2008 Annual Report to Shareholders
Notice of 2009 Annual Meeting of Shareholders
and Proxy Statement
PROFILE
About Plexus Corp. — The Product Realization Company
Plexus (www.plexus.com) is an award-winning participant in the Electronic Manufacturing Services (EMS) industry.
We provide product realization services, including advanced electronics design, manufacturing and testing services, to
both original equipment manufacturers (“OEMs”) and other technology companies in the wireline/networking,
wireless infrastructure, medical, industrial/commercial and defense/security/aerospace market sectors.
Market Sector
% of F08 Sales
Wireline/Networking
Wireless Infrastructure
Medical
Industrial/Commercial
Defense/Security/Aerospace
44%
9%
21%
16%
10%
Plexus is passionate about its goal to be the best EMS company in the world at providing services for customers that
have mid-to-low volume requirements and a higher mix of products. To support our strategy, we have uniquely aligned
our business processes, workforce and financial metrics.
We operate flexible manufacturing facilities and processes designed to accommodate customers with multiple
product-lines and configurations as well as unique quality, reliability and regulatory requirements. Each of our
customers are supported by a multi-disciplinary customer team and one or more uniquely configured “focus factories”
supported by a supply-chain and logistics solution specifically designed to meet the flexibility and responsiveness
required to support that customer’s fulfillment requirements.
Our go-to-market strategy is also tailored to our target market sectors and business strategy, with business development
and customer management teams dedicated to each of the five sectors we serve. These teams are accountable to
understand sector participants, technology, unique quality and regulatory requirements and longer-term trends. These
teams also help set our strategy for growth in their sectors with a particular focus on expanding the services and value-
add that we provide customers.
In addition, our financial model is aligned with our business strategy, with our primary focus to earn a return on
invested capital (“ROIC”) in excess of our weighted average cost of capital (“WACC”). Lower manufacturing volumes,
flexibility and fulfillment requirements, our sector-based go-to-market strategy, and complex quality and regulatory
compliance requirements typically result in higher investments in inventory and selling and administrative costs
relative to our competitors. By exercising discipline to generate a ROIC in excess of our WACC, our goal is to ensure
that Plexus creates a value proposition for our shareholders as well as our customers.
Established in 1979, Plexus has approximately 7,900 employees located in 19 active facilities around the world. These
facilities are strategically located to support the global supply chain, manufacturing and engineering needs of OEMs in
our targeted market sectors. Plexus’ global footprint is outlined below:
Geographic Region
# of Facilities*
Sq. Footage
% of F08 Sales
United States
Asia
Mexico
Europe
* Note: Only includes manufacturing and engineering facilities. Please refer to
1,213,000
897,000
210,000
71,000
61%
31%
4%
4%
10
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our Form 10-K for a full list of properties.
Plexus Corp.
55 Jewelers Park Dr.
P.O. Box 156
Neenah, WI 54957-0156
(920) 722-3451
Notice of 2009 Annual Meeting of Shareholders
and Proxy Statement
2008 Annual Report
on Form 10-K
Your vote is important. You may vote in person, electronically via the Internet at www.proxyvote.com,
by phone at 1-800-690-6903 or by mail. If voting via the Internet or by phone, please have the 12
digit control number that was sent to you available. If you did not receive written materials and would
like to receive them, please request them as provided on page 1 of the Proxy Statement.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
on February 4, 2009
To the Shareholders of Plexus Corp.:
Plexus Corp. will hold its annual meeting of shareholders at The Westin Chicago Northwest, located at 400
Park Boulevard, Itasca, Illinois, on Wednesday, February 4, 2009 at 11:00 a.m., for the following purposes:
(1) To elect nine directors to serve until the next annual meeting and until their successors have been duly
elected.
(2) To ratify the selection of PricewaterhouseCoopers LLP as Plexus’ independent auditors.
(3) To transact such other business as may properly come before the meeting or any adjournment thereof.
Plexus Corp.’s shareholders of record at the close of business on December 1, 2008 will be entitled to vote
at the meeting or any adjournment of the meeting. On or about December 22, 2008, we expect to mail most
shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy
statement and annual report, as well as vote, online. All other shareholders will be sent a copy of the proxy
statement and annual report by mail.
We call your attention to the proxy statement accompanying this notice for a more complete statement
about the matters to be acted upon at the meeting.
By order of the Board of Directors
Angelo M. Ninivaggi
Vice President, General Counsel, Secretary and
Corporate Compliance Officer
Neenah, Wisconsin
December 16, 2008
You may vote in person or by using a proxy as follows:
(cid:2) By internet: Go to www.proxyvote.com. Please have either the notice or proxy card we sent to you in
hand because each has your personal 12 digit control number(s) needed for your vote.
(cid:2) By telephone: Call 1-800-690-6903 on a touch-tone telephone. Please have either the notice or proxy
card we sent to you in hand because each has your personal 12 digit control number(s)
needed for your vote.
(cid:2) By mail:
If you only received a notice, please request written materials as provided on page 1 of
the proxy statement. Complete, sign, and date the proxy card and return it to the address
indicated on the proxy card.
If you later find that you will be present at the meeting or for any other reason desire to revoke your proxy,
you may do so at any time before it is voted.
55 Jewelers Park Drive
P.O. Box 156
Neenah, Wisconsin 54957-0156
PROXY STATEMENT
TABLE OF CONTENTS
COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING . . . . .
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS . . . . .
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Ethics, Committee Charters and Other Corporate Governance Documents . . . . . . . . . . . . . . .
Directors’ Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2008 Committee Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Philosophy, Goals and Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elements and Analysis of Direct Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elements and Analysis of Retirement and Other Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment and Change in Control Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Aspects of Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment Agreements and Potential Payments Upon Termination or Change in Control . . . . . . . .
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDITORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 4, 2009
COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q: WHEN IS THIS PROXY MATERIAL FIRST AVAILABLE TO SHAREHOLDERS?
A: On or about December 22, 2008, Plexus Corp. (“Plexus”, “we” or the “Company”) expects to mail most
shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access the proxy
material over the internet and to mail printed copies of the proxy material to the rest of our shareholders.
Q: WHY DID I RECEIVE A NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS INSTEAD
OF A PRINTED COPY OF THE PROXY MATERIALS?
A: Pursuant to the rules recently adopted by the Securities and Exchange Commission, we are permitted to provide
access to our proxy material over the internet instead of mailing a printed copy of the proxy material to each
shareholder. As a result, on or about December 22, 2008, we expect to mail most shareholders a Notice of Internet
Availability of Proxy Materials containing instructions regarding how to access our proxy material, including our
proxy statement and annual report, and vote via the internet. If you receive a Notice of Internet Availability of
Proxy Materials by mail, you will not receive a printed copy of the proxy material unless you request one by
following the instructions included in the Notice of Internet Availability of Proxy Material or provided below.
Important Notice Regarding the Availability of Proxy Materials for
the Shareholder Meeting to Be Held on February 4, 2009
The proxy statement and annual report are available at www.proxyvote.com.
At www.proxyvote.com, shareholders can view the proxy material, cast their vote and request to receive paper
copies of the proxy material by mail.
Q: HOW CAN SHAREHOLDERS REQUEST PAPER COPIES OF THE PROXY MATERIAL?
A: Shareholders may request that paper copies of the proxy material, including an annual report, proxy statement
and proxy card, be sent to them without charge as follows:
(cid:2)
(cid:2)
(cid:2)
By internet:
www.proxyvote.com
By email:
Send a blank email with your 12 digit control number(s) in the subject line to
sendmaterial@proxyvote.com
By telephone:
1-800-579-1639
When you make your request, please have your 12 digit control number(s) available; that control number was
included in the notice that was mailed to you. To assure timely delivery of the proxy material before the annual
meeting, please make your request no later than January 21, 2009.
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Q: WHAT AM I VOTING ON?
A: At the annual meeting you will be voting on two proposals:
1. The election of nine directors to the board of directors to serve until Plexus’ next annual meeting and until
their successors have been duly elected. This year’s nominees are:
(cid:2) Ralf R. Böer
(cid:2) Stephen P. Cortinovis
(cid:2) David J. Drury
(cid:2) Dean A. Foate
(cid:2) Peter Kelly
(cid:2) John L. Nussbaum
(cid:2) Michael V. Schrock
(cid:2) Charles M. Strother, MD
(cid:2) Mary A. Winston
2. A proposal to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Plexus’
independent auditor for 2009.
Q: WHAT ARE THE BOARD’S VOTING RECOMMENDATIONS?
A: The board of directors is soliciting this proxy and recommends the following votes:
(cid:2) FOR each of the nominees for election to the board of directors; and
(cid:2) FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as Plexus’
independent auditors for 2009.
Q: WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
A: To conduct the annual meeting, more than 50% of the Plexus’ outstanding shares entitled to vote must be
present in person or by duly authorized proxy. This is referred to as a “quorum.” Abstentions and shares which are
the subject of broker non-votes will be counted for the purpose of determining whether a quorum exists; shares
represented at a meeting for any purpose are counted in the quorum for all matters to be considered at the meeting.
Assuming a quorum is present, directors are elected by a plurality of the votes cast in person or by proxy by the
holders of Plexus common stock entitled to vote at the election at the meeting. “Plurality” means that the
individuals who receive the highest number of votes are elected as directors, up to the number of directors to be
chosen at the meeting. Any votes attempted to be cast “against” a candidate are not given legal effect and are not
counted as votes cast in the election of directors. Therefore, any shares which are not voted, whether by withheld
authority, broker non-vote or otherwise, have no effect in the election of directors except to the extent that the failure
to vote for any individual results in another individual receiving a relatively larger number of votes.
Ratification of PricewaterhouseCoopers LLP as Plexus’ independent auditors will be determined by a majority of
the shares voting on that matter, assuming a quorum is present. Therefore, abstentions and broker non-votes will not
affect the vote, except insofar as they reduce the number of shares which are voted.
Q: WHAT IF I DO NOT VOTE?
A: The effect of not voting will depend on how your share ownership is registered.
If you own shares as a registered holder and you do not vote, the shares that you do not vote will not be represented
at the meeting and will not count toward the quorum requirement. If a quorum is obtained, then the shares that you
have not voted will not affect whether a proposal is approved or rejected.
If you are a shareholder whose shares are not registered in your name and you do not vote, then your bank, broker or
other holder of record may still represent your shares at the meeting for purposes of obtaining a quorum. In the
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absence of your voting instructions, your bank, broker or other holder of record may or may not vote your shares in
its discretion depending on the proposal before the meeting. Your broker may vote your shares in its discretion on
routine matters such as the election of directors and ratification of the Plexus’ independent auditors.
Q: WHO MAY VOTE?
A: You may vote at the annual meeting if you were a shareholder of record of Plexus common stock as of the
close of business on December 1, 2008, which is the “Record Date.” As of the Record Date, Plexus had 39,327,417
shares of common stock outstanding. Each outstanding share of common stock is entitled to one vote on each
matter presented. Any shareholder entitled to vote may vote either in person or by duly authorized proxy.
Q: HOW DO I VOTE?
A: We offer four methods for you to vote your shares at the annual meeting—in person; via the internet; by
telephone; or by mail. You may vote in person at the annual meeting or authorize the persons named as proxies on
the proxy card, John L. Nussbaum, Dean A. Foate and Angelo M. Ninivaggi, to vote your shares. We recommend
that you vote as soon as possible, even if you are planning to attend the annual meeting, so that the vote count will
not be delayed.
While we offer four methods, we encourage you to vote via the internet, as it is the most cost-effective method
available. There is no charge to vote your shares via the internet, though you may incur costs associated with
electronic access, such as usage charges from internet access providers. If you choose to vote your shares via the
internet, there is no need for you to request or mail back a proxy card.
(cid:2) By internet: Go to www.proxyvote.com. Please have either the notice or proxy card we sent to you in
hand because each has your personal 12 digit control number(s) needed for your vote.
(cid:2) By telephone: On a touch-tone telephone, call 1-800-690-6903. Please have either the notice or proxy
card we sent to you in hand because each has your personal 12 digit control number(s)
needed for your vote.
(cid:2) By mail:
If you only received a notice, please request written materials as provided on page 1 of
the proxy statement. Complete, sign, and date the proxy card and return it to the address
indicated on the proxy card.
If your shares are not registered in your name, then you vote by giving instructions to the firm that holds your shares
rather than using any of these methods. Please check the voting form of the firm that holds your shares to see if
it offers internet or telephone voting procedures.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE REQUEST TO VOTE?
A:
It means your shares are held in more than one account. You should vote the shares on all of your proxy
requests. You may help us reduce costs by consolidating your accounts so that you receive only one set of proxy
materials in the future. To consolidate your accounts, please contact our transfer agent, American Stock Transfer &
Trust Company, LLC, toll-free at 1-800-937-5449.
Q: WHAT IF I OWN SHARES AS PART OF PLEXUS’ 401(k) SAVINGS PLAN AND/OR EMPLOYEE
STOCK PURCHASE PLANS?
A: Shareholders who own shares as part of Plexus’ 401(k) Savings Plan (the “401(k) Plan”) and/or the Plexus
2000 and 2005 Employee Stock Purchase Plans (the “Purchase Plans”) will receive a separate means for proxy
voting their shares held in each account. Shares held by the 401(k) Plan for which participant designations are
received will be voted in accordance with those designations; those shares for which designations are not received
will be voted proportionally, based on the votes for which voting directions have been received from participants.
Shares held in accounts under the Purchase Plans will be voted in accordance with management recommendations
except for shares for which contrary designations from participants are received.
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Q: WHO WILL COUNT THE VOTE?
A: Broadridge Financial Solutions, Inc. will use an automated system to tabulate the votes. Its representatives will
also serve as the election inspectors.
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All shareholders of record as of the close of business on December 1, 2008, can attend the meeting. However,
seating is limited and will be on a first arrival basis.
To attend the annual meeting, please follow these instructions:
(cid:2) Bring proof of ownership of Plexus common stock and a form of identification; or
(cid:2) If a broker or other nominee holds your shares, bring proof of ownership of Plexus common stock through
such broker or nominee and a form of identification.
Q: CAN I CHANGE MY VOTE AFTER I RETURN OR SUBMIT MY PROXY?
A: Yes. Even after you have submitted your proxy, proxies may be revoked at any time prior to the voting thereof
either by written notice filed with the secretary or acting secretary of the meeting or by oral notice to the presiding
officer during the meeting. Presence at the annual meeting of a shareholder who has appointed a proxy does not in
itself revoke a proxy.
Q: MAY I VOTE AT THE ANNUAL MEETING?
A:
If you complete a proxy card or vote via the internet, you may still vote in person at the annual meeting. To
vote at the meeting, please either give written notice that you would like to revoke your original proxy to the
secretary or acting secretary of the meeting or oral notice to the presiding officer during the meeting.
If a broker, bank or other nominee holds your shares and you wish to vote in person at the annual meeting you must
obtain a proxy issued in your name from the broker, bank or other nominee; otherwise you will not be permitted to
vote in person at the annual meeting.
Q: WHO IS MAKING THIS SOLICITATION?
A: This solicitation is being made on behalf of Plexus by its board of directors. Plexus will pay the expenses in
connection with the solicitation of proxies. Upon request, Plexus will reimburse brokers, dealers, banks and voting
trustees, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material and annual
report to the beneficial owners of shares which such persons hold of record. Plexus will solicit proxies by mailing
proxy material to certain shareholders and a Notice of Internet Availability of Proxy Materials to all other
shareholders; for shareholders that do not receive the full proxy material, paper copies will be sent upon request as
provided above and as provided in Plexus’ Notice of Internet Availability of Proxy Materials. Proxies may be
solicited in person, or by telephone, e-mail or fax, by officers and regular employees of Plexus who will not be
separately compensated for those services.
To help assure that sufficient shares are represented at the meeting, Plexus also has engaged D.F. King & Co., Inc.
to assist in the solicitation of proxies and provide related informational support and analysis, for a services fee and
the reimbursement of customary out-of-pocket expenses that are not expected to exceed $25,000 in the aggregate.
Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2010 ANNUAL MEETING?
A: The Corporate Secretary must receive a shareholder proposal no later than August 24, 2009, in order for the
proposal to be considered for inclusion in our proxy materials for the 2010 annual meeting. The 2010 annual
meeting of shareholders is tentatively scheduled for February 10, 2010. To otherwise bring a proposal or
nomination before the 2010 annual meeting, you must comply with our bylaws. Currently, our bylaws require
written notice to the Corporate Secretary between October 13, 2009, and November 7, 2009. The purpose of this
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requirement is to assure adequate notice of, and information regarding, any such matter as to which shareholder
action may be sought. If we receive your notice after November 7, 2009, then your proposal or nomination will be
untimely. In addition, your proposal or nomination must comply with the procedural provisions of our bylaws. If
you do not comply with these procedural provisions, your proposal or nomination can be excluded. Should the board
nevertheless choose to present your proposal, the named Proxies will be able to vote on the proposal using their best
judgment.
Q: WHAT IS THE ADDRESS OF THE CORPORATE SECRETARY?
A: The address of the Corporate Secretary is:
Plexus Corp.
Attn: Corporate Secretary
55 Jewelers Park Drive
P.O. Box 156
Neenah, Wisconsin 54957
Q: WILL THERE BE OTHER MATTERS TO VOTE ON AT THIS ANNUAL MEETING?
A: We are not aware of any other matters that you will be asked to vote on at the annual meeting. Other matters
may be voted on if they are properly brought before the annual meeting in accordance with our bylaws. If other
matters are properly brought before the annual meeting, then the named proxies will vote the proxies they hold in
their discretion on such matters.
For matters to be properly brought before the meeting, our bylaws require that we receive written notice, together
with specified information, not less than 45 days nor more than 70 days before the first anniversary of the date in
which proxy materials for the previous year’s annual meeting were first made available to shareholders. We did not
receive notice of any matters by the deadline for the 2009 annual meeting, November 2, 2008.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table presents certain information as of December 1, 2008 regarding the beneficial
ownership of the Plexus common stock held by each director or nominee for director, each executive officer
appearing in the “Summary Compensation Table” included in “Executive Compensation,” all directors and
executive officers as a group, and each known 5%-or-greater shareholder of Plexus.
Name
Ralf R. Böer
Stephen P. Cortinovis
David J. Drury
Dean A. Foate
Peter Kelly
John L. Nussbaum
Michael V. Schrock
Charles M. Strother, MD
Mary A. Winston
Ginger M. Jones
Michael T. Verstegen
Angelo M. Ninivaggi
Yong Jin Lim
Shares
Beneficially
Owned (1)
Percentage
of Shares
Outstanding
37,250
45,750
48,750
654,892
34,850
252,722
24,750
48,750
1,250
11,023
104,853
10,319
22,000
*
*
*
1.6%
*
*
*
*
*
*
*
*
*
All executive officers and directors
as a group (19 persons)
1,421,848
3.5%
Barclays Global Investors, NA. (2)
Vanguard Group, Inc. (3)
Disciplined Growth Investors, Inc. (4)
2,726,487
2,462,838
2,087,929
6.9%
6.3%
5.3%
__________________________________
* Less than 1%
(1)
The specified persons have sole voting and sole dispositive powers as to all shares, except as otherwise
indicated. Mr. Foate shares these powers with an adult child as to 2,000 shares, ownership of which he
disclaims. The amounts include shares subject to options granted under Plexus’ option plans which are
exercisable currently or within 60 days of December 1, 2008. The options include those held by Mr. Böer
(32,250 shares), Mr. Cortinovis (40,750), Mr. Drury (43,750), Mr. Foate (567,916), Mr. Kelly (28,750),
Mr. Nussbaum (100,502), Mr. Schrock (18,750), Dr. Strother (43,750), Ms. Winston (1,250), Ms. Jones
(7,333), Mr. Verstegen (92,000), Mr. Ninivaggi (7,583), Mr. Lim (22,000), and all executive officers and
directors as a group (1,114,139). The total for all executive officers and directors as a group excludes any
stock-settled stock appreciation rights (“SARs”) granted under Plexus’ equity incentive plans that are
currently vested or that vest within 60 days of December 1, 2008, because the respective exercise prices of
the SARs were below the market value of Plexus common stock on December 1, 2008; such SARs are
owned by individuals who are neither directors nor executive officers named in the “Summary
Compensation Table.”
(2)
Barclays Global Investors, NA. (“Barclays”) filed a report on Schedule 13G dated December 31, 2007
reporting sole voting power as to 2,374,935 shares, and sole dispositive power as to 2,964,181 shares of
common stock. The report was filed jointly with Barclays Global Investors, Ltd., Barclays Global Fund
Advisors and Barclays Global Investors Japan Limited. Barclays subsequently filed a Report on Form 13F
6
for the quarter ended September 30, 2008 showing sole investment power as to 2,726,487 shares and sole
voting power as to 2,143,209 of those shares. The address of Barclays, a bank with investment advisor
affiliates, is 45 Fremont Street, San Francisco, California 94105.
(3)
(4)
Vanguard Group, Inc. filed a report on Form 13F for the quarter ended September 30, 2008, showing sole
investment power as to 2,462,838 shares and sole voting power as to 41,520 shares. The address of
Vanguard Group, an investment advisor, is P.O. Box 2600, Valley Forge, Pennsylvania 19482.
Disciplined Growth Investors, Inc. filed a report on Schedule 13G dated June 30, 2008 reporting that it held
sole voting power as to 1,899,904 shares and sole dispositive power as to 2,168,854 shares of common
stock. Disciplined Growth Investors subsequently filed a report on Form 13F for the quarter ended
September 30, 2008 showing sole investment power as to 2,087,929 shares and sole voting power as to
1,818,879 shares. The address of Disciplined Growth Investors, an investment advisor, is 100 South Fifth
Street, Suite 2100, Minneapolis, Minnesota 55402.
7
ELECTION OF DIRECTORS
Plexus believes that it needs to attract and retain talented, focused, and motivated leadership to deliver the
innovation and economic success its shareholders expect. For Plexus, the concept of leadership is not limited to the
leadership within the company; leadership also includes the individuals who serve on Plexus’ board.
In accordance with Plexus’ bylaws, the board of directors has determined that there shall be nine directors
elected at the annual meeting of shareholders to serve until their successors are duly elected and qualified. The
persons who are nominated as directors, and for whom proxies will be voted unless a shareholder specifies
otherwise, are named below. If any of the nominees should decline or be unable to act as a director, which is not
foreseen, the proxies will be voted with discretionary authority for a substitute nominee designated by the board of
directors. Plexus’ bylaws authorize up to nine directors, as determined by the board. The Plexus board may expand
the board up to the number of directors authorized in Plexus’ bylaws and elect directors to fill empty seats, including
those created by an expansion, between shareholders’ meetings.
Principal Occupation
And Business Experience (1)
Director
Since
Name and Age
Ralf R. Böer, 60
Stephen P. Cortinovis, 58
David J. Drury, 60
Dean A. Foate, 50
Peter Kelly, 51
Partner, Chairman and Chief Executive Officer, Foley &
Lardner LLP, a national law firm (2)
Private equity investor in Lasco Foods Company; previously
also Partner, Bridley Capital Partners Limited, a private equity
group (3)
President and Chief Executive Officer of Poblocki Sign
Company LLC, an exterior and
interior sign systems
company; he is also a Certified Public Accountant who
practiced as such for 18 years (4)
President and Chief Executive Officer of Plexus since 2002;
Chief Operating Officer and Executive Vice President prior
thereto (5)
Vice President and Chief Financial Officer, UGI Corp., a
distributor and marketer of energy products and services, since
2007; previously, Chief Financial Officer and Executive Vice
President, Agere Systems, a semi-conductor company, from
2005 to 2007, and Executive Vice President of Agere’s Global
Operations Group prior thereto
John L. Nussbaum, 66
Chairman of Plexus since 2002
Michael V. Schrock, 55
Charles M. Strother, MD, 68
Mary A. Winston, 47
President and Chief Operating Officer, Pentair, Inc., a
diversified manufacturer, since 2006; previously, President
and Chief Operating Officer of Pentair’s Technical Products
and Filtration Divisions
Physician; Professor-Emeritus at the University of Wisconsin-
Madison since 2005; previously, Professor at Baylor College
of Medicine
Senior Vice President and Chief Financial Officer of Giant
Eagle, Inc., a food retailer and food distributor, since 2008;
President and Founder of WinsCo Financial, LLC, a financial
solutions consulting firm, from 2007 to 2008; Executive Vice
President and Chief Financial Officer of Scholastic
Corporation, a children’s publishing and media company,
from 2004 to 2007; and a Vice President of Visteon
Corporation, an automotive parts supplier, prior thereto (6)
8
2004
2003
1998
2000
2005
1980
2006
2002
2008
__________________
(1)
(2)
(3)
(4)
(5)
(6)
Unless otherwise noted, all directors have been employed in their principal occupation listed above for the
past five years or more.
Also a director of Fiskars Corporation, a diversified consumer products company.
Also a director of Insituform Technologies, Inc., a company specializing in trenchless technology for
underground pipes, as well as the chair of its Corporate Governance and Nominating Committee.
Also a director of Journal Communications, Inc., a media holding company, and the chair of its Nominating
and Corporate Governance Committee as well as its Executive Committee. Additionally, Mr. Drury is a
trustee of The Northwestern Mutual Life Insurance Company, an insurance and financial products
company.
Also a director of Regal Beloit Corporation, an electrical motors and mechanical products company.
Also a director of Dover Corporation, a diversified manufacturing company, and the chair of its Audit
Committee.
9
Board of Directors Meetings
CORPORATE GOVERNANCE
The board of directors held five meetings during fiscal 2008. As part of these meetings, non-management
directors regularly meet without management present. During the period in which each director served, each
director attended at least 75% of the total meetings of the board and the committees of the board on which that
director served. The Plexus board of directors conducts an annual self-evaluation process, reviewing the
performance of each individual board member as well as the performance of the board as a whole.
Plexus encourages all of its directors to attend the annual meeting of shareholders. Plexus generally holds a
board meeting coincident with the annual meeting of shareholders to minimize director travel obligations and
facilitate their attendance at the shareholders’ meeting. All then-serving directors attended the 2008 annual meeting
of shareholders except for Mr. Kelly, who was detained in transit to the meeting due to inclement weather.
Director Independence
As a matter of good corporate governance, we believe that the board of directors should provide a strong
voice in the governance of our company. Therefore, under our corporate governance policies and in accordance
with Nasdaq Global Select Market rules, at least a majority of our directors must be “independent directors.”
When the board of directors makes its determination regarding which directors are independent, the board
first considers and follows the Nasdaq Global Select Stock Market rules. The board also reviews other transactions
and relationships, if any, involving Plexus and the directors or their family members or related parties; see “Certain
Transactions” herein for a discussion of our policy regarding such transactions. Plexus expects its directors to
inform it of any transaction, whether direct or indirect through an immediate family member or any business entity
controlled by any of them, involving the director; Plexus also surveys directors periodically to confirm this
information. Plexus does not use any dollar amount to screen transactions that should be reported to the Company.
The board reviews the information submitted by its directors for its separate determination of materiality and
compliance with Nasdaq and other standards when it determines independence.
In determining independence for the coming year, the board considered two relationships that, upon review,
the board did not believe affected the independence of the directors.
(cid:2)
The law firm of which Mr. Böer is a partner and the Chairman and CEO, Foley & Lardner LLP,
began representing the Company in a significant lawsuit and other matters in fiscal 2007. During
fiscal 2008, Foley & Lardner’s accrued billings for fees and services to Plexus were $513,000.
This amount represented significantly less than one-tenth of one percent of each of Foley &
Lardner’s and Plexus’ annual revenues.
(cid:2) Mr. Schrock is an executive officer of Pentair, Inc., which is a supplier to Plexus. Pentair’s sales
to Plexus in fiscal 2008 were $388,000, which represented less than one-tenth of one percent of
each of Pentair’s and Plexus’ annual revenues. It is anticipated that Pentair’s sales to Plexus will
increase in the coming years.
Based on the applicable standards and the board’s review and consideration, the board of directors has
determined that Messrs. Böer, Cortinovis, Drury, Kelly and Schrock, Dr. Strother and Ms. Winston are each
“independent” under applicable rules and guidelines. Mr. Foate, as chief executive officer of the Company, and Mr.
Nussbaum, who is a former chief executive officer of Plexus and receives retirement payments from Plexus, are not
considered to be “independent.”
Our independent directors have the opportunity to meet in executive session, without the other directors or
management, as part of each regular board meeting.
10
Board Committees
The board of directors has three standing committees, all comprised solely of independent directors: Audit,
Compensation and Leadership Development, and Nominating and Corporate Governance. The committees on
which our directors currently serve, and the chairs of those committees, are identified in the following table:
Director
Ralf R. Böer
Stephen P. Cortinovis
David J. Drury
Peter Kelly
Michael V. Schrock
Charles M. Strother, MD
Mary A. Winston
Audit
X
Chair
X
X
Compensation
and
Leadership
Development
Nominating
and Corporate
Governance
Chair
Chair
X
X
X
X
X
X
Messrs. Foate and Nussbaum are not “independent” directors; therefore, they are not eligible to serve on these
committees under Nasdaq rules or the committees’ charters.
Audit Committee
The Audit Committee met eight times in fiscal 2008. The Audit Committee chooses the Company’s
independent auditors and oversees the audit process as well as the Company’s accounting and finance functions.
Among its other responsibilities, the Committee also oversees the Company’s ethics and whistle-blowing reporting
programs. See also “Report of the Audit Committee.”
Audit Committee Financial Experts
The board has determined that Messrs. Drury and Kelly and Ms. Winston are “audit committee financial
experts” based on a review of each individual’s educational background and business experience. For purposes of
Securities and Exchange Commission (“SEC”) and Nasdaq rules, Messrs. Drury and Kelly and Ms. Winston are,
along with Mr. Cortinovis, the other member of the Audit Committee, “independent” of Plexus. All members of the
Audit Committee are “financially literate” and meet the other SEC and Nasdaq requirements for Audit Committee
membership.
Compensation and Leadership Development Committee
The Compensation and Leadership Development Committee (in this subsection, the “Committee”) held
four meetings during fiscal 2008. The Committee establishes the general compensation philosophies and plans for
Plexus, determines the CEO’s and other executive officers’ compensation and approves grants and awards under
Plexus’ compensation plans. The Committee also considers and makes recommendations to the board with respect
to other employee compensatory plans and arrangements. Further, the Committee is responsible for reviewing
Plexus’ leadership structure, talent management efforts, leadership development and executive succession plans. In
addition to the following subsection, see also “Compensation Disclosure and Analysis” and “Compensation
Committee Report” below for further information on the Committee’s philosophies and practices, and its
determinations in fiscal 2008.
Overview of the Compensation Decision-Making Process
In accordance with the philosophy and the goals described below in “Compensation Discussion and
Analysis,” Plexus compensates its executive officers through salaries and various other compensation plans. The
Committee considers many factors in its decision-making process about the compensation of Plexus' leadership and
the design of compensation plans company-wide.
11
When determining compensation in fiscal 2008, as in past years, the Committee compared the
compensation of Plexus’ executive officers with that paid by other companies in the general industries in which
Plexus recruits, comparable companies in the electronic manufacturing services industry, companies with similar
financial profiles and numerous general and electronics industry published surveys. The Committee determined the
peer group with assistance from its compensation consultants, Sibson Consulting (“Sibson”). Companies were
chosen using filtering criteria, such as industry codes, peer groups, relative size and employee base; anomalies or
special circumstances (primarily acquisitions or significant size differences) which caused certain companies to not
be in fact comparable were also reviewed. In addition, the Committee and Sibson also identified financial peers that
were not in a similar business but which were similar in size and financial performance to Plexus.
Our resulting core peer list for fiscal 2008 consisted of:
(cid:2)
3Com Corporation
(cid:2) Altera Corporation
(cid:2) Amkor Technology, Inc.
(cid:2) Arris Group, Inc.
(cid:2) Atmel Corporation
(cid:2)
Benchmark Electronics, Inc.
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Broadcom Corporation
Conexant Systems, Inc.
CTS Corporation
Integrated Device Technology,
Inc.
International Rectifier
Corporation
Jabil Circuit, Inc.
(cid:2)
Juniper Networks, Inc.
(cid:2) KLA-Tencor Corporation
(cid:2)
(cid:2) Molex Incorporated
Linear Technology Corporation
(cid:2) Novellus Systems, Inc.
(cid:2)
Respironics, Inc.
This peer group was also used for fiscal 2007. In conjunction with the peer group proxy data, the Committee
reviewed other information, such as a compensation assessment report compiled by Sibson. The report addressed
the following three issues:
(cid:2)
(cid:2)
(cid:2)
The competitiveness of the pay opportunity for executive officers.
The appropriateness of the CEO’s pay and equity opportunities.
Sibson’s recommendations for pay for the top executive officers.
The report compared Plexus’ executive officer pay levels to those of comparable executive officers in similar roles
at companies in Sibson’s survey database and to executive officers in similar roles at the peer companies.
The Committee also considers data comparing the currently vested equity versus unvested equity for the
CEO and an internal fairness assessment. The Committee uses the vested and unvested equity information to
balance the level of existing awards with the desire to reward performance and to provide retention incentives. The
internal fairness assessment identifies the proportionality of the CEO’s pay to the pay of executives at other levels in
the organization and compares this information with published survey data.
In addition to reviewing compensation to help assure that it provides an incentive for superior Company
performance, the Company and the Committee regularly review comparable information from peer group companies
and other sources, as discussed above, to maintain a competitive compensation package that aids in executive
retention and fairly compensates the executives for performance. However, it does not aim for any numerical or
percentile tests within this comparable information. The Committee believes that it is important for it to take this
information and then use its judgment in applying it in individual cases, rather than arbitrarily attempting to aim for
a particular numerical equivalence. In that consideration, the Committee discusses total compensation (including
outstanding equity awards) for all executive officers, the level of experience and leadership each provides, and
financial and personal performance results. The Committee seeks to balance different types of compensation in
order to promote retention and strong Plexus performance. The Committee believes this approach best results in a
comprehensive and thoughtful compensation review process because it allows the Committee to use discretion when
appropriate in responding to particular circumstances. The Committee intends to continue these practices in the
future.
12
Management Participation. Members of management, particularly the CEO and human resources
personnel, regularly participate in the Committee’s meetings at the Committee’s request. Management’s role is to
contribute information to the Committee and provide staff support and analysis for its discussions. However,
management does not make the final determination of the CEO’s or the other executive officers’ amount or form of
executive compensation, nor does management make any recommendation for the CEO’s compensation. The CEO
does recommend compensation for the other executive officers to the Committee, subject to the Committee’s final
decision. To assist in determining compensation recommendations for the other executive officers, the CEO
considers Plexus’ compensation philosophy and, in partnership with the human resources management team, utilizes
the same compensation decision-making process as the Committee. Decisions regarding the compensation of the
CEO are made in executive sessions at which the Committee members participate with select members of human
resources management and staff to review competitive practices and overall plan expense. The sessions generally
focus on the CEO’s performance achievement and the elements of his compensation. The Committee also discusses
and reviews materials comparing the CEO’s compensation to peer group and survey data as well as Plexus’ overall
performance relative to the companies in our peer group. Materials presented also include a pay comparison of the
CEO to our other executive officers and a review of the CEO’s vested and unvested equity grants in an effort to
assess possible retention risks.
Use of Consultants. The Committee uses outside compensation consultants to assist it in analyzing Plexus’
compensation programs and in determining appropriate levels of compensation and benefits. The decision to retain
consultants, and if so which consultant(s) to retain, is determined solely by the Committee. Management has the
authority to approve compensation consultant fees on a project basis, although the Committee reviews all fees
relating to executive compensation.
Plexus human resources personnel meet with the compensation consultants to help the consultants
understand Plexus’ business model, organizational structure and compensation philosophy. This interaction
provides the consultants with a framework to Plexus’ approach to compensation and its application. As part of its
staff support function, Plexus human resources personnel also discuss results and conclusions with the compensation
consultants. These discussions permit Plexus human resources personnel to be aware of the consultants’
recommendations and analysis, as well as to understand the rationale and methodology behind their conclusions.
In fiscal 2007, the Committee retained Sibson to conduct a review of the executive compensation program.
Sibson analyzed all of Plexus’ compensation programs, and the analysis was reviewed by the CEO, human resources
management and the Committee Chair. The analysis and recommendations made by Sibson were presented in
writing at a Committee meeting in August 2007. Sibson was asked to be available by conference call during the
meeting to discuss any questions or issues that may have arisen as a result of their analysis and recommendations.
Sibson’s analysis and other supporting peer group and published competitive data compiled by Plexus’ human
resources personnel, in accordance with Sibson’s methodologies, were used by the Committee in determining the
appropriate CEO compensation. The Sibson analysis and recommendations were also utilized by the CEO and
human resources management in conjunction with other peer group and published survey data to make
recommendations regarding other executive officer compensation for fiscal 2008.
The Committee felt it was appropriate to add a different perspective to compensation discussions after
working with Sibson for two years and chose Watson Wyatt Worldwide (“Watson Wyatt”), a benefits and human
resources consulting firm, as its compensation consultant for fiscal 2009. In August 2008, Plexus’ internal human
resources personnel conducted a competitive pay analysis similar to Sibson’s prior year analysis; that analysis was
reviewed and evaluated by Watson Wyatt. During the process of making fiscal 2009 compensation decisions, the
Committee expanded its use of tally sheets and conducted an accumulated wealth analysis. The tally sheets provide
a comprehensive view of Plexus’ compensation payout exposure under various termination scenarios; the
Committee also used these tally sheets to evaluate the reasonableness of compensation as a whole. The accumulated
wealth analysis examines the CEO’s accumulation of wealth through the deferred compensation plan and annual
equity awards.
Neither the Company nor the Committee places any limitations or restrictions on its consulting firms or
their reviews. Sibson and Watson Wyatt have been retained by the Company only for projects related to the
Company’s executive and directors’ compensation programs. The Company does provide substantive information
about Plexus to help its consultants better understand the Company. Human resources personnel also meet with the
consultants to discuss the consultants’ conclusions as to Plexus’ executive pay practices, organizational matters, the
13
duties and responsibilities of particular positions, and overall conclusions based upon Plexus’ compensation
principles and goals.
Compensation Committee Interlocks and Insider Participation
Each of the members of the Compensation Committee was an independent director and there were no
relationships or transactions in fiscal 2008 with those members requiring disclosure under SEC rules. See, however,
“Director Independence” above for certain other relationships that the board considered when determining the
independence of the directors.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (the “Nominating Committee”) met three times in
fiscal 2008. The Nominating Committee considers candidates for board membership, reviews the effectiveness of
the board, makes recommendations to the board regarding directors’ compensation, monitors Plexus’ compliance
efforts, and evaluates and oversees corporate governance and related issues.
The Nomination Process
The Nominating Committee generally utilizes a director search firm to identify candidates, but it evaluates
those individuals on its own; the Committee would also consider candidates suggested by outside directors,
management and/or shareholders. Plexus’ corporate board member selection criteria include honesty and integrity,
high level of education and/or business experience, broad-based business acumen, understanding of Plexus’ business
and industry, strategic thinking and willingness to share ideas and network of contacts. The Nominating Committee
also considers the diversity of experiences, expertise and backgrounds among board members in identifying areas
which could be augmented by new members. To help assure that directors have the time to devote to their duties,
Plexus directors may not serve on the boards of more than three additional public companies. The Nominating
Committee does not evaluate proposed nominees differently depending upon who has proposed the potential
nominee.
The Nominating Committee would consider proposed nominees to the board submitted to it by
shareholders. If a qualified candidate expresses a serious interest, and if there is a position available and the
candidate’s experience indicates that the candidate may be an appropriate addition to the board, the Nominating
Committee reviews the background of the candidate and, if appropriate, meets with the candidate. A decision is
then made whether to nominate that person to the board.
Ms. Winston, who was elected to the board of directors in July 2008, is an independent director. Ms.
Winston was first suggested as a director-nominee as a result of a search conducted by The Prout Group, an
executive recruiting firm retained by the Nominating Committee and paid a fee for researching and recommending
potential candidates.
If a shareholder wishes to propose someone as a director for the Nominating Committee’s consideration,
the name of that nominee and related personal information should be forwarded to the Nominating Committee, in
care of the Secretary, at least six months before the next annual meeting of shareholders to assure time for
meaningful consideration by the Nominating Committee. See also “Shareholder Proposals and Notices” for bylaw
requirements for nominations. Plexus has neither received nor rejected any candidates put forward by significant
shareholders.
Communications with the Board
Any communications to the board of directors should be sent to Plexus’ headquarters office in care of
Plexus’ Secretary, Angelo Ninivaggi. Any communication sent to the board in care of the Chief Executive Officer,
the Corporate Secretary or any other corporate officer is forwarded to the board. There is no screening process and
any communication will be delivered directly to the director or directors to whom it is addressed. Any other
procedures which may be developed, and any changes in those procedures, will be posted as part of our Corporate
Governance Guidelines on Plexus’ website at www.plexus.com, under the link titled “Investor Relations” then
“Corporate Governance” (or at http://www.plexus.com/corporategovernanceguidelines.php).
14
Code of Ethics, Committee Charters and Other Corporate Governance Documents
Plexus regularly reviews and augments its corporate governance practices and procedures. As part of its
corporate governance practices, Plexus has adopted a Code of Conduct and Business Ethics, Corporate Governance
Guidelines and written charters for each of its board committees discussed above. Plexus will be responding to and
complying with related SEC and Nasdaq Global Select Stock Market directives as they are finalized, adopted and
become effective. Plexus has posted on its website, at www.plexus.com, under the link titled “Investor Relations”
then “Corporate Governance” (or at http://www.plexus.com/corporategovernanceguidelines.php), copies of its Code
of Conduct and Business Ethics, its Corporate Governance Guidelines, the charters for its Audit, Compensation and
Leadership Development, and Nominating and Corporate Governance Committees, director selection criteria
(included as an appendix to our Corporate Governance Guidelines) and other corporate governance documents. If
those documents (including the committee charters, the Code of Conduct and Business Ethics and the Corporate
Governance Guidelines) are changed, waivers from the Code of Conduct and Business Ethics are granted, or new
procedures are adopted, those new documents, changes, waivers and/or procedures will be posted on Plexus’
corporate website at the address above.
