Plexus
Annual Report 2009

Plain-text annual report

2009 Annual Report to Shareholders Notice of 2010 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 product design, manufacturing, testing and fulfillment services, to both original equipment manufacturers (“OEMs”) and other companies in the wireline/networking, wireless infrastructure, medical, industrial/commercial and defense/security/aerospace market sectors. Market Sector % of F09 Sales Wireline/Networking Wireless Infrastructure Medical Industrial/Commercial Defense/Security/Aerospace 44% 11% 22% 13% 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. We have uniquely aligned our business operations, processes, workforce and financial metrics to support this strategy. 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 7,100 employees located in 20 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 manufacturing and engineering footprint is outlined below: # of Facilities* Geographic Region % of F09 Sales Sq. Footage United States Asia Mexico Europe * Note: Please refer to our Form 10-K for a full list of properties. 1,159,000 897,000 210,000 134,000 10 6 1 3 56% 36% 5% 3% Plexus Corp. 55 Jewelers Park Dr. P.O. Box 156 Neenah, WI 54957-0156 (920) 722-3451 Notice of 2010 Annual Meeting of Shareholders and Proxy Statement 2009 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 10, 2010 To the Shareholders of Plexus Corp.: Plexus Corp. will hold its annual meeting of shareholders at The Pfister Hotel, located at 424 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, on Wednesday, February 10, 2010, at 8:00 a.m. Central Time, 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 4, 2009, will be entitled to vote at the meeting or any adjournment of the meeting. On or about December 18, 2009, we expect to mail 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. 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, Corporate Compliance Officer and Secretary Neenah, Wisconsin December 14, 2009 You may vote in person or by using a proxy as follows: (cid:2) By internet: Go to www.proxyvote.com. Please have the notice we sent to you in hand because it 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 the notice we sent to you in hand because it has your personal 12 digit control number(s) needed for your vote. (cid:2) By mail: 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 CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation Philosophy, Goals and Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of Executive Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elements and Analysis of Direct Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elements and Analysis of Other Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 8 10 10 10 11 14 15 15 18 18 19 19 19 20 28 31 32 33 33 35 38 40 41 42 46 46 47 47 ANNUAL MEETING OF SHAREHOLDERS FEBRUARY 10, 2010 COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING Q: WHEN IS THIS PROXY MATERIAL FIRST AVAILABLE TO SHAREHOLDERS? A: On or about December 18, 2009, Plexus Corp. (“Plexus”, “we” or the “Company”) expects to mail shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access the proxy material over the internet. 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 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 18, 2009, we expect to mail 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. 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 Materials or provided below. Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on February 10, 2010 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 27, 2010. 1 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 2010. 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 2010. 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 2 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. As a result of new rules applicable to director elections after January 1, 2010, your broker may no longer vote your shares in its discretion in the election of directors; therefore, you must vote your shares if you want them to be counted in the election of directors. However, your broker may vote your shares in its discretion on routine matters such as the 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 4, 2009, which is the “Record Date.” As of the Record Date, Plexus had 39,589,053 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 the notice we sent to you in hand because it 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 the notice we sent to you in hand because it has your personal 12 digit control number(s) needed for your vote. (cid:2) By mail: 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. 3 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. 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 4, 2009, 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 a Notice of Internet Availability of Proxy Materials to all shareholders; paper copies of the proxy material will be sent upon request as provided above as well as in the 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. Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2011 ANNUAL MEETING? A: The Corporate Secretary must receive a shareholder proposal no later than August 20, 2010, in order for the proposal to be considered for inclusion in our proxy materials for the 2011 annual meeting. The 2011 annual meeting of shareholders is tentatively scheduled for February 16, 2011. To otherwise bring a proposal or nomination before the 2011 annual meeting, you must comply with our bylaws. Currently, our bylaws require written notice to the Corporate Secretary between October 9, 2010, and November 3, 2010. The purpose of this 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 3, 2010, then your proposal or nomination will be 4 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: Angelo M. Ninivaggi 55 Jewelers Park Drive 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 2010 annual meeting, which was November 7, 2009. 5 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table presents certain information as of December 4, 2009, 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 Yong Jin Lim Michael D. Buseman Michael T. Verstegen Shares Beneficially Owned (1) Percentage of Shares Outstanding 46,000 54,500 57,500 758,405 43,600 238,727 33,500 57,500 8,500 27,922 38,000 25,647 118,547 * * * 1.9% * * * * * * * * * All executive officers and directors as a group (17 persons) 1,629,103 4.0% Barclays Global Investors, NA. (2) Lord, Abbett & Co. LLC (3) Vanguard Group, Inc. (4) Disciplined Growth Investors, Inc. (5) 2,832,982 2,603,623 2,332,020 2,323,979 7.2% 6.6% 5.9% 5.9% __________________________________ * 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 4, 2009. The options include those held by Mr. Böer (41,000 shares), Mr. Cortinovis (49,500), Mr. Drury (52,500), Mr. Foate (671,750), Mr. Kelly (37,500), Mr. Nussbaum (109,252), Mr. Schrock (27,500), Dr. Strother (52,500), Ms. Winston (6,500), Ms. Jones (23,666), Mr. Lim (38,000), Mr. Buseman (24,000), and Mr. Verstegen (105,747), and all executive officers and directors as a group (1,343,909). While the total for all executive officers and directors as a group includes 178 shares that may be acquired pursuant to stock-settled stock appreciation rights (“SARs”) granted under Plexus’ equity incentive plans that are currently vested or that vest within 60 days of December 4, 2009, it excludes certain SARs because the respective exercise prices of those SARs were below the market value of Plexus common stock on December 4, 2009. SARs are owned by an individual who is neither a director nor an executive officer named in the “Summary Compensation Table.” (2) Barclays Global Investors, NA. (“Barclays”) filed a report on Schedule 13G dated December 31, 2008, reporting sole voting power as to 2,062,567 shares, and sole dispositive power as to 2,671,704 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, 2009, showing sole investment power as to 2,832,982 shares and sole voting power as to 2,645,034 of those shares. The address of Barclays, a bank with investment advisor affiliates, is 400 Howard Street, San Francisco, California 94105. (3) (4) (5) Lord, Abbett & Co. LLC filed a report on Schedule 13G dated December 31, 2008, reporting sole voting power as to 2,325,523 shares, and sole dispositive power as to 2,593,762 shares of common stock. Lord Abbett subsequently filed a report on Form 13F for the quarter ended September 30, 2009, showing sole investment power as to 2,603,623 shares and sole voting power as to 2,322,626 shares. The address of Lord Abbett, an investment advisor, is 90 Hudson Street, Jersey City, New Jersey 07302. Vanguard Group, Inc. filed a report on Schedule 13G dated December 31, 2008, reporting sole voting power as to 44,820 shares, and sole dispositive power as to 2,095,474 shares of common stock. Vanguard subsequently filed a report on Form 13F for the quarter ended September 30, 2009, showing sole investment power as to 2,332,020 shares and sole voting power as to 56,455 of those 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, 2009, showing sole investment power as to 2,323,979 shares and sole voting power as to 1,959,879 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, 61 Stephen P. Cortinovis, 59 David J. Drury, 61 Dean A. Foate, 51 Peter Kelly, 52 Partner, Chairman and Chief Executive Officer of 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 of UGI Corp., a distributor and marketer of energy products and services, since 2007; previously, Chief Financial Officer and Executive Vice President of 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, 67 Chairman of Plexus since 2002 Michael V. Schrock, 56 Charles M. Strother, MD, 69 Mary A. Winston, 48 President and Chief Operating Officer of 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, where Mr. Drury serves as lead director 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, as well as the chair of its Compensation and Human Resources Committee. 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 four meetings during fiscal 2009. As part of these meetings, non-management directors regularly meet without management present. All of our directors attended at least 75% of the total meetings of the board and the committees of the board on which they 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 directors attended the 2009 annual meeting of shareholders. 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. However, during fiscal 2009, Foley & Lardner’s accrued billings for fees and services to Plexus substantially decreased to $5,055. This amount represented far less than one-hundredth 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. Plexus’ payments to Pentair in fiscal 2009 were $985,036, which represented less than one-tenth of one percent of each of Plexus’ and Pentair’s annual revenues. It is anticipated that Pentair’s sales to Plexus may 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 2009. 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 three meetings during fiscal 2009. 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 Discussion and Analysis” and “Compensation Committee Report” below for further information on the Committee’s philosophies and practices, and its determinations in fiscal 2009. 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 2009, 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 initially determined the peer group prior to making fiscal 2007 compensation decisions with assistance from its former 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 2009 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. Essentially the same peer group was also used for fiscal 2007 and 2008; the fiscal 2009 peer group does not include Respironics, Inc., which was acquired during fiscal 2008. The Committee plans to review the composition of the peer group in fiscal 2010. The Committee also considers data comparing the currently vested equity versus unvested equity balances for the CEO as well as an internal assessment to review the appropriate levels of equity among the executive team. 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 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 use its judgment in applying this information 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. 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 any recommendation for the CEO’s compensation, nor does management make the final determination of the CEO’s or the other executive officers’ amount or form of executive 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 to review competitive practices and overall plan expense. The sessions generally focus on 12 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. For fiscal 2008, the Committee retained Sibson to conduct a detailed 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’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. For fiscal 2009, 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. In August 2008, Plexus’ internal human resources personnel conducted an in-depth 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 performance 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. For fiscal 2010 compensation planning, at the direction of the Committee, Watson Wyatt is conducting a detailed analysis of the current executive total compensation package. This analysis includes a review and comparison to peer group companies, internal calibration of pay and equity levels, and an accumulated wealth analysis. 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 director 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 duties and responsibilities of particular positions, and overall conclusions based upon Plexus’ compensation principles and goals. 13 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 2009 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 two times in fiscal 2009. 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. 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), director and officer stock ownership 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”). 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 2009, 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 $42,000 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). The chairs of each committee received additional annual fees for service as a committee chair; the chair of the Audit Committee received $15,000 and the chairs of the Compensation and Leadership Development Committee and the Nominating and Corporate Governance Committee each received $10,000. Additionally, in certain circumstances directors may be reimbursed for attending educational seminars or, in each individual’s capacity as a director, other meetings at Plexus’ behest. Directors are eligible to defer their cash fees through Plexus’ supplemental executive retirement plan. However, none of the directors currently participates in that plan. The plan is further discussed in the “Compensation Discussion and Analysis” section below. Directors may also participate in the 2008 Long-Term Plan, which permits the grant of options, stock- settled stock appreciation rights (“SARs”), restricted stock, which may be designated as restricted stock awards or restricted stock unit awards, performance stock awards, and cash bonus awards to officers, key employees and directors. Stock options are generally granted to directors quarterly, at the same time as employee grants. The exercise price is equal to the average of the high and low sale prices of Plexus stock on the Nasdaq Global Select Market on the grant date. One half of the options granted vest immediately on the grant date and the balance vest on the first anniversary of the grant date. 15 The following table sets forth the compensation that was paid by Plexus to each of our non-employee directors in fiscal 2009: Director Compensation Table Name Fees Earned or Paid in Cash ($)(1) Option Awards ($)(2) Stock Awards ($)(2) Other Benefits ($)(3) Ralf R. Böer $59,500 $86,110 Stephen P. Cortinovis 67,250 86,110 David J. Drury 70,500 86,110 Peter Kelly 57,250 86,110 John L. Nussbaum 100,250 86,110 Michael V. Schrock 53,250 86,110 Charles M. Strother, MD 53,250 86,110 Mary A. Winston 55,750 86,110 -- -- -- -- -- -- -- -- Total ($) $145,610 153,360 156,610 143,360 -- -- -- -- $333,851 520,211 -- -- -- 139,360 139,360 141,860 (1) Includes annual retainer, meeting, committee and chairmanship fees and, in the case of Mr. Nussbaum, his fee as Chairman of the Board. See below regarding Mr. Nussbaum’s compensation. (2) The amounts shown represent the expensed amounts in fiscal 2009 for grants and awards in 2009 and prior years. Generally accepted accounting principles (“GAAP”) require us to recognize compensation expense for stock options and other stock-related awards granted to our employees and directors based on the estimated fair value of the equity instrument at the time of grant. Compensation expense is recognized over the vesting period. The assumptions used to determine the valuation of the awards are discussed in footnote 11 to our consolidated financial statements. The table below provides cumulative information about the fair value of options granted to directors in fiscal 2009, determined as of the options’ grant dates in accordance with GAAP. It also provides the number of outstanding stock options that were held by our non-employee directors at October 3, 2009. Restricted stock awards were not granted to directors in fiscal 2009 or any prior years. Option Awards Grant Date Fair Value of 2009 Option Awards ($) $86,110 86,110 86,110 86,110 86,110 86,110 86,110 86,110 Number of Securities Underlying Unexercised Options (#) 43,500 52,000 55,000 40,000 111,752 30,000 55,000 10,000 Name Mr. Böer Mr. Cortinovis Mr. Drury Mr. Kelly Mr. Nussbaum Mr. Schrock Dr. Strother Ms. Winston Each non-employee director was awarded options for 2,500 shares on each of November 19, 2008, February 2, 2009, May 4, 2009, and August 3, 2009. The options granted on November 19, 2008, are now fully vested. 16 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. (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 2009 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 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 executive retirement agreement for Mr. Nussbaum, which was amended in August 2009, is designed to provide specified retirement and death benefits to him in addition to those provided under the 401(k) Plan. Plexus’ commitment was funded in fiscal 2002 and prior years; an additional $1,026,363 of expense was recorded but no further contribution was made in fiscal 2009 in connection with the arrangements discussed below. Mr. Nussbaum has received payments under the special retirement arrangements since 2002, including payments of $313,110 for fiscal 2008 and $325,635 for fiscal 2009. In fiscal 2009, in connection with a review of deferred compensation agreements, it was determined that the deferred compensation agreements were not being administered by Plexus as was originally intended and that Mr. Nussbaum had been incorrectly paid by Plexus in previous years. Previously, Mr. Nussbaum’s supplemental executive retirement agreement provided that future payments were to be adjusted, depending upon the performance of underlying investments; the original intent of these agreements was for a fixed 15-year annual installment payment stream to Mr. Nussbaum. Mr. Nussbaum repaid $60,830 to Plexus in August 2009 to reflect the adjusted payments that should have been paid to him. Following discussion and approval by the Compensation and Leadership Development Committee, the August 2009 amendment was entered into in order to align the agreement’s provisions regarding the determination of payment amounts to a fixed 15-year annual installment payment stream. The amendment is consistent with the intent of the original agreement and with the manner in which the agreement has operated in practice. The contributions for Mr. Nussbaum’s special retirement arrangement are invested in life insurance policies acquired by Plexus on his life. 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 2009 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. 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. Currently, all of our directors are in compliance with 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 2009 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. 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 while not exposing the Company to undue risk. 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 strong global organization; drives global financial and operational success that creates shareholder value without encouraging inappropriate risk-taking; 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. Overview of Executive Compensation and Benefits Plexus uses the following compensation reward components working together to create competitive compensation arrangements for our executive officers: Reward Component Base Salary Purpose Base salary is intended to provide compensation which is not “at risk”; however, salary levels and subsequent increases are not guaranteed. Our base salaries are designed to offer regular fixed compensation for the fulfillment of the duties and responsibilities associated with the job roles of our executives and employees. They are also important because they present a starting point for considering compensation when we seek to attract and retain talented individuals. 19 Annual Incentive Long-Term Incentives Benefits Retirement Plans Agreements Our annual cash incentive compensation plan, the Variable 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 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. The design of the VICP offers 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. 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. A substantial part of compensation, which is also at risk, is longer-term equity-based compensation, typically awarded in the form of stock options and restricted stock units (“RSUs”). Our long-term incentives are designed to tie a 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 is also designed to encourage the long-term retention of these executives. The health and well-being of our employees and their families is important to us. Therefore, we provide all of our employees in the United States with various benefits, such as health and life insurance. Offering these benefits also assists the Company in attracting, as well as retaining, executive officers and key personnel. The Company maintains retirement plans to help our employees provide for their retirement on a tax-advantaged basis. Offering retirement plans helps the Company to attract and retain qualified employees, as well as meet competitive conditions. The 401(k) Plan includes a Plexus stock fund as one of its choices to permit employees to maintain Plexus ownership if they wish. The Company also provides a supplemental executive retirement plan under which certain executive officers may elect to defer some or all of their compensation and the Company makes additional contributions on their behalf. Only our Chief Executive Officer has an employment agreement, which is intended to help assure the continuing availability of his services over a period of time and protect the Company from competition post-employment. All executive officers have change in control agreements to help assure that they will not be distracted by personal interests in the case of a potential acquisition of Plexus and to assist in maintaining their continuing loyalty. 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 VICP and long-term equity-based awards under the 2008 Long-Term Plan. 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. 