1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 Commission file number 000-14824 PLEXUS CORP. (Exact name of registrant as specified in its charter) WISCONSIN 39-1344447 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 55 JEWELERS PARK DRIVE, NEENAH, WISCONSIN 54957-0156 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (920) 722-3451 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Preferred Stock Purchase Rights (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports(s)) and (2) has been subject to such filing requirements for the past 90 days. Yes X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 11, 1998, 14,980,948 shares of Common Stock were outstanding, and the aggregate market value of the shares of Common Stock (based upon the $29.8125 closing sale price on that date, as reported on the NASDAQ National Market System) held by non-affiliates (excludes shares reported as beneficially owned by directors and officers - does not constitute an admission as to affiliate status) was approximately $416 million. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Which Document Portions of Document are Incorporated -------- ------------------------------------- Proxy Statement for 1999 Annual Meeting of Shareholders Part III Page 1
2 "SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: The statements contained in the Form 10-K which are not historical facts (such as statements in the future tense and statements including "believe", "expect", "intend", "plan", "look forward to", "anticipate" and similar terms) are forward-looking statements that involve risks and uncertainties, including, but not limited to, the level of overall growth in the electronics industry, the Company's ability to integrate acquired operations, the Company's ability to secure new customers and maintain its current customer base, the result of cost reduction efforts, material cost fluctuations and the adequate availability of components and related parts for production, the risk of customer delays or cancellations in both on-going and new programs, the timing and mix of production, the effect of start-up costs of new programs and facilities, capacity utilization, the effect of economic conditions, the impact of technological changes and increased competition, design and manufacturing deficiencies and other risks detailed herein and in the Company's other Securities and Exchange Commissions filings. PART I ITEM 1. BUSINESS GENERAL Plexus Corp., through its subsidiaries (together "Plexus" or the "Company"), provides product realization services to original equipment manufacturers ("OEMs") in the medical, computer (primarily mainframes, servers and peripherals), industrial, telecommunications and transportation electronics industries. Plexus offers a full range of services including product development and design, material procurement and management, prototyping, manufacturing and assembly, functional and in-circuit testing, final system box build and distribution. The contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment than consignment services. Other than test equipment products, the Company does not design or manufacture its own proprietary products. Plexus is a Wisconsin corporation incorporated in 1979. Its principle subsidiaries are Plexus Electronic Assembly Corporation and Plexus Technology Group, Inc. The Company's principle office is located at 55 Jewelers Park Drive, Neenah, Wisconsin 54957-0156, and its telephone number is (920) 722-3451. ELECTRONIC PRODUCT SERVICES General Background. The Company's services involve the design of electronic products and systems, the arrangement of electronic components thereon, and the assembly and testing of Page 2
3 such products including the incorporation of the electronic assemblies into the final product housing. The products designed and assembled by the Company consist primarily of electronic components assembled on printed circuit boards and programmed to perform specific functions. The electronic components include computer memory chips, microprocessors, integrated circuits, resistors, capacitors, transformers and switches. Printed circuit boards are the basic element in the manufacture of most electronic products and act as the interconnection platforms for various integrated circuits and electronic components. In addition to the Company's ability to design and manufacture complete electronic products, the Company also has the capacity of designing and assembling printed circuitry products and products utilizing circuit boards with multiple layers of circuitry. The various types of electronic product services offered by the Company are discussed below. A customer of the Company may utilize any or all of these services. The Company charges for these services under a variety of pricing methods that vary according to the customer or type of service involved. Product Design. The Company, primarily through its Plexus Technology Group, Inc. subsidiary, provides product design and engineering services. These services include project management, product specifications, circuit design, software design, custom integrated circuit design, printed circuit board layout, product housing design, and product validation testing. The Company's design services provide customers with a complete product design which is capable of performing an intended function and which can be manufactured in an efficient and economical manner. The Company's technologies involve the use of computer assisted electronic design automation tools to shorten the design cycle and improve design quality. The Company's personnel use a variety of these advanced design automation tools in the development of electronic products. Custom integrated circuit design is assisted by circuit synthesis and simulation tools. Software design is assisted by structured design tools and microprocessor emulation technologies. Automated component placement and signal routing tools assist printed circuit board design of complex multi-layered circuit boards. Solids modeling and structure analysis tools assist product housing design. The Company's design services may include initial feasibility studies, product concept definition, development of specifications for product features and functions, product engineering specifications, microprocessor design, development, prototype production and testing, and development of test specifications and procedures. Product Development Engineering And Testing. The Company believes that its product development engineering and testing capabilities are significant factors in the success of its business. The Company maintains a staff of more than 230 employees in its engineering services subsidiary, including some 200 engineers and technologists involved in project management, hardware, software, mechanical, printed circuit board design, test and validation of electronic products and systems. The Company believes this comprehensive capability provides significant value to its customers by providing one-stop-shopping for product design, prototyping, test and Page 3
4 manufacturing. The Company believes this comprehensive service lowers the overall development cost to the customer and accelerates the time-to-market of the customers' products. To supplement its internal capabilities, Plexus has formed several strategic alliances with independent research and development organizations for cooperative design and marketing programs. The Company believes these alliances provide complementary technologies and expertise to customers. Prototyping. The Company provides rapid assembly of prototype products within dedicated assembly facilities. The prototype assembly service is supplemented by value-added services including materials management, manufacturing defects analysis, design for manufacturability analysis, design for testability analysis, and printed circuit board design. This service provides a bridge between the Company's engineering organization, the customer's engineering organization, and the Company's manufacturing organization. This bridge facilitates efficient transitions into manufacturing. The Company believes the higher-level engineering services offered by the prototyping organization provide significant value to its customers by accelerating time-to-production. Product Manufacture And Assembly. The Company, primarily through its Plexus Electronic Assembly Corporation subsidiary, manufactures electronic products and assemblies for use in a wide variety of industries and applications. The Company's assembly processes involve the fabrication of products from components manufactured to specification by others. Electronic components such as memory chips, microprocessing units, integrated circuits, resistors, capacitors, transformers, switches, wire and related items are purchased as stock items from a variety of manufacturers and distributors. The Company is not dependent upon any single supplier for such material. The Company's printed circuit boards and certain other components are manufactured to its customers' specifications. The Company believes these products would be available from a variety of sources and that the loss of any single source of supply would not materially affect the Company's business. The Company's manufacturing operations include printed circuit board assembly, testing, and final systems box build into the final product housing. While the Company has automated various aspects of many processes, the assembly of components into electronic products still requires some labor-intensive processes generally requiring a high degree of precision and dexterity in the assembly stage and integration of quality assurance checks into the manufacturing processes. The final systems box build process is a mostly manual process with little opportunity for automation. The Company utilizes specially designed equipment and techniques to maintain its ability to assemble efficiently a wide variety of electronic products. Additionally, the Company has developed special processes and tools to enable the assembly of finished medical devices to meet the US Food and Drug Administration Quality System Regulation (QSR) requirements. Product Testing. The increasingly complex design and assembly techniques for production of electronic products have created a need for the Company's services in designing and assembling test equipment for electronic assemblies. Such test equipment includes functional test fixtures for Page 4
