Plexus
Annual Report 2011

Plain-text annual report

2011 Annual Report to Shareholders Notice of 2012 Annual Meeting of Shareholders and Proxy Statement PROFILE About Plexus Corp. — The Product Realization Company Plexus (www.plexus.com) delivers optimized Product Realization solutions through a unique Product Realization Value Stream services model. This customer focused services model seamlessly integrates and innovative product sustaining services to deliver comprehensive end-to-end solutions for customers in the Americas, European and Asia-Pacific regions. Award-winning customer service is provided to over 130 branded product companies in the Wireline/Networking, Wireless Infrastructure, Medical, Industrial/Commercial and Defense/Security/Aerospace market sectors. commercialization, manufacturing, conceptualization, design, fulfillment Market Sector % of F11 Sales Wireline/Networking Wireless Infrastructure Medical Industrial/Commercial Defense/Security/Aerospace 39% 7% 21% 24% 9% Plexus is passionate about its goal to be the leading Electronic Manufacturing Services company in the world at servicing mid-to-low volume, higher complexity customer programs characterized by unique flexibility, technology, quality and regulatory requirements. We have 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. 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 in these sectors. These teams also help set our strategy for growth in these 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”) 500 basis points 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 value for our shareholders. Established in 1979, Plexus has approximately 9,000 employees located in 24 active facilities around the world. These facilities are strategically located to support the global supply chain, manufacturing and engineering needs of original equipment manufacturers in our targeted market sectors. Plexus’ global manufacturing and engineering footprint is outlined below: Geographic Region # of Facilities* Sq. Footage % of F11 Sales 1,369,000 Americas 897,000 Asia-Pacific 140,000 Europe * Note: Please refer to our Form 10-K for a full list of properties. 11 6 5 48% 48% 4% Plexus Corp. One Plexus Way P.O. Box 156 Neenah, WI 54957-0156 (920) 722-3451 Notice of 2012 Annual Meeting of Shareholders and Proxy Statement 2011 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 15, 2012 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 15, 2012, 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 hold an advisory vote on the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein. (4) 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 8, 2011, will be entitled to vote at the meeting or any adjournment of the meeting. On or about December 16, 2011, 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 Senior Vice President, General Counsel, Corporate Compliance Officer and Secretary Neenah, Wisconsin December 14, 2011 You may vote in person or by using a proxy as follows: • 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. • 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. • 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. One Plexus Way 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 Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board’s Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . COMPENSATION AND RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ADVISORY VOTE ON EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUDITORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 8 12 12 12 13 13 13 17 17 17 20 20 21 21 23 31 34 35 36 36 38 40 43 44 45 49 50 50 50 51 51 ANNUAL MEETING OF SHAREHOLDERS FEBRUARY 15, 2012 COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING Q: WHEN IS THIS PROXY MATERIAL FIRST AVAILABLE TO SHAREHOLDERS? A: On or about December 16, 2011, 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 MATERIAL? 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, we are mailing 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 15, 2012 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: • • • 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 February 1, 2012. 1 Q: WHAT AM I VOTING ON? A: At the annual meeting you will be voting on three 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: • Ralf R. Böer • Stephen P. Cortinovis • David J. Drury • Dean A. Foate • Peter Kelly • Phil R. Martens • John L. Nussbaum • Michael V. Schrock • Mary A. Winston 2. A proposal to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Plexus’ independent auditor for 2012. 3. An advisory proposal to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein. Q: WHAT ARE THE BOARD’S VOTING RECOMMENDATIONS? A: The board of directors is soliciting this proxy and recommends the following votes: • FOR each of the nominees for election to the board of directors; • FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as Plexus’ independent auditors for 2012; and • FOR approval of the compensation of the Company’s named executive officers. 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 that 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 that 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. The plurality of votes cast will also be used to determine the results of the advisory vote to approve the compensation of the Company’s named executive officers. Abstentions and broker non-votes will not affect these votes, except insofar as they reduce the number of shares that are voted. 2 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 absence of your voting instructions, your bank, broker or other holder of record may or may not vote your shares in its discretion depending on the proposal before the meeting. Your broker may 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. In addition, your broker is also not permitted to vote your shares in its discretion regarding matters related to executive compensation, including advisory votes on executive compensation. 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 8, 2011, which is the “Record Date.” As of the Record Date, Plexus had 34,625,591 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. • 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. • 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. • 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. 3 Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE REQUEST TO VOTE? A: It means your shares are held in more than one account. You should vote the shares on all of your proxy requests. You may help us reduce costs by consolidating your accounts so that you receive only one set of proxy materials in the future. To consolidate your accounts, please contact our transfer agent, American Stock Transfer & Trust Company, LLC, toll-free at 1-800-937-5449. Q: WHAT IF I OWN SHARES AS PART OF PLEXUS’ 401(k) SAVINGS PLAN AND/OR EMPLOYEE STOCK PURCHASE PLANS? A: Shareholders who own shares as part of Plexus’ 401(k) Savings Plan (the “401(k) Plan”) and/or the Plexus 2000 and 2005 Employee Stock Purchase Plans (the “Purchase Plans”) will receive a separate means for proxy voting their shares held in each account. Shares held by the 401(k) Plan for which participant designations are received will be voted in accordance with those designations; those shares for which designations are not received will be voted proportionally, based on the votes for which voting directions have been received from participants. Shares held in accounts under the Purchase Plans will be voted in accordance with management recommendations, except for shares for which contrary designations from participants are received. 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 8, 2011, 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: • Bring proof of ownership of Plexus common stock and a form of identification; or • 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? If you complete a proxy card or vote via the internet, you may still vote in person at the annual meeting. To A: 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. 4 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 AND SHAREHOLDER NOMINATIONS DUE FOR THE 2013 ANNUAL MEETING? A: The Secretary must receive a shareholder proposal no later than August 18, 2012, in order for the proposal to be considered for inclusion in our proxy materials for the 2013 annual meeting. The 2013 annual meeting of shareholders is tentatively scheduled for February 13, 2013. To otherwise bring a proposal or nomination before the 2013 annual meeting, you must comply with our bylaws. Currently, our bylaws require written notice to the Secretary between October 7, 2012, and November 1, 2012. 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 1, 2012, then your proposal or nomination will be untimely. In addition, your proposal or nomination must comply with the procedural provisions of our bylaws. If you do not comply with these procedural provisions, your proposal or nomination can be excluded. Should the board nevertheless choose to present your proposal, the named Proxies will be able to vote on the proposal using their best judgment. Q: WHAT IS THE ADDRESS OF THE SECRETARY? A: The address of the Secretary is: Plexus Corp. Attn: Angelo M. Ninivaggi One Plexus Way P.O. Box 156 Neenah, Wisconsin 54957-0156 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 2012 annual meeting, which was November 2, 2011. 5 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table presents certain information as of December 8, 2011, 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 Phil R. Martens John L. Nussbaum Michael V. Schrock Mary A. Winston Ginger M. Jones Michael D. Buseman Todd P. Kelsey Yong Jin Lim Shares Beneficially Owned (1) Percentage of Shares Outstanding 62,500 71,000 72,500 838,082 74,100 7,000 141,523 50,000 25,000 81,567 75,794 88,578 84,395 * * * 2.3% * * * * * * * * * All executive officers and directors as a group (17 persons) 1,899,642 5.3% Disciplined Growth Investors, Inc. (2) The Vanguard Group, Inc. (3) Columbia Wanger Asset Management, LLC (4) 2,817,930 1,917,383 1,792,000 8.1% 5.5% 5.2% __________________________________ * Less than 1% (1) The specified persons have sole voting and sole dispositive powers as to all shares, except as otherwise indicated. The amounts include shares subject to options granted under Plexus’ option plans which are exercisable currently or within 60 days of December 8, 2011. The options include those held by Mr. Böer (53,500 shares), Mr. Cortinovis (62,000), Mr. Drury (63,500), Mr. Foate (705,046), Mr. Kelly (50,000), Mr. Martens (5,000), Mr. Nussbaum (22,500), Mr. Schrock (40,000), Ms. Winston (19,000), Ms. Jones (66,000), Mr. Buseman (65,750), Mr. Kelsey (77,350) and Mr. Lim (70,000), and all executive officers and directors as a group (1,480,711). While the total for all executive officers and directors as a group includes 190 shares that may be acquired pursuant to stock-settled stock appreciation rights (“SARs”) granted under Plexus’ equity incentive plans that are currently vested, it excludes certain SARs because the respective exercise prices of those SARs were below the market value of Plexus common stock on December 8, 2011. SARs are owned by an individual who is neither a director nor an executive officer named in the “Summary Compensation Table.” In addition, the amounts reported in the table for Messrs. Böer, Cortinovis and Nussbaum and Ms. Winston each include 2,000 deferred stock units, which are payable in shares of the Company’s common stock on a one-for-one basis. 6 (2) (3) (4) 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, 2011, showing sole investment power as to 2,817,930 shares and sole voting power as to 1,977,205 shares. The address of Disciplined Growth Investors, an investment advisor, is 150 South Fifth Street, Suite 2550, Minneapolis, Minnesota 55402. The Vanguard Group, Inc. filed a report on Schedule 13G dated December 31, 2010, reporting sole voting power as to 52,623 shares, and sole dispositive power as to 2,532,404 shares of common stock. Vanguard subsequently filed a report on Form 13F for the quarter ended September 30, 2011, showing sole investment power as to 1,865,966 shares and sole voting power as to 51,417 shares. The address of Vanguard Group, an investment advisor, is P.O. Box 2600, Valley Forge, Pennsylvania 19482. Columbia Wanger Asset Management, LLC filed a report on Schedule 13G dated December 31, 2010, reporting sole voting power as to 2,281,000 shares and sole dispositive power as to 2,484,000 share of common stock. Columbia Wanger subsequently filed a report on Form 13F for the quarter ended September 30, 2011, showing sole investment power as to 1,792,000 shares and sole voting power as to 1,613,000 shares. The address of Columbia Wanger, an investment advisor, is 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. 7 ELECTION OF DIRECTORS Plexus believes that it needs to attract and retain talented, focused, and motivated leadership to develop the long-term strategy and deliver the economic profit that our 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 ten 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. Name and Age Ralf R. Böer, 63 Director since 2004 Stephen P. Cortinovis, 61 Director since 2003 David J. Drury, 63 Director since 1998 Dean A. Foate, 53 Director since 2000 Principal Occupation, Business Experience and Education (1) Mr. Böer is a Partner at Foley & Lardner LLP, a national law firm, and was also its Chairman and Chief Executive Officer from 2002 until June 2011. Mr. Böer’s practice includes international and domestic acquisitions, international business transactions and licensing and technology transfers. He is also a director of Fiskars Corporation, a global consumer products company. Mr. Böer obtained his B.A. from the University of Wisconsin-Milwaukee and his J.D. from the University of Wisconsin Law School. Mr. Cortinovis is a private equity investor in Lasco Foods Company. He was previously a Partner of Bridley Capital Partners Limited, a private equity group, and prior thereto served as President—Europe of Emerson Electric Co., a diversified global technology company. He is 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. Mr. Cortinovis obtained both his B.A. and J.D. from St. Louis University. Mr. Drury is Chairman and Chief Executive Officer of Poblocki Sign Company LLC, an exterior and interior sign systems company, and was also its President until June 2011. He is a director of Journal Communications, Inc., a media holding company, as well as its lead director and the chair of its Nominating and Corporate Governance Committee and its Executive Committee. In addition, Mr. Drury is a trustee of The Northwestern Mutual Life Insurance Company, an insurance and financial products company. Mr. Drury earned his B.B.A. from the University of Wisconsin-Whitewater and is a Certified Public Accountant who practiced as such for 18 years. Mr. Foate has served as President and Chief Executive Officer of Plexus since 2002. He was previously Chief Operating Officer and Executive Vice President of Plexus, and President of Plexus Technology Group, Inc., Plexus’ engineering services business, prior thereto. Mr. Foate is 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. Mr. Foate earned his B.S. in Electrical and Computer Engineering from the University of Wisconsin-Madison and his Master of Science in Engineering Management from the Milwaukee School of Engineering. 8 Name and Age Peter Kelly, 54 Director since 2005 Phil R. Martens, 51 Director since 2010 John L. Nussbaum, 69 Director since 1980 Michael V. Schrock, 58 Director since 2006 Mary A. Winston, 50 Director since 2008 Principal Occupation, Business Experience and Education (1) Mr. Kelly has served as Executive Vice President and General Manager of Operations of NXP Semiconductors N.V., a provider of high performance mixed signal and standard semi-conductor product solutions, since March 2011. He was Vice President and Chief Financial Officer of UGI Corp., a distributor and marketer of energy products and services, from 2007 until February 2011. Prior thereto, Mr. Kelly was 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. Mr. Kelly earned a B.S. from the University of Manchester (U.K.) Institute of Science and Technology and is a fellow of the Chartered Institute of Management Accountants. Mr. Martens has served as Chief Executive Officer of Novelis Inc., an aluminum rolled products producer, since February 2011, and as its President since 2009. He was also Chief Operating Officer of Novelis Inc. from 2009 until 2011. Mr. Martens previously served as Senior Vice President and President, Light Vehicle Systems for ArvinMeritor, Inc., a supplier of integrated systems, modules and components, from 2006 to 2009, and as President and Chief Operating Officer of Plastech Engineered Products, Inc., an automotive component supplier. Prior thereto, he held various engineering and leadership positions at Ford Motor Company. Mr. Martens obtained a B.S. from Virginia Polytechnic Institute and State University and an M.B.A. from the University of Michigan. In addition, he was awarded an honorary Doctorate in Engineering from Lawrence Technical Institution for his extensive contributions to the global automotive industry. (2) Mr. Nussbaum has served as Chairman of Plexus since 2002. He is a co-founder of Plexus, was its Chief Executive Officer until 2002, and served as Plexus' President and Chief Operating Officer prior thereto. Mr. Nussbaum earned a B.A. from St. John’s University (Minnesota). Mr. Schrock has served as President and Chief Operating Officer of Pentair, Inc., a diversified manufacturer, since 2006. He previously was President and Chief Operating Officer of Pentair’s Technical Products and Filtration Divisions. Prior to joining Pentair, Mr. Schrock held various senior management positions with Honeywell International Inc., a diversified technology and manufacturing company, covering North America as well as the European, Africa and Middle East regions. Mr. Schrock earned a B.S. from Bradley University and an M.B.A. from Northwestern University, Kellogg School of Management. Ms. Winston has served as Senior Vice President and Chief Financial Officer of Giant Eagle, Inc., a food retailer and food distributor, since 2008. She was President and Founder of WinsCo Financial, LLC, a financial solutions consulting firm, from 2007 to 2008. Prior thereto, Ms. Winston served as Executive Vice President and Chief Financial Officer of Scholastic Corporation, a children’s publishing and media company, from 2004 to 2007, as a Vice President of Visteon Corporation, an automotive parts supplier, and as a Vice President of Pfizer Inc., a global biopharmaceutical company. She is also a director of Dover Corporation, a diversified manufacturing company, and the chair of its Audit Committee. Ms. Winston obtained a B.B.A. from the University of Wisconsin-Milwaukee, an M.B.A. from Northwestern University, Kellogg School of Management and is a Certified Public Accountant. __________________ (1) (2) Unless otherwise noted, all directors have been employed in their principal occupation listed above for the past five years or more. Plastech Engineered Products, Inc. filed for Chapter 11 bankruptcy protection in February 2008, approximately two years after Mr. Martens left the company. 9 The Company believes it is important for its board to be comprised of individuals with diverse backgrounds, skills and experiences. All board members are expected to meet Plexus’ board member selection criteria, which are listed below: • Impeccable honesty and integrity. • A high level of knowledge gained through formal education and/or specific practical experience. • Broad based business acumen, including a general understanding of operations management, marketing, finance, human resources management, corporate governance and other elements relevant to the success of a large publicly-traded company. • An understanding of the Company’s business on a technical level. • Global thinking and focus as well as a general understanding of the world economy. • Strategic thinking and an ability to envision future opportunities and risks. • A willingness to engage in thoughtful debate and challenging discussions in a respectful manner. • A network of important contacts that can bring knowledge and assistance to Plexus. • A commitment to spend requisite time on board responsibilities. In addition to the board member selection criteria identified above, the board and the Nominating and Corporate Governance Committee review the board’s composition annually to ensure that an appropriate diversity of backgrounds, skills and experiences is represented. Important skills and experiences currently identified are as follows: • • • • Significant experience as a chief executive officer and/or chief operating officer of a publicly-traded company, or of a major division of a publicly-traded company. Financial and accounting skills as well as experience in a public company, preferably with experience as a controller and/or chief financial officer; any such person is expected to fulfill the Securities and Exchange Commission’s requirements for an “audit committee financial expert.” International experience with an understanding of conducting business on a global scale. In-depth knowledge and significant practical experience in sales and marketing at an electronic manufacturing services (“EMS”) company or at another company in a related industry. • A manufacturing management background, large, well respected manufacturing-based company, preferably one that relies on supply chain management for a competitive advantage. ideally an engineer, from a • • Considerable human resources management experience involving the design of both short-term and long- term compensation programs, and an understanding of benefit plans. Experience managing succession planning and leadership development for a successful company. 10 The following is the Company’s current matrix of experience for our board, which together with the directors’ principal occupations and business experience described above, as well as the Company’s board member selection criteria, provide the reasons that each individual is being re-nominated as a director. Boxes marked with an “X” in the matrix below indicate that the particular experience is one of the specific reasons that the director has been re-nominated to serve on the board. The lack of an “X” does not mean that the director does not possess that experience, but rather that it is not a particular area of focus or expertise of the director which was specifically identified as a reason for that director’s nomination. Mr. Böer Mr. Cortinovis Mr. Drury Mr. Foate X Mr. Kelly X Mr. Martens X Mr. Nussbaum X Mr. Schrock X Ms. Winston X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X CEO/COO Experience Financial and Accounting Experience Global Business Experience Sales and Marketing Experience Manufacturing Management Background Supply Chain Management Experience Compensation and Benefits Experience Leadership Development and Succession Planning Experience 11 Board of Directors Meetings CORPORATE GOVERNANCE The board of directors held four meetings during fiscal 2011. 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 2011 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 Stock 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. • Mr. Kelly is an executive officer of NXP Semiconductors N.V., which is a supplier to Plexus. Plexus’ payments to NXP’s distributors in fiscal 2011 were $3,146,621, which represented approximately one-tenth of one percent of each of Plexus’ and NXPs annual revenues. • Mr. Schrock is an executive officer of Pentair, Inc., which is a supplier to Plexus. Plexus’ payments to Pentair in fiscal 2011 were $1,693,419, which represented less than one-tenth of one percent of each of Plexus’ and Pentair’s annual revenues. Based on the applicable standards and the board’s review and consideration, the board of directors has determined that Messrs. Böer, Cortinovis, Drury, Kelly, Martens and Schrock, 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. 12 Board Leadership Structure Mr. Nussbaum, our former Chief Executive Officer, serves as the Chairman of the Board. The Company believes that having our former CEO serve as Chairman is an appropriate leadership structure at the current time because Mr. Nussbaum has extensive knowledge of the Company and the EMS industry, which continue to be valuable in communicating with and leading the board in his role as Chairman. The Company’s bylaws do not mandate, nor does the board have a policy that requires, the separation or combination of the CEO and Chairman roles. The board may reconsider our leadership structure in the future, including in connection with its succession planning efforts, based on the best interests of the Company at that time. Board’s Role in Risk Oversight It is management’s responsibility to manage the Company’s enterprise risks on a day-to-day basis. Through regular updates, the board of directors oversees management’s efforts to ensure that they effectively identify, prioritize, manage and monitor all material business risks to Plexus’ strategy. The board delegates certain risk management oversight responsibilities to its committees. The Audit Committee reviews and discusses the Company’s major financial risk exposures and the steps management has taken to identify, monitor and control such risks. The Compensation and Leadership Development Committee is responsible for overseeing risk related to the Company’s compensation programs, including considering whether such programs are in line with the Company’s strategic objectives and incentivize appropriate risk-taking. The Nominating and Corporate Governance Committee is tasked with risks associated with corporate governance and compliance. 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 Phil R. Martens Michael V. Schrock 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 2011. The Audit Committee chooses the Company’s independent auditors and oversees the audit process as well as the Company’s accounting, finance and tax functions. Among its other responsibilities, the Committee also oversees the Company’s ethics and whistle-blowing reporting programs, in conjunction with the Nominating and Corporate Governance Committee. See also “Report of the Audit Committee.” 13 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 six meetings during fiscal 2011. The Committee establishes the general compensation philosophies and plans for Plexus, determines the CEO’s and other executive officers’ compensation and approves equity 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 2011. 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. When determining compensation in fiscal 2011, 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 performed a full review of the composition of the peer group during fiscal 2010 because, due to acquisitions within the peer group and other changes, the Committee believed that certain companies had become less comparable to Plexus than when they were originally selected. The Committee intends to conduct reviews of the peer group and selection criteria on a periodic basis to ensure that both are appropriate. Consistent with the selection of its previous peer group, companies were chosen using filtering criteria, such as industry codes, peer companies identified as competitors, company size and employee base, profitability, geographic location, company complexity and recent financial performance; anomalies or special circumstances (primarily acquisitions or significant size differences) that caused certain companies to not be in fact comparable were also reviewed. In addition, the Committee also identified financial peers that were not in a similar business but which were similar in size and financial performance to Plexus. Our resulting peer group for fiscal 2011 compensation planning consisted of: • Agilent Technologies, Inc. • Altera Corporation • Amphenol Corporation • Arris Group, Inc. • AVX Corporation • Benchmark Electronics, Inc. Bruker Corporation Celestica Inc. Esterline Technologies Corporation • • • • Harris Corporation • • Invacare Corporation Jabil Circuit, Inc. • Molex Incorporated • Regal-Beloit Corporation • Sanmina-SCI Corporation • Teledyne Technologies Incorporated • Trimble Navigation Limited • Vishay Intertechnology, Inc. This peer group is being used for fiscal 2012 executive compensation planning. 14 When making compensation determinations, the Committee’s analysis includes a review of the Company’s financial results, an internal calibration of pay and equity award levels and an accumulated value analysis. In performing these analyses, the Committee continues to use tally sheets, which provide a comprehensive view of Plexus’ compensation payout exposure under various performance scenarios, and also assist in the Committee’s evaluation of the reasonableness of compensation as a whole. The accumulated value analysis examines the CEO’s accumulation of wealth through the deferred compensation plan and annual equity awards. These assessments also identify the proportionality of the CEO’s pay to the pay of executives at other levels in the organization and compare this information with published survey data. In addition, 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. In addition to reviewing compensation to help assure that it provides an incentive for strong Company performance, the Company and the Committee periodically 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 Company performance. The Committee believes this approach 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 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, as well as accumulated value, 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. 15 For fiscal 2011 compensation planning, at the direction of the Committee, Towers Watson was engaged to conduct a detailed analysis of the Company’s current executive compensation package, as described above. For fiscal 2012 compensation planning, the Committee directed the Company’s internal human resources staff to prepare an analysis of the Company’s executive compensation package consistent with prior years. Plexus’ internal staff obtained market-based data to provide the Committee with the same data and analysis as in previous years. It is expected that an external firm will perform a detailed analysis of the Company’s executive compensation package every other year going forward; therefore, we anticipate that Towers Watson will be preparing such an analysis for fiscal 2013 compensation planning. Neither the Company nor the Committee places any limitations or restrictions on its consulting firms or their reviews. Towers Watson and previous consulting firms 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. Compensation Committee Interlocks and Insider Participation Each of the members of the Committee was an independent director and there were no relationships or transactions in fiscal 2011 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 2011. 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 and ethics efforts, and evaluates as well as 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. As described above in “Election of Directors,” in accordance with the Company’s board member selection criteria, the Nominating Committee considers the diversity of backgrounds, skills and experiences 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 composition of the Board is reviewed annually to insure that an appropriate mix of skills, experiences and backgrounds is represented; the membership mix of the Board may also be changed as necessary to meet business needs. 