<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-21272
------------------------
SANMINA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0228183
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
355 EAST TRIMBLE ROAD, SAN JOSE, CA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
408/954-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
As of January 29, 1999, there were 56,799,606 shares outstanding of the
issuer's common stock, $0.01 par value.
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<PAGE> 2
SANMINA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Condensed Consolidated Statements of Operations............. 3
Condensed Consolidated Balance Sheets....................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Interim Condensed Consolidated Financial
Statements.................................................. 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signature............................................................ 15
</TABLE>
2
<PAGE> 3
SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JANUARY 2, DECEMBER 27,
1999 1997
---------- ------------
<S> <C> <C>
Net sales................................................... $260,239 $206,266
Cost of sales............................................... 210,293 162,176
-------- --------
Gross profit.............................................. 49,946 44,090
-------- --------
Operating expenses
Selling, general and administrative....................... 18,718 14,295
Amortization of goodwill.................................. 751 636
Provision for plant closing and relocation costs.......... 16,875 --
Write down of long-lived assets........................... 11,400 --
Merger costs.............................................. 5,479 3,945
-------- --------
Total operating expenses.......................... 53,223 18,876
-------- --------
Operating income (loss)..................................... (3,277) 25,214
Other income (expense), net................................. 1,885 (158)
-------- --------
Income (loss) before provision for income taxes............. (1,392) 25,056
Provision for income taxes.................................. -- 9,381
-------- --------
Net income (loss)........................................... $ (1,392) $ 15,675
======== ========
Earnings (loss) per share:
Basic..................................................... $ (0.02) $ 0.32
Diluted................................................... $ (0.02) $ 0.29
Shares used in computing per share amounts:
Basic..................................................... 56,480 48,238
Diluted................................................... 56,480 57,537
</TABLE>
See accompanying notes.
3
<PAGE> 4
SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
JANUARY 2, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 61,303 $ 87,971
Short-term investments................................. 68,464 93,526
Accounts receivable, net............................... 151,014 123,398
Inventories............................................ 102,851 99,235
Deferred income taxes.................................. 19,662 19,389
Prepaid expenses and other............................. 13,233 8,197
-------- --------
Total current assets.............................. 416,527 431,716
Property, plant and equipment, net.......................... 168,735 180,577
Long-term investments....................................... 52,850 --
Deposits and other.......................................... 12,273 20,349
-------- --------
$650,385 $632,642
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 88,052 $ 83,058
Accrued liabilities.................................... 55,708 43,177
Income taxes payable................................... 4,949 11,517
-------- --------
Total current liabilities......................... 148,709 137,752
-------- --------
Long-term liabilities:
Convertible subordinated notes......................... 5,657 5,767
Other liabilities...................................... 19,346 16,848
-------- --------
Total long-term liabilities....................... 25,003 22,615
-------- --------
Stockholders' equity:
Common stock........................................... 567 555
Additional paid-in capital............................. 241,284 236,277
Unrealized gain on investments......................... 325 386
Retained earnings...................................... 234,497 235,057
-------- --------
Total stockholders' equity........................ 476,673 472,275
-------- --------
$650,385 $632,642
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JANUARY 2, DECEMBER 27,
1999 1997
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (1,392) $ 15,675
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation, amortization and other................... 11,034 7,409
Relocation, one-time charges, and merger costs......... 23,686 3,945
Write down of long-lived assets........................ 11,400 --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (27,964) (3)
Inventories.......................................... 1,665 (2,794)
Prepaid expenses, deposits and other................. 1,842 1,063
Accounts payable and accrued liabilities............. 1,067 1,037
Income tax accounts.................................. (5,891) 7,892
-------- --------
Cash provided by operating activities............. 15,447 34,224
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (16,644) (21,379)
Proceeds from maturity of short-term investments.......... 41,919 20,717
Purchases of long-term investments........................ (52,850) --
Purchases of property and equipment, net of
acquisitions........................................... (10,599) (12,979)
Cash paid for businesses acquired, net.................... (10,051) --
-------- --------
Cash used for investing activities................ (48,225) (13,641)
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit................................ -- (3,767)
Payments of long-term liabilities......................... (1,523) (9,077)
Proceeds from sale of common stock, net of taxes.......... 4,140 (1,061)
-------- --------
Cash provided by (used for) financing
activities...................................... 2,617 (13,905)
-------- --------
Increase (decrease) in cash and cash equivalents............ (30,161) 6,678
Cash and cash equivalents at beginning of period............ 91,464 52,939
-------- --------
Cash and cash equivalents at end of period.................. $ 61,303 $ 59,617
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................. $ 133 $ 319
Income Taxes......................................... $ 5,111 $ 539
</TABLE>
See accompanying notes.
