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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
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)
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<S> <C>
DELAWARE 77-0228183
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
355 EAST TRIMBLE ROAD, SAN JOSE, CA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosures of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate value of voting stock held by non-affiliates of the
Registrant was approximately $1,385,072,000 as of September 30, 1998, based upon
the average of the high and low prices of the Registrant's Common Stock reported
for such date on the Nasdaq National Market. Shares of Common Stock held by each
executive officer and director and by each person who owns 10% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of September 30, 1998, the
Registrant had outstanding 48,265,295 shares of Common Stock.
EXPLANATORY NOTE:
This Form 10-K/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. For ease of reference,
the entire report has been filed herewith; however, the only changes which have
been made are those which are necessary in connection with presentation of the
restated financial information. In addition, as indicated on the Exhibit list,
certain exhibits filed with the Registrant's original report on Form 10-K have
not been refiled.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Sanmina is a leading independent provider of customized integrated
electronic manufacturing services ("EMS"), including turnkey electronic assembly
and manufacturing management services, to original equipment manufacturers
("OEMs") 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 plane
assemblies, fabrication of complex multi-layered 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 manufacturing. Sanmina,
through its Sanmina Cable Systems ("SCS") subsidiary (formerly known as Golden
Eagle Systems), also manufactures custom cable and wire harness assemblies for
electronic industry OEMs.
SMT and PTH printed circuit board assemblies are printed circuit boards on
which various electronic components, such as integrated circuits, capacitors,
microprocessors and resistors have been mounted. These assemblies are key
functional elements of many types of electronic products. Backplane assemblies
are large printed circuit boards on which connectors are mounted to interconnect
printed circuit boards, integrated circuits and other electronic components.
Interconnect products manufactured by Sanmina generally require greater
manufacturing expertise and have shorter delivery cycles than mass produced
interconnect products and therefore typically have higher profit margins.
Sanmina's customers include leading OEMs in the telecommunications,
networking (data communications), industrial and medical instrumentation and
high-speed computer systems sectors. Sanmina's assembly plants are located in
Northern California, Richardson, 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 November 1998 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 mergers with Telo Electronics
Incorporated ("Telo") and Manu-Tronics, Inc. ("Manu-Tronics"), Sanmina has added
new assembly plants in San Jose, California and Kenosha, Wisconsin.
Sanmina was formed in 1989 to acquire the printed circuit board and
backplane operations of its predecessor company, which has been in the printed
circuit board and backplane business since 1980. Sanmina's principal offices are
located at 355 East Trimble Road, San Jose, California 95131. Sanmina's
telephone number is (408) 954-5500.
Sanmina and the Sanmina logo are trademarks of the Company. Trademarks of
other corporations are also referred to in this report.
This Report on Form 10-K/A contains certain forward looking statements
regarding future events with respect to the Company. Actual events and/or future
results of operations may differ materially as a result of the factors described
herein and in the documents incorporated herein by reference, including, in
particular, those factors described under "Factors Affecting Operating Results."
INDUSTRY OVERVIEW
Sanmina is benefiting from increased market acceptance of the use of
manufacturing specialists in the electronics industry. Many electronics OEMs
have adopted, and are becoming increasingly reliant upon,
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manufacturing outsourcing strategies, and Sanmina believes the trend towards
outsourcing manufacturing will continue. Electronics industry OEMs use EMS
specialists for many reasons including the following:
- Reduce Time to Market. Due to intense competitive pressures in the
electronics industry, OEMs are faced with increasingly shorter product
life cycles and therefore have a growing need to reduce the time required
to bring a product to market. OEMs can reduce their time to market by
using a manufacturing specialist's established manufacturing expertise
and infrastructure.
- Reduce Capital Investment. As electronic products have become more
technologically advanced, the manufacturing process has become
increasingly automated, requiring a greater level of investment in
capital equipment. Manufacturing specialists enable OEMs to gain access
to advanced manufacturing facilities, thereby reducing the OEMs' overall
capital equipment requirements.
- Focus Resources. Because the electronics industry is experiencing greater
levels of competition and more rapid technological change, many OEMs
increasingly are seeking to focus their resources on activities and
technologies in which they add the greatest value. By offering
comprehensive electronic assembly and turnkey manufacturing services,
manufacturing specialists allow OEMs to focus on core technologies and
activities such as product development, marketing and distribution.
- Access Leading Manufacturing Technology. Electronic products and
electronics manufacturing technology have become increasingly
sophisticated and complex, making it difficult for OEMs to maintain the
necessary technological expertise in process development and control.
OEMs are motivated to work with a manufacturing specialist in order to
gain access to the specialist's process expertise and manufacturing
know-how.
- Improve Inventory Management and Purchasing Power. Electronics industry
OEMs are faced with increasing difficulties in planning, procuring and
managing their inventories efficiently due to frequent design changes,
short product lifecycles, large investments in electronic components,
component price fluctuations and the need to achieve economies of scale
in materials procurement. By using a manufacturing specialist's volume
procurement capabilities and expertise in inventory management, OEMs can
reduce production and inventory costs.
- Access Worldwide Manufacturing Capabilities. OEMs are increasing their
international activities in an effort to lower costs and access foreign
markets. Manufacturing specialists with worldwide capabilities are able
to offer such OEMs a variety of options on manufacturing locations to
better address their objectives regarding cost, shipment location,
frequency of interaction with manufacturing specialists and local content
requirements of end-market countries.
SANMINA BUSINESS STRATEGY
Sanmina's objective is to provide OEMs with a total EMS solution. Sanmina's
strategy encompasses several key elements:
- Concentrate on high value added products and services for leading OEMs.