Directors’ Compensation
The Nominating and Corporate Governance Committee of the board of directors recommends, subject to
board approval, compensation paid to non-employee directors, including equity awards to non-employee directors
under the Plexus 2008 Long-Term Incentive Plan (the “2008 Long-Term Plan”) and, formerly, under the Plexus
2005 Equity Incentive Plan (the “2005 Equity Plan”). In determining the compensation paid to the non-employee
directors, the Nominating and Corporate Governance Committee considers the same types of factors, including
comparison with peer companies and company performance, that are considered by the Compensation and
Leadership Development Committee when determining executive compensation.
During fiscal 2008, each Plexus director who was not a full-time Plexus officer or employee (all directors
except Mr. Foate) received an annual director’s fee of $35,000 plus meeting fees of $2,000 for each board meeting
attended in person ($1,000 if attended other than in person) and an additional $1,000 for each committee meeting
attended in person ($500 if other than in person). In fiscal 2008, the chairs of each committee received additional
fees for service as a committee chair; the chair of the Audit Committee received $12,000, the chair of the
Compensation and Leadership Development Committee received $10,000 and the chair of the Nominating and
Corporate Governance Committee received $7,000. For fiscal 2009, the annual director’s fee will increase to
$42,000 and the fees for chairing the Audit Committee and the Nominating and Corporate Governance Committee
will increase to $15,000 and $10,000, respectively. Additionally, in certain circumstances directors may be
reimbursed for attending educational seminars or, in each individual’s capacity as a director, other meetings at
Plexus’ behest.
Directors may also participate in the 2008 Long-Term Plan, which permits the grant of options, stock-
settled stock appreciation rights (“SARs”), restricted stock, which may be designated as restricted stock awards or
restricted stock unit awards, performance stock awards, and cash bonus awards to officers, key employees and
directors. In the past, options were granted to directors on or about December 1 of a year, continuing the date used
in the formulaic provision in a predecessor plan. Beginning for fiscal 2008 grants, the directors adopted a quarterly
schedule for option grants to directors. Under that schedule, the first grant is five days after the November board
meeting and each of the remaining three grants is on the third business day after the Company’s subsequent
quarterly earnings release. The exercise price is equal to the average of the high and low sale prices of Plexus stock
on the Nasdaq Global Select Market on the grant date. One half of the options granted vest immediately on the
grant date and the balance vest on the first anniversary of the grant date.
15
The following table sets forth the compensation that was paid by Plexus to each of our non-employee
directors in fiscal 2008:
Director Compensation Table
Name
Fees Earned
or Paid in
Cash ($)(1)
Option
Awards
($)(2)
Stock
Awards
($)(2)
Other
Benefits
($)(3)
Ralf R. Böer
$51,750
$113,665
Stephen P. Cortinovis
61,000
113,665
David J. Drury
62,000
113,665
Peter Kelly
48,750
113,665
John L. Nussbaum
97,229
113,665
Michael V. Schrock
47,250
113,665
Charles M. Strother, MD
48,250
113,665
Mary A. Winston
8,057
--
--
--
--
--
--
--
--
--
--
--
--
--
$321,123
--
--
--
Total ($)
$165,415
174,665
175,665
162,415
532,017
160,915
161,915
8,057
(1) Includes annual retainer, meeting, committee and chairmanship fees and, in the case of Mr. Nussbaum, his fee
as Chairman of the Board. See below regarding Mr. Nussbaum’s compensation.
(2) The amounts shown represent the expensed amounts in fiscal 2008 for grants and awards in 2008 and prior
years. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.
123(R), “Shared Based Payments” (“SFAS 123(R)”), which requires us to recognize compensation expense for
stock options and other stock-related awards granted to our employees and directors based on the estimated fair
value of the equity instrument at the time of grant. Compensation expense is recognized over the vesting
period. Plexus adopted SFAS 123(R) effective October 5, 2005. The assumptions used to determine the
valuation of the awards are discussed in footnote 11 to our consolidated financial statements.
The table below provides cumulative information about the fair value of options granted to directors in 2008,
determined as of the options’ grant date under SFAS 123(R). It also provides the number of outstanding stock
options which were held by our non-employee directors at September 27, 2008. Restricted stock awards were
not granted to directors in fiscal 2008.
Name
Mr. Böer
Mr. Cortinovis
Mr. Drury
Mr. Kelly
Mr. Nussbaum
Mr. Schrock
Dr. Strother
Ms. Winston
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
33,500
42,000
45,000
30,000
101,752
20,000
45,000
--
Grant Date
Fair Value of
2008 Option
Awards ($)
$113,665
113,665
113,665
113,665
113,665
113,665
113,665
--
16
Each non-employee director, other than Ms. Winston (who joined the board on July 28, 2008), was awarded
options for 2,500 shares on each of November 23, 2007, January 28, 2008, April 28, 2008, and July 29, 2008.
The options granted on November 23, 2007, are now fully vested. One half of the options granted on each of
the other dates vested immediately on the respective grant date and the balance vest on the first anniversary of
the respective grant date. Options granted to non-employee directors expire on the earlier of (a) ten years from
the date of grant, or (b) one year after termination of service as a director. On November 19, 2008, the first
quarterly grant of options for fiscal 2009 was made; those options were granted at $14.17 per share, with other
terms the same as the prior year’s options.
(3) Other than Mr. Nussbaum, the non-employee directors do not receive any additional benefits although they are
reimbursed for their actual expenses of attending board, committee and shareholder meetings. For Mr.
Nussbaum, this represents the amounts paid to him in fiscal 2008 under his deferred compensation
arrangements plus the value of the health and other welfare benefits, as well as Company matching
contributions to the 401(k) Plan, provided to him. See the discussion immediately below.
Compensation of Current and Former Executive Officers who Serve on the Board
See “Executive Compensation” for Mr. Foate’s compensation as an executive officer of Plexus generally
and his employment and change in control agreements.
Mr. Nussbaum is a former executive officer of Plexus. He ceased being considered an executive officer or
employee of Plexus when he retired as its Chief Executive Officer in 2002. However, as a consequence of his many
years of service as an executive officer of Plexus, he continues to be compensated under deferred compensation
arrangements which were put in place during his service as an executive officer and as the non-executive Chairman
of the Board.
In 1996, the Compensation and Leadership Development Committee established special retirement
arrangements for Mr. Nussbaum and for two other executive officers and directors who subsequently retired. Those
arrangements were both to reward past service and to maintain an additional incentive for those officers’ continued
performance on behalf of Plexus. The related supplemental retirement agreement for Mr. Nussbaum is designed to
provide specified retirement and death benefits to him in addition to those provided under the 401(k) Plan. Plexus’
commitment was fully funded in fiscal 2002. Mr. Nussbaum has received payments under the special retirement
arrangements since 2002, including payments of $301,068 for fiscal 2007 and $313,110 for fiscal 2008. Future
payments may be adjusted, depending upon the performance of underlying investments.
The contributions for Mr. Nussbaum’s special retirement arrangement are invested in life insurance policies
acquired by Plexus on his life. The supplemental retirement agreement provides for a 15-year annual installment
payment stream to Mr. Nussbaum. Lump sum payments to Mr. Nussbaum based on policy cash values become due
if at any time after a change in control Plexus’ consolidated tangible net worth drops below $35 million, or if the
ratio of Plexus’ consolidated total debt to consolidated tangible net worth becomes greater than 2.5 to 1. To the
extent that any of the payments constitute excess parachute payments subjecting Mr. Nussbaum to an excise tax, the
agreement provides for an additional payment (the “gross-up payment”) to be made by Plexus to him so that after
the payment of all taxes imposed on the gross-up payment, he retains an amount of the gross-up payment equal to
the excise tax imposed. If Mr. Nussbaum dies prior to receiving all of the 15-year annual installment payments,
specified death benefit payments become due.
For his service as Plexus’ non-executive Chairman of the Board, Mr. Nussbaum received $52,000 in fiscal
2008 plus health and other welfare benefits, as well as Company matching contributions to the 401(k) Plan, in
addition to the above retirement payments and his regular board fees. The $52,000 fee was decreased from the
$72,000 received in fiscal 2007 at Mr. Nussbaum’s suggestion. Since his retirement, Mr. Nussbaum has been
eligible to receive additional options or stock awards in his capacity as a non-employee director and has received the
same awards as other non-employee directors under Plexus’ stock incentive plans.
17
Stock Ownership Guidelines
Plexus believes that it is important for directors and executive officers to maintain an equity stake in Plexus
to further align their interests with those of our shareholders. Directors and executive officers must comply with
stock ownership guidelines as determined from time to time by the board. The ownership guidelines for directors
currently require that directors must own 5,000 shares of common stock within five years of election or appointment
to the board, of which 2,000 shares must be owned within the first year of service. Unexercised stock options
(whether or not vested) do not count toward a director’s ownership for purposes of these guidelines. The stock
ownership guidelines for executive officers are discussed at “Compensation Discussion and Analysis—Elements
and Analysis of Direct Compensation—Equity Ownership Guidelines.”
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Plexus’ officers and directors, and persons
who beneficially own more than 10% of Plexus’ common stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. These “insiders” are required by SEC regulation to
furnish Plexus with copies of all forms they file under Section 16(a).
All publicly-held companies are required to disclose the names of any insiders who fail to make any such
filing on a timely basis within the preceding fiscal year, and the number of delinquent filings and transactions, based
solely on a review of the copies of the Section 16(a) forms furnished to Plexus, or written representations that no
such forms were required. On the basis of filings and representations received by Plexus, Plexus believes that
during fiscal 2008 Plexus’ insiders have complied with all Section 16(a) filing requirements which were applicable
to them.
18
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation and Leadership Development Committee (in this section, the “Committee”) of the
Plexus board of directors sets general compensation policies for Plexus. The Committee makes decisions with
respect to compensation of the Chief Executive Officer and other Plexus executive officers and grants stock options,
restricted stock units and other awards. This section discusses the Committee’s executive compensation philosophy
and decisions on executive compensation.
Plexus provides further detail regarding executive compensation in the tables and other information
included in the “Executive Compensation” section of this proxy statement.
Fiscal 2008 Committee Highlights
Among the key compensation issues addressed by the Committee in fiscal 2008, which are discussed
further below, were the following:
(cid:2) New Long-Term Incentive Plan. The 2008 Long-Term Plan was adopted by the Committee and was
approved by shareholders at the 2008 annual meeting of shareholders. The 2008 Long-Term Plan was
adopted due to the limited number of shares remaining for issuance under the 2005 Equity Plan and the
Committee’s continued desire to provide long-term incentives to Plexus employees.
(cid:2) New Long-Term Incentive Mix and Issuance Process. In fiscal 2008, the Committee began a new
approach to issuing long-term incentives that utilizes a portfolio of equity awards for executive officers:
restricted stock units (the right to receive shares of Plexus common stock in the future, if conditions are
met) (“RSUs”), non-qualified stock options (“options”), and long-term cash awards. This new program
balances the objectives of attracting and retaining key talent, promoting ownership among executives, and
aligning executives’ interests with those of shareholders with the Company’s cost considerations such as
expense, dilution and tax implications. Previous long-term incentives to Plexus executive officers
consisted of stock options only.
Under this program, the Committee issues executives RSUs and long-term cash awards on an annual basis
and makes annual determinations of option amounts, which are then granted on a quarterly basis. Issuing
options on a quarterly basis assists Plexus in managing the associated expense of these equity awards due to
the historically high volatility of Plexus’ stock price. Relative to a single annual grant, the quarterly grant
process for options also reduces the risk to Plexus and its employees of experiencing either intermittently
high or low exercise prices. Plexus continued granting options, and commenced issuing RSUs, in the first
fiscal quarter of 2008. The Committee also decided to grant certain executive officers, and employees who
are not executive officers, stock-settled stock appreciation rights (the right to receive, in shares of Plexus
common stock, the appreciation value of a stated number of shares of Plexus common stock) (“SARs”)
rather than options.
At the August 2007 meeting, the Committee approved a grant schedule to support the new quarterly grant
process which states that each quarterly grant date will be three days subsequent to the release of Plexus’
quarterly earnings, not including the day of the release. Since this methodology is specific and formula
driven, there is no margin for subjectivity or consideration of the volatility of the stock price during this
time period.
(cid:2) Review of Agreements with Executive Officers. In fiscal 2008, the Committee initiated a review of Mr.
Foate’s employment agreement as well as the Plexus change in control agreements with its executive
officers and other key employees. In the review, the Committee sought to determine appropriate levels of
potential benefits under those agreements and to assure complete compliance with recent Internal Revenue
Code changes, particularly regarding Section 409A.
As a result of the review, the Committee adopted a standard methodology for determining the levels of
benefits under the change in control agreements with its officers and employees, which levels vary
according to levels of responsibility. Generally, that methodology left the levels of benefits unchanged for
19
executive officers. The Committee believes that the levels of potential benefits continue to promote
Plexus’ interest of providing security for its key employees without impeding a beneficial potential
acquisition or excessively benefiting executive officers. The Committee retained the same overall level of
benefits under Mr. Foate’s employment agreement as it determined that the level of benefits were
appropriate. The Committee also made changes in the forms of the change in control agreements to
enhance their readability by employees as well as to assure compliance with tax laws.
Executive Compensation Philosophy, Goals and Process
The Committee’s philosophy is to fairly compensate all individuals, including executives, for their
contributions to Plexus, appropriately motivate employees to provide value to Plexus’ shareholders, and consider the
ability of Plexus to fund any compensation decisions, plans or programs. Fair compensation must balance both
short-term and long-term considerations and take into consideration competitive forces, best practices, and the
performance of Plexus and the individual. Compensation packages should also motivate executives to make
decisions and pursue opportunities that are aligned with the interests of our shareholders. Finally, the Committee
considers Plexus’ financial condition, the conditions in Plexus’ industry and end-markets, and the effects of those
conditions on Plexus’ sales and profitability in making compensation decisions.
Plexus’ executive compensation program is designed to provide a rational, consistent reward system that:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
attracts, motivates and retains the talent needed to lead a global organization;
drives global financial and operational success that creates shareholder value;
creates an ownership mindset and drives behaviors that improve Plexus' performance and
maximize shareholder value; and
appropriately balances Company performance and individual contribution towards the
achievement of success.
For a discussion of the Committee’s decision-making process, its use of consultants and the role of Plexus’
executive officers and staff, see “Corporate Governance—Board Committees—Compensation and Leadership
Development Committee—Overview of the Compensation Decision-Making Process” above in this proxy
statement.
Elements and Analysis of Direct Compensation
Overview of Direct Compensation
Plexus uses three primary components of total direct compensation—salary, annual cash incentive
payments under the Variable Incentive Compensation Plan (“VICP”) and long-term equity-based awards under the
2008 Long-Term Plan (and the 2005 Equity Plan, its predecessor). Each of these components is complementary to
the others, addressing different aspects of direct compensation and seeking to motivate employees, including
executive officers, in varying ways.
(cid:2) Base salary is intended to provide compensation which is not “at risk”; however, salary levels and
subsequent increases are not guaranteed.
(cid:2)
The opportunity to earn annual cash incentive payments under the VICP provides a substantial portion
of compensation that is at risk and that depends upon the achievement of measurable corporate
financial goals and individual objectives. We use payouts from the VICP to provide further incentives
for our executive officers and employees to achieve these corporate financial goals and individual
objectives.
(cid:2) A substantial part of compensation, which is also at risk, is longer-term equity-based compensation
typically awarded to date in the form of stock options and, beginning in fiscal 2008, RSUs. The
Committee accompanies RSUs with time-vested long-term cash awards to defray the tax effects to the
grantees upon the vesting of the RSUs as an incentive to those persons to continue to hold their shares
20
upon vesting because they will not need to sell shares to raise cash to pay taxes; we also use long-term
cash awards to round out the compensation package. Those awards are intended to provide incentives
to enhance corporate performance as well as to further align the interests of our executive officers with
those of our shareholders. Total compensation, consistent with practices in our industry, places a
particular emphasis on equity-based compensation. The reported values of the long-term incentive
opportunities under equity plans can vary significantly from year to year as a percentage of total direct
compensation because they are determined by valuing the equity-based awards on the same basis that
we use for financial statement purposes; that value depends significantly on our stock price and its
volatility at the time of the awards. Going forward, the Committee intends to continue using stock
options, supplemented with RSUs and long-term cash awards.
(cid:2)
For most non-executive officers who receive equity-based compensation, in fiscal 2008 the Committee
began to grant stock-settled SARs because that practice would promote employee share ownership,
reduce dilution and further the preservation of shares under Company plans. The Committee plans to
continue that practice.
The Committee does not use any specific numerical or percentage test to determine what percentage of
direct compensation will be paid in base salary versus the compensation at risk through the VICP or equity-based
compensation. However, the Committee believes that a meaningful portion of compensation should be at risk.
VICP targets for executive officers other than the CEO ranged from 30% to 50% of base salary in fiscal 2008 with
the opportunity to earn a bonus beyond the target if company financial goals were met or exceeded. In the case of
the CEO, the potential compensation at risk as a percentage of base salary was 100%, reflecting his overall greater
responsibility for the corporation. Long-term incentives for most executive officers are in the form of stock options,
which contain an inherent amount of risk since no value is received unless there is an appreciation in stock price,
and RSUs and long-term cash awards that vest based on continued service. After determining each element, the
Committee also reviews the resulting total compensation to determine that it is reasonable as a whole.
In addition, we provide all of our employees in the United States with various other benefits, such as health
and life insurance. We generally provide these benefits to our executive officers on the same basis as other salaried
employees in the United States, although some benefit programs, as discussed elsewhere, are specifically targeted to
our executive officers’ specific circumstances.
Beyond direct compensation, we believe it is important to provide the 401(k) Plan as a means for our
employees to save for their retirement. To attract qualified employees and meet competitive conditions, Plexus also
contributes to that plan. As a consequence of Internal Revenue Code limitations on compensation which may be
attributed to tax-qualified retirement plans, we have also developed a supplemental executive retirement plan for our
executive officers to address their particular circumstances and promote long-term loyalty to Plexus until retirement.
Plexus does not generally have employment agreements with its executive officers. However, we do have
such an agreement with our Chief Executive Officer in order to recognize his specific position, help assure Plexus of
the continuing availability of his services and protect Plexus from post-employment competition by him.
As with many other publicly-held companies, we have change in control agreements with our executive
officers and certain other key employees. As described further below, we reassessed these agreements in fiscal 2008
and revised and updated them to reflect tax code changes and to better coordinate benefits. We have these
agreements in place to both help assure that executive officers will not be distracted by personal interests if Plexus
were to be the subject of a potential acquisition, as well as to maintain their continuing loyalty to Plexus. We also
believe that competitive factors require us to provide these protections to attract and retain talented executive
officers and key employees.
Base Salary
(cid:2)
Purpose. Our base salaries are designed to provide regular compensation for the fulfillment of the duties
and responsibilities associated with job roles. Fixed salaries provide bi-weekly compensation to meet the
living needs of our executives and their families. They are also important because they provide most
21
persons with a starting point for considering compensation when we seek to attract and retain talented
individuals.
(cid:2)
Structure. The Company and the Committee use market-based comparisons, peer group analysis and other
third-party survey data to establish appropriate base salaries for its executive officers. An in-depth total
rewards analysis, including base salary, is completed annually for each executive position using the peer
group and survey data as indicated above. While we do not aim for particular numerical or percentage tests
as compared to the peer group or the surveys, we generally target base salaries within ranges near market
medians of those groups, with adjustments made to reflect individual circumstances. The effective date of
any base salary increase is typically at or near the start of the fiscal year.
(cid:2) Determination Process; Factors Considered. Prior to establishing base salary increases for the CEO and
confirming salary levels for other executive officers, the Committee takes into consideration various
factors. These factors include compensation data from the proxies of our peer group, salary increase trends
for executive base pay and other information provided in published surveys. The Committee also considers
the individual executive officers’ duties and responsibilities and their relative authority within Plexus.
Executive officer base salary increases may include two components—competitive adjustments and merit
increases. If executive officer salaries are found to fall below the competitive median range when we
compare them to our peer group and survey data, we consider increasing the salaries to a more competitive
level. In some cases these competitive adjustments may take place over a multi-year period and may
depend on individual performance. If executive officer salaries are found to be at an appropriate level
when we compare them to the peer group and general industry survey data for the position, then a merit
increase is provided if appropriate. The merit increase amount is based on individual performance.
With respect to increases in CEO base salary (as well as other compensation actions that impact our CEO),
the Committee uses this input and meets in executive session to discuss appropriate pay positioning and
pay mix based on the data gathered. With respect to the other executive officers, the CEO uses similar data
and submits his recommendations to the Committee for final determination. The data gathered in the
determination process helps the Committee to test for fairness, reasonableness and competitiveness.
However, taking into account the compensation policies and goals and a holistic approach to executive
compensation packages, the Committee’s final determination may incorporate the subjective judgments of
its members as well.
(cid:2)
2008 Determinations. For fiscal 2008, the Committee approved a base salary adjustment of $105,000 for
the CEO, increasing his annual salary to $675,000. This was an 18.4% increase from his fiscal 2007 base
salary and reflected strong company performance in fiscal 2007, as well as the competitiveness of the
CEO’s salary as compared to the market. The Committee believed that the CEO’s compensation was
below market based on peer group survey information, particularly in view of the Company’s strong
financial performance. Therefore, it approved this increase to provide base compensation at a more
competitive level. Our CEO’s base salary is higher than that of other executive officers because of his
more extensive and challenging duties and responsibilities.
Increases for other executive officers varied from no increase to 12.5%, and were as follows for the other
named executive officers: Ms. Jones—10.0%; Mr. Verstegen—4.0%; Mr. Ninivaggi—4.1%; and Mr.
Lim—10.1%. The salary determinations for the executive officers reflected the factors discussed above;
some of the higher increases resulted from increased duties and responsibilities. Ms. Jones was hired as an
executive during fiscal 2007 and subsequently was named Chief Financial Officer. Her initial salary was
determined as part of the hiring process; her salary was below the salary of her predecessor, primarily as a
reflection of her predecessor’s many years of experience as a chief financial officer, including with Plexus.
Ms. Jones’ increase in fiscal 2008 reflected her promotion to CFO and the results of her initial time with
Plexus. The increase for Mr. Lim reflected his promotion to an executive officer position late in fiscal
2007 and the related increase in his responsibilities. The compensation and benefits package of Mr. Lim
also reflects regional survey data of the Malaysian markets. Other variations between the executive
officers reflect competitive conditions and the Committee’s view of the executive officers’ duties,
responsibilities and performance.
22
(cid:2)
2009 Determinations. For fiscal 2009, the CEO’s salary is $750,000, an 11.1% increase from fiscal 2008.
The Committee sought to reward the CEO for the strong financial results achieved in fiscal 2008, as well as
to keep his base compensation in line with the market range for his position. The fiscal 2009 salary
increases for the other executive officers ranged from 3.0% to 20.0%. Of those increases, the smaller ones
reflected merit increases for performance over the past year when salaries were otherwise in line with the
market; larger increases represented a combination of competitive adjustments and merit increases. The
increases for the other named executive officers were: Ms. Jones—10.7%; Mr. Verstegen—5.0%; Mr.
Ninivaggi—7.0%; and Mr. Lim—10.0%. For Ms. Jones and Mr. Lim, the increases also reflected the
significant new duties they assumed in fiscal 2008; these individuals became executive officers in late
fiscal 2007 and the scopes of their respective duties were not reflected in their previous salaries.
Annual Incentive
(cid:2)
(cid:2)
Purpose. Our annual cash incentive compensation plan, the VICP, is designed to reward employees for the
achievement of important corporate financial goals. There is also a small component of the VICP that
rewards employees for the attainment of individual objectives. The establishment of the specific corporate
financial goals is derived from our annual financial plan. The design of the VICP provides incentives
based on our direct performance, as distinguished from equity-based compensation, which is significantly
affected by market factors that may be unrelated to our results.
Plan Structure. The VICP provides annual cash incentives to approximately 2,500 participants, including
our CEO and other executive officers. The VICP operates the same for all participants. Each participant has
a targeted award that is expressed as a percentage of base salary. For example, in fiscal 2008 the targeted
award opportunity for the CEO was 100% of base salary, and the opportunities for other executive officers
varied from 30% to 50% of base salaries. Higher levels of duties and responsibilities within Plexus lead to
higher bonus opportunities under the VICP because the Committee believes that the higher ranking the
position, the more influence the individual can have on corporate performance. In addition, market
information indicates that competitive factors make relatively higher reward possibilities important for
those positions. In fiscal 2008, Ms. Jones, our Chief Financial Officer, had the opportunity to earn up to
50% of her salary as a VICP bonus at target; other officers’ percentages were 50% for Mr. Verstegen, 35%
for Mr. Ninivaggi and 40% for Mr. Lim. The opportunities for non-executive officer participants varied
from 3% to 30% of base salaries. For each participant, 80% of the targeted award is keyed to the corporate
financial goals; the remaining 20% of the targeted award is keyed to the achievement of individual
objectives.
The VICP provides for payments relating to corporate financial goals both below and over the targeted
awards by establishing specific “threshold levels” of corporate performance at which payments begin to be
earned and “maximum levels” beyond which no further payment is earned. The payout at the “maximum
level,” which is based solely on achieving the corporate financial goals, is 180% of the targeted award for
the CEO and the other executive officers.
Under the VICP, the Committee has the authority to adjust results, for example, to reflect acquisitions or
unusual gains or charges. No such discretion was used by the Committee in fiscal 2008.
(cid:2)
2008 Plan Design – Company Goals
The specific corporate financial goals for fiscal 2008, each of which stood independently of the other with
regard to award opportunities, were revenue and return on capital employed (“ROCE”). The goals were
chosen because they aligned performance-based compensation to the key financial metrics that the
Company used internally to measure its ongoing performance and that it used in its financial plans. Our
fiscal 2008 targets for these goals were set as part of the annual financial planning process. For each of
the corporate financial goals, we also established specific “threshold” and “maximum” levels of
achievement as part of that process.
For these purposes, ROCE is defined as annual operating income excluding unusual charges and
equity-based compensation costs divided by the five-point quarterly average of Capital Employed during
the year. Capital Employed is defined as equity plus debt less cash, cash equivalents and short-term
23
investments. The Company excludes equity-based compensation costs because such costs can influence
results due to external market factors. Additionally, ROCE is calculated excluding the impact of any
restructuring and/or non-recurring charges because these factors do not reflect the operating performance of
the Company, which the VICP is intended to reward.
No award is paid for any component of the VICP if Plexus incurs a net loss for the fiscal year (excluding
non-recurring or restructuring charges and equity-based compensation costs). Awards for performance
between the “threshold” level and “targeted” level are calculated by straight-line interpolation, as are
awards between the “targeted” level and the “maximum” level.
For fiscal 2008, in accordance with Plexus’ strategic plan, the Committee set both revenue growth and
ROCE targets at aggressive, yet achievable levels to incent growth, but also to deter undue risk-taking. The
2008 revenue target represented approximately 19% growth over fiscal 2007 revenue. The Committee felt
this target was challenging, but achievable, based on industry conditions and Plexus’ financial plan. To
help assure that revenue growth would continue to result in shareholder value, the Committee set a ROCE
target at a substantial level; the target level set for fiscal 2008 was below the level achieved in fiscal 2007
to recognize the effects of product mix changes in fiscal 2007 that resulted in higher ROCE achievement.
Since the ROCE target was set at a substantial level, the Committee emphasized revenue growth when
setting the VICP maximum threshold.
The following table sets forth the fiscal 2008 financial targets and potential VICP payout amounts (as a
percent of targeted VICP bonus) for the named executive officers, at the threshold, targeted and maximum
performance levels. In accordance with the VICP, the ROCE targets excluded the impacts of restructuring
charges and equity-based compensation costs.
Component
Revenue (in millions)
ROCE
Individual Objectives
Total Potential Incentive =
Revenue + ROCE + Individual
Objectives
Threshold
Target
Maximum
Goal
$1,679
17.0%
Payout
0%
0%
up to 20%
Goal
$1,835
22.0%
Payout
40%
40%
up to 20%
Goal
$1,881
22.0%
20%
100%
Payout
140%
40%
up to 20%
200%
In fiscal 2008, revenue was $1,842 million and ROCE was 26.6%. Therefore, based on the corporate
financial goals described above, Plexus exceeded the target level for both revenue and ROCE and paid
awards to executive officers and other employees based on those two components. Extrapolating the
results, payments based on revenue represented 54.4% as compared to the target of 40% for the revenue
component. Payments based on ROCE represented 40%, as target ROCE was achieved. Thus, total
payments based on revenue and ROCE represented 94.4% versus the target of 80% for corporate financial
performance. Plexus' actual performance in fiscal 2008 as compared to these targets is illustrated by the
following graph:
22.0%
$1,835
22.0%
$1,881
26.6%
$1,842
Revenue
ROCE
17.0%
$1,679
T hreshold
T arget
Maximum
Fiscal 2008 Actual
24
(cid:2)
2008 Plan Design – Individual Objectives
Individual participants typically set several individual objectives for the plan year, which are developed
with, reviewed by and approved by the participant’s manager. Some of the individual objectives are shared
by multiple executives when they team to focus on an objective. Attainment of the individual objectives
represents 20% of the potential targeted award. The Committee determines and approves the individual
objectives established for the CEO. The Committee also reviews and approves, with input from the CEO,
the individual objectives established for the other executive officers. The Committee’s assessment of all
executive officers’ individual objectives is based on their likely impact on the achievement of the annual
financial plan and other longer-term strategic priorities, their effect on shareholder value and their
alignment with one another.
The following are summaries of the individual objectives for our named executive officers in fiscal 2008:
– Dean A. Foate: Mr. Foate’s individual objectives related to: designing strategies to support
global expansion; developing and implementing an annual operating system that efficiently
and logically connects the Company’s strategic planning, governance and organizational
development activities; developing a process to evaluate organizational effectiveness and
leadership talent; creating an internal process to evaluate potential acquisitions; and
establishing expectations and a vision for the design and planning of a new corporate
headquarters.
– Ginger M. Jones: Ms. Jones’ individual objectives related to: supporting global expansion
and development; creating an internal process to evaluate potential acquisitions; improving
financial reporting and forecasting; developing and implementing an annual operating system
that efficiently and logically connects the Company’s major planning, governance and
organizational development activities; optimizing the Company’s overall cash cycle and
improving return on invested capital; redesigning annual cash incentive plans; and designing
an investor relations program.
– Michael T. Verstegen: Mr. Verstegen’s individual objectives related to: supporting global
expansion and development; improving the costing process; overseeing the development of
and project planning for a new corporate headquarters; redesigning annual cash incentive
plans; and creating an internal process to evaluate potential acquisitions.
– Angelo M. Ninivaggi: Mr. Ninivaggi’s individual objectives related to: recommending and
designing improvements to Plexus’ Enterprise Risk Management; aligning the contract
management process with Plexus’ business sectors; implementing a new sector market
development and customer service team; creating an internal process to evaluate potential
acquisitions; and implementing specified corporate governance improvements.
– Yong Jin Lim: Mr. Lim’s individual objectives related to: supporting the expansion of
operations in Asia; improving financial forecasting; promoting a “lean” culture; improving the
costing process; monitoring customer feedback; and organizational development.
Achievement of individual objectives, for which there was a potential payout equivalent to 20% of the
“targeted” bonus award, varied among executive officers from 14.5% to 20% of the total targeted amount.
These percentages were based upon the Committee’s determination of the degree to which the executive
achieved his or her objectives. The CEO provided the Committee with an assessment of the performance
of all of the executive officers other than himself and recommended resultant bonus levels based on the
achievement by each executive officer of his or her individual objectives. Individual determinations were
as follows for the named executive officers: Mr. Foate—19.2%; Ms. Jones—17.8%; Mr. Verstegen—
18.7%; Mr. Ninivaggi—19.1%; and Mr. Lim—17.6%.
25
Long-Term Incentives
(cid:2)
(cid:2)
(cid:2)
Purpose. Our long-term incentives are designed to tie the major part of our key executives’ total
compensation opportunities to Plexus’ market performance and the long-term enhancement of shareholder
value. The 2008 Long-Term Plan and its predecessor, the 2005 Equity Plan, are also designed to encourage
the long-term retention of these executives.
Plan Structure. The shareholder-approved 2008 Long-Term Plan and 2005 Equity Plan allow for various
award types, including options, SARs, restricted stock, RSUs, and performance awards (payable in cash
and/or equity). Prior to fiscal 2008, the Committee granted only time-vested stock options, although it
continued to study the potential use of other forms of long-term incentive compensation. The Committee
has generally used stock options because of their prevalence in our industry. In addition, with stock
options, recipients receive value only when the value of the shares held by Plexus’ shareholders increases.
The Committee’s policy is to not “back-date” equity grants and no equity grant was “back-dated” in fiscal
2008.
This year, the Committee approved a new long-term incentive strategy that allows for use of a portfolio
approach when granting awards. The Committee intends that each element of the portfolio addresses a
different aspect of long-term incentive compensation, as set forth below:
–
Stock options and stock-settled SARs provide rewards based upon the appreciation in value to
shareholders as measured by the increase in our share price; the Committee uses stock-settled
SARs rather than options for less senior employees because stock-settled SARs do not require a
cash outlay on exercise and promote employee share ownership. Stock-settled SARs also allow
the Committee to preserve shares available under the plans.
– RSUs provide an interest in the value of the Company’s shares, because, even though they vest
over time, they provide recipients with a certain equity interest, assuming continued employment.
RSUs further align executives’ interests with the interests of shareholders and provide a long-term
ownership mentality as well as motivation to succeed in the long-term because the value of RSUs
does not solely depend upon increases in the market price of our shares over a short-term period.
–
Long-term cash awards that accompany grants of RSUs are intended to defray tax effects to the
grantees upon the vesting of the RSUs as an incentive to those persons to continue to hold their
shares upon vesting because they will not need to sell shares to raise cash to pay taxes; we also use
long-term cash awards to round out the compensation package.
Award Determination Process. Pursuant to its portfolio approach, the Committee distributes the entire
value of each grant to each executive officer among four types of awards—options, stock-settled SARs,
RSUs and long-term cash according to a formula based on the duties and responsibilities of the award
recipient. The awards are valued at their SFAS 123(R) value when making these determinations. For most
executive officers—those with the most senior level of responsibilities (and including all of the named
executive officers)—the Committee uses a distribution formula weighted toward stock options, so as to
particularly promote increasing shareholder value; for the remaining executive officers and for those at the
manager or director level, Plexus uses a distribution weighted toward stock-settled SARs. The allocation
formulas for these two groups are illustrated in the pie charts below:
Senior Executive Officers
Other Executive Officers
Long-Term Cash
15%
RSUs
25%
Options
60%
RSUs
30%
Stock-settled
SARs
70%
26
Other employees who receive awards receive 100% of the value of their awards in stock-settled SARs.
– Option/SARs Pool Determination. Each year the Committee is presented a recommended total
pool of options and stock-settled SARs to be awarded to eligible participants. The Committee
reviews the estimated cost of the pool, as well as the recommended grant guidelines; the
Committee uses a relatively constant pool size because it wishes to control the expense to the
Company under SFAS 123(R) and manage dilution to shareholders. The options and stock-settled
SARs granted to executive officers and employees in fiscal 2008 were for a total of 492,366
shares. That amount excludes options for 70,000 shares awarded to the non-employee directors.
The total grant in fiscal 2008 was greater than the amount granted in fiscal 2007, because quarterly
grants were made only in the third and fourth fiscal quarters of fiscal 2007.
– Option/SARs Pool Allocation. The Committee determines the grants for the CEO and other
executive officers. Those awards are developed by considering the total pool of options to be
awarded, which is recommended by management, subject to the Committee’s review and
approval. The Committee chooses a grant size that balances the need to provide fair compensation
with the desire to keep related compensation expense relatively stable from period to period and to
manage shareholder dilution. The numbers granted to each executive officer primarily vary
according to the executive officers’ duties and responsibilities within the Company and also
include a review of performance. Those in positions with more responsibility tend to receive more
options to reflect their role in the Company and the market comparisons for their compensation.
Also, as discussed above, for the CEO, the Committee uses the vested and unvested equity
information to balance the level of existing awards with the desire to reward performance and to
provide retention incentives. The CEO provides the Committee with initial recommendations as to
the number of options to be granted to each executive officer other than himself. The remaining
pool, which is comprised of stock-settled SARs (and RSUs as discussed below), is then allocated
to high-performing key employees based upon recommendations by executive officers in
accordance with a grant range grid, which assigns a range of stock-settled SARs grant sizes to
each employee responsibility level. For fiscal 2008, options for 75,000 shares were granted to the
CEO, and options for 88,500 shares were granted to the other executive officers as a group.
Additionally, stock-settled SARs for 6,050 shares were granted to other executive officers.
– RSU and Long-Term Cash Award Determinations. Once the Committee determines the levels of
options to award, it then grants RSUs and long-term cash awards in accordance with the formulas
discussed above, in order to effectively balance the motivations provided by the different types of
awards. A similar process occurs for those receiving stock-settled SARs. In fiscal 2008, 104,313
RSUs were granted to executive officers and key employees, along with $705,375 in long-term
cash awards. As noted above, RSUs and the corresponding long-term cash awards were not
granted in previous years.
2008 Awards. Using these principles, in fiscal 2008, the Committee made total grants of options and an
annual grant of RSUs and long-term cash to the named executive officers as follows:
Executive
Officer
Options
(#)
RSUs
(#)
Long-Term
Cash ($)
Mr. Foate
Ms. Jones
Mr. Verstegen
Mr. Ninivaggi
Mr. Lim
75,000
16,000
12,000
8,000
12,000
21,375
4,560
3,420
2,280
3,420
$320,625
68,400
51,300
34,200
51,300
Options vest in two annual increments and grants of RSUs and long-term cash awards vest on the third
anniversary of the grant, all subject to early vesting on a change in control.
Basis for Determination of Timing of Grants. The Committee now makes quarterly option grants rather
than annual grants due to the volatility of the stock market, including for Plexus stock in particular, since
27
(cid:2)
(cid:2)
granting stock options all on one date in the year can make the strike price and related expense vary
significantly in ways that do not necessarily reflect long-term performance of Plexus stock.
The Committee’s formula to support the quarterly grant strategy states that the grant date will occur three
days subsequent to the release of quarterly earnings, not including the day of the release. The Committee
uses a future date, as is permitted by the 2008 Long-Term Plan and the 2005 Equity Plan, because that
minimizes the opportunity to choose a date based upon market performance known or knowable at the time
of grant. Those plans provide that the exercise price of a stock option is not less than the fair market value
on the stock option grant date. New hire option and stock-settled SARs grants are determined at or around
the time of hire, and commence on the next quarterly grant date following the date of hire.
Grants of RSUs and long-term cash awards are made annually, at the same time as the initial option and
stock-settled SARs grants for the fiscal year.
Equity Ownership Guidelines. To complement the 2005 Equity Plan’s and the 2008 Long-Term Plan’s goals of
increasing the alignment between the interests of management and shareholders, the Committee adopted executive
stock ownership guidelines. These guidelines require most executive officers, including all of the named executive
officers in the “Summary Compensation Table” below, to own, at a minimum, Plexus stock with a market value
equal to one times their annual base salary. There is no specific time requirement to meet these guidelines.
However, an executive officer is generally not permitted to sell Plexus shares that were acquired while an executive
officer until the ownership requirement is met; there are exceptions, including financing the exercise of stock
options when the shares will be held or with prior approval under special circumstances.
Benefits. Consistent with competitive practice, the Committee approves certain perquisites and other benefits for
our CEO and the other executive officers in addition to those received by all U.S. salaried employees. Substantially
all U.S. employees receive health insurance benefits. In addition, the other benefits for certain of our executive
officers are: a flexible perquisite benefit valued at up to $10,000 per calendar year, which amount is grossed up for
taxes, to be used for miscellaneous expenses such as personal financial planning, spouse travel costs in connection
with business-related travel, club memberships and/or tax and estate advice; a company car; and additional disability
insurance for the CEO, due to the dollar limits of the Company’s disability insurance policies. As a result of local
law and custom, different but comparable insurance programs and other benefits may apply to personnel, including
Mr. Lim, who are located in countries outside of the United States.
Elements and Analysis of Retirement and Other Compensation
In addition to direct compensation, Plexus uses several other types of compensation, some of which are not
subject to annual Committee action. These include retirement plans, other stock ownership opportunities, and
employment or change in control agreements.
These are intended to supplement the previously described
compensation methodologies by focusing on long-term employee security and retention. Certain of these plans allow
employees to acquire Plexus stock.
Retirement Planning – 401(k) Plan
(cid:2)
(cid:2)
Purpose. Plexus maintains the 401(k) Plan, which is available to substantially all U.S. salaried employees,
to help our employees provide for their retirement. The 401(k) Plan includes a Plexus stock fund as one of
its choices to permit employees to maintain Plexus ownership if they wish.
Plan Structure. The 401(k) Plan allows employees to defer a portion of their annual salaries into their
personal accounts maintained under the 401(k) Plan. In addition, Plexus matches a portion of each
employee’s contributions, up to a maximum of $5,750 per calendar year. Employees have a choice of
investment vehicles, including a Plexus stock fund, in which to invest those funds.
Supplemental Executive Retirement Plan
(cid:2)
Purpose. Plexus’ supplemental executive retirement plan (the “SERP”) is a deferred compensation plan
which allows participants to defer taxes on current income. Most executive officers, including all of the
28
named executive officers other than Mr. Lim, participate in this program. Additionally, the Company can
credit a participant’s account with a discretionary employer contribution. Such opportunities are common
practice in general industry. The SERP also provides a vehicle for the Company to restore the lost deferral
and matching opportunity caused by tax regulation limitations on such deferrals and matched contributions
for highly compensated individuals. The Committee believes that further retirement compensation through
the SERP is appropriate to meet the market for executive compensation and to provide a stronger incentive
for executives to remain with Plexus through retirement.
(cid:2)
Plan Structure. During fiscal 2000, the Committee established the current SERP arrangement. Under this
plan, several key executives, including the named executive officers (other than Mr. Lim), may elect to
defer some or all of their compensation. Plexus may also make discretionary contributions. Additionally,
Plexus has purchased Company-owned life insurance on the lives of certain executives to meet the
economic commitments associated with this plan. A rabbi trust arrangement was established under this
plan and allows investment of deferred compensation amounts on behalf of the participants into individual
accounts and within these accounts, into one or more designated mutual funds or investments. These
investment choices do not include Plexus stock. Deferred amounts and any earnings which may be credited
become payable upon termination or retirement from Plexus.