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 would review the background of the candidate and, if appropriate, meet with the candidate. A decision would then be made whether to nominate that person to the board. The Nominating Committee’s policy is to not evaluate proposed nominees differently depending upon who has proposed the potential nominee. 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 “Commonly Asked Questions and Answers About the Annual Meeting” for bylaw requirements for nominations. Plexus has neither received nor rejected any candidates put forward by significant shareholders. 16 Communications with the Board Any communications to the board of directors should be sent to Plexus’ headquarters office in care of Plexus’ Secretary, Angelo M. Ninivaggi. Any communication sent to the board in care of the Chief Executive Officer, the 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). 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, compensation clawback policy 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 2008 Long-Term Plan. In determining the compensation paid to the non-employee directors, the Nominating and Corporate Governance Committee considers similar types of factors, including comparisons with peer companies and company performance, that are considered by the Compensation and Leadership Development Committee when determining executive compensation. During fiscal 2011, 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 $45,000 plus meeting fees of $2,000 for each board meeting attended in person ($1,000 if attended other than in person) and an additional $1,500 for each committee meeting attended in person ($750 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. For fiscal 2012, the annual director’s fee will increase to $55,000, and the fee for serving as the chair of the Compensation and Leadership Development Committee will increase to $12,500. Directors are eligible to defer their cash fees, as well as stock awards (excluding options), through the Non-Employee Directors Deferred Compensation Plan. Prior to fiscal 2011, directors were eligible to defer their cash fees through Plexus’ supplemental executive retirement plan, which is described in “Compensation Discussion and Analysis” below. Directors may also participate in the 2008 Long-Term Plan, which permits the grant of stock options, stock-settled stock appreciation rights (“SARs”), restricted stock (which may be designated as restricted stock awards or restricted stock unit awards), unrestricted stock awards, performance stock awards, and cash incentive awards. Stock options are generally granted to directors quarterly, at the same time as employee grants, and vest immediately on the respective grant dates. The exercise price of stock options is equal to the average of the high and low sale prices of Plexus stock on the Nasdaq Global Select Market on the grant date. In addition, unrestricted stock awards are granted to directors at the same time as employee equity grants during the second quarter of the 17 fiscal year. The mix of unrestricted stock awards and stock options is designed to balance the Company’s goal of aligning directors’ interests, through stock awards, with the long-term ownership interests of our shareholders with the incentives offered by stock options, which provide rewards based on the increase in our share price. The following table sets forth the compensation that was paid by Plexus to each of our non-employee directors in fiscal 2011: Director Compensation Table Name Fees Earned or Paid in Cash ($)(1) Option Awards ($)(2) Stock Awards ($)(2) Other Benefits ($)(3) Ralf R. Böer $64,750 $69,433 $54,286 Stephen P. Cortinovis 78,000 69,433 54,286 David J. Drury Peter Kelly Phil R. Martens 78,000 69,433 54,286 62,250 69,433 54,286 62,000 52,999 54,286 -- -- -- -- -- Total ($) $188,469 201,719 201,719 185,969 169,285 John L. Nussbaum 121,058 69,433 54,286 $363,622 608,399 Michael V. Schrock 60,750 69,433 54,286 Charles M. Strother, MD (4) 15,000 31,823 54,286 Mary A. Winston 60,500 69,433 54,286 -- -- -- 184,469 101,109 184,219 (1) Includes annual retainer, meeting, committee and chairmanship fees and, in the case of Mr. Nussbaum, his fee for serving as Chairman of the Board. See below regarding Mr. Nussbaum’s compensation. (2) The amounts shown represent the grant date fair value computed in accordance with Accounting Standards Codification Topic 718 of stock options and unrestricted stock awards granted in fiscal 2011. Generally accepted accounting principles (“GAAP”) require us to recognize compensation expense for stock options and other stock-related awards granted to our employees and directors based on the estimated fair value of the equity instrument at the time of grant. Compensation expense is recognized over the vesting period. The assumptions used to determine the valuation of the awards are discussed in footnote 11 to our consolidated financial statements. The following table provides cumulative information about the grant date fair value of options and stock awards granted to directors in fiscal 2011, determined as of the respective grant dates in accordance with GAAP. It also provides the number of outstanding stock options that were held by our non-employee directors at October 1, 2011. The Company began granting unrestricted stock awards to directors in fiscal 2010; however, restricted stock awards were not granted to directors in fiscal 2011 or any prior years. 18 Option Awards Stock Awards Grant Date Fair Value of 2011 Option Awards ($) $69,433 69,433 69,433 69,433 52,999 69,433 69,433 31,823 69,433 Number of Securities Underlying Unexercised Options (#) 52,250 60,750 62,250 48,750 3,750 21,250 38,750 26,250 17,750 Grant Date Fair Value of 2011 Stock Awards ($) $54,286 54,286 54,286 54,286 54,286 54,286 54,286 54,286 54,286 Name Mr. Böer Mr. Cortinovis Mr. Drury Mr. Kelly Mr. Martens Mr. Nussbaum Mr. Schrock Dr. Strother Ms. Winston Each non-employee director serving at the time was awarded options for 1,250 shares on each of November 1, 2010, January 24, 2011, April 25, 2011, and July 25, 2011. All options granted to non-employee directors vest immediately on the respective grant dates. Options granted to non-employee directors expire on the earlier of (a) ten years from the date of grant, or (b) two years after termination of service as a director. In addition, on January 24, 2011, each non-employee director received an unrestricted stock award for 2,000 shares; the average of the high and low trading prices of our shares on the Nasdaq Global Select Stock Market on that date was approximately $27.14. Messrs. Böer, Cortinovis and Nussbaum and Ms. Winston each elected to defer receipt of the 2011 unrestricted stock award. (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 2011 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. (4) Dr. Strother did not stand for re-election at the Company’s 2011 annual meeting and, therefore, left the board on February 16, 2011. 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 as well as for two other executive officers and directors who subsequently retired. Those arrangements were intended to both reward past service and maintain an additional incentive for those officers’ continued performance on behalf of Plexus. The related supplemental executive retirement agreement for Mr. Nussbaum was amended in 2009 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 was consistent with the intent of the original agreement and with the manner in which the agreement operated in practice. The arrangements are designed to provide specified retirement and death benefits to Mr. Nussbaum in addition to those provided under the 401(k) Plan. Plexus’ commitment was funded in 19 fiscal 2002 and prior years. Mr. Nussbaum has received payments under the special retirement arrangements since 2002, including payments of $325,635 for fiscal 2009, $338,660 for fiscal 2010 and $352,742 for fiscal 2011. 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 a fee of $75,000 in fiscal 2011 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 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. 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 2011 our insiders have complied with all Section 16(a) filing requirements that were applicable to them with the following exceptions. Mr. Foate and Joseph E. Mauthe, Plexus’ Senior Vice President – Global Human Resources, each timely reported the vesting of restricted stock units on November 5, 2010, but reported the withholding of a portion of the shares received upon such vesting for tax purposes late. The related transactions by Messrs. Foate and Mauthe, which involved 3,746 shares and 204 shares, respectively, were each reported on December 23, 2010. 20 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 Summary Executive Compensation Philosophy, Goals and Process The Committee’s philosophy is to fairly compensate all employees, 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 employee. 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 inappropriate 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: • • • • 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. 21 Reward Component Annual Incentive Long-Term Incentives Benefits Retirement Plans Agreements Purpose 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 and/or team 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. As it applies to executive officers, the VICP is now a sub-plan of the 2008 Long-Term Plan. A substantial part of compensation, which is also at risk, is long-term equity-based compensation, typically awarded in the form of stock options and restricted stock units (“RSUs”) under the 2008 Long-Term Plan. 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, as well as 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. At Plexus’ 2011 annual meeting of shareholders, the Company held its first shareholder advisory vote on executive compensation. Over 96% of shares voting supported the proposal and, therefore, the advisory resolution regarding executive compensation was approved. Although the vote was non-binding, the Company, the board of directors and the Committee all pay close attention to communications received from shareholders regarding the Company’s executive compensation policies and decisions. The Committee reviewed the results of the vote and considered the high approval rate as an indication that shareholders generally support the Company’s executive compensation philosophy, program and decisions. 22 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 45% to 60% of base salary in fiscal 2011 with the opportunity to earn cash incentives beyond those levels 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 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 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. Base salary adjustments and equity awards are generally targeted for implementation in the second quarter of each fiscal year. The Committee believes this timing aligns employee rewards with the Company’s processes to evaluate employees’ performance and forges a strong link between performance and pay. The resulting total targeted direct compensation mix used for fiscal 2011 for the Chief Executive Officer and the other executive officers named in the Summary Compensation Table herein (the “named executive officers”) is illustrated in the charts below: CEO Other Named Executive Officers Base Salary 19% Base Salary 28% Long-Term Incentives 62% Base Salary Annual Incentive 19% Long-Term Incentives 57% Annual Incentive 15% 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 Committee expects to make determinations of base salary adjustments for our executive officers in December 2011 after it has reviewed and considered the analysis discussed above in “Corporate Governance–Board Committees–Compensation and Leadership Development Committee–Overview of the Compensation Decision-Making Process–Use of Consultants.” The effective date of any base salary adjustment for our executive officers is generally targeted for January in order to be aligned with the Company’s other U.S. salaried employees. 23 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. 2011 Base Salary Adjustments. Base salary adjustments for fiscal 2011 were approved by the Committee in December 2010. For fiscal 2011, the Committee approved a base salary adjustment of $25,000 for the CEO, a 3.2% increase from his fiscal 2010 base salary, to $800,000. As a result of that adjustment, our CEO’s salary is near the intended 50th percentile of peer group and market comparisons; the salary was approximately 7% above the 50th percentile in the market comparison, but was 8% below the 50th percentile in the peer group comparison. The Committee believed this increase to be appropriate, particularly in view of the Company’s strong financial performance in fiscal 2010 and the fact that the CEO’s total compensation is more heavily weighted toward performance-based compensation than the total compensation of our other executive officers. Our CEO’s base salary is also higher than that of our other executive officers because of his more extensive and challenging duties and responsibilities. Increases for the other executive officers varied from 3.6% to 20.7% 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, merit increases and, in certain cases, increases in responsibilities. In addition, Mr. Lim’s compensation and benefits package also reflects regional survey data of the Asian markets. 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 2011 base salaries and percentage increases as compared to fiscal 2010 for our named executive officers: 24 Executive Officer Mr. Foate………………………………………… Ms. Jones……………………………………....... Mr. Buseman……………………………………. Mr. Kelsey……………………………………… Mr. Lim………………………………………….. Fiscal 2011 Base Salary $800,000 $380,000 $360,000 $330,000 $345,000 Percentage Increase Compared to Fiscal 2010 3.2% 7.0% 9.1% 10.0% 16.9%* * Mr. Lim is based in Malaysia and is paid in local currency, the Malaysian ringgit (“MYR”). While Mr. Lim’s base salary increase as compared to fiscal 2010 in U.S. dollars was 16.9%, due to the variation in currency exchange rates, the increase in base salary measured in MYR was 6.5%. Annual Incentive Plan Structure. The VICP provides annual cash incentives to approximately 3,200 participants, including our CEO and other executive officers. For executive officers, beginning in fiscal 2011, the VICP is a sub- plan of the 2008 Long-Term Plan. The award opportunity levels for each participant are expressed as a percentage of base salary. For example, in fiscal 2011 the targeted award opportunity for the CEO was 100% of base salary, and the targeted award opportunities for other executive officers varied from 45% to 60% of base salaries; the award opportunities for non-executive officer participants varied from 3% to 45% of base salaries. The targeted award opportunities for executive officers other than our CEO increased in fiscal 2011, generally by ten percentage points, as a result of adjustments for market competitiveness and, in certain cases, increases in responsibilities. In addition, offering a greater percentage of compensation at risk was intended to further align executive compensation with Company performance and the interests of shareholders. Our CEO and other executive officers also have the opportunity to earn above their targeted award opportunities based on the achievement of corporate financial goals. Higher levels of duties and responsibilities within Plexus lead to higher cash incentive opportunities under the VICP because the Committee believes that the higher the level of responsibility, the more influence the individual can have on corporate performance. In addition, competitive factors make relatively higher reward possibilities important for those positions. For each executive officer, 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 2011 targeted VICP award opportunities for the named executive officers, expressed as a percentage of base salary: Executive Officer Mr. Foate ………………………….......................... Ms. Jones…………………………………………... Mr. Buseman………………………………………. Mr. Kelsey…………………………………………. Mr. Lim……………………………………………. Fiscal 2011 Targeted Award as a Percentage of Base Salary 100% 60% 60% 60% 50% 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 payout levels” beyond which no further payment is earned. The payout at the “maximum payout 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. Payments to participants are not permitted under the VICP unless the Company achieves net income for the plan year. 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 2011. 2011 Plan Design – Company Goals. The specific corporate financial goals for fiscal 2011, 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 25 key financial metrics that the Company used internally to measure its ongoing performance and that it used in its financial plans. Our fiscal 2011 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 payout” 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 “target” level are calculated by straight-line interpolation, as are awards between the “target” level and the “maximum payout” level. For fiscal 2011, in accordance with Plexus’ strategic plan, the Committee set performance levels for each metric with a focus on achieving our enduring financial goals—15% organic revenue growth and ROCE of 500 basis points above our weighted average cost of capital (“WACC”)—using the philosophy below: Threshold Target Revenue ROCE Growth approximately equal to inflation Equal to Plexus’ WACC Midpoint between threshold and maximum payout Consistent with target revenue growth and planned investments Maximum Payout (Enduring Goals) 15% revenue growth Equal to Plexus’ WACC plus 500 basis points We believe that setting the maximum payout levels for revenue and ROCE consistent with our enduring financial goals fully aligns employees with the financial results that deliver value to our shareholders. Threshold levels for both metrics were set at the minimum levels of performance at which Plexus believes it begins generating value for our shareholders. Target levels for revenue and ROCE, which were set between the threshold and maximum payout levels, were intended be aggressive, yet achievable, to incentivize growth, but also deter inappropriate risk-taking. The 2011 revenue target represented approximately 10% growth over 2010 revenue; the 2011 ROCE target was below the level achieved in fiscal 2010 to recognize the higher levels of capital investment and working capital planned for fiscal 2011. The Committee felt these performance levels were challenging, but achievable, based on industry conditions and Plexus’ financial plan. The following table sets forth the fiscal 2011 financial targets and potential VICP payout amounts (as a percent of targeted VICP cash incentive) for the named executive officers, at the threshold, target and maximum payout 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 Payout Goal $2,092 16.5% Payout 0% 0% up to 20% Goal $2,214 19.0% Payout 40% 40% up to 20% Goal $2,315 21.5% Payout 90% 90% up to 20% up to 20% up to 100% up to 200% 26 In fiscal 2011, revenue was $2,231 million and ROCE was 17.9%. Therefore, the Company’s performance was between the target and maximum payout levels for revenue and between the threshold and target levels for ROCE; thus, Plexus paid awards to executive officers and other employees based on those two components. As a consequence, total payments based on revenue and ROCE represented 70.6% versus the target of 80% for corporate financial performance. Plexus’ actual performance in fiscal 2011 as compared to these performance levels is illustrated by the following graph: 19.0% $2,214 16.5% $2,092 21.5% $2,315 17.9% $2,231 Revenue ROCE Threshold Target Maximum Payout Fiscal 2011 Actual 2011 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 work as part of a team to focus on an objective. Attainment of the individual objectives represents 20% of the potential targeted VICP award; however, no such award may be earned based on individual objectives unless the Company achieves net income for the plan year. 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” award, varied among the other named executive officers from 72.8% to 75.1% of the individual’s potential payout for personal objectives, with the CEO achieving 87.0%. 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 award percentage 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 2011: – Dean A. Foate: Mr. Foate’s individual objectives related to: designing strategies to support global expansion and to expand the Company’s engineering solutions business; implementing branding strategies to more effectively communicate Plexus’ value proposition in the marketplace; refining the Company’s crisis management strategies; and sharpening the Company’s processes for effectively deploying strategies and initiatives. 27 – Ginger M. Jones: Ms. Jones’ individual objectives related to: designing strategies to support global expansion; implementing a governance framework for identifying, assessing and managing enterprise risk; implementing the Company’s branding strategy to more effectively communicate Plexus’ value proposition in the marketplace; designing strategies for the continued development and deployment of a global information technology (“IT”) platform; implementing processes to enhance the effectiveness of trade and government contracting compliance; refining internal forecasting processes; implementing internal decision-making processes to evaluate, deploy and track strategic investments; designing strategies to ensure ongoing leadership development throughout the Company; and optimizing the Company’s overall cash cycle and improve return on invested capital. – 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; implementing the Company’s branding strategy to more effectively communicate Plexus’ value proposition; implementing 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; designing strategies to ensure ongoing leadership development throughout the Company; optimizing the Company’s overall cash cycle and improving return on invested capital; implementing strategies and processes for the effective integration of customer management, manufacturing and engineering operations; developing processes to enhance the effectiveness of trade and government contracting compliance; sharpening the Company’s processes for effectively deploying Company strategies and initiatives; refining internal forecasting processes; and designing strategies to mitigate potential future risks associated with manufacturing operations. – Todd P. Kelsey: Mr. Kelsey’s individual objectives related to: designing strategies to support global expansion and to expand the Company’s engineering solutions business; developing and implementing strategies to differentiate the Company in the marketplace through the expansion of service capabilities; implementing the Company’s branding strategy to more effectively communicate Plexus’ value proposition; designing strategies to ensure ongoing leadership development throughout the Company; optimizing the Company’s overall cash cycle and improving return on invested capital; implementing strategies and processes for the effective integration of customer management, manufacturing and engineering operations; refining internal forecasting processes; developing processes to enhance the effectiveness of trade and government contracting compliance; and designing strategies to mitigate potential future risks associated with manufacturing operations. – Yong Jin Lim: Mr. Lim’s individual objectives related to: designing strategies to support the expansion of operations in Asia; implementing strategies and processes for the effective integration of customer management, manufacturing and engineering operations; designing strategies for the continued development and deployment of a global IT platform; designing strategies to ensure ongoing leadership development throughout the Company; developing and implementing strategies to differentiate the Company in the marketplace through the expansion of service capabilities; implementing the Company’s branding strategy to more effectively communicate Plexus’ value proposition; optimizing the Company’s overall cash cycle and improving return on invested capital; and refining internal forecasting processes. 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, unrestricted stock awards, performance stock awards and cash incentive awards. 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 2011. The reported values of the long-term incentive opportunities under equity plans can vary 28 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. The Committee’s long-term incentive strategy allows for use of a portfolio approach when granting awards. For fiscal 2011 the Committee used, and going forward the Committee intends to continue using, a combination of stock options and RSUs. Prior to fiscal 2011, the Committee also granted long-term cash awards, which served as a stable retention incentive of a known value. In order to more strongly align all long-term incentives with the Company’s overall performance and the interests of shareholders, the Committee discontinued the use of long-term cash awards beginning in fiscal 2011, and somewhat increased the number of RSUs to provide equivalent value. 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, and there is no value to these awards if our share price does not increase. – RSUs provide an interest in the value of the Company’s shares, because, even though they vest over time, they provide recipients with a certain equity interest, assuming continued employment. RSUs further align executives’ interests with the interests of shareholders and provide a long-term ownership mentality as well as motivation to succeed in the long-term because the value of RSUs does not solely depend upon increases in the market price of our shares, which may occur over a short period of time. – 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 while promoting employee share ownership. Stock-settled SARs also allow the Committee to preserve shares available under the plan and minimizes dilution. The allocation formulas used in fiscal 2011 for executive officers and other non-executive employees receiving equity grants are illustrated in the charts below: Executive Officers Senior Non-Executive Employees Other Non-Executive Employees RSUs 40% RSUs 30% Stock-settled SARs 70% Stock-settled SARs 100% Options 60% Annual Award Determination and Allocation Process. Each year the Committee is presented a recommended total pool of options, stock-settled SARs and RSUs to be awarded to eligible participants. The Committee reviews the estimated cost of the pool and the recommended grant guidelines prior to making grants. Pursuant to its portfolio approach, the Committee distributes the entire value of each grant among the three types of awards—options, stock-settled SARs and RSUs— 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 returns. 29 The Committee determines the grants for the CEO and other executive officers. The CEO provides the Committee with initial grant recommendations for each executive officer other than himself. The Committee determines the grant value for each executive officer by balancing the need to provide fair compensation with the desire to keep related compensation expense relatively stable from period to period. When making individual grants, the Committee considers each executive officer’s duties, responsibilities and performance. Those in positions with more responsibility tend to receive larger grants 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, as well as the accumulated value analysis, to balance the level of existing awards with the desire to reward performance and to provide retention incentives. For fiscal 2011, options for 82,000 shares and 32,800 RSUs were granted to the CEO, and options for 143,250 shares and 58,800 RSUs were granted to the other executive officers as a group. Equity awards, consisting of stock-settled SARs and RSUs, are also allocated to high-performing key employees based upon recommendations by executive officers in accordance with a grant range grid, which assigns a range of grant sizes to each employee responsibility level. 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 are generally made once a year during the fiscal second quarter. The Committee did not make any special retention-related grants of RSUs in fiscal 2011, as the Committee continued to believe that the fiscal 2009 retention-related grants of RSUs had their intended retention effect and, therefore, no additional special grants were necessary. 2011 Awards. Based on the Committee’s long-term incentive strategy as well as individual responsibility and performance considerations, and reflecting all of the grants discussed above, in fiscal 2011, the Committee made total grants of options and RSUs to the named executive officers as follows: Executive Officer Options (#) RSUs (#) Mr. Foate Ms. Jones Mr. Buseman Mr. Kelsey Mr. Lim 82,000 20,000 25,000 25,000 20,000 32,800 8,000 10,000 10,000 8,000 Options vest in two annual increments and grants of RSUs vest on the third anniversary of the grant, all subject to early vesting on a change in control. 30 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 our CEO to own Plexus stock with a market value equal to at least three times his annual base salary; executive officers other than our CEO, including the named executive officers in the “Summary Compensation Table” below, are required 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 or awarded while an executive officer until the ownership requirement is met; there are exceptions, including financing the exercise of stock options and any applicable taxes 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 five of our officers, including our CEO, have met the ultimate ownership amounts required by the guidelines. Clawback Policy. The board of directors adopted the Plexus Corp. Executive Compensation Clawback Policy, effective November 2010. Pursuant to the policy, in the event of a material restatement of the Company’s financial results as a result of significant non-compliance with financial reporting requirements, the Committee will review incentive compensation that was paid to the Company’s executive officers under the VICP (or any successor plan thereto) based solely on the achievement of specific corporate financial goals (“covered compensation”) during the period of the restatement. If any covered compensation would have been lower had the covered compensation been calculated based on the Company’s restated financial results, the Committee will, as and to the extent it deems appropriate, recoup any portion of covered compensation paid in excess of what would have been paid based on the restated financial results. The Committee may seek the recovery of covered compensation for up to three years preceding the date on which the Company is required to restate its financial results. This policy applies in addition to any right of recoupment against the Company’s Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002. The policy does not apply in any situation where a restatement is not the result of significant non-compliance with financial reporting requirements, such as any restatement due to a change in applicable accounting rules, standards or interpretations, a change in segment designations or the discontinuance of an operation. Anti-Hedging Policy. In August 2011, the Company revised its Insider Trading Policy to explicitly prohibit directors, officers and employees from engaging in transactions designed to hedge or offset a decrease in the price of the Company’s common stock. Short sales of the Company’s securities are also prohibited under the Insider Trading Policy. 