Sanmina focuses on leading manufacturers of advanced electronic products
that generally require custom designed, more complex interconnect
products and short lead-time manufacturing services. By focusing on
complex interconnect products and manufacturing services for leading
OEMs, Sanmina is able to realize higher margins than many other
participants in the interconnect and EMS industries.
- Leverage vertical integration. Building on its integrated manufacturing
capabilities, Sanmina can provide its customers with a broad range of
high value added manufacturing services from fabrication of bare boards
to final system assembly and test. The cable assembly capabilities of
Sanmina Cable Systems provide Sanmina with further opportunities to
leverage its vertical integration. By manufacturing printed circuit
boards and custom cable assemblies used in its EMS assemblies, Sanmina,
through its vertical integration, is able to provide greater value added
and realize additional manufacturing margin. In addition, Sanmina's
vertical integration provides it with greater control over quality,
delivery and cost, and enables the Company to offer its customers a
complete EMS solution.
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- Focus on high growth customer sectors. Sanmina has focused its marketing
efforts on key, fast growing industry sectors. Sanmina's customers
include leading OEM companies in telecommunications, networking (data
communications), industrial and medical instrumentation and high-end
computer systems. Sales efforts will focus on increasing penetration of
its existing customer base as well as attracting new customers, thus
diversifying its revenue across a wider base.
- Geographic expansion of manufacturing facilities. Since 1993, Sanmina has
significantly expanded and upgraded its operations through the opening of
and acquisition of new facilities in Richardson, Texas, San Jose,
California, Manchester, New Hampshire and Durham, North Carolina. In
November 1996, Sanmina acquired the former Comptronix Corporation
contract manufacturing facilities located in Guntersville, Alabama. In
June 1997, Sanmina opened an EMS facility in the Dublin, Ireland area to
serve customers in the European market. In November 1997, Sanmina merged
with Elexsys, which has facilities in Northern and Southern California,
New Hampshire and England. In addition, as a result of Sanmina's December
1998 merged with Telo and March 1999 merged with Manu-Tronics, Sanmina
has added new facilities in San Jose, California and Kenosha, Wisconsin.
These facilities provide the Company with operations in key geographic
markets for the electronics industry. Sanmina will continue to
aggressively and opportunistically pursue future expansion opportunities
in other markets.
- Aggressive pursuit of acquisition opportunities. Sanmina's strategy
involves the pursuit of 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. These acquisitions have involved both
acquisitions of entire companies, such as the June 1995 acquisition of
Assembly Solutions in Manchester, New Hampshire, the January 1996
acquisition of Golden Eagle Systems, now known as Sanmina Cable Systems,
the November 1997 merger with Elexsys, the February 1998 acquisition of
Pragmatech, the November 1998 merger with Altron, the December 1998
merger with Telo and the March 1999 merger with Manu-Tronics. In
addition, Sanmina has in other instances acquired selected assets,
principally equipment, inventory and customer contracts and, in certain
cases, facilities or facility leases. Acquisitions of this nature
completed by Sanmina include the November 1996 acquisitions of the
Guntersville, Alabama operations of Comptronix Corporation and certain
assets of the custom manufacturing services division of Lucent
Technologies. These acquisitions provide Sanmina with several new key
customer accounts as well as with equipment that has been moved to
various Sanmina facilities. Sanmina intends to continue to evaluate
acquisition opportunities on a ongoing basis.
- Develop long-term customer relationships. Sanmina seeks to establish
"partnerships" with its customers by focusing on state-of-the-art
technology, quick-turnaround manufacturing and comprehensive management
support for materials and inventory. Sanmina also works closely with its
customers to help them manage their manufacturing cycle and reduce their
time to market. While Sanmina will continue to emphasize growth with its
current customers, it has been successful in attracting new clients. To
further these efforts, the Company intends to continue to expand its
direct sales staff. Sanmina believes its direct sales force is one of its
key competitive advantages.
- Extend technology leadership. Today Sanmina can provide services from the
fabrication of circuit boards to complete system assemblies. In providing
these services, Sanmina uses a variety of processes and technologies.
Sanmina strives for continuous improvement of its processes and has
adopted a number of quality improvement and measurement techniques to
monitor its performance. Sanmina has also recently made significant
capital expenditures to upgrade plant and equipment at its facilities.
Sanmina intends to stay on the leading edge of technology development and
will evaluate new interconnect and packaging technologies as they emerge.
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CUSTOMERS, MARKETING AND SALES
Sanmina's customers include a diversified base of OEMs in the
telecommunications, networking (data communications), industrial and medical
instrumentation and high-speed computer systems segments of the electronics
industry. The following table shows the estimated percentage of Sanmina's fiscal
1998 sales in each of these segments.
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Telecommunications...................................... 46%
Networking (Data Communications)........................ 27
Industrial and Medical Instrumentation.................. 15
High-Speed Computer Systems............................. 12
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Sanmina develops relationships with its customers and markets its
manufacturing services through a direct sales force augmented by a network of
manufacturers' representative firms and a staff of in-house customer support
specialists. Sanmina's sales resources are directed at multiple management and
staff levels within target accounts. Sanmina's direct sales personnel work
closely with the customers' engineering and technical personnel to better
understand their requirements. Sanmina's manufacturers' representatives are
managed by the Company's direct sales personnel, rather than from corporate
headquarters, in order to provide for greater accountability and responsiveness.
