1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual Report Pursuant to Section 13 or 15(d) ----- of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-14824 PLEXUS CORP. (Exact name of registrant as specified in its charter) WISCONSIN 39-1344447 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 (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 report(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 12, 1997, 14,810,353 shares of Common Stock were outstanding, and the aggregate market value of the shares of Common Stock (based upon the $23.00 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 $313 million. DOCUMENTS INCORPORATED BY REFERENCE <TABLE> <CAPTION> PART OF FORM 10-K INTO WHICH PORTIONS OF DOCUMENT DOCUMENT ARE INCORPORATED -------- ------------------------- <S> <C> Proxy Statement for 1998 Annual Meeting of Shareholders Part III </TABLE>
2 PART I ITEM 1. BUSINESS GENERAL Plexus Corp., through its subsidiaries (together "Plexus" or the "Company"), offers contract development, design, manufacturing and test services primarily to original equipment manufacturers in the computer (primarily mainframes, servers and peripherals), medical, industrial, telecommunications and transportation electronics industries. Plexus offers a full range of services including product development, printed circuit board (PCB) design, material procurement and management, prototyping, PCB and higher level 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 then 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 Electronic Assembly Corporation and 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. RECENT DEVELOPMENTS On November 14, 1997, through the Company's recently formed PAC Acquisition Corp. subsidiary, the Company acquired substantially all of the electronic manufacturing-related assets of Nguyen Electronics, Inc. and Tertronics, Inc. (together, "NEI"), electronic manufacturing and assembly companies operating in Minneapolis, Minnesota and Milpitas, California, respectively. The acquisitions provide the Company with assembly capabilities, facilities and sales offices in the Twin Cities and Silicon Valley, both of which have a concentration of technology-based companies which the Company believes constitute potential customers. The Company also expects to continue customer relationships which were assumed from NEI. In the NEI acquisition, the Company acquired substantially all of NEI's assets (other than assets of an unrelated Tertronics business), as well as related real estate in Minnesota, and assumed certain specified related liabilities. The NEI acquisition represented, individually and combined, less than 3% of the Company's total assets. Total combined sales of NEI were approximately $3.0 million in the 12-month period ended September 30, 1997. Because the NEI acquisition is being accounted for as a purchase transaction, results of the acquired operations will be included in Plexus financial information only from and after the date of the acquisition. In September 1997, the Company occupied an engineering design center, with approximately 5,000 square feet, in Raleigh, North Carolina. This expansion establishes a new engineering and sales facility to further develop, support and strengthen the Company's technological capabilities and customer base on the East Coast. This facility will also provide the Company with another avenue for attracting additional human resources. In April 1997, the Company occupied its new manufacturing center near Green Bay, Wisconsin. The new Green Bay facility is leased under an operating agreement with the Oneida tribe of Indians. See "Properties" (Item 2) below. ELECTRONIC PRODUCTS 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 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
3 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 accordingly to the customer or type of service involved. PRODUCT DESIGN. The Company, primarily through its Technology Group, Inc. subsidiary, provides product design and engineering services. These services include software development, circuit design, printed circuit board layout, and product housing design. The Company's design services provide customers with a product 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 design of electronic systems, including printed circuit boards and the arrangement of electronic components thereon, and the development and/or programming of the application software necessary to control the functions of those components. The Company's personnel design printed circuit boards using computer assisted design equipment and software. This equipment permits the design of complex multi-layered printed circuit boards which not only have wiring on the top and bottom surfaces but also incorporate multiple inside layers of circuitry. The Company's design services may include initial feasibility studies, product concept definition, development or specifications for product feature and functions, product engineering specifications, microprocessor design, design of circuit and custom or semi-custom computer chips, software development, drafting, prototype production and testing, and development of test specifications and procedures. The NEI acquisition added additional design and prototyping/quick turn capabilities in California. See "Engineering, Testing and Development." PRODUCT MANUFACTURE. The Company, primarily through its Electronic Assembly Corporation subsidiary, manufactures electronic products and assemblies for use in a wide variety of industries and applications. The NEI acquisition added additional assembly capability in Minnesota. 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 for it 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 system box build into the final product housing. While the Company has automated various aspects of many processes, the assembly of components into electronic products remains a labor-intensive process generally requiring a high degree of precision and dexterity in the assembly stage and integration of quality control checks into the manufacturing processes. The Company utilizes specially designed equipment and techniques to maintain its ability to assemble efficiently a wide variety of electronic products. 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 -2-
4 assemblies. Such test equipment includes functional test fixtures for testing printed circuit assemblies; in-circuit component measurement testers; and intelligent burn-in chambers, which temperature cycle products under load. The Company designs and assembles test products 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. 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 representative agencies covering selected customer accounts. The representatives are paid commissions based upon sales. During fiscal 1997, the Company's services were sold to approximately 113 customers. Three customers represented over 10% of the Company's fiscal 1997 net sales, as follows: <TABLE> <CAPTION> Fiscal Year % of Net Sales -------------------------- Customer 1997 1996 1995 - ------------------------------------------- ---- ---- ---- <S> <C> <C> <C> International Business Machines Corporation 12% 26% 26% General Electric Company 13% 13% 17% Motorola, Inc. 10% * * __________________ *Less than 10% </TABLE> Many large customers, including those above, contract independently through multiple divisions, subsidiaries or production facilities. The Company believes that in many cases its sales to one such subsidiary, division or facility 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 or facilities 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. 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. -3-
5 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, and the capacity for prompt delivery, 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 average product designed and assembled by the Company has a technologically useful life of only 18 months to three years. 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. 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 outsourced electronics manufacturing services industry. EMPLOYEES As of December 1, 1997, the Company employed full time approximately 2,168 persons. These employees included approximately 834 professional, technical and engineering employees and approximately 1,334 employees who work in assembly. The Company also employed 71 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. 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". ENGINEERING, TESTING AND DEVELOPMENT The Company believes that its engineering, testing and development capabilities are significant factors in the success of its business. The Company maintains a design team of 164 employees, including 146 hardware and software design engineers and support staff, and utilizes an integrated design system in the Company's engineering services. To supplement its internal capabilities, Plexus has formed a strategic alliance with Battelle, a leading private independent research and development organization. The Company believes that Battelle will make available to Plexus a wide spectrum of advanced technology and innovative product development experience, to complement the Company's capacities in electronic product design, testing and manufacturing. In selected circumstances in which the Company and Battelle believe use of the alliance is appropriate, the Company believes it will be able to use this alliance to accelerate new product introduction for its customers. The Company has also recently entered into a similar arrangement with Cadence Design Systems, a world leader in software design, for cooperative design and marketing programs. MATERIALS AND COMPONENTS The Company does not generally fabricate the component parts which it uses for the products which it assembles. However, the Company uses various component parts which are manufactured by others. Important components include integrated circuits (primarily logic and memory devices), resistors, capacitors and printed circuit boards; these components may be either custom or standard. The Company has numerous suppliers for these -4-
