PLEXUS CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________________________________________
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ý
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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
June 30, 2018
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 54957
(Address of principal executive offices)(Zip Code)
Telephone Number (920) 969-6000
(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
ý
No
¨
Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes
ý
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
ý
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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Emerging growth company
¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
ý
As of
July 31, 2018
, there were
32,234,478
shares of Common Stock of the Company outstanding.
PLEXUS CORP.
TABLE OF CONTENTS
June 30, 2018
2
PLEXUS CORP. AND SUBSIDIARIES
(in thousands, except per share data)
Unaudited
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
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June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
|||||||||||||
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Net sales
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$
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726,385
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$
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618,832
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$
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2,102,330
|
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$
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1,858,200
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|
||||
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Cost of sales
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658,564
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557,647
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1,918,034
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1,668,859
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|
||||||||
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Gross profit
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67,821
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61,185
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184,296
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189,341
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||||||||
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Selling and administrative expenses
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35,375
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31,716
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102,978
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93,398
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||||||||
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Operating income
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32,446
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29,469
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81,318
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95,943
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||||||||
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Other income (expense):
|
||||||||||||||||
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Interest expense
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(2,910
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)
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(3,294
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)
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(10,182
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)
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(9,830
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)
|
||||||||
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Interest income
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1,068
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1,299
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4,049
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3,555
|
|
||||||||
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Miscellaneous
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(1,052
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)
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(103
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)
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(1,875
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)
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1,147
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|
||||||||
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Income before income taxes
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29,552
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27,371
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73,310
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90,815
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|
||||||||
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Income tax expense
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3,051
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1,792
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133,012
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7,762
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||||||||
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Net income (loss)
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$
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26,501
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$
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25,579
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$
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(59,702
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)
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$
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83,053
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||||
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Earnings (loss) per share:
|
||||||||||||||||
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Basic
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$
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0.81
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$
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0.76
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$
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(1.79
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)
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$
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2.47
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||||
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Diluted
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$
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0.79
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$
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0.74
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$
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(1.79
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)
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$
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2.40
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||||
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Weighted average shares outstanding:
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||||||||||||||||
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Basic
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32,796
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33,669
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33,300
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33,636
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||||||||
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Diluted
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33,651
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34,568
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33,300
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34,585
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||||||||
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Comprehensive income (loss):
|
||||||||||||||||
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Net income (loss)
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$
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26,501
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$
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25,579
|
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$
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(59,702
|
)
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$
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83,053
|
|
||||
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Other comprehensive (loss) income:
|
||||||||||||||||
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Derivative instrument fair value adjustment
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(5,023
|
)
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2,991
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(2,255
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)
|
747
|
|
||||||||
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Foreign currency translation adjustments
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(7,965
|
)
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6,367
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(1,050
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)
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(2,379
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)
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||||||||
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Other comprehensive (loss) income
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(12,988
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)
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9,358
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(3,305
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)
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(1,632
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)
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||||||||
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Total comprehensive income (loss)
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$
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13,513
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$
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34,937
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$
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(63,007
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)
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$
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81,421
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PLEXUS CORP. AND SUBSIDIARIES
(in thousands, except per share data)
Unaudited
|
June 30,
2018 |
September 30,
2017 |
|||||||
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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332,723
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$
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568,860
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|
||
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Restricted cash
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828
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394
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||||
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Accounts receivable, net of allowances of $822 and $980, respectively
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379,136
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365,513
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||||
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Inventories
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755,809
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654,642
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||||
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Prepaid expenses and other
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31,221
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28,046
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||||
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Total current assets
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1,499,717
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1,617,455
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||||
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Property, plant and equipment, net
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334,528
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314,665
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||||
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Deferred income tax assets
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5,432
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5,292
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|
||||
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Other
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54,952
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38,770
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|
||||
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Total non-current assets
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394,912
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358,727
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|
||||
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Total assets
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$
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1,894,629
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$
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1,976,182
|
|
||
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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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6,365
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$
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286,934
|
|
||
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Accounts payable
|
473,374
|
|
413,999
|
|
||||
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Customer deposits
|
101,679
|
|
107,837
|
|
||||
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Accrued salaries and wages
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57,576
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|
49,376
|
|
||||
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Other accrued liabilities
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70,278
|
|
49,445
|
|
||||
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Total current liabilities
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709,272
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907,591
|
|
||||
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Long-term debt and capital lease obligations, net of current portion
|
180,204
|
|
26,173
|
|
||||
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Long-term accrued income taxes payable
|
91,905
|
|
—
|
|
||||
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Deferred income tax liabilities
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15,178
|
|
—
|
|
||||
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Other liabilities
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15,710
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16,479
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|
||||
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Total non-current liabilities
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302,997
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42,652
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|
||||
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Total liabilities
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1,012,269
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950,243
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|
||||
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Commitments and contingencies
|
|
|
||||||
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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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Common stock, $.01 par value, 200,000 shares authorized, 52,451 and 51,934 shares issued, respectively, and 32,361 and 33,464 shares outstanding, respectively
|
525
|
|
519
|
|
||||
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Additional paid-in capital
|
572,559
|
|
555,297
|
|
||||
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Common stock held in treasury, at cost, 20,090 and 18,470 shares, respectively
|
(671,944
|
)
|
(574,104
|
)
|
||||
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Retained earnings
|
989,504
|
|
1,049,206
|
|
||||
|
Accumulated other comprehensive loss
|
(8,284
|
)
|
(4,979
|
)
|
||||
|
Total shareholders’ equity
|
882,360
|
|
1,025,939
|
|
||||
|
Total liabilities and shareholders’ equity
|
$
|
1,894,629
|
|
$
|
1,976,182
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PLEXUS CORP. AND SUBSIDIARIES
(in thousands)
Unaudited
|
Nine Months Ended
|
||||||||
|
June 30,
2018 |
July 1,
2017 |
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net (loss) income
|
$
|
(59,702
|
)
|
$
|
83,053
|
|
||
|
Adjustments to reconcile net (loss) income to net cash flows from operating activities:
|
||||||||
|
Depreciation
|
35,761
|
|
33,785
|
|
||||
|
Deferred income taxes
|
23,106
|
|
86
|
|
||||
|
Share-based compensation expense
|
13,206
|
|
12,485
|
|
||||
|
Other, net
|
(117
|
)
|
209
|
|
||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(14,723
|
)
|
98,404
|
|
||||
|
Inventories
|
(102,320
|
)
|
(87,824
|
)
|
||||
|
Other current and noncurrent assets
|
(21,124
|
)
|
(10,731
|
)
|
||||
|
Accrued income taxes payable
|
98,552
|
|
1,105
|
|
||||
|
Accounts payable
|
63,743
|
|
(6,414
|
)
|
||||
|
Customer deposits
|
(6,128
|
)
|
(3,370
|
)
|
||||
|
Other current and noncurrent liabilities
|
11,216
|
|
1,135
|
|
||||
|
Cash flows provided by operating activities
|
41,470
|
|
121,923
|
|
||||
|
Cash flows from investing activities
|
||||||||
|
Payments for property, plant and equipment
|
(52,077
|
)
|
(24,443
|
)
|
||||
|
Proceeds from sales of property, plant and equipment
|
426
|
|
436
|
|
||||
|
Cash flows used in investing activities
|
(51,651
|
)
|
(24,007
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
|
Borrowings under debt agreements
|
673,052
|
|
166,087
|
|
||||
|
Payments toward debt and capital lease obligations
|
(806,910
|
)
|
(156,877
|
)
|
||||
|
Debt issuance costs
|
(729
|
)
|
—
|
|
||||
|
Repurchases of common stock
|
(97,840
|
)
|
(23,856
|
)
|
||||
|
Proceeds from exercise of stock options
|
9,523
|
|
10,601
|
|
||||
|
Payments related to tax withholding for share-based compensation
|
(5,461
|
)
|
(6,141
|
)
|
||||
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Cash flows used in financing activities
|
(228,365
|
)
|
(10,186
|
)
|
||||
|
Effect of exchange rate changes on cash and cash equivalents
|
2,843
|
|
(735
|
)
|
||||
|
Net (decrease) increase in cash and cash equivalents and restricted cash
|
(235,703
|
)
|
86,995
|
|
||||
|
Cash and cash equivalents and restricted cash:
|
||||||||
|
Beginning of period
|
569,254
|
|
432,964
|
|
||||
|
End of period
|
$
|
333,551
|
|
$
|
519,959
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PLEXUS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 2018
AND
JULY 1, 2017
Unaudited
1. Basis of Presentation
Basis of Presentation:
The accompanying Condensed Consolidated Financial Statements included herein have been prepared by Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”) without audit and pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). 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
June 30, 2018
and
September 30, 2017
, and the results of operations for the
three and nine
months ended
June 30, 2018
and
July 1, 2017
, and the cash flows for the same
nine
month periods.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company 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. All fiscal quarters presented herein included 13 weeks.
Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the SEC’s 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 2017 Annual Report on Form 10-K.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Recently Issued Accounting Pronouncements Not Yet Adopted:
In August 2017, the Financial Accounting Standards Board (the "FASB") issued ASU 2017-12 related to the accounting for hedging activities. The pronouncement expands and refines hedge accounting, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This guidance is effective for the Company beginning in the first quarter of fiscal year 2020 and early adoption is permitted. The Company is finalizing its assessment of the impact of the guidance, but does not believe it will have a material impact on the Company's Condensed Consolidated Financial Statements.
In October 2016, the FASB issued ASU 2016-16 related to the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and early adoption is permitted. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15 related to the classification of certain cash receipts and cash payments, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new standard addresses certain issues where diversity in practice was identified. It also amends existing guidance, which is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted. The Company is finalizing its assessment of the impact of the guidance, but does not believe it will have a material impact on the Company's Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is currently in the process of
6
assessing the impact of the adoption of the new standard on its Condensed Consolidated Financial Statements and the timing of adoption.
In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue relating to contracts with customers that depicts the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services ("Topic 606"). Topic 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and is effective for the Company beginning in the first quarter of fiscal year 2019.
The Company developed a comprehensive project plan that includes a global cross-functional team of representatives to conduct an assessment of Topic 606 and its potential impacts on the Company. The project plan includes analyzing the standard’s impact on the Company’s various revenue streams, comparing its historical accounting policies and practices to the requirements of the new standard, and identifying potential differences from applying the requirements of the new standard to its contracts. The Company is in the process of identifying and implementing appropriate changes to its current accounting policies, business processes, systems and controls to support revenue recognition and disclosures under Topic 606.
