e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(X)
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended January 1, 2011
or
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( )
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Commission File Number 001-14423
PLEXUS CORP.
(Exact name of registrant as specified in charter)
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Wisconsin
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39-1344447
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(State of Incorporation)
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(IRS Employer Identification No.)
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One Plexus Way
Neenah, Wisconsin 54956
(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 shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes
a
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files).
Yes
a
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
No
a
As of January 31, 2011, there were 40,535,848 shares of Common Stock of the Company
outstanding.
1
PLEXUS CORP.
TABLE OF CONTENTS
January 1, 2011
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Unaudited
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Three Months Ended
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January 1,
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January 2,
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2011
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2010
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Net sales
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$
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565,774
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$
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430,399
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Cost of sales
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510,864
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385,858
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Gross profit
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54,910
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44,541
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Selling and administrative expenses
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27,061
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24,319
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Operating income
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27,849
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20,222
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Other income (expense):
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Interest expense
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(2,181
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(2,559
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Interest income
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293
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456
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Miscellaneous
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(141
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(95
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Income before income taxes
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25,820
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18,024
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Income tax expense
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787
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180
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Net income
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$
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25,033
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$
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17,844
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Earnings per share:
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Basic
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$
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0.62
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$
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0.45
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Diluted
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$
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0.61
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$
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0.44
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Weighted average shares outstanding:
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Basic
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40,468
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39,587
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Diluted
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41,210
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40,252
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Comprehensive income:
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Net income
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$
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25,033
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$
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17,844
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Derivative instrument fair market value adjustment – net of income tax
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188
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699
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Foreign currency translation adjustments
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818
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(255
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Comprehensive income
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$
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26,039
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$
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18,288
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See notes to condensed consolidated financial statements.
3
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Unaudited
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January 1,
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October 2,
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2011
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2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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149,498
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$
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188,244
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Accounts receivable, net of allowances of $1,700 and $1,400,
respectively
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318,533
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311,205
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Inventories
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521,391
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492,430
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Deferred income taxes
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21,363
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18,959
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Prepaid expenses and other
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16,872
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15,153
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Total current assets
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1,027,657
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1,025,991
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Property, plant and equipment, net
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235,568
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235,714
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Deferred income taxes
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9,620
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11,787
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Other
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17,263
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16,887
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Total assets
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$
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1,290,108
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$
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1,290,379
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Current portion of long-term debt and capital lease obligations
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$
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17,052
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$
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17,409
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Accounts payable
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346,622
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360,686
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Customer deposits
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29,581
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27,301
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Accrued liabilities:
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Salaries and wages
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32,105
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46,639
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Other
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53,080
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50,484
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Total current liabilities
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478,440
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502,519
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Long-term debt and capital lease obligations, net of current portion
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108,220
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112,466
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Other liabilities
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22,974
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23,539
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Total non-current liabilities
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131,194
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136,005
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Commitments and contingencies (Note 12)
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-
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-
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Shareholders’ equity:
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Preferred stock, $.01 par value, 5,000 shares authorized, none
issued or outstanding
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-
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-
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Common stock, $.01 par value, 200,000 shares authorized, 47,957 and
47,849 shares issued, respectively, and 40,511 and 40,403 shares
outstanding, respectively
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480
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478
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Additional paid-in capital
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401,632
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399,054
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Common stock held in treasury, at cost, 7,446 shares for both periods
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(200,110
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(200,110
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Retained earnings
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470,601
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445,568
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Accumulated other comprehensive income
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7,871
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6,865
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Total shareholders’ equity
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680,474
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651,855
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Total liabilities and shareholders’ equity
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$
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1,290,108
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$
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1,290,379
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See notes to condensed consolidated financial statements.
4
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
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Three Months Ended
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January 1,
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January 2,
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2011
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2010
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Cash flows from operating activities
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Net income
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$
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25,033
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$
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17,844
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Adjustments to reconcile net income to cash
flows from operating activities:
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Depreciation
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11,305
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9,054
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Gain on sale of property, plant and equipment
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(16
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(5
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Deferred income taxes
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(262
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(1,029
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Stock based compensation expense
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2,388
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1,839
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Changes in operating assets and liabilities:
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Accounts receivable
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(6,947
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(40,531
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Inventories
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(28,558
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(50,253
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Prepaid expenses and other
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(2,101
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(1,507
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Accounts payable
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(12,611
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52,160
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Customer deposits
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2,276
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(2,374
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)
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Accrued liabilities and other
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(11,635
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4,537
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Cash flows used in operating activities
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(21,128
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(10,265
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Cash flows from investing activities
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Payments for property, plant and equipment
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(13,263
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(12,315
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Proceeds from sales of property, plant and equipment
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43
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11
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Cash flows used in investing activities
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(13,220
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(12,304
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)
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Cash flows from financing activities
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Payments on debt and capital lease obligations
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(4,663
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(4,194
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Proceeds from exercise of stock options
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60
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1,870
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Income tax benefit of stock option exercises
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132
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175
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Cash flows used in financing activities
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(4,471
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(2,149
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)
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Effect of exchange rate changes on cash and cash
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Equivalents
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73
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267
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Net decrease in cash and cash equivalents
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(38,746
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(24,451
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Cash and cash equivalents:
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Beginning of period
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188,244
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258,382
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End of period
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$
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149,498
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$
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233,931
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See notes to condensed consolidated financial statements.
5
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 1, 2011 AND JANUARY 2, 2010
Unaudited
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements included herein have been
prepared by Plexus Corp. and its subsidiaries (“Plexus” or the “Company”) without audit and
pursuant to the rules and regulations of the United States Securities and Exchange Commission
(“SEC”). In the opinion of the Company, the accompanying condensed consolidated financial
statements reflect all adjustments, which include normal recurring adjustments necessary for the
fair statement of the consolidated financial position of the Company as of January 1, 2011, and the
results of operations for the three months ended January 1, 2011 and January 2, 2010, 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
consolidated financial statements and notes thereto included in the Company’s 2010 Annual Report on
Form 10-K.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company also uses
a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter therefore
ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added
to the fiscal year to re-align with the Saturday closest to September 30. The accounting periods
for the three months ended January 1, 2011 and January 2, 2010 each included 91 days.
In the fiscal first quarter of 2011, we completed our migration to a regional reporting
structure. This change included establishing regional targets for various financial metrics,
delegating additional authority to the regions to manage their business, and changing our related
internal reporting. Given this change to regional reporting and management as well as in the
information used by management for assessing performance and allocating Company resources, we
modified our reporting segments. Prior to fiscal 2011, the Company’s reportable segments consisted
of the United States, Asia, Europe and Mexico. We have combined our United States and Mexico
segments into the “Americas” (AMER) segment and renamed our Asia segment “Asia Pacific” (APAC) and
our Europe segment “Europe, Middle East and Africa” (EMEA) to better represent our long-range
regional focus. As a result, we have conformed all prior period segment presentations to be
consistent with our current reportable segments. See Note 9 in Notes to Condensed Consolidated
Financial Statements for further information.
Cash and Cash Equivalents:
Cash and cash equivalents include highly liquid investments with original maturities of three
months or less at the time of purchase.
Fair Value of Financial Instruments
The Company holds financial instruments consisting of cash and cash equivalents, accounts
receivable, accounts payable, debt, and capital lease obligations. The carrying value of cash and
cash equivalents, accounts receivable, accounts payable and capital lease obligations as reported
in the condensed consolidated financial statements approximates fair value. Accounts receivable
were reflected at net realizable value based on anticipated losses due to potentially uncollectible
balances. Anticipated losses were based on management’s analysis of historical losses and changes
in customers’ credit status. The fair value of the Company’s term loan debt was $101.6 million and
$105.2 million as of January 1, 2011 and October 2, 2010, respectively. The carrying value of the
Company’s term loan debt was $108.8 million and $112.5 million as of January 1, 2011 and October 2,
2010,
6
respectively. The Company uses quoted market prices when available or discounted cash flows to
calculate the fair value of its term loan debt.
Fair value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (or exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. The accounting guidance establishes a fair value
hierarchy based on three levels of inputs that may be used to measure fair value. The input
levels are:
Level 1: Quoted (observable) market prices in active markets for identical assets or
liabilities.
Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the
asset or liability.