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 health and welfare 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 $15,000 per calendar year to be used for 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. 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 as well as to executive officers who may be temporarily assigned outside of the United States. 31 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 $9,800 per calendar year (increasing to $10,000 in calendar year 2012). Employees have a choice of investment alternatives, 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. 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; the Committee believes these limitations make supplemental retirement plans common practice in general industry. The Committee also 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 2011 Plan Activity. – Contribution Formula. Under a funding plan adopted by the Committee, the SERP provides for an annual discretionary contribution of the greater of (a) 7% of the executive’s total targeted cash compensation (increased to 9% beginning in August 2011, as described below), 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 cash incentive 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 Watson, its compensation consultant for that program. In fiscal 2011, at the request of the Committee, Towers Watson conducted a competitive analysis of the contribution formula. While the contribution formula was found to reasonable, it was determined to be slightly lower than current competitive practice. Therefore, the Committee decided to increase the Company contribution from 7% to 9% of the executive’s total targeted cash compensation, beginning in August 2011, in order to be more in line with current market practice. – Employer Contributions. For fiscal 2011, the total employer contributions to the SERP accounts was $280,534 for all participants as a group, including $108,768 for the CEO. See footnote 4 to the “Summary Compensation Table.” 32 – Special Contribution. The SERP also allows the Committee to make discretionary contributions over and above the annual contribution noted above. In fiscal 2011, the Committee did not make any such contributions to any of the executive officers, including the named executive officers. Fiscal 2012 Payment Schedule. The annual contribution made by the Company will be paid throughout the year on a bi-weekly basis. This schedule allows for dollar cost averaging and spreads the expense of the contribution across the fiscal year. If necessary, a true-up payment will be made at the end of the fiscal year if the Company contribution for any executive officer is less than $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 2011 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. Determination of Benefit Levels. In general, the change in control agreements with executive officers provide that, upon termination in the event of a change in control, executive officers will receive compensation equaling 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) 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. In determining which employees should have change in control agreements, the Committee utilizes its guidelines, which focus on position, responsibilities and compensation level in order to minimize subjectivity. The Committee originally set these benefit levels in 2008, when the agreements were updated and revised, and reviews them annually. It is the Committee’s view that the level of benefits, combined with the “double trigger” requiring both a change in control and a termination of employment, provides an appropriate balancing of the interests of the Company, its shareholders and its executives. Benefit levels are believed to be both 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. The Committee believes it is 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 its predecessor), as approved by Plexus’ shareholders. Therefore, offering a package that is consistent with market practices, is appropriate to help motivate executives to focus on the Company’s shareholders, even when the circumstance might jeopardize 33 their employment. The Committee also intends that the potential expense of the agreements is 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; potential expense was estimated at 2.6% of total enterprise value as of the date of the Committee’s most recent determination. 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. The Committee periodically reviews the scope and context of the change in control agreements. The Committee continues to believe, as noted above, 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 incentive awards, including those made to executive officers pursuant to the VICP, under the 2008 Long-Term Plan (and predecessor plans) is exempt. Compensation under these shareholder approved plans that 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), 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 since fiscal 2008) would not be subject to the Code’s deduction limitation. However, if such restricted stock awards are made, the covered compensation of some individuals could exceed $1 million and, in those cases, the excess would not currently be tax deductible. In some years, the Company has foregone a portion of its tax deduction as a result of the size of VICP cash incentive payments. However, to ameliorate those tax consequences, the Company sought and received shareholder approval of the amendment to, and restatement of, the 2008 Long-Term Plan at the 2011 annual meeting so that VICP awards to executive officers may be granted under that plan; therefore, in fiscal 2011, such deduction was not foregone. 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 also provides 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 rules under Section 409A; however, we do not expect these changes to have a material tax or financial consequence on Plexus. 34 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 Phil R. Martens Michael V. Schrock 35 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 2011 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 2011 $793,266 $0 $890,290 $1,138,695 $698,159 $160,805 $3,681,215 2010 766,632 144,742 696,980 1,201,993 1,382,885 140,508 4,333,740 2009 745,673 147,222 368,898 740,343 0 134,620 2,136,756 Ginger M. Jones 2011 373,269 0 217,144 277,731 183,168 Senior Vice President and Chief Financial Officer 2010 349,537 32,654 169,995 293,169 314,654 2009 339,529 29,166 476,238 180,572 0 Michael D. Buseman 2011 351,923 0 271,430 347,163 172,946 Executive Vice President, Global Manufacturing Operations 2010 320,538 30,100 212,494 351,945 289,731 2009 303,654 26,467 604,993 180,572 0 Todd P. Kelsey 2011 321,922 0 271,430 347,163 158,982 92,217 63,284 55,343 72,073 59,083 59,373 62,673 1,143,529 1,223,293 1,080,848 1,215,535 1,263,891 1,175,059 1,162,170 Executive Vice President, Global Customer Services (5) Yong Jin Lim Regional President – Plexus APAC 2010 291,807 27,616 212,494 351,945 262,731 51,828 1,198,421 2011 352,221 0 217,144 277,731 143,755 142,174 1,133,025 2010 301,413 22,642 169,995 293,169 217,018 2009 267,708 18,510 476,238 180,572 0 89,768 99,141 1,094,005 1,042,169 (1) Includes amounts voluntarily deferred by the named persons under the Plexus Corp. 401(k) Savings Plan (the “401(k) Plan”), the Plexus supplemental executive retirement plan (the “SERP”) and, for Mr. Lim, the Malaysian Employees Provident Fund. 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 2011, fiscal 2010 and fiscal 2009, respectively, under our Variable Incentive Compensation Plan (“VICP”). Under the VICP, annual cash incentives 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 in fiscal 2010 and fiscal 2009, it is in the “Bonus” column. To the extent that the cash incentive resulted from corporate financial performance, and, for fiscal 2011, individual objectives, that portion of the cash incentive 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 “2011” row were earned in fiscal 2011 but will be paid in fiscal 2012, the amounts shown in the “2010” row were earned in fiscal 2010 and were paid in fiscal 2011, and the amounts shown in the “2009” row were earned in fiscal 2009 and were paid in fiscal 2010. The amounts in the “Non-Equity Incentive Plan Compensation” column for fiscal 2010 and 2009 also include the value of long-term cash awards granted in those years, which vest on the third anniversary of their respective grant dates; no equivalent grants were made for fiscal 2011. 36 (3) This column represents the grant date fair value computed in accordance with Accounting Standards Codification Topic 718 (“ASC 718”) of stock and option awards granted in fiscal 2011, fiscal 2010 and fiscal 2009 under the 2008 Long-Term Plan, which are explained further below under “Grants of Plan-Based Awards.” These awards are not subject to performance conditions. 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 2011, and the “Outstanding Equity Awards at Fiscal Year End” table below relating to all outstanding stock and option awards at the end of fiscal 2011. (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 benefit provided to the executive, additional life and disability insurance coverage and benefits related to an overseas assignment. Per person detail is listed in the table below: Company Matching Contribution to 401(k) Plan Company Contribution to SERP Executive Flexible Perquisite Benefit $9,800 9,800 6,125 9,800 10,111 8,761 9,800 8,423 5,414 10,723 10,660 -- -- -- $108,768 96,894 98,875 33,907 27,341 29,050 31,411 24,489 25,375 27,868 21,397 107,516 57,559 66,589 $19,320 12,482 17,219 11,026 14,294 13,302 19,131 15,002 16,931 12,206 8,728 -- -- -- Year 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2011 2010 2009 Company Car Benefit $10,581 10,936 2,101 9,340 10,515 3,311 10,484 10,242 10,861 10,788 10,284 19,724 18,112 17,330 Additional Life and Disability Insurance $12,336 10,396 10,300 1,252 1,023 919 1,247 927 792 1,088 759 14,934 14,097 15,222 Overseas Assignment -- -- -- $26,892 -- -- -- -- -- -- -- -- -- -- Total $160,805 140,508 134,620 92,217 63,284 55,343 72,073 59,083 59,373 62,673 51,828 142,174 89,768 99,141 Mr. Foate Ms. Jones Mr. Buseman Mr. Kelsey Mr. Lim In fiscal 2009 and essentially all of the first quarter of fiscal 2010, 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. Beginning January 1, 2010, the executive flexible perquisite benefit was valued at up to $15,000 per calendar year, but the gross-up for taxes was eliminated. The amounts in the “Executive Flexible Perquisite Benefit” column above include the reimbursements under that program in the fiscal years listed, including the related tax gross-up amounts; these amounts may exceed the calendar year limits due to the tax gross-up and the difference between the fiscal and calendar year. Ms. Jones was on a temporary assignment for Plexus in Malaysia for a portion of fiscal 2011. The amount reported above in the “Overseas Assignment” column reflects benefits related to this assignment beyond those that were integral and necessary to the business purpose of the assignment, including expenses for a rental car for her spouse, as well as the related tax gross-up, and a $15,000 overseas allowance, which amount was not grossed up for taxes. (5) Although Mr. Kelsey has been an executive officer since 2007, he was a named executive officer for the first time in fiscal 2010. In accordance with SEC rules, information for fiscal 2009 is not required to be presented. 37 GRANTS OF PLAN-BASED AWARDS 2011 The following table sets forth information about stock and option awards that were granted to the named executive officers in fiscal 2011 under the 2008 Long-Term Plan, as well as information about the potential cash incentive awards dependent on quantifiable corporate performance and individual goals that those executive officers could earn for fiscal 2011 performance (to be paid in fiscal 2012) under the VICP. As a result of fiscal 2011 corporate performance, cash incentive awards based on these criteria were earned in 2011, as set forth under the “Non-Equity Incentive Compensation” column in the “Summary Compensation Table” above. We provide further information about both potential compensation under the VICP and awards under the 2008 Long-Term Plan in fiscal 2011 in the table below, and additional information about those plans following the table. Name Mr. Foate Ms. Jones Award Type VICP* RSUs (3) Options VICP* RSUs (3) Options Mr. Buseman VICP* RSUs (3) Options VICP* RSUs (3) Options VICP* RSUs (3) Options Mr. Kelsey Mr. Lim Estimated Future Payouts Under Non- Equity Incentive Plan Awards Grant Date Threshold ($)(1) 12/22/10 01/24/11 11/01/10 01/24/11 04/25/11 07/25/11 12/22/10 01/24/11 11/01/10 01/24/11 04/25/11 07/25/11 12/22/10 01/24/11 11/01/10 01/24/11 04/25/11 07/25/11 12/22/10 01/24/11 11/01/10 01/24/11 04/25/11 07/25/11 12/22/10 01/24/11 11/01/10 01/24/11 04/25/11 07/25/11 $1 -- -- -- -- -- 1 -- -- -- -- -- 1 -- -- -- -- -- 1 -- -- -- -- -- 1 -- -- -- -- -- Target ($)(1) $793,269 -- -- -- -- -- 215,087 -- -- -- -- -- 202,904 -- -- -- -- -- 185,654 -- -- -- -- -- 167,918 -- -- -- -- -- Maximum* ($)(1) $1,586,538 -- -- -- -- -- 430,173 -- -- -- -- -- 405,808 -- -- -- -- -- 371,308 -- -- -- -- -- 335,836 -- -- -- -- -- All Other Stock Awards: Number of Shares of Stocks or Units (#) -- 32,800 (3) -- -- -- -- -- 8,000 (3) -- -- -- -- -- 10,000 (3) -- -- -- -- -- 10,000 (3) -- -- -- -- -- 8,000 (3) -- -- -- -- All Other Option Awards: Number of Securities Underlying Options (#) -- -- 20,500 20,500 20,500 20,500 Exercise or Base Price of Option Awards ($/sh) (2) -- -- $29.798 27.143 36.955 30.19 Closing Market Price on Grant Date ($/sh) (2) -- -- $29.39 27.27 36.42 29.78 -- -- 5,000 5,000 5,000 5,000 -- -- 6,250 6,250 6,250 6,250 -- -- 6,250 6,250 6,250 6,250 -- -- 5,000 5,000 5,000 5,000 -- -- 29.798 27.143 36.955 30.19 -- -- 29.798 27.143 36.955 30.19 -- -- 29.798 27.143 36.955 30.19 -- -- 29.798 27.143 36.955 30.19 -- -- 29.39 27.27 36.42 29.78 -- -- 29.39 27.27 36.42 29.78 -- -- 29.39 27.27 36.42 29.78 -- -- 29.39 27.27 36.42 29.78 Grant Date Fair Value of Stock and Option Awards ($) -- $890,290 269,514 252,380 344,578 272,224 -- 217,144 65,735 61,556 84,044 66,396 -- 271,430 82,169 76,945 105,054 82,995 -- 271,430 82,169 76,945 105,054 82,995 -- 217,144 65,735 61,556 84,044 66,396 * Represents a potential cash incentive payment for fiscal 2011 at various performance levels under the VICP (amounts in the “Maximum” column correspond to the “maximum payout level” under the VICP); other grants are stock options and restricted stock units (“RSUs”) under the 2008 Long-Term Plan. As a result of Plexus’ actual performance in fiscal 2011, overall cash incentive awards were earned based on corporate financial performance between the threshold and target levels, as reflected in the “Summary Compensation Table” and discussed in “Compensation Discussion and Analysis” above. (1) Amounts in the rows labeled “VICP*” reflect potential cash incentive payments that depend on Plexus meeting corporate financial goals and the named executive officers achieving individual objectives (assuming such officers do not meet any of their individual objectives at “Threshold” and meet them fully at both “Target” and 38 the “maximum payout level”). The amounts in the “Threshold” column indicate a payment for performance just above the threshold; there is no minimum payment once the threshold has been exceeded. (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 that were granted in fiscal 2011 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 January 24, 2014, assuming continued employment. See the discussions below under the caption “2008 Long-Term Plan.” VICP Beginning in fiscal 2011, the VICP (as it applies to our executive officers) is now a sub-plan of the 2008 Long-Term Plan. Under the VICP, our executive officers may earn cash incentive awards that depend in substantial part upon the degree to which Plexus achieves corporate financial goals, which are set by our Compensation and Leadership Development Committee (the “Committee”) shortly after the beginning of our fiscal year. As long as Plexus achieves net income for the plan year, each executive officer also may earn a portion of his or her cash incentive award by accomplishing the individual objectives set for that executive officer. These awards are intended to reflect, in each instance, an individual’s performance that may not be reflected in the financial performance of the entire Company. The amounts included in the table are potential future payouts under non-equity incentive awards that could be earned pursuant to both corporate financial and individual 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 met exactly at the targeted level and the maximum amount that could be earned under the VICP, which is known as the “maximum payout level.” As noted above, the potential payouts reported in the table assume that the named executive officers do not meet any of their individual objectives at threshold and achieve them fully at both target and the maximum payout level. Actual Company performance in fiscal 2011 was between the target and the maximum payout levels for revenue and was between the threshold and target levels for return on capital employed (“ROCE”); thus, total cash incentives based on corporate financial goals were paid between the threshold and target levels, as reported in the “Non-Equity Incentive Compensation” column in the “Summary Compensation Table” above. The maximum amount that could be earned based on individual performance was $158,654 for Mr. Foate (which would have been 20% of his cash incentive award at the targeted levels) and varied from $33,584 to $43,017 for the other named executive officers (also representing 20%). 2008 Long-Term Plan Under the 2008 Long-Term Plan, the Committee 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, unrestricted stock awards, performance stock awards (which may be settled in cash or stock) and cash incentive 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 2011, annual grants were made in January 2011, and vest three years from the date of the grant, assuming continued employment. Going forward, the Committee anticipates continuing to make grants of RSUs in the second quarter of each fiscal year. 39 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END October 1, 2011 The following table sets forth information about Plexus stock and option awards held by the named executive officers that were outstanding at the end of fiscal 2011. Option Awards Stock Awards Name Mr. Foate Number of Securities Underlying Unexercised Options (#) (1) Exercisable Number of Securities Underlying Unexercised Options (#) (1) Unexercisable 96,046 45,000 75,000 75,000 100,000 37,500 37,500 18,750 18,750 18,750 18,750 20,500 20,500 20,500 20,500 10,250 10,250 10,250 10,250 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 10,250 10,250 10,250 10,250 20,500 20,500 20,500 20,500 Option Exercise Price ($) 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 25.335 33.999 38.24 30.475 29.798 27.143 36.955 30.19 Option Expiration Date 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 11/02/19 01/25/20 04/23/20 07/26/20 11/01/20 01/24/21 04/25/21 07/25/21 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) 20,398 (3) 20,500 (4) 32,800 (5) $461,403 463,710 741,936 40 Option Awards Stock Awards Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (2) 4,975 (3) 15,000 (6) 5,000 (4) 8,000 (5) 112,535 339,300 113,100 180,960 4,975 (3) 20,000 (6) 6,250 (4) 10,000 (5) 112,535 452,400 141,375 226,200 Name Ms. Jones Mr. Buseman Number of Securities Underlying Unexercised Options (#) (1) Exercisable Number of Securities Underlying Unexercised Options (#) (1) Unexercisable 10,000 4,000 4,000 4,000 4,000 5,000 5,000 5,000 5,000 2,500 2,500 2,500 2,500 -- -- -- -- 5,000 2,500 2,500 3,000 3,000 3,000 3,000 5,000 5,000 5,000 5,000 2,500 3,125 3,125 3,125 -- -- -- -- -- -- -- -- -- -- -- -- -- 2,500 2,500 2,500 2,500 5,000 5,000 5,000 5,000 -- -- -- -- -- -- -- -- -- -- -- 2,500 3,125 3,125 3,125 6,250 6,250 6,250 6,250 Option Expiration Date 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 11/02/19 01/25/20 04/23/20 07/26/20 11/01/20 01/24/21 04/25/21 07/25/21 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 11/02/19 01/25/20 04/23/20 07/26/20 11/01/20 01/24/21 04/25/21 07/25/21 Option Exercise Price ($) 18.185 30.54 22.17 24.21 29.71 18.085 14.625 20.953 25.751 25.335 33.999 38.24 30.475 29.798 27.143 36.955 30.19 39.00 21.41 23.83 30.54 22.17 24.21 29.71 18.085 14.625 20.953 25.751 25.335 33.999 38.24 30.475 29.798 27.143 36.955 30.19 41 Option Awards Stock Awards Name Mr. Kelsey Mr. Lim Number of Securities Underlying Unexercised Options (#) (1) Exercisable Number of Securities Underlying Unexercised Options (#) (1) Unexercisable 3,600 5,000 3,000 5,000 2,500 2,500 3,000 3,000 3,000 3,000 5,000 5,000 5,000 5,000 2,500 3,125 3,125 3,125 -- -- -- -- 5,500 7,500 2,500 2,500 3,000 3,000 3,000 3,000 5,000 5,000 5,000 5,000 2,500 2,500 2,500 2,500 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2,500 3,125 3,125 3,125 6,250 6,250 6,250 6,250 -- -- -- -- -- -- -- -- -- -- -- -- 2,500 2,500 2,500 2,500 5,000 5,000 5,000 5,000 Option Expiration Date 04/22/12 04/28/14 05/18/15 05/17/16 05/17/17 08/01/17 11/05/17 01/28/18 04/28/18 07/29/18 10/31/18 02/02/19 05/04/19 08/03/19 11/02/19 01/25/20 04/23/20 07/26/20 11/01/20 01/24/21 04/25/21 07/25/21 05/18/15 05/17/16 05/17/17 08/01/17 11/05/17 01/28/18 04/28/18 07/29/18 10/31/18 02/02/19 05/04/19 08/03/19 11/02/19 01/25/20 04/23/20 07/26/20 11/01/20 01/24/21 04/25/21 07/25/21 Option Exercise Price ($) 25.285 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 25.335 33.999 38.24 30.475 29.798 27.143 36.955 30.19 12.94 42.515 21.41 23.83 30.54 22.17 24.21 29.71 18.085 14.625 20.953 25.751 25.335 33.999 38.24 30.475 29.798 27.143 36.955 30.19 42 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) 4,975 (3) 20,000 (6) 6,250 (4) 10,000 (5) 112,535 452,400 141,375 226,200 4,975 (3) 15,000 (6) 5,000 (4) 8,000 (5) 112,535 339,300 113,100 180,960 (1) Option award under the 2008 Long-Term Plan or a 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) vested one-third on each of the first three anniversaries of the grant date. Options granted in fiscal 2007 and after vest one-half on each of the first two anniversaries of the grant date. (2) Based on the $22.62 per share closing price of a share of our common stock on September 30, 2011, the last trading day of fiscal 2011. (3) Consists of RSUs awarded in fiscal 2009 under the 2008 Long-Term Plan. The RSUs vested on October 31, 2011, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. (4) Consists of RSUs awarded in fiscal 2010 under the 2008 Long-Term Plan. The RSUs vest on January 25, 2013, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. (5) Consists of RSUs awarded in fiscal 2011 under the 2008 Long-Term Plan. The RSUs vest on January 24, 2014, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. (6) Consists of RSUs awarded in fiscal 2009 under the 2008 Long-Term Plan. The RSUs vest on August 3, 2012, based on continued service through that date. See “Compensation Discussion and Analysis—Elements and Analysis of Direct Compensation—Long-Term Incentives” for additional information regarding awards. OPTION EXERCISES AND STOCK VESTED 2011 The following table sets forth information about the Plexus stock options that were exercised by the named executive officers and the RSUs that vested in fiscal 2011. Option Awards Stock Awards Number of Shares Acquired on Exercise (#) 13,954 -- -- 4,000 -- Value Realized on Exercise ($) (1) $151,422 -- -- 83,740 -- Number of Shares Acquired on Vesting (#) 21,375 4,560 3,420 3,420 3,420 Value Realized on Vesting ($) (2) $671,068 143,161 107,371 107,371 107,371 Name Mr. Foate Ms. Jones Mr. Buseman Mr. Kelsey Mr. Lim (1) Based on the difference between the exercise prices and sale prices on the date of exercise. (2) Based on the average of the high and low trading prices of the Company’s common stock on the Nasdaq Global Select Stock Market on the date of vesting, November 5, 2010. 43 NONQUALIFIED DEFERRED COMPENSATION 2011 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 75% of their annual compensation, up to a maximum tax code mandated limit of $16,500 ($22,000 if age 50 or older) in calendar year 2011 (increasing to up to $17,000 and $22,500, respectively, in calendar year 2012); Plexus will match 100% of the first 4.0% of salary which an employee defers, up to $9,800 in calendar year 2011 (increasing to up to $10,000 in calendar year 2012). 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 2011 include Ms. Jones and Messrs. Foate, Buseman and Kelsey. 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, including the named executive officers, did not make any personal voluntary deferrals to the SERP for fiscal year 2011. The plan also allows for discretionary Plexus contributions. As discussed in “Compensation Discussion and Analysis—-Elements and Analysis of Other Compensation—Retirement Planning - Supplemental Executive Retirement Plan,” in fiscal 2011, the Committee approved an increase in the Company contribution to the SERP after reviewing a competitive analysis prepared by Towers Watson. As a result, beginning in August 2011, the discretionary contribution is the greater of (a) 9% of the executive’s total targeted cash compensation (increased from 7%), minus Plexus’ permitted contributions to the executive officer’s account in the 401(k) Plan, or (b) $13,500. The Committee may also choose to make additional or special contributions; no such contributions were made in fiscal 2011. Mr. Lim does not participate in these plans because he is a resident of Malaysia and is covered by a different system. Under Malaysian law, an employer must make a contribution to the fund of at least 12% of every employee’s salary during the year to the Employees Provident Fund, which is a retirement savings program established under Malaysian law. In accordance with its practice in Malaysia, Plexus made a contribution of 17% for Mr. Lim to reflect his seniority and responsibilities. The following table includes information as to contributions under the SERP or, in the case of Mr. Lim, the Malaysian Employees Provident Fund. Since the 401(k) Plan is a tax-qualified plan generally available to all employees, contributions on behalf of the executive officers and earnings in that plan are not included in this table; however, company contributions under both are among the items included in the “All Other Compensation” column in the “Summary Compensation Table” above. 44 Executive Contributions in Last FY ($) (1) -- Registrant Contributions in Last FY ($) $108,768 Aggregate Earnings (Loss) in Last FY ($) $3,027 Aggregate Withdrawals/ Distributions ($) -- Aggregate Balance at Last FYE ($) $1,792,238 -- -- -- 33,907 615 31,411 (4,701) 27,868 (3,316) -- -- -- 183,944 130,607 86,782 Name Mr. Foate Ms. Jones Mr. Buseman Mr. Kelsey Mr. Lim (2) $66,964 107,516 26,698 (3) $208,107 541,205 (4) (1) Includes contributions by the named executive officers that are included in the “Salary” column in the “Summary Compensation Table” above, as follows: Mr. Lim – $36,311. (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 2010. This information is not yet available to Mr. Lim or the Company from the Malaysian Employees Provident Fund for calendar year 2011. (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. The balance also reflects changes in currency exchange rates between the MYR and the U.S. dollar. 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 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. The Company entered into a new employment agreement with Mr. Foate in 2008. The new employment agreement, which was approved by the 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 voluntarily leaves without good reason, dies or becomes disabled, or the agreement is not renewed, Plexus is not 45 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 cash incentive award 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. Change in control provisions are included in Mr. Foate’s current employment agreement and 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 1, 2011. 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 Plexus has change in control agreements with Ms. Jones and Messrs. Buseman, Kelsey and Lim, and its other executive officers (with the exception of Mr. Foate as described above under the caption “Mr. Foate’s Employment Agreement”) and certain other key employees. Under the terms of these agreements, if there is a change in control of Plexus, as defined in the agreement, the executive officers’ authorities, duties and responsibilities shall remain at least commensurate in all material respects with those prior to the change in control. Their compensation may not be reduced. Their benefits must be commensurate with those of similarly situated executives of the acquiring firm, and their location of employment must not be changed significantly as a result of the change in control. Within 24 months after a change in control, in the event that any covered executive officer is terminated other than for cause, death or disability, or an executive officer terminates his or her employment with good reason, Plexus is obligated to pay the executive officer, in a cash lump sum, an amount equal to three times (one to two times for other key employees) the executive officer’s base salary plus targeted cash incentive 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. Buseman, Kelsey and Lim. The agreements further provide for payment of additional amounts which may be necessary to “gross-up” the amounts due to such executive officer in the event of the imposition of an excise tax upon the payments. The agreements do not preclude termination of the executive officer, or require payment of any benefit, if there has not been a change in control of Plexus, nor do they limit the ability of Plexus to terminate these persons thereafter for cause. It is the Committee’s view that the level of benefits, combined with the “double trigger” requiring both a change in control and a termination of employment, provides an appropriate balancing of the interests of the Company, its shareholders and its executives. 46 Under our change in control agreements: • • • 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 1, 2011 (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 1, 2011, the last day of our previous fiscal year. The table includes only benefits that would result from death or permanent disability, a termination or a change in control, not vested benefits that are payable irrespective of a change. 47 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. Buseman – Death or Disability Mr. Buseman – Change in Control Mr. Kelsey – Death or Disability Mr. Kelsey – Change in Control Mr. Lim – Death or Disability Mr. Lim – Change in Control -- -- (7) $4,800,000 4,800,000 -- (7) 1,824,000 -- (7) 1,728,000 -- (7) 1,584,000 -- (7) 1,639,618 -- -- -- -- -- -- -- -- -- -- -- -- -- $2,433,708 -- -- $2,154 2,154 -- -- $2,154 2,435,862 -- $344,337 212,176 -- 5,356,513 2,433,708 344,337 212,176 932,885 -- 210 -- -- 7,790,221 933,095 932,885 127,924 177,334 900,600 3,962,743 1,140,875 -- 24,220 -- 1,165,095 1,140,875 120,761 200,748 919,670 4,110,054 1,140,875 -- 22,624 -- 1,163,499 1,140,875 113,264 191,091 816,133 3,845,363 932,885 932,885 -- -- 44,377 44,377 -- -- 977,262 2,616,880 (1) This amount represents payments relating to the executives’ base salary and VICP cash incentive awards to the extent they would be paid after termination, based on the salary in effect at the end of fiscal 2011 and the target VICP cash incentive payment for 2011. 