6 components and has generally not experienced difficulties in fiscal 1997 in obtaining the components needed for its assemblies. ENVIRONMENTAL COMPLIANCE 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. 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. Three of the Company's manufacturing facilities are located at Neenah, Wisconsin, and the fourth at Richmond, Kentucky. The facilities in the original Neenah complex, which are owned by the Company and were built in the period from 1980 to 1985, contain an aggregate of approximately 80,000 square feet of assembly and office space. In 1990, the Company occupied an additional assembly facility in Neenah, Wisconsin, with approximately 110,000 square feet of assembly and office space, which provides additional capacity. The Company leases this facility under a fifteen year lease. In January 1994, the Company occupied a newly constructed surface mount assembly facility in Neenah, Wisconsin. This facility is approximately 175,000 square feet, and is used for manufacturing purposes. The Company leases the facility, designated the "Advanced Manufacturing Center" as a result of its design by the Company to incorporate advanced assembly processes, under a twenty year lease. 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 February 1996, the Company entered into a lease agreement with Oneida Nation Electronics ("ONE"), corporation chartered by the Oneida tribe of Indians of Wisconsin. Pursuant to the lease agreement, ONE agreed to construct and equip an approximately 110,000 square foot manufacturing facility located in the Green Bay, Wisconsin area for the use by the Company. The facility was occupied by the Company in April 1997. Annual lease payments by the Company for the building and equipment will be based on the profitability of the facility pursuant to a formula defined in the lease agreement. There are no required minimum lease payments. Company management believes this lease provides a financial arrangement under which the Company's earnings would be less likely to be negatively impacted during the start-up phase of the facility than under conventional financing methods and capital commitments would be minimized, although it involves a sharing of potential future profits (if any) from the facility. In July 1996, the Company occupied an additional office building, with approximately 19,000 square feet of office space, in Neenah, Wisconsin. The Company leases this office building under a ten-year lease. In March 1997, the Company occupied another additional office building, with approximately 13,000 square feet of office space, in Neenah, Wisconsin. The Company leases this office building under a ten-year lease. 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 lease. In November 1997, the Company purchased an approximately 14,000 square foot manufacturing and office facility in Minneapolis, Minnesota as part of the NEI acquisition. In addition, as part of the NEI transaction, the Company has leased an approximately 5,000 square foot manufacturing and office facility in Milpitas, California for a five-year term, to house its west coast assembly and sales operations. -5-
7 The Company also uses substantial specialized equipment in its operations. The Company leases a substantial amount of this equipment. 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 or of 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 1997. 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> <C> Peter Strandwitz 60 Chairman, Chief Executive Office, Director 1979 John L. Nussbaum 55 President, Chief Operating Officer, Director 1996(1) Gerald A. Pitner 56 Executive Vice President, Director 1989 Charles C. Williams 61 Vice President 1989 Thomas B. Sabol 38 Vice President-Finance and Chief Financial 1996(2) Officer Joseph D. Kaufman 40 Vice President, Secretary and General Counsel 1990 William F. Denney 64 Vice President and Treasurer 1995(3) </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, LLP. (3) Mr. Denney has served as the Vice President of the Company since 1990, and became Treasurer in 1995. He was the Company's Controller from 1990 to 1997. -6-
8 * * * "SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: The statements contained in this Form 10-K which are not historical facts (such as statements which are in the future tense or which include terms such as "believe," "expect," "plan," "look forward to" or "anticipate") are forward looking statements that involve risks and uncertainties, including, but not limited to, the Company's ability to integrate acquired operations, the Company's ability to secure new customers and maintain its current customer base, the risk of customer reductions, delays or cancellations in both on-going and new programs, the results of cost reduction efforts, the adequate availability of components and related parts for production, the effect of economic conditions, the ability to successfully integrate acquired operations, 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 II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS INFORMATION ON COMMON STOCK For the years ended September 30, 1997 and 1996, 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. 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. <TABLE> <CAPTION> PRICE RANGE OF COMMON STOCK FISCAL YEAR ENDED SEPTEMBER 30, 1997 FISCAL YEAR ENDED SEPTEMBER 30, 1996 High Low High Low ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> First Quarter 10 3/8 6 7/8 First Quarter 9 3/8 7 3/8 ----------------------------------------------------------------------------------------------- Second Quarter 17 5/8 8 3/8 Second Quarter 8 5/8 6 1/4 ----------------------------------------------------------------------------------------------- Third Quarter 28 12 1/2 Third Quarter 7 5/8 5 5/8 ----------------------------------------------------------------------------------------------- Fourth Quarter 38 1/4 23 1/2 Fourth Quarter 8 6 1/2 ----------------------------------------------------------------------------------------------- YEAR 38 1/4 6 7/8 Year 9 3/8 5 5/8 ----------------------------------------------------------------------------------------------- </TABLE> INVESTOR INFORMATION Plexus Corp. Common Stock is traded over-the-counter on the NASDAQ National Market Sytem, symbol PLXS. As of September, 30, 1997, there were approximately 6,000 shareholders of record. On December 19, 1997, the Company announced that it may repurchase up to 2,000,000 shares (or $25 million in value) of its Common Stock in market purchases. -7-
9 ITEM 6. SELECTED FINANCIAL DATA. FINANCIAL HIGHLIGHTS <TABLE> <CAPTION> (dollars in thousands, except per share amounts) For the Years Ended September 30, OPERATING STATEMENT DATA 1997 1996 1995 1994 1993 -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net sales $386,431 $316,124 $283,134 $242,483 $159,597 -------------------------------------------------------------------------------------------------------------------------- Gross profit 44,016 27,333 23,696 16,170 13,074 -------------------------------------------------------------------------------------------------------------------------- Gross margin 11.4% 8.6% 8.4% 6.7% 8.2% -------------------------------------------------------------------------------------------------------------------------- Operating income 26,817 13,987 12,435 7,926 6,310 -------------------------------------------------------------------------------------------------------------------------- Operating margin 6.9% 4.4% 4.4% 3.3% 4.0% -------------------------------------------------------------------------------------------------------------------------- Net income 16,400 7,431 6,343 3,057 2,570 -------------------------------------------------------------------------------------------------------------------------- Fully diluted net income per share $ 1.04 $ .52 $ .44 $ .23 $ .20 -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS STATEMENT DATA -------------------------------------------------------------------------------------------------------------------------- Cash flows provided by operations $ 20,361 $ 29,243 $ 4,188 $(11,171) $ (9,548) -------------------------------------------------------------------------------------------------------------------------- Capital equipment additions 10,738 4,144 2,106 5,288 8,233 -------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA -------------------------------------------------------------------------------------------------------------------------- Working capital $ 53,258 $ 51,425 $ 71,302 $ 62,784 $ 45,169 -------------------------------------------------------------------------------------------------------------------------- Total assets 121,817 107,374 115,088 122,021 95,149 -------------------------------------------------------------------------------------------------------------------------- Long-term debt 3,516 15,372 41,734 40,691 40,064 -------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 67,583 48,017 41,009 34,879 24,801 -------------------------------------------------------------------------------------------------------------------------- Return on average assets 14.3% 6.7% 5.4% 2.8% 3.2% -------------------------------------------------------------------------------------------------------------------------- Return on average equity 28.4% 16.7% 16.7% 10.2% 10.7% -------------------------------------------------------------------------------------------------------------------------- Inventory turnover ratio 6.7x 5.6x 4.8x 4.1x 3.7x -------------------------------------------------------------------------------------------------------------------------- </TABLE> NOTE: All share and per share information reported throughout this 10-K has been restated (except where noted) to give effect to the Company's two-for-one stock split effective August 25, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONDITION AND RESULTS OF OPERATIONS. STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of historical matters, contains forward-looking statements (such as statements in the future tense and those including the terms "believe," "expect," "anticipate," "intend" and similar concepts) which involve risks and uncertainties. Actual results may differ materially from these statements as a result of various factors, including those discussed in further detail below (in particular "General"). GENERAL Plexus Corp. is a contract provider of design, manufacturing and testing services to the electronics industry. Headquartered in Neenah, Wisconsin, the Company provides product realization services and is one of the largest electronic assembly organizations in the United States. Through its wholly owned subsidiaries, Plexus Technology Group, Inc., and Plexus Electronic Assembly Corporation, 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. Services are provided to original equipment manufacturers in the computer (primarily mainframe, server and peripheral products), medical, industrial, telecommunications and transportation electronics industries. -8-
10 The Company has operations in Wisconsin and Kentucky, and recently expanded to North Carolina, Minnesota and California. The expansion in Raleigh, N.C., in September 1997 established a new engineering and sales facility to further develop, support and strengthen the Company's technological capabilities and customer base on the East Coast. In November 1997, the Company acquired the assets of two related companies located in Minneapolis, Minn., and Milpitas, Calif., in a cash transaction made through the Company's newly formed PAC Acquisition Corp. subsidiary. The assets acquired, individually and combined, were less than 3 percent of the Company's total assets. Total combined sales of the acquired companies were approximately $3 million in the 12-month period ended September 30, 1997. The Minneapolis location strengthens the Company's presence in the medical industry. The California location puts the Company in the heart of Silicon Valley. The acquisitions are intended to support the Company's growth as the product realization company. Because the acquisitions were accounted for using the purchase method of accounting, the effects of the acquisitions will only be included in the Company's financial statements from the acquisition date. The acquisitions are not expected to have a material impact on the Company's financial condition and results of operations. The Company continues to look for other 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. Variations in the Company's turnkey sales have caused, and could continue to cause, the Company's gross margin and profitability to fluctuate year to year and quarter to quarter. 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 set-up and restart inefficiencies. From time to time, allocations of components can be an integral part of the electronics industry. Shortages that occurred in the past, including the first half of fiscal 1996, mainly in logic and memory devices, were mitigated in the second half of fiscal year 1996, as well as in fiscal 1997, due to a shift in the supply-demand cycle for such components. 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. -9-
11 Many of the industries for which the Company currently provides electronic products are subject to rapid technological change, product obsolescence, increased competition, and pricing pressures. In fiscal 1997, approximately 6 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. Customer programs can 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 recent historical sales growth rate will continue. In fiscal 1998, sales growth, when compared to like periods in fiscal 1997, is expected to be more pronounced in the second half of the year due to the effect of the timing of certain programs on first half sales, and anticipated new customers and new programs ramping production up in the second half of the fiscal year. 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 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 rates will continue. Start-up costs and the management of labor and equipment efficiencies for new programs and new customers can have an effect on the Company's gross margins. Due to these and other factors, gross margins can be negatively impacted early on in the life cycle of new programs. In addition, labor efficiency and equipment utilization rates ultimately achieved and maintained by the Company for new and current programs impact the Company's gross margins. 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 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 Company expects to be Year 2000 Compliant in calendar 1998, although certain functions are subject to the efforts of third-party suppliers. The costs associated with implementing year 2000 applications currently are not expected to be material, although there can be no assurances. -10-
12 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, 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. RESULTS OF OPERATIONS NET SALES In fiscal 1997, net sales grew to $386 million, an increase of $70 million, or 22 percent, over the previous year. Net sales in fiscal 1996 were $316 million, an increase of $33 million, or 12 percent, over fiscal 1995. 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. The sales increase in fiscal 1996 was due to increased orders from existing customers, including ongoing and new programs, and the addition of new customers. However, the increases were not as extensive as originally anticipated by Company management primarily due to delays in several new programs caused by customer cutbacks in original forecasts, component shortages and customer time-to-market issues caused by design changes or other customer-specific factors. In addition, certain ongoing programs had volume reductions from prior years based on revised customer forecasts. Finally, certain customers adjusted production schedules because of their own internal excess manufacturing capacity. While the Company experienced sales growth in fiscal 1997 across all the industries it services, except the computer industry which had essentially flat sales, growth was more pronounced in the telecommunications, industrial and transportation industries of the electronics market. Sales to the computer industry were impacted primarily by the reduction in sales to IBM, offset by the addition of Unisys as a new customer. As a result, the percentage of overall computer industry sales declined to 31 percent from 38 percent of total sales. Sales for fiscal 1997 for the other industries were as follows: Medical 21 percent (21 percent in fiscal 1996), Industrial 21 percent (18 percent), Transportation 12 percent (11 percent), Telecommunications 11 percent (9 percent), and Other 4 percent (3 percent). Currently, the Company does not expect there will be any material changes in the breakdown of its sales by industry in fiscal 1998. -11-
