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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
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(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
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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.
EXPLANATORY NOTE:
This Form 10-Q/A is being filed to include restated financial statements
and information to reflect Sanmina Corporation's mergers with Altron,
Incorporated in November 1998 and Manu-Tronics, Inc. in March 1999. Both mergers
were accounted for using the pooling of interests method.
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SANMINA CORPORATION
INDEX
<TABLE>
<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
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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................................................... $275,533 $220,671
Cost of sales............................................... 223,249 174,641
-------- --------
Gross profit.............................................. 52,284 46,030
-------- --------
Operating expenses
Selling, general and administrative....................... 20,079 15,558
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.......................... 54,584 20,139
-------- --------
Operating income (loss)..................................... (2,300) 25,891
Other income (expense), net................................. 1,738 (244)
-------- --------
Income (loss) before provision for income taxes............. (562) 25,647
Provision for income taxes.................................. -- 9,381
-------- --------
Net income (loss)........................................... $ (562) $ 16,266
======== ========
Earnings (loss) per share:
Basic..................................................... $ (0.01) $ 0.33
Diluted................................................... $ (0.01) $ 0.29
Shares used in computing per share amounts:
Basic..................................................... 57,380 49,138
Diluted................................................... 57,380 58,437
</TABLE>
See accompanying notes.
3
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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................................. $ 61,304 $ 87,978
Short-term investments.................................... 68,464 93,526
Accounts receivable, net.................................. 159,681 133,010
Inventories............................................... 109,059 102,940
Deferred income taxes..................................... 19,662 19,389
Prepaid expenses and other................................ 13,305 8,220
-------- --------
Total current assets.............................. 431,475 445,063
-------- --------
Property, plant and equipment, net.......................... 180,049 191,762
Long-term investments....................................... 52,850 --
Deposits and other.......................................... 13,466 21,542
-------- --------
$677,840 $658,367
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 95,297 $ 89,030
Accrued liabilities....................................... 57,077 44,179
Income taxes payable...................................... 4,949 11,517
-------- --------
Total current liabilities......................... 157,323 144,726
-------- --------
Long-term liabilities:
Convertible subordinated notes............................ 5,657 5,767
Other liabilities......................................... 27,647 25,889
-------- --------
Total long-term liabilities....................... 33,304 31,656
-------- --------
Stockholders' equity:
Common stock.............................................. 576 564
Additional paid-in capital................................ 243,663 238,656
Accumulated other comprehensive income.................... 325 386
Retained earnings......................................... 242,649 242,379
-------- --------
Total stockholders' equity........................ 487,213 481,985
-------- --------
$677,840 $658,367
======== ========
</TABLE>
See accompanying notes.
4
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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)......................................... $ (562) $ 16,266
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Adjustment to conform year end of pooled entities...... -- (1,332)
Depreciation, amortization and other................... 11,638 7,758
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.................................. (27,013) 2,194
Inventories.......................................... (838) (6,514)
Prepaid expenses, deposits and other................. 1,793 1,054
Accounts payable and accrued liabilities............. 2,701 3,770
Income tax accounts.................................. (5,891) 7,892
-------- --------
Cash provided by operating activities............. 16,914 35,033
-------- --------
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........................................... (11,331) (13,679)
Cash paid for businesses acquired, net.................... (10,051) --
-------- --------
Cash used for investing activities................ (48,957) (14,341)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit................................ -- (5,129)
Payments of long-term liabilities......................... (2,263) (9,147)
Proceeds from sale of common stock, net of taxes.......... 4,140 (1,061)
-------- --------
Cash provided by (used for) financing activities..... 1,877 (15,337)
-------- --------
Increase (decrease) in cash and cash equivalents............ (30,166) 5,355
Cash and cash equivalents at beginning of period............ 91,470 54,278
-------- --------
Cash and cash equivalents at end of period.................. $ 61,304 $ 59,633
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 286 $ 560
Income Taxes.............................................. $ 5,113 $ 1,544
</TABLE>
See accompanying notes.
5
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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/A.
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 merged with Altron, Incorporated ("Altron").
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. In March 1999, Sanmina
merged with Manu-Tronics. Both of these transactions were accounted for as
poolings of interests. As a result of these pooling transactions, Sanmina has
restated its historical results of operations to combine the results of
operations of Altron and Manu-Tronics. The financial information presented gives
effect to such restatement. 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
Manu-Tronics............................................ 14,405
--------
Combined........................................ $220,671
========
Net Income:
Sanmina................................................. $ 12,508
Altron.................................................. 3,167
Manu-Tronics............................................ 591
--------
Combined $ 16,266
========
</TABLE>
On December 28, 1998, the Company merged with 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. 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.