5
<PAGE> 6
SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules or
regulations. The interim financial statements are unaudited, but reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation. All adjustments are of a normal recurring nature.
The results of operations for the three months ended January 2, 1999 are
not necessarily indicative of the results that may be expected for the year
ending October 2, 1999. These condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto for the
year ended September 30, 1998 included in the Company's annual report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
NOTE 2 -- ACQUISITIONS
In November 1998, the Company acquired Altron, Incorporated ("Altron") in a
merger transaction. Under the terms of the merger agreement, each share of
Altron Common Stock was converted into 0.4545 shares of Sanmina Common Stock.
Approximately 7.2 million shares of common stock were issued to acquire Altron.
The merger was accounted for as a pooling of interests, and therefore, all prior
periods presented were restated to combine the results of the two companies. A
reconciliation of the financial statements for the three months ended December
27, 1997, to previously reported information is as follows (in thousands):
<TABLE>
<S> <C>
Revenue:
Sanmina................................................. $159,107
Altron.................................................. 47,159
--------
Combined........................................ $206,266
========
Net Income:
Sanmina................................................. $ 12,508
Altron.................................................. 3,167
--------
Combined........................................ $ 15,675
========
</TABLE>
On December 28, 1998, the Company acquired Telo Electronics, Incorporated,
a California corporation ("Telo"). The Company acquired Telo by issuing shares
of Sanmina Common Stock in exchange for 100% of the outstanding common stock of
Telo in a merger transaction. The merger was accounted for as a pooling of
interests. Due to the immateriality of this acquisition to the Company's
consolidated financial position and results of operations, Telo has been
included in the Company's consolidated results of operations as of the beginning
of fiscal 1999 (October 1, 1998), but amounts presented for periods prior to
fiscal 1999 have not been restated to include Telo's historical results of
operations.
During the quarter ending January 2, 1999, the Company also completed three
other smaller acquisitions. These transactions involved the purchase of either
stock or assets in exchange for cash and were accounted for as purchase
transactions. Pro forma statements of operations reflecting these acquisitions
are not shown, as they would not differ materially from reported results.
6
<PAGE> 7
SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 -- 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.
NOTE 4 -- INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or
market, consist of:
<TABLE>
<CAPTION>
JANUARY 2, SEPTEMBER 30,
1999 1998
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials..................................... $ 59,865 $54,976
Work-in-process................................... 30,317 29,472
Finished goods.................................... 12,669 14,787
-------- -------
$102,851 $99,235
======== =======
</TABLE>
NOTE 5 -- EARNINGS PER SHARE
Basic EPS was computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the first three
months of fiscal 1999 and 1998. Diluted EPS for the first three months of 1999
and 1998 includes dilutive common stock equivalents, using the treasury stock
method, and assumes that the convertible debt instruments were converted into
common stock, if dilutive. A reconciliation of the net income (loss) and
weighted average number of shares used for the diluted earnings per share
computations for the first three months of fiscal 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JANUARY 2, DECEMBER 27,
1999 1997
---------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income (loss).................................... $(1,392) $15,675
Add back after-tax interest expense for convertible
subordinated debt.................................. 0 807
------- -------
Income for calculating earnings per share............ $(1,392) $16,482
======= =======
Weighted average number of share outstanding during
the period......................................... 56,480 48,238
Applicable number of shares for stock options
outstanding for the period......................... 0 3,180
Weighted average number of shares if convertible
subordinated debt were converted................... 0 6,119
------- -------
Weighted average number of shares.......... 56,480 57,537
Diluted earnings per share........................... $ (0.02) $ 0.29
======= =======
</TABLE>
NOTE 6 -- COMMITMENTS
In November 1998, the Company entered into an operating lease agreement for
a new corporate headquarters and new facilities for its principal Northern
California assembly facilities. This campus facility, which comprises
approximately 330,000 square feet, is located in San Jose, California. A
condition of this operating lease is that the Company pledges $52.9 million to
the administrative agent until the end of the lease's initial term. The Company
has classified this amount as a long term investment in the accompanying
consolidated balance sheets.