The Company has determined that the new standard will result in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue will be recognized "over time," as products are produced, as opposed to at a "point in time" upon physical delivery. The new standard is expected to have a material impact on the Company's Consolidated Financial Statements upon initial adoption, primarily as the Company recognizes an increase in contract assets for unbilled receivables with a corresponding reduction in finished goods and work-in-process inventory. The Company expects to adopt Topic 606 at the beginning of fiscal year 2019 using the modified retrospective approach.
The Company believes that no other recently issued accounting standards will have a material impact on its Consolidated Financial Statements, or apply to its operations.
2. Inventories
Inventories as of
June 30, 2018
and
September 30, 2017
consisted of the following (in thousands):
|
June 30,
2018 |
September 30,
2017 |
|||||||
|
Raw materials
|
$
|
575,293
|
|
$
|
477,921
|
|
||
|
Work-in-process
|
96,290
|
|
86,367
|
|
||||
|
Finished goods
|
84,226
|
|
90,354
|
|
||||
|
Total inventories
|
$
|
755,809
|
|
$
|
654,642
|
|
||
In certain circumstances, 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
June 30, 2018
and
September 30, 2017
was
$99.4 million
and
$106.2 million
, respectively.
7
3.
Debt, Capital Lease Obligations and Other Financing
Debt, capital lease and other obligations as of
June 30, 2018
and
September 30, 2017
, consisted of the following (in thousands):
|
June 30,
2018 |
September 30,
2017 |
|||||||
|
4.05% Senior Notes, due June 15, 2025
|
$
|
100,000
|
|
$
|
—
|
|
||
|
4.22% Senior Notes, due June 15, 2028
|
50,000
|
|
—
|
|
||||
|
5.20% Senior Notes, due June 15, 2018
|
—
|
|
175,000
|
|
||||
|
Borrowings under the credit facility
|
—
|
|
108,000
|
|
||||
|
Capital lease and other financing obligations
|
37,882
|
|
30,901
|
|
||||
|
Unamortized deferred financing fees
|
(1,313
|
)
|
(794
|
)
|
||||
|
Total obligations
|
186,569
|
|
|
313,107
|
|
|||
|
Less: current portion
|
(6,365
|
)
|
(286,934
|
)
|
||||
|
Long-term debt and capital lease obligations, net of current portion
|
$
|
180,204
|
|
$
|
26,173
|
|
||
On June 15, 2018, the Company entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which it issued an aggregate of
$150.0 million
in principal amount of unsecured senior notes, consisting of
$100.0 million
in principal amount of
4.05%
Series A Senior Notes, due on
June 15, 2025
, and
$50.0 million
in principal amount of
4.22%
Series B Senior Notes, due on
June 15, 2028
(collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which the Company is required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. Such covenants are generally similar to those in the Note Purchase Agreement related to the 2011 Notes (as defined below). The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. At
June 30, 2018
, the Company was in compliance with the covenants under the 2018 NPA.
In connection with the issuance of the 2018 Notes, on June 15, 2018, the Company repaid, on maturity
$175.0 million
in principal amount of its
5.20%
Senior Notes (the "2011 Notes").
The Company also has a senior unsecured revolving credit facility (the "Credit Facility"), with a
$300.0 million
maximum commitment that expires on
July 5, 2021
. The Credit Facility may be further increased to
$500.0 million
, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the
nine
months ended
June 30, 2018
, the highest daily borrowing was
$208.0 million
; the average daily borrowings were
$72.4 million
and the Company borrowed an aggregate of
$521.5 million
and repaid a total of
$629.5 million
of revolving borrowings under the Credit Facility. The Company was in compliance with all financial covenants relating to the Credit Agreement, which are generally consistent with those in the Note Purchase Agreements discussed above. The Company is required to pay a commitment fee on the daily unused revolver credit commitment based on the Company's leverage ratio; the fee was assessed at an annual rate of
0.175%
, payable quarterly, as of
June 30, 2018
.
The fair value of the Company’s debt, excluding capital leases, was
$150.6 million
and
$284.5 million
as of
June 30, 2018
and
September 30, 2017
, respectively. The carrying value of the Company's debt, excluding capital leases, was
$150.0 million
and
$283.0 million
as of
June 30, 2018
and
September 30, 2017
, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives," for further information regarding the Company's fair value calculations and classifications.
8
4. Derivatives
Derivatives:
All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations and, in the prior year, variable rate debt, in addition to non-designated hedges to manage foreign currency exposures associated with certain foreign currency denominated assets and liabilities. 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 loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that
$0.1 million
of unrealized
losses
, net of tax, related to cash flow hedges will be reclassified from other comprehensive (loss) income into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous other income (expense)" in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).
The Company enters into forward currency exchange contracts for its operations in Malaysia and Mexico on a rolling basis. The Company had cash flow hedges outstanding with a notional value of
$73.8 million
as of
June 30, 2018
, and
$67.0 million
as of
September 30, 2017
. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a less than
$0.1 million
liability
as of
June 30, 2018
and a
$2.0 million
asset as of
September 30, 2017
.
The Company had additional forward currency exchange contracts outstanding as of
June 30, 2018
, with a notional value of
$24.9 million
; there were
$10.6 million
of such contracts outstanding as of
September 30, 2017
. The Company did not designate these derivative instruments as hedging instruments. In accordance with U.S. GAAP, the net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term. The change in fair value is recorded as an element of "Miscellaneous other income (expense)" within the Condensed Consolidated Statements of Comprehensive Income (Loss). The total fair value of these derivatives was a
$0.3 million
asset
as of
June 30, 2018
, and a
$0.1 million
liability
as of
September 30, 2017
.
The tables below present information regarding the fair values of derivative instruments and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:
|
Fair Values of Derivative Instruments
|
||||||||||||||||||||
|
In thousands of dollars
|
||||||||||||||||||||
|
|
Asset Derivatives
|
Liability Derivatives
|
||||||||||||||||||
|
|
|
June 30,
2018 |
September 30,
2017 |
|
June 30,
2018 |
September 30,
2017 |
||||||||||||||
|
Derivatives designated as hedging instruments
|
Balance Sheet
Classification
|
Fair Value
|
Fair Value
|
Balance Sheet
Classification
|
Fair Value
|
Fair Value
|
||||||||||||||
|
Forward currency forward contracts
|
Prepaid expenses and other
|
$
|
172
|
|
$
|
2,024
|
|
Other accrued liabilities
|
$
|
177
|
|
$
|
—
|
|
||||||
|
Fair Values of Derivative Instruments
|
||||||||||||||||||||
|
In thousands of dollars
|
||||||||||||||||||||
|
|
Asset Derivatives
|
Liability Derivatives
|
||||||||||||||||||
|
|
|
June 30,
2018 |
September 30,
2017 |
|
June 30,
2018 |
September 30,
2017 |
||||||||||||||
|
Derivatives not designated as hedging instruments
|
Balance Sheet
Classification
|
Fair Value
|
Fair Value
|
Balance Sheet
Classification
|
Fair Value
|
Fair Value
|
||||||||||||||
|
Forward currency forward contracts
|
Prepaid expenses and other
|
$
|
408
|
|
$
|
35
|
|
Other accrued liabilities
|
$
|
143
|
|
$
|
118
|
|
||||||
9
|
Derivative Impact on Accumulated Other Comprehensive (Loss) Income ("OCL")
|
||||||||
|
for the Three Months Ended
|
||||||||
|
In thousands of dollars
|
||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of (Loss) Gain Recognized in Other Comprehensive (Loss) Income ("OCL") on Derivatives (Effective Portion)
|
|||||||
|
June 30, 2018
|
July 1, 2017
|
|||||||
|
Forward currency forward contracts
|
$
|
(2,856
|
)
|
$
|
1,921
|
|
||
|
Interest rate swaps
|
$
|
—
|
|
$
|
(11
|
)
|
||
|
Derivative Impact on Gain (Loss) Recognized in Income
|
||||||||||
|
for the Three Months Ended
|
||||||||||
|
In thousands of dollars
|
||||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
Classification of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
|
Amount of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
|
||||||||
|
June 30, 2018
|
July 1, 2017
|
|||||||||
|
Forward currency forward contracts
|
Cost of sales
|
$
|
1,894
|
|
$
|
(968
|
)
|
|||
|
Forward currency forward contracts
|
Selling and administrative expenses
|
207
|
|
(102
|
)
|
|||||
|
Treasury Rate Locks
|
Interest expense
|
66
|
|
80
|
|
|||||
|
Interest rate swaps
|
Interest expense
|
—
|
|
(7
|
)
|
|||||
|
Interest rate swaps
|
Income tax expense
|
$
|
—
|
|
$
|
(84
|
)
|
|||
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss) Recognized on Derivatives in Income
|
Amount of Gain (Loss) on Derivatives Recognized in Income
|
||||||||
|
June 30, 2018
|
July 1, 2017
|
|||||||||
|
Forward currency forward contracts
|
Miscellaneous other income (expense)
|
$
|
717
|
|
$
|
(286
|
)
|
|||
|
Derivative Impact on Accumulated Other Comprehensive Loss ("OCL")
|
||||||||
|
for the Nine Months Ended
|
||||||||
|
In thousands of dollars
|
||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCL on Derivatives (Effective Portion)
|
|||||||
|
June 30, 2018
|
July 1, 2017
|
|||||||
|
Forward currency forward contracts
|
$
|
3,483
|
|
$
|
(2,122
|
)
|
||
|
Interest rate swaps
|
$
|
—
|
|
$
|
(10
|
)
|
||
|
Derivative Impact on Gain (Loss) Recognized in Income
|
||||||||||
|
for the Nine Months Ended
|
||||||||||
|
In thousands of dollars
|
||||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
Classification of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
|
Amount of Gain (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
|
||||||||
|
June 30, 2018
|
July 1, 2017
|
|||||||||
|
Forward currency forward contracts
|
Cost of sales
|
$
|
4,976
|
|
$
|
(2,630
|
)
|
|||
|
Forward currency forward contracts
|
Selling and administrative expenses
|
536
|
|
(274
|
)
|
|||||
|
Treasury Rate Locks
|
Interest expense
|
226
|
|
251
|
|
|||||
|
Interest rate swaps
|
Interest expense
|
—
|
|
(142
|
)
|
|||||
|
Interest rate swaps
|
Income tax expense
|
$
|
—
|
|
$
|
(84
|
)
|
|||
|
Derivatives Not Designated as Hedging Instruments
|
Location of (Loss) Gain Recognized on Derivatives in Income
|
Amount of (Loss) Gain on Derivatives Recognized in Income
|
||||||||
|
June 30, 2018
|
July 1, 2017
|
|||||||||
|
Forward currency forward contracts
|
Miscellaneous other income (expense)
|
$
|
(234
|
)
|
$
|
1,575
|
|
|||
There were
no
gains or losses recognized in income for derivatives related to ineffective portions and amounts excluded from effectiveness testing for the three or nine months ended
June 30, 2018
and
July 1, 2017
, respectively.
