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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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
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absence of your voting instructions, your bank, broker or other holder of record may or may not vote your shares in
its discretion depending on the proposal before the meeting. 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.
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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.
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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
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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
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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
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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