7
<PAGE> 8
SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 -- DERIVATIVES AND HEDGING
In June 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 requires certain accounting and reporting
standards for derivative instruments and hedging activities. Because the Company
does not engage in derivative or hedging activities, the impact of adopting this
standard is considered immaterial.
NOTE 8 -- WRITE DOWN OF LONG-LIVED ASSETS
The Company continually evaluates whether long-lived assets have been
impaired in value. This process includes evaluating whether projected results of
operations of acquired businesses would support the carrying value of related
assets including the future amortization of the remaining unamortized balance of
goodwill. In the first quarter of fiscal 1999, such evaluation with respect to
the acquisition of Pragmatech, Incorporated ("Pragmatech"), indicated the fair
value of assets related to Pragmatech were less than the carrying value of the
Pragmatech assets. Accordingly, in the first quarter of fiscal 1999, the Company
has written down the remaining $11.4 million in unamortized goodwill arising
from the acquisition. The fair value of Pragmatech was based on estimated future
cash flows to be generated from those assets based on reasonable and supportable
assumptions. Financial projections prepared at the time of the acquisition of
Pragmatech reflected the Company's belief that the Company would continue to
provide electronics manufacturing services to existing Pragmatech customers and
would grow the Pragmatech business at Pragmatech's existing facilities. However,
the existing Pragmatech customer relationships could not be restructured to
conform to the Company's pricing and revenue models, and as a result, the
relationships with the former Pragmatech customers have terminated. In addition,
the Company has closed several of the former Pragmatech facilities. As a result
of these operational factors, the Company's analysis of projected revenues,
results of operations, and cash flows attributable to the few remaining
Pragmatech customers did not support the carrying value of Pragmatech assets,
including the unamortized goodwill.
NOTE 9 -- COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130") in fiscal 1999. SFAS 130 requires
companies to report a "comprehensive income" that includes unrealized gains and
losses and other items that have previously been excluded from net income (loss)
and reflected instead in stockholders' equity. A summary of comprehensive income
(loss) is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JANUARY 2, DECEMBER 27,
1999 1997
---------- ------------
<S> <C> <C>
Net income (loss).................................... $(1,392) $15,675
Other comprehensive income (loss):
Unrealized holding gain (losses) on
available-for-sale securities................... (75) (40)
Foreign currency translation....................... 14 (74)
------- -------
Comprehensive income (loss).......................... $(1,453) $15,561
======= =======
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Sanmina Corporation ("Sanmina" or the "Company") is a leading independent
provider of customized integrated electronics manufacturing services ("EMS"),
including turnkey electronic assembly and manufacturing management services, to
original equipment manufacturers ("OEM's") in the electronics industry.
Sanmina's electronics manufacturing services consist primarily of the
manufacture of complex printed circuit board assemblies using surface mount
("SMT") and pin through-hole ("PTH") interconnection technologies, the
manufacture of custom designed backplane assemblies, fabrication of complex
multi-layer printed circuit boards, and testing and assembly of completed
systems. In addition to assembly, turnkey manufacturing management also involves
procurement and materials management, as well as consultation on printed circuit
board design and manufacturability. Sanmina, through its Sanmina Cable Systems
("SCS") subsidiary (formerly known as "Golden Eagle Systems"), also manufactures
custom cable assemblies for electronics industry OEMs. In addition, the Company
operates a metal stamping and plating business.
Sanmina's assembly plants are located in Northern California, Richardson
and Plano, Texas, Manchester, New Hampshire, Durham, North Carolina,
Guntersville, Alabama, and Dublin, Ireland. Sanmina's printed circuit board
fabrication facilities are located in Northern California, Southern California,
Nashua, New Hampshire, and Peterborough, England. SCS's manufacturing facility
is located in Carrollton, Texas. In addition, as a result of Sanmina's recent
merger with Altron Inc. ("Altron"), Sanmina has added new fabrication and
assembly plants in the Boston Massachusetts area, Northern California, and
Richardson, Texas.
