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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, 2003
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. [ ]
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, 2003, there were 42,678,101 shares of common stock
outstanding. As of March 31, 2003, 42,276,396 shares of Common Stock were
outstanding, and the aggregate market value of the shares of Common Stock (based
upon the $9.15 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 $373.2 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) 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 secure new customers and maintain our current
customer base,
- the results of cost reduction efforts,
- the impact of capacity utilization and our ability to manage
fixed and variable costs,
- the effects of facilities closures and restructurings,
- 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,
- the effect of the impact of increased competition and
- other risks detailed below, especially in "Risk Factors" and
otherwise herein, and in our Securities and Exchange
Commission filings.
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/other industries. We provide
advanced electronics design, manufacturing and testing services to our customers
with a focus on complex, high technology and high reliability 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.
Our customers include both industry-leading OEMs and emerging
technology companies. Due to our focus on serving OEMs in advanced electronics
technology, 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.
Established in 1979 as a Wisconsin corporation, we have approximately
4,800 full-time employees, including over 300 engineers and technologists,
operating from 19 active facilities in 16 locations, totaling approximately 1.6
million square feet. Prior to fiscal 2003, we had 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 Jose and Seattle;
established facilities in Europe, Mexico and Asia; significantly increased the
size and capabilities of our medical services offerings and printed circuit
board ("PCB") design services. See note 13 to our consolidated financial
statements, which is incorporated herein by reference, for information as to our
foreign sales and assets.
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, 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
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Securities and Exchange Commission ("SEC"). 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 conceptual
design and value 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 operating sites. We supplement our prototype
assembly services with other 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, our customers' engineering and our volume manufacturing. This link
facilitates an efficient transition from engineering 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. Enhanced product functionality
has led to increasingly complex components and assembly techniques;
consequently, 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 to 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 consistently high quality.
Manufacturing and assembly. We provide contract manufacturing services
on either a "turnkey" basis, which means we procure some or all of the materials
required for product assembly, or on a "consignment" basis, which means the
customer supplies some, or occasionally all, of the 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. Substantially all of our
manufacturing services currently are on a turnkey basis. 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 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 a
customer's warranty, may be returned for repairs or upgrades at the customer's
discretion.
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 2003, 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 industries. For many customers, we serve both a design and production
function, thereby permitting customers to
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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.
Siemens Medical Systems, Inc. ("Siemens") accounted for 12 percent of
our net sales in fiscal 2003. No other customer accounted for 10 percent or more
of our net sales in fiscal 2003. No customer represented 10 percent or more of
net sales in either fiscal 2002 or 2001. The loss of Siemens, or any of our
other major customers, could have a significant negative impact.
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.
We provided services to the following industries in the following
proportions:
INDUSTRY 2003 2002 2001
- -------- ---- ---- ----
Networking/Datacommunications/Telecom 36% 36% 40%
Medical 32% 28% 22%
Industrial/Commercial 15% 20% 20%
Computer 12% 11% 10%
Transportation/Other 5% 5% 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), inductors, 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 by suppliers 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, manufacturers of
components often provide us with priority access to a supply of materials and
components, even during shortages. We have also established and continue to
expand our strategic relationships with international purchasing offices, and we
attempt to leverage our design position with suppliers. Beyond this, we have
undertaken a series of initiatives, including the utilization of in-plant
stores, point-of-use programs, assured supply programs and other 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, which includes sales account managers, strategic customer
managers, market sector specialists, technology specialists and advertising and
other corporate communications personnel. Our sales and marketing efforts focus
on generating new customers and expanding business with existing customers. 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
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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 service marks, 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 any material copyrights.
INFORMATION TECHNOLOGY
We began to implement in fiscal 2001 a new enterprise resource planning
("ERP") platform. This ERP platform is intended to augment our management
information systems and includes software from J.D. Edwards (now part of
Peoplesoft) and several other vendors. The ERP platform is intended to enhance
and standardize our ability to globally translate information from production
facilities into operational and financial information and to create a consistent
set of core business applications at our worldwide facilities, although we will
not necessarily convert all of our facilities to the same system. We believe
that the related licenses are of a general commercial character on terms
customary for these types of agreements. During fiscal 2003, we converted two
manufacturing facilities to the new ERP platform. We anticipate converting at
least one more facility to the new ERP platform and completing the integration
of the core software in fiscal 2004. Some of the supplemental software programs
that will be integrated with the core software will be integrated at later
dates. Our conversion timetable and project scope remain subject to change based
upon our evolving needs and sales levels.
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 potential for advancement. We invest at all
levels of the organization 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.
We employ approximately 4,800 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 addition to our full-time employees. 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. Our employees in the
United States, China, Malaysia and Mexico are not 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 2.2
million square feet of capacity. This includes approximately 1.7 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. Approximately 0.6 million square feet of this capacity is
either vacant or subleased. 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 and simplifies logistics and communications.
This enables us to provide customers with a responsive, more complete,
cost-effective solution. Our facilities are described in the following table:
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LOCATION TYPE SIZE (SQ. FT.) OWNED/LEASED
-------- ---- -------------- ------------
Neenah, Wisconsin (1) Manufacturing 277,000 Leased
Nampa, Idaho Manufacturing 216,000 Owned
Juarez, Mexico Manufacturing 210,000 Leased
Buffalo Grove, Illinois Manufacturing 141,000 Leased
Penang, Malaysia Manufacturing 118,000 Owned
Bothell, Washington (2) Manufacturing/Engineering 97,000 Leased
Appleton, Wisconsin Manufacturing 67,000 Owned
Ayer, Massachusetts Manufacturing 65,000 Leased
Xiamen, China Manufacturing 63,000 Leased
Kelso, Scotland Manufacturing 60,000 Leased
Maldon, England Manufacturing 40,000 Owned
Freemont, California Manufacturing 36,000 Leased
Neenah, Wisconsin Engineering 105,000 Owned
Louisville, Colorado Engineering 16,000 Leased
Raliegh, North Carolina Engineering 14,000 Leased
Kelso, Scotland (3) Engineering 2,000 Leased
Hillsboro, Oregon (4) PCB Design 9,000 Leased
Neenah, Wisconsin (1) (5) Office/Warehouse 84,000 Owned
El Paso, Texas Office/Warehouse 13,000 Leased
San Diego, California (6) Inactive/Other 198,000 Leased
Bothell, Washington (1) (7) Inactive/Other 141,000 Leased
Neenah, Wisconsin (8) Inactive/Other 93,000 Leased
Redmond, Washington (9) Inactive/Other 60,000 Leased
San Diego, California (9) Inactive/Other 36,000 Leased
Nashua, New Hampshire (10) Inactive/Other 10,000 Leased
Kelso, Scotland (3) Inactive/Other 2,000 Leased
(1) Includes more than one building.
(2) We have combined our engineering and manufacturing operations into one
facility. Engineering operations occupy approximately 30,000 square feet
with manufacturing operations occupying the remaining square footage.
(3) We consolidated two engineering facilities into one facility in December
2002. We are attempting to sublease the abandoned facility (2,500 square
feet).
(4) We also have one small leased PCB design office in Tel Aviv, Israel.
(5) Operations ceased in February 2003 and the facilities are now used for
warehousing and administrative purposes.
(6) Approximately 71,000 square feet of lease space was subleased to a third
party in December 2002. We ceased operations in the remaining part of the
facility in May 2003 and are seeking to also sublease that space.
(7) We consolidated the engineering and manufacturing facilities into a new
facility. We are seeking to sublease the two unoccupied facilities (60,000
square feet and 81,000 square feet).
(8) We consolidated our leased warehousing space to an owned facility in Neenah,
Wisconsin in May 2003. We are seeking to sublease the leased warehousing
space.
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(9) This building is subleased and no longer used in our business operations.
(10) As part of the sale of our PCB design operations in Nashua, New Hampshire,
we subleased the facility to a group of former employees for one year. In
addition, during fiscal 2003, we closed a small leased PCB design office in
Dallas, Texas and subleased it to a third party.
ITEM 3. LEGAL PROCEEDINGS
As we have previously disclosed, the Company (along with hundreds of
other companies) has been sued by the Lemelson Medical, Educational & Research
Foundation Limited Partnership ("Lemelson") for alleged possible infringement of
certain Lemelson patents. The complaint, which is one of a series of complaints
by Lemelson against hundreds of companies, seeks injunctive relief, treble
damages (amount unspecified) and attorneys' fees. The Company has obtained a
stay of action pending developments in other related litigation. Based on
information received from a party to that other litigation, we do not believe
that it is likely that a decision will be rendered in the other litigation
before spring 2004. The Company believes the vendors from which patent-related
equipment was purchased may be required to contractually indemnify the Company.
However, based upon the Company's observation of the plaintiff's actions in
other parallel cases, it appears that the primary objective of the plaintiff is
to cause defendants to enter into license agreements. Even though the patents at
issue would theoretically relate to a significant portion of our net sales, if a
judgment is rendered and/or a license fee required, it is the opinion of
management that such judgment or fee would not be material to the Company's
financial position, results of operations or cash flows. Lemelson Medical,
Educational & Research Foundation Limited Partnership vs. Esco Electronics
Corporation et al, US District Court for the District of Arizona, Case Number
CIV 000660 PHX JWS (2000).
We are party to certain other 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 2003.
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 45 President, Chief Executive Officer and Director
F. Gordon Bitter 60 Vice President and Chief Financial Officer
David A. Clark 43 Vice President and Vice President-Materials, Plexus Corp. Electronic Assembly
Thomas J. Czajkowski 39 Vice President and Chief Information Officer
Paul L. Ehlers 47 Senior Vice President, and President of Plexus Electronic Assembly
Joseph D. Kaufman 46 Senior Vice President, Secretary and Chief Legal Officer
J. Robert Kronser 44 Executive Vice President and Chief Technology & Strategy Officer
Michael J. McGuire 48 Vice President - Worldwide Sales, Marketing and Business Development
Simon J. Painter 38 Corporate Controller and Chief Accounting Officer
David H. Rust 56 Vice President - Human Resources
George W.F. Setton 57 Corporate Treasurer and Chief Treasury Officer
Michael T. Verstegen 45 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.
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, a printed circuit board and electronics contract manufacturer, from
1998 to 2000. From 1997 to 1998, Mr.
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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 Procurement 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.
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.
Michael J. McGuire joined Plexus in 2002 as Vice President-Worldwide Sales,
Marketing and Business Development. Previously, from 2000 to 2002, Mr. McGuire
served as Senior Vice President of Sales for Nu Horizons Electronics Corp. Prior
to that, Mr. McGuire served as the Midwest Regional Vice President of Sales for
Marshall Industries, Inc. from 1987 to 2000.
Simon J. Painter joined Plexus in June 2000 as Corporate Controller. In February
2003, Mr. Painter was appointed to the position of Chief Accounting Officer.
Prior to joining Plexus, Mr. Painter was an auditor with the firm of
PricewaterhouseCoopers LLP, from 1991 to 2000, serving most recently as an Audit
Manager.
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. He was Plexus' Principal Accounting Officer from 2001 to 2003.
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 T. 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 fiscal years ended September 30, 2003 and 2002, the Company's
Common Stock has traded on the NASDAQ Stock Market. The price information below
represents high and low sale prices of our common stock for each quarterly
period.
Fiscal Year Ended September 30, 2003
High Low
---- ---
First Quarter $15.76 $ 7.38
Second Quarter $10.41 $ 7.94
Third Quarter $13.48 $ 8.83
Fourth Quarter $18.45 $ 11.18
Fiscal Year Ended September 30, 2002
High Low
---- ---
First Quarter $36.74 $21.30
Second Quarter $29.94 $20.96
Third Quarter $28.49 $14.59
Fourth Quarter $18.15 $ 9.15
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As of December 9, 2003, there were approximately 1,050 shareholders of
record. 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 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net sales $ 807,837 $ 883,603 $1,062,304 $ 751,639 $ 492,414
Gross profit 52,965 81,320 131,790 107,164 66,409
Gross margin percentage 6.6% 9.2% 12.4% 14.3% 13.5%
Operating income (loss) (71,531) (2) (3,636) (3) 68,388 (4) 69,870 (5) 34,428 (6)
Operating margin percentage (8.9%) (0.4%) 6.4% 9.3% 7.0%
Net income (loss) (67,978) (2) (4,073) (3) 39,150 (4) 40,196 (5) 20,311 (6)
Earnings (loss) per share (diluted) $ (1.61) (2) $ (0.10) (3) $ 0.91 (4) $ 1.04 (5) $ 0.55 (6)
CASH FLOW STATEMENT DATA
Cash flows provided by (used in) operations $ (19,953) $ 130,455 $ 119,479 $ (51,392) $ 19,727
Capital equipment additions 22,372 30,760 54,560 44,228 18,196
BALANCE SHEET DATA
Working capital $ 210,315 $ 219,854 $ 277,055 $ 213,596 $ 110,411
Total assets 553,054 583,945 602,525 515,608 229,636
Long-term debt and capital lease obligations 23,502 25,356 70,016 141,409 142
Shareholders' equity 371,016 430,689 426,852 209,362 146,403
Return on average assets (12.0%) (0.7%) 7.0% 10.8% 9.8%
Return on average equity (17.0%) (0.9%) 12.3% 22.6% 15.5%
Inventory turnover ratio 6.5x 7.0x 5.3x 4.4x 6.2x
(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.
(2) In response to the reduction in our sales and reduced capacity utilization,
we recorded fiscal 2003 restructuring costs of approximately $59.3 million.
These costs totaled approximately $36.8 million after-tax. In addition, we
adopted SFAS No. 142 for the accounting of goodwill and other intangible
assets. Under the transitional provisions of Statement of Financial
Accounting Standards No. 142, we determined that a pre-tax transitional
impairment charge of $28.2 million was required, which was recorded as a
cumulative effect of a change in accounting for goodwill ($23.5 million
after-tax).
(3) 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.
8
(4) In connection with the May 2001 acquisition of Qtron Inc. ("Qtron") and
merger with e2E, we recorded acquisition and merger costs of approximately
$1.6 million ($1.4 million after-tax). In connection with an economic
slowdown, we recorded restructuring costs of approximately $1.9 million
($1.1 million after-tax). The effects of the acquisition of Qtron are
reflected in the financial statements from the date of acquisition.
(5) 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).