5 testing product assemblies, sub-assemblies or printed circuit assemblies; in-circuit component measurement testers for testing printed circuit board assemblies; and intelligent burn-in chambers, which temperature cycle products during functional test. The Company designs and assembles test systems for testing customers' products. The Company believes that the design and production of test equipment is an important factor in its ability to provide products of consistent and high quality. MATERIALS AND COMPONENTS The Company purchases electronic components from component manufacturers and electronic component distribution companies. Key commodities purchased include: printed circuit boards (PCBs), specialized components such as application specific integrated circuits (ASICs), semi-conductors (i.e., integrated circuits, primarily memory and logic devices, and discrete devices), interconnect products, electronic sub-assemblies (including memory modules, power supply modules, and cable and wire harnesses), resistors, and capacitors. In addition to electronic components, the Company purchases components for consumption in its higher level assembly and box-build manufacturing. These components include: sheet metal fabrications, plastic injection molded parts, aluminum extrusions, die castings, and various other hardware and fastener components. The components purchased range from standard to highly custom and cover the spectrums of market volatility and price. The Company has strategic suppliers for these components and, as a result, has not generally experienced difficulties in obtaining the components needed for its assemblies during fiscal 1998 and currently does not expect difficulties in the near future. However, no assurance can be given that such shortages could occur which would have a material adverse effect on the results of the Company. CUSTOMERS AND MARKETING The Company performs services for a wide variety of customers ranging from large multi-national companies to smaller companies. Because of the variety of services it offers, its flexibility in design and manufacturing, and its ability to timely respond to customer needs, the Company believes it is well positioned to offer its services to customers in its market segments. For many customers, the Company functions as both a design and production arm, thus permitting customers to concentrate on concept development and marketing, and to avoid the expense of development of manufacturing capacity. This method provides an economical and efficient alternative to in-house production. The Company markets its services primarily through its own employees. It also employs several sales and representative agencies covering selected customer accounts. The representatives are paid commissions based upon sales. Additionally, the Company markets its services through advertisements, technical articles, trade shows, press releases, the Internet and dissemination of Company brochures. Page 5
6 During fiscal 1998, the Company's services were sold to approximately 120 customers. Only one customer represented over 10% of the Company's fiscal 1998 net sales, and with three customers representing over 10% of the Company's fiscal 1997 net sales, as follows: <TABLE> <CAPTION> Fiscal Year % of Net Sales ----------------------------- Customer 1998 1997 1996 -------- ---- ---- ---- <S> <C> <C> <C> General Electric Company 11% 13% 13% International Business Machines Corporation * 12% 26% Motorola, Inc. * 10% * *represents sales less than 10% </TABLE> Many large customers, including those above, contract independently through multiple divisions, subsidiaries, production facilities or locations. The Company believes that in many cases its sales to one such subsidiary, division, facility, or location are not dependent on sales to others. Although the complete loss of any major customer could have a significant negative impact on the Company, the Company does not believe the loss of all divisions, subsidiaries, facilities, or locations of a major customer to be likely. For a further discussion of sales to these and other large customers, see "Management's Discussion and Analysis - Results of Operations -- Net Sales" (Item 7) which is incorporated herein by reference. Substantially all of Plexus' business is done on a project by project basis for its customers. Although Plexus has several projects and customers for which it provides services on a continuing basis, the timing and nature of particular customer projects can vary significantly from period to period. Substantial changes in the nature or timing of these projects affect the Company's sales and profitability from period to period. In fiscal 1998, the Company sold its minority interest in a small engineering/product company. The sale transaction included a five-year earnout based on a defined formula that may generate future non-operating income. Currently the Company does not expect these amounts, if any, to be material. The Company also from time to time considers strategic acquisitions, joint ventures and strategic partnerships with other companies. Under certain circumstances, and subject to identification of appropriate candidates, the Company believes that such transactions may provide an attractive means of growth by providing access to additional customers and/or by adding new capabilities, capacity or locations. COMPETITION The market for electronic products and services provided by the Company is highly competitive, primarily on the basis of engineering, testing and production capability, technological capabilities and the capacity for responsiveness, quality and price. The capability to design in a timely manner and the capacity to produce quality items and to assure prompt delivery are particularly important in the electronics industry. The market in which the Company's customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. The average Page 6
7 product designed and assembled by the Company may have a technological useful life ranging from 18 months to over five years, dependent on the product and the industry. Through its design and production services, the Company serves as an extension or replacement for its customers' engineering, testing and manufacturing operations. Competitors in the electronics design and assembly field are numerous and range in size from several very large multi-national companies with substantially greater resources than the Company to many smaller companies competing only in specific aspects of the Company's business. In addition, the Company competes against foreign low-labor cost manufacturers. However, this competition tends to focus on commodity and consumer related products, which is not a focus market for Plexus. The Company also competes against companies which determine to manufacture items in-house rather than contract with a third-party manufacturer. The Company estimates that it controls less than one percent of the global market in the outsource electronics manufacturing services industry. PATENTS AND TRADEMARKS The Company does not own any material patents or copyrights. The Company owns the servicemark "Plexus" and has applied for (and is using) the servicemark "Plexus, The Product Realization Company." ENVIRONMENTAL COMPLIANCE The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. Although the Company believes that it is in compliance with all federal, state and local environmental laws, and does not anticipate any significant expenditures in maintaining its compliance, there can be no assurances that violations will not occur which could have a material adverse effect on the results of the Company. EMPLOYEES As of December 1, 1998, the Company employed full time approximately 2345 persons. These employees included approximately 990 professional, technical and engineering employees and approximately 1355 employees who work in assembly. The Company also employed 150 temporary employees through various temporary employment agencies. The Company has never experienced a work stoppage due to a labor dispute, considers its relations with employees to be very good, and is not a party to any labor contract. To date, the Company has not had any difficulty fulfilling its employment needs, although labor markets have been tight in the areas surrounding its primary facilities. The Company's success depends to a large extent upon the continued services of key managerial and technical employees. The loss of such personnel could have a material adverse effect on the Company and its results of operations. Page 7
8 ITEM 2. PROPERTIES The Company owns its headquarters, the Plexus Technology Center, in Neenah, Wisconsin, which consists of approximately 45,000 square feet and includes Plexus' headquarters office. The Technology Center provides office, design and testing space for the Company. The facilities in the original Neenah complex built in the period from 1980 to 1985 are owned by the Company and contain an aggregate of approximately 80,000 square feet of assembly and office space. In 1985, the Company opened an assembly facility with approximately 45,000 square feet of assembly and office space, which it owns in Richmond, Kentucky. In 1990, the Company occupied an assembly facility in Neenah, Wisconsin, with approximately 110,000 square feet of assembly and office space providing additional capacity. The Company leases this facility under a fifteen year operating lease. In 1994, the Company occupied a newly constructed 175,000 square feet surface mount assembly and office facility in Neenah, Wisconsin designated the "Advanced Manufacturing Center" as a result of its design by the Company to incorporate advanced assembly processes. The Company leases this facility under a twenty year operating lease. In 1997, the Company occupied an approximately 110,000 square foot leased manufacturing facility located in Green Bay, Wisconsin. Annual lease payments by the Company for the building and equipment is based on the profitability of the facility pursuant to a formula defined in the lease agreement. There are no required minimum lease payments, although it does involve a sharing of potential future profits (if any) from the facility. In 1996 and 1997, the Company occupied additional office buildings, with approximately 32,000 square feet of office space, in Neenah, Wisconsin. The Company leases these office buildings under individual ten-year operating leases. In September 1997, the Company occupied an engineering design center, with approximately 5,000 square feet, in Raleigh, North Carolina. The Company leases this building under a six-year operating lease. The Company will be moving from this existing facility into a 15,000 square foot facility in February 1999. The Company will either sublease or terminate its existing lease and replace it with a seven year operating lease for this new 15,000 square foot facility. In November 1997, the Company purchased an approximately 14,000 square foot manufacturing and office facility in Minneapolis, Minnesota. Also, in November 1997, the Company entered into an operating lease for a manufacturing and office facility, with approximately 5,000 square feet, in Milpitas, California for a five-year term. The Company uses specialized equipment in its operations. The Company leases a substantial amount of this equipment. Page 8