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 35% to 50% of base salary in fiscal 2009 with the opportunity to earn a bonus beyond the target if company financial goals were exceeded. In the case of the CEO, the potential target compensation at risk as a percentage of base salary was 100%, reflecting his overall greater 20 responsibility for the Company. Long-term incentives for 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 fiscal 2009, the Committee reviewed the Company’s plan to modify the expected timing of annual salary planning and equity planning for the general employee base. Specifically, base salary adjustments and equity awards are now generally targeted for implementation in the second quarter of each fiscal year rather than the first quarter timing used in previous years. This change is intended to better align employee rewards with the Company’s processes to evaluate employees’ performance, forging a stronger link between employee performance and pay. The Committee decided to adopt the same timing changes for the CEO and executive officers. Base Salary Structure. The Company and the Committee review market-based comparisons, peer group analysis and other third-party survey data as reference points for compensation practices as well as sources of comparative information to assist in establishing appropriate base salaries for its executive officers. Through this form of benchmarking, 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 for our executive officers has typically been at or near the start of the fiscal year; however, beginning with fiscal 2010, the effective date for these adjustments was moved to January in order to be aligned with the Company’s other salaried employees. The Committee expects to make these determinations in December 2009 after it has reviewed and considered the analysis being provided by Watson Wyatt, as discussed above in “Corporate Governance–Board Committees–Compensation and Leadership Development Committee–Overview of the Compensation Decision-Making Process–Use of Consultants.” Factors Considered in Determining Base Salary. Prior to establishing base salary increases for the CEO and approving 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. 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. The Committee also considers the individual executive officers’ duties and responsibilities and their relative authority within Plexus. 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. Executive officer base salary increases may include the following two components: – Competitive Adjustments. If executive officer salaries 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. – Merit Increases. 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 separate merit increase may be provided based on individual performance, if appropriate. 21 2009 Base Salary Adjustments. Base salary adjustments for fiscal 2009 were approved by the Committee in August 2008. For fiscal 2009, the Committee approved a base salary adjustment of $75,000 for the CEO, an 11.1% increase from his fiscal 2008 base salary. The Committee sought to align the CEO’s salary with peer group and market comparisons over a multi-year period as well as achieve CEO base salary near the 50th percentile, particularly in view of the Company’s strong financial performance. With this increase, the CEO’s base salary is near the 50th percentile of those comparisons. 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 the other executive officers varied from 3.7% to 20.0% and reflected the factors discussed above; the smaller adjustments reflected merit increases for performance over the past year when salaries were otherwise in line with the market while larger increases represented a combination of competitive adjustments and merit increases. For Ms. Jones, Mr. Lim, and Mr. Buseman, 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. The compensation and benefits package of Mr. Lim also reflects regional survey data of the Malaysian markets. Mr. Buseman’s increase was larger than that of other executive officers due to the greater competitive gap between his salary and the mid-range of peer group and market comparisons reviewed by the Committee. Other variations between the executive officers reflect competitive conditions and the Committee’s view of the executive officers’ duties, responsibilities and performance. Presented below are the fiscal 2009 base salaries and percentage increases as compared to fiscal 2008 for our named executive officers: Executive Officer Mr. Foate………………………………………… Ms. Jones……………………………………....... Mr. Lim………………………………………….. Mr. Buseman……………………………………. Mr. Verstegen…………………………………… Fiscal 2009 Base Salary $750,000 $335,000 $270,000 $300,000 $271,000 Percentage Increase Compared to Fiscal 2008 11.1% 10.7% 10.0% 20.0% 5.0% Annual Incentive Plan Structure. The VICP provides annual cash incentives to approximately 2,500 participants, including our CEO and other executive officers. Each participant has a targeted award that is expressed as a percentage of base salary. For example, in fiscal 2009 the targeted award opportunity for the CEO was 100% of base salary, and the opportunities for other executive officers varied from 35% to 50% of base salaries; the opportunities for non-executive officer participants varied from 3% to 30% of base salaries. Executive officers and senior level non-executive officers also have an opportunity above the target level based on corporate financial goals. 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. 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 table below lists the fiscal 2009 targeted VICP award opportunities for the named executive officers, expressed as a percentage of base salary: Executive Officer Mr. Foate………………………………………… Ms. Jones……………………………………....... Mr. Lim………………………………………….. Mr. Buseman……………………………………. Mr. Verstegen……………………………………. 2009 Targeted Award as a Percentage of Base Salary 100% 50% 40% 50% 50% 22 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 2009. 2009 Plan Design – Company Goals. The specific corporate financial goals for fiscal 2009, 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 2009 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 the purposes of the VICP, ROCE is defined as annual operating income before taxes 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 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 2009, 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 2009 revenue target represented approximately 15% growth over fiscal 2008 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 the 2009 ROCE target at 23.0%. The ROCE target was below the level achieved in fiscal 2008 to recognize the higher levels of capital investment as well as the investments in working capital planned for fiscal 2009. The Committee emphasized revenue growth when setting the VICP maximum threshold, as ROCE at the “maximum” level was also set at 23.0%. The following table sets forth the fiscal 2009 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 $1,916 20.0% Payout 0% 0% up to 20% Goal $2,118 23.0% Payout 40% 40% up to 20% Goal $2,174 23.0% Payout 140% 40% up to 20% up to 20% up to 100% up to 200% 23 In fiscal 2009, revenue was $1,617 million and ROCE was 15.7%. Thus, Plexus did not achieve the corporate financial goals established for revenue or ROCE and therefore did not pay any awards to executive officers or any other employees based on those two components. Plexus’ actual performance in fiscal 2009 as compared to these targets is illustrated by the following graph: 23.0% 23.0% $2,118 $2,174 20.0% $1,916 15.7% $1,617 Revenue ROCE Threshold Target Maximum Fiscal 2009 Actual 2009 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 VICP 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. Achievement of individual objectives, for which there was a potential payout equivalent to 20% of the “targeted” bonus award, varied among the named executive officers from 86.4% to 98.3% of the individual’s potential payout for personal objectives, with the CEO achieving 98.3%. 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. The following are summaries of the individual objectives for our named executive officers in fiscal 2009: – Dean A. Foate: Mr. Foate’s individual objectives related to: designing strategies to support global expansion; developing and implementing strategies to differentiate the Company in the marketplace through the expansion of service capabilities; developing processes to evaluate organizational effectiveness, leadership talent and employee performance; and redesigning the Company’s annual incentive compensation plan to more effectively align rewards with Company and individual employee performance. – Ginger M. Jones: Ms. Jones’ individual objectives related to: designing strategies to support global expansion; developing and implementing strategies to differentiate the Company in the marketplace through the expansion of service capabilities; creating an internal decision- making process to evaluate, deploy, and track strategic investments; redesigning the Company’s annual incentive compensation plan to more effectively align rewards with Company and individual employee performance; establishing a governance framework for 24 identifying, assessing and managing enterprise risk; designing strategies for the continued development and deployment of a global information technology (“IT”) platform; creating a process for effectively managing the Company’s operating costs in light of the overall business model; and optimizing the Company’s overall cash cycle and improving return on invested capital. – Yong Jin Lim: Mr. Lim’s individual objectives related to: supporting the expansion of operations in Asia; developing strategies and processes for the effective integration of customer management, manufacturing, and engineering operations; establishing a governance framework for identifying, assessing and managing enterprise risk; designing strategies for the continued development and deployment of a global IT platform; implementing cost reduction strategies to improve ROCE; developing processes to evaluate organizational effectiveness and leadership talent; and developing strategies to drive growth of the Company’s engineering services. – Michael D. Buseman: Mr. Buseman’s individual objectives related to: designing strategies to support global expansion; developing and implementing strategies to differentiate the Company in the marketplace through the expansion of service capabilities; creating an internal decision-making process to evaluate, deploy, and track strategic investments; designing strategies for the continued development and deployment of a global IT platform; optimizing the Company’s overall cash cycle and improving return on invested capital; developing strategies and processes for the effective integration of customer management, manufacturing, and engineering operations; developing strategies and procedures to ensure efficient and effective costing processes; and implementing cost reduction strategies to improve ROCE. – Michael T. Verstegen: Mr. Verstegen’s individual objectives related to: designing strategies to support global expansion; developing and implementing strategies to differentiate the Company in the marketplace through the expansion of service capabilities; and creating an internal decision-making process to evaluate, deploy, and track strategic investments. Long-Term Incentives Plan Structure. Total compensation, consistent with practices in our industry, places a particular emphasis on equity based compensation. The shareholder-approved 2008 Long-Term Plan allows for various award types, including options, SARs, restricted stock, RSUs, and performance awards (payable in cash and/or equity). 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. The Committee’s policy is to not “back-date” equity grants and no equity grant was “back-dated” in fiscal 2009. 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 a combination of stock options, RSUs and long-term cash awards. The Committee’s long-term incentive strategy 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 provide rewards based upon the appreciation in value to shareholders as measured by the increase in our share price. – 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 25 – – does not solely depend upon increases in the market price of our shares, which may occur over a short period of time. Long-term cash awards, which generally accompany annual grants of RSUs to executive officers, serve as a stable retention incentive of a known value. Since long-term cash awards vest on the same schedule as RSUs, executives have access to the cash proceeds to help cover related tax liabilities. This can increase retained share ownership and reduce dilution to shareholders because the executive need not sell as many shares to cover taxes on the vesting of RSUs. For non-executives and key employees who are eligible for equity awards, Plexus uses a distribution weighted toward stock-settled stock appreciation rights (“SARs”). 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 non- executives and key 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 plan and minimizes dilution. The allocation formulas for executive officers and other non-executive employees receiving equity grants are illustrated in the pie charts below: Executive Officers Senior Non-Executive Employees Other Non-Executive Employees Long-Term Cash 15% RSUs 30% RSUs 25% Options 60% Stock-settled SARs 70% Stock-settled SARs 100% Annual Award Determination Process. The Committee determines the entire value of each grant based on the duties, responsibilities and performance of the award recipient. Pursuant to its portfolio approach, the Committee then distributes the entire value of each grant to each officer among three types of awards—options, RSUs and long-term cash — as shown above. The awards are valued at their Black-Scholes fair-market value when making these determinations. For current executive officers, the Committee uses a distribution formula weighted toward stock options, so as to particularly promote increasing shareholder value. – 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 and manage dilution to shareholders. The options and stock-settled SARs granted to executive officers and employees in fiscal 2009 were for a total of 534,371 shares. That amount excludes options for 80,000 shares awarded to the non-employee directors. – 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 26 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, 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 2009, options for 82,000 shares were granted to the CEO, and options for 123,000 shares were granted to the other executive officers as a group. Additionally, stock-settled SARs for 1,100 shares were granted to an individual who was an executive officer at the time of the grants, but not at the end of fiscal 2009. – 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 2009, 110,257 RSUs were granted to executive officers and other non-executive employees through annual grants, along with $1,055,946 in long-term cash awards. In addition to the annual grants of RSUs, certain executive officers received a special grant consisting of solely RSUs in August 2009 to encourage retention, as described below. Basis for Determination of Timing of Grants. The Committee makes quarterly stock option and stock- settled SARs grants rather than annual grants due to the volatility of the stock market and of Plexus’ stock in particular. Granting stock options and SARs all on one date in the year can make the strike price, its related expense, and the opportunity it represents to employees 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 dates will occur three days subsequent to the release of quarterly earnings, not including the day of the release. The Committee uses future dates, as is permitted by the 2008 Long-Term Plan, because that minimizes the opportunity to choose a date based upon market performance known or knowable at the time of determination. The 2008 Long-Term Plan provides that the exercise price of a stock option is not permitted to be less than the fair market value on the stock option grant date. New hire option and stock-settled SAR grant levels 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 generally made once a year. In fiscal 2009, such grants were made at the same time as the first option and stock-settled SAR grants for the fiscal year. There was also a special grant consisting solely of RSUs in August 2009 to certain executive officers, as described below. Going forward, the Committee anticipates generally granting RSUs and long-term cash awards once a year during the fiscal second quarter. Special Retention-Related Grant of RSUs. The Committee made a special grant consisting solely of RSUs in August 2009 in order to encourage the retention of its key leadership and to continue to align them with the Company’s future business results. The Committee recognized that retaining key leadership was especially critical in order to manage through the challenging economic environment and to position the organization for future sustained growth and profitability. The special grant of RSUs was intended to further align executives with the downside risk and upside potential experienced by all shareholders. RSUs foster retention by providing recipients with a certain equity interest in the value of the Company’s shares contingent on their continued employment with Plexus. Unlike options, the value of RSUs does not solely depend upon increases in the market price of our shares; thus, RSUs promote a long-term ownership mentality and motivate employees to increase shareholder value. The Committee reviewed the vested and unvested equity balances of every executive officer in order to assess its value in retaining each individual. Based on that review and a determination of appropriate levels of equity to provide retention incentives, the following grants of RSUs were made: Ms. Jones (15,000), 27 Mr. Lim (15,000), Mr. Buseman (20,000) and Mr. Verstegen (5,000). In addition, 45,000 RSUs were granted to other executive officers as a result of the Committee’s assessment. Mr. Foate did not receive a retention grant in August 2009 because the Committee felt Mr. Foate had acquired sufficient equity to not warrant a retention-related grant at that time. The Committee approved the special grant of RSUs under the 2008 Long-Term Plan. 2009 Awards. Using these principles and reflecting all of the above grants, in fiscal 2009, the Committee made total grants of options, RSUs and long-term cash to the named executive officers as follows: Executive Officer Options (#) RSUs (#) Long-Term Cash ($) Mr. Foate Ms. Jones Mr. Lim Mr. Buseman Mr. Verstegen 82,000 20,000 20,000 20,000 12,000 20,398 19,975 19,975 24,975 7,985 $416,109 101,490 101,490 101,490 60,894 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. Equity Ownership Guidelines. To complement the 2008 Long-Term Plan’s goal of increasing the alignment between the interests of management and shareholders, the Committee adopted executive stock ownership guidelines. These guidelines require 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. All officers are in compliance with the procedural requirements of the guidelines, while two of the officers have met the ultimate ownership amounts anticipated by the guidelines. Elements and Analysis of 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 benefits, retirement plans 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. Benefits Structure. 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. 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. 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 was 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 life and disability insurance due to the dollar limits of the Company’s disability insurance policies. Beginning in calendar 2010, the flexible perquisite benefit will be valued at up to $15,000 per calendar year, but the gross-up for taxes will be eliminated. 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. 28 Retirement Planning - 401(k) Plan Structure. The 401(k) Plan, which is available to substantially all U.S. salaried employees, 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 $6,125 per calendar year. Employees have a choice of investment vehicles, including a Plexus stock fund, in which to invest those funds. Retirement Planning - Supplemental Executive Retirement Plan Structure. As a consequence of Internal Revenue Code limitations on compensation which may be attributed to tax qualified retirement plans (such as the 401(k) Plan), 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’ supplemental executive retirement plan (the “SERP”) is a deferred compensation plan which allows participants to defer taxes on current income. During fiscal 2000, the Committee established the current SERP arrangement. Under this plan, 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. The plan 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, retirement from Plexus, or in accordance with the executive’s individual deferral election. All executive officers, other than Mr. Lim, participate in this program. Additionally, the Company can credit a participant’s account with a discretionary employer contribution. Any employer contributions to the SERP require Board approval. The SERP 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. These benefits make supplemental retirement plans common practice in general industry. 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. Fiscal 2009 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. In fiscal 2008, Watson Wyatt conducted a competitive analysis of the contribution formula and it was found to be reasonable and competitive. – – Employer Contributions. For fiscal 2009, the total employer contributions to the SERP accounts was $244,020 for all participants as a group, including $98,875 for the CEO. See footnote 4 to the “Summary Compensation Table.” Special Contribution. The SERP also allows the Committee to make discretionary contributions over and above the annual contribution noted above. In fiscal 2009, the Committee did not make any such contributions to any of the executive officers, including the named executive officers. Fiscal 2010 Payment Schedule. For fiscal 2010, the annual contribution made by the Company will be paid throughout the year on a bi-weekly basis. This schedule will allow for dollar cost averaging and will spread the expense of the contribution across the fiscal year. If necessary, a true-up payment will be made 29 at the end of the fiscal year so that the Company contribution will equal 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. Foreign Retirement 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 2009 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. Employment and Change in Control Agreements Structure. We do not generally have employment agreements with our executive officers; however, Plexus does maintain 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 and certain other key employees have change in control agreements (with the exception of Mr. Foate, who has change in control provisions as part of his employment agreement), 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. We also believe that competitive factors require us to provide these protections to attract and retain talented executive officers and key employees. 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 general, the change in control agreements with executive officers Determination of Benefit Levels. provide that, upon termination in the event of a change in control, executive officers will receive compensation equaling 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. In addition, under the 2008 Long-Term Plan and its predecessor, the 2005 Equity Incentive Plan (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 or two years’ of 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 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 package that was consistent with market practices, was appropriate to help motivate 30 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; 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. As noted above, the agreements contain a “double trigger,” which provides that 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. 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 and 2009) 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, the Company has foregone a portion of its tax deduction as a result of the size of a high VICP bonus; that was not the case for fiscal 2009 compensation. 