Level 3: Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the asset or liability.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market value. The stated cost is comprised of direct materials, labor, and overhead. The major
classes of inventories, net of applicable lower of cost or market write-downs, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
October 2,
|
|
|
|
2011
|
|
2010
|
|
Raw materials
|
|
$
|
389,109
|
|
|
$
|
365,883
|
|
|
Work-in-process
|
|
|
52,830
|
|
|
|
56,036
|
|
|
Finished goods
|
|
|
79,452
|
|
|
|
70,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
521,391
|
|
|
$
|
492,430
|
|
|
|
|
|
|
|
|
|
|
|
Per contractual terms, customer deposits are received by the Company to offset obsolete and
excess inventory risks. The total amount of customer deposits related to inventory and included
within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of January
1, 2011 and October 2, 2010 was $28.2 million and $25.8 million, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following categories (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
October 2,
|
|
|
|
2011
|
|
2010
|
|
Land, buildings and improvements
|
|
$
|
148,175
|
|
|
$
|
138,230
|
|
|
Machinery and equipment
|
|
|
261,997
|
|
|
|
255,138
|
|
|
Computer hardware and software
|
|
|
80,958
|
|
|
|
79,108
|
|
|
Construction in progress
|
|
|
13,210
|
|
|
|
22,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,340
|
|
|
|
494,621
|
|
|
Less: accumulated depreciation
|
|
|
(268,772
|
)
|
|
|
(258,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,568
|
|
|
$
|
235,714
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 - LONG-TERM DEBT
On April 4, 2008, the Company entered into its credit agreement (the “Credit Facility”) with a
group of banks which allows the Company to borrow $150 million in term loans and $100 million in
revolving loans. The $150 million in term loans was immediately funded and the $100 million
revolving credit facility is currently
7
available. The Credit Facility is unsecured and the revolving credit facility may be
increased by an additional $100 million (the “accordion feature”) if the Company has not previously
terminated all or any portion of the Credit Facility, there is no event of default existing under
the Credit Facility and both the Company and the administrative agent consent to the increase. The
Credit Facility expires on April 4, 2013. Borrowings under the Credit Facility may be either
through term loans or revolving or swing loans or letter of credit obligations. As of January 1,
2011, the Company has term loan borrowings of $108.8 million outstanding and no revolving
borrowings under the Credit Facility.
The Credit Facility contains certain financial covenants, which include a maximum total
leverage ratio, maximum value of fixed rentals and operating lease obligations, a minimum interest
coverage ratio and a minimum net worth test, all as defined in the agreement. As of January 1,
2011, the Company was in compliance with all debt covenants. If the Company incurs an event of
default, as defined in the Credit Facility (including any failure to comply with a financial
covenant), the group of banks has the right to terminate the remaining Credit Facility and all
other obligations, and demand immediate repayment of all outstanding sums (principal and accrued
interest). The interest rate on the borrowing varies depending upon the Company’s then-current
total leverage ratio; as of January 1, 2011, the Company could elect to pay interest at a defined
base rate or the LIBOR rate plus 1.00%. Rates would increase upon negative changes in specified
Company financial metrics and would decrease upon reduction in the current total leverage ratio to
no less than LIBOR plus 1.00%. The Company is also required to pay an annual commitment fee on the
unused credit commitment based on its leverage ratio; the current fee is 0.25%. Unless the
accordion feature is exercised, this fee applies only to the initial $100 million of availability
(excluding the $150 million of term borrowings). Origination fees and expenses associated with the
Credit Facility totaled approximately $1.3 million and have been deferred. These origination fees
and expenses are being amortized over the five-year term of the Credit Facility. Equal quarterly
principal repayments of the term loan of $3.75 million per quarter began on June 30, 2008 and end
on April 4, 2013, with a balloon repayment of $75.0 million.
The Credit Facility allows for the future payment of cash dividends or the future repurchases
of shares provided that no event of default (including any failure to comply with a financial
covenant) is existing at the time of, or would be caused by, a dividend payment or a share
repurchase.
Interest expense related to the commitment fee and amortization of deferred origination fees
and expenses for the Credit Facility totaled approximately $0.2 million for both the three months
ended January 1, 2011 and January 2, 2010.
NOTE 5 - DERIVATIVES AND FAIR VALUE MEASUREMENTS
All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at
their estimated fair value. On the date a derivative contract is entered into, the Company
designates the derivative as a hedge of a recognized asset or liability (a “fair value” hedge), a
hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability (a “cash flow” hedge), or a hedge of the net investment
in a foreign operation. The Company currently has cash flow hedges related to variable rate debt
and foreign currency obligations. The Company does not enter into derivatives for speculative
purposes. Changes in the fair value of the derivatives that qualify as cash flow hedges are
recorded in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated
Balance Sheets until earnings are affected by the variability of the cash flows.
In June 2008, the Company entered into three interest rate swap contracts related to the $150
million in term loans under the Credit Facility that had an initial total notional value of $150
million and mature on April 4, 2013. These interest rate swap contracts will pay the Company
variable interest at the three month LIBOR rate, and the Company will pay the counterparties a
fixed interest rate. The fixed interest rates for each of these contracts are 4.415%, 4.490% and
4.435%, respectively. These interest rate swap contracts were entered into to convert $150 million
of the variable rate term loan under the Credit Facility into fixed rate debt. Based on the terms
of the interest rate swap contracts and the underlying debt, these interest rate contracts were
determined to be effective, and thus qualify as a cash flow hedge. As such, any changes in the fair
value of these interest rate swaps are recorded in “Accumulated other comprehensive income” on the
accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability
of cash flows. The total fair value of these interest rate swap contracts was $7.7 million as of
January 1, 2011. As of January 1, 2011, the total combined notional amount of the Company’s three
interest rate swaps was $108.8 million.
8
The Company’s Malaysian operations have entered into forward exchange contracts on a rolling
basis with a total notional value of $41.0 million as of January 1, 2011. These forward contracts
will fix the exchange rates on foreign currency cash used to pay a portion of local currency
expenses. The changes in the fair value of the forward contracts are recorded in “Accumulated
other comprehensive income” on the accompanying Condensed Consolidated Balance Sheets until
earnings are affected by the variability of cash flows. The total fair value of the forward
contracts was $2.0 million as of January 1, 2011.
9
The tables below present information regarding the fair values of derivative instruments
(as defined in Note 1 in Condensed Consolidated Financial Statements - Fair Value of Financial
Instruments) and the effects of derivative instruments on the Company’s Condensed Consolidated
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
In thousands of dollars
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
October 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
October 2,
|
|
|
|
|
|
|
|
|
|
|
|
1, 2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
Balance Sheet
Location
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Current liabilities
– Other
|
|
|
$
|
3,410
|
|
|
|
$
|
3,616
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
$
|
4,263
|
|
|
|
$
|
5,423
|
|
|
|
|
Forward contracts
|
|
|
Prepaid expenses
and other
|
|
|
$
|
1,963
|
|
|
|
$
|
2,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
|
|
|
|
for the Three Months Ended
|
|
|
|
In thousands of dollars
|
|
|
|
|
|
|
|
|
Amount of Gain or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss)
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
|
|
|
(Loss) Recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in Income on
|
|
|
Recognized in Income on
|
|
|
|
|
|
|
|
|
Other Comprehensive
|
|
|
|
|
Location of Gain or (Loss)
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
Derivative (Ineffective
|
|
|
Derivative (Ineffective
|
|
|
|
Derivatives in Cash
|
|
|
|
|
Income (“OCI”) on
|
|
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
|
|
Portion and Amount
|
|
|
Portion and Amount
|
|
|
|
Flow Hedging
|
|
|
|
|
Derivative (Effective
|
|
|
|
|
Accumulated OCI into
|
|
|
Accumulated OCI into
|
|
|
|
|
Excluded from
|
|
|
Excluded from
|
|
|
|
Relationships
|
|
|
|
|
Portion)
|
|
|
|
|
Income (Effective Portion)
|
|
|
Income (Effective Portion)
|
|
|
|
|
Effectiveness Testing)
|
|
|
Effectiveness Testing)
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
$
|
242
|
|
|
|
$
|
47
|
|
|
|
|
|
Interest income (expense)
|
|
|
$
|
(1,124
|
)
|
|
|
$
|
(1,296
|
)
|
|
|
|
|
Other income (expense)
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
|
|
Forward contracts
|
|
|
|
|
$
|
362
|
|
|
|
$
|
316
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
$
|
1,011
|
|
|
|
$
|
157
|
|
|
|
|
|
Other income (expense)
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
|
|
10
The following table lists the fair values of the Company’s derivatives as of January 1, 2011, by
input level as defined above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Input Levels:
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
-
|
|
|
$
|
|
7,673
|
|
|
$
|
|
-
|
|
|
|
$
|
7,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
-
|
|
|
$
|
|
1,963
|
|
|
$
|
|
-
|
|
|
|
$
|
1,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of interest rate swaps and foreign currency forward contracts is determined
using a market approach which includes obtaining directly or indirectly observable values from
third parties active in the relevant markets. The primary input in the fair value of the interest
rate swaps is the relevant LIBOR forward curve. Inputs in the fair value of the foreign currency
forward contracts include prevailing forward and spot prices for currency and interest rate forward
curves.
