Plexus Corp. FY2012 Form 10-K Summary
Business context and reporting period
Plexus provides electronics manufacturing and related design, engineering, supply-chain and fulfillment services, primarily for mid-to-low-volume, higher-complexity products. This 10-K covers the fiscal year ended September 29, 2012; fiscal 2011 ended October 1, 2011. Fiscal 2012 included 52 weeks. The filing also reports fourth-quarter results.
Financial results and liquidity
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Net sales | $2,306.7 million | $2,231.2 million | Up 3.4% |
| Gross profit / margin | $219.9 million / 9.5% | $214.7 million / 9.6% | Margin down 0.1 percentage point |
| Operating income / margin | $104.2 million / 4.5% | $101.2 million / 4.5% | Income up 2.9% |
| Net income | $62.1 million | $89.3 million | Down 30.4% |
| Diluted EPS | $1.75 | $2.30 | Down 23.9% |
| Operating cash flow | $157.5 million | $158.5 million | Down slightly |
| Free cash flow | $93.8 million | $87.6 million | Up $6.2 million |
Fourth-quarter sales were $594.8 million versus $538.1 million a year earlier; gross profit was $56.2 million versus $50.3 million. Net income fell to $0.7 million from $18.3 million, and diluted EPS to $0.02 from $0.52, principally reflecting a large deferred-tax valuation allowance.
Cash and cash equivalents were $297.6 million at year-end, up from $242.1 million. Working capital was $616.7 million. Balance-sheet debt and capital lease obligations totaled approximately $270.4 million, comprising $257.5 million of borrowings and $12.9 million of capital leases. The company reported covenant compliance and $160 million available under its revolving credit facility. Approximately two-thirds of cash was held outside the U.S.
Material changes versus the prior comparable period
- The company recorded a $22.8 million additional tax provision related to U.S. deferred tax assets, partly offset by $2.2 million in other comprehensive income; the net deferred-tax-asset reduction was $20.6 million. Management stated that FY2012 net income would have been $84.9 million and diluted EPS $2.39 excluding this adjustment.
- Revenue growth reflected the industrial/commercial sector and $81.9 million of incremental revenue from the Kontron arrangement. Networking/communications sales declined $126.3 million; industrial/commercial sales rose $142.8 million.
- Juniper Networks represented 16% of FY2012 sales, down from 17% in FY2011. On November 5, 2012, after fiscal year-end, Juniper notified Plexus it would disengage; the transition was expected by the end of FY2013, with impacts still under evaluation.
- The company entered a new five-year, $250 million credit facility, including a $90 million term loan, and retained $175 million of 5.20% senior notes due 2018.
Outlook, management commentary, risks and unusual items
- Management expected FY2013 effective tax rate of approximately 6%–8%, excluding the FY2012 valuation allowance effect. It estimated FY2013 capital expenditures of about $100 million, primarily for facility construction and replacement projects.
- The company’s stated financial model targets 10% gross margin, 5% operating margin and ROIC 500 basis points above WACC. Its estimated WACC was reduced from 12.5% for FY2012 to 12.0% for FY2013; FY2012 ROIC was 15.5%, excluding the deferred-tax-asset reduction. These are management targets, not a guarantee of results.
- Management cited customer and order volatility, limited demand visibility, customer concentration, pricing pressure, startup and expansion costs, component shortages, inventory exposure, international operations, foreign exchange, regulation and competition as key risks. Juniper’s planned exit is a significant concentration risk.
- The Kontron arrangement involved a $34.2 million asset purchase and included a commitment for approximately $100 million of incremental annual revenue for two years. FY2012 included about $5.9 million of costs associated with the additional Penang facility and transition costs related to Kontron.
- A U.S. Customs and Border Protection assessment resulted in payment of claimed duties and fees into escrow pending a further ruling. Management did not expect a material financial impact. Other ordinary-course litigation was not considered material by management.
- Cash dividends had not been paid. In October 2012, the board authorized a share repurchase program of up to $50 million.
Most important facts for investors to verify
- Timing and financial, operational and margin effects of the Juniper disengagement, including replacement business and capacity utilization.
- Whether forecasted FY2013 tax rate and profitability assumptions are achieved, and whether further deferred-tax valuation allowances are needed.
- Kontron revenue and margin realization against its commitments, and the continuing costs and utilization of recently added capacity.
- Cash availability for U.S. needs given the large offshore cash balance, debt service, planned capital expenditures and share repurchases.
- Resolution of the CBP escrow matter and any material changes in inventory, customer forecasts, component availability or customer concentration.