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 became fully effective on January 1, 2009. We 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 made various changes to some of these plans and arrangements 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 2009 to our Chief Executive Officer, our Chief Financial Officer and the three executive officers who had the highest compensation of our other executive officers (collectively, the “named 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 2009 $745,673 $147,222 $333,910 $1,383,497 $0 $134,620 $2,744,922 2008 672,981 129,212 195,957 1,366,137 635,240 115,907 3,115,434 Ginger M. Jones 2009 339,529 29,166 96,202 169,528 2007 569,231 80,148 0 815,226 0 0 95,013 55,343 Vice President and Chief Financial Officer (5) Yong Jin Lim Regional President – Plexus Asia Pacific (6) 2008 302,057 26,899 41,550 80,430 142,519 51,077 2007 132,212 11,569 0 13,906 2009 267,708 18,510 84,449 169,972 0 0 12,429 99,141 2008 239,371 16,852 31,163 118,795 90,383 76,075 Michael D. Buseman 2009 303,654 26,467 91,615 157,499 2007 232,693 12,528 0 60,252 Senior Vice President, Global Manufacturing Operations (7) Michael T. Verstegen 2009 274,919 25,496 59,041 198,124 0 0 0 73,102 59,373 55,579 Senior Vice President, Global Market Development 2008 257,808 24,105 31,163 188,300 121,675 56,030 2007 247,817 15,530 0 117,657 0 34,973 1,559,618 689,768 644,532 170,116 639,780 572,639 378,575 638,608 613,159 679,081 415,977 (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 2009, 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 “2009” row were earned in fiscal 2009 but will be paid in fiscal 2010, the amounts shown in the “2008” row were earned in fiscal 2008 and were paid in fiscal 2009 and the amounts shown in the “2007” row were earned in fiscal 2007 and were paid in 2008. 33 (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 2009, fiscal 2008 and fiscal 2007, respectively, for grants and awards made in those and prior years. Generally accepted accounting principles (“GAAP”) require 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 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 stock and option awards granted in fiscal 2009, and the “Outstanding Equity Awards at Fiscal Year End” table below relating to all outstanding option awards at the end of fiscal 2009. (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, 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 $6,125 5,750 5,625 8,761 1,934 -- -- -- -- 5,414 5,988 5,808 5,674 Year 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2009 2008 2007 Company Contribution to SERP Executive Flexible Perquisite Benefit $98,875 88,750 66,195 29,050 30,325 9,625 66,589 43,409 40,791 25,375 22,330 21,340 18,679 $17,219 9,706 11,803 13,302 17,855 2,804 -- -- -- 16,931 14,457 18,232 9,461 Value of Company Car $2,101 2,356 2,045 3,311 963 -- 17,330 17,462 17,272 10,861 12,175 10,650 1,159 Additional Life and Disability Insurance $10,300 9,345 9,345 919 -- -- 15,222 15,204 15,039 792 629 -- -- Total $134,620 115,907 95,013 55,343 51,077 12,429 99,141 76,075 73,102 59,373 55,579 56,030 34,973 Mr. Foate Ms. Jones Mr. Lim Mr. Buseman Mr. Verstegen In the reported years under the executive flexible perquisite benefit, executive officers could 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 the fiscal years listed above, 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. Beginning in calendar 2010, the executive flexible perquisite benefit will be valued at up to $15,000 per calendar year, but the gross-up for taxes will be eliminated. (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. (7) The individual listed above is a named executive officer for the first time in fiscal 2009. In accordance with SEC rules, information for prior years is not required to be presented. 34 GRANTS OF PLAN-BASED AWARDS 2009 The following table sets forth information about stock and option awards which were granted to the named executive officers in fiscal 2009 under the 2008 Long-Term 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 2009 performance (to be paid in fiscal 2010) under the VICP. As a result of fiscal 2009 corporate performance, bonuses based on these criteria were not earned in 2009, 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 in fiscal 2009 in the table below, and additional information about those plans below the table. Name Mr. Foate Ms. Jones Mr. Lim Mr. Buseman Mr. Verstegen Award Type VICP* RSUs & long-term cash (3) Options VICP* RSUs & long-term cash (3) RSUs (4) Options VICP* RSUs & long-term cash (3) RSUs (4) Options VICP* RSUs & long-term cash (3) RSUs (4) Options VICP* RSUs & long-term cash (3) RSUs (4) Options Grant Date 11/13/08 10/31/08 10/31/08 02/02/09 05/04/09 08/03/09 11/13/08 10/31/08 08/03/09 10/31/08 02/02/09 05/04/09 08/03/09 11/13/08 10/31/08 08/03/09 10/31/08 02/02/09 05/04/09 08/03/09 11/13/08 10/31/08 08/03/09 10/31/08 02/02/09 05/04/09 08/03/09 11/13/08 10/31/08 08/03/09 10/31/08 02/02/09 05/04/09 08/03/09 Estimated Future Payouts Under Non- Equity Incentive Plan Awards Threshold ($)(1) Target ($)(1) Maximum ($)(1) All Other Stock Awards: Number of Shares of Stocks or Units (#) All Other Option Awards: Number of Securities Underlying Options (#) $1 -- $598,868 416,109 $1,347,453 -- -- 20,398 (3) -- -- -- -- -- -- 1 -- -- -- -- -- -- 1 -- -- -- -- -- -- 1 -- -- -- -- -- -- 1 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 133,755 101,490 300,948 -- -- 4,975 (3) 15,000 (4) -- -- -- -- -- 4,975 (3) 15,000 (4) -- -- -- -- -- 4,975 (3) 20,000 (4) -- -- -- -- -- 2,985 (3) 5,000 (4) -- -- -- -- -- -- -- -- -- -- -- -- -- -- 85,667 101,490 192,750 -- -- -- -- -- -- -- -- -- -- -- 119,623 101,490 269,151 -- -- -- -- -- -- -- -- -- -- -- 108,302 60,894 243,679 -- -- -- -- -- -- -- -- -- -- -- 35 20,500 20,500 20,500 20,500 -- -- -- 5,000 5,000 5,000 5,000 -- -- -- 5,000 5,000 5,000 5,000 -- -- -- 5,000 5,000 5,000 5,000 -- -- -- 3,000 3,000 3,000 3,000 Exercise or Base Price of Option Awards ($/sh) (2) -- -- $18.085 14.625 20.953 25.751 -- -- Closing Market Price on Grant Date ($/sh) (2) -- -- $18.66 14.92 20.74 25.90 -- -- -- 18.085 14.625 20.953 25.751 -- -- -- 18.085 14.625 20.953 25.751 -- -- -- 18.085 14.625 20.953 25.751 -- -- -- 18.085 14.625 20.953 25.751 -- 18.66 14.92 20.74 25.90 -- -- -- 18.66 14.92 20.74 25.90 -- -- -- 18.66 14.92 20.74 25.90 -- -- -- 18.66 14.92 20.74 25.90 Grant Date Fair Value of Stock and Option Awards ($) -- $368,898 165,011 134,466 194,385 246,482 -- 89,973 386,265 40,247 32,797 47,411 60,118 -- 89,973 386,265 40,247 32,797 47,411 60,118 -- 89,973 515,020 40,247 32,797 47,411 60,118 -- 53,984 128,755 24,148 19,678 28,447 36,071 * Represents a potential bonus payment for fiscal 2009 at various performance levels under the VICP to the extent they would result from corporate performance; other grants are stock options under the 2008 Long-Term Plan. Based on Plexus’ actual performance in fiscal 2009, no bonuses were earned based on corporate financial performance. (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 rows labeled “RSUs & long-term cash” represent long-term cash awards, which generally accompany annual grants of RSUs to executive officers. The grant of RSUs in August 2009 was not accompanied by a long- term cash award. (2) Options were granted at the average of the high and low trading prices on the date of 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 2009 under 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 October 31, 2011, 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. See the discussions below under the caption “2008 Long-Term Plan.” (4) The RSUs vest on August 3, 2012, assuming continued employment. This special retention-related grant, which consisted solely of RSUs, is discussed below under the caption “2008 Long-Term 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 Company performance did not meet the threshold levels for revenue and ROCE for fiscal 2009. Accordingly, no bonus payments were made based on the corporate financial goals of the VICP, 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 $149,717 for Mr. Foate (which would have been 20% of his bonus at the targeted levels) and varied from $15,030 to $33,439 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.” 36 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 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 grant schedule 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. The Committee grants RSUs under the 2008 Long-Term Plan. In fiscal 2009, annual grants were made in October 2008 and vest three years from the date of the grant, assuming continued employment. The October 2008 grants of RSUs were accompanied by long-term cash awards, which are intended to provide incentives to those persons to continue to hold their shares upon vesting. Long-term cash awards will vest on the same schedule and under the same circumstances as grants of RSUs. Going forward, the Committee anticipates making grants of RSUs in the second quarter of each fiscal year. As discussed in “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long Term Incentives,” the Committee also made a special grant consisting solely of RSUs in August 2009 in order to encourage the retention of its key leadership and to continue to motivate them to focus on the Company’s future business results. The Committee approved the special grant of RSUs under the 2008 Long- Term Plan. No further grants are being made under the 2005 Equity Plan, the predecessor of the 2008 Long-Term 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 October 3, 2009 The following table sets forth information about Plexus stock options held by the named executive officers which were outstanding at the end of fiscal 2009. Option Awards Stock Awards Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (2) 21,375 (3) 20,398 (4) $544,421 519,537 4,560 (3) 4,975 (4) 15,000 (5) 116,143 126,713 382,050 Name Mr. Foate Ms. Jones Mr. Lim Number of Securities Underlying Unexercised Options (#) (1) Exercisable Number of Securities Underlying Unexercised Options (#) (1) Unexercisable 20,000 30,000 100,000 61,144 45,000 75,000 100,000 100,000 37,500 37,500 9,375 9,375 9,375 9,375 -- -- -- -- 6,666 2,000 2,000 2,000 2,000 -- -- -- -- 4,000 7,500 7,500 2,500 2,500 1,500 1,500 1,500 -- -- -- -- -- -- -- -- -- -- 9,375 9,375 9,375 9,375 20,500 20,500 20,500 20,500 3,334 2,000 2,000 2,000 2,000 5,000 5,000 5,000 5,000 -- -- -- -- -- 1,500 1,500 1,500 Option Expiration Date 04/24/10 04/06/11 04/22/12 01/30/13 08/14/13 04/28/14 05/18/15 05/17/16 05/17/17 08/01/17 11/05/17 01/28/18 04/28/18 07/29/18 10/31/18 02/02/19 05/04/19 08/03/19 04/09/17 11/05/17 01/28/18 04/28/18 07/29/18 10/31/18 02/02/19 05/04/19 08/03/19 01/30/13 05/18/15 05/17/16 05/17/17 08/01/17 11/05/17 01/28/18 04/28/18 Option Exercise Price ($) $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 18.085 14.625 20.953 25.751 18.185 30.54 22.17 24.21 29.71 18.085 14.625 20.953 25.751 8.975 12.94 42.515 21.41 23.83 30.54 22.17 24.21 38 Mr. Buseman Mr. Verstegen 1,500 -- -- -- -- 5,000 2,500 2,500 1,500 1,500 1,500 1,500 -- -- -- -- 15,000 7,500 9,000 9,247 15,000 15,000 15,000 4,000 4,000 1,500 1,500 1,500 1,500 -- -- -- -- 1,500 5,000 5,000 5,000 5,000 29.71 18.085 14.625 20.953 25.751 07/29/18 10/31/18 02/02/19 05/04/19 08/03/19 -- -- -- 1,500 1,500 1,500 1,500 5,000 5,000 5,000 5,000 -- -- -- -- -- -- -- -- -- 1,500 1,500 1,500 1,500 3,000 3,000 3,000 3,000 39.00 21.41 23.83 30.54 22.17 24.21 29.71 18.085 14.625 20.953 25.751 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 18.085 14.625 20.953 25.751 05/24/16 05/17/17 08/01/17 11/05/17 01/28/18 04/28/18 07/29/18 10/31/18 02/02/19 05/04/19 08/03/19 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 10/31/18 02/02/19 05/04/19 08/03/19 3,420 (3) 4,975 (4) 15,000 (5) 87,107 126,713 382,050 3,420 (3) 4,975 (4) 20,000 (5) 87,107 126,713 509,400 3,420 (3) 2,985 (4) 5,000 (5) 87,107 76,028 127,350 (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 (and to Ms. Jones in April 2007) vest one-third on each of the first three anniversaries of the grant date. Options granted in fiscal 2007, fiscal 2008 and fiscal 2009 vest one-half on each of the first two anniversaries of the grant date. (2) Based on the $25.47 per share closing price of a share of our common stock on October 2, 2009, the last trading day of fiscal 2009. 39 (3) Consists of RSUs awarded in fiscal 2008 under the 2005 Equity Plan. The RSUs vest on November 5, 2010, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. (4) Consists of RSUs awarded in fiscal 2009 under the 2008 Long-Term Plan. The RSUs vest on October 31, 2011, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. (5) Consists of RSUs awarded in fiscal 2009 under the 2008 Long-Term Plan. The RSUs vest on August 3, 2012, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. OPTION EXERCISES AND STOCK VESTED 2009 The following table sets forth information about the Plexus stock options which were exercised by the named executive officers in fiscal 2009. Additionally, there were no outstanding awards of restricted stock or similar awards that vested in fiscal 2009. Option Awards Stock Awards Number of Shares Acquired on Exercise (#) 13,856 -- -- -- 4,253 Value Realized on Exercise ($) (1) $246,302 -- -- -- 53,099 Number of Shares Acquired on Vesting (#) -- -- -- -- -- Value Realized on Vesting ($) -- -- -- -- -- Name Mr. Foate Ms. Jones Mr. Lim Mr. Buseman Mr. Verstegen (1) Based on the difference between the exercise price and the sale price on the date of exercise. 40 NONQUALIFIED DEFERRED COMPENSATION 2009 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 executive officers. 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 $16,500; Plexus will match 100% of the first 2.5% of salary which an employee defers, up to $6,125 in calendar year 2009. 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 its executive officers; the individuals covered in fiscal 2009 include Ms. Jones and Messrs. Foate, Buseman and Verstegen. Mr. Lim does not participate because he is not a United States resident. Under the SERP, an 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 plan 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 2009 totaled $89,321, 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) $13,500. The Committee may also choose to make additional or special contributions; none were made in fiscal 2009. Mr. Lim does not participate in these plans because he is a resident of Malaysia and is covered by a different system. Under Malaysian law, an employer must make a contribution to the fund of at least 12% of every employee’s salary during the year to the Employees Provident Fund, which is a retirement savings program established under Malaysian law. In accordance with its practice in Malaysia, Plexus made a contribution of 17% for Mr. Lim to reflect his seniority and responsibilities. The following table includes information as to contributions under the SERP or, in the case of Mr. Lim, the Malaysian Employees Provident Fund. Since the 401(k) Plan is a tax-qualified plan generally available to all employees, contributions on behalf of the executive officers and earnings in that plan are not included in this table; however, company contributions under both are among the items included in the “All Other Compensation” column in the “Summary Compensation Table” above. 41 Executive Contributions in Last FY ($) (1) $28,000 Registrant Contributions in Last FY ($) $98,875 Aggregate Earnings in Last FY ($) $25,255 Aggregate Withdrawals/ Distributions ($) -- Aggregate Balance at Last FYE ($) $1,445,113 16,687 29,050 7,252 -- 108,575 Name Mr. Foate Ms. Jones Mr. Lim (2) 36,669 66,589 30,814 (3) $472,682 373,143 (4) Mr. Buseman 16,623 25,375 4,979 Mr. Verstegen 3,623 22,330 14,686 -- -- 67,273 326,469 (1) Includes contributions by the named executive officers that are included in the “Salary” column in the “Summary Compensation Table” above, as follows: Mr. Foate – $28,000; Ms. Jones – $16,687; Mr. Lim – $23,441; Mr. Buseman – $2,600 and Mr. Verstegen – $3,623. (2) Mr. Lim’s information relates to the Malaysian Employees Provident Fund. (3) “Aggregate Earnings in Last FY” represent dividends declared by the Malaysian Employees Provident Fund Board for calendar year 2008. This information is not yet available to Mr. Lim or the Company from the Malaysian Employees Provident Fund for calendar year 2009. (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 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 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 42 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. Prior to May 2008, Mr. Foate was covered by a separate change in control agreement with Plexus; however, change in control provisions were incorporated into Mr. Foate’s current 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 October 3, 2009. 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. Plexus has change in control agreements with Ms. Jones and Messrs. Lim, Buseman and Verstegen, 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. 43 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 three times (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. Lim, Buseman and Verstegen. 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 October 3, 2009 (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 (generally to a maximum of 13 weeks) 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. 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 October 3, 2009, the last day of our previous fiscal year. The 44 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. Lim – Death or Disability Mr. Lim – Change in Control Mr. Buseman – Death or Disability Mr. Buseman – Change in Control Mr. Verstegen – Death or Disability Mr. Verstegen – Change in Control -- -- -- -- (7) $509,064 $1,800,692 $4,500,000 -- -- -- -- -- $44,059 44,059 195,925 -- -- -- $44,059 2,353,815 4,695,925 4,500,000 509,064 1,800,692 $315,000 195,925 $2,120,778 9,441,459 -- (7) 147,138 794,796 -- 5,352 -- 947,287 1,507,500 147,138 794,796 113,433 117,474 773,210 3,453,551 -- (7) 120,575 748,661 1,108,472 120,575 748,661 -- (7) 120,575 876,011 -- -- -- 42,902 42,902 25,574 -- -- -- 912,138 2,020,610 1,022,160 1,350,000 120,575 876,011 92,366 183,220 724,890 3,347,062 -- (7) 75,081 402,679 -- 66,821 1,219,500 75,081 402,679 84,953 226,616 -- -- 544,581 2,008,830 (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 2009 and the target VICP bonus for 2009. 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 $25.47 per share on October 2, 2009, the last trading date of fiscal 2009. 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 $25.47 per share on October 2, 2009, the last trading day of fiscal 2009. 45 (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 and its executive officers, directors or employees (or related parties) 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. See also “Corporate Governance–Directors’ Compensation–Compensation of Current and Former Executive Officers who Serve on the Board” regarding agreements with two directors. There were no other transactions in an amount or of a nature which were reportable under applicable SEC rules in fiscal 2009. 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. 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) reviewed and discussed the audited financial statements for the fiscal year ended October 3, 2009, 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 46 (cid:129) 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 October 3, 2009. 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 2010. 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 2009 and 2008 were as follows: Audit fees: Audit-related fees: Tax fees: All other fees: 2009 2008 $1,026,600 -- 56,651 -- $1,056,000 -- 44,100 -- 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 2009 or 2008 that were not approved in advance by the Audit Committee under this policy. 47 * * * * * By order of the Board of Directors Angelo M. Ninivaggi Vice President, General Counsel, Corporate Compliance Officer and Secretary Neenah, Wisconsin December 14, 2009 A copy (without exhibits) of Plexus’ annual report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended October 3, 2009, will be provided without charge to each record or beneficial owner of shares of Plexus’ common stock as of December 4, 2009, 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. 48 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 October 3, 2009 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-14423 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 seasoned 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ___ 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. Large accelerated filer (cid:2) Non-accelerated filer ____ (Do not check if a smaller reporting company) Accelerated filer 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 April 4, 2009, 39,372,389 shares of common stock were outstanding, and the aggregate market value of the shares of common stock (based upon the $15.49 closing sale price on that date, as reported on the NASDAQ Global Select Market) held by non-affiliates (excludes 315,186 shares reported as beneficially owned by directors and executive officers – does not constitute an admission as to affiliate status) was approximately $605.0 million. As of November 10, 2009, there were 39,557,939 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Document Proxy Statement for 2010 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 this Form 10-K that provide guidance or 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) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) the economic performance of the industries, sectors and customers that we serve the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs the poor visibility of future orders, particularly 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 procure needed raw materials or component parts meeting specifications in a timely fashion the impact of material and component cost fluctuations on our pricing and margins our ability to manage a complex business model our ability to secure new customers, maintain our current customer base and deliver product on a timely basis challenges associated with the engagement of new customers or additional work from existing customers the risks relative to new customers, which risks include 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 risk that new program wins and/or customer demand may not result in the expected revenue or profitability the fact that customer demand may not lead to long-term relationships the weakness of the global economy and the continuing instability of the global financial markets and banking systems, including the potential inability on our part or that of our customers or suppliers to access cash investments and credit facilities the effect of start-up costs of new programs and facilities, including our recent and planned expansions, such as our new facilities in Hangzhou, China and Oradea, Romania the continued adequacy of our information technology systems the adequacy of restructuring and similar charges as compared to actual expenses the risk of unanticipated costs, unpaid duties and penalties related to an ongoing audit of our import compliance by U.S. Customs and Border Protection possible unexpected costs and operating disruption in transitioning programs the potential effect of world or local events or other events outside our control (such as epidemics, drug cartel-related violence in Juarez, Mexico, changes in oil prices, terrorism and war in the Middle East) the impact of increased competition and other risks detailed below in “Risk Factors”, otherwise herein, and in our Securities and Exchange Commission filings. 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 I 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 product 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 1 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 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 7,100 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 20 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. 2 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: 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 functionality, 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, fluidics, robotics, 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, are typically configured to fulfill unique end- customer requirements and many are shipped directly to our customers’ end users. We provide a range of higher level assembly services to our customers; these products typically fall into one of the following categories in our assembly spectrum: (cid:2) (cid:2) (cid:2) Printed circuit board assembly – a printed circuit board (“PCB”) populated with electronic components. Basic assembly – a sub-assembly that includes PCBs and other components. System integration – a finished product or sub-system assembly that includes more complex components such as PCB’s, basic assemblies, custom engineered components, displays, optics, metering and measurement or thermal management. (cid:2) Mechatronic integration – more complex system integration that combines electronic controls with mechanical systems and processes such as motion control, robotics, drive systems, fluidics, hydraulics or pneumatics. System integration and mechatronic integration products can be very large and could include products such as kiosks, finished medical products and complex electro-mechanical assemblies. These products often combine many of the other integrated services we provide and may require more unique facility configurations as well as supply chain solutions than we typically employ. 