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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the Quarter ended April 2, 2005
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-14824
PLEXUS CORP.
(Exact name of registrant as specified in charter)
Wisconsin 39-1344447
(State of Incorporation) (IRS Employer Identification No.)
55 Jewelers Park Drive
Neenah, Wisconsin 54957-0156
(Address of principal executive offices)(Zip Code)
Telephone Number (920) 722-3451
(Registrant's telephone number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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 May 6, 2005 there were 43,358,354 shares of Common Stock of the
Company outstanding.
PLEXUS CORP.
TABLE OF CONTENTS
April 2, 2005
PART I. FINANCIAL INFORMATION.................................................................................. 3
Item 1. Consolidated Financial Statements............................................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)............... 3
CONDENSED CONSOLIDATED BALANCE SHEETS......................................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS............................................... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 13
"SAFE HARBOR" CAUTIONARY STATEMENT............................................................ 13
OVERVIEW...................................................................................... 13
EXECUTIVE SUMMARY............................................................................. 13
INDUSTRY SECTORS.............................................................................. 14
RESULTS OF OPERATIONS......................................................................... 15
LIQUIDITY AND CAPITAL RESOURCES............................................................... 19
CONTRACTUAL OBLIGATIONS AND COMMITMENTS....................................................... 20
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES................................................. 20
NEW ACCOUNTING PRONOUNCEMENTS................................................................. 22
RISK FACTORS.................................................................................. 23
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 31
Item 4. Controls and Procedures....................................................................... 31
PART II - OTHER INFORMATION..................................................................................... 33
Item 4. Submission of Matters to a Vote of Security Holders........................................... 33
Item 6. Exhibits...................................................................................... 33
SIGNATURES...................................................................................................... 34
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
Unaudited
Three Months Ended Six Months Ended
------------------------ ------------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Net sales $ 305,486 $ 254,272 $ 592,966 $ 492,735
Cost of sales 279,941 233,091 545,126 451,927
--------- --------- --------- ---------
Gross profit 25,545 21,181 47,840 40,808
Operating expenses:
Selling and administrative expenses 19,243 16,422 37,317 32,778
Restructuring and impairment costs 10,634 - 11,518 -
--------- --------- --------- ---------
29,877 16,422 48,835 32,778
--------- --------- --------- ---------
Operating income (loss) (4,332) 4,759 (995) 8,030
Other income (expense):
Interest expense (891) (730) (1,762) (1,393)
Miscellaneous 376 310 1,195 826
--------- --------- --------- ---------
Income (loss) before income taxes (4,847) 4,339 (1,562) 7,463
Income tax expense (benefit) (388) 868 (125) 1,493
--------- --------- --------- ---------
Net income (loss) $ (4,459) $ 3,471 $ (1,437) $ 5,970
========= ========= ========= =========
Earnings per share:
Basic $ (0.10) $ 0.08 $ (0.03) $ 0.14
========= ========= ========= =========
Diluted $ (0.10) $ 0.08 $ (0.03) $ 0.14
========= ========= ========= =========
Weighted average shares outstanding:
Basic 43,315 42,962 43,252 42,806
========= ========= ========= =========
Diluted 43,315 44,157 43,252 43,969
========= ========= ========= =========
Comprehensive income (loss):
Net income (loss) $ (4,459) $ 3,471 $ (1,437) $ 5,970
Foreign currency translation adjustments (2,982) 1,752 1,314 6,575
--------- --------- --------- ---------
Comprehensive income (loss) $ (7,441) $ 5,223 $ (123) $ 12,545
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
PLEXUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited
April 2, September 30,
2005 2004
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 36,119 $ 40,924
Short-term investments - 4,005
Accounts receivable, net of allowance of $2,800
and $2,000, respectively 171,458 148,301
Inventories 172,379 173,518
Deferred income taxes 208 1,727
Prepaid expenses and other 10,070 5,972
----------- -----------
Total current assets 390,234 374,447
Property, plant and equipment, net 122,497 129,586
Goodwill 35,199 34,179
Deferred income taxes 1,210 -
Other 8,101 7,496
----------- -----------
Total assets $ 557,241 $ 545,708
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 2,077 $ 811
Accounts payable 109,905 100,588
Customer deposits 11,303 11,952
Accrued liabilities:
Salaries and wages 19,758 26,050
Other 22,167 19,686
----------- -----------
Total current liabilities 165,210 159,087
Long-term debt and capital lease obligations, net of current portion 22,638 23,160
Other liabilities 14,911 12,048
Deferred income taxes 1,760 -
Commitments and contingencies (Note 10) - -
Shareholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized,
none issued or outstanding - -
Common stock, $.01 par value, 200,000 shares authorized, 43,330
and 43,184 shares issued and outstanding, respectively 433 432
Additional paid-in capital 269,356 267,925
Retained earnings 69,823 71,260
Accumulated other comprehensive income 13,110 11,796
----------- -----------
352,722 351,413
----------- -----------
Total liabilities and shareholders' equity $ 557,241 $ 545,708
=========== ===========
See notes to condensed consolidated financial statements.
4
PLEXUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
Six Months Ended
---------------------------
April 2, March 31,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,437) $ 5,970
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation and amortization 12,435 12,821
Non-cash asset impairments 4,292 -
Deferred income taxes, net 405 8,647
Income tax benefit of stock option exercises - 1,117
Changes in assets and liabilities:
Accounts receivable (22,222) (24,256)
Inventories 2,029 (59,855)
Prepaid expenses and other (2,959) (343)
Accounts payable 8,817 18,947
Customer deposits (675) 1,067
Accrued liabilities and other (1,389) 2,293
----------- -----------
Cash flows used in operating activities (704) (33,592)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales and maturities of short-term investments 4,005 11,622
Payments for property, plant and equipment (8,601) (6,338)
----------- -----------
Cash flows provided by (used in) investing activities (4,596) 5,284
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 15,000 73,752
Payments on debt (15,961) (58,151)
Payments on capital lease obligations (684) (450)
Proceeds from exercise of stock options 214 2,987
Issuances of common stock 1,218 974
----------- -----------
Cash flows provided by (used in) financing activities (213) 19,112
----------- -----------
Effect of foreign currency translation on cash and cash
equivalents 708 1,589
----------- -----------
Net decrease in cash and cash equivalents (4,805) (7,607)
Cash and cash equivalents:
Beginning of period 40,924 58,993
----------- -----------
End of period $ 36,119 $ 51,386
=========== ===========
See notes to condensed consolidated financial statements.
5
PLEXUS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 2, 2005
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Plexus Corp. ("Plexus" or the "Company") without audit and pursuant
to the rules and regulations of the United States Securities and Exchange
Commission. In the opinion of the Company, the financial statements reflect all
adjustments, which include normal recurring adjustments necessary to present
fairly the financial position of the Company as of April 2, 2005 and its results
of operations for the three and six months ended April 2, 2005, and the three
and six months ended March 31, 2004 and its cash flows for the same three month
and six month periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC rules and
regulations dealing with interim financial statements. However, the Company
believes that the disclosures made in the condensed consolidated financial
statements included herein are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's 2004 Annual Report on Form 10-K.
Effective October 1, 2004, the Company's fiscal year now ends on the
Saturday closest to September 30 rather than on September 30, as was the case
prior to fiscal 2005. In connection with the change to a fiscal year ending on
the Saturday nearest September 30, the Company also changed the accounting for
its interim periods to adopt a "4-4-5" accounting system for the "monthly"
periods in each quarter. Each quarter therefore ends on a Saturday at the end of
the 4-4-5 period. The accounting periods for the second quarter of fiscal 2005
and 2004 each included 91 days. The accounting periods for the six months ended
April 2, 2005 and March 31, 2004 included 184 days and 183 days, respectively.
NOTE 2 - INVENTORIES
The major classes of inventories are as follows (in thousands):
April 2, September 30,
2005 2004
-------- -------------
Raw materials $104,392 $115,094
Work-in-process 32,262 32,898
Finished goods 35,725 25,526
-------- -------
$172,379 $173,518
======== ========
NOTE 3 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company is a party to a secured revolving credit facility (as amended,
the "Secured Credit Facility") with a group of banks that allows the Company to
borrow up to $150 million and expires on October 31, 2007. Borrowings under the
Secured Credit Facility may be either through revolving or swing loans or letter
of credit obligations. As of April 2, 2005, we had no borrowings outstanding.
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. The Secured Credit Facility contains certain
financial covenants, which include certain minimum adjusted EBITDA amounts, a
maximum total leverage ratio (not to exceed 2.5 times the adjusted EBITDA) and a
minimum tangible net worth, all as defined in the amended agreement. Interest on
borrowings varies depending upon the Company's then-current total leverage ratio
and begins at the Prime rate, as defined, or LIBOR plus 1.5 percent. The Company
is also required to pay an annual commitment fee of 0.5 percent of the unused
credit commitment. Origination fees and expenses totaled approximately $1.3
million, which have been deferred and are being amortized to interest expense
over the term of the Secured Credit Facility. Interest expense related to the
commitment fee, amortization of deferred origination fees and borrowings totaled
approximately $0.3 million and $0.6 million for the three and six months ended
April 2, 2005, respectively, and $0.2 million and $0.3 million for the for the
three and six months ended March 31, 2004, respectively.