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
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......................................... $ 63,845 $ 57,641
Work-in-process....................................... 32,223 30,222
Finished goods........................................ 12,991 15,077
-------- --------
$109,059 $102,940
======== ========
</TABLE>
NOTE 5 -- EARNINGS PER SHARE ("EPS")
Basic EPS was computed by dividing net income 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 fiscal 1998
includes dilutive common stock equivalents, using the treasury stock method, and
assumes that the convertible debt instruments were converted into common stock.
A similar computation was not made for the first quarter of fiscal 1999 because
the result would be anti-dilutive. A reconciliation of the net income and
weighted average number of shares used for the diluted earnings per share
computations for the first three months of fiscal 1998 is as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS,
EXCEPT
PER SHARE
AMOUNTS)
----------
<S> <C>
Net income.................................................. $16,266
Add back after-tax interest expense for convertible
subordinated debt......................................... 807
-------
Income for calculating earnings per share................... $17,073
=======
Weighted average number of shares outstanding during the
period.................................................... 49,138
Applicable number of shares for stock options outstanding
for the period............................................ 3,180
Weighted average number of shares if convertible
subordinated debt were converted.......................... 6,119
-------
Weighted average number of shares......................... 58,437
=======
Diluted earnings per share.................................. $ 0.29
=======
</TABLE>
7
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 operations. 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.
NOTE 7 -- 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 of unamortized goodwill related to
the Pragmatech acquisition. The fair value of Pragmatech was based on the
estimated future cash flows to be generated from the 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 8 -- 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)...................................... $(562) $16,266
Other comprehensive income (loss):
Unrealized holding gain (losses) on
available-for-sale securities..................... (75) (40)
Foreign currency translation...................... 14 (74)
----- -------
Comprehensive income (loss)............................ $(623) $16,152
===== =======
</TABLE>
8
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SANMINA CORPORATION
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,
and Nashua, New Hampshire. SCS's manufacturing facility is located in
Carrollton, Texas. As a result of Sanmina's merger with Altron Inc. ("Altron"),
Sanmina has added new fabrication and assembly plants in the Boston
Massachusetts area, Northern California, and Richardson, Texas. In addition, as
a result of Sanmina's recent acquisition of Telo Electronics Incorporated and
Manu-Tronics, inc. ("Manu-Tronics"), Sanmina has added new assembly plants in
San Jose and in Kenosha, Wisconsin.
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 high-speed
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
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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 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 unable to distinguish years
beginning with "19" from those beginning with "20." As a result, 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. In particular, in the event a product manufactured by Sanmina
contained Year 2000 problems attributable to a design or product development
flaw, it is likely that sales of such product would be adversely affected, which
would adversely affect Sanmina's manufacturing services revenues attributable to
such product. Such a situation could have a material adverse effect on Sanmina's
business, financial condition and results of operations.
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 May 30, 1999 it is prepared to develop contingency plans, with
completion of these plans scheduled for no later than June 30, 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
10
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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 will have compliance solutions or work arounds planned by January
31, 1999, and 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 estimates that, in
order to complete Year 2000 compliance, Sanmina will be required to incur
expenditures of approximately $1.7 million. Through January 2, 1999,
approximately $600,000 of this amount has been expended.
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. In March 1999,
Sanmina completed its merger with Manu-Tronics 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, Altron and Manu-Tronics.