As of January 1, 2011, we held $2.0 million of auction rate securities maturing on March 17,
2042, which were classified as “other” long-term assets and whose underlying assets are in
guaranteed student loans that are backed by a U.S. government agency. If the credit quality
deteriorates for these adjustable rate securities, we may in the future be required to record an
impairment charge on these investments. The fair value of the auction rate securities approximates
the carrying value of $2.0 million as of January 1, 2011. We believe that these securities are
marketable.
NOTE 6 - EARNINGS PER SHARE
The following is a reconciliation of the amounts utilized in the computation of basic and
diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Basic and Diluted Earnings Per Share
:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
25,033
|
|
|
$
|
17,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
40,468
|
|
|
|
39,587
|
|
|
Dilutive effect of stock options
|
|
|
742
|
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
41,210
|
|
|
|
40,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.62
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.61
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
11
For the three months ended January 1, 2011 and January 2, 2010, stock options and
stock-settled stock appreciation rights (“SARs”) related to approximately 1.1 million and 1.4
million shares, respectively, were outstanding but were not included in the computation of diluted
earnings per share because the options’ and stock-settled SARs’ exercise prices were greater than
the average market price of the common shares and, therefore, their effect would be antidilutive.
NOTE 7 - STOCK-BASED COMPENSATION
The Company recognized $2.4 million and $1.8 million of compensation expense associated with
stock-based awards for the three months ended January 1, 2011 and January 2, 2010, respectively.
The Company continues to use the Black-Scholes valuation model to determine the fair value of
stock options and stock-settled SARs. The Company uses the fair value at the date of grant to
value restricted stock units and unrestricted stock awards. The Company recognizes the
stock-based compensation expense over the stock-based awards’ vesting period.
NOTE 8 - INCOME TAXES
Income taxes for the three months ended January 1, 2011 and January 2, 2010 were $0.8 million
and $0.2 million, respectively. The effective tax rates for the three months ended January 1, 2011
and January 2, 2010 were 3 percent and 1 percent, respectively. The increase in the effective tax
rate for the current year period compared to the prior year period was primarily due to a change in
mix of forecasted earnings in the jurisdictions in which we operate. As demonstrated in recent
quarters, the tax rate can vary during the year based on the mix of forecasted earnings by tax
jurisdiction. The Company currently benefits from reduced taxes in the Asia Pacific segment due to
tax holidays.
As of January 1, 2011, there was no material change in the amount of unrecognized tax benefits
recorded for uncertain tax positions. The Company recognizes accrued interest and penalties
related to unrecognized tax benefits in income tax expense. The amount of interest and penalties
recorded for both the three months ended January 1, 2011 and January 2, 2010 was not material.
It is reasonably possible that a number of uncertain tax positions related to federal and
state tax positions may be settled within the next 12 months. Settlement of these matters is not
expected to have a material effect on the Company’s consolidated results of operations, financial
position and cash flows.
The Company maintains valuation allowances when it is more likely than not that all or a
portion of a deferred tax asset will not be realized. Despite recent losses in the United States
tax jurisdiction, the Company has concluded that it continues to be more likely than not that the
net U.S. deferred tax assets will be realized, and no valuation allowance is warranted. If the
United States operations continue to generate losses, there may be a need to provide a valuation
allowance on our net United States deferred tax assets.
NOTE 9 - BUSINESS SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION
Reportable segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or
group, in assessing performance and allocating resources.
In the fiscal first quarter of 2011, we completed our migration to a regional reporting
structure and as a result modified our reportable segments. See Note 1 in Condensed Consolidated
Financial Statements for further information.
The Company uses an internal management reporting system, which provides important financial
data to evaluate performance and allocate the Company’s resources on a regional basis. Net sales
for segments are attributed
12
to the region in which the product is manufactured or service is
performed. The services provided, manufacturing processes used, class of customers serviced and
order fulfillment processes used are similar and generally interchangeable across the segments. A
segment’s performance is evaluated based upon its operating income (loss). A segment’s operating
income (loss) includes its net sales less cost of sales and selling and administrative expenses,
but excludes corporate and other costs, interest expense, other income (loss), and income taxes.
Corporate and other costs primarily represent corporate selling and administrative expenses, and
restructuring and impairment costs, if
any. These costs are not allocated to the segments, as management excludes such costs when
assessing the performance of the segments. Inter-segment transactions are generally recorded at
amounts that approximate arm’s length transactions. The accounting policies for the regions are the
same as for the Company taken as a whole.
Information about the Company’s three reportable segments for the three months ended January
1, 2011 and January 2, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
344,058
|
|
|
$
|
277,444
|
|
|
APAC
|
|
|
272,524
|
|
|
|
193,126
|
|
|
EMEA
|
|
|
20,088
|
|
|
|
13,863
|
|
|
Elimination of inter-segment sales
|
|
|
(70,896
|
)
|
|
|
(54,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
565,774
|
|
|
$
|
430,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
3,689
|
|
|
$
|
3,234
|
|
|
APAC
|
|
|
5,222
|
|
|
|
4,378
|
|
|
EMEA
|
|
|
606
|
|
|
|
222
|
|
|
Corporate
|
|
|
1,788
|
|
|
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,305
|
|
|
$
|
9,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
18,500
|
|
|
$
|
19,503
|
|
|
APAC
|
|
|
32,681
|
|
|
|
23,306
|
|
|
EMEA
|
|
|
(279
|
)
|
|
|
(1,187
|
)
|
|
Corporate and other costs
|
|
|
(23,053
|
)
|
|
|
(21,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,849
|
|
|
$
|
20,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
4,470
|
|
|
$
|
3,574
|
|
|
APAC
|
|
|
6,557
|
|
|
|
5,010
|
|
|
EMEA
|
|
|
1,189
|
|
|
|
194
|
|
|
Corporate
|
|
|
1,047
|
|
|
|
3,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,263
|
|
|
$
|
12,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
October 2,
|
|
|
|
2011
|
|
2010
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
508,584
|
|
|
$
|
495,639
|
|
|
APAC
|
|
|
578,857
|
|
|
|
539,543
|
|
|
EMEA
|
|
|
82,478
|
|
|
|
84,786
|
|
|
Corporate
|
|
|
120,189
|
|
|
|
170,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,290,108
|
|
|
$
|
1,290,379
|
|
|
|
|
|
|
|
|
|
|
|
13
The following enterprise-wide information is provided in accordance with the required segment
disclosures. Net sales to unaffiliated customers were based on the Company’s location providing
product or services (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
316,242
|
|
|
$
|
258,849
|
|
|
Malaysia
|
|
|
218,525
|
|
|
|
170,150
|
|
|
China
|
|
|
53,999
|
|
|
|
22,976
|
|
|
United Kingdom
|
|
|
19,015
|
|
|
|
13,782
|
|
|
Mexico
|
|
|
27,816
|
|
|
|
18,595
|
|
|
Romania
|
|
|
1,073
|
|
|
|
81
|
|
|
Elimination of inter-segment sales
|
|
|
(70,896
|
)
|
|
|
(54,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
565,774
|
|
|
$
|
430,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
October 2,
|
|
|
|
2011
|
|
2010
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
57,594
|
|
|
$
|
59,233
|
|
|
Malaysia
|
|
|
87,268
|
|
|
|
86,387
|
|
|
China
|
|
|
22,749
|
|
|
|
21,920
|
|
|
United Kingdom
|
|
|
7,305
|
|
|
|
7,248
|
|
|
Mexico
|
|
|
9,759
|
|
|
|
8,655
|
|
|
Romania
|
|
|
4,588
|
|
|
|
4,484
|
|
|
Corporate
|
|
|
46,305
|
|
|
|
47,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,568
|
|
|
$
|
235,714
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets as of January 1, 2011 and October 2, 2010, exclude other long-term assets
totaling $26.9 million and $28.7 million, respectively.
The percentages of net sales to customers representing 10 percent or more of total net sales
for the indicated periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Juniper Networks, Inc. (“Juniper”)
|
|
|
17
|
%
|
|
|
17
|
%
|
No other customers accounted for 10 percent or more of net sales in either period.