9 The Company believes that its equipment and facilities are modern, well maintained and adequate for its present needs. However, continued expansion of the Company's business may require additional facility expansion in the future. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party of or which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1998. EXECUTIVE OFFICERS OF THE REGISTRANT The following table contains certain information regarding the present executive officers of the Company, who are elected by the Board of Directors after each annual meeting of shareholders for one-year terms or until replaced by the Board of Directors. <TABLE> <CAPTION> PRESENT OFFICE NAME AGE POSITION HELD SINCE ---- --- -------- ----- <S> <C> <C> Peter Strandwitz 61 Chairman, Chief Executive Officer, Director 1979 John L. Nussbaum 56 President, Chief Operating Officer, Director 1996 (1) Charles C. Williams 62 Vice President 1989 Thomas B. Sabol 39 Vice President-Finance and Chief Financial Officer 1996 (2) Joseph D. Kaufman 41 Vice President, Secretary and General Counsel 1990 William F. Denney 65 Vice President 1990 (3) Lisa M. Kelley 32 Treasurer and Controller 1998 (4) </TABLE> (1) Mr. Nussbaum has served as President and a director of the Company since 1980. Mr. Nussbaum became Chief Operating Officer in 1996. (2) Mr. Sabol joined the Company in January 1996. From 1993 to 1995, Mr. Sabol served as Vice President and General Auditor for Kemper Corporation. Prior to that time Mr. Sabol served as Business Assurance Manager for Coopers & Lybrand. (3) Mr. Denney has served as the Vice President of the Company since 1990. He was the Company's Controller from 1990 to 1997 and the Company's Treasurer from 1995 to 1997. (4) Ms. Kelley joined the Company in September 1992. Positions held within the Company included Manager, Subsidiary Controller, and Assistant Corporate Controller. Beginning in 1997, she became the Corporate Controller. In 1998, Ms. Kelley became Treasurer. Page 9
10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Information on Common Stock For the years ended September 30, 1998 and 1997, the Company's Common Stock has traded on the NASDAQ National Market System; the price information for that period represents high and low sale prices. Price Range of Common Stock (restated to reflect the Company's 1997 two-for-one stock split) <TABLE> <CAPTION> Fiscal Year Ended Fiscal Year Ended September 30, 1998 September 30, 1997 High Low High Low <S> <C> <C> <C> <C> <C> <C> <C> <C> First Quarter 35 1/8 13 1/8 First Quarter 10 3/8 6 7/8 Second Quarter 22 1/2 12 3/8 Second Quarter 17 5/8 8 3/8 Third Quarter 24 16 1/4 Third Quarter 28 12 1/2 Fourth Quarter 22 3/4 13 3/4 Fourth Quarter 38 1/4 23 1/2 Year 35 1/8 12 3/8 Year 38 1/4 6 7/8 </TABLE> As of September 30, 1998, there were approximately 6,000 shareholders of record. The Company has not paid any cash dividends. See "Management's Discussion and Analysis of Operations" for a discussion of the Company's dividend intentions. Issuance of Securities Each Plexus shareholder of record as of August 27, 1998 was issued, in a dividend, one Preferred Stock Purchase Right, as reported in Plexus' Report on Form 8-K dated August 13, 1998. As a dividend, the transaction was not subject to registration under the Securities Act of 1933. Page 10
11 ITEM 6. SELECTED FINANCIAL DATA FINANCIAL HIGHLIGHTS (dollars in thousands, except per share amounts) <TABLE> <CAPTION> For the years ended September 30, OPERATING STATEMENT DATA 1998 1997 1996 1995 1994 <S> <C> <C> <C> <C> <C> Net sales $ 396,815 $ 386,431 $ 316,124 $ 283,134 $ 242,483 Gross profit 49,946 44,016 27,333 23,696 16,170 Gross margin 12.6% 11.4% 8.6% 8.4% 6.7% Operating income 30,922 27,009 14,016 12,435 7,926 Operating margin 7.8% 7.0% 4.4% 4.4% 3.3% Net income 19,235 16,400 7,431 6,343 3,057 Earnings per share (diluted) $ 1.21 $ 1.05 $ 0.52 $ 0.45 $ 0.23 CASH FLOW STATEMENT DATA Cash flows provided by operations $ 29,745 $ 20,361 $ 29,243 $ 4,188 ($11,171) Capital equipment additions 9,376 10,738 4,144 2,106 5,288 BALANCE SHEET DATA Working capital $ 68,296 $ 53,258 $ 51,425 $ 71,302 $ 62,784 Total assets 143,665 121,817 107,374 115,088 122,021 Long-term debt 152 3,516 15,372 41,734 40,691 Stockholders' equity 89,339 67,583 48,017 41,009 34,879 Return on average assets 14.5% 14.3% 6.7% 5.4% 2.8% Return on average equity 24.5% 28.4% 16.7% 16.7% 10.2% Inventory turnover ratio 7.5x 6.7x 5.6x 4.8x 4.1x </TABLE> Note: All per share information reported throughout this annual report has been restated for Statement of Financial Accounting Standard No. 128, "Earnings Per Share." In addition, all share and per share information reported throughout this annual report has been restated (except where noted) to give effect to the Company's two-for-one stock split effective August 25, 1997. Page 11
12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of historical matters, are forward-looking statements (such as statements in the future tense and statements including "believe", "expect", "intend", "plan", "look forward to", "anticipate" and similar terms) that involve risks and uncertainties. Actual results may differ materially from these statements as a result of various factors, including those discussed in further detail below (in particular "General" and "Year 2000 Issues"). GENERAL Plexus Corp. is a contract service provider of design, manufacturing and testing services to the electronics industry, headquartered in Neenah, Wisconsin. Through its wholly owned subsidiaries, Plexus Technology Group, Inc., and Plexus Electronic Assembly Corporation, the Company provides product realization services to original equipment manufacturers in the medical, computer (primarily mainframes, servers and peripherals), industrial, telecommunications and transportation electronics industries. The Company offers a full range of services including product development and design, material procurement and management, prototyping, assembly, testing, manufacturing, final system box build and distribution. The Company has operations in Wisconsin, Kentucky, North Carolina, Minnesota and California. The Company continues to look for opportunities for geographical expansion that will improve the Company's ability to provide services to its customers. The Company's contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies some, or occasionally all, materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment and inventory risk management than consignment services. Turnkey manufacturing currently represents almost all of the Company's sales. Turnkey sales typically generate higher net sales and higher gross profit dollars with lower gross margin percentages than consignment sales due to the inclusion of component costs, and related markup, in the Company's net sales. However, a change in component costs can directly impact the average selling price, gross margins and the Company's net sales. Due to the nature of turnkey manufacturing, the Company's quarterly and annual results are affected by the level and timing of customer orders, fluctuations in materials costs, and the degree of automation used in the assembly process. Since a substantial portion of the Company's sales are derived from turnkey manufacturing, net sales can be negatively impacted by component shortages. Shortages of key electronic components which are provided directly from customers or suppliers can cause manufacturing interruptions, customer rescheduling issues, production downtime and production Page 12
13 set-up and restart inefficiencies. From time to time, allocations of components can be an integral part of the electronics industry. While in general the marketplace for such components has eased, allowing greater availability, key component shortage issues can still occur with respect to specific industries or particular components. In response to this dynamic environment, the Company has a corporate procurement organization whose primary purpose is to create strong supplier alliances to assure a steady flow of components at competitive prices and mitigate shortages. Strategic relationships have been established with international purchasing offices to improve shortage and pricing issues. However, because of the limited number of suppliers for certain electronic components and other supply and demand concerns, the Company can neither eliminate component shortages nor determine the timing or impact of such shortages on the Company's results. As a result, the Company's sales and profitability can be affected from period to period. Many of the industries for which the Company currently provides electronic products are subject to rapid technological changes, product obsolescence, increased competition, and pricing pressures. In fiscal 1998, approximately 4 percent of the Company's total sales were foreign, with less than 2 percent going into the Southeast Asian market, which is currently experiencing unfavorable currency and economic conditions. These and other factors which affect the industries or the markets that the Company serves, and which affect any of the Company's major customers in particular, could have a material adverse effect on the Company's results of operations. The Company has no long-term volume commitments from its customers, and lead-times for customer orders and product-life cycles continue to contract. Although the Company obtains firm purchase orders from its customers, they typically do not make firm orders for delivery of products more than 30 to 90 days in advance. The Company does not believe that the backlog of expected product sales covered by firm purchase orders is a meaningful measure of future sales since orders may be canceled and volume levels can be changed or delayed at any time. The timely replacement of delayed, canceled or reduced programs with new business cannot be assured. Because of these and other factors, there can be no assurance that the Company's historical sales growth rate will continue. See "Results of Operations -- Net Sales" below for certain factors affecting net sales to the Company's largest customers. The Company believes that its growth has been achieved in significant part by its approach to partnering with customers mainly through its product design and development services. Approximately 15 to 20 percent of the Company's contract manufacturing sales are a direct result of these services. The Company intends to continue to leverage this aspect of its product design and development services for continued growth in contract manufacturing revenues. Currently, the design and development services are less than 10 percent of total sales. In order to achieve expanded sales growth, the Company must continue to generate additional sales from existing customers from both current and future programs, and must successfully market to new customers. The Company must also successfully integrate and leverage its new regional product design centers into this strategy. In addition, the Company must continue to attract and retain top quality product development engineers in order to continue to expand its design and development services. Because of these and other factors, there can be no assurance that the Company's historic growth rate will continue. Page 13