The Company has also expanded its customer base through acquisitions. In
particular, the acquisition of the Comptronix Guntersville, Alabama operations
and certain assets of the former custom manufacturing services division of
Lucent Technologies provided the Company with several new key customer accounts
with significant growth potential. In addition, the November 1997 merger with
Elexsys and the November 1998 merger with Altron also provided the Company with
several major new customer accounts.
Historically, Sanmina has had substantial recurring sales from existing
customers. Sanmina also conducts advertising and public relations activities, as
well as receiving referrals from current customers.
Although Sanmina seeks to diversify its customer base, a small number of
customers are responsible for a significant portion of Sanmina's net sales.
During fiscal 1998 and 1997, sales to Sanmina's ten largest customers accounted
for 53% and 43%, respectively, of Sanmina's net sales. For fiscal 1998, sales to
Cisco Systems and DSC Communications each represented more than 10% of the
Company's net sales. For fiscal 1997, sales to DSC represented more than 10% of
the Company's net sales. Although there can be no assurance that Sanmina's
principal customers will continue to purchase products and services from Sanmina
at current levels, if at all, Sanmina expects to continue to depend upon its
principal customers for a significant portion of its net sales. Sanmina's
customer concentration could increase or decrease, depending on future customer
requirements, which will be dependent in large part on market conditions in the
electronics industry segments in which Sanmina's customers participate. The loss
of one of more major customers or declines in sales to major customers could
have a material adverse effect on Sanmina's business, financial condition and
results of operations.
MANUFACTURING SERVICES
Sanmina specializes in manufacturing complex printed circuit board
assemblies, backplane assemblies and printed circuit boards that are used in the
manufacture of sophisticated electronic equipment. Sanmina has been
manufacturing backplane assemblies since 1981 and began providing electronic
assembly and turnkey manufacturing management services including the assembly
and testing of sophisticated electronic systems in October, 1993. For fiscal
1998, approximately 84% of Sanmina's net sales consisted of assembly revenues
and approximately 16% of Sanmina's net sales consisted of printed circuit
boards. Assembly revenues are sales derived from shipments to Sanmina's
customers from one of Sanmina's value added assembly facilities and includes the
value of the printed circuit board which is, in most cases, manufactured at one
of the Company's printed circuit board facilities. Printed circuit board
revenues are sales derived from shipments directly to Sanmina's customers from
one of Sanmina's printed circuit board facilities.
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Sanmina seeks to establish "partnerships" with its customers by providing a
responsive, flexible total manufacturing services solution. These services
include computer integrated manufacturing ("CIM") and engineering services,
quick-turnaround manufacturing and prototype and reproduction interconnect
products and materials procurement and management. CIM services provided by
Sanmina consist of developing manufacturing processes, tooling and test
sequences for new products from product designs received from customers. Sanmina
also evaluates customer designs for manufacturability and test, and, when
appropriate, recommends design changes to reduce manufacturing cost or lead
times or to increase manufacturing yields and the quality of the finished
product. Once engineering is completed, Sanmina manufactures prototype or
preproduction versions of that product on a quick-turnaround basis. Sanmina
expects that the demand for engineering and quick-turnaround prototype and
preproduction manufacturing services will increase as OEMs' products become more
complex and as product life cycles shorten. Materials procurement and handling
services provided by Sanmina include planning, purchasing, warehousing and
financing of electronic components and enclosures used in the assemblies and
systems.
Prices of Sanmina's SMT or PTH assemblies, backplane assemblies, printed
circuit board assemblies, cable assemblies or systems vary depending upon their
size and complexity, the specified manufacturing turnaround time, the extent of
design and engineering services provided by the Company, the market for the
various electronic components used and the quantity ordered. These prices of SMT
and PTH assemblies, backplane assemblies, and systems typically range from
several hundred dollars to several thousand dollars per unit. Prices of printed
circuit boards manufactured by Sanmina typically range from several dollars to
$7,000 per unit. Prices of custom cable assemblies manufactured by Sanmina
typically range from several dollars to $10,000 per unit.
MANUFACTURING AND ENGINEERING
Facilities. Sanmina manufactures its products in 27 decentralized plants,
consisting of 20 assembly facilities and 7 printed circuit board fabrication
facilities. Generally, each of Sanmina's decentralized plants have their own
production, purchasing, and materials management and quality capabilities
located on site. The production expertise of some plants overlaps, which enables
Sanmina to allocate production based on product type and available capacity at
one or more plants. With assembly facilities located in major electronics
industry centers throughout the country, including Silicon Valley, Southern
California, the Dallas-Forth Worth area, the Research Triangle area, New
England, the greater Chicago area and Northern Alabama, Sanmina is also able to
allocate production based on geographic proximity to the customer, process
capabilities and available capacity. Sanmina believes that this flexible
approach differs from that of its competition. Decentralized plants can focus on
particular product types and respond quickly to customers' specific
requirements. Sanmina believes that decentralized facilities also allow it to
achieve improved accountability, quality control and cost control. Each plant is
managed as a separate profit center, and each plant manager's compensation
depends, in part, upon that plant meeting quality, shipment and gross profit
targets.
In November 1998, Sanmina entered into a lease with an option to purchase a
330,000 square foot campus facility located in San Jose, California. The
facility consists of 4 buildings on a single site. Sanmina intends to
consolidate its corporate headquarters and San Jose area assembly operations at
this facility. Consolidation activities are currently underway. Sanmina's San
Jose area printed circuit board fabrication facilities will not be consolidated
at the campus facility and will remain at their current locations.