(6) In connection with the merger with SeaMED, Plexus recorded merger and other
related charges of $7.7 million ($6.0 million after-tax).
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/other 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 17.
We provide contract manufacturing services on either a turnkey basis,
which means we procure some or all of the materials required for product
assembly, or on a consignment basis, which means the customer supplies some, or
occasionally all, of the 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
substantially all of our manufacturing services. 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. Our quarterly and
annual results are affected by the level and timing of customer orders,
fluctuations in materials costs and the degree of automation used in the
assembly process.
MERGERS AND ACQUISITIONS/DISPOSITIONS
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. The acquisition did not include any
interest-bearing debt, but included the assumption of total liabilities of
approximately $7.2 million. The results from MCMS's 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 in
the second quarter of fiscal 2002 associated with the acquisition of MCMS.
On May 23, 2001, we acquired Qtron, Inc. ("Qtron"), a privately held
EMS provider with a facility located in San Diego, California ("San Diego"). 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 assumed liabilities of $47.4 million, including capital lease
obligations of $18.8 million for a 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 was recorded as goodwill. Through
September 30, 2002, we were amortizing goodwill over 15 years. Effective the
first quarter of fiscal 2003, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, goodwill was no longer amortized.
Goodwill was also partially impaired as a result of a transitional impairment
evaluation upon adoption of SFAS No. 142. In December 2002, the primary customer
of San Diego provided notice of its intent to transition most of its programs to
non-Plexus facilities. As a consequence, we closed San Diego during fiscal 2003
and wrote off the remaining goodwill.
9
In fiscal 2003, we also closed our facility in Richmond, Kentucky
("Richmond"), and ceased production in our oldest plant in Neenah, Wisconsin.
These actions and related charges are further discussed below. In addition, we
sold our PCB design operations in Nashua, New Hampshire to a group of former
employees; however, this transaction did not have a material impact on our
consolidated financial statements.
RESULTS OF OPERATIONS
Net sales. Net sales for the year ended September 30, 2003 decreased 9
percent to $807.8 million from $883.6 million for the year ended September 30,
2002. Our reduced sales levels reflected the slowdown in technology markets,
primarily in the network/datacommunications/telecom, industrial/commercial and
computer industries, which have been further impacted by reduced capital
spending by companies in these industries. Net sales in fiscal 2003 compared to
net sales in fiscal 2002 were also adversely affected by the loss of the
programs of the primary customer in our San Diego facility. The slowdown in the
technology markets in fiscal 2003 was offset, in part, by increased sales to the
medical industry. We currently expect first quarter of fiscal 2004 sales to be
in the range of $230 million to $240 million as a result of strengthened demand
from a number of existing customers, as well as the start of production for
several new customers. However, our results will ultimately depend on actual
customer order levels.
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 sales decline reflected the
continued slowdown in technology markets in most end-markets but primarily due
to the networking/datacommunications/telecom and industrial/commercial
end-markets. 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.
Siemens Medical Systems, Inc. ("Siemens") represented 12 percent of our
net sales in fiscal 2003. We had no other customers that represented 10 percent
or more of our net sales in fiscal 2003. We had no customers that represented 10
percent or more of net sales for the years ended September 30, 2002 and 2001.
Sales to our ten largest customers accounted for 55 percent of sales for the
year ended September 30, 2003, compared to 48 percent and 51 percent for the
years ended September 30, 2002 and 2001, 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 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 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, 2003, 2002 and 2001,
respectively, by industry were as follows:
INDUSTRY 2003 2002 2001
-------- ---- ---- ----
Networking/Datacommunications/Telecom 36% 36% 40%
Medical 32% 28% 22%
Industrial/Commercial 15% 20% 20%
Computer 12% 11% 10%
Transportation/Other 5% 5% 8%
Gross profit. Gross profit for the year ended September 30, 2003,
decreased 35 percent to $53.0 million from $81.3 million for the year ended
September 30, 2002. The gross margin percentage for the year ended September 30,
2003, was 6.6 percent, compared to 9.2 percent for the year ended September 30,
2002. The decline in gross margin was due primarily to reduced utilization of
manufacturing capacity, lower product pricing and higher costs incurred to
transfer customer programs to other Plexus operating sites as a result of
closing San Diego and Richmond.
Overall gross margins were affected by lower sales levels as a result
of a slowdown in end-market demand, particularly in the networking/
datacommunications/telecom and industrial/commercial industries, and the
concomitant impact on capacity utilization. Gross margins reflect a number of
factors that can vary from period to period, including product mix, the level of
start-up costs and efficiencies associated with 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 our customers'
10
products and competition within the electronics industry. These, and other
factors, can cause variations in our operating results. There can be no
assurance that gross margins will not decrease in future periods.
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 percentage for the year ended September 30, 2002, was 9.2
percent, compared to 12.4 percent for the year ended September 30, 2001. The
decline in gross margin in fiscal 2002 compared to fiscal 2001 was due primarily
to our reduced utilization of manufacturing and engineering capacity.
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, 2003, were $65.2 million as compared to $66.9 million
and $55.8 million for the years ended September 30, 2002 and 2001, respectively.
As a percentage of net sales, S&A expenses were 8.1 percent for the year ended
September 30, 2003, compared to 7.6 percent and 5.3 percent for the years ended
September 30, 2002 and 2001, respectively.
The decrease of S&A expenses in dollar terms in fiscal 2003 as compared
to fiscal 2002 was due primarily to fiscal 2003 restructuring actions and
reductions in corporate spending. These reductions were offset, in part, by
approximately $1.2 million of additional expenses for information technology
systems support related to the implementation of a new enterprise resource
planning ("ERP") platform. This ERP platform is intended to augment our
management information systems and includes various software systems to enhance
and standardize our ability to globally translate information from production
facilities into operational and financial information and create a consistent
set of core business applications at our worldwide facilities.
During fiscal 2003, two manufacturing facilities were converted to the
new ERP platform, which resulted in additional training and implementation
costs. Over the next two quarters, we intend to develop enhancements for the new
ERP platform. We anticipate converting at least one more facility to the new ERP
platform. Training and implementation costs are expected to continue over the
next several quarters as we make system enhancements and convert an additional
facility to the new ERP platform. The conversion timetable and project scope
remain subject to change based upon our evolving needs and sales levels. In
addition to S&A expenses associated with the new ERP system, we continue to
incur capital expenditures for hardware, software and certain other costs for
testing and installation. As of September 30, 2003, property, plant and
equipment includes $27.9 million of capital expenditures related to the new ERP
platform, including $10.9 million capitalized in fiscal 2003. Amortization of
the capitalized costs associated with the ERP platform commenced in fiscal 2003
and totaled $0.7 million. We anticipate incurring at least an additional $5.0
million of capital expenditures for the ERP platform over the next fiscal year.
Effective the first quarter of fiscal 2003, in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets," we no longer amortized goodwill.
However, goodwill was impaired as a result of a transitional impairment
evaluation upon adoption of SFAS No. 142. See discussion below under "Cumulative
effect of a change in accounting for goodwill." Subsequent to the initial
adoption of SFAS No. 142, we are required to perform an annual impairment test,
or more frequently if an event or changes in circumstance indicates that an
impairment loss has occurred, which could materially affect our results of
operations in any given period. In early fiscal 2003, $5.6 million of goodwill
was impaired as a result of the loss of a major customer in San Diego (see
discussion below). We completed the annual impairment test during our third
quarter of fiscal 2003 and determined that no further impairment existed.
During fiscal 2003, we recorded pre-tax restructuring and impairment
costs totaling $59.3 million. These costs resulted from actions taken in
response to reductions in our end-market demand. These actions included closing
San Diego and Richmond, the consolidation of several leased facilities,
re-focusing the PCB design group, a write-off of remaining goodwill associated
with the acquisition of Qtron, the write-down of underutilized assets to fair
value at several locations, and the costs associated with reductions in work
force in several manufacturing, engineering and corporate groups. These measures
were intended to align our capabilities and resources with lower industry
demand.
The Richmond facility was phased out of operations and sold in
September 2003. Production was shifted to other Plexus operating sites in the
United States and Mexico. The closure of Richmond resulted in a write-down of
the building, a write-down of underutilized assets to fair value, and costs
relating to the elimination of the facility's work force. Building impairment
charges related to Richmond totaled $3.7 million. San Diego was closed in May
2003. The closure of San Diego resulted in a write-off of remaining goodwill,
the write-down of underutilized assets to fair value, and costs relating to the
elimination of the facility's work force. Building impairment charges totaled
$6.3 million. During fiscal 2003, goodwill impairment for San Diego totaled
approximately $20.4 million, of which $14.8
11
million was impaired as a result of a transitional impairment evaluation under
SFAS No. 142 (see discussion below under "Cumulative effect of a change in
accounting for goodwill") and $5.6 million was impaired as a result of our
decision to close the facility.
Other fiscal year 2003 restructuring actions included the consolidation
of several leased facilities, the write-down of underutilized assets to fair
value and work force reductions, which primarily affected operating sites in
Juarez, Mexico ("Juarez"); Seattle, Washington ("Seattle"); Neenah, Wisconsin
("Neenah") and the United Kingdom ("UK"). Restructuring actions also impacted
our engineering and corporate organizations. Employee termination and severance
costs for fiscal 2003 related to the termination of approximately 1,000
employees.
For the year ended September 30, 2002, we recorded restructuring and
impairment costs totaling $12.6 million. These charges resulted from actions
taken in response to reductions in sales levels and capacity utilization and
included the reduction of our work force and the write-off of certain
underutilized assets to fair value at several locations. The employee
termination and severance costs for fiscal 2002 affected approximately 700
employees. The operating site closures included two owned facilities: one
located in Neenah (the oldest of our four facilities in Neenah) and the other
located in Minneapolis, Minnesota. These facilities were no longer adequate to
service the needs of our customers and would have required significant
investment to upgrade. The Neenah facility was phased out of operation in
February 2003 and is currently used for warehousing and administrative purposes.
The Minneapolis facility was phased out of operation in July 2002 and sold in
October 2002. There was no building impairment charge associated with the
closure of these two facilities. The lease termination costs were primarily
related to our facilities in Seattle and San Diego.
For the year ended September 30, 2001, we recorded pre-tax
restructuring charges of $1.9 million. We reduced our cost structure through the
reduction of our work force and by writing off certain underutilized assets in
response to the reduction in our sales levels. The employee termination and
severance costs provided for the elimination of approximately 50 employees.
The following table summarizes our restructuring and impairment costs
for fiscal 2003, 2002 and 2001:
Years ended September 30,
--------------------------------
2003 2002 2001
------- ------- -------
Non-cash impairment costs:
Fixed asset impairment $32,451 $ 4,890 $ 1,182
Write-off of goodwill 5,595 - -
------- ------- -------
38,046 4,890 1,182
------- ------- -------
Cash restructuring costs:
Severance costs 10,358 3,819 642
Lease termination costs 10,940 3,872 102
------- ------- -------
21,298 7,691 744
------- ------- -------
Total restructuring and impairment costs $59,344 $12,581 $ 1,926
======= ======= =======
As of September 30, 2003, we have a remaining restructuring liability
of approximately $10.8 million, of which $6.0 million is expected to be paid in
fiscal 2004. The remaining $4.8 million of accrued liabilities is expected to be
paid through June 2008.
We currently expect that our restructuring actions will result, when
fully implemented, in annualized cost savings of approximately $30 million,
although these savings may be offset in part by reduced revenues and other
changes in our cost structure. These savings will primarily benefit cost of
sales through lower depreciation, lower lease expense and reduced employee
expenses.
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.
Cumulative effect of a change in accounting for goodwill. We adopted
SFAS No. 142 for the accounting for goodwill and other intangible assets as of
October 1, 2002. Under the transitional provisions of SFAS No. 142, we
identified locations with goodwill, performed impairment tests on the net
goodwill and other intangible assets associated with each location using a
valuation date as of October 1, 2002, and determined that a pre-tax transitional
impairment charge of $28.2 million was required related to the San Diego and
Juarez locations. The impairment charge
12
was recorded as a cumulative effect of a change in accounting for goodwill in
our Consolidated Statements of Operations.
Income taxes. Income taxes decreased to a $27.2 million income tax
benefit for the year ended September 30, 2003, from a $1.8 million income tax
benefit and $26.2 million of income tax expense for the years ended September
30, 2002 and 2001, respectively. Our effective income tax rate increased to
approximately 38 percent in fiscal 2003 as compared to 30 percent in fiscal
2002. The increase in the effective tax rate is due primarily to the absence in
fiscal 2003 of non-deductible goodwill amortization expenses that were present
in fiscal 2002.
As of September 30, 2003, we had net deferred income tax assets of
$48.6 million, which have arisen from available income tax losses and future
income tax deductions. Our ability to use these income tax losses and future
income tax deductions is dependent upon our future operations in the tax
jurisdictions in which such losses or deductions arose. We would record a
valuation allowance against deferred income tax assets when management believes
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized. Although realization is not assured, based on the
reversal of deferred income tax liabilities, projected future taxable income,
the character of the income tax asset and tax planning strategies, we determined
that as of September 30, 2003, no tax valuation allowance is required. However,
should we experience a pre-tax loss in fiscal 2004 resulting from revenue
declines and/or the inability to improve operating margins, a tax valuation
reserve may be required in fiscal 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were ($20.0) million for the
year ended September 30, 2003, compared to cash flows provided by operating
activities of $130.5 million and $119.5 million for the years ended September
30, 2002 and 2001, respectively. During fiscal 2003, cash used in operating
activities was primarily related to fund losses, increased inventory, deferred
income tax assets and payments to terminate our former asset securitization
facility. These uses of cash were partially offset by an increase in our
accounts payable.
Our days sales outstanding in accounts receivable as of September 30,
2003 remained constant at 47 days compared to September 30, 2002. Included in
these calculations are the addback of amounts sold under the asset
securitization facility, which were $0 and $16.6 million as of September 30,
2003 and 2002, respectively. Our inventory turns decreased to 6.5 turns for the
year ended September 30, 2003 from 7.0 turns for the year ended September 30,
2002. Inventory turns were negatively impacted due to a build up of raw
materials and work-in-process inventory for existing and new customers in
anticipation of increased customer demand in the first quarter of fiscal 2004.