13 The Company's largest customers continue to be IBM and General Electric Company (GE). Sales to IBM (including up to six subsidiaries or divisions) were 12 percent, 26 percent and 26 percent of total sales for fiscal 1997, 1996, and 1995, respectively. Sales to GE (including up to four subsidiaries or divisions) were 13 percent, 13 percent and 17 percent of total sales for fiscal 1997, 1996, and 1995, respectively. Sales to Motorola, Inc. (including up to five subsidiaries or divisions) reached 10 percent of total sales for the first time in fiscal 1997. Finally, fiscal 1997 sales to Unisys were slightly less than 10 percent of the Company's total sales. These results reflect the Company's dedication to continue 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 has resulted in a reduced dependency on IBM and GE. The reduction in IBM sales was discussed above. Sales in dollar terms to GE were up over 19 percent from fiscal 1996, the decrease as a percentage of net sales resulted from the Company's increasing sales to other customers. This dollar volume increase was primarily due to increased sales to GE Medical Systems. The increase in sales to Motorola resulted from new programs commenced in fiscal 1997. Sales to Unisys resulted from the transition of programs during the year to the Company. Currently the Company expects sales from IBM, GE and Unisys to remain steady in fiscal 1998. However, their percentage of total Company sales could continue to decline as other customers grow. The timing and amount of sales to Motorola vary due to its in-house manufacturing capacity. Sales to the Company's ten largest customers accounted for 68 percent, 70 percent, and 75 percent of total revenues in fiscal 1997, 1996, and 1995, respectively. The decline has occurred primarily due to the Company's ability to obtain new business from other customers, thereby reducing its dependency on these customers. The Company remains dependent upon continued sales to IBM, GE, Motorola, Unisys 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 $16.7 million, or 61 percent, in fiscal 1997 compared to fiscal 1996 and by $3.6 million, or 15 percent, during fiscal 1996 compared to fiscal 1995. The gross margin increased to 11.4 percent in fiscal 1997, from 8.6 percent in fiscal 1996. The gross margin in fiscal 1995 was 8.4 percent. The increase in gross margin in fiscal 1997 compared to fiscal 1996 reflects the leverage generated by higher sales volumes, continued cost savings from 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. The slight increase in gross margin in fiscal 1996 over fiscal 1995 was due to the cost-saving initiatives, together with enhanced procurement management, the continued broadening of the Company's customer base, declining material pricing and the increased utilization of the Company's Advanced Manufacturing Facility resulting from increased sales. These factors were mitigated by slower first half sales growth, and increased reserves and write-offs of inventories and accounts receivable, primarily due to improved inventory management procedures instituted in fiscal 1996. -12-
14 The fiscal 1996 cost-saving initiatives included reductions in production and administrative personnel, and equipment lease reductions. Specifically, the Company reduced production and administrative personnel by approximately 140 since February 1, 1996, through layoffs and attrition. These reductions amounted to an approximate 6 percent decrease in overall employment at the Company. In addition to the staffing decreases, the Company reduced fixed expenses, primarily through equipment lease reductions. Severance and related costs with respect to staff reductions and equipment lease reductions were not material. In the second half of fiscal 1996, the Company realized pre-tax cost savings of approximately $1.5 million. The Company also implemented tighter controls over the monitoring and addition of both variable and fixed costs. Future savings, which can not be assured, have continued but at reduced levels because of certain increases which were necessary to support the Company's continued growth in fiscal 1997. Most of the research and development conducted by the Company is paid for by customers and is, therefore, included in cost of sales. Other research and development is conducted by the Company, but is not specifically identified, as the Company believes such expenses are less than 1 percent of its total sales. The Company's gross margin also reflects a number of other factors, including product mix, the level of start-up costs and efficiencies of new programs, sales volume, capacity utilization of surface mount and other equipment, labor costs and efficiencies, the management of inventories, component pricing and shortages, 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 $17.2 million in fiscal 1997, compared to $13.3 million in fiscal 1996, and $11.3 million in fiscal 1995. As a percentage of sales, S&A expenses were 4.5 percent, 4.2 percent and 4.0 percent in fiscal 1997, 1996 and 1995, 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. In addition, fiscal 1997 amounts include provisions for attainment of the Company's management bonus plan. The Company anticipates that future S&A expenses will increase in absolute dollars but should remain between 4.5 percent and 4.7 percent of sales, as the Company continues to expand these support areas. OTHER INCOME (EXPENSE) Interest expense was $0.8 million in fiscal 1997, compared to $1.9 million in fiscal 1996 and $2.5 million in fiscal 1995. The continuous decrease in interest expense is primarily due to reduced borrowings required to support working capital, coupled with lower interest rates. See "Liquidity and Capital Resources." Miscellaneous income was $1.0 million in fiscal 1997, compared to $0.3 million in fiscal 1996 and 1995. The increase in 1997 includes approximately $600,000 in gains from the buyout and sale of certain leased manufacturing equipment. INCOME TAXES Income taxes increased to $10.7 million in fiscal 1997, from $4.9 million in fiscal 1996, and $3.9 million in fiscal 1995, as a result of increased earnings. The Company's effective income tax rate has remained constant at rates between 38 percent to 40 percent in fiscal 1997, 1996, and 1995. These rates approximate the blended Federal and state statutory rate as a result of the Company's operations being located within the United States. -13-
15 LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $20.4 million in fiscal 1997, compared to $29.2 million in fiscal 1996. Cash from operations was provided primarily by improved net profits. Accounts receivable increases have occurred primarily due to increased sales volumes. The changes in inventory and customer deposits reflect improved materials management. Inventory turnover improved to 6.7 turns as of September 30, 1997, from 5.6 turns as of September 30, 1996. The cash generated from operating activities was utilized primarily to purchase additional manufacturing equipment and to reduce outstanding debt. Borrowings under the Company's long-term revolving credit agreement have been reduced by approximately $12 million to $3.3 million as of September 30, 1997, from $15.2 million as of September 30, 1996. The Company also obtained $3.5 million in net capital as a result of stock option exercises, which were significant due to the increase in the Company's stock price in fiscal 1997. In 1997, the Company's $40 million revolving credit agreement was amended resulting in an unsecured arrangement and a reduction in the Company's borrowing rates. All other major terms were unchanged from the previous agreement. The new borrowing rates are LIBOR plus 0.875 percent and prime less 1/4 percent (previously LIBOR plus 0.875 percent to LIBOR plus 2 percent and prime less 1/4 percent to prime plus 1/4 percent). The Company's revolving credit agreement extends through July 2002. Capital additions of $10.7 million for fiscal 1997 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 1996 and 1995 were $4.1 million and $2.1 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 1998 to be similar to fiscal 1997 at approximately $10 to $12 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. The facility is the result of a partnership with Oneida Nation Electronics (ONE), a corporation chartered by the Oneida Tribe of Indians of Wisconsin. Pursuant to a lease agreement, ONE constructed and equipped the facility for use by the Company. 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. Company management believes this lease provides a financial arrangement under which the Company's earnings would be less likely to be negatively impacted during the start-up phase of the facility than under conventional financing methods, and capital commitments would be minimized, although it involves a sharing of potential future profits from the facility. The Company's Series A Preferred Stock was converted into 554,454 shares (pre-split) of Company Common Stock on February 28, 1997. (See footnote 6 to the Company's consolidated financial statements.) The ratio of total debt-to-equity as of September 30, 1997, was 0.8 to 1, compared to 1.2 to 1 as of September 30, 1996. -14-
16 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's recent acquisitions did not have a material effect on the Company's cash flows. 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. NEW ACCOUNTING PRINCIPLES The Company is required to adopt 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. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," in fiscal 1999. (See footnotes 1 and 9 to the Company's consolidated financial statements.) 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. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 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 1998 Annual Meeting of Shareholders ("1998 Proxy Statement") and from "Security Ownership of Certain Beneficial Owners and Management--Section 16(a) Beneficial Ownership Reporting Compliance" in the 1998 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 1998 Proxy Statement. -15-
