1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter ended December 31, 1998 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 000-14824 PLEXUS CORP. (Exact name of registrant as specified in charter) Wisconsin 39-1344447 (State of Incorporation) (IRS Employer Identification No.) 55 Jewelers Park Drive Neenah, Wisconsin 54957-0156 (Address of principal executive offices)(Zip Code) Telephone Number (920) 722-3451 (Registrant's telephone number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ As of February 8, 1999 there were 15,126,063 shares of Common Stock of the Company outstanding.
2 PLEXUS CORP. TABLE OF CONTENTS December 31, 1998 and 1997 <TABLE> <S> <C> PART I. FINANCIAL INFORMATION....................................................................................3 Item 1. Consolidated Financial Statements...............................................................3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.................................................3 CONDENSED CONSOLIDATED BALANCE SHEETS...........................................................4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........8 GENERAL.........................................................................................8 YEAR 2000 ISSUES...............................................................................10 RESULTS OF OPERATIONS..........................................................................12 LIQUIDITY AND CAPITAL RESOURCES................................................................14 Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................14 PART II - OTHER INFORMATION......................................................................................15 Item 6. Exhibits and Reports on Form 8-K..............................................................15 SIGNATURE........................................................................................................15 </TABLE>
3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) Unaudited <TABLE> <CAPTION> Three Months Ended December 31, -------------------------------------------- 1998 1997 ---- ---- <S> <C> <C> Net sales $ 101,729 $ 95,905 Cost of sales 87,446 85,611 ------------ ------------ Gross profit 14,283 10,294 Selling and administrative expenses 5,097 4,194 ------------ ------------ Operating income 9,186 6,100 Other income (expense): Interest expense (2) (4) Other 374 108 ------------ ------------ Income before income taxes 9,558 6,204 Provision for income taxes 3,825 2,459 ------------ ------------ Net income $ 5,733 $ 3,745 ============ ============ Earnings per share: Basic $ 0.39 $ 0.25 ============ ============ Diluted $ 0.36 $ 0.23 ============ ============ Weighted average shares outstanding: Basic 14,890,831 14,795,773 ============ ============ Diluted 16,081,091 16,139,244 ============ ============ </TABLE> See notes to condensed consolidated financial statements
4 PLEXUS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) Unaudited <TABLE> <CAPTION> December 31, September 30, 1998 1998 -------------------------------------------- ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $ 28,488 $ 23,195 Accounts receivable, net of allowance of $565 and $505, respectively 47,243 48,433 Inventories 45,875 44,303 Deferred income taxes 3,867 3,344 Prepaid expenses and other 2,430 1,976 --------- --------- Total current assets 127,903 121,251 Property, plant and equipment, net 22,471 21,355 Other 1,116 1,059 --------- --------- Total assets $ 151,490 $ 143,665 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current liabilities Current portion of long-term debt $ 62 $ 114 Accounts payable 36,220 36,948 Customer deposits 4,418 3,787 Accrued liabilities: Salaries and wages 4,285 5,161 Other 7,660 6,945 --------- --------- Total current liabilities 52,645 52,955 Long-term debt 150 152 Deferred income taxes 741 700 Other liabilities 608 519 Stockholders' equity: Preferred stock $.01 par value, 5,000,000 shares authorized, none issued or outstanding - - Common stock, $.01 par value, 60,000,000 shares authorized, 14,984,748 and 14,830,689 issued, respectively 150 148 Additional paid-in capital 23,898 21,776 Retained earnings 73,372 67,920 Treasury stock, at cost, 2,500 and 28,944 shares, respectively (74) (505) --------- --------- 97,346 89,339 --------- --------- Total liabilities and stockholders' equity $ 151,490 $ 143,665 ========= ========= </TABLE>
5 See notes to condensed consolidated financial statements PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Unaudited <TABLE> <CAPTION> Three Months Ended December 31, -------------------------------------- 1998 1997 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,733 $ 3,745 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 1,750 1,427 Deferred income taxes (482) (147) Changes in assets and liabilities: Accounts receivable 1,190 5,759 Inventories (1,572) 1,037 Prepaid expenses and other (454) (1,518) Accounts payable (728) (507) Customer deposits 631 (1,092) Accrued liabilities (161) (3,681) Other (5) (669) -------- -------- Cash flows provided by operating activities 5,902 4,354 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (2,845) (3,713) Other 16 19 -------- -------- Cash flows used in investing activities (2,829) (3,694) -------- -------- CASH FLOWS FROM FInANCING ACTIVITIES Payments on debt (54) (3,303) Proceeds from exercise of stock options 693 425 Tax benefit from stock options exercised 1,150 2,880 Treasury stock purchased (74) (707) Treasury stock reissued 505 147 -------- -------- Cash flows provided by (used in) financing activities 2,220 (558) -------- -------- Net increase in cash and cash equivalents 5,293 102 -------- -------- Cash and cash equivalents: Beginning of period 23,195 3,655 -------- -------- End of period $ 28,488 $ 3,757 ======== ======== </TABLE>
6 See notes to condensed consolidated financial statements PLEXUS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company without audit and pursuant to the rules and regulations of the United States Securities and Exchange Commission. In the opinion of the Company, the financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to present fairly the financial position of Plexus Corp. at December 31, 1998 and the results of operations for the three months ended December 31, 1998 and 1997 and the cash flows for the same three-month periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the condensed consolidated financial statements included herein are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Annual Report. The condensed consolidated balance sheet data at September 30, 1998 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE 2 - INVENTORIES The major classes of inventories are as follows (in thousands): <TABLE> <CAPTION> December 31, September 30, 1998 1998 ------------ ------------- <S> <C> <C> Assembly parts $ 27,553 $ 25,165 Work-in-process 16,622 18,089 Finished goods 1,700 1,049 -------- -------- $ 45,875 $ 44,303 ======== ======== </TABLE>
7 NOTE 3 - EARNINGS PER SHARE The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share (in thousands except per share amounts): <TABLE> <CAPTION> Three Months Ended December 31, -------------------------------- 1998 1997 -------------------------------- <S> <C> <C> Basic earnings per share: Net income $ 5,733 $ 3,745 ======= ======= Weighted average shares outstanding 14,891 14,796 ======= ======= Basic earnings per share $ 0.39 $ 0.25 ======= ======= Diluted earnings per share: Net income $ 5,733 $ 3,745 ======= ======= Weighted average shares outstanding 14,891 14,796 Effect of dilutive securities: Stock options 1,190 1,343 ------- ------- Diluted weighted average shares outstanding 16,081 16,139 ======= ======= Diluted earnings per share $ 0.36 $ 0.23 ======= ======= </TABLE> NOTE 4 - NEW ACCOUNTING PRINCIPLES The Company is required to adopt the Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information," in fiscal 1999. SFAS No. 131 is not required to be applied to interim financial statements in the initial year of adoption. The Company is also required to adopt the American Institute of Certified Public Accountants Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," in fiscal 2000. The Company does not believe the adoption of these statements will have a significant impact on its financial position or results of operations. NOTE 5 - RECLASSIFICATIONS AND RESTATEMENTS Certain amounts in prior years' condensed consolidated financial statements have been reclassified to conform to the 1999 presentation.
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of historical matters, contains forward-looking statements (such as statements in the future tense and statements including "believe", "expect", "intend", "plan", "look forward to", "anticipate" and similar terms) are forward-looking statements that involve risks and uncertainties. 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 service provider of design, manufacturing and testing services to the electronics industry, headquartered in Neenah, Wisconsin. Through its wholly owned subsidiaries, Plexus Technology Group, Inc., and Plexus Electronic Assembly Corporation, the Company provides product realization services to original equipment manufacturers in the medical, computer (primarily mainframes, servers and peripherals), industrial, telecommunications and transportation electronics industries. The Company offers a full range of services including product development and design, material procurement and management, prototyping, assembly, testing, manufacturing, final system box build and distribution. The Company has operations in Wisconsin, Kentucky, North Carolina, Minnesota and California. The Company has announced plans to open a new engineering facility in Colorado. The Company continues to look for opportunities for geographical expansion that will improve the Company's ability to provide services to its customers. The Company's contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies some, or occasionally all, materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment and inventory risk management than consignment services. Turnkey manufacturing currently represents almost all of the Company's sales. Turnkey sales typically generate higher net sales and higher gross profit dollars with lower gross margin percentages than consignment sales due to the inclusion of component costs, and related markup, in the Company's net sales. However, a change in component costs can directly impact the average selling price, gross margins and the Company's net sales. Due to the nature of turnkey manufacturing, the Company's quarterly and annual results are affected by the level and timing of customer orders, fluctuations in materials costs, and the degree of automation used in the assembly process.