6
NOTE 4 - 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):
Three Months Ended Six Months Ended
---------------------- ----------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Earnings:
Net income (loss) $ (4,459) $ 3,471 $ (1,437) $ 5,970
========= ========= ========= =========
Basic weighted average common shares outstanding 43,315 42,962 43,252 42,806
Dilutive effect of stock options - 1,195 - 1,163
--------- --------- --------- ---------
Diluted weighted average shares outstanding 43,315 44,157 43,252 43,969
========= ========= ========= =========
Basic and diluted earnings per share:
Net income (loss) $ (0.10) $ 0.08 $ (0.03) $ 0.14
========= ========= ========= =========
For both the three and six months ended April 2, 2005, stock options to
purchase approximately 4.7 million shares of common stock were outstanding but
not included in the computation of diluted earnings per share because there was
a net loss in the period, and therefore their effect would be anti-dilutive.
For both the three and six months ended March 31, 2004, stock options to
purchase approximately 1.8 million shares of common stock were outstanding, but
not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares and therefore their effect would be anti-dilutive.
NOTE 5 - STOCK-BASED COMPENSATION
The Company accounts for its stock option plans under the guidelines of
Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense
related to the stock option plans has been recognized in the Condensed
Consolidated Statements of Operations and Comprehensive Income (Loss). The
Company utilizes the Black-Scholes option valuation model to value stock options
for pro forma presentation of income and per-share data as if the fair
value-based method in Statement of Financial Accounting Standards ("SFAS") No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of SFAS No. 123," had been used to account for stock-based
compensation. The following presents pro forma net income (loss) and per-share
data as if a fair value based method had been used to account for stock-based
compensation (in thousands, except per-share amounts):
7
Three Months Ended Six Months Ended
--------------------- ---------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
-------- --------- -------- ---------
Net income (loss) as reported $ (4,459) $ 3,471 $ (1,437) $ 5,970
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 (782) (975) (2,941) (2,928)
-------- --------- -------- ---------
Pro forma net income (loss) $ (5,241) $ 2,496 $ (4,378) $ 3,042
======== ========= ======== =========
Earnings per share:
Basic, as reported $ (0.10) $ 0.08 $ (0.03) $ 0.14
======== ========= ======== =========
Basic, pro forma $ (0.12) $ 0.06 $ (0.10) $ 0.07
======== ========= ======== =========
Diluted, as reported $ (0.10) $ 0.08 $ (0.03) $ 0.14
======== ========= ======== =========
Diluted, pro forma $ (0.12) $ 0.06 $ (0.10) $ 0.07
======== ========= ======== =========
Weighted average shares:
Basic, as reported and pro forma 43,315 42,962 43,252 42,806
======== ========= ======== =========
Diluted, as reported 43,315 44,157 43,252 43,969
======== ========= ======== =========
Diluted, pro forma 43,315 43,466 43,252 43,623
======== ========= ======== =========
On May 11, 2005, the Compensation Committee of the Company's Board of
Directors approved accelerating the vesting of approximately 660,000 shares of
unvested stock options with exercise prices per share of $12.33 or higher
outstanding under the Company's stock plans. The options have a range of
exercise prices of $12.53 to $27.37 and a weighted average exercise price of
$15.18. The closing price of the Company's common stock on May 11, 2005, the
effective date of the acceleration, was $12.33. The primary purpose of the
accelerated vesting was to avoid recognizing compensation expense associated
with these options upon adoption of SFAS No. 123(R), "Share-Based Payment: An
Amendment of FASB Statements No. 123 and 95" (see Note 11). The aggregate
pre-tax expense associated with the accelerated options would have been
approximately $5.0 million, of which $2.8 million and $1.0 million would have
been reflected in the Company's consolidated statements of operations in fiscal
years 2006 and 2007, respectively.
NOTE 6 - GOODWILL AND PURCHASED INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the fiscal year ended
September 30, 2004 and the six months ended April 2, 2005 are as follows
(amounts in thousands):
Balance as of October 1, 2003 $ 32,269
Foreign currency translation adjustments 1,910
---------
Balance as of September 30, 2004 34,179
Foreign currency translation adjustments 1,020
---------
Balance as of April 2, 2005 $ 35,199
=========
The Company performs goodwill impairment tests annually during the third
quarter of each fiscal year and more frequently if an event or circumstance
indicates that impairment has occurred.
8
NOTE 7 - BUSINESS SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION
The Company operates in one business segment. The Company provides product
realization services to electronic original equipment manufacturers ("OEMs").
The Company has three reportable geographic regions: North America, Europe and
Asia. As of April 2, 2005 the Company had 18 active manufacturing and/or
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. Interregion transactions are generally recorded
at amounts that approximate arm's length transactions. The accounting policies
for the regions are the same as for the Company taken as a whole. The table
below presents geographic net sales information reflecting the origin of the
product shipped and asset information based on the physical location of the
assets (in thousands):
Three Months Ended Six Months Ended
-------------------------------- ----------------------------
April 2, 2005 March 31, April 2, March 31,
2005 2004 2005 2004
------------- ---------- ----------- -----------
Net sales:
North America $ 241,071 $ 202,310 $ 472,089 $ 396,005
Europe 29,740 26,598 53,360 53,751
Asia 34,675 25,364 67,517 42,979
------------- ---------- ------------ -----------
$ 305,486 $ 254,272 $ 592,966 $ 492,735
============= ========== ============ ===========
April 2, September 30,
2005 2004
----------- -------------
Long-lived assets:
North America $ 101,122 $ 108,697
Europe 37,096 35,837
Asia 19,478 19,231
----------- -------------
$ 157,696 $ 163,765
=========== =============
Long-lived assets as of April 2, 2005 and September 30, 2004 exclude other
non-operating long-term assets totaling $9.3 million and $7.5 million,
respectively.
Juniper Networks, Inc. ("Juniper") accounted for 20 percent of net sales
for both the three months and six months ended April 2, 2005. In addition,
General Electric Corp. accounted for 10 percent of net sales for the six months
ended April 2, 2005. Juniper accounted for 13 percent of net sales for both the
three months and six months ended March 31, 2004. No other customers accounted
for 10 percent or more of net sales in either period.
NOTE 8 - GUARANTEES
The Company offers certain indemnifications under its customer
manufacturing agreements. In the normal course of business, the Company may from
time to time be obligated to indemnify its customers or its customers'
end-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 generally ranging from 12
months to 24 months. If a product fails to comply with
9
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 generally 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 and includes
reserves for specifically identified product issues. 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 value and 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 activity related to the Company's limited
warranty liability for the six months ended April 2, 2005 and March 31, 2004 (in
thousands):
Six months ended
---------------------------
April 2, March 31,
2005 2004
---------- ---------
Balance at beginning of period $ 933 $ 985
Accruals for warranties issued during the period 41 55
Settlements (in cash or in kind) during the period (20) (174)
---------- ---------
Balance at end of period $ 954 $ 866
========== =========
NOTE 9 - 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 attorneys' fees. The Company has obtained a stay of action
pending developments in other related litigation. On January 23, 2004, the judge
in the other related litigation ruled against Lemelson, thereby declaring the
Lemelson patents unenforceable and invalid. Lemelson has appealed this ruling
and the initial appeal hearing is set for June 6, 2005. The lawsuit against the
Company remains stayed pending the outcome of that appeal. The Company believes
the vendors from which the alleged patent-infringing equipment was purchased may
be required to contractually indemnify the Company. However, based upon the
Company's observation of Lemelson's actions in other parallel cases, it appears
that the primary objective of Lemelson is to cause other parties 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.
NOTE 10 - RESTRUCTURING AND IMPAIRMENT COSTS
For the six months ended April 2, 2005, the Company recorded pre-tax
restructuring and impairment costs totaling $11.5 million, of which $10.6
million and $0.9 million was recorded in the second quarter and first quarter of
fiscal 2005, respectively.