Cash flows provided by investing activities totaled $13.6 million for
the year ended September 30, 2003. The primary sources were sales and maturities
of short-term investments offset by purchases of property, plant and equipment.
We utilize available cash, debt and operating leases to fund our
operating requirements. We utilize operating leases primarily in situations
where concerns about technical obsolescence outweigh the benefits of owning the
equipment. We currently estimate capital expenditures for fiscal 2004 will be
approximately $20 million to $25 million. This estimate does not include any
acquisitions which we may undertake. Our level of capital expenditures for
fiscal 2004 will be heavily dependent on anticipated sales levels.
Cash flows provided by financing activities, totaling $1.0 million for
the year ended September 30, 2003, primarily represent proceeds from stock
issuances and the exercise of stock options offset by payments on capital lease
obligations.
On October 22, 2003, we entered into a secured revolving credit
facility (the "Secured Credit Facility") with a group of banks that allows us to
borrow up to $100 million. Borrowing under the Secured Credit Facility will be
either through revolving or swing loans or letters of credit. The Secured Credit
Facility is secured by substantially all of our domestic working capital assets
and a pledge of 65 percent of the stock of each of our foreign subsidiaries.
Interest on borrowings varies with usage and begins at the Prime rate (as
defined) or the LIBOR rate plus 1.5 percent. We also are required to pay an
annual commitment fee of 0.5 percent of the unused credit commitment, a maximum
of $0.5 million per year. The Secured Credit Facility matures on October 22,
2006 and includes certain financial covenants customary in agreements of this
type. These covenants include a maximum total leverage ratio, a minimum domestic
cash or marketable securities balance, a minimum tangible net worth and a
minimum adjusted EBITDA, as defined in the agreement.
13
We terminated our previous credit facility ("Old Credit Facility")
effective December 26, 2002 at which time no amounts were outstanding.
Termination of the Old Credit Facility was occasioned by anticipated
noncompliance with a minimum interest expense coverage ratio covenant as of
December 31, 2002, which was a result of the restructuring and impairment costs
incurred in the first quarter of fiscal 2003. At the date of termination of the
Old Credit Facility, we wrote off unamortized deferred financing costs of
approximately $0.5 million.
In fiscal 2001, we entered into 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 Plexus. ABS is a separate entity
that sold, under a separate agreement, participating interests in a pool of our
accounts receivable to financial institutions. The financial institutions then
received an ownership and security interest in the pool of receivables. The
agreement also included standards for determining which receivables may be sold,
and included customary indemnification obligations that are more specifically
described in Note 14 of Notes to the Consolidated Financial Statements. The
agreement expired in September 2003. We did not renew the agreement upon its
expiration, which resulted in our use of approximately $17.3 million of cash in
the fourth quarter of fiscal 2003 to reacquire accounts receivable previously
sold under the asset securitization facility.
We believe that our Secured Credit Facility, leasing capabilities, cash
and short-term investments and projected cash from operations should be
sufficient to meet our working and fixed capital requirements through fiscal
2004 and 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 any earnings to
support our business.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Our disclosures regarding contractual obligations and commercial
commitments are located in various parts of our regulatory filings. Information
in the following table provides a summary of our contractual obligations and
commercial commitments as of September 30, 2003 (in thousands):
Payments Due by Fiscal Period
------------------------------------------------------------
2009 and
Contractual Obligations Total 2004 2005-2006 2007-2008 thereafter
------------------------ ------------------------------------------------------------
Capital Lease Obligations $ 43,705 $ 3,173 $ 5,846 $ 6,041 $ 28,645
Operating Leases 81,136 13,730 23,010 15,826 28,570
Unconditional Purchase Obligations* - - - - -
Other Long-Term Obligations** 1,999 808 1,191 - -
-------- -------- -------- -------- ---------
Total Contractual Cash Obligations $126,840 $ 17,711 $ 30,047 $ 21,867 $ 57,215
======== ======== ======== ======== =========
* - There are no unconditional purchase obligations other than purchases of
inventory and equipment in the ordinary course of business. All such
unconditional purchase obligations of inventory and equipment have a term of
less than one year.
** - As of September 30, 2003, other long-term obligations consist of salary
commitments under employment agreements. We did not have, and were not subject
to, any lines of credit, standby letters of credit, guarantees, standby
repurchase obligations, or other commercial commitments. Our off-balance-sheet
asset securitization facility expired in September 2003.
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in Note 1 to the Consolidated
Financial Statements. During the year ended September 30, 2003, the only
material change to these policies related to our accounting for intangible
assets. Modifications were also made in our policies for accounting for the
impairment of long-lived assets and restructuring costs; however, such changes
did not have a material effect on our financial position or results of
operations. The significant accounting policies are as follows:
Impairment of Long-Lived Assets - We adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" effective October 1, 2002.
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 in SFAS No. 142 as described below. SFAS No. 144
maintains the requirement that an impairment loss be recognized for
14
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."
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 comparing its carrying value to the projected cash flows the property, plant
and equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which the
carrying value of the property exceeds its fair market value. The impairment
analysis is based on significant assumptions of future results made by
management, including revenue and cash flow projections. Circumstances that may
lead to impairment of property, plant and equipment include decreases in future
performance or industry demand and the restructuring of our operations.
Intangible Assets - We adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" effective October 1, 2002. Under SFAS No. 142, beginning
October 1, 2002, we no longer amortize goodwill and intangible assets with
indefinite useful lives, but, instead, test those assets for impairment at least
annually with any related losses recognized in earnings when incurred. We will
perform goodwill impairment tests annually during the third quarter of each
fiscal year and more frequently if an event or circumstance indicates that an
impairment loss has occurred.
Under the transitional provisions of SFAS No. 142, we identified
locations with goodwill, performed impairment tests on the net goodwill and
other intangible assets associated with each location using a valuation date as
of October 1, 2002, and determined that a pre-tax transitional impairment charge
of $28.2 million was required. The impairment charge was recorded as a
cumulative effect of a change in accounting for goodwill in our Consolidated
Statements of Operations. See Note 1 to the Notes to Consolidated Financial
Statements. In early fiscal 2003, we incurred additional goodwill impairment of
$5.6 million as a result of the Company's decision to close the San Diego
facility (see Note 10 to the Notes to Consolidated Financial Statements).
We measure the recoverability of goodwill under the annual impairment
test by comparing a reporting unit's carrying amount, including goodwill, to the
fair market value of the reporting unit based on projected discounted future
cash flows. If the carrying amount of the reporting unit exceeds its fair value,
goodwill is considered impaired and a second test is performed to measure the
amount of impairment loss, if any.
Revenue - Revenue from manufacturing services is generally recognized
upon shipment of the manufactured product to our customers, under contractual
terms, which are generally FOB shipping point. Upon shipment, title transfers
and the customer assumes risks and rewards of ownership of the product.
Generally, there are no formal customer acceptance requirements or further
obligations related to manufacturing services; if such requirements or
obligations exist, then revenue is recognized at the time when such requirements
are completed and such obligations fulfilled.
Revenue from engineering design and development services, which are
generally performed under contracts of twelve months or less duration, is
recognized as costs are incurred utilizing the percentage-of-completion method;
any losses are recognized when anticipated. Revenue from engineering design and
development services is less than ten percent of total revenue.
Revenue is recorded net of estimated returns of manufactured product
based on management's analysis of historical returns, current economic trends
and changes in customer demand. Revenue also includes amounts billed to
customers for shipping and handling. The corresponding shipping and handling
costs are included in cost of sales.
Restructuring Costs -From fiscal 2001 through fiscal 2003, we recorded
restructuring costs in response to reductions in sales and reduced capacity
utilization. These restructuring costs included employee severance and benefit
costs, and costs related to plant closings, including leased facilities that
will be abandoned (and subleased, as applicable). Prior to January 1, 2003,
severance and benefit costs were recorded in accordance with Emerging Issues
Task Force ("EITF") 94-3 and for leased facilities that were abandoned and
subleased, the estimated lease loss was accrued for future remaining lease
payments subsequent to abandonment, less any estimated sublease income. As of
September 30, 2003, the significant facilities which we plan to sublease have
not yet been subleased; and, accordingly, our estimates of expected sublease
income could change based on factors that affect our ability to sublease those
facilities such as general economic conditions and the real estate market, among
others. For equipment, the impairment
15
losses recognized are based on the fair value estimated using existing market
prices for similar assets, less estimated costs to sell. See Note 10 in the
Notes to Consolidated Financial Statements.
Subsequent to December 31, 2002, costs associated with a restructuring
activity are recorded in compliance with SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The timing and related recognition
of recording severance and benefit costs that are not presumed to be an ongoing
benefit as defined in SFAS No. 146, depends on whether employees are required to
render service until they are terminated in order to receive the termination
benefits and, if so, whether employees will be retained to render service beyond
a minimum retention period. During fiscal 2003, we concluded that we had a
substantive severance plan based upon our past severance practices; therefore,
we recorded certain severance and benefit costs in accordance with SFAS No. 112,
"Employer's Accounting for Post employment Benefits," which resulted in the
recognition of a liability as the severance and benefit costs arose from an
existing condition or situation and the payment was both probable and reasonably
estimated.
For leased facilities that will be abandoned and subleased, a liability
is recognized and measured at fair value for the future remaining lease payments
subsequent to abandonment, less any estimated sublease income that could be
reasonably obtained for the property. For contract termination costs, including
costs that will continue to be incurred under a contract for its remaining term
without economic benefit to the entity, a liability for future remaining
payments under the contract is recognized and measured at its fair value. See
Note 10 in the Notes to Consolidated Financial Statements.
The recognition of restructuring costs requires that we make certain
judgments and estimates regarding the nature, timing and amount of costs
associated with the planned exit activity. If our actual results in exiting
these facilities differ from our estimates and assumptions, we may be required
to revise the estimates of future liabilities, requiring the recording of
additional restructuring costs or the reduction of liabilities already recorded.
At the end of each reporting period, we evaluate the remaining accrued balances
to ensure that no excess accruals are retained and the utilization of the
provisions are for their intended purpose in accordance with developed exit
plans.
NEW ACCOUNTING PRONOUNCEMENTS
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. We adopted
SFAS No 143 effective October 1, 2002. The adoption of this standard did not
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. We adopted SFAS No. 144 effective October 1, 2002. The adoption of this
standard 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 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
required 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. The adoption of SFAS No. 146 did not have a material impact on our
financial position or results of operations, but may impact the timing of the
recognition of the costs and liabilities resulting from any future restructuring
activities.
In November 2002, Financial Accounting Standards Board Interpretation
("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued,
which requires us at the time we issue a guarantee to recognize an initial
liability for the fair value of obligations assumed under the guarantee and to
elaborate on existing disclosure requirements. The initial recognition
requirements of FIN No. 45 are effective for guarantees issued or modified after
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December 31, 2002. The disclosure requirements of FIN No. 45 were effective in
our first fiscal quarter of 2003. Adoption of the initial recognition provisions
of FIN No. 45 did not have a material impact on our consolidated financial
statements; however, FIN No. 45 may have a significant impact on our future
results of operations and financial position.
In November 2002, the EITF reached a consensus regarding EITF Issue
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." The
consensus addresses not only when and how an arrangement involving multiple
deliverables should be divided into separate units of accounting, but also how
the arrangement's consideration should be allocated among separate units. The
pronouncement is effective for us commencing with our fiscal year 2004 and is
not expected to have a material impact on our consolidated results of operations
or financial position.
In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123"
was issued. SFAS No. 148 provides alternative methods of transition for an
entity that voluntarily changes to the fair-value-based method of accounting for
stock-based employee compensation and is effective for fiscal years ending after
December 15, 2002. In addition, SFAS No. 148 requires prominent disclosures in
both annual and interim financial statements about the effects on reported net
income of an entity's method of accounting for stock-based employee
compensation. We did not effect a voluntary change in accounting to the fair
value method, and, accordingly, SFAS No. 148 did not have an impact on our
results of operations or financial position.
In January 2003, FIN No. 46, "Consolidation of Variable Interest
Entities" was issued. FIN No. 46 clarifies the application of Accounting
Research Bulletin No. 52, "Consolidated Financial Statements," to certain
entities in which equity investors lack the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. A variable interest entity is required to be consolidated by the
company that has a majority of the exposure to expected losses of the variable
interest entity. The Interpretation is effective immediately for variable
interest entities created after January 31, 2003. For variable interest entities
in which an enterprise holds a variable interest that it acquired before
February 1, 2003, the Interpretation, as amended by FSP No. FIN 46-6, applies in
the first fiscal year or interim period beginning after December 15, 2003. The
issuance of FIN No. 46 is not expected to have a material impact on our
financial position or results of operations.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued. SFAS No. 149 improves financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. In particular, SFAS No. 149: (1) clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when
a derivative contains a financing component, (3) amends the definition of an
underlying to conform it to language used in FIN No. 45, and (4) amends
certain other existing pronouncements. Those changes will result in more
consistent reporting of contracts as either derivatives or hybrid instruments.
In general, SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of SFAS No. 149 did not have a material impact on our
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,"
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Financial instruments that are within the scope of the Statement, which
previously were often classified as equity, must now be classified as
liabilities. In November 2003, Financial Accounting Standards Board Staff
Position ("FSP") No. SFAS 150-3 deferred the effective date of SFAS No. 150
indefinitely for applying the provisions of the Statement for certain
mandatorily redeemable non-controlling interests. However expanded discussions
are required during the deferral period. The issuance of SFAS No, 150 is not
expected to have a material impact on our financial position or results of
operations.
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:
17
- 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,
- customer announcements of operating results and business
conditions,
- 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,
- local events that may affect our production volume, such as
local holidays,
- credit ratings and stock analyst reports and
- changes in economic conditions and world events.
The EMS industry is impacted by the state of the U.S. and global
economies and world events. A continued slowdown or flat performance 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 we
expect them to continue to be, adversely affected by the slowdown in the
networking/datacommunications/telecom and industrial/commercial markets, as a
result of reduced end-market demand and reduced availability of venture capital
to fund existing and emerging technologies. These factors have and continue to
substantially influence our levels of 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.
Our quarterly and annual results are affected by the level and timing
of customer orders, fluctuations in material costs and availabilities, and the
degree of capacity utilization in the manufacturing process.