14 Start-up costs and the management of labor and equipment efficiencies for new programs and new customers can have an effect on the Company's gross margins. Due to these and other factors, gross margins can be negatively impacted early on in the life cycle of new programs. In addition, labor efficiency and equipment utilization rates ultimately achieved and maintained by the Company for new and current programs impact the Company's gross margins. Geographical expansion and growth by acquisition can have an effect on the Company's operations. The successful operation of an acquired business will require communication and cooperation among key managers, along with the transition of customer relationships. There can be no assurance that the Company will successfully manage the integration of new locations or acquired operations and may experience certain inefficiencies which could negatively impact the results of operations. Additionally, no assurance can be given that any past or future acquisition by the Company will enhance the Company's business. The Company operates in a highly competitive industry. The Company faces competition from a number of domestic and foreign electronic manufacturing services companies, some with financial and manufacturing resources greater than the Company's. The Company also faces competition in the form of current and prospective customers that have the capabilities to develop and manufacture products internally. In order to remain a viable alternative, the Company must continue to enhance its total engineering and manufacturing technologies. Other factors that could adversely affect forward-looking statements include the Company's ability to maintain and expand its customer base, gross margin pressures, the effect of start-up costs related to new facilities, year 2000 compliance issues discussed below, the overall economic conditions affecting the electronics industry, and other factors and risks detailed herein and in the Company's other Securities and Exchange Commission filings. YEAR 2000 ISSUES The Company has a corporate information technology organization whose primary purpose is to ensure vision and direction of information systems to meet internal and external needs. The Company must keep pace with rapid technological developments in its management information systems and its production facilities and equipment, and can experience costs and conversion difficulties in connection with the implementation of new systems and processes. In addition, like all other companies, the Company must assure that its computer and software systems, and other machinery and systems that depend upon computer-driven operations or which have embedded chips or micro-processors, are capable of accurately functioning and accurately recognizing and processing data in the year 2000 and beyond ("Year 2000 Compliant"). The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's manufacturing, design and testing equipment, computer programs or computer hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather that the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to operate equipment, process transactions or engage in similar normal business activities. Page 14
15 The Company has developed a Year 2000 compliance strategy and methodology to assure the Company can continue to provide engineering and manufacturing services in the year 2000 and beyond. The Company's A/S400 hardware and software system, which handles virtually all production data processing and accounting, has been tested and documented to be Year 2000 compliant. Final compliancy approval is expected to be completed by December 31, 1998. The Company is targeting June 30, 1999 to be compliant on all other mission critical items. The Company's Year 2000 strategy defines focus teams responsible for information systems including hardware and software; production and facility equipment and systems; test equipment and software; engineering development systems; component and inventory issues; customer and supplier issues; and third party agents and extended enterprises. Each team will complete four phases to assure Year 2000 compliance which include a complete inventory and risk assessment of items or issues (risk assessment defined as mission critical, non mission critical, or not date sensitive); a strategy plan including contingencies or remediation; the actual conversion or remediation including testing and documentation; and compliancy approval. The first phase of the plan (inventory and risk assessment) was completed by mid December of 1998. The strategy and initial contingency plan is expected to be completed by the end of January, 1999. The actual conversion, remediation and testing will occur between February and May, 1999. Final compliancy approval is expected to be completed by the end of June, 1999. Final contingency plans are scheduled to be in place by September, 1999 for any remaining or unexpected items. The Company believes the costs associated with the Year 2000 compliancy plan will be mostly current internal labor expenses and are not expected to materially increase. Future compliancy costs have not been determined, but are not expected to be material. Other non-Year 2000 efforts have not been materially delayed or impacted by Year 2000 compliancy plan initiatives. There can be no assurance that these estimates will prove to be accurate and actual results could differ materially from those currently anticipated. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, if all Year 2000 issues are not properly identified, or assessment, remediation and testing are not effected timely with respect to Year 2000 problems that are identified, there can be no assurance that the Year 2000 issue will not materially adversely impact the Company's results of operations or adversely affect the Company's relationships with customers, vendors or others. The most reasonably likely worst case scenario could cause a production shut down in one or more facilities. The Company has not yet completed a contingency plan for such occurrence, but has included completion of a contingency plan in its Year 2000 planning as discussed above. There can be no assurance that the Year 2000 issues of other entities will not have a material adverse impact on the Company's systems or results of operations. Additionally, there can be no assurance that potential future costs of defending and resolving claims will not have a material adverse impact on the Company's results of operations. Page 15
16 RESULTS OF OPERATIONS Net Sales In fiscal 1998, net sales were $397 million, an increase of $11 million, or 3 percent, over the previous year. Net sales in fiscal 1997 were $386 million, an increase of $70 million, or 22 percent, over fiscal 1996. Sales for fiscal 1998 increased due to the addition of new programs and new customers, primarily Ascend Communications, Inc. (Ascend). Sales to Ascend exceeded 10% of total sales for the second half of fiscal 1998. This increase was offset by several factors including (1) the decision by certain customers to transition manufacturing into their own in-house manufacturing facilities, primarily Motorola, Inc. (Motorola), (2) the Company's decision to exit from certain automotive and other commodity-oriented markets, primarily computer peripherals, whose businesses are no longer compatible with the Company's long-term growth plans, (3) decreasing component pricing with related decreases in average selling prices, (4) a general weakening of certain markets, primarily industrial-semiconductors, in which the Company operates, and (5) the negative effects of the strong U.S. dollar and the Southeast Asian market's unfavorable economic conditions and the impact of such on a few customers. Such items could continue to impact the Company's sales growth rate. The increase in net sales in fiscal 1997 was due both to increased orders from existing customers, including ongoing and new programs, and the addition of new customers, the largest of which was Unisys Corporation (Unisys). However, sales to International Business Machines Corporation (IBM), the Company's largest customer in fiscal 1996, were significantly below the prior year as certain low-margin programs, primarily disk drive business, transitioned to low-cost labor markets overseas and other programs reached end-of-life status or were transitioned by IBM into in-house manufacturing facilities. The reduction in IBM sales was more than offset by the above-mentioned sales gains with other current and new customers. Sales for fiscal 1998 to the industries the Company services remained fairly consistent with fiscal 1997, except for the increase in the telecommunications industry from 11 percent to 18 percent of total sales which was somewhat offset by a decline in the computer industry to 27 percent from 31 percent of total sales. The large increase in the telecommunications industry was primarily a result of sales to a new customer, Ascend, in fiscal 1998. Sales for fiscal 1998 for the other industries were as follows: Medical 21 percent (21 percent in fiscal 1997), Industrial 20 percent (21 percent in fiscal 1997), Transportation 12 percent (12 percent in fiscal 1997), and Other 2 percent (4 percent in fiscal 1997). Automotive sales, included in Transportation, decreased from 6 percent in fiscal 1997 to less than 3 percent in fiscal 1998, which was offset by gains in sales to Avionics customers. For fiscal 1999, the Company currently expects the telecommunications, medical and industrial markets to increase in percentage terms, offset by decreases in the computer and transportation markets. The Company's largest customer for fiscal 1998 was General Electric Company (GE) (including up to four subsidiaries or divisions) which accounted for 11 percent of total sales compared to 13 percent of total sales for fiscal 1997 and 1996. No other customers accounted for more than 10 percent of the Company's total sales for fiscal 1998, although sales to Unisys were slightly less than 10 percent of the Company's total sales for fiscal 1998 and 1997. Sales to IBM Page 16