The Company's most significant restructuring costs in the first six months
of fiscal 2005 were associated with the closure of its Bothell, Washington
("Bothell") engineering and manufacturing facility, which was announced in
September 2004. The Company transferred key customer programs from the Bothell
facility to other Plexus locations primarily in the United States. This
restructuring reduced the Company's capacity by 97,000 square feet and affected
approximately 160 employees. The Company substantially completed its
consolidation efforts during the second quarter of fiscal 2005. The Company
incurred total restructuring and impairment costs associated with the Bothell
facility closure of approximately $9.2 million, which consisted of the
following:
10
- $1.8 million was recorded in the fourth quarter of fiscal 2004
and consisted of $1.5 million for employee terminations and
$0.3 million for fixed asset impairments;
- $0.7 million was recorded in the first quarter of fiscal 2005,
and primarily represented additional severance in the form of
retention bonuses for key individuals to assist in an orderly
transition of programs to other sites;
- $6.7 million was recorded in the second quarter of fiscal 2005
and consisted of approximately $6.2 million for the facility
lease, $0.4 million for additional severance in the form of
retention bonuses and $0.1 million for other closure costs.
The liability for the facility lease was recognized and
measured at fair value for the future remaining lease payments
subsequent to abandonment, less any estimated sublease income
that could reasonably be obtained for the property.
During the second quarter of fiscal 2005, the Company recorded a $3.8
million impairment related to the remaining elements of a shop floor
data-collection system. The Company recorded a $1.8 million impairment related
to the shop floor data-collection system in the fourth quarter of fiscal 2004
when the Company determined that certain elements would not be utilized in any
capacity. During the first quarter of fiscal 2005, the Company extended a
maintenance and support agreement through April 2005 to provide the Company
additional time to evaluate the remaining elements of the shop floor
data-collection system. Based on the Company's evaluation, and as part of the
preparation of the financial statements, the Company determined that the shop
floor data-collection system was impaired. The Company determined it would
abandon deployment of these remaining elements of the shop floor data-collection
system because the anticipated business benefits could not be realized.
During the second quarter of fiscal 2005, the Company also recorded other
restructuring and impairment costs of approximately $0.5 million, which
consisted of $0.4 million associated with a workforce reduction and $0.1 million
in asset impairments in the Juarez, Mexico ("Juarez") facility. The Juarez
workforce reduction affected approximately 50 employees. The second quarter
fiscal 2005 restructuring costs were offset, in part, by a $0.4 million
reduction in an accrual for lease exit costs associated with a warehouse located
in Neenah, Wisconsin ("Neenah"). The Neenah warehouse was previously abandoned
as part of a fiscal 2003 restructuring action; however, during the second
quarter of fiscal 2005, the Company reactivated use of the warehouse.
In the first quarter of fiscal 2005, the Company recorded pre-tax
restructuring costs of $0.9 million, of which $0.8 million was primarily
associated with the planned closure of the Bothell facility, as noted above, and
$0.4 million represented additional impairment on the Company's closed San Diego
facility, partially offset by a $0.3 million reduction in lease obligations for
one of the Company's other closed facilities near Seattle, Washington
("Seattle").
The Company closed its San Diego facility in fiscal 2003; however, part of
that facility was subleased prior to its closing. The San Diego facility was
acquired under a capital lease. Accordingly, the subleased portion of the
facility was recorded at the net present value of actual future sublease income.
The remainder of facility that was available for subleasing was recorded at the
net present value of estimated sublease income. During the first quarter of
fiscal 2005, the Company subleased the remaining part of the San Diego facility,
which resulted in an additional $0.4 million impairment to adjust the carrying
value of the remaining part of the San Diego facility to its net present value
of future sublease income.
Finally, in the first quarter of fiscal 2005, the Company was able to
sublease one of its two closed Seattle facilities, both of which were accounted
for as operating leases. Lease-related restructuring costs for the Seattle
facilities were initially recorded in previous periods based on future lease
payments subsequent to abandonment, less estimated sublease income. As a result
of the new sublease, the Company reduced its lease obligation for these
facilities by $0.3 million. 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)" is applicable to
restructuring activities initiated prior to January 1, 2003, including
subsequent restructuring cost adjustments related to such activities.
Fiscal year 2004 restructuring activities that occurred subsequent to
March 31, 2004 and remaining fiscal year 2003 restructuring activities for which
a liability remained at September 30, 2004 included severance costs associated
with the planned closure of the Company's Bothell facility, lease obligations
associated with the Company's Seattle facilities, and other costs associated
with refocusing the Company's PCB design group.
11
The table below summarizes the Company's restructuring obligations as of
April 2, 2005 (in thousands):
EMPLOYEE LEASE OBLIGATIONS
TERMINATION AND AND OTHER EXIT NON-CASH ASSET
SEVERANCE COSTS COSTS WRITE-DOWNS TOTAL
--------------- ----------------- -------------- --------
Accrued balance, September
30, 2004 $ 2,019 $ 9,760 $ - $ 11,779
Restructuring costs 732 28 - 760
Adjustment to provisions - (308) 432 124
Amounts utilized (569) (963) (432) (1,964)
---------- --------------- --------- --------
Accrued balance,
January 1, 2005 2,182 8,517 - 10,699
Restructuring costs 782 6,358 3,923 11,063
Adjustment to provisions 23 (389) (63) (429)
Amounts utilized (1,408) (803) (3,860) (6,071)
---------- --------------- --------- --------
April 2, 2005 $ 1,579 $ 13,683 $ - $ 15,262
========== =============== ========= ========
As of April 2, 2005, all of the accrued severance costs and $4.5 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 October 2012.
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4" ("SFAS
151"), which indicates that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material be recognized as current period charges. In
addition, this statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities. The Company will be required to adopt this statement in its first
quarter of fiscal 2006. The Company does not anticipate that the implementation
of this standard will have a material impact on its financial position, results
of operations or cash flows.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position ("FSP") FAS 109-2, "Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation
Act of 2004," (the "Jobs Act"). The Jobs Act became law in the U.S. in October
2004. This legislation provides for a number of changes in U.S. tax laws. FSP
SFAS No. 109-2 requires recognition of a deferred tax liability for the tax
effect of the excess of book over tax basis of an investment in a foreign
corporate venture that is permanent in duration, unless a company firmly asserts
that such amounts are indefinitely reinvested outside the company's home
jurisdiction. However, due to the lack of clarification of certain provisions
within the Jobs Act, FSP SFAS No. 109-2 provides companies additional time
beyond the financial reporting period of enactment to evaluate the effect of the
Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying SFAS No. 109. Management is presently reviewing this new
legislation to determine the impacts on the Company's consolidated results of
operations and financial position.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment:
An Amendment of FASB Statements No. 123 and 95." This statement requires a
public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the fair value of the award at the grant
date (with limited exceptions) and recognize the compensation cost over the
period during which an employee is required to provide service in exchange for
the award. In March 2005, the U.S. Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 107 ("SAB 107"), which expresses views of
the SEC staff regarding the application of SFAS No. 123(R). Among other things,
SAB 107 provides interpretive guidance related to the interaction between SFAS
No. 123(R) and certain SEC rules and regulations, as well as provides the SEC
staff's views regarding the valuation of share-based payment arrangements for
public companies. The Company is required to adopt SFAS No. 123(R) in its first
quarter of fiscal 2006. Currently, the Company accounts for its stock option
12
awards under the provisions of APB No. 25, which to date has not resulted in
compensation expense in the Company's consolidated results of operations. At the
time of adoption, companies can select from three transition methods, two of
which would allow for restatement of certain prior periods. Management
anticipates selecting the transition method in which prior period financial
statements would not be restated. The adoption of SFAS No. 123(R) is not
expected to have a significant effect on the Company's financial condition and
will not affect consolidated cash flows, but it is expected to have a
significant adverse effect on its consolidated results of operations if stock
options remain an important element of long-term compensation.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies that an
entity is required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value can be reasonably estimated even
though uncertainty exists about the timing and (or) method of settlement. The
Company is required to adopt FIN 47 by the end of fiscal 2006. The Company is
currently assessing the impact of FIN 47 on its results of operations and
financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
The statements contained in the Form 10-Q that are not historical facts
(such as statements in the future tense and statements including "believe,"
"expect," "intend," "anticipate" and similar words and concepts), including
discussions of periods which are not yet completed, are forward-looking
statements that involve risks and uncertainties, including, but not limited to:
- the continued uncertain economic outlook for 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
- other risks detailed below, especially in "Risk Factors" and
otherwise herein, and in our Securities and Exchange Commission
filings.
OVERVIEW
Plexus Corp. and its subsidiaries (together "Plexus," the "Company," or
"we") is a participant in the Electronic Manufacturing Services ("EMS")
industry. We provide product realization services to original equipment
manufacturers, or OEMs, in the wireline/networking, wireless infrastructure,
medical, industrial/commercial and defense/security/aerospace 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,
product configuration, logistics and test/repair. The following information
should be read in conjunction with our condensed consolidated financial
statements included herein and the "Risk Factors" section beginning on page 22.
EXECUTIVE SUMMARY
Overall revenues in the second quarter of fiscal 2005 increased
approximately $51.2 million, or 20 percent over the comparable prior year
period. Overall revenues throughout the first six months of fiscal 2005
increased approximately $100.2 million, or 20 percent, over the comparable prior
year period. Although all end-markets showed an increase, the largest net sales
gains were in the wireline/networking, wireless infrastructure and medical
13
industries in the three months and six months ended April 2, 2005. (See below
for a description of our revised customer industry analysis.)