3 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 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: (cid:2) Medical Standard ISO 13485:2003 – United States, Asia, Mexico, Europe (cid:2) Environmental Standard ISO – 14001 – United States, Asia, Europe (cid:2) Environmental Standard OSHAS 18001 – Asia, Europe (cid:2) 21 CFR Part 820 (FDA) (Medical) – United States, Asia (cid:2) Telecommunications Standard TL 9000 – United States, Asia (cid:2) Aerospace Standard AS9100 – United States, Asia, Europe (cid:2) NADCAP certification – United States, Asia (cid:2) FAR 145 certification (FAA repair station) – United States (cid:2) ITAR (International Traffic and Arms Regulation) self-declaration – United States (cid:2) ANSI/ESD (Electrostatic Discharge Control Program) S20.20 – United States, Asia 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 2009, we provided services to over 140 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 both fiscal 2009 and fiscal 2008. Juniper and General Electric Company (“GE”) accounted for 21 percent and 10 percent, respectively, of our net sales in fiscal 2007. No other customer accounted for 10 percent or more of our net sales in fiscal 2009, 2008 or 2007. 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 October 3, 2009 44% 11% 22% 13% 10% 100% Fiscal years ended September 27, 2008 44% 9% 21% 16% 10% 100% September 29, 2007 44% 8% 24% 15% 9% 100% 4 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 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 components, we also purchase components used in manufacturing and higher-level assembly. 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 risk 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. Since 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 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 development directors, customer managers, and market sector analysts. 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 sector teams 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 EMS 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 which we use in our business; these marks are registered in the trademark offices of the United States and other countries. 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. 5 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 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 7,100 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 the United Kingdom, approximately 140 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, Romania, 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 demand 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 demand for certain programs and sectors challenges associated with the engagement of new customers or additional work from existing customers 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. 6 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 if 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 57 percent of our net sales for the fiscal year ended October 3, 2009, and 60 percent for the fiscal year ended September 27, 2008. For the fiscal year ended October 3, 2009, there was one customer 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. In addition, we focus our net sales to customers in only a few market sectors. Each of these sectors is subject to macroeconomic conditions as well as trends and conditions that are sector specific. Shifts in the performance of a sector served by Plexus, as well as the economic and business conditions that affect the sector, can particularly impact Plexus. For instance, sales in the medical sector are substantially affected by trends in that industry, such as government reimbursement rates and uncertainties relating to the financial health and structure of U.S. health care generally. Also, net sales in the defense/security/aerospace sector have been 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. Instability in the global credit markets and continuing economic weakness may adversely affect our earnings, liquidity and financial condition. Global financial and credit markets have been, and continue to be, unstable and unpredictable. Worldwide economic conditions have been weak and may deteriorate further. The instability of the markets and weakness of the economy could continue to affect the demand for our customers' products, the amount, timing and stability of their product demand from 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 and/or the ability of us, our customers or our suppliers to obtain credit. Further, global credit market and economic challenges may affect the ability of counterparties to our agreements, including our credit agreement and interest rate swap agreements, to perform their obligations under those agreements. 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 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, delay production or revise their forecasts 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 and negatively affect our working capital levels. 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, working capital management, 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. 7 Defense contracting can be subject to extensive procurement processes and other factors that can affect the timing and duration of contracts as well as product demand. For example, defense procurement is 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, 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, can vary significantly from period to period, and are subject to termination. We have a complex business model, and our failure to properly manage that model could affect our operations and financial results. Our business model focuses on products and services in the mid-to-lower-volume, higher-mix segment of the EMS market. Our customers’ products typically require significant production and supply-chain flexibility, necessitating optimized demand-pull-based manufacturing and supply chain solutions across an integrated global platform. The products we manufacture are also typically complex, highly regulated, and require complicated configuration management and direct order fulfillment capabilities to global end customers. Relative to many of our competitors that manufacture more standardized products with larger production runs, our business model requires a greater degree of attention and resources, including working capital, management and technical personnel, and the development and maintenance of systems and procedures to manage diverse manufacturing, regulatory, and service requirements. If we fail to effectively manage our business model, we may lose customer confidence and our reputation may suffer, which could affect our operations and financial results on a going-forward basis. Challenges associated with the engagement of new customers or programs could affect our operations and financial results. Our engagement with new customers, as well as the addition of new work for existing customers, can present challenges in addition to opportunities. We need to ensure that our terms of engagement, including our pricing and other contractual provisions, appropriately reflect the anticipated costs, risks, and rewards of an opportunity. The failure to establish appropriate terms of engagement could adversely affect our profitability and margins. Also, there are inherent risks associated with the timing and ultimate realization of a new program’s anticipated revenue. Some new programs require us to devote significant capital and personnel resources to new technologies and competencies. We may not meet customer expectations, which could damage our relationships with the affected customers and impact our ability to deliver conforming product on a timely basis. Further, the success of new programs may depend heavily on factors such as product reliability, market acceptance, and/or regulatory approvals. The failure of a new program to meet expectations on these factors, or our inability to effectively execute on a new program’s requirements, could result in lost financial opportunities and adversely affect our results of operations. 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 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 8 recession and epidemics, could also affect suppliers and 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. Some suppliers have ceased doing business due to economic or other circumstances, and more may do so in the future. 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. In addition, raw material and component parts that are delivered to us may not meet our specifications or other quality criteria. Certain materials provided to us may be counterfeit or violate the intellectual property rights of others. The need to obtain replacement materials and parts may negatively affect our manufacturing operations. The inadvertent use of any such parts or products may also give rise to liability claims. Raw material and component part supply shortages and delays in deliveries can also result 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 repricing 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 recently expanded in China (Hangzhou), Wisconsin (Appleton) and Romania (Oradea). 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) (cid:2) (cid:2) (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 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, or other factors affecting particular sites, 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, in early fiscal 2009 we ceased operations at our former Ayer, Massachusetts facility and reduced headcount in Juarez, Mexico and other North American facilities, even though we continued to expand 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. 9 Plexus is a multinational corporation and operating in foreign countries exposes us to increased risks, including adverse local developments and foreign currency risks. We have operations in China, Malaysia, Mexico, Romania and the United Kingdom, which in the aggregate represented approximately 45 percent of our revenues for the fiscal year ended October 3, 2009. 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 operations and operating results: (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) economic, political or civil instability, including significant drug cartel-related violence in Juarez, Mexico transportation delays or interruptions foreign exchange rate fluctuations difficulties in staffing and managing foreign personnel in diverse cultures compliance with laws, such as the Foreign Corporate Practices Act, applicable to U.S. companies doing business overseas the effects of international political developments and foreign regulatory requirements and potential changes to those requirements. We continue to monitor our risk associated with foreign currency translation and have entered into limited forward contracts to minimize this risk. 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 Xiamen, China subsidiaries currently receive favorable tax treatments from these governments that extend through 2019 and 2013, respectively, which may not be renewed. China and Mexico passed new tax laws that took effect on January 1, 2008. These laws did not materially impact our tax rates in fiscal 2008 or fiscal 2009, but may result in a higher effective tax rate on our operations in future periods. Finally, on November 1, 2009, Mexico adopted tax reform legislation which will take effect January 1, 2010, providing for a temporary increase in its income tax and value added tax rates from 28% to 30% and 15% to 16%, respectively, along with certain other changes. While we are still analyzing the impact of this legislation, we do not currently believe it will have a material impact on our effective income tax rate in future periods. Given the scope of our international operations and our foreign tax arrangements, proposed changes to the manner in which U.S. based multinational companies are taxed in the U.S. could have a material impact on our operating results and competitiveness. We and our customers are subject to extensive government regulations and third party certification requirements. We are subject to extensive government 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, as well as many other facets of our operations. In addition, as a result of customer requirements and the need to enhance our competitive position, we seek to obtain and maintain various certifications from third parties relating to our quality systems and standards. Our failure to comply with these regulations and certifications could seriously affect our operations, customer relationships, reputation and profitability. Our medical sector business is subject to substantial government regulation, primarily from the federal Food and Drug Administration (“FDA”) and 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. In addition, government reimbursement rates and other regulations, as well as the financial health of health care providers, and proposed changes in how health care in the U.S. is structured, could affect the willingness and ability of end customers to purchase the products of our customers in the medical sector. 10 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, Department of State, Federal Aviation Authority, and other governmental agencies in the U.S. as well as in other countries. 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 a heightened level of activity involving import and export compliance requirements on us. We were notified in April 2009 by U.S. Customs and Border Protection (“CBP”) of its intention to conduct a customary Focused Assessment audit of our import activities during fiscal 2008 and of our processes and procedures to comply with U.S. Customs laws and regulations. As a result of an initial review by CBP of our import activities and controls, CBP has issued a Pre-Assessment Survey report stating, in its opinion, that Plexus’ processes and procedures do not provide reasonable assurance of compliance with U.S. Customs laws. By June 2010, Plexus has committed to CBP that it will report any errors, and tender any associated duties and fees, relating to tariff classification, valuation, antidumping duties, and North American Free Trade Agreement non-compliance. Plexus has also agreed that it will implement improved processes and procedures in areas where errors are found and review these corrective measures with CBP. After Plexus has reported any errors and implemented improved processes and controls, CBP will audit Plexus’ findings and improvement measures for correctness and effectiveness. If CBP is not satisfied in their audit, CBP may choose to perform an intensive Focused Assessment of Plexus importing activity. We do not know whether deficiencies in processes or controls, or unanticipated costs, unpaid duties or penalties associated with this matter, 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, legal requirements, and certification requirements, including many of the industry-specific regulations discussed above. Our customers' failure to comply could affect their businesses, which in turn would affect our sales to them. In addition, if our customers are required by regulation or other 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, engineering and other services are characterized by rapidly changing technology and evolving process developments. Our internal 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) (cid:2) choose and maintain appropriate technological and service capabilities 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 11 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. An inability to successfully manage the procurement, development, implementation, or execution of information systems may adversely affect our business. As a global company with a complex business model, we heavily depend on our information systems to support our customers’ requirements and to successfully manage our business. Any inability to successfully manage the procurement, development, implementation, or execution of our information systems, including matters related to system security, reliability, performance and access, as well as any inability of these systems to fulfill their intended purpose within our business, 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, such as our recently announced arrangements with The Coca-Cola Company, 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, which lack a track record or order volume and timing, 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 these transfers on a regular basis to address factors such as meeting customer needs, seeking long-term efficiencies or responding to market conditions, as well as due to facility closures. 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 liability 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. While we seek to insure against many of these risks, insurance coverage may be either inadequate or unavailable, either in general or for particular types of products. 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. 12 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. Similarly, claims affecting our suppliers could cause those suppliers to discontinue selling materials and components upon which we rely. Our products are for end markets that require technologically advanced products with relatively short life- cycles. Factors affecting the technology-dependent end markets that we serve, 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. 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 that have lower internal cost structures or 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 significant price reductions, reduced sales and margins, or loss of market share. 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, develop 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 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. 13 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 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. Natural disasters, epidemics and other events outside our control, and the ineffective management of such events, may harm our business. Some of our facilities are located in areas that may be impacted by natural disasters such as hurricanes, earthquakes, water shortages, tsunamis and floods. All facilities are subject to other natural or man-made disasters such as fires, acts of terrorism, failures of utilities and epidemics such as H1N1 ("swine flu"). If such an event were to occur, our business could be harmed due to the event itself or due to our inability to effectively manage the effects of the particular event; potential harms include the loss of business continuity, the loss of business data, and damage to infrastructure. Cases of H1N1 have been reported worldwide. To the best of our knowledge, thus far H1N1 has not materially affected our operations nor have we experienced a related disruption in our supply chain or customer orders. However, our production could be severely impacted if our employees, or the regions in which our facilities are located, are affected by a significant outbreak of H1N1 or any other disease or epidemic. For example, a facility could be closed by government authorities for a sustained period of time, some or all of our workforce could be unavailable due to quarantine, fear of catching the disease or other factors, and local, national or international transportation or other infrastructure could be affected, leading to delays or loss of production. In addition, these factors could also impact our suppliers, leading to a shortage of components, or our customers, leading to a reduction in their demand for our services. In addition, some of our facilities possess certifications necessary to work on specialized products that our other locations lack. If work is disrupted at one of these facilities, it may be impractical or we may be unable to transfer such specialized work to another facility without significant costs and delays. Thus, any disruption in operations at a facility possessing specialized certifications could adversely affect our ability to provide products and services to our customers, and thus negatively affect our relationships and financial results. 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, systems 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. 14 We may fail to secure or maintain necessary financing. Under our 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. In addition, as a consequence of the turmoil in the global financial markets and banking systems, it is possible that counterparties to our financial agreements, including our credit agreement and our interest rate swap agreements, may not be willing or able to meet their obligations. 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. 15 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 (3) Buffalo Grove, Illinois (1) Xiamen, China Hangzhou, China Kelso, Scotland Galashiels, Scotland (1) (4) Fremont, California Oradea, Romania (5) Type Manufacturing/Engineering Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing/Warehouse Manufacturing Manufacturing Manufacturing Manufacturing/Warehouse/Office Manufacturing Manufacturing/Office Size (sq. ft.) 671,000 277,000 272,000 216,000 210,000 189,000 120,000 106,000 57,000 53,000 46,000 20,000 Engineering/Office Neenah, Wisconsin Louisville, Colorado (1) (6) Engineering Raleigh, North Carolina (1) (7) Engineering Engineering Livingston, Scotland Neenah, Wisconsin (1) Neenah, Wisconsin Neenah, Wisconsin (1) (8) Office/Warehouse Warehouse Office Neenah, Wisconsin (9) San Diego, California (9) Inactive/Other Inactive/Other 105,000 28,000 26,000 4,000 84,000 39,000 31,000 48,000 198,000 Owned/Leased Owned Leased Owned Owned Leased Leased Leased Leased Leased Leased Leased Leased Owned Leased Leased Leased Owned Leased Leased Leased Leased (1) Includes more than one building. (2) Purchased a 205,000 square foot building early in fiscal 2009. (3) Lease renewal was signed in early fiscal 2010 and runs through December 2014. (4) We entered into a new lease agreement in April 2009 for manufacturing, warehouse and office space. (5) We entered into a new lease agreement in January 2009 for manufacturing and office space. (6) We entered into a new lease agreement in September 2009 for additional engineering space. (7) We entered into a new lease agreement in February 2009 for additional engineering space. (8) One of the building leases for 8,000 square feet expired in June 2009 and was not renewed. (9) This building is subleased and no longer used in our operations. Plexus currently has under construction a new corporate headquarters office facility in Neenah, Wisconsin, which will have approximately 100,000 square feet; occupancy is expected in the second half of fiscal 2010. The building will be owned by Plexus and located on a parcel of real estate on which Plexus has a ground lease with an option to purchase. After Plexus’ headquarters moves to the new facility, the current headquarters facility in Neenah, which is shared with Plexus’ engineering operations, will be used primarily for engineering. 16 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. The two actions were later consolidated. The consolidated complaint named 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 alleged securities law violations and sought unspecified damages relating generally to the Company’s statements regarding its defense sector business in early calendar 2006. On March 6, 2009, the court granted the motion of the Company and the individual defendants to dismiss the consolidated class action complaint. On July 23, 2009, a final judgment was entered by the court formally dismissing the action, and the time for appeal expired on August 24, 2009. The Company is party to certain other 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 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 2009. 