ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

The statements contained in the Form 10-Q that are not historical facts (such as statements in the future tense and statements including "believe," "expect," "intend," "anticipate" and similar words and concepts) are forward-looking statements that involve risks and uncertainties, including, but not limited to:

- the continued uncertain economic outlook for the electronics and technology industries,

- the risk of customer delays, changes or cancellations in both ongoing and new programs,

- our ability to secure new customers and maintain our current customer base,

- the results of cost reduction efforts,

- the impact of capacity utilization and our ability to manage fixed and variable costs,

- the effects of facilities closures and restructurings,

- material cost fluctuations and the adequate availability of components and related parts for production,

- the effect of changes in average selling prices,

- the effect of start-up costs of new programs and facilities,

- the effect of general economic conditions and world events,

- the effect of the impact of increased competition and

- other risks detailed below, especially in "Risk Factors" and otherwise herein, and in our Securities and Exchange Commission filings.

OVERVIEW

Plexus Corp. and its subsidiaries (together "Plexus," the "Company," or "we") is a participant in the Electronic Manufacturing Services ("EMS") industry. We provide product realization services to original equipment manufacturers, or OEMs, in the networking/datacommunications/telecom, medical, industrial/commercial, computer and transportation/other industries. We provide advanced electronics design, manufacturing and testing services to our customers with a focus on complex, high technology and high reliability products. We offer our customers the ability to outsource all stages of product realization, including: development and design, materials procurement and management, prototyping and new product introduction, testing, manufacturing, product configuration, logistics and test/repair. The following information should be read in conjunction with our condensed consolidated financial statements included herein and the "Risk Factors" section beginning on page 21.

The rapid revenue growth the EMS industry enjoyed through the late 1990's stalled over the past two years as a result of the bursting of the dot com bubble and generally sluggish economic activity in the United States and elsewhere. As a result of this reduced demand, the industry, as well as Plexus, has faced historically low levels of capacity utilization and consequently lower profitability, and even losses. Excess industry capacity has also led to more competitive pricing environment, which has also lowered profitability.

Last year, Plexus responded to these industry conditions by taking a number of actions to reduce manufacturing capacity and lower fixed expenses. The more important of these actions were the closures of the San Diego, California ("San Diego") and the Richmond, Kentucky ("Richmond") sites. These and other actions, more fully described in our 2003 Form 10-K, reduced our manufacturing capacity from 1.8 million square feet to 1.4 million square feet (a reduction of 22 percent) and lowered our fixed expense base (both manufacturing and selling and administrative expense) by an estimated $30 million per year.

Although the actions taken last year reduced our fixed expense base, other factors will increase the fixed expense base and erode the net expected fixed expense reduction to approximately $15 million per year. These factors include an approximate 3.5 percent across the board salary increase in the United States at the beginning of fiscal 2004, higher costs for medical benefits, costs for variable incentive compensation in the current year which

were not earned in the prior year because of our reported losses, and amortization of the capitalized costs associated with our enterprise resource planning ("ERP") platform.

As we progress through fiscal 2004, based on customer indications, we believe that there is renewed strength in end-market demand, especially from the networking/datacommunications and medical sectors; these are markets in which we have typically generated approximately 60-70 percent of our revenues. In addition, we have focused on improving organic growth opportunities, and our continuing commitment to building a highly effective sales and marketing function has resulted in winning new programs and new customers. Although various surveys suggest that the overall EMS sector will grow 8-11 percent in fiscal 2004, based on customer indications of expected demand and management estimates of new program wins, our internal projections currently anticipate revenue growth for fiscal 2004 in the range of 25-30 percent; however, actual results may be lower and will depend upon future orders and consequent sales. These future orders may be less than we expect due to many factors, including those that we discuss under "Risk Factors" below.

The rapid growth anticipated for this fiscal year entails substantial execution risks. We have hired and trained approximately 1,100 new employees at sites located around the world, principally in Asia. During the remaining six months of fiscal 2004, we also expect to spend approximately $12 million to acquire an existing 164,000 square foot manufacturing facility in Penang, Malaysia and to initially outfit that facility with manufacturing equipment. We expect to complete the purchase of the facility in the third quarter of fiscal 2004 and commence operations in the facility late in the fourth quarter of fiscal 2004. The addition of the new Penang facility and related manufacturing fixed overhead will further increase our fixed expense base on a going-forward basis. Additional execution risk may also arise as the EMS industry rebounds. The supply chain that supports the EMS industry may tighten, and obtaining required parts may become more difficult. Nonetheless, to date, the fiscal year 2004 is progressing on a positive note as more fully discussed below.

           Three months ended                             Six months ended
                March 31,                                    March 31,
           ------------------         Increase/        ---------------------          Increase/
            2004        2003         (Decrease)         2004           2003          (Decrease)
           ------      ------       ------------       ------         ------        -------------
Sales      $254.3      $190.8       $63.5    33%       $492.7         $396.2        $96.6     24%

Our net sales increase for both the three and six month periods reflects the strengthening end-market demand, particularly in the networking/datacommunications and medical sectors, as well as new program wins from both new and existing customers. Growth in the networking/datacommunications sector occurred despite the loss in the comparable prior fiscal year period of programs from the primary customer of our former San Diego facility. The net sales growth in the medical sector was primarily due to the strength of a medical program in the United Kingdom, as well as revenue from new medical customers. Based on customers' orders and indications of expected demand, we currently expect sales in the third quarter of fiscal 2004 to be in the range of $255 million to $265 million. However, our results will ultimately depend on the actual level of orders received. See Risk Factors on page 21.