NOTE 10 - GUARANTEES
The Company offers certain indemnifications under its customer manufacturing agreements. In
the normal course of business, the Company may from time to time be obligated to indemnify its
customers or its customers’ customers against damages or liabilities arising out of the Company’s
negligence, misconduct, breach of contract, or infringement of third party intellectual property
rights. Certain agreements have extended broader indemnification, and while most agreements have
contractual limits, some do not. However, the Company generally does not provide for such
indemnities and seeks indemnification from its customers for damages or liabilities arising out of
the
14
Company’s adherence to customers’ specifications or designs or use of materials furnished, or
directed to be used, by its customers. The Company does not believe its obligations under such
indemnities are material.
In the normal course of business, the Company also provides its customers a limited warranty
covering workmanship, and in some cases materials, on products manufactured by the Company. Such
warranty generally provides that products will be free from defects in the Company’s workmanship
and meet mutually agreed-upon specifications for periods generally ranging from 12 months to 24
months. If a product fails to comply with the Company’s limited warranty, the Company’s obligation
is generally limited to correcting, at its expense, any defect by repairing or replacing such
defective product. The Company’s warranty generally excludes defects resulting from faulty
customer-supplied components, design defects or damage caused by any party or cause other than the
Company.
The Company provides for an estimate of costs that may be incurred under its limited warranty
at the time product revenue is recognized and establishes additional reserves for specifically
identified product issues. These costs primarily include labor and materials, as necessary,
associated with repair or replacement and are included in the Company’s accompanying Condensed
Consolidated Balance Sheets in other current accrued liabilities. The primary factors that affect
the Company’s warranty liability include the value and the number of shipped units and historical
and anticipated rates of warranty claims. As these factors are impacted by actual experience and
future expectations, the Company assesses the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary.
Below is a table summarizing the activity related to the Company’s limited warranty liability
for fiscal 2010 and for the three months ended January 1, 2011 (in thousands):
|
|
|
|
|
|
|
Limited warranty liability, as of October 3, 2009
|
|
$
|
4,470
|
|
|
Accruals for warranties issued during the period
|
|
|
557
|
|
|
Settlements (in cash or in kind) during the period
|
|
|
(972
|
)
|
|
|
|
|
|
|
Limited warranty liability, as of October 2, 2010
|
|
|
4,055
|
|
|
Accruals for warranties issued during the period
|
|
|
91
|
|
|
Settlements (in cash or in kind) during the period
|
|
|
(277
|
)
|
|
|
|
|
|
|
Limited warranty liability, as of January 1, 2011
|
|
$
|
3,869
|
|
|
|
|
|
|
NOTE 11 - LITIGATION
In the fiscal fourth quarter of 2010, the Company determined it would incur up to
approximately $1.1 million relating to non-conforming inventory received from a supplier. The
Company reached a settlement with the supplier during the fiscal first quarter of 2011 and recorded
the $0.8 million recovery in selling and administrative expenses.
In the fiscal first quarter of 2010, the Company received settlement funds of approximately
$3.2 million related to a court case in which the Company was a plaintiff. The settlement related
to prior purchases of inventory and therefore was recorded in cost of sales.
The Company is party to certain other lawsuits in the ordinary course of business. Management
does not believe that these proceedings, individually or in the aggregate, will have a material
adverse effect on the Company’s consolidated financial position, results of operations or cash
flows.
NOTE 12 - CONTINGENCIES
We were notified in April 2009 by U.S. Customs and Border Protection (“CBP”) of its intention
to conduct a customary Focused Assessment of our import activities during fiscal 2008 and of our
processes and procedures to comply with U.S. Customs laws and regulations. We recorded an accrual
in Other Accrued current liabilities at the time the amount became estimable and probable, which
was not material to the financial statements. During September 2010, the Company reported errors
relating to import trade activity from July 2004 to the date of Plexus’
15
report. The Company is
currently awaiting final determination of CBP duties and fees. Plexus has agreed that it will
implement improved processes and procedures and review these corrective measures with CBP. At this
time, we do
not believe that any deficiencies in processes or controls or unanticipated costs, unpaid duties or
penalties associated with this matter will have a material adverse effect on Plexus or the
Company’s consolidated financial position, results of operations or cash flows.
NOTE 13 - NEW ACCOUNTING PRONOUNCEMENTS
In October 2009, the FASB issued new accounting guidance for Multiple-Deliverable Revenue
Arrangements, which establishes a selling price hierarchy for determining the selling price of a
deliverable, replaces the term “fair value” in the revenue allocation guidance with “selling
price,” eliminates the residual method of allocation by requiring that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the relative selling price
method and requires that a vendor determine its best estimate of selling price in a manner that is
consistent with that used to determine the price to sell the deliverable on a stand-alone basis.
The Company adopted this guidance beginning October 3, 2010, and the adoption did not have a
material effect on our financial position, results of operations, or cash flows.
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for
the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a
qualifying special-purpose entity (“QSPE”) removes the exception from applying the consolidation
guidance within this amendment. This amendment requires an enterprise to perform a qualitative
analysis when determining whether or not it must consolidate a VIE. The amendment also requires an
enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment
requires enhanced disclosures about an enterprise’s involvement with VIEs and any significant
change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts
the enterprise’s financial statements. Finally, an enterprise will be required to disclose
significant judgments and assumptions used to determine whether or not to consolidate a VIE. The
Company adopted this amendment beginning October 3, 2010, and the adoption did not have a material
effect on our financial position, results of operations, or cash flows.
16
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
“SAFE HARBOR” CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
The statements contained in this Form 10-Q that are not historical facts (such as statements
in the future tense and statements including “believe,” “expect,” “intend,” “plan,” “anticipate,”
“goal,” “target” and similar terms and concepts), including all discussions of periods which are
not yet completed, are forward-looking statements that involve risks and uncertainties, including,
but not limited to:
|
|
•
|
|
the economic performance of the industries, sectors and customers we serve
|
|
|
|
|
•
|
|
the risk of customer delays, changes, cancellations or forecast inaccuracies in both
ongoing and new programs
|
|
|
|
|
•
|
|
the continuing poor visibility of future orders, particularly in view of current
economic conditions
|
|
|
|
|
•
|
|
the effects of the volume of revenue from certain sectors or programs on our margins
in particular periods
|
|
|
|
|
•
|
|
our ability to secure new customers, maintain our current customer base and deliver
product on a timely basis
|
|
|
|
|
•
|
|
the risk that our revenue and/or profits associated with customers who are acquired
by third parties will be negatively affected
|
|
|
|
|
•
|
|
the particular risks relative to new customers, including our arrangements with The
Coca-Cola Company, which risks include customer and other delays, start-up costs, the
potential inability to execute, the establishment of appropriate terms of agreements
and the lack of a track record of order volume and timing
|
|
|
|
|
•
|
|
the risks of concentration of work for certain customers
|
|
|
|
|
•
|
|
our ability to successfully manage a complex business model characterized by high
customer and product mix, low volumes and demanding quality, regulatory and other
requirements
|
|
|
|
|
•
|
|
the risk that new program wins and/or customer demand may not result in the expected
revenue or profitability
|
|
|
|
|
•
|
|
the fact that customer orders may not lead to long-term relationships
|
|
|
|
|
•
|
|
raw material and component cost fluctuations particularly due to sudden increases in
customer demand
|
|
|
|
|
•
|
|
the risks associated with excess and obsolete inventory, including the risk that
inventory purchased on behalf of our customers may not be consumed or otherwise paid
for by customers, resulting in an inventory write-off
|
|
|
|
|
•
|
|
the weakness of the global economy and the continuing instability of the global
financial markets and banking system, including the potential inability of our
customers or suppliers to access credit facilities
|
|
|
|
|
•
|
|
the effect of changes in the pricing and margins of products
|
|
|
|
|
•
|
|
the effect of start-up costs of new programs and facilities, including our recent
and planned expansions, such as our new replacement facility in Oradea, Romania, and
our plans to further expand in Penang, Malaysia, Darmstadt, Germany, Xiamen, China and
other locations
|
|
|
|
|
•
|
|
the risks associated with having significant operations and planned growth in
countries outside the United States, including the effects of international political
developments, economic or political instability, or foreign exchange rate fluctuations
|
|
|
|
|
•
|
|
the risk of unanticipated costs, unpaid duties and penalties related to an ongoing
audit of our import compliance by U.S. Customs and Border Protection
|
|
|
|
|
•
|
|
possible unexpected costs and operating disruption in transitioning programs
|
|
|
|
|
•
|
|
the potential effect of fluctuations in the value of the currencies in which we
transact business
|
|
|
|
|
•
|
|
the potential effect of world or local events or other events outside our control
(such as drug cartel-related violence in Mexico, changes in oil prices, terrorism and
war in the Middle East)
|
|
|
|
|
•
|
|
the impact of increased competition, and
|
|
|
|
|
•
|
|
other risks detailed herein, as well as in our Securities and Exchange Commission
filings (particularly in Part I, Item 1A of our annual report on Form 10-K for the
fiscal year ended October 2, 2010).
|
17
OVERVIEW
The following information should be read in conjunction with our condensed consolidated
financial statements included herein and the “Risk Factors” section in Part I, Item 1A of our
annual report on Form 10-K for the fiscal year ended October 2, 2010.