17 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 1998 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 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 pages of this report, which index is incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K filed by the Company during the last quarter of fiscal 1997. -16-
18 PLEXUS CORP. 10-K LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE SEPTEMBER 30, 1997 <TABLE> <CAPTION> CONTENTS Pages -------- ----- <S> <C> Report of Independent Accountants F-2 Consolidated Statements of Operations for the three years ended F-3 September 30, 1997, 1996 and 1995. Consolidated Balance Sheets as of September 30, 1997 and 1996. F-4 Consolidated Statements of Stockholders' Equity for the three years F-5 ended September 30, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the three years ended F-6 September 30, 1997, 1996 and 1995. Notes to Consolidated Financial Statements F-7 TO F-11 Financial Statement Schedule: Report of Independent Accountants F-12 Schedule II - Valuation and Qualifying Accounts F-13 </TABLE> F-1
19 REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS PLEXUS CORP. We have audited the accompanying consolidated balance sheets of Plexus Corp. and Subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1997. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mistatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Plexus Corp. and Subsidiaries as of September 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Milwaukee, Wisconsin October 30, 1997 F-2
20 =============================================================================== PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATMENTS OF OPERATIONS for the years ended September 30, 1997, 1996 and 1995 (in thousands, except share data) <TABLE> 1997 1996 1995 <S> <C> <C> <C> - -------------------------------------------------------------------------------- Net sales $386,431 $316,124 $283,134 - -------------------------------------------------------------------------------- Cost of sales 342,415 288,791 259,438 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Gross profit 44,016 27,333 23,696 - -------------------------------------------------------------------------------- Selling and adminstrative expenses 17,199 13,346 11,261 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Operating income 26,817 13,987 12,435 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Other income (expense): - -------------------------------------------------------------------------------- Interest expense (787) (1,924) (2,470) - -------------------------------------------------------------------------------- Miscellaneous 1,050 314 317 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Income before income taxes 27,080 12,377 10,282 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Income taxes 10,680 4,946 3,939 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET INCOME $ 16,400 $ 7,431 $ 6,343 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net income per common and common equivalent share: - -------------------------------------------------------------------------------- Primary $ 1.08 $ 0.52 $ 0.45 - -------------------------------------------------------------------------------- Fully diluted $ 1.04 $ 0.52 $ 0.44 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Weighted average common and common equivalent shares: - -------------------------------------------------------------------------------- Primary 15,014,423 13,264,726 13,166,064 - -------------------------------------------------------------------------------- Fully diluted 15,790,885 14,376,428 14,498,572 - -------------------------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-3
21 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of September 30, 1997 and 1996 (in thousands, except share data) <TABLE> <CAPTION> ASSETS 1997 1996 <S> <C> <C> - ------------------------------------------------------------------------------ Current assets: - ------------------------------------------------------------------------------ Cash and cash equivalents $ 3,655 $ 1,847 - ------------------------------------------------------------------------------ Accounts receivable, net of allowance of $360 and $275 in 1997 and 1996, respectively 47,648 35,312 - ------------------------------------------------------------------------------ Inventories 47,931 54,386 - ------------------------------------------------------------------------------ Deferred income taxes 2,571 1,753 - ------------------------------------------------------------------------------ Prepaid expenses and other 981 1,451 - ------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 102,786 94,749 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Property, plant and equipment, net 18,687 12,423 - ------------------------------------------------------------------------------ Other 344 202 - ------------------------------------------------------------------------------ TOTAL ASSETS $ 121,817 $ 107,374 - ------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------ Current liabilities: - ------------------------------------------------------------------------------ Current portion of long-term debt $ 214 $ 63 - ------------------------------------------------------------------------------ Accounts payable 35,099 27,758 - ------------------------------------------------------------------------------ Customer deposits 3,414 8,614 - ------------------------------------------------------------------------------ Accrued liabilities: - ------------------------------------------------------------------------------ Salaries and wages 5,908 3,148 - ------------------------------------------------------------------------------ Other 4,893 3,741 - ------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 49,528 43,324 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Long-term debt 3,516 15,372 - ------------------------------------------------------------------------------ Deferred income taxes 998 661 - ------------------------------------------------------------------------------ Other liabilities 192 - - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Stockholders' equity: - ------------------------------------------------------------------------------ Series A preferred stock, $.01 par value, $1,000 face value, 7,000 shares authorized, 0 and 7,000 issued and outstanding, respectively - 0 - ------------------------------------------------------------------------------ Preferred stock, $.01 par value, 4,993,000 shares authorized, none issued or outstanding - - - ------------------------------------------------------------------------------ Common stock, $.01 par value, 20,000,000 shares authorized, 14,739,914 and 6,501,196 issued and outstanding, respectively 147 65 - ------------------------------------------------------------------------------ Additional paid-in capital 17,675 14,253 - ------------------------------------------------------------------------------ Retained earnings 49,761 33,699 - ------------------------------------------------------------------------------ 67,583 48,017 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,817 $ 107,374 - ------------------------------------------------------------------------------ </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-4
22 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended September 30, 1997, 1996 and 1995 (in thousands, except share data) <TABLE> <CAPTION> SERIES A ADDITIONAL TOTAL PREFERRED STOCK COMMON STOCK PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Balances, October 1, 1994 7,000 $ 0 6,460,498 $ 65 $ 13,829 $ 20,985 $ 34,879 - ----------------------------------------------------------------------------------------------------------------------------- Exercise of stock options - - 30,834 - 331 - 331 - ----------------------------------------------------------------------------------------------------------------------------- Net income - - - - - 6,343 6,343 - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock dividends ($77.69 per share) - - - - - (544) (544) - ----------------------------------------------------------------------------------------------------------------------------- Balances, September 30, 1995 7,000 0 6,491,332 65 14,160 26,784 41,009 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Exercise of stock options - - 9,864 - 93 - 93 - ----------------------------------------------------------------------------------------------------------------------------- Net income - - - - - 7,431 7,431 - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock dividends ($73.71 per share) - - - - - (516) (516) - ----------------------------------------------------------------------------------------------------------------------------- Balances, September 30, 1996 7,000 0 6,501,196 65 14,253 33,699 48,017 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Exercise of stock options - - 346,049 3 3,501 - 3,504 - ----------------------------------------------------------------------------------------------------------------------------- Net income - - - - - 16,400 16,400 - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock dividends ($48.33 per share) - - - - - (338) (338) - ----------------------------------------------------------------------------------------------------------------------------- Preferred stock conversion (7,000) 0 554,454 6 (6) - 0 - ----------------------------------------------------------------------------------------------------------------------------- Two-for-one common stock split - - 7,338,215 73 (73) - 0 - ----------------------------------------------------------------------------------------------------------------------------- BALANCES, SEPTEMBER 30, 1997 - $ - 14,739,914 $147 $ 17,675 $ 49,761 $ 67,583 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-5