10
Fair Value Measurements:
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 Company uses quoted market prices when available or discounted cash flows to calculate fair value. 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.
The following table lists the fair values of assets (liabilities) of the Company’s derivatives as of
June 30, 2018
and
September 30, 2017
, by input level:
|
Fair Value Measurements Using Input Levels Asset/(Liability)
|
||||||||||||||||
|
In thousands of dollars
|
||||||||||||||||
|
June 30, 2018
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Derivatives
|
|
|
|
|
||||||||||||
|
Forward currency forward contracts
|
$
|
—
|
|
$
|
260
|
|
$
|
—
|
|
$
|
260
|
|
||||
|
September 30, 2017
|
||||||||||||||||
|
Derivatives
|
||||||||||||||||
|
Forward currency forward contracts
|
$
|
—
|
|
$
|
1,941
|
|
$
|
—
|
|
$
|
1,941
|
|
||||
The fair value of 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. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.
5. Income Taxes
On December 22, 2017, the U.S. Tax Cuts & Jobs Act was enacted ("Tax Reform"). Due to the complexities in implementing Tax Reform, the SEC issued Staff Accounting Bulletin 118, which allows the Company to record a provisional tax expense when uncertainty or other factors may impact the final outcome. In accordance with U.S. GAAP, which requires the Company to recognize the effects of Tax Reform in the period of enactment,
$124.5 million
of tax expense was recorded during the three months ended December 30, 2017. The
$124.5 million
included
$101.8 million
of U.S. federal and state taxes on the deemed repatriation of undistributed foreign earnings, which are payable over an eight year period beginning in fiscal 2019, and
$22.7 million
of foreign withholding taxes due to a change in the Company's permanently reinvested assertion on certain foreign earnings that are payable upon repatriation to the U.S. The Company continues to believe this is a reasonable estimate of tax expense related to Tax Reform using all analyses, interpretations and guidance available at this time. The Company continues to assess the impact of Tax Reform, and the final impact may differ from this estimate, perhaps materially, due to, among other things, changes in interpretations, assumptions, and/or guidance that may be issued in the near future or actions the Company may take as a result. For the three months ended
June 30, 2018
, there have been no changes in interpretations, assumptions and/or guidance that require an adjustment to the provisional tax expense the Company recorded during the three months ended December 30, 2017.
As of
June 30, 2018
, the Company reported outstanding liabilities of
$116.4 million
for Tax Reform, of which
$91.9 million
is recorded in "Long-term accrued income taxes payable",
$14.6 million
is recorded in "Deferred income tax liabilities" and
$9.9 million
is recorded in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheet. The total outstanding liabilities are lower than the Tax Reform expense of
$124.5 million
for the three months ended December 30, 2017, due to withholding taxes paid on dividends and the related foreign exchange impact during the three months ended March 31, 2018 and
June 30, 2018
, which are recorded in "Miscellaneous other income (expense)" in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).
11
Income tax expense for the
three and nine
months ended
June 30, 2018
was
$3.1 million
and
$133.0 million
, respectively. For the
nine
months ended
June 30, 2018
, the tax expense of
$133.0 million
includes
$124.5 million
recorded during the three months ended December 30, 2017 due to the impact of Tax Reform. Income tax expense for the
three and nine
months ended
July 1, 2017
was
$1.8 million
and
$7.8 million
, respectively.
The effective tax rates for the
three and nine
months ended
June 30, 2018
were
10.3%
and
181.4%
, respectively, compared to the effective tax rates of
6.5%
and
8.5%
for the
three and nine
months ended
July 1, 2017
, respectively. The effective tax rate for the three months ended
June 30, 2018
increased from the effective tax rate for the three months ended
July 1, 2017
, primarily due to a
$1.5 million
benefit related to incremental deductible expenses in the Asia-Pacific ("APAC") segment recorded in the three months ended
July 1, 2017
and a decrease in pre-tax earnings in jurisdictions where the Company maintains a valuation allowance. The effective tax rate for the
nine
months ended
June 30, 2018
increased from the effective tax rate for the
nine
months ended
July 1, 2017
, primarily due to the impact of Tax Reform and a decrease in pre-tax earnings in jurisdictions where the Company maintains a valuation allowance.
There were no material additions to the amount of unrecognized tax benefits recorded for uncertain tax positions as of
June 30, 2018
, as compared to
September 30, 2017
. The Company recognizes accrued interest and penalties on uncertain tax positions as a component of income tax expense. The amount of interest and penalties recorded for the
three and nine
months ended
June 30, 2018
was not material.
One or more uncertain 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 is not currently under examination by taxing authorities in the U.S. or any foreign jurisdictions in which the Company operates.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended
June 30, 2018
, the Company continued to record a full valuation allowance against its net deferred tax assets in certain jurisdictions within the Americas ("AMER") and Europe, Middle East, and Africa ("EMEA") segments, as it was more likely than not that these assets would not be fully realized based primarily on historical performance. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until it determines it is more likely than not that the deferred tax assets will be realized.
6. Earnings Per Share
The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share for the
three and nine
months ended
June 30, 2018
and
July 1, 2017
(in thousands, except per share amounts):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
||||||||||||
|
Net income (loss)
|
$
|
26,501
|
|
$
|
25,579
|
|
$
|
(59,702
|
)
|
$
|
83,053
|
|
||||
|
Basic weighted average common shares outstanding
|
32,796
|
|
33,669
|
|
33,300
|
|
33,636
|
|
||||||||
|
Dilutive effect of share-based awards outstanding
|
855
|
|
899
|
|
—
|
|
949
|
|
||||||||
|
Diluted weighted average shares outstanding
|
33,651
|
|
34,568
|
|
33,300
|
|
34,585
|
|
||||||||
|
Earnings (loss) per share:
|
||||||||||||||||
|
Basic
|
$
|
0.81
|
|
$
|
0.76
|
|
$
|
(1.79
|
)
|
$
|
2.47
|
|
||||
|
Diluted
|
$
|
0.79
|
|
$
|
0.74
|
|
$
|
(1.79
|
)
|
$
|
2.40
|
|
||||
For the
three and nine
months ended
June 30, 2018
, share-based awards for approximately
0.1 million
shares were not included in the computation of diluted earnings per share as they were antidilutive. For the
nine months ended
June 30, 2018
, the total number of potentially dilutive share-based awards was
0.9 million
. However, these awards were not included in the computation of diluted loss per share, as doing so would have decreased the loss per share.
For the
three and nine
months ended
July 1, 2017
, share-based awards for approximately
0.1 million
shares were not included in the computation of diluted earnings per share as they were antidilutive.
See also
Note 11, "Shareholders' Equity,"
for information regarding the Company's share repurchase plans.
12
7. Share-Based Compensation
The Company recognized
$4.8 million
and $
13.2 million
of compensation expense associated with the share-based awards for the
three and nine
months ended
June 30, 2018
, respectively, and
$4.5 million
and
$12.5 million
for the
three and nine
months ended
July 1, 2017
, respectively.
The Company uses the Black-Scholes valuation model to determine the fair value of stock options and stock-settled stock appreciation rights ("SARs"). The Company uses its stock price on grant date as the fair value assigned to restricted stock units ("RSUs").
Performance stock units ("PSUs") are payable in shares of the Company's common stock. Beginning for fiscal 2017 grants, PSUs vest based on the relative total shareholder return ("TSR") of the Company's common stock as compared to the companies in the Russell 3000 index, a market condition, and the Company's economic return performance during the three year performance period, a performance condition. The Company uses the Monte Carlo valuation model to determine the fair value of PSUs at the date of grant for PSUs that vest based on the relative TSR of the Company's common stock. The Company uses its stock price on grant date as the fair value assigned to PSUs that vest based on the Company's economic return performance. The PSUs granted in fiscal 2016 and prior years vest based solely on the relative TSR of the Company's common stock as compared to companies in the Russell 3000 Index during a three year performance period. The number of shares that may be issued pursuant to PSUs ranges from
zero
to
0.4 million
and is dependent upon the Company's TSR and economic return performance over the applicable performance periods.
The Company recognizes share-based compensation expense over the share-based awards' vesting period.
8. Litigation
The Company is party to lawsuits in the ordinary course of business. Although the outcome of these legal matters cannot be predicted with certainty, management does not expect that these proceedings, individually or in the aggregate, will have a material positive or adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
9. Reportable Segments
The Company uses an internal management reporting system, which provides important financial data to the chief operating decision maker to evaluate performance and allocate the Company’s resources on a regional basis. Net sales for segments are attributed to the region in which the product is manufactured or the 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 expenses. Corporate and other expenses primarily represent corporate selling and administrative expenses, and restructuring and other charges, if any, such as the one-time employee bonus. 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 segments are the same as for the Company taken as a whole.
