<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 23, 1997, amending report filed November 21, 1997
(Date of earliest event reported: November 6, 1997)
Commission File Number: 0-21272
SANMINA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0228183
(State of incorporation or organization) (IRS Employer I.D. No.)
355 East Trimble Road, San Jose, California 95131
(Address of principal executive offices)
(408) 954-5500
(Registrant's telephone number, including area code)
<PAGE> 2
Item 2. Acquisition and Disposition of Assets
On November 6, 1997, Registrant acquired Elexsys International, Inc.
("Elexsys") through a merger (the "Merger") effected pursuant to an Agreement
and Plan of Merger dated July 22, 1997 (the "Merger Agreement"). Such
transaction was reported on a Form 8-K report filed November 21, 1997. This
amendment to such report on Form 8-K is being filed for the purpose of filing
the financial statements required to be filed with such reports.
-2-
<PAGE> 3
Item 7. Financial Statements and Exhibits
(a) Financial Statements and Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet of Sanmina
Corporation and Elexsys International, Inc. for the year ended
September 30, 1997.
Audited Financial Statements of Elexsys International, Inc. for
the year ended September 30, 1997.
-3-
<PAGE> 4
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
SANMINA CORPORATION
By: /s/ Randy W. Furr
---------------------------
Randy W. Furr,
President
and Chief Operating Officer
Date: December 23, 1997
-4-
<PAGE> 5
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On November 6, 1997, Sanmina Corporation (the "Company" or
"Sanmina") acquired the stock of Elexsys International, Inc. ("Elexsys") by
issuing approximately 3,345,591 shares of Sanmina common stock at an exchange
ratio of .33 shares of Sanmina stock for one share of Elexsys common stock (the
"Merger"). The following unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical financial
statements and accompanying notes for Sanmina and Elexsys incorporated by
reference or included elsewhere herein.
The unaudited pro forma combined statement of operations for the
fiscal year ended September 30, 1997 gives effect to the proposed Merger, which
will be accounted for as a pooling of interests, as if the merger was completed
at the beginning of the period presented. The unaudited pro forma condensed
combined balance sheet has been prepared as if the Merger was completed as of
September 30, 1997.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
<PAGE> 6
SANMINA AND ELEXSYS UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SANMINA ELEXSYS ADJUSTMENTS TOTAL
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 41,447 $ 898 $ $ 42,345
Short-Term Investments 80,804 - 80,804
Assets to be Sold - 2,087 2,087
Accounts Receivable, Net 51,329 26,005 77,334
Inventories 49,508 11,665 61,173
Deferred Income Taxes 9,115 - 9,115
Prepaid Expenses and Other Current Assets 2,106 2,151 4,257
-------------- -------------- ---------- --------------
Total Current Assets 234,309 42,806 277,115
-------------- -------------- ---------- --------------
PROPERTY, PLANT, AND EQUIPMENT
Machinery and Equipment 71,113 70,831 141,944
Furniture and Fixtures 598 3,067 3,665
Leasehold Improvements 14,062 6,249 20,311
Land and Building 9,984 6,894 16,878
Less: Accumulated Depreciation and Amortization (34,605) (59,019) (93,624)
-------------- -------------- ---------- --------------
Property, Plant, and Equipment, Net 61,152 28,022 89,174
-------------- -------------- ---------- --------------
OTHER ASSETS
Deposits and Other 7,556 2,010 9,566
-------------- -------------- ---------- --------------
TOTAL ASSETS $ 303,017 $ 72,838 $ $ 375,855
============== ============== ========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 52 $ 5,021 $ $ 5,073
Accounts Payable 42,649 13,680 3,750(1) 60,079
Accrued Payroll and Related Costs 8,032 3,832 11,864
Environmental Reserve - 5,566 5,566
Accrued Plant Closure Costs 1,332 1,472 2,804
Accrued Liabilities 6,050 1,474 7,524
Short-Term Borrowings - 3,767 3,767
Income Taxes Payable 2,217 - 2,217
-------------- -------------- ---------- --------------
Total Current Liabilities 60,332 34,812 3,750 98,894
-------------- -------------- ---------- --------------
Long-Term Debt - 10,132 10,132
Convertible Subordinate Debentures 86,250 12,000 98,250
Other Liabilities 552 552
-------------- -------------- ---------- --------------
Total Liabilities 147,134 56,944 3,750 207,828
STOCKHOLDERS' EQUITY:
Preferred Stock - - -
Common Stock 173 9,566 (9,534)(2) 205
Additional Paid-In Capital 72,770 8,706 9,534 (2) 91,010
Unrealized Holding Gain on Investments 61 - 61
Cumulative Foreign Currency Translation
Adjustments - 20 20
Retained Earnings 82,879 (2,398) (3,750)(1) 76,731
-------------- -------------- ---------- --------------
Total Stockholders' Equity 155,883 15,894 (3,750) 168,027
-------------- -------------- ---------- --------------
Total Liabilities and Stockholders' Equity $ 303,017 $ 72,838 $ 375,855
============== ============== ========== ==============
</TABLE>
(1) Reflects expenses of merger.