Manufacturing Processes. Sanmina produces complex, technologically advanced
SMT and PTH assemblies, backplane assemblies and multilayer printed circuit
boards, custom cable assemblies and full systems that meet increasingly tight
tolerances and specifications demanded by OEMs. Multilayering, which involves
placing multiple layers of electrical circuitry on a single printed circuit
board or backplane, expands the number of circuits and components that can be
contained on the interconnect product and increases the operating speed of the
system by reducing the distance that electrical signals must travel. Increasing
the density of the circuitry in each layer is accomplished by reducing the width
of the circuit tracks and placing them closer together on the printed circuit
board or backplane. Interconnect products having narrow, closely spaced circuit
tracks are known as "fine line" products. Today, Sanmina and other industry
leaders are capable
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of efficiently producing commercial quantities of printed circuit boards with up
to 36 layers and circuit track widths as narrow as three mils. The manufacture
of complex multilayer interconnect products often requires the use of
sophisticated circuit interconnections between certain layers (called "blind or
buried vias") and adherence to strict electrical characteristics to maintain
consistent circuit transmission speeds (referred to as "controlled impedance").
These technologies require very tight lamination and etching tolerances and are
especially critical for printed circuit boards with ten or more layers.
The manufacture of printed circuit boards involves several steps: etching
the circuit image on copper-clad epoxy laminate, pressing the laminates together
to form a panel, drilling holes and depositing copper or other conductive
material to form the inter-layer electrical connections and, lastly, cutting the
panels to shape. Certain advanced interconnect products require additional
critical steps, including dry film imaging, photoimageable soldermask
processing, computer controlled drilling and routing, automated plating and
process controls and achievement of controlled impedance. Manufacture of printed
circuit boards used in backplane assemblies requires specialized expertise and
equipment because of the larger size of the backplane relative to other printed
circuit boards and the increased number of holes for component mounting.
The manufacture of SMT and PTH assemblies involves the attachment of
various electronic components, such as integrated circuits, capacitors,
microprocessors and resistors to printed circuit boards. The manufacture of
backplane assemblies involves attachment of electronic components, including
printed circuit boards, integrated circuits and other components, to the
backplane, which is a large printed circuit board manufactured by Sanmina.
Sanmina uses SMT, PTH and press-fit technologies in backplane assembly.
All but one of Sanmina's manufacturing facilities are certified under ISO
9002, a set of standards published by the International Organization of
Standardization and used to document, implement and demonstrate quality
management and assurance systems in design and manufacturing. As part of the ISO
9002 certification process, the Company has developed a quality systems manual
and an internal system of quality controls and audits. Although ISO 9002
certification is of particular importance to the companies doing business in the
European Community, Sanmina believes that United States electronics
manufacturers are increasing their use of ISO 9002 registration as a criteria
for suppliers.
In addition to ISO 9002 certification, Sanmina is BellCore, British
Approval Board for Telecommunications ("BABT") and Underwriters Laboratories
("UL") compliant. These qualifications establish standards for quality,
manufacturing process control and manufacturing documentation and are required
by many OEMs in the electronics industry, including suppliers to AT&T and the
Regional Bell Operating Companies.
The Company orders materials and components based on purchase orders
received and accepted and seeks to minimize its inventory of materials or
components that are not identified for use in filling specific orders. Materials
used in manufacturing printed circuit boards are readily available in the open
market and the Company has not to date experienced any significant shortages of
such materials. Electronic components used by Sanmina in producing SMT and PTH
assemblies and its backplane assemblies are purchased by Sanmina and, in certain
circumstances, it may be required to bear the risk of component price
fluctuations. In addition, shortages of certain types of electronic components
have occurred in the past and may occur in the future. Component shortages or
price fluctuations could have an adverse effect on the Company's SMT and PTH
assemblies and its backplane assembly business, thereby adversely affecting the
Company's results of operations. Due to the continued expansion of the Company's
contract manufacturing and backplane assembly businesses as a percentage of the
Company's net sales, component shortages and price fluctuations would adversely
affect the Company's results of operations to a greater extent than in prior
fiscal years.
TECHNOLOGY DEVELOPMENT
Sanmina's close involvement with its customers at the early stages of their
product development positions it at the leading edge of technical innovation in
the manufacturing of SMT and PTH assemblies, backplane assemblies, and printed
circuit boards. Sanmina selectively seeks orders that require the use of
state-of-the-art materials or manufacturing techniques in order to further
develop its manufacturing expertise. Current areas of manufacturing process
development include reducing circuit widths and hole sizes, establishing new
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standards for particle contamination and developing new manufacturing processes
for the use with new materials and new surface mount connector and component
designs.
Recent developments in the electronics industry have necessitated
improvements in the types of laminate used in the manufacture of interconnect
products. New laminate materials may contain new chemical formulations to
achieve better control of flow, resin systems with high glass transition
temperatures, reduced surface imperfections and greatly improved dimensional
stability. Future generations of interconnect products will require ultra fine
lines, multilayers of much greater complexity and thickness, and extremely small
holes in the 4 to 10 mil range. The materials designed to meet these
requirements, such as BT epoxy, cyanate esters, polyamide quartz, and Kevlar
epoxy, are beginning to appear in the marketplace. Widespread commercial use of
these materials will depend upon statistical process control and improved
manufacturing procedures to achieve the required yields and quality.
The Company has developed expertise and techniques which it uses in the
manufacture of circuit boards, backpanels and subsystems. Generally, the Company
relies on common law trade secret protection and on confidentiality agreements
with its employees to protect its expertise and techniques. The Company owns but
five patent and believes that patents have not historically constituted a
significant form of intellectual property right in its industry.