(cid:2)
Fiscal 2008 Plan Activity.
– Contribution Formula. Under a funding plan adopted by the Committee in fiscal 2006, the SERP
provides for an annual discretionary contribution of the greater of (a) 7% of the executive’s total
targeted cash compensation, minus Plexus’ permitted contributions to the executive officer’s
account in the 401(k) Plan, or (b) $13,500. Total targeted cash compensation is defined as base
salary plus the targeted annual incentive plan bonus at the time of the Company’s contribution.
The Committee adopted this approach for discretionary contributions to reflect competitive
practices based on the research, analysis and recommendations of Towers Perrin, its compensation
consultant for that program.
–
–
Employer Contributions. For fiscal 2008, the total employer contributions to the SERP accounts
was $238,131 for all participants as a group, including $88,750 for the CEO but excluding the
special contribution discussed below. See footnote 4 to the “Summary Compensation Table.”
Special Contribution. The SERP also allows the Committee to make discretionary contributions.
The Committee did not make any such contributions in fiscal 2008 to the named executive
officers, although the Committee made a special contribution of $265,500 to a former executive
officer of Plexus upon his permanent leave in recognition of his prior service and contributions to
the Company.
(cid:2)
Foreign Arrangements. Since Mr. Lim is not a United States resident, he does not participate in the SERP
or the 401(k) Plan. Rather, he participates in the Employees Provident Fund which is mandated by
Malaysian law. Under law, minimum contributions of 12% of an employee’s wages (salary plus bonus) are
required to be made by an employer; Plexus chose to make a contribution of 17% in fiscal 2008 in Mr.
Lim’s case since it is Plexus’ practice in Malaysia to make higher contributions than the statutory minimum
for personnel with relatively high levels of seniority and responsibility.
Employee Stock Purchase Plans
(cid:2)
Purpose, Structure and Termination. The Committee believed it was useful to provide all employees with
opportunities to own Plexus stock and therefore established the Purchase Plans as a means of facilitating
purchases with a small discount available to substantially all employees in the United States and certain
other locations on the same terms. The Purchase Plans allowed employees to purchase stock at a 5%
discount from the fair market value of the shares at the end of the purchase period. However, the Purchase
Plans’ utility and attractiveness diminished as a result of subsequent accounting changes. Therefore, the
Committee terminated further purchases under the Purchase Plans in January 2008.
29
Employment and Change in Control Agreements
(cid:2)
(cid:2)
Purpose. Plexus maintains an employment agreement with our Chief Executive Officer in order to
recognize the importance of his position, to help assure Plexus of continuing availability of Mr. Foate’s
services over a period of time, and to protect the Company from competition post-employment. All
executive officers (with the exception of Mr. Foate, who has change in control provisions as part of his
employment agreement) have change in control agreements, to both help assure that executive officers will
not be distracted by personal interests in the case of a potential acquisition of Plexus as well as to maintain
their continuing loyalty.
The Agreements. Mr. Foate’s employment agreement is described below in “Executive Compensation –
Employment Agreements and Potential Payments Upon Termination or Change in Control – Mr. Foate’s
Employment Agreement.” The change in control agreements with our executive officers (with the
exception of Mr. Foate) are described below in “Executive Compensation – Employment Agreements and
Potential Payments upon Termination or Change in Control – Change in Control Arrangements.” Please
refer to those discussions for a further explanation of those agreements.
In fiscal 2008, we entered into a new employment agreement with Mr. Foate and adopted a new form of
change in control agreement for all other employees covered by those agreements, including the other
executive officers. These new agreements did not substantially change the level of benefits payable under
the prior agreements; we adopted the agreements to better comply with the provisions of Section 409A of
the Internal Revenue Code, to better coordinate benefits, and to enhance the readability of the change in
control agreements. Prior to entering into the new employment agreement, Mr. Foate had separate
employment and change in control agreements; as part of the changes, we incorporated change in control
provisions into Mr. Foate’s employment agreement rather than having him enter into a new change in
control agreement. The potential change in control benefits payable under Mr. Foate’s new employment
agreement stayed substantially the same as those that were payable under his previous change in control
agreement.
(cid:2) Determination of Benefit Levels.
In general, the change in control agreements with executive officers
provide that, upon termination in the event of a change in control, executive officers will receive
compensation equaling two or three times annual salary plus targeted bonus, a continuation of health and
retirement benefits for that period, and a gross-up payment for excise taxes. (The executive officers with
three year agreements are generally those in more senior positions, with greater seniority in those
positions.) In addition, under the 2008 Long-Term Plan and the 2005 Equity Plan, upon a change in
control, all unvested awards will automatically vest for all award holders. Certain other key employees
also have change in control agreements on substantially the same terms, although generally with only one
to two years’ coverage. The Committee believes it is important that executives and key employees have
protection of their livelihood in the face of a potential acquisition to help them maintain their focus on the
best interests of the Company’s shareholders even if it may have adverse consequences to them personally.
The Committee set these benefit levels in 2008, when the agreements were updated and revised. The
Committee determined that the level of benefits, combined with the “double trigger” requiring both a
change in control and a termination of employment, continue to provide an appropriate balancing of the
interests of the Company, its shareholders and its executives. Benefit levels, particularly the use of a
measurement of up to three-times salary and a gross up for excise taxes, were adopted by the Committee at
that time because it believed that, while the amounts were generous to the executive officers, they were in
line with competitive standards and Plexus’ overall compensation policy and level of other benefits, as well
as necessary and appropriate to attract and retain executive talent, particularly since most executives do not
have an employment agreement. The Committee also believed that it was general market practice to
provide that unvested awards will vest on a change in control, which is the case under the 2008 Long-Term
Plan and the 2005 Equity Plan, as approved by Plexus’ shareholders. The Committee believed that it was
important to maintain its executive officers’ focus on performance for the Company’s shareholders even in
the event of a potential change in control. Therefore, offering a generous package, but one that was
consistent with market practices, was appropriate to help motivate executives to focus on the Company’s
shareholders, even when the circumstance might jeopardize their employment. The Committee also
intended that the potential expense of the agreements be reasonable as compared to total enterprise value;
30
the Committee estimated that the agreements represented approximately 3.0% of the average of fiscal 2007
and fiscal 2006 total enterprise value at the time they were adopted. Though the agreements were revised,
the Committee did retain a “double trigger” so that the benefits would only be paid to the executive officers
in the event of a substantial impact upon their employment and compensation.
In fiscal 2008, the Committee also approved new guidelines to determine which employees should have
change in control agreements. These new guidelines focus on position, classification code, responsibilities
and compensation level in order to minimize subjectivity.
The Committee periodically reviews the scope and context of the change in control agreements, as it did in
2008. The Committee continues to believe that the change in control agreements will help motivate the
executive officers to respond appropriately, for the benefit of the Company and its shareholders, in the case
of a proposed acquisition of the Company which they might perceive would jeopardize their employment.
Tax Aspects of Executive Compensation
The Committee generally attempts to preserve the tax deductibility under the Internal Revenue Code (the
“Code”) of all executive compensation. However, at times and under certain circumstances, it believes that it is
more important to provide appropriate incentives irrespective of tax consequences.
Section 162(m) of the Code generally limits the corporate tax deduction for compensation paid to the
executive officers that is not “performance-based” to $1 million annually per executive officer. Plexus has taken
action with respect to the provisions of Section 162(m) so that compensation income relating to stock options,
SARs, performance-based restricted stock and cash bonuses under the 2008 Long-Term Plan (and predecessor
plans) is exempt. Compensation under these shareholder approved plans which is performance-based is generally
not subject to the $1 million limitation; however, the grant of restricted shares without performance goals would not
be considered to be performance-based and therefore would be subject to the limit along with cash salaries and
bonuses. As a result of the shareholders’ approval of the 2008 Long-Term Plan (and its predecessor) and the
Purchase Plans, the Committee believes that most compensation income under these plans (other than any awards in
the future of restricted stock or RSUs without performance goals, as is the case for the time vested RSUs granted in
fiscal 2008) would not be subject to the Code’s deduction limitation. However, if such restricted stock awards are
made and/or any executive earns a sufficiently high VICP bonus, the covered compensation of some individuals
could exceed $1 million and, in those cases, the excess would not be tax deductible. In some years, including fiscal
2008, the Company has foregone a portion of its tax deduction as a result of the size of a high VICP bonus.
Although the Company has considered strategies for dealing with these tax consequences in the future, the
Committee has determined that the mix of compensation that it has used is nonetheless beneficial to achieving the
Company’s goals.
Other provisions of the Code also can affect the decisions which we make. Section 280G of the Code
imposes a 20% excise tax upon executive officers who receive “excess” payments upon a change in control of a
publicly-held corporation to the extent the payments received by them exceed an amount approximating three times
their average annual compensation. The excise tax applies to all payments over one times average annual
compensation. Plexus would also lose its tax deduction for “excess” payments. Our change in control agreements
provide that benefits under them will be “grossed up” so that we also reimburse the executive officer for these tax
consequences. Although these gross up provisions and loss of deductibility would increase Plexus’ tax expense, the
Committee believes it is important that the effects of this Code provision not negate the protections which it
provides by means of the agreements.
The Code was amended to provide a surtax under Section 409A, relating to various features of deferred
compensation arrangements of publicly-held corporations for compensation deferred after December 31, 2004.
Section 409A becomes fully effective on January 1, 2009. We have conducted an extensive review of our benefit
plans and employment arrangements to help assure they comply with Section 409A and that there are no adverse
effects on Plexus or our executive officers as a result of these Code amendments. We have made various changes to
some of these plans and arrangements, including Mr. Foate’s employment agreement, to ensure full compliance with
the new rules under Section 409A; however, we do not expect these changes to have a material tax or financial
consequence on Plexus.
31
COMPENSATION COMMITTEE REPORT
The duties and responsibilities of the Compensation and Leadership Development Committee of the board
of directors are set forth in a written charter adopted by the board, as set forth on the Company’s website as
described above under “Corporate Governance—Board Committees—Compensation and Leadership Development
Committee.” The Committee reviews and reassesses this charter annually and recommends any changes to the
board for approval.
As part of the exercise of its duties, the Committee has reviewed and discussed with management the above
“Compensation Discussion and Analysis” contained in this proxy statement. Based upon that review and those
discussions, the Committee recommended to the board of directors that the Compensation Discussion and Analysis
be incorporated by reference in Plexus’ annual report to shareholders on Form 10-K and included in this proxy
statement.
Members of the Compensation and Leadership Development Committee:
Stephen P. Cortinovis, Chair
Peter Kelly
Michael V. Schrock
Charles M. Strother, MD
32
EXECUTIVE COMPENSATION
This section provides further information about the compensation paid to, and other compensatory
arrangements with, our executive officers.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation which we paid for fiscal 2008 to our Chief
Executive Officer, our Chief Financial Officer and the three executive officers who had the highest compensation of
our other executive officers. More detailed information is presented in the other tables and explanations which
follow the following table.
Name and Principal Position Year
Salary
($)(1)
Bonus
($)(2)
Stock
Awards
($)(3)
Option
Awards
($)(3)
Non-Equity
Incentive
Plan
Compensation
($)(2)
All Other
Compensation
($)(4)
Total
($)
Dean A. Foate,
President and Chief
Executive Officer
2008
$672,981
$129,212
$195,957
$1,366,137
$635,240
$115,907
$3,115,434
2007
569,231
80,148
0
815,226
0
Ginger M. Jones
2008
302,057
26,899
41,550
80,430
142,519
Vice President and Chief
Financial Officer (5)
2007
132,212
11,569
0
13,906
0
Michael T. Verstegen
2008
257,808
24,105
31,163
188,300
121,675
Senior Vice President,
Global Market
Development
2007
247,817
15,530
0
117,657
0
95,013
51,077
12,429
56,030
34,973
Angelo M. Ninivaggi
2008
228,827
15,313
20,775
77,953
75,598
162,464
Vice President, General
Counsel, Secretary and
Corporate Compliance
Officer
Yong Jin Lim
Regional President –
Plexus Asia Pacific (6)
2007
207,846
8,928
0
24,135
0
56,001
2008
239,371
16,852
31,163
118,795
90,383
76,075
2007
232,693
12,528
0
60,252
0
73,102
1,559,618
644,532
170,116
679,081
415,977
580,930
296,910
572,639
378,575
(1) Includes amounts voluntarily deferred by the named persons under the Plexus Corp. 401(k) Savings Plan (the
“401(k) Plan”) and the Plexus supplemental executive retirement plan (the “SERP”). The amounts deferred
under the SERP are also included in the “Executive Contributions in Last FY” column of the “Nonqualified
Deferred Compensation” table below.
(2) Both the “Bonus” and the “Non-Equity Incentive Plan Compensation” columns represent amounts that were
earned during fiscal 2008 and fiscal 2007, respectively, under our Variable Incentive Compensation Plan
(“VICP”). Under the VICP, annual bonuses for executive officers are determined by a combination of the
degree to which Plexus achieves specific pre-set corporate financial goals during the fiscal year and individual
objectives. To the extent a payment was based on individual objectives, it is in the “Bonus” column. To the
extent that the bonus resulted from corporate financial performance, that portion of the bonus is included under
the “Non-Equity Incentive Plan Compensation” column. We include more information about the VICP under
“Grants of Plan-Based Awards” below. The amounts shown in the “2008” row were earned in fiscal 2008 but
will be paid in fiscal 2009 and the amounts shown in the “2007” row were earned in fiscal 2007 and were paid
in 2008.
(3) This column represents the value of stock and option awards granted under the 2008 Long-Term Plan and the
2005 Equity Plan, which are explained further below under “Grants of Plan-Based Awards.” The amounts
shown represent the amounts expensed in fiscal 2008 and fiscal 2007 for grants and awards made in those and
prior years. SFAS 123(R) requires us to recognize compensation expense for stock options and other
stock-related awards granted to our employees and directors based on the estimated fair value of the equity
instrument at the time of grant. Compensation expense is recognized over the vesting period. The
33
requirements of SFAS 123(R) became effective for Plexus beginning in the first quarter of fiscal 2006. The
assumptions which we used to determine the valuation of the awards are discussed in footnote 11 to our
consolidated financial statements. Please also see the “Grants of Plan-Based Awards” table below for further
information about the options granted in fiscal 2008, and the “Outstanding Equity Awards at Fiscal Year End”
table below relating to all outstanding option awards at the end of fiscal 2008.
(4) The amounts listed under the column entitled “All Other Compensation” in the table include Company
contributions to the 401(k) Plan and the SERP (for Mr. Lim, this represents the Company’s contribution to the
Malaysian Employees Provident Fund), reimbursement made by Plexus under its executive flexible perquisite
benefit, the value of the company car provided to the executive, relocation expenses (including a gross-up for
income taxes) related to a move to Plexus’ Neenah headquarters, and additional life and disability insurance
coverage for Mr. Foate and Mr. Lim. Per person detail is listed in the table below:
Company
Matching
Contribution
to 401(k)
Plan
Company
Contribution
to SERP
Executive
Flexible
Perquisite
Benefit
$5,750
5,625
1,934
--
5,808
5,674
5,814
6,356
--
--
$88,750
66,195
30,325
9,625
21,340
18,679
15,891
13,500
43,409
40,791
$9,706
11,803
17,855
2,804
18,232
9,461
9,667
10,771
--
--
Year
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
Value of
Company
Car
$2,356
2,045
963
--
10,650
1,159
3,921
8,436
17,462
17,272
Relocation
Expenses
--
--
--
--
--
--
127,171
16,938
--
--
Additional
Life and
Disability
Insurance
$ 9,345
9,345
--
--
--
--
--
--
15,204
15,039
Total
$115,907
95,013
51,077
12,429
56,030
34,973
162,464
56,001
76,075
73,102
Mr. Foate
Ms. Jones
Mr. Verstegen
Mr. Ninivaggi
Mr. Lim
As a matter of policy, Plexus avoids providing perquisites beyond a company car to its executive officers.
However, under the executive flexible perquisite benefit, most executive officers may be reimbursed for
expenses up to $10,000 (plus a gross up for taxes) in a calendar year for miscellaneous expenses such as
personal financial planning, spouse travel costs in connection with business-related travel, club memberships
and/or tax and estate advice. The amounts in this column include the reimbursements under that program in
fiscal 2008, including the related tax gross-up amounts; these amounts may exceed $10,000 due to the tax
gross-up and the difference between the fiscal and calendar year.
(5) Ms. Jones joined Plexus on April 9, 2007, became an executive officer on May 10, 2007, and was named
Plexus’ Chief Financial Officer on August 29, 2007. The amounts listed in the “2007” row of the “Summary
Compensation Table” above include all compensation paid by Plexus to Ms. Jones in the fiscal 2007, including
amounts paid when she was not an executive officer.
(6) Mr. Lim was designated an executive officer on August 29, 2007. The amounts listed in the “2007” row of the
“Summary Compensation Table” above include all compensation paid by Plexus to Mr. Lim in fiscal 2007,
including amounts paid when he was not an executive officer.
34
GRANTS OF PLAN-BASED AWARDS
2008
The following table sets forth information about stock and option awards which were granted to the named
executive officers in fiscal 2008 under the 2008 Long-Term Plan and the 2005 Equity Plan, as well as information
about the potential cash bonus awards dependent on quantifiable corporate performance goals which those executive
officers could earn for fiscal 2008 performance (to be paid in fiscal 2009) under the VICP. As a result of fiscal 2008
corporate performance, bonuses based on these criteria were earned in 2008, as set forth under the “Non-Equity
Incentive Compensation” column in the “Summary Compensation Table” above. We provide further information
about both potential compensation under the VICP and awards under the 2008 Long-Term Plan and the 2005 Equity
Plan in fiscal 2008 in the table below, and additional information about those plans below the table.
Name
Mr. Foate
Ms. Jones
Award
Type
VICP*
RSUs &
long-term
cash (3)
Option
Option
Option
Option
VICP*
RSUs &
long-term
cash (3)
Option
Option
Option
Option
Mr. Verstegen VICP*
RSUs &
long-term
cash (3)
Option
Option
Option
Option
Mr. Ninivaggi VICP*
Mr. Lim
RSUs &
long-term
cash (3)
Option
Option
Option
Option
VICP*
RSUs &
long-term
cash (3)
Option
Option
Option
Option
Grant
Date
11/15/07
11/05/07
11/05/07
01/28/08
04/28/08
07/29/08
11/15/07
11/05/07
11/05/07
01/28/08
04/28/08
07/29/08
11/15/07
11/05/07
11/05/07
01/28/08
04/28/08
07/29/08
11/15/07
11/05/07
11/05/07
01/28/08
04/28/08
07/29/08
11/15/07
11/05/07
11/05/07
01/28/08
04/28/08
07/29/08
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
Threshold
($)(1)
$1
--
Target
($)(1)
$538,385
320,625
Maximum
($)(1)
$1,211,366
--
All Other
Stock
Awards:
Number of
Shares of
Stocks or
Units
(#)
--
21,375 (3)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
--
--
Exercise
or
Base
Price
of Option
Awards
($/sh) (2)
--
--
Closing
Market
Price on
Grant
Date
($/sh) (2)
--
--
Grant Date
Fair Value
of Stock
and Option
Awards ($)
--
$652,793
--
--
--
--
1
--
--
--
--
--
1
--
--
--
--
--
1
--
--
--
--
--
1
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
18,750
18,750
18,750
18,750
$30.54
22.17
24.21
29.71
$30.83
22.27
24.72
29.48
120,788
68,400
271,774
--
--
4,560 (3)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
103,123
51,300
232,027
--
--
3,420 (3)
--
--
--
--
--
--
--
--
--
--
--
--
64,072
34,200
144,161
--
--
2,280 (3)
--
--
--
--
--
--
--
--
--
--
--
--
76,599
51,300
172,347
--
--
3,420 (3)
--
--
--
--
--
--
--
--
--
--
--
--
35
4,000
4,000
4,000
4,000
--
--
3,000
3,000
3,000
3,000
--
--
2,000
2,000
2,000
2,000
--
--
3,000
3,000
3,000
3,000
30.54
22.17
24.21
29.71
--
--
30.54
22.17
24.21
29.71
--
--
30.54
22.17
24.21
29.71
--
--
30.54
22.17
24.21
29.71
30.83
22.27
24.72
29.48
--
--
30.83
22.27
24.72
29.48
--
--
30.83
22.27
24.72
29.48
--
--
30.83
22.27
24.72
29.48
267,821
179,192
195,681
240,135
--
139,262
57,135
38,228
41,745
51,229
--
104,447
42,851
28,671
31,309
38,422
--
69,631
28,568
19,114
20,873
25,614
--
104,447
42,851
28,671
31,309
38,422
* Represents a potential bonus payment for fiscal 2008 at various performance levels under the VICP to the extent
they would result from corporate performance; other grants are stock options under the 2005 Equity Plan and the
2008 Long-Term Plan. Based on Plexus’ actual performance in fiscal 2008, bonuses were earned based on
corporate financial performance; those amounts are shown in the “Summary Compensation Table” and were
between the target and maximum amounts.
(1) Amounts in the row labeled “VICP*” reflect potential bonus payments which would depend upon Plexus
meeting corporate financial goals; these exclude potential bonus amounts for individual objectives. The amount
in the “Threshold” column indicates a payment for performance just above the threshold; there is no minimum
payment once the threshold has been exceeded. The amounts in the “Target” column of the row labeled “RSUs
& long-term cash” represent long-term cash awards, which accompany grants of RSUs to offset taxes due on the
vesting of RSUs in order to encourage retention of the shares received, as well as to round out the compensation
package.
(2) Options were granted at the average of the high and low trading prices on the date of grant. Under the 2005
Equity Plan, fair market value was determined either as the closing price or the average of the high and low
trading prices, either on the date of grant or as an average for a short period of time prior to the grant. Under the
2008 Long-Term Plan, fair market value may be determined as the average of the high and low trading prices on
the date of grant or as an average for a short period of time prior to the grant. The stock options which were
granted in fiscal 2008 under both the 2005 Equity Plan and the 2008 Long-Term Plan vest over a two year
period, with 50% of the options vesting on the first anniversary of their grant date and the remainder vesting on
the second anniversary.
(3) The RSUs vest on November 5, 2010, assuming continued employment. Grants of RSUs were accompanied by
long-term cash awards, which vest on the same schedule and according to the same circumstances as the RSUs.
Long-term cash awards were granted to help offset the taxes due upon the vesting of RSUs in order to encourage
retention of the shares received, as well as to round out the compensation package. See the discussions below
under the captions “2008 Long-Term Plan” and “2005 Equity Plan.”
VICP
Under the VICP, our executive officers may earn bonuses which depend in substantial part upon the degree
to which Plexus achieves corporate financial goals which are set by our Compensation and Leadership Development
Committee shortly after the beginning of our fiscal year. Each executive officer also may earn a portion of his or
her bonus by achieving individual objectives set for that executive officer. The amounts included in the table are
potential future payouts under non-equity incentive awards which could be earned pursuant to the corporate
financial goals under the VICP. The amounts in the columns represent, respectively, the amount which could be
earned in the event minimum results were achieved so as to result in a threshold payment to the executive officer,
the amounts which could be received if each performance target was exactly met at the targeted level, and the
maximum amount which could be earned under the VICP. Actual corporate performance was between the target
and maximum levels on sales and exceeded the target level on ROCE, so amounts were paid accordingly between
target and maximum, as reported in the “Non-Equity Incentive Compensation” column in the “Summary
Compensation Table” above.
In addition, a portion of each individuals’ award could be earned based on individual objectives applicable
specifically to that individual. These awards are intended to reflect in each instance an individual’s performance
which may not be reflected in financial performance for the entire company. The maximum amount that could be
earned based on individual performance was $134,596 for Mr. Foate (which would have been 20% of his bonus at
the targeted levels) and varied from $16,018 to $30,197 for the other named executive officers (also representing
20%). The actual amounts earned by these persons are included above in the “Bonus” column in the “Summary
Compensation Table.”
2008 Long-Term Plan
Under the 2008 Long-Term Plan, the Compensation and Leadership Development Committee of the board
of directors may grant directors, executive officers and other officers and key employees of Plexus stock options,
stock-settled SARs, restricted stock, which may be designated as restricted stock awards or RSUs, performance
36
stock awards (which may be settled in cash or stock), and cash bonus awards in periodic grants. In fiscal 2007, as a
result of the volatility of the stock market, particularly for Plexus stock, the Committee began the practice of making
quarterly option grants. This facilitates overall compensation planning near the beginning of the fiscal year, as the
total target amounts for grants for a year are set at that time. The Committee continues to make quarterly option
grants; the specific dates of each grant are determined in advance. Option grants must be at the fair market value of
the underlying shares when the grant is made.
Beginning in fiscal 2008, the Committee granted RSUs under the predecessor to the 2008 Long-Term Plan.
In 2008, the grants were made at the beginning of the fiscal year and vest three years from the date of the grant,
assuming continued employment; the Committee anticipates continuing this practice. The grants of RSUs were
accompanied by long-term cash awards, which are intended to defray tax effects to the grantees upon vesting of the
RSUs as an incentive to those persons to continue to hold their shares upon vesting because they will not need to sell
shares to raise cash to pay taxes; we also use long-term cash awards to round out the compensation package. Long-
term cash awards will vest on the same schedule and under the same circumstances as grants of RSUs.
2005 Equity Plan
Previously, under the 2005 Equity Plan, the Compensation and Leadership Development Committee of the
board of directors granted directors, executive officers and other officers and key employees of Plexus stock options,
SARs, RSUs and/or shares of restricted stock in periodic grants. Through the end of fiscal 2007, the Committee
only granted stock options under the 2005 Equity Plan. The Committee began to grant RSUs and SARs in fiscal
2008; grants of RSUs were accompanied by long-term cash awards, which vest on the same schedule and under the
same circumstances as RSUs. Through fiscal 2006, the Committee made annual grants of options approximately
one week after the May board meeting, on a date set in advance to help avoid the possibility of market timing.
Option grants were at the fair market value of the underlying shares when the grant was made.
The 2005 Equity Plan was replaced by the 2008 Long-Term Plan, upon its approval by shareholders at the
2008 annual meeting of shareholders. No further grants are being made under the 2005 Equity Plan except, in
certain circumstances, to employees in the United Kingdom. Any such grants are subtracted from the shares
available for issuance under the 2008 Long-Term Plan.
37
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
September 27, 2008
The following table sets forth information about Plexus stock options held by the named executive officers
which were outstanding at the end of fiscal 2008.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#) (1)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#) (1)
Unexercisable
Name
Mr. Foate
Ms. Jones
Mr. Verstegen
Mr. Ninivaggi
20,000
30,000
100,000
75,000
45,000
75,000
100,000
66,666
18,750
18,750
--
--
--
--
3,333
--
--
--
--
15,000
7,500
9,000
13,500
15,000
15,000
10,000
2,000
2,000
--
--
--
--
750
1,333
1,750
1,750
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
(#) (2)
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested
($) (3)
21,375
$463,838
4,560
98,952
Option
Exercise
Price
($)
$35.547
23.55
25.285
8.975
14.015
15.825
12.94
42.515
21.41
23.83
30.54
22.17
24.21
29.71
18.185
30.54
22.17
24.21
29.71
35.547
23.55
25.285
14.015
15.825
12.94
42.515
21.41
23.83
30.54
22.17
24.21
29.71
Option
Expiration
Date
04/24/10
04/06/11
04/22/12
01/30/13
08/14/13
04/28/14
05/18/15
05/17/16
05/17/17
08/01/17
11/05/17
01/28/18
04/28/18
07/29/18
04/09/17
11/05/17
01/28/18
04/28/18
07/29/18
04/24/10
04/06/11
04/22/12
08/14/13
04/28/14
05/18/15
05/17/16
05/17/17
08/01/17
11/05/17
01/28/18
04/28/18
07/29/18
--
--
--
--
--
--
--
33,334
18,750
18,750
18,750
18,750
18,750
18,750
6,667
4,000
4,000
4,000
4,000
--
--
--
--
--
--
5,000
2,000
2,000
3,000
3,000
3,000
3,000
3,420
74,214
--
667
1,750
1,750
25.285
42.515
21.41
23.83
04/22/12
05/17/16
05/17/17
08/01/17
38
Mr. Lim
--
--
--
--
4,000
7,500
5,000
1,250
1,250
--
--
--
--
2,000
2,000
2,000
2,000
30.54
22.17
24.21
29.71
--
--
2,500
1,250
1,250
3,000
3,000
3,000
3,000
8.975
12.94
42.515
21.41
23.83
30.54
22.17
24.21
29.71
11/05/17
01/28/18
04/28/18
07/29/18
01/30/13
05/18/15
05/17/16
05/17/17
08/01/17
11/05/17
01/28/18
04/28/18
07/29/18
2,280
49,476
3,420
74,214
(1) Option award, under the 2008 Long-Term Plan or its predecessor plan. All options have an exercise price equal
to the market price of our common stock on the date of grant. Since 2005, the market price has been
determined using the average of the high and low trading prices on the grant date. Prior to that date, the market
price was determined by an average of the high and low trading prices over a period of five to ten trading days
prior to the grant date. Options granted in fiscal 2005 vested immediately. Options granted in fiscal 2006 vest
one-third on each of the first three anniversaries of the grant date. Options granted in fiscal 2007 and fiscal
2008 vest one-half on each of the first two anniversaries of the grant date.
(2) Consists of RSUs awarded in fiscal 2008 under the 2005 Equity Plan. The RSUs vest on November 5, 2010,
based on continued service through that date. See “Compensation Discussion and Analysis—Elements and
Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards.
(3) Based on the $21.70 per share closing price of a share of our common stock on September 26, 2008, the last
trading day of fiscal 2008.
39
OPTION EXERCISES AND STOCK VESTED
2008
The following table sets forth information about the Plexus stock options which were exercised by the
named executive officers in fiscal 2008. There were no outstanding awards of restricted stock or similar awards that
vested in fiscal 2008.
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise (#)
24,870
--
13,500
--
--
Value Realized on
Exercise ($) (1)
$396,712
--
282,955
--
--
Number of Shares
Acquired on
Vesting (#)
--
--
--
--
--
Value Realized on
Vesting ($)
--
--
--
--
--
Name
Mr. Foate
Ms. Jones
Mr. Verstegen
Mr. Ninivaggi
Mr. Lim
(1) Based on the difference between the exercise price and the sale price on the date of exercise.
NONQUALIFIED DEFERRED COMPENSATION
2008
Plexus does not maintain any defined benefit pension plans. Plexus’ only retirement savings plans are
defined contribution plans: the 401(k) Savings Plan (the “401(k) Plan”) for all qualifying U.S. employees; and the
supplemental executive retirement plan (the “SERP”) for designated executive officers and certain other key
employees. Because these are defined contribution plans, Plexus’ obligations are fixed at the time contributions are
made, rather than Plexus being liable for future potential shortfalls in plan assets to cover the fixed benefits that are
promised in defined benefit plans.
The 401(k) Plan is open to all U.S. Plexus employees meeting specified service and related requirements.
Under the plan, employees may voluntarily contribute up to 50% of their annual compensation, up to a maximum
tax code mandated limit of $15,500; Plexus will match 100% of the first 2.5% of salary which an employee defers,
up to $5,750 in calendar year 2008. There are several investment options available to participants under the 401(k)
Plan, including a Plexus stock fund.
Plexus maintains the SERP as an additional deferred compensation mechanism for most executive officers;
the individuals covered in fiscal 2008 include Ms. Jones and Messrs. Foate, Verstegen and Ninivaggi. Mr. Lim does
not participate because he is not a United States resident. Under the SERP, a covered executive may elect to defer
some or all of his or her compensation through the plan, and Plexus may credit the participant’s account with a
discretionary employer contribution. Participants are entitled to the payment of deferred amounts and any earnings
which may be credited thereon upon termination or retirement from Plexus, subject to the participants’ deferral
elections and Section 409A of the Code. The rabbi trust arrangement established under the SERP allows investment
of deferred compensation held on behalf of the participants into individual accounts and, within these accounts, into
one or more designated mutual funds or investments. These investment choices do not include Plexus stock.
Executive officers’ personal voluntary deferrals to the SERP for fiscal year 2008 totaled $222,542,
including those by the named executive officers as set forth in the table below. In addition, the plan allows for
discretionary Plexus contributions. Since fiscal 2006, discretionary contributions have been the greater of (a) 7% of
the executive’s total targeted cash compensation, minus Plexus’ permitted contributions to the executive officer’s
account in the 401(k) Plan, or (b) $13,500. The Committee may also choose to make additional or special
contributions; none were made in fiscal 2008 other than a special contribution of $265,500 to a former executive
officer of Plexus upon his permanent leave in recognition of his prior service and contributions to the Company.
40
Mr. Lim does not participate in these plans because he is a resident of Malaysia and is covered by a
different system. Under Malaysian law, an employer must make a contribution to the fund of at least 12% of every
employee’s salary during the year to the Employees Provident Fund, which is a retirement savings program
established under Malaysian law. In accordance with its practice in Malaysia, Plexus made a contribution of 17%
for Mr. Lim to reflect his seniority and responsibilities.
The following table includes information as to contributions under the SERP or, in the case of Mr. Lim, the
Malaysian Employees Provident Fund. Since the 401(k) Plan is a tax-qualified plan generally available to all
employees, contributions on behalf of the executive officers and earnings in that plan are not included in this table;
however, company contributions under both are among the items included in the “All Other Compensation” column
in the “Summary Compensation Table” above.
Name
Mr. Foate
Ms. Jones
Executive
Contributions
in Last FY
($) (1)
$144,074
Registrant
Contributions
in Last FY
($)
$88,750
Aggregate
Earnings
(Loss)
in Last FY
($)
($219,012)
Aggregate
Withdrawals/
Distributions
($)
--
Aggregate
Balance at
Last FYE
($)
$1,292,983
15,072
30,325
(6,306)
Mr. Verstegen
12,881
21,340
(44,340)
Mr. Ninivaggi
5,020
15,891
(3,866)
Mr. Lim (2)
28,088
43,409
See note (3)
--
--
--
--
55,585
285,829
31,108
717,139(4)
(1) Includes contributions by named executive officers that are included in the “Salary” column in the “Summary
Compensation Table” above, as follows: Mr. Foate – $104,000; Ms. Jones – $15,072; Mr. Verstegen –
$12,881; Mr. Ninivaggi – $5,020; and Mr. Lim – $28,088.
(2) Mr. Lim’s information relates to the Malaysian Employees Provident Fund.
(3) This information is not yet available to Mr. Lim or the Company from the Malaysian Employees Provident
Fund.
(4) Mr. Lim’s fund account also includes contributions prior to his employment with Plexus and related earnings
since the Malaysian Employees Provident Fund is not an employer-sponsored plan.
EMPLOYMENT AGREEMENTS AND POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE IN CONTROL
In this section, we are providing information about specific agreements with our executive officers relating
to employment and their post-employment compensation. As discussed further below, only Mr. Foate has an
employment agreement. All of our executive officers have change in control agreements which will provide, in
certain circumstances, for payments to the executive officers in the event of a change in control of Plexus.
Mr. Foate’s Employment Agreement
Plexus does not generally have employment agreements with its executive officers. However, when Mr.
Foate became Plexus’ Chief Executive Officer in 2002, the Compensation and Leadership Development Committee
and the board believed it was important to enter into an employment agreement with Mr. Foate to set forth the terms
of his employment and to provide incentives for him to continue with the Company over the long term. In May
2008, the Company entered into a new employment agreement with Mr. Foate. The new employment agreement,
which was approved by the Compensation and Leadership Development Committee and the board, amended and
superseded Mr. Foate’s previous employment agreement with the Company. Changes were made in order to more
41
fully comply with changes made to Internal Revenue Code (the “Code”) Section 409A and to integrate the change in
control provisions into the employment agreement; however, the benefits payable under the new agreement are
substantially unchanged from those under the previous agreements.
Mr. Foate’s new employment agreement is for an initial term of three years and automatically extends
(unless terminated) by one year every year, so that it maintains a rolling three-year term. The agreement specifies
when Plexus may terminate Mr. Foate for cause, or when Mr. Foate may leave the Company for good reason, and
determines the compensation payable upon termination. The definition of “cause” and “good reason” are
substantially similar to those under the change in control agreements, as described below, although “good reason”
would also include a failure of Plexus to renew the employment agreement. If Mr. Foate is terminated for cause or
voluntarily leaves without good reason, dies or becomes disabled, or the agreement is not renewed, Plexus is not
required to make any further payments to Mr. Foate other than with respect to obligations accrued on the date of
termination. If Plexus terminates Mr. Foate without cause, or he resigns with good reason, Mr. Foate is entitled to
receive compensation including his base salary for a three year period following his separation date, a pro-rated
VICP bonus keyed to the actual attainment of performance targets for the year in which Mr. Foate is involuntarily
terminated, and certain lump sum payments designed to ensure that his benefits approximate those provided under
the previous employment agreement. The lump sum payments are equal to the sum of one hundred percent (100%)
of Mr. Foate’s annual base salary prior to his separation date and the maximum amount of Company contributions
for a full plan year under the 401(k) Plan and the Company’s deferred compensation plans. Mr. Foate would also be
eligible to participate in the Company’s medical, dental and vision plans, subject to his payment of any premiums
required by such plans, for a three year period following his separation from Plexus. Any payments triggered by a
termination of employment are to be delayed until six months after termination, as required by Section 409A of the
Code.
Mr. Foate was previously covered by a separate change in control agreement with Plexus; however, change
in control provisions were incorporated into Mr. Foate’s new employment agreement and the previous change in
control agreement with Plexus was terminated. The change in control provisions are substantially identical to those
provided in the change in control agreements described below under the caption “Change in Control Agreements,”
with Mr. Foate’s payment amount being three times the relevant salary plus benefits.
Under Mr. Foate’s employment agreement, Plexus is also protected from competition by Mr. Foate after his
employment with Plexus would cease. Upon termination, Mr. Foate agrees to not interfere with the relationships
between the customers, suppliers or employees of Plexus for two years, and that he will not compete with Plexus
over the same period and in geographical locations proximate to Plexus’ operations. Further, Mr. Foate has agreed
to related confidentiality requirements after the termination of his employment.
Under the 2008 Long-Term Plan and predecessor plans, optionholders (or their representatives) have a
period of time in which they may exercise vested stock options after death, disability, retirement or other termination
of employment, except in the case of termination with cause. Options do not continue to vest after termination
except for full vesting upon a change in control or, when provided in related option agreements, upon death or
disability. See “Outstanding Equity Awards at Fiscal Year End” above for information as to Mr. Foate’s
outstanding stock options at September 27, 2008. Mr. Foate would also receive accrued and vested benefits under
the 401(k) Plan and the SERP, and payment for accrued but unused vacation, upon a termination of employment for
any reason; those amounts are not included in “Potential Benefits Table” below. See “Nonqualified Deferred
Compensation” above for further information.
Change in Control Agreements
In May 2008, the board approved a new form of change in control agreement. Apart from changes required
by Section 409A of the Code, including delaying payment triggered by a termination of employment until six
months after the termination if the employee is among the Company’s 50 top-paid employees, and changing certain
definitions to be consistent with Section 409A, the new change in control agreements do not contain any other
material changes from the previous change in control agreements. Additionally, the benefits payable under the new
change in control agreements are the same in all material economic respects to the benefits provided by the previous
change in control agreements.
42
Plexus has change in control agreements with Ms. Jones and Messrs. Verstegen, Ninivaggi and Lim, and its
other executive officers (with the exception of Mr. Foate as described above under the caption “Mr. Foate’s
Employment Agreement”) and certain other key employees. Under the terms of these agreements, if there is a
change in control of Plexus, as defined in the agreement, the executive officers’ authorities, duties and
responsibilities shall remain at least commensurate in all material respects with those prior to the change in control.
Their compensation may not be reduced. Their benefits must be commensurate with those of similarly situated
executives of the acquiring firm, and their location of employment must not be changed significantly as a result of
the change in control.
Within 24 months after a change in control, in the event that any covered executive officer is terminated
other than for cause, death or disability, or an executive officer terminates his or her employment with good reason,
Plexus is obligated to pay the executive officer, in a cash lump sum, an amount equal to either two or three times
(from one to two times for other key employees) the executive officer’s base salary plus targeted bonus payment,
and to continue retirement payments and certain other benefits. The change in control agreements designate three
times salary plus benefits for each of Ms. Jones and Messrs. Verstegen, Ninivaggi and Lim. The agreements further
provide for payment of additional amounts which may be necessary to “gross up” the amounts due to such executive
officer in the event of the imposition of an excise tax upon the payments. The agreements do not preclude
termination of the executive officer, or require payment of any benefit, if there has not been a change in control of
Plexus, nor do they limit the ability of Plexus to terminate these persons thereafter for cause.
Under our change in control agreements:
(cid:2)
(cid:2)
(cid:2)
A termination for a “cause” would occur if the executive officer willfully and continually fails to
perform substantial duties or willfully engages in illegal conduct or gross misconduct which
injures Plexus.
After a change in control, an executive may terminate for “good reason” which would include:
requiring the executive to perform duties inconsistent with the duties provided under his or her
agreement; Plexus not complying with provisions of the agreement; the Company requiring the
executive to move; or any attempted termination of employment which is not permitted by the
agreement.
A change in control would occur in the event of a successful tender offer for Plexus, other
specified acquisitions of a substantial portion of the Company’s outstanding stock, a merger or
other business combination involving the Company, a sale of substantial assets of the Company, a
contested director’s election or a combination of these actions followed by any or all of the
following actions: change in management or a majority of the board of the Company or a
declaration of a “change in control” by the board of directors.
Also, under the 2008 Long-Term Plan and predecessor plans, award holders (or their representatives) have
a period of time in which they may exercise vested awards after death, disability, retirement or other termination of
employment, except in the case of termination with cause. Awards do not continue to vest after termination, except
for full vesting upon death or permanent disability when provided in the related award agreements or upon a change
in control. See “Outstanding Equity Awards at Fiscal Year End” above for information as to executive officers’
outstanding stock options at September 27, 2008 (the named executive officers do not hold any stock-settled SARs).
Executives would also receive accrued and vested benefits under the 401(k) Plan and the SERP, and payment for
accrued but unused vacation, upon a termination of employment for any reason; those amounts are not included in
the table. See “Nonqualified Deferred Compensation” above for further information.