THE MAJORITY OF OUR SALES COME 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 largest customer represented 12 percent of our net sales
in fiscal 2003. We had no customers that represented 10 percent or more in
fiscal 2002 and 2001. Sales to our ten largest customers have represented a
majority, or near majority, of our net sales in recent periods. Our ten largest
customers accounted for approximately 55 percent, 48 percent and 51 percent of
our net sales for the years ended September 30, 2003, 2002 and 2001,
respectively. 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. 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 that 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 a slowdown in the overall
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 accurately estimate
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,
18
we have significantly reduced our capacity from its peak, and 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.
FAILURE TO MANAGE OUR CONTRACTION, AND OUR FUTURE GROWTH, IF ANY, MAY SERIOUSLY
HARM OUR BUSINESS.
Periods of contraction or reduced sales, such as the period that
continued in fiscal 2003, create tensions and challenges. We must determine
whether all facilities remain productive, determine whether staffing levels need
to be reduced, and determine how to respond to changing levels of customer
demand. While maintaining multiple facilities or higher levels of employment
increases short-term costs, reductions in employment 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, such as the recent closure of
our San Diego facility and our Kentucky facility and the reduction in the number
of employees, can affect our expenses, and therefore our short-term and
long-term results.
We are involved in a multi-year project to install a common ERP
platform and associated information systems. The project was begun at a time
when anticipated sales growth and profitability were expected to be much higher
than has actually occurred in recent financial performance. We continue to
review a number of alternatives to this project, including curtailment or
slow-down in the rate of implementation. As of September 30, 2003, ERP
implementation costs included in property, plant and equipment totaled $27.9
million and we anticipate incurring at least an additional $5.0 million in
capital expenditures for the ERP platform; changes in the scope of this project
could result in impairment of these capitalized costs.
The resumption of sales growth would require us 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. We may also experience a need for
additional facilities. If we are unable to manage future growth effectively, our
operating results could be harmed.
OPERATING IN FOREIGN COUNTRIES EXPOSES US TO INCREASED RISKS.
We have operations in China, Malaysia, Mexico and the United Kingdom.
We may in the future expand into other international regions. We have limited
experience in managing geographically dispersed operations in these countries.
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 and
- 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 Chinese and Malaysian subsidiaries currently receive
favorable tax treatment from the governments in those countries for
approximately 3 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:
- retain 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.
19
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 that 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.
OUR 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 most 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
suppliers.
In addition, we provide a managed inventory program under which we hold
and manage finished goods inventory for two of our key customers. The managed
inventory program may result in higher finished goods inventory levels, further
reduce our inventory turns and increase our financial risk with such customers,
although our customers will have contractual obligations to purchase the
inventory from us.
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. At times, component shortages have been
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. World events, such as terrorism, armed conflict and epidemics,
also could affect supply chains. 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.
START-UP COSTS AND INEFFICIENCIES RELATED TO NEW OR TRANSFERRED 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 or program transfers. 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.
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WE MAY HAVE NEW CUSTOMER RELATIONSHIPS WITH EMERGING COMPANIES, WHICH MAY
PRESENT MORE RISKS THAN WITH ESTABLISHED COMPANIES.
We currently anticipate that less than 5 percent of our fiscal 2004
sales will 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 from these programs 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 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.
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 32 percent of our net sales in fiscal 2003, 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, or total or partial suspension of production. 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, 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 defects.
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
tarnished. 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:
21
- 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
and has become more so as a result of excess capacity in the industry. 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
which may have significant combined resources with which to compete against us.
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 have 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 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 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 could harm our business.
OUR OPERATIONS, INCLUDING CHINA, COULD BE NEGATIVELY AFFECTED BY THE SARS
EPIDEMIC.
We have a production facility in Xiamen, China, which is one of the
countries that was hardest hit by the epidemic of SARS. To the best of our
knowledge, the SARS epidemic did not affect any of our employees in China, or
any employees at our other facilities. In addition, we did not experience any
disruption in our supply chain as a result of the SARS epidemic. We have taken a
number of initiatives to protect our employees from contracting the SARS virus;
however, our production could be severely impacted, if our employees, or the
region in which the facility in China is located, experience a renewed outbreak
of SARS. For example, the facility in China could be closed by government
authorities, some or all of our workforce could be unavailable due to
quarantine, fear of catching the disease or other factors, and local, national
or international transportation or other infrastructure could be affected,
leading to delays or loss of production.
The SARS epidemic was not limited to China, and SARS or other disease
outbreaks could also affect our other foreign or domestic facilities in similar
ways. In addition, these other factors also could affect our suppliers, leading
to a shortage of components, or our customers, leading to a reduction in their
demand for our services.
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WE MAY FAIL TO SUCCESSFULLY COMPLETE FUTURE ACQUISITIONS AND MAY NOT
SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES, WHICH COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
Although we have previously grown through acquisitions, our current
focus is on pursuing organic growth opportunities. If we were to pursue future
growth through acquisitions, however, this would 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 and
- impairment of goodwill and other intangible assets
- unforeseen liabilities of the acquired businesses.
EXPANSION OF OUR BUSINESS AND OPERATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.
At some future point, we again 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.
WE MAY FAIL TO SECURE NECESSARY FINANCING.
On October 22, 2003, we entered into a secured revolving credit
facility (the 'Secured Credit Facility") with a group of banks. The Secured
Credit Facility allows us to borrow up to $100 million. However, we cannot
assure that the Secured Credit Facility will provide all of the financing
capacity that we will need in the future.
Our future success may depend on our ability to obtain additional
financing and capital to support our possible future growth. We may seek to
raise capital by:
23
- issuing additional common stock or other equity securities
- issuing debt securities
- obtaining new credit facilities.
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
shareholders' ownership interests. 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.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
Our stock price has fluctuated significantly in recent periods. The
price of our common stock may fluctuate significantly in response to a number of
events and factors relating to us, 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 sometimes has 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. Our stock price and the stock price
of many other technology companies remain below their peaks.
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 paid. 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 international operations create potential
foreign exchange risk. As of September 30, 2003, our foreign currency contracts
were scheduled to mature in less than three months and were not material.
In fiscal 2003, 2002 and 2001, we had net sales of approximately 8
percent, 9 percent and 8 percent, respectively, denominated in currencies other
than the U.S. dollar. In fiscal 2003, 2002 and 2001, we had total costs of
approximately 11 percent for each fiscal year, denominated in currencies other
than the U.S. dollar.
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.
24
Our only material interest rate risk is associated with our secured
credit 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 our average long-term borrowings would have had a
nominal impact on net interest expense in fiscal 2003 and 2002, compared to an
impact of approximately $0.6 million for fiscal 2001.
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.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: The Company maintains disclosure
controls and procedures designed to ensure that the information the Company must
disclose in its filings with the Securities and Exchange Commission is recorded,
processed, summarized and reported on a timely basis. The Company's principal
executive officer and principal financial officer have reviewed and evaluated,
with the participation of the Company's management, the Company's disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end
of the period covered by this report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in bringing to their
attention on a timely basis material information relating to the Company
required to be included in the Company's periodic filings under the Exchange
Act.
Internal Control Over Financial Reporting: There have not been any
changes in the Company's internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the
Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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
2004 Annual Meeting of Shareholders ("2004 Proxy Statement") and from "Security
Ownership of Certain Beneficial Owners and Management--Section 16(a) Beneficial
Ownership Reporting Compliance" in the 2004 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 2004 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 2004 Proxy Statement.
EQUITY COMPENSATION PLAN INFORMATION
The following chart gives aggregate information regarding grants under all
Plexus equity compensation plans through September 30, 2003):
25
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 4,871,873 $ 17.99 2,633,490
Equity compensation plans not
approved by securityholders -0- n/a -0-
--------- ------------------ ---------
Total (3) 4,871,873 $ 17.99 2,633,490
========= ================== =========
(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 that may be granted under the Option Plans,
1,520,565 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 39,866 shares,
at a weighted average price of $17.45, under option plans of acquired
companies. Options under these plans were converted into options to
acquire Plexus stock in those transactions. 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 2004
Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference to the subheading "Fees and Services"
under "Auditors" in the 2004 Proxy Statement.
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 28 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.
No reports were filed during the quarter ended September 30, 2003. However,
Plexus submitted reports (which are not to be deemed incorporated by reference
into other filings) dated July 23, 3003 and October 23, 2003, which furnished
certain earnings information.
26
PLEXUS CORP.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
SEPTEMBER 30, 2003
CONTENTS PAGES
-------- -----
Report of Independent Auditors .................................................................................. 28
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
September 30, 2003, 2002 and 2001 ............................................................. 29
Consolidated Balance Sheets as of September 30, 2003 and 2002.................................. 30
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
for the years ended September 30, 2003, 2002 and 2001.......................................... 31
Consolidated Statements of Cash Flows for the years ended
September 30, 2003, 2002 and 2001.............................................................. 32
Notes to Consolidated Financial Statements ...................................................................... 33-53
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the years ended
September 30, 2003, 2002 and 2001.............................................................. 54
27
REPORT OF INDEPENDENT AUDITORS
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, 2003 and September 30, 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2003 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.
As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," effective October 1,
2002.
PricewaterhouseCoopers LLP
Milwaukee, WI
October 23, 2003
28
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002 2001
----------- ----------- -----------
Net sales $ 807,837 $ 883,603 $ 1,062,304
Cost of sales 754,872 802,283 930,514
----------- ----------- -----------
Gross profit 52,965 81,320 131,790
Operating expenses:
Selling and administrative expenses 65,152 66,921 55,844
Amortization of goodwill - 5,203 4,022
Restructuring and impairment costs 59,344 12,581 1,926
Acquisition and merger costs - 251 1,610
----------- ----------- -----------
124,496 84,956 63,402
----------- ----------- -----------
Operating income (loss) (71,531) (3,636) 68,388
Other income (expense):
Interest expense (2,817) (3,821) (6,448)
Miscellaneous 2,624 1,631 3,426
----------- ----------- -----------
Income (loss) before income taxes and cumulative
effect of change in accounting for goodwill (71,724) (5,826) 65,366
Income tax expense (benefit) (27,228) (1,753) 26,216
----------- ----------- -----------
Income (loss) before cumulative effect of
change in accounting for goodwill (44,496) (4,073) 39,150
Cumulative effect of change in accounting for
goodwill, net of income tax benefit of $4,755 (23,482) - -
----------- ----------- -----------
Net income (loss) $ (67,978) $ (4,073) $ 39,150
=========== =========== ===========
Earnings per share:
Basic:
Income (loss) before cumulative effect of
change in accounting for goodwill $ (1.05) $ (0.10) $ 0.95
Cumulative effect of change in accounting
for goodwill (0.56) - -
----------- ----------- -----------
Net income (loss) $ (1.61) $ (0.10) $ 0.95
=========== =========== ===========
Diluted:
Income (loss) before cumulative effect of
change in accounting for goodwill $ (1.05) $ (0.10) $ 0.91
Cumulative effect of change in accounting
for goodwill (0.56) - -
----------- ----------- -----------
Net income (loss) $ (1.61) $ (0.10) $ 0.91
=========== =========== ===========
Weighted average shares outstanding:
Basic 42,284 41,895 41,129
=========== =========== ===========
Diluted 42,284 41,895 43,230
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
29
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 58,993 $ 63,347
Short-term investments 19,701 53,025
Accounts receivable, net of allowances of $4,100 and $4,200, respectively 111,125 95,903
Inventories 136,515 94,032
Deferred income taxes 23,723 21,283
Prepaid expenses and other 8,326 14,221
-------- --------
Total current assets 358,383 341,811
Property, plant and equipment, net 131,510 170,834
Goodwill, net 32,269 64,957
Deferred income taxes 24,921 355
Other 5,971 5,988
-------- --------
Total assets $553,054 $583,945
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 958 $ 1,652
Accounts payable 91,445 67,310
Customer deposits 14,779 13,904
Accrued liabilities:
Salaries and wages 17,133 17,505
Other 23,753 21,586
-------- --------
Total current liabilities 148,068 121,957
Capital lease obligations, net of current portion 23,502 25,356
Other liabilities 10,468 5,943
Commitments and contingencies (Notes 9 and 12) - -
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 42,607 and 42,030 issued and outstanding, respectively 426 420
Additional paid-in capital 261,214 256,584
Retained earnings 102,840 170,818
Accumulated other comprehensive income 6,536 2,867
-------- --------
371,016 430,689
-------- --------
Total liabilities and shareholders' equity $553,054 $583,945
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
30
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(IN THOUSANDS)
Accumulated
Common Stock Additional Other
---------------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
-------------------------------------------------------------------------
BALANCES, OCTOBER 1, 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
Comprehensive income (loss):
Net loss - - - (67,978) - (67,978)
Foreign currency hedges and translation adjustments - - - - 3,667 3,667
Other - - - - 2 2
---------
Total comprehensive loss (64,309)
Issuances of common stock 253 3 1,939 - - 1,942
Exercise of stock options, including tax benefits 324 3 2,691 - - 2,694
--------- --------- --------- --------- --------- ---------
BALANCES, SEPTEMBER 30, 2003 42,607 $ 426 $ 261,214 $ 102,840 $ 6,536 $ 371,016
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
31
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(IN THOUSANDS)
2003 2002 2001
----------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (67,978) $ (4,073) $ 39,150
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization 27,135 36,604 29,890
Cumulative effect of change in accounting for goodwill 28,237 - -
Non-cash goodwill and asset impairments 38,046 4,890 1,182
Net (repurchases) sales under asset securitization facility (16,612) (6,305) 22,916
Income tax benefit of stock option exercises 926 984 7,420
Provision for inventories and accounts receivable allowances 7,455 19,190 17,584
Deferred income taxes (27,006) (4,352) (1,287)
Changes in assets and liabilities:
Accounts receivable 1,861 33,444 11,334
Inventories (48,869) 34,414 78,455
Prepaid expenses and other 6,309 (3,462) (6,087)
Accounts payable 23,554 7,504 (66,825)
Customer deposits 868 (2,152) 5,624
Accrued liabilities 7,745 14,388 (14,244)
Other (1,624) (619) (5,633)
--------- --------- ---------
Cash flows provided by (used in) operating activities (19,953) 130,455 119,479
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (105,236) (52,550) (57,475)
Sales and maturities of short-term investments 138,560 20,300 36,700
Payments for property, plant and equipment (22,372) (30,760) (54,560)
Proceeds on sale of property, plant and equipment 2,665 561 48
Payments for business acquisitions, net of cash acquired - (41,985) (32,600)
--------- --------- ---------
Cash flows provided by (used in) investing activities 13,617 (104,434) (107,887)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt - 190,437 167,361
Payments on debt and capital lease obligations (2,749) (242,797) (269,018)
Proceeds from exercise of stock options 1,768 1,271 3,207
Issuances of common stock 1,942 2,399 166,175
--------- --------- ---------
Cash flows provided by (used in) financing activities 961 (48,690) 67,725
--------- --------- ---------
Effect of foreign currency translation on cash 1,021 1,425 (19)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (4,354) (21,244) 79,298
Cash and cash equivalents, beginning of year 63,347 84,591 5,293
--------- --------- ---------
Cash and cash equivalents, end of year $ 58,993 $ 63,347 $ 84,591
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
32
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Plexus Corp. together with its
subsidiaries, (the "Company") provides product realization services to
original equipment manufacturers (OEMs) in the networking/
datacommunications/telecom, medical, industrial/commercial, computer,
and transportation/other industries. The Company provides advanced
electronics design, manufacturing and testing services to its customers
with a focus on complex, high technology and high reliability products.
