10.5 (a) Lease Agreement between Neenah Exhibit 10.8(a) to Plexus' Report
(WI) QRS 11-31, Inc. ("QRS: 11-31") on Form 10-K for the year ended
and EAC, 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.
10.6 Plexus Corp. 1995 Directors' Stock Exhibit 10.10 to 1994 10-K
Option Plan**
10.7 Plexus Corp. 1998 Management Exhibit 10.10 to 1997 10-K
Incentive Compensation Plan**
10.8 Promissory Note from Thomas Sabol Exhibit 10.1 to Plexus' Report on
dated March 13, 2000 (repaid) Form 10-Q for the quarter ended
March 31, 2000
57
10.9(a) (a) Amended and Restated Receivables Exhibit 10.1 to Plexus' Quarterly
Sale Agreement, dated July 1, 2001, Report on Form 10-Q for the
between Plexus Services Corp. and quarter ended June 30, 2001
Plexus ABS, Inc. ("6/30/01 10-Q")
(b) First Amendment to amended and Exhibit 10.1 to Plexus' Quarterly
Restated Receivables Sale Agreement, Report on Form 10-Q for the
dated June 28, 2002, between Plexus quarter ended June 30, 2002
Services Corp. and Plexus ABS, Inc. ("6/30/02 10-Q")
10.10 (a) Receivables Purchase Agreement Exhibit 10.10(a) to 2000 10-K
dated as of October 6, 2000, among
Plexus, Preferred Receivables Funding
Corporation and Bank One, NA
(b) First Amendment to the Receivables Exhibit 10.2 to Plexus' 6/30/01
Purchase Agreement, dated July 1, 2001 10-Q
(a)(c) Second Amendment to Exhibit 10.2(a) to the 6/30/02
Receivables Purchase Agreement, 10-Q
dated October 3, 2001
(d) Limited Waiver and Third Amendment Exhibit 10.2(b) to the 6/30/02
to Receivables Purchase Agreement, 10-Q
dated April 25, 2002
(e) Fourth Amendment to Receivables Exhibit 10.2(c) to the 6/30/02
Purchase Agreement, dated June 28, 10-Q
2002
(f) Fifth Amendment to Receivables
Purchase Agreement, dated September
30, 2002 X
(g) Limited Waiver and Sixth
Amendment to Receivables Purchase
Agreement, dated December 4, 2002 X
10.11 Plexus Corp. Executive Deferred Exhibit 10.17 to 2000 10-K
Compensation Plan**
10.12 Form of Split Dollar Life Insurance Exhibit 10.18 to 2000 10-K
Agreements between Plexus and each of:**
Thomas B. Sabol
Dean A. Foate
J. Robert Kronser
Joseph D. Kaufman
Paul L. Ehlers
Michael Verstegen
David Clark
10.13 Employment Agreement dated as of Exhibit 10.3 to the 6/30/02 10-Q
July 1, 2002, by and between Plexus
Corp. and Dean A. Foate**
58
10.14 Employment Agreement, dated as of Exhibit 10.4 to the 6/30/02 10-Q
July 1, 2002, by and between Plexus
Corp. and Thomas B. Sabol
10.15 Asset Purchase Agreement, dated as of Exhibit 10.15 to Plexus' Report on
November 28, 2001, among Plexus, Form 10-K for the fiscal year
MCMS, Inc. and various subsidiaries of ended September 30, 2001
MCMS*
10.16 (a) Payment and Securities Agreement Exhibit 10.1 to Plexus' Quarterly
dated as of January 3, 2002 by and Report on Form 10-Q for the
among Plexus, Plexus Services Corp. quarter ended December 31, 2001
and MemoryLink Corp.
(b) Amendment No. 1 thereto dated
September 16, 2002 X
21 List of Subsidiaries X
23 Consent of PricewaterhouseCoopers LLP X
24 Power of Attorney (Signature Page
Hereto)
99.1 Certification of the CEO pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 X
99.2 Certification of the CFO pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 X
- ----------------------
* Excludes certain schedules and/or exhibits, which will be furnished to the
Commission upon request.
**Designates management compensatory plans or agreements.
59