-----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, KUO3KFH5jDV6ugJHhYhi1Fsh25N+xHHe3tKDMC51dyps4oh0hhYhaNEzhYCIBxuQ ANi6CtB7cGrgpg+s6c747Q== 0000950124-98-000802.txt : 19980218 0000950124-98-000802.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950124-98-000802 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 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: 98541878 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 FORM 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 December 31, 1997 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-14824 PLEXUS CORP. (Exact name of registrant as specified in charter) Wisconsin 39-1344447 (State of Incorporation) (IRS Employer Identification No.) 55 Jewelers Park Drive Neenah, Wisconsin 54957-0156 (Address of principal executive offices)(Zip Code) Telephone Number (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 February 10, 1998 there were 14,745,123 shares of Common Stock of the Company outstanding. 2 PLEXUS CORP. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Condensed Consolidated Statements of Operations Three Months Ended December 31, 1997 and 1996.............3 Condensed Consolidated Balance Sheets December 31, 1997 and September 30, 1997..................4 Condensed Consolidated Statements of Cash Flows Three Months Ended December 31, 1997 and 1996.............5 Notes to Condensed Consolidated Financial Statements....6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: General................................................7-10 Results of Operations.................................10-12 Liquidity and Capital Resources..........................12 Item 3. Qualitative and Quantitative Disclosures about Market Risk...........13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...............13-14 Item 6. Exhibits and Reports on Form 8-K.....................................14 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 DECEMBER 31, ---------------------------------- 1997 1996 ---------- ---------- Net sales $ 95,905 $ 87,366 Cost of sales 85,611 78,713 ---------- ---------- Gross profit 10,294 8,653 Selling and administrative expenses 4,276 3,879 ---------- ---------- Operating income 6,018 4,774 Other income (expense): Interest expense (4) (262) Other 190 184 ---------- ---------- Income before income taxes 6,204 4,696 Provision for income taxes 2,459 1,832 ---------- ---------- Net income $ 3,745 $ 2,864 ========== ========== Net income per common and common equivalent share: Basic $ 0.25 $ 0.21 ========== ========== Diluted $ 0.23 $ 0.19 ========== ========== Average number of common and common equivalent shares outstanding: Basic 14,792,344 13,045,090 ========== ========== Diluted 16,134,538 14,689,103 ========== ==========
See notes to condensed consolidated financial statements 3 4 PLEXUS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, September 30, 1997 1997 ----------- ------------ (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 3,757 $ 3,655 Accounts receivable, net of allowance of $360 and $285, respectively 41,889 47,648 Inventories 46,894 47,931 Deferred income taxes 2,733 2,571 Prepaid expenses and other 2,499 981 --------- -------- Total current assets 97,772 102,786 Property, plant and equipment, net 20,986 18,687 Other 1,062 344 --------- -------- Total assets $ 119,820 $121,817 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 216 $ 214 Accounts payable 34,592 35,099 Customer deposits 2,322 3,414 Accrued liabilities: Salaries and wages 3,300 5,908 Other 3,820 4,893 --------- -------- Total current liabilities 44,250 49,528 Long-term debt 211 3,516 Deferred income taxes 1,013 998 Other liabilities 274 192 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, 14,820,521 and 14,739,914 issued and outstanding, respectively 148 147 Additional paid-in capital 20,979 17,675 Retained earnings 53,314 49,761 Treasury stock, at cost, 26,065 and 0 shares, respectively (369) - --------- -------- 74,072 67,583 --------- -------- Total liabilities and stockholders' equity $ 119,820 $121,817 ========= ========
See notes to condensed consolidated financial statements 4 5 PLEXUS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Unaudited
THREE MONTHS ENDED DECEMBER 31, -------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,745 $ 2,864 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 1,427 894 Deferred income taxes (147) (145) Change in assets and liabilities: Accounts receivable 6,034 (5,394) Inventories 1,170 (5,382) Prepaid expenses and other (1,072) (1,385) Accounts payable (619) 5,719 Customer deposits (1,092) (453) Accrued liabilities (1,233) 2,131 Other (15) 18 ------- -------- Cash flows provided by (used in) operating activities 8,198 (1,133) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (4,023) (1,319) Other (634) - ------- -------- Cash flows used in investing activities (4,657) (1,319) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt - 31,983 Payments on debt (3,303) (27,801) Issuance of common stock 425 485 Net treasury stock transactions (561) - Payments of preferred stock dividends - (254) ------- -------- Cash flows provided by (used in) financing activities (3,439) 4,413 ------- -------- Net increase in cash and cash equivalents 102 1,961 ------- -------- Cash and cash equivalents: Beginning of period 3,655 1,847 ------- -------- End of period $ 3,757 $ 3,808 ======= ========