The Company offers its customers the ability to outsource all stages of
product realization, including: development and design services,
materials procurement and management, prototyping, and new product
introduction, testing, manufacturing, configuration, logistics 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 some, or occasionally all, materials
necessary for product assembly. Turnkey services include material
procurement and warehousing, in addition to manufacturing, and involve
greater resource investment than consignment services. Turnkey
manufacturing currently represents substantially all of the Company's
manufacturing services sales.
Consolidation Principles: The consolidated financial
statements include the accounts of Plexus Corp. and its subsidiaries.
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. For fiscal 2003,
2002 and 2001, such unrealized gains and losses were not material. In
addition, there were no realized gains or losses in fiscal 2003, 2002
and 2001.
As of September 30, 2003 and 2002, cash and cash equivalents
included the following securities (in thousands):
2003 2002
------- -------
Money market funds and other $22,757 $20,154
U.S. corporate and bank debt 28,877 15,083
State and municipal securities 4,000 -
------- -------
$55,634 $35,237
======= =======
Short-term investments as of September 30, 2003 and 2002
consist primarily of state and municipal securities.
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:
33
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Buildings and improvements 15-50 years
Machinery and equipment 3-10 years
Computer hardware and software 3-10 years
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 (see Note 3) and the financing component of the
lease payments is classified as interest expense.
Goodwill and Other Intangible Assets: The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" effective October 1, 2002. Under SFAS No.
142, beginning October 1, 2002, the Company no longer amortizes
goodwill and intangible assets with indefinite useful lives, but
instead, tests those assets for impairment at least annually, with any
related loss recognized in earnings when incurred. Recoverability of
goodwill is measured at the reporting unit level. The Company's
goodwill was assigned to three reporting units: San Diego, California
("San Diego"), Juarez, Mexico ("Juarez") and Kelso, Scotland and
Maldon, England ("United Kingdom").
SFAS No. 142 required the Company to perform a transitional
goodwill impairment evaluation that required the Company to perform an
assessment of whether there was an indication of goodwill impairment as
of the date of adoption. The Company completed the evaluation and
concluded that it had goodwill impairments related to San Diego and
Juarez, since the estimated fair value based on expected future
discounted cash flows to be generated from each reporting unit was
significantly less than their respective carrying value.
The Company then compared the respective carrying amounts of
San Diego's and Juarez's goodwill to the implied fair value of each
reporting unit's respective goodwill. The implied fair value was
determined by allocating the fair value to each respective reporting
unit's assets and liabilities in a manner similar to a purchase price
allocation for an acquired business. Both values were measured at the
date of adoption. The Company identified $28.2 million of transitional
impairment losses ($23.5 million, net of income tax benefits) related
to San Diego and Juarez, which were recognized as a cumulative effect
of a change in accounting for goodwill in the Consolidated Statements
of Operations.
The Company is required to perform goodwill impairment tests
at least on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable
from estimated future cash flows. In early fiscal 2003, $5.6 million of
goodwill was impaired as a result of the Company's decision to close
the San Diego facility (see Note 10). The Company completed the annual
impairment test during the third quarter of fiscal 2003 and determined
that no further impairment existed. However, no assurances can be given
that future impairment tests of goodwill will not result in an
impairment.
The following sets forth a reconciliation of net income (loss)
and earnings per share information for fiscal 2003, 2002 and 2001,
adjusted to exclude goodwill amortization, net of income taxes (in
thousands, except per share data):
34
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2003 2002 2001
---------- ---------- ----------
Reported income (loss) before cumulative effect
of change in accounting for goodwill $ (44,496) $ (4,073) $ 39,150
Add back: goodwill amortization, net of income taxes - 4,375 3,203
---------- ---------- ----------
Adjusted income (loss) before cumulative effect of
change in accounting for goodwill (44,496) 302 42,353
Cumulative effect of change in accounting
for goodwill, net of income taxes (23,482) - -
---------- ---------- ----------
Adjusted net income (loss) $ (67,978) $ 302 $ 42,353
========== ========== ==========
Basic weighted average common shares outstanding 42,284 41,895 41,129
Dilutive effect of stock options - 1,223 2,101
---------- ---------- ----------
Diluted weighted average shares outstanding 42,284 43,118 43,230
========== ========== ==========
Basic earnings per share:
Reported income (loss) before cumulative effect
of change in accounting for goodwill $ (1.05) $ (0.10) $ 0.95
Add back: goodwill amortization,
net of income taxes - 0.10 0.08
---------- ---------- ----------
Adjusted income (loss) before cumulative effect
of change in accounting for goodwill (1.05) - 1.03
Cumulative effect of change in accounting
for goodwill, net of income taxes (0.56) - -
---------- ---------- ----------
Adjusted net income (loss) $ (1.61) $ - $ 1.03
========== ========== ==========
Diluted earnings per share:
Reported income (loss) before cumulative effect
of change in accounting for goodwill $ (1.05) $ (0.10) $ 0.91
Add back: goodwill amortization,
net of income taxes - 0.10 0.07
---------- ---------- ----------
Adjusted income (loss) before cumulative effect
of change in accounting for goodwill (1.05) - 0.98
Cumulative effect of change in accounting
for goodwill, net of income taxes (0.56) - -
---------- ---------- ----------
Adjusted net income (loss) $ (1.61) $ - $ 0.98
========== ========== ==========
The changes in the carrying amount of goodwill for fiscal years ended
September 30, 2003 and 2002 are as follows (in thousands):
BALANCE AS OF OCTOBER 1, 2001 $ 70,514
Amortization of goodwill (5,203)
Finalization of purchase accounting (1,684)
Foreign currency translation adjustments 1,330
----------
BALANCE AS OF SEPTEMBER 30, 2002 64,957
Cumulative effect of change in accounting for goodwill (28,237)
Impairment charge (See Note 10) (5,595)
Foreign currency translation adjustments 1,144
----------
BALANCE AS OF SEPTEMBER 30, 2003 $ 32,269
==========
35
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company has a nominal amount of identifiable intangibles
that are subject to amortization. These intangibles relate to customer
lists and patents with useful lives from one to fifteen years. The
Company has no intangibles, except goodwill, that are not subject to
amortization. During fiscal 2003, there were no additions to intangible
assets. Intangible asset amortization expense was nominal for fiscal
2003, 2002 and 2001.
Impairment of Long-Lived Assets: The Company adopted SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
effective October 1, 2002. 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
in 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." Impairment
charges recorded in fiscal 2003 against the carrying value of certain
of the Company's long-lived assets are discussed in Note 10.
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 comparing its carrying
value to the projected cash flows the property, plant and equipment are
expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured as the amount by which the
carrying value of the property exceeds its fair market value. The
impairment analysis is based on significant assumptions of future
results made by management, including revenue and cash flow
projections. Circumstances that may lead to impairment of property,
plant and equipment include decreases in future performance or industry
demand and the restructuring of the Company's operations.
Revenue Recognition: Revenue from manufacturing services is
generally recognized upon shipment of the manufactured product to the
Company's customers, under contractual terms, which are generally FOB
shipping point. Upon shipment, title transfers and the customer assumes
risks and rewards of ownership of the product. Generally, there are no
formal customer acceptance requirements or further obligations related
to manufacturing services; if such requirements or obligations exist,
then revenue is recognized at the time when such requirements are
completed and such obligations are fulfilled.
Revenue from engineering design and development services,
which are generally performed under contracts of twelve months or less
duration, is recognized as costs are incurred utilizing the
percentage-of-completion method; any losses are recognized when
anticipated. Progress towards completion of product design and
development contracts is based on units of work for labor content and
costs incurred for component content. Revenue from engineering design
and development services is less than ten percent of total revenue in
fiscal 2003, 2002 and 2001.
Revenue is recorded net of estimated returns of manufactured
product based on management's analysis of historical returns, current
economic trends and changes in customer demand. Revenue also includes
amounts billed to customers for shipping and handling. The
corresponding shipping and handling costs are included in cost of
sales.
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 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. Prior to
January 1, 2003, severance and benefit costs were recorded in
accordance with Emerging Issues Task Force ("EITF") 94-3. For leased
facilities that were abandoned and subleased, the estimated lease loss
was accrued for future remaining lease payments subsequent to
abandonment, less any estimated sublease income. As of September 30,
2003, the significant facilities which the Company plans to sublease
have not yet been subleased and, accordingly, the Company's estimates
of expected sublease income could change based on factors that affect
its ability to
36
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
sublease those facilities such as general economic conditions and the
real estate market, among others. For equipment, the impairment losses
recognized are based on the fair value estimated using existing market
prices for similar assets, less estimated costs to sell.
Subsequent to December 31, 2002, costs associated with a
restructuring activity are recorded in accordance with SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." The
timing and related recognition of recording severance and benefit costs
that are not presumed to be an ongoing benefit as defined in SFAS No.
146, depends on whether employees are required to render service until
they are terminated in order to receive the termination benefits and,
if so, whether employees will be retained to render service beyond a
minimum retention period. During fiscal 2003, the Company concluded
that it had a substantive severance plan based upon past severance
practices; therefore, certain severance and benefit costs were recorded
in accordance with SFAS No. 112, "Employer's Accounting for Post
employment Benefits," which resulted in the recognition of a liability
as the severance and benefit costs arose from an existing condition or
situation and the payment was both probable and reasonably estimated.
For leased facilities that will be abandoned and subleased, a
liability for the future remaining lease payments subsequent to
abandonment, less any estimated sublease income that could be
reasonably obtained for the property, is recognized and measured at its
fair value. For contract termination costs, including costs that will
continue to be incurred under a contract for its remaining term without
economic benefit to the entity, a liability for future remaining
payments under the contract is recognized and measured at its fair
value.
The recognition of restructuring costs requires that the
Company make certain judgments and estimates regarding the nature,
timing and amount of costs associated with the planned exit activity.
If actual results in exiting these facilities differ from the Company's
estimates and assumptions, the Company may be required to revise the
estimates of future liabilities, requiring the recording of additional
restructuring costs or the reduction of liabilities already recorded.
At the end of each reporting period, the Company evaluates the
remaining accrued balances to ensure that no excess accruals are
retained and the utilization of the provisions are for their intended
purpose in accordance with developed exit plans.
Income Taxes: Deferred income taxes are provided for
differences between the bases of assets and liabilities for financial
and income tax reporting purposes. The Company records a valuation
allowance against deferred income tax assets when management believes
it is more likely than not that some portion or all of the deferred
income tax assets will not be realized.
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, 2003, 2002 and 2001, respectively.
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. These amounts were not material during fiscal 2003, 2002 and
2001.
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.
Stock-based Compensation: In December 2002, SFAS No. 148,
"Accounting for Stock-Based Compensation--Transition and Disclosure--an
amendment of SFAS No. 123" was issued. SFAS No. 148 provides
alternative methods of transition for an entity that voluntarily
changes to the fair-value-based method of accounting for stock-based
employee compensation and is effective for fiscal years ending after
37
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 15, 2002. In addition, SFAS No. 148 requires prominent
disclosures in both annual and interim financial statements about the
effects on reported net income of an entity's method of accounting for
stock-based employee compensation. The disclosure provisions were
effective for the Company in the second quarter of fiscal 2003. The
Company did not effect a voluntary change in accounting to the fair
value method, and, accordingly, the adoption of SFAS No. 148 did not
have a significant impact on the Company's results of operations or
financial position.
The Company accounts for its stock option plans under the
guidelines of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation expense
related to the stock option plans has been recognized in the
Consolidated Statements of Operations. The Company's stock-based
employee compensation plans are more fully described in Note 11,
"Benefit Plans". The following sets forth a reconciliation of net
income (loss) and earnings per share information for fiscal 2003, 2002
and 2001 had the Company recognized compensation expense based on the
fair value at the grant date for awards under the plans, estimated at
the date of grant using the Black-Scholes option pricing method (in
thousands, except per share amounts).
Years ended September 30,
--------------------------------------
2003 2002 2001
--------------------------------------
Net income (loss) as reported $ (67,978) $ (4,073) $ 39,150
Add: stock-based employee compensation
expense included in reported net loss, net of related income
tax effect - - -
Deduct: total stock-based employee
compensation expense determined under fair value based
method, net of related tax effects (9,042) (9,947) (2,559)
----------- ----------- -----------
Proforma net income (loss) $ (77,020) $ (14,020) $ 36,591
=========== =========== ===========
Earnings per share:
Basic, as reported $ (1.61) $ (0.10) $ 0.95
=========== =========== ===========
Basic, proforma $ (1.82) $ (0.33) $ 0.89
=========== =========== ===========
Diluted, as reported $ (1.61) $ (0.10) $ 0.91
=========== =========== ===========
Diluted, proforma $ (1.82) $ (0.33) $ 0.85
=========== =========== ===========
Weighted average shares:
Basic 42,284 41,895 41,129
=========== =========== ===========
Diluted 42,284 41,895 43,230
=========== =========== ===========
New Accounting Pronouncements: Effective October 1, 2002, the Company
adopted SFAS No. 143, "Accounting for Asset Retirement Obligations."