Our largest customer remains Juniper Networks Inc. ("Juniper"), which
represented 20 percent of our overall net sales for both the three and six
months ended April 2, 2005. This was a significant increase from the 13 percent
of our overall net sales that Juniper represented in both of the comparable
prior year periods. This increased percentage stemmed from new programs related
to an acquisition made by Juniper. In addition, General Electric Corp. ("GE")
accounted for 10 percent of net sales during the first six months of fiscal
2005. The percentage of net sales represented by our ten largest customers rose
to 59 percent for both the three and six months ended April 2, 2005 compared to
55 percent and 56 percent for the comparable prior year periods.
Although net sales were substantially ahead of the comparable prior year
period, the increase in gross profits in the second quarter of fiscal 2005 was
moderated by manufacturing inefficiencies at certain of our sites and start-up
costs of $0.4 million related to a new facility in Penang, Malaysia, which
commenced manufacturing activities in the first quarter of fiscal 2005.
Additionally, manufacturing inefficiencies and incremental costs associated with
transitioning programs from the closure of the Bothell facility and continued
near-term weakness at certain of our sites have also impaired our overall
profitability in the first half of fiscal 2005.
Selling and administrative expenses for the three months ended April 2,
2005 included $0.8 million in bad debt expense associated with an increase in
our allowance for doubtful accounts for a small customer that encountered a
liquidity problem during the quarter. The comparable prior year period included
a $1.1 million recovery of accounts receivable that had been either written off
or reserved in prior periods.
During the second quarter of fiscal 2005, we incurred $10.6 million of
restructuring and impairment costs, the largest element of which was $6.7
million associated with the accrual of lease obligations and additional
severance costs related to the closure of the Bothell facility. In addition, we
recorded a $3.8 million impairment related to the remaining elements of a shop
floor data-collection system, as the anticipated benefits of this software could
not be realized.
The income tax rate in the first six months of fiscal 2005 was 8 percent,
which compared favorably to the 20 percent effective tax rate in the comparable
period of the prior year. The low income tax rate in the current year is
primarily due to the prior year establishment of a full valuation allowance on
U.S. deferred income tax assets, as well as tax holidays in Malaysia and China.
The low income tax rate in the comparable period of the prior year reflects tax
holidays in Malaysia and China as well as our utilization of net operating loss
carry-forwards in the U.S.
During the balance of fiscal 2005, our primary objective remains to
improve profitability. We remain intensely focused on working capital
utilization and return on capital employed. Based on customer indications of
expected demand and management estimates of new program wins, we are
increasingly confident about achieving near the high end of our previously
announced net sales growth target for full fiscal 2005 of approximately 15
percent to 18 percent over fiscal 2004. We currently expect third quarter of
fiscal 2005 sales to be in the range of $305 million to $315 million; however,
our results will ultimately depend on actual levels of customer orders. These
future orders may be less than we expect due to many factors, including those
that we discuss under "Risk Factors" below. We expect our overall profitability
to continue to be affected through the third quarter of fiscal 2005 by
manufacturing inefficiencies at certain of our sites. In addition, the initial
stages of production in the new facility in Penang have affected our overall
profitability through the second quarter of fiscal 2005, and the effects are
expected to continue into the third quarter, but to a lesser extent.
INDUSTRY SECTORS
We recently realigned our end-market sector analysis to better reflect our
business development focus. Consequently, our comparative net sales by
end-market, or industry, as shown in the Results of Operations section herein,
have been reclassified to reflect the new sector categorization, which we
previously disclosed [ in our Quarterly Report on Form 10-Q for the quarter
ended January 1, 2005], and which is described below:
- the previously reported networking/data communications sector has
been disaggregated into two sub-sectors:
14
- wireline/networking - technology to transmit and store
voice, data and video electronically using wire
conductors and/or optical fibers. Examples include
routers, switches, servers, storage devices, gateways,
bridges, and hubs, internet service and optimization
gear.
- wireless infrastructure - Technology to support the
management and delivery of wireless voice, data and
video communications. Examples include cellular base
stations, wireless and radio access, broadband wireless
access, networking gateways and devices.
- sales previously reported as computing have been grouped into
wireline/networking, although a relatively few accounts that were
only peripheral to the computer industry have been included in
industrial/commercial.
- medical remains as previously identified and defined.
- industrial/commercial remains as previously defined, other than the
minor additions discussed above.
- transportation/other has been re-characterized as
defense/security/aerospace to more accurately depict the types of
product manufactured for this sector and to indicate the marketing
focus for future business development efforts.
RESULTS OF OPERATIONS
Net sales. Net sales for the indicated periods were as follows (dollars in
millions):
Three months ended Six months ended
------------------- ---------------------
April 2, March 31, Increase/ April 2, March 31, Increase/
2005 2004 (Decrease) 2004 2003 (Decrease)
-------- --------- ----------- -------- --------- -----------
Sales $ 305.5 $ 254.3 $ 51.2 20% $ 593.0 $ 492.7 $ 100.2 20%
Our net sales increase for both the three and six month periods, reflect
increased end-market demand in all sectors, but particularly in the
wireline/networking, wireless infrastructure and medical sectors. The increase
in net sales also reflects new program wins from both new and existing
customers. The net sales growth in the wireless infrastructure sector was
broadly based, while the net sales growth in the wireline/networking and medical
sectors was primarily associated with Juniper and GE, respectively, our largest
customers.
The percentages of net sales to customers representing 10 percent or more
of net sales and net sales to our ten largest customers for the indicated
periods were as follows:
Three months ended Six months ended
------------------------- ------------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
-------- --------- -------- ---------
Juniper Networks 20% 13% 20% 13%
General Electric Corp. * * 10% *
Top 10 customers 59% 55% 59% 56%
* Represents less than 10 percent of net sales
Sales to our customers may vary from time to time depending on the size
and timing of customer program commencement, termination, delays, modifications
and transitions. We remain dependent on continued sales to our significant
customers, and our concentration has somewhat increased. We generally do not
obtain firm, long-term purchase commitments from our customers. Customers'
forecasts can and do change as a result of changes in their end-market demand
and other factors. Any material change in orders from these major accounts, or
other customers, could materially affect our results of operations. In addition,
as our percentage of sales to customers in a specific sector becomes larger
relative to other sectors, we become increasingly dependent upon economic and
business conditions affecting that sector.
As noted in the Industry Sector section above, we recently aligned our
sector analysis and business development focus. Utilizing the revised sectors,
our percentages of net sales by sector for the indicated periods were as
follows:
15
Percentage of Net Sales
-------------------------------------------------
Three months ended Six months ended
------------------------ -------------------
April 2, March 31, April 2 March 31,
Industry 2005 2004 2005 2004
- -------- -------- -------- ------- ---------
Wireline/Networking 37 39 38 40
Wireless Infrastructure 11 9 11 7
Medical 30 29 31 31
Industrial/Commercial 17 18 16 17
Defense/Security/Aerospace 5 5 4 5
--- --- --- ---
100 100 100 100
=== === === ===
Gross profit. Gross profit and gross margins for the indicated periods
were as follows (dollars in millions):
Three months ended Six months ended
-------------------- ----------------------
April 2, March 31, Increase/ April 2, March 31, Increase/
2005 2004 (Decrease) 2005 2004 (Decrease)
-------- --------- ---------- -------- --------- ----------
Gross Profit $ 25.5 $ 21.2 $ 4.4 21% $ 47.8 $ 40.8 $ 7.0 17%
Gross Margin 8.4% 8.3% 8.1% 8.3%
The improvements in gross profits in both periods were primarily due to
higher net sales. For the three months ended April 2, 2005, gross profit and
gross margin improvements were moderated by manufacturing inefficiencies at
certain of our sites, plus start-up costs of $0.4 million related to a new
facility in Penang, Malaysia, which commenced manufacturing activities in the
first quarter of fiscal 2005.
For the six months ended April 2, 2005, the gross profit improvement was
moderated and the gross margin declined as a result of manufacturing
inefficiencies at certain of our sites, $0.9 million in net inventory
adjustments at our Juarez, Mexico facility due to the loss of inventory from
theft and other causes, $0.9 million of start-up costs at a new facility in
Penang, Malaysia, and only a nominal profit at our Bothell site due to
transition expenses and manufacturing inefficiencies related to the phase-out of
that facility.
Gross margins reflect a number of factors that can vary from period to
period, including product and service mix, the level of new facility start-up
costs, inefficiencies attendant the transition of new programs, product life
cycles, sales volumes, price erosion within the electronics industry, overall
capacity utilization, labor costs and efficiencies, the management of
inventories, component pricing and shortages, the mix of turnkey and consignment
business, fluctuations and timing of customer orders, changing demand for our
customers' products and competition within the electronics industry.
