Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PLXS > SEC Filings for PLXS > Form 10-Q on 2-May-2013All Recent SEC Filings

Show all filings for PLEXUS CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PLEXUS CORP


2-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

"SAFE HARBOR" CAUTIONARY STATEMENT:
The statements contained in this release which 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 poor visibility of future orders, particularly in view of current economic conditions; the effects on Plexus of Juniper Network, Inc.'s intended disengagement; the timing and adequacy of restructuring and similar charges as compared to actual expenses; the economic performance of the industries, sectors and customers we serve; 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 or programs, 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; our ability to manage successfully a complex business model characterized by high customer and product mix, low volumes and demanding quality, regulatory, and other requirements; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; the effects of shortages and delays in obtaining components as a result of economic cycles or natural disasters; 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 and the continuing instability of the global financial markets and banking system, including the potential inability of our customers or suppliers to access credit facilities; the effect of changes in the pricing and margins of products; the effect of start-up costs of new programs and facilities, such as our announced plans to replace facilities in Romania and the United States, and other recent, planned and potential future expansions; increasing regulatory and compliance requirements; possible unexpected costs and operating disruption in transitioning programs; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the potential effects of regional results on our taxes and ability to use deferred tax assets; the potential effect of world or local events or other events outside our control (such as drug cartel-related violence in Mexico, instability in the Korean peninsula, changes in oil prices, terrorism and weather events); the impact of increased competition; and other risks detailed in the Company's Securities and Exchange Commission filings (particularly in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended September 29, 2012).
OVERVIEW
Plexus Corp. and its subsidiaries (together "Plexus," the "Company," or "we") participate in the Electronic Manufacturing Services ("EMS") industry. We deliver optimized Product Realization solutions through a unique Product Realization Value Stream services model. This customer focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the Americas ("AMER"), Europe, Middle East and Africa ("EMEA") and Asia-Pacific ("APAC") regions. Customer service is provided to over 140 branded product companies in the Networking/Communications, Healthcare/Life Sciences, Industrial/Commercial and Defense/Security/Aerospace market sectors. Our customers' products typically require exceptional production and supply-chain flexibility, necessitating an optimized demand-pull-based manufacturing and supply chain solution across an integrated global platform. Many of our customers' products require complex configuration management and direct order fulfillment to their customers across the globe. In such cases we provide global logistics management and after-market service and repair. Our customers' products may have stringent requirements for quality, reliability and regulatory compliance. We offer our customers the ability to outsource all phases of product realization, including product specifications; development, design and design verification; regulatory compliance support; prototyping and new product introduction; manufacturing test equipment development; materials sourcing, procurement and supply-chain management; product assembly/manufacturing, configuration and test; order fulfillment, logistics and service/repair.
We provide most of our contract manufacturing services on a turnkey basis, which means that we procure some or all of the materials required for product assembly. We provide some services on a consignment basis, which means that the customer supplies the necessary materials, and we provide the labor and other services required for product assembly. Turnkey services require material procurement and warehousing, in addition to manufacturing, and involve greater resource investments than consignment services. Other than certain test equipment and software used for internal operations, we do not design or manufacture our own proprietary products.


Table of Contents

As previously disclosed, on November 5, 2012, Juniper Networks, Inc. ("Juniper"), the Company's largest customer, notified the Company of its intent to disengage from Plexus. As a consequence, later in our fiscal first quarter, the Company and Juniper reached an understanding regarding the timing and other aspects of Juniper's disengagement. Production for Juniper is expected to conclude by the end of our third fiscal quarter of 2013. However, sales of certain inventory may continue into our fourth fiscal quarter of 2013. We do not expect to incur any material adjustments related to this inventory. We currently estimate that we will incur $1.0 to $1.5 million of restructuring costs (primarily severance) in the third quarter of fiscal 2013 in connection with the disengagement. Sales to Juniper were 16% of our net sales in the second quarter of fiscal 2013 as compared to 14% in the same period of fiscal 2012, primarily from the Company's AMER and APAC segments.