13
Information about the Company’s
three
reportable segments for the
three and nine
months ended
June 30, 2018
and
July 1, 2017
, respectively, is as follows (in thousands):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
||||||||||||
|
Net sales:
|
||||||||||||||||
|
AMER
|
$
|
298,375
|
|
$
|
265,173
|
|
$
|
899,253
|
|
$
|
851,888
|
|
||||
|
APAC
|
383,785
|
|
325,986
|
|
1,080,283
|
|
945,713
|
|
||||||||
|
EMEA
|
74,331
|
|
53,126
|
|
212,105
|
|
137,550
|
|
||||||||
|
Elimination of inter-segment sales
|
(30,106
|
)
|
(25,453
|
)
|
(89,311
|
)
|
(76,951
|
)
|
||||||||
|
$
|
726,385
|
|
$
|
618,832
|
|
$
|
2,102,330
|
|
$
|
1,858,200
|
|
|||||
|
Operating income (loss):
|
||||||||||||||||
|
AMER
|
$
|
6,799
|
|
$
|
7,392
|
|
$
|
28,025
|
|
$
|
30,418
|
|
||||
|
APAC
|
55,274
|
|
49,811
|
|
154,977
|
|
148,535
|
|
||||||||
|
EMEA
|
1,837
|
|
(768
|
)
|
1,105
|
|
(4,224
|
)
|
||||||||
|
Corporate and other costs
|
(31,464
|
)
|
(26,966
|
)
|
(102,789
|
)
|
(78,786
|
)
|
||||||||
|
$
|
32,446
|
|
$
|
29,469
|
|
$
|
81,318
|
|
$
|
95,943
|
|
|||||
|
Other income (expense):
|
||||||||||||||||
|
Interest expense
|
(2,910
|
)
|
(3,294
|
)
|
(10,182
|
)
|
(9,830
|
)
|
||||||||
|
Interest income
|
1,068
|
|
1,299
|
|
4,049
|
|
3,555
|
|
||||||||
|
Miscellaneous
|
(1,052
|
)
|
(103
|
)
|
(1,875
|
)
|
1,147
|
|
||||||||
|
Income before income taxes
|
$
|
29,552
|
|
$
|
27,371
|
|
$
|
73,310
|
|
$
|
90,815
|
|
||||
|
|
June 30,
2018 |
September 30,
2017 |
|||||||
|
Total assets:
|
|||||||||
|
AMER
|
$
|
586,716
|
|
$
|
595,851
|
|
|||
|
APAC
|
952,274
|
|
1,163,111
|
|
|||||
|
EMEA
|
190,106
|
|
172,830
|
|
|||||
|
Corporate and eliminations
|
165,533
|
|
44,390
|
|
|||||
|
$
|
1,894,629
|
|
$
|
1,976,182
|
|
||||
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 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, customer design defects or damage caused by any party 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
14
materials, as necessary, associated with repair or replacement and are included in the Company's accompanying Condensed Consolidated Balance Sheets in "Other 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 the
nine months ended
June 30, 2018
and
July 1, 2017
(in thousands):
|
Nine Months Ended
|
||||||||
|
|
June 30,
2018 |
July 1,
2017 |
||||||
|
Reserve balance, beginning of period
|
$
|
4,756
|
|
$
|
6,109
|
|
||
|
Accruals for warranties issued during the period
|
3,660
|
|
890
|
|
||||
|
Settlements (in cash or in kind) during the period
|
(2,136
|
)
|
(2,074
|
)
|
||||
|
Reserve balance, end of period
|
$
|
6,280
|
|
$
|
4,925
|
|
||
11. Shareholders' Equity
On June 6, 2016, the Board of Directors approved a multi-year stock repurchase program under which the Company is authorized to repurchase up to
$150.0 million
of its common stock (the "2016 Share Repurchase Plan"). During the
three months ended
June 30, 2018
, the Company repurchased
947,685
shares for approximately
$56.7 million
, at an average price of
$59.81
per share. During the
nine months ended
June 30, 2018
, the company repurchased
1,619,094
shares for approximately
$97.8 million
at an average price of
$60.43
per share. During the
three months ended
July 1, 2017
, the Company repurchased
189,891
shares for approximately
$10.0 million
, at an average price of
$52.40
per share. During the
nine months ended
July 1, 2017
, the company repurchased
457,702
shares for approximately
$23.9 million
at an average price of
$52.12
per share.
All of the purchases under the 2016 Share Repurchase Plan were recorded as treasury stock.
As of June 30, 2018,
$18.0 million
of authority remained under the 2016 Share Repurchase Plan.
On February 14, 2018, the Board of Directors approved a new stock repurchase plan under which the Company is authorized to repurchase
$200.0 million
of its common stock commencing upon completion of the 2016 Share Repurchase Plan (the "2018 Share Repurchase Plan"). No purchases have yet been made under the 2018 Share Repurchase Plan.
12. Trade Accounts Receivable Sale Programs
The Company has Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch, formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd. (the "MUFG RPA"), and HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA"), under which the Company may elect to sell receivables, at a discount, on an ongoing basis. The MUFG RPA was amended on May 4, 2018, to, among other changes, increase the maximum facility amounts from
$160.0 million
to
$210.0 million
. The maximum facility amount under the HSBC RPA as of
June 30, 2018
is
$60.0 million
. The MUFG RPA is subject to expiration on October 3, 2018, but will be automatically extended each year unless any party gives no less than
10 days
prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA discussed above.
The Company previously sold receivables under a former trade accounts receivable sale program that expired during the first fiscal quarter of 2017.
Receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. Proceeds from the transfer reflect the face value of the receivables less a discount. The sale discount is recorded within "Miscellaneous other income (expense)" in the Condensed Consolidated Statements of Comprehensive Income (Loss) in the period of the sale.
The Company sold
$199.1 million
and
$115.3 million
of trade accounts receivable under these programs during the
three months ended
June 30, 2018
and
July 1, 2017
, respectively, in exchange for cash proceeds of
$197.8 million
and
$114.6 million
, respectively.
15
The Company sold
$497.4 million
and
$284.6 million
of trade accounts receivable during the
nine months ended
June 30, 2018
and
July 1, 2017
, respectively, in exchange for cash proceeds of
$494.4 million
and
$283.1 million
, respectively.
13. Subsequent Event
On July 27, 2018, subsequent to the end of the fiscal third quarter of 2018, the Company purchased the assets of one of the business lines of Cascade Controls, Inc. ("Cascade"), a new product introduction company in Portland, Oregon, for
$12.5 million
in cash, subject to certain customary post-closing adjustments. Plexus acquired substantially all of the inventory, equipment and other assets of the business line, hired a majority of its employees and sub-leased one of Cascade's facilities. This transaction will be accounted for as a business combination.
16
"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
The statements contained in this Form 10-Q that are guidance or which 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. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs and other trade protection measures; 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 particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, 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; the effect of start-up costs of new programs and facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; 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; our ability to manage successfully and execute a complex business model characterized by high product mix, low volumes and demanding quality, regulatory, and other requirements; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; risks related to information technology systems and data security; the effects of U.S. Tax Reform and of related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; 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 the customer, resulting in an inventory write-off; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions, and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism and weather events); the impact of increased competition; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2017 Form 10-K).
* * *
OVERVIEW
Plexus Corp. and its subsidiaries (together “Plexus,” the “Company,” or "we") participate in the Electronic Manufacturing Services ("EMS") industry. Since 1979, Plexus has been partnering with companies to create the products that build a better world. We are a team of over 18,000 employees, providing global support for all facets of the product realization process – Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services – to companies in the Healthcare/Life Sciences, Industrial/Commercial, Communications and Aerospace/Defense market sectors. Plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments in the Americas ("AMER"), Asia-Pacific ("APAC") and Europe, Middle East, and Africa ("EMEA") regions. With a culture built around innovation and customer service, Plexus’ teams create customized end-to-end solutions to assure the realization of the most intricate products.
The following information should be read in conjunction with our Condensed Consolidated Financial Statements included herein, the “Risk Factors” section in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended September 30, 2017, and our “Safe Harbor” Cautionary Statement included above.
17
RESULTS OF OPERATIONS
Consolidated Performance Summary.
The following table presents selected consolidated financial data (dollars in millions, except per share data):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
|||||||||||||
|
Net sales
|
$
|
726.4
|
|
$
|
618.8
|
|
$
|
2,102.3
|
|
$
|
1,858.2
|
|
||||
|
Cost of sales
|
658.6
|
|
557.6
|
|
1,918.0
|
|
1,668.9
|
|
||||||||
|
Gross profit
|
67.8
|
|
61.2
|
|
184.3
|
|
189.3
|
|
||||||||
|
Gross margin
|
9.3
|
%
|
9.9
|
%
|
8.8
|
%
|
10.2
|
%
|
||||||||
|
Operating income
|
32.4
|
|
29.5
|
|
81.3
|
|
95.9
|
|
||||||||
|
Operating margin
|
4.5
|
%
|
4.8
|
%
|
3.9
|
%
|
5.2
|
%
|
||||||||
|
Net income (loss)
|
26.5
|
|
25.6
|
|
(59.7
|
)
|
83.1
|
|
||||||||
|
Diluted earnings (loss) per share
|
$
|
0.79
|
|
$
|
0.74
|
|
$
|
(1.79
|
)
|
$
|
2.40
|
|
||||
|
Return on invested capital*
|
|
|
15.9
|
%
|
16.1
|
%
|
||||||||||
|
Economic return*
|
|
|
|
|
6.4
|
%
|
5.6
|
%
|
||||||||
|
*Non-GAAP metric; refer to "Return on Invested Capital ("ROIC") and Economic Return" below for more information and Exhibit 99.1 for a reconciliation.
|
||||||||||||||||
Net sales.
For the
three months ended
June 30, 2018
, net sales
increased
$107.6 million
, or
17.4%
, as compared to the
three months ended
July 1, 2017
. For the
nine months ended
June 30, 2018
, net sales
increased
$244.1 million
, or
13.1%
, as compared to the
nine months ended
July 1, 2017
.
Net sales are analyzed by management by geographic segment, which reflects the Company's reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. The Company’s global business development strategy is based on its targeted market sectors.
A discussion of net sales by reportable segment is presented below (in millions):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
|||||||||||||
|
Net sales:
|
||||||||||||||||
|
AMER
|
$
|
298.4
|
|
$
|
265.2
|
|
$
|
899.2
|
|
$
|
851.9
|
|
||||
|
APAC
|
383.8
|
|
326.0
|
|
1,080.3
|
|
945.7
|
|
||||||||
|
EMEA
|
74.3
|
|
53.1
|
|
212.1
|
|
137.6
|
|
||||||||
|
Elimination of inter-segment sales
|
(30.1
|
)
|
(25.5
|
)
|
(89.3
|
)
|
(77.0
|
)
|
||||||||
|
Total net sales
|
$
|
726.4
|
|
$
|
618.8
|
|
$
|
2,102.3
|
|
$
|
1,858.2
|
|
||||
AMER.
Net sales for the
three months ended
June 30, 2018
in the AMER segment
increased
$33.2 million
, or
12.5%
, as compared to the
three months ended
July 1, 2017
. The increase in net sales was primarily due to a $46.9 million increase from the ramp of new products for existing customers and net increased customer end-market demand. Partially offsetting these increases were reductions in net sales of $18.0 million due to manufacturing transfers to our APAC segment, $8.5 million due to customer disengagements and $7.4 million due to end-of-life products.