Plexus does not have employment agreements with its executive officers other than Mr. Foate. It also does
not have a formal severance plan for other types of employment termination, except in the event of a change in
control as described above. Although Plexus has a general practice of providing U.S. salaried employees with two
weeks’ severance pay for every year worked in the case of termination without cause, actual determinations are
made on a case-by-case basis. Therefore, whether and to what extent Plexus would provide severance benefits to
the named executive officers, or other executive officers, upon termination (other than due to death, permanent
disability or a change in control) would depend upon the facts and circumstances at that time. As such, we are
unable to estimate the potential payouts under other employment termination scenarios.
43
Potential Benefits Table
The following table provides information as to the amounts which will be payable (a) to Mr. Foate under
his employment agreement if he is terminated by Plexus for cause or without cause, (b) to the named executive
officers in the event of death or permanent disability, and (c) to the named executive officers in the event they were
terminated without cause, or the executive terminated with good reason, in the event of a change in control. The
payments are calculated assuming a termination as of September 27, 2008, the last day of our previous fiscal year.
The table includes only benefits that would result from death or permanent disability, a termination or a change in
control, not vested benefits that are payable irrespective of a change.
Executive Officer;
Context of
Termination
Cash
Payments
(1)
Early Vesting
of Stock
Options (2)
Early Vesting
of RSUs
(and long-term
cash) (3)
Additional
Retirement
Benefits
(4)
Other Benefits
(5)
Tax
Gross-up (6)
Total
Mr. Foate –
Termination by
Plexus for Cause
Mr. Foate – Death or
Disability
Mr. Foate –
Termination by
Plexus without
Cause
Mr. Foate – Change
in Control
Ms. Jones – Death or
Disability
Ms. Jones – Change
in Control
Mr. Verstegen –
Death or
Disability
Mr. Verstegen –
Change in
Control
Mr. Ninivaggi –
Death or
Disability
Mr. Ninivaggi –
Change in
Control
--
--
--
-- (7)
$5,437
$463,838
$4,050,000
--
--
--
--
--
$70,576
133,083
133,083
--
--
--
$70,576
602,358
4,183,083
4,050,000
5,437
463,838
$258,939
175,442
$2,004,089
6,957,745
-- (7)
23,435
98,952
--
88,643
--
211,030
1,536,372
23,435
98,952
96,748
116,143
823,854
2,695,504
-- (7)
580
74,214
--
174,150
1,338,894
580
74,214
81,443
201,650
-- (7)
507
49,476
--
84,481
--
--
--
248,944
1,696,781
134,464
1,050,825
507
49,476
65,115
111,981
551,094
1,828,998
Mr. Lim – Death or
Disability
-- (7)
Mr. Lim – Change in
1,005,575
Control
362
362
74,214
74,214
--
--
--
27,500
--
--
74,576
1,107,651
(1) This amount represents payments relating to the executives’ base salary and VICP bonus to the extent they
would be paid after termination, based on the salary in effect at the end of fiscal 2008 and the target VICP bonus
for 2008. Under the change in control agreements, this payment equals three years salary, as it was in effect at
the time of termination, plus three times the targeted VICP compensation for the year of termination. There are
similar provisions for a termination without cause in Mr. Foate’s employment agreement.
(2) All outstanding unvested stock options would become vested upon a change in control, and the unvested options
also would vest upon death or disability. The amount shown represents the difference in value of the unvested
options between their exercise price and market price, based on Plexus’ closing stock price of $21.70 per share
44
on September 26, 2008, the last trading date of fiscal 2008. These are in addition to the already fully vested
stock options discussed above. See “Outstanding Equity Awards at Fiscal Year End.”
(3) All outstanding RSUs and long-term cash awards would become vested upon a change in control. The amount
shown represents the difference in value of the unvested RSUs and long-term cash awards between their grant
price and market price, based on Plexus’ closing stock price of $21.70 per share on September 26, 2008, the last
trading day of fiscal 2008.
(4) Under the change in control agreements, the Company would be required to continue payments to the 401(k)
Plan and SERP for three years at the same level during the year preceding the change in control. There are
similar provisions for a termination without cause in Mr. Foate’s employment agreement. This column
represents the total amount of those payments. The executive officers would also receive accrued and vested
benefits under the 401(k) Plan and the SERP, and payment for accrued but unused vacation, upon a termination
of employment for any reason; those amounts are not included in the table. See “Nonqualified Deferred
Compensation” for further information.
(5) These amounts include continuing payments of health and welfare benefits, accrued vacation, executive
reimbursement plan expenses, company car and other benefits for three years, as provided in the agreement.
(6) In the event of a change in control in Plexus, the change in control agreements with our executive officers
provide that we will pay them an additional benefit to reimburse the “golden parachute” excise taxes which they
would owe pursuant to Internal Revenue Code Section 280G. This column provides an estimate of these
payments, reflecting each executive’s base compensation under Section 280G.
(7) Excludes life or disability insurance payments from third party insurers.
CERTAIN TRANSACTIONS
Plexus has a written policy requiring that transactions, if any, between Plexus on the one hand and its
executive officers, directors or employees (or related parties) on the other hand must be on a basis that is fair and
reasonable to the Company and in accordance with Plexus’ Code of Conduct and Business Ethics and other policies.
Plexus’ policy focuses on related party transactions in which its insiders or their families have a significant
economic interest; while the policy requires disclosure of all transactions, it recognizes that there may be situations
where Plexus has ordinary business dealings with other large companies in which insiders may have some role but
little if any stake in a particular transaction. Although these transactions are not prohibited, any such transaction
must be approved by either a disinterested majority of the board of directors or by the Audit Committee.
Please see “Corporate Governance-Director Independence” for certain transactions and relationships
between Plexus and two directors which the board considered when determining the independence of the directors.
There were no other transactions in an amount or of a nature which were reportable under applicable SEC rules in
fiscal 2008.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of
the board of directors, which was established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act, oversees and monitors the participation of Plexus’ management
and independent auditors throughout the financial reporting process and approves the hiring and retention of and
fees paid to the independent auditors. The Audit Committee also generally reviews other transactions between the
Company and interested parties which may involve a potential conflict of interest. No member of the Audit
Committee is employed or has any other material relationship with Plexus. The members are “independent
directors” as defined in Rule 4200(a)(15) of the NASD listing standards applicable to the Nasdaq Global Select
Stock Market and relevant SEC rules. The Plexus board of directors has adopted a written charter for the Audit
Committee, and the current version is available on Plexus’ website.
45
In connection with its function to oversee and monitor the financial reporting process of Plexus and in
addition to its quarterly review of interim unaudited financial statements, the Audit Committee has done the
following:
(cid:129)
(cid:129)
(cid:129)
reviewed and discussed the audited financial statements for the fiscal year ended September 27,
2008 with Plexus management;
discussed with PricewaterhouseCoopers LLP, Plexus’ independent auditors, those matters which
are required to be discussed by Statement on Auditing Standards No. 114, “The Auditor’s
Communication with Those Charged with Governance” and SEC Regulation S-X, Rule 2-07
“Communication with Audit Committees”; and
received the written disclosure and the letter from PricewaterhouseCoopers LLP required by the
applicable standards of the Public Company Accounting Oversight Board regarding the
independent accountant's communications with the Audit Committee concerning independence,
and has discussed with PricewaterhouseCoopers LLP its independence.
Based on the foregoing, the Audit Committee recommended to the board of directors that the audited
financial statements be included in Plexus’ annual report on Form 10-K for the fiscal year ended September 27,
2008. The Audit Committee further confirmed the independence of PricewaterhouseCoopers LLP.
Members of the Audit Committee: David J. Drury, Chair
Peter Kelly
AUDITORS
Stephen P. Cortinovis
Mary A. Winston
Subject to ratification by shareholders, the Audit Committee intends to reappoint the firm of
PricewaterhouseCoopers LLP as independent auditors to audit the financial statements of Plexus for fiscal 2009.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the annual meeting of shareholders to
respond to questions and make a statement if they desire to do so.
Fees and Services
Fees (including reimbursements for out-of-pocket expenses) paid to PricewaterhouseCoopers LLP for
services in fiscal 2008 and 2007 were as follows:
Audit fees:
Audit-related fees:
Tax fees:
All other fees:
2008
2007
$1,056,000
--
44,100
--
$1,057,200
--
30,000
--
The above amounts relate to services provided in the indicated fiscal years, irrespective of when they were billed.
Audit fees related to Plexus’ annual audit and quarterly professional reviews; audit fees also included substantial
work related to the certification of Plexus’ internal controls as required by the Sarbanes-Oxley Act. Tax services
consisted primarily of compliance and other tax advice regarding special Plexus projects. The Audit Committee
considered the compatibility of the non-audit services provided by PricewaterhouseCoopers LLP with the
maintenance of that firm’s independence.
The Audit Committee generally approves all engagements of the independent auditor in advance, including
approval of the related fees. The Audit Committee approves an annual budget (and may from time to time approve
amendments thereto), which specifies projects and the approved levels of fees for each. To the extent that items are
not covered in the annual budget or fees exceed the budget, management must have such items approved by the
Audit Committee or, if necessary between Audit Committee meetings, by the Audit Committee chairman on behalf
of the Audit Committee. There were no services in fiscal 2008 or 2007 which were not approved in advance by the
Audit Committee under this policy.
46
* * * * *
By order of the Board of Directors
Angelo M. Ninivaggi
Vice President, General Counsel, Secretary and
Corporate Compliance Officer
Neenah, Wisconsin
December 16, 2008
A copy (without exhibits) of Plexus’ annual report to the Securities and Exchange Commission on
Form 10-K for the fiscal year ended September 27, 2008 will be provided without charge to each record or
beneficial owner of shares of Plexus’ common stock as of December 1, 2008 on the written request of that
person directed to: Dianne Boydstun, Executive Assistant to the Chief Financial Officer, Plexus Corp., 55
Jewelers Park Drive, P.O. Box 156, Neenah, Wisconsin 54957-0156. See also page 1 of this proxy statement.
In addition, copies are available on Plexus’ website at www.plexus.com, following the links at “Investor
Relations,” then “SEC Filings,” then “Plexus’ SEC Reports” (or http://www.plexus.com/annualreport.php).
To save printing and mailing costs, in some cases only one notice, annual report and/or proxy statement
will be delivered to multiple holders of securities sharing an address unless Plexus has received contrary instructions
from one or more of those security holders. Upon written or oral request, we will promptly deliver a separate copy
of the annual report or proxy statement, as applicable, to any security holder at a shared address to which a single
copy of the document was delivered. You may request additional copies by written request to the address set forth
in the paragraph above or as set forth on page 1 of this proxy statement. You may also contact Ms. Boydstun at that
address or telephone number if you wish to receive a separate annual report and/or proxy statement in the future, or
if you share an address with another security holder and wish for delivery of only a single copy of the annual report
and/or proxy statement if you are currently receiving multiple copies.
47
(PAGE INTENTIONALLY LEFT BLANK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–K
(mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 27, 2008
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 its Charter)
Wisconsin
(State or other jurisdiction of
Incorporation or Organization)
55 Jewelers Park Drive
39-1344447
(I.R.S. Employer Identification No.)
Neenah, Wisconsin 54957-0156
(920) 722-3451
(Address, including zip code, of principal executive offices and Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.01 par value
Preferred Share Purchase Rights
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2)
No___
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes___ No (cid:2)
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 shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes (cid:2) No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer (cid:2)
Accelerated filer
Non-accelerated filer ____
(Do not check if a smaller reporting company)
Smaller reporting company _____
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ___ No (cid:2)
As of March 29, 2008, 43,630,219 shares of common stock were outstanding, and the aggregate market value of the shares of common
stock (based upon the $27.06 closing sale price on that date, as reported on the NASDAQ Global Select Market) held by non-affiliates (excludes
328,756 shares reported as beneficially owned by directors and executive officers – does not constitute an admission as to affiliate status) was
approximately $1,171.7 million.
As of November 10, 2008, there were 39,326,467 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Proxy Statement for 2009 Annual
Meeting of Shareholders
Part of Form 10-K Into Which
Portions of Document are Incorporated
Part III
“SAFE HARBOR” CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
The statements contained in the Form 10-K that are not historical facts (such as statements in the future tense
and statements including “believe,” “expect,” “intend,” “plan,” “anticipate,” “goal,” “target” and similar terms and
concepts, including all discussions of periods which are not yet completed) are forward-looking statements that involve
risks and uncertainties, including, but not limited to:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the economic performance of the electronics, technology and defense industries
the risk of customer delays, changes or cancellations in both ongoing and new programs
the poor visibility of future orders, especially in view of current economic conditions
the effects of the volume of revenue from certain sectors or programs on our margins in particular periods
our ability to secure new customers, maintain our current customer base and deliver product on a timely
basis
the risks relative to a new confidential customer in the Industrial/Commercial sector, including customer
delays, start-up costs, our potential inability to execute and lack of a track record of order volume and
timing
the risks of concentration of work for certain customers
the weakness of the economy and the instability of the global banking and financial markets and the
potential inability of Plexus or our customers or suppliers to access cash investments and credit facilities
(cid:2) material cost fluctuations and the adequate availability of components and related parts for production
(cid:2)
(cid:2)
(cid:2)
the effect of changes in average selling prices
the effect of start-up costs of new programs and facilities, including our recent and planned expansions
the adequacy of restructuring and similar charges as compared to actual expenses, including the
announced closure of our Ayer, Massachusetts facility
the degree of success and the costs of efforts to improve the financial performance of our Mexican
operations
possible unexpected costs and operating disruption in transitioning programs
the costs and inherent uncertainties of pending litigation
the effect of general economic conditions and world events (such as changes in oil prices, terrorism and
war in the Middle East)
the impact of increased competition and
other risks detailed below, especially under the heading “Risk Factors”, otherwise herein, and in our
Securities and Exchange Commission filings.
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
In addition, see Risk Factors in Item 1A and Management’s Discussion and Analysis of Financial Condition
and Results of Operations in Item 7 for a further discussion of some of the factors that could affect future results.
* * *
PART 1
ITEM 1.
BUSINESS
Overview
Plexus Corp. and its subsidiaries (together “Plexus,” the “Company,” or “we”) participate in the Electronic
Manufacturing Services (“EMS”) industry. We provide product realization services to original equipment manufacturers
(“OEMs”) and other technology companies in the wireline/networking, wireless infrastructure, medical,
industrial/commercial and defense/security/aerospace market sectors. We provide advanced electronics design,
manufacturing and testing services to our customers with a focus on the mid-to-lower-volume, higher-mix segment of
the EMS market. Our customers’ products typically require exceptional production and supply-chain flexibility,
necessitating an optimized demand-pull-based manufacturing and supply chain solution across an integrated global
platform. Many of our customers’ products require complex configuration management and direct order fulfillment to
their customers across the globe. In such cases we provide global logistics management and after-market service and
repair. Our customers’ products may have stringent requirements for quality, reliability and regulatory compliance. We
offer our customers the ability to outsource all phases of product realization, including product specifications;
development, design and design validation; regulatory compliance support; prototyping and new product introduction;
1
manufacturing test equipment development; materials sourcing, procurement and supply-chain management; product
assembly/manufacturing, configuration and test; order fulfillment, logistics and service/repair.
Plexus is passionate about its goal to be the best EMS company in the world at providing services for customers
that have mid-to-lower-volume requirements and a higher mix of products. We have tailored our engineering services,
manufacturing operations, supply-chain management, workforce, business intelligence systems, financial goals and
metrics specifically to support these types of programs. Our flexible manufacturing facilities and processes are designed
to accommodate customers with multiple product-lines and configurations as well as unique quality and regulatory
requirements. Each of these customers is supported by a multi-disciplinary customer team and one or more uniquely
configured “focus factories” supported by a supply-chain and logistics solution specifically designed to meet the
flexibility and responsiveness required to support that customer’s fulfillment requirements.
Our go-to-market strategy is also tailored to our target market sectors and business strategy. We have business
development and customer management teams that are dedicated to each of the five sectors we serve. These teams are
accountable for understanding the sector participants, technology, unique quality and regulatory requirements and
longer-term trends. Further, these teams help set our strategy for growth in their sectors with a particular focus on
expanding the services and value-add that we provide to our current customers while strategically targeting select new
customers to add to our portfolio.
Our financial model is aligned with our business strategy, with our primary focus to earn a return on invested
capital (“ROIC”) in excess of our weighted average cost of capital (“WACC”). The smaller volumes, flexibility
requirements and fulfillment needs of our customers typically result in greater investments in inventory than many of our
competitors, particularly those that provide EMS services for high-volume, less complex products with less stringent
requirements (such as consumer electronics). In addition, our cost structure relative to these peers includes higher
investments in selling and administrative costs as a percentage of sales to support our sector-based go-to-market strategy,
smaller program sizes, flexibility, and complex quality and regulatory compliance requirements. By exercising
discipline to generate a ROIC in excess of our WACC, our goal is to ensure that Plexus creates a value proposition for
our shareholders as well as our customers.
Our customers include both industry-leading OEMs and other technology companies that have never
manufactured products internally. As a result of our focus on serving market sectors that rely on advanced electronics
technology, our business is influenced by technological trends such as the level and rate of development of
telecommunications infrastructure, the expansion of networks and use of the Internet. In addition, the federal Food and
Drug Administration’s approval of new medical devices, defense procurement practices and other governmental
approval and regulatory processes can affect our business. Our business has also benefited from the trend to increased
outsourcing by OEMs.
We provide most of our contract manufacturing services on a turnkey basis, which means that we procure
some or all of the materials required for product assembly. We provide some services on a consignment basis, which
means that the customer supplies the necessary materials, and we provide the labor and other services required for
product assembly. Turnkey services require material procurement and warehousing, in addition to manufacturing, and
involve greater resource investments than consignment services. Other than certain test equipment and software used
for internal operations, we do not design or manufacture our own proprietary products.
Established in 1979 as a Wisconsin corporation, we have approximately 7,900 full-time employees, including
approximately 1,300 engineers and technologists dedicated to product development and design, test equipment
development and design, and manufacturing process development and control, all of whom operate from 19 active
facilities in 14 locations, totaling approximately 2.6 million square feet.
We maintain a website at www.plexus.com. We make available through that website, free of charge, copies of
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Reports on Form 8-K, and amendments to those
reports, as soon as reasonably practical after we electronically file those materials with, or furnish them to, the
Securities and Exchange Commission (“SEC”). Our Code of Conduct and Business Ethics is also posted on our
website. You may access these SEC reports and the Code of Conduct and Business Ethics by following the links under
“Investor Relations” at our website.
Services
Plexus offers a broad range of integrated services as more fully described below; our customers may utilize
any, or all, of the following services and tend to use more of these services as their outsourcing strategies mature:
2
Product development and design. We provide comprehensive conceptual design and value-engineering
services. These product design services include project management, feasibility studies, product conceptualization,
specification development for product features and functions, circuit design (including digital, microprocessor, power,
analog, radio frequency (RF), optical and micro-electronics), field programmable gate array design (FPGA), printed
circuit board layout, embedded software design, mechanical design (including thermal analysis, plastic components,
sheet metal enclosures, and castings), development of test specifications and product validation testing. We invest in the
latest design automation tools and technology. We also provide comprehensive value-engineering services for our
customers that extend the life cycles of their products. These value-added services include engineering change-order
management, cost reduction redesign, component obsolescence management, product feature expansion, test
enhancement and component re-sourcing.
Prototyping and new product introduction services. We provide assembly of prototype products within our
operating sites. We supplement our prototype assembly services with other value-added services, including materials
management, analysis of the manufacturability and testability of a design, test implementation and pilot production runs
leading to volume production. These services link our engineering and our customers’ engineering to our volume
manufacturing facilities. These links facilitate an efficient transition from engineering to manufacturing. We believe
that these services provide significant value to our customers by accelerating their products’ time-to-market schedule,
reducing change activity and providing a robust product set.
Test equipment development. Enhanced product functionality has led to increasingly complex components and
assembly techniques; consequently, there is a need to design and assemble increasingly complex in-circuit and
functional test equipment for electronic products and assemblies. Our internal development of this test equipment
allows us to rapidly specify, implement, maintain and enhance test solutions that efficiently test printed circuit
assemblies, subassemblies, system assemblies and finished products. We also develop specialized equipment that
allows us to environmentally stress-test products during functional testing to assure reliability. We believe that the
internal design and production of test equipment is an important factor in our ability to provide technology-driven
products of consistently high quality.
Material sourcing and procurement. We provide contract manufacturing services on either a “turnkey” basis,
which means we source and procure the materials required for product assembly, or on a “consignment” basis, which
means the customer supplies the materials necessary for product assembly. Turnkey services include materials
procurement and warehousing in addition to manufacturing and involve greater resource investment and potential
inventory risk than consignment services. Substantially all of our manufacturing services are currently on a turnkey
basis.
Agile manufacturing services. We have the manufacturing services expertise required to assemble very
complex electronic products that utilize multiple printed circuit boards and subassemblies. These manufacturing
services, which we endeavor to provide on an agile and rapid basis, include developing and implementing materials and
manufacturing strategies that meet our customers' requirements for demand flexibility, for assembling printed circuit
boards utilizing a wide range of assembly technologies, and for building and configuring final product and system
boxes and testing assemblies to meet customers' requirements. These complex products are typically configured to
fulfill unique end-customer requirements and many are shipped directly to our customers’ end users.
Higher-level assembly (HLA). We are increasingly providing more advanced assembly solutions for larger
equipment to our customers. These products can be very large and contain a number of printed circuit board
assemblies, complex subassemblies and other components. These services include assembly of kiosk products, finished
medical products and complex electro-mechanical assemblies known as mechatronics. These products often combine
many of the other integrated services we provide and may require more unique facility configurations than we typically
employ.
Fulfillment and logistic services. We provide fulfillment and logistic services to many of our customers.
Direct Order Fulfillment (“DOF”) entails receiving orders from our customers that provide the final specifications
required by the end-customer. We then Build to Order (“BTO”) and Configure to Order (“CTO”) and deliver the
product directly to the end-customer. The DOF process relies on Enterprise Resource Planning (“ERP”) systems
integrated with those of our customers to manage the overall supply chain from parts procurement through
manufacturing and logistics.
After-market support. We provide service support for manufactured products requiring repair and/or upgrades,
which may or may not be under a customer's warranty. In support of certain customers, we provide these services for
3
some products which we did not originally manufacture. We provide in and out bound logistics required to support
fulfillment and service.
Regulatory requirements. In addition, we have developed certain processes and tools to meet industry-specific
requirements. Among these are the tools and processes to assemble finished medical devices that meet U.S. Food and
Drug Administration Quality Systems Regulation requirements and similar regulatory requirements in other countries.
Our manufacturing and engineering facilities are ISO certified to 9001:2000 standards. We have additional
certifications and/or registrations held by certain of our facilities in various geographic locations:
Environmental Standard ISO – 14001 – Asia, Europe
21 CFR Part 820 (FDA) (Medical) – United States, Asia, Mexico
Telecommunications Standard TL 9000 – United States, Asia
(cid:2) Medical Standard ISO 13485:2003 – United States, Asia, Mexico, Europe
(cid:2)
(cid:2)
(cid:2)
(cid:2) Aerospace Standard AS9100 – United States, Asia
(cid:2)
(cid:2) ANSI/ESD (Electrostatic Discharge Control Program) S20.20 – United States
ITAR (International Traffic and Arms Regulation) self-declaration – United States
Customers and Market Sectors Served
We provide services to a wide variety of customers, ranging from large multinational companies to smaller
emerging technology companies. During fiscal 2008, we provided services to over 145 customers. For many
customers, we provide design and production capabilities, thereby allowing these customers to concentrate on research
and development, concept development, distribution, marketing and sales. This helps accelerate their time to market,
reduce their investment in engineering and manufacturing capacity and optimize total product cost.
Juniper Networks, Inc. (“Juniper”) accounted for 20 percent of our net sales in fiscal 2008. Juniper and
General Electric Company (“GE”) accounted for 21 percent and 10 percent, respectively, of our net sales in fiscal 2007
and 19 percent and 12 percent, respectively, of our net sales in fiscal 2006. No other customer accounted for 10 percent
or more of our net sales in fiscal 2008, 2007 or 2006. The loss of any of our major customers could have a significant
negative impact on our financial results.
Many of our large customers contract with us through independent multiple divisions, subsidiaries, production
facilities or locations. We believe that in most cases our sales to any one such division, subsidiary, facility or location
are not dependent on sales to others.
The distribution of our net sales by market sectors is shown in the following table:
Industry
Wireline/Networking
Wireless Infrastructure
Medical
Industrial/Commercial
Defense/Security/Aerospace
September 27,
2008
44%
9%
21%
16%
10%
100%
Fiscal years ended
September 29,
2007
44%
8%
24%
15%
9%
100%
September 30,
2006
38%
9%
26%
18%
9%
100%
Although our current business development focus is based on the end-market sectors noted above, we evaluate
our financial performance and allocate our resources on a geographic basis (see Note 13 in Notes to Consolidated
Financial Statements regarding our reportable segments).
Materials and Suppliers
We typically purchase raw materials, including printed circuit boards and electronic components, from
manufacturers as well as from electronic distributors. In addition, we occasionally purchase components from
customers. The key electronic components we purchase include specialized components such as application-specific
integrated circuits, semiconductors, interconnect products, electronic subassemblies (including memory modules, power
supply modules and cable and wire harnesses), inductors, resistors and capacitors. Along with these electronic
4
components, we also purchase components used in higher-level assembly and manufacturing. These components
include injection-molded plastics, pressure-formed plastics, vacuum-formed plastics, sheet metal fabrications,
aluminum extrusions, die castings and various other hardware and fastener components. All of these components range
from standard to highly customized and vary widely in terms of market availability and price.
Occasional component shortages and subsequent allocations by suppliers are an inherent part of the electronics
industry. We actively manage our business to try to minimize our exposure to material and component shortages. We
have a corporate sourcing and procurement organization whose primary purpose is to develop supply-chain sources and
create strong supplier alliances to ensure, as much as possible, a steady flow of components at competitive prices.
Because we design products and therefore can influence the selection of components used in some new products,
component manufacturers often provide us with priority access to materials and components, even during times of
shortages. We have undertaken a series of initiatives, including the utilization of in-plant stores, point-of-use programs,
assured supply programs and other efforts, to improve our overall supply chain flexibility.
New Business Development
Our new business development is directed primarily through an internal effort organized around end-markets,
or market sectors. Each market sector has a team of dedicated, empowered resources including sector vice presidents,
customer management vice presidents, sales account executives, customer managers, customer development directors,
market sector analysts, and service specialists. Our sales and marketing efforts focus on generating both new customers
and expanding business with existing customers. Our ability to provide a full range of product realization services is a
marketing advantage; our service specialists participate in marketing through direct customer contact and participation
in industry events and seminars.
Competition
The market for the services we provide is highly competitive. We compete primarily on the basis of meeting
the unique needs of our customers, and providing flexible solutions, timely order fulfillment and strong engineering,
testing and production capabilities. We have many competitors in the electronics design and assembly industry. Larger
and more geographically diverse competitors have substantially more resources than we do. Other, smaller competitors
primarily compete only in specific sectors, typically within limited geographical areas. We also compete against
companies that design or manufacture items in-house. In addition, we compete against foreign, low-labor cost
manufacturers. This foreign, low-labor cost competition tends to focus on commodity and consumer-related products,
which is not our focus.
Intellectual Property
We own various service marks, including “Plexus,” and “Plexus, The Product Realization Company.”
Although we own certain patents, they are not currently material to our business. We do not have any material
copyrights.
Information Technology
In 2008, we completed the implementation of an integrated ERP platform that serves all manufacturing sites.
This ERP platform augments our other management information systems and includes software from J.D. Edwards
(now part of the Oracle Corporation) and several other vendors. The ERP platform includes various software systems
to enhance and standardize our ability to translate information from multiple production facilities into operational and
financial information and create a consistent set of core business applications at our facilities worldwide. We believe
the related software licenses are of a general commercial character on terms customary for these types of agreements.
Environmental Compliance
We are subject to a variety of environmental regulations relating to air emission standards and the use, storage,
discharge and disposal of hazardous chemicals used during our manufacturing process. We believe that we are in
compliance with all federal, state and foreign environmental laws and do not anticipate any significant expenditures in
maintaining our compliance; however, there can be no assurance that violations will not occur which could have a
material adverse effect on our financial results.
Two European Union (“EU”) directives particularly affect our business from an environmental perspective.
The first of these is the Restriction of the use of Certain Hazardous Substances (“RoHS”). RoHS restricts within the
5
EU the distribution of products containing certain substances, with lead being the restricted substance most relevant to
us. The second EU directive is the Waste Electrical and Electronic Equipment directive, which requires a manufacturer
or importer, at its own cost, to take back and recycle all of the products it either manufactured in or imported into the
EU. Since both of these EU directives affect the worldwide electronics supply-chain, we expect that there will be
further collaborative efforts with our suppliers and customers to develop compliant processes and products, although to
date the cost of such efforts to us and our liability for non-compliance has been nominal.
Employees
Our employees are one of our primary strengths, and we make a considerable effort to maintain a well-
qualified and motivated work force. We have been able to offer enhanced career opportunities to many of our
employees. Our human resources department identifies career objectives and monitors specific skill developments for
employees with potential for advancement. We invest at all levels of the organization to ensure that employees are well
trained. We have a policy of involvement and consultation with employees at every facility and strive for continuous
improvement at all levels.
We employ approximately 7,900 full-time employees. Given the quick response times required by our
customers, we seek to maintain flexibility to scale our operations as necessary to maximize efficiency. To do so, we
use skilled temporary labor in addition to our full-time employees. In Europe, approximately 150 of our employees are
covered by union agreements. These union agreements are typically renewed at the beginning of each year, although in
a few cases these agreements may last two or more years. Our employees in the United States, Malaysia, China and
Mexico are not covered by union agreements. We have no history of labor disputes at any of our facilities. We believe
that our employee relationships are good.
ITEM 1A
RISK FACTORS
Our net sales and operating results may vary significantly from period to period.
Our quarterly and annual results may vary significantly depending on various factors, many of which are
beyond our control. These factors include:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the volume and timing of customer orders relative to our capacity
the typical short life-cycle of our customers’ products
customers’ operating results and business conditions
changes in our customers’ sales mix
failures of our customers to pay amounts due to us
volatility of customer orders for certain programs and sectors
possible non-compliance with the statutes and regulations covering the design, development, testing,
manufacturing and labeling of medical devices
the timing of our expenditures in anticipation of future orders
our effectiveness in planning production and managing inventory, fixed assets and manufacturing
processes
changes in cost and availability of labor and components and
changes in U.S. and global economic and political conditions and world events.
The majority of our net sales come from a relatively small number of customers and a limited number of market
sectors; if we lose any of these customers or there are problems in those market sectors, our net sales and
operating results could decline significantly.
Net sales to our ten largest customers have represented a majority of our net sales in recent periods. Our ten
largest customers accounted for approximately 60 percent, 61 percent and 59 percent of our net sales for fiscal 2008,
2007 and 2006, respectively. For fiscal 2008 there was one customer that represented 10 percent or more of our net
sales. For 2007 and 2006, there were two customers that represented 10 percent or more of our net sales. Our principal
customers may vary from period to period, and our principal customers may not continue to purchase services from us
at current levels, or at all. Significant reductions in net sales to any of these customers, or the loss of other major
customers, could seriously harm our business.
6
In addition, we focus our net sales to customers in only a few market sectors. For example, net sales to
customers in the wireline/networking sector recently have increased significantly in absolute dollars, making us more
dependent upon the performance of that sector and the economic and business conditions that affect it. In addition, net
sales in the defense/security/aerospace sector have become increasingly important in some periods; however, net sales
in this sector are particularly susceptible to significant period-to-period variations. Any weakness in the market sectors
in which our customers are concentrated could affect our business and results of operations.
The global credit market crisis and economic weakness may adversely affect our earnings, liquidity and financial
condition.
Global financial and credit markets recently have been, and continue to be, extremely unstable and
unpredictable. Worldwide economic conditions have been weak and may be further deteriorating. The instability of
the markets and weakness of the economy could affect the demand for our customers' products, the amount, timing and
stability of their orders to us, the financial strength of our customers and suppliers, their ability or willingness to do
business with us, our willingness to do business with them, and/or our suppliers' and customers' ability to fulfill their
obligations to us. These factors could adversely affect our operations, earnings and financial condition.
In addition, continued, and potentially increased, volatility, instability and weakness in the financial and credit
markets could affect our ability to sell our investment securities and other financial assets, which in turn could
adversely affect our liquidity and financial position. We encountered a situation in which we were unable to make such
sales as described below in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Auction Rate
Securities.” This instability also could affect the prices at which we could make any such sales, which also could
adversely affect our earnings and financial condition. These conditions could also negatively affect our ability to secure
funds or raise capital, if needed.
Our customers do not make long-term commitments and may cancel or change their production requirements.
EMS companies must respond quickly to the requirements of their customers. We generally do not obtain
firm, long-term purchase commitments from our customers. Customers also cancel requirements, change production
quantities or delay production for a number of reasons that are beyond our control. The success of our customers’
products in the market and the strength of the markets themselves affect our business. Cancellations, reductions or
delays by a significant customer, or by a group of customers, could seriously harm our operating results. Such
cancellations, reductions or delays have occurred and may continue to occur.
In addition, we make significant decisions based on our estimates of customers’ requirements, including
determining the levels of business that we will seek and accept, production schedules, component procurement
commitments, facility requirements, personnel needs and other resource requirements. The short-term nature of our
customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to
accurately estimate the future requirements of those customers. Since many of our operating expenses are fixed, a
reduction in customer demand can harm our operating results. Moreover, since our margins vary across customers and
specific programs, a reduction in demand with higher margin customers or programs will have a more significant
adverse effect on our operating results.
Rapid increases in customer requirements may stress personnel and other capacity resources. We may not
have sufficient resources at any given time to meet all of our customers’ demands or to meet the requirements of a
specific program.
Defense contracting can be subject to extensive procurement processes and other factors that can affect the
timing and duration of contracts and orders. For example, defense orders are subject to continued Congressional
appropriations for these programs, as well as continued determinations by the Department of Defense regarding
whether to continue them. Products for the military are also subject to continued testing of their operations in the field
and changing military operational needs, which could affect the possibility and timing of future orders. While those
arrangements may result in a significant amount of net sales in a short period of time as happened in the first half of
fiscal 2008, they may or may not result in continuing long-term projects or relationships. Even in the case of
continuing long-term projects or relationships, orders in the defense sector can be episodic and vary significantly from
period to period.
7
Our manufacturing services involve inventory risk.
Most of our contract manufacturing services are provided on a turnkey basis, under which we purchase some,
or all, of the required raw materials and component parts. Excess or obsolete inventory could adversely affect our
operating results.
In our turnkey operations, we order materials and components based on customer forecasts and/or orders.
Suppliers may require us to purchase materials and components in minimum order quantities that may exceed customer
requirements. A customer’s cancellation, delay or reduction of forecasts or orders can also result in excess inventory or
additional expense to us. Engineering changes by a customer may result in obsolete raw materials or component parts.
While we attempt to cancel, return or otherwise mitigate excess and obsolete materials and components and require
customers to reimburse us for excess and obsolete inventory, we may not actually be reimbursed timely or be able to
collect on these obligations.
In addition, we provide managed inventory programs for some of our key customers under which we hold and
manage finished goods or work-in-process inventories. These managed inventory programs result in higher inventory
levels, further reduce our inventory turns and increase our financial exposure with such customers. Even though our
customers generally have contractual obligations to purchase such inventories from us, we remain subject to the risk of
enforcing those obligations.
We may experience raw material and component parts shortages and price fluctuations.
We do not have any long-term supply agreements. At various times, we have experienced raw material and
component parts shortages due to supplier capacity constraints or their failure to deliver. At times, raw material and
component parts shortages have been prevalent due to industry-wide conditions, and such shortages can be expected to
recur from time to time. World events, such as foreign government policies, terrorism, armed conflict, economic
recession and epidemics, could also affect supply chains. We rely on a limited number of suppliers for many of the raw
materials and component parts used in the assembly process and, in some cases, may be required to use suppliers that
are the sole provider of a particular raw material or component part. Such suppliers may encounter quality problems or
financial difficulties which could preclude them from delivering raw materials or component parts timely or at all.
Supply shortages and delays in deliveries of raw materials or component parts have resulted in delayed production of
assemblies, which have increased our inventory levels and adversely affected our operating results in certain periods.
An inability to obtain sufficient inventory on a timely basis could also harm relationships with our customers.
Raw material and component part supply shortages and delays in deliveries have also resulted in increased
pricing. While many of our customers permit quarterly or other periodic adjustments to pricing based on changes in
raw material or component part prices and other factors, we typically bear the risk of price increases that occur between
any such repricings or, if such repricing is not permitted, during the balance of the term of the particular customer
contract. Conversely, raw material and component part price reductions have contributed positively to our operating
results in the past. Our inability to continue to benefit from such reductions in the future could adversely affect our
operating results.
Failure to manage periods of growth or contraction, if any, may seriously harm our business.
Our industry frequently sees periods of expansion and contraction to adjust to customers’ needs and market
demands. Plexus regularly contends with these issues and must carefully manage its business to meet customer and
market requirements. If we fail to manage these growth and contraction decisions effectively, we can find ourselves
with either excess or insufficient resources and our business, as well as our profitability, may suffer.
Expansion can inherently include additional costs and start-up inefficiencies. We are currently contemplating
possible expansion of our operations to other countries. In fiscal 2007, we expanded our operations in Asia, including
the addition of a third facility in Penang, Malaysia, as well as the doubling of capacity in our existing facility in
Xiamen, China. We recently announced a planned expansion in Hangzhou, China. If we are unable to effectively
manage our currently anticipated growth, or related anticipated net sales are not realized, our operating results could be
adversely affected. In addition, we may expand our operations in new geographical areas where currently we do not
operate. Other risks of current or future expansion include:
(cid:2)
(cid:2)
the inability to successfully integrate additional facilities or incremental capacity and to realize anticipated
synergies, economies of scale or other value
additional fixed costs which may not be fully absorbed by new business
8
(cid:2)
(cid:2)
(cid:2)
(cid:2)
difficulties in the timing of expansions, including delays in the implementation of construction and
manufacturing plans
diversion of management’s attention from other business areas during the planning and
implementation of expansions
strain placed on our operational, financial and other systems and resources and
inability to locate sufficient customers, employees or management talent to support the expansion.
Periods of contraction or reduced net sales create other challenges. We must determine whether facilities
remain viable, whether staffing levels need to be reduced, and how to respond to changing levels of customer demand.
While maintaining multiple facilities or higher levels of employment entail short-term costs, reductions in facilities
and/or employment could impair our ability to respond to market improvements or to maintain customer relationships.
Our decisions to reduce costs and capacity can affect our short-term and long-term results. When we make decisions to
reduce capacity or to close facilities, we frequently incur restructuring charges.
In addition, to meet our customers’ needs, or to achieve increased efficiencies, we sometimes require
additional capacity in one location while reducing capacity in another. For example, we recently announced that we
would close our Ayer, Massachusetts facility in fiscal 2009, even though we are expanding in other areas. Since
customers’ needs and market conditions can vary and change rapidly, we may find ourselves in a situation where we
simultaneously experience the effects of contraction in one location and expansion in another location, such as those
noted above.
Operating in foreign countries exposes us to increased risks, including foreign currency risks.
We have operations in China, Malaysia, Mexico and the United Kingdom, which in the aggregate represented
approximately 39 percent of our revenues for fiscal 2008, compared to 37 percent of revenue in fiscal 2007. We have
announced expansion plans in China and are considering expanding to additional countries. We also purchase a
significant number of components manufactured in foreign countries. These international aspects of our operations
subject us to the following risks that could materially impact our operating results:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
economic, political or civil instability
transportation delays or interruptions
foreign exchange rate fluctuations
difficulties in staffing and managing foreign personnel in diverse cultures
the effects of international political developments and
foreign regulatory requirements.
We do not generally “hedge” foreign currencies. As our foreign operations expand, our failure to adequately
hedge foreign currency transactions and/or the currency exposures associated with assets and liabilities denominated in
non-functional currencies could adversely affect our consolidated financial condition, results of operations and cash
flows.
In addition, changes in policies by the U.S. or foreign governments could negatively affect our operating
results due to changes in duties, tariffs, taxes or limitations on currency or fund transfers. For example, our facility in
Mexico operates under the Mexican Maquiladora program, which provides for reduced tariffs and eased import
regulations; we could be adversely affected by changes in that program or our failure to comply with its requirements.
Also, our Malaysian and Chinese subsidiaries currently receive favorable tax treatments from these governments which
extend for approximately 11 years and 5 years, respectively, which may not be extended. Finally, China and Mexico
have passed new tax laws that took effect on January 1, 2008. These new laws did not materially impact our tax rates in
fiscal 2008, but may result in higher tax rates on our operations in those countries in future periods.
We and our customers are subject to extensive government regulations.
We are subject to extensive regulation relating to the products we design and manufacture and as to how we
conduct our business. These regulations affect the sectors we serve and every aspect of our business, including our
labor, employment, workplace safety, environmental and import/export practices, and many other facets of our
operations. Our failure to comply with these regulations could seriously affect our operations and profitability.
Our medical sector business, which represented approximately 21 percent of our net sales for fiscal 2008, is
subject to substantial government regulation, primarily from the federal Food and Drug Administration (“FDA”) and
9
similar regulatory bodies in other countries. We must comply with statutes and regulations covering the design,
development, testing, manufacturing and labeling of medical devices and the reporting of certain information regarding
their safety. Failure to comply with these regulations can result in, among other things, fines, injunctions, civil
penalties, criminal prosecution, recall or seizure of devices, or total or partial suspension of production. The FDA also
has the authority to require repair or replacement of equipment, or the refund of the cost of a device manufactured or
distributed by our customers. Violations may lead to penalties or shutdowns of a program or a facility. Failure or
noncompliance could have an adverse effect on our reputation as well as our results of operations.
We also design and manufacture products for customers in the defense and aerospace industries. Companies
that design and manufacture products for these industries face significant regulation by the Department of Defense,
Federal Aviation Authority, and other governmental agencies. Failure to comply with those requirements could result
in fines, penalties, injunctions, criminal prosecution, and an inability to participate in contracts with the government or
their contractors, any of which could materially affect our financial condition and results of operations.