Additionally, 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. Although we focus on expanding gross margins, there
can be no assurance that gross margins will not decrease in future periods.
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 net sales.
Selling and administrative expenses. Selling and administrative (S&A)
expenses for the indicated periods were as follows (dollars in millions):
Three months ended Six months ended
-------------------- ----------------------
April 2, March 31, Increase/ April 2, March 31, Increase/
2005 2004 (Decrease) 2005 2004 (Decrease)
-------- --------- ---------- -------- --------- ----------
Sales and
administrative
expense (S&A) $ 19.2 $ 16.4 $ 2.8 17% $ 37.3 $ 32.8 $ 4.5 14%
Percent of sales 6.3% 6.5% 6.3% 6.7%
16
The dollar increase in S&A in both periods was due to a combination of
factors, but the primary factor was a $1.9 million increase in bad debt expense.
The three months and six months ended April 2, 2005 included $0.8 million in bad
debt expense associated with an increase in our allowance for doubtful accounts
for a small customer that encountered a liquidity problem during the second
quarter, whereas the three months and six months ended March 31, 2004 included
$1.1 million of recoveries of accounts receivable that had been previously
either written off or reserved for. Other factors contributing to the dollar
increase in S&A in both periods included: increased spending for information
technology systems support related to the implementation of an ERP platform;
internal and external resources to comply with Section 404 of the Sarbanes Oxley
Act of 2002; and additional personnel and other administrative expenses to
support the revenue growth in Asia. The decrease in S&A as a percent of net
sales was due primarily to the 20 percent increase in net sales in each of the
three months and six months ended April 2, 2005 over the comparable prior year
periods.
Our common ERP platform is intended to augment our management information
systems and includes various software systems to enhance and standardize our
ability to translate information globally from production facilities into
operational and financial information and create a consistent set of core
business applications at our worldwide facilities. We converted one more
facility to the common ERP platform in the second quarter of fiscal 2005 and now
manage a significant majority of our net sales on the common ERP platform.
Training and implementation costs are expected to continue over the next couple
of quarters as we make system enhancements to the common ERP platform. The
conversion timetable for other Plexus locations and project scope remain subject
to change based upon our evolving needs and sales levels. In addition to S&A
expenses associated with the common ERP platform, we continue to incur capital
expenditures for hardware, software and certain other costs for testing and
installation. As of April 2, 2005, net property, plant and equipment includes
$22.4 million related to the ERP platform, including $0.5 million and $1.1
million capitalized in the three and six months ended April 2, 2005. We
anticipate incurring at least an additional $0.5 million of capital expenditures
for the ERP platform through fiscal 2005. See "Restructuring Actions" below for
discussion of a second quarter of fiscal 2005 impairment of a shop floor
data-collection system, which we determined to remove from the common ERP
platform.
Restructuring Actions: For the six months ended April 2, 2005, we recorded
pre-tax restructuring and impairment costs totaling $11.5 million, of which
$10.6 million was recorded in the second quarter of fiscal 2005.
Our most significant restructuring activities and costs in the first six
months of fiscal 2005 were associated with the closure of our Bothell,
Washington ("Bothell") engineering and manufacturing facility, which was
announced in September 2004. We transferred key customer programs from the
Bothell facility to other Plexus locations primarily in the United States. This
restructuring reduced our capacity by 97,000 square feet and affected
approximately 160 employees. We substantially completed the consolidation
efforts during the second quarter of fiscal 2005. We incurred total
restructuring and impairment costs associated with the Bothell facility closure
of approximately $9.2 million, which consisted of the following elements:
- $1.8 million was recorded in the fourth quarter of fiscal 2004
to provide $1.5 million for employee terminations and $0.3
million for fixed asset impairments;
- $0.7 million was recorded in the first quarter of fiscal 2005,
and primarily represented additional severance in the form of
retention bonuses for key individuals to assist in an orderly
transition of programs to other sites;
- $6.7 million was recorded in the second quarter of fiscal
2005, to recognize approximately $6.2 million for the
remaining facility lease obligation, net of estimated sublease
income, $0.4 million for additional severance in the form of
retention bonuses and $0.1 million for other closure costs.
During the second quarter of fiscal 2005, we recorded a $3.8 million
impairment related to the remaining elements of a shop floor data-collection
system. We recorded a $1.8 million impairment related to the shop floor
data-collection system in the fourth quarter of fiscal 2004 when we determined
that certain elements would not be utilized in any capacity. During the first
quarter of fiscal 2005, we extended a maintenance and support agreement through
April 2005 to provide additional time to evaluate the remaining elements of the
shop floor data-collection system. Based on that evaluation, and as part of the
preparation of our financial statements, we determined that the shop floor
data-collection system was impaired. We determined that we would abandon
deployment of the remaining elements of the shop floor data-collection system
because the anticipated business benefits could not be realized.
17
During the second quarter of fiscal 2005, we also recorded other net
restructuring and impairment costs of approximately $0.1 million, which
consisted of $0.4 million associated with a workforce reduction and $0.1 million
in asset impairments in our Juarez, Mexico ("Juarez") facility. The Juarez
workforce reduction affected approximately 50 employees. The second quarter
fiscal 2005 restructuring costs were offset, in part, by a $0.4 million
reduction in an accrual for lease exit costs associated with a warehouse located
in Neenah, Wisconsin ("Neenah"). The Neenah warehouse was previously abandoned
as part of a fiscal 2003 restructuring action; however, during the second
quarter of fiscal 2005, we reactivated use of the warehouse.
In the first quarter of fiscal 2005, we recorded pre-tax restructuring
costs of $0.9 million, of which $0.8 million was primarily associated with the
planned closure of the Bothell facility, as noted above, and $0.4 million
represented additional impairment on our closed San Diego facility, partially
offset by a $0.3 million reduction in lease obligations for one of our other
closed facilities near Seattle, Washington ("Seattle").
The San Diego facility, which was closed in fiscal 2003, is financed by a
capital lease. Part of that facility was subleased prior to its closing and was
recorded at the net present value of its future sublease income. The remainder
of the facility that was available for subleasing was recorded at the net
present value of estimated sublease income. During the first quarter of fiscal
2005, we subleased the remaining part of the San Diego facility, which resulted
in an additional $0.4 million impairment to adjust the carrying value of the
remaining part of the San Diego facility to its net present value of future
sublease income.
In the first quarter of fiscal 2005, we subleased one of our Seattle
facilities held under operating leases. Lease-related restructuring costs for
the Seattle facilities were initially recorded in previous periods based on
future lease payments subsequent to abandonment, less estimated sublease income.
As a result of this new sublease, we reduced a lease obligation for these
facilities by $0.3 million.
Pre-tax restructuring charges for the indicated periods are summarized as
follows (in millions):
Three months ended Six months ended
-------------------------- ------------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
-------- --------- -------- ---------
Lease exit costs and other $ 6,358 $ - $ 6,386 $ -
Asset impairments 3,923 - 3,923 -
Severance costs 782 - 1,514 -
Adjustments to lease exit costs (389) - (697) -
Adjustments to asset impairment (63) - 369 -
Adjustment to severance 23 - 23 -
-------- --------- -------- ---------
$ 10,634 $ - $ 11,518 $ -
======== ========= ======== =========
As of April 2, 2005, we have a remaining restructuring liability of
approximately $15.3 million, of which $1.6 million represents a liability for
severance costs associated with the closure of our Bothell facility and a
workforce reduction in Juarez, and $13.7 million represents a liability for
lease obligations and other exit costs primarily associated with our Bothell and
Seattle facilities. As of April 2, 2005, the $1.6 million liability for accrued
severance costs and $4.5 million of the liability for 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 October
2012.
Income taxes. Income taxes for the indicated periods were as follows
(dollars in millions):
Three months ended Six months ended
-------------------------- ------------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
-------- --------- -------- ---------
Income tax expense (benefit) $ (0.4) $ 0.9 $ (0.1) $ 1.5
Effective annual tax rate 8% 20% 8% 20%
18
The decrease in the effective tax rate is due primarily to the use of our
net operating loss carry-forwards in the U.S. Although we established a full
valuation allowance on our U.S. deferred income tax assets in the fourth quarter
of fiscal 2004, we expect to be able to utilize our net operating loss
carry-forwards to offset taxable income in the U.S., thereby contributing to the
lower effective tax rate in the current year. Expanding operations in Asia,
where we benefit from tax holidays, also contributed to the lower effective tax
rate in the current year. We were advised by the Malaysian government that our
tax-free status in that country had been extended until December 31, 2014.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Cash flows used in operating activities were $(0.7)
million for the six months ended April 2, 2005, compared to cash flows used in
operating activities of $(33.6) million for the six months ended March 31, 2004.