Plexus Corp. and its subsidiaries (together “Plexus,” the “Company,” or “we”) participate in
the Electronic Manufacturing Services (“EMS”) industry. We deliver optimized Product Realization
solutions through a unique Product Realization Value Stream service model. This customer focused
service model seamlessly integrates innovative product design, customized supply chain solutions,
uniquely configured “focused factory” manufacturing, global end-market fulfillment and after-market
services to deliver comprehensive end-to-end solutions for customers. We provide these services to
original equipment manufacturers (“OEMs”) and other technology companies in the
wireline/networking, wireless infrastructure, medical, industrial/commercial and
defense/security/aerospace market sectors. We provide advanced product development, manufacturing
and testing services to our customers with a focus on the mid-to-lower-volume, higher complexity
segment of the EMS market. Our customers’ products typically require exceptional production and
supply-chain flexibility, necessitating an optimized demand-pull-based manufacturing and supply
chain solution across an integrated global platform. Many of our customers’ products require
complex configuration management and direct order fulfillment to their customers across the globe.
In such cases we provide global logistics management and after-market service and repair. Our
customers’ products may have stringent requirements for quality, reliability and regulatory
compliance. We offer our customers the ability to outsource all phases of product realization,
including product specifications; development, design and design verification; regulatory
compliance support; prototyping and new product introduction; manufacturing test equipment
development; materials sourcing, procurement and supply-chain management; product
assembly/manufacturing, configuration and test; order fulfillment, logistics and service/repair.
Plexus is passionate about its goal to be the best EMS company in the world at providing
services for customers that have mid-to-lower-volume requirements and a higher complexity of
products. We have tailored our engineering services, manufacturing operations, supply-chain
management, workforce, business intelligence systems, financial goals and metrics specifically to
support these types of programs. Our flexible manufacturing facilities and processes are designed
to accommodate customers with multiple product-lines and configurations as well as unique quality
and regulatory requirements. Each of these customers is supported by a multi-disciplinary customer
team and one or more uniquely configured “focus factories” supported by a supply-chain and
logistics solution specifically designed to meet the flexibility and responsiveness required to
support that customer’s fulfillment requirements.
Our go-to-market strategy is also tailored to our target market sectors and business strategy.
We have business development and customer management teams that are dedicated to each of the five
sectors we serve. These teams are accountable for understanding the sector participants,
technology, unique quality and regulatory requirements and longer-term trends in these sectors.
Further, these teams help set our strategy for growth in these sectors with a particular focus on
expanding the services and value-add that we provide to our current customers while strategically
targeting select new customers to add to our portfolio.
Our financial model is aligned with our business strategy, with our primary focus to earn a
return on invested capital (“ROIC”) in excess of our weighted average cost of capital (“WACC”).
The smaller volumes, flexibility requirements and fulfillment needs of our customers typically
result in greater investments in inventory than many of our competitors, particularly those that
provide EMS services for high-volume, less complex products with less stringent requirements (such
as consumer electronics). In addition, our cost structure relative to these peers includes higher
investments in selling and administrative costs as a percentage of sales to support our
sector-based go-to-market strategy, smaller program sizes, flexibility, and complex quality and
regulatory compliance requirements. By exercising discipline to generate a ROIC in excess of our
WACC, our goal is to ensure that Plexus creates a value proposition for our shareholders as well as
our customers.
Our customers include both industry-leading OEMs and other technology companies that have
never manufactured products internally. As a result of our focus on serving market sectors that
rely on advanced electronics technology, our business is influenced by technological trends such as
the level and rate of development of telecommunications infrastructure, the expansion of networks
and use of the Internet. In addition, the federal Food and Drug Administration’s approval of new
medical devices, defense procurement practices and other
18
governmental approval and regulatory processes can affect our business. Our business has also
benefited from the trend to increased outsourcing by OEMs.
We provide most of our contract manufacturing services on a turnkey basis, which means that we
procure some or all of the materials required for product assembly. We provide some services on a
consignment basis, which means that the customer supplies the necessary materials, and we provide
the labor and other services required for product assembly. Turnkey services require material
procurement and warehousing, in addition to manufacturing, and involve greater resource investments
than consignment services. Other than certain test equipment and software used for internal
operations, we do not design or manufacture our own proprietary products.
EXECUTIVE SUMMARY
As a consequence of the Company’s use of a “4-4-5” weekly accounting system, periodically an
additional week must be added to the fiscal year to re-align with a fiscal year end at the Saturday
closest to September 30. The accounting periods for the three months ended January 1, 2011 and
January 2, 2010 each included 91 days.
In the fiscal first quarter of 2011, we completed our migration to a regional reporting
structure. This change included establishing regional targets for various financial metrics,
delegating additional authority to the regions to manage their business, and changing our related
internal reporting. Given this change to regional reporting and management as well as in the
information used by management for assessing performance and allocating Company resources, we
modified our reporting segments. Prior to fiscal 2011, the Company’s reportable segments consisted
of the United States, Asia, Europe and Mexico. We have combined our United States and Mexico
segments into the “Americas” (AMER) segment and renamed our Asia segment “Asia Pacific” (APAC) and
our Europe segment “Europe, Middle East and Africa” (EMEA) to better represent our long-range
regional focus. As a result, we have conformed all prior period segment presentations to be
consistent with our current reportable segments.
Three months ended January 1, 2011.
Net sales for the three months ended January 1, 2011, of
$565.8 million increased by $135.4 million, or 31.5 percent, as compared to the three months ended
January 2, 2010. The net sales increase in the current year period was driven primarily by higher
end-market demand from numerous existing customers in each of our market sectors, as well as the
addition of a new customer in the wireless infrastructure sector. Net sales to Juniper Networks,
Inc. (“Juniper”), our largest customer, increased as a result of improved end-market demand for the
mix of Juniper products we produce.
Gross margins were 9.7 percent for the three months ended January 1, 2011, which compared
unfavorably to 10.3 percent for the three months ended January 2, 2010. The prior year period
benefited from approximately $3.2 million of proceeds from a litigation settlement. Excluding the
prior year settlement, the gross margin percentage would have increased slightly over the prior
year as a result of increased net sales and the mix of customer revenue, partially offset by an
increase in fixed expenses primarily due to higher headcount to support revenue growth.
Selling and administrative expenses for the three months ended January 1, 2011 were $27.1
million, an increase of $2.7 million, or 11.3 percent, over the three months ended January 2, 2010.
The current year period increase was primarily related to higher headcount to support revenue
growth and increased stock based compensation expense, offset by funds from a dispute recovery and
lower variable incentive compensation expense.
Net income for the three months ended January 1, 2011 increased by $7.2 million to $25.0
million from the three months ended January 2, 2010 and diluted earnings per share increased to
$0.61 in the current year period from $0.44 in the prior year period. Net income increased due to
higher sales, partially offset by increased fixed and selling and administrative expenses primarily
as a result of increased headcount to support the revenue growth. The effective tax rate in the
current year period was 3 percent as compared to 1 percent in the prior year period. The increase
in the effective tax rate for the current year period as compared to the prior year period was
primarily due to a change in mix of forecasted earnings in the jurisdictions in which we operate.
As demonstrated in recent quarters, the tax rate can vary during the year based on the mix of
forecasted earnings by tax jurisdiction. We currently benefit from reduced taxes in the Asia
Pacific segment due to tax holidays.
19
Fiscal 2011 outlook.
Our current expectations for fiscal 2011 include meaningful challenges,
particularly in the third quarter, due to a confluence of issues. These issues include the winding
down of two significant manufacturing programs for customers that were acquired during the past
year and will transition out of Plexus, a fairly broad-based reduction in customer forecasts and a
significant production delay in the two programs for The Coca-Cola Company. As a consequence, we
expect some volatility among the remaining quarters of the fiscal year with fiscal 2011 full year
anticipated revenue growth in the range of 10-13% over the prior fiscal year.