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. The
adoption of this standard did not have an effect on the Company's
financial position or results of operations.
In November 2002, the EITF reached a consensus regarding EITF Issue
00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." The consensus addresses not only when and how an
arrangement involving multiple deliverables should be divided into
separate units of accounting but also how the arrangement's
consideration should be allocated among separate units. The
pronouncement is effective for the Company commencing with its fiscal
year 2004 and is not expected to have a material impact on its
consolidated results of operations or financial position.
In January 2003, FIN No. 46, "Consolidation of Variable Interest
Entities" was issued. FIN No. 46 clarifies the application of
Accounting Research Bulletin No. 52, "Consolidated Financial
Statements," to
38
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
certain entities in which equity investors lack the characteristics of
a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties. A variable interest
entity is required to be consolidated by the company that has a
majority of the exposure to expected losses of the variable interest
entity. FIN No. 46 was effective for variable interest entities created
after January 31, 2003. For variable interest entities in which an
enterprise holds a variable interest that it acquired before February
1, 2003, the Interpretation, as amended by FSP No. FIN 46-6, is
effective for interim or annual periods ending after December 15, 2003.
The adoption of FIN No. 46 is not expected to have a material impact on
the Company's financial position or results of operations.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" was issued. SFAS No. 149
improves financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly. In particular,
SFAS No. 149: (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative
discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a
derivative contains a financing component, (3) amends the definition of
an underlying to conform it to language used in Financial Accounting
Standards Board Interpretation ("FIN") No. 45, and (4) amends certain
other existing pronouncements. Those changes will result in more
consistent reporting of contracts as either derivatives or hybrid
instruments. In general, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material impact on the Company's financial position
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities
and Equity," which establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. Financial instruments that are within the scope
of the Statement, which previously were often classified as equity,
must now be classified as liabilities. In November 2003, Financial
Accounting Standards Board Staff Position ("FSP") No. SFAS 150-3
deferred the effective date of SFAS No. 150 indefinitely for applying
the provisions of the Statement for certain mandatorily redeemable
non-controlling interests. However expanded discussions are required
during the deferral period.
Use of Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 capital lease
obligations is approximately $26.0 million and $28.7 million as of
September 30, 2003 and 2002, respectively. 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
that 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 nominal sales to MemoryLink during fiscal
2003, no sales in fiscal 2002 and $0.9 million in fiscal 2001,
respectively. During fiscal 2002, the Company had a receivable
outstanding from MemoryLink totaling $1.3 million, all of which was
fully reserved in fiscal 2001. During fiscal 2002, such receivable was
converted
39
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
into a minority equity interest in MemoryLink. The minority equity
interest represents less than a ten percent ownership interest in
MemoryLink and is accounted for under the cost method. Upon receipt of
the minority equity interest, the Company wrote off the receivable and
the related allowance for doubtful account. Due to uncertainty
regarding MemoryLink's financial viability, the Company recorded the
minority equity interest at a zero value.
Reclassifications: Certain amounts in prior years'
consolidated financial statements have been reclassified to conform to
the 2003 presentation.
2. INVENTORIES
Inventories as of September 30, 2003 and 2002, consist of (in
thousands):
2003 2002
---- ----
Assembly parts $ 88,562 $ 64,085
Work-in-process 41,514 24,507
Finished goods 6,439 5,440
-------- --------
$136,515 $ 94,032
======== ========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 2003 and
2002, consist of (in thousands):
2003 2002
-------- --------
Land, buildings and improvements $ 66,614 $ 74,541
Machinery, and equipment 119,788 144,319
Computer hardware and software 57,576 39,089
Construction in progress 7,079 33,236
-------- --------
251,057 291,185
Less accumulated depreciation and amortization 119,547 120,351
-------- --------
$131,510 $170,834
======== ========
As of September 30, 2003 and 2002, computer hardware and
software includes $21.9 million and $2.3 million, respectively, related
to a new enterprise resource planning platform ("ERP"). As of September
30, 2003 and 2002, construction in process includes $6.0 million and
$17.1 million, respectively, of software implementation costs related
to the new ERP platform. This ERP platform is intended to augment the
Company's management information system and includes hardware and
software from various vendors. The ERP platform is also intended to
enhance and standardize the Company's ability to globally translate
information from production facilities into operational and financial
information and to create a consistent set of core business
applications at its worldwide facilities, although the Company may not
necessarily convert all of its facilities to the same system. During
fiscal 2003, two manufacturing facilities were converted to the new ERP
platform. The Company anticipates converting at least one more facility
to the new ERP platform and completing the integration of the core
software in fiscal 2004. Some of the supplemental software programs
that will be integrated with the core software will be integrated at
later dates. The Company's conversion timetable and project scope
remain subject to change based upon the Company's evolving needs and
sales levels. Fiscal 2003 amortization of the new ERP platform totaled
$0.7 million.
Assets held under capital leases and included in property,
plant and equipment as of September 30, 2003 and 2002, consist of (in
thousands):
2003 2002
------- -------
Buildings and improvements $23,400 $23,691
Machinery and equipment 1,834 7,494
------- -------
25,234 31,185
Less accumulated amortization 3,240 5,667
------- -------
$21,994 $25,518
======= =======
40
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The above table includes a manufacturing facility in San
Diego, which was closed during fiscal 2003 (see Note 10) and is no
longer used for operating purposes. The Company subleased a portion of
the facility during fiscal 2003 and is attempting to sublease the
remaining portion. The portion of the San Diego facility that is
subleased is recorded at the net present value of the sublease income.
The portion of the facility awaiting sublease is recorded at the net
present value of the estimated sublease income. The net book value of
the subleased portion of the San Diego facility is reduced on a monthly
basis by the amortization of the sublease income. No amortization is
recorded on the vacant portion of the San Diego facility. The net book
value of the San Diego facility, adjusted for impairment, is
approximately $15.5 million as of September 30, 2003.
Amortization of assets held under capital leases totaled $1.6
million and $2.7 million for fiscal 2003 and 2002, respectively. There
were no capital lease additions in fiscal 2003. Capital lease additions
of $1.5 million and $22.4 million for fiscal 2002 and 2001,
respectively, have been treated as non-cash transactions for purposes
of the Consolidated Statements of Cash Flows.
4. CAPITAL LEASE OBLIGATIONS AND OTHER FINANCING
Capital lease obligations as of September 30, 2003 and 2002,
consist of (in thousands):
2003 2002
------- -------
Capital lease obligations with a weighted
average interest rate of 9.2% and
9.3%, respectively $24,460 $27,008
Less current portion 958 1,652
------- -------
$23,502 $25,356
======= =======
The capital lease obligations are for certain equipment and
manufacturing facilities, located in the UK and San Diego, which have
been recorded as capital leases and expire on various dates through
2016 subject to renewal options. The aggregate scheduled maturities of
the Company's debt and its obligations under capital leases as of
September 30, 2003, are as follows (in thousands):
2004 $ 3,173
2005 2,928
2006 2,918
2007 2,992
2008 3,049
Thereafter 28,645
-------
43,705
Interest portion of capital leases 19,245
-------
Total $24,460
=======
Effective December 26, 2002, the Company terminated its credit
facility ("Old Credit Facility). No amounts were outstanding during the
first quarter of fiscal 2003 prior to the termination of the Old Credit
Facility. Termination of the Old Credit Facility was occasioned by
anticipated noncompliance with the minimum interest expense coverage
ratio covenant as of December 31, 2002, as a result of restructuring
costs incurred in the first quarter of fiscal 2003 (see Note 10). As a
result of the termination of the Old Credit Facility, the Company wrote
off unamortized deferred financing costs of approximately $0.5 million.
Subsequent to September 30, 2003, the Company entered into a
new $100 million secured revolving credit facility. See Note 15
"Subsequent Event."
In fiscal 2001, the Company entered into an amended 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. In September 2003, the asset securitization facility
expired. In conjunction with its expiration, the Company repurchased
$17.3 million of accounts receivable that had been previously sold
under the asset
41
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
securitization facility. ABS was a separate corporate entity that sold
participating interests in a pool of the Company's accounts receivable
to financial institutions, under a separate agreement. Accounts
receivable sold to financial institutions were reflected as a reduction
to accounts receivable in the Consolidated Balance Sheets. The Company
had no risk of credit loss on such receivables as they were sold
without recourse. The Company retained collection and administrative
responsibilities on the participation interests sold as services for
ABS and the financial institutions. The cost associated with these
responsibilities was not material, and the Company was not compensated
for these services. The agreement also included various standards for
determining which, and what amount of, receivables could be sold, and
included customary indemnification obligations (see Note 14). As of
September 30, 2002, $16.6 million was utilized under the asset
securitization facility. As a result, accounts receivable were reduced
by $16.6 million for the off-balance-sheet financing as of September
30, 2002.
For the fiscal years ended 2003, 2002 and 2001, the Company
incurred financing costs of $0.4 million, $0.6 million and $1.9
million, respectively, under the asset securitization facility. These
financing costs are included in interest expense in the accompanying
Consolidated Statements of Operations. 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.
Cash paid for interest in fiscal 2003, 2002 and 2001 was $2.8
million, $4.4 million and $7.3 million, respectively.
5. INCOME TAXES
Income tax expense (benefit) for fiscal 2003, 2002 and 2001
consists of (in thousands):
2003 2002 2001
-------- -------- --------
Currently payable (receivable):
Federal $ 2,096 $ 1,835 $ 22,006
State - 97 3,211
Foreign (69) 1,361 2,286
-------- -------- --------
2,027 3,293 27,503
-------- -------- --------
Deferred:
Federal expense (benefit) (25,094) 322 (904)
State benefit (3,800) (3,902) (383)
Foreign benefit (361) (1,466) -
-------- -------- --------
(29,255) (5,046) (1,287)
-------- -------- --------
$(27,228) $ (1,753) $ 26,216
======== ======== ========
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 2003, 2002 and 2001:
2003 2002 2001
-------- -------- --------
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
State income taxes, net of Federal
income tax benefit 4.2 26.4 2.8
Non-deductible goodwill and merger costs 0.2 (21.8) 1.0
Other, net (1.4) (9.5) 1.3
-------- -------- --------
Effective income tax rate 38.0% 30.1% 40.1%
======== ======== ========
The components of the net deferred income tax asset as of September 30,
2003 and 2002, consist of (in thousands):
42
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2003 2002
------- -------
Deferred income tax assets:
Inventories $ 6,413 $ 7,577
Accrued benefits 4,303 3,335
Allowance for bad debts 1,438 2,118
Loss carryforwards 36,084 14,894
Other 5,049 3,346
------- -------
53,287 31,270
Deferred income tax liabilities:
Property, plant and equipment 4,643 9,632
------- -------
Net deferred income tax asset $48,644 $21,638
======= =======
The net deferred income tax asset arises from available income
tax losses and future income tax deductions. The Company's ability to
use these income tax losses and future income tax deductions is
dependent upon the operations of the Company in the tax jurisdictions
in which such losses or deductions arose. The Company would record a
valuation allowance against deferred income tax assets when management
believes it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. Although realization
is not assured, based on the reversal of deferred income tax
liabilities, projected future taxable income, the character of the
income tax asset and tax planning strategies, the Company determined
that as of September 30, 2003, no valuation allowance is required.
However, should the Company experience a pre-tax loss in fiscal 2004
resulting from revenue declines and/or the inability to improve
operating margins, a tax valuation reserve may be required in fiscal
2004.
The Company has been granted tax holidays for its Malaysian
and Chinese subsidiaries. These tax holidays expire from 2006 through
2013, and are subject to certain conditions with which the Company
expects to comply. These subsidiaries generated losses in fiscal 2003
and nominal income in fiscal 2002, resulting in no tax benefit and a
nominal tax benefit, respectively.
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. The aggregate undistributed earnings of
the Company's foreign subsidiaries for which a deferred tax liability
has not been recorded is approximately $6.3 million as of September 30,
2003.
As of September 30, 2003, the Company has approximately $118
million of state net operating loss carryforwards, which are available
to reduce future state tax liabilities. The Company also has federal
net operating losses totaling approximately $84 million, of which $31
million will be carried back to offset prior years' taxes and $53
million is available to reduce future federal taxable income. These
loss carryforwards expire in varying amounts through 2023.
Cash paid for income taxes in fiscal 2003, 2002 and 2001 was
$0.3 million, $5.2 million and $23.4 million, respectively.
6. SHAREHOLDERS' EQUITY
In October 2001, pursuant to Board of Directors' approval, the
Company announced a common stock buyback program that 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 increased the share
limit to 6.0 million shares. To date, no shares have been repurchased.
During 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.
43
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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):
Years ended September 30,
--------------------------------------
2003 2002 2001
---------- ---------- ----------
Earnings:
Income (loss) before cumulative effect of change in accounting for goodwill $ (44,496) $ (4,073) $ 39,150
Cumulative effect of change in accounting
for goodwill, net of income taxes (23,482) - -
---------- ---------- ----------
Net income (loss) $ (67,978) $ (4,073) $ 39,150
========== ========== ==========
Basic weighted average common shares outstanding 42,284 41,895 41,129
Dilutive effect of stock options - - 2,101
---------- ---------- ----------
Diluted weighted average shares outstanding 42,284 41,895 43,230
========== ========== ==========
Basic earnings per share:
Income (loss) before cumulative effect of change in accounting for goodwill $ (1.05) $ (0.10) $ 0.95
Cumulative effect of change in accounting
for goodwill, net of income taxes (0.56) - -
---------- ---------- ----------
Net income (loss) $ (1.61) $ (0.10) $ 0.95
========== ========== ==========
Diluted earnings per share:
Income (loss) before cumulative effect of change in accounting for goodwill $ (1.05) $ (0.10) $ 0.91
Cumulative effect of change in accounting
for goodwill, net of income taxes (0.56) - -
---------- ---------- ----------
Net income (loss) $ (1.61) $ (0.10) $ 0.91
========== ========== ==========
For the years ended September 30, 2003, 2002 and 2001, stock
options to purchase approximately 3.2 million, 3.0 million and 85,000
shares of common stock, respectively, were outstanding, but were not
included in the computation of diluted earnings per share because their
effect would be antidilutive.