During the
nine months ended
June 30, 2018
, net sales
increased
$47.3 million
, or
5.6%
, as compared to the
nine months ended
July 1, 2017
. The increase in net sales was primarily due to a $138.5 million increase from the ramp of new products for existing customers and an $8.0 million increase from the ramp of production for new customers. Partially offsetting these increases were reductions in net sales of $31.4 million due to end-of-life products, $29.2 million due to customer disengagements, $29.0 million due to manufacturing transfers to our APAC segment and net decreased customer end-market demand.
APAC.
Net sales for the
three months ended
June 30, 2018
in the APAC segment
increased
$57.8 million
, or
17.7%
, as compared to the
three months ended
July 1, 2017
. The increase in net sales was primarily due to a $50.3 million increase from the ramp of new products for existing customers, $18.0 million due to manufacturing transfers from our AMER segment and
18
net increased customer end-market demand. Partially offsetting these increases were reductions in net sales of $20.5 million and $7.7 million due to customer disengagements and end-of-life products, respectively.
During the
nine months ended
June 30, 2018
, net sales
increased
$134.6 million
, or
14.2%
, as compared to the
nine months ended
July 1, 2017
. The increase in net sales was primarily due to a $139.2 million increase from the ramp of new products for existing customers, $29.0 million due to manufacturing transfers from our AMER segment and net increased customer end-market demand. Partially offsetting these increases were reductions in net sales of $44.4 million and $7.1 million due to customer disengagements and end-of-life products, respectively.
EMEA.
Net sales for
three months ended
June 30, 2018
in the EMEA segment
increased
$21.2 million
, or
39.9%
, as compared to
three months ended
July 1, 2017
. The increase in net sales was primarily attributable to an increase of $9.4 million due to the ramp of new products for existing customers
and net increased customer end-market demand.
During the
nine months ended
June 30, 2018
, net sales
increased
$74.5 million
, or
54.1%
, as compared to the
nine months ended
July 1, 2017
. The increase in net sales was primarily attributable to an increase of $53.9 million due to the ramp of new products for existing customers
and net increased customer end-market demand.
Our net sales by market sector for the indicated periods were as follows (in millions):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
Market Sector
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
||||||||||||
|
Healthcare/Life Sciences
|
$
|
266.0
|
|
$
|
209.6
|
|
$
|
751.1
|
|
$
|
625.5
|
|
||||
|
Industrial/Commercial
|
225.5
|
|
201.5
|
|
674.0
|
|
599.1
|
|
||||||||
|
Communications
|
120.0
|
|
98.7
|
|
352.4
|
|
338.3
|
|
||||||||
|
Aerospace/Defense
|
114.9
|
|
109.0
|
|
324.8
|
|
295.3
|
|
||||||||
|
Total net sales
|
$
|
726.4
|
|
$
|
618.8
|
|
$
|
2,102.3
|
|
$
|
1,858.2
|
|
||||
Healthcare/Life Sciences
.
Net sales for the
three months ended
June 30, 2018
in the Healthcare/Life Sciences sector
increased
$56.4 million
, or
26.9%
, as compared to the
three months ended
July 1, 2017
. The increase was primarily driven by increases in net sales of $50.5 million due to the ramp of new products for existing customers as well as overall net increased customer end-market demand. Partially offsetting these increases was a decrease in net sales of $8.6 million from end-of-life products.
During the
nine months ended
June 30, 2018
, net sales in the Healthcare/Life Sciences sector
increased
$125.6 million
, or
20.1%
, as compared to the
nine months ended
July 1, 2017
. The increase was primarily driven by increases in net sales of $122.3 million due to the ramp of new products for existing customers and $6.2 million from the ramp of production for new customers, as well as net increased customer end-market demand. Partially offsetting these increases was a decrease in net sales of $25.1 million from end-of-life products.
Industrial/Commercial
.
Net sales for the
three months ended
June 30, 2018
in the Industrial/Commercial sector
increased
$24.0 million
, or
11.9%
, as compared to the
three months ended
July 1, 2017
. The increase was primarily driven by increases in net sales of $22.9 million due to the ramp of new products for existing customers as well as overall net increased customer end-market demand. Partially offsetting the increases were decreases in net sales of $8.7 million from end-of-life products and $7.8 million related to customer disengagements.
During the
nine months ended
June 30, 2018
, net sales in the Industrial/Commercial sector
increased
$74.9 million
, or
12.5%
, as compared to the
nine months ended
July 1, 2017
. The increase was primarily driven by increases in net sales of $125.8 million due to the ramp of new products for existing customers and $6.3 million due to the ramp of production with new customers, as well as overall net increased customer end-market demand, particularly in the semiconductor capital equipment market. Partially offsetting the increases were decreases in net sales of $59.4 million related to end-of-life products and $32.8 million from customer disengagements.
Communications
.
Net sales for the
three months ended
June 30, 2018
in the Communications sector
increased
$21.3 million
, or
21.6%
, as compared to the
three months ended
July 1, 2017
. The increase was primarily driven by increases in net sales of $37.4 million due to the ramp of new products with existing customers as well as overall net increased end-market demand. The increases were partially offset by decreases in net sales of $22.6 million due to customer disengagements.
During the
nine months ended
June 30, 2018
, net sales in the Communications sector
increased
$14.1 million
, or
4.2%
, as compared to the
nine months ended
July 1, 2017
. The increase was primarily driven by increases in net sales of $53.5 million
19
due to the ramp of new products with existing customers as well as overall net increased end-market demand. The increases were partially offset by decreases in net sales of $42.5 million due to customer disengagements.
Aerospace/Defense
.
Net sales for the
three months ended
June 30, 2018
in the Aerospace/Defense sector
increased
$5.9 million
, or
5.4%
, as compared to the
three months ended
July 1, 2017
. The increase was primarily driven by the ramp of production of new products for existing customers.
During the
nine months ended
June 30, 2018
, net sales in the Aerospace/Defense sector
increased
$29.5 million
, or
10.0%
, as compared to the
nine months ended
July 1, 2017
. The increase was primarily driven by a $25.1 million increase due to the ramp of production of new products for existing customers and overall net increased customer end-market demand.
Cost of sales.
Cost of sales for the
three and nine
months ended
June 30, 2018
increased
$101.0 million and $249.1 million, respectively, as compared to the
three and nine
months ended
July 1, 2017
. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For both the
three and nine
months ended
June 30, 2018
and
July 1, 2017
,
approximately 89.0% of the total cost of sales was variable in nature and fluctuated with sales volumes. Of this amount, approximately 91.0% of these costs in each period were related to material and component costs.
As compared to the prior year period, the increase in cost of sales for the
three months ended
June 30, 2018
was primarily due to the increase in net sales along with increased costs primarily to support program ramps and a negative shift in customer mix. The increase in cost of sales for the
nine months ended
June 30, 2018
as compared to the
nine months ended
July 1, 2017
was primarily due to to the increase in net sales and a one-time employee bonus. During the three months ended March 31, 2018, due to our ability to access overseas cash as a result of Tax Reform (as defined below), a $13.5 million one-time bonus was approved and paid to full-time, non-executive employees ("one-time employee bonus"), of which $12.6 million impacted cost of sales. Also contributing to the increase for the
nine months ended
June 30, 2018
, as compared to the prior year were increased fixed labor costs primarily to support program ramps and a negative shift in customer mix.
Gross profit.
Gross profit for the
three months ended
June 30, 2018
increased
$6.6 million
as compared to the
three months ended
July 1, 2017
. Gross profit for the
nine months ended
June 30, 2018
decreased
$5.0 million
as compared to the
nine months ended
July 1, 2017
. Gross margin decreased 600 and 1,400 basis points, respectively, as compared to the
three and nine
months ended
July 1, 2017
. The primary driver of the increase in gross profit as compared to the
three months ended
July 1, 2017
, was the increase in net sales, partially offset by a negative shift in customer mix to lower margin programs as well as higher labor costs. Labor costs increased due to the ramp of new programs and operational inefficiencies driven by the constrained component market. The shift in customer mix and higher labor costs drove the decrease in gross margin as compared to the prior year. The decreases in gross profit and gross margin as compared to the
nine months ended
July 1, 2017
were due to the larger percentage increase in cost of sales as compared to the increase in net sales, driven by the factors previously discussed.
Operating income.
Operating income for the
three months ended
June 30, 2018
increased
$2.9 million as compared to the
three months ended
July 1, 2017
as a result of the increase in gross profit, partially offset by a
$3.7 million
increase in selling and administrative expenses ("S&A") driven by increased variable compensation. Operating income for the
nine months ended
June 30, 2018
decreased
$14.6 million
as compared to the
nine months ended
July 1, 2017
as a result of the decrease in gross profit and a
$9.6 million
increase in S&A. The increase in S&A as compared to the prior year was driven by a $5.9 million
increase in variable compensation expense and a $0.9 million increase due to the one-time employee bonus.
A discussion of operating income by reportable segment is presented below (in millions):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
|||||||||||||
|
Operating income (loss):
|
||||||||||||||||
|
AMER
|
$
|
6.8
|
|
$
|
7.4
|
|
$
|
28.0
|
|
$
|
30.4
|
|
||||
|
APAC
|
55.3
|
|
49.8
|
|
155.0
|
|
148.5
|
|
||||||||
|
EMEA
|
1.8
|
|
(0.7
|
)
|
1.1
|
|
(4.2
|
)
|
||||||||
|
Corporate and other costs (1)
|
(31.5
|
)
|
(27.0
|
)
|
(102.8
|
)
|
(78.8
|
)
|
||||||||
|
Total operating income
|
$
|
32.4
|
|
$
|
29.5
|
|
$
|
81.3
|
|
$
|
95.9
|
|
||||
|
(1) The nine months ended June 30, 2018, includes the $13.5 million one-time employee bonus.
|
||||||||||||||||
AMER.
Operating income for the
three months ended
June 30, 2018
,
decreased
$0.6 million
as compared to the
three months ended
July 1, 2017
, primarily as a result of a negative shift in customer mix and increased costs to support new program ramps.
20
Operating income for the
nine months ended
June 30, 2018
,
decreased
$2.4 million
as compared to the
nine months ended
July 1, 2017
, driven by an increase in costs to support new program ramps, partially offset by a positive shift in customer mix.
APAC.
Operating income for the
three months ended
June 30, 2018
,
increased
$5.5 million
as compared to the
three months ended
July 1, 2017
, primarily due to the impact of an increase in net sales, partially offset by a negative shift in customer mix.