23 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 1997, 1996 and 1995 (in thousands) <TABLE> CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995 - ------------------------------------------------------------------------------ <S> <C> <C> <C> Net income $ 16,400 $ 7,431 $ 6,343 - ------------------------------------------------------------------------------ Adjustments to reconcile net income to net cash flows from operating activities: - ------------------------------------------------------------------------------ Depreciation and amortization 4,487 3,653 3,237 - ------------------------------------------------------------------------------ Provision for inventories and accounts receivable allowances 2,253 2,145 341 - ------------------------------------------------------------------------------ Deferred income taxes (481) (906) 92 - ------------------------------------------------------------------------------ Non-operating gains (620) - - - ------------------------------------------------------------------------------ Changes in assets and liabilities: - ------------------------------------------------------------------------------ Accounts receivable (12,432) 12,060 (4,050 - ------------------------------------------------------------------------------ Inventories 4,298 (7,377) 10,929 - ------------------------------------------------------------------------------ Prepaid expenses and other 470 479 1,270 - ------------------------------------------------------------------------------ Accounts payable 7,341 4,479 (13,612 - ------------------------------------------------------------------------------ Customer deposits (5,200) 5,084 29 - ------------------------------------------------------------------------------ Accrued liabilities 3,912 2,178 (333 - ------------------------------------------------------------------------------ Other (67) 17 (58 - ------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 20,361 29,243 4,188 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------------------------------------------------ Payments for property, plant and equipment (10,738) (4,144) (2,106 - ------------------------------------------------------------------------------ Proceeds on sale of property, plant and equipment 724 8 19 - ------------------------------------------------------------------------------ CASH FLOWS USED IN INVESTING ACTIVITIES (10,014) (4,136) (2,087 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------------------------------------------------ Proceeds from debt 96,442 196,300 121,900 - ------------------------------------------------------------------------------ Payments on debt (108,147) (222,706) (121,300 - ------------------------------------------------------------------------------ Proceeds from exercise of stock options 3,504 93 331 - ------------------------------------------------------------------------------ Payments of preferred stock dividends (338) (516) (544 - ------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,539) (26,829) 387 - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 1,808 (1,722) 2,488 - ------------------------------------------------------------------------------ Cash and cash equivalents, beginning of year 1,847 3,569 1,081 - ------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,655 $ 1,847 $ 3,569 - ------------------------------------------------------------------------------ </TABLE> The accompanying notes are an integral part of these consolidated financial statements. F-6
24 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I. 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 and North Carolina. 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 are 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. Stock Options: Proceeds from the sale of newly issued common stock to employees under the Company's stock option plan are credited to common stock to the extent of par value and the excess to additional paid-in capital. Income tax benefits attributable to stock options exercised are recorded as an increase in additional paid-in captial. Net Income Per Common and Common Equivalent Share: The computation of primary net income per common share is based upon the weighted average number of common shares outstanding plus the effect of common shares contingently issuable relating to outstanding stock options using the treasury stock method and net income reduced for preferred stock dividends. The computation of fully diluted net income per common share reflects additional dilution from stock options and convertible preferred shares using if-converted method. The Company is required to adopt Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" in the first quarter of fiscal 1998. SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share. Under SFAS No. 128, the Company will be required to present both basic net income per share and diluted net income per share. Basic net income per share is expected to be higher than the currently presented primary net income per share as the effect of dilutive stock options will not be considered in computing basic net income per share. Diluted net income per share is expected to be comparable to the currently presented fully diluted net income per share. Upon adoption of this statement, all prior-period earnings per share data will be restated to conform to the provisions of SFAS No. 128. The Company is required to adopt SFAS No. 130, "Reporting Comprehensive Income" in fiscal 1999. SFAS No. 130 requires reporting comprehensive income in a financial statement, which includes, in addition to net income, other items that are reported as direct adjustments to stockholders' equity. Such items include foreign currency translation items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. Presently the Company does not have any items that would require inclusion under this statement. 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. F-7
25 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. INVENTORIES Inventories as of September 30, 1997 and 1996 consist of (in thousands): <TABLE> <CAPTION> 1997 1996 - ------------------------------------------------------------------------ <S> <C> <C> Assembly parts $ 28,828 $ 37,941 - ------------------------------------------------------------------------ Work-in-process 18,557 16,281 - ------------------------------------------------------------------------ Finished goods 546 164 - ------------------------------------------------------------------------ $ 47,931 $ 54,386 ======================================================================== </TABLE> NOTE 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of September 30, 1997 and 1996 consist of (in thousands): <TABLE> <CAPTION> 1997 1996 - ------------------------------------------------------------------------ <S> <C> <C> Land, buildings and improvements $ 8,583 $ 8,414 - ------------------------------------------------------------------------ Machinery and equipment 35,439 25,262 - ------------------------------------------------------------------------ 44,022 33,676 - ------------------------------------------------------------------------ Less accumulated depreciation 25,335 21,253 - ------------------------------------------------------------------------ $ 18,687 $ 12,423 ======================================================================== </TABLE> NOTE 4. DEBT Long-term debt as of September 30, 1997 and 1996 consists of (in thousands): <TABLE> <CAPTION> 1997 1996 - ------------------------------------------------------------------------ <S> <C> <C> Revolving credit arrangement $ 3,250 $ 15,200 - ------------------------------------------------------------------------ Other notes and obligations with a weighted average interest rate of 3.0% and 5.5%, respectively 480 235 - ------------------------------------------------------------------------ 3,730 15,435 - ------------------------------------------------------------------------ Less current portion 214 63 - ------------------------------------------------------------------------ $ 3,516 $ 15,372 ======================================================================== </TABLE> The Company's revolving credit arrangement was amended in March 1997. The agreement 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% (previously rates ranged from LIBOR plus 0.875% to LIBOR plus 2% and prime less 1/4% to prime plus 1/4%). The weighted average interest rate of borrowings under this agreement was 6.6% as of September 30, 1997. The credit arrangement is unsecured (previously was limited to the sum of 80% of qualified accounts receivable and the lesser of 50% or $27.5 million of qualified inventory, and was collateralized by accounts receivable and inventories). 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. The aggregate scheduled maturities of long-term debt in subsequent years are as follows (in thousands): <TABLE> - ------------------------------------------------------------------------ <S> <C> 1998 $ 214 - ------------------------------------------------------------------------ 1999 114 - ------------------------------------------------------------------------ 2000 10 - ------------------------------------------------------------------------ 2001 11 - ------------------------------------------------------------------------ 2002 3,261 - ------------------------------------------------------------------------ Thereafter 120 - ------------------------------------------------------------------------ $ 3,730 ======================================================================== </TABLE> Cash paid for interest in fiscal 1997, 1996 and 1995 was $0.9 million, $2.0 million and $3.0 million, respectively. F-8