(2) Reflects the exchange of all Elexsys Common Stock for Sanmina Common Stock
at a ratio of 0.33 shares of Sanmina Common Stock for one share of Elexsys
Common Stock.
<PAGE> 7
SANMINA AND ELEXSYS UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
SANMINA ELEXSYS ADJUSTEMENTS COMBINED
<S> <C> <C> <C> <C>
Net Sales $ 405,212 $ 165,488 $ (913)(3) $ 569,787
Cost of Sales 310,448 146,041 (913)(3) 455,576
------------ --------------- -------------- ------------
Gross Profit 94,764 19,447 114,211
Operating Expenses:
Selling, General and Administrative 24,145 19,865 44,010
Amortization of Goodwill 2,006 - 2,006
Provision for Plant Closing Costs 1,332 7,544 8,876
----------- -------------- -------------- ------------
Total Operating Expenses 27,483 27,409 54,892
------------ --------------- -------------- ------------
Income (Loss) from Operations 67,281 (7,962) 59,319
Interest Expense, Net (228) (2,234) (2,462)
------------ --------------- -------------- ------------
Income (Loss) Before Income Taxes 67,053 (10,196) 56,857
Provision for Income Taxes (26,151) (181) 4,158(2) (22,174)
------------ --------------- -------------- ------------
Net Income (Loss) $ 40,902 $ (10,377) $ 4,158 $ 34,683
============ =============== ============== ============
Earnings per Share Before
Extraordinary Item
Primary $ 2.23 $ (1.10) $ 1.58
Fully Diluted 2.03 (1.10) 1.48
Shares Used in Computing per
Share Amounts
Primary 18,369 9,432 (6,319)(1) 481(4) 21,963
Fully Diluted 21,701 9,432 (6,319)(1) 646(4) 25,460
</TABLE>
(1) Reflects the exchange of all Elexsys Common Stock for Sanmina Common Stock
at a ratio of 0.33 shares of Sanmina Common Stock for one share of Elexsys
Common Stock.
(2) To adjust the provision (benefit) for income taxes due to Elexsys loss based
upon a 39% effective tax rate.
(3) To eliminate intercompany sales
(4) Represents common stock equivalent shares related to Elexsys which on an
Elexsys stand-alone basis are anti-dilutive; such shares are included at the
exchange ratio of .33 shares of Sanmina stock to one share of Elexsys stock.
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF SANMINA AND ELEXSYS
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited pro forma condensed combined statement of operations
combines the historical statements of income of Sanmina and Elexsys for the year
ended September 30, 1997 to reflect results based on the pooling - of -
interests method of accounting. No adjustments were necessary to conform the
accounting policies of the combining companies.
Note 2. Pro Forma Net Income Per Share
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive equivalent shares of Sanmina and
Elexsys based upon the exchange ratio of 0.33 of a share of Sanmina common stock
for each share of Elexsys common stock. The combined pro-forma computation also
includes common stock and common stock equivalent shares related to Elexsys
which on an Elexsys stand-alone basis are anti-dilutive, but which on a combined
basis are dilutive; such shares are included at the exchange ratio of .33 shares
of Sanmina common stock to one share of Elexsys common stock.
Note 3. Merger Related Expenses of Sanmina and Elexsys
Sanmina and Elexsys estimate that they will incur merger-related
expenses, consisting primarily of investment banking, legal and accounting fees,
financial printing and other related charges, of approximately $3.75 million.
This estimate is preliminary and is therefore subject to change. These
nonrecurring expenses will be charged to operations during the period in which
the Merger is consummated. The pro forma combined balance sheet gives effect to
such expenses as if they had been incurred as of September 30, 1997, but the pro
forma condensed statement of operations does not give effect to such expenses as
such expenses are non-recurring.
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Elexsys International, Inc.:
We have audited the accompanying consolidated balance sheet of Elexsys
International, Inc. (formerly Diceon Electronics, Inc.) (a Delaware corporation)
and subsidiaries as of September 30, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Elexsys International, Inc. and
subsidiaries as of September 30, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
San Jose, California
October 27, 1997 (except for the matter discussed in Note 14, as to which the
date is November 6, 1997)
<PAGE> 10
ELEXSYS INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 898
Accounts receivable, less allowance for doubtful accounts of $1,376 26,005
Inventories 11,665
Prepaid expenses 2,151
Assets to be sold 2,087
--------
Total current assets 42,806
--------
Property and Equipment:
Machinery and equipment 73,898
Leasehold improvements 6,249
Land 2,637
Buildings and improvements 4,257
--------
87,041
Less: Accumulated depreciation and amortization 59,019
--------
Net property and equipment 28,022
--------
Other assets 2,010
--------
Total assets $ 72,838
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,680
Accrued payroll and related costs 3,832
Accrued liabilities 1,474
Accrued plant closure costs 1,472
Short-term borrowings 3,767
Environmental reserve 5,566
Current portion of long-term debt 5,021
--------
Total current liabilities 34,812
--------
Long-term Liabilities:
Convertible subordinated debentures 12,000
Long-term debt 10,132
--------
Total long-term liabilities 22,132
--------
Commitments and Contingencies (notes 6, 7 and 9)
Stockholders' Equity:
Preferred stock, $1.00 par value:
Authorized: 1,000,000 shares
Issued and outstanding: none --
Common stock, $1.00 par value:
Authorized: 20,000,000 shares
Issued and outstanding: 9,566,000 shares 9,566
Additional paid-in capital 8,706
Cumulative foreign currency translation adjustment 20
Accumulated deficit (2,398)
--------
Total stockholders' equity 15,894
--------
Total liabilities and stockholders' equity $ 72,838
========
</TABLE>
See accompanying notes.