The end-markets for most of our customers in the wireline/networking and wireless infrastructure sectors are
subject to regulation by the Federal Communications Commission, as well as by various state and foreign government
agencies. The policies of these agencies can directly affect both the near-term and long-term demand and profitability of
the sector and therefore directly impact the demand for products that we manufacture.
At the corporate level, as a publicly-held company, we are subject to increasingly stringent laws, regulation
and other requirements affecting among other things our accounting, corporate governance practices, and securities
disclosures. Our failure to comply with these requirements could materially affect our financial condition and results of
operations.
The growth and changing requirements of our business are imposing on us heightened import and export
compliance requirements. We have been notified that we are a potential candidate for audit by U.S. Customs. The
timing and scope of this audit is uncertain. In preparation for a potential audit, we have reassessed internal policies,
procedures and controls respecting import law compliance. We have uncovered some deficiencies during this
assessment but do not yet know whether such deficiencies affected duties owed by us and, if so, whether they will have
a material adverse effect on Plexus or our results of operations.
Our operations are subject to federal, state, and local environmental regulations pertaining to air, water, and
hazardous waste and the health and safety of our workplace. If we fail to comply with present and future regulations,
we could be subject to liabilities or the suspension of business. These regulations could restrict our ability to expand
our facilities or require us to acquire costly equipment or incur significant expense associated with the ongoing
operation of our business or remediation efforts.
Our customers are also required to comply with various government regulations and legal requirements,
including many of the industry-specific regulations which we discuss above. Our customers' failure to comply could
affect their businesses, which in turn would affect our sales to them. The processes we engage in for these customers
must comply with the relevant regulations. In addition, if our customers are required by regulation or other legal
requirements to make changes in their product lines, these changes could significantly disrupt particular projects for
these customers and create inefficiencies in our business.
If we are unable to maintain our engineering, technological and manufacturing process expertise, our results
may be adversely affected.
The markets for our manufacturing and engineering services are characterized by rapidly changing technology
and evolving process developments. Our manufacturing and design processes are also subject to these factors. The
continued success of our business will depend upon our continued ability to:
retain our qualified engineering and technical personnel
(cid:2)
(cid:2) maintain and enhance our technological capabilities
(cid:2)
(cid:2)
(cid:2)
successfully manage the implementation and execution of information systems
develop and market manufacturing services which meet changing customer needs and
successfully anticipate, or respond to, technological changes on a cost-effective and timely basis.
Although we believe that our operations utilize the assembly and testing technologies, equipment and
processes that are currently required by our customers, we cannot be certain that we will develop the capabilities
required by our customers in the future. The emergence of new technology, industry standards or customer
10
requirements may render our equipment, inventory or processes obsolete or noncompetitive. In addition, we may have
to acquire new design, assembly and testing technologies and equipment to remain competitive. The acquisition and
implementation of new technologies and equipment may require significant expense or capital investment that could
reduce our liquidity and negatively affect our operating results. Our failure to anticipate and adapt to our customers’
changing technological needs and requirements could have an adverse effect on our business.
Start-up costs and inefficiencies related to new or transferred programs can adversely affect our operating
results.
The management of labor and production capacity in connection with the establishment of new programs and
new customer relationships, and the need to estimate required resources in advance of production can adversely affect
our gross and operating margins. These factors are particularly evident in the early stages of the life-cycle of new
products and new programs as well as in program transfers between facilities. We are managing a number of new
programs at any given time. Consequently, we are exposed to these factors. In addition, if any of these new programs
or new customer relationships were terminated, our operating results could worsen, particularly in the short term.
The effects of these start-up costs and inefficiencies can also occur when we transfer programs between
locations. We conduct those transfers on a regular basis to address factors such as meeting customer needs, seeking
long-term efficiencies or responding to market conditions. As a result of our decision to close our Ayer, Massachusetts
facility, we will also be transitioning customer programs from that site to other Plexus facilities. Although we try to
minimize the potential losses arising from transitioning customer programs between Plexus facilities, there are inherent
risks that such transitions can result in operational inefficiencies and the disruption of programs and customer
relationships.
There may be problems with the products we design or manufacture that could result in claims against us and
reduced demand for our services.
The products that we design and/or manufacture may be subject to liability or claims in the event that defects
are discovered or alleged. We design and manufacture products to our customers’ specifications, many of which are
highly complex. Despite our quality control and quality assurance efforts, problems may occur, or may be alleged, in
the design and/or manufacturing of these products. Problems in the products we manufacture, whether real or alleged,
whether caused by faulty customer specifications or in the design or manufacturing processes or by a component defect,
and whether or not we are responsible, may result in delayed shipments to customers and/or reduced or cancelled
customer orders. If these problems were to occur in large quantities or too frequently, our business reputation may also
be tarnished. In addition, problems may result in liability claims against us, whether or not we are responsible. These
potential claims may include damages for the recall of a product and/or injury to person or property. Even if customers
or third parties, such as component suppliers, are responsible for defects, they may not, or may not be able to, assume
responsibility for any such costs or required payments to us. We occasionally incur costs defending claims and any
such disputes could affect our business relationships.
Intellectual property infringement claims against our customers or us could harm our business.
Our design and manufacturing services and the products offered by our customers involve the creation and use
of intellectual property rights, which subject us and our customers to the risk of claims of intellectual property
infringement from third parties. In addition, our customers may require that we indemnify them against the risk of
intellectual property infringement. If any claims are brought against us or our customers for infringement, whether or
not these have merit, we could be required to expend significant resources in defense of those claims. In the event of an
infringement claim, we may be required to spend a significant amount of money to develop non-infringing alternatives
or obtain licenses. We may not be successful in developing alternatives or obtaining licenses on reasonable terms or at
all. Infringement by our customers could cause them to discontinue production of some of their products, potentially
with little or no notice, which may reduce our net sales to them and disrupt our production.
Additionally, if third parties on whom we rely for products or services, such as component suppliers, are
responsible for an infringement (including through the supply of counterfeit parts), we may or may not be able to hold
them responsible and we may incur costs in defending claims or providing remedies. Such infringements may also
cause our customers to abruptly discontinue selling the impacted products, which would adversely affect our net sales
of those products, and could affect our customer relationships more broadly.
11
We are defendants in a securities class action lawsuit.
Two securities class action lawsuits were filed against us and several of our current or former officers and/or
directors during June 2007. The two actions were consolidated, and a consolidated class action complaint was filed on
February 1, 2008. Although the Company and the individual defendants filed a motion to dismiss the consolidated
class action complaint, the plaintiff has asked the court to deny our motion and the court has not yet held a hearing or
ruled on it. The consolidated complaint alleges securities law violations and seeks unspecified damages relating
generally to the Company’s statements regarding its defense sector business in early calendar 2006. We could be
subject to additional or related lawsuits or other inquiries in connection with this matter. The defense of this lawsuit,
and any future lawsuits, could result in the diversion of management’s time and attention away from business
operations and negative developments with respect to the lawsuits and the costs incurred defending ourselves could
have an adverse impact on our business and our stock price. Adverse outcomes or settlements could also require us to
pay damages or incur liability for other remedies that could have a material adverse effect on our consolidated results of
operations, financial position and cash flows.
Our products are for the electronics industry, which produces technologically advanced products with relatively
short life-cycles.
Factors affecting the electronics industry, in particular short product life-cycles, could seriously affect our
customers and, as a result, Plexus. These factors include:
(cid:2)
(cid:2)
(cid:2)
the inability of our customers to adapt to rapidly changing technology and evolving industry standards that
result in short product life-cycles
the inability of our customers to develop and market their products, some of which are new and untested
and
the potential that our customers’ products may become obsolete or the failure of our customers’ products
to gain widespread commercial acceptance.
Even if our customers successfully respond to these market challenges, their responses, including any
consequential changes we must make in our business relationships with them and our production for them, can affect
our production cycles, inventory management and results of operations.
Increased competition may result in reduced demand or reduced prices for our services.
The EMS industry is highly competitive and has become more so as a result of excess capacity in the industry.
We compete against numerous U.S. and foreign EMS providers with global operations, as well as those which operate
on only a local or regional basis. In addition, current and prospective customers continually evaluate the merits of
manufacturing products internally and may choose to manufacture products themselves rather than outsource that
process. Consolidations and other changes in the EMS industry result in a changing competitive landscape. The
consolidation trend in the industry also results in larger and more geographically diverse competitors that may have
significantly greater resources with which to compete against us.
Some of our competitors have substantially greater managerial, manufacturing, engineering, technical,
financial, systems, sales and marketing resources than ourselves. These competitors may:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
respond more quickly to new or emerging technologies
have greater name recognition, critical mass and geographic and market presence
be better able to take advantage of acquisition opportunities
adapt more quickly to changes in customer requirements
devote greater resources to the development, promotion and sale of their services and
be better positioned to compete on price for their services.
We may operate at a cost disadvantage compared to other EMS providers which have lower internal cost
structures or have greater direct buying power with component suppliers, distributors and raw material suppliers. Our
manufacturing processes are generally not subject to significant proprietary protection, and companies with greater
resources or a greater market presence may enter our market or become increasingly competitive. Increased
competition could result in price reductions, reduced sales and margins or loss of market share.
12
We depend on certain key personnel, and the loss of key personnel may harm our business.
Our success depends in large part on the continued services of our key technical and management personnel,
and on our ability to attract and retain qualified employees, particularly highly skilled design, process and test engineers
involved in the development of new products and processes and the manufacture of existing products. The competition
for these individuals is significant, and the loss of key employees could harm our business.
From time to time, there are changes and developments, such as retirements, disability, death and other
terminations of service that affect our executive officers and other key employees. Transitions of responsibilities
among officers and key employees, particularly those that are unplanned, inherently can cause disruptions to our
business and operations, which could have an effect on our results.
Energy price increases may reduce our profits.
We use some components made with petroleum-based materials. In addition, we use various energy sources
transporting, producing and distributing products. Energy prices have recently been subject to increases and volatility
caused by market fluctuations, supply and demand, currency fluctuation, production and transportation disruption,
world events, and changes in governmental programs.
Energy price increases raise both our material and operating costs. We may not be able to increase our prices
enough to offset these increased costs. Increasing our prices also may reduce our level of future customer orders and
profitability.
We may fail to successfully complete future acquisitions and may not successfully integrate acquired businesses,
which could adversely affect our operating results.
We have previously grown, in part, through acquisitions. If we were to pursue future growth through
acquisitions, this would involve significant risks that could have a material adverse effect on us. These risks include:
Operating risks, such as:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the inability to integrate successfully our acquired operations’ businesses and personnel
the inability to realize anticipated synergies, economies of scale or other value
the difficulties in scaling up production and coordinating management of operations at new sites
the strain placed on our personnel, systems and resources
the possible modification or termination of an acquired business’ customer programs, including the loss of
customers and the cancellation of current or anticipated programs and
the loss of key employees of acquired businesses.
Financial risks, such as:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the use of cash resources, or incurrence of additional debt and related interest expense
the dilutive effect of the issuance of additional equity securities
the inability to achieve expected operating margins to offset the increased fixed costs associated with
acquisitions, and/or inability to increase margins of acquired businesses to our desired levels
the incurrence of large write-offs or write-downs
the impairment of goodwill and other intangible assets and
the unforeseen liabilities of the acquired businesses.
We may fail to secure or maintain necessary financing.
Under our Amended Credit Facility, we have borrowed $150 million in term loans and can borrow up to $200
million in revolving loans of which $100 million is currently available, depending upon compliance with its defined
covenants and conditions. However, we cannot be certain that the credit facility will provide all of the financing
capacity that we will need in the future or that we will be able to change the credit facility or revise covenants, if
necessary or appropriate in the future, to accommodate changes or developments in our business and operations.
13
Our future success may depend on our ability to obtain additional financing and capital to support possible
future growth and future initiatives. We may seek to raise capital by issuing additional common stock, other equity
securities or debt securities, modifying our existing credit facilities or obtaining new credit facilities or a combination of
these methods.
We may not be able to obtain capital when we want or need it, and capital may not be available on satisfactory
terms. If we issue additional equity securities or convertible securities to raise capital, it may be dilutive to
shareholders’ ownership interests. Furthermore, any additional financing may have terms and conditions that adversely
affect our business, such as restrictive financial or operating covenants, and our ability to meet any financing covenants
will largely depend on our financial performance, which in turn will be subject to general economic conditions and
financial, business and other factors.
If we are unable to maintain effective internal control over our financial reporting, investors could lose
confidence in the reliability of our financial statements, which could result in a reduction in the value of our
common stock.
As required by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring public companies to
include a report of management on the company’s internal control over financial reporting in their annual reports on
Form 10-K; that report must contain an assessment by management of the effectiveness of our internal control over
financial reporting. In addition, the independent registered public accounting firm auditing a company’s financial
statements must attest to and report on the effectiveness of the company’s internal control over financial reporting.
We are continuing our comprehensive efforts to comply with Section 404 of the Sarbanes-Oxley Act. If we
are unable to maintain effective internal control over financial reporting, this could lead to a failure to meet our
reporting obligations to the SEC, which in turn could result in an adverse reaction in the financial markets due to a loss
of confidence in the reliability of our financial statements.
The price of our common stock has been and may continue to be volatile.
Our stock price has fluctuated significantly in recent periods. The price of our common stock may fluctuate in
response to a number of events and factors relating to us, our competitors and the market for our services, many of
which are beyond our control.
In addition, the stock market in general, and share prices for technology companies in particular, have from
time to time experienced extreme volatility, including weakness, that sometimes has been unrelated to the operating
performance of these companies. These broad market and industry fluctuations, and concerns affecting the economy
generally, may adversely affect the market price of our common stock, regardless of our operating results.
Among other things, volatility and weakness in our stock price could mean that investors may not be able to
sell their shares at or above the prices that they paid. Volatility and weakness could also impair our ability in the future
to offer common stock or convertible securities as a source of additional capital and/or as consideration in the
acquisition of other businesses.
ITEM 1B
UNRESOLVED SEC STAFF COMMENTS
Not applicable.
14
ITEM 2.
PROPERTIES
Our facilities comprise an integrated network of engineering and manufacturing centers with corporate
headquarters located in our engineering facility in Neenah, Wisconsin. We own or lease facilities with approximately
2.8 million square feet of capacity. This includes approximately 1.6 million square feet in the United States,
approximately 0.2 million square feet in Mexico, approximately 0.9 million square feet in Asia and approximately 0.1
million square feet in Europe. Approximately 0.2 million square feet of this capacity is subleased. Our facilities are
described in the following table:
Location
Penang, Malaysia (1)
Neenah, Wisconsin (1)
Appleton, Wisconsin (1) (2)
Nampa, Idaho
Juarez, Mexico
Buffalo Grove, Illinois (1) (3)
Xiamen, China
Hangzhou, China (4)
Ayer, Massachusetts (5)
Kelso, Scotland
Fremont, California (6)
Galashiels, Scotland (7)
Type
Manufacturing/Engineering
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Warehouse
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Warehouse
Neenah, Wisconsin
Louisville, Colorado
Raleigh, North Carolina (1)
Livingston, Scotland
Engineering/Office
Engineering
Engineering
Engineering
Neenah, Wisconsin (1)
Neenah, Wisconsin
Neenah, Wisconsin (1)
Neenah, Wisconsin (8)
Jedburgh, Scotland (9)
Office/Warehouse
Office/Warehouse
Office
Warehouse
Warehouse
Size (sq. ft.)
671,000
277,000
272,000
216,000
210,000
189,000
120,000
106,000
65,000
57,000
46,000
10,000
105,000
24,000
19,000
4,000
84,000
48,000
39,000
39,000
4,000
Owned/Leased
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
San Diego, California (10)
Inactive/Other
198,000
Leased
(1) Includes more than one building.
(2) Purchased a 205,000 square foot building early in fiscal 2009.
(3) We entered into a new lease agreement in September 2008 for an additional 48,000 square feet of
manufacturing and warehouse space.
(4) We entered into a new lease agreement in August 2008 for manufacturing.
(5) As previously announced, we anticipate closing this facility in the second quarter of fiscal 2009.
(6) Our lease expired on the previous 36,000 square foot facility and we entered into a new lease agreement for a
new facility in August 2008.
(7) We entered into a new lease agreement in August 2008 for manufacturing and warehouse space.
(8) We entered into a new lease agreement in April 2008 for warehousing.
15
(9) This lease expired September 2008 and we are currently renting the space month-to-month as we vacate the
property.
(10) This building is subleased and no longer used in our operations.
ITEM 3.
LEGAL PROCEEDINGS
Two securities class action lawsuits were filed in the United States District Court for the Eastern District of
Wisconsin on June 25 and June 29, 2007, against the Company and certain Company officers and/or directors. On
November 7, 2007, the two actions were consolidated, and a consolidated class action complaint was filed on February
1, 2008. The consolidated complaint names the Company and the following individuals as defendants: Dean A. Foate,
President, Chief Executive Officer and a Director of the Company; F. Gordon Bitter, the Company's former Senior Vice
President and Chief Financial Officer; and Paul Ehlers, the Company’s former Executive Vice President and Chief
Operating Officer. The consolidated complaint alleges securities law violations and seeks unspecified damages relating
generally to the Company’s statements regarding its defense sector business in early calendar 2006. On April 15, 2008,
the Company and the individual defendants filed a motion to dismiss the consolidated class action complaint. The
plaintiff is opposing the dismissal. The briefing on the defendants’ motion has been completed; however, the Court has
not yet held a hearing or ruled on the motion.
The Company believes the allegations in the consolidated complaint are wholly without merit and it intends to
vigorously defend against them. Since these matters are in the preliminary stages, the Company is unable to predict the
scope or outcome or quantify their eventual impact, if any, on the Company. At this time, the Company is also unable
to estimate associated expenses or possible losses. The Company maintains insurance that may reduce its financial
exposure for defense costs and liability for an unfavorable outcome, should it not prevail.
The Company is party to certain other lawsuits in the ordinary course of business. Management does not
believe that these proceedings or the securities class actions referenced above, individually or in the aggregate, will
have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2008.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth our executive officers, their ages and the positions currently held by each person:
Name
Dean A. Foate
Ginger M. Jones
Michael D. Buseman
Thomas J. Czajkowski
Steven J. Frisch
Todd P. Kelsey
Yong Jin Lim
Joseph E. Mauthe
Angelo M. Ninivaggi
George W.F. Setton
Michael T. Verstegen
Age
50
44
47
44
42
43
48
46
41
62
50
Position
President, Chief Executive Officer and Director
Vice President and Chief Financial Officer
Senior Vice President - Global Manufacturing Operations
Vice President and Chief Information Officer
Senior Vice President - Global Engineering Services
Senior Vice President - Global Customer Services
Regional President - Plexus Asia Pacific
Vice President - Global Human Resources
Vice President, General Counsel, Secretary and Corporate
Compliance Officer
Corporate Treasurer and Chief Treasury Officer
Senior Vice President - Global Market Development
Dean A. Foate joined Plexus in 1984 and has served as President and Chief Executive Officer since 2002, and as a
director since 2000.
Ginger M. Jones joined Plexus in 2007 as Vice President - Finance and since August 2007 has served as Vice President
and Chief Financial Officer. Prior to joining Plexus, Ms. Jones served as the Vice President and Corporate Controller
for Banta Corporation from 2002 to 2007.
16
Michael D. Buseman joined Plexus in 2006 and began serving as Senior Vice President – Global Manufacturing
Operations in August 2007. Previously, he held various management roles in the Company including Vice President
for Plexus Electronic Assembly – North American Operations and Vice President Manufacturing Technology and
Quality. Prior to joining Plexus, Mr. Buseman served as Vice President and General Manager of Operations in Arden
Hills, Minnesota for Celestica, Inc. from 2003 to 2006.
Thomas J. Czajkowski joined Plexus in 2001 and has served as Vice President and Chief Information Officer since
2002.
Steven J. Frisch joined Plexus in 1990 and began serving as Senior Vice President – Global Engineering Services in
August 2007. Previously, Mr. Frisch served as Vice President of Plexus Technology Group’s Raleigh and Livingston
Design Centers from 2002 to 2007.
Todd P. Kelsey joined Plexus in 1994 and began serving as Senior Vice President – Global Customer Services in
August 2007. Previously, Mr. Kelsey served as Vice President and then Senior Vice President of Plexus Technology
Group from 2001 to 2007.
Yong Jin Lim joined Plexus in 2002 and began serving as Regional President – Plexus Asia Pacific in August 2007.
From 2003 to 2007 he served as Vice President of Operations – Asia.
Joseph E. Mauthe joined Plexus in 2007 and began serving as Vice President – Global Human Resources in February
2008. Prior to joining Plexus, Mr. Mauthe served as Senior Director, Human Resources and various other positions for
Kimberly-Clark Corporation from 1985 to 2007.
Angelo M. Ninivaggi joined Plexus in 2002 as Director of Legal Services. Since 2006, Mr. Ninivaggi has served as
Vice President, General Counsel and Secretary. Since November 2007, Mr. Ninivaggi has also served as Corporate
Compliance Officer.
George W.F. Setton joined Plexus in 2001 as Corporate Treasurer and Chief Treasury Officer.
Michael T. Verstegen joined Plexus in 1983 serving in various engineering positions and has served as Senior Vice
President, Global Market Development since 2006. Prior thereto, he served as Vice President from 2002 to 2006.
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price per Share
For the fiscal years ended September 27, 2008 and September 29, 2007, the Company’s common stock has
traded on the Nasdaq Stock Market, in the Nasdaq Global Select Market tier. The price information below represents
high and low sale prices of our common stock for each quarterly period.
Fiscal Year Ended September 27, 2008
Fiscal Year Ended September 29, 2007
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$32.47
$29.51
$30.49
$32.17
Low
$24.38
$17.78
$22.13
$20.64
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$26.85
$24.47
$23.75
$28.58
Low
$18.96
$15.78
$17.01
$20.14
17
Performance graph
The following graph compares the cumulative total return on Plexus common stock with the Nasdaq Stock
Market Index for U.S. Companies and the Nasdaq Stock Market Index for Electronics Components Companies, both of
which include Plexus. The values on the graph show the relative performance of an investment of $100 made on
September 30, 2003 in Plexus common stock and in each of the indices.
Comparison of Cumulative Total Return
S
R
A
L
L
O
D
200
180
160
140
120
100
80
60
40
20
0
Plexus
Nasdaq-US
Nasdaq-Electronics
2003
2004
2005
2006
2007
2008
2003
2004
2005
2006
2007
2008
Plexus
Nasdaq-US
Nasdaq-Electronics
100
100
100
71
106
84
110
121
94
124
128
96
176
151
125
140
125
90
Shareholders of Record; Dividends
As of November 10, 2008, there were approximately 720 shareholders of record. We have not paid any cash
dividends. We anticipate that the majority of earnings in the foreseeable future will be retained to finance the
development of our business. See also Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources”, for a discussion of the Company’s intentions regarding
dividends, and loan covenants which could restrict dividend payments.
18
Issuer Purchases of Equity Securities
The following table provides the specified information about the repurchases of shares by the Company during
the three months ended September 27, 2008.
Period
Total number
of shares
purchased
Average
price paid
per share
Total number
of shares purchased
as part of publicly
announced plans or
programs
Maximum
approximate dollar
value of shares that
may yet be
purchased under the
plans or programs*
June 29 to
July 26, 2008
July 27 to
August 23, 2008
August 24 to
September 27, 2008
679,154
$ 28.10
679,154
$ -
-
-
-
-
-
-
$ -
$ -
Total
679,154
$ 28.10
679,154
* On February 25, 2008, Plexus adopted a common stock buyback program that permitted it to acquire shares
of its common stock for an amount up to $200 million. The authorized stock repurchase program consisted of a $100
million accelerated repurchase program and an additional $100 million of open market purchases. See Note 7 in Notes
to Consolidated Financial Statements for further information about our stock repurchase program.
The share purchases made during the fourth quarter of 2008 completed the repurchase program; all
repurchases during the quarter were made in the open market. During fiscal 2008, the Company completed the $200
million share repurchase program with a total purchase of 7.4 million shares at a volume-weighted average per share
price of $26.87.
19
ITEM 6.
SELECTED FINANCIAL DATA
Financial Highlights (dollars in thousands, except per share amounts)
Operating Statement Data
Net sales
Gross profit
Gross margin percentage
Operating income (loss)
Fiscal Years Ended
September 27,
2008
September 29,
2007
September 30,
2006
October 1,
2005
September 30,
2004
$ 1,841,622
$ 1,546,264
$ 1,460,557
$ 1,228,882
$ 1,040,858
205,761
163,539
158,700
105,736
86,778
11.2%
10.6%
10.9%
102,827(1)
79,438(2)
80,262
8.6%
(9,745)(4)
(0.8%)
8.3%
9,216(5)
0.9%
Operating margin percentage
5.6%
5.1%
5.5%
Net income (loss)
84,144(1)
65,718(2)
100,025(3)
(12,417)(4)
(31,580)(5)
Earnings (loss) per share (diluted)
$
1.92(1) $
1.41(2) $
2.15(3)
$
(0.29)(4) $
(0.74)(5)
Cash Flow Statement Data
Cash flows provided by (used in) operations
$
64,181
$
38,513
$
83,084
$
81,967
$
(21,352)
Capital equipment additions
54,329
47,837
34,865
21,707
18,086
Balance Sheet Data
Working capital
Total assets
$ 439,077
$ 427,116
$ 359,068
$ 239,392
$ 215,360
992,230
916,516
801,462
602,040
545,708
Long-term debt and capital lease obligations
154,532
25,082
25,653
22,310
23,160
Shareholders’ equity
Return on average assets
Return on average equity
Inventory turnover ratio
473,945
573,265
481,567
340,015
351,413
8.8%
16.1%
5.3x
7.7%
12.5%
5.5x
14.3%
24.3%
6.4x
(2.2%)
(3.6%)
6.4x
(5.7%)
(8.7%)
6.2x
1)
2)
3)
4)
In fiscal 2008, we recorded pre-tax restructuring costs totaling $2.1 million which related primarily to the
closure of our Ayer, Massachusetts (“Ayer”) facility and the reduction of our workforce in Juarez, Mexico
(“Juarez”).
In fiscal 2007, we recorded pre-tax restructuring and impairment costs totaling $1.8 million which related
primarily to the closure of our Maldon, England (“Maldon”) facility and the reduction of our workforces in
Juarez and Kelso, Scotland (“Kelso”).
In fiscal 2006, we recorded a favorable adjustment of $17.7 million in the Consolidated Statements of
Operations related to the reduction of a previously recorded valuation allowance on our deferred income tax
assets in the United States. In addition, we recorded $0.5 million loss, net of tax, related to a cumulative effect
of a change in accounting principle related to the adoption of Financial Accounting Standards Board
Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.”
In fiscal 2005, we recorded pre-tax restructuring and impairment costs totaling $39.2 million. The restructuring
and impairment costs were associated with the impairments of goodwill related to our operations in the United
Kingdom and Mexico, the closure of our Bothell, Washington (“Bothell’) facility (announced in fiscal 2004),
the write-off of the remaining elements of a shop floor data-collection system, and other restructuring costs.
We also recorded certain adjustments to previously recognized restructuring and impairment costs.
20
5)
In fiscal 2004, we recorded restructuring and impairment costs of approximately $9.3 million, which were
primarily associated with the remaining lease obligations for two previously abandoned facilities near Seattle,
Washington (the “Seattle facilities”), severance costs associated with the closure of our Bothell facility, the
impairment of certain abandoned software, and the remaining lease obligation and severance costs related to
the consolidation of a satellite PCB-design office in Hillsboro, Oregon into another Plexus design office. In
addition, we recorded a $36.8 million valuation allowance for deferred income tax assets.
We have not paid cash dividends in the past and do not anticipate paying them in the foreseeable future.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Plexus Corp. and its subsidiaries (together “Plexus,” the “Company,” or “we”) participate in the Electronic
Manufacturing Services (“EMS”) industry. We provide product realization services to original equipment manufacturers
(“OEMs”) and other technology companies in the wireline/networking, wireless infrastructure, medical,
industrial/commercial and defense/security/aerospace market sectors. We provide advanced electronics design,
manufacturing and testing services to our customers with a focus on the mid-to-lower-volume, higher-mix segment of
the EMS market. Our customers’ products typically require exceptional production and supply-chain flexibility,
necessitating an optimized demand-pull-based manufacturing and supply chain solution across an integrated global
platform. Many of our customers’ products require complex configuration management and direct order fulfillment to
their customers across the globe. In such cases we provide global logistics management and after-market service and
repair. Our customers’ products may have stringent requirements for quality, reliability and regulatory compliance. We
offer our customers the ability to outsource all phases of product realization, including product specifications;
development, design and design validation; regulatory compliance support; prototyping and new product introduction;
manufacturing test equipment development; materials sourcing, procurement and supply-chain management; product
assembly/manufacturing, configuration and test; order fulfillment, logistics and service/repair.
Plexus is passionate about its goal to be the best EMS company in the world at providing services for customers
that have mid-to-lower-volume requirements and a higher mix of products. We have tailored our engineering services,
manufacturing operations, supply-chain management, workforce, business intelligence systems, financial goals and
metrics specifically to support these types of programs. Our flexible manufacturing facilities and processes are designed
to accommodate customers with multiple product-lines and configurations as well as unique quality and regulatory
requirements. Each of these customers is supported by a multi-disciplinary customer team and one or more uniquely
configured “focus factories” supported by a supply-chain and logistics solution specifically designed to meet the
flexibility and responsiveness required to support that customer’s fulfillment requirements.
Our go-to-market strategy is also tailored to our target market sectors and business strategy. We have business
development and customer management teams that are dedicated to each of the five sectors we serve. These teams are
accountable for understanding the sector participants, technology, unique quality and regulatory requirements and
longer-term trends. Further, these teams help set our strategy for growth in their sectors with a particular focus on
expanding the services and value-add that we provide to our current customers while strategically targeting select new
customers to add to our portfolio.
Our financial model is aligned with our business strategy, with our primary focus to earn a return on invested
capital (“ROIC”) in excess of our weighted average cost of capital (“WACC”). The smaller volumes, flexibility
requirements and fulfillment needs of our customers typically result in greater investments in inventory than many of
our competitors, particularly those that provide EMS services for high-volume, less complex products with less
stringent requirements (such as consumer electronics). In addition, our cost structure relative to these peers includes
higher investments in selling and administrative costs as a percentage of sales to support our sector-based go-to-market
strategy, smaller program sizes, flexibility, and complex quality and regulatory compliance requirements. By
exercising discipline to generate a ROIC in excess of our WACC, our goal is to ensure that Plexus creates a value
proposition for our shareholders as well as our customers.
Our customers include both industry-leading original equipment manufacturers and technology companies that
have never manufactured product internally. As a result of our focus on serving market sectors that rely on advanced
electronics technology, our business is influenced by technological trends such as the level and rate of development of
telecommunications infrastructure and the expansion of networks and use of the Internet. In addition, the federal Food
21
and Drug Administration’s approval of new medical devices, defense procurement practices and other government
approval and regulatory processes can affect our business. Our business has also benefited from the trend to increased
outsourcing by OEMs.
We provide most of our contract manufacturing services on a turnkey basis, which means that we procure
some or all of the materials required for product assembly. We provide some services on a consignment basis, which
means that the customer supplies the necessary materials, and we provide the labor and other services required for
product assembly. Turnkey services require material procurement and warehousing, in addition to manufacturing, and
involve greater resource investments than consignment services. Other than certain test equipment and software used
for internal manufacturing, we do not design or manufacture our own proprietary products.
The following information should be read in conjunction with our consolidated financial statements included
herein and “Risk Factors” included in Item 1A herein.
EXECUTIVE SUMMARY
Fiscal 2008. Net sales for fiscal 2008 increased by $295.3 million, or 19 percent, over fiscal year 2007 to
$1,841.6 million. Our sector-focused business development strategy delivered growth in all five of our end-market
sectors. Net sales in the defense/security/aerospace sector exhibited the highest percentage growth due to new program
wins and strong end-market demand from the top three customers in this sector and strong demand from our largest
defense customer in the first half of fiscal 2008. However, net sales to this customer decreased significantly in the
second half of fiscal 2008, from $82.6 million in the first half of the year to $3.1 million in the second half. Net sales in
our wireline/networking sector also increased due to increased demand from several customers, including Juniper
Networks, Inc. (“Juniper”), our largest customer.
Gross margin was 11.2 percent for fiscal 2008, which compared favorably to 10.6 percent for fiscal 2007.
Gross margin in fiscal 2008 benefited from the operating leverage gained on increased revenues while moderating the
increase in fixed manufacturing costs, favorable changes in the customer and sector mix and further operational
efficiencies.
Selling and administrative expenses were $100.8 million for fiscal 2008, an increase of $18.6 million, or 22.6
percent, from the $82.3 million for fiscal 2007. The current-year period had increased variable incentive compensation
of $5.5 million over the prior-year period, as well as increased stock-based compensation expense of $1.9 million. In
addition, salaries and benefits increased, reflecting wage increases and additional headcount.
Net income for fiscal 2008 was $84.1 million and diluted earnings per share were $1.92, which compared
favorably to net income of $65.7 million, or $1.41 per diluted share, for fiscal 2007. Fiscal 2008 was favorably
impacted by an 18 percent effective tax rate, a decrease from the 22 percent effective tax rate in fiscal 2007.
Fiscal 2007. Net sales for fiscal 2007 increased by $85.7 million, or 6 percent, over fiscal 2006 to $1,546.3
million. Net sales in our wireline/networking sector in fiscal 2007 were positively impacted by increased demand from
several customers, including Juniper. Our wireless infrastructure sector experienced flat revenues, while our remaining
sectors were impacted unfavorably by reduced demand from several customers. Net sales in the
defense/security/aerospace sector experienced episodic demand from our largest defense sector customer during fiscal
2007.
Gross margin was 10.6 percent for fiscal 2007, which compared unfavorably to 10.9 percent for fiscal 2006.
Gross margin in fiscal 2007 was negatively impacted by increased fixed manufacturing costs to support growth in Asia,
lower pricing, changes in customer mix and the write-down of inventory.
Selling and administrative expenses were $82.3 million for fiscal 2007, an increase of $3.8 million or 4.9
percent over fiscal 2006. The increase was attributable to additional headcount and associated salaries and expenses to
augment business development as well as increased stock-based compensation expense, partially offset by less variable
incentive compensation.
Net income for fiscal 2007 was $65.7 million, and diluted earnings per share were $1.41, which compared
unfavorably to net income of $100.0 million, or $2.15 per diluted share for fiscal 2006. Fiscal 2006 included a
favorable adjustment of $17.7 million to the tax provision for a reduction in the valuation allowance on deferred income
tax assets in the United States, whereas fiscal 2007 was unfavorably impacted by a 22 percent effective tax rate.
22
Other. The effective income tax rates for fiscal 2008, 2007 and 2006 were 18 percent, 22 percent and (20.6)
percent, respectively. The decrease in our effective tax rate from fiscal 2007 to fiscal 2008 is primarily due to a higher
proportion of income in Malaysia and China, where we currently have reduced tax rates due to tax holidays which
extend through 2019 and 2013, respectively. Our effective tax rate increased in fiscal 2007 from fiscal 2006 because
we recorded a tax provision associated with U.S. pre-tax income in fiscal 2007 whereas no such tax provision was
required for the prior fiscal year. During fiscal 2006, we recorded minimal income tax expense as a result of the
establishment in fiscal 2004 of a full valuation allowance on U.S. deferred income tax assets and increased income in
Malaysia and China, which benefit from tax holidays, and reduced pre-tax income in the United Kingdom. In the
fourth quarter of fiscal 2006, we reversed $17.7 million of the previously recorded valuation allowance as a credit to
income tax.
We currently expect the annual effective tax rate for fiscal 2009 to be approximately 15 percent due to the mix
of pre-tax income expected to occur in each tax jurisdiction. Due to significant tax rate differences in the jurisdictions
in which we operate, our effective tax rate can change significantly as the relative amount of income earned in these
jurisdictions changes. China and Mexico passed new tax laws that were effective on January 1, 2008. Those new laws
may result in higher tax rates on our operations in those countries in fiscal 2009 and beyond.
ROIC. One of our metrics for measuring financial performance is after-tax ROIC, which in fiscal 2008
exceeded our estimated 15 percent WACC. We define after-tax ROIC as tax-effected operating income, excluding
unusual charges, divided by average capital employed over a rolling five quarter period. Capital employed is defined as
equity plus debt, less cash and cash equivalents and short-term investments. ROIC was 20.1 percent, 17.6 percent and
28.8 percent for fiscal 2008, 2007 and 2006, respectively. See the table below for our calculation of ROIC (dollars in
millions):
Operating income (tax effected), excluding unusual charges
Fiscal years ended
September 27,
2008
$ 86.1
September 29,
2007
$ 63.4
September 30,
2006
$ 79.8
Average capital employed
After-tax ROIC
428.7
360.3
20.1%
17.6%
277.0
28.8%
For a reconciliation of ROIC to our financial statements that were prepared using generally accepted
accounting priciples (“GAAP”), see Exhibit 99.1 to this annual report on Form 10-K, which exhibit is incorporated
herein by reference.
Fiscal 2009 outlook. Our financial goals for fiscal 2009 are to build on the prior year’s achievements and to
focus on attaining organic net sales growth and further improvements in operating income while maintaining our ROIC
above our estimated WACC. Over the past several years, we have consistently set our target annual revenue growth
range at 15 percent to 18 percent. However, given the current macroeconomic environment and our uncertainty in
longer range customer forecasts, we are refraining from providing full year fiscal 2009 revenue targets until forecasts
begin to stabilize and visibility improves.
We currently expect net sales in the first quarter of fiscal 2009 to be in the range of $455 million to $480
million; however, our results will ultimately depend upon the actual level of customer orders, which could vary.
Assuming that net sales are in the range noted above, we would currently expect to earn, before any restructuring and
impairment costs, between $0.38 to $0.43 per diluted share in the first quarter of fiscal 2009.
See “Risk Factors,” in Item 1A hereof, which sets forth some of the other factors which could effect our net
sales, operations and earnings going forward.
23
REPORTABLE SEGMENTS
A further discussion of our fiscal 2008 and 2007 financial performance by reportable segment is presented
below (dollars in millions):
September 27,
2008
Fiscal years ended
September 29,
2007
September 30,
2006
$ 1,267.9
574.1
78.3
68.8
(147.5)
$ 1,841.6
$ 1,080.7
427.2
76.3
68.3
(106.2)
$ 1,546.3
$ 1,052.5
315.5
87.3
94.3
(89.0)
$ 1,460.6
$
116.1
59.5
(2.7)
7.3
(77.4)
$ 102.8
$
97.0
40.7
(11.6)
3.7
(50.4)
$ 79.4
$
103.1
27.8
(4.2)
3.6
(50.0)
$ 80.3
Net sales:
United States
Asia
Mexico
Europe
Elimination of inter-segment sales
Operating income (loss):
United States
Asia
Mexico
Europe
Corporate and other costs
(cid:2) United States:
Net sales for fiscal 2008 increased $187.2 million, or 17.3 percent, over fiscal 2007 to $1,267.9 million. This
growth reflected higher demand from an unnamed defense/security/aerospace customer, a wireless
infrastructure customer and several wireline /networking customers, including Juniper. Operating income for
fiscal 2008 improved $19.1 million from fiscal 2007 primarily as a result of increased sales and favorable
changes in customer mix, offset by bad debt expense of approximately $1.3 million related to a customer that
filed Chapter 11 bankruptcy during the year. In addition, operating income in the prior-year period was
negatively impacted by a $5.9 million write-down of inventories.
Net sales for fiscal 2007 increased $28.2 million, or 2.7 percent, over fiscal 2006 to $1,080.7 million. This
growth reflected increased sales to several customers within the wireline/networking sector, including Juniper.
Operating income for fiscal 2007 declined $6.1 million from fiscal 2006, due to an unfavorable customer mix,
lower pricing, a $1.3 million warranty-related charge and a $5.9 million write-down of inventories in the
second quarter of fiscal 2007 due to financial concerns about a customer. In the third and fourth quarters of
fiscal 2007, we partially offset the inventory write-down discussed above due to recognition of $4.7 million of
revenue associated with the cash collection and subsequent shipments of this customer’s inventory, which
resulted in a pre-tax net impact recovery of $4.0 million.
(cid:2) Asia:
Net sales for fiscal 2008 increased $146.9 million, or 34.4 percent, over fiscal 2007 to $574.1 million. This
growth reflected increased net sales to several customers, with the most significant customer growth coming
from a customer in the medical sector, two customers in the wireline/networking sector and a customer in the
industrial/commercial sector. Operating income improved $18.8 million to $59.5 million for fiscal 2008 as
compared to fiscal 2007. Operating income improved primarily as a result of higher net sales and operating
efficiencies resulting from higher production levels. Increased operating income was partially offset by higher
fixed manufacturing costs associated with the expansion of facilities and related production equipment, as well
as additional selling and administrative costs incurred to support growth.
Net sales for fiscal 2007 increased $111.8 million, or 35.4 percent, over fiscal 2006 to $427.2 million. This
growth reflected increased demand from wireline/networking, wireless infrastructure and medical customers as
well as the transfer of a medical program from the United States. Operating income improved $12.9 million to
$40.7 million for fiscal 2007 as compared to fiscal 2006. Earnings benefited from the incremental net sales
and the operating efficiencies from the higher production levels. The increase in operating income was
24
moderated by the increased fixed manufacturing costs associated with the expansion of facilities as well as
additional selling and administrative costs incurred to support the revenue growth.
(cid:2) Mexico:
Net sales for fiscal 2008 increased $2.0 million, or 2.6 percent, over fiscal 2007 to $78.3 million. The net sales
increase was primarily driven by increased demand from an industrial/commercial customer as well as a new
wireline/networking customer, offset by decreased demand from two medical customers. Operating loss
improved $8.9 million from the prior-year period to a loss of $2.7 million. The significant improvement from
fiscal 2007 resulted from a concentrated effort to improve operating results and profitability. This included the
replacement of certain key members of the leadership team, headcount reductions to better align the cost
structure to revenue and assistance from other Plexus resources as needed. In addition, fiscal 2008 results
benefited from approximately $2.6 million of revenue from shipping previously written-down inventories and
the ramping up of production for several new customers of the site.