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 Steven J. Frisch Todd P. Kelsey Yong Jin Lim Joseph E. Mauthe Angelo M. Ninivaggi Michael T. Verstegen Age 51 45 48 43 44 49 47 42 51 Position President, Chief Executive Officer and Director Vice President and Chief Financial Officer Senior Vice President - Global Manufacturing Operations 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 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. Michael D. Buseman joined Plexus in 2006 and began serving as Senior Vice President – Global Manufacturing Operations in 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. Steven J. Frisch joined Plexus in 1990 and began serving as Senior Vice President – Global Engineering Services in 2007. Previously, Mr. Frisch served as Vice President of Plexus Technology Group’s Raleigh and Livingston Design Centers from 2002 to 2007. 17 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 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 2007, Mr. Ninivaggi has also served as Corporate Compliance 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 REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Price per Share For the fiscal years ended October 3, 2009 and September 27, 2008, 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 October 3, 2009 Fiscal Year Ended September 27, 2008 First Quarter Second Quarter Third Quarter Fourth Quarter High $21.32 $18.22 $23.68 $27.36 Low $11.62 $10.48 $14.44 $18.87 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 18 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, 2004, in Plexus common stock and in each of the indices. While the information presented below for 2004-2008 is provided as of the last business day of the respective fiscal year, information was not yet available for either of the indices at the time of preparation of this Report. Therefore, the fiscal 2009 information is presented as of September 30, 2009, the most recent date such information was available. Plexus stock closed at $26.34 on September 30, 2009, and at $25.47 on October 2, 2009, the last business day of fiscal 2009. By means of comparison to another market index that was available at the time of preparation of this Report, the Nasdaq Composite closed at 2,122.42 on September 30, 2009, and at 2,048.11 on October 2, 2009. Comparison of Cumulative Total Return S R A L L O D 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 Plexus Nasdaq-US Nasdaq-Electronics 2004 2005 2006 2007 2008 2009 Plexus Nasdaq-US Nasdaq-Electronics 100 100 100 155 114 111 174 120 114 248 142 148 197 117 107 239 90 110 Shareholders of Record; Dividends As of November 10, 2009, there were approximately 690 shareholders of record. We have not paid any cash dividends. We currently 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. 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 October 3, 2009 September 27, 2008 September 29, 2007 September 30, 2006 October 1, 2005 $ 1,616,622 $ 1,841,622 $ 1,546,264 $ 1,460,557 $ 1,228,882 154,776 205,761 163,539 158,700 105,736 9.6% 11.2% 10.6% 10.9% 53,067(1) 102,827(2) 79,438(3) 80,262 8.6% (9,745)(5) (0.8%) Operating margin percentage 3.3% 5.6% 5.1% 5.5% Net income (loss) 46,327(1) 84,144(2) 65,718(3) 100,025(4) (12,417)(5) Earnings (loss) per share (diluted) $ 1.17(1) $ 1.92(2) $ 1.41(3) $ 2.15(4) $ (0.29)(5) Cash Flow Statement Data Cash flows provided by operations $ 170,296 $ 64,181 $ 38,513 $ 83,084 $ 81,967 Capital equipment additions 57,427 54,329 47,837 34,865 21,707 Balance Sheet Data Working capital Total assets $ 459,113 $ 439,077 $ 427,116 $ 359,068 $ 239,392 1,022,672 992,230 916,516 801,462 602,040 Long-term debt and capital lease obligations 133,936 154,532 25,082 25,653 22,310 Shareholders’ equity Return on average assets Return on average equity Inventory turnover ratio 527,446 473,945 573,265 481,567 340,015 4.6% 9.3% 4.4x 8.8% 16.1% 5.3x 7.7% 12.5% 5.5x 14.3% 24.3% 6.4x (2.2%) (3.6%) 6.4x 1) 2) 3) 4) 5) In fiscal 2009, we recorded goodwill impairment charges related to our United Kingdom operations of $5.7 million. In addition, we recorded pre-tax restructuring costs totaling $2.8 million which related primarily to the reduction of workforce in the United States and Mexico as well as fixed assets written down related to the closure of our Ayer, Massachusetts (“Ayer”) facility. A favorable tax adjustment of approximately $1.4 million, primarily related to the conclusion of federal and state audits, was also recorded. In fiscal 2008, we recorded pre-tax restructuring costs totaling $2.1 million which related primarily to the closure of our Ayer facility and the reduction of our workforce in Juarez, Mexico (“Juarez”). In fiscal 2007, we recorded pre-tax restructuring and asset 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 a $0.5 million loss, net of tax, related to a cumulative effect of a change in accounting principle related to the adoption of authoritative guidance related to asset retirement obligations. In fiscal 2005, we recorded pre-tax restructuring and asset impairment costs totaling $39.2 million. The restructuring and asset 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, 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 asset impairment costs. We have not paid cash dividends in the past. 20 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 product 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 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. 21 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 As a consequence of the Company’s use of a “4-4-5” weekly accounting system, periodically an additional week must be added to the fiscal year to re-align with a fiscal year end at the Saturday closest to September 30. In fiscal 2009, this required an additional week, which was added to the first fiscal quarter. Therefore, the comparisons between fiscal 2009 and fiscal 2008 reflect that fiscal 2009 included 371 days while fiscal 2008 included 364 days. Fiscal 2009. Net sales for fiscal 2009 decreased by $225.0 million, or 12 percent, from fiscal year 2008 to $1,616.6 million. The challenging global economic environment contributed to flat revenues and decreased demand in all five of our end-market sectors. The overall reduction in net sales was driven primarily by decreased demand, resulting from economic conditions and lower end-market demand for our customers’ products, in particular from customers in the industrial/commercial, defense/security/aerospace and wireline/networking sectors. In addition, the inability of our customer to secure additional orders for the product we formerly manufactured for our unnamed defense customer led to decreased demand of $57.4 million. Net sales in our wireline/networking sector declined mainly due to decreased demand from several customers, including Juniper Networks, Inc. (“Juniper”), our largest customer. The impact of overall economic conditions significantly contributed to reduced revenue, gross margin and ROIC below our normal expectations for the business. As a result, we took action in the second fiscal quarter of 2009 to control costs, including reducing discretionary spending and workforce reductions, as described in Note 10 to our Consolidated Financial Statements. In addition, we believe we took prudent steps to reduce our planned capital expenditures and working capital investments to balance potential future growth with current results. We also identified other cost-cutting measures that could be implemented quickly if forecasted revenues decline further or market conditions worsen. Gross margin was 9.6 percent for fiscal 2009, which compared unfavorably to 11.2 percent for fiscal 2008. Gross margin in fiscal 2009 was negatively impacted by the decline in net sales and unfavorable changes in customer mix, particularly related to our unnamed defense customer as well as reduced demand from Juniper. Selling and administrative expenses were $93.1 million for fiscal 2009, a decrease of $7.7 million, or 7.6 percent, from the $100.8 million for fiscal 2008. Decreased variable incentive compensation of $5.4 million as compared to fiscal 2008, as well as reductions relating to cost-cutting measures, contributed to the decline. Restructuring and asset impairment costs were $8.6 million in fiscal 2009, related to goodwill impairment in our Europe reportable segment, the closure of our Ayer facility and the reduction of our workforce across our United States facilities and in Juarez. Net income for fiscal 2009 was $46.3 million and diluted earnings per share were $1.17, which compared unfavorably to net income of $84.1 million, or $1.92 per diluted share, for fiscal 2008. Fiscal 2009 was favorably impacted by a 2 percent effective tax rate benefit, a decrease from the 18 percent effective tax rate in fiscal 2008, due to a higher proportion of income in Malaysia and Xiamen, China, where we currently have reduced tax rates due to tax holidays which extend through 2019 and 2013, respectively. 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, 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. 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. 22 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. Fiscal 2008 had increased variable incentive compensation of $5.5 million over fiscal 2007, 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. Other. The effective income tax rates (benefits) for fiscal 2009, 2008 and 2007 were (2) percent, 18 percent and 22 percent, respectively. The decreases in our effective tax rates were primarily due to a higher proportion of income in Malaysia and Xiamen, China, where we currently have reduced tax rates due to tax holidays that extend through 2019 and 2013, respectively. ROIC. One of our metrics for measuring financial performance is after-tax ROIC. 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 13.2 percent, 20.1 percent and 17.6 percent for fiscal 2009, 2008 and 2007, respectively. See the table below for our calculation of ROIC (dollars in millions): Operating income (tax effected), excluding unusual charges Average invested capital After-tax ROIC Fiscal years ended October 3, 2009 $ 59.9 September 27, 2008 $ 86.1 September 29, 2007 $ 63.4 453.6 428.7 13.2% 20.1% 360.3 17.6% ROIC is a non-GAAP financial measure which should be considered in addition to, not as a substitute for, measures of the Company’s financial performance prepared in accordance with United States generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, including return on invested capital (“ROIC”), are used for internal management assessments because such measures provide additional insight into ongoing financial performance. In particular, we provide ROIC because we believe it offers insight into the metrics that are driving management decisions as well as management’s performance under the tests which it sets for itself. For a reconciliation of ROIC to our financial statements that were prepared using GAAP, see Exhibit 99.1 to this annual report on Form 10-K, which exhibit is incorporated herein by reference. Fiscal 2010 outlook. Our financial goals for fiscal 2010 are to capitalize on the ramp of new business wins and signs of improving customer demand to drive improvements in our operating income, which we believe will return 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 fiscal 2010 full year revenue targets until forecasts begin to stabilize and visibility improves. We currently expect net sales in the first quarter of fiscal 2010 to be in the range of $405 million to $430 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 expect to earn, before any restructuring and asset impairment costs as well as our anticipated litigation recovery discussed in Note 15 in Notes to Consolidated Financial Statements, between $0.31 to $0.36 per diluted share in the first quarter. We currently expect the annual effective tax rate for fiscal 2010 to be near zero 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. These new laws did not materially impact our tax rates in fiscal 2009, but may result in a higher effective tax rate on our operations in future periods. Also, on November 1, 2009, Mexico adopted tax reform legislation to take effect January 1, 2010, providing for a temporary increase in its income tax and value added tax rates from 28% to 30% and 15% to 16%, respectively, along with certain other changes. While we are still analyzing the impact of this legislation, we do not currently believe it will have a material impact on our effective income tax rate in future periods. See “Risk Factors,” in Item 1A hereof, which sets forth some of the other factors which could affect our net sales, operations and earnings going forward. 23 REPORTABLE SEGMENTS A further discussion of our fiscal 2009 and 2008 financial performance by reportable segment is presented below (dollars in millions): 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: October 3, 2009 Fiscal years ended September 27, 2008 September 29, 2007 $ 1,007.1 588.1 77.2 55.6 (111.4) $ 1,616.6 $ 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 $ 64.7 63.7 (3.5) 1.4 (73.2) $ 53.1 $ 116.1 59.5 (2.7) 7.3 (77.4) $ 102.8 $ 97.0 40.7 (11.6) 3.7 (50.4) $ 79.4 Net sales for fiscal 2009 decreased $260.8 million, or 20.6 percent, from fiscal 2008 to $1,007.1 million. This decline reflected lower demand, mainly from our unnamed defense/security/aerospace customer, and the transfer of production for a wireline/networking customer’s product to our Asia reportable segment as well as the decrease in the demand from this customer due to lower end-market demand. Operating income for fiscal 2009 decreased $51.4 million from fiscal 2008 primarily as a result of decreased sales and unfavorable changes in customer mix, particularly related to our unnamed defense customer. 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. (cid:2) Asia: Net sales for fiscal 2009 increased $14.0 million, or 2.4 percent, over fiscal 2008 to $588.1 million. This growth reflected increased net sales to several customers, with the most significant customer growth coming from the transfer of production of a wireline/networking customer’s product from the United States reportable segment to the Asia reportable segment as well as increased demand from another customer in the wireline/networking sector and a customer in the medical sector. Operating income improved $4.2 million to $63.7 million for fiscal 2009 as compared to fiscal 2008, primarily as a result of higher net sales and operating efficiencies resulting from higher production levels. 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. 24 (cid:2) Mexico: Net sales for fiscal 2009 decreased $1.1 million, or 1.4 percent, from fiscal 2008 to $77.2 million. The net sales decrease was primarily driven by decreased demand from multiple customers across sectors due to lower end-market demand, offset by increased demand from a new program in the industrial/commercial sector. Operating loss increased from $2.7 million in fiscal 2008 to $3.5 million in fiscal 2009 as a result of decreased sales and an unfavorable change in customer mix. 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. (cid:2) Europe: Net sales for fiscal 2009 decreased $13.2 million, or 19.2 percent, from fiscal 2008 to $55.6 million. The change in net sales can be attributed to a decrease in exchange rates as well as decreased demand due to lower end-market demand from one customer in the industrial/commercial sector. Operating income decreased $5.9 million to $1.4 million for fiscal 2009 as compared to fiscal 2008, primarily as a result of decreased net sales, start-up costs associated with our Oradea, Romania facility and unfavorable changes in customer mix. Net sales for fiscal 2008 increased $0.5 million, or 0.7 percent, over fiscal 2007 to $68.8 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. 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 fiscal 2009, we announced the addition of a new facility in Oradea, Romania. The leased facility will provide approximately 20,000 square feet of manufacturing space. We began manufacturing in this facility in the fourth quarter of fiscal 2009. In early fiscal 2009, we purchased a second manufacturing facility in Appleton, Wisconsin. The new facility provided an additional 205,000 square feet of manufacturing space. We began manufacturing in this facility in the second half of fiscal 2009. In April 2009, we closed our Ayer manufacturing facility and transitioned the customer programs to other facilities in our organization. This decision was the result of our proactive strategic planning process which 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. In fiscal 2008, we leased approximately 106,000 square feet of manufacturing space in Hangzhou, China. We began manufacturing in the new facility during the first quarter of fiscal 2009. Plexus currently has under construction a new corporate headquarters office facility in Neenah, Wisconsin, which will have approximately 100,000 square feet; occupancy is expected in the second half of fiscal 2010. The building will be owned by Plexus and located on a parcel of real estate on which Plexus has a ground lease with an option to purchase. After Plexus’ headquarters moves to the new facility, the current headquarters facility in Neenah, which is shared with Plexus’ engineering operations, will be used primarily for engineering. 25 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 October 3, 2009 September 27, 2008 Increase/ (Decrease) September 27, 2008 September 29, 2007 Increase/ (Decrease) Net sales $1,616.6 $1,841.6 $(225.0) (12.2)% $1,841.6 $1,546.3 $295.3 19.1% Net sales for fiscal 2009 decreased 12 percent from fiscal 2008. The net sales decline was due to decreased demand from customers in each of our five end-market sectors, primarily due to decreased end-market demand. Significant decreases were noted in our industrial/commercial, defense/security/aerospace and wireline/networking sectors. In addition, the inability of our customer to secure additional orders for the product we formerly manufactured for our unnamed defense customer led to decreased demand of $57.4 million. Net sales in our wireline/networking sector decreased mainly due to decreased demand from several customers, including Juniper, our largest customer. 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. Our net sales percentages by market sector for the indicated periods were as follows: Wireline/Networking Wireless Infrastructure Medical Industrial/Commercial Defense/Security/Aerospace October 3, 2009 44% 11% 22% 13% 10% 100% Fiscal years ended September 27, 2008 44% 9% 21% 16% 10% 100% September 29, 2007 44% 8% 24% 15% 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 October 3, 2009 20% * 57% Fiscal years ended September 27, 2008 20% * 60% September 29, 2007 21% 10% 61% 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 57 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. 26 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 October 3, 2009 September 27, 2008 Increase/ (Decrease) September 27, 2008 September 29, 2007 Increase/ (Decrease) Gross Profit $154.8 $205.8 $(51.0) (24.8)% $205.8 $163.5 $42.3 25.9% Gross Margin 9.6% 11.2% 11.2% 10.6% For fiscal 2009, gross profit and gross margin were impacted by the following factors: (cid:2) (cid:2) (cid:2) decreased net sales in three of our four reportable segments (U.S., Mexico and Europe), particularly related to our largest customer, our unnamed defense customer and another significant customer as well as unfavorable changes in customer mix, which together accounted for approximately 88 percent of the decrease in gross profit increased costs related to manufacturing in China, Romania, Mexico and the North American mechatronics facilities, which are not at full capacity, accounted for approximately 8 percent of the decrease and a decrease in our variable incentive compensation expense, which offset the overall decrease in gross profit by approximately 12 percent. For fiscal 2008, gross profit and gross margin were impacted by the following factors: (cid:2) (cid:2) (cid:2) (cid:2) increased net sales in all four (U.S., Asia, Mexico and Europe) reportable segments as well as 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 Europe and Mexico reportable segments associated with shipments of previously written-down inventories. 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. 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 October 3, 2009 September 27, 2008 Increase/ (Decrease) September 27, 2008 September 29, 2007 Increase/ (Decrease) S&A Percent of net sales $93.1 $100.8 $(7.7) (7.6)% $100.8 $82.3 $18.5 22.5% 5.8% 5.5% 5.5% 5.3% 27 Seventy percent of the dollar reduction in S&A for fiscal 2009 was due to lower variable incentive compensation expense. In addition, savings from various other cost cutting measures were partially offset by additional expenses related to expansions in China and Romania. S&A as a percentage of net sales increased because these costs did not decline as quickly as net sales did in fiscal 2009. 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 expense increased $5.5 million over the prior-year period as a result of strong financial performance compared to incentive plan targets. Restructuring and asset impairment costs. Our restructuring and asset impairment costs for fiscal 2009, 2008 and 2007 were as follows (dollars in millions): Goodwill impairment Severance costs Adjustments to lease exit costs/other Total restructuring and asset impairment costs October 3, 2009 $ 5.7 2.0 0.9 $ 8.6 Fiscal years ended September 27, 2008 $ - 2.1 - $ 2.1 September 29, 2007 $ - 1.8 - $ 1.8 The restructuring and asset impairment costs were associated with various reportable segments. Management excludes such costs when analyzing 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 asset impairment costs by reportable segment. Fiscal 2009 restructuring and asset impairment costs: For fiscal 2009, we recorded pre-tax restructuring and asset impairment costs of $8.6 million, related to goodwill impairment in our Europe reportable segment, the closure of our Ayer facility and the reduction of our workforce across our facilities in the United States and Juarez. The details of these fiscal 2009 restructuring actions are listed below. Goodwill Impairment: During the second quarter of fiscal 2009, the Company recorded a goodwill impairment charge of $5.7 million, writing off the entire carrying value of our goodwill related to our Kelso facility. The impairment charge was driven by macroeconomic conditions that contributed to an overall reduction in demand for the Company’s offerings from the Kelso facility. These conditions led to an “interim triggering event”, leading management to perform an interim goodwill impairment test. This test resulted in the determination that the carrying value of the goodwill relating to Kelso was fully impaired and therefore an impairment charge of $5.7 million was recorded. Ayer Facility Closure: During the third quarter of fiscal 2009, we closed our Ayer facility. In fiscal 2009, we recorded pre-tax restructuring charges of $0.4 million, related to the disposal of certain assets and costs to exit this leased facility. Other Restructuring Costs. In fiscal 2009, we recorded pre-tax restructuring costs of $2.0 million related to severance at facilities in the United States and Juarez. These workforce reductions affected approximately 450 employees. We also recorded approximately $0.5 million of asset impairment charges at Corporate. 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. 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. 28 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: 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. Other income (expense). Other income (expense) for the indicated periods were as follows (dollars in millions): Fiscal years ended Variance Fiscal years ended Variance October 3, 2009 September 27, 2008 Increase/ (Decrease) September 27, 2008 September 29, 2007 Increase/ (Decrease) Other income (expense) Percent of net sales $(7.7) $(0.2) $7.5 3,750.0% $(0.2) $4.8 $(5.0) (104.2)% (0.5)% 0.0% 0.0% 0.3% Other income (expense) for fiscal 2009 increased $7.5 million, to $7.7 million of expense from $0.2 million of expense in fiscal 2008. This change was driven by reduced interest income of $5.4 million due to lower effective interest rates and increased interest expense of $4.3 million, primarily related to servicing the $150 million term loan drawn in April 2008. Miscellaneous income (expense) fluctuated favorably due primarily to foreign currency translation and transaction adjustments. 