<PAGE> 11
ELEXSYS INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amount)
<TABLE>
<CAPTION>
Year Ended
September 30, 1997
------------------
<S> <C>
Net sales $ 165,488
Cost of sales 146,041
---------
Gross profit 19,447
---------
Operating Expenses:
Selling, general and administrative 19,865
Provision for plant closure costs 7,544
---------
Total operating expenses 27,409
---------
Operating loss (7,962)
Interest Expense, net (2,234)
---------
Loss before provision for income taxes (10,196)
Provision for income taxes 181
---------
Net loss $ (10,377)
=========
Net loss per share $ (1.10)
=========
Shares used in computing per share amount 9,432
=========
</TABLE>
See accompanying notes.
3
<PAGE> 12
ELEXSYS INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cumulative
Foreign Retained
Common Stock Additional Currency Earnings
------------------ Paid-in Translation (Accumulated
Shares Amount Capital Adjustment Deficit) Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 9,301 $ 9,301 $ 7,294 $ (22) $ 7,979 $ 24,552
Issuance of shares under employee stock purchase plan 33 33 274 -- -- 307
Employee stock options exercised 232 232 836 -- -- 1,068
Acceleration of option vesting -- -- 302 -- -- 302
Foreign currency translation adjustment -- -- -- 42 -- 42
Net loss -- -- -- -- (10,377) (10,377)
--------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 9,566 $ 9,566 $ 8,706 $ 20 $ (2,398) $ 15,894
==============================================================
</TABLE>
See accompanying notes.
<PAGE> 13
ELEXSYS INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
September 30,
1997
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,377)
Adjustments to reconcile net loss to cash provided by operating
activities:
Depreciation and amortization 8,442
Provision for plant closure 7,544
Provision for environmental reserve 4,866
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (4,398)
Inventories (1,540)
Prepaid expenses, deposits and other (700)
Accounts payable and accrued liabilities 1,998
Other current liabilities 782
Other 93
--------
Cash provided by operating activities 6,710
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Neutronics (1,234)
Purchase of property, plant and equipment (11,731)
Proceeds from sale of property, plant and equipment and other long term assets 216
--------
Cash used for investing activities (12,749)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 8,033
Payment of debt principal (1,707)
Payments of principal on capital lease obligations (598)
Proceeds from exercise of stock options 1,677
Net change in short-term borrowings (1,543)
--------
Cash provided by financing activities 5,862
--------
Decrease in cash and cash equivalents (177)
Cash and cash equivalents at beginning of year 1,075
--------
Cash and cash equivalents at end of year $ 898
========
NON-CASH INVESTING & FINANCING ACTIVITIES
Equipment acquired under capital leases $ 3,385
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year:
Interest $ 1,998
Income taxes $ 477
</TABLE>
See accompanying notes.
<PAGE> 14
ELEXSYS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION OF THE COMPANY
Elexsys International, Inc., (the "Company"), manufactures high performance
medium and high density backpanel assemblies and sophisticated subsystem
assemblies. In addition, the Company manufactures high technology printed
circuit boards. The Company offers advanced inter-connect solutions for the
telecommunications, datacommunications, computer, industrial, medial and
instrumentation markets.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
ACCOUNTING PERIOD. For convenience of presentation, the Company has indicated
its fiscal year as ending on September 30. The Company actually utilizes a
fifty-two or fifty-three week fiscal year ending on the Saturday nearest to
September 30, which for the fiscal year ended 1997, was September 27.
USE OF ESTIMATES. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
CASH EQUIVALENTS. The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
credit insurance and reserves for potential credit losses, and such losses have
been within management's expectations.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out
method) or market. The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
As of
September 30,
1977
-------------
<S> <C>
Raw materials $ 4,697
Work-in-process 4,993
Finished goods 1,975
----------
$ 11,665
==========
</TABLE>
<PAGE> 15
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are depreciated
using the straight-line method over the estimated useful lives as follows:
Buildings and improvements 30 years
Machinery and equipment 3 to 10 years
Leasehold improvements Shorter of the estimated
useful life or lease term
The Company had equipment leased under capital leases with a net book value at
September 30, 1997 of $4.3 million.
INTANGIBLES. Intangibles arising from the Company's acquisitions (see Note 8)
are amortized on a straight-line basis over the estimated useful life of twenty
years.
INCOME TAXES. The Company accounts for income taxes under the provision of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
REVENUE RECOGNITION. The Company recognizes revenues upon shipment of related
products.
TRANSLATION OF FOREIGN CURRENCIES. Assets and liabilities of the Company's
United Kingdom subsidiary are translated into U.S. dollars at the exchange rates
in effect at the end of the period. Revenue and expense accounts are translated
at the weighted average of exchange rates which were in effect during the year.
