Plexus Corp. 10-Q Summary: Quarter Ended June 30, 2002
Business Context and Reporting Period
Plexus Corp. provides product realization services, including design, manufacturing, and testing, to original equipment manufacturers (OEMs) in the networking, medical, industrial, computer, and transportation sectors. The company operates primarily on a turnkey basis. This report covers the three and nine months ended June 30, 2002. The company completed the acquisition of certain assets of MCMS, Inc. on January 8, 2002, for approximately $42 million to expand its Asian manufacturing footprint.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended 6/30/02 | 3 Months Ended 6/30/01 | 9 Months Ended 6/30/02 | 9 Months Ended 6/30/01 |
|---|---|---|---|---|
| Net Sales | $234,749 | $253,172 | $666,128 | $805,553 |
| Gross Profit | $23,077 | $29,819 | $59,018 | $101,746 |
| Gross Margin | 9.8% | 11.8% | 8.9% | 12.6% |
| Operating Income (Loss) | $1,775 | $12,685 | $(2,921) | $55,950 |
| Net Income (Loss) | $656 | $7,362 | $(3,522) | $32,231 |
| EPS (Diluted) | $0.02 | $0.17 | $(0.08) | $0.75 |
| Cash from Operations (9mo) | $117,390 (2002) vs $25,542 (2001) | |||
| Cash & Equivalents (6/30/02) | $51,119 | |||
| Total Debt (Current + Long-term) | $25,860 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 7% year-over-year for the quarter and 17% for the nine-month period. This reflects a slowdown in the networking/datacommunications and computer industries, exacerbated by reduced capital availability for customers following the September 11, 2001 attacks.
- Margin Compression: Gross margins declined significantly due to lower capacity utilization and the integration of acquired operations (MCMS, Qtron, Mexico) which currently operate at lower margins than the historical average.
- Restructuring Costs: The company recorded $10.2 million in pre-tax restructuring charges for the nine months ended June 30, 2002, compared to $1.9 million in the prior year. This includes workforce reductions, lease terminations, and asset write-downs, including the closure of facilities in Neenah, Wisconsin, and Minneapolis, Minnesota.
- Operating Loss: The company reported an operating loss of $2.9 million for the nine months ended June 30, 2002, a sharp reversal from the $56.0 million operating income in the prior year period.
Guidance, Outlook, and Risks
- Outlook: Management expects fourth-quarter sales to range between $225 million and $235 million, contingent on actual order levels. Capital expenditures for fiscal 2002 are estimated at $35 million.
- Liquidity: The company maintains a $250 million unsecured revolving credit facility with no outstanding borrowings as of June 30, 2002. Covenants were amended to accommodate restructuring and acquisition costs. An asset securitization facility of up to $50 million is available, with $16.6 million utilized.
- Accounting Changes: The company is preparing for the adoption of SFAS No. 142, which will eliminate quarterly goodwill amortization (approx. $1.3 million per quarter) but requires annual impairment testing.
- Risks: Key risks include continued weak demand in the electronics sector, customer order cancellations, component shortages, and the challenges of integrating recent acquisitions. The company is also subject to a patent infringement lawsuit by the Lemelson Foundation, though management does not currently expect a material impact.
Investor Verification Checklist
- Verify the sustainability of the $117.4 million operating cash flow, which was driven largely by significant reductions in accounts receivable and inventory levels.
- Monitor the integration progress and margin improvement of the MCMS, Qtron, and Mexico operations, which are currently dragging down overall gross margins.
- Assess the impact of the $10.2 million restructuring charge on future cost structures and whether the anticipated $1.0–$3.0 million in additional closure costs will be realized.
- Review the status of the $16.6 million utilized under the asset securitization facility and the terms of the amended credit facility covenants.
- Track the adoption of SFAS No. 142 in the first quarter of fiscal 2003 and the potential for future goodwill impairment charges.