Operating income for the
nine months ended
June 30, 2018
, increased
$6.5 million
as compared to the
nine months ended
July 1, 2017
, primarily due to the impact of an increase in net sales, partially offset by a negative shift in customer mix along with increases in fixed labor and S&A costs to support new program ramps.
EMEA.
Operating income for the
three months ended
June 30, 2018
, increased
$2.5 million
as compared to the
three months ended
July 1, 2017
, primarily due to the impact of an increase in net sales and a positive shift in customer mix, partially offset by increases in fixed labor and S&A to support new program ramps.
Operating income for the
nine months ended
June 30, 2018
, increased
$5.3 million
as compared to the
nine months ended
July 1, 2017
, primarily due to the impact of an increase in net sales and a positive shift in customer mix, partially offset by increases in fixed labor and S&A to support new program ramps.
Other income (expense).
Other expense for the
three months ended
June 30, 2018
,
increased
$0.8 million
as compared to the
three months ended
July 1, 2017
, primarily due to a $0.7 million increase in factoring fees related to the Company's accounts receivable purchase program.
Other expense increased
$2.9 million
for the
nine months ended
June 30, 2018
, as compared to the
nine months ended
July 1, 2017
, primarily due to a $1.5 million increase in factoring fees related to the Company's accounts receivable purchase program and a $1.1 million decrease in foreign exchange-related gains. Refer to "Liquidity and Capital Resources - Financing Activities" for additional detail on the Company's accounts receivable purchase program.
Income taxes.
On December 22, 2017, the U.S. Tax Cuts & Jobs Act was enacted ("Tax Reform"). Tax Reform made significant changes to U.S. corporate income tax, including transitioning the U.S. to a dividend exemption system and requiring a deemed dividend on historical undistributed earnings of foreign subsidiaries at a reduced tax rate. Tax Reform also includes provisions that may impact us beginning in fiscal 2019, such as a U.S. tax on certain foreign low-taxed earnings and a limitation placed on the deductibility of domestic interest expense. U.S. GAAP required us to recognize the effects of Tax Reform in the period of enactment, which was the three months ended December 30, 2017.
We believe the provisional tax expense of $124.5 million recorded in the three months ended December 30, 2017, continues to be a reasonable estimate of tax expense related to Tax Reform using all analyses, interpretations and guidance available at this time. We continue to assess the impact of Tax Reform on our business, and the final impact may differ from this estimate, perhaps materially, due to, among other things changes in interpretations, assumptions, and/or guidance that may be issued in the near future or actions we may take as a result. For the
three months ended
June 30, 2018
, there have been no changes in interpretations, assumptions and/or guidance that require an adjustment to our provisional tax expense recorded in the three months ended December 30, 2017.
Effective income tax rates for the indicated periods were as follows:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||
|
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
||||||||
|
Effective tax rate, as reported
|
10.3
|
%
|
6.5
|
%
|
181.4
|
%
|
8.5
|
%
|
||||
|
Impact of Tax Reform
|
—
|
%
|
—
|
%
|
(169.8
|
)%
|
—
|
%
|
||||
|
Impact of one-time employee bonus
|
—
|
%
|
—
|
%
|
(1.4
|
)%
|
—
|
%
|
||||
|
Effective tax rate, as adjusted (1)
|
10.3
|
%
|
6.5
|
%
|
10.2
|
%
|
8.5
|
%
|
||||
|
(1) We believe the non-GAAP presentation of the effective annual tax rate excluding the impact of Tax Reform and the one-time employee bonus provides additional insight over the change from the comparative reporting periods by excluding these non-recurring expenses. In addition, the Company believes that its effective tax rate, as adjusted, enhances the ability of investors to analyze the Company’s operating performance and supplements, but does not replace, its effective tax rate calculated in accordance with U.S. GAAP.
|
||||||||||||
The effective tax rates for the
three and nine
months ended
June 30, 2018
, were
10.3%
and
181.4%
, respectively, compared to the effective tax rates of
6.5%
and
8.5%
for the
three and nine
months ended
July 1, 2017
. The effective tax rate for the
three months ended
June 30, 2018
increased from the effective tax rate for the
three months ended
July 1, 2017
, primarily due to a $1.5 million benefit related to incremental deductible expenses in the APAC segment recorded in the
three months ended
July 1, 2017
, and a decrease in pre-tax earnings in jurisdictions where the Company maintains a valuation allowance. The
21
effective tax rate for the
nine months ended
June 30, 2018
increased from the effective tax rate for the
nine months ended
July 1, 2017
, primarily due to the impact of Tax Reform and a decrease in pre-tax earnings in jurisdictions where we maintain a valuation allowance.
The impact of Tax Reform and the one-time employee bonus on our income tax expense is reflected in the following table (in millions):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
|
June 30,
2018 |
July 1,
2017 |
June 30,
2018 |
July 1,
2017 |
||||||||||||
|
Income tax expense, as reported
|
$
|
3.1
|
|
$
|
1.8
|
|
$
|
133.0
|
|
$
|
7.8
|
|
||||
|
Impact of Tax Reform
|
—
|
|
—
|
|
(124.5
|
)
|
—
|
|
||||||||
|
Impact of one-time employee bonus
|
—
|
|
—
|
|
0.3
|
|
—
|
|
||||||||
|
Income tax expense, as adjusted (1)
|
$
|
3.1
|
|
$
|
1.8
|
|
$
|
8.8
|
|
$
|
7.8
|
|
||||
|
(1) We believe the non-GAAP presentation of income tax expense excluding the impact of Tax Reform and the one-time employee bonus provides additional insight over the change from the comparative reporting periods by excluding these non-recurring expenses. In addition, the Company believes that its income tax expense, as adjusted, enhances the ability of investors to analyze the Company's operating performance and supplements, but does not replace, its income tax expense calculated in accordance with U.S. GAAP.
|
||||||||||||||||
Income tax expense for the
three months ended
June 30, 2018
and
July 1, 2017
, was
$3.1 million
and
$1.8 million
, respectively. Income tax expense for the
nine months ended
June 30, 2018
and
July 1, 2017
, was
$133.0 million
and
$7.8 million
, respectively.
Due to Tax Reform, the income tax expense of $124.5 million recorded in the
three months ended
December 30, 2017, included $101.8 million for federal and state purposes on the deemed repatriation of our historical undistributed foreign earnings. This amount is payable over an eight year period beginning in fiscal 2019. An additional tax expense of $22.7 million was recorded in the
three months ended
December 30, 2017, for foreign withholding taxes that are payable on certain dividends due to a change in our permanently reinvested assertion on foreign earnings.
As a result of Tax Reform, our blended U.S. statutory rate for fiscal 2018 is 24.5%. This results from a statutory tax rate of 35% for the first three months of fiscal 2018, and a statutory tax rate of 21% for the remainder of fiscal 2018. Our effective tax rate varies from our blended U.S. statutory rate primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary within our APAC segment, where we derive a significant portion of our earnings. In addition, our effective tax rate has been impacted by changes due to Tax Reform discussed above. Our effective tax rate may be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.
The estimated effective income tax rate for fiscal 2018 is expected to be between 122% and 130%. Excluding the impact of Tax Reform and one-time employee bonus discussed above, the estimated effective income tax rate, as adjusted, for fiscal 2018 is expected to be between 10.0% and 12.0%.
Net income (loss).
Net income for the
three months ended
June 30, 2018
increased
$0.9 million
as compared to the
three months ended
July 1, 2017
, primarily due to the increase in operating income discussed above.
Net loss of
$59.7 million
for the
nine months ended
June 30, 2018
compared to net income of
$83.1 million
for the
nine months ended
July 1, 2017
. The change as compared to the prior year's period was primarily a result of the
$124.5 million
of tax expense that was recorded during the three months ended December 30, 2017, in connection with Tax Reform, the $13.2 million after-tax one-time employee bonus and a net $9.6 million increase in S&A, as previously discussed.
Diluted earnings (loss) per share.
Diluted earnings per share for the
three months ended
June 30, 2018
was
$0.79
, a
$0.05
increase from diluted earnings per share of
$0.74
for the
three months ended
July 1, 2017
, primarily as a result of increased net income and the positive impact of fewer weighted shares outstanding due to our common stock repurchase program.
Diluted loss per share for the
nine months ended
June 30, 2018
was
$1.79
, as compared to diluted earnings per share of
$2.40
for the
nine months ended
July 1, 2017
, primarily as a result of decreased net income, which reflects the $3.68 per share negative impact of Tax Reform. This was partially offset by the positive impact of fewer weighted average outstanding shares as compared to the prior year due to our common stock repurchase program. See also
Note 11, "Shareholders' Equity,"
for information regarding the Company's share repurchase plans.
Return on Invested Capital ("ROIC") and Economic Return.
We use a financial model that is aligned with our business strategy and includes a ROIC goal of 500 basis points over our weighted average cost of capital ("WACC"), which we refer to
22
as "Economic Return," and a 4.7% to 5.0% operating margin target. Our primary focus is on our Economic Return goal of 5.0%, which is designed to create shareholder value and generate sufficient cash to self-fund our targeted organic revenue growth rate of 12.0%. ROIC and Economic Return are non-GAAP financial measures.
Non-GAAP financial measures, including ROIC and Economic Return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and Economic Return because we believe they offer insight into the metrics that are driving management decisions because we view ROIC and Economic Return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements. We also use a derivative measure of ROIC as a performance criteria in determining certain elements of compensation, and certain compensation incentives are based on Economic Return performance.
We define ROIC as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling four-quarter period for the third quarter. Invested capital is defined as equity plus debt, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP").
We review our internal calculation of WACC annually, and our estimated WACC is 9.5% for fiscal 2018. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. ROIC was
15.9%
and
16.1%
for the
nine months ended
June 30, 2018
and
July 1, 2017
, respectively.
For a reconciliation of ROIC and Economic Return to our financial statements that were prepared using U.S. GAAP, see Exhibit 99.1 to this quarterly report on Form 10-Q, which is incorporated herein by reference.
Refer to the table below, which includes the calculation of ROIC and Economic Return (dollars in millions) for the indicated periods:
|
Nine Months Ended
|
||||||||
|
|
June 30,
2018 |
July 1,
2017 |
||||||
|
Annualized operating income (tax effected)
|
$
|
113.8
|
|
$
|
117.7
|
|
||
|
Average invested capital
|
716.4
|
|
730.3
|
|
||||
|
After-tax ROIC
|
15.9
|
%
|
16.1
|
%
|
||||
|
WACC
|
9.5
|
%
|
10.5
|
%
|
||||
|
Economic Return
|
6.4
|
%
|
5.6
|
%
|
||||
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and restricted cash were
$333.6 million
as of
June 30, 2018
, as compared to
$569.3 million
as of
September 30, 2017
.