Translation adjustments that arise from translating the Company's United Kingdom
subsidiary's financial statements from the pound sterling to the U.S. dollar are
accumulated in a separate component of stockholders' equity. Transaction gains
and losses that arise from exchange rate changes on transactions denominated in
a currency other than the local currency are included in results of operations
as incurred. For the year ended September 30, 1997, transaction gains and losses
were immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS. SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments," requires management to disclose the estimated fair
value of certain assets and liabilities defined by SFAS No. 107 as financial
instruments. At September 30, 1997, management believes that the carrying
amounts of cash, receivables, trade payables and long-term debt (the Company's
"financial instruments") approximate fair value. The carrying amount of the
5-1/2 percent Convertible Subordinated Debentures due 2012 is $12 million, and
management believes that the fair value cannot be determined as the instrument
has not been traded during the past year.
NET LOSS PER SHARE. For fiscal 1997, loss per share was calculated excluding
common equivalent shares (stock options) outstanding during the year as well as
the assumed conversion of the principal amount of the outstanding debentures
into common stock as such effect would have been antidulitive.
STOCK BASED COMPENSATION. Effective October 1, 1996, the Company adopted the
disclosure provisions of SFAS 123, "Accounting for Stock-Based Compensation." In
accordance with the provisions of SFAS 123, the Company applies Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans.
NEW ACCOUNTING STANDARDS. In February 1997, the Financial Accounting Standards
Board (FASB) issued Statement on Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," which is required to be adopted by the Company in
its first quarter of fiscal 1998. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under basic earnings per share, the dilutive effect of stock
options will be excluded. The Company does not expect the adoption of SFAS 128
to have a material effect on its financial statements.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure," which will be adopted by the Company in fiscal 1999. SFAS
129 requires companies to disclose certain information about their capital
structure. Management believes that SFAS 129 will not have a material impact on
the Company's financial statement disclosures.
7
<PAGE> 16
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components. SFAS 130 is effective for fiscal year 1999.
Management does not believe the adoption of SFAS 130 will have a material effect
on the Company's financial statement disclosures.
In June 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 introduces a new model for segment
reporting, called the "management approach." SFAS 131 is effective for fiscal
year 1999. Management does not believe the adoption of SFAS 131 will increase
its disclosure requirements.
NOTE 3. REVOLVING CREDIT AGREEMENT
The Company had a revolving credit agreement providing for borrowings of up to
$15 million from an asset based financing company. Cash borrowings under the
agreement bore interest at the prime rate (8.25%) plus 3 percent, and were
payable monthly. The line of credit was collateralized by substantially all of
the Company's assets and expires December 17, 1997.
On January 17, 1997, the Company terminated its existing working capital line of
credit detailed above and entered into a series of new loan agreements with
Sanwa Bank California. The Accounts Receivable Credit Agreement consists of a
$13 million working capital line of credit. The Term Loan Credit Agreement
consists of a $7 million term loan to be used for acquisition financing. The
borrowings under the working capital line of credit and the term loan bear
interest at the prime rate plus -1/2 percent and 1 percent, respectively. At the
Company's request, interest on the line of credit or the term loan can be
converted to a fixed rate at 250 basis points and 300 basis points,
respectively, over the cost of funds. The line of credit and the term loan are
collaterlized by substantially all of the Company's assets. The Accounts
Receivable Credit Agreement and the Line of Credit will remain in effect until
January 31, 1998. The amount outstanding on the Term Loan Credit Agreement can
fluctuate and interest only will be payable until January 31, 1998, at which
point the amount outstanding will become due and payable in 36 equal monthly
installments of principal and interest ending on January 31, 2001. These credit
facilities contain covenants including the maintenance of certain levels of
working capital, tangible net worth and certain financial ratios. In addition,
the Company is restricted from incurring additional indebtedness, payment of
dividends and certain other payments.
On May 14, 1997, the Company amended and restated its Term Loan Credit Agreement
and its Accounts Receivable Credit Agreement with its principal lender, Sanwa
Bank, modifying certain loan covenants giving recognition to the Company's need
for additional capital. In addition, on May 14, 1997, the Company entered into a
Line of Credit Agreement, with essentially the same terms and termination date
as its Accounts Receivable Credit Agreement, allowing the Company to borrow up
to $5.0 million in a foreign currency within the borrowing limits of the
Accounts Receivable Credit Agreement. The Company also has three standby letters
of credit with Sanwa Bank totaling $3,455,000 at September 30, 1997.
The credit facility with Sanwa Bank contains covenants including the maintenance
of certain levels of working capital, tangible net worth and certain financial
ratios. In addition, the Company is restricted as to the incurrence of
additional indebtedness and certain other payments. As of September 30, 1997,
net borrowings under this credit agreement were $9,120,469, and the Company was
not in compliance with certain covenants; however, the Company has obtained a
waiver from the bank and in addition, has agreed to repay the debt outstanding
within thirty days upon the consummation of the merger discussed in Note 14.