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
------------------
1/2/99 12/27/97
------ --------
<S> <C> <C>
Net sales................................................. 100.0% 100.0%
Cost of sales............................................. 81.0 79.1
Gross Profit............................................ 19.0 20.9
Selling, general and administrative....................... 7.3 7.1
Amortization of goodwill.................................. 0.3 .3
Provision for plant closing and relocation................ 6.1 0.0
Write down of long lived assets........................... 4.1 0.0
Merger costs.............................................. 2.0 1.8
Operating income (loss)................................. (0.8) 11.7
Other income (expense), net............................... 0.6 (0.1)
Income (loss)before income taxes........................ (0.2) 11.6
Provision for income taxes................................ 0.0 4.2
Net income (loss)......................................... (0.2)% 7.4%
</TABLE>
Sales for the first quarter of fiscal 1999 ended January 2, 1999 increased
by 25% to $275.5 million from $220.7 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 87% 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 84% of Sanmina's revenues. The
increase in the percentage of
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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 20.9% in the first quarter of fiscal 1998 to
19.0% in the first quarter of the current year. The decrease in gross margins
for the first quarter of fiscal 1999 was primarily attributable to charges
recorded in the first quarter of fiscal 1999 related to the write down of
obsolete inventory and assets from acquired companies. Excluding these charges
of $7.5 million, gross margins would have increased from 20.9% in the first
quarter of fiscal 1998 to 21.7% 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 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 $20.1 million in the
first quarter of fiscal 1998 to $54.6 million in the first quarter of fiscal
1999. As a percentage of sales, operating expenses increased from 9.2% in the
first quarter of 1998 to 19.8% 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, merger and other 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 11.7% in the first quarter of 1998 to (.8%) 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 13.5% in the first quarter
of fiscal 1998 to 15.0% 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 $1.7 million compared to net other expense of $244,000 for the corresponding
quarter of last year. In the first quarter of fiscal 1998, the Company repaid
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 provision. 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 $52.9 million 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
$16.9 million compared to $36.4 million for the same period of fiscal 1998. The
decrease between years primarily relates to certain charges, approximately $43.6
million, recorded in the first quarter of fiscal 1999. Working capital decreased
to $274.2 million as of January 2, 1999 compared to $300.3 million at September
30, 1998. This was mainly due to the use of cash for the long-term deposit.
12
<PAGE> 13
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 $38.9 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 by financing activities for the first three months of
fiscal year 1999 related to the proceeds from sale of common stock. The proceeds
were offset by $2.3 million paid for other long-term liabilities.
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.
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
SANMINA CORPORATION
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
------- -----------
<C> <S>
27.1 Financial Data Schedule for three month period ended January
2, 1999
27.2 Financial Data Schedule for three month period ended
December 27, 1997
</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.
14
<PAGE> 15
SANMINA CORPORATION
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: May 3, 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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule for the three month period ended
January 2, 1999.
27.2 Financial Data Schedule for the three month period ended
December 27, 1997.
</TABLE>
<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> 159,681
<ALLOWANCES> 7,930
<INVENTORY> 109,059
<CURRENT-ASSETS> 431,475
<PP&E> 354,748
<DEPRECIATION> 174,699
<TOTAL-ASSETS> 677,840
<CURRENT-LIABILITIES> 157,323
<BONDS> 33,304
0
0
<COMMON> 566
<OTHER-SE> 486,637
<TOTAL-LIABILITY-AND-EQUITY> 677,840
<SALES> 275,533
<TOTAL-REVENUES> 275,533
<CGS> 223,249
<TOTAL-COSTS> 223,249
<OTHER-EXPENSES> 54,584
<LOSS-PROVISION> 1,607
<INTEREST-EXPENSE> 1,738
<INCOME-PRETAX> (562)
<INCOME-TAX> 0
<INCOME-CONTINUING> (562)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562)<F1>
<EPS-PRIMARY> (0.01)<F2>
<EPS-DILUTED> (0.01)<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>
<CIK> 0000897723
<NAME> SANMINA CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-27-1997
<EXCHANGE-RATE> 1
<CASH> 59,633
<SECURITIES> 99,559
<RECEIVABLES> 110,851
<ALLOWANCES> 5,500
<INVENTORY> 99,510
<CURRENT-ASSETS> 387,241
<PP&E> 163,025<F4>
<DEPRECIATION> 0
<TOTAL-ASSETS> 563,090
<CURRENT-LIABILITIES> 132,244
<BONDS> 121,188
0
0
<COMMON> 494
<OTHER-SE> 309,164
<TOTAL-LIABILITY-AND-EQUITY> 563,090
<SALES> 220,671
<TOTAL-REVENUES> 220,671
<CGS> 174,641
<TOTAL-COSTS> 174,641
<OTHER-EXPENSES> 20,139
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> (244)<F1>
<INCOME-PRETAX> 25,647
<INCOME-TAX> 9,381
<INCOME-CONTINUING> 16,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,266
<EPS-PRIMARY> 0.33<F2>
<EPS-DILUTED> 0.29<F3>
<FN>
<F4>PROPERTY, PLANT AND EQUIPMENT IS SHOWN NET OF ACCUMULATED DEPRECIATION.
<F1>INTEREST EXPENSE IS NET OF INTEREST INCOME, THE POSITIVE AMOUNT IS INCOME AND
THE NEGATIVE 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>