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 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
44
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 manufacturing facility. The excess
of the cost over the fair value of the net assets acquired of
approximately $24 million was recorded as goodwill. In December 2002,
the primary customer of the San Diego facility, acquired as part of the
Qtron acquisition, provided notice of its intent to transition most of
its programs to non-Plexus facilities. As a consequence, the Company
closed the San Diego facility during fiscal 2003 (see Notes 1 and 10).
The results of Qtron's operations are reflected in the Company's
financial statements from the date of acquisition.
Unaudited pro forma revenue, net income, earnings per
share-basic and earnings per share-diluted for fiscal 2001 as if Qtron
had been acquired at the beginning of the respective period was as
follows (in thousands, except per share data):
Year ended
September 30, 2001
------------------
Net sales:
Plexus $ 1,046,862
Qtron 74,355
-----------
$ 1,121,217
===========
Net income (loss):
Plexus $ 40,723
Qtron (3,296)
-----------
$ 37,427
===========
Earnings per share:
Basic $ 0.91
===========
Diluted $ 0.87
===========
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.
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 Company 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.
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 2003, 2002 and 2001 was approximately $14.1 million,
$14.6 million and $10.9 million, respectively. Renewal and purchase
options are available on certain of these leases. Rental income from
subleases amounted to $1.3 million, $1.0 million and $1.0 million in
fiscal 2003, 2002 and 2001, respectively.
45
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Future minimum annual payments on operating leases are as
follows (in thousands):
2004 $13,730
2005 12,432
2006 10,578
2007 9,093
2008 6,733
Thereafter 28,570
-------
$81,136
=======
For certain leased facilities that were abandoned as result of
restructuring actions (see Note 10), the Company accrued estimated
losses for future remaining lease payments subsequent to abandonment,
less any estimated sublease income. The above table of future minimum
annual payments on operating leases includes future payments totaling
$7.9 million that are reflected as an obligation for lease exit costs
as of September 30, 2003 in the accompanying Consolidated Balance
Sheets.
10. RESTRUCTURING AND IMPAIRMENT COSTS
During fiscal 2003, the Company recorded pre-tax restructuring
and impairment costs totaling $59.3 million. These costs resulted from
the Company's actions taken in response to reductions in its end-market
demand. These actions included closing the San Diego and Richmond
operating sites, the consolidation of several leased facilities,
re-focusing the PCB design group, a write-off of goodwill associated
with San Diego, the write-down of underutilized assets to fair value at
several locations, and the costs associated with reductions in the work
force for manufacturing, engineering and corporate. These measures were
intended to align the Company's capabilities and resources with its
customer demand.
The Richmond facility was phased out of operations and sold in
September 2003. Production was shifted to other Plexus operating sites
in the United States and Mexico. The closure of Richmond resulted in a
write-down of the building, a write-down of underutilized assets to
fair value, and costs relating to the elimination of the facility's
work force. Building impairment charges totaled $3.7 million related to
the Richmond facility.
The San Diego facility was closed in May 2003. The closure of
San Diego resulted in a write-off of goodwill, the write-down of
underutilized assets to fair value, and costs relating to the
elimination of the facility's work force. Building impairment charges
totaled $6.3 million related to the San Diego facility. During fiscal
2003, goodwill impairment for San Diego totaled approximately $20.4
million, of which $14.8 million was impaired as a result of a
transitional impairment evaluation under SFAS No. 142 (see Note 1) and
$5.6 million was impaired as a result of the Company's decision to
close the facility.
Other fiscal year 2003 restructuring actions included the
consolidation of several leased facilities, the write-down of
underutilized assets to fair value and work force reductions, which
primarily affected operating sites such as Juarez; Seattle, Washington
("Seattle"); Neenah, Wisconsin ("Neenah") and the United Kingdom. It
also impacted the Company's engineering and corporate organizations.
The employee termination and severance costs for fiscal 2003 affected
approximately 1,000 employees.
During fiscal 2002, the Company recorded restructuring and
impairment costs totaling $12.6 million. These charges resulted from
the Company's actions taken in response to reductions in its sales
levels and capacity utilization and included a reduction in work force
and the write-off of certain underutilized assets to fair value at
several locations. The employee termination and severance costs for
fiscal 2002 affected approximately 700 employees. The operating site
closures included two owned facilities: one located in Neenah (the
oldest of the Company's four facilities in Neenah) and the other
located in Minneapolis, Minnesota ("Minneapolis"). These facilities
were no longer adequate to service the needs of the Company's customers
and would have required significant investment to upgrade. The Neenah
facility was phased out of operations in February 2003 and is currently
used for warehousing and administrative purposes. The Minneapolis
facility was phased out of operation in July 2002 and sold in October
2002. There were no building impairment charges associated with the
closure of these two facilities. Certain lease consolidations also
occurred in fiscal 2002, which primarily affected the Company's
facilities in Seattle and San Diego.
46
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During fiscal 2001, the Company recorded restructuring and
impairment costs totaling $1.9 million. These charges resulted from the
Company's actions taken in response to reductions in its sales levels
and capacity utilization and primarily included a reduction in work
force and the write-off of certain underutilized assets to fair value
at several locations. The fiscal 2001 employee termination and
severance costs provided for the elimination of approximately 50
employees.
Employee
Termination and Lease Obligations and Non-cash Asset Write-
Severance Costs Other Exit Costs downs Total
--------------- --------------------- --------------------- ---------
ACCRUED BALANCE,
OCTOBER 1, 2000 $ - $ - $ - $ -
Restructuring costs 642 102 1,182 1,926
Adjustment to provisions - - - -
Amounts utilized (563) (102) (1,182) (1,847)
-------- -------- -------- --------
ACCRUED BALANCE,
SEPTEMBER 30, 2001 79 - - 79
Restructuring costs 3,819 3,872 4,890 12,581
Adjustment to provisions - - - -
Amount utilized (3,358) (915) (4,890) (9,163)
-------- -------- -------- --------
ACCRUED BALANCE,
SEPTEMBER 30, 2002 540 2,957 - 3,497
Restructuring costs 10,358 10,940 38,696 59,994
Adjustment to provisions - - (650) (650)
Amount utilized (7,993) (6,005) (38,046) (52,044)
-------- -------- -------- --------
ACCRUED BALANCE
SEPTEMBER 30, 2003 $ 2,905 $ 7,892 $ - $ 10,797
======== ======== ======== ========
In fiscal 2003, asset write-downs in the above table include
$5.6 million of goodwill impairment. As of September 30, 2003, most of
the remaining employee termination and severance costs are expected to
be paid by the end of fiscal 2004, while approximately $3.5 million of
the lease obligations and other exit costs are expected to be paid in
the next twelve months. The remaining liability for lease payments is
expected to be paid through June 2008.
11. BENEFIT PLANS
Employee Stock Purchase Plan: On March 1, 2000, the Company
established a qualified Employee Stock Purchase Plan ("ESPP"), 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 ESPP. During fiscal
2003, 2002 and 2001, the Company issued approximately 253,000, 132,000
and 95,000 shares of common stock, respectively, under the ESPP, which
were issued for $1.9 million, $2.4 million, and $2.5 million,
respectively.
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 2003, 2002 and 2001 totaled $2.3
million, $2.2 million and $2.1 million, respectively.
47
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 11.1 million shares
have been granted. The exercise price of each option granted must not
be less than the fair market value on the date of grant. Options vest
over a three-year period from date of grant and have a term of ten
years. The plan also authorizes the Company to grant 600,000 stock
appreciation rights (in lieu of options for 600,000 shares), none of
which have been granted.
Under a separate stock option plan, each outside director of
the Company is granted 3,000 stock options each December 1, with the
option pricing similar to the employee plan. Commencing in fiscal 2004,
to reflect an adjustment for a prior stock split, each outside director
of the Company will be granted 6,000 stock options each December 1.
These options vest immediately 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. As of September 30,
2003, approximately 145,000 shares have been granted under this plan.
A summary of the stock option activity follows:
SHARES WEIGHTED AVERAGE
(IN THOUSANDS) EXERCISE PRICE
-------------- ----------------
Options outstanding as of October 1, 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
Granted 1,145 10.87
Cancelled (391) 23.74
Exercised (324) 5.46
------
Options outstanding as of September 30, 2003 4,912 $ 17.99
======
Options exercisable as of:
September 30, 2001 2,364 $ 12.20
====== =========
September 30, 2002 2,954 $ 15.55
====== =========
September 30, 2003 3,131 $ 18.97
====== =========
48
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes outstanding stock option
information as of September 30, 2003 (shares in thousands):
Number of Number of Weighted
Range of shares Weighted Average Weighted Average shares Average
Exercise Prices Outstanding Exercise Price Remaining Life Exercisable Exercise Price
--------------- ----------- -------------- -------------- ----------- --------------
$ 0.63 - $ 7.86 745 $ 5.07 3.0 745 $ 5.07
$ 7.87 - $15.71 2,123 $ 12.03 7.4 1,010 $13.19
$15.72 - $23.57 515 $ 23.20 7.0 365 $23.09
$23.58 - $31.43 794 $ 25.51 8.3 280 $25.61
$31.44 - $47.14 714 $ 35.78 6.2 710 $35.78
$47.15 - $70.71 22 $ 60.26 6.7 21 $60.26
$0.63 - $70.71 4,913 $ 17.99 6.7 3,131 $18.97
The weighted average fair value of options granted per share
during fiscal 2003, 2002 and 2001 is $7.46, $15.55 and $16.00,
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: 75 percent to 85 percent volatility,
risk-free interest rates ranging from 2.6 percent to 4.3 percent,
expected option life of 5.1 to 9.2 years, and no expected dividends.
Deferred Compensation Plan: In September 1996, the Company
entered into agreements with certain of its former executive officers
under a nonqualified deferred compensation plan. Under the plan, the
Company agreed to pay to these former executives, or their designated
beneficiaries upon such executives' death, certain amounts annually for
the first 15 years subsequent to their retirement. Life insurance
contracts owned by the Company will fund this plan. Expense for this
plan totaled approximately $0.4 million, $1.8 million and $0.7 million
in fiscal 2003, 2002, and 2001, respectively.
In fiscal 2000, the Company established an additional deferred
compensation plan for its executive officers and other key employees
(the "Executive Deferred Compensation Plan"). Under the Executive
Deferred Compensation Plan, a covered executive may elect to defer some
or all of his or her compensation into the plan, and the Company may
credit the participant's account with a discretionary employer
contribution. Participants are entitled to payment of deferred amounts
and any earnings, which may be credited thereon upon termination or
retirement from Plexus.
From fiscal 2000 through fiscal 2002, key employee salary
deferrals in and discretionary contributions of the Company to the
Executive Deferred Compensation Plan were effected through a
split-dollar life insurance program, whereby Plexus entered into
split-dollar life insurance agreements with various executive officers
and key employees. Under these agreements, Plexus paid a minimum annual
premium of $13,500 per policy, and such additional premiums as it
determined. Upon the death of the covered employee, Plexus had an
interest in the proceeds of the policy equal to the premiums paid. No
premium payments were made by the Company in fiscal 2003. Premium
payments made by the Company totaled approximately $0.1 million and
$0.1 million in fiscal 2002 and 2001, respectively.
In fiscal 2003, due to changes in law, Plexus terminated the
split-dollar life insurance program and replaced it with a rabbi trust
arrangement (the "Trust"). The Trust allows investment of deferred
compensation, held on behalf of the participants, into individual
accounts and, within these accounts, into one or more designated
investments. Investment choices do not include Plexus stock. During
fiscal 2003, the cash value proceeds that were received upon the
surrender of the split-dollar life insurance policies attributable to
each plan participant totaled approximately $0.4 million and were
placed into the Trust. During fiscal 2003, the Company made a
contribution to the participants' accounts in the amount of $13,500 per
participant or approximately $0.1 million in total. Trust assets are
subject to the claims of the Company's creditors. As of September 30,
2003, Trust assets and the related liability to the participants
totaled approximately $0.7 million and $0.7 million, respectively.
Trust assets and the related liability to the
49
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
participants are included in Other assets and Other liabilities,
respectively, in the accompanying Consolidated Balance Sheets.
Other: The Company is not obligated to provide any
post-retirement medical or life insurance benefits to employees.
12. CONTINGENCIES
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 complaint, which is one of a series of
complaints by Lemelson against hundreds of companies, seeks injunctive
relief, treble damages (amount unspecified) and attorney's fees. The
Company has obtained a stay of action pending developments in other
related litigation. Based on information received from a party to that
other litigation, we do not believe that it is likely that a decision
will be rendered in the other litigation before spring 2004. The
Company believes the vendors from whom the patent equipment was
purchased may be required to contractually indemnify the Company.
However, based upon the Company's observation of the plaintiff's
actions in other parallel cases, it appears that the primary objective
of the plaintiff is to cause defendants to enter into license
agreements. If a judgment is rendered and/or a license fee required, it
is the opinion of management of the Company that such judgment or fee
would not be material to the Company's financial position, results of
operations or cash flows.
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 19 active manufacturing and engineering
facilities in North America, Europe and Asia to serve these OEMs. The
Company uses an internal management reporting system, which provides
important financial data, to evaluate performance and allocate the
Company's resources on a geographic basis. Interregional 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. Asset information is based on the physical location of the
asset.
Years ended September 30,
------------------------------------------
2003 2002 2001
-------- --------- ----------
(in thousands)
Net sales:
North America $704,057 $ 783,660 $ 972,363
Europe 62,522 78,826 89,941
Asia 41,258 21,117 -
-------- --------- ----------
$807,837 $ 883,603 $1,062,304
======== ========= ==========
As of September 30,
-------------------------------
2003 2002
-------- ---------
Long-lived assets:
North America $127,405 $ 199,478
Europe 34,251 35,796
Asia 8,094 6,505
-------- ---------
$169,750 $ 241,779
======== =========
Siemens Medical Systems, Inc. accounted for 12 percent of net
sales in fiscal 2003. No customer accounted for 10 percent or more of
net sales in fiscal 2002 and 2001. Accounts receivable related to
Juniper Networks, Inc. and Motorola, Inc. represented approximately 12
percent and 10 percent, respectively, of the Company's total accounts
receivable balance as of September 30, 2003. No customer represented
ten percent or more of the Company's total trade receivable balance as
of September 30, 2002.