Net sales in fiscal 2007 declined by $11.1 million, or 12.7 percent, from fiscal 2006, to $76.3 million. The
decline in net sales was related to a wireless infrastructure customer going end-of-life as well as reduced
demand from an industrial customer that disengaged. Operating losses widened to $(7.4) million as a result of
the reduction in net sales and the write-down of $2.6 million of inventory for customers going end-of-life.
(cid:2)
Europe:
Net sales for fiscal 2008 increased $0.5 million, or 0.7 percent, over fiscal 2007 to $78.3 million. The change
in net sales can be attributed to increased demand from two customers offsetting the loss of three customer
programs that went end-of-life. Operating income improved $3.6 million to $7.3 million for fiscal 2008 as
compared to fiscal 2007, primarily as a result of favorable changes in customer mix and the recognition of $1.2
million of revenue related to the shipment of previously written-down inventories.
Net sales in fiscal 2007 declined by $26.1 million, or 27.6 percent, from fiscal 2006, to $68.3 million. The
revenue decline was attributable to three programs going end of life. Operating income increased $0.2 million
or 5.0 percent, to $3.7 million for fiscal 2007 due to the reduced fixed manufacturing and administrative costs
associated with the closure of the Maldon facility in the second quarter of fiscal 2007 as well as the recognition
of $0.6 million of revenue related to the cash collection and subsequent shipment of previously written down
inventory for a financially distressed customer in fiscal 2006.
For our significant customers, we generally manufacture products in more than one location. Net sales to
Juniper, our largest customer, occur in the United States and Asia. Net sales to GE, another significant customer, occur
in the United States, Asia, Mexico and Europe. See Note 13 in Notes to Consolidated Financial Statements for certain
financial information regarding our reportable segments, including a detail of net sales by reportable segment.
FACILITY CLOSURES/EXPANSIONS
In early fiscal 2009, we purchased a second manufacturing facility in Appleton, Wisconsin. The new facility
provides an additional 205,000 square feet of manufacturing space. We expect to begin manufacturing in this facility in
the first half of fiscal 2009. See Note 15 in Notes to Consolidated Financial Statements for a discussion of this
subsequent event.
In fiscal 2008, we announced our intention to close our Ayer manufacturing facility and transition the
customer programs to other facilities in our organization. The decision was the result of our proactive strategic
planning process. After this analysis we determined that the Ayer facility was not strategically aligned with our future
growth prospects and we could provide greater value to its customers by providing services at other Plexus locations.
The closure of the facility is expected by March 2009.
In fiscal 2008, we announced the addition of a new facility in Hangzhou, China. The leased facility is
expected to require an investment of approximately $1.5 million for the leasehold and building improvements. The new
facility will provide approximately 106,000 square feet of manufacturing space. We expect to begin manufacturing in
the new facility during the first quarter of fiscal 2009.
25
In fiscal 2006, we announced our intention to close the Maldon manufacturing facility and transition the
customer programs to our Kelso manufacturing facility. The decision was the result of reduced customer demand in the
United Kingdom. The Maldon facility was closed in the second quarter of fiscal 2007.
In fiscal 2006, we announced the purchase of a third manufacturing and engineering facility in Penang,
Malaysia (“Penang”). The new facility provides an additional 364,000 square feet of manufacturing space. The initial
investment for the facility of approximately $11.0 million was completed in the first quarter of fiscal 2007; we began
manufacturing in the second quarter of fiscal 2007.
In fiscal 2006, we also announced the expansion of our manufacturing facility in Xiamen, China by
approximately 60,000 square feet. This increased our manufacturing capacity at this facility to 120,000 square feet.
We began manufacturing in the additional space during the second quarter of fiscal 2008.
RESULTS OF OPERATIONS
Net sales. Net sales for the indicated periods were as follows (dollars in millions):
Fiscal years ended
Variance
Fiscal years ended
Variance
September 27,
2008
September 29,
2007
Increase/
(Decrease)
September 29,
2007
September 30,
2006
Increase/
(Decrease)
Net sales
$1,841.6
$1,546.3
$295.3 19.1%
$1,546.3
$1,460.6
$85.7
5.9%
Net sales for fiscal 2008 increased 19 percent from fiscal 2007. The net sales growth was due to increased
demand from customers in each of our five end-market sectors. Significant increases were noted in our
wireline/networking, defense/security/aerospace and industrial/commercial sectors. Increases in the
wireline/networking sector included increases with our largest customer, Juniper.
Net sales for fiscal 2007 increased 6 percent from fiscal 2006. The net sales growth reflected increased
demand from several customers within the wireline/networking sector, including Juniper, our largest customer.
Reduced demand from customers within the medical, the industrial/commercial and the defense/security/aerospace
sectors moderated the overall increase in fiscal 2007 net sales.
Our net sales percentages by market sector for the indicated periods were as follows:
Wireline/Networking
Wireless Infrastructure
Medical
Industrial/Commercial
Defense/Security/Aerospace
September 27,
2008
44%
9%
21%
16%
10%
100%
Fiscal years ended
September 29,
2007
44%
8%
24%
15%
9%
100%
September 30,
2006
38%
9%
26%
18%
9%
100%
The percentages of net sales to customers representing 10 percent or more of net sales and net sales to our ten
largest customers for the indicated periods were as follows:
Juniper
GE
Top 10 customers
* Represents less than 10 percent of net sales
September 27,
2008
20%
*
60%
26
Fiscal years ended
September 29,
2007
21%
10%
61%
September 30,
2006
19%
12%
59%
Net sales to our customers may vary from time to time depending on the size and timing of customer program
commencements, terminations, delays, modifications and transitions. We remain dependent on continued net sales to
our significant customers, and our customer concentration has remained at or above 60 percent during the year. We
generally do not obtain firm, long-term purchase commitments from our customers. Customers’ forecasts can and do
change as a result of changes in their end-market demand and other factors. Any material change in forecasts or orders
from these major accounts, or other customers, could materially affect our results of operations. In addition, as our
percentage of net sales to customers in a specific sector becomes larger relative to other sectors, we become
increasingly dependent upon economic and business conditions affecting that sector.
Gross profit. Gross profit and gross margin for the indicated periods were as follows (dollars in millions):
Fiscal years ended
Variance
Fiscal years ended
Variance
September 27,
2008
September 29,
2007
Increase/
(Decrease)
September 29,
2007
September 30,
2006
Increase/
(Decrease)
Gross Profit
$205.8
$163.5
$42.3 25.9%
$163.5
$158.7
$4.8
3.0%
Gross Margin
11.2%
10.6%
10.6%
10.9%
For fiscal 2008, gross profit and gross margin were impacted by the following factors:
increased net sales in all four (U.S., Asian, Mexican and European) reportable segments
favorable changes in customer mix, including an increase in sales during the first half of fiscal 2008 to the
large unnamed defense customer, which helped to improve operating efficiencies
a moderate increase in fixed manufacturing costs in the U.S. and Asian reportable segments primarily due to
higher salaries and benefits, as a result of additional employees to support net sales growth, and increased
variable incentive compensation
an increase in depreciation expense and other fixed manufacturing expenses as a result of our expanded
facilities in Penang being operational for an entire fiscal year and
recognition of $3.8 million of net sales in the European and Mexican reportable segments associated with
shipments of previously written-down inventories.
For fiscal 2007, gross profit and gross margin were impacted by the following factors:
the inventory write-downs of $8.5 million in the U.S. and Mexican reportable segments
recognition of $5.3 million of revenue associated with the cash collection and subsequent shipments of
previously written down inventory for two financially distressed customers in the U.S. and European
reportable segments
$1.3 million of warranty-related expense in the U.S. reportable segment
an increase in fixed manufacturing costs as a result of our expansion in Penang and
reduced net sales in the European and Mexican reportable segments, changes in customer mix, price reductions
and increased depreciation expense, all of which unfavorably impacted gross margin.
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Gross margin reflects a number of factors that can vary from period to period, including product and service
mix, the level of new facility start-up costs, inefficiencies resulting from the transition of new programs, product life
cycles, sales volumes, price reductions, overall capacity utilization, labor costs and efficiencies, the management of
inventories, component pricing and shortages, the mix of turnkey and consignment business, fluctuations and timing of
customer orders, changing demand for our customers’ products and competition within the electronics industry.
Additionally, turnkey manufacturing involves the risk of inventory management, and a change in component costs can
directly impact average selling prices, gross margin and net sales. Although we focus on maintaining gross margin,
there can be no assurance that gross margin will not decrease in future periods.
Design work performed by us is not our proprietary property and all costs incurred with this work are generally
considered reimbursable by our customers. We do not track research and development costs that are not reimbursed by
our customers and we consider these amounts immaterial.
27
Operating expenses. Selling and administrative (“S&A”) expenses for the indicated periods were as follows
(dollars in millions):
Fiscal years ended
Variance
Fiscal years ended
Variance
September 27,
2008
September 29,
2007
Increase/
(Decrease)
September 29,
2007
September 30,
2006
Increase/
(Decrease)
S&A
Percent of net
sales
$100.8
$82.3
$18.5 22.5%
$82.3
$78.4
$3.9
5.0%
5.5%
5.3%
5.3%
5.4%
The dollar increase in S&A for fiscal 2008 was due to increased salaries and benefits, reflecting wage
increases, additional headcount to augment business development activities and additional expense for variable
incentive compensation and stock-based compensation expense. Variable incentive compensation increased $5.5
million over the prior-year period as a result of strong financial performance compared to incentive plan targets.
The dollar increase in S&A for fiscal 2007 was related to several factors that impacted compensation expense.
We added additional headcount to augment business development activities. In addition, we were impacted by wage
increases as well as incremental stock-based compensation of $2.2 million in fiscal 2007. Offsetting these increases
was variable incentive compensation, which decreased by $4.8 million in fiscal 2007 from fiscal 2006. The decrease in
S&A as a percent of net sales was due to a 6 percent increase in net sales in fiscal 2007 over fiscal 2006.
Restructuring and impairment costs. Our restructuring and impairment costs for fiscal 2008, 2007 and 2006
were as follows (dollars in millions):
Asset impairments
Severance costs
Adjustments to lease exit costs/other
Total restructuring and impairment costs
September 27,
2008
$ -
2.1
-
$ 2.1
Fiscal years ended
September 29,
2007
$ -
1.8
-
$ 1.8
September 30,
2006
$ 0.1
0.9
(1.0)
$ -
The restructuring and impairment costs were associated with various reportable segments. Such costs were not
allocated to our reportable segments, as management excludes such costs when assessing the performance of the
reportable segments. See Note 13 in Notes to Consolidated Financial Statements for certain financial information
regarding our reportable segments, including a summary of restructuring and impairment costs by reportable segment.
Fiscal 2008 restructuring and asset impairment costs: For fiscal 2008, we recorded pre-tax restructuring and
asset impairment costs of $2.1 million, related to the announcement of the closure of our Ayer facility and the reduction
of our workforce in Juarez. The details of these fiscal 2008 restructuring actions are listed below.
Ayer Facility Closure: During the fourth quarter of fiscal 2008, we announced our intention to close our Ayer
facility. In fiscal 2008, we recorded pre-tax restructuring charges of $1.9 million, related to severance for 170 impacted
employees and costs to retain certain employees. In addition to the costs in fiscal 2008, approximately $0.4 million of
costs related to the disposal of certain assets and costs to exit the leased facility are expected to be incurred through the
second fiscal quarter of 2009.
Other Restructuring Costs. In fiscal 2008, we recorded pre-tax restructuring costs of $0.2 million related to
severance at our Juarez facility. The Juarez workforce reductions affected approximately 20 employees.
Fiscal 2007 restructuring and asset impairment costs: For fiscal 2007, we recorded pre-tax restructuring and
asset impairment costs of $1.8 million, related to the closure of our Maldon facility and the reduction of our workforces
in Juarez and Kelso. The details of these fiscal 2007 restructuring actions are listed below:
28
Maldon Facility Closure: The Maldon facility ceased production on December 12, 2006, and the closure
resulted in a workforce reduction of 75 employees at a cost of $0.5 million. During the second fiscal quarter of 2007,
the Company sold the Maldon facility for $4.4 million and recorded a $0.4 million gain on this transaction.
Other Restructuring Costs. In fiscal 2007, we recorded pre-tax restructuring costs of $1.0 million related to
severance at our Juarez facility. The Juarez workforce reductions affected approximately 125 employees. During fiscal
2007, we also recorded pre-tax restructuring costs of $0.3 million related to severance at our Kelso facility. The Kelso
workforce reductions affected approximately 10 employees.
Fiscal 2006 restructuring and asset impairment costs: For fiscal 2006, we recorded pre-tax restructuring and
asset impairment costs of $1.0 million, related to the decisions to initially convert and then ultimately close our Maldon
facility and to reduce the workforce in Juarez. For fiscal 2006, these restructuring costs were offset by favorable
adjustments in lease obligations of $0.8 million, as a result of entering into lease termination or sublease agreements for
three of our previously closed facilities in the Bothell and Seattle, Washington area, as well as favorable adjustments of
$0.2 million, related to other restructuring accruals. The details of these fiscal 2006 restructuring actions are listed
below:
Maldon Facility Closure: We announced the decision to close our Maldon facility in July 2006. For fiscal
2006, we recorded $0.5 million for severance and asset impairments related to the closure of the Maldon facility. This
restructuring affected 75 employees.
Maldon Facility Conversion: In the third quarter of fiscal 2005, we announced a planned workforce reduction
at the Maldon facility to convert this manufacturing facility to a fulfillment, service and repair facility. As a result of
this planned conversion, we recorded expenses of $0.2 million for retention costs (severance cost) for fiscal 2006
related to the workforce reduction as part of the Maldon facility conversion. This restructuring affected 43 employees.
Other Restructuring Costs. In fiscal 2006, we recorded pre-tax restructuring costs of $0.3 million related to
severance at our Juarez facility. The Juarez workforce reductions affected approximately 46 employees.
Other income (expense). Other income (expense) for the indicated periods were as follows (dollars in
millions):
Fiscal years ended
Variance
Fiscal years ended
Variance
September 27,
2008
September 29,
2007
Increase/
(Decrease)
September 29,
2007
September 30,
2006
Increase/
(Decrease)
Other income
(expense)
Percent of net
sales
$(0.2)
$4.8
$(5.0)
(104.2)%
$4.8
$3.1
$1.7
54.8%
0.0%
0.3%
0.3%
0.2%
Other income (expense) for fiscal 2008 decreased $5.0 million, to $0.2 million of expense from $4.8 million of
income in fiscal 2007. This was due to increased interest expense of $3.4 million, primarily related to servicing the
$150 million term loan drawn in April 2008, and reduced interest income of $1.4 million, which was due to reduced
effective interest rates and lower average cash balances during fiscal 2008. Miscellaneous income (expense) fluctuated
unfavorably due primarily to foreign currency translation adjustments.
Other income (expense) for fiscal 2007 increased $1.7 million, to $4.8 million of income, over fiscal 2006 due
to increased interest income related to higher average cash balances as well as a higher effective interest rate during
fiscal 2007. Interest expense remained comparable between fiscal years. Miscellaneous income (expense) fluctuated
unfavorably due primarily to foreign currency translation adjustments.
29
Income taxes. Income taxes for the indicated periods were as follows (dollars in millions):
Income tax expense (benefit)
Effective annual tax rate
September 27,
2008
$18.5
Fiscal years ended
September 29,
2007
$18.5
September 30,
2006
$(17.2)
18.0%
22.0%
(20.6)%
The decrease in our effective tax rate from fiscal 2007 to fiscal 2008 is primarily due to a higher proportion of
income in Malaysia and China where we currently have reduced tax rates due to tax holidays that extend through 2019
and 2013, respectively.
Our effective tax rate increased in fiscal 2007 from fiscal 2006 because we recorded a tax provision associated
with U.S. pre-tax income in fiscal 2007 whereas no such tax provision was required for the prior fiscal years. During
fiscal 2006, we recorded minimal income tax expense as a result of the establishment in fiscal 2004 of a full valuation
allowance on U.S. deferred income tax assets (see further discussion below) and increased income in Malaysia and
China, which benefit from tax holidays, and reduced pre-tax income in the United Kingdom. In the fourth quarter of
fiscal 2006, we reversed $17.7 million of the previously recorded valuation allowance as a credit to income tax.
Under Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”
(“SFAS No. 109”), historical and projected financial results (along with any other positive or negative evidence) should
be considered when assessing our ability to generate future taxable income and realize any net deferred income tax
assets. Our U.S. operations generated significant pre-tax income in fiscal 2006. Based on our fiscal 2006 pre-tax
income and an assessment of expected future profitability in the U.S., we concluded that it was more likely than not that
the tax benefits of our cumulative net deferred income tax assets in the U.S. would be utilized in the future. Therefore,
we reversed $17.7 million of the valuation allowance as noted above.
As a result of using the with-and-without method under SFAS No. 123(R), “Share-Based Payment” (“SFAS
No. 123(R)”), we recorded a valuation allowance against the amount of net operating loss and credit carryforwards
related to tax deductions in excess of compensation expense for stock options until such time as the related deductions
actually reduce income taxes payable. We had recorded a valuation allowance of $16.7 million in fiscal 2006 against
our net operating loss carryforwards as of September 30, 2006. During fiscal 2007, we realized a reduction of our
income taxes payable for all of our federal net operating loss carryforwards and a portion of our state net operating loss
carryforwards. Consequently, we reversed approximately $15.0 million of this valuation allowance with a
corresponding credit to additional paid in capital. During fiscal 2008, we released an additional $0.6 million to
additional paid in capital due to the usage of our state net operating loss carryforwards. As a result, we had a remaining
valuation allowance of $1.1 million related to tax deductions associated with stock-based compensation as of
September 27, 2008.
In addition, there was a remaining valuation allowance of $1.5 million as of September 27, 2008, related to
various state deferred income tax assets for which utilization was uncertain due to a lack of sustained profitability and
limited carryforward periods in those states.
We currently expect the annual effective tax rate for fiscal 2009 to be approximately 15 percent. China and
Mexico have passed new tax laws that were effective on January 1, 2008. Those new laws may result in higher tax
rates on our operations in those countries during fiscal 2009 or in the future.
Net Income. As a result of the above factors, our net income increased by $18.4 million, or 28.0 percent, in
fiscal 2008 compared to fiscal 2007. Diluted earnings per share increased 36.2 percent. The per share earnings
increased at a higher rate than net income due to the effects of our stock repurchase program, which was conducted
during fiscal 2008. Net income decreased by $34.3 million, or 34.3 percent, in fiscal 2007 compared to fiscal 2006;
diluted earnings per share decreased 34.4 percent.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $64.2 million for fiscal 2008, compared to cash flows
provided by operating activities of $38.5 million and $83.1 million for fiscal 2007 and 2006, respectively. During fiscal
2008, cash provided by operating activities was primarily provided by earnings (after adjusting for the non-cash effects
30
of depreciation and amortization expense, deferred income taxes and stock-based compensation expense). These
positive cash flow effects were offset, in part, by higher accounts receivable and inventory to support increased
customer demand in the first quarter of fiscal 2009.
Our annualized days sales outstanding in accounts receivable for fiscal 2008 decreased from 54 days in fiscal
2007 to 50 days in fiscal 2008, primarily as a result of stronger cash collections.
Our inventory turns decreased from 5.5 turns for fiscal 2007 to 5.3 turns for fiscal 2008. Inventories increased
by $64.4 million from September 29, 2007, primarily as a result of increased finished goods to enhance flexibility and
support inventory models such as DOF for various customers.
Cash flows used in investing activities totaled $1.1 million for fiscal 2008. The primary investments included
$54.3 million for purchases of property, plant and equipment, offset by $53.0 million of net sales of short-term
securities. Fiscal 2008 purchases of property, plant and equipment included $27.6 million, $22.3 million, $2.9 million
and $1.5 million related to our Asian, U.S., Mexican and European reportable segments, respectively.
We utilized available cash and operating cash flows as the principal sources for funding our operating
requirements during fiscal 2008. Our actual level of capital expenditures for fiscal 2009 will depend on anticipated
demand, but we currently expect to spend in the range of $70 million to $75 million.
Cash flows utilized by financing activities, totaling $49.6 million for fiscal 2008, primarily represent the
purchases of common stock related to our share repurchase program, offset by proceeds from the issuance of a $150
million term loan in April 2008.
On February 25, 2008, Plexus adopted a common stock buyback program that permitted it to acquire shares of
its common stock for an amount up to $200 million. The authorized stock repurchase program consisted of a $100
million accelerated stock repurchase (“ASR”) program and an additional $100 million of open market purchases.
During the second quarter of fiscal 2008, under our ASR plan, we purchased a total of 3.8 million shares
classified as treasury stock at a volume-weighted average price of $26.51 per share. In addition to the ASR plan
purchases, the Company repurchased 3.6 million shares at a volume-weighted average price of $27.25 per share in the
open market during the third and fourth fiscal quarters of 2008. Therefore, the Company completed the $200 million
share repurchase program with a total purchase of 7.4 million shares at a volume-weighted average price of $26.87 per
share. See Note 7 to the Consolidated Financial Statements for further information regarding our share repurchase
program.
On April 4, 2008, we entered into a second amended and restated credit agreement (the “Amended Credit
Facility”) with a group of banks which allows us to borrow $150 million in term loans and $100 million in revolving
loans. The $150 million in term loans was immediately funded and the $100 million revolving credit facility is
currently available. The Amended Credit Facility is unsecured and may be increased by an additional $100 million (the
“accordion feature”) if we have not previously terminated all or any portion of the Amended Credit Facility, there is no
event of default existing under the credit agreement and both we and the administrative agent consent to the increase.
The Amended Credit Facility expires on April 4, 2013. Borrowings under the Amended Credit Facility may be either
through term loans or revolving or swing loans or letter of credit obligations. As of November 10, 2008, we have term
loan borrowings of $142.5 million outstanding and no revolving borrowings under the Amended Credit Facility.
The Amended Credit Facility amended and restated our prior revolving credit facility (“Revolving Credit
Facility”) with a group of banks that allowed us to borrow up to $200 million of which $100 million was committed.
The Revolving Credit Facility was due to expire on January 12, 2012 and was also unsecured. It also contained other
terms and financial conditions, which were substantially similar to those under the Amended Credit Facility.
The Amended Credit Facility contains certain financial covenants, which include a maximum total leverage
ratio, maximum value of fixed rentals and operating lease obligations, a minimum interest coverage ratio and a
minimum net worth test, all as defined in the agreement. As of September 27, 2008, we were in compliance with all
debt covenants. If we incur an event of default, as defined in the Amended Credit Facility (including any failure to
comply with a financial covenant), the group of banks has the right to terminate the remaining Revolving Credit Facility
and all other obligations, and demand immediate repayment of all outstanding sums (principal and accrued interest).
Interest on borrowing varies depending upon our then-current total leverage ratio; as of September 27, 2008, the
Company could elect to pay interest at a defined base rate or the LIBOR rate plus 1.25%. Rates would increase upon
negative changes in specified Company financial metrics and would decrease upon reduction in the current total
31
leverage ratio to no less than LIBOR plus 1.00%. We are also required to pay an annual commitment fee on the unused
credit commitment based on our leverage ratio; the current fee is 0.30 percent. Unless the accordion feature is
exercised, this fee applies only to the initial $100 million of availability (excluding the $150 million of term
borrowings). Origination fees and expenses associated with the Amended Credit Facility totaled approximately $1.3
million and have been deferred. These origination fees and expenses will be amortized over the five-year term of the
Amended Credit Facility. Quarterly principal repayments on the term loan of $3.75 million each began June 30, 2008,
and end on April 4, 2013, with a final balloon repayment of $75.0 million.
The Amended Credit Facility allows for the future payment of cash dividends or the future repurchases of shares
provided that no event of default (including any failure to comply with a financial covenant) is existing at the time of, or
would be caused by, the dividend payment or the share repurchases.
As of September 27, 2008, we held $2.0 million of auction rate securities, which were classified as long-term
investments and whose underlying assets were in guaranteed student loans backed by a U. S. government agency.
Auction rate securities are adjustable rate debt instruments whose interest rates are reset every 7 to 35 days through an
auction process, with underlying securities that have original contractual maturities greater than 10 years. Auctions for
these investments failed during the second, third and fourth quarters of fiscal 2008 and there is no assurance that future
auctions on these securities will succeed.
An auction failure means that the parties wishing to sell their securities could not do so. As a result, our ability
to liquidate and fully recover the carrying value of our adjustable rate securities in the near term may be limited or not
exist. These developments have resulted in the classification of these securities as long-term investments in our
consolidated financial statements. If the issuers of these adjustable rate securities are unable to successfully close future
auctions or their credit quality deteriorates, we may in the future be required to record an impairment charge on these
investments. We may be required to wait until market stability is restored for these instruments or until the final
maturity of the underlying notes to realize our investments’ recorded value.
Based on current expectations, we believe that our projected cash flows from operations, available cash and
short-term investments, the Amended Credit Facility, and our leasing capabilities should be sufficient to meet our
working capital and fixed capital requirements through fiscal 2009. Although net sales growth anticipated for fiscal
2009 is expected to increase our working capital needs, we currently do not anticipate having to use our Amended
Credit Facility to finance this growth. If our future financing needs increase, we may need to arrange additional debt or
equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to supplement
our financial resources. However, particularly due to the current instability of the credit and financial markets, we
cannot be certain that we will be able to make any such arrangements on acceptable terms.
We anticipate using our earnings to support the future growth of our business. We have not paid cash
dividends in the past and do not anticipate paying them in the foreseeable future. We may in the future consider
repurchasing some of our outstanding shares, although at this time no board authorization is in place for additional
purchases. The future payment of cash dividends or the future repurchase of shares would be dependent upon being
compliant with the financial covenants existing under the Amended Credit Facility. These covenants require that there
be no event of default existing at the time of, or be caused by, a dividend payment or share repurchase.
32
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS
Our disclosures regarding contractual obligations and commercial commitments are located in various parts of
our regulatory filings. Information in the following table provides a summary of our contractual obligations and
commercial commitments as of September 27, 2008 (dollars in millions):
Contractual Obligations
Total
2009
2010-2011
2012-2013
2014 and
thereafter
Payments Due by Fiscal Year
Long-Term Debt Obligations (1)
$
146.3
$
15.0
$
Capital Lease Obligations
Operating Lease Obligations
Purchase Obligations (2)
Other Long-Term Liabilities on the
Balance Sheet (3)
Other Long-Term Liabilities not on
37.3
42.6
266.9
7.1
the Balance Sheet (4)
Total Contractual Cash Obligations
$
2.7
502.9
$
4.3
10.1
265.3
0.7
0.9
296.3
$
30.0
8.1
12.5
1.6
1.6
1.8
55.6
$
101.3
$
8.7
10.6
-
0.8
-
121.4
$
$
-
16.2
9.4
-
4.0
-
29.6
1)
2)
3)
4)
As of April 4, 2008, we entered into an amended and restated credit agreement and immediately funded a term
loan for $150 million. As of September 27, 2008, the outstanding balance was $146.3 million. See Note 4 in
Notes to Consolidated Financial Statements for further information.
As of September 27, 2008, purchase obligations consisted of purchases of inventory and equipment in the
ordinary course of business.
As of September 27, 2008, other long-term obligations on the balance sheet included deferred compensation
obligations to certain of our former and current executive officers and other key employees, and an asset
retirement obligation related to FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement
Obligations.” We have excluded from the above table the impact of approximately $5.0 million related to
unrecognized income tax benefits as of September 27, 2008, due to the adoption of FASB interpretation No.
48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.” The
Company cannot make reliable estimates of the future cash flows by period related to this obligation.
As of September 27, 2008, other long-term obligations not on the balance sheet consisted of a commitment for
salary continuation in the event employment of one executive officer of the Company is terminated without
cause. We did not have, and were not subject to, any lines of credit, standby letters of credit, guarantees,
standby repurchase obligations, other off-balance sheet arrangements or other commercial commitments that
were material.
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in Note 1 of Notes to the Consolidated Financial Statements. During
fiscal 2008, there were no material changes to these policies. Our more critical accounting policies are noted below:
Stock-Based Compensation - Effective October 2, 2005, we adopted SFAS No. 123(R), “Share-Based
Payment” , which revised SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion
No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be measured at fair value and expensed in the consolidated
statement of operations over the service period (generally the vesting period) of the grant. Upon adoption, we
transitioned to SFAS No. 123(R) using the modified prospective application, under which compensation expense is
only recognized in the consolidated statements of operations beginning with the first period that SFAS No. 123(R) is
effective and continuing to be expensed thereafter. Prior periods’ stock-based compensation expense is still presented
on a pro forma basis. We continue to use the Black-Scholes valuation model to value stock options. See Note 1 in
Notes to Consolidated Financial Statements for further information.
33
Impairment of Long-Lived Assets – We review property, plant and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
property, plant and equipment is measured by comparing its carrying value to the projected cash flows the property,
plant and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying value of the property exceeds its fair market value. The
impairment analysis is based on significant assumptions of future results made by management, including revenue and
cash flow projections. Circumstances that may lead to impairment of property, plant and equipment include reduced
expectations for future performance or industry demand and possible further restructurings.
Intangible Assets – Under SFAS No. 142, “Goodwill and Other Intangible Assets,” which was effective
October 1, 2002, we no longer amortize goodwill and intangible assets with indefinite useful lives, but instead we test
those assets for impairment, at least annually, and recognize any related losses when incurred. We perform goodwill
impairment tests annually during the third quarter of each fiscal year or more frequently if an event or circumstance
indicates that an impairment has occurred.
We measure the recoverability of goodwill under the annual impairment test by comparing a reporting unit’s
carrying amount, including goodwill, to the reporting unit’s estimated fair market value, which is primarily estimated
using the present value of expected future cash flows, although market valuations may also be employed. If the
carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second test is
performed to measure the amount of impairment. Circumstances that may lead to impairment of goodwill include, but
are not limited to, the loss of a significant customer or customers and unforeseen reductions in customer demand, future
operating performance or industry demand.
Revenue – Net sales from manufacturing services are recognized when the product has been shipped, the risk
of ownership has transferred to the customer, the price to the buyer is fixed or determinable, and recoverability is
reasonably assured. This point depends on contractual terms and generally occurs upon shipment of the goods from
Plexus. Generally, there are no formal customer acceptance requirements or further obligations related to
manufacturing services; if such requirements or obligations exist, then a sale is recognized at the time when such
requirements are completed and such obligations fulfilled.
Net sales from engineering design and development services, which are generally performed under contracts of
twelve months or less duration, are recognized as costs are incurred utilizing a percentage-of-completion method; any
losses are recognized when anticipated.
Sales are recorded net of estimated returns of manufactured product based on management’s analysis of
historical rates of returns, current economic trends and changes in customer demand. Net sales also include amounts
billed to customers for shipping and handling, if applicable. The corresponding shipping and handling costs are
included in cost of sales.
Derivatives and Hedging Activities – All derivatives are recognized on the balance sheet at their estimated fair
value. On the date a derivative contract is entered into, the Company designates the derivative as a hedge of a
recognized asset or liability (a “fair value” hedge), a hedge of a forecasted transaction or of the variability of cash flows
to be received or paid related to a recognized asset or liability (a “cash flow” hedge), or a hedge of the net investment in
a foreign operation. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of
a derivative that qualify as a fair value hedge are recorded in earnings along with the gain or loss on the hedged asset or
liability. Changes in the fair value of a derivative that qualifies as a cash flow hedge are recorded in “Accumulated
other comprehensive income”, until earnings are affected by the variability of cash flows. Changes in the fair value of a
derivative used to hedge the net investment in a foreign operation are recorded in the “Accumulated other
comprehensive income” accounts within shareholders’ equity.
In June 2008, the Company entered into three interest rate swap contracts related to the $150 million in term
loans under the Amended Credit Facility that have a total notional value of $150 million and mature on April 4, 2013.
These interest rate swap contracts will pay the Company variable interest at the three month LIBOR rate, and the
Company will pay the counterparties a fixed interest rate. The fixed interest rates for each of these contracts are
4.415%, 4.490% and 4.435%, respectively. These interest rate swap contracts were entered into to convert $150 million
of the variable rate term loan under the Amended Credit Facility into fixed rate debt. Based on the terms of the interest
rate swap contracts and the underlying debt, these interest rate contracts were determined to be effective, and thus
qualify as a cash flow hedge. As such, any changes in the fair value of these interest rate swaps are recorded in
“Accumulated other comprehensive income” on the accompanying Consolidated Balance Sheets until earnings are
affected by the variability of cash flows. Any gain or loss on the derivatives will be recorded in the income statement in
34
“Interest expense”. The total fair value of these interest rate swap contracts is $3.0 million at September 27, 2008, and
the Company has recorded this amount in “Other” current liabilities and “Other liabilities” in the accompanying
Consolidated Balance Sheets.
Income Taxes – Deferred income taxes are provided for differences between the bases of assets and liabilities
for financial and income tax reporting purposes. We record a valuation allowance against deferred income tax assets
when management believes it is more likely than not that some portion or all of the deferred income tax assets will not
be realized. Realization of deferred income tax assets is dependent on our ability to generate sufficient future taxable
income. Although our net deferred income tax assets as of September 27, 2008 still reflect a $1.5 million valuation
allowance against certain deferred income tax assets, we may be able to utilize these deferred income tax assets to offset
future taxable income in certain states. We also have a remaining valuation allowance of $1.1 million related to tax
deductions associated with stock-based compensation as of September 27, 2008.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”).
This statement changes the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161
requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS No. 133”), and its related interpretations, and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is
currently assessing the impact of SFAS No. 161 on its consolidated results of operations, financial position and cash
flows.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial
Statements - an amendment to ARB No. 51” (“SFAS No. 160”). SFAS No. 160 will change the accounting and
reporting for minority interests, which will now be termed “non-controlling interests.” SFAS No. 160 requires non-
controlling interests to be presented as a separate component of equity and requires the amount of net income
attributable to the parent and to the non-controlling interest to be separately identified on the consolidated statement of
operations. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is
currently assessing the impact of SFAS No. 160 on its consolidated results of operations, financial position and cash
flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, “Business
Combinations” (“SFAS No. 141R”). SFAS No. 141R states that all business combinations (whether full, partial or step
acquisitions) will result in all assets and liabilities of an acquired business being recorded at their fair values. Certain
forms of contingent consideration and certain acquired contingencies will be recorded at fair value at the acquisition
date. SFAS No. 141R also states acquisition costs will generally be expensed as incurred and restructuring costs will be
expensed in periods after the acquisition date. This statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and will impact the Company’s accounting for future acquisitions.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). This standard permits an entity
to choose to measure many financial instruments and certain other items at fair value. The fair value option permits a
company to choose to measure eligible items at specified election dates. A company will report unrealized gains and
losses on items for which the fair value option has been elected in earnings after adoption. The effective date for SFAS
No. 159 is as of the beginning of fiscal years that start subsequent to November 15, 2007. The Company is currently
assessing the impact of SFAS No. 159 on its consolidated results of operations, financial position and cash flows.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This
standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. SFAS
No. 157 also expands financial statement disclosures about fair value measurements. On February 12, 2008, the FASB
issued FASB Staff Position (“FSP”) 157-2 (“FSP 157-2”) which delays the effective date of SFAS No. 157 for one
year, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). FAS No. 157 and FSP 157-2 are effective for financial
statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS No. 157 and FSP 157-2 on its consolidated results of operations, financial position and cash flows.
35
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in foreign exchange and interest rates. We selectively use
financial instruments to reduce such risks.
Foreign Currency Risk
We do not use derivative financial instruments for speculative purposes. Our policy is to selectively hedge our
foreign currency denominated transactions in a manner that substantially offsets the effects of changes in foreign
currency exchange rates. Historically, we have used foreign currency contracts to hedge only those currency exposures
associated with certain assets and liabilities denominated in non-functional currencies. Corresponding gains and losses
on the underlying transaction generally offset the gains and losses on these foreign currency hedges. Our international
operations create potential foreign exchange risk. As of September 27, 2008, we had no foreign currency contracts
outstanding.
Our percentages of transactions denominated in currencies other than the U.S. dollar for the indicated periods
were as follows:
Net Sales
Total Costs
Interest Rate Risk
Fiscal year
2007
5%
11%
2006
7%
12%
2008
4%
11%
We have financial instruments, including cash equivalents and short-term investments, which are sensitive to
changes in interest rates. We consider the use of interest-rate swaps based on existing market conditions and have
entered into interest rate swaps for $150 million in term loans as described in Note 5 in Notes to Consolidated Financial
Statements.
The primary objective of our investment activities is to preserve principal, while maximizing yields without
significantly increasing market risk. To achieve this, we maintain our portfolio of cash equivalents and short-term
investments in a variety of highly rated securities, money market funds and certificates of deposit and limit the amount
of principal exposure to any one issuer.
Our only material interest rate risk is associated with our Amended Credit Facility under which we borrowed
$150 million on April 4, 2008. Through the use of interest rate swaps, as described above, we have fixed the basis on
which we pay interest, thus eliminating much of our interest rate risk. A 10 percent change in the weighted average
interest rate on our average long-term borrowings would have had only a nominal impact on net interest expense.
Auction Rate Securities
As of September 27, 2008, we held $2.0 million of auction rate securities, which were classified as long-term
other assets. On February 21, 2008, we were unable to liquidate these investments, whose underlying assets were in
guaranteed student loans backed by a U.S. government agency. We have the ability and intent to hold these securities
until a successful auction occurs and these securities are liquidated at par value. At this time, we believe that the
securities will eventually be recovered. However, we may be required to hold these securities until market stability is
restored for these instruments or final maturity of the underlying notes to realize our investments’ recorded value.
Accordingly, we have classified these securities as long-term other assets.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15 on page 39.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: The Company maintains disclosure controls and procedures designed to
ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission
(“SEC”) is recorded, processed, summarized and reported on a timely basis. The Company’s principal executive officer
and principal financial officer have reviewed and evaluated, with the participation of the Company’s management, the
Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the
“Evaluation Date”). Based on such evaluation, the chief executive officer and chief financial officer have concluded
that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective (a) in recording,
processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the
reports the Company files or submits under the Exchange Act, and (b) are accumulated and communicated to the
Company’s management, including the chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting: Management of the Company is
responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Management of the Company, including its chief executive officer and
chief financial officer, has assessed the effectiveness of its internal control over financial reporting as of September 27,
2008, based on the criteria established in “Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its assessment and those criteria,
management of the Company has concluded that, as of September 27, 2008, the Company’s internal control over
financial reporting was effective.
The independent registered public accounting firm of PricewaterhouseCoopers LLP has audited the
Company’s internal control over financial reporting as of September 27, 2008, as stated in their report included herein
on page 41.
Changes in Internal Control Over Financial Reporting: There have been no changes in the Company’s
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls: Our management, including our chief executive officer and chief
financial officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of
changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.
Notwithstanding the foregoing limitations on the effectiveness of controls, we have nonetheless reached the
conclusions set forth above on our disclosure controls and procedures and our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION.
None
37
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is incorporated herein by reference to “Election of Directors” and
“Corporate Governance” in the Company’s Proxy Statement for its 2009 Annual Meeting of Shareholders (“2009 Proxy
Statement”) and “Executive Officers of the Registrant” in Part I hereof.
Our Code of Conduct and Business Ethics is posted on our website at www.plexus.com. You may access the
Code of Conduct and Business Ethics by following the links under “Investor Relations, Corporate Governance” at our
website. Plexus’ Code of Conduct and Business Ethics applies to all members of the board of directors, officers and
employees.
ITEM 11.
EXECUTIVE COMPENSATION
Incorporated herein by reference to “Corporate Governance – Board Committees – Compensation and
Leadership Development Committee,” “Corporate Governance – Directors’ Compensation,” “Compensation Discussion
and Analysis,” “Executive Compensation” and “Compensation Committee Report” in the 2009 Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to “Security Ownership of Certain Beneficial Owners and Management” in
the 2009 Proxy Statement.
Equity Compensation Plan Information
The following table chart gives aggregate information regarding grants under all Plexus equity compensation
plans through September 27, 2008:
Plan category
Equity compensation plans
approved by securityholders
Equity compensation plans not
approved by securityholders
Total
(1)
(2)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (1)
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance under
equity compensation
plans (excluding
securities reflected
in 1st column) (2)
3,491,510
$ 25.88
5,787,590
-0-
$
n/a
-0-
3,491,510
$ 25.88
5,787,590
Represents options or stock-settled stock appreciation rights (“SARs”) granted under the Plexus Corp. 2008
Long-Term Incentive Plan (the "2008 Plan"), or its predecessors, the 2005 Equity Incentive Plan, the 1998
Stock Option Plan and the 1995 Directors’ Stock Option Plan, all of which were approved by shareholders.
No further awards may be made under the predecessor plans.
In addition to options and SARs reported above that may be granted under the 2008 Plan, there are 1,094,191
authorized shares which have not yet been purchased by employees under the Plexus 2005 Employee Stock
Purchase Plan. These shares may be purchased at a 5% discount to market price at the end of a six-month
contribution period; the number of shares which may be purchased by any employee is limited by the Internal
Revenue Code. However, the Company terminated further purchases under the 2005 Purchase Plan in January
2008, and no more sales will be made even though the plan does not expire until 2010.
38
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to “Corporate Governance – Director Independence” and “Certain
Transactions” in the 2009 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference to the subheading “Auditors - Fees and Services” in the 2009 Proxy
Statement.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed
Financial Statements and Financial Statement Schedules. See following list of Financial Statements and
Financial Statement Schedules on page 40.
(b) Exhibits. See Exhibit Index included as the last page of this report, which index is incorporated herein by
reference
39
PLEXUS CORP.
List of Financial Statements and Financial Statement Schedules
September 27, 2008
Contents
Pages
Report of Independent Registered Public Accounting Firm .......................................................
41
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
September 27, 2008, September 29, 2007 and September 30, 2006 ............................
Consolidated Balance Sheets as of September 27, 2008 and September 29, 2007........
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)
for the years ended September 27, 2008, September 29, 2007 and September 30, 2006
Consolidated Statements of Cash Flows for the years ended
September 27, 2008, September 29, 2007 and September 30, 2006 .............................
Notes to Consolidated Financial Statements ...............................................................................
Financial Statement Schedules:
42
43
44
45
46
Schedule II - Valuation and Qualifying Accounts for the years ended
September 27, 2008, September 29, 2007 and September 30, 2006 .............................