Our new Neenah, Wisconsin manufacturing facility, which will replace one owned and two leased facilities, is on schedule for completion late in the fiscal fourth quarter of 2013. Consolidation of the three other facilities into our new facility is expected to result in approximately $4.0 to $5.0 million of restructuring charges in the first half of fiscal 2014.

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 29, 2012 and our "Safe Harbor" Cautionary Statement included above.

RESULTS OF OPERATIONS
Consolidated Performance Summary
The following table presents selected consolidated financial data (dollars in
millions, except per share data):

                                 Three Months Ended            Six Months Ended
                              March 30,      March 31,      March 30,     March 31,
                                 2013           2012          2013          2012
Net sales                    $   557.8      $    573.5     $ 1,088.4     $ 1,103.1
Gross profit                      52.0            54.6         103.2         106.3
Gross margin                       9.3 %           9.5 %         9.5 %         9.6 %
Operating income                  23.2            25.8          44.7          49.5
Operating margin                   4.2 %           4.5 %         4.1 %         4.5 %
Net income                        18.0            20.0          34.6          37.8
Earnings per share (diluted) $    0.52      $     0.56     $    1.00     $    1.07
Return on invested capital                                      12.7 %        14.4 %

Net sales. For the three months ended March 30, 2013, our net sales decreased by 2.7 percent compared to the three months ended March 31, 2012 primarily as a result of decreased end-market demand for one of our larger customers in the industrial/commercial sector as well as the disengagement of a customer in the same sector, which together represented a decrease of approximately $51.5 million. These decreases were partially offset by increased net sales across various customers in all other sectors.
For the six months ended March 30, 2013, our net sales decreased by 1.3 percent compared to the six months ended March 31, 2012 as a result of decreased end-market demand for one of our larger customers in the industrial/commercial sector and decreased net sales to Juniper, the Company's largest customer, which together represented a decrease of approximately $107.6 million. These decreases were partially offset by incremental net sales of $19.8 million from the Kontron arrangement, as well as increased net sales across various customers in all four sectors.


Table of Contents

Our net sales by market sector for the indicated periods were as follows (in millions):

                                 Three Months Ended              Six Months Ended
                              March 30,        March 31,      March 30,     March 31,
Market Sector                    2013             2012          2013          2012
Networking/Communications  $    212.5         $     209.8    $    411.3    $    439.5
Industrial/Commercial           139.7               189.0         270.7         324.3
Healthcare/Life Sciences        129.2               114.9         262.2         228.9
Defense/Security/Aerospace       76.4                59.8         144.2         110.4
                           $    557.8         $     573.5    $  1,088.4    $  1,103.1