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. Outstanding unvested stock options had no immediately realizable value because the respective exercise prices were higher than $22.62, the closing price of Plexus’ common stock on September 30, 2011, the last trading day of fiscal 2011. See “Outstanding Equity Awards at Fiscal Year End” for further information regarding all stock options owned by the named executive officers, including those that have already fully vested. (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 $22.62 per share on September 30, 2011, the last trading date of fiscal 2011. As previously discussed, grants of long-term cash awards were discontinued after fiscal 2010. 48 (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. Based on Mr. Foate’s average annual compensation and the manner in which Section 280G operates, he would have not qualified for such payments had there been a change in control on October 1, 2011, but could be eligible to receive these payments in future years. (7) Excludes life or disability insurance payments from third party insurers. COMPENSATION AND RISK During fiscal 2011, the Company reviewed its compensation policies, programs and procedures, including the incentives they create and mitigating factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. Management assessed risk factors associated with specific compensation programs, as well as enterprise-level compensation risk factors, and a risk rating was assigned to each factor. The program-specific risk factors assessed included payout potential, payout as a percentage of total compensation, risk of manipulation, discretion to modify awards, overall plan design and market appropriateness. Enterprise-level risk factors evaluated included the balance between performance rewarded and the sustainability of that performance, the overall compensation mix, consistency between annual and long-term objectives as well as metrics, achievability of performance goals without undue risk-taking, the relationship of long-term awards to the Company’s pay philosophy, stock ownership requirements, the weighting and duration of performance metrics, the value of severance packages, the degree to which pay programs (including retirement benefits) and/or grants may be considered disproportionate, and the interaction of compensation plans with the Company’s financial performance and strategy. The Compensation and Leadership Development Committee reviewed management’s evaluation process as well as its results, and determined that both the process and conclusions reached were reasonable. Based on this review, the Company has concluded that its compensation policies, programs and procedures are not reasonably likely to have a material adverse effect on the Company. 49 ADVISORY VOTE ON EXECUTIVE COMPENSATION Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), publicly-traded companies like Plexus are required to hold an advisory vote of their shareholders at least once every three years to approve the compensation of named executive officers, as disclosed in the company’s proxy statement pursuant to the SEC's Regulation S-K Item 402; Plexus discloses those items in “Compensation Discussion and Analysis” and “Executive Compensation” herein. Plexus currently holds these votes annually. As described in “Compensation Discussion and Analysis” above, we design our executive compensation programs to attract, motivate and retain the talent needed to lead a strong global organization, to drive global financial and operational success, to create an ownership mindset and to appropriately balance Company performance and individual contributions towards the achievement of success. A meaningful portion of our executive officers’ compensation is at risk, reflecting the Company’s emphasis on pay that reflects performance and drives long-term shareholder value. We believe the Company’s compensation program as a whole is well suited to promote the Company’s objectives in both the short and long term. Accordingly, the following resolution will be submitted to our shareholders for approval at the annual meeting: “RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” As an advisory vote, this proposal is not binding on the Company. However, the Compensation and Leadership Development Committee, which is responsible for designing and administering the Company’s executive compensation programs, values the opinions expressed by our shareholders, and will consider the outcome of the vote when making future compensation decisions on the Company’s executive compensation programs. The board unanimously recommends that shareholders vote FOR approval of the compensation of the Company’s executive officers as described in this proxy statement. 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 that were reportable under applicable SEC rules in fiscal 2011. 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 5605(a)(2) of the NASD listing standards applicable to the Nasdaq Global Select Stock 50 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: • • • reviewed and discussed the audited financial statements for the fiscal year ended October 1, 2011, with Plexus management; discussed with PricewaterhouseCoopers LLP, Plexus’ independent auditors, those matters which are required to be discussed by Statement on Auditing Standards No. 114, “The Auditor’s Communication with Those Charged with Governance” and SEC Regulation S-X, Rule 2-07 “Communication with Audit Committees”; and received the written disclosure and the letter from PricewaterhouseCoopers LLP required by the applicable standards of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence. Based on the foregoing, the Audit Committee recommended to the board of directors that the audited financial statements be included in Plexus’ annual report on Form 10-K for the fiscal year ended October 1, 2011. 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 2012. 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 2011 and 2010 were as follows: Audit fees: Audit-related fees: Tax fees: All other fees: 2011 2010 $1,017,965 -- 47,475 -- $952,300 -- 49,990 -- 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 tax 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 2011 or 2010 that were not approved in advance by the Audit Committee under this policy. 51 * * * * * By order of the Board of Directors Angelo M. Ninivaggi Senior Vice President, General Counsel, Corporate Compliance Officer and Secretary Neenah, Wisconsin December 14, 2011 A copy (without exhibits) of Plexus’ annual report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended October 1, 2011, will be provided without charge to each record or beneficial owner of shares of Plexus’ common stock as of December 8, 2011, on the written request of that person directed to: Kristie Johnson, Executive Support Specialist, Plexus Corp., One Plexus Way, 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. Johnson at that address or at 1-920-722-3451 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. 52 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 1, 2011 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) One Plexus Way 39-1344447 (I.R.S. Employer Identification No.) Neenah, Wisconsin 54956 (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:12) 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:12) 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:12) 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 (cid:12) 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:12) 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:12) As of April 2, 2011, 37,928,077 shares of common stock were outstanding, and the aggregate market value of the shares of common stock (based upon the $34.80 closing sale price on that date, as reported on the NASDAQ Global Select Market) held by non-affiliates (excludes 349,975 shares reported as beneficially owned by directors and executive officers – does not constitute an admission as to affiliate status) was approximately $1,307.7million. As of November 11, 2011, there were 34,620,493 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Document Proxy Statement for 2012 Annual Meeting of Shareholders Part of Form 10-K Into Which Portions of Document are Incorporated Part III [THIS PAGE INTENTIONALLY LEFT BLANK] “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: • • • • • • • • • • • • • • • • • • • • • • • • • • • 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 economic performance of the industries, sectors and customers we serve the effects of the volume of revenue from certain sectors or programs on our margins in particular periods, as well as varying margins across different programs our ability to secure new customers, maintain our current customer base and deliver product on a timely basis the risk that our revenue and/or profits associated with customers who are acquired by third parties will be negatively affected the particular risks relative to new or recent customers and/or programs, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements and the lack of a track record of order volume and timing the effects of a constrained supply environment, which has led and may lead to periods of shortages and delays in obtaining components, or result in our inability to secure raw materials required to complete product assemblies raw materials and component cost fluctuations the risks of concentration of work for certain customers and in a limited number of market sectors our ability to successfully manage a complex business model characterized by high customer and product mix, low volumes and demanding quality, regulatory and other requirements the risks of operating as a multinational corporation, including adverse local developments and currency risks the risk that new program wins and/or customer demand may not result in the expected revenue or profitability the fact that customer orders may not lead to long-term relationships the risks associated with excess and obsolete inventory, including failures by customers to meet their related obligations the weakness of the global economy and the continuing instability of the global financial markets and banking system, including the potential inability of our customers or suppliers to access credit facilities the effect of changes in the pricing and margins of products the effect of start-up costs of new programs and facilities, including our recent, planned and potential future expansions the effects of increasingly extensive government regulation and third party certification requirements, and changes in tax laws 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 disruptions in transitioning programs the potential effect of fluctuations in the value of the currencies in which we transact business the potential effect of world or local events or other events outside our control (such as drug cartel-related violence in Mexico, terrorism, war in the Middle East, and the continuing effects of the earthquake and tsunami in Japan and the floods in Thailand) the challenges associated with managing information systems the potential loss of key personnel or other personnel disruptions 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 Part I, Item 1A and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 for a further discussion of some of the factors that could affect future results. * * * 1 ITEM 1. BUSINESS Overview PART I Plexus Corp. and its subsidiaries (together “Plexus,” the “Company,” or “we”) participate in the Electronic Manufacturing Services (“EMS”) industry. We deliver optimized Product Realization solutions through a unique Product Realization Value Stream services model. This customer focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the Americas (“AMER”), European (“EMEA”) and Asia- Pacific (“APAC”) regions. Award-winning customer service is provided to over 130 branded product companies in the Wireline/Networking, Wireless Infrastructure, Medical, Industrial/Commercial and Defense/Security/Aerospace market sectors. 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 verification; 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 leading EMS company in the world at servicing mid-to-low volume, higher complexity customer programs characterized by unique flexibility, technology, quality and regulatory requirements. We have 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. 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 in these sectors. These teams also help set our strategy for growth in these 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”) 500 basis points in excess of our weighted average cost of capital (“WACC”). We review our internal calculation of WACC annually, and at the end of fiscal 2011 reduced our estimated WACC to 12.5%. 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, particularly those that provide EMS services for high-volume, less complex products with less stringent requirements (such as consumer electronics). By exercising discipline to generate a ROIC in excess of our WACC, our goal is to ensure that Plexus creates value for our shareholders. Our customers include both industry-leading original equipment manufacturers (“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 2 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 9,000 full-time employees, including approximately 1,700 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 24 active facilities in 15 locations, totaling approximately 2.6 million square feet. These facilities are strategically located to support the global supply chain, manufacturing and engineering needs of customers in our targeted market sectors. We maintain a website at www.plexus.com. We make available through that website, free of charge, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Reports on Form 8-K, and amendments to those reports, as soon as reasonably practical after we electronically file those materials with, or furnish them to, the Securities and Exchange Commission (“SEC”). Our Code of Conduct and Business Ethics is also posted on our website. You may access these SEC reports and the Code of Conduct and Business Ethics by following the links under “Investor Relations” at our website. Services Plexus offers a broad range of integrated services as more fully described below; our customers may utilize any, or all, of the following services and tend to use more of these services as their outsourcing strategies mature: Product development and design. We provide comprehensive conceptual design and value-engineering services. These product design services include program 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 verification 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- 3 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: • • • 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. • 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. 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 9001:2008 standards. We have additional certifications and/or registrations held by certain of our facilities in the following regions: Environmental Standard ISO – 14001 – AMER, APAC, EMEA Environmental Standard OSHAS 18001 – APAC, EMEA 21 CFR Part 820 (FDA) (Medical) – AMER, APAC Telecommunications Standard TL 9000 – AMER, APAC • Medical Standard ISO 13485:2003 – AMER, APAC, EMEA • • • • • Aerospace Standard AS9100 – AMER, APAC, EMEA • NADCAP certification – AMER, APAC • FAR 145 certification (FAA repair station) – AMER • ITAR (International Traffic and Arms Regulation) self-declaration – AMER • ANSI/ESD (Electrostatic Discharge Control Program) S20.20 – AMER, APAC • ATEX/IECEx certification – APAC, EMEA • • SFDA (Medical) – APAC JMGP accreditation – APAC, AMER, EMEA 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 2011, we served approximately 130 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. 4 Juniper Networks, Inc. (“Juniper”) accounted for 17 percent of our net sales in fiscal 2011, 16 percent in fiscal 2010 and 20 percent in fiscal 2009. No other customer accounted for 10 percent or more of our net sales in fiscal 2011, 2010 or 2009. 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 1, 2011 39% 7% 21% 24% 9% 100% Fiscal years ended October 2, 2010 43% 12% 20% 18% 7% 100% October 3, 2009 44% 11% 22% 13% 10% 100% Although our current business development focus is based on the end-market sectors noted above, we evaluate our financial performance and allocate our resources on a geographic basis (see Note 13 in Notes to Consolidated Financial Statements regarding our reportable segments). Our array of services for customers in each of these end markets is essentially the same and we do not dedicate operational equipment, personnel, facilities or other resources to particular end markets, nor do we internally track our costs and resources on this basis. Materials and Suppliers We typically purchase raw materials, including printed circuit boards and electronic components, from manufacturers and distributors. In addition, under certain circumstances, we will purchase components from brokers, customers or competitors. 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 molded/formed plastics, sheet metal fabrications, aluminum extrusions, robotics, motors, vision sensors, motion/actuation, fluidics, displays, 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. Components shortages have been an issue for the industry and for us in fiscal 2011 and fiscal 2010; these shortages are discussed more fully in “Risk Factors” in Part I, Item 1A herein. 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. We also have a global expediting and escalation process that we believe provides Plexus the ability to effectively track and manage component shortages. 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 use of advanced supply chain solutions to improve continuity of supply and 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 resources including a business development vice president, a customer management vice president, sales account executives, customer directors, customer managers, engineering and manufacturing subject matter experts, and market sector analysts. Our sales and marketing efforts focus on both targeting new customers and expanding business with existing customers. We believe 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. 5 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 that 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 Our integrated ERP platform serves all of our manufacturing sites. This ERP platform augments our other management information systems and includes various software systems to enhance and standardize our ability to translate information from multiple production facilities into operational and financial information as well as create a consistent set of core business applications at our facilities worldwide. We believe the related software licenses are of a general commercial character on terms customary for these types of agreements. Environmental Compliance We are subject to a variety of environmental regulations relating to air emission standards and the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing process. We believe that we are in compliance with all federal, state and foreign environmental laws and do not anticipate any significant expenditures in maintaining our compliance; however, there can be no assurance that violations will not occur which could have a material adverse effect on our financial results. 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 9,000 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, Germany, 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. 6 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: • • • • • • • • • • • • 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, and our customers’, sales mix varying gross margins among different programs 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. 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 55 percent of our net sales for the fiscal year ended October 1, 2011, and 57 percent of our net sales for the fiscal year ended October 2, 2010. For the fiscal year ended October 1, 2011, 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. Especially given our discrete number of customers, significant reductions in net sales to any of these customers, the loss of major customers or our failure to make appropriate choices as to the customers we serve could seriously harm our business. In addition, we focus our net sales to customers in only a few market sectors, and we endeavor to carefully choose those 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, or our failure to choose appropriate sectors 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 of, and pending changes in the structure of, the U.S. health care sector generally. Further, potential reductions in U.S. defense spending could substantially affect our opportunities in our Defense/Security/Aerospace sector. Any weakness in the market sectors in which our customers are concentrated could affect our business and results of operations. In the current economic environment, we are seeing increased merger and acquisition activity that has already affected, and may continue to impact, our customers. Specifically, two of our significant customers were acquired in the first quarter of fiscal 2010 and substantially disengaged in fiscal 2011. 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. For example, substantial credit issues have arisen in the European Union as a result of the sovereign debt crisis and other factors affecting economies worldwide. 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. 7 We may experience raw material and component parts shortages and price fluctuations. We do not have any long-term supply agreements. At various times, including fiscal 2011, we have experienced raw material and component parts shortages due to supplier capacity constraints or their failure to deliver. Part shortages were prevalent during portions of fiscal 2011 and fiscal 2010 across the EMS industry, based on the relatively quick recovery of the demand for technological equipment and the resulting capacity constraints at suppliers; shortages have continued into, and are expected to persist in the future. Such constraints can also be caused by world events, such as government policies, terrorism, armed conflict and economic recession. In addition, the March 2011 earthquake and tsunami in Japan disrupted the global supply chain for certain components manufactured in Japan that are incorporated in the products we manufacture and the flooding in Thailand during our fiscal fourth quarter of 2011 had a similar impact. While we have yet to experience material adverse effects resulting from these events, the magnitude and duration of the impact on us resulting from these events are not yet known. 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 in some cases 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. Plexus is a multinational corporation and operating in multiple countries exposes us to increased risks, including adverse local developments and currency risks. We have operations in many countries; operations outside of the U.S. in the aggregate now represent a majority of our revenues. We also purchase a significant number of components manufactured in various countries. These international aspects of our operations, which are likely to increase over time, subject us to the following risks that could materially impact our operations and operating results: • • • • • • • • economic, political or civil instability, including significant drug cartel-related violence in Juarez, Mexico transportation delays or interruptions exchange rate fluctuations difficulties in staffing and managing personnel in diverse cultures compliance with laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act, applicable to companies with global operations significant natural disasters the effects of international political developments and 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 address this risk. As our international 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 other 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. 8 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, and frequently do not have visibility as to their future demand. 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. 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 programs or relationships. Even in the case of continuing long-term programs 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. The Company’s reputation is the foundation of our relationships with key stakeholders. If we are unable to effectively manage real or perceived issues, which could negatively impact sentiments toward the Company, our ability to maintain or expand business opportunities could be impaired and our financial results could suffer on a going- forward basis. In addition, the complexity of our service model often results in complex and challenging contractual obligations as well as commitments from us to our customers. If we fail to meet those obligations, it could affect our reputation and our ability to obtain future business, as well as impair our ability to enforce our rights (including those related to payment) under those contracts. 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 must initially determine whether it would be in our interests from a business perspective to pursue a particular potential new customer or program, including evaluating the customer’s and/or program’s fit with our value proposition as well as their end market success. If we make the decision to proceed, we need to ensure that our terms of engagement, including our pricing and other contractual provisions, appropriately 9 reflect the anticipated costs, risks, and rewards of an opportunity. The failure to make prudent engagement decisions and/or 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; these factors can sometimes extend for a significant period. 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, regulatory approvals and/or economic conditions. 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, or other failures to manage our working capital, could adversely affect our operating results, including our return on invested capital. 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. 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 expect to open a new manufacturing facility in Malaysia (Penang) during the first quarter of fiscal 2012 and anticipate completing a new manufacturing facility in China (Xiamen) in the second half of fiscal 2012. We have also announced our intention to construct a facility in Romania (Oradea) to replace a leased facility and further expand employment in Germany (Darmstadt). 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: • • • • • • • 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 a reduction of our return on invested capital, including as a result of excess inventory or excess capacity at new facilities 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- 10 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. Changes in tax laws, and potential tax disputes, could affect our results. The Company has been granted tax holidays for its Malaysian and Xiamen, China subsidiaries. These tax holidays expire in 2024 and 2013, respectively, and are subject to certain conditions with which the Company expects to comply and would risk adverse tax consequences if we do not. The Malaysian Investment Development Authority granted approval to extend our tax holiday in Malaysia for a period of five years through December 31, 2024, subject to certain conditions. Mexico adopted tax reform legislation that took effect on January 1, 2010, and provides 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 continue to analyze 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 international 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 may experience negative or unforeseen tax consequences. The Company reviews the probability of the realization of our net deferred tax assets each period based on forecasts of taxable income in both the U.S. and foreign jurisdictions. This review uses historical results, projected future operating results based upon approved business plans, eligible carryforward periods, tax planning opportunities and other relevant considerations. Adverse changes in the profitability and financial outlook in the U.S. or foreign jurisdictions may require the creation of a valuation allowance to reduce our net deferred tax assets. Such changes could result in material non-cash expenses in the period in which the changes are made. We and our customers are subject to increasingly 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, and our customers', 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. The regulatory climate in the U.S. and other countries has become increasingly complex and regulatory activity has increased in recent periods, which can affect both our operations as well as the opportunities in the markets we serve due to the effects on our customers and their end users. The regulatory climate can itself affect the demand for our services, and our failure to comply with 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 pending changes in how health care in the U.S. is structured and how medical devices are taxed, could affect the willingness and ability of end customers to purchase the products of our customers in the medical sector. 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 11 countries. Failure to comply with related requirements and regulations, including the International Traffic in Arms Regulation, 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 governmental 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, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, affecting, among other areas, 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. Governments worldwide are becoming increasingly aggressive in enforcing and adopting anti-corruption laws. The U.S. Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act, and the China Anti-Unfair Competition Law, among others, apply to us and our operations. These requirements result in compliance costs, and the failure to comply with these requirements could result in substantial further costs to us as well as affect our reputation. 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 of our import activities during fiscal 2008 and of our processes and procedures to comply with U.S. Customs laws and regulations. During September 2010 the Company reported errors relating to import trade activity from July 2004 to the date of Plexus’ report. CBP has indicated that on-site fieldwork for the audit was completed as of June 2011 and the Company is currently awaiting final determination of CBP duties and fees. Plexus has agreed that it will implement improved processes and procedures and review these corrective measures with CBP. We recorded an accrual in other current accrued liabilities in the first quarter of fiscal 2010 when the amount became estimable and probable, which was not material to the financial statements. At this time, we do not believe that any 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 the Company’s consolidated financial position, results of operations or cash flows. 