-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ct7/NyIjIAb9zxd4GK3sY7UKfziRe6LGC7jHDdwxIwHP76k6aTdFRcvYJwKX3nC+ RZn7CixEUCs8V7hlEVhh1A== 0000950124-98-002851.txt : 19980515 0000950124-98-002851.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950124-98-002851 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLEXUS CORP CENTRAL INDEX KEY: 0000785786 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 391344447 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14824 FILM NUMBER: 98619327 BUSINESS ADDRESS: STREET 1: 55 JEWELERS PARK DR CITY: NEENAH STATE: WI ZIP: 54957-0156 BUSINESS PHONE: 4147223451 MAIL ADDRESS: STREET 1: PLEXUS CORP STREET 2: 55 JEWELERS PARK DR CITY: NEENAH STATE: WI ZIP: 54957-0156 10-Q 1 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter ended March 31, 1998 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 000-14824 PLEXUS CORP. (Exact name of registrant as specified in charter) Wisconsin 39-1344447 (State of Incorporation) (IRS Employer Identification No.) 55 Jewelers Park Drive Neenah, Wisconsin 54957-0156 (Address of principal executive offices)(Zip Code) Telephone Number (920) 722-3451 (Registrant's telephone number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of May 11, 1998 there were 14,788,306 shares of Common Stock of the Company outstanding. 2 PLEXUS CORP. TABLE OF CONTENTS Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Condensed Consolidated Statements of Operations Three and Six Months Ended March 31, 1998 and 1997.........................3 Condensed Consolidated Balance Sheets March 31, 1998 and September 30, 1997......................................4 Condensed Consolidated Statements of Cash Flows Six Months Ended March 31, 1998 and 1997...................................5 Notes to Condensed Consolidated Financial Statements.......................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: General....................................................................8 Results of Operations......................................................10 Liquidity and Capital Resources............................................12 Item 3. Qualitative and Quantitative Disclosures about Market Risk..........................13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ...................................................13 Signatures..........................................................................14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------------------------- ------------------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $ 97,689 $ 96,750 $ 193,594 $ 184,115 Cost of sales 85,847 86,330 171,458 165,042 ------------ ------------ ------------ ------------ Gross profit 11,842 10,420 22,136 19,073 Selling and administrative expenses 4,951 4,272 9,227 8,151 ------------ ------------ ------------ ------------ Operating income 6,891 6,148 12,909 10,922 Other income (expense): Interest expense (3) (298) (7) (541) Other 284 86 474 251 ------------ ------------ ------------ ------------ Income before income taxes 7,172 5,936 13,376 10,632 Provision for income taxes 2,834 2,339 5,293 4,171 ------------ ------------ ------------ ------------ Net income $ 4,338 $ 3,597 $ 8,083 $ 6,461 ============ ============ ============ ============ Net income per common share: Basic $ 0.29 $ 0.26 $ 0.55 $ 0.47 ============ ============ ============ ============ Diluted $ 0.28 $ 0.23 $ 0.51 $ 0.43 ============ ============ ============ ============ Average number of common shares: Basic 14,742,509 13,688,640 14,769,438 13,365,360 ============ ============ ============ ============ Diluted 15,723,493 15,388,552 15,966,573 15,090,573 ============ ============ ============ ============
See notes to condensed consolidated financial statements 3 4 PLEXUS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (Unaudited)
March 31, September 30, 1998 1997 ------------------------- ASSETS Current assets: Cash and cash equivalents $ 10,756 $ 3,655 Accounts receivable, net of allowance of $500 and $360, respectively 45,542 47,648 Inventories 45,887 47,931 Deferred income taxes 3,219 2,571 Prepaid expenses and other 1,759 981 --------- --------- Total current assets 107,163 102,786 Property, plant and equipment, net 20,575 18,687 Other 1,111 344 --------- --------- Total assets $ 128,849 $ 121,817 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 216 $ 214 Accounts payable 35,575 35,099 Customer deposits 3,391 3,414 Accrued liabilities: Salaries and wages 4,496 5,908 Other 5,115 4,893 --------- --------- Total current liabilities 48,793 49,528 Long-term debt 157 3,516 Deferred income taxes 908 998 Other liabilities 355 192 Stockholders' equity: Preferred stock $.01 par value, 4,993,000 shares authorized, none issued or outstanding - - Common stock, $.01 par value, 20,000,000 shares authorized, 14,830,689 and 14,739,914 issued, respectively 148 147 Additional paid-in capital 21,846 17,675 Retained earnings 57,562 49,761 Treasury stock, at cost, 67,882 and 0 shares, respectively (920) - --------- --------- 78,636 67,583 --------- --------- Total liabilities and stockholders' equity $ 128,849 $ 121,817 ========= =========