Our percentages of net sales to customers representing 10 percent or more of sales and net sales to our ten largest customers for the indicated periods were as follows:

                                                   Three months ended               Six months ended
                                                        March 31,                       March 31,
                                                  --------------------            --------------------
                                                  2004            2003            2004            2003
                                                  ----            ----            ----            ----
Juniper Networks                                   13%              *              13%              *
GE                                                  *               *               *              10%
Siemens                                             *              15%              *              13%
Top 10 customers                                   55%             54%             56%             55%

* Represents less than 10 percent of net sales

As with sales to most of our customers, sales to our largest customers may vary from time to time depending on the size and timing of customer program commencement, termination, delays, modifications and transitions. We remain dependent on continued sales to our significant customers, and we generally do not obtain firm, long-term purchase commitments from our customers. Customers' forecasts can and do change as a result of changes in their end-market demand and other factors. Any material change in orders from these major accounts, or other customers, could materially affect our results of operations. In addition, as our percentage of sales to customers in a specific industry becomes larger relative to other industries (as we are currently experiencing in the networking/ datacommunications/telecom industry), we become increasingly dependent upon economic and business conditions affecting that industry.

Our percentages of sales by industry for the indicated periods were as follows:

                                                      Three months ended               Six months ended
                                                           March 31,                       March 31,
                                                     --------------------            -------------------
Industry                                             2004            2003            2004           2003
--------                                             ----            ----            ----           ----
Networking/Datacommunications/Telecom                 42%             33%             41%            34%
Medical                                               29%             33%             31%            34%
Industrial/Commercial                                 15%             16%             14%            15%
Computer                                              10%             11%             10%            11%
Transportation/Other                                   4%              7%              4%             6%

Gross profit. Gross profit and gross margins for the indicated periods were as follows (dollars in millions):

                 Three months ended                             Six months ended
                      March 31,                                     March 31,
                 ------------------      Increase/            ---------------------         Increase/
                   2004       2003       (Decrease)             2004          2003          (Decrease)
                 -------     ------     -------------         -------       -------       --------------
Gross Profit     $ 21.2      $ 9.6      $11.6    120%         $ 40.8        $ 25.2        $ 15.6     62%
Gross Margin        8.3%       5.0%                              8.3%          6.4%

The improvement in gross profit and gross margin for both the three and six month periods was due to a combination of higher net sales, that resulted in enhanced manufacturing capacity utilization, and lower fixed manufacturing costs. The primary reason for the reduction in fixed manufacturing costs was the fiscal 2003 restructuring actions. The gross profit improvements were moderated, however, by lower pricing on certain programs, manufacturing inefficiencies related to the start of new programs, higher compensation and benefits costs, including health care benefits, and amortization of capitalized costs associated with our ERP platform.

Our gross margins reflect a number of factors that can vary from period to period, including product and service mix, the level of start-up costs and efficiencies of new programs, product life cycles, sales volumes, price erosion within the electronics industry, overall capacity utilization, labor costs and efficiencies, the management of inventories, component pricing and shortages, average sales prices, the mix of turnkey and consignment business, fluctuations and timing of customer orders, changing demand for customers' products and competition within the electronics industry. Although we focus on maintaining and expanding gross margins, there can be no assurance that gross margins will not decrease in future periods.

Most of the research and development we conduct is paid for by our customers and is, therefore, included in both sales and cost of sales. We conduct our own research and development, but that research and development is not specifically identified, and we believe such expenses are less than one percent of our net sales.

Operating expenses. Selling and administrative (S&A) expenses for the indicated periods were as follows (dollars in millions):

                               Three months ended                             Six months ended
                                    March 31,                                     March 31,
                              --------------------          Increase/       --------------------        Increase/
                               2004          2003          (Decrease)         2004        2003          (Decrease)
                              ------        ------       --------------     -------     --------     ----------------
Sales and administrative
  expense (S&A)               $16.4         $16.8        $(0.4)  (2.3)%     $ 32.8      $ 33.6       $ (0.8)   (2.4)%
Percent of sales                6.5%          8.8%                             6.7%        8.5%

The dollar reductions in S&A for both the three and six month periods ended March 31, 2004 were due primarily to $1.1 million of recoveries of accounts receivable that were either written off or reserved for in prior periods. These reductions were offset, in part, by higher compensation and benefits costs and ERP implementation costs. The significant decrease in S&A as a percent of net sales for both the three and six month periods was due primarily to the increase in net sales over the comparable prior year periods, together with the dollar reductions in S&A expenses.

Included in S&A for both periods are expenses for information technology systems support related to the implementation of a new ERP platform. This ERP platform is intended to augment our management information systems and includes various software systems to enhance and standardize our ability to globally translate information from production facilities into operational and financial information and create a consistent set of core business applications at our worldwide facilities.

During the second fiscal quarter of 2004, we converted one additional facility to the new ERP platform, which results in approximately 50 percent of our revenues being managed on the new ERP platform. We anticipate converting at least one more facility to the new ERP platform in fiscal 2005. Training and implementation costs are expected to continue over the next few quarters as we make system enhancements and convert the additional facility to the new ERP platform. The conversion timetable and future project scope remain subject to change based upon our evolving needs and sales levels. In addition to S&A expenses associated with the new ERP system, we continue to incur capital expenditures for hardware, software and other costs for testing and installation. As of March 31, 2004, property, plant and equipment include $28.0 million related to the new ERP platform, including $0.6 million and $2.3 million of capital expenditures for the three and six months ended March 31, 2004. We anticipate incurring at least an additional $2.1 million of capital expenditures for the ERP platform over the rest of fiscal 2004.