Networking/Communications. Net sales for the networking/communications sector increased $2.7 million for the three months ended March 30, 2013 as compared to the three months ended March 31, 2012. The increase was primarily a result of increased net sales to Juniper related to its disengagement. The increase was partially offset by continued softened demand overall in this sector. Net sales for the networking/communications sector decreased $28.2 million for the six months ended March 30, 2013 as compared to the six months ended March 31, 2012. The decrease in the sector was a result of decreased net sales to Juniper as well as to various other customers in the sector due to continued softened demand.
Industrial/Commercial. Net sales for the industrial/commercial sector decreased $49.3 million for the three months ended March 30, 2013 compared to the three months ended March 31, 2012. The decrease was primarily attributable to weaker demand from a significant customer as well as the disengagement of a customer, which together represented a decrease of approximately $51.5 million, partially offset by slight increases in net sales to various other customers in this sector.
Net sales for the industrial/commercial sector decreased $53.6 million for the six months ended March 30, 2013 compared to the six months ended March 31, 2012. This was a result of the factors noted in the previous paragraph, which together represented a decrease of approximately $78.3 million, partially offset by incremental revenue of approximately $19.8 million related to the Kontron arrangement.
Healthcare/Life Sciences. Net sales for the healthcare/life sciences sector increased $14.3 million for the three months ended March 30, 2013 compared to the three months ended March 31, 2012. The increase was primarily due to new program ramps.
For the same reasons, net sales for the healthcare/life sciences sector increased $33.3 million for the six months ended March 30, 2013 compared to the six months ended March 31, 2012.
Defense/Security/Aerospace. Net sales for the defense/security/aerospace sector increased $16.6 million for the three months ended March 30, 2013 compared to the three months ended March 31, 2012. The increase was primarily due to growth in new programs for an existing customer.
Growth in these programs was also the primary contributor to a $33.8 million increase in net sales for the defense/security/aerospace sector for the six months ended March 30, 2013 compared to the six months ended March 31, 2012. Gross profit. For the three months ended March 30, 2013, gross profit decreased $2.6 million compared to the three months ended March 31, 2012 primarily due to decreased net sales and unfavorable changes in customer mix. Fixed expenses were comparable between the periods. These factors led to the reduction in gross margin to 9.3 percent for the three months ended March 30, 2013 from 9.5 percent for the three months ended March 31, 2012.
For the six months ended March 30, 2013 gross profit decreased $3.1 million compared to the six months ended March 31, 2012 primarily due to increased fixed expenses related to site expansions in Penang, Malaysia, Xiamen, China and Oradea, Romania, as well as unfavorable changes in customer mix. The decrease was partially offset by the sale of certain inventory that had previously been written down. As a result of the overall decreases in gross profit and net sales for the six months ended March 30, 2013 compared to the prior year period, gross margin declined to 9.5 percent compared to 9.6 percent.
Operating income. For the three months ended March 30, 2013, operating income decreased $2.6 million compared to the three months ended March 31, 2012. The operating income decline reflected the $2.6 million decrease in gross profit described above, while selling and administrative expenses ("S&A") were flat. As a result, operating margin was 4.2 percent for the three months ended March 30, 2013 compared to 4.5 percent for the three months ended March 31, 2012.


Table of Contents

For the six months ended March 30, 2013 operating income decreased $4.8 million compared to the six months ended March 31, 2012. The operating income decrease reflected the $3.1 million decrease in gross profit described above as well as increased S&A expenses of about $1.8 million due to approximately $0.7 million of amortization expense in the current period related to the Kontron arrangement; in addition, the prior year period included $1.1 million of bad debt recovery. As a result of the factors discussed above, for the six months ended March 30, 2013 compared to the prior year period, operating margin declined to 4.1 percent compared to 4.5 percent.

Other income (expense). Other income (expense) decreased to $3.3 million and $7.1 million of expense for the three and six months ended March 30, 2013, respectively, from $3.4 million and $7.5 million of expense, respectively, in the prior year periods. The decrease in expense was primarily due to $0.4 million and $0.7 million of lower interest expense related to our term loan for the three and six month periods ended March 30, 2013, respectively. Income taxes. Effective annual income tax rates for the indicated periods were as follows:

                           Three Months Ended       Six Months Ended
                          March 30,   March 31,   March 30,   March 31,
                            2013        2012        2013        2012
Effective annual tax rate    10%         11%         8%          10%