Sanmina's results of operations have varied and may continue to fluctuate
significantly from period to period, including on a quarterly basis. Sanmina's
operating results are affected by a number of factors, including timing of
orders from major customers, mix of products ordered by and shipped to major
customers, the volume of orders as related to the Company's capacity, ability to
effectively manage inventory and fixed assets, timing of expenditures in
anticipation of future sales and the economic conditions in the electronics
industry. Operating results can also be significantly influenced by development
and introduction of new products by the Company's customers. From time to time,
the Company experiences changes in the volume of sales to each of its principal
customers, and operating results may be affected on a period-to-period basis by
these changes. The Company's customers generally require short delivery cycles,
and a substantial portion of the Company's backlog is typically scheduled for
delivery within 120 days. Quarterly sales and operating results, therefore,
depend in large part on the volume and timing of bookings received during the
quarter, which are difficult to forecast. The Company's backlog also affects its
ability to plan production and inventory levels, which could lead to
fluctuations in operating results. In addition, a significant portion of the
Company's operating expenses is relatively fixed in nature and planned
expenditures are based in part on anticipated orders. Any inability to adjust
spending quickly enough to compensate for any revenue shortfall may magnify the
adverse impact of such revenue shortfall on the Company's results of operations.
Results of operations in any period should not be considered indicative of the
results to be expected for any future period, and fluctuations in operating
results may also result in fluctuations in the price of the Company's common
stock.
Sanmina's customers are manufacturers in the telecommunications, networking
(data communications), industrial and medical instrumentation and computer
systems segments of the electronics industry. These industry segments, and the
electronics industry as a whole, are subject to rapid technological change and
product obsolescence. Discontinuance or modification of products being
manufactured by the Company could adversely affect the Company's results of
operations. The electronics industry is also subject to economic cycles and has
in the past experienced, and is likely in the future to experience, recessionary
periods. A general recession in the electronics industry could have a material
adverse effect on Sanmina's business, financial condition and results of
operations. In addition, the Company has no firm long-term volume commitments
from its customers and over the last few years has experienced reduced lead-time
in customer orders. In addition, customer orders can be canceled and volume
levels can be changed or delayed. The timely replacement of canceled, delayed or
reduced orders with new business cannot be assured. There can be no assurance
that any of the Company's current customers will continue to use the Company's
manufacturing
9
<PAGE> 10
services. The loss of one or more of the Company's principal customers, or
reductions in sales to any of such customers, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Sanmina has pursued, and intends to continue to pursue, business
acquisition opportunities, particularly when these opportunities have the
potential to enable Sanmina to increase its net sales while maintaining
operating margin, access new geographic markets, implement Sanmina's vertical
integration strategy and/or obtain facilities and equipment on terms more
favorable than those generally available in the market. Acquisitions of
companies and businesses and expansion of operations involves certain risks,
including (i) the potential inability to successfully integrate acquired
operations and businesses or to realize anticipated synergies, economies of
scale or other value, (ii) diversion of management's attention, (iii)
difficulties in scaling up productions at new sites and coordinating management
of operations at new sites and (iv) loss of key employees of acquired
operations. No assurance can be given that the Company will not incur problems
with integrating acquired operations, and there can be no assurance that the
Company's recent acquisitions, or any future acquisition will result in a
positive contribution to the Company's results of operations. Furthermore, there
can be no assurance that the Company will realize value from any such
acquisition which equals or exceeds the consideration paid. In addition, there
can be no assurance that the Company will realize anticipated strategic and
other benefits from expansion of existing operations to new sites. Any such
problems could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, future acquisitions
may result in dilutive issuances of equity securities, the incurrence of
additional debt, large one-time write-offs and the creation of goodwill or other
intangible assets that could result in amortization expense.