See notes to condensed consolidated financial statements 5 6 PLEXUS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 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 December 31, 1997 and the results of operations for the three months ended December 31, 1997 and 1996 and the cash flows for the same three-month periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the condensed consolidated financial statements included herein are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the 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): December 31, September 30, 1997 1997 ----------- ------------ Assembly Parts $ 25,119 $ 28,828 Work-in-Process 21,094 18,557 Finished Goods 681 546 ----------- ------------ $ 46,894 $ 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 December 31, 1997, 50,000 shares have been repurchased, of which 23,935 have been reissued. NOTE 4 - ACQUISITIONS On November 13, 1997, the Company acquired 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. This transaction was accounted for as a purchase but is not material to the Company's consolidated financial position, results of operations and cash flows. Accordingly, additional information regarding this transaction has not been disclosed. 6 7 NOTE 5 - NET INCOME PER SHARE During the quarter, the Company 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 December 31, ------------------- 1997 1996 ------- ------- Basic income per share: Net income $ 3,745 $ 2,864 Less: Preferred stock dividends - 127 ------- ------- Income available to common stockholders (numerator) 3,745 2,737 ======= ======= Weighted average number of common shares (denominator) 14,792 13,045 ======= ======= Basic income per share $ 0.25 $ 0.21 ======= ======= Diluted income per share: Net income (numerator) $ 3,745 2,864 ======= ======= Weighted average number of common shares 14,792 13,045 Effect of dilutive securities: Stock options 1,343 535 Convertible preferred stock - 1,109 ------- ------- Diluted weighted average number of common shares (denominator) 16,135 14,689 ======= ======= Diluted income per share $ 0.23 $ 0.19 ======= =======
NOTE 6 - NON-CASH TRANSACTIONS During the quarter ended December 31, 1997, the Company recorded income tax benefits of approximately $2.9 million related to stock option exercises. The income tax benefits are reflected as an increase in additional paid-in capital. NOTE 7 - 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 has been restated for the Company's two-for-one stock split effective August 25, 1997. 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 "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, 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 7 8 transportation electronics industries. The Company has operations in Wisconsin, Kentucky, North Carolina, Minnesota and California. In November 1997, the Company acquired the assets of two related companies located in Minneapolis, Minn., and Milpitas, Calif., in a cash transaction made through the Company's newly-formed PAC Acquisition Corp. subsidiary. The assets acquired, individually and combined, were less than 3 percent of the Company's total assets. Total combined sales of the acquired companies were approximately $3 million in the 12-month period ended September 30, 1997. The Minneapolis location strengthens the Company's presence in the medical industry. The California location puts the Company in the heart of Silicon Valley. The acquisitions are intended to support the Company's growth as the product realization company. Because the acquisitions were accounted for using the purchase method of accounting, the effects of the acquisitions will only be included in the Company's financial statements from the acquisition date. The acquisitions are not expected to have a material impact on the Company's financial condition and results of operations. The Company continues to look for opportunities for geographical expansion that will improve the Company's ability to provide services to its customers. 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. 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 December 31, 1997 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 8 9 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 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 9 10 beyond ("Year 2000 Compliant"). The Company expects to be Year 2000 Compliant in calendar 1998, 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 December 31, 1997, increased 10 percent to $95.9 million from $87.4 million for the same period in the prior fiscal year. The increase in net sales was due to increased orders from existing customers, including on-going and new programs. However, the increases were not as extensive as originally anticipated by Company management in part due to Motorola, Inc.'s (Motorola) decision to move a program back in house because of available internal capacity. In addition, some customers have adjusted near term production schedules, certain new customers and new programs have ramped up slower than anticipated caused by design changes or other customer-specific factors, and the negative effects of the strong U.S. dollar have impacted a few customers resulting in somewhat lower sales. The factors that affected first quarter sales have continued into the second quarter. Although there can be no assurances, the Company presently anticipates sales growth to be more pronounced in the second half of fiscal 1998, subject to the development and timing of new customers and new programs. By industry segment, net sales increased, from the same period in the prior fiscal year, across all industries served, except computer, with growth more pronounced in the industrial and transportation markets. Sales for the quarter by industry were as follows: Computer 29 percent, Industrial 21 percent, Medical 20 percent, Transportation 15 percent, Telecommunications 12 percent, and Other 3 percent. Currently, the Company does not expect there will be any 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 net sales in the three months ended December 31, 1997 and 1996. Sales in dollar terms to IBM and GE 10 11 were up from the comparable period prior year, but the percentage of net sales remained relatively constant due to the Company's increasing sales to other customers. The Company believes that sales to IBM may 