8
<PAGE> 17
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Thousands of dollars (except payment amounts) 1997
----------------------------------------------------------------- ----------
<S> <C>
USA Subsidiary:
California Pollution Control revenue bonds due in varying
annual principal amounts ranging from $45,000 to
$85,000 through March 2001, with interest rates ranging
from 7.0% to 9.5% and guaranteed by the Small Business $ 280
Administration
Promissory note payable to a related party due in one
principal payment amount of $500,000 in May 1998, with 500
an interest rate of 8%.
Notes payable to two investors due in one principal
payment amount of $665,000 to each in April 1998, with 1,330
an interest rate of 8%.
Note payable to GE Capital Public Finance, Inc. due in
varying annual principal amounts ranging from $97,000
to $1,358,000 through January 2007, with an interest
rate of 6.33%. This note is secured by a standby 2,577
letter of credit (see below).
Term loan with Sanwa bank bearing interest at prime +1% 5,353
(see Note 3).
United Kingdom Subsidiary:
Notes payable to an investor group due in equal, annual
principal amounts of $100,000 due September 1997 and
September 1998, with interest rates of 3% above the
bank base rate, currently 5.625%. The September 1997
payment was paid in October 1997. The loan is 201
collateralized by the United Kingdom subsidiary's
assets.
Notes payable to bank due in varying annual principal amounts
ranging from $37,000 to $76,000 through September 2008, with
interest rates of 2% above the
bank base rate, currently 5.625%. The loan is 770
collateralized by the United Kingdom subsidiary's assets
Capital lease obligations (see Note 6): 4,142
---------
15,153
Less: Current portion (5,021)
---------
Net $ 10,132
=========
</TABLE>
The aggregate principal maturities are (excluding capital lease obligation)
$3,612,000, $2,008,000, $2,021,000, $963,000, $175,000, and $2,232,000 in the
years ending September 30, 1998 through 2002 and thereafter, respectively.
In December 1996, the Business Finance Authority of the State of New Hampshire
(the "Issuer") issued a tax-exempt qualified small issue private placement bond,
the proceeds of which were loaned to the company on January 27, 1997, to
reimburse the Company for the $2.3 million it paid to purchase its Nashua, New
Hampshire manufacturing facility in November 1996, with approximately another
$400,000 available to reimburse the Company for improvements it intends to make
to the premises. In connection with the loan, the company entered into a Loan
Agreement with GE Capital among the Issuer and the Company, as borrower, dated
as of December 1, 1996 (the "Loan Agreement"). Under the terms of the Loan
Agreement, the loan has a ten-year term with interest payable monthly in arrears
at a rate of 6.33%. Principal payments are also due monthly based on a twenty
year amortization schedule. The loan is secured by a standby letter of credit
issued by Sanwa Bank of California under the Company's line of credit facility
of 100% of the principal loan amount plus 120 days interest.
9
<PAGE> 18
NOTE 5. CONVERTIBLE SUBORDINATED DEBENTURES
In February 1987, the Company issued $32 million of 5.5% Convertible
Subordinated Debentures due in 2012 (the "Debentures"). The Debentures are
convertible into shares of common stock at $39.50 per share, subject to
adjustment under certain conditions. The Debentures are redeemable by the
Company at declining premiums prior to March 1, 1997, and thereafter at 100
percent of the principal amount. The Debentures are also redeemable through the
operation of a sinking fund at 100 percent of the principal amount. Interest is
payable semi-annually on September 12 and March 12 of each year. Mandatory
annual sinking fund payments, sufficient to retire 5 percent of the aggregate
principal amount of the Debentures issued, were to be made on each March 1
commencing in 1997. As a result of the two exchanges of common stock for $16
million and $4 million of the Debentures in fiscal 1994 and fiscal 1995,
respectively, the Company now has sinking fund credits available to offset these
obligations for twelve and one-half years, thus no sinking fund payments will be
required until 2009. The revised minimum annual sinking funding payments are
$1.6 million, $1.6 million, $.8 million and $8 million for the years end
September 30, 2009, 2010, 2011 and 2012, respectively. The Debentures are
subordinated to all senior indebtedness of the Company. After giving effect to
the merger (see Note 14) the debentures are convertible into shares of Sanmina
common stock at $119.70 per share.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company leases its several manufacturing facilities and certain equipment
under capital and operating leases. These leases contain various options to
renew lease terms. The Company is responsible for utilities, maintenance,
insurance and property taxes under the leases. As of September 30, 1997, the
Company's commitments under its capital and operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Operating
(Thousands of dollars) Lease Lease
-----------------------------------------------------------
<S> <C> <C>
1998 $ 1,284,714 $ 1,854,792
1999 1,184,075 1,699,310
2000 1,012,244 1,299,107
2001 1,263,748 1,214,722
2002 -- 1,110,142
Thereafter -- 2,372,519
-----------------------
Total minimum lease payments 4,744,781 $ 9,550,592
===========
Less: Amounts representing
interest (602,068)
-----------
Present value of minimum lease 4,142,713
payments
Less: Current portion (972,830)
-----------
Long-term portion $ 3,169,883
===========
</TABLE>
Rent expense under operating leases was approximately $2 million for the year
ended September 30, 1997.
NOTE 7. LITIGATION
The Company is subject to litigation matters in the normal course of business.