For the six months ended March 31, 2003, we recorded pre-tax restructuring charges totaling $31.8 million, all of which was recorded in the first quarter of fiscal 2003. Our primary restructuring actions included the closure of the San Diego facility, which resulted in a write-off of goodwill, the write-down of underutilized assets to fair value, and the elimination of the facility's work force. These charges were taken in response to reductions in end-market demand, including the decision of the largest customer of the San Diego facility to transition most of its programs to non-Plexus facilities. The San Diego facility was phased out of operations in May 2003. As of September 30, 2002, the San Diego location had unamortized goodwill of approximately $20.4 million, of which $14.8 million was impaired as a result of the transitional impairment evaluation under SFAS No. 142 (see discussion below under "Cumulative effect of change in accounting for goodwill") and $5.6 million was impaired as a result of the decision to close the facility. Other restructuring actions in the first quarter of fiscal 2003 included the consolidation of several leased facilities, the write-down of underutilized assets to fair value and work force reductions, which primarily affected operations in Seattle, Washington; Neenah, Wisconsin and in the United Kingdom. The first quarter fiscal 2003 employee termination costs affected approximately 500 employees.

Pre-tax restructuring charges for the indicated periods are summarized as follows (in millions):

                               Three months ended          Six months ended
                                     March 31,                 March 31,
                               -------------------      ---------------------
                                2004         2003        2004           2003
                               ------       ------      ------        -------
Fixed asset impairment          $  -         $  -        $  -          $11.3
Lease exit costs                   -            -           -            9.7
Write-off of goodwill              -            -           -            5.6
Severance                          -            -           -            5.2
                                ----         ----        ----          -----
                                $  -         $  -        $  -          $31.8
                                ====         ====        ====          =====

Cumulative effect of a change in accounting for goodwill. We adopted SFAS No. 142 for the accounting of goodwill and other intangible assets on October 1, 2002. Under the transitional provisions of SFAS No. 142, we identified locations with goodwill, performed impairment tests on the net goodwill and other intangible assets associated with each location using a valuation date as of October 1, 2002, and determined that a pre-tax transitional impairment charge of $28.2 million during the six months ended March 31, 2003, was required at our Juarez, Mexico and San Diego locations. The impairment charge was recorded as a cumulative effect of a change in accounting for goodwill in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Income taxes. Income taxes for the indicated periods were as follows (dollars in millions):

                                        Three months ended                 Six months ended
                                              March 31,                         March 31,
                                      ------------------------         ------------------------
                                        2004            2003             2004            2003
                                      --------        --------         --------        --------
Income tax expense (benefit)          $   0.9         $  (2.2)         $   1.5         $ (14.7)
Effective annual tax rate                  20%             30%              20%             36%

The decrease in the effective tax rate is due primarily to our expanding operations in Asia where we benefit from tax holidays.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities. Cash flows used in operating activities were $(33.6) million for the six months ended March 31, 2004, compared to cash flows provided by operating activities of $11.7 million for the six months ended March 31, 2003. During the six months ended March 31, 2004, cash used in operating activities was primarily driven by increased accounts receivable and inventory in support of higher sales, which were offset, in part, by increased accounts payable and our net income.

As of March 31, 2004, actual days sales outstanding represented by our accounts receivable increased to 49 days from 47 days as of September 30, 2003. This was due to slightly extended average terms. During the six months ended March 31, 2004, the allowance for losses on accounts receivable decreased $1.5 million, which primarily resulted from a combination of collections and write-offs of accounts receivable that were reserved for in prior periods.

Annualized inventory turns declined to 5.2 turns for the three months ended March 31, 2004 from 6.2 turns for the prior year-end. Inventories increased $61.5 million from September 30, 2003, primarily for the purchase of raw materials to support new programs and new customers and increased sales. In addition, we planned other increases in inventory to facilitate certain program transfers between sites, to ensure continuity of supply for one location during its ERP implementation and for another location during its ERP upgrade, and to ensure adequate supplies for certain end of life programs.

Investing Activities. Cash flows provided by investing activities totaled $5.3 million for the six months ended March 31, 2004, which primarily represented sales and maturities of short-term investments, reduced by additions to property, plant and equipment (principally software).

We utilized available cash, and more recently debt, to finance our operating requirements. We currently estimate capital expenditures for fiscal 2004 to be approximately $24 million to $26 million, of which $6.3 million was made through the six months ended March 31, 2004. The remaining fiscal 2004 capital expenditure estimate includes an estimated $12 million for the acquisition of an additional facility in Penang, Malaysia and the initial outfitting of manufacturing equipment for that facility.

Financing Activities. Cash flows provided by financing activities totaled $19.1 million for the six months ended March 31, 2004, and primarily represented the proceeds from net borrowings on our secured revolving credit facility (the "Secured Credit Facility").