As of
June 30, 2018
, approximately 67% of our cash balance was held outside of the U.S. by our foreign subsidiaries. With the enactment of Tax Reform, we believe that our offshore cash can be accessed in a more tax efficient manner than before Tax Reform. As previously discussed, we recorded $124.5 million of tax expense during the three months ended December 30, 2017, associated with the repatriation of undistributed foreign earnings and the reversal of our permanently reinvested assertion on certain foreign earnings in connection with Tax Reform. In addition to the $279.9 million of offshore cash brought back to the U.S. in the fiscal second quarter of 2018, during the three months ended
June 30, 2018
, we repatriated approximately $98.4 million from our APAC region. We anticipate repatriating an additional $50.0 million during the fiscal fourth quarter while continuing to execute our revised capital allocation strategy; however, that additional repatriation is subject to future events and conditions that may be beyond our control. In addition to repaying the $175.0 million in principal amount of our Senior Notes that matured on June 15, 2018 (the "2011 Notes") with $25.0 million of available cash and proceeds from the issuance of $150.0 million in principal of the 2018 Notes (as defined below), and apart from funding the remaining $116.4 million in taxes payable related to Tax Reform, other uses of such capital are expected to include the following:
|
•
|
Returning cash to shareholders by accelerating repurchase activity. Our intent is to use the remaining $18.0 million under the 2016 Share Repurchase Plan during fiscal 2018, as well as an additional $200.0 million under the 2018 Share Repurchase Plan through fiscal 2019;
|
|
•
|
Financing the Cascade Controls, Inc. acquisition for approximately $12.5 million (see “Investing Activities” below); and
|
23
|
•
|
Reinvesting in the business to support growth and productivity improvements
|
Our future cash flows from operating activities will be reduced by $116.4 million due to the cash payments of accrued income taxes related to Tax Reform. The table below provides our best estimate of the timing and amount of these future cash flows; however, these amounts may change, perhaps materially, as noted within "Results of Operations - Income Taxes" above. The $116.4 million includes $100.0 million of U.S. federal taxes on the deemed repatriation of undistributed foreign earnings, which are payable over an eight year period in accordance with the following installment schedule beginning in fiscal 2019 (in millions):
|
2019
|
$
|
8.0
|
|
|
2020
|
8.0
|
|
|
|
2021
|
8.0
|
|
|
|
2022
|
8.0
|
|
|
|
2023
|
8.0
|
|
|
|
2024
|
15.0
|
|
|
|
2025
|
20.0
|
|
|
|
2026
|
25.0
|
|
|
|
Total
|
$
|
100.0
|
|
The schedule above excludes an additional $16.4 million of foreign withholding taxes and state taxes on the deemed repatriation of undistributed foreign earnings since the exact timing of the payments is unknown as of
June 30, 2018
.
Cash Flows.
The following table provides a summary of cash flows for the periods presented, excluding the effect of exchange rates on cash and cash equivalents and restricted cash (in millions):
|
Nine Months Ended
|
||||||||
|
June 30, 2018
|
July 1,
2017 |
|||||||
|
Cash provided by operating activities
|
$
|
41.5
|
|
$
|
121.9
|
|
||
|
Cash used in investing activities
|
$
|
(51.7
|
)
|
$
|
(24.0
|
)
|
||
|
Cash used in financing activities
|
$
|
(228.4
|
)
|
$
|
(10.2
|
)
|
||
Operating Activities.
Cash flows provided by operating activities during the
nine months ended
June 30, 2018
, was
$41.5 million
, as compared to
$121.9 million
for the
nine months ended
July 1, 2017
. The decrease was primarily due to a
$113.1 million
decrease in accounts receivable cash flows, which resulted from the increase in net sales and the initial implementation of a new factoring program during fiscal 2017. The decrease was partially offset by improvements of
$70.2 million
in accounts payable cash flows driven by increased purchasing activity in support of increased net sales.
The following table provides a summary of cash cycle days for the periods indicated (in days):
|
Three Months Ended
|
||||
|
June 30, 2018
|
July 1,
2017 |
|||
|
Days in accounts receivable
|
48
|
47
|
||
|
Days in inventory
|
105
|
107
|
||
|
Days in accounts payable
|
(66)
|
(65)
|
||
|
Days in cash deposits
|
(14)
|
(13)
|
||
|
Annualized cash cycle
|
73
|
76
|
||
We calculate days in accounts receivable as accounts receivable for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable, and cash deposits as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable and days in inventory, less days in accounts payable and days in cash deposits.
24
As of
June 30, 2018
, annualized cash cycle days
decreased
three
days compared to
July 1, 2017
due to the following factors:
Days in accounts receivable for the
three months ended
June 30, 2018
,
increased
one
day compared to the three months ended
July 1, 2017
. The increase is primarily attributable to the timing of customer shipments and payments and a
$107.6 million
increase in net sales as compared to the three months ended
July 1, 2017
, due to the factors noted within "Results of Operations - Net sales" above. These increases were partially offset by a
$83.8 million
increase in accounts receivable sold under factoring programs.
Days in inventory for the
three months ended
June 30, 2018
,
decreased
two
days compared to the three months ended
July 1, 2017
. The decrease is primarily due to the increase in annualized cost of sales due to the factors noted within "Results of Operations - Cost of sales" above, which was partially offset by a $102.7 million increase in inventory to support new program ramps and as a result of experiencing longer lead times for certain components, mainly capacitors, resistors and memory. In order to maintain a high level of customer service, we are procuring components earlier, which has led to the increase in inventory. We expect inventory levels to be higher for at least the next two quarters.
Days in accounts payable for the
three months ended
June 30, 2018
,
increased
one
day compared to the three months ended
July 1, 2017
. The increase is primarily due to increased purchasing activity to support higher revenue levels, which was partially offset by the increase in annualized cost of sales due to the factors noted within "Results of Operations - Cost of sales" above.
Days in cash deposits for the
three months ended
June 30, 2018
,
increased
one
day compared to the three months ended
July 1, 2017
. The increase was primarily primarily due to several significant deposits received from customers to cover higher inventory balances, which was substantially offset by the increase in annualized cost of sales.
Free Cash Flow.
We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow provided by operations less capital expenditures. FCF for the
nine months ended
June 30, 2018
was
$(10.6) million
, compared to
$97.5 million
of free cash flow for the
nine months ended
July 1, 2017
, primarily due to an
$80.4 million
decrease in cash flows provided by operations, due to the factors discussed above, and a
$27.7 million
increase in capital expenditures, discussed below.
Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. GAAP.
A reconciliation of FCF to our financial statements that were prepared using U.S. GAAP follows (in millions):
|
Nine Months Ended
|
||||||||
|
June 30, 2018
|
July 1,
2017 |
|||||||
|
Cash flows provided by operating activities
|
$
|
41.5
|
|
$
|
121.9
|
|
||
|
Payments for property, plant and equipment
|
(52.1
|
)
|
(24.4
|
)
|
||||
|
Free cash flow
|
$
|
(10.6
|
)
|
$
|
97.5
|
|
||
Investing Activities.
Cash flows used in investing activities totaled
$51.7 million
for the
nine months ended
June 30, 2018
, an increase of
$27.7 million
as compared to
$24.0 million
for the
nine months ended
July 1, 2017
. The increase in cash used in investing activities was due to a
$27.7 million
increase in capital expenditures primarily to fund the purchase of a manufacturing facility in Penang, Malaysia, and to support new capabilities, new program ramps, and to replace or refresh manufacturing equipment.
We estimate funded capital expenditures for fiscal 2018 to be approximately $70.0 to $80.0 million, of which
$52.1 million
was utilized through the first nine months of fiscal 2018. The remaining fiscal 2018 capital expenditures are anticipated to be used primarily to support new program ramps and replace or refresh older equipment. We believe our estimated capital expenditures will continue to be funded from cash flows provided by operations, and may be supplemented by available cash and borrowings under our credit facility, if required.
On July 27, 2018, subsequent to the end of the fiscal third quarter of 2018, we purchased the assets of one of the business lines of Cascade Controls, Inc. ("Cascade"), a new product introduction company in Portland, Oregon, for $12.5 million in cash, subject to certain customary post-closing adjustments. Under the arrangement, we acquired substantially all of the inventory,
25
equipment and other assets of the business line, hired a majority of its employees and sub-leased one of Cascade's facilities. This transaction will be accounted for as a business combination. The acquired assets offer a full range of capabilities, including engineering and manufacturing of point-to-point wiring and electromechanical enclosures. The acquisition is intended to enhance our new product introduction capabilities and improve our ability to get products to market faster and more efficiently.
Financing Activities.
Cash flows used in financing activities totaled
$228.4 million
for the
nine months ended
June 30, 2018
, an increase of
$218.2 million
as compared to cash flows used in financing activities of
$10.2 million
for
nine months ended
July 1, 2017
. The increase was primarily attributable to a $121.0 million increase in pay-downs on our revolving credit facility, under which a net $108.0 million was repaid during the nine months ended
June 30, 2018
, as compared to the net $13.0 million in borrowings during the nine months ended
June 30, 2018
, a
$74.0 million
increase in cash used to repurchase our common stock and a $25.0 million reduction in the balance of outstanding senior notes as a result of refinancing
$150.0 million
of the
$175.0 million
in principal amount of the 2011 Notes that matured in the third quarter of fiscal 2018 by issuing the 2018 Notes, as discussed below.
On June 6, 2016, the Board of Directors approved a multi-year stock repurchase program under which the Company is authorized to repurchase up to $150.0 million of its common stock beginning in fiscal 2017, subject to market conditions and other considerations (the "2016 Share Repurchase Plan"). During the
nine months ended
June 30, 2018
, the Company
repurchased
1,619,094
shares for approximately
$97.8 million
, at an average price of
$60.43
per share. During the
nine months ended
July 1, 2017
, the Company repurchased
457,702
shares for approximately
$23.9 million
, at an average price of
$52.12
per share. All shares repurchased under the 2016 Share Repurchase Plan were recorded as treasury stock. As noted above, the Company expects to complete the 2016 Share Repurchase Plan during the remainder of fiscal 2018. On February 14, 2018, the Board of Directors approved an additional stock repurchase plan under which the Company is authorized to repurchase $200.0 million of its common stock commencing upon completion of the 2016 Share Repurchase Plan (the “2018 Share Repurchase Plan”).