Sanmina is subject to risks related to Year 2000 problems. Many currently
installed computer systems and software products are coded to accept only two
digit entries in the date code field. As the Year 2000 approaches, these code
fields will need to accept four digit entries to distinguish years beginning
with "19" from those beginning with "20." As a result, in less than one year,
computer systems and/or software products used by many companies may need to be
upgraded to comply with such Year 2000 requirements. Sanmina is currently
expending resources to review its products and services, as well as its internal
use software, in order to identify and modify those products, services and
systems that are not Year 2000 compliant. Additionally, Sanmina is in the
process of evaluating the need for contingency plans with respect to Year 2000
requirements. The necessity of any contingency plan must be evaluated on a
case-by-case basis and will vary considerably in nature depending on the Year
2000 issue it may need to address. There can be no assurance however, that
Sanmina will be able to solve all potential Year 2000 issues. Sanmina's reliance
on its key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address Year 2000 issues could not have an
adverse effect on Sanmina. Sanmina has initiated formal communications with each
of its significant suppliers and customers to determine the extent to which
Sanmina is vulnerable to those third parties' failure to remediate their own
Year 2000 issues. Sanmina is requesting that third party vendors represent their
products and services to be Year 2000 compliant and that they have a program to
test for Year 2000 compliance. However, the response of those third parties is
beyond Sanmina's control. To the extent that Sanmina does not receive adequate
responses by February 28, 1999, it is prepared to develop contingency plans,
with completion of these plans scheduled for no later than March 31, 1999. At
this time, Sanmina cannot estimate the additional cost, if any, that might
develop from such contingency plans. Breakdowns in Sanmina's computer systems
and applications, such as its manufacturing application software, its bar-coding
systems, and the computer chips embedded in its plant equipment, as well as
other Year 2000-related problems such as disruptions in the delivery of
materials, power, heat or water to Sanmina's facilities, could prevent Sanmina
from being able to manufacture and ship its products. Sanmina plans to replace
or upgrade or otherwise work around any of its date driven systems that are not
Year 2000 compliant. Sanmina's Year 2000 Project Team intends to complete
compliance testing by June 30, 1999. If Sanmina fails to correct a material Year
2000 problem, its normal business activities and operations could be
interrupted. Such interruptions could materially and adversely affect Sanmina's
results of operations, liquidity and financial condition. To date, Year 2000
costs are not considered by Sanmina to be material to its financial condition.
Sanmina currently
10
<PAGE> 11
estimates that, in order to complete Year 2000 compliance, Sanmina will be
required to incur expenditures of approximately $1.1 million.
This report contains forward-looking statements within the meaning of
Section 72A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's future results from operations could vary
significantly from these contemplated by such forward-looking statements as a
result of the factors described herein. The financial and other information
contained herein should be read in conjunction with the Company's annual report
on Form 10-K for the fiscal year ended September 30, 1998.
RESULTS OF OPERATIONS
In November 1998, the Company completed its merger with Altron in a
transaction that was accounted for as a pooling of interests. Accordingly,
results for the first quarter of fiscal 1998 have been restated to combine the
results of operations of both Sanmina and Altron.
The following table sets forth, for the three months ended January 2, 1999
and December 27, 1997, certain items as a percentage of net sales. The table and
the discussion below should be read in connection with the condensed
consolidated financial statements and the notes thereto, which appear elsewhere
in this report.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
JANUARY 2, DECEMBER 27,
1999 1997
--------------- -----------------
<S> <C> <C>
Net sales..................................... 100.0% 100.0%
Cost of sales................................. 80.8 78.6
Gross Profit................................ 19.2 21.4
Selling, general and administrative........... 7.2 6.9
Amortization of goodwill...................... 0.3 .3
Provision for plant closing and relocation.... 6.5 0.0
Write down of long lived assets............... 4.3 0.0
Merger costs.................................. 2.1 1.9
Operating income (loss)..................... (1.2) 12.3
Other income (expense), net................... 0.7 (0.1)
Income (loss)before income taxes............ (0.5) 12.2
Provision for income taxes.................... 0.0 4.6
Net income (loss)............................. (0.5) 7.6
</TABLE>
Sales for the first quarter of fiscal 1999 ended January 2, 1999 increased
by 26% to $260.2 million from $206.3 million in the corresponding quarter of the
prior year. The increase in net sales was due primarily to increased shipments
of EMS assemblies to both existing and new customers. The Company experienced
growth across the customer base and its four key target markets of
telecommunications, networking (data communications), industrial and medical
instrumentation and high speed computer systems. The overall increase in net
sales reflects the continuing trend toward outsourcing within the electronics
industry. For the first quarter of fiscal 1999, approximately 86% of the
Company's net sales represented value-added EMS assembly shipments with the
remaining portion consisting of printed circuit board fabrication shipments. For
fiscal 1998, EMS assembly revenues comprised 83% of Sanmina's revenues. The
increase in the percentage of revenues represented by EMS assembly revenues was
mainly due to the increased shipments of EMS assemblies to both existing and new
customers.
Gross margin decreased from 21.4% in the first quarter of fiscal 1998 to
19.2% in the first quarter of the current year. The decrease in gross margins
for the first quarter of fiscal 1999 was primarily attributable to one-time
charges recorded in the first quarter of fiscal 1999 related to the write down
of obsolete inventory and assets from acquired companies. Excluding these
one-time charges of $7.5 million, gross margins would have increased from 21.4%
in the first quarter of fiscal 1998 to 22.1% in the first quarter of the current
year. The increase is a result of normal changes in the mix of products shipped
to certain customers and normal changes
11
<PAGE> 12
in customer mix. Due to increased competition, product and customer mix, the
Company may experience decreases in gross margins.