Based on customer forecasts and current economic conditions, we currently expect net sales in
the second quarter of fiscal 2011 to be in the range of $540 million to $570 million; however, our
results will ultimately depend upon the actual level of customer orders and production. The second
quarter will be unfavorably impacted by the three issues discussed above, as well as by an increase
in the structural seasonal operating costs, including salary adjustments, which need to be absorbed
by the financial model going forward. Assuming that net sales are in the range noted above, we
would currently expect to earn, before any restructuring and impairment costs, between $0.53 to
$0.58 per diluted share in the second quarter of fiscal 2011.
We currently expect the annual effective tax rate for fiscal 2011 to be 3%.
RESULTS OF OPERATIONS
Net sales.
Net sales for the indicated periods were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
2011
|
|
2010
|
|
Increase / (Decrease)
|
|
Net Sales
|
|
$
|
565.8
|
|
|
$
|
430.4
|
|
|
$
|
135.4
|
|
|
|
31.5
|
%
|
For the three months ended January 1, 2011, our net sales increase of 31.5 percent was the
result of higher net sales in all market sectors due to improved end-market demand from numerous
existing customers, as well as the addition of new customers in the wireless infrastructure,
medical, and industrial/commercial sectors. Net sales to Juniper increased as a result of improved
end-market demand for the mix of Juniper products we produce.
Our percentages of net sales by market sector for the indicated periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
January 1,
|
|
January 2,
|
|
Market
Sector
|
|
2011
|
|
2010
|
|
Wireline/Networking
|
|
|
41
|
%
|
|
|
47
|
%
|
|
Wireless Infrastructure
|
|
|
10
|
%
|
|
|
11
|
%
|
|
Medical
|
|
|
21
|
%
|
|
|
18
|
%
|
|
Industrial/Commercial
|
|
|
21
|
%
|
|
|
15
|
%
|
|
Defense/Security/Aerospace
|
|
|
7
|
%
|
|
|
9
|
%
|
The percentages of net sales to customers representing 10 percent or more of net sales and net
sales to our ten largest customers for the indicated periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Juniper
|
|
|
17
|
%
|
|
|
17
|
%
|
|
Top 10 customers
|
|
|
56
|
%
|
|
|
62
|
%
|
20
Net sales to our largest customers may vary from time to time depending on the size and timing
of customer program commencements, terminations, delays, modifications and transitions. We remain
dependent on continued sales to our significant customers, and we generally do not obtain firm,
long-term purchase commitments from our customers. Customers’ forecasts can and do change as a
result of changes in their end-market demand and other factors, including global economic
conditions. Any material change in forecasts or orders from these major accounts, or other
customers, could materially affect our results of operations, as discussed above in our fiscal 2011
outlook. In addition, as our percentage of net sales to customers in a specific sector becomes
larger relative to other sectors, we will become increasingly dependent upon the economic and
business conditions affecting that sector.
In the current economic environment, we are seeing increased merger and acquisition activity
that has already impacted, and may continue to impact, our customers. Specifically, two of our
customers were acquired in the first quarter of fiscal 2010. Our production for these two
customers is ramping down during the first half of fiscal 2011 and full disengagement of both
customers is expected by the end of the fiscal year.
Gross profit.
Gross profit and gross margins for the indicated periods were as follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
2011
|
|
2010
|
|
Increase / (Decrease)
|
|
Gross Profit
|
|
$
|
54.9
|
|
|
$
|
44.5
|
|
|
$
|
10.4
|
|
|
|
23.3
|
%
|
|
Gross Margin
|
|
|
9.7
|
%
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
For the three months ended January 1, 2011, gross profit was impacted by the following
factors:
|
|
•
|
|
increased capacity utilization from higher revenue levels in the current year
period
|
|
|
|
|
•
|
|
increased fixed expenses in the current year period, primarily in the Americas
and Asia Pacific reportable segments, due to higher headcount expense of
approximately $6.6 million to support the revenue growth
|
|
|
|
|
•
|
|
a $3.2 million benefit in the fiscal first quarter of 2010 from a litigation
settlement.
|
Gross margins reflect a number of factors that can vary from period to period, including
product and service mix, the level of new facility start-up costs, inefficiencies resulting from
the transition of new programs, product life cycles, sales volumes, price reductions, overall
capacity utilization, labor costs and efficiencies, the management of inventories, component
pricing and shortages, fluctuations and timing of customer orders, changing demand for our
customers’ products and competition within the electronics industry. During fiscal 2010, we were
in a constrained supply environment, which caused periods of parts shortages and delays for some
components, based on lack of capacity at some of our suppliers to meet increased demand from the
gradually improving economic outlook. Such shortages and delays could negatively impact net sales,
inventory levels, component costs and margin. Additionally, turnkey manufacturing involves the
risk of inventory management, and a change in component costs can directly impact average selling
prices, gross margins and net sales. Although we focus on maintaining gross margins, there can be
no assurance that gross margins will not decrease in future periods.
Design work performed by the Company is not the proprietary property of Plexus and
substantially all costs incurred with this work are considered reimbursable by our customers. We
do not track research and development costs that are not reimbursed by our customers and we
consider these amounts immaterial.
Selling and administrative expenses.
Selling and administrative expenses (“S&A”) for the
indicated periods were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
2011
|
|
2010
|
|
Increase / (Decrease)
|
|
S&A
|
|
$
|
27.1
|
|
|
$
|
24.3
|
|
|
$
|
2.7
|
|
|
|
11.3
|
%
|
|
Percent of net sales
|
|
|
4.8
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
21
For the three months ended January 1, 2011, the dollar increase in S&A was due primarily to an
increase in headcount expense of approximately $2.9 million to support the higher revenue achieved
during the fiscal first quarter of 2011, as well as increased stock-based compensation expense of
approximately $0.4 million, partially offset by a dispute recovery of approximately $0.8 million
and lower variable incentive compensation expense of approximately $0.2 million.
Income taxes.
Income taxes for the indicated periods were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Income tax expense
|
|
$
|
0.8
|
|
|
$
|
0.2
|
|
|
Effective tax rate
|
|
|
3
|
%
|
|
|
1
|
%
|
The change in effective tax rate for the three months ended January 1, 2011, as compared to
the three months ended January 2, 2010, was primarily due to a change in mix of forecasted earnings
in the jurisdictions in which we operate. As demonstrated in recent quarters, the tax rate can
vary during the year based on the mix of forecasted earnings by tax jurisdiction. We currently
benefit from reduced taxes in the Asia Pacific segment due to tax holidays.
Our net deferred income tax assets as of January 1, 2011, reflect a $1.6 million valuation
allowance against certain deferred income taxes and a remaining valuation allowance of $1.0 million
related to tax deductions associated with stock-based compensation. If the United States
operations continue to generate losses, there may be a need to provide a valuation allowance on our
net United States deferred tax assets.
We currently expect the annual effective tax rate for fiscal 2011 to be 3%.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities.
Cash flows used in operating activities were $21.1 million for the three
months ended January 1, 2011, as compared to cash flows used in operating activities of $10.3
million for the three months ended January 2, 2010. During the three months ended January 1, 2011,
cash flows used by operating activities were primarily the result of increased inventory and
accounts receivable as well as decreased accounts payable and accrued liabilities, offset in part
by earnings after adjusting for the non-cash effects of depreciation, amortization and stock-based
compensation expenses.
Inventory levels increased in the fiscal first quarter of 2011 to support new customers that
are ramping in the fiscal second quarter, customer demand variability with our existing customers
and some inventory that did not ship at the end of the quarter due to component shortages.
Inventory turns decreased to 3.9 as of January 1, 2011, from 4.1 turns for the fiscal year ended
October 2, 2010. Days in inventory changed unfavorably as of January 1, 2011 to 93 days compared
to 90 days as of October 2, 2010 due to the factors discussed above. We are taking steps to
actively manage these inventory levels down, with the assistance of our customers.
The overall increase in accounts receivable was mainly due to higher net sales for the three
months ended January 1, 2011, as compared to the prior year. As of January 1, 2011, quarterly days
sales outstanding in accounts receivable were 52 days as compared to the 51 days for the fiscal
year ended October 2, 2010 and were impacted by the timing of shipments during the quarter.
The increase in accounts payable was largely the result of the timing of inventory receipts,
which were concentrated in the early portion of the quarter for the three months ended January 1,
2011, as compared to the prior year.
Investing Activities.
Cash flows used in investing activities totaled $13.2 million for the
three months ended January 1, 2011, and were primarily for additions to property, plant and
equipment in the Americas and Asia Pacific.