17 (including up to six subsidiaries or divisions) were 12 percent and 26 percent of total sales for fiscal 1997 and 1996, respectively. Sales to IBM continue to decrease due to the items noted above. Sales to Motorola (including up to five subsidiaries, divisions or locations) were 10 percent of total sales in fiscal 1997. These results reflect the Company's dedication to continue to diversifying its customer base, and decrease its dependence on any particular customer or customers. Each division or subsidiary of these customers contracts independently of the other divisions or subsidiaries. The Company has continued to obtain new business from other customers that have resulted in a reduced dependency on IBM and GE. Currently the Company expects sales from GE and Unisys to remain steady in fiscal 1999. However, their percentage of total Company sales could continue to decline as other customers grow. Sales to Ascend are currently expected to exceed 10 percent in fiscal 1999. Sales to the Company's ten largest customers accounted for 70 percent, 68 percent, and 70 percent of total revenues in fiscal 1998, 1997, and 1996, respectively. While the Company expects similar results for the total percent of sales accounted for by the ten largest customers, the continuation of a diversified customer base is expected to change the customer mix. The Company remains dependent upon continued sales to GE, Ascend, Motorola, Unisys, IBM and its other significant customers. Any material change in orders from these or other customers could have a material effect on the Company's results of operations. Gross Profit Gross profit increased by $5.9 million, or 13 percent, in fiscal 1998 compared to fiscal 1997, and by $16.7 million, or 61 percent, during fiscal 1997 compared to fiscal 1996. The gross margin increased to 12.6 percent in fiscal 1998, from 11.4 percent in fiscal 1997. The gross margin in fiscal 1996 was 8.6 percent. The improved gross margin in fiscal 1998 compared to fiscal 1997 reflects the Company's focus on business mix, leading-technology products and markets, continued operating efficiencies and better component pricing which were partially offset by increased costs for expansion of engineering and technical manufacturing capabilities to meet customer demands. The increase in gross margin in fiscal 1997 compared to fiscal 1996 reflects the leverage generated by higher sales volumes, continued cost-savings initiatives instituted in the second quarter of fiscal 1996, the increased utilization of the Company's Advanced Manufacturing Facility, better component pricing, improved product mix, and the Company's integration of its flexible labor force within its Wisconsin operations. These were partially offset by increased start-up costs associated with new programs, primarily Unisys, and increased hiring in the Company's engineering and technical manufacturing areas in order to continue to expand its capabilities and meet customer demands. Most of the research and development conducted by the Company is paid for by customers and is, therefore, included in cost of sales. Other research and development is conducted by the Company, but is not specifically identified, as the Company believes such expenses are less than 1 percent of its total sales. Page 17
18 The Company's gross margin also reflects a number of other factors, including product mix, the level of start-up costs and efficiencies of new programs, product life cycles, sales volumes, capacity utilization of surface mount and other equipment, labor costs and efficiencies, the management of inventories, component pricing and shortages, average sales prices, the mix of turnkey and consignment business, fluctuations and timing of customer orders, changing demand for customer's products and competition within the electronics business. These and other factors can cause variations in the Company's operating results. While the Company's focus is on maintaining and expanding gross margins, there can be no assurance that gross margins will not decrease in future periods. Selling and Administrative Expenses Selling and administrative (S&A) expenses increased to $19.0 million in fiscal 1998, compared to $17.0 million in fiscal 1997, and $13.3 million in fiscal 1996. As a percentage of sales, S&A expenses were 4.8 percent, 4.4 percent and 4.2 percent in fiscal 1998, 1997 and 1996, respectively. These increases reflect the Company's planned expansion of its sales and marketing efforts, enhancement of its information systems to support the Company's continued growth, and increase in its customer support function. The Company anticipates that future S&A expenses will increase in absolute dollars but remain between 4.7 percent and 5.0 percent of sales, as the Company continues to expand these support areas. Other Income (Expense) Interest expense was $13,000 in fiscal 1998, compared to $0.8 million in fiscal 1997 and $2.1 million in fiscal 1996. The continual decrease in interest expense is primarily due to reduced borrowings required to support working capital. See "Liquidity and Capital Resources." As a result of reduced borrowings and cash investments, interest income was $0.7 million in fiscal 1998, compared to $0.1 million in fiscal 1997 and 1996. Other miscellaneous income in fiscal 1997 included approximately $0.6 million in gains from the buyout and sale of certain leased manufacturing equipment. Income Taxes Income taxes increased to $12.4 million in fiscal 1998, from $10.7 million in fiscal 1997, and $4.9 million in fiscal 1996, as a result of increased earnings. The Company's effective income tax rate has remained constant at rates between 39 percent to 40 percent in fiscal 1998, 1997, and 1996. These rates approximate the blended Federal and state statutory rate as a result of the Company's operations being located within the United States. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $29.7 million in fiscal 1998, compared to $20.4 million in fiscal 1997. Cash from operations was provided primarily by improved net profits. Inventory turnover improved to 7.5 turns as of September 30, 1998, from 6.7 turns as of September 30, 1997. Page 18
19 The cash generated from operating activities in fiscal 1998 was utilized primarily to purchase additional manufacturing equipment. Borrowings under the Company's $40 million long-term revolving credit agreement have been reduced to zero from approximately $3 million as of September 30, 1997. The Company also obtained approximately $4 million in net capital as a result of stock option exercises and related tax benefit, which was offset by the purchase of treasury stock by the Company. On December 19, 1997, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares, or a maximum of $25,000,000, of the Company's common stock on the open market. Through December 1998, 204,200 shares have been repurchased. Capital additions of $9.4 million for fiscal 1998 were primarily concentrated in surface mount assembly equipment, engineering workstations and related software, and management information systems hardware and software. Payments for property, plant and equipment for fiscal 1997 and 1996 were $10.7 million and $4.1 million, respectively. These acquisitions were financed from working capital. The Company has historically utilized operating leases to fund the majority of its manufacturing equipment needs. The Company now anticipates utilizing operating leases primarily in situations where technical obsolescence concerns are determined to outweigh the benefits of financing the equipment purchase. The Company estimates that capital expenditures for fiscal 1999 to be similar to fiscal 1998 at approximately $8 to $10 million, which the Company expects to fund through cash flows from operations and the revolving credit agreement. A new 110,000-square-foot manufacturing facility located in Green Bay, Wisconsin, began production in April 1997. Annual lease payments by the Company for the building and the equipment are based on the profitability of the facility pursuant to a formula defined in the lease agreement. There are no required minimum lease payments, although it involves a sharing of potential future profits (if any) from the facility. The ratio of total debt-to-equity as of September 30, 1998, was 0.6 to 1, compared to 0.8 to 1 as of September 30, 1997. The Company anticipates increases in working capital in order to facilitate growth. However, because of the dynamics of the Company's industry, the exact timing and amount of these increases cannot be determined. The Company believes that its credit facilities, leasing capabilities and projected cash flows from operations will be sufficient to meet its anticipated working capital needs and its anticipated short-term and long-term capital requirements. The Company has not paid dividends on its common stock, but has reinvested its earnings to support its working capital and expansion requirements. The Company intends to continue to utilize its earnings in the development and expansion of the business and does not expect to pay cash dividends in the foreseeable future. Page 19
20 NEW ACCOUNTING PRINCIPLES The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," in the first quarter of fiscal 1998. The Company is also required to adopt SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," in fiscal 1999 and the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," in fiscal 2000. (See footnotes 1, 6 and 9 to the Company's consolidated financial statements.) Additional standards the Company will be required to adopt but are not expected to have a material impact on the Company are SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," in fiscal 1999; SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and AICPA SOP 98-5, "Reporting on the Costs of Start-up Activities," in fiscal 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The following discussion about the Company's risk-management activities may include forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those discussed. The Company has financial instruments, including short-term cash investments and long-term debt, which are sensitive to changes in interest rates. However, the Company does not use any interest-rate swaps or other types of derivative financial instruments to limit its sensitivity to changes in interest rates because of the relatively short-term nature of its cash investments and immaterial amount of its long-term debt. The Company does not believe there has been any material changes in the reported market risks faced by the Company since the end of its most recent fiscal year September 30, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See following "List of Financial Statements and Financial Statement Schedules", and accompanying reports, statements and schedules, which follow beginning on page F.1, all of which are incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Page 20
21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this item is incorporated herein by reference to "Election of Directors: in the Registrant's Proxy Statement for its 1999 Annual Meeting of Shareholders ("1999 Proxy Statement") and from "Security Ownership of Certain Beneficial Owners and Management--Section 16(a) Beneficial Ownership Reporting Compliance" in the 1999 Proxy Statement and "Executive Officers of the Registrant" in Part I hereof. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the paragraph under "Election of Directors - Directors' Compensation" and "Executive Compensation" in the 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated herein by reference to "Security Ownership of Certain Beneficial Owners and Management" in the 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION Incorporated herein by reference to "Certain Transactions" in the 1999 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed: 1. and 2. Financial Statements and Financial Statement Schedules. See following list of Financial Statements and Financial Statement Schedules, on page F-1, which is incorporated herein by reference. 3. Exhibits. See Exhibit Index included as the last page of this report, which index is incorporated herein by reference. (b) Reports on Form 8-K. A report on Form 8-K dated August 13, 1998 was filed by Plexus during the last quarter of 1998. The report related to Plexus' adoption of its Shareholder Rights Plan. Page 21