ENVIRONMENTAL CONTROLS
Proper waste disposal is a major consideration for printed circuit board
manufacturers because metals and chemicals are used in the manufacturing
process. Water used in the printed circuit board manufacturing process must be
treated to remove metal particles and other contaminants before it can be
discharged into the municipal sanitary sewer system. In addition, although the
electronics assembly process generates significantly less waste water than
printed circuit board fabrication, maintenance of environmental controls is also
important in the electronics assembly process. Each of Sanmina's printed circuit
board and electronics assembly plants has personnel responsible for monitoring
environmental compliance. These individuals report to Sanmina's director of
environmental compliance, who has overall responsibility for environmental
matters.
Each plant operates under effluent discharge permits issued by the
appropriate governmental authority. These permits must be renewed periodically
and are subject to revocation in the event of violations of environmental laws.
There can be no assurance that violations will not occur in the future as a
result of human error, equipment failure or other causes. In the event of a
future violation of environmental laws, Sanmina could be held liable for damages
and for the costs of remedial actions and could be also subject to revocation of
effluent discharge permits. Any such revocation could require Sanmina to cease
or limit production at one or more of its facilities, thereby having an adverse
impact on Sanmina's results of operations. Sanmina is also subject to
environmental laws relating to the storage, use and disposal of chemicals, solid
waste and other hazardous materials as well as air quality regulations.
Furthermore, environmental laws could become more stringent over time, and the
costs of compliance with and penalties associated with violation of more
stringent laws could be substantial.
In November 1997, Sanmina merged with Elexsys, which, by virtue of such
acquisition, became a wholly owned subsidiary of Sanmina. Several facilities
owned or occupied by Elexsys at the time of the acquisition, or formerly owned
or occupied by Elexsys or companies acquired by Elexsys, had either soil
contamination or contamination of groundwater underneath or near the facility.
Contamination was discovered at Elexsys' Irvine, California facility in 1989 and
Elexsys voluntarily installed a groundwater remediation system at the facility
in 1994. The California Regional Water Quality Control Board has requested that
Sanmina extend the investigation of the groundwater contamination at the Irvine
facility to off-site areas. It is unknown what the results of this additional
investigation will be and whether any additional remediation activities will be
required. Sanmina has been required by the California Department of Toxic
Substances Control to undertake investigation of soil and/or groundwater at
certain facilities formerly owned or occupied by a predecessor company to
Elexsys in Mountain View, California. Depending upon the results of this soil
sampling and groundwater testing, Sanmina could be ordered to undertake soil
and/or groundwater cleanup. To date, Sanmina has not been ordered to undertake
any soil or groundwater cleanup activities at the Mountain View
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facilities, and does not believe any such activities should be required. Test
results received to date are not sufficient to enable Sanmina to determine
whether or not such cleanup activities are likely to be mandated. Contamination
has also been discovered at other current and former Elexsys facilities and has
been reported to the relevant regulatory agencies. No remediation or further
investigation of such contamination has been required by regulatory agencies. To
date, the cost of the various investigations and the cost of operating the
remediation system at the Irvine facility have not been material to Sanmina's
financial condition. However, in the event Sanmina is required to undertake
additional groundwater or soil cleanup, the costs of such cleanup are likely to
be substantial. Sanmina is currently unable to estimate the amount of such soil
and groundwater cleanup costs because no soil or groundwater cleanup has been
ordered and Sanmina cannot determine from available test results what
remediation activities, if any, are likely to be required. Sanmina believes,
based on the limited information currently available, that the cost of any
groundwater or soil clean-up that may be required would not have a material
adverse effect on Sanmina's business, financial condition and results of
operations. Nevertheless, the process of remediating contaminated soil and
groundwater is costly, and if Sanmina is required to undertake substantial
remediation activities at one or more of the former Elexsys facilities, there
can be no assurance that the costs of such activities costs would not have a
material adverse effect on Sanmina's business, financial condition and results
of operations.
Altron was advised in 1993 by Olin Corporation that contamination resulting
from activities of prior owners of property owned by Olin Corporation and
located close to the Altron manufacturing plant in Wilmington, Massachusetts,
had migrated under the Altron plant. Olin has assumed full responsibility for
any remediation activities that may be required and has agreed to indemnify and
hold Altron harmless from any and all costs, liabilities, fines, penalties,
charges and expenses arising from and relating to any action or requirement,
whether imposed by statute, ordinance, rule, regulation, order, decree or by
general principles of law to remediate, clean up or abate contamination
emanating from the Olin site. Although the Company believes that Olin's
assumption of responsibility will result in no remediation cost to Altron from
the contamination, there can be no assurance that Altron will not be subject to
some costs regarding this matter, but Sanmina does not anticipate that such
costs, if any, will be material to its financial condition or results of
operations.
BACKLOG
Sanmina's backlog was approximately $295 million at September 30, 1998 and
approximately $235 million at September 30, 1997. Backlog consists of purchase
orders received by the Company, including, in certain instances, forecast
requirements released for production under customer contracts. Cancellation and
postponement charges generally vary depending upon the time of cancellation or
postponement, and a certain portion of the Company's backlog may be subject to
cancellation or postponement without significant penalty. Typically, a
substantial portion of the Company's backlog is scheduled for delivery within
120 days.