See notes to condensed consolidated financial statements 4 5 PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Unaudited
SIX MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,083 $ 6,461 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,995 1,876 Deferred income taxes (738) (492) Change in assets and liabilities: Accounts receivable 2,381 (14,809) Inventories 2,177 (4,444) Prepaid expenses and other (592) 760 Accounts payable 364 8,825 Customer deposits (23) (2,306) Accrued liabilities (1,362) 1,037 Other (115) -- ------- -------- Cash flows provided by (used in) operating activities 13,170 (3,092) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (5,151) (3,735) Other (531) 13 -------- -------- Cash flows used in investing activities (5,682) (3,722) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt - 72,182 Payments on debt (3,357) (68,271) Proceeds from exercise of stock options 425 2,083 Tax benefit from stock options exercised 3,690 - Treasury stock purchased (1,799) - Treasury stock reissued 654 - Payments of preferred stock dividends - (338) -------- -------- Cash flows provided by (used in) financing activities (387) 5,656 -------- -------- Net increase (decrease) in cash and cash equivalents 7,101 (1,158) -------- -------- Cash and cash equivalents: Beginning of period 3,655 1,847 -------- -------- End of period $ 10,756 $ 689 ======== ========
See notes to condensed consolidated financial statements 5 6 PLEXUS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company without audit and pursuant to the rules and regulations of the United States Securities and Exchange Commission. In the opinion of the Company, the financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to present fairly the financial position of Plexus Corp. at March 31, 1998 and the results of operations for the three months and six months ended March 31, 1998 and 1997 and the cash flows for the same six-month periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the condensed consolidated financial statements included herein are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1997 Annual Report. The condensed consolidated balance sheet data at September 30, 1997 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE 2 - INVENTORIES The major classes of inventories are as follows (in thousands): March 31, September 30, 1998 1997 ---------- ------------ Assembly Parts $ 29,813 $ 28,828 Work-in-Process 15,584 18,557 Finished Goods 490 546 ---------- ---------- $ 45,887 $ 47,931 ========== ========== NOTE 3 - STOCKHOLDERS' EQUITY On December 19, 1997, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares, or a maximum of $25,000,000, of the Company's Common Stock on the open market. The Company expects that repurchases will occur from time to time. The Company anticipates the shares held in treasury to be used for various purposes in the future, including satisfaction of requirements for shares under the Company's Employee Stock Savings Plan and its stock option incentive program. When the treasury shares are reissued, any excess of the acquisition cost of the shares over the proceeds from reissuance is charged to retained earnings. Through March 31, 1998, 130,000 shares have been repurchased, of which 62,118 have been reissued under the Company's stock option and 401(k) plans. 6 7 NOTE 4 - NET INCOME PER SHARE During the year, the Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share", which establishes new standards for reporting earnings per share. The earnings per share computations for prior periods have been restated to conform with the provisions of SFAS No. 128. The following is a reconciliation of the numerators and denominators for the computation of basic and diluted income per share (in thousands except per share amounts):
Three Months Ended Six Months Ended March 31, March 31, -------------------------- ----------------------- 1998 1997 1998 1997 -------- ------- ------- ------- BASIC INCOME PER SHARE: Net income $ 4,338 $ 3,597 $ 8,083 $ 6,461 Less: Preferred stock dividends - (84) - (211) -------- ------- ------- ------- Income available to common stockholders (numerator) 4,338 3,513 8,083 6,250 ======== ======= ======= ======= Weighted average number of common shares (denominator) 14,743 13,689 14,769 13,365 ======== ======= ======= ======= BASIC INCOME PER SHARE $ 0.29 $ 0.26 $ 0.55 $ 0.47 ======== ======= ======= ======= DILUTED INCOME PER SHARE: Net income (numerator) $ 4,338 $ 3,597 $ 8,083 $ 6,461 ======== ======= ======= ======= Weighted average number of common shares 14,743 13,689 14,769 13,365 Effect of dilutive securities: Stock options 980 961 1,198 802 Convertible preferred stock - 739 - 924 -------- ------- ------- ------- Diluted weighted average number of common shares (denominator) 15,723 15,389 15,967 15,091 ======== ======= ======= ======= $ 0.28 $ 0.23 $ 0.51 $ 0.43 ======== ======= ======= =======