22 PLEXUS CORP. 10-K LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE SEPTEMBER 30, 1998 CONTENTS <TABLE> <CAPTION> Pages ----- <S> <C> Report of Independent Accountants F-2 Consolidated Statements of Operations for the three years ended F-3 September 30, 1998, 1997 and 1996 Consolidated Balance Sheets as of September 30, 1998 and 1997 F-4 Consolidated Statements of Stockholders' Equity for the three years ended September 30, 1998, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the three years ended September 30, 1998, 1997 and 1996 F-6 Notes to Consolidated Financial Statements F-7 to F-15 Financial Statement Schedule: Report of Independent Accountants F-16 Schedule II - Valuation and Qualifying Accounts F-17 </TABLE> F-1
23 [PRICEWATERHOUSECOOPERS LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Plexus Corp.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Plexus Corp. and subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Milwaukee, Wisonsin October 27, 1998 F-2
24 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended September 30, 1998, 1997 and 1996 (in thousands, except share data) <TABLE> <CAPTION> 1998 1997 1996 -------------------------------------------------------- <S> <C> <C> <C> Net sales $ 396,815 $ 386,431 $ 316,124 Cost of sales 346,869 342,415 288,791 ---------- ----------- ---------- Gross profit 49,946 44,016 27,333 Selling and administrative expenses 19,024 17,007 13,317 ---------- ----------- ---------- Operating income 30,922 27,009 14,016 Other income (expense): Interest expense (13) (823) (2,087) Miscellaneous 775 894 448 ---------- ----------- ---------- Income before income taxes 31,684 27,080 12,377 Income taxes 12,449 10,680 4,946 ---------- ----------- ---------- Net income $ 19,235 $ 16,400 $ 7,431 ========== =========== ========== Earnings per share: Basic $ 1.31 $ 1.16 $ 0.53 ========== =========== ========== Diluted $ 1.21 $ 1.05 $ 0.52 ========== =========== ========== Weighted average shares outstanding: Basic 14,712,299 13,987,504 12,993,516 Diluted 15,840,641 15,578,078 14,408,961 </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-3
25 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of September 30, 1998 and 1997 (in thousands, except share data) <TABLE> <CAPTION> ASSETS 1998 1997 ----------- --------- <S> <C> <C> Current assets: Cash and cash equivalents $ 23,195 $ 3,655 Accounts receivable, net of allowance of $505 and $360, respectively 48,433 47,648 Inventories 44,303 47,931 Deferred income taxes 3,344 2,571 Prepaid expenses and other 1,976 981 --------- -------- Total current assets 121,251 102,786 Property, plant and equipment, net 21,355 18,687 Other 1,059 344 --------- -------- Total assets $ 143,665 $ 121,817 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 114 $ 214 Accounts payable 36,948 35,099 Customer deposits 3,787 3,414 Accrued liabilities: Salaries and wages 5,161 5,908 Other 6,945 4,893 --------- --------- Total current liabilities 52,955 49,528 Long-term debt 152 3,516 Deferred income taxes 700 998 Other liabilities 519 192 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued or outstanding -- -- Common stock, $.01 par value, 60,000,000 shares authorized, 14,830,689 and 14,739,914 issued and outstanding, respectively 148 147 Additional paid-in capital 21,776 17,675 Retained earnings 67,920 49,761 Treasury stock, at cost, 28,944 and 0 shares, respectively (505) -- --------- --------- 89,339 67,583 --------- --------- $ 143,665 $ 121,817 Total liabilities and stockholders' equity ========= ========= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-4
26 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended September 30, 1998, 1997 and 1996 (in thousands, except share data) <TABLE> <CAPTION> Series A Preferred Stock Common Stock Additional -------------------------------------------------------------- Paid-In Shares Amount Shares Amount Capital ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Balances, October 1, 1995 7,000 $ 0 6,491,332 $ 65 $ 14,160 Exercise of stock options - - 9,864 - 93 Net income - - - - - Preferred stock dividends ($73.71 per share) - - - - - ---------- ------------ ---------- --------- ---------- Balances, September 30, 1996 7,000 0 6,501,196 65 14,253 Exercise of stock options - - 346,049 3 3,501 - Net income - - - - - Preferred stock dividends ($48.33 per share) - - - - - Preferred stock conversion (7,000) 0 554,454 - (6) Two-for-one common stock split - - 7,338,215 73 (73) ---------- ------------ ---------- --------- ---------- Balances, September 30, 1997 - - 14,739,914 147 17,675 Treasury stock purchased - - - - - Exercise of stock options, including tax benefit - - 90,775 1 4,101 Other treasury stock issuances - - - - - Net income - - - - - ---------- ------------ ---------- ---------- ---------- Balances, September 30, 1998 - - 14,830,689 $ 148 $ 21,776 ========== ============ ========== ========== ========== </TABLE> <TABLE> <CAPTION> Total Retained Treasury Stock Stockholders' Earnings Shares Amount Equity -------------------------------------------------------------- <S> <C> <C> <C> <C> Balances, October 1, 1995 26,784 - $ - $ 41,009 Exercise of stock options - - - 93 Net income 7,431 - - 7,431 Preferred stock dividends ($73.71 per share) (516) - - (516) ---------- ------- --------- ---------- Balances, September 30, 1996 33,699 - - 48,017 Exercise of stock options - - - 3,504 Net income 16,400 - - 16,400 Preferred stock dividends ($48.33 per share) (338) - - (338) Preferred stock conversion - - - 0 Two-for-one common stock split - - - 0 ---------- ------- --------- ---------- Balances, September 30, 1997 49,761 - - 67,583 Treasury stock purchased - (213,700) (3,442) (3,442) Exercise of stock options, including tax benefit (1,024) 131,656 2,059 5,137 Other treasury stock issuances (52) 53,100 878 826 Net income 19,235 - - 19,235 ---------- ------- --------- ---------- Balances, September 30, 1998 67,920 (28,944) (505) 89,339 ========== ======= ========= ========== </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-5
27 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 1998, 1997 and 1996 (in thousands) <TABLE> <CAPTION> 1998 1997 1996 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES <S> <C> <C> <C> Net income $ 19,235 $ 16,400 $ 7,431 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 6,582 4,487 3,653 Provision for inventories and accounts receivable allowances 2,164 2,253 2,145 Deferred income taxes (1,071) (481) (906) Non-operating gains -- (620) -- Changes in assets and liabilities: Accounts receivable (1,025) (12,432) 12,060 Inventories 1,704 4,298 (7,377) Prepaid expenses and other (995) 470 479 Accounts payable 1,849 7,341 4,479 Customer deposits 373 (5,200) 5,084 Accrued liabilities 1,305 3,912 2,178 Other (376) (67) 17 -------- -------- -------- Cash flows provided by operating activities 29,745 20,361 29,243 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (9,376) (10,738) (4,144) Proceeds on sale of property, plant and equipment 114 724 8 -------- -------- -------- Cash flows used in investing activities (9,262 (10,014) (4,136) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt -- 96,442 196,300 Payments on debt (3,464 (108,147) (222,706) Proceeds from exercise of stock options 425 3,504 93 Tax benefit from stock options exercised 3,677 -- -- Treasury stock purchased (3,442) -- -- Treasury stock reissued 1,861 -- -- Payments of preferred stock dividends -- (338) (516) -------- -------- -------- Cash flows used in financing activities (943) (8,539) (26,829) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 19,540 1,808 (1,722) Cash and cash equivalents, beginning of year 3,655 1,847 3,569 -------- -------- -------- Cash and cash equivalents, end of year $ 23,195 $ 3,655 $ 1,847 ======== ======== ======== </TABLE> The accompanying notes are an integral part of these consolidated financial statements F-6
28 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of Business: Plexus Corp. provides product realization services to original equipment manufacturers (OEMs) in the computer (primarily mainframes, servers and peripherals), medical, industrial, telecommunications and transportation electronics industries. The Company offers a full range of services including product development and design services, material procurement and management, prototyping, assembly, testing, manufacturing, final system box build and distribution. The contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment than consignment services. Turnkey manufacturing currently represents almost all of the Company's sales. The Company has operations in Wisconsin, Kentucky, North Carolina, Minnesota and California. Consolidation Principles: The consolidated financial statements include the accounts of Plexus Corp. and its subsidiaries (together "the Company"). All significant intercompany transactions have been eliminated. Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories: Inventories are valued primarily at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Property, Plant and Equipment and Depreciation: These assets are stated at cost. Depreciation, determined on the straight-line method, is based on lives assigned to the major classes of depreciable assets as follows: Buildings and improvements 18-40 years Machinery and equipment 3-10 years Revenue Recognition: Revenue is recognized primarily when inventory is shipped. Revenue and profit relating to product design and development contracts (such sales are less than 10% of total revenue) are recognized as costs are incurred utilizing the percentage-of-completion method; any losses are recognized when anticipated. Progress towards completion of product design and development contracts is based on units of work for labor content and cost for component content. Income Taxes: Deferred income taxes are provided for differences between the bases of assets and liabilities for financial and tax reporting purposes. F-7