In absolute dollars, operating expenses increased from $18.9 million in the
first quarter of fiscal 1998 to $53.2 million in the first quarter of fiscal
1998. As a percentage of sales, operating expenses increased from 9.2% in the
first quarter of 1998 to 20.5% in the first quarter of the current year. The
increase in operating expenses for the first quarter of fiscal 1999 was mainly
attributable to certain charges recorded in the first quarter of fiscal 1999.
These charges of $36.1 million related to plant closing and relocation costs,
write down of long lived assets, and merger costs. The first quarter of fiscal
1998 included a charge of $3.9 million for merger related costs associated with
the acquisition of Elexsys International, Inc. Operating margins decreased from
12.3% in the first quarter of 1998 to (1.2%) in the first quarter of the current
year. The decrease in operating margins is due to the charges, discussed above,
recorded in the first quarter of fiscal 1999. Excluding these charges, operating
margins would have increased from 14.1% in the first quarter of fiscal 1998 to
15.5% in the first quarter of the current year. The increase was primarily
attributable to the Company's ability to grow revenues at a faster rate than
operating expenses.
The operating margins reflect the Company's strategy of seeking to grow
revenues while maintaining operating margins at relatively constant levels. The
dollar increase in selling and general and administrative expenses was primarily
the result of increased expenditures to support higher sales volume. The Company
anticipates that operating expenses will increase in absolute dollars during the
next few quarters due to projected additions to the sales force and other
administrative expenditures to support higher sales volume. However, operating
expenses as a percentage of sales are anticipated to remain relatively constant
or decrease depending upon sales volume and the Company's ability to achieve
expected operating efficiencies as a result of the integration of the merged
Altron operations.
For the first quarter of fiscal 1999, the Company reported net other income
of $1.9 million compared to net other expense of $158,000 for the corresponding
quarter of last year. In the first quarter of fiscal 1998, the Company paid
approximately $12.8 million of outstanding Elexsys debt. In addition, in August
1998, $86.3 million of outstanding convertible subordinated notes, issued by the
Company in August 1995, were converted into Common Stock as a result of a
redemption call for such notes issued by the Company. The decrease in
outstanding debt resulted in the reduction in interest expense for the first
three months of fiscal 1999.
As there was a net loss for the three months ended January 2, 1999, the
Company did not record an income tax benefit. The Company's provision for income
taxes for the three month period ended December 27, 1997 was based upon the
Company's estimate of the effective tax rate for fiscal 1998 of 36.5%.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments as of January 2, 1999
were $129.8 million as compared to $181.5 million at September 30, 1998. The
decrease was mainly attributable to a long-term cash deposit made in connection
with the Company's operating lease for its new campus facility. For the three
months ending January 2, 1999, cash generated from operations was $15.4 million
compared to $34.2 million for the same period of fiscal 1998. The decrease
between years primarily relates to the one-time charges, approximately $43.6
million, recorded in the first quarter of fiscal 1999. Working capital decreased
to $267.8 million as of January 2, 1999 compared to $294.0 million at September
30, 1998. This was mainly due to the use of cash for the long-term deposit.
Net cash used for investing activities for the first three months of fiscal
1999 primarily related to the purchase of short-term and long-term investments
and equipment for which the Company paid a total of approximately $38.2 million
in cash. Additionally, in the first quarter of fiscal 1999, the Company paid
approximately $10.1 million in cash for acquisitions.
Net cash provided for financing activities for the first three months of
fiscal year 1999 related to the proceeds from sale of common stock. The proceeds
were slightly offset by $1.5 million paid for other long-term liabilities.
12
<PAGE> 13
The Company has entered into an operating lease agreement for new
facilities in San Jose, California, where it will establish its corporate
headquarters and certain of its assembly operations. In connection with these
transactions, the Company pledged $52.9 million of its cash and investments as
collateral for certain obligations of the leases.