The Company does not believe the ultimate resolution of any such pending or
threatened litigation matters would have a material adverse effect on the
Company's financial position or results of operations.
NOTE 8. ACQUISITIONS
On April 14, 1997, the Company acquired, Neutronic Stampings, Inc., including
the remaining 50% interest not already owned by the Company in two partnerships,
Neutronic Plating Services and H&V Services, plus other production equipment
leased by the above entities for approximately $4.6 million. These entities are
engaged in stamping spools of metal to create
10
<PAGE> 19
parts and/or plating spools of metal parts used in various industries such as
backplane assemblies. The purchase price included cash of $2.0 million and
promissory notes of $2.3 million payable over one year. The acquisition was
accounted for using the purchase method of accounting with the purchase price
allocated to net assets of $3.1 million and goodwill of $1.5 million.
NOTE 9. PROVISION FOR PLANT CLOSING COSTS
In the fourth quarter of fiscal 1997, the Company recorded a charge to
operations of $7.5 million to provide for the closure of three of its facilities
(one printed circuit board fabrication facility and two assembly facilities).
These closures were prompted by the less-than-anticipated results from each of
the facilities. Included in the above charge is the write-off of $1.75 million
of goodwill related to the closure of one of the assembly plants. This goodwill
originated as part of an acquisition in 1996. The remaining $5.75 million of
this charge consists primarily of the costs associated with the remaining lease
commitments on these facilities and the write-off of the related leasehold
improvements, certain fixed assets and inventories.
NOTE 10. ENVIRONMENTAL MATTERS
The Company's manufacturing processes utilize substantial quantities of
chemicals and water. The Company is subject to and believes it is in substantial
compliance with federal, state and local environmental laws and regulations
regarding air, water and land use, the generation, use, storage and disposal of
hazardous materials and wastes, and the operation and closure of manufacturing
facilities at which hazardous materials are used or hazardous wastes are
generated.
Also, the Company is aware of contamination of soil and ground water
(principally by metals and solvents) at two of its former facilities in Northern
California. At both of these facilities, the soil has been remediated and the
properties have been returned to their owners. One of the facilities is adjacent
to an existing State of California administered Superfund site; as a result, it
could become part of a related State of California administered regional ground
water investigation, although the Company does not believe that it bears any
responsibility for that matter. At another former facility in Southern
California, the Company conducted limited groundwater sampling in connection
with the potential sale of the property, and low concentrations of solvents were
detected. Notification was made to the appropriate agencies. At this time, it is
not possible to determine whether any response actions will need to be taken
and, accordingly, the likely future cost to the Company is not yet reasonably
estimable.
The Company is further aware of soil and ground water contamination (principally
by metals and solvents) at two currently used facilities, one in Northern
California and one in Southern California. At its Northern California facility,
the Company is indemnified by the former property owner who has acknowledged his
obligation. At its Southern California facility, the Company has identified and
reserved for a preliminary estimate for remediation costs. At its Northern
California facility, the Company has implemented and has been in compliance with
recently reduced discharge limits for industrial waste water discharge
containing heavy metals.
During fiscal year 1997, the Company employed an outside firm to survey and
evaluate the possible environmental exposure at its plants. Based on the
evaluation, the Company increased its environmental reserve accordingly in the
fourth quarter of fiscal year 1997.
As of September 30, 1997, the Company believes it has appropriately recorded all
known costs related to environmental matters, including the minimum amounts
where the estimated costs are within a range. However, actual future
environmental related expenditures are subject to numerous uncertainties,
including the discovery of additional environmental concerns, further
development of cost estimates, new and changing environmental law and
requirements, or new interpretations of existing laws and requirements.
Accordingly, there can be no assurance that future environmental related
expenditures will not exceed the Company's current estimates or that they will
not have a materially adverse effect on the Company.
11
<PAGE> 20
NOTE 11. STOCKHOLDERS' EQUITY
STOCK OPTIONS. Under the terms of the 1983 Employee Stock Option Plan ("1983
Plan"), which was amended in 1984 and 1988, 800,000 shares of the Company's
common stock were available for issuance under option grants to key employees,
including officers, at prices not less than the fair market value of the stock
at the date of grant. Options may have a term of up to ten years from the date
of grant and vest at a rate of 20 to 50 percent a year commencing one year from
the date of grant.
Under the terms of the Non-Qualified Stock Option Plan ("1984 Plan"), 200,000
shares of the Company's common stock were available for issuance under option
grants to key employees, including officers, who are not directors of the
Company. The terms and conditions of the 1984 Plan are similar to those of the
1983 Plan. During the year ended September 30, 1994, both plans expired.
Option activity for these plans is summarized as follows:
<TABLE>
<CAPTION>
1983 Plan 1984 Plan
-----------------------------------------------------------------------------
Weighted Weighted
Number of Price Average Number Price Average
Shares Per Share Exercise Price of Shares Per Share Exercise Price
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1996 42,250 1.25 - 3.50 2.28 10,000 1.25 - 3.50 1.25
Granted -- -- -- -- -- --
Exercised (42,250) 1.25 - 3.50 2.28 (10,000) 1.25 1.25
Cancelled -- -- -- -- -- --
-----------------------------------------------------------------------------
September 30, 1997 -- -- -- -- -- --
=============================================================================
</TABLE>
In June 1994, the Company adopted the Company's 1994 Incentive Stock Option Plan
("the 1994 ISO Plan"), authorizing the issuance of options to purchase a maximum
aggregate of 500,000 shares of common stock. The 1994 ISO Plan was approved by
the stockholders of the Company in February 1995. Options may have a term of up
to ten years from the date of grant and vest at a rate of 25 to 33 percent per
year.