On October 22, 2003 we entered into the Secured Credit Facility with a group of banks that allows us to borrow up to $100 million. Borrowing under the Secured Credit Facility may be either through revolving or swing loans or letters of credit. The Secured Credit Facility is secured by substantially all of our domestic working capital assets and a pledge of 65 percent of the stock of each of our foreign subsidiaries. Interest on borrowings varies with usage and begins at the Prime rate (as defined) or LIBOR plus 1.5 percent. We also are required to pay an annual commitment fee of 0.5 percent of the unused credit commitment, a maximum of $0.5 million per year. The Secured Credit Facility matures on October 22, 2006 and includes certain financial covenants customary in agreements of this type. These covenants include a maximum total leverage ratio, a $40.0 million minimum balance of domestic cash or marketable securities, a minimum tangible net worth and a minimum adjusted EBITDA, all as defined in the agreement.

We believe that our Secured Credit Facility, leasing capabilities, cash and short-term investments and projected cash from operations should be sufficient to meet our working capital and fixed capital requirements, as noted above, through fiscal 2004. However, the rapid growth anticipated for fiscal 2004 may increase our working capital needs and strain our available resources. As those needs increase, we may need to arrange additional debt or equity financing. We therefore evaluate and consider from time to time various financing alternatives to supplement our capital resources. However, we cannot assure 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 anticipate paying them in the foreseeable future. We anticipate using any earnings to support our business.

                                                                 Payments Due by Fiscal Period
                                         --------------------------------------------------------------------------
                                                         Remaining in                                     2009 and
Contractual Obligations                     Total             2004          2005-2006      2007-2008     thereafter
-----------------------                  -----------       ---------        ---------      --------      ----------
Long-Term Debt*                          $    15,601       $     601        $       -     $  15,000       $       -
Capital Lease Obligations                     42,981           2,222            5,900         6,090          28,769
Operating Leases                              77,493           6,882           23,960        17,173          29,478
Unconditional Purchase Obligations**           5,263           5,263                -             -               -
Other Long-Term Obligations***                 1,595             404            1,191             -               -
                                         -----------       ---------        ---------      --------       ---------
 Total Contractual Cash Obligations      $   142,933       $  15,372        $  31,051      $ 38,263       $  58,247
                                         ===========       =========        =========      ========       =========

* - As of March 31, 2004, long-term debt consists of borrowings outstanding under our Secured Credit Facility and the financing of certain insurance premiums.

** - Unconditional purchase obligations consist of a purchase commitment on a manufacturing facility in Penang, Malaysia. There are no other unconditional purchase obligations other than purchases of inventory and equipment in

the ordinary course of business. All such unconditional purchase obligations of inventory and equipment have a term of less than one year.

*** - As of March 31, 2004, other long-term obligations consist of salary commitments under employment agreements. We did not have, and were not subject to, any lines of credit, standby letters of credit, guarantees, standby repurchase obligations, other commercial commitments or off-balance sheet financing arrangements.

DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES

Our accounting policies are disclosed in our 2003 Report on Form 10-K. During the three and six months ended March 31, 2004, there were no material changes to these policies. Our more critical accounting policies are as follows:

Impairment of Long-Lived Assets - We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property, plant and equipment is measured by comparing its carrying value to the projected cash flows the property, plant and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the property exceeds its fair market value. The impairment analysis is based on significant assumptions of future results made by management, including revenue and cash flow projections. Circumstances that may lead to impairment of property, plant and equipment include decreases in future performance or industry demand and the restructuring of our operations.

Intangible Assets - We do not amortize goodwill and intangible assets with indefinite useful lives, but, instead, test those assets for impairment at least annually with any related losses recognized in earnings when incurred. We will perform goodwill impairment tests annually during the third quarter of each fiscal year and more frequently if an event or circumstance indicates that an impairment loss has occurred.

We measure the recoverability of goodwill under the annual impairment test by comparing a reporting unit's carrying amount, including goodwill, to the fair market value of the reporting unit based on projected discounted future cash flows. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second test is performed to measure the amount of impairment loss, if any.

Revenue - Revenue from manufacturing services is generally recognized upon shipment of the manufactured product to our customers, under contractual terms, which are generally FOB shipping point. Upon shipment, title transfers and the customer assumes risks and rewards of ownership of the product. Generally, there are no formal customer acceptance requirements or further obligations related to manufacturing services; if such requirements or obligations exist, then revenue is recognized at the time when such requirements are completed and such obligations fulfilled.

Revenue from engineering design and development services, which are generally performed under contracts of twelve months or less duration, is recognized as costs are incurred utilizing the percentage-of-completion method; any losses are recognized when anticipated. Revenue from engineering design and development services is less than ten percent of total revenue.

Revenue is recorded net of estimated returns of manufactured product based on management's analysis of historical returns, current economic trends and changes in customer demand. Revenue also includes amounts billed to customers for shipping and handling. The corresponding shipping and handling costs are included in cost of sales.

Restructuring Costs - From fiscal 2001 through fiscal 2003, we recorded restructuring costs in response to reductions in sales and reduced capacity utilization. These restructuring costs included employee severance and benefit costs, and costs related to plant closings, including leased facilities that will be abandoned (and subleased, as applicable). Prior to January 1, 2003, severance and benefit costs were recorded in accordance with Emerging Issues Task Force ("EITF") 94-3 and for leased facilities that were abandoned and subleased, the estimated lease loss was accrued for future remaining lease payments subsequent to abandonment, less any estimated sublease income. As of March 31, 2004, the significant facilities which we plan to sublease have not yet been subleased; and, accordingly, our estimates of expected sublease income could change based on factors that affect our ability to sublease those facilities such as general economic conditions and the local real estate markets. Changes in our estimate of sublease

income could result in additional restructuring costs. For equipment, the impairment losses recognized were based on the fair value estimated using existing market prices for similar assets, less estimated costs to sell. See Note 11 in the Notes to Condensed Consolidated Financial Statements.