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 change was driven by 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 and transaction adjustments. Income taxes. Income taxes for the indicated periods were as follows (dollars in millions): Income tax expense (benefit) October 3, 2009 $(0.9) Fiscal years ended September 27, 2008 $18.5 September 29, 2007 $18.5 Effective annual tax rate (benefit) (2.0)% 18.0% 22.0% The decrease in our effective tax rate from fiscal 2007 to fiscal 2009 is primarily due to a higher proportion of income in Malaysia and Xiamen, China where we currently have reduced tax rates due to tax holidays that extend through 2019 and 2013, respectively. As a result of using the with-and-without method under the requirements for accounting for stock-based compensation, 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 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. During fiscal 2008 and 2009, the Company realized a reduction of its state income taxes payable from state net operating loss carryforwards. Consequently, we reversed approximately $0.1 million, $0.6 million and $15.0 million of this valuation allowance with corresponding credits to additional paid in capital in fiscal years 2009, 2008 29 and 2007, respectively. As a result, we had a remaining valuation allowance of approximately $1.0 million related to tax deductions associated with stock-based compensation as of October 3, 2009. 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. During fiscal 2009, we added $0.1 million of valuation allowance primarily related to changes in state laws. We had a remaining valuation allowance of approximately $1.6 million as of October 3, 2009, related to state deferred income tax assets. We currently expect the annual effective tax rate for fiscal 2010 to be near zero percent. China and Mexico passed new tax laws that were effective on January 1, 2008. These new laws did not materially impact our overall effective income tax rate in fiscal 2009, but may result in a higher effective tax rate on our operations in future periods. Also, on November 1, 2009, Mexico adopted tax reform legislation to take effect January 1, 2010, providing for a temporary increase in its income tax and value added tax rates from 28% to 30% and 15% to 16%, respectively, along with certain other changes. While we are still analyzing the impact of this legislation, we do not currently believe it will have a material impact on our effective income tax rate in future periods. Net Income. As a result of the above factors, our net income decreased by $37.8 million, or 44.9 percent, in fiscal 2009 as compared to fiscal 2008. Diluted earnings per share decreased 39.1 percent. 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. LIQUIDITY AND CAPITAL RESOURCES Cash flows provided by operating activities were $170.3 million for fiscal 2009, compared to cash flows provided by operating activities of $64.2 million and $38.5 million for fiscal 2008 and 2007, respectively. During fiscal 2009, cash provided by operating activities was primarily provided by earnings (after adjusting for the non-cash effects of depreciation and amortization expense, deferred income taxes and stock-based compensation expense) as well as a decrease in accounts receivable and inventory. Our annualized days sales outstanding in accounts receivable for fiscal 2009 decreased from 50 days in fiscal 2008 to 45 days in fiscal 2009, primarily as a result of stronger cash collections. Our inventory turns decreased from 5.3 turns for fiscal 2008 to 4.4 turns for fiscal 2009. Inventories decreased by $16.9 million from September 27, 2008, as a result of our efforts to control inventory levels as well as overall demand being down from the prior year. As part of our continued efforts to mitigate inventory risk, we have collected approximately $26 million in cash deposits from our customers, which is classified as customer deposits on the Consolidated Balance Sheets, and have also continued to work with customers that have excess inventory issues in accordance with their contractual obligations. Cash flows used in investing activities totaled $57.1 million for fiscal 2009. The primary investments included $57.4 million for purchases of property, plant and equipment. Fiscal 2009 purchases of property, plant and equipment included $23.1 million, $26.8 million, $2.0 million and $5.5 million related to our Asia, U.S., Mexico and Europe reportable segments, respectively. We utilized available cash and operating cash flows as the principal sources for funding our operating requirements during fiscal 2009. Our actual level of capital expenditures for fiscal 2010 will depend on anticipated demand, but we currently expect to spend in the range of $60 million to $70 million. Cash flows utilized by financing activities, which totaled $16.9 million for fiscal 2009, primarily represented the payments on our term note and capital leases. In fiscal 2008, the Company completed a $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 did not repurchase any shares in fiscal 2009. On April 4, 2008, we entered into a second amended and restated credit agreement (the “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 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 Credit Facility, there is no event of default existing under the credit 30 agreement and both we and the administrative agent consent to the increase. The Credit Facility expires on April 4, 2013. Borrowings under the Credit Facility may be either through term loans or revolving or swing loans or letter of credit obligations. As of November 10, 2009, we have term loan borrowings of $127.5 million outstanding and no revolving borrowings under the Credit Facility. The Credit Facility amended and restated our prior revolving credit facility (the “Prior Credit Facility”) with a group of banks that allowed us to borrow up to $200 million of which $100 million was committed. The Prior 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 Credit Facility. The 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 October 3, 2009, we were in compliance with all debt covenants. If we incur an event of default, as defined in the Credit Facility (including any failure to comply with a financial covenant), the group of banks has the right to terminate the 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 October 3, 2009, 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%. 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 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 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 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 October 3, 2009, 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 fiscal 2008 and fiscal 2009 and there is no assurance that future auctions on these securities will succeed. We do not intend to sell, nor will we be required to sell, 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, although we cannot provide assurances. 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 cash equivalents, the Credit Facility, and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements for the next twelve months. We currently do not anticipate having to use our Credit Facility to satisfy any of our capital needs. 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 have not paid cash dividends in the past and do not currently anticipate paying them in the future. However, the Company evaluates from time to time potential uses of excess cash, which in the future may include share repurchases, a special dividend or recurring dividends. 31 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 October 3, 2009 (dollars in millions): Contractual Obligations Total 2010 2011-2012 2013-2014 2015 and thereafter Payments Due by Fiscal Year Long-Term Debt Obligations (1) $ 127.5 $ 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 32.0 43.8 253.7 8.7 the Balance Sheet (4) Total Contractual Cash Obligations $ 2.7 468.4 $ 4.0 10.4 252.2 1.0 0.9 283.5 $ 30.0 8.2 15.4 1.4 1.6 1.8 58.4 $ $ 82.5 8.7 11.7 0.1 1.8 - 104.8 $ $ - 11.1 6.3 - 4.3 - 21.7 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 October 3, 2009, the outstanding balance was $127.5 million. See Note 4 in Notes to Consolidated Financial Statements for further information. As of October 3, 2009, purchase obligations consisted of purchases of inventory and equipment in the ordinary course of business. As of October 3, 2009, other long-term obligations on the balance sheet included deferred compensation obligations to certain of our former and current executive officers as well as other key employees, and an asset retirement obligation. We have excluded from the above table the impact of approximately $3.7 million, as of October 3, 2009, related to unrecognized income tax benefits. The Company cannot make reliable estimates of the future cash flows by period related to this obligation. As of October 3, 2009, 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 2009, there were no material changes to these policies. Our more critical accounting policies are noted below: Stock-Based Compensation – The Financial Accounting Standard Board (“FASB”) requires all share-based payments to employees, including grants of employee stock options, to be measured at fair value and expensed in the consolidated statements of operations over the service period (generally the vesting period) of the grant. We used the modified prospective application, under which compensation expense is only recognized in the consolidated statements of operations beginning with the first period that we adopted the FASB regulation 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. 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 32 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 – During the second quarter of fiscal 2009, we recorded a goodwill impairment charge of $5.7 million, related to the Company’s sole goodwill asset. The impairment wrote off the entire carrying value of our goodwill related to our Kelso facility, which was the sole reporting unit in the Europe reportable segment. The impairment charge was driven by adverse macroeconomic conditions that contributed to an overall reduction in demand for the Company’s offerings from the Kelso facility. These conditions led to an “interim triggering event”, leading management to perform an interim goodwill impairment test. This test resulted in the determination that the carrying value of the goodwill relating to Kelso was fully impaired and therefore an impairment charge of $5.7 million was taken. Should we have goodwill and intangible assets with indefinite useful lives in the future, we would test those assets for impairment, at least annually, and recognize any related losses when incurred. We would also 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 would be considered impaired and a second test 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 Credit Facility that had 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 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 “Interest expense”. The total fair value 33 of these interest rate swap contracts was $9.3 million at October 3, 2009 and $3.0 at September 27, 2008, respectively, and the Company recorded this amount in “Other” current liabilities and “Other liabilities” in the accompanying Consolidated Balance Sheets. Beginning in July 2009, our Malaysian subsidiary entered into twelve separate forward contracts with a total notional value of $27 million, which expire monthly throughout fiscal 2010. These forward contracts will fix the foreign exchange rates for our cash required to pay local currency expenses. The contracts are recorded as liabilities and the changes in the fair value of the forward contracts are recorded in “Accumulated other comprehensive income” on the accompanying Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The total fair value of the forward contracts was $0.5 million at October 3, 2009, and the Company recorded this amount in “Other” current 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 October 3, 2009, still reflect a $1.6 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 had a remaining valuation allowance of $1.0 million related to tax deductions associated with stock-based compensation as of October 3, 2009. NEW ACCOUNTING PRONOUNCEMENTS In December 2007, the FASB issued authoritative guidance regarding business combinations (whether full, partial or step acquisitions) which 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. The guidance also stated acquisition costs will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and will be effective for the Company beginning October 4, 2009, the first day of fiscal 2010. In March 2008, the FASB issued authoritative guidance changing the disclosure requirements for derivative instruments and hedging activities. This guidance requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, 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 guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted this guidance during the second fiscal quarter of 2009. The principal impact to the Company was to require the expansion of its disclosures regarding its derivative instruments. See Note 5 in Notes to Consolidated Financial Statements. In May 2009, the FASB issued authoritative guidance which modified the definition of what qualifies as a subsequent event – those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued – and required companies to disclose the date through which it has evaluated subsequent events and the basis for determining that date. The Company adopted this guidance in the third fiscal quarter of 2009. See Note 1 in Notes to Consolidated Financial Statements. In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a qualifying special-purpose entity (“QSPE”) removes the exception from applying the consolidation guidance within this amendment. This amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s financial statements. Finally, an enterprise will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of this amendment on its consolidated results of operations, financial position and cash flows. In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”). The Codification will become the single source for all authoritative GAAP recognized by the FASB to be applied for 34 financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and the Company has determined that it will not have an impact on its consolidated results of operations, financial position and cash flows. 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. Beginning in July 2009, we entered into twelve separate forward contracts to hedge a portion of our foreign currency denominated transactions in our Asia reportable segment as described in Note 5 in Notes to Consolidated Financial Statements. 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 2008 4% 11% 2007 5% 11% 2009 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 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 October 3, 2009, 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 38. 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 October 3, 2009, 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 October 3, 2009, 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 October 3, 2009, as stated in their report included herein on page 40. 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 36 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 2010 Annual Meeting of Shareholders (“2010 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 2010 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated herein by reference to “Security Ownership of Certain Beneficial Owners and Management” in the 2010 Proxy Statement. Equity Compensation Plan Information The following table chart gives aggregate information regarding grants under all Plexus equity compensation plans through October 3, 2009: 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) 3,915,505 $ 25.34 4,401,572 -0- $ n/a -0- 3,915,505 $ 25.34 4,401,572 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. 37 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated herein by reference to “Corporate Governance – Director Independence” and “Certain Transactions” in the 2010 Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Incorporated herein by reference to the subheading “Auditors - Fees and Services” in the 2010 Proxy Statement. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Documents filed PART IV Financial Statements and Financial Statement Schedule. See following list of Financial Statements and Financial Statement Schedule on page 39. (b) Exhibits. See Exhibit Index included as the last page of this report, which index is incorporated herein by reference. 38 PLEXUS CORP. List of Financial Statements and Financial Statement Schedule October 3, 2009 Contents Pages Report of Independent Registered Public Accounting Firm ....................................................... 40 Consolidated Financial Statements: Consolidated Statements of Operations for the years ended October 3, 2009, September 27, 2008 and September 29, 2007 ................................... Consolidated Balance Sheets as of October 3, 2009 and September 27, 2008.............. Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended October 3, 2009, September 27, 2008 and September 29, 2007 .... Consolidated Statements of Cash Flows for the years ended October 3, 2009, September 27, 2008 and September 29, 2007.................................... Notes to Consolidated Financial Statements ............................................................................... Financial Statement Schedule: 41 42 43 44 45 Schedule II - Valuation and Qualifying Accounts for the years ended October 3, 2009, September 27, 2008 and September 29, 2007.................................... 72 39 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 October 3, 2009 and September 27, 2008, and the results of their operations and their cash flows for each of the three years in the period ended October 3, 2009 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 October 3, 2009, 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 schedule, 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 6, effective at the beginning of fiscal year 2008, the Company adopted the authoritative guidance on the accounting for uncertainty in income taxes. 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 18, 2009 40 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended October 3, 2009, September 27, 2008 and September 29, 2007 (in thousands, except per share data) Net sales Cost of sales 2009 2008 2007 $ 1,616,622 1,461,846 $ 1,841,622 1,635,861 $ 1,546,264 1,382,725 Gross profit 154,776 205,761 163,539 Operating expenses: Selling and administrative expenses Goodwill impairment costs Restructuring costs 93,138 5,748 2,823 100,815 - 2,119 82,263 - 1,838 Operating income Other income (expense): Interest expense Interest income Miscellaneous income (expense) 101,709 53,067 (10,875) 2,323 904 102,934 102,827 (6,543) 7,661 (1,330) Income before income taxes 45,419 102,615 Income tax expense (benefit) (908) 18,471 84,101 79,438 (3,168) 9,099 (1,115) 84,254 18,536 Net income $ 46,327 $ 84,144 $ 65,718 Earnings per share: Basic Diluted Weighted average shares outstanding: Basic Diluted $ $ 1.18 1.17 $ $ 1.94 1.92 $ $ 1.42 1.41 39,411 39,654 43,340 43,850 46,312 46,739 The accompanying notes are an integral part of these consolidated financial statements. 41 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of October 3, 2009 and September 27, 2008 (in thousands, except per share data) ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowances of $1,000 and $2,500, respectively Inventories Deferred income taxes Prepaid expenses and other Total current assets Property, plant and equipment, net Goodwill Deferred income taxes Other 2009 2008 $ 258,382 193,222 $ 165,970 253,496 322,352 15,057 9,421 340,244 15,517 11,742 798,434 786,969 197,469 - 10,305 16,464 179,123 7,275 2,620 16,243 Total assets $ 1,022,672 $ 992,230 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 $ 16,907 233,061 28,180 $ 16,694 231,638 26,863 28,169 33,004 41,086 31,611 339,321 347,892 Long-term debt and capital lease obligations, net of current portion Other liabilities 133,936 21,969 154,532 15,861 Commitments and contingencies (Notes 10 and 12) Shareholders’ equity: Preferred stock, $.01 par value, 5,000 shares authorized, none issued or outstanding Common stock, $.01 par value, 200,000 shares authorized, 46,994 and 46,772 shares issued, respectively, and 39,548 and 39,326 shares outstanding, respectively Additional paid-in capital Common stock held in treasury, at cost, 7,446 shares for both periods Retained earnings Accumulated other comprehensive income - - - - 470 468 366,371 (200,110) 356,035 4,680 527,446 353,105 (200,110) 309,708 10,774 473,945 Total liabilities and shareholders’ equity $ 1,022,672 $ 992,230 The accompanying notes are an integral part of these consolidated financial statements. 42 8 1 7 , 5 6 0 6 1 , 2 8 7 8 , 7 6 2 0 4 6 6 1 , 6 2 5 2 , 7 1 7 6 5 , 1 8 4 $ l a t o T - - - - 0 6 1 , 2 d e t a l u m u c c A r e h t O e v i s n e h e r p m o C ) s s o L ( e m o c n I 2 5 4 , 9 $ - - - - 8 1 7 , 5 6 d e n i a t e R s g n i n r a E 8 6 8 , 8 5 1 $ 5 6 2 , 3 7 5 2 1 6 , 1 1 6 8 5 , 4 2 2 2 8 8 4 4 1 , 4 8 ) 0 2 7 , 1 ( 6 0 3 , 3 8 8 7 9 ) 0 1 1 , 0 0 2 ( 7 7 1 7 3 7 , 8 2 9 5 , 7 - - - - - - 2 8 8 ) 0 2 7 , 1 ( - - 8 7 9 - - - - 4 4 1 , 4 8 - - - - - - - - - - - - - - ) 0 1 1 , 0 0 2 ( - - - - - 7 7 1 7 3 7 , 8 8 8 5 , 7 - - - - - - - 4 7 2 3 , 6 4 ) 7 8 3 , 2 ( ) 7 0 7 , 3 ( 3 3 2 , 0 4 1 2 4 , 9 7 4 8 , 3 - ) 7 8 3 , 2 ( ) 7 0 7 , 3 ( - - - - - - 7 2 3 , 6 4 - - - - - - - - 1 2 4 , 9 5 4 8 , 3 - - - - 2 5 4 9 , 3 7 4 4 7 7 , 0 1 8 0 7 , 9 0 3 ) 0 1 1 , 0 0 2 ( 5 0 1 , 3 5 3 8 6 4 S E I R A I D I S B U S D N A . P R O C S U X E L P E M O C N I E V I S N E H E R P M O C D N A Y T I U Q E ’ S R E D L O H E R A H S F O S T N E M E T A T S D E T A D I L O S N O C 7 0 0 2 , 9 2 r e b m e t p e S d n a 8 0 0 2 , 7 2 r e b m e t p e S , 9 0 0 2 , 3 r e b o t c O d e d n e s r a e y e h t r o f y r u s a e r T k c o t S l a n o i t i d d A l a t i p a C n I - d i a P t n u o m A s e r a h S $ 5 8 7 , 2 1 3 $ 2 6 4 $ 7 1 2 , 6 4 ) s d n a s u o h t n i ( k c o t S n o m m o C - - 2 0 4 6 6 1 , 6 0 5 2 , 7 1 - - - - 2 - - - 8 1 7 6 1 n a l P e s a h c r u P k c o t S e e y o l p m E r e d n u k c o t s n o m m o c f o e c n a u s s I s t i f e n e b x a t g n i d u l c n i , s n o i t p o k c o t s f o e s i c r e x E e s n e p x e n o i t a s n e p m o c d e s a b k c o t S s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F e m o c n i e v i s n e h e r p m o c l a t o T 6 0 0 2 , 0 3 r e b m e t p e S , s e c n a l a B : e m o c n i e v i s n e h e r p m o C e m o c n i t e N 3 0 6 , 6 3 3 4 6 4 2 0 4 , 6 4 7 0 0 2 , 9 2 r e b m e t p e S , s e c n a l a B - - - - 7 - 3 6 3 ) 6 4 4 , 7 ( 6 2 3 , 9 3 - - - - 2 2 2 x a t f o t e n , s t n e m u r t s n i e v i t a v i r e d f o e u l a v t e k r a m r i a f n i e g n a h C s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F n a l P e s a h c r u P k c o t S e e y o l p m E r e d n u k c o t s n o m m o c f o e c n a u s s I s t i f e n e b x a t g n i d u l c n i , s n o i t p o k c o t s f o e s i c r e x E e s n e p x e n o i t a s n e p m o c d e s a b k c o t S s n o i t i s o P x a T n i a t r e c n U r o f g n i t n u o c c A f o n o i t p o d A d e s a h c r u p s e r a h s y r u s a e r T e m o c n i e v i s n e h e r p m o c l a t o T : e m o c n i e v i s n e h e r p m o C e m o c n i t e N x a t f o t e n , s t n e m u r t s n i e v i t a v i r e d f o e u l a v t e k r a m r i a f n i e g n a h C s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F s t i f e n e b x a t g n i d u l c n i , s n o i t p o k c o t s f o e s i c r e x E e m o c n i e v i s n e h e r p m o c l a t o T e s n e p x e n o i t a s n e p m o c d e s a b k c o t S 8 0 0 2 , 7 2 r e b m e t p e S , s e c n a l a B : e m o c n i e v i s n e h e r p m o C e m o c n i t e N 6 4 4 , 7 2 5 $ 0 8 6 , 4 $ 5 3 0 , 6 5 3 $ ) 0 1 1 , 0 0 2 ( $ 1 7 3 , 6 6 3 $ 0 7 4 $ 8 4 5 , 9 3 9 0 0 2 , 3 r e b o t c O , s e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T 3 4 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended October 3, 2009, September 27, 2008 and September 29, 2007 (in thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization Non-cash goodwill impairment 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 2009 2008 2007 $ 46,327 $ 84,144 $ 65,718 34,468 5,748 (54) 9,421 - (1,173) 59,137 16,904 2,086 4,630 1,568 (8,766) 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) Cash flows provided by operating activities 170,296 64,181 38,513 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 - - (57,427) 342 (53,400) 106,400 (54,329) 239 (63,050) 38,050 (47,837) 4,460 Cash flows used in investing activities (57,085) (1,090) (68,377) 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 - - (20,726) 3,402 445 - 150,000 (200,110) (6,737) 5,418 1,603 177 - - (1,522) 1,793 15,459 402 Cash flows (used in) provided by financing activities (16,879) (49,649) 16,132 Effect of foreign currency translation on cash and cash equivalents (3,920) (1,581) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 92,412 165,970 11,861 154,109 2,929 (10,803) 164,912 Cash and cash equivalents, end of year $ 258,382 $ 165,970 $ 154,109 The accompanying notes are an integral part of these consolidated financial statements. 