COMPETITION
Significant competitive factors in the market for advanced backplane
assemblies and printed circuit boards include product quality, responsiveness to
customers, manufacturing and engineering skills, and price. Sanmina believes
that competition in the market segments served by Sanmina is based more on
product quality and responsive customer service and support than on price, in
part because the cost of interconnect products manufactured by Sanmina is
usually low relative to the total cost of the equipment for which they are
components and in part because of the greater importance of product reliability
and prompt delivery to Sanmina's customers. Sanmina believes that its primary
competitive strengths are its ability to provide responsive, flexible, short
lead-time manufacturing services, its engineering and manufacturing expertise
and its customer service support.
Sanmina faces intense competition from a number of established competitors
in its various product markets. Certain of Sanmina's competitors have greater
financial and manufacturing resources than Sanmina, including significantly
greater SMT assembly capacity. During periods of recession in the electronic
industry, the Company's competitive advantages in the areas of quick-turnaround
manufacturing and responsive customer service may be of reduced importance to
electronics OEMs, who may become more price sensitive.
8
<PAGE> 10
In addition, captive interconnect product manufacturers may seek orders in the
open market to fill excess capacity, thereby increasing price competition.
Although the Company generally does not pursue high-volume, highly price
sensitive interconnect product business, it may be at a competitive disadvantage
with respect to price when compared to manufacturers with lower cost structures,
particularly those manufacturers with offshore facilities where labor and other
costs are lower.
EMPLOYEES
As of January 2, 1999, Sanmina had approximately 6,100 full-time employees,
including approximately 5,800 in manufacturing and engineering, approximately
140 in marketing and sales, and approximately 190 in general administration and
finance. None of Sanmina's employees is represented by a labor union and Sanmina
has never experienced a work stoppage or strike. Sanmina believes its
relationship with its employees is good.
The Company's success depends to a large extent upon the continued services
of key managerial and technical employees. The loss of such personnel could have
a material adverse effect on the Company. To date, the Company has not
experienced significant difficulties in attracting or retaining such personnel.
Although the Company is not aware that any of its key personnel currently intend
to terminate their employment, their future services cannot be assured.
ITEM 2. PROPERTIES
Sanmina's principal facilities comprise an aggregate of approximately 1.6
million square feet. Except for the Company's 72,000 square foot Manchester, New
Hampshire facility, the 72,000 square foot facility occupied by Sanmina Cable
Systems in Carrollton, Texas, a 70,000 square foot facility located in Nasuha,
New Hampshire, a 204,000 square foot facility located in Wilmington,
Massachusetts, a 104,000 square foot facility located in Woburn, Massachusetts,
and the Company's 50,000 square foot facility located in Dublin, Ireland, all of
the facilities are leased, and the leases for these facilities expire from 1998
through 2013. The leases generally may be extended at the Company's option. In
addition, the Company's Guntersville, Alabama facilities are leased under leases
with the Guntersville, Alabama industrial development board. Under the leases,
no rent is payable and the facilities may be purchased by the Company for
nominal consideration at any time up to and including the expiration of the
respective terms of such leases. Sanmina has twelve principal facilities located
in the greater San Jose, California area, with other facilities located in
Southern California, Richardson, Texas, Manchester, New Hampshire, Guntersville,
Alabama, Durham, North Carolina, Wilmington and Woburn, Massachusetts, the
greater Chicago area, and Calgary, Canada
In November 1998, Sanmina entered into a lease with an option to purchase a
330,000 square foot campus facility located in San Jose, California. The
facility consists of 4 buildings on a single site. Sanmina intends to
consolidate its corporate headquarters and San Jose area assembly operations at
this facility. Consolidation activities have begun in calendar 1999. Sanmina's
San Jose area printed circuit board fabrication facilities will not be
consolidated at the campus facility and will remain at their current locations.
Sanmina believes that its facilities are adequate to meet its reasonably
foreseeable requirements for at least the next two years. The Company
continually evaluates its expected future facilities requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated by reference to page
16 of this report under the caption "quarterly results."
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales................................... $360,034 $469,394 $617,487 $803,064 $991,821
Cost of sales............................... 296,739 375,238 484,687 640,644 783,949
Gross profit................................ 63,295 94,156 132,800 162,420 207,872
Selling, general and administrative
expenses.................................. 32,618 36,278 45,483 63,856 67,165
Amortization of goodwill.................... 665 568 2,000 2,283 3,127
Write down of long-lived assets............. 11,190 -- -- -- --
Provision for restructuring of operations... 5,729 -- -- -- --
Provision for plant closing costs........... -- -- -- 8,876 --
Merger costs................................ -- -- -- -- 3,945
Operating income............................ 13,093 57,310 85,317 87,405 133,635
Other income (expense), net................. (2,560) (681) (760) (1,691) (272)
Income before provision for income taxes and
extraordinary item........................ 10,533 56,629 84,557 85,714 133,363
Provision for income taxes.................. 12,339 20,965 29,543 36,358 47,734
Gain from exchange of convertible
subordinated debentures for common stock,
net of expenses........................... 10,167 1,833 -- -- --
Net income.................................. $ 8,361 $ 37,497 $ 55,014 $ 49,356 $ 85,629
Diluted earnings (loss) per share:
Income (loss) before extraordinary item... $ (0.05) $ 0.76 $ 1.04 $ 0.91 $ 1.52
Extraordinary item.......................... 0.26 0.04 -- -- --
Net income per share........................ $ 0.21 $ 0.80 $ 1.04 $ 0.91 $ 1.52
Shares used in computing per share
amounts................................... 39,737 47,972 55,666 57,616 58,597
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.............................. $71,493 $200,703 $228,620 $251,350 $300,337
Total assets................................. 184,238 368,858 450,134 553,478 658,367
Long-term debt............................... 30,861 113,997 117,726 120,307 19,408
Stockholders' equity......................... 95,039 166,493 233,959 297,870 481,985
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Sanmina is a leading independent provider of customized integrated
electronic manufacturing services ("EMS"), including turnkey electronic assembly
and manufacturing management services, to original equipment manufacturers
("OEM") 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-layered 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 manufacturing. Sanmina,
through its Sanmina Cable Systems ("SCS") subsidiary (formerly known as Golden
Eagle Systems), also manufactures custom cable and wire harness assemblies for
electronic industry OEMs. In addition, as part of the Elexsys International
("Elexsys") merger completed in November 1997, the Company acquired and
currently operates a metal stamping and plating business.