Subsequent to December 31, 2002, costs associated with a restructuring activity are recorded in compliance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The timing and related recognition of severance and benefit costs that are not presumed to be an ongoing benefit as defined in SFAS No. 146, depends on whether employees are required to render service until they are terminated in order to receive the termination benefits and, if so, whether employees will be retained to render service beyond a minimum retention period. During fiscal 2003, we concluded that we had a substantive severance plan based upon our past severance practices; therefore, we recorded certain severance and benefit costs in accordance with SFAS No. 112, "Employer's Accounting for Post employment Benefits," which resulted in the recognition of a liability as the severance and benefit costs arose from an existing condition or situation and the payment was both probable and reasonably estimated.

For leased facilities that will be abandoned and subleased, a liability is recognized and measured at fair value for the future remaining lease payments subsequent to abandonment, less any estimated sublease income that could be reasonably obtained for the property. For contract termination costs, including costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity, a liability for future remaining payments under the contract is recognized and measured at its fair value. See Note 11 in the Notes to Condensed Consolidated Financial Statements.

The recognition of restructuring costs requires that we make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned exit activity. If our actual results in exiting these facilities differ from our estimates and assumptions, we may be required to revise the estimates of future liabilities, requiring the recording of additional restructuring costs or the reduction of liabilities already recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure that no excess accruals are retained, no additional accruals are required and the utilization of the provisions are for their intended purpose in accordance with developed exit plans.

NEW ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus regarding EITF Issue 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". The consensus addresses not only when and how an arrangement involving multiple deliverables should be divided into separate units of accounting but also how the arrangement's consideration should be allocated among separate units. The pronouncement was effective for us commencing with our first quarter of fiscal 2004, but did not have a material impact on our consolidated results of operations or financial position.

On December 17, 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition", which supercedes SAB 101, "Revenue Recognition in Financial Statements". SAB 104's primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of Emerging Issues Task Force (EITF) 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. The adoption of this bulletin did not have an impact on our results of operations or financial position.

In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51," which provides guidance on the identification of and reporting for variable interest entities. In December 2003, the FASB issued a revised Interpretation No. 46, which expands the criteria for consideration in determining whether a variable interest entity should be consolidated. Interpretation No. 46 is effective for us in the second quarter of fiscal 2004. Our adoption of Interpretation No. 46 did not have a significant impact on our results of operations or financial position.

In May 2003, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," which establishes

standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that are within the scope of the Statement, which previously were often classified as equity, must now be classified as liabilities. In November 2003, FASB Staff Position No. SFAS 150-3 deferred indefinitely the effective date of SFAS No. 150 for applying the provisions of the Statement for certain mandatorily redeemable non-controlling interests. However, expanded disclosures are required during the deferral period. The Company does not have financial instruments with mandatorily redeemable non-controlling interests.

RISK FACTORS

OUR CUSTOMER REQUIREMENTS AND OPERATING RESULTS VARY SIGNIFICANTLY FROM QUARTER TO QUARTER, WHICH COULD NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.

Our quarterly and annual results may vary significantly depending on various factors, many of which are beyond our control. These factors include:

- the volume of customer orders relative to our capacity,

- the level and timing of customer orders, particularly in light of the fact that some of our customers release a significant percentage of their orders during the last few weeks of a quarter,

- the typical short life cycle of our customers' products,

- market acceptance of and demand for our customers' products,

- customer announcements of operating results and business conditions,

- changes in our sales mix to our customers,

- business conditions in our customers' industries,

- the timing of our expenditures in anticipation of future orders,

- our effectiveness in managing manufacturing processes,

- changes in cost and availability of labor and components,

- local events that may affect our production volume, such as local holidays,

- credit ratings and stock analyst reports and

- changes in economic conditions and world events.

The EMS industry is impacted by the state of the U.S. and global economies and world events. A slowdown or flat performance in the U.S. or global economies, or in particular in the industries served by us, may result in our customers reducing their forecasts. Over the previous two years, our sales were adversely affected by the slowdown in the networking/datacommunications/telecom and industrial/commercial markets, as a result of reduced end-market demand and reduced availability of venture capital to fund existing and emerging technologies. These factors substantially influenced our levels of net sales. As a result, the demand for our services could weaken or decrease, which in turn would impact our sales, capacity utilization, margins and results.

The percentage of our sales to customers in the networking/datacommunications/telecom industry has increased significantly in recent quarters. When an increasing percentage of our net sales are made to customers in a particular industry, we become more dependent upon the performance of that industry, and the economic and business conditions that affect it.

Our quarterly and annual results are affected by the level and timing of customer orders, fluctuations in material costs and availabilities, and the degree of capacity utilization in the manufacturing process.

THE MAJORITY OF OUR SALES COME FROM A SMALL NUMBER OF CUSTOMERS AND IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES AND OPERATING RESULTS COULD DECLINE SIGNIFICANTLY.