On June 15, 2018, the Company entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which it issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount of 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which the Company is required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. At
June 30, 2018
, the Company was in compliance with the covenants under the 2018 NPA.
In connection with the issuance of the 2018 Notes, on June 15, 2018, the Company repaid, on maturity, $175.0 million in principal amount of its 5.20% Senior Notes (the “2011 Notes”).
The Company's Credit Facility has a $300.0 million maximum commitment that expires on July 5, 2021. The Credit Facility may be further increased to $500.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. For further information regarding the Credit Facility, see
Note 3, "Debt, Capital Lease Obligations and Other Financing
," in Notes to Condensed Consolidated Financial Statements. The financial covenants (as defined under the Credit Agreement) require, among other covenants, that the Company maintain, as of each fiscal quarter end, a maximum total leverage ratio and a minimum interest coverage ratio. As of
June 30, 2018
, the Company was in compliance with all financial covenants of the Credit Agreement.
The Credit Agreement and the 2018 NPA allow for the future payment of cash dividends or the repurchase of shares provided that no event of default (including any failure to comply with a financial covenant) exists at the time of, or would be caused by, the dividend payment or the share repurchases. We have not paid cash dividends in the past and do not currently anticipate paying them in the future. However, we evaluate from time to time potential uses of excess cash, which in the future may include share repurchases above those already authorized, a special dividend or recurring dividends.
The Company has Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch, formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd. (the "MUFG RPA"), and HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA"), under which the Company may elect to sell receivables, at a discount, on an ongoing basis. As of
June 30, 2018
, the maximum facility amounts of these uncommitted facilities were
$210.0 million
and
$60.0 million
, respectively. The MUFG RPA is subject to expiration on October 3, 2018, but will be automatically extended each year unless any party gives no less than
10 days
prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA discussed above. We expect the MUFG RPA to be extended, but cannot provide any assurances.
26
The Company previously sold receivables under a former trade accounts receivable sale program that expired during the first fiscal quarter of 2017.
The Company sold
$199.1 million
and
$115.3 million
of trade accounts receivable under these programs during the
three months ended
June 30, 2018
and
July 1, 2017
, respectively, in exchange for cash proceeds of
$197.8 million
and
$114.6 million
, respectively.
The Company sold
$497.4 million
and
$284.6 million
of trade accounts receivable during the
nine months ended
June 30, 2018
and
July 1, 2017
, respectively, in exchange for cash proceeds of
$494.4 million
and
$283.1 million
, respectively.
In all cases, the sale discount was recorded within "Miscellaneous other income (expense)" in the Condensed Consolidated Statements of Comprehensive Income (Loss) in the period of the sale. For further information regarding the receivable sale programs, see
Note 12, "Trade Accounts Receivable Sale Programs,"
in Notes to Condensed Consolidated Financial Statements.
Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements for the next twelve months. 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. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms.
27
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
June 30, 2018
(dollars in millions):
|
Payments Due by Fiscal Year
|
||||||||||||||||||||
|
Contractual Obligations
|
Total
|
Remaining 2018
|
2019-2020
|
2021-2022
|
2023 and thereafter
|
|||||||||||||||
|
Debt Obligations (1)
|
$
|
199.5
|
|
$
|
—
|
|
$
|
12.4
|
|
$
|
12.3
|
|
$
|
174.8
|
|
|||||
|
Capital Lease Obligations (2)
|
44.2
|
|
4.0
|
|
8.1
|
|
3.8
|
|
28.3
|
|
||||||||||
|
Operating Lease Obligations
|
40.0
|
|
2.2
|
|
17.6
|
|
8.8
|
|
11.4
|
|
||||||||||
|
Purchase Obligations (3)
|
701.4
|
|
440.2
|
|
259.6
|
|
1.2
|
|
0.4
|
|
||||||||||
|
Repatriation Tax on Undistributed Foreign Earnings (4)
|
100.0
|
|
—
|
|
16.0
|
|
16.0
|
|
68.0
|
|
||||||||||
|
Other Liabilities on the Balance Sheet (5)
|
12.7
|
|
0.1
|
|
2.5
|
|
2.5
|
|
7.6
|
|
||||||||||
|
Other Liabilities not on the Balance Sheet (6)
|
6.3
|
|
—
|
|
3.4
|
|
—
|
|
2.9
|
|
||||||||||
|
Other Financing Obligations (7)
|
121.7
|
|
0.4
|
|
7.7
|
|
8.9
|
|
104.7
|
|
||||||||||
|
Asset Acquisition (8)
|
12.5
|
|
12.5
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Total Contractual Cash Obligations
|
$
|
1,238.3
|
|
$
|
459.4
|
|
$
|
327.3
|
|
$
|
53.5
|
|
$
|
398.1
|
|
|||||
|
1)
|
Includes $150.0 million in principal amount of 2018 Notes as well as interest; see Note 3, "Debt, Capital Lease Obligations and Other Financing" in Notes to Condensed Consolidated Financial Statements for further information.
|
|
2)
|
As of
June 30, 2018
, capital lease obligations consists of capital lease payments and interest as well as a non-cash financing obligation related to the failed sale-leaseback of a building in Guadalajara, Mexico.
|
|
3)
|
As of
June 30, 2018
, purchase obligations consist primarily of purchases of inventory and equipment in the ordinary course of business.
|
|
4)
|
U.S. federal taxes on the deemed repatriation of undistributed foreign earnings due to Tax Reform, which is our best estimate and may change, perhaps materially. Refer to "Liquidity and Capital Resources" above for further detail.
|
|
5)
|
As of
June 30, 2018
, other 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 asset retirement obligations. We have excluded from the above table the impact of approximately
$3.1 million
, as of
June 30, 2018
, related to unrecognized income tax benefits. The Company cannot make reliable estimates of the future cash flows by period related to these obligations.
|
|
6)
|
As of
June 30, 2018
, other obligations not on the balance sheet consisted of guarantees and a commitment for salary continuation and certain benefits in the event employment of one executive officer of the Company is terminated without cause. Excluded from the amounts disclosed are certain bonus and incentive compensation amounts, which would be paid on a prorated basis in the year of termination.
|
|
7)
|
Includes future minimum lease payments for two facilities in Guadalajara, Mexico, leased under 10-year and 15-year base lease agreements, both of which include two 5-year renewal options.
|
|
8)
|
On July 27, 2018, subsequent to the end of the fiscal third quarter of 2018, the Company purchased the assets of one of the business lines of Cascade Controls, Inc., a new product introduction company in Portland, Oregon, for $12.5 million in cash, subject to certain customary post-closing adjustments.
|
28
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are disclosed in our 2017 annual report on Form 10-K. Other than the item noted below, there were no material changes to these policies.
Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. With the enactment of Tax Reform, the Company now provides for additional U.S. and foreign income taxes that would become payable upon the repatriation of undistributed earnings of foreign subsidiaries. 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. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.
NEW ACCOUNTING PRONOUNCEMENTS
See
Note 1, "Basis of Presentation,"
in Notes to Condensed Consolidated Financial Statements for further information regarding new accounting pronouncements.
29
We are exposed to market risk from changes in foreign exchange and interest rates. We selectively use financial instruments to reduce such risks. We do not use derivative financial instruments for speculative purposes.
Foreign Currency Risk
Our international operations create potential foreign exchange risk. 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.
Our percentages of transactions denominated in currencies other than the U.S. dollar for the indicated periods were as follows:
|
Three Months Ended
|
||||
|
|
June 30, 2018
|
July 1, 2017
|
||
|
Net Sales
|
9.6%
|
9.3%
|
||
|
Total Costs
|
15.2%
|
15.7%
|
||
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
June 30, 2018
, a 10.0% 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 debt, which are sensitive to changes in interest rates. 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 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.
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 Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") 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 CEO and CFO 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 CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the third quarter of fiscal 2018 there have been no changes in 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.
30
In addition to the risks and uncertainties discussed herein, particularly those discussed in the “Safe Harbor” Cautionary Statement and "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 our annual report on Form 10-K for the fiscal year ended
September 30, 2017
.
The following table provides the specified information about the repurchases of shares by the Company during the
three months ended
June 30, 2018
.
|
Period
|
Total number of shares purchased
|
Average price paid per share
|
Total number of shares purchased as part of publicly announced plans or programs
|
Maximum approximate dollar value of shares that may yet be purchased under the plans or programs*
|
||||||||||
|
April 1, 2018 to April 28, 2018
|
317,767
|
|
$
|
61.06
|
|
317,767
|
|
$
|
255,302,720
|
|
||||
|
April 29, 2018 to May 26, 2018
|
311,759
|
|
$
|
58.05
|
|
311,759
|
|
$
|
237,204,784
|
|
||||
|
May 27, 2018 to June 30, 2018
|
318,159
|
|
$
|
60.29
|
|
318,159
|
|
$
|
218,023,874
|
|
||||
|
Total
|
947,685
|
|
$
|
59.81
|
|
947,685
|
|
|||||||
* On June 6, 2016, the Board of Directors approved a multi-year stock repurchase program under which the Company is authorized to repurchase up to
$150.0 million
of its common stock. As of
June 30, 2018
, $18.0 million of repurchase authority remained under that program. On February 14, 2018, the Board of Directors approved an additional stock repurchase program under which the Company is authorized to repurchase up to
$200.0 million
of its common stock commencing upon completion of the stock repurchase program approved in 2016.
31
|
ITEM 6.
|
Exhibits
|
The list of exhibits is included below:
|
Exhibit No.
|
Exhibit
|
|
|
10.1
|
||
|
10.2
|
||
|
31.1
|
||
|
31.2
|
||
|
32.1
|
||
|
32.2
|
||
|
99.1
|
||
|
101
|
The following materials from Plexus Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Comprehensive Income (Loss), (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
* Reflects non-material changes to the original agreement that were finalized in May 2018.
|
||
32
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
|
||
|
Date: 8/3/18
|
/s/ Todd P. Kelsey
|
|
|
Todd P. Kelsey
|
||
|
President and Chief Executive Officer
|
||
|
Date: 8/3/18
|
/s/ Patrick J. Jermain
|
|
|
Patrick J. Jermain
|
||
|
Senior Vice President and Chief Financial Officer
|
||
33
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 11, "shareholders' Equity,"Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsNote 3, "debt, Capital Lease Obligations and Other FinancingNote 12, "trade Accounts Receivable Sale Programs,"Note 1, "basis Of Presentation,"Item 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits