1 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 June 30, 1996 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 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 (414) 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 August 8, 1996 there were 6,498,196 shares of Common Stock of the Company outstanding.
2 PLEXUS CORP. TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Condensed Consolidated Statements of Operations Three Months and Nine Months Ended June 30, 1996 and 1995.....................................3 Condensed Consolidated Balance Sheets June 30, 1996 and September 30, 1995.......................4 Condensed Consolidated Statements of Cash Flows Nine Months Ended June 30, 1996 and 1995...................5 Notes to Condensed Consolidated Financial Statements.....6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: General..................................................7-8 Results of Operations...................................8-10 Liquidity and Capital Resources...........................10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................11 Signatures.......................................................11 2
3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) Unaudited <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 1996 1995 1996 1995 ---------- --------- --------- --------- <S> <C> <C> <C> <C> Net sales $ 86,066 $ 72,354 $ 232,660 $ 207,075 Cost of sales 78,143 66,079 214,888 190,504 --------- --------- --------- --------- Gross profit 7,923 6,275 17,772 16,571 Selling and administrative expenses 3,145 2,692 9,274 8,049 --------- --------- --------- --------- Operating income 4,778 3,583 8,498 8,522 --------- --------- --------- --------- Other income (expense): Interest (452) (723) (1,578) (2,180) Other 78 128 222 524 --------- --------- --------- --------- (374) (595) (1,356) (1,656) --------- --------- --------- --------- Income before income taxes 4,404 2,988 7,142 6,866 Provision for income taxes 1,800 1,165 2,894 2,678 --------- --------- --------- --------- Net income $ 2,604 $ 1,823 $ 4,248 $ 4,188 ========= ========= ========= ========= Net income per common share primary and fully diluted $ .36 $ .26 $ .59 $ .59 ========= ========= ========= ========= Average number of common and common equivalent shares outstanding: Primary 7,159,833 7,125,298 7,189,209 7,100,791 ========= ========= ========= ========= Fully diluted 7,197,929 7,125,298 7,197,823 7,100,791 ========= ========= ========= ========= </TABLE> See notes to condensed consolidated financial statements 3
4 PLEXUS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> JUNE 30, SEPTEMBER 30, 1996 1995 --------- ------------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 2,429 $ 3,569 Accounts receivable, net of allowance of $145 34,908 47,560 Inventories 54,883 48,966 Deferred income taxes 904 904 Prepaid expenses and other 1,846 1,930 -------- -------- Total current assets 94,970 102,929 Property, plant and equipment, net 11,156 11,829 Other 230 330 -------- -------- Total assets $106,356 $115,088 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY <CAPTION> <S> <C> <C> Current liabilities: Current portion of long-term debt $ 88 $ 107 Accounts payable 26,011 23,279 Customer deposits 7,957 3,530 Accrued liabilities: Salaries and wages 3,423 2,618 Other 3,692 2,093 -------- -------- Total current liabilities 41,171 31,627 Long-term debt 19,674 41,734 Deferred income taxes 718 718 Stockholders' equity: Series A preferred stock, $.01 par value, $1,000 face value, 7,000 shares authorized, issued and outstanding (aggregate liquidation preference of $7 million) 0 0 Preferred stock $.01 par value, 4,993,000 shares authorized, none issued - - Common Stock, $.01 par value, 30,000,000 shares authorized, 6,497,697 and 6,491,345 issued and outstanding, respectively 65 65 Additional paid-in capital 14,212 14,160 Retained earnings 30,516 26,784 -------- -------- 44,793 41,009 -------- -------- Total liabilities and stockholders' equity $106,356 $115,088 ======== ======== </TABLE> See notes to condensed consolidated financial statements 4
5 PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Unaudited <TABLE> <CAPTION> NINE MONTHS ENDED JUNE 30, -------------------- 1996 1995 --------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 4,248 $4,188 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,323 2,247 Change in assets and liabilities: Accounts receivable, net 12,652 907 Inventories (5,917) (659) Prepaid expenses and other 84 2,105 Accounts payable 2,732 (5,882) Customer deposits 4,427 1,583 Accrued liabilities 2,404 383 Other 100 31 --------- --------- Net cash flows provided by operating activities 23,053 4,903 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (1,667) (1,560) Other, net 17 2 --------- --------- Net cash flows used for investing activities (1,650) (1,558) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in outstanding debt (22,079) (2,777) Issuance of common stock 52 - Payments of preferred stock dividends (516) (543) --------- --------- Net cash flows used for financing activities (22,543) (3,320) --------- --------- Net increase (decrease) in cash and cash equivalents (1,140) 25 Cash and cash equivalents: Beginning of period 3,569 1,081 --------- --------- End of period $ 2,429 $1,106 ========= ========= </TABLE> See notes to condensed consolidated financial statements 5
6 PLEXUS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1996 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 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 June 30, 1996 and the results of operations for the three months and nine months ended June 30, 1996 and 1995 and the cash flows for the same nine-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 1995 Annual Report. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principals. NOTE (2) - REVENUE RECOGNITION Revenue is recognized primarily when inventory is shipped. Revenue relating to product design and development contracts (such sales are less than 10% of total revenue) is recognized as costs are incurred utilizing the percentage-of-completion method. Progress toward completion of product design and development contracts are consistently based on units of work for labor content and cost for component content. NOTE (3) - CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. NOTE (4) - INVENTORIES The major classes of inventories are as follows: <TABLE> <CAPTION> June 30, September 30, 1996 1995 -------- ------------- <S> <C> <C> Assembly Parts $35,033 $33,950 Work-in-Process 19,525 14,782 Finished Goods 325 234 ------- ------- $54,883 $48,966 ======= ======= </TABLE> 6
7 NOTE (5) - RECLASSIFICATIONS Certain amounts in prior years' condensed consolidated financial statements have been reclassified to conform to the 1996 presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Plexus Corp. is a contract provider of design, manufacturing and testing services to the electronics industry. Headquartered in Neenah, Wisconsin, the Company is the largest electronic assembly organization in the Midwest. Through its two wholly-owned subsidiaries, Plexus Technology Group, Inc. and Plexus Electronic Assembly Corporation, the Company develops, assembles and tests a variety of electronic component and subsystem products for major corporations in industries such as computer (primarily mainframe and peripheral products), medical, telecommunications and automotive. The Company operates manufacturing facilities in Neenah, Wisconsin and Richmond, Kentucky. Many of the industries for which the Company currently provides electronic products are subject to rapid technological change, product obsolescence and increased competition. These and other factors which affect the industries the Company provides services for, 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. The Company's 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. Allocations of components are an integral part of the electronics industry. Shortages that occurred in the past few years, mainly in logic and memory devices, have been mitigated over the past three months 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 and mitigate shortages. 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. 7
8 The discussion of the Company's results of operations and financial condition should be read in conjunction with the condensed consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-Q. "Safe Harbor" Cautionary Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this Form 10-Q which are not historical facts are forward looking statements that involve risks and uncertainties, including, but not limited to, 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 impact of technological changes and increased competition, and other risks detailed herein and in the Company's other Securities and Exchange Commissions filings. RESULTS OF OPERATIONS Net Sales Net sales for the three and nine months ended June 30, 1996, increased $13.7 million or 19.0% and $25.6 million or 12.4%, respectively, compared to net sales for the same periods in the prior fiscal year. The increases in net sales were due to increased orders from existing customers, including on-going and new programs, and the addition of new customers. While the Company has seen sales increases across all of the industries it services, growth has been more pronounced in the telecommunications and medical segments of the electronics market. However, certain customers are adjusting near-term production schedules because of their internal excess manufacturing capacity. Therefore, subject to the development and timing of new business, the Company presently anticipates that sales growth for the fourth quarter of fiscal 1996 may not be as strong as the third quarter growth rate. The Company's two largest customers during the first nine months of fiscal 1996 continue to be International Business Machines Corporation (IBM) and General Electric Company (GE). Net sales to IBM (including up to six subsidiaries or divisions) for the nine months ended June 30, 1996 and 1995 were 28.0% and 26.8%, respectively, of total net sales. Net sales to GE (including up to five subsidiaries or divisions) for the nine months ended June 30, 1996 and 1995 were 13.7% and 18.7%, respectively, of total net sales. Each division or subsidiary of these companies contracts independently of the other division or subsidiary, and the Company does not believe that sales to any particular division or subsidiary depends upon sales to any other. While the combined net sales for these two customers increased in absolute amounts during the nine months ended June 30, 1996 compared to the same period in the prior fiscal year, the Company has continued to obtain new business from other customers. Net sales to the Company's top ten customers accounted for approximately 71% and 76%, of total net sales for the nine months ended June 30, 1996 and 1995, respectively. The Company is dependent upon continued sales to IBM, GE and the rest of its significant customers. Any material change in orders from these or other customers could have a material effect on the Company's results of operations. 8
9 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% 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 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. Gross Profit The Company's gross profit for the three and nine months ended June 30, 1996 increased $1.6 million or 26.3% and $1.2 million or 7.2%, respectively, compared to gross profits for the same periods in the prior fiscal year. Gross margins increased to 9.2% from 8.7% of net sales for the three months, but decreased to 7.6% from 8.0% for the nine months ended June 30, 1996, respectively, as compared to the same periods in fiscal 1995. The increase in gross margins for the third quarter reflects the cost saving initiatives implemented by the Company during the second quarter of 1996, together with enhanced procurement management and the continued broadening of the Company's customer base. The cost savings initiatives included reductions in production and administrative personnel through layoffs and attrition and equipment lease reductions. Based on the actions taken, the Company's goal is to realize at least $3 million of annual cost savings, on a pre-tax basis, beginning with the third quarter. The achievement of that level of cost savings is dependent on the Company's ability to maintain realigned expense levels. During the third quarter, the Company also implemented a flexible labor force program, which utilizes temporary employment agencies to provide trained, production personnel on an as-needed basis, within its Wisconsin operations. This program should enable the Company to react more rapidly to fluctuations in its labor force requirements, while converting a portion of its fixed manufacturing costs to variable costs that can be managed based on customer needs. The Company's gross margin reflects a number of factors including product mix, the level of start up costs and efficiencies associated with new programs, capacity utilization of surface mount and other equipment, labor efficiencies, and pricing within the electronics industry. Selling and Administrative Expenses Selling and administrative (S&A) expenses for the three and nine months ended June 30, 1996 increased $453,000 or 16.8% and $1.2 million or 15.2%, respectively, from the comparable prior periods. As a percentage of net sales, S&A expenses remained flat at 3.7% for the three months, and increased slightly to 4.0% from 3.9% for the nine months ended June 30, 1996 and 1995, respectively. The increases in S&A expenses were due primarily to increased staffing and increased investments in information systems to support higher revenue levels. The Company anticipates future S&A expenses will increase in absolute dollar amounts, and may increase as a percentage of net sales over the near term, as the Company expands its sales and marketing efforts, systems development and customer support. 9
10 Interest Expense Interest expense was $452,000 and $1.6 million, respectively, for the three and nine months ended June 30, 1996, compared to $723,000 and $2.2 million for the comparable periods in fiscal 1995. The decrease in interest expense is primarily due to reduced borrowings required to support working capital, coupled with lower interest rates. Income Taxes The Company's effective tax rate was 40.9% and 40.5% for the three and nine months ended June 30, 1996, respectively, as compared to a tax rate of 39.0% for the three and nine months ended June 30, 1995. These rates approximate the blended Federal and state statutory rate as a result of all of the Company's operations being located within the United States. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $23.1 million and $4.9 million for the nine months ended June 30, 1996 and 1995, respectively. Cash from operations was provided primarily by decreases in accounts receivable and increases in accounts payable and customer deposits offset by an increase in inventories. Increases in inventories continue to be influenced mainly by customer-imposed program reductions or delays. The Company is attempting to mitigate the impact of such reductions or delays by obtaining customer deposits for inventories carried by the Company in situations of this nature. The cash generated from operating activities was utilized primarily to reduce outstanding debt. Borrowings under the Company's long-term revolving credit agreement have been reduced by $22 million from $41.5 million at September 30, 1995 to $19.5 million at June 30, 1996. Capital additions of $1.7 million for the nine months ended June 30, 1996 were primarily concentrated in surface mount assembly equipment and management information systems hardware and software. 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. Due to this change in strategy, the Company anticipates increased future capital additions due to the number of operating leases expiring through the remainder of fiscal 1996 and fiscal 1997. Groundbreaking for the new 111,000 square foot Green Bay, Wisconsin manufacturing facility took place in July, 1996. This facility, which will be leased from Oneida Nations Electronics through a unique business relationship, is currently scheduled to be completed in the second quarter of calendar 1997. The total debt to equity ratio as of June 30, 1996 of 1.4 to 1 was an improvement from 1.8 to 1 at September 30, 1995. The Company believes that its credit facilities, leasing capabilities and projected cash flows from operations will be sufficient to meets its anticipated short-term and long-term capital requirements. * * * * * 10
11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 11 - Statement Regarding Computation of Per Share Earnings 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. 8/8/96 /s/ Peter Strandwitz - ------ ------------------------ Date Peter Strandwitz Chairman and CEO 8/8/96 /s/ Thomas B. Sabol - ------ ------------------------ Date Thomas B. Sabol Vice President-Finance & Chief Financial Officer 11