Sanmina's assembly plants are located in Northern California, Richardson,
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 November 1998 merger with Altron Incorporated ("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 merger with Telo Electronics Incorporated ("Telo") and
Manu-Tronics, Inc. ("Manu-Tronics"), Sanmina has added new assembly plants in
San Jose, California and in Kenosha, Wisconsin.
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 margins, to access new geographic markets, to implement Sanmina's
vertical integration strategy and/or to obtain facilities and equipment on terms
more favorable than those generally available in the market.
11
<PAGE> 13
RESULTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
The following table sets forth, for the periods indicated, certain
statements of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 79.0 79.8 78.5
----- ----- -----
Gross profit................................................ 21.0 20.2 21.5
----- ----- -----
Operating expenses:
Selling, general and administrative....................... 6.8 7.9 7.4
Amortization of goodwill.................................. .3 .3 .3
Plant closure costs....................................... -- 1.1 --
Merger costs.............................................. .4 -- --
----- ----- -----
Total operating expenses.................................... 7.5 9.3 7.7
----- ----- -----
Operating income............................................ 13.5 10.9 13.8
Other expense, net.......................................... (.1) (.2) (.1)
Provision for income taxes.................................. (4.8) (4.5) (4.8)
----- ----- -----
Net income (loss)........................................... 8.6% 6.2% 8.9%
===== ===== =====
</TABLE>
Net Sales. Net sales in fiscal 1998 increased 23.5% to $991.8 million from
$803.1 million in fiscal 1997, which was an increase of 30.1% from fiscal 1996
sales of $617.5 million. The increase in net sales for fiscal 1998 was due
primarily to increased shipments of EMS assemblies to both existing and new
customers. The increase in net sales for fiscal 1997 was the result of increased
volumes of business from established customers, the addition of several new
major customers during the year and the addition of customers resulting from
acquisitions completed during the year. EMS assembly revenues represented 84.0%
of net sales in 1998 as compared to 78.8% in 1997 and 73.7% in 1996. During
these periods, Sanmina's printed circuit board fabrication operations focused
increasingly on manufacturing printed circuit boards used in EMS assemblies
manufactured by the Company, rather than manufacturing "bare" boards for sale to
third parties. Growth in EMS assembly revenues during these periods was
influenced by the electronics industry trend towards outsourcing, expansion of
the Company's operations, both through acquisitions and Company-originated
expansions, and a generally positive economic environment in the
telecommunications, networking (data communications) and industrial and medical
instrumentation segments of the electronics industry. These segments continued
to experience overall growth during these periods.
Gross Margin. Gross margin was 21.0%, 20.2%, and 21.5% in fiscal 1998,
1997, and 1996 respectively. The Company expects gross margins to continue to
fluctuate based on product mix and customer mix. The increase in gross margin
for fiscal 1998 was due to the Company's ability to realize synergies associated
with the Elexsys acquisition. Gross margin decreased to 20.2% in fiscal 1997
from 21.5% for fiscal 1996. The decline in gross margin was primarily the result
of the Elexsys acquisition, which had a lower gross margin on a stand-alone
basis. As part of the Elexsys acquisition, Sanmina assumed certain backlog
obligations which, combined with the increased overhead associated with the
acquisition, negatively affected gross margins during fiscal 1997. Synergies
achieved through integration of acquired operations, including the former
operations of Elexsys, have contributed to the increase in gross margins
experienced in 1998. As the integration of these operations is complete, the
Company does not anticipate achieving incremental gross margin improvements in
future periods as a result of synergies achieved in connection with these
acquisitions. Due to increased competition, product and customer mix, the
Company may experience decreases in gross margins. Due to the nature of the
Altron operations, which are most heavily concentrated in the Boston,
Massachusetts area, and the gross margin improvements achieved during fiscal
1998, the Company does not
12
<PAGE> 14
believe that synergies which may be realized from the Altron acquisition will
enable it to achieve gross margin improvements during fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998, 1997 and 1996 were $67.2 million, $63.9
million, and $45.5 million respectively. The percentage decreases in selling,
general and administrative expenses for fiscal 1998 were due to the Company's
ability to realize synergies associated with the Elexsys acquisition.
This also reflects the Company's strategy of seeking sales growth while
maintaining or reducing operating expenses as a percentage of net sales. The
absolute dollar increases in selling, general and administrative expenses from
fiscal 1996 to 1997 were primarily the result of increased expenditures to
support higher sales volume.
Amortization of Goodwill. The Company incurred $3.1 million, $2.3 million
and $2.0 million in amortization expense for fiscal years 1998, 1997 and 1996,
respectively. These amortization expenses reflect the amortization of goodwill
related to acquisitions, which were accounted for as purchase transactions,
including the January 1996 acquisition of SCS and the February 1998 acquisition
of Pragmatech.