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 programs 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, and attract additional such personnel • • maintain and enhance our technological capabilities • • • • 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 requirements may render our equipment, inventory or processes obsolete or noncompetitive. In addition, we may have 12 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, or to adequately maintain these systems and their security, 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, execution or maintenance 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. In addition, our failure to maintain adequate data security for both our and our customers’ financial, product and other information, could substantially affect our business, compliance with regulations and reputation in the industry. Start-up costs and inefficiencies related to new, recent or transferred programs can adversely affect our operating results. The management of labor and production capacity in connection with the establishment of new or recent programs and customer relationships, such as our 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 programs, which lack a track record of 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 programs or 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 openings and 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 13 all. Infringement by our customers could cause them to discontinue production of some of their products, potentially with little or no notice, which may reduce our net sales to them and disrupt our production. Additionally, if third parties on whom we rely for products or services, such as component suppliers, are responsible for an infringement (including through the supply of counterfeit parts), we may or may not be able to hold them responsible and we may incur costs in defending claims or providing remedies. Such infringements may also cause our customers to abruptly discontinue selling the impacted products, which would adversely affect our net sales of those products, and could affect our customer relationships more broadly. 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: • • • 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 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: • • • • • • 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 our workforce, including certain key personnel, and the loss of key personnel or other personnel disruptions 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. 14 We also depend on good relationships with our workforce generally. Any disruption in our relationships with our personnel, including as a result of potential union organizing activities, work actions or other labor issues, could substantially affect our operations and results. In addition, when we expand operations in either existing areas or new locations, we need to retain the services of sufficient qualified personnel to conduct those operations. If we fail to retain and maintain sufficient qualified personnel, the operations at those locations, and consequently our financial results, could be adversely affected. In new or existing facilities we may be subject to local labor practices or union activities, differing employment laws and regulations in various countries, and other issues affecting our workforce, all of which could affect operations at particular locations, which also could have adverse effects on our operational results. Natural disasters 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, including hurricanes, earthquakes, water shortages, tsunamis and floods. All facilities are subject to other natural or man-made disasters such as those related to global climate change, fires, acts of terrorism, breaches of security and failures of utilities. If such an event was 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. 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 have increased our borrowings, and we may fail to secure or maintain necessary financing. Under our credit agreement (the “Credit Facility”) and Note Purchase Agreement , over the past several years we have borrowed $325 million in term loans and notes, of which $273 million was outstanding at October 1, 2011, 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. The Credit Facility may be increased by an additional $100 million to a total of $200 million if we have not previously terminated all or any portion of the Credit Facility, there is no event of default existing under the Credit Facility and both we and the administrative agent consent to the increase. However, we cannot be certain that the credit facilities will provide all of the financing capacity that we will need in the future or that we will be able to change the credit facilities 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. For example, in fiscal 2011 we issued $175 million in principal amount of 5.20% senior notes, due in 2018, to support our share repurchase program. 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. 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: 15 Operating risks, such as: • • • • • • 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: • • • • • • 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. 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 None. 16 ITEM 2. PROPERTIES Our facilities comprise an integrated network of engineering and manufacturing centers with our corporate headquarters located in Neenah, Wisconsin. We own or lease facilities with approximately 2.8 million square feet of capacity. This includes approximately 1.8 million square feet in the Americas region (“AMER”), approximately 0.9 million square feet in the Asia-Pacific region (“APAC”) and approximately 0.1 million square feet in the Europe, Middle East, and Africa region (“EMEA”). Approximately 0.2 million square feet of this capacity is subleased. Our facilities as of October 1, 2011, are described in the following table: Location Penang, Malaysia (1) Neenah, Wisconsin (1) Appleton, Wisconsin (1) Nampa, Idaho Juarez, Mexico Buffalo Grove, Illinois (1) Xiamen, China (1) Hangzhou, China Kelso, Scotland Fremont, California Galashiels, Scottland (1) (2) Oradea, Romania (1) (3) Type Manufacturing/Engineering Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing/Warehouse Manufacturing/Office Manufacturing Manufacturing Manufacturing Manufacturing/Warehouse/Office Manufacturing/Office Size (sq. ft.) 671,000 277,000 272,000 216,000 210,000 189,000 124,000 106,000 57,000 46,000 43,000 20,000 Neenah, Wisconsin Louisville, Colorado (1) Raleigh, North Carolina Darmstadt, Germany Livingston, Scotland Engineering/Office Engineering Engineering Engineering Engineering Neenah, Wisconsin Neenah, Wisconsin (1) Neenah, Wisconsin Global Headquarters Office/Warehouse Warehouse 105,000 29,000 25,000 16,000 4,000 104,000 84,000 39,000 Owned/Leased Owned Leased Owned Owned Leased Leased Leased Leased Owned Leased Leased Leased Owned Leased Leased Leased Leased Owned Owned Leased San Diego, California (4) Inactive/Other 198,000 Leased (1) Includes more than one building. (2) Lease renewal was signed in March 2011 and runs through March 2012. (3) Lease renewal was signed in January 2011 and runs through January 2012. (4) This building is subleased and no longer used in our operations. In fiscal 2011, we purchased land in Xiamen, China and began construction of an additional manufacturing facility, which is expected to be complete during the second half of fiscal 2012. The Company began construction of an additional manufacturing facility in Penang, Malaysia during early fiscal 2011 and anticipates completing the facility in the first quarter of fiscal 2012. During the first half of fiscal 2012, we anticipate announcing the construction of a larger facility in Oradea, Romania to replace the leased buildings. 17 ITEM 3. LEGAL PROCEEDINGS We were notified in April 2009 by U.S. Customs and Border Protection (“CBP”) of its intention to conduct a customary Focused Assessment of our import activities during fiscal 2008 and of our processes and procedures to comply with U.S. Customs laws and regulations. During September 2010 the Company reported errors relating to import trade activity from July 2004 to the date of Plexus’ report. CBP has indicated that on-site fieldwork for the audit was completed as of June 2011 and the Company is currently awaiting final determination of CBP duties and fees. Plexus has agreed that it will implement improved processes and procedures and review these corrective measures with CBP. We recorded an accrual in other current accrued liabilities in the first quarter of fiscal 2010 when the amount became estimable and probable, which was not material to the financial statements. At this time, we do not believe that any 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 the Company’s consolidated financial position, results of operations or cash flows. 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. 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 53 47 50 45 46 51 49 44 53 Position President, Chief Executive Officer and Director Senior Vice President and Chief Financial Officer Executive Vice President - Global Manufacturing Operations Regional President - Plexus EMEA and Senior Vice President - Global Engineering Solutions Executive Vice President - Global Customer Services Regional President - Plexus APAC Senior Vice President - Global Human Resources Senior Vice President, General Counsel, Corporate Compliance Officer and Secretary 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 has served as Plexus’ Vice President and Chief Financial Officer since 2007, and became a Senior Vice President in 2011. 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 and became Executive Vice President in 2011. 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. Steven J. Frisch joined Plexus in 1990 and began serving as Regional President – Plexus EMEA in October 2010, while retaining his responsibilities as Senior Vice President – Global Engineering Solutions, which began in 2007. Previously, Mr. Frisch served as Vice President of Plexus Technology Group’s Raleigh and Livingston Design Centers from 2002 to 2007. Todd P. Kelsey joined Plexus in 1994 and began serving as Senior Vice President – Global Customer Services in 2007 and was named Executive Vice President in 2011. 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 APAC in 2007. From 2003 to 2007 he served as Vice President of Operations – Asia. 18 Joseph E. Mauthe joined Plexus in 2007, began serving as Vice President – Global Human Resources in 2008 and was named a Senior Vice President in 2011. 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 and has served as Vice President, General Counsel and Secretary since 2006. Since 2007, Mr. Ninivaggi has also served as Corporate Compliance Officer and was named a Senior Vice President in 2011. 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, Mr. Verstegen 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 1, 2011 and October 2, 2010, 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 1, 2011 Fiscal Year Ended October 2, 2010 First Quarter Second Quarter Third Quarter Fourth Quarter High $33.75 $35.25 $38.71 $35.03 Low $26.70 $26.50 $30.53 $21.34 First Quarter Second Quarter Third Quarter Fourth Quarter High $29.67 $38.00 $39.66 $31.69 Low $23.96 $27.42 $25.58 $21.08 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 Electronic Components Companies, both of which include Plexus. The values on the graph show the relative performance of an investment of $100 made on September 29, 2006, in Plexus common stock and in each of the indices as of the last business day of the respective fiscal year. 19 Comparison of Cumulative Total Return S R A L L O D 180 160 140 120 100 80 60 40 20 0 Plexus Nasdaq-US Nasdaq-Electronics 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Plexus Nasdaq-US Nasdaq-Electronics 100 100 100 143 118 130 113 97 94 133 92 92 157 108 98 118 112 88 Shareholders of Record; Dividends As of November 11, 2011, there were approximately 630 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. 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. See also Part II, 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. 20 Issuer Purchases of Equity Securities The following table provides the specified information about the repurchases of shares by the Company during the three months ended October 1, 2011. Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum approximate dollar value of shares that may yet be purchased under the plans or programs* July 3 to July 30, 2011 July 31 to August 27, 2011 August 28 to October 1, 2011 133,870 $ 34.32 133,870 $ 25,000,000 890,970 28.04 890,970 $ - - - - $ - Total 1,024,840 $ 28.86 1,024,840 * On February 16, 2011 the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $200 million of common stock. The share purchases made during the fourth quarter of fiscal 2011 completed the repurchase program; a total of 6.3 million shares were purchased during fiscal 2011 at a volume-weighted average of $31.69 per share. 21 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 Fiscal Years Ended October 1, 2011 October 2, 2010 October 3, 2009 September 27, 2008 September 29, 2007 $ 2,231,232 $ 2,013,393 $ 1,616,622 $ 1,841,622 $ 1,546,264 214,742 206,922 154,776 205,761 163,539 9.6% 10.3% 9.6% 11.2% 10.6% 101,179 99,652 53,067(1) 102,827(2) 79,438(3) Operating margin percentage 4.5% 4.9% 3.3% 5.6% 5.1% Net income 89,256 89,533 46,327(1) 84,144(2) 65,718(3) Earnings per share (diluted) $ 2.30 $ 2.19 $ 1.17(1) $ 1.92(2) $ 1.41(3) Cash Flow Statement Data Cash flows provided by operations $ 161,683 $ 1,962 $ 170,296 $ 64,181 $ 38,513 Capital equipment additions 74,051 74,674 57,427 54,329 47,837 Balance Sheet Data Working capital Total assets $ 553,893 $ 523,472 $ 459,113 $ 439,077 $ 427,116 1,304,525 1,290,379 1,022,672 992,230 916,516 Long-term debt and capital lease obligations 270,292 112,466 133,163 154,532 25,082 Shareholders’ equity Return on average assets Return on average equity Inventory turnover ratio 558,882 651,855 527,446 473,945 573,265 6.9% 16.0% 4.3x 7.7% 15.2% 4.1x 4.6% 9.3% 4.4x 8.8% 16.1% 5.3x 7.7% 12.5% 5.5x 1) 2) 3) 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”). 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. 22 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 deliver optimized Product Realization solutions through a unique Product Realization Value Stream services model. This customer focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the Americas, European and Asia-Pacific regions. Customer service is provided to over 130 branded product companies in the Wireline/Networking, Wireless Infrastructure, Medical, Industrial/Commercial and Defense/Security/Aerospace market sectors. 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 verification; 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. 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. In response to the evolving markets and to better reflect our customers’ end markets, we have decided to combine our Wireline/Networking and Wireless Infrastructure market sectors and rename them as our Networking/Communications market sector, beginning with our fiscal 2012 reporting. The following information should be read in conjunction with our consolidated financial statements included herein and “Risk Factors” included in Part I, Item 1A herein. EXECUTIVE SUMMARY Fiscal 2011. Net sales for fiscal 2011 increased by $217.8 million, or 10.8 percent, from fiscal year 2010 to $2,231.2 million. Net sales increased in all of our market sectors during fiscal 2011, except for a decrease in the wireless infrastructure sector. The overall higher net sales were from both new and existing customers, such as the ramp of production for our newer industrial commercial sector customer, as well as an increase in net sales to Juniper Networks, Inc. (“Juniper”), our largest customer, as a result of improved end-market demand for the mix of Juniper products we produce as well as new product launches. We also experienced strong demand from a medical customer and a defense/security/aerospace customer during the year as a result of increased end market demand for the products they produce. These increases were partially offset by decreased net sales to two significant customers, one in the wireline/networking sector and one in the wireless infrastructure sector, related to previously announced disengagements as a result of acquisitions, and decreased sales from one additional wireless infrastructure customer as a result of a drop in end-market demand for the mix of its products that we produce. Gross margin was 9.6 percent for fiscal 2011, which compared unfavorably to 10.3 percent for fiscal 2010. Gross margins in fiscal 2011 were lower as a result changes in our customer mix, higher fixed expenses related to higher headcount to support the revenue growth and increased depreciation expense. The prior year also included proceeds from a litigation settlement (see Note 12). Selling and administrative expenses were $113.6 million for fiscal 2011, an increase of $6.3 million, or 5.9 percent, from the $107.3 million for fiscal 2010. The majority of the increase was due to higher employee compensation and relocation expense as a result of higher headcount to support revenue growth as well as higher stock based compensation expense. This was partially offset by lower variable incentive compensation in fiscal 2011 as 23 compared to fiscal 2010. Selling and administrative expenses were 5.1 percent of sales for fiscal 2011, as compared to 5.3 percent in fiscal 2010. Other expense for fiscal 2011 decreased slightly from 2010, driven primarily by the favorable fluctuation in foreign currency translation, partially offset by increased interest expense. Net income for fiscal 2011 was $89.3 million and diluted earnings per share were $2.30, which compared to net income of $89.5 million, or $2.19 per diluted share, for fiscal 2010. Net income decreased slightly from the prior year period due to changes in customer mix and higher fixed and selling and administrative expenses, partially offset by increased sales. Diluted earnings per share increased from the prior year period due to lower average shares outstanding related to our share repurchase program. The effective tax rate in the current year period was approximately 3 percent, which compares unfavorably to the 1 percent tax rate in the prior year period primarily due to the mix of the Company’s fiscal 2011 pre-tax income. Fiscal 2010. Net sales for fiscal 2010 increased by $396.8 million, or 24.5 percent, from fiscal year 2009 to $2,013.4 million. Net sales increased in all of our market sectors during fiscal 2010, except for a slight decrease in the defense/security/aerospace sector. The overall higher net sales were driven primarily by stronger end-market conditions, as well as the ramp of production for new customer programs in the wireless infrastructure, wireline/networking, industrial/commercial, and medical sectors. These increases were partially offset by decreased net sales from two defense/security/aerospace sector customers, as well as decreased net sales to Juniper. Net sales to Juniper declined slightly as a result of decreased end-market demand for the mix of Juniper products produced by us. Gross margin was 10.3 percent for fiscal 2010, which compared favorably to 9.6 percent for fiscal 2009. Gross margins in fiscal 2010 were higher due to the increased net sales, changes in customer mix and proceeds from a litigation settlement (see Note 12), partially offset by increases in variable incentive compensation expense due to strong financial performance as well as fixed expenses as a result of higher headcount. Selling and administrative expenses were $107.3 million for fiscal 2010, an increase of $14.2 million, or 15.3 percent, from the $93.1 million for fiscal 2009. Sixty percent of the increase was due to higher variable incentive compensation in fiscal 2010 as compared to fiscal 2009. The remainder of the increase was driven primarily by increased employee compensation expense as a result of higher headcount to support revenue growth. For fiscal 2010, the Company did not incur any restructuring or impairment charges as compared to charges of $8.6 million in fiscal 2009. Net income for fiscal 2010 was $89.5 million and diluted earnings per share were $2.19, which compared favorably to net income of $46.3 million, or $1.17 per diluted share, for fiscal 2009. Net income increased from fiscal 2009 due to overall increased sales and higher gross margins and the absence of restructuring charges, offset by increased fixed expenses and selling and administrative expenses. The effective tax rate in fiscal 2010 was 1 percent, which compares unfavorably to the 2 percent tax benefit in fiscal 2009. The increase in effective tax rate from fiscal 2009 was primarily due to the mix of the Company’s fiscal 2010 pre-tax income and the absence in 2010 of a net $1.4 million tax benefit resulting from a discrete event that occurred in fiscal 2009. Other. The effective income tax rates (benefits) for fiscal 2011, 2010 and 2009 were 3 percent, 1 percent and (2) percent, respectively. The increase in effective tax rate from fiscal 2009 to fiscal 2010 was primarily due to the mix of the Company’s fiscal 2010 pre-tax income and the absence in 2010 of a net $1.4 million tax benefit resulting from a discrete event that occurred in fiscal 2009. The change in our effective tax rate from fiscal 2010 to fiscal 2011 is primarily due to changes in the mix of income in the tax jurisdictions in which we operate. 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 15.6 percent, 19.5 percent and 13.2 percent for fiscal 2011, 2010 and 2009, respectively. See the table below for our calculation of ROIC (dollars in millions): 24 Operating income (tax effected), excluding unusual charges Average invested capital After-tax ROIC Fiscal years ended October 1, 2011 $ 98.1 October 2, 2010 $ 98.7 October 3, 2009 $ 59.9 627.6 506.6 453.6 15.6% 19.5% 13.2% 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 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. 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 1, 2011 October 2, 2010 Increase/ (Decrease) October 2, 2010 October 3, 2009 Increase/ (Decrease) Net sales $2,231.2 $2,013.4 $217.8 10.8% $2,013.4 $1,616.6 $396.8 24.5% Net sales for fiscal 2011 increased $217.8 million, or 10.8 percent, as compared to fiscal 2010. The net sales increase resulted from higher net sales in all of our market sectors, except for a decrease in the wireless infrastructure sector. The net sales increase primarily related to the ramp of production for a newer industrial commercial sector customer. Net sales to Juniper increased as a result of improved end-market demand for the mix of Juniper products we produce as well as new product launches. Overall, we had net sales increases spread across new and existing customers in both the industrial commercial and medical sectors during fiscal 2011, which were partially offset by the two previously announced disengagements as a result of acquisitions (with one each in the wireline/networking and the wireless infrastructure market sectors), as well as decreased sales from one additional wireless infrastructure customer as a result of a drop in end-market demand for the mix of its products that we produce. Net sales for fiscal 2010 increased $396.8 million, or 24.5 percent, as compared to fiscal 2009. The net sales increase resulted from higher net sales in all of our market sectors, except for the defense/security/aerospace sector. The overall higher net sales were driven primarily by strong end-market conditions, as well as the addition of new customers in the wireless infrastructure, wireline/networking, industrial/commercial and medical sectors. These net sales increases were offset in part by decreased net sales to two defense/security/aerospace customers, as well as lower net sales to Juniper as a result of a decline in end-market demand for the mix of Juniper products produced by us. Our net sales percentages by market sector for the indicated periods were as follows: Wireline/Networking Wireless Infrastructure Medical Industrial/Commercial Defense/Security/Aerospace Fiscal years ended October 2, 2010 43% 12% 20% 18% 7% 100% October 3, 2009 44% 11% 22% 13% 10% 100% October 1, 2011 39% 7% 21% 24% 9% 100% 25 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 Top 10 customers October 1, 2011 17% 55% Fiscal years ended October 2, 2010 16% 57% October 3, 2009 20% 57% Net sales to our largest 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 with our top 10 customers remained at or above 53 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, including global economic conditions. 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 will become increasingly dependent upon the economic and business conditions affecting that sector. In the current economic environment, we are seeing increased merger and acquisition activity that has impacted our customers. Specifically, we previously announced that two of our customers were acquired in the first quarter of fiscal 2010. The customer in the Wireline/Networking sector began to reduce orders to us at the end of fiscal 2010 and substantially disengaged in fiscal 2011. The customer in the Wireless Infrastructure sector began disengagement in fiscal 2011 and also substantially disengaged in fiscal 2011. 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 1, 2011 October 2, 2010 Increase/ (Decrease) October 2, 2010 October 3, 2009 Increase/ (Decrease) Gross Profit $214.7 Gross Margin 9.6% $206.9 10.3% $7.8 3.8% $206.9 $154.8 $52.1 33.7% 10.3% 9.6% For fiscal 2011, gross profit and gross margin were impacted by the following factors: • • • • increased net sales in all of our market sectors except wireless infrastructure, driven by demand from new and existing customers across the majority of our market sectors, partially offset by unfavorable changes in customer mix, which together accounted for approximately $32.4 million of the net increase in gross profit partially offset by an increase in fixed manufacturing costs due to increased headcount expenses to support revenue growth of approximately $15.5 million. Fixed costs also grew as a percentage of sales as a result of expansion in our APAC and EMEA regions as they ramp to capacity, as well as the underutilization of two AMER facilities, due to the disengagement of a significant customer and the slower ramp of a significant customer increased depreciation expense of $5.5 million due to the expansions mentioned above, and the effect of the non-recurrence of a $3.2 million benefit in the first quarter of fiscal 2010 from a litigation settlement. For fiscal 2010, gross profit and gross margin were impacted by the following factors: • increased net sales in all of our reportable segments, driven by strong end-market conditions, as well as the addition of new customers in the wireless infrastructure, wireline/networking, industrial/commercial and medical sectors, as well as favorable changes in customer mix, which together accounted for approximately $38.8 million of the increase in gross profit 26 • • • increased capacity utilization from the higher revenue levels proceeds of $3.2 million received from a litigation settlement, which was recorded as a reduction to cost of sales, and partially offset by increased variable compensation expense of approximately $6.6 million as a result of improved financial performance and fixed expenses, primarily in the AMER and APAC reportable segments, due to increased headcount to support the revenue growth. Design work performed by the Company is not the proprietary property of Plexus and substantially all costs incurred with this work are 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 1, 2011 October 2, 2010 Increase/ (Decrease) October 2, 2010 October 3, 2009 Increase/ (Decrease) S&A Percent of net sales $113.6 $107.3 $6.3 5.9% $107.3 $93.1 $14.2 15.3% 5.1% 5.3% 5.3% 5.8% For fiscal 2011, the increase in S&A expenses was due to increased employee compensation and relocation expense of approximately $8.1 million as a result of higher headcount to support revenue growth, as well as higher stock-based compensation expense of approximately $1.1 million. This was partially offset by lower variable incentive compensation in fiscal 2011 as compared to fiscal 2010 of approximately $4.1 million. S&A expenses as a percentage of net sales decreased during fiscal 2011 as a result of net sales expanding more quickly than these cost increases. For fiscal 2010, sixty percent of the increase in S&A expenses was due to higher variable incentive compensation expense as a result of strong financial performance. The remainder of the increase was driven primarily by an increase in headcount to support our revenue growth. S&A expenses as a percentage of net sales decreased during fiscal 2010 as a result of net sales expanding more quickly than these cost increases. Restructuring and asset impairment charges. For both fiscal 2011 and fiscal 2010, we did not incur any restructuring or asset impairment charges. Our restructuring and asset impairment costs for fiscal 2009 were as follows (dollars in millions): Goodwill impairment Severance costs Adjustments to lease exit costs/other Total restructuring and asset impairment charges October 1, 2011 $ - - - $ - Fiscal years ended October 2, 2010 $ - - - $ - October 3, 2009 $ 5.7 2.0 0.9 $ 8.6 The restructuring and asset impairment charges for fiscal 2009 were associated with various reportable segments. Management excludes such charges 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 charges by reportable segment. 27 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 1, 2011 October 2, 2010 Increase/ (Decrease) October 2, 2010 October 3, 2009 Increase/ (Decrease) Other income (expense) Percent of net sales $(9.1) $(9.2) $(0.1) (1.1)% $(9.2) $(7.7) $1.5 19.5% (0.4)% (0.5)% (0.5)% (0.5)% Other income (expense) for fiscal 2011 decreased $0.1 million, to $9.1 million of expense from $9.2 million of expense in fiscal 2010. This change was driven by the favorable fluctuation in foreign currency translation and transaction adjustments of $2.4 million, partially offset by increased interest expense of $2.1 million, primarily related to our private placement debt, which we entered into during the third quarter of fiscal 2011 as discussed in “Liquidity and Capital Resources” below. Other income (expense) for fiscal 2010 increased $1.5 million, to $9.2 million of expense from $7.7 million of expense in fiscal 2009. This change was driven by the unfavorable fluctuation in foreign currency translation and transaction adjustments of $2.1 million and reduced interest income of $0.9 million due to lower effective interest rates, partially offset by decreased interest expense of $1.3 million, primarily related to servicing the $150 million term loan drawn in April 2008. Income taxes. Income taxes for the indicated periods were as follows (dollars in millions): Income tax expense (benefit) October 1, 2011 $2.8 Fiscal years ended October 2, 2010 $0.9 October 3, 2009 $(0.9) Effective annual tax rate (benefit) 3.1% 1.0% (2.0)% The change in our effective tax rate from fiscal 2009 to fiscal 2011 is primarily due to change in mix in the tax jurisdictions in which we operate. 