29 PLEXUS CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Earnings Per Share: The computation of basic earnings per common share is based upon the weighted average number of common shares outstanding and net income reduced for preferred stock dividends. The computation of diluted earnings per common share reflects additional dilution from stock options and convertible preferred shares using the if-converted method. New Accounting Pronouncements: In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which specifies the accounting treatment provided to computer software costs depending upon the type of costs incurred. This Statement is effective for the Company's fiscal year 2000 financial statements and restatement of prior years will not be required. The Company does not believe the adoption of this Statement will have a significant impact on its financial position or results of operations. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Certain amounts in prior years' consolidated financial statements have been reclassified to conform to the 1998 presentation. 2. INVENTORIES Inventories as of September 30, 1998 and 1997 consist of (in thousands): 1998 1997 -------------------- Assembly parts $25,165 $28,828 Work-in-process 18,089 18,557 Finished goods 1,049 546 ------- ------- $44,303 $47,931 ======= ======= 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of September 30, 1998 and 1997 consist of (in thousands): 1998 1997 ---------------------- Land, buildings and improvements $ 9,564 $ 8,583 Machinery and equipment 42,571 35,439 ------- ------- 52,135 44,022 Less accumulated depreciation 30,780 25,335 ------- ------- $21,355 $18,687 ======= ======= F-8
30 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. DEBT Long-term debt as of September 30, 1998 and 1997 consists of (in thousands): 1998 1997 ----------------- Revolving credit arrangement $ - $3,250 Other notes and obligations with a weighted average interest rate of 3.2% and 3.0%, respectively 266 480 ------ ----- 266 3,730 Less current portion 114 214 ------ ------ $ 152 $3,516 ====== ====== The Company's revolving credit arrangement provides for maximum borrowings of $40 million with all or a portion of the principal bearing interest at a LIBOR based or a prime based rate as elected by the Company. These rates are LIBOR plus 0.875% and prime less 1/4%. The credit arrangement is unsecured, a commitment fee of 1/8 of 1% per annum on the unused portion of this agreement is payable quarterly. The agreement matures in July 2002. The revolving credit agreement, as amended, includes covenants which require the maintenance of various debt to net worth ratios. The carrying amount of the Company's long-term debt approximates fair value. Cash paid for interest in fiscal 1998, 1997 and 1996 was $13,000, $0.9 million and $2.0 million, respectively. 5. INCOME TAXES Income tax expense (benefit) consists of (in thousands): <TABLE> <CAPTION> 1998 1997 1996 --------------------------------------- Currently payable: <S> <C> <C> <C> Federal $ 11,274 $ 9,422 $ 4,983 State 2,244 1,739 869 ------ -------- -------- 13,518 11,161 5,852 ------ -------- -------- Deferred: Federal (949) (422) (800) State (120) (59) (106) ------ -------- -------- (1,069) (481) (906) ------ -------- -------- $ 12,449 $ 10,680 $ 4,946 ======== ======== ======== </TABLE> F-9
31 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Following is a reconciliation of the Federal statutory income tax rate to the effective tax rates reflected in the consolidated statements of operations for fiscal 1998, 1997 and 1996: <TABLE> <CAPTION> 1998 1997 1996 ---------------------------------------------- <S> <C> <C> <C> Federal statutory income tax rate 34.0% 34.0% 34.0% Increase resulting from: State income taxes, net of Federal income tax benefit 4.6 4.2 4.1 Other, net 0.7 1.2 1.9 ---------- --------- ------- Effective income tax rate 39.3% 39.4% 40.0% ========== ======== ======= </TABLE> The components of the net deferred income tax asset as of September 30, 1998 and 1997, consist of (in thousands): <TABLE> <CAPTION> 1998 1997 -------------- --------------- <S> <C> <C> Deferred tax assets: Inventories $ 1,622 $ 1,423 Accrued benefits 871 753 Loss carryforwards 154 160 Other 968 395 ---------- ---------- 3,615 2,731 Less valuation allowance (21) (160) ---------- ---------- 3,594 2,571 Deferred tax liabilities: Property, plant and equipment 950 998 ---------- ----------- Net deferred income tax asset $ 2,644 $ 1,573 ========= =========== </TABLE> The Company records a valuation allowance to reflect the estimated amount of deferred income tax assets which relate to loss carryforwards that are not expected to be realized. Cash paid for income taxes in fiscal 1998, 1997 and 1996 was $10.6 million, $11.1 million and $5.0 million, respectively. 6. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE During 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share," that establishes a new standard for reporting earnings per share. The earnings per share computations for prior periods have been restated to conform with the provisions of SFAS No. 128. F-10
32 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share (in thousands except per share amounts): <TABLE> <CAPTION> September 30, ---------------------------------- 1998 1997 1996 ------------- -------- --------- <S> <C> <C> <C> BASIC EARNINGS PER SHARE: Net income $19,235 $16,400 $ 7,431 Less: Preferred stock dividends -- 211 512 ------- ------- ------- Income available to common stockholders $19,235 $16,189 $ 6,919 ======= ======= ======= Weighted average shares outstanding 14,712 13,988 12,994 ======= ======= ======= BASIC EARNINGS PER SHARE $ 1.31 $ 1.16 $ 0.53 ======= ======= ======= DILUTED EARNINGS PER SHARE: Net income $19,235 $16,400 $ 7,431 ======= ======= ======= Weighted average shares outstanding 14,712 13,988 12,994 Effect of dilutive securities: Stock options 1,129 1,128 306 Convertible preferred stock -- 462 1,109 ------- ------- ------- Diluted weighted average shares outstanding 15,841 15,578 14,409 ======= ======= ======= DILUTED EARNINGS PER SHARE $ 1.21 $ 1.05 $ 0.52 ======= ======= ======= </TABLE> On December 19, 1997, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares, or a maximum of $25,000,000, of the Company's common stock on the open market. The Company expects that repurchases will occur from time to time. The Company anticipates the shares held in treasury to be used for various purposes in the future, including satisfaction of requirements for shares under the Company's Employee Stock Savings Plan (401k plan) and its stock option incentive program. When the treasury shares are reissued, any difference between the acquisition cost of the shares and the proceeds from reissuance is credited or charged to stockholders' equity. On July 17, 1997, the Company declared a two-for-one stock split payable in the form of a stock dividend of one share of common stock for every share of common stock outstanding. The new common stock was issued on August 25, 1997 to holders of record as of August 14, 1997. Share and per share amounts, where required, have been restated to reflect this stock split. On February 28, 1997, the holders of the Series A Preferred Shares converted all such shares, in accordance with their terms, into a total of 554,454 (pre-split) shares of the Company's common stock. The Preferred Shares, with a face value of $1,000 per share, were issued in 1994. Dividends were earned on the face value of the Preferred Shares at the prime rate less 1%. Dividends were cumulative and payable semiannually in arrears when and as declared by the Company's Board of Directors. F-11
33 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income tax benefits attributable to stock options exercised are recorded as an increase in additional paid-in capital. 7. LEASE COMMITMENTS The Company has a number of operating lease agreements primarily involving manufacturing equipment, computerized design equipment and manufacturing facilities. These leases are non-cancelable and expire on various dates through 2014. Rent expense under all operating leases for fiscal 1998, 1997 and 1996 was approximately $8.3 million, $10.2 million and $13.5 million, respectively. Renewal and purchase options are available on certain of these leases. The sale of equipment obtained through the exercise of the purchase option on certain leases resulted in miscellaneous income of $620,000 in fiscal 1997. In April 1997, the Company began leasing a new 110,000-square-foot manufacturing facility located in Green Bay, Wisconsin. The facility was constructed and equipped by Oneida Nation Electronics (ONE), a corporation chartered by the Oneida Tribe of Indians of Wisconsin. All lease payments for the building and equipment are based on the profitability of the facility pursuant to a formula defined in the lease agreement. There are no required minimum lease payments. Future minimum annual payments on operating leases are as follows (in thousands): 1999 $ 6,093 2000 4,784 2001 2,238 2002 1,926 2003 1,926 Thereafter 13,847 -------- $ 30,814 ======== 8. BENEFIT PLANS 401(k) Savings Plan: The Company's 401(k) savings plan covers all eligible employees. The Company matches employee contributions, for those employees who have one or more years of service, up to 2.5% of eligible earnings. The Company's contributions for fiscal 1998, 1997 and 1996 totaled $1.1 million, $1.0 million and $0.8 million, respectively. Stock Option Plans: The Company has reserved 6.0 million shares of common stock for grant to officers and key employees under an employee stock option plan. The exercise price of each option granted shall not be less than the fair market value on the date of grant and options vest over a three year period from date of grant. The plan also authorizes the Company to grant 1,500,000 stock appreciation rights, none of which have been granted. Additionally, under a separate plan, each independent outside director is granted 1,500 stock options each December 1 with options pricing similar to the F-12
34 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS employee plans, that are fully vested upon grant and can be exercised after a minimum six-month holding period. The 200,000 shares of common stock authorized under the directors' plan may come from any combination of authorized but unissued shares, treasury stock or the open market. A summary of the stock option activity follows (shares in thousands): <TABLE> <CAPTION> 1998 1997 1996 ----------------------------------- ------------------------------ ------------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------- ----------------- ------------------------------ ------------------------------ <S> <C> <C> <C> <C> <C> <C> Options outstanding at beginning of year 2,033 $ 8.30 2,029 $ 6.16 1,501 $ 5.90 Granted 366 $ 21.01 668 $ 12.25 563 $ 6.80 Canceled (38) $ 10.43 (32) $ 6.68 (16) $ 6.40 Exercised ($1.27 - $12.31 per share) (230) $ 7.02 (632) $ 5.57 (19) $ 4.69 -------- -------- -------- Options outstanding at end of year 2,131 $ 10.61 2,033 $ 8.30 2,029 $ 6.16 ======== ======== ======== Options exercisable at end of year 1,189 $ 7.40 883 $ 6.23 1,061 $ 5.72 ======== ======== ======== Shares available for future options at end of year 2,449 576 1,212 ======== ======== ======== </TABLE> The following table summarizes outstanding stock option information at September 30, 1998 (shares in thousands): <TABLE> <CAPTION> Number of Weighted Range of Shares Weighted Average Weighted Average Number of Shares Average Exercise Prices Outstanding Exercise Price Remaining Life Exercisable Exercise Price --------------- ----------- ------------------ ------------------ ------------------ -------------- <S> <C> <C> <C> <C> <C> <C> <C> $2.40 - $2.50 75 $ 2.46 2.7 years 75 $ 2.46 $5.20 - $7.50 989 $ 6.49 6.8 years 818 $ 6.44 $8.30 - $12.45 707 $11.80 7.9 years 292 $11.06 $19.90 - $29.00 360 $21.26 9.5 years 4 $27.06 $2.40 - $29.00 2,131 $10.61 7.5 years 1,189 $7.40 </TABLE> The Company has elected to account for its stock option plans under the guidelines of Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost related to the stock option plans has been recognized in the consolidated statements of operations. Had the Company recognized compensation expense based on the fair value at the grant date for awards under the plans, consistent with the method prescribed by SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's net income for fiscal 1998, 1997 and 1996 would have been reduced by approximately $2.5 million, $1.4 million and $0.2 million, respectively. Basic earnings per share would have been reduced by $0.17, $0.10 and $0.01 in fiscal 1998, 1997 and 1996, respectively. These pro forma results will not be representative of the impact in future years because only grants made since October 1, 1995 were considered. F-13