During the six months ended April 2, 2005, cash used in operating activities was
primarily driven by increased accounts receivable and prepaid expenses, offset
in part by earnings (after adjustment for the non-cash effect of depreciation
and amortization and non-cash asset impairments), decreased inventory and
increased accounts payable.
As of April 2, 2005, annualized days sales outstanding in accounts
receivable increased slightly to 53 days from 52 days at the prior year-end.
Annualized inventory turns declined to 5.9 turns for the three months ended
April 2, 2005 from 6.2 turns for the prior year-end, primarily as a result of
the higher average inventory levels utilized in the calculation of inventory
turns in the current period as compared to the prior year period. Inventories
decreased $1.1 million from September 30, 2004, mainly because of a reduction in
raw materials, offset in part by an increase in finished goods inventory. The
raw materials inventory reduction was due to the establishment of certain new
supply chain programs, while finished goods inventory increased as a result of
certain new customer programs that required us to maintain finished goods.
Investing Activities. Cash flows used in investing activities totaled
$(4.6) million for the six months ended April 2, 2005, which primarily
represented additions to property, plant and equipment, reduced by sales and
maturities of short-term investments.
We utilized available cash and our revolving credit facility as the
primary means of financing our operating requirements during the first six
months of fiscal 2005. The average amounts outstanding under the revolving
credit facility were $5.1 million and $4.5 million during the three and six
months ended April 2, 2005, respectively. We utilize operating leases primarily
in situations where concerns about technical obsolescence outweigh the benefits
of direct ownership. We currently estimate capital expenditures for fiscal 2005
to be approximately $20 million to $22 million, of which $8.6 million were made
through the six months ended April 2, 2005.
Financing Activities. Cash flows used in financing activities totaled
$(0.2) million for the six months ended April 2, 2005, and primarily represented
payment on debt and capital lease obligations, offset, in part, by proceeds from
issuances of common stock through an employee stock purchase plan.
Our secured revolving credit facility, as amended (the "Secured Credit
Facility"), allows us to borrow up to $150 million from a group of banks.
Borrowing under the Secured Credit Facility may 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 our total leverage ratio, as defined in our credit agreement, and
begins at the Prime rate (as defined) or LIBOR plus 1.5 percent. We also are
required to pay an annual commitment fee of 0.5 percent of the unused credit
commitment. The Secured Credit Facility matures on October 31, 2007 and includes
certain financial covenants customary in agreements of this type. These
covenants include a minimum adjusted EBITDA, a maximum total leverage ratio (not
to exceed 2.5 times adjusted EBITDA) and a minimum tangible net worth, all as
defined in the agreement.
We believe that our Secured Credit Facility, leasing capabilities and cash
and short-term investments should be sufficient to meet our working capital and
fixed capital requirements, as noted above, through fiscal 2005. However, the
growth anticipated for fiscal 2005 may increase our working capital needs. As
those needs increase, we may need to arrange additional debt or equity
financing. We therefore evaluate and consider from time to time
19
various financing alternatives to supplement our capital resources. However, we
cannot be sure that we will be able to make any such arrangements on acceptable
terms.
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 April 2, 2005 (in thousands):
Payments Due by Fiscal Period
------------------------------------------------------------------------
Remaining in 2010 and
Contractual Obligations Total 2005 2006-2007 2008-2009 thereafter
----------------------- -------- ------------ --------- --------- -----------
Long-Term Debt Obligations $ - $ - $ - $ - $ -
Capital Lease Obligations 40,290 1,744 6,122 6,346 26,078
Operating Lease Obligations* 71,317 7,499 23,926 15,291 24,601
Purchase Obligations** 201,077 201,077 - - -
Other Long-Term Liabilities on the
Balance Sheet*** 13,741 2,950 4,664 1,165 4,962
Other Long-Term Liabilities not on
the Balance Sheet**** 1,500 250 1,000 250 -
-------- ------------ --------- --------- -----------
Total Contractual Cash Obligations $327,925 $ 213,520 $ 35,712 $ 23,052 $ 55,641
======== ============ ========= ========= ===========
* - As of April 2, 2005, operating lease obligations include future payments
totaling $13.7 million related to lease exit costs that are included in other
long-term liabilities on the balance sheet. The lease exit costs were accrued as
a restructuring cost.
** - As of April 2, 2005, purchase obligations consist of purchases of inventory
and equipment in the ordinary course of business.
*** - As of April 2, 2005, other long-term obligations on the balance sheet
include: deferred compensation obligations to certain of our former executives,
executive officers and other key employees and restructuring obligations for
lease exit costs.
**** - As of April 2, 2005, other long-term obligations not on the balance sheet
consist of a salary commitment to an officer of the Company under an employment
agreement. 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.
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in our 2004 Report on Form 10-K.
During the three and six months ended April 2, 2005, there were no material
changes to these policies. Our more critical accounting policies are as follows:
Impairment of Long-Lived Assets - We review property, plant and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of property,
plant and equipment is measured by 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. See
20
Note 10 in Notes to Condensed Consolidated Financial Statements for discussion
of additional asset impairments recorded in the six months ended April 2, 2005.
Intangible Assets - Under SFAS No. 142, "Goodwill and Other Intangible
Assets," 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 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 has occurred.
We measure the recoverability of goodwill under the annual impairment test
by comparing a reporting unit's carrying amount, including goodwill, to the
estimated 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, if any.
Revenue - Net sales 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 a sale is recognized at the time when such requirements
are completed and such obligations fulfilled.
Net sales from engineering design and development services, which are
generally performed under contracts of twelve months or less duration, are
recognized as costs are incurred utilizing the percentage-of-completion method;
any losses are recognized when anticipated.
Sales are recorded net of estimated returns of manufactured product based
on management's analysis of historical returns, current economic trends and
changes in customer demand. Net sales also include amounts billed to customers
for shipping and handling, if applicable. The corresponding shipping and
handling costs are included in cost of sales.
Restructuring Costs - From fiscal 2002 through fiscal 2005, we have
recorded restructuring costs in response to reductions in sales and/or 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
April 2, 2005, we have one significant Seattle facility remaining which has not
yet been subleased. In fiscal 2004, based on the remaining term available to
lease two of our Seattle facilities and the weaker-than-expected conditions in
the local real estate market, we determined that we would most likely not be
able to sublease the Seattle facilities. Accordingly, additional lease-related
restructuring costs were recorded in fiscal 2004. If we were able to sublease
the remaining Seattle facility, we would record a favorable adjustment to
restructuring costs, as was the case in the first six months of fiscal 2005,
when we recorded a $0.3 million favorable adjustment to restructuring costs as a
result of entering into a sublease for one of the Seattle facilities. See Note
10 in Notes to Condensed 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 depend 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 Postemployment 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.
21
For leased facilities 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 reasonably be
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 Condensed Consolidated Financial Statements for discussion of a lease
liability recorded for the six months end April 2, 2005 associated with the
closure of our Bothell facility.
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, no additional accruals are
required 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. We 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. Realization of deferred
income tax assets is dependent on our ability to generate sufficient future
taxable income. Although we recorded a $36.8 million valuation allowance against
all U.S. deferred income tax assets in the fourth quarter of fiscal 2004, we
expect to be able to utilize our net operating loss carryforwards to offset
taxable income in the U.S.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4" ("SFAS
151"), which indicates that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material be recognized as current period charges. In
addition, this statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities. We will be required to adopt this statement in the first quarter of
our fiscal 2006. We do not anticipate that the implementation of this standard
will have a material impact on our financial position, results of operations or
cash flows.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position ("FSP") FAS 109-2, "Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation
Act of 2004" (the "Act"). The Act became law in the U.S. in October 2004. This
legislation provides for a number of changes in U.S. tax laws. FSP SFAS No.
109-2 requires recognition of a deferred tax liability for the tax effect of the
excess of book over tax basis of an investment in a foreign corporate venture
that is permanent in duration, unless a company firmly asserts that such amounts
are indefinitely reinvested outside the company's home jurisdiction. However,
due to the lack of clarification of certain provisions within the Act, FSP SFAS
No. 109-2 provides companies additional time beyond the financial reporting
period of enactment to evaluate the effect of the Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of applying SFAS
No. 109. We are presently reviewing this new legislation to determine the
impacts on our consolidated results of operations and financial position.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment: An
Amendment of FASB Statements No. 123 and 95." This statement requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the fair value of the award at the grant
date (with limited exceptions) and recognize the compensation cost over the
period during which an employee is required to provide service in exchange for
the award. In March 2005, the U.S. Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 107 ("SAB 107"), which expresses views of
the SEC staff regarding the application of SFAS No. 123(R). Among other things,
SAB 107 provides interpretive guidance related to the interaction between SFAS
No. 123(R) and certain SEC rules and regulations, as well as provides the SEC
staff's views regarding the valuation of share-based payment arrangements for
public companies. We are required to adopt SFAS No. 123(R) in our first quarter
of fiscal 2006. Currently, we account for stock option awards under the
provisions of APB No. 25, which to date has not resulted in compensation expense
in our consolidated results of
22
operations. At the time of adoption, companies can select from three transition
methods, two of which would allow for restatement of certain prior periods. We
anticipate selecting the transition method in which prior period financial
statements would not be restated. The adoption of SFAS No. 123R is not expected
to have a significant effect on our financial condition and will not affect
consolidated cash flows, but it is expected to have a significant adverse effect
on our consolidated results of operations if stock options remain an important
element of long-term compensation.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies that an
entity is required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value can be reasonably estimated even
though uncertainty exists about the timing and (or) method of settlement. We are
required to adopt FIN 47 by the end of fiscal 2006. We are currently assessing
the impact of FIN 47 on our results of operations and financial condition.