50
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. GUARANTEES
In November 2002, Financial Accounting Standards
Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. FIN No. 45 requires a Company, at
the time it issues a guarantee, to recognize an initial liability for
the fair value of obligations assumed under the guarantee and to
elaborate on existing disclosure requirements. The initial recognition
requirements of FIN No. 45 are effective for guarantees issued or
modified after December 31, 2002. The disclosure requirements of FIN
No. 45 were effective in the Company's first quarter of fiscal 2003.
Adoption of the initial recognition provisions of FIN No. 45 did not
have a material impact on these Consolidated Financial Statements.
The Company offered certain indemnifications under its asset
securitization facility and customer manufacturing agreements. Under
the Company's asset securitization facility agreement (see Note 4),
which expired in September 2003, the Company is required to provide
indemnifications typical of those found in transactions of this sort,
such as upon a breach of the Company's representations and warranties
in the facility agreement, or upon the Company's failure to perform its
obligations under such agreement, or in the event of litigation
concerning the agreement. The asset securitization agreement also
includes an obligation by the Company to indemnify participating
financial institutions if regulatory changes result in either
reductions in their return on capital or increases in the costs of
performing their obligations under the funding arrangements. The
Company is unable to estimate the maximum potential amount of future
payments under this indemnification due to the uncertainties inherent
in predicting potential regulatory change. Moreover, although the
Company's indemnification obligation survived the termination of this
facility in September 2003, the Company believes that it is unlikely to
have any on-going indemnification obligations because the Company will
not be engaged in further asset securitization transactions after such
date; the Company also has no reasonable basis to believe that any
unasserted indemnification obligations exist as of the date hereof.
In the normal course of business, the Company may from time to
time be obligated to indemnify its customers or its customers'
customers against damages or liabilities arising out of the Company's
negligence, breach of contract, or infringement of third party
intellectual property rights relating to its manufacturing processes.
Certain of the manufacturing agreements have extended broader
indemnification and while most agreements have contractual limits, some
do not. However, the Company generally excludes from such indemnities,
and seeks indemnification from its customers for, damages or
liabilities arising out of the Company's adherence to customers'
specifications or designs or use of materials furnished, or directed to
be used, by its customers. The Company does not believe its obligations
under such indemnities are material.
In the normal course of business, the Company also provides
its customers a limited warranty covering workmanship, and in some
cases materials, on products manufactured by the Company for them. Such
warranty generally provides that products will be free from defects in
the Company's workmanship and meet mutually agreed upon testing
criteria for periods ranging from 12 months to 24 months. If a product
fails to comply with the Company's warranty, the Company's obligation
is generally limited to correcting, at its expense, any defect by
repairing or replacing such defective product. The Company's warranty
excludes defects resulting from faulty customer-supplied components,
design defects or damage caused by any party other than the Company.
The Company provides for an estimate of costs that may be
incurred under its limited warranty at the time product revenue is
recognized. These costs primarily include labor and materials, as
necessary, associated with repair or replacement. The primary factors
that affect the Company's warranty liability include the number of
shipped units and historical and anticipated rates of warranty claims.
As these factors are impacted by actual experience and future
expectations, the Company assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
Below is a table summarizing the warranty activity for fiscal
2003 (in thousands):
51
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Limited warranty liability, as of October 1, 2002 $ 1,246
Accruals for warranties issued during the period 150
Accruals related to pre-existing warranties (20)
Settlements (in cash or in kind) during the period (391)
---------
Limited warranty liability, as of September 30, 2003 $ 985
=========
15. SUBSEQUENT EVENT
On October 22, 2003, the Company entered into a secured
revolving credit facility (the "Secured Credit Facility") with a group
of banks that allows the Company to borrow up to $100 million.
Borrowings under the Secured Credit Facility will be either through
revolving or swing loans or letters of credit obligations. The Secured
Credit Facility is secured by substantially all of the Company's
domestic working capital assets and a pledge of 65 percent of the stock
of the Company's foreign subsidiaries. Interest on borrowings varies
with usage and begins at the Prime rate, as defined, or the LIBOR rate
plus 1.5 percent. The Company is also required to pay an annual
commitment fee of 0.5 percent of the unused credit commitment, a
maximum of $0.5 million per year. The Secured Credit Facility matures
on October 22, 2006 and requires certain financial covenants. These
covenants include a maximum total leverage ratio, a minimum domestic
cash or marketable securities balance, a minimum tangible net worth and
a minimum adjusted EBITDA, as defined in the agreement.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 2003 and 2002 consists of (in
thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
2003 QUARTER QUARTER QUARTER QUARTER TOTAL
---------------------------------------------------------------------------------------------------
Net sales $ 205,379 $ 190,773 $ 195,609 $ 216,076 $ 807,837
Gross profit 15,540 9,623 11,829 15,973 52,965
Loss before cumulative
effect of change in
accounting for goodwill (20,832) (5,044) (14,747) (3,873) (44,496)
Cumulative effect of
change in accounting for
goodwill, net of tax (23,482) - - - (23,482)
Net loss (44,314) (5,044) (14,747) (3,873) (67,978)
Earnings per share:
Basic:
Loss before cumulative
effect of change in
accounting for goodwill $ (0.49) $ (0.12) $ (0.35) $ (0.09) $ (1.05)
Cumulative effect of
change in accounting
for goodwill, net of
tax (0.56) - - - (0.56)
Net loss $ (1.05) $ (0.12) $ (0.35) $ (0.09) $ (1.61)
Diluted:
Loss before cumulative
effect of change in
accounting for goodwill $ (0.49) $ (0.12) $ (0.35) $ (0.09) $ (1.05)
Cumulative effect of
change in accounting
for goodwill, net of tax (0.56) - - - (0.56)
Net loss $ (1.05) $ (0.12) $ (0.35) $ (0.09) $ (1.61)
52
PLEXUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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)
Earnings per share is computed independently for each quarter.
The annual total amounts may not equal the sum of the quarterly amounts
due to rounding.
In the first, third and fourth quarters of fiscal 2003, the
Company recorded pre-tax restructuring and impairment costs of $31.8
million, $19.6 million and $7.9 million, respectively. These costs
resulted from our actions taken in response to reductions in our
end-market demand. These actions included closing our San Diego and
Richmond operating sites, the consolidation of several leased
facilities, re-focusing our PCB design group, a write-off of goodwill
associated with the San Diego operating site, the write-down of
underutilized assets to fair value at several locations, and the costs
associated with a reduction in work force in several operating sites,
engineering and corporate groups. These measures were intended to align
the Company's capabilities and resources with its lower demand.
In addition, the Company adopted SFAS No. 142 for the
accounting of goodwill and other intangible assets on October 1, 2002.
Under the transitional provisions of SFAS No. 142, the Company
identified reporting units with goodwill, performed impairment tests on
the net goodwill and other indefinite-lived intangible assets
associated with each reporting unit using a valuation date as of
October 1, 2002, and determined that a pre-tax transitional impairment
charge of $28.2 million was required at the San Diego and Juarez
operating sites. The impairment charge was recorded in the first
quarter of fiscal 2003 as a cumulative effect of a change in accounting
for goodwill.
In the first, second, third and fourth fiscal quarters of
2002, the Company recorded pre-tax restructuring and impairment costs
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.
* * * * *
53
PLEXUS CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 2003, 2002 and 2001
(in thousands)
ADDITIONS
BALANCE AT ADDITIONS FROM CHARGED TO
BEGINNING OF MERGERS/ COSTS AND BALANCE AT
DESCRIPTIONS PERIOD ACQUISITIONS EXPENSES DEDUCTIONS END OF PERIOD
- ----------------------------------------------------------------------------------------------------------------------------
Fiscal Year 2003:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 4,200 $ - $ 438 $ 538 $ 4,100
Inventory reserves
(deducted from the asset to which it relates) 17,761 - 7,017 8,495 16,283
------- ------- ------- ------- -------
$21,961 $ - $ 7,455 $ 9,033 $20,383
======= ======= ======= ======= =======
Fiscal Year 2002:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 6,500 $ 51 $ 2,994 $ 5,345 $ 4,200
Inventory reserves
(deducted from the asset to which it relates) 16,469 203 16,746 15,657 17,761
------- ------- ------- ------- -------
$22,969 $ 254 $19,740 $21,002 $21,961
======= ======= ======= ======= =======
Fiscal Year 2001:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates) $ 1,522 $ 329 $ 5,688 $ 1,039 $ 6,500
Inventory reserves
(deducted from the asset to which it relates) 9,406 2,815 12,334 8,086 16,469
------- ------- ------- ------- -------
$10,928 $ 3,144 $18,022 $ 9,125 $22,969
======= ======= ======= ======= =======
54
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 15, 2003
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/ Steven P. Cortinovis
- --------------------------------------------------------- --------------------------------
Dean A. Foate, President, Chief Executive Officer, and Steven P. Cortinovis, Director
Director (Principal Executive Officer)
/s/ F. Gordon Bitter /s/ David J. Drury
- --------------------------------------------------------- --------------------------------
F. Gordon Bitter, Vice President and Chief Financial David J. Drury, Director
Officer (Principal Financial Officer)
/s/ Simon J. Painter /s/ Thomas J. Prosser
- --------------------------------------------------------- --------------------------------
Simon J. Painter, Corporate Controller (Principal Thomas J. Prosser, Director
Accounting Officer)
/s/ John L. Nussbaum /s/ Dr. Charles M. Strother
- --------------------------------------------------------- --------------------------------
John L. Nussbaum, Chairman and Director 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 15, 2003.
55
EXHIBIT INDEX
PLEXUS CORP.
10-K FOR YEAR ENDED SEPTEMBER 30, 2003
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 Form 10-Q for the quarter ended
March 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 August Form 8-A/A filed
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 Exhibit 4.2 (b) to Plexus' Annual
Amendment to the Amended and Report on Form 10-K for the fiscal
Restated Shareholder Rights Agreement year ended September 30, 2002
dated as of December 5, 2002
10.1 (a) Supplemental Executive Retirement Exhibit 10.1 (b) to Plexus' Report
Agreements with John Nussbaum dated on Form 10-K for the fiscal year
as of September 19, 1996**: ended September 30, 1996
(b) 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, quarter ended December 31, 2000
dated as of September 1, 1999
10.2 Forms of Change of Control
Agreements dated October 1, 2003
with **
(a) Dean A. Foate X
Thomas B. Sabol
F. Gordon Bitter
David A. Clark
Thomas J. Czajkowski
Paul L. Ehlers
Joseph D. Kaufman
Michael J. McGuire
J. Robert Kronser
David H. Rust
Michael T. Verstegen
(b) George W.F. Setton
Simon J. Painter X
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 Plexus Corp. 1995 Directors' Stock Exhibit 10.10 to 1994 10-K
Option Plan**
10.5 (a) Credit Agreement dates as of Exhibit 10.6(a) to Plexus' Annual
October 25, 2000, among Plexus, Report on Form 10-K for the fiscal
certain 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, Exhibit 10.4 (d) to 2002 10-K
2002, reducing credit line.
(e) Notice of Plexus dated December Exhibit 10.1 to 12/31/02 10-Q
26, 2002 eliminating credit line
Note: All agreements included in Exhibit 10.5 are now terminated.
10.6 (a) Credit Agreement dated as of X
October 22, 2003 among Plexus, certain
Plexus subsidiaries and various lending
institutions whose Administrative Agent
is Harris Trust and Savings Bank
(b) First Amendment and Waiver to X
Credit Agreement dated as of October
31, 2003
10.7 (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.
10.8 (a) Plexus Corp. 1998 Management Plexus' Annual Report n Form 10-K
Incentive Compensation Plan** for the fiscal year ended September
(no longer in effect) 30, 1997
(b) Plexus Corp. 2004 Incentive X
Compensation Plan- Executive
Leadership Team **
10.9 Promissory Note from Thomas B. Sabol Exhibit 10.1 to Plexus' Report on
dated March 13, 2000 (repaid) Form 10-Q for the quarter ended
March 31, 2000
10.10(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")
10.11 (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 Receivables Exhibit 10.2 to Plexus' 6/30/01 10-Q
Purchase Agreement, dated July 1, 2001
(c) Second Amendment to Receivables Exhibit 10.2(a) to 6/30/02 10-Q
Purchase Agreement, dated October 3, 2001
(d) Limited Waiver and Third Exhibit 10.2(b) to 6/30/02
Amendment to Receivables Purchase 10-Q
Agreement, dated April 25, 2002
(e) Fourth Amendment to Receivables Exhibit 10.2(c) to 6/30/02
Purchase Agreement, dated June 28, 2002 10-Q
(f) Fifth Amendment to Receivables Exhibit 10.2(f) to 2002 10-K
Purchase Agreement, dated September
30, 2002
(g) Limited Waiver and Sixth Exhibit 10.2(g) to 2002 10-K
Amendment to Receivables Purchase
Agreement, dated December 4, 2002
(h) Limited Waiver and Seventh Exhibit 10.2 to 12/31/02 10-Q.
Amendment to Receivables Purchase
Agreement, dated January 28, 2003
(i) Limited Waiver and Seventh Exhibit 10.4 to Plexus' Quarterly
Amendment to Receivables Purchase Report on Form 10-Q for the quarter
Agreement, dated January 28, 2003 ended December 31, 2002
Note: All agreements included in Exhibit 10.10 and 10.11 were terminated in
September 2003.
10.12 Plexus Corp. Executive Deferred Exhibit 10.17 to 2000 10-K
Compensation Plan**
10.13 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 T. Verstegen
David A. Clark
10.14 Plexus Corp Executive Deferred
Compensation Plan Trust dated April 1,
2003 between Plexus Corp. and Bankers
Trust Company**
10.15 (a) Employment Agreement dated as of Exhibit 10.3 to the 6/30/02 10-Q
July 1, 2002, between Plexus Corp. and
Dean A. Foate** [superceded]
(b) Amended and Restated Employment
Agreement dated as of September 1, X
2003 between Plexus Corp and Dean A.
Foate **
10.16 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 **
21 List of Subsidiaries X
23 Consent of PricewaterhouseCoopers LLP X
24 Power of Attorney (Signature Page
Hereto)
31.1 Certification of Chief Executive Officer
pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002 X
31.2 Certification of Chief Financial Officer
pursuant to section 302 (a) of the
Sarbanes-Oxley Act of 2002 X
32.1 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
32.2 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
- ----------------------
**Designates management compensatory plans or agreements.