Income tax expense decreased to $2.0 million and $3.0 million for the three and six months ended March 30, 2013, respectively, as compared to $2.4 million and $4.2 million for the three and six months ended March 31, 2012, respectively, as a result of the decrease in our effective tax rate. Our effective tax rate varies from the U.S. statutory rate of 35 percent primarily as a result of the amount of earnings from different U.S. and foreign jurisdictions, and tax holidays granted to our subsidiaries in China and Malaysia, where we derive a significant portion of our earnings. The effective tax rate for both the three and six months ended March 30, 2013 is lower than the effective rate for the three and six months ended March 31, 2012 primarily as a result of increased income in the APAC segment that benefits from reduced taxes due to tax holidays. The increase in the effective tax rate for the quarter, compared to current year-to-date, was the result of an assessment from the Internal Revenue Service ("IRS") resulting from an audit of fiscal 2008 through 2010. Our effective tax rate could fluctuate in the future depending on the geographic distribution of our worldwide earnings.
The estimated annual effective tax rate for all of fiscal 2013 is expected to be between 6 percent and 8 percent.
Net income. Primarily as a result of lower gross profit, net income for the three months ended March 30, 2013 decreased by $2.0 million, or 10.0 percent, to $18.0 million from $20.0 million for the three months ended March 31, 2012. Net income for the six months ended March 30, 2013 decreased by $3.2 million, or 8.5 percent, to $34.6 million from $37.8 million for the six months ended March 31, 2012 as a result of lower gross profit and increased S&A expenses. Diluted earnings per share. Diluted earnings per share decreased to $0.52 and $1.00 for the three and six months ended March 30, 2013, respectively, from $0.56 and $1.07, respectively, in the prior year periods. The decrease in diluted earnings per share was primarily due to the decrease in net income as well as a decrease in the number of shares outstanding as a result of our stock repurchase program.
Return on Invested Capital ("ROIC"). We use a 5-10-5 financial model which is aligned with our business strategy, and includes a ROIC goal of 500 basis points over our weighted average cost of capital ("WACC"), a 10 percent gross margin target and a 5 percent operating margin target. Our primary focus is our ROIC goal, which is designed to create shareholder value and generate enough cash to self-fund our targeted organic revenue growth rate of 15 percent.
We review our internal calculation of WACC annually, and our estimated WACC is 12 percent for fiscal 2013. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. ROIC was 12.7 percent and 14.4 percent for the six months ended March 30, 2013 and March 31, 2012, respectively. This decrease was due to lower annualized operating income and higher average invested capital (as defined below).
We define ROIC as tax-effected annualized operating income divided by average invested capital over a rolling three-quarter period for the second 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 is a non-GAAP financial measure which should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with United States generally accepted accounting principles ("GAAP").

Non-GAAP financial measures, including ROIC, are used for internal management assessments because such measures provide additional insight into ongoing financial performance. In particular, we provide ROIC because we believe it offers insight into


Table of Contents

the metrics that are driving management decisions. We view ROIC as an important measure in evaluating the efficiency and effectiveness of our long-term capital requirements. We also use ROIC as a performance criteria in determining certain elements of compensation.
For a reconciliation of ROIC to our financial statements that were prepared using GAAP, see exhibit 99.1 to this quarterly report on Form 10-Q, which exhibit is incorporated herein by reference.

REPORTABLE SEGMENTS
A further discussion of financial performance by reportable segment is presented
below (dollars in millions):

                                       Three Months Ended            Six Months Ended
                                    March 30,      March 31,      March 30,     March 31,
                                       2013           2012          2013          2012
Net sales:
AMER                               $   259.8      $    331.7     $   518.9     $   652.6
APAC                                   288.3           261.6         560.7         496.3
EMEA                                    34.9            27.8          63.1          47.3
Elimination of inter-segment sales     (25.2 )         (47.6 )       (54.3 )       (93.1 )
                                   $   557.8      $    573.5     $ 1,088.4     $ 1,103.1
Operating income (loss):
AMER                               $    16.5      $     26.2     $    35.8     $    49.3
APAC                                    26.9            21.8          52.1          44.8
EMEA                                     0.8             0.3           0.6          (0.6 )
Corporate and other costs              (21.0 )         (22.5 )       (43.8 )       (44.0 )
                                   $    23.2      $     25.8     $    44.7     $    49.5

Americas (AMER): Net sales for the three months ended March 30, 2013 decreased $71.9 million, or 21.7 percent, as compared to the prior year period due primarily to lower end-market demand from a significant industrial/commercial sector customer as well as soft demand across all sectors, particularly in the networking/communications and industrial/commercial sectors. Net sales in the networking/communications sector also decreased due to a drop in demand from Juniper for products manufactured in this segment, compared to the prior year period. Operating income for the three months ended March 30, 2013 decreased $9.7 million, or 37.0 percent, as compared to the prior year period, due primarily to the decrease in net sales and unfavorable changes in customer mix. Net sales for the six months ended March 30, 2013 decreased $133.7 million, or 20.5 percent, due primarily to lower end-market demand from a significant industrial/commercial sector customer as well as decreased demand from Juniper. Additionally, we experienced softer demand from other customers in all of our sectors. Operating income for the six months ended March 30, 2013 decreased $13.5 million, or 27.4 percent, as compared to the prior year period, due primarily to the decrease in net sales.
Asia Pacific (APAC): Net sales for the three months ended March 30, 2013 increased $26.7 million, or 10.2 percent, as compared to the prior year period primarily due to increased production for Juniper in this segment. We also experienced increased sales related to new program wins with an existing customer in our defense/security/aerospace sector, partially offset by soft end-market demand in our networking/communications sector. Operating income for the three months ended March 30, 2013 increased $5.1 million, or 23.4 percent, as compared to the prior year period due primarily to increased net sales and favorable changes in customer mix.
Net sales for the six months ended March 30, 2013 increased $64.4 million, or 13.0 percent, primarily as a result of new programs wins with an existing customer in the defense/security/aerospace sector, $19.8 million of incremental revenue from the Kontron arrangement and increased demand from a customer in our healthcare/life sciences sector. These increases were partially offset by soft end-market demand in our networking/communications sector. Operating income for the six months ended March 30, 2013 increased $7.3 million, or 16.3 percent, as compared to the prior year period due to increased net sales. Europe, Middle East, Africa (EMEA): Net sales for the three months ended March 30, 2013 increased $7.1 million, or 25.5 percent, as compared to the prior year period due primarily to increased demand from a customer in the defense/security/aerospace sector as well as increased sales from the ramp of new customers in the healthcare/life sciences and defense/security/


Table of Contents

aerospace sectors. These increases were partially offset by soft end-market demand in the industrial/commercial sector. Operating income for the three months ended March 30, 2013 increased $0.5 million, as compared to the prior year period due to increased utilization of our Romanian facility, as well as increased net sales from our United Kingdom facility.
Net sales for the six months ended March 30, 2013 increased $15.8 million, or 33.4 percent, due primarily to increased demand from a customer in the defense/security/aerospace sector, a customer in the healthcare/life sciences sector and a new customer in the networking/communications sector. These increases were partially offset by soft end-market demand in the industrial/commercial sector. Operating income was $0.6 million for the six months ended March 30, 2013 as compared to an operating loss of $0.6 million in the prior year period. The increase was due primarily to increased utilization of both our Romanian manufacturing facility and our German engineering facility.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $276.5 million as of March 30, 2013 compared to $297.6 million as of September 29, 2012. The decrease in the balance of our cash and cash equivalents was due primarily to purchases of common stock as part of our stock repurchase program as well as increased capital expenditures for footprint expansions, partially offset by cash flows generated from operations. As of March 30, 2013, approximately three-quarters of our cash balance was held outside of the U.S. by our foreign subsidiaries. Certain foreign countries impose taxes and overall penalties on transfers of cash; however, our intent is to permanently reinvest funds held in these countries. If this cash were remitted to the U.S., additional tax obligations may result that would reduce the amount of cash ultimately available to us in the U.S. Currently, we believe that cash held in the U.S., together with cash available under U.S. credit facilities and cash from foreign subsidiaries that could be remitted to the U.S. without tax consequences, will be sufficient to meet our U.S. liquidity needs for the next twelve months and for the foreseeable future.
Cash Flows. The table below shows a summary of cash flows for the periods presented (dollars in millions):

                                          Six Months Ended
                                       March 30,     March 31,
                                         2013          2012
Cash provided by operating activities $    62.9     $    82.0
Cash used in investing activities         (53.1 )       (65.6 )
Cash used in financing activities     $   (30.6 )   $    (1.3 )

Operating Activities. Cash flows provided by operating activities were $62.9 . . .

  Add PLXS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PLXS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.