9 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. While in general the marketplace for such components has eased, allowing greater availability, key component shortage issues can still occur with respect to specific industries or particular components. In response to this dynamic environment, the Company has a corporate procurement organization whose primary purpose is to create strong supplier alliances to assure a steady flow of components at competitive prices and mitigate shortages. Strategic relationships have been established with international purchasing offices to improve shortage and pricing issues. However, because of the limited number of suppliers for certain electronic components and other supply and demand concerns, the Company can neither eliminate component shortages nor determine the timing or impact of such shortages on the Company's results. As a result, the Company's sales and profitability can be affected from period to period. Many of the industries for which the Company currently provides electronic products are subject to rapid technological changes, product obsolescence, increased competition, and pricing pressures. In both the quarter ending December 31, 1998 and in fiscal 1998, approximately 4 percent of the Company's total sales were foreign, with less than 2 percent going into the Southeast Asian market, which is currently experiencing unfavorable currency and economic conditions. These and other factors which affect the industries or the markets that the Company serves, and which affect any of the Company's major customers in particular, could have a material adverse effect on the Company's results of operations. The Company has no long-term volume commitments from its customers, and lead-times for customer orders and product-life cycles continue to contract. Although the Company obtains firm purchase orders from its customers, they typically do not make firm orders for delivery of products more than 30 to 90 days in advance. The Company does not believe that the backlog of expected product sales covered by firm purchase orders is a meaningful measure of future sales since orders may be canceled and volume levels can be changed or delayed at any time. The timely replacement of delayed, canceled or reduced programs with new business cannot be assured. Because of these and other factors, there can be no assurance that the Company's historical sales growth rate will continue. See "Results of Operations -- Net Sales" below for certain factors affecting net sales to the Company's largest customers. The Company believes that its growth has been achieved in significant part by its approach to partnering with customers mainly through its product design and development services coupled with the Company's strategy of focusing on those customers with a long-term outsourcing strategy and a need for complex products requiring the Company's sophisticated technology and engineering capabilities. Approximately 15 to 20 percent of the Company's contract manufacturing sales are a direct result of the product design and development 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
10 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, and any future, regional product design centers into this strategy. In addition, the Company must continue to attract and retain top quality product development engineers in order to continue to expand its design and development services. Because of these and other factors, there can be no assurance that the Company's historic growth rate will continue. Start-up costs and the management of labor and equipment efficiencies for new programs and new customers can have an effect on the Company's gross margins. Due to these and other factors, gross margins can be negatively impacted early on in the life cycle of new programs. In addition, labor efficiency and equipment utilization rates ultimately achieved and maintained by the Company for new and current programs impact the Company's gross margins. Geographical expansion and growth by acquisition can have an effect on the Company's operations. The successful operation of an acquired business will require communication and cooperation among key managers, along with the transition of customer relationships. There can be no assurance that the Company will successfully manage the integration of new locations or acquired operations and may experience certain inefficiencies which could negatively impact the results of operations. Additionally, no assurance can be given that any past or future acquisition by the Company will enhance the Company's business. The Company operates in a highly competitive industry. The Company faces competition from a number of domestic and foreign electronic manufacturing services companies, some with financial and manufacturing resources greater than the Company's. The Company also faces competition in the form of current and prospective customers that have the capabilities to develop and manufacture products internally. In order to remain a viable alternative, the Company must continue to enhance its total engineering and manufacturing technologies. Other factors that could adversely affect forward-looking statements include the Company's ability to maintain and expand its customer base, gross margin pressures, the effect of start-up costs related to new facilities, year 2000 compliance issues (including those discussed below), the overall economic conditions affecting the electronics industry, and other factors and risks detailed herein and in the Company's other Securities and Exchange Commission filings. YEAR 2000 ISSUES The Company has a corporate information technology organization whose primary purpose is to ensure vision and direction of information systems to meet internal and external needs. The Company must keep pace with rapid technological developments in its management information systems and its production facilities and equipment, and can experience costs and conversion difficulties in connection with the implementation of new systems and processes. In