35 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted average fair value of options granted per share during fiscal 1998, 1997 and 1996 is $13.21, $6.62, $3.67, respectively. The fair value of each option grant is estimated at the date of grant using the Black-Scholes prorated straight line option-pricing method with the following assumption ranges: 41% to 61% volatility, 0% annual dividend yield, and risk free interest rates ranging from 5.5% to 6.6% based on expected terms and grant dates. Deferred Compensation Plan: In September 1996, the Company entered into agreements with certain of its officers under a nonqualified deferred compensation plan. Under the plan, the Company has agreed to pay certain amounts annually for the first 15 years subsequent to retirement or to a designated beneficiary upon death. It is management's intent that life insurance contracts owned by the Company will fund this plan. Expense for this plan totaled $343,000 and $315,000 in fiscal 1998 and 1997, respectively. Other: The Company is not obligated to provide any post-retirement medical or life insurance benefits to employees. 9. BUSINESS SEGMENT AND MAJOR CUSTOMERS The Company and its subsidiaries operate in one business segment, the production and sale of electronic products including the designing, manufacturing and testing of computerized electronic assemblies. The following table summarizes the percentage of net sales to customers that account for more than 10% of net sales in fiscal 1998, 1997 and 1996: 1998 1997 1996 ---------------------------------------- General Electric 11% 13% 13% IBM * 12% 26% Motorola * 10% * (* represents sales less than 10%) Accounts receivable related to General Electric represents 7% of the Company's trade accounts receivable as of September 30, 1998. The Company is required to adopt SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" in fiscal 1999. SFAS No. 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic area and major customers. The Company is evaluating the effect of this pronouncement on its consolidated financial statements. F-14
36 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for fiscal 1998 and 1997 consists of (in thousands, except per share amounts): <TABLE> <CAPTION> First Second Third Fourth 1998 Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net sales $ 95,905 $ 97,689 $ 98,563 $104,658 $396,815 Gross profit 10,294 11,842 13,164 14,646 49,946 Net income 3,745 4,338 5,202 5,950 19,235 Earnings per share Basic $ 0.25 $ 0.29 $ 0.35 $ 0.40 $ 1.31 Diluted $ 0.23 $ 0.28 $ 0.33 $ 0.38 $ 1.21 First Second Third Fourth 1997 Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------------------------------- Net sales $ 87,366 $ 96,750 $ 99,092 $103,223 $386,431 Gross profit 8,653 10,420 11,943 13,000 44,016 Net income 2,864 3,597 4,419 5,520 16,400 Earnings per share Basic $ 0.21 $ 0.26 $ 0.30 $ 0.38 $ 1.16 Diluted $ 0.19 $ 0.23 $ 0.28 $ 0.34 $ 1.05 </TABLE> Earnings per share is computed independently for each quarter. The annual per share amount may not equal the sum of the quarterly amounts due to rounding. F-15
37 [PRICEWATERHOUSECOOPERS LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Plexus Corp.: Our audits of the consolidated financial statements of Plexus Corp. and subsidiaries referred to in our report dated October 27, 1998 (which is included on page F-2 of the Form 10-K) also included an audit of the financial schedule listed in the index on page F-1 of this form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Milwaukee, Wisconsin October 27, 1998 F-16
38 Plexus Corp. and Subsidiaries Schedule II - Valuation and Qualifying Accounts For the years ended September 30, 1998, 1997 and 1996 (Dollars in thousands) <TABLE> <CAPTION> ADDITIONS CHARGED BALANCE AT BEGINNING TO COSTS AND OF PERIOD EXPENSES BALANCE AT END DESCRIPTIONS DEDUCTIONS OF PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1998: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 360 $ 240 $ 95 $ 505 Allowance for inventory obsolescence (deducted from the asset to which it relates) 3,034 1,924 1,453 3,505 -------------------------------------------------------------------------- $3,394 $2,164 $1,548 $4,010 ========================================================================== 1997: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 275 $ 96 $ 11 $ 360 Allowance for inventory obsolescence (deducted from the asset to which it relates) 1,466 2,157 589 3,034 ------------------------------------------------------------------------- $1,741 $2,253 $ 600 $3,394 ========================================================================= 1996: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 145 $ 188 $ 58 $ 275 Allowance for inventory obsolescence (deducted from the asset to which it relates) 307 1,957 798 1,466 -------------------------------------------------------------------------- $ 452 $2,145 $ 856 $1,741 ========================================================================== </TABLE> F-17
39 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: PLEXUS CORP. (Registrant) /s/ Peter Strandwitz -------------------- Peter Strandwitz, Chairman December 28, 1998 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter Strandwitz, John L. Nussbaum and Joseph D. Kaufman, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same will all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to al intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirement of the Security Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.* <TABLE> <CAPTION> SIGNATURE AND TITLE <S> <C> <C> /s/ Peter Strandwitz /s/ Rudolph T. Hoppe - ------------------------------------------------------------ -------------------------------------------------- Peter Strandwitz, Chairman and Chief Executive Officer, Rudolph T. Hoppe, Director and Director /s/ John L. Nussbaum /s/ Harold R. Miller - ------------------------------------------------------------ -------------------------------------------------- John L. Nussbaum, President and Chief Operating Officer, Harold R. Miller, Director and Director /s/ Thomas B. Sabol /s/ Gerald A. Pitner - ------------------------------------------------------------ -------------------------------------------------- Thomas B. Sabol, Vice President-Finance and Chief Gerald A. Pitner, Director Financial Officer /s/ Lisa M. Kelley /s/ Thomas J. Prosser - ------------------------------------------------------------ -------------------------------------------------- Lisa M. Kelley, Treasurer and Controller Thomas J. Prosser, Director /s/ David J. Drury -------------------------------------------------- David J. Drury, Director </TABLE> * Each of the above signatures is affixed as of December 28, 1998. Page 22
40 EXHIBIT INDEX PLEXUS CORP. 10-K FOR YEAR ENDED SEPTEMBER 30, 1998 <TABLE> <CAPTION> INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH ----------- ------ --------------- -------- <S> <C> <C> <C> <C> 3(i) Restated Articles of Plexus Corp., as X amended through August 13, 1998 3(ii) Bylaws of Plexus Corp., as amended Exhibit 3(ii) to Plexus' Report on through November 14, 1996 Form 10-K for the year ended September 30, 1996 ("1996 10-K") 4.1 Restated Articles of Incorporation of Exhibit 3(i) above Plexus Corp. 4.2 Shareholder Rights Agreement, dated as Exhibit 4.1 to Plexus' Report on of August 13, 1998 between Plexus and Form 8-K dated August 13, 1998 (the Firstar Trust Company as Rights Agent "8/13/98 8-K") 4.3 Form of Rights Certificate Exhibit 4.2 to 8/13/98 8-K 10.1 Supplemental Executive Retirement Agreements dated as of September 19, 1996** (a) Peter Strandwitz Exhibit 10.1(a) to 1996 10-K (b) John Nussbaum Exhibit 10.1(b) to 1996 10-K (c) Gerald Pitner Exhibit 10.1(c) to Plexus'Report on Form 10-K for the year ended September 30, 1997 ("1997 10-K") </TABLE> Page 23
41 <TABLE> <S> <C> <C> <C> <C> 10.2 Change of Control Agreements dated August 1, 1998 with ** (a) Peter Strandwitz X John L. Nussbaum Thomas B. Sabol Charles C. Williams Joseph D. Kaufman (b) Lisa M. Kelley X 10.3 Employee Savings Plan and Trust**: (a) Plan Document Exhibit 10.3(a) to 1996 10-K (b) Non-Standardized Form Adoption Agreement Exhibit 10.3(b) to 1996 10-K 10.4 Plexus Corp. 1998 Option Plan** Exhibit A to the Registrant's definitive proxy statement for its 1998 Annual Meeting of Shareholder 10.5(a) Credit Agreement dated as of March 20, Exhibit 10.5(a) to 1997 10-K 1997 among Firstar Bank Milwaukee, National Association, Harris Trust and Savings Bank, and Bank One, Wisconsin (the "Credit Agreement")* (b) Corporate Guarantee Agreements related Exhibits 10.5(b)(i) and (ii) to thereto dated as of March 20, 1997 by 1997 10-K EAC and Technology Group, Inc. </TABLE> Page 24
42 <TABLE> <S> <C> <C> <C> <C> 10.6(a) Lease Agreement between Neenah (WI) QRS Exhibit 10.8(a) to 1994 10-K 11-31, Inc. ("QRS: 11-31") and EAC, dated August 11, 1994* (b) Bill of Sale of EAC to QRS: 11-31 dated Exhibit 10.8(b) to 1994 10-K August 31, 1994, together with related Seller's/Lessee's Certificate of EAC (c) Guaranty and Suretyship Agreement Exhibit 10.8(c) to 1994 10-K between Plexus Corp. and QRS: 11-31 dated August 11, 1994, together with related Guarantor's Certificate of Plexus Corp. 10.7 Plexus Corp. 1995 Directors' Stock Exhibit 10.10 to 1994 10-K Option Plan** 10.8 Plexus Corp. 1998 Management Incentive Exhibit 10.10 to 1997 10-K Compensation Plan** 10.9 Lease Agreement dated February 12, 1996 Exhibit 10.16 to 3/31/96 10-Q between Plexus and Oneida Nation Electronics 21 List of Subsidiaries X 23 Consent of PricewaterhouseCoopers LLP X 24 Power of Attorney (Signature Page Hereto) 27 Financial Data Schedule X - ---------------------- * Excludes certain schedules and/or exhibits, which will be furnished to the Commission upon request. ** Designates management compensatory plans or agreements. </TABLE> Page 25