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 for federal and state taxes 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. As of the end of fiscal 2010 there was a valuation allowance of $1.0 million for federal and state taxes against the amount of net operating loss and credit carryforwards related to tax deductions in excess of compensation expense for stock options. During fiscal 2011 the Company recorded an additional valuation allowance $1.3 million. As a result, we had a remaining valuation allowance of approximately $2.3 million related to tax deductions associated with stock-based compensation as of October 1, 2011. During the preparation of the Company’s fiscal 2011 consolidated financial statements, the Company performed an analysis of all available evidence, both positive and negative, regarding the need for a valuation allowance against our deferred tax assets, consistent with the provisions of ASC Topic 740, “Income Taxes.” The Company’s U.S. operations generated losses during the fiscal 2009, 2010 and 2011 years. While we believe these losses could be a significant factor in establishing such an allowance, we believe that based on the weight of all the evidence, both positive and negative, it is more likely than not that the Company will be able to utilize its U.S. net deferred tax assets of approximately $21.7 million. See Note 6 – Income Taxes for further details. In addition, there was a remaining valuation allowance of $1.6 million as of October 2, 2010, 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. There was no change in the valuation allowance during fiscal 2011. If the U.S. operations continue to generate losses, there may be a need to provide a valuation allowance on our net U.S. deferred tax assets, which totaled $21.7 million as of October 1, 2011. 28 During fiscal 2011 the Company added a valuation allowance of $0.3 million and $0.9 million in the United Kingdom and Romania, respectively, to offset the increase in net deferred tax assets in those jurisdictions which more likely than not will not be realized. We currently expect the annual effective tax rate for fiscal 2012 to be approximately 8 to 10 percent. The rate increase is due mainly to the increase in projected income in the United States and lower projected income in low tax Malaysia and China jurisdictions. The Company has been granted tax holidays for its Malaysian and Xiamen, China subsidiaries. These tax holidays expire in 2024 and 2013, respectively, and are subject to certain conditions with which the Company expects to comply. In fiscal 2011, 2010 and 2009, these subsidiaries generated income, which resulted in tax reductions of approximately $21.7 million ($0.57 per basic share), $23.0 million ($0.58 per basic share) and $15.2 million ($0.38 per basic share), respectively. Net Income. As a result of the above factors, our net income decreased by $0.3 million, or (0.3) percent, in fiscal 2011 as compared to fiscal 2010. Diluted earnings per share increased by 5.0 percent due to the effects of our fiscal 2011 stock repurchases. Net income increased by $43.2 million, or 93.3 percent, in fiscal 2010 compared to fiscal 2009; diluted earnings per share increased 87.2 percent. REPORTABLE SEGMENTS In the first quarter of fiscal 2011, we completed our migration to a regional reporting structure, and as a result, modified our reportable segments. See Note 1 – Description of Business and Significant Accounting Policies for further information. A further discussion of our fiscal 2011 and 2010 financial performance by reportable segment is presented below (dollars in millions): October 1, 2011 Fiscal Years Ended October 2, 2010 October 3, 2009 $ 1,304.9 1,063.1 92.2 (229.0) $ 2,231.2 $ 1,244.7 925.4 72.5 (229.2) $ 2,013.4 $ 1,084.3 588.1 55.6 (111.4) $ 1,616.6 $ 68.7 118.1 (3.0) (82.6) 101.2 $ $ 74.4 114.8 (1.8) (87.7) 99.7 $ $ $ 61.2 63.7 1.4 (73.2) 53.1 Net sales: AMER APAC EMEA Elimination of inter-segment sales Operating income (loss): AMER APAC EMEA Corporate and other costs Americas (AMER): Net sales for fiscal 2011 increased $60.2 million, or 4.8 percent, from fiscal 2010, which reflected the ramp of production for our newer industrial commercial sector customer. Net sales to Juniper also increased as a result of improved end-market demand for the mix of Juniper products we produce in the region as well as new product launches. These increases were offset by reduced net sales to two significant wireless infrastructure customers, one as a result of a previously announced disengagement and the other as a result of a drop in end- market demand for the mix of products we produce for that customer. Operating income for fiscal 2011 decreased $5.7 million from fiscal 2010 due to the prior year period benefitting from a $3.2 million litigation settlement, as well as changes in customer mix in the current year. Net sales for fiscal 2010 increased $160.4 million, or 14.8 percent, from fiscal 2009. This increase reflected higher end-market demand from numerous existing customers in each of our market sectors and the ramp of 29 production for new customers in the wireline/networking, wireless infrastructure, industrial/commercial and medical sectors. These increases were partially offset by reduced net sales to our largest customer, Juniper, due to the transfer of manufacturing of some products to our APAC reportable segment, as well as decreased end-market demand for the mix of Juniper products produced by us. Operating income for fiscal 2010 increased $13.2 million from fiscal 2009 primarily as a result of higher revenues from the customers noted above, improved operating efficiencies resulting from higher production levels and proceeds received from a litigation settlement. Asia-Pacific (APAC): Net sales for fiscal 2011 increased $137.7 million, or 14.9 percent, over fiscal 2010. This growth reflected higher net sales to multiple customers across our market sectors as well as increased demand from a new customer in the industrial/commercial sector. These increases were partially offset by decreases in net sales from the previously announced disengagement of one customer in the wireline/networking sector as well as a drop in end-market demand for the mix of products we produce for a wireless infrastructure customer. Operating income improved $3.3 million in fiscal 2011 as compared to fiscal 2010, primarily as a result of the net sales growth, partially offset by changes in customer mix and higher fixed expenses. Net sales for fiscal 2010 increased $337.3 million, or 57.4 percent, over fiscal 2009. This growth reflected higher net sales to multiple customers across our market sectors, increased demand from a new customer in the industrial/commercial sector and the transfer of the manufacturing of some Juniper products to the APAC reportable segment from the AMER reportable segment, partially offset by the decrease in demand from Juniper described above. Operating income improved $51.1 million in fiscal 2010 as compared to fiscal 2009, primarily as a result of the net sales growth and operating efficiencies resulting from higher production levels. Europe, Middle East and Africa (EMEA): Net sales for fiscal 2011 increased $19.7 million, or 27.2 percent, from fiscal 2010. The change in net sales was driven by higher demand from two existing customer programs as well as the ramp of production for two new customers. Operating results were lower in the current year as compared to the prior year due to increased operating costs from our Romania facility and our new engineering facility in Darmstadt, Germany. Net sales for fiscal 2010 increased $16.9 million, or 30.4 percent, from fiscal 2009. The change in net sales can be attributed to higher demand from the ramp of production for two existing customer programs in the industrial/commercial sector. Operating results were lower in the current year as compared to the prior year due to operating costs from our new Romania facility. For our significant customers, we generally manufacture products in more than one location. For example, sales to Juniper occur in AMER and APAC. 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. LIQUIDITY AND CAPITAL RESOURCES Cash flows provided by operating activities were $161.7 million for fiscal 2011, compared to cash flows provided by operating activities of $2.0 million and $170.3 million for fiscal 2010 and 2009, respectively. During fiscal 2011, the increase in cash flows provided by operating activities was primarily the result of improvements in working capital. Inventory decreased by $36.6 million during fiscal 2011 as compared to fiscal 2010. Inventory turns increased to 4.3 turns in fiscal 2011 from 4.1 turns in fiscal 2010. Days in inventory changed favorably as of October 1, 2011 to 85 days as compared to 90 days at October 2, 2010. The decrease in inventory, both in dollars and days of cash cycle, was the result of our efforts to actively manage our inventory levels down with the assistance of our customers, while continuing to meet our customers’ needs for flexibility and agility. As part of our continued efforts to mitigate inventory risk, we have collected approximately $29.8 million in cash deposits from our customers, which are 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 contractual obligations. The overall decrease in accounts receivable of $27.2 million during fiscal 2011 as compared to fiscal 2010 was mainly due to two customers, one in each of the industrial/commercial and the wireline/networking sectors, prepaying 30 their respective accounts in fiscal 2011. Our annualized days sales outstanding in accounts receivable for fiscal 2011 decreased favorably from 51 days in fiscal 2010 to 48 days in fiscal 2011. Cash flows used in investing activities totaled $71.9 million for fiscal 2011. The primary investments included $74.1 million for purchases of property, plant and equipment, mainly in our APAC region, partially offset by proceeds from the sale of property, plant, and equipment. Investments were for new equipment to support customer demand in all of our regions as well as investments in new facilities in Penang, Malaysia and Xiamen, China to increase capacity. We expect our fourth Penang, Malaysia facility to be operational in our first quarter of fiscal 2012 and our second Xiamen, China facility to be operational in the second half of fiscal 2012. See Note 13 in Notes to Consolidated Financial Statements for further information regarding our capital expenditures by reportable segment. Fiscal 2011 purchases of property, plant and equipment included $48.1 million, $15.7 million, and $10.3 million related to our APAC, AMER, and EMEA reportable segments, respectively. We utilized available cash and operating cash flows as the principal sources for funding our operating requirements during fiscal 2011. We currently estimate capital expenditures for fiscal 2012 to be approximately $90-95 million. A significant portion of the fiscal 2012 capital expenditures is anticipated to be used for the completion of the two facilities mentioned above (Penang, Malaysia and Xiamen, China). We also anticipate announcing, during the first half of fiscal 2012, the construction of a larger facility in Oradea, Romania to replace leased buildings that served as our start-up solution in lower-cost Europe. Cash flows used in financing activities totaled $37.0 million for fiscal 2011, primarily due to purchases of common stock related to our stock repurchase program as well as payments on our term note and capital leases, offset by proceeds from our private placement debt issuance and proceeds from the exercise of stock options. On February 16, 2011 the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $200 million of common stock. On August 15, 2011, the Company completed its share repurchase program with a total of 6.3 million shares purchased at a volume-weighted average of $31.69 per share. The Company did not repurchase any shares in fiscal 2010. To support our new share repurchase program, we entered into a Note Purchase Agreement (the “Agreement”) for $175 million in principal amount of 5.20% Senior Notes, due June 15, 2018 (the “Notes”) during the third quarter of fiscal 2011. We issued $100 million in principal amount of the Notes on April 21, 2011, and the remaining $75 million on June 15, 2011. The Agreement includes operational and financial covenants which include a maximum total leverage ratio, a minimum interest coverage ratio and restrictions on additional indebtedness, liens and dispositions, all as defined in the Agreement. We are currently in compliance with all such covenants. Origination fees and expenses associated with the private placement totaled approximately $0.9 million and have been deferred. These origination fees and expenses are being amortized over the seven-year term of the Notes. Semi-annual interest payments began on June 15, 2011 and end on June 15, 2018 with full repayment of the total principal of the Notes. During the second quarter of fiscal 2011, we entered into two separate treasury rate lock hedge contracts to hedge the variability of the fixed interest rate on the then forecasted issuance of $175 million of fixed rate debt using a treasury lock transaction. The fixed interest rates for each of these contracts are 2.77% and 2.72%, respectively, with a notional value of $150 million. On April 4, 2011, we entered into a final treasury rate lock hedge transaction for the remaining $25 million of exposure at a rate of 2.88%. On April 8, 2011, when the fixed interest rate for the debt issuance was determined, all three treasury rate lock contracts were settled and we received proceeds of $2.3 million, which is being amortized over the seven year term of the related debt. On April 4, 2008, we entered into our 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 to a total of $200 million (the “accordion feature”). This is possible if we have not previously terminated all or any portion of the Credit Facility, there is no event of default existing under the credit agreement and both we and the administrative agent consent to the increase. The 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 October 1, 2011, we had term loan borrowings of $97.5 million outstanding and no revolving borrowings 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 1, 2011, we were in compliance with all debt covenants. If 31 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). The interest rate on the borrowing varies depending upon our then-current total leverage ratio; as of October 1, 2011, the Company could elect to pay interest at a defined base rate or the LIBOR rate plus 1.50%. 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 0.375%. 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) exists at the time of, or would be caused by, the dividend payment or the share repurchases. Additionally, the Company enters interest rate swaps and foreign currency derivatives to hedge against variable cash flows. 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. See Note 5 – Derivatives and Fair Value Measurements for further details. In February 2010, the Company negotiated the settlement of a capital lease in Kelso, Scotland. The termination of this capital lease obligation and acquisition of the property was effected through a cash payment by Plexus of $3.9 million. Based on current expectations, we believe that our projected cash flows from operations, available cash and short-term investments, the Credit Facility, and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements for the next twelve months. $100 million of committed credit is currently available under the Credit Facility, with another $100 million available in an “accordion” facility, which is contingent upon compliance with the Credit Agreement and lender approval. 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. 32 CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET OBLIGATIONS Our disclosures regarding contractual obligations and commercial commitments are located in various parts of our regulatory filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of October 1, 2011 (dollars in millions): Contractual Obligations Total 2012 2013-2014 2015-2016 2017 and thereafter Payments Due by Fiscal Year Long-Term Debt Obligations (1,2) $ 338.5 $ 28.6 $ 102.3 $ 17.7 $ 189.9 Capital Lease Obligations Operating Lease Obligations Purchase Obligations (3) Other Long-Term Liabilities on the Balance Sheet (4) Other Long-Term Liabilities not on 19.4 41.2 336.9 8.4 the Balance Sheet (5) Total Contractual Cash Obligations $ 3.0 747.4 $ 3.8 11.6 335.1 1.0 1.0 381.1 7.9 17.6 1.4 1.5 7.1 9.1 0.4 1.3 0.6 2.9 - 4.6 2.0 132.7 $ $ - 35.6 - 198.0 $ 1) 2) 3) 4) 5) As of April 4, 2008, we entered into the Credit Facility and immediately funded a term loan for $150 million. As of October 1, 2011, the outstanding balance was $97.5 million. The amounts listed above include interest, as we intend to hold the loan to maturity. See Note 4 in Notes to Consolidated Financial Statements for further information. As of April 21, 2011, we entered into the Note Purchase Agreement and immediately issued $100 million in principal amount and another $75 million in principal amount of notes on June 15, 2011. The amounts listed above include interest, as we intend to hold the notes to maturity. See Note 4 in Notes to Consolidated Financial Statements for further information. As of October 1, 2011, purchase obligations consist of purchases of inventory and equipment in the ordinary course of business. As of October 1, 2011, 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 $7.4 million, as of October 1, 2011, 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 1, 2011, 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 are material. DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES Our accounting policies are disclosed in Note 1 of Notes to the Consolidated Financial Statements. During fiscal 2011, 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. We continue to use the Black-Scholes valuation model to value stock options. See Note 1 in Notes to Consolidated Financial Statements for further information. 33 Impairment of Long-Lived Assets – We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property, plant and equipment is measured by comparing its carrying value to the projected cash flows the property, plant and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the property exceeds its fair market value. The impairment analysis is based on management’s assumptions, including future revenue and cash flow projections. Circumstances that may lead to impairment of property, plant and equipment include reduced expectations for future performance or industry demand and possible further restructurings. Intangible Assets – 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 EMEA 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. 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 with durations of twelve months or less, are typically recognized as costs are incurred utilizing the proportional performance model. The completed performance model is used if certain customer acceptance criteria exist. 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. See Note 5 – Derivatives and Fair Value Measurements for further details. Income Taxes – The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Accordingly, the Company does not currently provide for additional U.S. and foreign income taxes which would become payable upon repatriation of undistributed earnings of certain foreign subsidiaries. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could 34 potentially enhance the likelihood of realization of a deferred tax asset. If the U.S. operations continue to generate losses, there may be a need to provide a valuation allowance on our net U.S. deferred tax assets, which totaled $21.7 million as of October 1, 2011. NEW ACCOUNTING PRONOUNCEMENTS See Note 1 in Notes to Consolidated Financial Statements regarding recent accounting pronouncements. 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 partially offsets the effects of changes in foreign currency exchange rates. We typically use 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 forward contracts to hedge a portion of our foreign currency denominated transactions in our APAC reportable segment and beginning in July 2011, we entered into forward contracts to hedge a portion of our foreign currency denominated transactions in Mexico, as described in Note 5 to 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 Fiscal year 2010 5% 13% 2009 4% 11% 2011 6% 14% The Company has evaluated the potential foreign currency exchange rate risk on transactions denominated in currencies other than the U.S. dollar for the periods presented above. Based on the Company’s overall currency exposure, as of October 1, 2011, a 10 percent change in the value of the U.S. dollar relative to our other transactional currencies would not have a material effect on the Company’s financial position, results of operations, or cash flows. Interest Rate Risk We have financial instruments, including cash equivalents and short-term investments as well as debt, which are sensitive to changes in interest rates. We consider the use of interest-rate swaps and treasury rate locks based on existing market conditions. We have entered into interest rate swaps for $97.5 million in term loans, as described in Note 5 in Notes to Consolidated Financial Statements. As is common with these types of agreements, our interest rate swap and treasury rate lock agreements are subject to the further risk that the counterparties to these agreements may fail to comply with their obligations thereunder. 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 as of October 1, 2011, is associated with our Credit Facility under which we borrowed $150 million. 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 interest expense. 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Part IV, Item 15 on page 38. 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) in assuring that information is 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 1, 2011, 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 1, 2011, 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 1, 2011, as stated in their report included herein on page 41. Changes in Internal Control Over Financial Reporting: There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Limitations on the Effectiveness of Controls: Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Notwithstanding the foregoing limitations on the effectiveness of controls, we have nonetheless reached the conclusion that our disclosure controls and procedures and our internal control over financial reporting are effective at the reasonable assurance level. 36 ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 2012 Annual Meeting of Shareholders (“2012 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 2012 Proxy Statement. ITEM 12. AND RELATED STOCKHOLDER MATTERS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to “Security Ownership of Certain Beneficial Owners and Management” in the 2012 Proxy Statement. Equity Compensation Plan Information The following table chart gives aggregate information regarding grants under all Plexus equity compensation plans through October 1, 2011: 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) 3,642,883 $ 27.69 3,146,516 -0- $ n/a -0- 3,642,883 $ 27.69 3,146,516 Plan category Equity compensation plans approved by securityholders Equity compensation plans not approved by securityholders Total (1) Represents options or stock-settled stock appreciation rights (“SARs”) granted under the Plexus Corp. 2008 Long-Term Incentive 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. ITEM 13. INDEPENDENCE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR Incorporated herein by reference to “Corporate Governance – Director Independence” and “Certain Transactions” in the 2012 Proxy Statement. 37 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Incorporated herein by reference to the subheading “Auditors - Fees and Services” in the 2012 Proxy Statement. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Documents filed PART IV Financial Statements and Financial Statement Schedule. See the 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 1, 2011 Contents Pages Report of Independent Registered Public Accounting Firm ....................................................... 40 Consolidated Financial Statements: Consolidated Statements of Operations for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009 ............................................... Consolidated Balance Sheets as of October 1, 2011 and October 2, 2010 .................... Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009 ...... Consolidated Statements of Cash Flows for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009 ............................................... Notes to Consolidated Financial Statements ............................................................................... Financial Statement Schedule: 41 42 43 44 45 Schedule II - Valuation and Qualifying Accounts for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009 ............................................... 70 NOTE: All other financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto. 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 1, 2011 and October 2, 2010, and the results of their operations and their cash flows for each of the three years in the period ended October 1, 2011 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 1, 2011, 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. 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 17, 2011 40 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009 (in thousands, except per share data) Net sales Cost of sales 2011 2010 2009 $ 2,231,232 2,016,490 $ 2,013,393 1,806,471 $ 1,616,622 1,461,846 Gross profit 214,742 206,922 154,776 Operating expenses: Selling and administrative expenses Goodwill impairment charges Restructuring charges Operating income Other income (expense): Interest expense Interest income Miscellaneous income (expense) 113,563 - - 107,270 - - 93,138 5,748 2,823 113,563 101,179 107,270 101,709 99,652 53,067 (11,649) 1,367 1,206 (9,589) 1,436 (1,062) (10,875) 2,323 904 Income before income taxes 92,103 90,437 45,419 Income tax expense (benefit) 2,847 904 (908) Net income $ 89,256 $ 89,533 $ 46,327 Earnings per share: Basic Diluted Weighted average shares outstanding: Basic Diluted $ $ 2.34 2.30 $ $ 2.24 2.19 $ $ 1.18 1.17 38,063 38,800 40,051 40,831 39,411 39,654 The accompanying notes are an integral part of these consolidated financial statements. 41 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of October 1, 2011 and October 2, 2010 (in thousands, except per share data) ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowances of $3,256 and $1,400, respectively Inventories Deferred income taxes Prepaid expenses and other 2011 2010 $ 242,107 284,019 $ 188,244 311,205 455,836 15,750 10,858 492,430 18,959 15,153 Total current assets 1,008,570 1,025,991 Property, plant and equipment, net Deferred income taxes Other 265,505 12,470 17,980 235,714 11,787 16,887 Total assets $ 1,304,525 $ 1,290,379 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 $ 17,350 307,152 30,739 $ 17,409 360,686 27,301 42,101 57,335 46,639 50,484 454,677 502,519 Long-term debt and capital lease obligations, net of current portion Other liabilities 270,292 20,674 112,466 23,539 Total non-current liabilities 290,966 136,005 Commitments and contingencies Shareholders’ equity: Preferred stock, $.01 par value, 5,000 shares authorized, none issued or outstanding Common stock, $.01 par value, 200,000 shares authorized, 48,298 and 47,849 shares issued, respectively, and 34,544 and 40,403 shares outstanding, respectively - 483 Additional paid-in capital Common stock held in treasury, at cost, 13,754 and 7,446 shares, 415,556 (400,110) respectively Retained earnings Accumulated other comprehensive income 534,824 8,129 558,882 - 478 399,054 (200,110) 445,568 6,865 651,855 Total liabilities and shareholders’ equity $ 1,304,525 $ 1,290,379 The accompanying notes are an integral part of these consolidated financial statements. 42 5 4 9 , 3 7 4 $ l a t o T d e t a l u m u c c A r e h t O e v i s n e h e r p m o C ) s s o L ( e m o c n I 4 7 7 , 0 1 $ d e n i a t e R s g n i n r a E y r u s a e r T k c o t S l a n o i t i d d A l a t i p a C n I - d i a P k c o t S n o m m o C t n u o m A s e r a h S S E I R A I D I S B U S D N A . P R O C S U X E L P E M O C N I E V I S N E H E R P M O C D N A Y T I U Q E ’ S R E D L O H E R A H S F O S T N E M E T A T S D E T A D I L O S N O C ) s d n a s u o h t n i ( 9 0 0 2 , 3 r e b o t c O d n a , 0 1 0 2 , 2 r e b o t c O , 1 1 0 2 , 1 r e b o t c O d e d n e s r a e y l a c s i f e h t r o f 8 0 7 , 9 0 3 $ ) 0 1 1 , 0 0 2 ( $ 5 0 1 , 3 5 3 $ 8 6 4 $ 6 2 3 , 9 3 8 0 0 2 , 7 2 r e b m e t p e S , s e c n a l a B 7 2 3 , 6 4 ) 7 1 9 , 2 ( ) 7 7 1 , 3 ( 3 3 2 , 0 4 1 2 4 , 9 7 4 8 , 3 - ) 7 1 9 , 2 ( ) 7 7 1 , 3 ( - - - - - - 7 2 3 , 6 4 - - - - - - - - 1 2 4 , 9 5 4 8 , 3 - - - - 2 6 4 4 , 7 2 5 0 8 6 , 4 5 3 0 , 6 5 3 ) 0 1 1 , 0 0 2 ( 1 7 3 , 6 6 3 0 7 4 2 1 2 3 7 9 , 1 3 3 5 , 9 8 6 3 5 , 9 8 1 7 , 1 9 5 5 1 , 3 2 - - - 2 1 2 3 7 9 , 1 - - - - 3 3 5 , 9 8 - - - - - - - - 6 3 5 , 9 7 4 1 , 3 2 - - - - 8 5 5 8 , 1 5 6 5 6 8 , 6 8 6 5 , 5 4 4 ) 0 1 1 , 0 0 2 ( 4 5 0 , 9 9 3 8 7 4 1 7 6 , 1 ) 7 0 4 ( 6 5 2 , 9 8 0 2 5 , 0 9 6 6 4 , 5 1 4 0 , 1 1 ) 0 0 0 , 0 0 2 ( - ) 7 0 4 ( 1 7 6 , 1 - - - - - - - - 6 5 2 , 9 8 - - - - - ) 0 0 0 , 0 0 2 ( - - - - 1 6 4 , 5 1 4 0 , 1 1 - - - - - 5 - - - - 2 2 2 8 4 5 , 9 3 - - - - 5 5 8 3 0 4 , 0 4 - - - - 9 4 4 ) 8 0 3 , 6 ( x a t f o t e n , s t n e m u r t s n i e v i t a v i r e d f o e u l a v t e k r a m r i a f n i s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F e g n a h C s t i f e n e b x a t g n i d u l c n i , s n o i t p o k c o t s f o e s i c r e x E e m o c n i e v i s n e h e r p m o c l a t o T e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S : e m o c n i e v i s n e h e r p m o C e m o c n i t e N x a t f o t e n , s t n e m u r t s n i e v i t a v i r e d f o e u l a v t e k r a m r i a f n i e g n a h C s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F s t i f e n e b x a t g n i d u l c n i , s n o i t p o k c o t s f o e s i c r e x E e m o c n i e v i s n e h e r p m o c l a t o T e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S x a t f o t e n , s t n e m u r t s n i e v i t a v i r e d f o e u l a v t e k r a m r i a f n i e g n a h C s t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F s t i f e n e b x a t g n i d u l c n i , s n o i t p o k c o t s f o e s i c r e x E e m o c n i e v i s n e h e r p m o c l a t o T e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S d e s a h c r u p s e r a h s y r u s a e r T 0 1 0 2 , 2 r e b o t c O , s e c n a l a B : e m o c n i e v i s n e h e r p m o C e m o c n i t e N 9 0 0 2 , 3 r e b o t c O , s e c n a l a B : e m o c n i e v i s n e h e r p m o C e m o c n i t e N 2 8 8 , 8 5 5 $ 9 2 1 , 8 $ 4 2 8 , 4 3 5 $ ) 0 1 1 , 0 0 4 ( $ 6 5 5 , 5 1 4 $ 3 8 4 $ 4 4 5 , 4 3 1 1 0 2 , 1 r e b o t c O , s e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T 3 4 PLEXUS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009 (in thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash flows from operating activities: Depreciation Non-cash goodwill impairment Gain on sale of property, plant and equipment Stock-based compensation expense Deferred income taxes Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other Accounts payable Customer deposits Accrued liabilities and other 2011 2010 2009 $ 89,256 $ 89,533 $ 46,327 47,026 - (175) 11,041 (3,028) 28,551 38,152 3,162 (60,705) 3,332 5,071 40,152 - (236) 9,536 (3,189) (117,449) (169,469) (5,108) 122,226 (911) 36,877 34,468 5,748 (54) 9,421 (1,172) 59,137 16,904 2,086 4,630 1,568 (8,767) Cash flows provided by operating activities 161,683 1,962 170,296 Cash flows from investing activities Payments for property, plant and equipment Proceeds from sales of property, plant and equipment (74,051) 2,145 (74,674) 280 (57,427) 342 Cash flows used in investing activities (71,906) (74,394) (57,085) 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 175,000 (200,000) (17,420) 5,466 - - - (20,899) 21,040 2,115 - - (20,726) 3,402 445 Cash flows (used in) provided by financing activities (36,954) 2,256 (16,879) Effect of foreign currency translation on cash and cash equivalents 1,040 38 (3,920) Net increase (decrease) in cash and cash equivalents 53,863 (70,138) Cash and cash equivalents, beginning of year 188,244 258,382 92,412 165,970 Cash and cash equivalents, end of year $ 242,107 $ 188,244 $ 258,382 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. We deliver optimized Product Realization solutions through a unique Product Realization Value Stream services model. This customer focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the Americas, European, and Asia-Pacific regions. Customer service is provided to over 130 branded product companies in the Wireline/Networking, Wireless Infrastructure, Medical, Industrial/Commercial and Defense/Security/Aerospace market sectors. 