PLXS

Plexus Corp. 10-K Summary: Fiscal Year Ended September 30, 2002

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended September 30, 2002, for Plexus Corp., a provider of product realization services (design, manufacturing, and testing) to original equipment manufacturers (OEMs) in the networking, medical, industrial, computer, and transportation sectors. The company operates 26 facilities across North America, Europe, and Asia. The reporting period was significantly impacted by a slowdown in the technology sector, reduced end-market demand, and the aftermath of the September 11, 2001 attacks.

Key Financial Metrics

Note: The company reported a net loss for the first time in recent history, driven by restructuring charges and reduced capacity utilization.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 17% to $883.6 million, primarily due to market slowdowns in networking/telecom and industrial sectors. The acquisition of MCMS Inc. in January 2002 contributed approximately $71 million (8%) to sales.
• Margin Compression: Gross margin fell from 12.4% to 9.2% due to reduced manufacturing and engineering capacity utilization.
• Restructuring Costs: The company recorded $12.6 million in pre-tax restructuring charges in fiscal 2002 to align costs with lower sales levels. This included workforce reductions and facility closures.
• Profitability: Operating income swung from a $68.4 million profit in 2001 to a $3.6 million loss in 2002. Excluding restructuring and acquisition costs, operating income would have been $9.2 million.
• Debt Reduction: Long-term debt decreased significantly from $70.0 million to $25.4 million, largely due to the repayment of notes and the assumption of liabilities in the MCMS acquisition being offset by cash payments.

Guidance, Outlook, and Risks

• Future Restructuring: In December 2002, management announced plans to close the San Diego facility and consolidate Seattle operations due to a major customer moving programs. The company anticipates recording pre-tax non-recurring charges of $50 million to $60 million in the first quarter of fiscal 2003. This includes a full write-off of approximately $20.4 million in goodwill associated with the San Diego facility.
• Goodwill Impairment: Under new accounting standards (SFAS No. 142), the company completed a preliminary impairment test indicating material goodwill impairment, to be finalized in fiscal 2003.
• Credit Facility: Due to anticipated covenant breaches from the upcoming restructuring charges, the company plans to terminate its existing $150 million credit facility before December 31, 2002, and is seeking a replacement.
• Outlook: Management expects Q1 fiscal 2003 sales to be in the range of $205 million to $215 million and Q2 sales to be $190 million to $200 million, noting that Q2 will be negatively impacted by the loss of the primary San Diego customer.
• Risks: Key risks include customer order cancellations, component shortages, foreign exchange fluctuations, and the inability to secure new financing on favorable terms.

Investor Verification Checklist

• San Diego Facility Closure: Verify the timeline and financial impact of the announced $50-$60 million restructuring charge in Q1 2003.
• Goodwill Impairment: Monitor the final calculation of goodwill impairment under SFAS No. 142, which could significantly impact Q1 2003 earnings.
• Financing Status: Confirm the terms and availability of the new credit facility intended to replace the expiring $150 million line.
• Customer Concentration: Assess the impact of the loss of the primary San Diego customer and the diversification of the top 10 customers (48% of sales in 2002).
• Inventory Valuation: Review inventory levels ($94.0 million) and reserves for obsolescence given the weak demand environment.