Sales to our largest customer for the three months ended March 31, 2004 represented 13 percent of our net sales. Sales to our largest customer in the comparable quarter of fiscal 2003 represented 15 percent of our net sales. No other customers represented 10 percent or more of our net sales in either period. Sales to our ten largest customers have represented a majority, or near majority, of our net sales in recent periods. Our ten largest customers accounted for approximately 55 percent and 54 percent for the three months ended March 31, 2004 and 2003, respectively. Our principal customers have varied from year to year, and our principal customers may not continue to purchase from us at current levels, if at all. Significant reductions in sales to any of these customers, or the loss of

major customers, could seriously harm our business. If we are not able to replace expired, canceled or reduced contracts with new business on a timely basis, our sales will decrease.

OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY PRODUCTION.

Electronics manufacturing service providers must provide rapid product turnaround for their customers. We generally do not obtain firm, long-term purchase commitments from our customers and we continue to experience reduced lead-times in customer orders. Customers may cancel their orders, change production quantities or delay production for a number of reasons that are beyond our control. The success of our customers' products in the market and the strength of the markets themselves affect our business. Cancellations, reductions or delays by a significant customer or by a group of customers could seriously harm our operating results. Such cancellations, reductions or delays have occurred and may continue to occur in response to a slowdown in the overall economy.

In addition, we make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, facility requirements, personnel needs and other resource requirements, based on our estimates of customer 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. Because many of our costs and operating expenses are relatively fixed, a reduction in customer demand can harm our gross margins and operating results.

As we have experienced recently, customers may require rapid increases in production, which can stress our resources and hinder operating margins. Although we have had a net increase in our manufacturing capacity over the past few fiscal years, we have significantly reduced our capacity from its peak, and we may not have sufficient capacity at any given time to meet all of our customers' demands or to meet the requirements of a specific project.

FAILURE TO MANAGE OUR CONTRACTION, AND OUR FUTURE GROWTH, IF ANY, MAY SERIOUSLY HARM OUR BUSINESS.

Periods of contraction or reduced sales, such as the periods that occurred from fiscal 2001 through 2003, create tensions and challenges. We must determine whether all facilities remain productive, determine whether staffing levels need to be reduced, and determine how to respond to changing levels of customer demand. While maintaining multiple facilities or higher levels of employment increases short-term costs, reductions in employment could impair our ability to respond to later market improvements or to maintain customer relationships. Our decisions as to how to reduce costs and capacity, such as the closure of our San Diego and Richmond facilities and the reduction in the number of employees, can affect our expenses, and therefore our short-term and long-term results.

We are involved in a multi-year project to install a common ERP platform and associated information systems. The project was begun at a time when anticipated sales growth and profitability were expected to be much higher than actually occurred in the past two fiscal years. Although our recent financial performance has improved, we continue to review a number of alternatives to this project, including curtailment or slow-down in the rate of implementation. As of March 31, 2004, ERP implementation costs included in property, plant and equipment totaled $28.0 million and we anticipate incurring at least an additional $2.1 million in capital expenditures for the ERP platform over the rest of fiscal 2004; changes in the scope of this project could result in impairment of these capitalized costs.

Due to the rapid sales growth, we have experienced a significant need for additional employees and facilities in fiscal 2004. We have recently added many employees around the world and our board of directors recently approved expansion of our operations in Penang, Malaysia, and a 5-year extension of a lease on one of our manufacturing facilities in Neenah, Wisconsin. Our response to these changes in business conditions in fiscal 2004 compared to the two previous fiscal years has resulted in additional costs to support our growth. If we are unable to manage this growth and any future growth effectively, our operating results could be harmed.

OPERATING IN FOREIGN COUNTRIES EXPOSES US TO INCREASED RISKS.

We have operations in China, Malaysia, Mexico and the United Kingdom. As noted above, we are in the process of expanding our operations in Malaysia, and we may in the future expand in these and/or into other international regions. We have limited experience in managing geographically dispersed operations in these

countries. We also purchase a significant number of components manufactured in foreign countries. Because of these international aspects of our operations, we are subject to the following risks that could materially impact our operating results:

- economic or political instability

- transportation delays or interruptions and other effects of less developed infrastructure in many countries

- foreign exchange rate fluctuations

- utilization of different systems and equipment

- difficulties in staffing and managing foreign personnel and diverse cultures and

- the effects of international political developments.

In addition, changes in policies by the U.S. or foreign governments could negatively affect our operating results due to changes in duties, tariffs, taxes or limitations on currency or fund transfers. For example, our Mexico based operation utilizes the Maquiladora program, which provides reduced tariffs and eases import regulations, and we could be adversely affected by changes in that program. Also, the Chinese and Malaysian subsidiaries currently receive favorable tax treatment from the governments in those countries for approximately 3 to 10 years, which may or may not be renewed.

WE MAY NOT BE ABLE TO MAINTAIN OUR ENGINEERING, TECHNOLOGICAL AND MANUFACTURING PROCESS EXPERTISE.

The markets for our manufacturing and engineering services are characterized by rapidly changing technology and evolving process development. The continued success of our business will depend upon our ability to:

- retain our qualified engineering and technical personnel

- maintain and enhance our technological capabilities

- develop and market manufacturing services which meet changing customer needs

- successfully anticipate or respond to technological changes in manufacturing processes 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 to acquire new 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 operating margins and 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.

OUR MANUFACTURING SERVICES INVOLVE INVENTORY RISK.