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 verification; 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. 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 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 2011 and 2010 each included 364 days. In the first quarter of fiscal 2011, as previously announced, we completed our migration to a regional reporting structure. This change included establishing regional targets for various financial metrics, delegating additional authority to the regions to manage their business, and changing our related internal reporting. Given this change to regional reporting and management, as well as in the information used by management for assessing performance and allocating Company resources, we modified our reporting segments. Prior to fiscal 2011, the Company’s reportable segments consisted of the United States, Asia, Europe and Mexico. During the first quarter of fiscal 2011, we combined our United States and Mexico segments into the “Americas” (“AMER”) segment and renamed our Asia segment “Asia-Pacific” (“APAC”) and our Europe segment “Europe, Middle East and Africa” (“EMEA”) to better represent our long-range regional focus. As a result, we have conformed all prior period segment presentations to be consistent with our current reportable segments. See Note 13 - Reportable Segments, Geographic Information and Major Customers for further information. 45 Plexus Corp. Notes to Consolidated Financial Statements Cash and Cash Equivalents: Cash equivalents are highly liquid investments purchased with an original maturity of less than three months (in thousands): Cash Money market funds and other 2011 $ 93,587 148,520 $ 242,107 2010 $ 121,976 66,268 $ 188,244 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. 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 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 46 Plexus Corp. Notes to Consolidated Financial Statements considered impaired and a second test is performed to measure the amount of impairment. Circumstances that may lead to impairment of goodwill include, but are not limited to, the loss of a significant customer or customers and unforeseen reductions in customer demand, future operating performance or industry demand. Impairment of Long-Lived Assets: Long-lived assets, including property, plant and equipment and intangible assets with finite lives are reviewed for impairment and written down to fair value when facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable through estimated future undiscounted cash flows. If an impairment has occurred, a write-down to estimated fair value is made and the impairment loss is recognized as a charge against current operations. The impairment analysis is based on management’s assumptions, including future revenue and cash flow projections. Circumstances that may lead to impairment of property, plant and equipment include reduced expectations for future performance or industry demand and possible further restructurings, among others. 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 typically recognized as program costs are incurred utilizing the proportional performance model. The completed performance model is used if certain customer acceptance criteria exist. Any losses are recognized when anticipated. Net sales from engineering design and development services were less than five percent of total sales in fiscal 2011, 2010 and 2009. 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. Income Taxes: Deferred income taxes are provided for the difference between the financial statement balance of assets and liabilities and their respective tax basis. 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. Recognition of deferred income tax assets is evaluated and tax reserves are recorded to address potential exposures related to income tax positions taken by the Company. These reserves are based on the assumptions and past experiences of the Company and provide for the uncertainty surrounding the application of statutes, rules, regulations, and interpretations to its income tax filings. It is possible that the actual costs or benefits relating to these matters may be materially more or less than the amount the Company estimated. Foreign Currency Translation: We translate assets and liabilities of subsidiaries operating outside of the U.S. with a functional currency other than the U.S. dollar into U.S. dollars using exchange rates in effect at year-end. We translate net sales, expenses and cash flows at the average monthly exchange rates during the respective periods. 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 income (expense). Exchange gains (losses) on foreign currency transactions were $1.0 million, $(1.5) million, and $0.7 million for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009, 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 47 Plexus Corp. Notes to Consolidated Financial Statements 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 qualifies 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” within shareholders’ equity, 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 “Accumulated other comprehensive income” within shareholders’ equity. Our interest rate swaps and forward contracts are treated as cash flow hedges and, therefore, $(0.4) million, $2.0 million and $(3.2) million were recorded in “Accumulated other comprehensive income” for fiscal 2011, 2010 and 2009, respectively. 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. The computation of diluted earnings per common share reflects additional dilution from stock options and restricted stock, excluding any with an antidilutive effect. 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. 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 shareholder transactions. Accumulated other comprehensive income consists of the following as of October 1, 2011 and October 2, 2010 (in thousands): Foreign currency translation adjustment Cumulative change in fair market value of derivative instruments, net of tax Accumulated other comprehensive income $ 11,460 $ 9,789 (3,331) $ 8,129 (2,924) $ 6,865 2011 2010 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 and Fair Value Measurements. 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 are reflected in the consolidated financial statements at cost because of the short-term duration of these instruments. Accounts receivable are 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 $15.8 million and $18.3 million as of October 1, 2011 and October 2, 2010, respectively. The fair value of the Company’s 48 Plexus Corp. Notes to Consolidated Financial Statements long-term debt was $274.3 million and $105.2 million as of October 1, 2011 and October 2, 2010, respectively. The fair values of the Company’s derivatives are disclosed in Note 5. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. 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 guidance establishes 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. Business and Credit Concentrations: Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, trade accounts receivable and derivative instruments, specifically related to counterparties. In accordance with the Company’s investment policy, the Company’s cash, cash equivalents 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. New Accounting Pronouncements: In June 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to comprehensive income guidance, which eliminates the option to present other comprehensive income (“OCI”) and its components in the statement of shareholders’ equity. The Company can elect to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include the components of net income, and the second statement would include the components of OCI. This guidance is effective for financial statements issued for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance is not anticipated to have a material impact on our consolidated results of operations, financial position and cash flows. In May 2011, the FASB issued an amendment regarding common fair value measurement and disclosure requirements in U.S. GAAP and international financial reporting standards (“IFRS”). The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. To improve consistency in application across jurisdictions some changes in wording are necessary to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way. The amendment also provides for additional accounting guidance and disclosures related to fair value measurements. This guidance is effective for financial statements issued for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance is not anticipated to have a material impact on our consolidated financial position, results of operations and cash flows. In October 2009, the FASB issued new accounting guidance for Multiple-Deliverable Revenue Arrangements, which establishes a selling price hierarchy for determining the selling price of a deliverable, replaces the term “fair value” in the revenue allocation guidance with “selling price,” eliminates the residual method of allocation by requiring that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and requires that a vendor determine its 49 Plexus Corp. Notes to Consolidated Financial Statements best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a stand-alone basis. This guidance is effective for financial statements issued for fiscal years beginning after June 15, 2010. The Company adopted this guidance beginning October 3, 2010, and the adoption did not have a material effect on the Company’s consolidated results of operations, financial position, and cash flows. 2. Inventories Inventories as of October 1, 2011 and October 2, 2010 consisted of (in thousands): Raw materials Work-in-process Finished goods 2011 2010 $ 337,136 46,330 72,370 $ 455,836 $ 365,883 56,036 70,511 $ 492,430 Per contractual terms, customer deposits are received by the Company to offset obsolete and excess inventory risks. The total amount of deposits related to inventory and included within current liabilities on the accompanying Consolidated Balance Sheets as of October 1, 2011 and October 2, 2010 were $29.8 million and $25.8 million, respectively. 3. Property, Plant and Equipment Property, plant and equipment as of October 1, 2011 and October 2, 2010, consisted of (in thousands): Land, buildings and improvements Machinery and equipment Computer hardware and software Construction in progress Less: accumulated depreciation 2011 2010 $ 161,820 278,807 83,373 40,553 564,553 $ 138,230 255,138 79,108 22,145 494,621 299,048 $ 265,505 258,907 $ 235,714 Assets held under capital leases and included in property, plant and equipment as of October 1, 2011 and October 2, 2010 consisted of (in thousands): Buildings and improvements Machinery and equipment Less: accumulated amortization 2011 2010 $ $ 22,934 1,802 24,736 11,345 13,391 $ $ 22,700 1,803 24,503 8,905 15,598 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 by the Company. The Company has subleased the facility. 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 is approximately $10.2 million as of October 1, 2011. 50 Plexus Corp. Notes to Consolidated Financial Statements Amortization of assets held under capital leases totaled $0.9 million, $1.0 million, and $0.9 million for fiscal 2011, 2010 and 2009, respectively. There were no capital lease additions in fiscal 2011; additions were $0.9 million and $0.3 million for fiscal 2010 and 2009, respectively. As of October 1, 2011 and October 2, 2010, accounts payable included approximately $12.3 million and $6.3 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. 4. Debt, Capital Lease Obligations and Other Financing Debt and capital lease obligations as of October 1, 2011 and October 2, 2010, consisted of (in thousands): Debt: Borrowings under term loan, expiring on April 4, 2013, interest rate of base rate or LIBOR rate plus 1.50%. See also Note 5, Derivatives and Fair Value Measurements. Borrowings under senior notes, expiring on June 15, 2018, interest rate of 5.20%. See also Note 5, Derivatives and Fair Value Measurements. Capital lease: Capital lease obligations for equipment and facilities located in San Diego and Xiamen, China, expiring on various dates through 2017; weighted average interest rates of 10.3% and 10.2% for fiscal 2011 and 2010, respectively. Less: current portion Long-term debt and capital lease obligations, net of current portion 2011 2010 $ 97,500 $ 112,500 175,000 - 15,142 17,375 (17,350) (17,409) $ 270,292 $ 112,466 In February 2010, the Company negotiated the settlement of a capital lease in Kelso, Scotland. The termination of this capital lease obligation and acquisition of the property was effected through a cash payment by Plexus of $3.9 million. The aggregate scheduled maturities of the Company’s debt obligations as of October 1, 2011, are as follows (in thousands): 2012 2013 2014 2015 2016 Thereafter Total $ 15,000 82,500 - - - 175,000 $ 272,500 51 Plexus Corp. Notes to Consolidated Financial Statements The aggregate scheduled maturities of the Company’s obligations under capital leases as of October 1, 2011, are as follows (in thousands): 2012 2013 2014 2015 2016 Thereafter Less: interest portion of capital leases Total $ 3,800 3,894 3,984 4,078 3,055 622 19,433 4,291 15,142 $ On April 4, 2008, the Company entered into its 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 may be increased by an additional $100 million to a total of $200 million (the “accordion feature”). This is possible 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 agreement and both the Company 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, revolving or swing loans or letter of credit obligations. As of October 1, 2011, the Company has term loan borrowings of $97.5 million outstanding and no revolving borrowings under the Credit Facility. Average outstanding revolving borrowings for the fiscal year ended October 1, 2011 were $6.6 million, and there were no draws against the revolving credit facility during the fiscal year ended October 2, 2010. 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 1, 2011, 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). The interest rate on borrowing varies depending upon the Company’s then-current total leverage ratio; as of October 1, 2011, the Company could elect to pay interest at a defined base rate or the LIBOR rate plus 1.50%. 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 0.375%. 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 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. On April 21, 2011, the Company entered into a Note Purchase Agreement (the “Agreement”) with certain institutional investors related to $175 million in principal amount of 5.20% Senior Notes, due on June 15, 2018 (the “Notes”). The Company issued $100 million in principal amount of the Notes on April 21, 2011, and the remaining $75 million on June 15, 2011. The Agreement includes operational and financial covenants which include a maximum total leverage ratio, a minimum interest coverage ratio and restrictions on additional indebtedness, liens and dispositions, all as defined in the Agreement. As of October 1, 2011, the Company was in compliance with all debt covenants. The Notes are unsecured and rank at least equally and ratably in point and security with the other unsecured and unsubordinated financing facilities of the Company. 52 Plexus Corp. Notes to Consolidated Financial Statements Our effective interest rate on the Notes after the treasury rate lock agreement discussed in Note 5 – Derivatives and Fair Value Measurements is 4.97%. Origination fees and expenses associated with the Agreement totaled approximately $0.9 million and have been deferred. These origination fees and expenses are being amortized over the seven-year term of the Notes. Semi-annual interest payments began on June 15, 2011, and end on June 15, 2018, with full repayment of the total principal of the Notes. Interest expense related to the commitment fee and amortization of the deferred origination fees and expenses for the Credit Facility and Agreement totaled approximately $0.7 million in each of fiscal 2011, 2010 and 2009. Cash paid for interest in fiscal 2011, 2010 and 2009 was $8.6 million, $9.2 million and $10.5 million, respectively. 5. Derivatives and Fair Value Measurements All derivatives are recognized in the accompanying Consolidated Balance Sheets at their estimated fair values. 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 currently has cash flow hedges related to variable rate debt and forecasted foreign currency payments. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in “Accumulated other comprehensive income” in the accompanying Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. During the fourth quarter of fiscal 2011, the Company’s Mexican operations entered into forward exchange contracts on a rolling basis with a total notional value of $5.9 million as of October 1, 2011. These forward contracts will fix the exchange rates on foreign currency cash used to pay a portion of local currency expenses. The total fair value of these forward contracts was a $1.0 million liability as of October 1, 2011. During the second quarter of fiscal 2011, the Company entered into forward exchange contracts to fix the exchange rates on foreign currency cash used to pay for capital expenditures related to the construction of our fourth facility in Malaysia. As of October 1, 2011, the total notional value of the forward contracts was $2.5 million and the total fair value of these forward contracts was a $0.1 million liability. The Company’s Malaysian operations have also entered into forward exchange contracts on a rolling basis with a total notional value of $57.2 million as of October 1, 2011. These forward contracts will fix the exchange rates on foreign currency cash used to pay a portion of local currency expenses. The total fair value of these forward contracts was a $1.5 million liability as of October 1, 2011 and a $2.6 million asset as of October 2, 2010. During the second quarter of fiscal 2011, the Company entered into two separate treasury rate lock contracts to hedge the variability of the fixed interest rate on the then forecasted issuance of $175 million of fixed rate debt using a treasury lock transaction. The fixed interest rates for each of these contracts were 2.77% and 2.72%, respectively, with a combined notional value of $150 million. On April 4, 2011, the Company entered into a final treasury rate lock transaction for the remaining $25 million of exposure at a rate of 2.88%. On April 8, 2011, when the fixed interest rate for the debt issuance was determined, all three treasury rate lock contracts were settled and the Company received proceeds of $2.3 million, which is being amortized over the seven year term of the related debt. 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 an initial 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 53 Plexus Corp. Notes to Consolidated Financial Statements 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. The total fair value of these interest rate swap contracts was a $5.2 million liability as of October 1, 2011 and a $9.0 million liability as of October 2, 2010. As of October 1, 2011, the total remaining combined notional amount of the Company’s three interest rate swaps was $97.5 million. The tables below present information regarding the fair values of derivative instruments (as defined in Note 1 – Basis of Presentation and Accounting Policies) and the effects of derivative instruments on the Company’s Consolidated Financial Statements: In thousands of dollars Fair Values of Derivative Instruments Asset Derivatives October 1, 2011 October 2, 2010 Derivatives designated as hedging instruments Interest rate swaps Balance Sheet Location Interest rate swaps Forward contracts Prepaid expenses and other Fair Value Fair Value $ - $ - $ - $ - $ - $ 2,612 Balance Sheet Location Current liabilities – Other Other liabilities Current liabilities – Other The Effect of Derivative Instruments on the Statements of Operations for the Twelve Months Ended In thousands of dollars Liability Derivatives October 1, 2011 October 2, 2010 Fair Value Fair Value $ 3,493 $ 1,746 $ 3,616 $ 5,423 $ 2,544 $ - Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) Other income (expense) Other income (expense) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) October 1, October 2, 2011 $ - 2010 $ - $ - $ - $ 125 $ - Interest income (expense) $ - $ - Amount of Gain or (Loss) Recognized in Other Comprehensive Income (“OCI”) on Derivative (Effective Portion) October 1, October 2, 2011 $ (510) 2010 $ (4,622) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Interest income (expense) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) October 1, October 2, 2011 $ (4,310) 2010 $ (4,908) $ (1,468) $ 4,110 Selling and $ 3,423 $ 2,028 Derivatives in Cash Flow Hedging Relationships Interest rate swaps Forward contracts Treasury Rate Locks $ 2,281 $ - administrative expenses Interest income (expense) 54 Plexus Corp. Notes to Consolidated Financial Statements The following table lists the fair values of the Company’s derivatives as of October 1, 2011, by input level as defined in Note 1 – Basis of Presentation and Accounting Policies: Fair Value Measurements Using Input Levels Asset/(Liability) (in thousands): Level 1 Level 2 Level 3 Total Derivatives Interest rate swaps $ - Forward currency forward contracts $ - $ (5,239) $ (2,544) $ - $ - $ (5,239) $ (2,544) The fair value of interest rate swaps and foreign currency forward contracts is determined using a market approach, which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. The primary input in the fair value of the interest rate swaps is the relevant LIBOR forward curve. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves. 6. Income Taxes The domestic and foreign components of income (loss) before income taxes for fiscal 2011, 2010 and 2009 consisted of (in thousands): U.S. Foreign 2011 2010 2009 $ (9,449) $ (7,742) $ (5,380) 101,552 92,103 $ 98,179 90,437 $ 50,799 45,419 $ Income tax expense (benefit) for fiscal 2011, 2010 and 2009 consisted of (in thousands): Current: Federal State Foreign Deferred: Federal State Foreign 2011 2010 2009 $ - 3 5,872 5,875 $ - 74 4,019 4,093 $ (1,666) 121 1,809 264 (1,649) (484) (895) (3,028) $ 2,847 (1,029) (459) (1,701) (3,189) $ 904 (622) 954 (1,504) (1,172) $ (908) 55 Plexus Corp. Notes to Consolidated Financial Statements 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 2011, 2010 and 2009: Federal statutory income tax rate Increase (decrease) resulting from: Permanent differences State income taxes, net of federal income tax Foreign tax rate differences Valuation reserve for deferred tax assets Other, net Effective income tax rate 2011 35.0% - 2010 35.0% 0.6 2009 35.0% 2.0 (0.3) (34.5) 1.4 1.5 3.1% (0.3) (35.4) - 1.1 1.0% (0.2) (40.1) - 1.3 (2.0)% The Company recorded income tax expense of $2.8 million and $0.9 million for fiscal 2011 and fiscal 2010, respectively. The Company recorded income tax benefit of $(0.9) million for fiscal 2009. The increase to the income tax expense recorded in fiscal 2011 as compared to fiscal 2010 and fiscal 2009 is primarily due to the change in the mix of income in the tax jurisdictions in which we operate. The difference in our effective income tax rate as compared to our normal statutory rate is primarily due to the effect of pre- tax income in Malaysia and Xiamen, China, where we benefit from reduced effective tax rates due to tax holidays. The components of the net deferred income tax asset as of October 1, 2011 and October 2, 2010, consisted of (in thousands): Deferred income tax assets: Loss/credit carryforwards Goodwill Inventories Accrued benefits Allowance for bad debts Interest rate swaps Other Total gross deferred income tax assets Less valuation allowance Deferred income tax assets Deferred income tax liabilities: Property, plant and equipment Other 2011 2010 $ 10,263 2,787 6,961 16,001 1,149 2,031 4,406 43,598 (5,116) 38,482 $ 10,904 3,550 7,936 14,473 383 3,504 3,917 44,667 (2,547) 42,120 9,552 710 10,262 10,346 1,028 11,374 Net deferred income tax asset $ 28,220 $ 30,746 During the preparation of the Company’s fiscal 2011 consolidated financial statements, the Company performed an analysis of all available evidence, both positive and negative, regarding the need for a valuation allowance against our deferred tax assets, consistent with the provisions of ASC Topic 740, “Income Taxes.” The Company’s U.S. operations generated losses during the fiscal 2009, 2010 and 2011 years. While we believe these losses could be a significant factor in establishing such an allowance, we believe that based on the weight of all the evidence, both positive and negative, it is more likely than not that the Company will be able to utilize its U.S. net deferred tax assets of approximately $21.7 million. 56 Plexus Corp. Notes to Consolidated Financial Statements The positive evidence relied upon is as follows: 1) orders for a new large U.S. industrial/commercial customer are currently projected to significantly increase in fiscal 2012, which we believe would result in income for the Company’s U.S. operations in fiscal 2012 and beyond; 2) the effect of the deep U.S. recession during this period was considered atypical; 3) the Company’s U.S. operations created cumulative pretax income for fiscal years 2006 through 2008 of more than $150 million; 4) the federal tax losses in fiscal 2009 and 2010 were able to be fully utilized through loss carrybacks to prior years; and 5) the federal loss carryforward at the end of fiscal 2011 has a 20 year carryforward period. 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 for state taxes against the amount of net operating loss and credit carryforwards related to tax deductions in excess of compensation expense for stock options until such time as the related deductions actually reduce income taxes payable. The Company reversed approximately $0.1 million of this valuation allowance with corresponding credits to additional paid-in capital in fiscal 2009. As of the end of fiscal 2010 there was a valuation allowance of $1.0 million for federal and state taxes against the amount of net operating loss and credit carryforwards related to tax deductions in excess of compensation expense for stock options. During fiscal 2011 the Company recorded an additional valuation allowance of $1.3 million. As a result, we had a remaining valuation allowance of approximately $2.3 million related to tax deductions associated with stock-based compensation as of October 1, 2011. In addition, there is a remaining valuation allowance of $1.6 million as of October 1, 2011, 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. During fiscal 2011 the Company added a valuation allowance of $0.3 million and $0.9 million in the United Kingdom and Romania, respectively to offset the increase in net deferred tax assets in those jurisdictions which, more likely than not, will not be realized. On November 1, 2009, Mexico adopted tax reform legislation that took effect January 1, 2010, and provides 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. These laws did not have a material impact on our effective income tax rate in fiscal 2011, 2010 or 2009; however, they could have a material effect on future periods. On November 5, 2009, the United States adopted the “Worker, Homeownership, and Business Assistance Act of 2009”, which 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. This law did not have a material impact on our effective tax rate in fiscal 2011, 2010 or 2009 and we do not currently believe that it will create a material impact on our effective income tax rate in 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 that began in calendar 2008. This law did not have a material effect on our income taxes for our fiscal 2011, 2010 or 2009 tax years. 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. On July 19, 2011, the United Kingdom enacted The Finance (No. 3) Act 2011, which reduced its corporate income tax rate from 28% to 26% effective April 1, 2011 and to 25% effective April 1, 2012. This law did not have a material impact on our effective income tax rate in fiscal 2011; however, it could have a material effect on future periods. 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 2011, 2010 and 2009, management provided income tax expense for the effect of the Finance Act on the non-deductibility of this interest expense based on the current agreement with the tax authorities in the United Kingdom regarding the application of the Finance Act to the Company’s circumstances. 57 Plexus Corp. Notes to Consolidated Financial Statements The Company has been granted tax holidays for its Malaysian and Xiamen, China subsidiaries. These tax holidays expire in 2024 and 2013, respectively, and are subject to certain conditions with which the Company expects to comply. In fiscal 2011, 2010 and 2009, these subsidiaries generated income, which resulted in tax reductions of approximately $21.7 million ($0.57 per basic share), $23.0 million ($0.58 per basic share) and $15.2 million ($0.38 per basic share), 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 $406.8 million as of October 1, 2011. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable at this time. As of October 1, 2011, the Company had approximately $75.6 million of state net operating loss carryforwards that expire between fiscal 2012 and 2029. Cash refund for income taxes in fiscal 2011 was $2.2 million, and cash paid for income taxes in fiscal 2010 and 2009 was $3.5 million and $2.9 million, respectively. The Company has approximately $7.4 million of uncertain tax benefits as of October 1, 2011. The Company has classified these amounts in the Consolidated Balance Sheets as “Other liabilities” (noncurrent) to the extent that payment is not anticipated within one year. Presented below is a reconciliation of the beginning and ending amounts of unrecognized income tax benefits (in thousands): Balance at beginning of fiscal 2010 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 beginning of fiscal 2011 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 1, 2011 $ 4,849 131 964 - - $ 5,944 191 1,225 - - $ 7,360 Approximately $6.3 million and $4.8 million, respectively of the balance as of October 1, 2011, and October 2, 2010 would reduce the Company’s effective tax rate if recognized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total accrued penalties and net accrued interest with respect to income taxes was approximately $0.7 million, $0.5 million and $0.3 million as of October 1, 2011, October 2, 2010 and October 3, 2009, respectively. The Company recognized $0.2 million of expense for accrued penalties and net accrued interest in the Consolidated Statements of Operations for the fiscal year ended October 1, 2011. 