The Company anticipates that its working capital requirements will increase
in order to support anticipated volumes of business. Additionally, the Company
expects to make additional capital expenditures relating to facility and
equipment enhancements as well as information systems upgrades in existing
facilities. Future liquidity needs will be dependent upon, among other factors,
the extent of capital investments made by the Company in plant and equipment,
working capital needs of acquired businesses, levels of shipments by the Company
and changes in volumes of business and other factors. The Company believes that
its existing cash resources, together with cash generated from operations, will
be sufficient to meet the Company's liquidity and working capital requirements
through at least the end of the current fiscal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. Currently, the Company does not
use derivative financial instruments in its investment portfolio. The Company
invests in high credit quality issuers and, by policy, limits the amount of
principal exposure to any one issuer. As stated in the Company's policy, the
Company seeks to ensure the safety and preservation of its invested principal
funds by limiting default and market risk.
The Company seeks to mitigate default risk by investing in high-credit
quality securities and by positioning its investment portfolio to respond to a
significant reduction in a credit rating of any investment issuer, guarantor or
depository. The Company seeks to mitigate market risk by limiting the principal
and investment term of funds held with any one issuer and by investing funds in
marketable securities with active secondary or resale markets.
The table below presents carrying amounts and related average interest
rates by year of maturity for the Company's investment portfolio as of January
2, 1999 (in thousands):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
------ ------ ----- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH EQUIVALENTS, SHORT-TERM, AND
LONG-TERM INVESTMENTS
Fixed-rate investments............ 43,560 14,250 2,300 0 39 4,958 65,107
Variable-rate investments......... 22,964 0 0 0 0 0 22,964
Average interest rate............. 5.1% 5.9% 5.5% 0.0% 5.5% 5.8% 5.3%
</TABLE>
Foreign Currency Exchange Risk
The Company transacts business in foreign countries. The Company's primary
foreign currency cash flows are in certain European countries. Currently, the
Company does not employ a foreign currency hedge program with respect to
transactions and expenditures originating in these or any other foreign
countries. The Company believes that its foreign currency exchange risk is
immaterial.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
On December 14, 1998, the Company filed a report on Form 8-K relating to
the acquisition of Altron.
On February 10, 1999, the Company filed a report on Form 8-K/A relating to
the acquisition of Altron.
14
<PAGE> 15
SIGNATURE
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sanmina Corporation
(Registrant)
Date: February 10, 1999
By: /s/ RANDY W. FURR
------------------------------------
Randy W. Furr
President and Chief Operating
Officer
By: /s/ BERNARD J. WHITNEY
------------------------------------
Bernard J. Whitney
Executive Vice President and
Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
- - ------- -------------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JAN-02-1999
<CASH> 61,303
<SECURITIES> 68,464
<RECEIVABLES> 151,014
<ALLOWANCES> 7,605
<INVENTORY> 102,851
<CURRENT-ASSETS> 416,527
<PP&E> 337,177
<DEPRECIATION> 168,442
<TOTAL-ASSETS> 650,385
<CURRENT-LIABILITIES> 148,709
<BONDS> 25,003
0
0
<COMMON> 567
<OTHER-SE> 476,106
<TOTAL-LIABILITY-AND-EQUITY> 650,385
<SALES> 260,239
<TOTAL-REVENUES> 260,239
<CGS> 210,293
<TOTAL-COSTS> 210,293
<OTHER-EXPENSES> 53,223
<LOSS-PROVISION> 1,607
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> (1,392)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,392)<F1>
<EPS-PRIMARY> (0.02)<F2>
<EPS-DILUTED> (0.02)<F3>
<FN>
<F1>Interest expense is net of interest income, the net amount is interest income
<F2>EPS is reported as "Basic EPS" as prescribed by SFAS "128."
<F3>EPS is reported as "Diluted EPS" as prescribed by SFAS "128."
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-27-1997
<CASH> 59,617
<SECURITIES> 99,559
<RECEIVABLES> 103,658
<ALLOWANCES> 3,600
<INVENTORY> 92,025
<CURRENT-ASSETS> 372,518
<PP&E> 287,305
<DEPRECIATION> 132,829
<TOTAL-ASSETS> 539,115
<CURRENT-LIABILITIES> 120,718
<BONDS> 118,226
0
0
<COMMON> 485
<OTHER-SE> 299,686
<TOTAL-LIABILITY-AND-EQUITY> 539,115
<SALES> 206,266
<TOTAL-REVENUES> 206,266
<CGS> 162,176
<TOTAL-COSTS> 162,176
<OTHER-EXPENSES> 18,876
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> (158)<F1>
<INCOME-PRETAX> 25,056
<INCOME-TAX> 9,381
<INCOME-CONTINUING> 15,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,675
<EPS-PRIMARY> 0.32<F2>
<EPS-DILUTED> 0.29<F3>
<FN>
<F1>Interest expense is net of interest income, the net amount is
interest expense.