44 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”, the “Company” or “we”) 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 product 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. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. Fiscal 2009 included this additional week and the fiscal year ended on October 3, 2009. Therefore fiscal 2009 included 371 days. The additional week was added to the first fiscal quarter, ended January 3, 2009, which included 98 days. The accounting years for fiscal 2008 and 2007 each included 364 days. In preparing the accompanying consolidated financial statements, the Company has reviewed, as deemed necessary by the Company’s management, events that have occurred after October 3, 2009, up until the issuance of the financial statements, which occurred on November 18, 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 2009, 2008 and 2007, unrealized or realized gains and losses were not material. As of October 3, 2009 and September 27, 2008, cash and cash equivalents included the following securities (in thousands): Cash Money market funds and other U.S. corporate and bank debt 2009 $ 37,129 207,253 14,000 $ 258,382 2008 $ 6,136 114,234 45,600 $ 165,970 45 Plexus Corp. Notes to Consolidated Financial Statements 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. Per contractual terms, customer deposits are received by the Company to offset obsolete and excess inventory risks. 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 capitalizes significant costs incurred in the acquisition or development of software for internal use, including the costs of the software, consultants as well as 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: During the second quarter of fiscal 2009, the Company recorded a goodwill impairment charge of $5.7 million, writing off the entire carrying value of its goodwill related to its Kelso, Scotland (“Kelso”) facility. The impairment charge was driven by macroeconomic conditions that contributed to an overall reduction in demand for the Company’s offerings from the Kelso facility. These conditions led to an “interim triggering event”, leading management to perform an interim goodwill impairment test. This test resulted in the determination that the carrying value of the goodwill relating to Kelso, the Company’s sole remaining goodwill asset, was fully impaired and therefore an impairment charge of $5.7 million was recorded. Should the Company have goodwill and intangible assets with indefinite useful lives in the future, the Company would test those assets for impairment at least annually, and recognize any related losses when incurred. Recoverability of goodwill would be measured at the reporting unit level. The Company would 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 would be 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 would be considered impaired and a second test 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. 46 Plexus Corp. Notes to Consolidated Financial Statements For the years ended October 3, 2009 and September 27, 2008 changes in the carrying amount of goodwill for the European reportable segment were as follows (in thousands): Balance as of September 29, 2007 Foreign currency translation adjustment Balance as of September 27, 2008 Europe $ 8,062 (787) 7,275 Foreign currency translation adjustment (1,527) Goodwill impairment Balance as of October 3, 2009 (5,748) $ - 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 2009, 2008 and 2007. The Company has no intangibles that are not subject to amortization. During fiscal 2009, 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 2009, 2008 and 2007. 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. The timing and related recognition of recording severance and benefit costs that are not presumed to be an ongoing benefit depend on whether employees are required to render service until they are 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 47 Plexus Corp. Notes to Consolidated Financial Statements severance plan based upon past severance practices; therefore, certain severance and benefit costs were recorded as a liability due to the fact that 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 $0.7 million, $(1.7) million and $(1.5) million for the fiscal years ended October 3, 2009, September 27, 2008 and September 29, 2007, respectively. Derivatives: The Company periodically enters into derivative contracts such as foreign currency forwards and interest rate swaps, 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 and forward contracts are treated as cash flow hedges and therefore $(3.7) million and $(1.7) million were recorded in “Accumulated other comprehensive income” for fiscal 2009 and fiscal 2008, respectively. These amounts were not material during fiscal 2007. 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. 48 Plexus Corp. Notes to Consolidated Financial Statements Stock-based Compensation: The Company measures all share-based payments to employees, including grants of employee stock options, at fair value and expenses them in the consolidated statements of operations over the service period (generally the vesting period) of the grant. The Company transitioned to this method using the modified prospective application, under which compensation expense is only recognized in the consolidated statements of operations beginning with the first period of adoption and continuing to be expensed thereafter. Comprehensive Income: The Company follows the established standards for reporting comprehensive income, which is defined as the changes in equity of an enterprise except those resulting from stockholder transactions. Accumulated other comprehensive income consists of the following as of October 3, 2009 and September 27, 2008 (in thousands): Foreign currency translation adjustment Cumulative change in fair market value of derivative instruments, net of tax Accumulated other comprehensive income $ 10,107 $ 12,494 (5,427) $ 4,680 (1,720) $ 10,774 2009 2008 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: We 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. 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 customers’ credit status. The fair value of capital lease obligations was approximately $23.0 million and $22.9 million as of October 3, 2009 and September 27, 2008, respectively. The fair value of the Company’s term loan debt was $107.8 million and $120.4 million as of October 3, 2009 and September 27, 2008, respectively. 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, trade accounts receivable and derivative instruments, specifically related to counterparties. In accordance with the Company’s investment policy, the Company’s cash, cash equivalents, short-term investments and derivative instruments 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. 49 Plexus Corp. Notes to Consolidated Financial Statements New Accounting Pronouncements: In December 2007, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding business combinations (whether full, partial or step acquisitions) which 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. The guidance also states that acquisition costs will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be effective for the Company beginning October 4, 2009, the first day of fiscal 2010. In March 2008, the FASB issued authoritative guidance changing the disclosure requirements for derivative instruments and hedging activities. This guidance requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, 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 guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted this guidance during the second fiscal quarter of 2009. The principal impact to the Company was to require the expansion of its disclosures regarding its derivative instruments. See Note 5. In May 2009, the FASB issued authoritative guidance which modified the definition of what qualifies as a subsequent event – those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued – and required companies to disclose the date through which it has evaluated subsequent events and the basis for determining that date. The Company adopted this guidance in the third fiscal quarter of 2009. See Note 1. In June 2009, the FASB also issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a qualifying special-purpose entity (“QSPE”) removes the exception from applying the consolidation guidance within this amendment. This amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s financial statements. Finally, an enterprise will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of this amendment on its consolidated results of operations, financial position and cash flows. In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”). The Codification will become the single source for all authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and the Company has determined that it will not have an impact on its consolidated results of operations, financial position and cash flows. 2. Inventories Inventories as of October 3, 2009 and September 27, 2008 consisted of (in thousands): Raw materials Work-in-process Finished goods 2009 2008 $ 237,717 29,399 55,236 $ 322,352 $ 241,041 39,810 59,393 $ 340,244 50 Plexus Corp. Notes to Consolidated Financial Statements 3. Property, Plant and Equipment Property, plant and equipment as of October 3, 2009 and September 27, 2008, consisted of (in thousands): Land, buildings and improvements Machinery and equipment Computer hardware and software Construction in progress Less: accumulated depreciation and amortization 2009 2008 $ 120,505 220,402 72,782 11,727 425,416 $ 103,047 200,001 71,444 11,827 386,319 227,947 $ 197,469 207,196 $ 179,123 As of October 3, 2009 and September 27, 2008, computer hardware and software includes $29.9 million and $29.7 million, respectively, related to a common Enterprise Resource Planning (“ERP”) platform. As of October 3, 2009 and September 27, 2008, construction in progress includes $3.1 million in both years 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 2009, 2008 and 2007 amortization of the ERP platform totaled $2.2 million, $3.1 million and $3.2 million, respectively. Assets held under capital leases and included in property, plant and equipment as of October 3, 2009 and September 27, 2008 consisted of (in thousands): Buildings and improvements Machinery and equipment Less: accumulated amortization 2009 28,260 939 29,199 7,600 21,599 $ $ 2008 29,228 616 29,844 5,839 24,005 $ $ 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 $12.9 million as of October 3, 2009. Amortization of assets held under capital leases totaled $0.9 million, $0.8 million and $0.4 million for fiscal 2009, 2008 and 2007, respectively. There were no capital lease additions in fiscal 2009 or fiscal 2008. As of October 3, 2009 and September 27, 2008, accounts payable included approximately $1.4 million and $3.9 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. 51 Plexus Corp. Notes to Consolidated Financial Statements 4. Debt, Capital Lease Obligations and Other Financing Debt and capital lease obligations as of October 3, 2009 and September 27, 2008, 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 9.5% and 9.4% for fiscal 2009 and 2008, respectively. Less: current portion Long-term debt and capital lease obligations, net of current portion 2009 2008 $ 127,500 $ 146,250 23,343 24,976 (16,907) (16,694) $ 133,936 $ 154,532 The aggregate scheduled maturities of the Company’s debt obligations as of October 3, 2009, are as follows (in thousands): 2010 2011 2012 2013 Total $ 15,000 15,000 15,000 82,500 $ 127,500 The aggregate scheduled maturities of the Company’s obligations under capital leases as of October 3, 2009, are as follows (in thousands): 2010 2011 2012 2013 2014 Thereafter $ Less: interest portion of capital leases Total $ 3,983 4,057 4,201 4,294 4,385 11,826 32,746 9,403 23,343 On April 4, 2008, the Company entered into a second amended and restated credit agreement (the “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 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 Credit Facility, there is no event of default existing under the Credit Facility and both the Company and the administrative agent consent to the increase. The 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 October 3, 2009, the Company 52 Plexus Corp. Notes to Consolidated Financial Statements has term loan borrowings of $127.5 million outstanding and no revolving borrowings under the Credit Facility. The Credit Facility amended and restated the Company’s prior revolving credit facility (the “Prior Credit Facility”) with a group of banks that allowed the Company to borrow up to $200 million of which $100 million was committed. The Prior 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 Credit Facility. The 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 October 3, 2009, the Company was in compliance with all debt covenants. If the Company incurs an event of default, as defined in the Credit Facility (including any failure to comply with a financial covenant), the group of banks has the right to terminate the remaining 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 October 3, 2009, 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 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 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 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. Interest expense related to the commitment fee and amortization of deferred origination fees and expenses for the Credit Facility totaled approximately $0.7 million, $0.5 million and $0.6 million for fiscal 2009, 2008 and 2007, respectively. Cash paid for interest in fiscal 2009, 2008 and 2007 was $10.5 million, $4.2 million and $2.8 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 Credit Facility that had 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 53 Plexus Corp. Notes to Consolidated Financial Statements 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 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 was $9.3 million as of October 3, 2009 and $3.0 million at September 27, 2008, and the Company recorded this in “Other” current liabilities and “Other liabilities” in the accompanying Consolidated Balance Sheets. As of October 3, 2009, the total combined notional amount of the Company’s three interest rate swaps was $127.5 million. Beginning in July 2009, our Malaysian subsidiary entered into twelve separate forward contracts with a total notional value of $27 million, which expire monthly throughout fiscal 2010. These forward contracts will fix the foreign exchange rates for our cash required to pay local currency expenses. The contracts are recorded as liabilities and the changes in the fair value of the forward contracts are recorded in “Accumulated other comprehensive income” on the accompanying Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The total fair value of the forward contracts was $0.5 million at October 3, 2009, and the Company recorded this amount in “Other” current liabilities in the accompanying Consolidated Balance Sheets. The tables below present information regarding the fair values of derivative instruments and the effects of derivative instruments on the Company’s Statements of Operations: Fair Values of Derivative Instruments Asset Derivatives October 3, 2009 September 27, 2008 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Liability Derivatives October 3, 2009 September 27, 2008 Balance Sheet Location Fair Value Balance Sheet Location In thousands of dollars Derivatives designated as hedging instruments Interest rate swaps Interest rate swaps Forward contracts Fair Value $ 622 $2,334 $ - - - - Current liabilities - Other Other liabilities Current liabilities - Other $ 2,072 $ 7,253 Other liabilities Current liabilities - Other $ 530 Current liabilities - Other - - - 54 s n o i t a r e p O f o s t n e m e t a t S e h t n o s t n e m u r t s n I e v i t a v i r e D f o t c e f f E e h T 9 0 0 2 , 3 r e b o t c O d e d n E r a e Y e h t r o f ) s s o L ( r o n i a G f o t n u o m A n o e m o c n I n i d e z i n g o c e R e v i t c e f f e n I ( e v i t a v i r e D t n u o m A d n a n o i t r o P m o r f d e d u l c x E ) g n i t s e T s s e n e v i t c e f f E r o n i a G f o n o i t a c o L n i d e z i n g o c e R ) s s o L ( e v i t a v i r e D n o e m o c n I d n a n o i t r o P e v i t c e f f e n I ( m o r f d e d u l c x E t n u o m A ) g n i t s e T s s e n e v i t c e f f E r o n i a G f o t n u o m A r o n i a G f o n o i t a c o L m o r f d e i f i s s a l c e R ) s s o L ( m o r f d e i f i s s a l c e R ) s s o L ( o t n i I C O d e t a l u m u c c A o t n i I C O d e t a l u m u c c A e v i t c e f f E ( e m o c n I e v i t c e f f E ( e m o c n I ) n o i t r o P ) n o i t r o P 9 0 0 2 , 3 r e b o t c O - - $ $ ) e s n e p x e ( e m o c n i r e h t O ) e s n e p x e ( e m o c n i r e h t O 9 0 0 2 , 3 r e b o t c O ) 8 6 6 , 3 ( $ - $ ) e s n e p x e ( e m o c n i t s e r e t n I e s n e p x e l l o r y a P r o n i a G f o t n u o m A n i d e z i n g o c e R ) s s o L ( e v i s n e h e r p m o C r e h t O n o ) ” I C O “ ( e m o c n I e v i t c e f f E ( e v i t a v i r e D ) n o i t r o P 9 0 0 2 , 3 r e b o t c O ) 0 3 5 ( ) 7 3 0 , 0 1 ( $ $ s r a l l o d f o s d n a s u o h t n I h s a C n i s e v i t a v i r e D g n i g d e H w o l F s p i h s n o i t a l e R s p a w s e t a r t s e r e t n I s t c a r t n o c d r a w r o F ) s s o L ( r o n i a G f o t n u o m A n o e m o c n I n i d e z i n g o c e R e v i t c e f f e n I ( e v i t a v i r e D t n u o m A d n a n o i t r o P m o r f d e d u l c x E ) g n i t s e T s s e n e v i t c e f f E r o n i a G f o n o i t a c o L n i d e z i n g o c e R ) s s o L ( e v i t a v i r e D n o e m o c n I d n a n o i t r o P e v i t c e f f e n I ( m o r f d e d u l c x E t n u o m A ) g n i t s e T s s e n e v i t c e f f E r o n i a G f o t n u o m A r o n i a G f o n o i t a c o L m o r f d e i f i s s a l c e R ) s s o L ( m o r f d e i f i s s a l c e R ) s s o L ( o t n i I C O d e t a l u m u c c A o t n i I C O d e t a l u m u c c A e v i t c e f f E ( e m o c n I e v i t c e f f E ( e m o c n I ) n o i t r o P ) n o i t r o P 8 0 0 2 , 7 2 r e b m e t p e S 8 0 0 2 , 7 2 r e b m e t p e S - - $ $ ) e s n e p x e ( e m o c n i r e h t O ) e s n e p x e ( e m o c n i r e h t O ) 0 0 7 ( $ - $ ) e s n e p x e ( e m o c n i t s e r e t n I e s n e p x e l l o r y a P r o n i a G f o t n u o m A n i d e z i n g o c e R ) s s o L ( e v i t a v i r e D n o I C O ) n o i t r o P e v i t c e f f E ( 8 0 0 2 , 7 2 r e b m e t p e S ) 6 5 6 , 3 ( $ - $ h s a C n i s e v i t a v i r e D g n i g d e H w o l F s p i h s n o i t a l e R s p a w s e t a r t s e r e t n I s t c a r t n o c d r a w r o F s n o i t a r e p O f o s t n e m e t a t S e h t n o s t n e m u r t s n I e v i t a v i r e D f o t c e f f E e h T 8 0 0 2 , 7 2 r e b m e t p e S d e d n E r a e Y e h t r o f s r a l l o d f o s d n a s u o h t n I s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C o t s e t o N . p r o C s u x e l P 5 5 Plexus Corp. Notes to Consolidated Financial Statements The Company adopted a newly issued accounting statement on September 28, 2008, for fair value measurements of financial assets and liabilities. The Company elected to defer adoption of this statement for non-financial assets and liabilities as permitted. The accounting statement for fair value measurements defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting statement established a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are: Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities. Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. The following table lists the fair values of our financial instruments as of October 3, 2009, by input level as defined above: Fair Value Measurements Using Input Levels (in thousands): Level 1 Level 2 Level 3 Total Derivatives Interest rate swap derivative $ - $ 9,325 $ - $ 9,325 Forward contract derivative $ - $ 530 $ - $ 530 Total derivative liabilities at fair value $ - $ 9,855 $ - $ 9,855 The Company also has $2.0 million of auction rate securities that are valued using Level 3 inputs. There has been no change in the fair value of these securities since September 27, 2008. 6. Income Taxes The domestic and foreign components of income (loss) before income taxes for fiscal 2009, 2008 and 2007 consisted of (in thousands): U.S. Foreign 2009 2008 2007 $ (5,380) $ 49,449 $ 51,706 50,799 45,419 $ 53,166 $ 102,615 32,548 84,254 $ 56 Plexus Corp. Notes to Consolidated Financial Statements Income tax expense (benefit) for fiscal 2009, 2008 and 2007 consisted of (in thousands): Current: Federal State Foreign Deferred: Federal State Foreign 2009 2008 2007 $ (1,666) 121 1,809 264 (622) 954 (1,504) (1,172) $ (908) $ $ 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 The 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 2009, 2008 and 2007: Federal statutory income tax rate Increase (decrease) resulting from: Permanent differences State income taxes, net of federal income tax Foreign income and tax rate differences Other, net Effective income tax rate 2009 35.0% 2008 35.0% 2007 35.0% 2.0 - - (0.2) (40.1) 1.3 (2.0)% 1.6 (18.5) (0.1) 18.0% 2.1 (16.5) 1.4 22.0% The Company recorded income tax expense (benefit) of $(0.9) million for fiscal 2009. The Company recorded income tax expense of $18.5 million for both fiscal 2008 and 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 Xiamen, China, which benefit from reduced effective tax rates due to tax holidays. The components of the net deferred income tax asset as of October 3, 2009 and September 27, 2008, consisted of (in thousands): Deferred income tax assets: Loss/credit 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 $ 2009 2008 $ 5,864 4,313 6,867 12,611 267 7,425 37,347 (2,547) 34,800 8,253 1,185 9,438 4,102 5,098 7,585 10,730 917 4,453 32,885 (2,607) 30,278 7,597 4,544 12,141 Net deferred income tax asset $ 25,362 $ 18,137 57 Plexus Corp. Notes to Consolidated Financial Statements As a result of using the with-and-without method under the requirements for accounting for stock based compensation, 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. During fiscal 2007, 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. During fiscal 2008 and 2009 the Company realized a reduction of its state income taxes payable from state net operating loss carryforwards. Consequently, the Company reversed approximately $0.1 million, $0.6 million and $15.0 million of this valuation allowance with corresponding credits to additional paid in capital in fiscal years 2009, 2008 and 2007, respectively. In addition, there is a remaining valuation allowance of $1.6 million as of October 3, 2009, related to various state deferred income tax assets where it is more likely than not that the asset will not be realized due to a lack of sustained profitability and limited carryforward periods in these states. In October 2007, Mexico adopted a series of new tax laws, effective beginning on January 1, 2008. These laws did not have a material effect on our fiscal 2009 tax year. However, these laws could have an effect on the taxes levied on our Mexican income in the future. On November 1, 2009, Mexico adopted tax reform legislation to take effect January 1, 2010, providing for a temporary increase in its income tax and value added tax rates from 28% to 30% and 15% to 16%, respectively, along with certain other changes. While we are still analyzing the impact of this legislation, we do not currently believe it will have a material impact on our effective income tax rate in future periods. On November 5, 2009, the United States adopted the “Worker, Homeownership, and Business Assistance Act of 2009.” This Act provides for an increase in the net operating loss carryback period from two years to five years for tax periods beginning or ending in calendar years 2008 and 2009, along with certain other tax law changes. While we are still analyzing the impact of this legislation, we do not currently believe it will create a material impact on our effective income tax rate in current or future periods. 