11 addition, like all other companies, the Company must assure that its computer and software systems, and other machinery and systems that depend upon computer-driven operations or which have embedded chips or micro-processors, are capable of accurately functioning and accurately recognizing and processing data in the year 2000 and beyond ("Year 2000 Compliant"). The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's manufacturing, design and testing equipment, computer programs or computer hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather that the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to operate equipment, process transactions or engage in similar normal business activities. The Company has developed a Year 2000 compliance strategy and methodology to help assure the Company can continue to provide engineering and manufacturing services in the year 2000 and beyond. The Company's A/S400 hardware and software system, which handles virtually all production data processing and accounting, has been tested and documented to be Year 2000 compliant. Final compliancy approval was completed in December 1998. The Company is targeting June 30, 1999 to be compliant on all other mission critical items. The Company's Year 2000 strategy defines focus teams responsible for information systems including hardware and software; production and facility equipment and systems; test equipment and software; engineering development systems; component and inventory issues; customer and supplier issues; and third party agents and extended enterprises. Each team will complete four phases to assure Year 2000 compliance which include a complete inventory and risk assessment of items or issues (risk assessment defined as mission critical, non mission critical, or not date sensitive); a strategy plan including contingencies or remediation; the actual conversion or remediation including testing and documentation; and compliancy approval. The first phase of the plan (inventory and risk assessment) was completed in December of 1998. The overall strategy has been determined and the initial contingency plans are in various stages of completion. The actual conversion, remediation and testing has commenced and is expected to continue through May 1999. Final compliancy approval is expected to be completed by the end of June 1999. Final contingency plans are scheduled to be in place by September 1999 for any remaining or unexpected items. The Company believes the costs associated with the Year 2000 compliancy plan will be mostly current internal labor expenses and are not expected to materially increase. Future compliancy costs have not been determined, but are not expected to be material. Other non-Year 2000 efforts have not been materially delayed or impacted by Year 2000 compliancy plan initiatives. There can be no assurance that these estimates will prove to be accurate and actual results could differ materially from those currently anticipated.
12 The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, if all Year 2000 issues are not properly identified, or assessment, remediation and testing are not effected timely with respect to Year 2000 problems that are identified, there can be no assurance that the Year 2000 issue will not materially adversely impact the Company's results of operations or adversely affect the Company's relationships with customers, vendors or others. The most reasonably likely worst case scenario could cause a production shut down in one or more facilities. The Company has not yet completed a contingency plan for such occurrence, but has included completion of a contingency plan in its Year 2000 planning as discussed above. There can be no assurance that the Year 2000 issues of other entities will not have a material adverse impact on the Company's systems or results of operations. Additionally, there can be no assurance that potential future costs of defending and resolving claims, if any, will not have a material adverse impact on the Company's results of operations. RESULTS OF OPERATIONS NET SALES Net sales for the three months ended December 31, 1998, increased 6 percent to $101.7 million from $95.9 million for the same period in the prior fiscal year. Unit volume sales were strong; however, sales growth was impacted by industry-wide pressure on average selling prices, component prices, and on the Company's continued conscious decision to move toward higher technology business. These factors are expected to continue into the second quarter. Although there can be no assurances, the Company presently anticipates sales volume to remain steady, subject to the development and timing of new customers and new programs. Sales increased by industry segment, from the same period in the prior fiscal year, across all industries served, except computer and transportation, as a result of the Company's successful strategy of shifting our business mix towards customers with a long-term outsourcing strategy and a need for complex products requiring the Company's sophisticated technology and engineering capabilities. Sales for the quarter ending December 31, 1998 and 1997, respectively, by industry were as follows: Medical 24 percent (20 percent), Telecommunications 23 percent (12 percent), Industrial 21 percent (21 percent), Computer 17 percent (29 percent), Transportation 8 percent (15 percent), and Other 7 percent (3 percent). The Company does not expect there will be any material changes in the breakdown of its sales by industry in fiscal 1999 from the current fiscal quarter. The Company's largest customers for the quarter ending December 31, 1998 were General Electric Company (GE) and Ascend Communications, Inc. (Ascend) which accounted for 13 percent and 12 percent of net sales. The Company's largest customers for the quarter ending December 31, 1997 were GE and International Business Machines Corporation (IBM) which each accounting for 12 percent of net sales, respectively. No other customers accounted for more than 10 percent of the Company's sales for the three months ended December 31, 1998 or 1997. Sales to the Company's ten largest customers accounted for 67 percent for the three