Option activity for these plans is summarized as follows:
<TABLE>
<CAPTION>
1994 Non-Qualified Options 1994 ISO Plan
-----------------------------------------------------------------------------
Weighted Weighted
Number of Price Average Number Price Average
Shares Per Share Exercise Price of Shares Per Share Exercise Price
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1996 1,000 1.25 1.25 301,800 1.00 - 5.19 2.68
Granted -- -- -- -- -- --
Exercised -- -- -- (106,930) 1.00-5.19 2.27
Cancelled (1,000) 1.25 1.25 (2,980) 2.88 2.88
------------------------------------------------------------------------------
September 30, 1997 -- -- -- 191,890 $1.00-$5.19 $3.28
=============================================================================
</TABLE>
12
<PAGE> 21
In July 1995, the Board of Directors adopted the Company's 1995 Stock Option
Plan ("the 1995 Plan") and authorized the issuance of 1,000,000 shares of the
Company's common stock. Options have a term of up to ten years from the date of
grant and vest at a rate of 25 percent per year commencing one year from the
date of grant. On January 30, 1996, the Company's stockholders approved an
amendment and restatement of the 1995 Plan to reflect current applicable tax and
securities requirements and for administrative ease.
Option activity for this plan is summarized as follows:
<TABLE>
<CAPTION>
1995 Plan
--------------------------------------
Weighted
Average
Number Price Exercise
of Shares Per Share Price
--------------------------------------
<S> <C> <C> <C>
September 30, 1996 497,400 8.88 - 12.50 10.70
Granted 721,485 11.25 - 23.87 13.53
Exercised (49,475) 9.63 - 12.00 9.80
Cancelled (214,850) 9.63 - 22.31 13.42
--------------------------------------
September 30, 1997 954,560 $8.88 - $23.87 $11.30
=======================================
</TABLE>
In January 1996, the Board of Directors adopted the Company's 1996 Non-Employee
Director's Stock Plan (the "Director's Plan"). The Director's Plan provides for
automatic, non-discretionary grants of options to purchase an aggregate of
200,000 shares of the Company's common stock. Options may have a term of up to
ten years from the date of grant and vest at rate a of 25 percent per year.
Option activity for this plan is summarized as follows:
<TABLE>
<CAPTION>
1996 Director's Plan
-------------------------------------------
Weighted
Average
Number of Price Exercise
Shares Per Share Price
-------------------------------------------
<S> <C> <C> <C>
September 30, 1996 30,000 $15.63 - $16.00 $15.81
Granted 30,000 11.63 - 24.38 17.96
Exercised -- -- --
Cancelled -- -- --
-------------------------------------------
September 30, 1997 60,000 $11.63 - $24.38 $16.89
===========================================
</TABLE>
On January 30, 1996, the Company adopted its 1996 Employee Stock Purchase Plan
("the Purchase Plan") authorizing the issuance of 250,000 shares of the
Company's common stock. The Company's employees may purchase shares of common
stock at a price per share that is 85% of the lesser of the fair market value as
of the beginning or the end of the semi-annual option period.
At September 30, 1997, 1,743,550 shares of common stock are reserved for the
Purchase Plan and the exercise of stock options granted or available for future
grant. 271,850 of these shares are exercisable under the Company's option plans.
13
<PAGE> 22
STOCK-BASED COMPENSATION. The Company accounts for its stock option plans and
employee stock purchase plans under APB Opinion No. 25 and related
interpretations, under which no compensation cost has been recognized as the
exercise price per share for stock options was equal to the fair market value of
the stock on the date of grant and the Purchase Plan qualified as a
non-compensatory plan under APB Opinion No. 25. Had compensation cost for these
plans been determined consistent with SFAS No. 123, the Company's net income and
net income per share would have been reduced to the following pro forma accounts
(in thousands):
<TABLE>
<CAPTION>
Year Ending
September
30,
1997
------------
<S> <C>
Net income (loss):
As reported $ (10,377)
Pro forma (11,544)
Earnings (loss) per share:
As reported (1.10)
Pro forma (1.22)
</TABLE>
The weighted average fair values of options granted during fiscal 1997 were
$7.94 per share, (excluding shares issued in the employee stock purchase plan).