71
40
Report of Independent Registered Public Accounting Firm
To the Shareholders
and Board of Directors
of Plexus Corp:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material
respects, the financial position of Plexus Corp. and its subsidiaries at September 27, 2008 and September 29, 2007, and
the results of their operations and their cash flows for each of the three years in the period ended September 27, 2008 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 27, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
these financial statements and financial statement schedules, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"), effective at the beginning of fiscal year 2008.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 14, 2008
41
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended September 27, 2008, September 29, 2007 and September 30, 2006
(in thousands, except per share data)
Net sales
Cost of sales
2008
2007
2006
$ 1,841,622
1,635,861
$ 1,546,264
1,382,725
$ 1,460,557
1,301,857
Gross profit
205,761
163,539
158,700
Operating expenses:
Selling and administrative expenses
Restructuring costs
Operating income
Other income (expense):
Interest expense
Interest income
Miscellaneous
Income before income taxes and cumulative
effect of change in accounting principle
Income tax expense (benefit)
100,815
2,119
102,934
102,827
(6,543)
7,661
(1,330)
102,615
18,471
82,263
1,838
84,101
79,438
(3,168)
9,099
(1,115)
84,254
18,536
78,438
-
78,438
80,262
(3,507)
6,163
434
83,352
(17,178)
Income before cumulative effect of change in
accounting principle
Cumulative effect of change in accounting principle,
net of income taxes of $3
84,144
65,718
100,530
-
-
(505)
Net income
$
84,144
$
65,718
$
100,025
Earnings per share:
Basic:
Income before cumulative effect of change in
accounting principle
Cumulative effect of change in accounting principle,
net of income taxes
Net income
Diluted:
$
1.94
$
1.42
$
2.23
$
-
1.94
$
-
1.42
$
(0.01)
2.22
Income before cumulative effect of change in
accounting principle
Cumulative effect of change in accounting principle,
$
1.92
$
1.41
$
2.16
net of income taxes
Net income
$
-
1.92
$
-
1.41
$
(0.01)
2.15
Weighted average shares outstanding:
Basic
Diluted
43,340
43,850
46,312
46,739
45,146
46,490
The accompanying notes are an integral part of these consolidated financial statements.
42
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of September 27, 2008 and September 29, 2007
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $2,500 and $900,
respectively
Inventories
Deferred income taxes
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Goodwill
Deferred income taxes
Other
2008
2007
$ 165,970
-
253,496
$ 154,109
55,000
230,826
340,244
15,517
11,742
275,854
12,932
5,434
786,969
734,155
179,123
7,275
2,620
16,243
159,517
8,062
2,310
12,472
Total assets
$ 992,230
$ 916,516
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations
Accounts payable
Customer deposits
Accrued liabilities:
Salaries and wages
Other
Total current liabilities
Long-term debt and capital lease obligations, net of current portion
Other liabilities
Deferred income taxes
Commitments and contingencies (Notes 10 and 12)
Shareholders’ equity:
Preferred stock, $.01 par value, 2,000 shares authorized, none issued
or outstanding
Common stock, $.01 par value, 200,000 shares authorized,
46,772 and 46,402 shares issued, respectively, and 39,326 and
46,402 shares outstanding, respectively
$
16,694
231,638
26,863
$
1,720
237,034
10,381
41,086
31,611
23,149
34,755
347,892
307,039
154,532
15,861
-
25,082
9,372
1,758
-
-
-
-
468
464
Additional paid-in capital
Common stock held in treasury, at cost, 7,446 shares and 0 shares,
353,105
(200,110)
respectively
Retained earnings
Accumulated other comprehensive income
309,708
10,774
473,945
336,603
-
224,586
11,612
573,265
Total liabilities and shareholders’ equity
$ 992,230
$ 916,516
The accompanying notes are an integral part of these consolidated financial statements.
43
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4
PLEXUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 27, 2008, September 29, 2007 and September 30, 2006
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization
Cumulative effect of change in accounting principle
Non-cash goodwill and asset impairments
Gain on sale of property, plant and equipment
Stock based compensation expense
Provision for accounts receivable allowances
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable
Customer deposits
Accrued liabilities and other
2008
2007
2006
$
84,144
$
65,718
$ 100,025
29,219
-
-
(39)
8,737
1,603
562
(24,005)
(64,159)
(6,813)
(1,548)
16,486
19,994
26,588
-
-
(352)
6,166
-
14,155
(19,611)
(50,235)
(1,684)
13,674
3,145
(19,051)
23,310
505
59
-
3,039
464
(18,008)
(41,521)
(42,712)
(1,810)
59,971
(714)
476
Cash flows provided by operating activities
64,181
38,513
83,084
Cash flows from investing activities
Purchases of short-term investments
Sales and maturities of short-term investments
Payments for property, plant and equipment
Proceeds from sales of property, plant and equipment
(53,400)
106,400
(54,329)
239
(63,050)
38,050
(47,837)
4,460
(32,500)
12,500
(34,865)
608
Cash flows used in investing activities
(1,090)
(68,377)
(54,257)
Cash flows from financing activities
Proceeds from debt issuance
Purchases of common stock
Payments on debt and capital lease obligations
Proceeds from exercise of stock options
Income tax benefit of stock option exercises
Issuances of common stock under Employee Stock Purchase Plan
150,000
(200,110)
(6,737)
5,418
1,603
177
-
(1,522)
1,793
15,459
402
1,292
(2,149)
35,837
376
138
Cash flows (used in) provided by financing activities
(49,649)
16,132
35,494
Effect of foreign currency translation on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
(1,581)
11,861
154,109
2,929
(10,803)
164,912
1,864
66,185
98,727
Cash and cash equivalents, end of year
$ 165,970
$ 154,109
$ 164,912
The accompanying notes are an integral part of these consolidated financial statements.
45
Plexus Corp.
Notes to Consolidated Financial Statements
1.
Description of Business and Significant Accounting Policies
Description of Business: Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”)
participate in the Electronic Manufacturing Services (“EMS”) industry. As a contract manufacturer, we
provide product realization services to original equipment manufacturers (“OEMs”) and other technology
companies in the wireline/networking, wireless infrastructure, medical, industrial/commercial, and
defense/security/aerospace market sectors. The Company provides advanced electronics design,
manufacturing and testing services to our customers with a focus on complex and global fulfillment solutions,
high technology manufacturing and test services, and high reliability products. The Company offers our
customers the ability to outsource all stages of product realization, including development and design;
materials sourcing, procurement and management; prototyping and new product introduction; testing;
manufacturing; product configuration; logistics and test/repair.
The Company provides most of our contract manufacturing services on a turnkey basis, which
means that we procure some or all of the materials required for product assembly. The Company provides
some services on a consignment basis, which means that the customer supplies the necessary materials and
the Company provides the labor and other services required for product assembly. Turnkey services require
material procurement and warehousing, in addition to manufacturing, and involve greater resource
investments than consignment services. Other than certain test equipment and software used for internal
manufacturing, the Company does not design or manufacture our own proprietary products.
Consolidation Principles and Basis of Presentation: The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and include the accounts of
Plexus Corp. and its subsidiaries. All significant intercompany transactions have been eliminated.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company also uses a
“4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a
Saturday at the end of the 4-4-5 period. The accounting years for fiscal 2008, 2007 and 2006 each included
364 days. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday
closest to September 30. Fiscal 2009 will include this additional week and the fiscal year-end will be October
3, 2009. Therefore the accounting year for 2009 will include 371 days. The additional week will be added to
our first quarter which will include 98 days and end on January 3, 2009.
Cash Equivalents and Short-Term Investments: Cash equivalents are highly liquid investments
purchased with an original maturity of less than three months. Short-term investments include investment-
grade short-term debt instruments with original maturities greater than three months. Short-term investments
are generally comprised of securities with contractual maturities greater than one year but with optional or
early redemption provisions or rate reset provisions within one year.
Investments in debt securities are classified as “available-for-sale.” Such investments are recorded
at fair value as determined from quoted market prices, and the cost of securities sold is determined on the
specific identification method. If material, unrealized gains or losses are reported as a component of
comprehensive income or loss, net of the related income tax effect. For fiscal 2008, 2007 and 2006,
unrealized or realized gains and losses were not material.
As of September 27, 2008 and September 29, 2007, cash and cash equivalents included the
following securities (in thousands):
Cash
Money market funds and other
U.S. corporate and bank debt
2008
$
6,136
114,234
45,600
$ 165,970
2007
$ 23,409
37,500
93,200
$ 154,109
46
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Short-term investments as of September 29, 2007 consisted of state and municipal auction rate
securities.
Inventories: Inventories are valued at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. Valuing inventories at the lower of cost or market requires the use of estimates and
judgment. Customers may cancel their orders, change production quantities or delay production for a number
of reasons that are beyond the Company’s control. Any of these, or certain additional actions, could impact
the valuation of inventory. Any actions taken by the Company’s customers that could impact the value of its
inventory are considered when determining the lower of cost or market valuations.
Customer deposits primarily include amounts received, per contractual terms, for obsolete and
excess inventory.
Property, Plant and Equipment and Depreciation: These assets are stated at cost. Depreciation,
determined on the straight-line method, is based on lives assigned to the major classes of depreciable assets as
follows:
Buildings and improvements
Machinery and equipment
Computer hardware and software
15-50 years
3-10 years
2-10 years
Certain facilities and equipment held under capital leases are classified as property, plant and
equipment and amortized using the straight-line method over the lease terms and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation expense (see Note 3) and the financing
component of the lease payments is classified as interest expense.
For the capitalization of software costs, the Company follows Statement of Position (“SOP”) 98-1,
“Accounting for the Costs of Computer Software Developed for Internal Use.” The Company capitalizes
significant costs incurred in the acquisition or development of software for internal use, including the costs of
the software, consultants and payroll and payroll related costs for employees directly involved in developing
internal use computer software once the final selection of the software is made (see Note 3). Costs incurred
prior to the final selection of software and costs not qualifying for capitalization are expensed as incurred.
Expenditures for maintenance and repairs are expensed as incurred.
Goodwill and Other Intangible Assets: The Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) effective October 1,
2002. Under SFAS No. 142, the Company no longer amortizes goodwill and intangible assets with indefinite
useful lives, but instead, the Company tests those assets for impairment at least annually, and recognizes any
related losses when incurred. Recoverability of goodwill is measured at the reporting unit level.
The Company is required to perform goodwill impairment tests at least annually, for which the
Company selected the third quarter of each fiscal year, or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. No assurances can be given that future impairment
tests of goodwill will not result in further goodwill impairment or that changes in circumstances will not arise
which result in further goodwill impairment.
We measure the recoverability of goodwill under the annual impairment test by comparing the
reporting unit’s carrying amount, including goodwill, to the reporting unit’s estimated fair market value,
which is primarily estimated using the present value of expected future cash flows, although market
valuations may also be employed. If the carrying amount of the reporting unit exceeds its fair value, goodwill
is considered impaired and a second test is performed to measure the amount of impairment. Circumstances
that may lead to impairment of goodwill include, but are not limited to, the loss of a significant customer or
customers and unforeseen reductions in customer demand, future operating performance or industry demand.
47
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
For the years ended September 27, 2008 and September 29, 2007 changes in the carrying amount of
goodwill for the European reportable segment were as follows (in thousands):
Balance as of September 30, 2006
Foreign currency translation adjustment
Balance as of September 29, 2007
Foreign currency translation adjustment
Balance as of September 27, 2008
Europe
$
7,400
662
8,062
(787)
$
7,275
The Company has a nominal amount of identifiable intangibles that are subject to amortization.
These intangibles relate to patents with useful lives of twelve years. Intangible asset amortization expense
was nominal for fiscal 2008, 2007 and 2006. The Company has no intangibles, except goodwill, that are not
subject to amortization. During fiscal 2008, there were no additions to intangible assets.
Impairment of Long-Lived Assets: The Company reviews property, plant and equipment for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of property, plant and equipment is measured by comparing its carrying
value to the projected cash flows the property, plant and equipment are expected to generate. If such assets
are considered to be impaired, the impairment to be recognized is measured as the amount by which the
carrying value of the property exceeds its fair market value. The impairment analysis is based on significant
assumptions of future results made by management, including sales and cash flow projections.
Circumstances that may lead to impairment of property, plant and equipment include reduced expectations
for future performance or industry demand and possible further restructurings.
Revenue Recognition: Net sales from manufacturing services are recognized when the product has
been shipped, the risk of ownership has transferred to the customer, the price to the buyer is fixed or
determinable, and recoverability is reasonably assured. This point depends on contractual terms and
generally occurs upon shipment of the goods from Plexus. Generally, there are no formal customer
acceptance requirements or further obligations related to manufacturing services; if such requirements or
obligations exist, then a sale is recognized at the time when such requirements are completed and such
obligations are fulfilled.
Net sales from engineering design and development services, which are generally performed under
contracts with a duration of twelve months or less, are recognized as costs are incurred utilizing a percentage-
of-completion method; any losses are recognized when anticipated. Progress towards completion of product
design and development contracts is based on units of work for labor content and costs incurred for
component content. Net sales from engineering design and development services were less than five percent
of total sales in fiscal 2008, 2007 and 2006.
Sales are recorded net of estimated returns of manufactured products based on management’s
analysis of historical returns, current economic trends and changes in customer demand. Net sales also
include amounts billed to customers for shipping and handling. The corresponding shipping and handling
costs are included in cost of sales.
Restructuring Costs: From time to time, the Company has recorded restructuring costs in response
to the reduction in its sales levels and reduced capacity utilization. These restructuring charges included
employee severance and benefit costs, costs related to plant closures, including leased facilities that will be
abandoned (and subleased, as applicable), and impairment of equipment.
Costs associated with a restructuring activity are recorded in accordance with SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). The timing and
related recognition of recording severance and benefit costs that are not presumed to be an ongoing benefit, as
defined in SFAS No. 146, depend on whether employees are required to render service until they are
48
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
terminated in order to receive the termination benefits and, if so, whether employees will be retained to
render service beyond a minimum retention period. The Company concluded that it had a substantive
severance plan based upon past severance practices; therefore, certain severance and benefit costs were
recorded in accordance with SFAS No. 112, “Employer’s Accounting for Postemployment Benefits” (“SFAS
No. 112”), which resulted in the recognition of a liability as the severance and benefit costs arose from an
existing condition or situation and the payment was both probable and reasonably estimated.
For leased facilities that will be abandoned and subleased, a liability is recognized and measured at
fair value for the future remaining lease payments subsequent to abandonment, less any estimated sublease
income that could be reasonably obtained for the property. For contract termination costs, including costs
that will continue to be incurred under a contract for its remaining term without economic benefit to the
Company, a liability for future remaining payments under the contract is recognized and measured at its fair
value.
The recognition of restructuring costs requires that the Company make certain judgments and
estimates regarding the nature, timing and amount of cost associated with the planned exit activity. If actual
results in exiting these facilities differ from the Company’s estimates and assumptions, the Company may be
required to revise the estimates of future liabilities, which could result in recording additional restructuring
costs or the reduction of liabilities already recorded. At the end of each reporting period, the Company
evaluates the remaining accrued balances to ensure that no excess accruals are retained, no additional accruals
are required and the utilization of the provisions are for their intended purpose in accordance with developed
exit plans.
Income Taxes: Deferred income taxes are provided for differences between the bases of assets and
liabilities for financial and income tax reporting purposes. The Company records a valuation allowance
against deferred income tax assets when management believes it is more likely than not that some portion or
all of the deferred income tax assets will not be realized (see Note 6). Realization of deferred income tax
assets is dependent on the Company’s ability to generate future taxable income. The Company records
windfall tax benefits upon stock option exercises using the with-and-without method.
Foreign Currency: For foreign subsidiaries using the local currency as their functional currency,
assets and liabilities are translated at exchange rates in effect at year-end, with net sales, expenses and cash
flows translated at the average monthly exchange rates. Adjustments resulting from translation of the
financial statements are recorded as a component of “Accumulated other comprehensive income”. Exchange
gains and losses arising from transactions denominated in a currency other than the functional currency of the
entity involved and remeasurement adjustments for foreign operations where the U.S. dollar is the functional
currency are included in our Statements of Operations as a component of miscellaneous other income
(expense). Exchange gains (losses) on foreign currency transactions were $(1.7) million, $(1.5) million and
$0.4 million for the fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006,
respectively.
Derivatives: The Company periodically enters into derivative contracts such as foreign currency
forward, call and put contracts, which are designated as cash-flow hedges. All derivatives are recognized on
the balance sheet at their estimated fair value. On the date a derivative contract is entered into, the Company
designates the derivative as a hedge of a recognized asset or liability (a “fair value” hedge), a hedge of a
forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or
liability (a “cash flow” hedge), or a hedge of the net investment in a foreign operation. The Company does
not enter into derivatives for speculative purposes. Changes in the fair value of a derivative that qualify as a
fair value hedge are recorded in earnings along with the gain or loss on the hedged asset or liability. Changes
in the fair value of a derivative that qualifies as a cash flow hedge are recorded in “Accumulated other
comprehensive income”, until earnings are affected by the variability of cash flows. Changes in the fair value
of a derivative used to hedge the net investment in a foreign operation are recorded in the “Accumulated other
comprehensive income” accounts within shareholders’ equity. Our interest rate swaps are treated as cash
flow hedges and therefore $(1.7) million for 2008 was recorded in “Accumulated other comprehensive
income.” These amounts were not material during fiscal 2007 or 2006.
49
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Earnings Per Share: The computation of basic earnings per common share is based upon the
weighted average number of common shares outstanding and net income (loss). The computation of diluted
earnings per common share reflects additional dilution from stock options and restricted stock awards, unless
such options are antidilutive.
Stock-based Compensation: Effective October 2, 2005, the Company adopted SFAS No. 123(R),
“Share-Based Payment” (“SFAS No. 123(R)”), which revised SFAS No. 123, “Accounting for Stock-Based
Compensation” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees.” SFAS No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be measured at fair value and expensed in the consolidated statement of
operations over the service period (generally the vesting period) of the grant. Upon adoption, the Company
transitioned to SFAS No. 123(R) using the modified prospective application, under which compensation
expense is only recognized in the consolidated statements of operations beginning with the first period that
SFAS No. 123(R) is effective and continuing to be expensed thereafter.
Comprehensive Income: The Company has adopted SFAS No. 130, “Reporting Comprehensive
Income” (“SFAS No. 130”). SFAS No. 130 establishes standards for reporting comprehensive income, which
it defines as the changes in equity of an enterprise except those resulting from stockholder transactions.
Accumulated other comprehensive income consists of the following as of September 27, 2008 and
September 29, 2007 (in thousands):
Foreign currency translation adjustment
Change in fair market value of derivative instruments, net of tax
Accumulated other comprehensive income
$ 12,494
(1,720)
$ 10,774
$ 11,612
-
$ 11,612
2008
2007
The change in fair market value of derivative instruments, net of tax adjustment that is recorded to
“Accumulated other comprehensive income” is more fully explained in Note 5 - Derivatives.
Conditional Asset Retirement Obligations: In March 2005, the Financial Accounting Standards
Board (“FASB”) issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”
(“FIN 47”), which clarifies that an entity is required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about
the timing and/or method of settlement. Upon adoption of FIN 47 in the fourth quarter of fiscal 2006, we
recorded an increase in property, plant and equipment, net of $0.1 million and recognized an asset retirement
obligation of $0.6 million. This resulted in the recognition of a non-cash charge of $0.5 million ($0.5 million
after-tax, or $0.01 per share) for the year ended September 30, 2006 that was reported as a cumulative effect
of an accounting change. The liability is adjusted for any additions or deletions of related property, plant and
equipment.
Use of Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Fair Value of Financial Instruments: Accounts payable and accrued liabilities were reflected in the
consolidated financial statements at cost because of the short-term duration of these instruments. Accounts
receivable were reflected at net realizable value based on anticipated losses due to potentially uncollectible
balances. Anticipated losses were based on management’s analysis of historical losses and changes in
customer credit status. The fair value of capital lease obligations was approximately $22.9 million and $28.5
million as of September 27, 2008 and September 29, 2007, respectively. The fair value of the Company’s
term loan debt was $120.4 million and $0 as of September 27, 2008 and September 29, 2007, respectively.
50
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
The Company uses quoted market prices when available or discounted cash flows to calculate these fair
values.
Business and Credit Concentrations: Financial instruments that potentially subject the Company to
concentrations of credit risk consisted of cash, cash equivalents, short-term investments and trade accounts
receivable. In accordance with the Company’s investment policy, the Company’s cash, cash equivalents and
short-term investments were placed with recognized financial institutions. The Company’s investment policy
limits the amount of credit exposure in any one issue and the maturity date of the investment securities that
typically comprise investment grade short-term debt instruments. Concentrations of credit risk in accounts
receivable resulting from sales to major customers are discussed in Note 13. The Company, at times, requires
advanced cash deposits for services performed. The Company also closely monitors extensions of credit.
New Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements” (“SFAS No. 157”). This standard defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes
and prioritizes the sources to be used to estimate fair value. SFAS No. 157 also expands financial statement
disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position
(“FSP”) 157-2 (“FSP 157-2”) which delays the effective date of SFAS No. 157 for one year, for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). FAS No. 157 and FSP 157-2 are effective for
financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently
assessing the impact of SFAS No. 157 and FSP 157-2 on its consolidated results of operations, financial
position and cash flows.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). This
standard permits an entity to choose to measure many financial instruments and certain other items at fair
value. The fair value option permits a company to choose to measure eligible items at specified election
dates. A company will report unrealized gains and losses on items for which the fair value option has been
elected in earnings after adoption. The effective date for SFAS No. 159 is as of the beginning of fiscal years
that start subsequent to November 15, 2007. The Company is currently assessing the impact of SFAS No.
159 on its consolidated results of operations, financial position and cash flows.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS No.
141R”). SFAS No. 141R states that all business combinations (whether full, partial or step acquisitions) will
result in all assets and liabilities of an acquired business being recorded at their fair values. Certain forms of
contingent consideration and certain acquired contingencies will be recorded at fair value at the acquisition
date. SFAS No. 141R also states acquisition costs will generally be expensed as incurred and restructuring
costs will be expensed in periods after the acquisition date. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated
Financial Statements — an amendment to ARB No. 51” (“SFAS 160”). SFAS No. 160 will change the
accounting and reporting for minority interests, which will now be termed “non-controlling interests.”
SFAS No. 160 requires non-controlling interests to be presented as a separate component of equity and
requires the amount of net income attributable to the parent and to the non-controlling interest to be
separately identified on the consolidated statement of operations. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company is currently assessing the impact of SFAS No. 160
on its consolidated results of operations, financial position and cash flows.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). This statement changes
the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 requires
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”) and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position, financial performance, and cash
51
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
flows. This statement is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently assessing the impact of SFAS No. 161 on its
consolidated results of operations, financial position and cash flows.
2.
Inventories
Inventories as of September 27, 2008 and September 29, 2007 consisted of (in thousands):
Raw materials
Work-in-process
Finished goods
3.
Property, Plant and Equipment
2008
2007
$ 241,041
39,810
59,393
$ 340,244
$ 194,596
32,068
49,190
$ 275,854
Property, plant and equipment as of September 27, 2008 and September 29, 2007, consisted of (in
thousands):
Land, buildings and improvements
Machinery and equipment
Computer hardware and software
Construction in progress
Less: accumulated depreciation and
amortization
2008
$ 103,047
200,001
71,444
11,827
386,319
$
2007
96,366
171,392
67,405
10,696
345,859
207,196
$ 179,123
186,342
$ 159,517
As of September 27, 2008 and September 29, 2007, computer hardware and software includes $29.7
million and $29.3 million, respectively, related to a common Enterprise Resource Planning (“ERP”) platform.
As of September 27, 2008 and September 29, 2007, construction in process includes $3.1 million and $1.7
million, respectively, of manufacturing software implementation costs related to the common ERP platform.
The conversion timetable and future project scope remain subject to change based upon our evolving needs
and sales levels. Fiscal 2008, 2007 and 2006 amortization of the ERP platform totaled $3.1 million, $3.2
million and $3.3 million, respectively.
Assets held under capital leases and included in property, plant and equipment as of September 27,
2008 and September 29, 2007 consisted of (in thousands):
Buildings and improvements
Machinery and equipment
Less: accumulated amortization
2008
29,228
616
29,844
5,839
24,005
$
$
2007
29,508
616
30,124
4,235
25,889
$
$
The building and improvements category in the above table includes a manufacturing facility in San
Diego, California, which was closed during fiscal 2003 and is no longer used. The Company subleased a
portion of the facility during fiscal 2003 and the remaining portion during fiscal 2005. The San Diego facility
is recorded at the net present value of the sublease income, net of cash outflows for broker commissions and
building improvements associated with the subleases. The net book value of the San Diego facility is reduced
on a monthly basis by the amortization of the sublease cash receipts, net of certain cash outflows associated
with the subleases. The net book value of the San Diego facility, adjusted for impairment, is approximately
$14.0 million as of September 27, 2008.
52
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Amortization of assets held under capital leases totaled $0.8 million, $0.4 million and $0.1 million
for fiscal 2008, 2007 and 2006, respectively. There were no capital lease additions in fiscal 2008 and one
capital lease addition in fiscal 2007.
As of September 27, 2008 and September 29, 2007, accounts payable included approximately $3.9
million and $7.9 million, respectively, related to the purchase of property, plant and equipment, which have
been treated as non-cash transactions for purposes of the Consolidated Statements of Cash Flows.
In July 2006, the Company entered into a capital lease for $4.1 million for the expansion in Xiamen,
China, which was treated as a non-cash transaction for purposes of the Consolidated Statement of Cash
Flows.
4.
Debt, Capital Lease Obligations and Other Financing
Debt and capital lease obligations as of September 27, 2008 and September 29, 2007, consisted of
(in thousands):
Debt:
Borrowings under term loan, expiring on April 4,
2013, interest rate of base rate or LIBOR rate plus
1.25%. See also Note 5 Derivatives.
Capital lease:
Capital lease obligations for equipment and facilities
located in San Diego, the United Kingdom and
Xiamen, China, expiring on various dates through
2022; weighted average interest rates of 9.4% and
9.3% for fiscal 2008 and 2007, respectively.
Less: current portion
Long-term debt and capital lease obligations, net of
current portion
2008
2007
$ 146,250
$
-
24,976
26,802
(16,694)
(1,720)
$ 154,532
$ 25,082
The aggregate scheduled maturities of the Company’s debt obligations as of September 27, 2008, are
as follows (in thousands):
2009
2010
2011
2012
2013
Total
$
15,000
15,000
15,000
15,000
86,250
$ 146,250
53
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
The aggregate scheduled maturities of the Company’s obligations under capital leases as of
September 27, 2008, are as follows (in thousands):
2009
2010
2011
2012
2013
Thereafter
$
Less: interest portion of capital leases
Total
$
3,970
4,048
4,122
4,265
4,359
16,193
36,957
11,981
24,976
On April 4, 2008, the Company entered into a second amended and restated credit agreement (the
“Amended Credit Facility”) with a group of banks which allows the Company to borrow $150 million in term
loans and $100 million in revolving loans. The $150 million in term loans was immediately funded and the
$100 million revolving credit facility is currently available. The Amended Credit Facility is unsecured and
the revolving credit facility may be increased by an additional $100 million (the “accordion feature”) if the
Company has not previously terminated all or any portion of the Amended Credit Facility, there is no event
of default existing under the Amended Credit Facility and both the Company and the administrative agent
consent to the increase. The Amended Credit Facility expires on April 4, 2013. Borrowings under the
Amended Credit Facility may be either through term loans or revolving or swing loans or letter of credit
obligations. As of September 27, 2008, the Company has term loan borrowings of $146.3 million
outstanding and no revolving borrowings under the Amended Credit Facility.
The Amended Credit Facility amended and restated the Company’s prior revolving credit facility
(“Revolving Credit Facility”) with a group of banks that allowed the Company to borrow up to $200 million
of which $100 million was committed. The Revolving Credit Facility was due to expire on January 12, 2012
and was also unsecured. It also contained other terms and financial conditions, which were substantially
similar to those under the Amended Credit Facility.
The Amended Credit Facility contains certain financial covenants, which include a maximum total
leverage ratio, maximum value of fixed rentals and operating lease obligations, a minimum interest coverage
ratio and a minimum net worth test, all as defined in the agreement. As of September 27, 2008, the Company
was in compliance with all debt covenants. If the Company incurs an event of default, as defined in the
Amended Credit Facility (including any failure to comply with a financial covenant), the group of banks has
the right to terminate the remaining Revolving Credit Facility and all other obligations, and demand
immediate repayment of all outstanding sums (principal and accrued interest). Interest on borrowing varies
depending upon the Company’s then-current total leverage ratio; as of September 27, 2008, the Company
could elect to pay interest at a defined base rate or the LIBOR rate plus 1.25%. Rates would increase upon
negative changes in specified Company financial metrics and would decrease upon reduction in the current
total leverage ratio to no less than LIBOR plus 1.00%. The Company is also required to pay an annual
commitment fee on the unused credit commitment based on its leverage ratio; the current fee is 0.30 percent.
Unless the accordion feature is exercised, this fee applies only to the initial $100 million of availability
(excluding the $150 million of term borrowings). Origination fees and expenses associated with the Amended
Credit Facility totaled approximately $1.3 million and have been deferred. These origination fees and
expenses will be amortized over the five-year term of the Amended Credit Facility. Equal quarterly principal
repayments of the term loan of $3.75 million per quarter began June 30, 2008 and end on April 4, 2013 with a
balloon repayment of $75.0 million.
The Amended Credit Facility allows for the future payment of cash dividends or the future repurchases
of shares provided that no event of default (including any failure to comply with a financial covenant) is existing at
the time of, or would be caused by, a dividend payment or a share repurchase.
54
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Interest expense related to the commitment fee and amortization of deferred origination fees and
expenses for the Amended Credit Facility totaled approximately $0.5 million, $0.6 million and $1.2 million
for fiscal 2008, 2007 and 2006, respectively.
Cash paid for interest in fiscal 2008, 2007 and 2006 was $4.2 million, $2.8 million and $2.9 million,
respectively.
5.
Derivatives
All derivatives are recognized in the Consolidated Balance Sheets at their estimated fair value. On
the date a derivative contract is entered into, the Company designates the derivative as a hedge of a recognized
asset or liability (a “fair value” hedge), a hedge of a forecasted transaction or of the variability of cash flows to
be received or paid related to a recognized asset or liability (a “cash flow” hedge), or a hedge of the net
investment in a foreign operation. The Company does not enter into derivatives for speculative purposes.
Changes in the fair value of a derivative that qualify as a fair value hedge are recorded in earnings along with
the gain or loss on the hedged asset or liability. Changes in the fair value of a derivative that qualifies as a cash
flow hedge are recorded in “Accumulated other comprehensive income” in the Consolidated Balance Sheets
until earnings are affected by the variability of cash flows. Changes in the fair value of a derivative used to
hedge the net investment in a foreign operation are recorded in the “Accumulated other comprehensive
income” account within shareholders’ equity.
In June 2008, the Company entered into three interest rate swap contracts related to the $150 million
in term loans under the Amended Credit Facility that have a total notional value of $150 million and mature
on April 4, 2013. These interest rate swap contracts will pay the Company variable interest at the three month
LIBOR rate, and the Company will pay the counterparties a fixed interest rate. The fixed interest rates for
each of these contracts are 4.415%, 4.490% and 4.435%, respectively. These interest rate swap contracts were
entered into to convert $150 million of the variable rate term loan under the Amended Credit Facility into
fixed rate debt. Based on the terms of the interest rate swap contracts and the underlying debt, these interest
rate contracts were determined to be effective, and thus qualify as a cash flow hedge. As such, any changes in
the fair value of these interest rate swaps are recorded in “Accumulated other comprehensive income” on the
Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The total fair value of
these interest rate swap contracts is $3.0 million at September 27, 2008, and the Company has recorded this in
“Other” current liabilities and “Other liabilities” in the accompanying Consolidated Balance Sheets.
6.
Income Taxes
The domestic and foreign components of income (loss) before income taxes and cumulative effect of
change in accounting principle for fiscal 2008, 2007 and 2006 consisted of (in thousands):
U.S.
Foreign
2008
2007
2006
$
49,449
$
51,706
$
57,812
53,166
$ 102,615
32,548
84,254
$
25,540
83,352
$
55
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Income tax expense (benefit) for fiscal 2008, 2007 and 2006 consisted of (in thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2008
2007
2006
$
$
15,593
949
1,367
17,909
443
25
94
562
18,471
$
$
4,139
355
(113)
4,381
14,110
806
(761)
14,155
18,536
$
(31)
22
839
830
(16,026)
(1,648)
(334)
(18,008)
(17,178)
$
Following is a reconciliation of the federal statutory income tax rate to the effective income tax rates
reflected in the Consolidated Statements of Operations for fiscal 2008, 2007 and 2006:
Federal statutory income tax rate
Increase (decrease) resulting from:
State income taxes, net of federal
income tax benefit
Foreign income and tax rate differences
Change in valuation allowance
Other, net
Effective income tax rate
2008
35.0%
1.6
(18.5)
-
(0.1)
18.0%
2007
35.0%
2.1
(16.5)
-
1.4
22.0%
2006
35.0%
3.0
(12.3)
(46.9)
0.6
(20.6)%
The Company recorded income tax expense of $18.5 million for both fiscal 2008 and fiscal 2007.
The reduction to the income tax expense recorded as compared to our normal statutory rates is primarily due
to the effect of pre-tax income in Malaysia and China, which benefit from reduced effective tax rates due to
tax holidays.
During fiscal 2006, the Company recorded minimal income tax expense as a result of the
establishment in fiscal 2004 of a full valuation allowance on our U.S. deferred income tax assets as well as
increased pre-tax income in Malaysia and China, which benefit from tax holidays, and reduced pre-tax
income in the U.K.. In the fourth quarter of fiscal 2006, the Company reversed $17.7 million of the
previously recorded valuation allowance as a credit to income taxes.
56
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
The components of the net deferred income tax asset as of September 27, 2008 and September 29,
2007, consisted of (in thousands):
Deferred income tax assets:
Loss carryforwards
Goodwill
Inventories
Accrued benefits
Allowance for bad debts
Other
Total gross deferred income tax assets
Less valuation allowance
Deferred income tax assets
Deferred income tax liabilities:
Property, plant and equipment
Other
$
2008
2007
$
4,102
5,098
7,585
10,730
917
4,453
32,885
(2,607)
30,278
7,597
4,544
12,141
6,290
5,661
7,173
7,593
326
2,829
29,872
(5,014)
24,858
4,121
7,253
11,374
Net deferred income tax asset
$
18,137
$
13,484
Under SFAS No. 109, “Accounting for Income Taxes,” historical and projected financial results
(along with any other positive or negative evidence) should be considered when assessing our ability to
generate future taxable income and realize any net deferred income tax assets. The Company’s U.S.
operations generated significant pre-tax income in fiscal 2006. Based on our fiscal 2006 U.S. pre-tax income
and an assessment of expected future profitability in the U.S., the Company concluded that it was more likely
than not that the tax benefits of our cumulative net deferred income tax assets in the U.S. would be utilized in
the future. Therefore, the Company reversed $17.7 million of the valuation allowance as noted above.
As a result of using the with-and-without method under SFAS No. 123(R), the Company recorded a
valuation allowance against the amount of net operating loss and credit carryforwards related to tax
deductions in excess of compensation expense for stock options until such time as the related deductions
actually reduce income taxes payable. The Company recorded a valuation allowance of $16.7 million in
fiscal 2006 against its $42.5 million net operating loss carryforwards as of September 30, 2006. During fiscal
2007 and 2008, the Company realized a reduction of its income taxes payable for all of its federal net
operating loss carryforwards and a portion of its state net operating loss carryforwards. Consequently, the
Company reversed approximately $15.0 million and $0.6 million of this valuation allowance with
corresponding credits to additional paid in capital in fiscal 2007 and fiscal 2008, respectively.
In addition, there is a remaining valuation allowance of $1.5 million as of September 27, 2008
related to various state deferred income tax assets for which utilization is uncertain due to a lack of sustained
profitability and limited carryforward periods in these states.
In October 2007, the Mexican Congress enacted a series of new tax laws, effective beginning on
January 1, 2008. These laws did not have a material effect for our fiscal 2008 tax year. However, these laws
could have a significant effect on the taxes levied on our Mexican income in the future.
In March 2007, the Chinese government made significant changes to its tax law with a bias toward a
unified tax rate for domestic and foreign enterprises of 25 percent. The law was effective on January 1, 2008.
The effect of the law on enterprises with agreed-upon incentives requires that their China federal taxes will be
increased to the new unified tax rate over a five-year period beginning in calendar 2008. This law did not
have a material effect on our income taxes for our fiscal 2008 tax year. However, depending upon the
relative amount of income earned in China in the future, the increased tax rates on our China income could
create a material effect.
57
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
In July 2005, a legislative body in the United Kingdom enacted the Finance Act (the “Finance Act”),
which limits the deduction of interest expense incurred in the United Kingdom when the corresponding
interest income earned by the other party is not taxable to such party. The Company currently extends loans
from a U.S. subsidiary to a United Kingdom subsidiary, which is affected by the Finance Act. For fiscal
2008, 2007 and 2006, management provided income tax expense for the effect of the Finance Act on the non-
deductibility of this interest expense based on proposed agreement with the tax authorities in the United
Kingdom regarding the application of the Finance Act to the Company’s circumstances.
The Company has been granted tax holidays for its Malaysian and Chinese subsidiaries. These tax
holidays expire in 2019 and 2013, respectively, and are subject to certain conditions with which the Company
expects to comply. In fiscal 2008, 2007 and 2006, these subsidiaries generated income, which resulted in tax
reductions of approximately $13.6 million, $8.6 million and $6.9 million, respectively.
The Company does not provide for taxes that would be payable if undistributed earnings of foreign
subsidiaries were remitted because the Company considers these earnings to be invested for an indefinite
period. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which a deferred
income tax liability has not been recorded is approximately $143.0 million as of September 27, 2008.
In October 2004, the American Jobs Creation Act of 2004 (the “Jobs Act”) was signed into law in
the United States. The Jobs Act includes a deduction of 85 percent of certain foreign earnings that are
repatriated, as defined in the Jobs Act. During fiscal 2008, 2007 and 2006, the Company did not repatriate
any qualified earnings pursuant to the Jobs Act.
As of September 27, 2008, the Company has approximately $67.3 million of state net operating loss
carryforwards that expire between fiscal 2009 and 2026.
Cash paid for income taxes in fiscal 2008, 2007 and 2006 was $22.7 million, $2.2 million and $3.2
million, respectively.
In June 2006, the FASB issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements by
standardizing the level of confidence needed to recognize uncertain tax benefits and the process for measuring
the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition.
Effective at the beginning of fiscal 2008, the Company adopted FIN 48. Upon adoption, the
Company recorded an increase in income tax liabilities for uncertain tax benefits and a decrease in valuation
allowance of approximately $0.8 million, which resulted in no cumulative effect adjustment to retained
earnings. During the three months ended June 28, 2008, approximately $1.0 million of valuation allowance
was recorded to retained earnings as an out-of-period adjustment as a result of the additional review of the
interaction between the assessment of valuation allowances and FIN 48. The Company does not believe the
adjustment was material to its Consolidated Financial Statements for fiscal 2008, or any previously issued
financial statements.
As required by FIN 48, the Company has classified the amounts recorded for uncertain tax positions
in the Consolidated Balance Sheets as “Other liabilities” (non-current) to the extent that payment is not
anticipated within one year. Prior year financial statements have not been restated. Presented below is a
reconciliation of the beginning and ending amounts of unrecognized income tax benefits:
Balance at beginning of fiscal 2008
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Gross increases for tax positions of the current year
Settlements
Lapse of statute of limitations
Balance at September 27, 2008
$ 4.6
0.1
(0.2)
1.6
(0.1)
(0.1)
$ 5.9
58
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Approximately $5.1 million and $3.8 million of the balances as of September 27, 2008, and at the
beginning of fiscal 2008, respectively, would reduce the Company’s effective tax rate if recognized.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in
income tax expense. The total accrued penalties and net accrued interest with respect to income taxes was
approximately $0.4 million and $0.1 million as of September 27, 2008, and upon the Company’s adoption of
FIN 48 at the beginning of fiscal 2008, respectively. The Company recognized $0.4 million of expense for
accrued penalties and net accrued interest in the Consolidated Statements of Operations for the year ended
September 27, 2008.
It is reasonably possible that a number of uncertain tax positions related to federal and state tax
positions may be settled within the next 12 months. Settlement of these matters is not expected to have a
material effect on the Company’s consolidated results of operations, financial position and cash flows.
Upon adoption, the Company had tax years from fiscal 2004 and forward open and subject to
examination by the Internal Revenue Service (“IRS”). For the major state tax jurisdictions, the Company has
fiscal 2001 and forward open and subject to examination.
7.
Shareholders’ Equity
On February 25, 2008, the Company announced approval by its board of directors of a new share
repurchase program authorizing the Company to repurchase up to $200 million of common stock. The new
repurchase authorization replaced the Company’s existing authorization to repurchase up to $25 million in
common stock.
Also on February 25, 2008, the Company entered into two accelerated stock repurchase (“ASR”)
agreements with Morgan Stanley & Co. Incorporated (“Morgan Stanley”) to repurchase an aggregate of $100
million of its common stock. On February 26, 2008, the Company paid $100 million to Morgan Stanley in
exchange for a variable number of shares over a variable period of time. The final total number of shares to
be repurchased under the ASR agreements was based generally on the volume-weighted average price of the
Company’s common stock during the term of the agreements. Purchases under one of the ASR agreements
were subject to collar provisions that established minimum and maximum numbers of shares based on the
average price at which Morgan Stanley purchases shares over an initial hedge period to establish its hedge
position. Under the collared ASR agreement, the Company’s common stock repurchases totaled $50 million.
The remaining $50 million of share repurchases under the ASR program were not subject to collar provisions.
On April 24, 2008, the Company completed its ASR program with a total of 3.8 million shares purchased at a
volume-weighted average price of $26.51 per share.