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 2009 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 have a material effect. In July 2005, 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 years 2009, 2008 and 2007, 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 Xiamen, China 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 2009, 2008 and 2007, these subsidiaries generated income, which resulted in tax reductions of approximately $15.2 million, $13.6 million and $8.6 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 was approximately $211.0 million as of October 3, 2009. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable at this time. 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 58 Plexus Corp. Notes to Consolidated Financial Statements repatriated, as defined in the Jobs Act. During fiscal 2009, 2008 and 2007, the Company did not repatriate any qualified earnings pursuant to the Jobs Act. As of October 3, 2009, the Company had approximately $62.1 million of state net operating loss carryforwards that expire between fiscal 2010 and 2027. Cash paid for income taxes in fiscal 2009, 2008 and 2007 was $2.9 million, $22.7 million and $2.2 million, respectively. In June 2006, the FASB issued an interpretation addressing 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. The interpretation also provided guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Effective at the beginning of fiscal 2008, the Company adopted the interpretation. As a result of adopting the interpretation, the Company recorded an increase in income tax liabilities for uncertain tax benefits of $0.8 million and a decrease in valuation allowance of approximately $1.8 million, which together resulted in a cumulative effect adjustment to retained earnings of $1.0 million. As required by the regulation, 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 2009 Gross increases for tax positions of prior years Gross increases for tax positions of the current year Gross decreases for tax positions of prior years Settlements Balance at October 3, 2009 $ 5.9 0.1 1.2 (2.1) (0.3) $ 4.8 Approximately $4.0 million of the balance as of October 3, 2009, 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 were approximately $0.3 million, $0.4 million and $0.1 million as of October 3, 2009, September 27, 2008, and upon the Company’s adoption of the interpretation at the beginning of fiscal 2008, respectively. The Company recognized $(0.1) million of expense for accrued penalties and net accrued interest in the Consolidated Statements of Operations for the year ended October 3, 2009. During the second quarter of fiscal 2009, tax expense decreased by approximately $1.4 million, consisting of approximately $1.6 million, including interest, related to the conclusion of federal and state audits, which resulted in a reduction of the liability related uncertainty in income taxes, offset by an additional provision of $0.2 million for changes in state tax laws. 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 of the interpretation and also as of October 3, 2009, 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. 59 Plexus Corp. Notes to Consolidated Financial Statements 7. Shareholders’ Equity On February 25, 2008, the Company 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 program and an additional $100 million of open market purchases. In July 2008, 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 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. 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: Net income October 3, 2009 Years Ended September 27, 2008 September 29, 2007 $ 46,327 $ 84,144 $ 65,718 Basic weighted average common shares outstanding Dilutive effect of stock options Diluted weighted average shares outstanding 39,411 243 39,654 43,340 510 43,850 46,312 427 46,739 Earnings per share: Basic Diluted $ $ 1.18 1.17 $ $ 1.94 1.92 $ $ 1.42 1.41 In fiscal 2009 and 2008, stock options and stock-settled stock appreciation rights (‘SARs”) to purchase approximately 2.7 million and 1.5 million shares, respectively, 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 2009 and 2008, restricted stock units (“RSUs”) of approximately 0.02 million and 0.09 million units, respectively, were outstanding but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. In fiscal 2007, options to purchase 1.9 million shares 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 2009, 2008 and 2007 was approximately $11.9 million, $11.5 million and $10.6 million, respectively. Renewal and purchase options are available on certain of these leases. Rental income from subleases amounted to $0 million in fiscal 2009, 2008 and 2007, respectively. 60 Plexus Corp. Notes to Consolidated Financial Statements Future minimum annual payments on operating leases are as follows (in thousands): 2010 2011 2012 2013 2014 Thereafter $ $ 10,367 8,074 7,325 6,141 5,609 6,257 43,773 10. Restructuring and Asset Impairment Costs Fiscal 2009 restructuring and asset impairment costs: For fiscal 2009, we recorded pre-tax restructuring and asset impairment costs of $8.6 million, related to goodwill impairment in our Europe reportable segment, the closure of our Ayer, Massachusetts (“Ayer”) facility and the reduction of our workforce across our facilities in the United States and Juarez, Mexico (“Juarez”). The details of these fiscal 2009 restructuring actions are listed below: Goodwill Impairment: During the second quarter of fiscal 2009, the Company recorded a goodwill impairment charge of $5.7 million, writing off the entire carrying value of our goodwill related to our Kelso facility. The impairment charge was driven by macroeconomic conditions that contributed to an overall reduction in demand for the Company’s offerings from the Kelso facility. These conditions led to an “interim triggering event”, leading management to perform an interim goodwill impairment test. This test resulted in the determination that the carrying value of the goodwill relating to Kelso was fully impaired and therefore an impairment charge of $5.7 million was recorded. Ayer Facility Closure: During the third quarter of fiscal 2009, we closed our Ayer facility. In fiscal 2009, we recorded pre-tax restructuring charges of $0.4 million, related to the disposal of certain assets and costs to exit this leased facility. Other Restructuring Costs. In fiscal 2009, we recorded pre-tax restructuring costs of $2.0 million related to severance at facilities in the United States as well as Juarez. These workforce reductions affected approximately 450 employees. We also recorded approximately $0.5 million of asset impairment charges at Corporate. 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 closure of our Ayer facility and the restructuring 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. 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. 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. 61 Plexus Corp. Notes to Consolidated Financial Statements 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. A detail of restructuring and asset 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, September 30, 2006 $ 461 $ 2,136 $ Restructuring and asset impairments costs Adjustment to provisions Amount utilized Accrued balance, September 29, 2007 1,966 (104) (1,334) 989 - (24) (2,112) - Restructuring and asset impairments costs Adjustment to provisions Amount utilized Accrued balance, September 27, 2008 2,350 (231) (1,070) 2,038 - - - - - - - - - - - - - $ 2,597 1,966 (128) (3,446) 989 2,350 (231) (1,070) 2,038 Restructuring and asset impairments costs Adjustment to provisions Amount utilized Accrued balance, October 3, 2009 2,196 (249) (3,941) 44 876 - (790) 86 $ 5,748 - (5,748) - $ 8,820 (249) (10,479) 130 $ $ As of October 3, 2009, 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 asset 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 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 62 Plexus Corp. Notes to Consolidated Financial Statements 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 2009, 2008 and 2007 totaled $2.9 million, $2.8 million and $2.4 million, respectively. 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, RSUs 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 replaced 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 not have been 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, which superceded a prior 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 and 2009, 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 generally made only on an annual basis. In fiscal 2009, the Company made a special grant consisting solely of RSUs to certain key employees (excluding our Chief Executive Officer) to encourage retention. For options issued to the members of the Board of Directors in fiscal 2009, 2008 and 2007, 50 percent of their stock options vested immediately at the date of grant. Their remaining stock options vested over one year. In fiscal 2009, under the 2008 Plan, the Company granted options, which had a term of ten years, to purchase 0.3 million shares of the Company’s common stock and 0.3 million stock-settled SARs, which had a term of seven years. Additionally, the Committee made awards of RSUs for 0.2 million shares of common stock and long-term cash awards that totaled $1.0 million, all of which vest on the third anniversary of grant. In fiscal 2008, under the 2005 Plan, the Company granted options, which had a term of ten years, to purchase 0.1 million shares of the Company’s common stock and 0.2 million stock-settled SARS, which had a term of seven years. Additionally, under the 2008 Plan, the Company granted options, which had a term of 63 Plexus Corp. Notes to Consolidated Financial Statements ten years, to purchase 0.1 million shares of the Company’s common stock and 0.2 million stock-settled SARs, which had a term of seven years. The Company also made awards of RSUs, under the 2005 Plan, for 0.1 million shares of common stock and long-term cash awards that totaled $0.2 million, all of which vest on the third anniversary of grant. The Company recognized $9.4 million and $8.7 million of compensation expense associated with stock options, SARs and RSUs for the fiscal years ended October 3, 2009 and September 27, 2008, respectively, and $6.2 million of compensation expense associated with stock options for the fiscal year ended September 29, 2007. No SARs or RSUs were granted in fiscal 2007. A summary of the Company’s stock option and SAR activity follows: Outstanding as of September 30, 2006 3,248 $ 25.18 Number of Shares (in thousands) Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Granted Cancelled Exercised Outstanding as of September 29, 2007 Granted Cancelled Exercised Outstanding as of September 27, 2008 Granted Cancelled Exercised Outstanding as of October 3, 2009 Exercisable as of: September 29, 2007 September 27, 2008 October 3, 2009 443 (138) (175) 3,378 563 (185) (363) 3,393 614 (166) (223) 3,618 22.64 36.14 10.95 25.13 26.62 36.66 14.93 25.88 19.71 28.75 15.43 25.34 $ $ $ $ 14,663 Shares (in thousands) Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) 2,558 2,533 2,815 $ $ $ 22.72 24.78 26.36 $ 11,238 Included in the table above are 310,071 and 308,955 SARs, which were granted in fiscal 2009 and 2008, respectively. The following table summarizes outstanding stock option and SAR information as of October 3, 2009 (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 - $61.19 381 666 1,541 1,030 $ 11.58 $ 15.80 $ 24.09 $ 38.47 $ 8.97 - $61.19 3,618 $ 25.34 64 4.4 5.9 5.9 4.1 5.2 381 379 1,082 973 2,815 $ 11.58 $ 15.47 $ 24.07 $ 38.93 $ 26.36 Plexus Corp. Notes to Consolidated Financial Statements 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 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 October 3, 2009, September 27, 2008, and September 29, 2007 were $21.73, $11.30 and $11.05, 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: Expected life (years) Risk-free interest rate Expected volatility Weighted average volatility Dividend yield October 3, 2009 4.40 – 4.90 1.76 – 5.00% 46 – 55% 48% - Years Ended September 27, 2008 September 29, 2007 3.75 – 5.48 2.59 – 5.00% 46 – 66% 53% - 3.75 – 5.48 3.69 – 5.00% 50 - 67% 57% - The fair value of options vested for fiscal years ended October 3, 2009, September 27, 2008 and September 29, 2007 were $11.1 million, $5.0 million and $4.3 million, respectively. For the fiscal years ended October 3, 2009 and September 27, 2008, the total intrinsic value of options exercised was $1.2 million and $4.9 million, respectively. As of October 3, 2009, there was $4.9 million of unrecognized compensation cost related to non- vested options and SARs that is expected to be recognized over a weighted average period of 1.29 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 Granted Cancelled Vested Units outstanding as of October 3, 2009 104 (5) - 99 210 (11) - 298 30.54 30.54 - 30.54 21.73 24.86 - 24.54 $ $ $ - The Company uses the fair value at the date of grant to value RSUs. As of October 3, 2009, there was $5.0 million of unrecognized compensation cost related to RSU awards that is expected to be recognized over a weighted average period of 2.22 years. 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 65 Plexus Corp. Notes to Consolidated Financial Statements 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. In fiscal 2009, in connection with a review of deferred compensation agreements, it was determined that the deferred compensation agreements were not being administered by Plexus as was originally intended and that two former executives had been overpaid by Plexus in previous years. Previously, the supplemental executive retirement agreements provided that future payments were to be adjusted, depending upon the performance of underlying investments; the original intent of these agreements was for a fixed 15-year annual installment payment stream. In August 2009 amendments were entered into in order to align the provisions regarding the determination of payment amounts to a fixed 15-year annual installment payment stream. The amendments are consistent with the intent of the original agreements and with the manner in which the agreement had operated in practice. 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 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. In fiscal 2009, 2008 and 2007, the Company made contributions to the participants’ SERP accounts in the amount of $0.2 million, $0.5 million and $0.4 million, respectively. As of October 3, 2009 and September 27, 2008, the SERP assets held in the Trust totaled $5.3 million and $5.1 million, respectively, and the related liability to the participants totaled approximately $3.7 million for both years. 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. The two actions were later consolidated. The consolidated complaint named 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 alleged securities law violations and sought unspecified damages relating generally to the Company’s statements regarding its defense sector business in early calendar 2006. On March 6, 2009, the court granted the motion of the Company and the individual defendants to dismiss the consolidated class action complaint. On July 23, 2009, a final judgment was entered by the court formally dismissing the action, and the time for appeal expired on August 24, 2009. The Company is party to certain other 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 financial position, results of operations or cash flows. 66 Plexus Corp. Notes to Consolidated Financial Statements 13. Reportable Segment, Geographic Information and Major Customers Reportable segments are defined as components of an enterprise about which separate financial information is available 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 asset 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 2009, 2008 and 2007 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 October 3, 2009 $ 1,007,087 588,129 77,259 55,587 (111,440) $ 1,616,622 Years Ended September 27, September 29, 2008 2007 $ 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 10,230 16,154 2,215 782 5,087 34,468 $ $ 8,994 12,471 1,791 836 5,127 29,219 64,730 63,662 (3,507) 1,352 (73,170) 53,067 $ 116,143 59,535 (2,693) 7,259 (77,417) $ 102,827 17,838 23,052 2,026 5,587 8,924 57,427 $ $ 18,078 27,556 2,900 1,485 4,310 54,329 $ $ $ $ $ $ 67 $ $ $ $ $ $ 9,494 8,641 2,044 764 5,645 26,588 97,019 40,700 (11,581) 3,747 (50,447) 79,438 7,457 31,397 5,367 754 2,862 47,837 Plexus Corp. Notes to Consolidated Financial Statements Total assets: United States Asia Mexico Europe Corporate October 3, 2009 September 27, 2008 $ 346,272 370,247 45,699 86,024 174,430 $ 1,022,672 $ 418,534 304,252 41,671 97,874 129,899 $ 992,230 The following enterprise-wide information is provided in accordance with the required segment disclosures. Net sales to unaffiliated customers were based on the Company’s location providing product or services (in thousands): Net sales: United States Malaysia Mexico China United Kingdom Romania Elimination of inter-segment sales Long-lived assets: Malaysia United States United Kingdom China Mexico Romania Corporate October 3, 2009 Years ended September 27, September 29, 2008 2007 $ 1,007,087 512,656 77,259 75,473 55,577 10 (111,440) $ 1,616,622 $ 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 October 3, 2009 September 27, 2008 $ 72,325 51,811 5,989 14,266 6,940 5,760 40,378 $ 197,469 $ 71,369 38,900 15,238 10,398 7,111 - 43,382 $ 186,398 Long-lived assets as of October 3, 2009 and September 27, 2008 exclude other long-term assets and deferred income tax assets which totaled $26.8 million and $18.9 million, respectively. 68 Plexus Corp. Notes to Consolidated Financial Statements Restructuring and asset 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 2009, 2008 and 2007, the Company incurred restructuring and asset impairment costs (see Note 10) which were associated with various segments (in thousands): Restructuring and asset impairment costs: United States Mexico Europe Corporate October 3, 2009 $ $ 1,089 741 5,748 993 8,571 Years Ended September 27, 2008 September 29, 2007 $ $ 1,852 267 - - 2,119 $ $ (24) 1,053 809 - 1,838 The percentages of net sales to customers representing 10 percent or more of total net sales for the indicated periods were as follows: Juniper Networks, Inc. (“Juniper”) General Electric Company (“GE”) *Represents less than 10 percent of total net sales October 3, 2009 20% * Years Ended September 27, September 29, 2008 20% * 2007 21% 10% 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 October 3, 2009 15% September 27, 2008 20% No other customers represented ten percent or more of the Company’s total net sales or total trade receivable balances as of October 3, 2009 and September 27, 2008. 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 69 Plexus Corp. Notes to Consolidated Financial Statements 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 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 2009 and 2008 (in thousands): Limited warranty liability, as of September 29, 2007 Accruals for warranties issued during the period Settlements (in cash or in kind) during the period $ Limited warranty liability, as of September 27, 2008 Accruals for warranties issued during the period Settlements (in cash or in kind) during the period 5,043 350 (1,341) 4,052 507 (89) Limited warranty liability, as of October 3, 2009 $ 4,470 15. Subsequent Event In October 2009, the Company received notice that it should receive settlement funds of approximately $3.2 million in December 2009 relating to a court case in which the Company is a plaintiff. This payment and amount remain subject to rights of appeal until late November. The Company will record the settlement once the cash is received. 70 Plexus Corp. Notes to Consolidated Financial Statements 16. Quarterly Financial Data (Unaudited) Summarized quarterly financial data for fiscal 2009 and 2008 consisted of (in thousands, except per share amounts): 2009 Net sales Gross profit Net income Earnings per share: Basic Diluted 2008 Net sales Gross profit Net income Earnings per share: Basic Diluted First Quarter $ 456,109 46,550 17,038 Second Quarter $ 388,895 35,798 5,028 Third Quarter $ 378,643 34,605 9,210 Fourth Quarter $ 392,975 37,823 15,051 Total $1,616,622 154,776 46,327 $ $ 0.43 0.43 $ $ 0.13 0.13 $ $ 0.23 0.23 $ $ 0.38 0.38 $ $ 1.18 1.17 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 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. * * * * * 71 Plexus Corp. and Subsidiaries Schedule II – Valuation and Qualifying Accounts For the fiscal years ended October 3, 2009, September 27, 2008 and September 29, 2007 (in thousands): Descriptions Fiscal Year 2009: 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 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) Balance at beginning of period Additions charged to costs and expenses Additions charged to other accounts Deductions Balance at end of period $ 2,500 $ 942 $ $ 2,607 $ 61 $ $ 900 $ 1,603 $ $ 5,014 $ - $ $ 1,100 $ 328 $ $ 20,011 $ - $ - - - - - - $ 2,442 $ 1,000 $ 120 $ 2,548 $ 3 $ 2,500 $ 2,407 $ 2,607 $ 528 $ 900 $ 14,997 $ 5,014 72 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. SIGNATURES PLEXUS CORP. (Registrant) By: /s/ Dean A. Foate Dean A. Foate, President and Chief Executive Officer November 18, 2009 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 18, 2009. /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 73 EXHIBIT INDEX PLEXUS CORP. Form 10-K for Fiscal Year Ended October 3, 2009 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 74 10.3 10.4 10.5 10.6 10.7 10.8 10.9 X (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 Composite Form of Supplemental Executive Retirement Agreement between Plexus and John Nussbaum, as amended through August 7, 2009*1 (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]* Amended and Restated Plexus Corp. 1998 Option Plan* [superseded] 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 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 10.1 to Plexus Quarterly Report on Form 10-Q for the quarter ended January 3, 2009 (a) Summary of Directors’ Compensation (11/08)* Exhibit 10.9(a) to Plexus Report on Form 10- K for the year ended September 27, 2008 (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 1 For ease of understanding, the Composite Form of Supplemental Executive Retirement Agreement reflects the base agreement and the amendments to date; there have been no changes to this agreement since the third amendment was filed as Exhibit 10.1 to Plexus’ Current Report on Form 8-K, dated August 7, 2009. 75 10.10 10.11 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 (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* 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 10.12(a) Amended and Restated Plexus Corp. 2008 Long- Term Incentive Plan* Exhibit 10.3 to Plexus Quarterly Report on Form 10-Q for the quarter ended January 3, 2009 10.12(b) Forms of award agreements thereunder* (i) Form of Stock Option Agreement (ii) Form of Restricted Stock Unit Award 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) Amended and Restated Plexus Corp. 2005 Equity Incentive Plan* [superseded] 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 Quarterly Report on Form 10-Q for the quarter ended December 29, 2007 Exhibit 10.2 to Plexus Quarterly Report on Form 10-Q for the quarter ended January 3, 2009 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 (iv) Form of Stock Appreciation Right Award Exhibit 10.1 to Plexus’ Report on Form 8-K dated August 29, 2007 21 23 List of Subsidiaries Consent of PricewaterhouseCoopers LLP X X 76 24 31.1 31.2 32.1 32.2 99.1 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 ____________________ * Designates management compensatory plans or agreements X X X X X 77 ®THIS 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, MD – 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 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, Corporate Compliance Officer and Secretary 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 10, 2010: 8:00 a.m. The Pfister Hotel 424 East Wisconsin Avenue Milwaukee, Wisconsin 53202 

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