The weighted average fair value of shares issued during fiscal 1997 related to
the employee stock purchase plan was $4.45. The fair value of each stock option
granted is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in fiscal
1997:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Volatility 78%
Risk-free 6.6%
interest rate
Dividend yield 0%
Expected lives 2 yrs. beyond vesting
</TABLE>
The following table summarized information regarding stock options outstanding
under all option plans at September 30, 1997:
<TABLE>
<CAPTION>
Options Options Vested
Outstanding and Exercisable
----------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Vested Average
Range of Outstanding Contractual Exercise and Exercisable Exercise
Exercise Prices at 9/30/97 Life Price at 9/30/97 Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00-$3.50 197,750 6.31 $ 2.45 83,475 $ 2.75
$3.69-$9.625 421,000 8.35 7.63 139,250 6.70
$9.94-$11.25 375,700 9.30 10.84 36,625 9.98
$11.625-$23.87 212,000 9.23 14.14 12,500 14.88
==========================================================================================
$1.00-$23.87 1,206,450 8.47 $ 8.93 271,850 $ 6.31
==========================================================================================
</TABLE>
REPRICING OF OPTIONS. In March 1997, the Board implemented a repricing program
for all non-employee directors options as well as the Chief Financial Officer's
options.
14
<PAGE> 23
NOTE 12. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
September 30,
1997
---------------
<S> <C>
Federal - Current Payable $ --
State - Current Payable 181
Foreign --
---------
Total provision for taxes $ 181
=========
</TABLE>
A reconciliation between the statutory Federal income tax rate as a percentage
of income from continuing operations is as follows:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997
-------------
<S> <C>
Federal tax at statutory rate 34%
State and local taxes 2%
Foreign subsidiary loss --
Change in valuation allowance (35)%
Other 1%
------
Effective tax rate 2%
======
</TABLE>
Deferred income taxes reflect the net tax effects of (i) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and (ii) net operating
loss and tax credit carryforwards. The tax effects of significant items
comprising the Company's income tax calculation as of September 30, 1997 is as
follows:
<TABLE>
<CAPTION>
(thousands of dollars) 1997
-------------------------------------------------------------
<S> <C>
Deferred tax liabilities:
Differences between book and tax basis of $ (1,119)
property
Deferred tax assets:
Reserves not currently deductible 9,642
Net operating loss 7,381
Alternative minimum tax credit carryforwards 441
Miscellaneous tax credits 520
---------
16,865
Valuation allowance (16,865)
---------
Net deferred tax $ --
=========
</TABLE>
Deferred income taxes include the tax impact of net operating loss
carryforwards. As of September 30, 1997, the Company had net operating loss
carryforwards for Federal and state income tax purposes of approximately
$18,703,000. These carryforwards, for which future benefit is not assured,
expire through 2008. The United States Tax Reform Act of 1986 contains
provisions which may limit the net operating loss carryforwards available to be
used in any given year upon the occurrence of certain events, including
significant changes in ownership interests. The Company believes that sufficient
15
<PAGE> 24
uncertainty exists regarding the realizability of the deferred income tax asset
and, in accordance with the provisions of FAS No. 109, a 100% valuation
allowance has been established.
NOTE 13. OTHER
CONCENTRATION OF CREDIT RISK. For the year ended September 30, 1997, two
customers accounted for approximately 24 percent and 11 percent of net sales.
The Company's most significant credit risk is the ultimate realization of its
accounts receivable. This risk is mitigated by (i) sales to well established
companies, (ii) ongoing credit evaluation of its customers, and (iii) frequent
contact with its customers, especially its most significant customers, thus
enabling the Company to monitor current changes in business operations and to
respond accordingly.
EXPORT SALES. For the year ended September 30, 1997 export sales accounted for
approximately $25,652,000, approximately 15 percent of net sales. Total export
sales for the year was made up of sales to the following regions:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997
-------------
<S> <C>
Canada 67%
Europe 27%
Asia and Latin America 6%
</TABLE>
BONUS AND RETIREMENT PLAN. The Company has a discretionary profit sharing bonus
plan which provides for the payment of bonuses to all eligible employees based
on a formula fixed annually by the Board of Directors. The bonus formula is
applied separately to each of the Company's profit centers. Bonus expense
relating to the bonus plan amounted to $323,000 for the year ended September 30,
1997.
In February 1995, the Company established a savings plan qualified under Section
401(k) of the Internal Revenue Code. Employees who have completed 90 days of
service are eligible to participate in the Plan. The Company can make
discretionary contributions based on employee pre-tax contributions. All
contributions to each employee's account vest immediately. No contributions were
made to the savings plan by the Company during the year ended September 30,
1997.
RELATED PARTIES. At September 30, 1997, the Company has a note payable of
$500,000 to a former employee of the Company maturing in May 1998 and two notes
payable to investors of $1.33 million which mature in April 1998.
NOTE 14. SUBSEQUENT EVENTS
On November 6, 1997, the Company and Sanmina Corporation ("Sanmina") merged
through the issuance of approximately 3,345,591 shares of Sanmina's common stock
in exchange for all of the Company's outstanding common stock and employee stock
options. The acquisition will be accounted for as a pooling of interests.
16
<PAGE> 25
EXHIBIT INDEX
Exhibit 23.1 Consent of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report dated October 27, 1996 (except for Note 14, as to which the date is
November 6, 1997) on the financial statements of Elexsys International, Inc. as
of and for the year ended September 30, 1997 included in this Form 8-K of
Sanmina Corporation.
ARTHUR ANDERSEN LLP
San Jose, California
January 6, 1998