Most of our contract manufacturing services are provided on a turnkey basis, where we purchase some or all of the materials required for designing, product assembling and manufacturing. These services involve greater resource investment and inventory risk management than consignment services, where the customer provides these materials. Accordingly, various component price increases and inventory obsolescence could adversely affect our selling price, gross margins and operating results.

In our turnkey operations, we need to order parts and supplies based on customer forecasts, which may be for a larger quantity of product than is included in the firm orders ultimately received from those customers. For example, the first six months of fiscal 2004 saw a significant increase in inventories to support increased sales and expected growth in customer programs. Customers' cancellation or reduction of orders can result in expenses to us. While most of our customer agreements include provisions which require customers to reimburse us for excess inventory specifically ordered to meet their forecasts, we may not actually be reimbursed or be able to collect on these obligations. In that case, we could have excess inventory and/or cancellation or return charges from our suppliers.

In addition, we provide a managed inventory program under which we hold and manage finished goods inventory for two of our key customers. The managed inventory program may result in higher finished goods

inventory levels, further reduce our inventory turns and increase our financial risk with such customers, although our customers will have contractual obligations to purchase the inventory from us.

WE MAY NOT BE ABLE TO OBTAIN RAW MATERIALS OR COMPONENTS FOR OUR ASSEMBLIES ON A TIMELY BASIS OR AT ALL.

We rely on a limited number of suppliers for many components used in the assembly process. We do not have any long-term supply agreements. At various times, there have been shortages of some of the electronic components that we use, and suppliers of some components have lacked sufficient capacity to meet the demand for these components. At times, component shortages have been prevalent in our industry, and in certain areas recur from time to time. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which contributed to an increase in our inventory levels. We expect that shortages and delays in deliveries of some components will continue from time to time, especially as demand for those components increase. An increase in economic activity could result in shortages, if manufacturers of components do not adequately anticipate the increased orders and/or have previously excessively cut back their production capability in view of reduced activity in recent years. World events, such as terrorism, armed conflict and epidemics, also could affect supply chains. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing and shipping delays, which could harm our relationships with customers and reduce our sales.

A significant portion of our sales is derived from turnkey manufacturing in which we provide materials procurement. While most of our customer contracts permit quarterly or other periodic adjustments to pricing based on decreases and increases in component prices and other factors, we typically bear the risk of component price increases that occur between any such repricings or, if such repricing is not permitted, during the balance of the term of the particular customer contract. Accordingly, component price increases could adversely affect our operating results.

START-UP COSTS AND INEFFICIENCIES RELATED TO NEW OR TRANSFERRED PROGRAMS CAN ADVERSELY AFFECT OUR OPERATING RESULTS.

Start-up costs, the management of labor and equipment resources in connection with the establishment of new programs and new customer relationships, and the need to estimate required resources in advance can adversely affect our gross margins and operating results. These factors are particularly evident in the early stages of the life cycle of new products and new programs or program transfers. The effects of these start-up costs and inefficiencies can also occur when we open new facilities, such as our additional planned facility in Penang, Malaysia. These factors also affect our ability to efficiently use labor and equipment. Due to the improved economy and our increased marketing efforts, we are currently managing a number of new programs. Consequently, our exposure to these factors has increased. In addition, if any of these new programs or new customer relationships were terminated, our operating results could be harmed, particularly in the short term.

WE MAY HAVE NEW CUSTOMER RELATIONSHIPS WITH EMERGING COMPANIES, WHICH MAY PRESENT MORE RISKS THAN WITH ESTABLISHED COMPANIES.

We currently anticipate that less than 5 percent of our fiscal 2004 sales will be to emerging companies. However, as with other customer relationships, there are no purchase commitments with emerging companies, and the revenues we actually achieve may not meet our expectations. Because emerging companies do not have a history of operations, it will be harder for us to anticipate needs and requirements than with established customers. Our operating results could be harmed if sales do not develop to the extent and within the timeframe we anticipate.

Customer relationships with emerging companies also present special risks. For example, because they do not have an extensive product history, there is less demonstration of market acceptance of their products. Also, due to the current economic environment, additional funding for such companies may be more difficult to obtain and these customer relationships may not continue or materialize to the extent we plan or we previously experienced. This tightening of financing for start-up customers, together with many start-up customers' lack of prior earnings and unproven product markets increases our credit risk and exposure to inventory write-offs. Although we adjust reserves for accounts receivable and inventories for all customers, including start-up customers, based on the information available, these reserves may not be adequate.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS.

We are also subject to environmental regulations relating to the use, storage, discharge, recycling and disposal of hazardous chemicals used in our manufacturing process. If we fail to comply with present and future regulations, we could be subject to future 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. While we are not currently aware of any material violations, we may have to spend funds to comply with present and future regulations or be required to perform site remediation.

In addition, our medical device business, which represented approximately 29 percent of our net sales in the second quarter of fiscal 2004, is subject to substantial government regulation, primarily from the 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 rules can result in, among other things, our and our customers being subject to 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 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. In addition, failure or noncompliance could have an adverse effect on our reputation.

PRODUCTS WE MANUFACTURE MAY CONTAIN DESIGN OR MANUFACTURING DEFECTS THAT COULD RESULT IN REDUCED DEMAND FOR OUR SERVICES AND LIABILITY CLAIMS AGAINST US.