RISK FACTORS
OUR CUSTOMER REQUIREMENTS AND OPERATING RESULTS VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER, WHICH COULD NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.
Our quarterly and annual results may vary significantly depending on
various factors, many of which are beyond our control. These factors include:
- the volume of customer orders relative to our capacity
- the level and timing of customer orders, particularly in light of
the fact that some of our customers release a significant percentage
of their orders during the last few weeks of a quarter
- the typical short life cycle of our customers' products
- market acceptance of and demand for our customers' products
- customer announcements of operating results and business conditions
- changes in our sales mix to our customers
- business conditions in our customers' industries
- 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, such as holidays, that may affect our production
volume
- credit ratings and securities analysts' 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 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 reducing their forecasts. The demand for our services could weaken or
decrease, which in turn would impact our sales, capacity utilization, margins
and results. Historically, we have seen periods, such as in fiscal 2003 and
2002, when our sales were adversely affected by a slowdown in the
wireline/networking and wireless infrastructure sectors, as a result of reduced
end-market demand and reduced availability of venture capital to fund existing
and emerging technologies. These factors substantially influence our net sales
and margins.
Net sales to customers in the wireline/networking and wireless
infrastructure sectors have increased significantly in recent quarters. When an
increasing percentage of our net sales is made to customers in a particular
sector, we become more dependent upon the performance of that industry and the
economic and business conditions that affect it.
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 RELATIVELY 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 for the three months ended April 2, 2005
represented 20 percent of our net sales, while net sales to our largest customer
in the comparable period of the prior year represented 13 percent of net sales.
We had no other customers that represented 10 percent or more of net sales in
either period, although another
23
customer represented 10 percent of our net sales for the six months ended April
2, 2005. Sales to our ten largest customers have represented a majority of our
net sales in recent periods. Our ten largest customers accounted for
approximately 59 percent and 55 percent of our net sales for the three month
ended April 2, 2005 and March 31, 2004, 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.
EMS companies must provide rapid product turnaround for their customers.
We generally do not obtain firm, long-term purchase commitments from our
customers. 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 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.
Customers may require rapid increases in production, which can stress our
resources and reduce operating margins. 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 program.
WE INVEST IN TECHNOLOGY FOR OUR OPERATIONS; DEVELOPMENTS MAY IMPAIR THOSE
ASSETS.
We are involved in a multi-year project to install a common ERP platform
and associated information systems at most of our manufacturing sites. Our 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. As of April 2, 2005, facilities representing a significant
majority of our net sales are currently managed on the common ERP platform. The
conversion timetable and project scope for our remaining facilities is subject
to change based upon our evolving needs and sales levels.
During the second quarter of fiscal 2005, we recorded a $3.8 million
impairment related to the remaining elements of a shop floor data-collection
system. We partially impaired the shop floor data-collection system in the
fourth quarter of fiscal 2004 when we determined that certain elements would not
be utilized. During the first quarter of fiscal 2005, we extended a maintenance
and support agreement through April 2005 to provide additional time to evaluate
the remaining elements of the shop floor data collection system. Based on our
evaluation, and as part of the preparation of our financial statements, we
determined that the shop floor data-collection system was impaired. We
determined that we would abandon deployment of these remaining elements of the
shop-floor data-collection system because the anticipated business benefits
could not be realized.
As of April 2, 2005, overall ERP investments included in net property,
plant and equipment totaled $22.4 million and we anticipate incurring at least
an additional $0.5 million in capital expenditures for the ERP platform through
fiscal 2005. Changes in our technology needs may affect the utility of our ERP
platform and require additional expenditures in the future.
FAILURE TO MANAGE CONTRACTION AND GROWTH, IF ANY, MAY SERIOUSLY HARM OUR
BUSINESS.
Periods of contraction or reduced sales, such as the periods that occurred
from fiscal 2001 through 2003, create 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
24
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 to reduce
costs and capacity, such as the recent closure of the Bothell facility in the
second quarter of fiscal 2005 and the related reduction in the number of
employees, can affect our expenses and, therefore, our short-term and long-term
results.
Due to the rapid sales growth in fiscal 2004, we experienced a significant
need for additional employees and facilities. We added many employees around the
world, and we have expanded our operations in Penang, Malaysia. Our response to
these changes in business conditions in fiscal 2004, compared to the two
previous fiscal years, resulted in additional costs to support our growth. If we
are unable to effectively manage the growth anticipated for fiscal 2005, our
operating results could be adversely affected.
In addition, to meet our customers' needs or to achieve increased
efficiencies, we sometimes require additional capacity in one location while
reducing capacity in another. Since customers' needs and market conditions can
vary and change rapidly, we may find ourselves in a situation (such as occurred
in the first six months of fiscal 2005) where we simultaneously experience the
effects of contraction in one location while incurring the costs of expansion in
another.
We completed the closure of our Bothell facility in the second quarter of
fiscal 2005. Although we worked to minimize the potential effects of
transitioning customer programs to other Plexus facilities, there are inherent
risks that such a transition can result in the continuing disruption of programs
and customer relationships.
OPERATING IN FOREIGN COUNTRIES EXPOSES US TO INCREASED RISKS.
We have operations in China, Malaysia, Mexico and the United Kingdom. As
noted above, we expanded our operations in Malaysia, and we may in the future
expand in these and/or 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 Mexican-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 Malaysian and Chinese subsidiaries currently receive
favorable tax treatment from these governments for approximately 10 years and 9
years, respectively, 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.
25
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 required materials. These services
involve greater resource investment and inventory risk than consignment
services, where the customer provides these materials. Accordingly, 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. For
example, fiscal 2004, and the first three months of fiscal 2005 saw a
significant increase in inventories to support increased sales and expected
growth in customer programs. Customers' cancellation or reduction of orders can
result in additional expense to us. While most of our customer agreements
include provisions that 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 some 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.
Even though our customers generally will have contractual obligations to
purchase the inventory from us, we may remain subject to the risk of enforcing
those obligations.
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 or delayed 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, especially as demand for those components increases. An increase in
economic activity could result in shortages, if manufacturers of components do
not adequately anticipate the increased orders and/or have previously
excessively cut back their production capability in view of reduced activity in
recent years. 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.
26
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. The effects of these start-up costs and
inefficiencies can also occur when we open new facilities, such as our
additional facility in Penang, Malaysia, which began production in the first
quarter of fiscal 2005, or when we transfer programs, such as in connection with
the closure our the Bothell facility. These factors also affect our ability to
efficiently use labor and equipment. Due to the improved economy and our
increased marketing efforts, we are currently managing a number of new programs.
Consequently, our exposure to these factors has increased. 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.
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.
Our medical device business, which represented approximately 30 percent of
our net sales in the second quarter of fiscal 2005, is subject to substantial
government regulation, primarily from the federal 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.
In addition, there are two European Union ("EU") directives which could
affect our business and results. The first of these is the Restriction of the
use of Certain Hazardous Substances ("RoHS"). RoHS becomes effective on July 1,
2006, and restricts within the EU the distribution of products containing
certain substances, lead being the most relevant restricted substance to us.
Although all implementing details of the directive are not yet known, it appears
that we will be required to manufacture RoHS compliant products for customers
intending to sell into the EU after the effective date.
The second EU directive is the Waste Electrical and Electronic Equipment
directive, effective August 13, 2005, under which a manufacturer or importer
will be required, at its own cost, to take back and recycle all of the products
it manufactured in or imported into the EU.
Since both of these directives affect the worldwide electronics
supply-chain, we expect to make collaborative efforts with our suppliers and
customers to develop compliant processes and products. The cost of such efforts,
the degree to which we will be expected to absorb such costs, the impact that
the directive may have on product shipments, and our liability for non-compliant
product is not yet known, but could have a material effect on our operations and
results.
In recent periods, our sales related to the defense/security/aerospace
sector have begun to increase. Companies such as Plexus that design and
manufacture for this sector face governmental and other requirements that could
materially affect their financial condition and results of operations.