NOTE 5 - NON-CASH TRANSACTIONS During the quarter ended March 31, 1998, the Company recorded income tax benefits of approximately $0.8 million related to stock option exercises. The income tax benefits are reflected as an increase in additional paid-in capital. NOTE 6 - RECLASSIFICATIONS AND RESTATEMENTS Certain amounts in prior years' condensed consolidated financial statements have been reclassified to conform to the 1998 presentation. In addition, prior year share and per share data have been restated for the Company's two-for-one stock split effective August 25, 1997. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of historical matters, contains forward-looking statements (such as statements in the future tense and those including the terms "believe," "expect," "anticipate," "intend" and similar terms) which involve risks and uncertainties. Actual results may differ materially from these statements as a result of various factors, including those discussed in further detail below (in particular under "General"). GENERAL Plexus Corp. is a contract provider of design, manufacturing and testing services to the electronics industry. Headquartered in Neenah, Wisconsin, the Company provides product realization services and is one of the largest electronic assembly organizations in the United States. Through its wholly owned subsidiaries, principally Plexus Technology Group, Inc., and Plexus Electronic Assembly Corporation, the Company offers a full range of services including product development and design, material procurement and management, prototyping, assembly, testing, manufacturing, final system box build and distribution. Services are provided to original equipment manufacturers in the computer (primarily mainframe, server and peripheral products), medical, industrial, telecommunications and transportation electronics industries. The Company has operations in Wisconsin, Kentucky, North Carolina, Minnesota and California. The Company's contract manufacturing services are provided on either a turnkey basis, where the Company procures certain or all of the materials required for product assembly, or on a consignment basis, where the customer supplies some or, occasionally, all materials necessary for product assembly. Turnkey services include material procurement and warehousing, in addition to manufacturing, and involve greater resource investment and inventory risk management than consignment services. Turnkey manufacturing currently represents almost all of the Company's sales. Turnkey sales typically generate higher net sales and higher gross profit dollars with lower gross margin percentages than consignment sales due to the inclusion of component costs, and related markup, in the Company's net sales. Variations in the Company's turnkey sales have caused, and could continue to cause, the Company's gross margin and profitability to fluctuate year to year and quarter to quarter. Since a substantial portion of the Company's sales are derived from turnkey manufacturing, net sales can be negatively impacted by component shortages. Shortages of key electronic components which are provided directly from customers or suppliers can cause manufacturing interruptions, customer rescheduling issues, production downtime and production set-up and restart inefficiencies. From time to time, allocations of components can be an integral part of the electronics industry. While in general the marketplace for such components has eased, allowing greater availability, key component shortage issues can still occur with respect to specific industries or particular components. In response to this dynamic environment, the Company has a corporate procurement organization whose primary purpose is to create strong supplier alliances to assure a steady flow of components at competitive prices and mitigate shortages. Strategic relationships have been established with international purchasing offices to improve shortage and pricing issues. However, because of the limited number of suppliers for certain electronic components and other supply and demand concerns, the Company can neither eliminate component shortages nor determine the timing or impact of such shortages on the Company's results. As a result, the Company's sales and profitability can be affected from period to period. 8 9 Many of the industries for which the Company currently provides electronic products are subject to rapid technological changes, product obsolescence, increased competition, and pricing pressures. In the quarter ending March 31, 1998 and in fiscal 1997, approximately 5 percent and 6 percent, respectively, of the Company's total sales were foreign, with less than 2 percent in each period going into the Southeast Asian market, which is currently experiencing unfavorable currency and economic conditions. These and other factors which affect the industries or the markets that the Company serves, and which affect any of the Company's major customers in particular, could have a material adverse effect on the Company's results of operations. The Company has no long-term volume commitments from its customers, and lead-times for customer orders and product-life cycles continue to contract. Customer programs can be canceled and volume levels can be changed or delayed at any time. The timely replacement of delayed, canceled or reduced programs with new business cannot be assured. Because of these and other factors, there can be no assurance that the Company's recent historical