22
These investments were for new equipment to support customer demand as well as capacity
investments in both Penang, Malaysia and Xiamen, China. See Note 9 in Notes to Condensed
Consolidated Financial Statements for further information regarding our capital expenditures by
reportable segment.
We utilized available cash and operating cash flows as the sources for funding our operating
requirements. We currently estimate capital expenditures for fiscal 2011 to be approximately $100
million. A significant portion of the fiscal 2011 capital expenditures is anticipated to be used
for the construction of new manufacturing facilities in Penang, Malaysia and Xiamen, China, as
mentioned above.
Financing Activities.
Cash flows used in financing activities totaled $4.5 million for the
three months ended January 1, 2011, as compared to cash flows used of $2.1 million for the three
months ended January 2, 2010. Cash flows used in the current year period represented payments on
our outstanding term loan described below, partially offset by cash generated from exercises of
stock options.
On April 4, 2008, we entered into our Credit Facility with a group of banks which allows us to
borrow $150 million in term loans and $100 million in revolving loans. The $150 million in term
loans was immediately funded and the $100 million revolving credit facility is currently available.
The Credit Facility is unsecured and may be increased by an additional $100 million (the
“accordion feature”) if we have not previously terminated all or any portion of the Credit
Facility, there is no event of default existing under the credit agreement and both we and the
administrative agent consent to the increase. The Credit Facility expires on April 4, 2013.
Borrowings under the Credit Facility may be either through term loans, revolving or swing loans or
letter of credit obligations. As of January 1, 2011, we had term loan borrowings of $108.8 million
outstanding and no revolving borrowings under the Credit Facility.
The Credit Facility contains certain financial covenants, which include a maximum total
leverage ratio, maximum value of fixed rentals and operating lease obligations, a minimum interest
coverage ratio and a minimum net worth test, all as defined in the agreement. As of January 1,
2011, we were in compliance with all debt covenants. If we incur an event of default, as defined
in the Credit Facility (including any failure to comply with a financial covenant), the group of
banks has the right to terminate the Credit Facility and all other obligations, and demand
immediate repayment of all outstanding sums (principal and accrued interest). The interest rate on
the borrowing varies depending upon our then-current total leverage ratio; as of January 1, 2011,
the Company could elect to pay interest at a defined base rate or the LIBOR rate plus 1.00%. Rates
would increase upon negative changes in specified Company financial metrics and would decrease upon
reduction in the current total leverage ratio to no less than LIBOR plus 1.00%. We are also
required to pay an annual commitment fee on the unused credit commitment based on our leverage
ratio; the current fee is 0.25%. Unless the accordion feature is exercised, this fee applies only
to the initial $100 million of availability (excluding the $150 million of term borrowings).
Origination fees and expenses associated with the Credit Facility totaled approximately $1.3
million and have been deferred. These origination fees and expenses will be amortized over the
five year term of the Credit Facility. Quarterly principal repayments on the term loan of $3.75
million per quarter began on June 30, 2008 and end on April 4, 2013, with a final balloon repayment
of $75.0 million.
The Credit Facility allows for the future payment of cash dividends or the future repurchases
of shares provided that no event of default (including any failure to comply with a financial
covenant) is existing at the time of, or would be caused by, the dividend payment or the share
repurchases.
In June 2008, the Company entered into three interest rate swap contracts related to the $150
million in term loans under the Credit Facility that had an initial notional value of $150 million
and mature on April 4, 2013. The total fair value of these interest rate swap contracts was $7.7
million as of January 1, 2011. As of January 1, 2011, the total combined notional amount of the
Company’s three interest rate swaps was $108.8 million.
Our Malaysian operations have entered into forward exchange contracts on a rolling basis with
a total notional value of $41.0 million as of January 1, 2011. These forward contracts will fix
the exchange rates on foreign currency cash used to pay a portion of our local currency expenses.
The changes in the fair value of the forward contracts are recorded in “Accumulated other
comprehensive income” on the accompanying Condensed Consolidated Balance Sheets until earnings are
affected by the variability of cash flows. The total fair value of the forward contracts was $2.0
million at January 1, 2011.
23
As of January 1, 2011, we held $2.0 million of auction rate securities maturing on March 17,
2042, which were classified as “other” long-term assets and whose underlying assets are in
guaranteed student loans that are backed by a U. S. government agency. If the credit quality
deteriorates for these adjustable rate securities, we may in the future be required to record an
impairment charge on these investments. The fair value of the auction rate securities approximates
the carrying value of $2.0 million as of January 1, 2011. We believe that these securities are
marketable.
Based on current expectations, we believe that our projected cash flows from operations,
available cash and short-term investments, the Credit Facility, and our leasing capabilities should
be sufficient to meet our working capital and fixed capital requirements for the next twelve
months. $100 million of committed credit is currently available under the Credit Facility, with
another $100 million available in an “accordion” facility, which is contingent upon compliance with
the terms of the Credit Agreement and lender approval. If our future financing needs increase, we
may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider
from time to time various financing alternatives to supplement our financial resources.
We have not paid cash dividends in the past and do not currently anticipate paying them in the
future. However, the company evaluates from time to time potential uses of excess cash, which in
the future may include share repurchases, a special dividend or recurring dividends.
REPORTABLE SEGMENTS
In the fiscal first quarter of 2011, we completed our migration to a regional reporting
structure and as a result made a minor change to our reportable segments. See “Executive Summary”
above for further information.
A further discussion of financial performance by reportable segment is presented below
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
344.0
|
|
|
$
|
277.5
|
|
|
APAC
|
|
|
272.5
|
|
|
|
193.1
|
|
|
EMEA
|
|
|
20.1
|
|
|
|
13.9
|
|
|
Elimination of inter-segment sales
|
|
|
(70.8
|
)
|
|
|
(54.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
565.8
|
|
|
$
|
430.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
18.5
|
|
|
$
|
19.5
|
|
|
APAC
|
|
|
32.7
|
|
|
|
23.3
|
|
|
EMEA
|
|
|
(0.3
|
)
|
|
|
(1.2
|
)
|
|
Corporate and other costs
|
|
|
(23.1
|
)
|
|
|
(21.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27.8
|
|
|
$
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
Americas (AMER):
Net sales for the three months ended January 1, 2011 increased $66.5
million, or 24.0 percent, due to higher end-market demand from numerous existing customers
in each of our market sectors along with demand from new customers in the wireless
infrastructure and medical sectors, partially offset by the disengagement of a
wireline/networking customer. Net sales to our largest customer, Juniper, increased
compared to the prior year period due to higher end-market demand for the mix of Juniper
products we
produce. Operating income for the current year period decreased due to the prior year
period benefitting
24
from a $3.2 million litigation settlement as well as higher fixed
expenses, including approximately $2.8 million of greater employee headcount to support the
revenue growth.
Asia Pacific (APAC):
Net sales for the three months ended January 1, 2011 increased $79.4
million, or 41.1 percent, due to higher end-market demand from numerous existing customers,
primarily in our wireline/networking and medical sectors, as well as increased demand from a
new customer in the industrial/commercial sector. Net sales to Juniper increased as a
result of improved end-market demand for the mix of Juniper products we produce. Operating
income in the current year period improved as a result of the net sales growth.
Europe, Middle East, Africa (EMEA):
Net sales for the three months ended January 1, 2011
increased $6.2 million, or 44.6 percent, due primarily to increased demand from two existing
customer programs in the industrial/commercial sector. Operating loss in the current year
period decreased $0.9 million as compared to the prior year period due to the revenue growth
in the existing United Kingdom facility, partially offset by operating costs from our
Romania facility.
For our significant customers, we generally manufacture product in more than one location.