<F2>EPS is reported as "Basic EPS" as prescribed by SFAS "128."
<F3>EPS is reported as "Diluted EPS" as prescribed by SFAS "128."
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-28-1998
<CASH> 43,815
<SECURITIES> 100,492
<RECEIVABLES> 117,938
<ALLOWANCES> 4,558
<INVENTORY> 110,999
<CURRENT-ASSETS> 389,593
<PP&E> 317,762
<DEPRECIATION> 143,736
<TOTAL-ASSETS> 588,149
<CURRENT-LIABILITIES> 148,176
<BONDS> 116,788
0
0
<COMMON> 488
<OTHER-SE> 322,697
<TOTAL-LIABILITY-AND-EQUITY> 588,149
<SALES> 428,980
<TOTAL-REVENUES> 428,980
<CGS> 337,350
<TOTAL-COSTS> 337,350
<OTHER-EXPENSES> 34,402
<LOSS-PROVISION> 205
<INTEREST-EXPENSE> 271<F1>
<INCOME-PRETAX> 57,499
<INCOME-TAX> 21,379
<INCOME-CONTINUING> 36,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,120
<EPS-PRIMARY> 0.75<F2>
<EPS-DILUTED> 0.66<F3>
<FN>
<F1>Interest expense is net of interest income, the net amount is
interest income.
<F2>EPS is reported as "Basic EPS" as prescribed by SFAS "128."
<F3>EPS is reported as "Diluted EPS" as prescribed by SFAS "128."
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-27-1998
<CASH> 38,301
<SECURITIES> 124,429
<RECEIVABLES> 121,125
<ALLOWANCES> 5,278
<INVENTORY> 104,145
<CURRENT-ASSETS> 404,238
<PP&E> 345,670
<DEPRECIATION> 164,491
<TOTAL-ASSETS> 607,390
<CURRENT-LIABILITIES> 139,589
<BONDS> 115,526
0
0
<COMMON> 493
<OTHER-SE> 351,782
<TOTAL-LIABILITY-AND-EQUITY> 607,390
<SALES> 677,783
<TOTAL-REVENUES> 677,783
<CGS> 532,751
<TOTAL-COSTS> 532,751
<OTHER-EXPENSES> 51,339
<LOSS-PROVISION> 1,216
<INTEREST-EXPENSE> 237<F1>
<INCOME-PRETAX> 93,930
<INCOME-TAX> 34,827
<INCOME-CONTINUING> 59,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,103
<EPS-PRIMARY> 1.22<F2>
<EPS-DILUTED> 1.07<F3>
<FN>
<F1>Interest expense is net of interest income, the net amount is
interest income.
<F2>EPS is reported as "Basic EPS" as prescribed by SFAS "128."
<F3>EPS is reported as "Diluted EPS" as prescribed by SFAS "128."
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 87,971
<SECURITIES> 93,526
<RECEIVABLES> 123,398
<ALLOWANCES> 5,469
<INVENTORY> 99,235
<CURRENT-ASSETS> 431,716
<PP&E> 339,018
<DEPRECIATION> 158,441
<TOTAL-ASSETS> 632,642
<CURRENT-LIABILITIES> 137,752
<BONDS> 22,615
0
0
<COMMON> 555
<OTHER-SE> 471,720
<TOTAL-LIABILITY-AND-EQUITY> 632,642
<SALES> 923,788
<TOTAL-REVENUES> 923,788
<CGS> 726,981
<TOTAL-COSTS> 726,981
<OTHER-EXPENSES> 68,217
<LOSS-PROVISION> 2,094
<INTEREST-EXPENSE> 374<F1>
<INCOME-PRETAX> 128,964
<INCOME-TAX> 47,725
<INCOME-CONTINUING> 81,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,239
<EPS-PRIMARY> 1.64<F2>
<EPS-DILUTED> 1.47<F3>
<FN>
<F1>Interest expense is net of interest income, the net amount is
interest income.
<F2>EPS is reported as "Basic EPS" as prescribed by SFAS "128."
<F3>EPS is reported as "Diluted EPS" as prescribed by SFAS "128."
</FN>
</TABLE>