13 months ended December 31, 1998 compared to 72 percent for the same period in fiscal 1997 and 70 percent for all of fiscal 1998. These results reflect the Company's dedication to continue to diversifying its customer base and decreasing its dependence on any particular customer or customers. The Company remains dependent upon continued sales to GE, Ascend, 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 to $14.3 million, or 39 percent, for the three months ended December 31, 1998 from $10.3 million for the same period in the prior fiscal year. The gross margin increased to 14.0 percent for the three months ended December 31, 1998 from 10.7 percent for the same period in the prior fiscal year, compared to 12.6 percent for all of fiscal 1998. The increase in gross margin primarily reflects the shift in business mix to leading-technology products and markets and continued operating efficiencies. 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, product life cycles, sales volumes, capacity utilization of surface mount and other equipment, labor costs and efficiencies, the management of inventories, component pricing and shortages, average sales prices, the mix of turnkey and consignment business, fluctuations and timing of customer orders, changing demand for customer's products and competition within the electronics business. These and other factors can cause variations in the Company's operating results. While the Company's focus is on maintaining and expanding gross margins, there can be no assurance that gross margins will not decrease in future periods. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative (S&A) expenses increased to $5.1 million for the three months ended December 31, 1998, compared to $4.2 million for the comparable prior fiscal year period. As a percentage of sales, S&A expenses were 5.0 percent and 4.4 percent for the first quarter of fiscal 1999 and 1998, respectively, compared to 4.8 percent for all of fiscal 1998. These increases reflect the Company's planned expansion of its sales and marketing efforts, enhancement of its information systems to support the Company's continued growth, and increase in its customer support function. The Company anticipates that future S&A expenses will increase in absolute dollars but remain approximately 5.0 percent of sales, as the Company continues to expand these support areas. INCOME TAXES
14 Income taxes increased to $3.8 million for the three months ended December 31, 1998 compared to $2.5 million in the comparable period in fiscal 1998, as a result of increased earnings. The Company's effective income tax rate has remained constant at rates between 38 percent to 40 percent. These rates approximate the blended Federal and state statutory rate as a result of the Company's operations being located within the United States. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $5.9 million for the three months ended December 31, 1998 compared to $4.4 million in the comparable period in fiscal 1998. The increase in cash from operations was provided primarily by improved net profits. In addition, annualized inventory turnover improved to 7.6 turns as of December 31, 1998, from 7.2 turns as of December 31, 1997 and from 7.5 turns for all of fiscal 1998. Cash flows used in investing activities totaled $2.8 million and was utilized primarily to purchase additional manufacturing equipment. The Company utilizes available cash, debt and operating leases to fund its manufacturing equipment needs. The Company utilizes operating leases primarily in situations where technical obsolescence concerns are determined to outweigh the benefits of financing the equipment purchase. The Company estimates that capital expenditures for fiscal 1999 to be similar to fiscal 1998 at approximately $8 to $10 million, which the Company expects to fund through cash flows from operations and, if needed, its $40 million long-term revolving credit agreement. Cash flows provided by financing activities totaled $2.2 million for the three months ended December 31, 1998, primarily representing the proceeds and tax benefit from the exercise of stock options. There have been no borrowings under the Company's revolving credit agreement since October 1, 1997. The ratio of total debt-to-equity as of December 31, 1998 and September 30, 1998 was 0.6 to 1. The Company anticipates increases in working capital in order to facilitate growth. However, because of the dynamics of the Company's industry, the exact timing and amount of these increases cannot be determined. The Company believes that its credit facilities, leasing capabilities and projected cash flows from operations will be sufficient to meet its anticipated working capital needs and its anticipated short-term and long-term capital requirements. The Company has not paid dividends on its common stock, but has reinvested its earnings to support its working capital and expansion requirements. The Company intends to continue to utilize its earnings in the development and expansion of the business and does not expect to pay cash dividends in the foreseeable future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
15 The following discussion about the Company's risk-management activities may include forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those discussed. The Company has financial instruments, including short-term cash investments and long-term debt, which are sensitive to changes in interest rates. However, the Company currently does not use any interest-rate swaps or other types of derivative financial instruments to limit its sensitivity to changes in interest rates because of the relatively short-term nature of its cash investments and immaterial amount of its long-term debt. The Company does not believe there has been any material changes in the reported market risks faced by the Company since the end of its most recent quarter December 31, 1998. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 2/12/99 /s/ Peter Strandwitz ------- ------------------------- Date Peter Strandwitz Chairman and CEO 2/12/99 /s/ Thomas B. Sabol ------- ------------------------- Date Thomas B. Sabol Vice President-Finance & Chief Financial Officer