27
PRODUCTS WE MANUFACTURE MAY CONTAIN DESIGN OR MANUFACTURING DEFECTS THAT COULD
RESULT IN REDUCED DEMAND FOR OUR SERVICES AND LIABILITY CLAIMS AGAINST US.
We manufacture products to our customers' specifications that 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 defects, 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:
- the inability of our customers to adapt to rapidly changing
technology and evolving industry standards that 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.
OUR BUSINESS IN THE WIRELINE/NETWORKING AND WIRELESS INFRASTRUCTURE SECTORS
COULD BE SLOWED BY FURTHER GOVERNMENT REGULATION OF THE COMMUNICATIONS INDUSTRY.
The end-markets for most of our customers in the wireline/networking and
wireless infrastructure sectors are subject to extensive regulation by the
Federal Communications Commission, as well as by various state and foreign
government agencies. The policies of these agencies can directly affect both the
near-term and long-term consumer and provider demand and profitability of the
sector and therefore directly impact the demand for products that we
manufacture.
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 that may have significantly
greater 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
28
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 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.
EXPANSION OF OUR BUSINESS AND OPERATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.
We have expanded our presence in Malaysia and may further expand our
operations by establishing or acquiring other 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 sufficient customers or employees to support the
expansion.
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's
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 expenses
- dilutive effect of the issuance of additional equity securities
29
- inability to achieve expected operating margins to offset the
increased fixed costs associated with acquisitions, and/or inability
to increase margins at acquired entities to Plexus' desired levels
- incurrence of large write-offs or write-downs
- impairment of goodwill and other intangible assets
- unforeseen liabilities of the acquired businesses.
WE MAY FAIL TO SECURE NECESSARY FINANCING.
We maintain a Secured Credit Facility with a group of banks, which allows
us to borrow up to $150 million depending upon compliance with related covenants
and conditions. However, we cannot be sure 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 increased sales and our possible future growth.
We may seek to raise capital by:
- issuing additional common stock or other equity securities
- issuing debt securities
- modifying existing credit facilities or obtaining new credit
facilities
- a combination of these methods.
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 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.
RECENTLY ENACTED CHANGES IN THE SECURITIES LAWS AND REGULATIONS ARE LIKELY TO
INCREASE COSTS.
The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") has required
changes in some of our corporate governance, securities disclosure and
compliance practices. In response to the requirements of the Sarbanes-Oxley Act,
the SEC and the NASDAQ Stock Market have promulgated new rules on a variety of
subjects. Compliance with these new rules has increased our legal and accounting
costs, and we expect these increased costs to continue indefinitely. These
developments may also make it more difficult for us to attract and retain
qualified members of our board of directors or qualified executive officers.
IF WE REACH OTHER THAN AN AFFIRMATIVE CONCLUSION ON THE ADEQUACY OF OUR INTERNAL
CONTROL OVER FINANCIAL REPORTING AS OF SEPTEMBER 30, 2005 AND FUTURE YEAR-ENDS
AS REQUIRED BY THE SECTION 404 OF THE SARBANES-OXLEY ACT, INVESTORS COULD LOSE
CONFIDENCE IN THE RELIABILITY OF OUR FINANCIAL STATEMENTS, WHICH COULD RESULT IN
A DECREASE IN THE VALUE OF THE OUR COMMON STOCK.
As required by Section 404 of the Sarbanes-Oxley Act, the SEC adopted
rules requiring public companies to include a report of management on the
company's internal control over financial reporting in their annual reports on
Form 10-K; that report must contain an assessment by management of the
effectiveness of the company's internal control over financial reporting. In
addition, the public accounting firm auditing a company's financial statements
must attest to and report on both management's assessment as to whether the
company maintained effective internal control over financial reporting and on
the effectiveness of the company's internal control over financial reporting.
We are currently undergoing a comprehensive effort to comply with Section
404 of the Sarbanes-Oxley Act. If we are unable to complete our assessment in a
timely manner or if we and/or our independent auditors determine that there are
material weaknesses regarding the design or operating effectiveness of our
internal control over financial reporting, this could result in an adverse
reaction in the financial markets due to a loss of confidence in the reliability
of our financial statements, which could cause the market price of our shares to
decline. A weakness in our stock price could mean that investors may not be able
to sell their shares at or above the prices that they paid. A weakness in stock
price could also impair our 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.
30
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 share prices for technology companies in particular, have
experienced extreme volatility, including 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 may not be able to sell their shares at or above the prices
that they paid. 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 3. 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.
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 April 2, 2005, we had no foreign currency contracts outstanding.
Our percentages of transactions denominated in currencies other than the
U.S. dollar for the indicated periods were as follows:
Three months ended Six months ended
----------------------- -----------------------
April 2, March 31, April 2, March 31,
2005 2004 2005 2004
-------- --------- -------- ---------
Net Sales 10% 10% 9% 11%
Total Costs 14% 14% 13% 14%
INTEREST RATE RISK
We have financial instruments, including cash equivalents and short-term
investments, which are sensitive to changes in interest rates. We consider the
use of interest-rate swaps based on existing market conditions. We currently do
not use any interest-rate swaps or other types of derivative financial
instruments to hedge interest rate risk.
The primary objective of our investment activities is to preserve
principal, while maximizing yields without significantly increasing market risk.
To achieve this, we maintain our portfolio of cash equivalents and short-term
investments in a variety of highly rated securities, money market funds and
certificates of deposit and limit the amount of principal exposure to any one
issuer.
Our only material interest rate risk is associated with our secured credit
facility. A 10 percent change in our weighted average interest rate on average
long-term borrowings would have had a nominal impact on net interest expense for
both the three months and six months ended April 2, 2005 and March 31, 2004.
31
ITEM 4. 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: As previously disclosed, the
Company commenced a phased implementation of a global Enterprise Resource
Planning (ERP) platform in fiscal 2001. Through April 2, 2005, five facilities
have been converted to the ERP platform, including one facility converted in the
second quarter of fiscal 2005. The conversion of the facility in the second
quarter of fiscal 2005 and the related changes to the Company's internal control
(as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) did not have a
material effect on, nor is it reasonably likely to materially affect, the
Company's internal control over financial reporting. There have been no other
significant changes in the Company's internal control over financial reporting
that occurred during the Company's most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
The Company is currently undergoing a comprehensive effort to comply with
Section 404 of the Sarbanes-Oxley Act of 2002. Compliance is required as of our
fiscal year-end September 30, 2005. This effort includes documenting and testing
of internal controls. During the course of these activities, the Company has
identified certain other internal control issues which management believes
should be improved. The Company is making improvements to its internal controls
over financial reporting as a result of its review efforts; however, we do not
believe these improvements represent a significant change that would have a
material affect, or that would reasonably likely to materially affect, the
Company's internal control over financial reporting. These planned improvements
include additional information technology system controls, further formalization
of policies and procedures, improved segregation of duties and additional
monitoring controls.
The matters noted herein have been discussed with the Company's Audit
Committee. The Company believes that it is taking the necessary steps to monitor
and maintain appropriate internal control during periods of change.
32
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4. Submission of Matter to a Vote of Security Holders
At the Company's annual meeting of shareholders on February 9, 2005, the
seven management nominees for re-election to the board were re-elected by the
shareholders. The nominees/directors were re-elected with the following votes:
Authority for
Director's Name Authority Granted Voting Withheld
- --------------------- ----------------- ---------------
Ralf R. Boer 36,852,465 1,736,876
Stephen P. Cortinovis 36,541,641 2,047,700
David J. Drury 36,541,928 2,047,413
Dean A. Foate 36,786,929 1,802,412
John L. Nussbaum 36,783,297 1,806,044
Thomas J. Prosser 36,053,338 2,536,003
Charles M. Strother 36,548,979 2,040,362
In addition, the shareholders approved the Plexus Corp. 2005 Equity
Incentive Plan. The vote on the proposal was as follows:
For: 27,768,909 Against: 4,248,681 Abstain: 595,919 Broker Non-votes: 5,975,832
In addition, the shareholders approved the Plexus Corp. 2005 Employee
Stock Purchase Plan. The vote on the proposal was as follows:
For: 30,962,303 Against: 1,071,274 Abstain: 579,932 Broker Non-votes: 5,975,832
In addition, the shareholders ratified the selection of
PricewaterhouseCoopers LLP as the independent auditors for fiscal 2005. The vote
on the proposal was as follows:
For: 36,462,286 Against: 2,079,973 Abstain: 47,082
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to
Section 302(a) of the Sarbanes Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
section 302(a) of the Sarbanes Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Plexus Corp.
-------------------------------------
(Registrant)
5/12/05 /s/ Dean A. Foate
- ------- -------------------------------------
Date Dean A. Foate
President and Chief Executive Officer
5/12/05 /s/ F. Gordon Bitter
- ------- -------------------------------------------------
Date F. Gordon Bitter
Senior Vice President and Chief Financial Officer
34