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 to 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. 58 Plexus Corp. Notes to Consolidated Financial Statements The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The following tax years remain subject to examination by the respective major tax jurisdictions: Jurisdiction China Germany Mexico Romania United Kingdom United States Federal State Fiscal Years 2008 – 2011 2009 – 2011 2006 – 2011 2009 – 2011 2007 – 2011 2007 – 2011 2001 – 2011 7. Shareholders’ Equity On February 16, 2011 the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $200 million of common stock. On August 15, 2011, the Company completed its share repurchase program; a total of 6.3 million shares were purchased at a volume- weighted average of $31.69 per share. Pursuant to the Company's Rights Agreement, each preferred share purchase right (a "Right") entitles the registered holder to purchase from the Company one one-hundredth of a share of the Company's Series B Junior Participating Preferred Stock, $0.01 par value per share (“Preferred Share"), at a price of $125.00 per one one-hundredth of a Preferred Share, subject to adjustment. The Rights are exercisable only if a person or group acquires beneficial ownership of more than 20% of the Company's outstanding common stock or commences, or announces an intention to make, a tender offer or exchange offer that would result in such person or group acquiring the beneficial ownership of more than 20% of the Company's common stock. The Rights expire on August 28, 2018, subject to extension. 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 1, 2011 Fiscal Years Ended October 2, 2010 October 3, 2009 $ 89,256 $ 89,533 $ 46,327 Basic weighted average common shares outstanding Dilutive effect of stock options Diluted weighted average shares outstanding 38,063 737 38,800 40,051 780 40,831 39,411 243 39,654 Earnings per share: Basic Diluted $ $ 2.34 2.30 $ $ 2.24 2.19 $ $ 1.18 1.17 In fiscal 2011, 2010 and 2009, stock options and stock-settled stock appreciation rights (‘SARs”) to purchase approximately 1.3 million, 1.2 million and 2.7 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 our common shares and, therefore, their effect would be antidilutive. In fiscal 2009, restricted stock units (“RSUs”) of approximately 20,000 were outstanding but 59 Plexus Corp. Notes to Consolidated Financial Statements were not included in the computation of diluted earnings per share because their effect would have been anti- dilutive. In fiscal 2011 and fiscal 2010 there were no anti-dilutive RSUs outstanding. 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 2021. Rent expense under all operating leases for fiscal 2011, 2010 and 2009 was approximately $12.8 million, $11.8 million and $11.9 million, respectively. Renewal and purchase options are available on certain of these leases. Future minimum annual payments on operating leases are as follows (in thousands): 2012 2013 2014 2015 2016 Thereafter $ $ 11,574 9,589 8,015 5,724 3,456 2,868 41,226 10. Restructuring and Asset Impairment Charges Fiscal 2011 and fiscal 2010 restructuring and asset impairment charges: For fiscal 2011 and fiscal 2010, the Company did not incur any restructuring or impairment charges. Fiscal 2009 restructuring and asset impairment charges: For fiscal 2009, we recorded pre-tax restructuring and asset impairment charges of $8.6 million, related to goodwill impairment in our EMEA 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, 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 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 Charges. In fiscal 2009, we recorded pre-tax restructuring charges 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. 60 Plexus Corp. Notes to Consolidated Financial Statements A detail of restructuring and asset impairment charges are provided below (in thousands): Employee Termination and Severance Costs Lease Obligations and Other Exit Costs Non-cash Asset Impairments Total Accrued balance, September 27, 2008 $ 2,038 $ - $ - $ 2,038 Restructuring and asset impairments charges 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 $ $ The remaining balance as of October 3, 2009 of $0.1 million was utilized in fiscal 2010 and no further accruals were recorded in fiscal 2011 or 2010. For a detail of restructuring and asset impairment charges by reportable segment, see Note 13 – Reportable Segments, Geographic Information and Major Customers. 11. Benefit Plans 401(k) Savings Plan: The Company’s 401(k) Savings Plan covers all eligible U.S. employees. Effective January 1, 2010, the Company began matching employee contributions up to 4 percent of eligible earnings. Previously, the Company matched employee contributions up to 2.5 percent of eligible earnings. The Company’s contributions for fiscal 2011, 2010 and 2009 totaled $5.8 million, $4.9 million and $2.9 million, respectively. Stock-based Compensation Plans: The Company’s shareholders approved the Plexus Corp. 2008 Long-Term Incentive Plan (the “2008 Plan”), which was last approved by shareholders in February 2011, is 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”), unrestricted stock awards (“SAs”) and performance stock awards, in addition to cash incentive 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, cash incentive awards of up to $4.0 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. Generally, 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 exercise price of each stock option granted must not have been less than the fair market value on the date of grant. The 2005 Plan terminated upon the approval of the 2008 Plan, except that outstanding awards continue until expiration. Individual stock option and SARs grants are determined annually, but granted on a quarterly basis. However, grants of RSUs are generally made only on an annual basis. Beginning in fiscal 2011, the Company discontinued the use of long-term cash awards and increased the number of RSUs to provide equivalent value. In fiscal 2009, the Company made a special grant consisting solely of RSUs to certain key 61 Plexus Corp. Notes to Consolidated Financial Statements employees (excluding our Chief Executive Officer) to encourage retention, but did not make similar special grants in fiscal 2011 or fiscal 2010. For options issued to the members of the Board of Directors in fiscal 2009, 50 percent of their stock options vested immediately at the date of grant and their remaining stock options vested on the first anniversary of the grant date. Options issued to the members of the Board of Directors in fiscal 2011 and 2010 vested immediately on the date of grant. In fiscal 2011 and fiscal 2010, the Company granted members of the board of directors SAs, which vested immediately on grant. In fiscal 2011, 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 0.1 million shares of common stock, all of which vest on the third anniversary of grant, and the Committee granted SAs for 0.1 million shares of common stock. In fiscal 2010, 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 0.1 million shares of common stock and long-term cash awards that totaled $0.9 million, all of which vest on the third anniversary of grant. In addition, in fiscal 2010, the Committee granted SAs for 0.1 million shares of common stock. 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. The Company recognized $11.0 million, $9.5 million, and $9.4 million of compensation expense associated with stock options, SARs, RSUs and SAs for the fiscal years ended October 1, 2011, October 2, 2010 and October 3, 2009, respectively. The related deferred tax benefit recognized was $3.7 million, $3.2 million, and $2.4 million for the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009, respectively. A summary of the Company’s stock option and SAR activity follows: Outstanding as of September 27, 2008 3,393 $ 25.88 Number of Options/SARs (in thousands) Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Granted Cancelled Exercised Outstanding as of October 3, 2009 Granted Cancelled Exercised Outstanding as of October 2, 2010 Granted Cancelled Exercised Outstanding as of October 1, 2011 614 (166) (223) 3,618 603 (122) (910) 3,189 641 (110) (501) 3,219 19.71 28.75 15.43 25.34 32.29 34.18 25.80 26.18 31.01 34.87 20.78 27.69 $ $ $ $ 5,637 62 Plexus Corp. Notes to Consolidated Financial Statements Exercisable as of: October 3, 2009 October 2, 2010 October 1, 2011 Number of Options/SARs (in thousands) Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) 2,815 2,365 2,383 $ $ $ 26.36 25.37 26.38 $ 5,637 Included in the table above are 344,920, 335,022, and 310,071 SARs, which were granted in fiscal 2011, 2010 and 2009, respectively. The following table summarizes outstanding stock option and SAR information as of October 1, 2011 (Options/SARs in thousands): Range of Exercise Prices $ 8.97 - $14.63 $14.64 - $20.95 $20.96 - $29.84 $29.85 - $42.52 372 362 1,231 1,254 $ 8.97 - $42.52 3,219 Number of Options/SARs Outstanding Weighted Average Exercise Price Weighted Average Remaining Life Number of Options/SARs Exercisable Weighted Average Exercise Price $ 13.34 $ 18.06 $ 25.68 $ 36.69 $ 27.69 4.0 4.7 5.6 6.3 5.6 372 362 891 758 $ 13.34 $ 18.06 $ 24.84 $ 38.56 2,383 $ 26.38 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 1, 2011, October 2, 2010 and October 3, 2009 were $13.40, $14.25 and $8.72, 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: Fiscal Years Ended October 1, 2011 October 2, 2010 October 3, 2009 Expected life (years) Risk-free interest rate Expected volatility Dividend yield 4.40 – 5.00 1.03 – 2.17% 49 – 50% - 4.40 – 5.00 1.61 – 2.71% 50% - 4.40 – 4.90 1.76 – 2.84% 48 – 51% - The fair value of options and SARs vested for fiscal years ended October 1, 2011, October 2, 2010 and October 3, 2009 were $3.6 million, $3.1 million and $6.3 million, respectively. For the fiscal years ended October 1, 2011, October 2, 2010, and October 3, 2009, the total intrinsic value of options and SARs exercised was $6.5 million, $8.5 million and $1.2 million, respectively. As of October 1, 2011, there was $7.7 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. 63 Plexus Corp. Notes to Consolidated Financial Statements A summary of the Company’s RSUs and SAs 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 27, 2008 99 $ 30.54 Granted Cancelled Vested Units outstanding as of October 2, 2009 Granted Cancelled Vested Units outstanding as of October 2, 2010 Granted Cancelled Vested Units outstanding as of October 1, 2011 210 (11) - 298 115 (12) (16) 385 155 (18) (98) 424 21.73 24.86 - 24.54 $ 33.99 26.95 33.99 26.90 $ 27.14 25.92 31.27 26.02 $ $ 9,749 The Company uses the fair value at the date of grant to value RSUs and SAs. The fair value of RSUs and SAs that vested for the fiscal year ended October 1, 2011 was $0.6 million. There was 88,112 RSUs and 10,000 SAs that vested during the fiscal year ended October 1, 2011. There were not any RSUs and 16,000 SAs that vested during the fiscal year ended October 2, 2010 and there were not any RSUs or SAs that vested during the fiscal year ended October 3, 2009. As of October 1, 2011, there was $5.1 million of unrecognized compensation cost related to RSU awards that is expected to be recognized over a weighted average period of 1.8 years. Deferred Compensation Arrangements: The Company has agreements with certain of its former executive officers to provide nonqualified deferred compensation. Under those agreements, the Company agreed to pay to these former executives, or their designated beneficiaries upon such executives’ deaths, certain amounts annually for the first 15 years subsequent to their retirements. 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 were consistent with the intent of the original agreements and with the manner in which the agreements had operated in practice. The Company has 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. The SERP operates under 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 2011, 2010 and 2009, the Company made contributions to the participants’ SERP accounts in the amount of $0.3 million, $0.2 million and $0.2 million, respectively. As of October 1, 2011 and October 2, 2010, the SERP assets held in the Trust totaled $6.2 million and $6.0 million, respectively, and the related liability to the participants totaled approximately $3.9 million and $4.0 million as of October 1, 2011 and October 2, 2010, respectively. The Trust assets are subject to the 64 Plexus Corp. Notes to Consolidated Financial Statements claims of the Company’s creditors. The Trust assets and the related liabilities to the participants are included in non-current “Other assets” and non-current “Other liabilities”, respectively, in the accompanying Consolidated Balance Sheets. Other: The Company currently does not and is not obligated to provide any postretirement medical or life insurance benefits to employees. 12. Litigation In fiscal 2010, the Company incurred approximately $1.1 million of costs relating to non- conforming inventory received from a supplier. The Company reached a settlement with the supplier during the first quarter of fiscal 2011 for $0.9 million, which was received and recorded in selling and administrative expenses in fiscal 2011. We were notified in April 2009 by U.S. Customs and Border Protection (“CBP”) of its intention to conduct a customary Focused Assessment of our import activities during fiscal 2008 and of our processes and procedures to comply with U.S. Customs laws and regulations. During September 2010 the Company reported errors relating to import trade activity from July 2004 to the date of Plexus’ report. CBP has indicated that on-site fieldwork for the audit was completed as of June 2011 and the Company is currently awaiting final determination of CBP duties and fees. Plexus has agreed that it will implement improved processes and procedures and review these corrective measures with CBP. We recorded an accrual in other current accrued liabilities in the first quarter of fiscal 2010 when the amount became estimable and probable, which was not material to the financial statements. At this time, we do not believe that any 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 the Company’s consolidated financial position, results of operations or cash flows. In December 2009, the Company received settlement funds of approximately $3.2 million related to a court case in which the Company was a plaintiff. The settlement related to prior purchases of inventory and therefore was recorded as a reduction of cost of sales. 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. 13. Reportable Segments, 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. In the first quarter of fiscal 2011, we completed our migration to a regional reporting structure, and as a result, modified our reportable segments. See Note 1 – Description of Business and Significant Accounting Policies for further information. The Company uses an internal management reporting system, which provides important financial data to evaluate performance and allocate the Company's resources on a regional 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, other income (loss), and income taxes. Corporate and other costs primarily represent corporate selling and administrative expenses, and restructuring and impairment costs, if any. 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.(cid:3)(cid:3) 65 Plexus Corp. Notes to Consolidated Financial Statements Information about the Company’s three reportable segments in fiscal 2011, 2010 and 2009 were as follows (in thousands): Net sales: AMER APAC EMEA Elimination of inter-segment sales October 1, 2011 Fiscal Years Ended October 2, 2010 October 3, 2009 $1,304,885 1,063,079 92,269 (229,001) $2,231,232 $ 1,244,720 925,391 72,627 (229,345) $2,013,393 $ 1,084,346 588,129 55,587 (111,440) $1,616,622 Depreciation: AMER APAC EMEA Corporate Operating income (loss): AMER APAC EMEA Corporate and other costs Capital expenditures: AMER APAC EMEA Corporate Total assets: AMER APAC EMEA Corporate $ $ 15,045 21,115 2,947 7,919 47,026 $ $ 13,658 18,536 1,957 6,001 40,152 $ 68,725 118,063 (2,955) (82,654) $ 101,179 $ 74,409 114,760 (1,806) (87,711) 99,652 $ $ $ $ $ 12,445 16,154 782 5,087 34,468 61,223 63,662 1,352 (73,170) 53,067 $ 12,578 48,122 10,233 3,118 74,051 $ $ 16,483 37,909 1,884 18,398 74,674 $ $ 19,864 23,052 5,587 8,924 57,427 $ October 1, 2011 October 2, 2010 $ 451,044 631,054 76,365 146,062 $ 1,304,525 $ 495,639 539,543 84,786 170,411 $ 1,290,379 66 Plexus Corp. Notes to Consolidated Financial Statements 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 China United Kingdom Mexico Romania Elimination of inter-segment sales Long-lived assets: United States Malaysia China United Kingdom Mexico Romania Corporate October 1, 2011 Fiscal Years ended October 2, 2010 October 3, 2009 $ 1,192,389 836,808 226,271 75,771 112,496 16,498 (229,001) $ 2,231,232 $ 1,150,207 788,189 137,202 71,519 94,513 1,108 (229,345) $ 2,013,393 $ 1,007,087 512,656 75,473 55,577 77,259 10 (111,440) $ 1,616,622 October 1, 2011 October 2, 2010 $ 55,580 112,489 29,803 9,902 9,762 7,101 40,868 $ 265,505 $ 59,233 86,387 21,920 7,248 8,655 4,484 47,787 $ 235,714 Long-lived assets as of October 1, 2011 and October 2, 2010 exclude other long-term assets and deferred income tax assets which totaled $30.5 million and $28.7 million, respectively. Restructuring and asset impairment charges are not allocated to reportable segments, as management excludes such charges when assessing the performance of the reportable segments, but rather includes such charges within the “Corporate and other costs” section of the above table of operating income (loss). In fiscal 2011 and fiscal 2010 the Company did not incur any restructuring or asset impairment charges. In fiscal 2009, the Company incurred restructuring and asset impairment charges, as described in Note 10. The following table presents restructuring and asset impairment charges by segment for the years indicated (in thousands): Restructuring and asset impairment charges: AMER EMEA Corporate October 1, 2011 Fiscal Years Ended October 2, 2010 October 3, 2009 $ $ - - - - $ $ - - - - $ $ 1,830 5,748 993 8,571 67 Plexus Corp. Notes to Consolidated Financial Statements 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”) October 1, 2011 17% Fiscal Years Ended October 2, 2010 16% October 3, 2009 20% For our significant customers, we generally manufacture products in more than one location. For example, net sales to Juniper, our largest customer, occur in the AMER and APAC 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 General Electric Company _____________________ *Represents less than 10 percent of total accounts receivable. October 1, 2011 23% * October 2, 2010 17% 10% No other customers represented 10 percent or more of the Company’s total net sales or total trade receivable balances as of October 1, 2011 and October 2, 2010. 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 agreements have extended broader indemnification, and while most agreements have contractual limits, some do not. However, the Company generally does not provide for such indemnities and seeks indemnification from its customers for damages or liabilities arising out of the Company’s adherence to customers’ specifications or designs or use of materials furnished, or directed to be used, by its customers. The Company does not believe its obligations under such indemnities are material. In the normal course of business, the Company also provides its customers a limited warranty covering workmanship, and in some cases materials, on products manufactured by the Company. Such warranty generally provides that products will be free from defects in the Company’s workmanship and meet mutually agreed-upon specifications for periods generally ranging from 12 months to 24 months. If a product fails to comply with the Company’s limited warranty, the Company’s obligation is generally limited to correcting, at its expense, any defect by repairing or replacing such defective product. The Company’s warranty generally excludes defects resulting from faulty customer-supplied components, design defects or damage caused by any party or cause other than the Company. The Company provides for an estimate of costs that may be incurred under its limited warranty at the time product revenue is recognized and establishes additional reserves for specifically identified product issues. These costs primarily include labor and materials, as necessary, associated with repair or replacement and are included in our Consolidated Balance Sheets in other current accrued liabilities. The primary factors that affect the Company’s warranty liability include the value and the number of shipped units and historical and anticipated rates of warranty claims. As these factors are impacted by actual experience and future expectations, the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. 68 Plexus Corp. Notes to Consolidated Financial Statements Below is a table summarizing the activity related to the Company’s limited warranty liability for the fiscal years 2011 and 2010 (in thousands): Limited warranty liability, as of October 3, 2009 Accruals for warranties issued during the period Settlements (in cash or in kind) during the period $ Limited warranty liability, as of October 2, 2010 Accruals for warranties issued during the period Settlements (in cash or in kind) during the period 4,470 557 (972) 4,055 1,714 (316) Limited warranty liability, as of October 1, 2011 $ 5,453 15. Quarterly Financial Data (Unaudited) Summarized quarterly financial data for fiscal 2011 and 2010 consisted of (in thousands, except per share amounts): 2011 Net sales Gross profit Net income Earnings per share: Basic Diluted 2010 Net sales Gross profit Net income Earnings per share: Basic Diluted First Quarter $ 565,774 54,910 25,033 Second Quarter $ 568,145 55,470 23,860 Third Quarter $ 559,183 54,074 22,040 Fourth Quarter $ 538,130 50,288 18,323 Total $2,231,232 214,742 89,256 $ $ 0.62 0.61 $ $ 0.60 0.59 $ $ 0.60 0.58 $ $ 0.53 0.52 $ $ 2.34 2.30 First Quarter $ 430,399 44,541 17,844 Second Quarter $ 490,978 50,471 20,714 Third Quarter $ 536,384 55,548 24,368 Fourth Quarter $ 555,632 56,362 26,607 Total $2,013,393 206,922 89,533 $ $ 0.45 0.44 $ $ 0.52 0.51 $ $ 0.60 0.59 $ $ 0.66 0.65 $ $ 2.24 2.19 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. * * * * * 69 Plexus Corp. and Subsidiaries Schedule II – Valuation and Qualifying Accounts For the fiscal years ended October 1, 2011, October 2, 2010 and October 3, 2009 (in thousands): Descriptions Balance at beginning of period Additions charged to costs and expenses Additions charged to other accounts Deductions Balance at end of period Fiscal Year 2011: 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 2010: 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 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) $ 1,400 $ 1,863 $ - $ $ 2,548 $ 1,238 $ 1,330 $ 7 - $ 3,256 $ 5,116 $ 1,000 $ 550 $ $ 2,548 $ - $ $ 2,500 $ 942 $ $ 2,607 $ 61 $ - - - - $ $ 150 $ 1,400 - $ 2,548 $ 2,442 $ 1,000 $ 120 $ 2,548 70 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 17, 2011 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, Senior 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/ Stephen P. Cortinovis Stephen P. Cortinovis, Director /s/ David J. Drury David J. Drury, Director /s/ Peter Kelly Peter Kelly, Director /s/ Philip R. Martens Philip R. Martens, Director /s/ Michael V. Schrock Michael V. Schrock, Director /s/ Mary A. Winston Mary A. Winston, Director *Each of the above signatures is affixed as of November 17, 2011. 71 EXHIBIT INDEX PLEXUS CORP. Form 10-K for Fiscal Year Ended October 1, 2011 Exhibit No. Exhibit Incorporated By Reference To Filed Herewith 3(i) 3(ii) 4.1 4.2 4.3 10.1 10.2 10.3 10.4 (a) Restated Articles of Incorporation of Plexus Corp., as amended through August 28, 2008 (b) Articles of Amendment, dated August 28, 2008, to the Restated Articles of Incorporation Bylaws of Plexus Corp., adopted February 13, 2008, amended as of September 23, 2010 Restated Articles of Incorporation of Plexus Corp., as amended through August 28, 2008 Bylaws of Plexus Corp., adopted February 13, 2008, amended as of September 23, 2010 Rights Agreement, dated as of August 28, 2008, between Plexus Corp. and American Stock Transfer & Trust Company, LLC 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 Note Purchase Agreement, dated as of April 21, 2011, between Plexus Corp. and the Purchasers named therein relating to $175,000,000 5.20% Senior Notes, due June 15, 2018 Composite Form of Supplemental Executive Retirement Agreement between Plexus and John Nussbaum, as amended through August 7, 2009* 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 Exhibit 3.1 to Plexus’ Report on Form 8-K dated September 23, 2010 Exhibit 3(i) above Exhibit 3(ii) above Exhibit 4.1 to Plexus’ Report on Form 8-A dated August 28, 2008 Exhibit 10.1 to Plexus’ Report on Form 8-K dated April 4, 2008 Exhibit 10.1 to Plexus’ Report on Form 8-K dated April 21, 2011 Exhibit 10.5 to Plexus’ Report on Form 10-K for the year ended October 3, 2009 Employment Agreement, dated May 15, 2008, by and between Plexus Corp. and Dean A. Foate* Exhibit 10.1 to Plexus’ Report on Form 8-K dated May 15, 2008 10.5 10.6 10.7 10.8 10.9 10.10 10.11 (a) Form of Change of Control Agreement with each of the executive officers (other than Dean A. Foate)* Exhibit 10.2 to Plexus’ Report on Form 8-K dated May 15, 2008 Amended and Restated Plexus Corp. 1998 Option Plan* [superseded] Exhibit 10.1 to Plexus’ Report on Form 10-Q for the quarter ended January 3, 2009 (a) Summary of Directors’ Compensation (11/11)* X (b) Summary of Directors’ Compensation (11/10)* [superseded] Exhibit 10.7(a) to Plexus’ Report on Form 10-K for the year ended October 2, 2010 (c) Summary of Directors’ Compensation (11/08)*[superseded] Exhibit 10.9(a) to Plexus Report on Form 10-K for the year ended September 27, 2008 (d) Plexus Corp. 1995 Directors’ Stock Option Plan*[superseded] Exhibit 10.10 to Plexus’ Report on Form 10-K for the year ended September 30, 1994 Plexus Corp. Variable Incentive Compensation Plan – Plexus Leadership Team (as amended and restated as of September 29, 2010)* [superseded] Exhibit 10.8 to Plexus’s Report on Form 10-K for the year ended October 2, 2010 (a) Plexus Corp. Executive Deferred Compensation Plan* Exhibit 10.17 to Plexus’ Report on Form 10-K for the fiscal year ended September 30, 2000 (b) Plexus Corp Executive Deferred Compensation Plan Trust dated April 1, 2003 between Plexus Corp. and Bankers Trust Company* Exhibit 10.14 to Plexus’ Report on Form 10-K for the fiscal year ended September 30, 2003 Plexus Corp. Non-employee Directors Deferred Compensation Plan* Exhibit 10.4 to Plexus’ Report on Form 10-Q for the quarter ended January 2, 2010 Amended and Restated Plexus Corp. 2008 Long-Term Incentive Plan* Appendix A to Plexus’ Definitive Proxy Statement for its 2011 Annual Meeting of Shareholders, filed on December 15, 2010 10.11(b) Forms of award agreements thereunder* (i)(A) Form of Stock Option Agreement Exhibit 10.2 to Plexus’ Report on Form 10-Q for the quarter ended January 2, 2010 (i)(B) Form of Stock Option Agreement [superseded] Exhibit 10.5(a) to Plexus’ Report on Form 10-Q for the quarter ended March 29, 2008 (ii) Form of Restricted Stock Unit Award Exhibit 10.5(b) to Plexus’ Report on Form 10-Q for the quarter ended March 29, 2008 (iii) Form of Stock Appreciation Rights Agreement Exhibit 10.5(c) to Plexus’ Report on Form 10-Q for the quarter ended March 29, 2008 (iv) Form of Unrestricted Stock Award Exhibit 10.3 to Plexus’ Report on Form 10-Q for the quarter ended January 2, 2010 (v) Form of Plexus Corp. Variable Incentive Compensation Plan — Plexus Leadership Team Exhibit 10.1 to Plexus’ Report on Form 10-Q for the quarter ended April 2, 2011 Form of Plexus Corp. Long-Term Cash Agreement* Exhibit 10.1 to Plexus’ Report on Form 10-Q for the quarter ended December 29, 2007 Amended and Restated Plexus Corp. 2005 Equity Incentive Plan* [superseded] Exhibit 10.2 to Plexus’ Report on Form 10-Q for the quarter ended January 3, 2009 Forms of award agreements thereunder* [superseded] (i) Form of Option Grant (Officer or Employee) Exhibit 10.1 to Plexus’ Report on Form 8-K dated April 1, 2005 (ii) Form of Option Grant (Director) 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 List of Subsidiaries Consent of PricewaterhouseCoopers LLP Powers of Attorney (Signature Page Hereto) Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes- Oxley Act of 2002. Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes- Oxley Act of 2002. Certification of the CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Reconciliation of ROIC to GAAP Financial Statements 10.12 10.13(a) 10.13(b) 21 23 24 31.1 31.2 32.1 32.2 99.1 X X X X X X X 101 The following materials from Plexus Corp.’s Annual Report on Form 10-K for the fiscal year ended October 1, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Shareholders’ Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. 101.INS XBRL Instance Document 101.SCH 101.CAL 101.LAB 101.PRE 101.DEF XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document ____________________ * Designates management compensatory plans or agreements. Furnished Furnished Furnished Furnished Furnished Furnished Furnished [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [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. Böer – Partner, Foley & Lardner LLP Stephen P. Cortinovis – Private Equity Investor David J. Drury – Chairman and Chief Executive Officer, Poblocki Sign Company LLC Peter Kelly – Executive Vice President and General Manager of Operations, NXP Semiconductors N.V. Phil R. Martens – President and Chief Executive Officer, Novelis Inc. EXECUTIVE OFFICERS Dean A. Foate President, Chief Executive Officer and Director Ginger M. Jones Senior Vice President and Chief Financial Officer Michael D. Buseman Executive Vice President – Global Manufacturing Operations Steven J. Frisch Regional President – Plexus EMEA and Senior Vice President – Global Engineering Solutions Todd P. Kelsey Executive Vice President – Global Customer Services Michael V. Schrock – President and Chief Operating Officer, Pentair, Inc. Yong Jin Lim Regional President – Plexus APAC Mary A. Winston – Senior Vice President and Chief Financial Officer, Giant Eagle, Inc. Joseph E. Mauthe Senior Vice President – Global Human Resources Angelo M. Ninivaggi Senior 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. One Plexus Way P.O. Box 156 Neenah, Wisconsin 54957-0156 920-722-3451 Kristie.Johnson@plexus.com www.plexus.com For common stock market information, see Part II, 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 15, 2012: 8:00 a.m. The Pfister Hotel 424 East Wisconsin Avenue Milwaukee, Wisconsin 53202 

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