In addition to the ASR agreements, the Company announced that the remaining $100 million of
authorized share repurchases would be repurchased in the open market. The Company repurchased 3.6
million shares at a volume-weighted average price of $27.25 per share in the open market. Therefore, the
Company completed the $200 million share repurchase program with a total purchase of 7.4 million shares at
a volume-weighted average price of $26.87 per share. The Company’s Amended Credit Facility allows the
Company to repurchase its common shares and pay cash dividends as long as it remains in compliance with
the various covenants (see Note 4).
As of August 28, 2008, the Company declared a dividend of one preferred share purchase right (a
“Right”) for each outstanding share of common stock, par value $0.01 per share, of the Company. The
dividend was payable on September 26, 2008 to the shareholders of record upon the close of business on
September 12, 2008. Each Right entitled the registered holder to purchase from the Company one one-
hundredth of a share of Series B Junior Participating Preferred Stock, $0.01 par value per share (“Preferred
Share”), of the Company, at a price of $125.00 per one one-hundredth of a Preferred Share, subject to
adjustment. The Rights will expire on August 28, 2018, subject to extension. This was the renewal of a
similar plan that expired on August 12, 2008.
59
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
8.
Earnings Per Share
The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
Earnings:
Income before cumulative effect of change in accounting
principle
September 27,
2008
Years Ended
September 29,
2007
September 30,
2006
$ 84,144
$ 65,718
$ 100,530
Cumulative effect of change in accounting principle,
net of income taxes
Net income
$
Basic weighted average common shares outstanding
Dilutive effect of stock options
Diluted weighted average shares outstanding
Basic earnings per share:
Income before cumulative effect of change in accounting
-
84,144
43,340
510
43,850
$
-
65,718
46,312
427
46,739
(505)
100,025
$
45,146
1,344
46,490
principle
$
1.94
$
1.42
$
2.23
Cumulative effect of change in accounting principle, net
of income taxes
Net income
$
-
1.94
$
-
1.42
$
(0.01)
2.22
Diluted earnings per share:
Income before cumulative effect of change in accounting
principle
$
1.92
$
1.41
$
2.16
Cumulative effect of change in accounting principle, net
of income taxes
Net income
$
-
1.92
$
-
1.41
$
(0.01)
2.15
In fiscal 2008, stock options and stock-settled stock appreciation rights (‘SARs”) to purchase
approximately 1.5 million shares were outstanding but were not included in the computation of diluted
earnings per share because the options’ and SARs’ exercise prices were greater than the average market price
of the common shares and, therefore, their effect would be antidilutive. In fiscal 2007 and 2006, options to
purchase 1.9 million and 0.9 million shares, respectively, of common stock were outstanding but not included
in the computation of diluted earnings per share because the options’ exercise prices were greater than the
average market price of the common shares and, therefore, their effect would be antidilutive.
9.
Operating Lease Commitments
The Company has a number of operating lease agreements primarily involving manufacturing
facilities, manufacturing equipment and computerized design equipment. These leases are non-cancelable
and expire on various dates through 2016. Rent expense under all operating leases for fiscal 2008, 2007 and
2006 was approximately $11.5 million, $10.6 million and $10.4 million, respectively. Renewal and purchase
options are available on certain of these leases. Rental income from subleases amounted to $0, $0, and $0.2
million in fiscal 2008, 2007 and 2006, respectively.
Future minimum annual payments on operating leases are as follows (in thousands):
2009
2010
2011
2012
2013
Thereafter
$
$
10,095
6,725
5,829
5,579
5,024
9,397
42,649
60
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
10.
Restructuring and Impairment Costs
Fiscal 2008 restructuring and impairment costs: For fiscal 2008, we recorded pre-tax restructuring
and asset impairment costs of $2.1 million, related to the closure of our Ayer, Massachusetts (“Ayer”) facility
and the restructuring of our workforce in Juarez, Mexico (“Juarez”). The details of these fiscal 2008
restructuring actions are listed below:
Ayer Facility Closure: During the fourth quarter of fiscal 2008, we announced our intention to close
our Ayer facility. In fiscal 2008, we recorded pre-tax restructuring charges of $1.9 million, related to
severance for 170 impacted employees and costs to retain certain employees. In addition to the costs in fiscal
2008, approximately $0.4 million of costs related to the disposal of certain assets and costs to exit the leased
facility are expected to be incurred through the second fiscal quarter of 2009. The closure of the facility is
expected by March 2009.
Other Restructuring Costs. In fiscal 2008, we recorded pre-tax restructuring costs of $0.2 million
related to severance at our Juarez facility. The Juarez workforce reductions affected approximately 20
employees.
Fiscal 2007 restructuring and asset impairment costs: For fiscal 2007, we recorded pre-tax
restructuring and asset impairment costs of $1.8 million, related to the closure of our Maldon, England
(“Maldon”) facility and the reduction of our workforces in Juarez and Kelso, Scotland (“Kelso”). The details
of these fiscal 2007 restructuring actions are listed below:
Maldon Facility Closure: The Maldon facility ceased production on December 12, 2006, and its
closure resulted in a workforce reduction of 75 employees at a cost of $0.5 million. During the second fiscal
quarter, the Company sold the Maldon facility for $4.4 million and recorded a $0.4 million gain on this
transaction.
Other Restructuring Costs. In fiscal 2007, we recorded pre-tax restructuring costs of $1.0 million
related to severance at our Juarez facility. The Juarez workforce reductions affected approximately 125
employees. During fiscal 2007, we also recorded pre-tax restructuring costs of $0.3 million related to
severance at our Kelso facility. The Kelso workforce reductions affected approximately 10 employees.
Fiscal 2006 restructuring and asset impairment costs: For fiscal 2006, the Company recorded pre-
tax restructuring and asset impairment costs of $1.0 million, related to the decision to close its Maldon
facility and to reduce the workforce in Juarez. For fiscal 2006, these restructuring costs were offset by
reductions in lease obligations of $0.8 million, as a result of the Company entering into lease termination or
sublease agreements for three of its previously closed facilities in the Bothell and Seattle, Washington area, as
well as favorable adjustments totaling $0.2 million for fiscal 2006, related to other restructuring accruals. The
details of the fiscal 2006 restructuring actions are listed below:
Maldon Facility Closure: The Company announced in July 2006 its intention to close the Maldon
facility. In fiscal 2006 the Company recorded $0.5 million for severance and asset impairments related to the
expected closure of the Maldon facility. This restructuring affected 75 employees.
Maldon Facility Conversion: In the third quarter of fiscal 2005, the Company announced a planned
workforce reduction at the Maldon facility as the Company decided to convert this manufacturing facility to a
fulfillment, service and repair facility. As a result of this planned conversion, the Company recorded
expenses of $0.2 million for retention costs in fiscal 2006 related to the workforce reduction as part of the
Maldon facility conversion. This restructuring affected 43 employees.
Other Restructuring Costs. For fiscal 2006, the Company recorded pre-tax restructuring costs of
$0.3 million related to severance at its Juarez facility. The Juarez workforce reductions affected
approximately 46 employees.
61
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
A detail of restructuring and impairment costs are provided below (in thousands):
Employee
Termination and
Severance Costs
Lease
Obligations and
Other Exit Costs
Non-cash Asset
Impairments
Total
Accrued balance, October 1, 2005
$
519
$
11,503
$
-
$
12,022
Restructuring and impairments costs
Adjustment to provisions
Accretion of lease
Amount utilized
Accrued balance, September 30, 2006
Restructuring and impairments costs
Adjustment to provisions
Amount utilized
Accrued balance, September 29, 2007
Restructuring and impairments costs
Adjustment to provisions
Amount utilized
Accrued balance, September 27, 2008
$
889
-
-
(947)
461
1,966
(104)
(1,334)
989
2,350
(231)
(1,070)
2,038
-
(948)
238
(8,657)
2,136
-
(24)
(2,112)
-
-
-
-
-
$
$
59
-
-
(59)
-
-
-
-
-
-
-
-
$
948
(948)
238
(9,663)
2,597
1,966
(128)
(3,446)
989
2,350
(231)
(1,070)
2,038
As of September 27, 2008, all of the remaining employee termination and severance costs are
expected to be paid in the next twelve months and are included in the Consolidated Balance Sheets in other
current accrued liabilities.
For a detail of restructuring and impairment costs by reportable segment, see Note 13 – Reportable
Segment, Geographic Information and Major Customers.
11.
Benefit Plans
Employee Stock Purchase Plans: Under the shareholder-approved 2005 Employee Stock Purchase
Plan (the “2005 Purchase Plan”), the Company could issue up to 1.2 million shares of its common stock. The
terms of the 2005 Purchase Plan originally allowed for qualified employees to participate in the purchase of
the Company’s common stock at a price equal to the lower of 85 percent of the average high and low stock
price at the beginning or end of each semi-annual stock purchase period. The 2005 Purchase Plan was
effective on July 1, 2005.
As subsequently amended, the 2005 Purchase Plan allowed qualified employees to purchase the
Company’s common stock at a price equal to 95 percent of the average high and low stock price at the end of
each semi-annual purchase period. The effect of the amendment was to reduce the discount available to
employees who purchase shares under the 2005 Purchase Plan. With the amendment, the Company did not
record any compensation expense related to the 2005 Purchase Plan under SFAS No. 123(R) in fiscal 2008
and 2007.
The Company issued 6,976 shares and 17,751 shares under the 2005 Purchase Plan during the fiscal
years ended September 27, 2008 and September 29, 2007, respectively. Purchases under the 2005 Purchase
Plan were terminated by the board of directors in January 2008. Therefore, no additional shares will be
offered or issued under the 2005 Purchase Plan, which will expire in 2010.
401(k) Savings Plan: The Company’s 401(k) Savings Plan covers all eligible U.S. employees. The
Company matches employee contributions, after one year of service, up to 2.5 percent of eligible earnings.
The Company’s contributions for fiscal 2008, 2007 and 2006 totaled $2.8 million, $2.4 million and $2.2
million, respectively.
62
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Stock-based Compensation Plans: In February 2008, the Company’s shareholders approved the
Plexus Corp. 2008 Long-Term Incentive Plan (the “2008 Plan”), a stock-based incentive plan for officers, key
employees and directors; the 2008 Plan includes provisions by which the Company may grant stock-based
awards, including stock options, stock-settled stock appreciation rights (“SARs”), restricted stock, restricted
stock units (“RSUs”) and performance stock, in addition to long-term cash awards, to directors, executive
officers and other officers and key employees. The maximum number of shares of Plexus common stock
which may be issued pursuant to the 2008 Plan is 5,500,000 shares; in addition, long-term cash awards of up
to $1.5 million may be granted annually. The exercise price of each stock option and SAR granted must not
be less than the fair market value on the date of grant. The Compensation and Leadership Development
Committee (the “Committee”) of the board of directors may establish a term and vesting period for stock
options, SARs and other awards under the 2008 Plan as well as accelerate the vesting of such awards.
Currently, stock options vest in two annual installments and have a term of ten years, SARs vest in two
annual installments and have a term of seven years, and RSUs fully vest on the third anniversary of the grant
date (assuming continued employment), which is also the date as of which the underlying shares will be
issued.
The 2008 Plan replaces the shareholder-approved 2005 Equity Incentive Plan (the “2005 Plan”).
The 2005 Plan constituted a stock-based incentive plan for the Company and included provisions by which
the Company could grant stock-based awards to directors, executive officers and other officers and key
employees. The maximum number of shares of Plexus common stock that could be issued pursuant to the
2005 Plan was 2.7 million shares, all of which could be issued pursuant to stock options, although up to 1.2
million shares could be issued pursuant to the following: up to 0.6 million shares as SARs and up to 0.6
million shares as RSUs. The exercise price of each stock option granted must have been not less than the fair
market value on the date of grant. The Committee could establish the term and vesting period of stock
options, as well as accelerate the vesting of stock options. Unless otherwise directed by the Committee, stock
options vested over a three-year period from date of grant and had a term of ten years. In fiscal 2007, the
Committee established that the vesting period for stock options would be two years. The 2005 Plan
terminated upon the approval of the 2008 Plan, except that outstanding awards continue until expiration.
During fiscal 2007, the Committee changed the timing of stock option grants so that they would be
determined annually, but granted on a quarterly basis going forward. In fiscal 2008, the Committee
continued that practice under the 2008 Plan and extended it to grants of SARs. However, grants of RSUs and
long-term cash awards are made only on an annual basis.
For options issued to the members of the board of directors in fiscal 2008, fiscal 2007 and fiscal
2006, 50 percent of their stock options vested immediately at the date of grant. Their remaining stock options
vested over one year.
The Company granted options, SARs and RSUs to purchase 2.1 million shares of the Company’s
common stock under the 2005 Plan from the approval date of the 2005 Plan through September 27, 2008. In
fiscal 2008, the Company granted options to purchase 0.1 million shares of the Company’s stock, which had a
term of ten years and 0.2 million stock-settled SARs, which had a term of seven years. Additionally, the
Committee made awards of RSUs for 0.1 million shares of common stock and long-term cash awards that
totaled $0.7 million, all of which vest on the third anniversary of grant. Under the 2008 Plan, the Company
granted options to purchase 0.1 million shares of the Company’s common stock and 0.2 million stock-settled
SARs from the approval date of the 2008 Plan through September 27, 2008.
The Company recognized $8.7 million of compensation expense associated with stock options and
SARs for the fiscal year ended September 27, 2008, and $6.2 million and $3.0 million of compensation
expense associated with stock options for the fiscal years ended September 29, 2007 and September 30, 2006,
respectively. No SARs were granted in fiscal 2007 or 2006.
63
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
A summary of the Company’s stock option and SAR activity follows:
Number of
Shares
(in thousands)
Weighted
Average Exercise
Price
Aggregate
Intrinsic Value
(in thousands)
Outstanding as of October 1, 2005
4,954
$
17.55
Granted
Cancelled
Exercised
Outstanding as of September 30, 2006
Granted
Cancelled
Exercised
Outstanding as of September 29, 2007
Granted
Cancelled
Exercised
Outstanding as of September 27, 2008
Exercisable as of:
September 30, 2006
September 29, 2007
September 27, 2008
816
(44)
(2,478)
3,248
443
(138)
(175)
3,378
563
(185)
(363)
3,393
39.99
31.89
14.68
25.18
22.64
36.14
10.95
25.13
26.62
36.66
14.93
25.88
$
$
$
$
7,488
Shares
(in thousands)
Weighted
Average Exercise
Price
Aggregate
Intrinsic Value
(in thousands)
2,485
2,558
2,533
$
$
$
20.32
22.72
24.78
$
7,428
Included in the table above are 308,955 SARs, which were granted in fiscal 2008.
The following table summarizes outstanding stock option and SAR information as of September 27,
2008 (shares in thousands):
Number of
Shares
Outstanding
Weighted Average
Exercise Price
Weighted
Average
Remaining Life
Number of
Shares
Exercisable
Weighted
Average
Exercise Price
Range of
Exercise Prices
$ 8.97 - $13.45
$13.46 - $20.18
$20.19 - $30.28
$30.29 - $61.19
434
529
1,333
1,097
$ 11.51
$ 15.46
$ 24.25
$ 38.56
$ 8.97 - $61.19
3,393
$ 25.88
5.3
4.2
6.3
5.1
5.5
434
516
789
794
$ 11.51
$ 15.41
$ 24.00
$ 38.91
2,533
$ 24.78
The Company continues to use the Black-Scholes valuation model to value options and SARs. The
Company used its historical stock prices as the basis for its volatility assumptions. The assumed risk-free
rates were based on U.S. Treasury rates in effect at the time of grant with a term consistent with the expected
64
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
option and SAR lives. The expected option and SAR lives represent the period of time that the options and
SARs granted are expected to be outstanding and were based on historical experience.
The weighted average fair value per share of options and SARs issued for the fiscal years ended
September 27, 2008, September 29, 2007, and September 30, 2006 were $11.30, $11.05 and $20.04,
respectively. The fair value of each option and SAR grant was estimated at the date of grant using the Black-
Scholes option-pricing model based on the assumption ranges below:
September 27,
2008
Years Ended
September 29,
2007
September 30,
2006
Expected life (years)
Risk-free interest rate
Expected volatility
Weighted average volatility
Dividend yield
3.75 – 5.48
2.59 – 5.00%
46 – 66%
53%
-
3.75 – 5.48
3.69 – 5.00%
50 - 67%
57%
-
3.75 – 5.48
2.43 – 5.00%
51 - 85%
64%
-
The fair value of options vested for fiscal years ended September 27, 2008, September 29, 2007 and
September 30, 2006 were $5.0 million, $4.3 million and $0.9 million, respectively.
For the fiscal years ended September 27, 2008 and September 29, 2007, the total intrinsic value of
options exercised was $4.9 million and $1.9 million, respectively.
As of September 27, 2008, there was $8.9 million of unrecognized compensation cost related to non-
vested options and SARs that is expected to be recognized over a weighted average period of 1.08 years.
A summary of the Company’s RSU awards activity follows:
Number of
Shares
(in thousands)
Weighted
Average Fair
Value at Date of
Grant
Aggregate
Intrinsic Value
(in thousands)
Units outstanding as of September 29, 2007
-
$
-
Granted
Cancelled
Vested
Units outstanding as of September 27, 2008
104
(5)
-
99
30.54
30.54
-
30.54
$
$ -
The Company uses the fair value at the date of grant to value RSUs. As of September 27, 2008,
there was $2.2 million of total unrecognized compensation cost related to restricted stock unit awards granted
under the 2005 Plan.
Deferred Compensation Arrangements: In September 1996, the Company entered into agreements
with certain of its former executive officers to provide nonqualified deferred compensation. Under those
agreements, the Company agreed to pay to these former executives, or their designated beneficiaries upon
such executives’ deaths, certain amounts annually for the first 15 years subsequent to their retirements. Life
insurance contracts owned by the Company fund this plan.
In fiscal 2000, the Company established a supplemental executive retirement plan (the “SERP”) as
an additional deferred compensation plan for executive officers and other key employees. Under the SERP, a
covered executive may elect to defer some or all of the participant’s compensation into the plan, and the
65
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Company may credit the participant’s account with a discretionary employer contribution. Participants are
entitled to payment of deferred amounts and any related earnings upon termination or retirement from Plexus.
In fiscal 2003, due to changes in the law, Plexus terminated a split-dollar life insurance program
under the SERP and replaced it with a rabbi trust arrangement (the “Trust”). The Trust allows investment of
deferred compensation held on behalf of the participants into individual accounts and, within these accounts,
into one or more designated investments. Investment choices do not include Plexus stock. During fiscal
2003, the cash value proceeds that were received upon the surrender of the split-dollar life insurance policies
attributable to each plan participant totaled approximately $0.4 million and were placed in the Trust. In fiscal
2008, 2007 and 2006, the Company made contributions to the participants’ SERP accounts in the amount of
$0.5 million, $0.4 million and $0.3 million, respectively. The increase in the Company’s contributions in
fiscal 2006 was the result of the Company’s board of directors’ determination to increase the Company’s
discretionary contributions to the greater of 7 percent of the executive’s total target cash compensation less
the Company’s permitted contributions to the executive’s 401(k) Savings Plan account or $13,500. The
contributions were made in fiscal 2006 as though this policy had been in effect for fiscal 2005 as well.
As of September 27, 2008 and September 29, 2007, the SERP assets held in the Trust totaled $5.1
million and $5.1 million, respectively and the related liability to the participants totaled approximately $3.7
million and $4.8 million, respectively. The Trust assets are subject to the claims of the Company’s creditors.
The Trust assets and the related liabilities to the participants are included in “Other assets” and “Other
liabilities”, respectively, in the accompanying Consolidated Balance Sheets.
Other: The Company is not obligated to provide any post retirement medical or life insurance
benefits to employees.
12.
Litigation
Two securities class action lawsuits were filed in the United States District Court for the Eastern
District of Wisconsin on June 25 and June 29, 2007, against the Company and certain Company officers
and/or directors. On November 7, 2007, the two actions were consolidated, and a consolidated class action
complaint was filed on February 1, 2008. The consolidated complaint names the Company and the
following individuals as defendants: Dean A. Foate, President, Chief Executive Officer and a Director of the
Company; F. Gordon Bitter, the Company's former Senior Vice President and Chief Financial Officer;
and Paul Ehlers, the Company’s former Executive Vice President and Chief Operating Officer. The
consolidated complaint alleges securities law violations and seeks unspecified damages relating generally to
the Company’s statements regarding its defense sector business in early calendar 2006. On April 15, 2008,
the Company and the individual defendants filed a motion to dismiss the consolidated class action complaint.
The plaintiff is opposing the dismissal. The briefing on the defendants’ motion has been completed;
however, the Court has not yet held a hearing or ruled on the motion.
The Company believes the allegations in the consolidated complaint are wholly without merit and it
intends to vigorously defend against them. Since these matters are in the preliminary stages, the Company is
unable to predict the scope or outcome or quantify their eventual impact, if any, on the Company. At this
time, the Company is also unable to estimate associated expenses or possible losses. The Company maintains
insurance that may reduce its financial exposure for defense costs and liability for an unfavorable outcome,
should it not prevail.
The Company is party to certain lawsuits in the ordinary course of business. Management does not
believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the
Company’s consolidated results of operations, financial position or cash flows. Due to their immateriality, all
expenses associated with these lawsuits are expensed as incurred.
13.
Reportable Segment, Geographic Information and Major Customers
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No.
131”) establishes standards for reporting information about segments in financial statements. Reportable
segments are defined as components of an enterprise about which separate financial information is available
66
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
that is evaluated regularly by the chief operating decision maker, or group, in assessing performance and
allocating resources.
The Company uses an internal management reporting system, which provides important financial
data to evaluate performance and allocate the Company's resources on a geographic basis. Net sales for
segments are attributed to the region in which the product is manufactured or service is performed. The
services provided, manufacturing processes used, class of customers serviced and order fulfillment processes
used are similar and generally interchangeable across the segments. A segment’s performance is evaluated
based upon its operating income (loss). A segment’s operating income (loss) includes its net sales less cost of
sales and selling and administrative expenses, but excludes corporate and other costs, interest expense,
interest income, other income (expense) and income tax expense (benefit). Corporate and other costs
primarily represent corporate selling and administrative expenses, and restructuring and impairment costs.
These costs are not allocated to the segments, as management excludes such costs when assessing the
performance of the segments. Inter-segment transactions are generally recorded at amounts that approximate
arm's length transactions. The accounting policies for the regions are the same as for the Company taken as a
whole.
Information about the Company’s four reportable segments in fiscal 2008, 2007 and 2006 were as
follows (in thousands):
Net sales:
United States
Asia
Mexico
Europe
Elimination of inter-segment sales
Depreciation and amortization:
United States
Asia
Mexico
Europe
Corporate
Operating income (loss):
United States
Asia
Mexico
Europe
Corporate and other costs
Capital expenditures:
United States
Asia
Mexico
Europe
Corporate
September 27,
2008
Years Ended
September 29, September 30,
2007
2006
$ 1,267,885
574,079
78,296
68,837
(147,475)
$ 1,841,622
$ 1,080,665
427,237
76,254
68,276
(106,168)
$1,546,264
$ 1,052,496
315,442
87,338
94,327
(89,046)
$ 1,460,557
$
$
$
$
$
$
9,494
8,641
2,044
764
5,645
26,588
$
$
9,701
5,631
1,399
1,020
5,559
23,310
97,019
40,700
(11,581)
3,747
(50,447)
79,438
$ 103,074
27,832
(4,170)
3,569
(50,043)
80,262
$
7,457
31,397
5,367
754
2,862
47,837
$
$
10,323
18,453
880
380
4,829
34,865
$
$
8,994
12,471
1,791
836
5,127
29,219
$ 116,143
59,535
(2,693)
7,259
(77,417)
$ 102,827
$
$
18,078
27,556
2,900
1,485
4,310
54,329
67
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
Total assets:
United States
Asia
Mexico
Europe
Corporate
September 27,
2008
September 29,
2007
$ 418,534
304,252
41,671
97,874
129,899
$ 992,230
$ 381,947
224,135
28,340
94,814
187,280
$ 916,516
The following enterprise-wide information is provided in accordance with SFAS No. 131. Net sales
to unaffiliated customers were based on the Company’s location providing product or services (in thousands):
Years ended
September 27, September 29, September 30,
2007
2008
2006
Net sales:
United States
Malaysia
Mexico
China
United Kingdom
Elimination of inter-segment sales
$ 1,267,885
486,751
78,296
87,328
68,837
(147,475)
$ 1,841,622
$1,080,665
357,144
76,254
70,093
68,276
(106,168)
$ 1,546,264
$ 1,052,496
260,922
87,338
54,520
94,327
(89,046)
$ 1,460,557
Long-lived assets:
Malaysia
United States
United Kingdom
China
Mexico
Corporate
September 27, September 29,
2008
2007
$
71,369
38,900
15,238
10,398
7,111
43,382
$ 186,398
$
61,576
31,687
16,290
6,622
6,059
45,345
$ 167,579
Long-lived assets as of September 27, 2008 and September 29, 2007 exclude other long-term assets
and deferred income tax assets which totaled $18.9 million and $14.8 million, respectively.
Restructuring and impairment costs are not allocated to reportable segments, as management
excludes such costs when assessing the performance of the reportable segments, but rather includes such
costs within the “Corporate and other costs” section of the above table of operating income (loss). In fiscal
2008, 2007 and 2006, the Company incurred restructuring and impairment costs (see Note 10) which were
associated with various segments (in thousands):
Restructuring and impairment costs:
United States
Asia
Mexico
Europe
Corporate
September 27,
2008
Years Ended
September 29,
2007
September 30,
2006
1,852
-
267
-
-
2,119
$
$
(24)
-
1,053
809
-
1,838
$
$
(1,018)
-
346
672
-
-
$
$
68
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
The percentages of net sales to customers representing 10 percent or more of total net sales for the
indicated periods were as follows:
Years Ended
September 27, September 29, September 30,
2007
21%
10%
2008
20%
*
2006
19%
12%
Juniper Networks, Inc. (“Juniper”)
General Electric Company (“GE”)
*Represents less than 10 percent of total net
sales
For our significant customers, we generally manufacture products in more than one location. Net
sales to Juniper, our largest customer, occur in the United States and Asia reportable segments. Net sales to
GE, another significant customer, occur in the United States, Asia, Mexico and Europe reportable segments.
The percentages of accounts receivable from customers representing 10 percent or more of total
accounts receivable for the indicated periods were as follows:
Juniper
Defense customer
*Represents less than 10 percent of total accounts receivable
September 27, September 29,
2008
20%
*
2007
21%
14%
No other customers represented ten percent or more of the Company’s total net sales or total trade
receivable balances as of September 27, 2008 and September 29, 2007.
14.
Guarantees
The Company offers certain indemnifications under its customer manufacturing agreements. In the
normal course of business, the Company may from time to time be obligated to indemnify its customers or its
customers’ customers against damages or liabilities arising out of the Company’s negligence, misconduct,
breach of contract, or infringement of third party intellectual property rights. Certain of the agreements have
extended broader indemnification rights, and while most agreements have contractual limits, some do not.
However, the Company generally does not provide for such indemnities, and seeks indemnification from its
customers, for damages or liabilities arising out of the Company’s adherence to customers’ specifications or
designs, or use of materials furnished, or directed to be used, by its customers. The Company does not
believe its obligations under such indemnities are material.
In the normal course of business, the Company also provides its customers a limited warranty
covering workmanship, and in some cases materials, on products manufactured by the Company. Such
warranty generally provides that products will be free from defects in the Company’s workmanship and meet
mutually agreed upon specifications for periods generally ranging from 12 months to 24 months. If a product
fails to comply with the Company’s limited warranty, the Company’s obligation is generally limited to
correcting, at its expense, any defect by repairing or replacing such defective product. The Company’s
warranty generally excludes defects resulting from faulty customer-supplied components, design defects or
damage caused by any party or cause other than the Company.
The Company provides for an estimate of costs that may be incurred under its limited warranty at the
time product revenue is recognized and establishes additional reserves for specifically identified product
issues. These costs primarily include labor and materials, as necessary, associated with repair or replacement
and are included in our Consolidated Balance Sheets in other current accrued liabilities. The primary factors
that affect the Company’s warranty liability include the value and the number of shipped units and historical
and anticipated rates of warranty claims. As these factors are impacted by actual experience and future
69
Plexus Corp.
Notes to Consolidated Financial Statements - Continued
expectations, the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts
as necessary.
Below is a table summarizing the activity related to the Company’s limited warranty liability for the
fiscal years 2008 and 2007 (in thousands):
Limited warranty liability, as of September 30, 2006
Accruals for warranties issued during the period
Settlements (in cash or in kind) during the period
$
Limited warranty liability, as of September 29, 2007
Accruals for warranties issued during the period
Settlements (in cash or in kind) during the period
3,029
2,571
(557)
5,043
350
(1,341)
Limited warranty liability, as of September 27, 2008
$
4,052
15.
Subsequent Event
On September 29, 2008, the Company completed the purchase of a facility in Appleton, Wisconsin
for approximately $7.5 million. Cash settlement of the purchase price was made upon closing. This facility
will add approximately 205,000 manufacturing square feet to our United States footprint.
16.
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for fiscal 2008 and 2007 consisted of (in thousands, except per
share amounts):
2008
Net sales
Gross profit
Net income
Earnings per share:
Basic
Diluted
2007
Net sales
Gross profit
Net income
Earnings per share:
Basic
Diluted
First
Quarter
$ 458,251
55,554
27,285
Second
Quarter
$ 451,049
51,552
22,110
Third
Quarter
$ 456,352
48,832
17,432
Fourth
Quarter
$ 475,970
49,823
17,318
Total
$1,841,622
205,761
84,144
$
$
0.59
0.58
$
$
0.48
0.48
$
$
0.42
0.41
$
$
0.44
0.43
$
$
1.94
1.92
First
Quarter
$ 380,835
39,655
15,117
Second
Quarter
$ 360,175
31,642
10,158
Third
Quarter
$ 379,574
38,522
15,540
Fourth
Quarter
$ 425,679
53,719
24,903
Total
$ 1,546,264
163,539
65,718
$
$
0.33
0.32
$
$
0.22
0.22
$
$
0.34
0.33
$
$
0.54
0.53
$
$
1.42
1.41
The annual total amounts may not equal the sum of the quarterly amounts due to rounding. Earnings
per share is computed independently for each quarter.
* * * * *
70
Plexus Corp. and Subsidiaries
Schedule II – Valuation and Qualifying Accounts
For the fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006 (in thousands):
Descriptions
Fiscal Year 2008:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates)
Valuation allowance on deferred income tax assets
(deducted from the asset to which it relates)
Fiscal Year 2007:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates)
Valuation allowance on deferred income tax assets
(deducted from the asset to which it relates)
Fiscal Year 2006:
Allowance for losses on accounts receivable
(deducted from the asset to which it relates)
Valuation allowance on deferred income tax assets
(deducted from the asset to which it relates)
Balance at
beginning of
period
Additions
charged to
costs and
expenses
Additions
charged to
other accounts Deductions
Balance at end
of period
$
900
$
1,603
$
$
5,014
$
-
$
$
1,100
$
328
$
$
20,011
$
-
$
$
3,000
$
464
$
$
40,551
$
-
$
-
-
-
-
-
-
$
3
$
2,500
$
2,407
$
2,607
$
528
$
900
$
14,997
$
5,014
$
2,364
$
1,100
$
20,540
$
20,011
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PLEXUS CORP. (Registrant)
By:
/s/ Dean A. Foate
Dean A. Foate, President and Chief Executive Officer
November 14, 2008
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Dean A. Foate, Ginger M. Jones and Angelo M. Ninivaggi, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and any
other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the date indicated.*
SIGNATURE AND TITLE
/s/ Dean A. Foate
Dean A. Foate, President, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Ginger M. Jones
Ginger M. Jones, Vice President and Chief Financial
Officer (Principal Financial Officer and Principal
Accounting Officer)
/s/ John L. Nussbaum
John L. Nussbaum, Chairman and Director
/s/ Ralf R. Böer
Ralf R. Böer, Director
/s/ Dr. Charles M. Strother
Dr. Charles M. Strother, Director
* Each of the above signatures is affixed as of November 14, 2008.
/s/ Stephen P. Cortinovis
Stephen P. Cortinovis, Director
/s/ David J. Drury
David J. Drury, Director
/s/ Peter Kelly
Peter Kelly, Director
/s/ Michael V. Schrock
Michael V. Schrock, Director
/s/ Mary A. Winston
Mary A. Winston, Director
72
EXHIBIT INDEX
PLEXUS CORP.
Form 10-K for Year Ended September 29, 2008
Exhibit No.
Exhibit
Incorporated By
Reference To
Filed
Herewith
3(i)
3(ii)
4.1
4.2
4.3
10.1
10.2
(a) Restated Articles of Incorporation of
Plexus Corp., as amended through August
27, 2008
(b) Articles of Amendment, dated August
28, 2008, to the Restated Articles of
Incorporation
Exhibit 3(i) to Plexus’ Report on Form 10-Q
for the quarter ended March 31, 2004
Exhibit 3.1 to Plexus’ Report on Form 8-K
dated August 28, 2008
Bylaws of Plexus Corp., as amended
through February 13, 2008
Exhibit 3.1 to Plexus’ Report on Form 8-K
dated February 13, 2008
Restated Articles of Incorporation of
Plexus Corp., as amended through August
28, 2008
Exhibit 3(i) above
Bylaws of Plexus Corp., as amended
through February 13, 2008
Exhibit 3(ii) above
Rights Agreement, dated as of August 28,
2008, between Plexus Corp. and American
Stock Transfer & Trust Company, LLC
Exhibit 4.1 to Plexus’ Report on Form 8-A
dated August 28, 2008
(a) Second Amended and Restated Credit
Agreement dated as of April 4, 2008
among Plexus Corp., the Guarantors from
time to time parties thereto, the Lenders
from time to time parties thereto, and Bank
of Montreal, as Administrative Agent
(b) Amended and Restated Credit
Agreement dated as of January 12, 2007
among Plexus Corp., the Guarantors from
time to time parties thereto, the Lenders
from time to time parties thereto, and Bank
of Montreal, as Administrative Agent
(superseded)
(a) Lease Agreement between Neenah
(WI) QRS 11-31, Inc. (“QRS: 11-31”) and
Electronic Assembly Corp. (n/k/a Plexus
Services Corp.), dated August 11, 1994
Exhibit 10.1 to Plexus’ Report on Form 8-K
dated April 4, 2008
Exhibit 10.1 to Plexus Quarterly Report on
Form 10-Q for the quarter ended December
30, 2006
Exhibit 10.8(a) to Plexus’ Report on Form
10-K for the year ended September 30, 1994
73
10.3
10.4
10.5
10.6
10.7
(b) Guaranty and Suretyship Agreement
between Plexus Corp. and QRS: 11-31
dated August 11, 1994, together with related
Guarantor’s Certificate
Letter Agreement regarding Fixed Dollar
Collared Accelerated Share Repurchase
Transaction dated February 25, 2008,
between Plexus and Morgan Stanley & Co.
Incorporated
Letter Agreement regarding Fixed Dollar
Collared Accelerated Share Repurchase
Transaction dated February 25, 2008,
between Plexus and Morgan Stanley & Co.
Incorporated
Exhibit 10.8I to Plexus’ Report on Form 10-
K for the year ended September 30, 1994
Exhibit 10.1 to Plexus’ Report on Form 8-K
dated February 25, 2008
Exhibit 10.2 to Plexus’ Report on Form 8-K
dated February 25, 2008
(a) Supplemental Executive Retirement
Agreements with John Nussbaum dated as
of September 19, 1996*
Exhibit 10.1(b) to Plexus’ Report on Form
10-K for the fiscal year ended September
30, 1996
(b) First Amendment Agreement to
Supplemental Retirement Agreement
between Plexus and John Nussbaum, dated
as of September 1, 1999*
(a) Employment Agreement, dated May 15,
2008, by and between Plexus Corp. and
Dean A. Foate*
(b) Amended and Restated Employment
Agreement dated as of September 1, 2003
between Plexus Corp. and Dean A.
Foate*[superseded]
(a) Form of Change of Control Agreement
with each of the executive officers (other
than Dean A. Foate)*
(b) Form of Change of Control Agreements
with executive officers [superseded]*
Exhibit 10.1(b) to Plexus’ Report on Form
10-Q for the quarter ended December 31,
2000
Exhibit 10.1 to Plexus’ Report on Form 8-K
dated May 15, 2008
Exhibit 10.15(b) to Plexus’ Report on Form
10-K for the fiscal year ended September
30, 2003
Exhibit 10.2 to Plexus’ Report on Form 8-K
dated May 15, 2008
Exhibit 10.2(a) to Plexus’ Report on Form
10-K for the fiscal year ended September
30, 2003
Exhibit A to Plexus’ definitive proxy
statement for its 1998 Annual Meeting of
Shareholders
10.8
Plexus Corp. 1998 Option Plan*
[superseded]
74
10.9
(a) Summary of Directors’ Compensation*
X
(b) Summary of Directors’ Compensation
(11/07)*[superseded]
Exhibit 10.7(b) to Plexus’ Report on Form
10-K for the year ended September 29, 2007
(c) Plexus Corp. 1995 Directors’ Stock Option
Plan*[superseded]
Exhibit 10.10 to Plexus’ Report on Form
10-K for the year ended September 30, 1994
Plexus Corp. 2005 Variable Incentive
Compensation Plan – Executive Leadership Team
(as amended and restated as of August 31, 2005)*
Exhibit 10.9(b) to Plexus’ Report on Form
10-K for the year ended October 1, 2005
10.10
10.11
(a) Plexus Corp. Executive Deferred
Compensation Plan*
(b) Plexus Corp Executive Deferred
Compensation Plan Trust dated April 1, 2003
between Plexus Corp. and Bankers Trust
Company*
10.12(a)
2008 Long-Term Incentive Plan*
10.12(b)
Forms of award agreements thereunder*
(i) Form of Stock Option Agreement
(ii) Form of Restricted Stock Unit Award
Exhibit 10.17 to Plexus’ Report on Form
10-K for the fiscal year ended
September 30, 2000
Exhibit 10.14 to Plexus’ Report on Form
10-K for the fiscal year ended
September 30, 2003
Exhibit A to Plexus’ definitive proxy
statement for its 2008 Annual Meeting of
Shareholders
Exhibit 10.5(a) to Plexus’ Report on Form
10-Q dated March 29, 2008
Exhibit 10.5(b) to Plexus’ Report on Form
10-Q dated March 29, 2008
(iii) Form of Stock Appreciation Rights
Agreement
Exhibit 10.5(c) to Plexus’ Report on Form
10-Q dated March 29, 2008
10.13
Form of Plexus Corp. Long-Term Cash
Agreement*
10.14(a)
Plexus Corp. 2005 Equity Incentive Plan (as
amended)* [superseded]
Exhibit 10.1 to Plexus Quarterly Report on
Form 10-Q for the quarter ended December
29, 2007
Exhibit 10.8(a) to Plexus’ Report on Form
10-K for the fiscal year ended October 1,
2005
10.14(b)
Forms of award agreements thereunder
[superseded]*
(i) Form of Option Grant (Officer or Employee)
(ii) Form of Option Grant (Director)
Exhibit 10.1 to Plexus’ Report on Form 8-K
dated April 1, 2005
Exhibit 10.2 to Plexus’ Report on Form 8-K
dated November 17, 2005
(iii) Form of Restricted Stock Unit Award with
Time Vesting
Exhibit 10.4 to Plexus’ Report on Form 8-K
dated April 1, 2005
75
(iv) Form of Stock Appreciation Right Award
Exhibit 10.1 to Plexus’ Report on Form 8-K
dated August 29, 2007
List of Subsidiaries
Consent of PricewaterhouseCoopers LLP
Powers of Attorney
(Signature Page Hereto)
Certification of Chief Executive Officer pursuant
to Section 302(a) of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer pursuant
to Section 302(a) of the Sarbanes-Oxley Act of
2002.
Certification of the CEO pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Certification of the CFO pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Reconciliation of ROIC to GAAP Financial
Statements
X
X
X
X
X
X
X
21
23
24
31.1
31.2
32.1
32.2
99.1
____________________
*
Designates management compensatory plans or agreements
76
(PAGE INTENTIONALLY LEFT BLANK)
(PAGE INTENTIONALLY LEFT BLANK)
BOARD OF DIRECTORS
John L. Nussbaum – Chairman of the Board
Dean A. Foate – President and Chief Executive Officer
Ralf R. Bo¨er – Partner, Chairman and Chief Executive Officer,
Foley & Lardner LLP
Stephen P. Cortinovis – Private Equity Investor
David J. Drury – President, Poblocki Sign Company, LLC
Peter Kelly – Chief Financial Officer and Vice President,
UGI Corp.
Michael V. Schrock – President and Chief Operating Officer,
Pentair, Inc.
Charles M. Strother, M.D. – Physician; also Professor Emeritus at
University of Wisconsin-Madison
Mary A. Winston – Senior Vice President and
Chief Financial Officer, Giant Eagle, Inc.
EXECUTIVE OFFICERS
Dean A. Foate
President, Chief Executive Officer and Director
Ginger M. Jones
Vice President and Chief Financial Officer
Michael D. Buseman
Senior Vice President – Global Manufacturing Operations
Thomas J. Czajkowski
Vice President and Chief Information Officer
Steven J. Frisch
Senior Vice President – Global Engineering Services
Todd P. Kelsey
Senior Vice President – Global Customer Services
Yong Jin Lim
Regional President – Plexus Asia Pacific
Joseph E. Mauthe
Vice President – Global Human Resources
Angelo M. Ninivaggi
Vice President, General Counsel, Secretary
and Corporate Compliance Officer
George W.F. Setton
Corporate Treasurer and Chief Treasury Officer
Michael T. Verstegen
Senior Vice President – Global Market Development
Investor Information
Direct all inquiries for investor relations information,
including copies of the Company’s Form 10-K and other reports
filed with the SEC to:
Investor Relations
Plexus Corp.
55 Jewelers Park Drive
P.O. Box 156
Neenah, Wisconsin 54957-0156
920-722-3451
dianne.boydstun@plexus.com
www.plexus.com
For common stock market information, see Item 5 in the Form 10-K.
The Form 10-K is an integral part of this Annual Report.
Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, New York 10038
1-800-937-5449
Auditors
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
Annual Meeting
February 4, 2009: 11:00 a.m.
The Westin Chicago Northwest
400 Park Boulevard
Itasca, Illinois