sales growth rate will continue. See "Results of Operations -- Net Sales" below for certain factors affecting net sales to the Company's largest customers. The Company believes that its growth has been achieved in significant part by its approach to partnering with customers mainly through its product design and development services. Approximately 20 percent of the Company's contract manufacturing sales are a direct result of these services. The Company intends to continue to leverage this aspect of its product design and development services for continued growth in contract manufacturing revenues. Currently, the design and development services are less than 10 percent of total sales. In order to achieve expanded sales growth, the Company must continue to generate additional sales from existing customers from both current and future programs, and must successfully market to new customers. The Company must also successfully integrate and leverage its new regional product design centers into this strategy. In addition, the Company must continue to attract and retain top quality product development engineers in order to continue to expand its design and development services. Because of these and other factors, there can be no assurance that the Company's historic growth rates will continue. Start-up costs and the management of labor and equipment efficiencies for new programs and new customers can have an effect on the Company's gross margins. Due to these and other factors, gross margins can be negatively impacted early on in the life cycle of new programs. In addition, labor efficiency and equipment utilization rates ultimately achieved and maintained by the Company for new and current programs impact the Company's gross margins. Geographical expansion and growth by acquisition can have an effect on the Company's operations. The successful operation of an acquired business will require communication and cooperation among key managers, along with the transition of customer relationships. There can be no assurance that the Company will successfully manage the integration of new locations or acquired operations and may experience certain inefficiencies which could negatively impact the results of operations. Additionally, no assurance can be given that any past or future acquisition by the Company will enhance the Company's business. The Company has a corporate information technology organization whose primary purpose is to ensure vision and direction of information systems to meet internal and external needs. The Company must keep pace with rapid technological developments in its management information systems and its production facilities and equipment, and can experience costs and conversion difficulties in connection 9 10 with the implementation of new systems and processes. In addition, like all other companies, the Company must assure that its computer and software systems, and other machinery and systems that depend upon computer-driven operations or which have embedded chips or micro-processors, are capable of accurately functioning and accurately recognizing and processing data in the year 2000 and beyond ("Year 2000 Compliant"). The Company expects to be Year 2000 Compliant in mid 1999, although certain functions are subject to the efforts of third-party suppliers. The costs associated with implementing year 2000 applications currently are not expected to be material, although there can be no assurances. Material costs or consequences of incomplete or untimely resolution of year 2000 issues currently are not expected, although no assurances can be given that it would not negatively impact the results of operations. The Company operates in a highly competitive industry. The Company faces competition from a number of domestic and foreign electronic manufacturing services companies, some with financial and manufacturing resources greater than the Company's. The Company also faces competition in the form of current and prospective customers that have the capabilities to develop and manufacture products internally. In order to remain a viable alternative, the Company must continue to enhance its total engineering and manufacturing technologies. Other factors that could adversely affect forward-looking statements include the Company's ability to maintain and expand its customer base, gross margin pressures, the effect of start-up costs related to new facilities, the overall economic conditions affecting the electronics industry, and other factors and risks detailed herein and in the Company's other Securities and Exchange Commission filings. RESULTS OF OPERATIONS NET SALES Net sales for the three months ended March 31, 1998 increased slightly to $97.7 million from $96.7 million for the same period in the prior fiscal year. Sales for the six months ended March 31, 1998 increased 5 percent to $193.6 million from $184.1 million in March 31, 1997. Sales were impacted by customers' decision to move certain programs back in house because of available internal capacity, adjustments to near term production schedules, slower than anticipated ramp up of certain new customers and new programs caused by design changes or other