26 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INCOME TAXES Income tax expense (benefit) consists of (in thousands): <TABLE> <CAPTION> 1997 1996 1995 - -------------------------------------------------------------- <S> <C> <C> <C> Currently payable: Federal $ 9,422 $ 4,983 $ 3,209 - -------------------------------------------------------------- State 1,739 869 638 - -------------------------------------------------------------- 11,161 5,852 3,847 - -------------------------------------------------------------- Deferred: - -------------------------------------------------------------- Federal (422) (800) 52 - -------------------------------------------------------------- State (59) (106) 40 - -------------------------------------------------------------- (481) (906) 92 - -------------------------------------------------------------- $ 10,680 $ 4,946 $ 3,939 - -------------------------------------------------------------- </TABLE> 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 1997, 1996 and 1995: <TABLE> <CAPTION> 1997 1996 1995 - -------------------------------------------------------------- <S> <C> <C> <C> Federal statutory income tax rate 34.0% 34.0% 34.0% - -------------------------------------------------------------- Increase (decrease) resulting from: - -------------------------------------------------------------- State income taxes, net of Federal income tax benefit 4.2 4.1 4.4 - -------------------------------------------------------------- Other, net 1.2 1.9 (0.1) - -------------------------------------------------------------- EFFECTIVE INCOME - -------------------------------------------------------------- TAX RATE 39.4% 40.0% 38.3% - -------------------------------------------------------------- </TABLE> The components of the net deferred income tax asset as of September 30, 1997 and 1996, consist of (in thousands): <TABLE> <CAPTION> 1997 1996 - ----------------------------------------------------------------------- <S> <C> <C> Deferred tax assets: - ----------------------------------------------------------------------- Inventories $ 1,423 $ 713 - ----------------------------------------------------------------------- Accrued benefits 753 582 - ----------------------------------------------------------------------- Capital loss carryforwards 160 207 - ----------------------------------------------------------------------- Other 395 458 - ----------------------------------------------------------------------- 2,731 1,960 - ----------------------------------------------------------------------- Less valuation allowance (160) (207) - ----------------------------------------------------------------------- 2,571 1,753 - ----------------------------------------------------------------------- Deferred tax liabilities: - ----------------------------------------------------------------------- Property, plant and equipment 998 661 - ----------------------------------------------------------------------- NET DEFERRED INCOME TAX ASSET $ 1,573 $ 1,092 - ----------------------------------------------------------------------- </TABLE> The Company records a valuation allowance to reflect the estimated amount of deferred income tax assets which relate to the realization of capital losses. Cash paid for income taxes in fiscal 1997, 1996 and 1995 was $11.1 million, $5.0 million and 4.6 million, respectively. 6. STOCKHOLDERS' EQUITY On February 4, 1997, the Company gave notice to the holders of its Series A Preferred stock ("Preferred Shares") that the shares would be redeemed unless the 7,000 Preferred Shares were converted into shares of the Company's common stock. On February 28, 1997, the holders of the 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. 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 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. 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 noncancelable and expire on various dates through 2014. Rent expense under all operating leases for fiscal 1997, 1996 and 1995 was approximately $10.2 million, $13.5 million and $12.5 million, respectively. Renewal and purchase options are available on certain of these leases. The subsequent 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): 1998 $ 7,311 - --------------------------------------- 1999 5,380 - --------------------------------------- 2000 4,153 - --------------------------------------- 2001 2,056 - --------------------------------------- 2002 1,926 - --------------------------------------- Thereafter 15,827 - --------------------------------------- $ 36,653 -------------------------------------- F-9
27 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. BENEFIT PLANS 401(K) Savings Plan: The Company's 401(k) savings plan covers all employees with 90 days or more of service. 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 the fiscal 1997, 1996 and 1995 totaled $966,000, $828,000 and $644,000, respectively. Stock Option Plans: The company has reserved 3.8 million shares of common stock for grant to officers and key employees under employee stock options plans. The exercise price of each option granted shall not be less than the fair market values on the date of grant and options vest over a three-year period from date of grant. The plans also authorize 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 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 this plan may come from any combination of authorized but unissued shares, treasury stock or the open market. A summary of the stock option activity follows (shares in thousands): <TABLE> <CAPTION> 1997 1996 1995 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 2,029 $ 6.16 1,501 $ 5.90 1,122 $ 5.42 - ------------------------------------------------------------------------------------------------------------------------------------ Granted 668 $ 12.12 563 $ 6.80 490 $ 6.92 - ------------------------------------------------------------------------------------------------------------------------------------ Canceled (32) $ 6.68 (16) $ 6.40 (50) $ 5.63 - ------------------------------------------------------------------------------------------------------------------------------------ Exercised ($1.27 - $8.31 per share) (632) $ 5.57 (19) $ 4.69 (61) $ 5.37 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ OPTIONS OUTSTANDING AT END OF YEAR 2,033 $ 8.29 2,029 $ 6.16 1,501 $ 5.90 - ------------------------------------------------------------------------------------------------------------------------------------ OPTIONS EXERCISABLE AT END OF YEAR 883 $ 6.23 1,061 $ 5.72 700 $ 5.44 - ------------------------------------------------------------------------------------------------------------------------------------ SHARES AVAILABLE FOR FUTURE - ------------------------------------------------------------------------------------------------------------------------------------ OPTIONS AT END OF YEAR 576 1,212 1,759 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> The following table summarizes outstanding stock option information at September 30, 1997 (shares in thousands): <TABLE> <CAPTION> RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE <S> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ $ $ 1.27 5 $ 1.27 0.6 Years 5 $ 1.27 - ------------------------------------------------------------------------------------------------------------------------------------ $ 2.42- $ 2.46 88 $ 2.45 3.7 Years 88 $ 2.45 - ------------------------------------------------------------------------------------------------------------------------------------ $ 5.21- $ 7.03 1,159 $ 6.49 7.8 Years 649 $ 6.24 - ------------------------------------------------------------------------------------------------------------------------------------ $ 8.31- $ 12.31 781 $ 11.66 8.7 Years 141 $ 8.70 - ------------------------------------------------------------------------------------------------------------------------------------ $ 1.27- $ 12.31 2,033 $ 8.29 7.9 Years 883 $ 6.23 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> The Company has elected to continue 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 has been recognized in the statement 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 1997 and 1996 would have been reduced by approximately $5.1 million and $0.7 million, respectively. Primary earnings per share would have been reduced by $0.36 and $0.05, respectively. these pro forma results will not be representative of the impact in future years because only grants made since October 1, 1995 were considered. The 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 assumptions: 45% volatility, 0% annual dividend yield, and risk-free interest rates ranging from 5.3% to 6.6% based on expected terms and grant dates. F-10