We manufacture products to our customers' specifications that are highly complex and may at times contain design or manufacturing defects. Defects have been discovered in products we manufactured in the past and, despite our quality control and quality assurance efforts, defects may occur in the future. Defects in the products we manufacture, whether caused by a design, manufacturing or component defects, may result in delayed shipments to customers or reduced or cancelled customer orders. If these defects occur in large quantities or too frequently, our business reputation may also be tarnished. In addition, these defects may result in liability claims against us. Even if customers are responsible for the defects, they may or may not be able to assume responsibility for any costs or payments.

OUR PRODUCTS ARE FOR THE ELECTRONICS INDUSTRY, WHICH PRODUCES TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES.

Factors affecting the electronics industry, in particular the short life cycle of products, could seriously harm our customers and, as a result, us. 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

- the potential that our customers' products may become obsolete or the failure of our customers' products to gain widespread commercial acceptance.

INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND OR PRICES FOR OUR SERVICES.

The electronics manufacturing services industry is highly competitive and has become more so as a result of excess capacity in the industry. We compete against numerous U.S. and foreign electronics manufacturing services providers with global operations, as well as those who operate on a local or regional basis. In addition, current and prospective customers continually evaluate the merits of manufacturing products internally. Consolidations and other changes in the electronics manufacturing services industry result in a continually changing competitive landscape. The consolidation trend in the industry also results in larger and more geographically diverse competitors that may have significant combined resources with which to compete against us.

Some of our competitors have substantially greater managerial, manufacturing, engineering, technical, financial, systems, sales and marketing resources than we do. 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

- be better positioned to compete on price for their services.

We may be operating at a cost disadvantage compared to manufacturers who have greater direct buying power from component suppliers, distributors and raw material suppliers or who have lower cost structures. As a result, competitors may have a competitive advantage and obtain business from our customers. 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 increase their competition with us. Increased competition could result in price reductions, reduced sales and margins or loss of market share.

WE DEPEND ON CERTAIN KEY PERSONNEL, AND THE LOSS OF KEY PERSONNEL MAY HARM OUR BUSINESS.

Our future success depends in large part on the continued service of our key technical and management personnel, and on our ability to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the development of new products and processes and the manufacture of existing products. The competition for these individuals is significant, and the loss of key employees could harm our business.

WE MAY FAIL TO SUCCESSFULLY COMPLETE FUTURE ACQUISITIONS AND MAY NOT SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

Although we have previously grown through acquisitions, our current focus is on pursuing organic growth opportunities. If we were to pursue future growth through acquisitions, however, this would involve significant risks that could have a material adverse effect on us. These risks include:

Operating risks, such as the:

- inability to integrate successfully our acquired operations' businesses and personnel

- inability to realize anticipated synergies, economies of scale or other value

- difficulties in scaling up production and coordinating management of operations at new sites

- strain placed on our personnel, systems and resources

- possible modification or termination of an acquired business customer programs, including cancellation of current or anticipated programs

- loss of key employees of acquired businesses.

Financial risks, such as the:

- use of cash resources, or incurrence of additional debt and related interest costs

- dilutive effect of the issuance of additional equity securities

- inability to achieve expected operating margins to offset the increased fixed costs associated with acquisitions, and/or inability to increase margins at acquired entities to Plexus' desired levels

- incurrence of large write-offs or write-downs and

- impairment of goodwill and other intangible assets

- unforeseen liabilities of the acquired businesses.

EXPANSION OF OUR BUSINESS AND OPERATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.

We are expanding our presence in Malaysia and may further expand our operations by establishing or acquiring other facilities or by expanding capacity in our current facilities. We may expand both in geographical areas in which we currently operate and in new geographical areas within the United States and internationally. We may not be able to find suitable facilities on a timely basis or on terms satisfactory to us. Expansion of our business and operations involves numerous business risks, including:

- the inability to successfully integrate additional facilities or capacity and to realize anticipated synergies, economies of scale or other value

- additional fixed costs which may not be fully absorbed by the new business

- difficulties in the timing of expansions, including delays in the implementation of construction and manufacturing plans

- creation of excess capacity, and the need to reduce capacity elsewhere if anticipated sales or opportunities do not materialize

- diversion of management's attention from other business areas during the planning and implementation of expansions

- strain placed on our operational, financial, management, technical and information systems and resources

- disruption in manufacturing operations

- incurrence of significant costs and expenses

- inability to locate enough customers or employees to support the expansion.

WE MAY FAIL TO SECURE NECESSARY FINANCING.

On October 22, 2003, we entered into a Secured Credit Facility with a group of banks. The Secured Credit Facility allows us to borrow up to $100 million. However, we cannot assure that the Secured Credit Facility will provide all of the financing capacity that we will need in the future.

Our future success may depend on our ability to obtain additional financing and capital to support increased sales and our possible future growth. We may seek to raise capital by:

- issuing additional common stock or other equity securities

- issuing debt securities

- modifying existing credit facilities or obtaining new credit facilities

- 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 debt to raise capital, it may be dilutive to shareholders' ownership interests. Furthermore, any additional financing and capital 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.

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 significantly 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 especially the NASDAQ Stock Market, along with market prices for technology companies in particular, have experienced extreme volatility, including weakness, that sometimes has been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating results. Our stock price and the stock price of many other technology companies remain below their peaks.

Among other things, volatility and weakness in Plexus' stock price could mean that investors will not be able to sell their shares at or above the prices that they paid. Volatility and weakness could also impair Plexus' 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.