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. Other customers with sales over 10 percent for the three months ended December 31, 1996 included Motorola at 11 percent and Unisys Corporation (Unisys) at just over 10 percent. Sales in the quarter ended December 31, 1997 to both of these customers were less than 10 percent of total sales. As indicated above, sales to Motorola declined due to their decision to move a program back in house. Motorola remains a significant customer. Sales to Unisys were just slightly less than 10 percent of total sales. Sales to the Company's ten largest customers accounted for 72 percent for the three months ended December 31, 1997 compared to 69 percent for the same period in fiscal 1997 and 68 percent for all of fiscal 1997. The Company remains dependent upon continued sales to IBM, GE, Motorola, 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 $10.3 million, or 19 percent, for the three months ended December 31, 1997 from $8.7 million for the same period in the prior fiscal year. The gross margin increased to 10.7 percent for the three months ended December 31, 1997 from 9.9 percent for the same period in fiscal 1997. The increase in gross margin in the three months ended compared to the same period in fiscal 1997 reflects the leverage generated by higher sales volumes, continued cost controls, better component pricing, and improved product mix. 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. However, the gross margin for the first quarter of fiscal 1998 was below the 12.6 percent level in the fourth quarter of fiscal 1997 primarily due to lower sales volume. 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 $4.3 million for the three months ended December 31, 1997, compared to $3.9 million for the comparable prior fiscal year period. As a percentage of sales, S&A expenses were 4.5 percent and 4.4 percent, respectively. These increases 11 12 reflect the Company's planned expansion of its sales and marketing efforts, enhancement of its information systems to support the Company's continued growth, and increase in its customer support function. The Company anticipates that future S&A expenses will increase in absolute dollars but remain between 4.5 percent and 4.7 percent of sales, as the Company continues to expand these support areas. OTHER INCOME (EXPENSE) Interest expense was $4,000 for the three months ended December 31, 1997 compared to $262,000 in the comparable period in fiscal 1997. The continual decrease in interest expense is primarily due to reduced borrowings required to support working capital, coupled with lower interest rates. See "Liquidity and Capital Resources." INCOME TAXES Income taxes increased to $2.5 million for the three months ended December 31, 1997 compared to $1.8 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 $8.2 million for the three months ended December 31, 1997 compared to cash flows used in operating activities of $1.1 million in the comparable period in fiscal 1997. Cash from operations was provided primarily by improved net profits and accounts receivable collections. In addition, inventory turnover improved to 7.2 turns as of December 31, 1997, from 5.5 turns as of December 31, 1996 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 totaled $4.7 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 to be similar to fiscal 1997, at approximately $10 to $12 million, which the Company expects to fund through cash flows from operations and the revolving credit agreement. Cash flows used in financing activities totaled $3.4 million for the three months ended December 31, 1997, primarily representing the paydown of the Company's long-term revolving credit facility. Borrowings under the Company's $40 million long-term revolving credit agreement have been reduced to zero as of December 31, 1997, from $3.3 million as of September 30, 1997. The ratio of total debt-to-equity as of December 31, 1997, 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. The Company's recent acquisitions did not have a material affect to the Company's cash flows. 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 January 31, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's annual meeting of shareholders on February 11, 1998, the six continuing directors who were management's nominees for re-election were re-elected. The nominees/directors were re-elected with the following votes: Authority for Director's Name Votes "For" Voting Withheld - --------------- ----------- --------------- Rudolph T. Hoppe 13,660,680 230,643 Harold R. Miller 13,660,980 230,343 John L. Nussbaum 13,608,230 283,093 Gerald A. Pitner 13,609,728 281,595 Thomas J. Prosser 13,658,566 232,757 Peter Strandwitz 13,609,924 281,399 The shareholders of the Company voted on February 11, 1998 to amend the Articles of Incorporation of the Company to increase the total number of shares of Common Stock authorized from 20,000,000 to 60,000,000. The vote on the amendment was as follows: 13 14 For 10,754,400 Against 2,938,022 Abstain 112,806 Broker Non-Votes 86,095 The shareholders of the Company voted on February 11, 1998 to approve the Company's 1998 Stock Option Plan. The vote on the new option plan was as follows: For 7,431,841 Against 3,233,295 Abstain 143,531 Broker Non-Votes 3,082,656 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 2/13/98 /s/ Peter Strandwitz ------- --------------------- Date Peter Strandwitz Chairman and CEO 2/13/98 /s/ Thomas B. Sabol ------- --------------------- Date Thomas B. Sabol Vice President-Finance & Chief Financial Officer 14 EX-27 2 EXHIBIT 27
5 1,000 U.S. DOLLARS 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 1 3,757 0 41,889 360 46,894 97,772 47,677 26,691 119,820 44,250 0 0 0 148 73,924 119,820 95,905 95,905 85,611 85,611 4,276 0 4 6,204 2,459 3,745 0 0 0 3,745 0.25 0.23
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