28 PLEXUS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $315,000 and $29,000 in fiscal 1997 and 1996, 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 its subsidiaries operate in one business segment, the production and sale of electronic products including the designing, manufacturing, programming 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 1997, 1996 and 1995: 1997 1996 1995 - -------------------------------------------------------------------------------- IBM 12% 26% 26% - -------------------------------------------------------------------------------- General Electric 13% 13% 17% - -------------------------------------------------------------------------------- Motorola 10% * * - -------------------------------------------------------------------------------- (*represents sales less than 10%) Accounts receivable related to these customers represented 28% of the Company's trade accounts receivable as of September 30, 1997. 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. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for fiscal 1997 and 1996 consists of (in thousands, except per share amounts): <TABLE> <CAPTION> 1997 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> 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 - ------------------------------------------------------------------------------------------------------------------------------------ Income per common share* - ------------------------------------------------------------------------------------------------------------------------------------ Primary $ 0.20 $ 0.24 $ 0.29 $ 0.34 $ 1.08 - ------------------------------------------------------------------------------------------------------------------------------------ Fully diluted 0.20 0.23 0.28 0.34 1.04 - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> 1996 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Net sales $ 71,308 $ 75,286 $ 86,066 $ 83,464 $ 316,124 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 4,673 5,176 7,923 9,561 27,333 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 805 839 2,604 3,183 7,431 - ------------------------------------------------------------------------------------------------------------------------------------ Income per common share* - ------------------------------------------------------------------------------------------------------------------------------------ Primary $ 0.06 $ 0.06 $ 0.18 $ 0.23 $ 0.52 - ------------------------------------------------------------------------------------------------------------------------------------ Fully diluted 0.06 0.06 0.18 0.22 0.52 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> (*) Income per common share is computed independently for each quarter. The annual per share amount may not equal the sum of the quarterly amounts do to rounding. F-11
29 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Plexus Corp. Our report on the consolidated financial statements of Plexus Corp. is included on page F-2 of the Form 10-K. In connection with our audits of such financial statements, we have also audited the related consolidated financial statement schedule listed in the index on page F-1 of this Form 10-K. In our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand LLP - ------------------------- Milwaukee, Wisconsin October 30, 1997 F-12
30 PLEXUS CORP. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended September 30, 1997, 1996 and 1995 (Dollars in thousands) <TABLE> <CAPTION> Additions Balance at Charged to Balance Beginning Costs and Deductions At End of Descriptions of Period Expenses (A) Period - ------------------------------ ---------- ---------- ---------- --------- <S> <C> <C> <C> <C> 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 ======= ======= ======= ======= 1995: Allowance for losses on accounts receivable (deducted from the asset to which it relates) $ 130 $ 189 $ 174 $ 145 Allowance for inventory obsolescence (deducted from the asset to which it relates) 735 152 580 307 ------- ------- ------- ------- $ 865 $ 341 $ 754 $ 452 ======= ======= ======= ======= </TABLE> F-13
31 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. December 23, 1997 PLEXUS CORP. (Registrant) By /s/ Peter Strandwitz -------------------------- (Registrant) Peter Strandwitz, Chairman 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 with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirement of the Security Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.* SIGNATURE AND TITLE /s/ Peter Strandwitz /s/ Rudolph T. Hoppe - ----------------------------------- ---------------------------------------- Peter Strandwitz, Rudolph T. Hoppe, Director Chairman and Chief Executive Officer, and Director /s/ John L. Nussbaum /s/ Harold R. Miller - ----------------------------------- ---------------------------------------- John L. Nussbaum, President Harold R. Miller, Director and Chief Operating Officer, and Director /s/ Thomas B. Sabol /s/ Gerald A. Pitner - ----------------------------------- ---------------------------------------- Thomas B. Sabol, Gerald A. Pitner, Director Vice President-Finance and Chief Financial Officer /s/ William F. Denney /s/ Thomas J. Prosser - ----------------------------------- ---------------------------------------- William F. Denney, Vice President Thomas J. Prosser, Director and Treasurer (Principal Accounting Officer) ________________ * Each of the above signatures is affixed as of December 23, 1997.
32 EXHIBIT INDEX PLEXUS CORP. 10-K FOR YEAR ENDED SEPTEMBER 30, 1997 <TABLE> <CAPTION> INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH - ----------- ------- ------------ -------- <S> <C> <C> <C> 3(i) Restated Articles of Exhibit 3(i) to Plexus' Plexus Corp., as amended Quarterly Report on through June 29, 1994 Form 10-Q for the quarter ended June 30, 1994 ("6/30/94 10-Q") 3(ii) Bylaws of Plexus Corp., Exhibit 3(ii) to as amended through Plexus' Report on Form November 14, 1996 10-K for the year ended September 30, 1996 ("1996 10-K") 4.1 Restated Articles of Exhibit 3(i) to 6/30/94 10-Q Incorporation of Plexus Corp. 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 x 10.2 Employment Agreements dated 11/15/88** with (a) William F. Denney Exhibit 10.10(b) to 1988 10-K (b) Joseph D. Kaufman Exhibit 10.10(c) to 1988 10-K 10.3 Employee Savings Plan and Trust**: (a) Plan Document Exhibit 10.3(a) to 1996 10-K (b) Non-Standardized Form Exhibit 10.3(b) to 1996 10-K Adoption Agreement 10.4 1988 Stock Option Plan, Exhibit 12.12 to as amended** Plexus' Annual Report on Form 10-K for the year ended September 30, 1992 ("1992 10-K") </TABLE>
33 <TABLE> <CAPTION> INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH - ----------- ------- ------------ -------- <S> <C> <C> <C> 10.5(a) Credit Agreement dated X as of March 20, 1997 among Firstar Bank Milwaukee, National Association, Harris Trust and Savings Bank, and Bank One, Wisconsin (the "Credit Agreement")* (b) Corporate Guarantee Agreements related thereto dated as of March 20, 1997 by: (i) EAC X (ii) Technology Group, Inc. X 10.6(a) Lease Agreement between Neenah (WI) QRS 11-31, Inc. ("QRS: 11-31") and EAC, dated August 11, 1994* Exhibit 10.8(a) to 1994 10-K (b) Bill of Sale of EAC to Exhibit 10.8(b) to 1994 10-K QRS: 11-31 dated August 31, 1994, together with related Seller's/Lessee's Certificate of EAC (c) Guaranty and Suretyship Exhibit 10.8(c) to 1994 10-K Agreement 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 Exhibit 10.9 to 1994 10-K Executive Stock Option Plan** 10.8 Plexus Corp. 1995 Exhibit 10.10 to 1994 10-K Directors' Stock Option Plan** 10.9 Plexus Corp. 1995 Senior Exhibit 10.11 to 1994 10-K Executive Incentive Compensation Plan** 10.10 Plexus Corp. 1998 X Management Incentive Compensation Plan** 10.11 Plexus Corp. 1998 Option Exhibit A to the Plan** Registrant's definitive proxy statement for its 1998 Annual Meeting of Shareholders 10.12 Lease Agreement dated Exhibit 10.16 to 3/31/96 10-Q February 12, 1996 between Plexus and Oneida Nation Electronics </TABLE>
34 <TABLE> <CAPTION> INCORPORATED BY FILED EXHIBIT NO. EXHIBIT REFERENCE TO HEREWITH - ----------- ------- ------------ -------- <S> <C> <C> <C> 11 Statement regarding computation of Per Share Earnings X 21 List of Subsidiaries X 23 Consent of Coopers X & Lybrand L.L.P. 24 Power of Attorney (Signature Page Hereto) 27 Financial Data Schedule X </TABLE> ______________________ * Excludes certain schedules and/or exhibits, which will be furnished to the Commission upon request. ** Designates management compensatory plans or agreements.