customer-specific factors, and the negative effects of the strong U.S. dollar that has impacted a few customers. The factors that affected second quarter sales are not expected to be as significant in the third quarter. Although there can be no assurances, the Company presently anticipates sequential sales growth in the second half of fiscal 1998, subject to the ultimate development and timing of new customers and new programs. By industry segment, sales increased, from the same six month period to the prior fiscal year, for the transportation, telecommunications and industrial markets which were offset by declines in the medical and other markets. Sales for the quarter by industry were as follows: Computer 33 percent, Industrial 18 percent, Medical 21 percent, Transportation 14 percent, Telecommunications 12 percent, and Other 2 percent. Currently, the Company expects telecommunications sales to increase for the second half of fiscal 1998. However, the Company does not expect there will be any other material changes in the breakdown of its sales by industry in fiscal 1998. The Company's largest customers continue to be International Business Machines Corporation (IBM) and General Electric Company (GE) who each accounted for approximately 12 percent of sales in 10 11 each of the six months ended March 31, 1998 and 1997. Sales to Unisys Corporation (Unisys) were just slightly less than 10 percent of total sales for the six month period ended March 31, 1998 compared to 11 percent in the same period in fiscal 1997. Sales in dollar terms and percent to IBM, GE and Unisys were comparable to the prior year period. The Company believes that sales to IBM will decrease due to the potential transfer of business from one of IBM's divisions, which may not be fully offset by increases in other IBM programs, as well as certain programs going end of life. No other customers had sales over 10 percent for the six months ended March 31, 1998 or 1997. The Company is continuing to focus on enhancing the customer mix and sales through new programs with current and new customers. Sales to the Company's ten largest customers accounted for 71 percent of net sales for the six months ended March 31, 1998 compared to 68 percent for the same period in fiscal 1997 and all of fiscal 1997. The Company remains dependent upon continued sales to IBM, GE, Unisys and its other significant customers. Any material change in orders from these or other customers could have a material effect on the Company's results of operations. GROSS PROFIT Gross profit increased to $22.1 million, or 16 percent, for the six months ended March 31, 1998 from $19.1 million for the same period in the prior fiscal year. The gross margin for the six months ended March 31, 1998 and 1997, was 11.4 percent and 10.4 percent, respectively. The gross margin for the three month periods ended March 31, 1998 and 1997 was 12.1 percent and 10.8 percent, respectively. The increase in gross margin in the three and six month periods ended March 31, 1998 compared to the same periods in fiscal 1997 reflects the leverage generated by improved product mix, continued operational improvements and cost controls, and better component pricing. These were partially offset by increased start-up costs associated with new programs and increased hiring in the Company's engineering and technical manufacturing areas in order to continue to expand its capabilities and meet customer demands. Most of the research and development conducted by the Company is paid for by customers and is, therefore, included in cost of sales. Other research and development is conducted by the Company, but is not specifically identified, as the Company believes such expenses are less than 1 percent of its total sales. The Company's gross margin also reflects a number of other factors, including product mix, the level of start-up costs and efficiencies of new programs, sales volumes, capacity utilization of surface mount and other equipment, labor costs and efficiencies, the management of inventories, component pricing and shortages, fluctuations and timing of customer orders, changing demand for customer's products and competition within the electronics business. These and other factors can cause variations in the Company's operating results. While the Company's focus is on maintaining and expanding gross margins, there can be no assurance that gross margins will not decrease in future periods. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative (S&A) expenses increased to $9.2 million, or 4.8 percent of sales, for the six months ended March 31, 1998, compared to $8.2 million, or 4.4 percent, for the comparable prior fiscal year period. For the quarter ended March 31, 1998 and 1997, S&A expenses were $5.0 million, or 5.1 percent of sales, and $4.3 million, or 4.4 percent, respectively. These increases reflect the Company's planned expansion of its engineering infrastructure, sales and marketing efforts, and enhancements of its information systems and customer support function. In addition, during the quarter 11 12 ended March 31, 1998 certain non-recurring charges for relocation and recruitment costs resulted in an increase in the percentage of S&A expenses. The Company anticipates that future S&A expenses will increase in absolute dollars but remain between 4.5 percent and 4.8 percent of annual sales, as the Company continues to expand these support areas. OTHER INCOME (EXPENSE) Interest expense was $3,000 and $7,000 for the three and six months ended March 31, 1998 compared to $298,000 and $541,000 in the comparable period in fiscal 1997. The decrease in interest expense is primarily due to reduced borrowings required to support working capital. See "Liquidity and Capital Resources." INCOME TAXES Income taxes increased to $2.8 million and $5.3 million for the three and six months ended March 31, 1998 compared to $2.3 million and $4.2 million in the comparable period in fiscal 1997, as a result of increased earnings. The Company's effective income tax rate has remained constant at rates between 38 percent to 40 percent. These rates approximate the blended Federal and state statutory rate as a result of the Company's operations being located within the United States. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $13.2 million for the six months ended March 31, 1998 compared to cash flows used in operating activities of $3.1 million in the comparable period in fiscal 1997. Cash from operations was provided primarily by improved net profits, accounts receivable collections, and inventory management. Inventory turnover improved to 7.3 turns as of March 31, 1998, from 5.8 turns as of March 31, 1997 and from 6.7 turns for all of fiscal 1997. The cash generated from operating activities was utilized primarily to purchase additional manufacturing equipment and facilities and to reduce outstanding debt. Cash flows used in investing activities for the first half of fiscal 1998 totaled $5.7 million and were utilized primarily for capital additions, including the acquisition of the majority of assets of NEI Electronics, Inc., a contract electronics manufacturer located in Minneapolis, and Tertronics, Inc., a Silicon Valley electronic design and quick-turn company. The Company has historically utilized operating leases to fund the majority of its manufacturing equipment needs. The Company now anticipates utilizing operating leases primarily in situations where technical obsolescence concerns are determined to outweigh the benefits of financing the equipment purchase. The Company estimates that capital expenditures for fiscal 1998 will be similar to fiscal 1997, at approximately $10 to $12 million, which the Company expects to fund through cash flows from operations and its $40 million long-term revolving credit agreement. Cash flows used in financing activities totaled $0.4 million for the six months ended March 31, 1998, primarily representing the paydown of the Company's long-term revolving credit facility offset by the tax benefit of stock options exercised. Through April 30, 1998 there were no borrowings under the Company's $40 million long-term revolving credit agreement. The ratio of total debt-to-equity as of March 31, 1998, was 0.6 to 1, compared to 0.8 to 1 as of September 30, 1997. 12 13 The Company anticipates increases in working capital in order to facilitate growth. However, because of the dynamics of the Company's industry, the exact timing and amount of these increases cannot be determined. The Company believes that its credit facilities, leasing capabilities and projected cash flows from operations will be sufficient to meet its anticipated working capital needs and its anticipated short-term and long-term capital requirements. On December 19, 1997, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares, or a maximum of $25,000,000, of the Company's Common Stock on the open market. The Company expects that repurchases will occur from time to time. The Company anticipates the shares held in treasury to be used for various purposes in the future, including satisfaction of requirements for shares under the Company's Employee Stock Savings Plan and its stock option incentive program. Through April 30, 1998, the Company repurchased 130,000 shares for approximately $1.8 million. The Company has not paid dividends on its Common Stock, but has reinvested its earnings to support its working capital and expansion requirements. The Company intends to continue to utilize its earnings in the development and expansion of the business and does not expect to pay cash dividends in the foreseeable future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Requirements not yet applicable to the Company. * * * * * PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 13 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 5/13/98 /s/ Peter Strandwitz - ------- ----------------------------- Date Peter Strandwitz Chairman and CEO 5/13/98 /s/ Thomas B. Sabol - ------- ----------------------------- Date Thomas B. Sabol Vice President-Finance & Chief Financial Officer 14 EX-27 2 EX-27
5 1,000 3-MOS SEP-30-1998 JAN-01-1998 MAR-31-1998 10,756 0 45,542 500 45,887 107,163 48,588 28,588 128,849 48,793 0 0 0 148 78,488 128,849 97,689 97,689 85,847 85,847 4,667 0 3 7,172 2,834 4,338 0 0 0 4,338 0.29 0.28
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