For example, net sales to Juniper, our largest customer, occur in the Americas and Asia Pacific
segments. See Note 9 in Notes to Condensed Consolidated Financial Statements for certain financial
information regarding our reportable segments, including detail of net sales by reportable segment.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS
Our disclosures regarding contractual obligations and commercial commitments are located in
various parts of our regulatory filings. Information in the following table provides a summary of
our contractual obligations and commercial commitments as of January 1, 2011 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Period
|
|
|
|
|
|
|
|
Remaining in
|
|
|
|
|
|
|
|
|
|
2016 and
|
|
Contractual Obligations
|
|
Total
|
|
2011
|
|
2012-2013
|
|
2014-2015
|
|
thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations (1)
|
|
$
|
120.8
|
|
|
$
|
15.7
|
|
|
$
|
105.1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Capital Lease Obligations
|
|
|
22.0
|
|
|
|
2.7
|
|
|
|
7.7
|
|
|
|
8.0
|
|
|
|
3.6
|
|
|
Operating Lease Obligations
|
|
|
39.4
|
|
|
|
6.9
|
|
|
|
15.7
|
|
|
|
10.8
|
|
|
|
6.0
|
|
|
Purchase Obligations (2)
|
|
|
385.5
|
|
|
|
375.0
|
|
|
|
9.6
|
|
|
|
0.4
|
|
|
|
0.5
|
|
|
Other Long-Term Liabilities on the
Balance Sheet (3)
|
|
|
9.1
|
|
|
|
0.8
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
5.3
|
|
|
Other Long-Term Liabilities not on
the Balance Sheet (4)
|
|
|
6.2
|
|
|
|
4.2
|
|
|
|
2.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
583.0
|
|
|
$
|
405.3
|
|
|
$
|
141.6
|
|
|
$
|
20.7
|
|
|
$
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) - As of April 4, 2008, we entered into the Credit Facility and immediately funded a term loan
for $150 million. The amounts listed above include interest, as we intend to hold the loan to
maturity. See Note 4 in Notes to Condensed Consolidated Financial Statements for further
information.
(2) - As of January 1, 2011, purchase obligations consist of purchases of inventory and equipment
in the ordinary course of business.
(3) - As of January 1, 2011, other long-term obligations on the balance sheet included deferred
compensation obligations to certain of our former and current executive officers, as well as other
key employees, and an asset retirement obligation. We have excluded from the table the impact, as
of January 1, 2011, of approximately $5.2 million related to unrecognized income tax benefits. The
Company cannot make reliable estimates of the future cash flows by period related to this
obligation.
25
(4) - As of January 1, 2011, other long-term obligations not on the balance sheet consisted of a
commitment for salary continuation in the event employment of one executive officer of the Company
is terminated without cause as well as a subsequent commitment for approximately $3.4 million
related to an acquisition of land. We did not have, and were not subject to, any lines of credit,
standby letters of credit, guarantees, standby repurchase obligations, other off-balance sheet
arrangements or other commercial commitments that are material.
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in our 2010 annual report on Form 10-K. During the
first quarter of fiscal 2011, there were no material changes to these policies.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 13 in Notes to Condensed Consolidated Financial Statements for further information
regarding new accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in foreign exchange and interest rates. We
selectively use financial instruments to reduce such risks.
Foreign Currency Risk
We do not use derivative financial instruments for speculative purposes. Our policy is to
selectively hedge our foreign currency denominated transactions in a manner that partially offsets
the effects of changes in foreign currency exchange rates. We typically use foreign currency
contracts to hedge only those currency exposures associated with certain assets and liabilities
denominated in non-functional currencies. Corresponding gains and losses on the underlying
transaction generally offset the gains and losses on these foreign currency hedges. Beginning in
July 2009, we entered into forward contracts to hedge a portion of our foreign currency denominated
transactions in our Asia Pacific reportable segment, as described in Note 5 in Notes to Condensed
Consolidated Financial Statements. Our international operations create potential foreign exchange
risk. Our percentages of transactions denominated in currencies other than the U.S. dollar for the
indicated periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
2011
|
|
2010
|
|
Net Sales
|
|
|
5
|
%
|
|
|
4
|
%
|
|
Total Costs
|
|
|
13
|
%
|
|
|
12
|
%
|
The Company has evaluated the potential foreign currency exchange rate risk on transactions
denominated in currencies other than the U.S. Dollar for the periods presented above. Based on the
Company’s overall currency exposure, as of January 1, 2011, a 10 percent change in the value of the
U.S. Dollar relative to our other transactional currencies would not have a material effect on the
Company’s financial position, results of operations, or cash flows.
Interest Rate Risk
We have financial instruments, including cash equivalents and short-term investments, which
are sensitive to changes in interest rates. We consider the use of interest-rate swaps based on
existing market conditions and have entered into interest rate swaps for $108.8 million in term
loans, as described in Note 5 in Notes to Condensed Consolidated Financial Statements. As with any
agreement of this type, our interest rate swap agreements are subject to the further risk that the
counterparties to these agreements may fail to comply with their obligations thereunder.
26
The primary objective of our investment activities is to preserve principal, while maximizing
yields without significantly increasing market risk. To achieve this, we maintain our portfolio of
cash equivalents and short-term investments in a variety of highly rated securities, money market
funds and certificates of deposit and limit the amount of principal exposure to any one issuer.
Our only material interest rate risk is associated with our Credit Facility under which we
borrowed $150 million. Through the use of interest rate swaps, as described above, we have fixed
the basis on which we pay interest, thus eliminating much of our interest rate risk. A 10 percent
change in the weighted average interest rate on our average long-term borrowings would have had
only a nominal impact on net interest expense for both the three months ended January 1, 2011 and
January 2, 2010, respectively.
Auction Rate Securities
As of January 1, 2011, we held $2.0 million of auction rate securities maturing on March 17,
2042, which were classified as long-term other assets and whose underlying assets are in guaranteed
student loans backed by a U.S. government agency. If the credit quality deteriorates for these
adjustable rate securities, we may in the future be required to record an impairment charge on
these investments. The fair value of the auction rate securities approximates the carrying value
of $2.0 million as of January 1, 2011. We believe that these securities are marketable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures:
The Company maintains disclosure controls and procedures
designed to ensure that the information the Company must disclose in its filings with the
Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported on a
timely basis. The Company’s principal executive officer and principal financial officer have
reviewed and evaluated, with the participation of the Company’s management, the Company’s
disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this
report (the “Evaluation Date”). Based on such evaluation, the chief executive officer and chief
financial officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls
and procedures are effective (a) in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by the Company in the reports the Company files or
submits under the Exchange Act, and (b) in assuring that information is accumulated and
communicated to the Company’s management, including the chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting:
During the first quarter of fiscal 2011,
there have been no changes to the Company’s internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls:
Our management, including our chief executive
officer and chief financial officer, does not expect that our disclosure controls and internal
controls will prevent all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future
conditions; over time, a control may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
Notwithstanding the foregoing limitations on the effectiveness of controls, we have
nonetheless reached the conclusion that the Company’s disclosure controls and procedures are
effective at the reasonable assurance level.
27
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
We were notified in April 2009 by U.S. Customs and Border Protection (“CBP”) of its intention
to conduct a customary Focused Assessment of our import activities during fiscal 2008 and of our
processes and procedures to comply with U.S. Customs laws and regulations. We recorded an accrual
in Other Accrued current liabilities at the time the amount became estimable and probable, which
was not material to the financial statements. During September 2010 the Company reported errors
relating to import trade activity from July 2004 to the date of Plexus’ report. The Company is
currently awaiting final determination of CBP duties and fees. Plexus has agreed that it will
implement improved processes and procedures and review these corrective measures with CBP. At this
time, we do not believe that any deficiencies in processes or controls or unanticipated costs,
unpaid duties or penalties associated with this matter will have a material adverse effect on
Plexus or the Company’s consolidated financial position, results of operations or cash flows.
The Company is party to certain other lawsuits in the ordinary course of business. Management
does not believe that these proceedings, individually or in the aggregate, will have a material
adverse effect on the Company’s consolidated financial position, results of operations or cash
flows.
In addition to the risks and uncertainties discussed herein, particularly those discussed in
the “Safe Harbor” Cautionary Statement, Fiscal 2011 outlook and the other sections of Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2, see the
risk factors set forth in Part I, Item 1A of the Company’s annual report on Form 10-K for the
fiscal year ended October 2, 2010.
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302(a) of the
Sarbanes Oxley Act of 2002.
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302(a) of the
Sarbanes Oxley Act of 2002.
|
|
|
|
|
32.1
|
|
Certification of the CEO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.2
|
|
Certification of the CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
101
|
|
The following materials from Plexus Corp.’s Quarterly Report on Form 10-Q for
the quarter ended January 1, 2011, formatted in XBRL (Extensible Business Reporting
Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive
Income, (ii) the Condensed Consolidated Balance Sheets, and (iii) the Condensed
Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated
Financial Statements, tagged as blocks of text
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
28
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
29
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
|
|
Plexus
Corp.
|
|
|
|
Registrant
|
|
|
|
|
|
2/4/11
|
|
/s/ Dean A. Foate
|
|
Date
|
|
Dean A. Foate
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
2/4/11
|
|
/s/ Ginger M. Jones
|
|
Date
|
|
Ginger M. Jones
|
|
|
|
Vice President and Chief Financial Officer
|
30