Merger Costs. In 1998, the Company recorded a charge of $3.9 million
related to the acquisition of Elexsys.
Other Income and Expense. In fiscal 1998, net other expense was $272,000 as
compared to $1.7 million and $760,000 in fiscal 1997 and 1996, respectively. For
fiscal 1998, the decrease in net other expense was the result of a decrease in
outstanding debt. 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. For fiscal 1997, the increase in net other expense was a result of
interest expense on the outstanding convertible subordinated notes, and a
decrease in short-term investments in fiscal 1997 compared to fiscal 1996. These
reduced short-term investment balances were due to a decline in the Company's
cash balances as a result of the use of cash to fund certain acquisitions and
capital improvement programs during fiscal 1997.
Provision for Income Taxes. For fiscal 1998, 1997 and 1996, the Company's
effective tax rate was 35.8%, 42.4% and 34.9%, respectively. The effective rate
in 1997 increased from fiscal 1996 because the fiscal 1997 losses of Elexsys
were not tax benefited. For fiscal 1998, the rate decreased as utilization of
net operating loss carryforwards of Elexsys were recognized.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operating activities of $106.2 million,
$77.4 million and $58.4 million in fiscal years 1998, 1997 and 1996,
respectively. These increases in cash generated from operations each year were
primarily due to the Company's increase in profitability.
In August 1998, the Company called for redemption an aggregate principal
amount of $86.3 million in convertible subordinated notes which were originally
issued in August 1995. The notes were converted to Sanmina Common Stock at a
price of $14.09 per share, or 70.94 shares of Sanmina's Common Stock per $1,000
principal amount of Notes. Cash was paid in lieu of fractional shares.
Cash used for investing activities, including net purchases of short-term
investments, during fiscal 1998, 1997 and 1996 was $52.9 million, $78.0 million
and $139.2 million, respectively. Investing activities during 1998 included
$55.3 million in property, plant and equipment. Additionally, on February 23,
1998, the Company paid approximately $5.7 million in cash to acquire Pragmatech.
During fiscal 1997, investing activities included the November 1996
acquisition of the assets of the former Comptronix Corporation for which the
Company paid cash of approximately $17.6 million, as well as investments in
property, plant and equipment of $70.7 million. Investing activities during 1996
included
13
<PAGE> 15
investments in property, plant and equipment at the Company's EMS operations in
New Hampshire, Texas and North Carolina and equipment upgrades at the Company's
printed circuit board fabrication facilities.
Cash used for financing activities was $19.5 million in fiscal 1998. In
fiscal 1998, the Company paid approximately $7.5 million in outstanding debt.
The payments for other long-term liabilities of $25.4 million, which included
the $12.8 million of outstanding Elexsys debt, were offset by the proceeds from
exercise of stock options and stock purchase rights of $11.1 million. Cash
provided by financing activities was $9.3 million and $4.6 million in fiscal
1997 and 1996, respectively. Financing activities in fiscal 1997 and 1996
consisted primarily of receipt of proceeds from exercise of stock options and
stock purchase rights.
The Company's future needs for financial resources include increases in
working capital to support anticipated sales growth and investment in
manufacturing facilities and equipment. Working capital was $300.3 million at
September 30, 1998. The Company has evaluated and will continue to evaluate
possible business acquisitions. In this regard, the Company anticipates
incurring facilities related expenditures during fiscal 1999 in connection with
the relocation of its San Jose, California area assembly facilities and its
corporate headquarters to a new campus facility.
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 believes that its capital resources, together with cash
generated from operations, will be sufficient to meet its working capital and
capital expenditure requirements through at least the next twelve months. The
Company may seek to raise additional capital through the issuance of either debt
or equity securities. Debt financing may require the Company to pledge assets as
collateral and comply with financial ratios and covenants. Equity financing may
result in dilution to stockholders.
YEAR 2000
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
14
<PAGE> 16
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 will
have compliance solutions or work arounds planned by June 30, 1999, and intends
to complete compliance testing by September 24, 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.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of fiscal 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS 128 requires the replacement of previously reported primary and
fully diluted earnings per share (EPS) as required by Accounting Principles
Board Opinion No. 15 (APB 15) with basic earnings per share and diluted earnings
per share. Basic EPS was computed by dividing net income by the weighted average
number of shares of common stock outstanding for all periods presented. Diluted
EPS includes dilutive common stock equivalents, using the treasury stock method,
and assumes that the convertible debt instruments were converted into common
stock, if dilutive. As a result of the adoption of SFAS No. 128, the Company's
reported earnings per share were restated for all periods presented.
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 129, "Disclosure of Information about Capital Structure," which will be
adopted by the Company in fiscal 1999. SFAS 129 requires companies to disclose
certain information about their capital structure. SFAS 129 will not have a
material impact on the Company's financial statement disclosures.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components. SFAS 130 is effective for fiscal year 1999.
Management does not believe the adoption of SFAS 130 will have a material impact
on the Company's financial statement disclosures.
In June 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 introduces a new model for segment
reporting, called the "management approach." SFAS 131 is effective for fiscal
year 1999. Management believes the adoption of SFAS 131 will increase its
disclosure requirements of operations of the Company.
In June 1998, the Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities", was issued
by the Financial Accounting Standards Board. SFAS 133 requires certain
accounting and reporting standards for derivative instruments and hedging
activities. Management does not believe the adoption of SFAS No. 133 will have a
material impact on the Company's financial statement disclosures.
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.
15
<PAGE> 17
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.
QUARTERLY RESULTS (UNAUDITED)
The following table contains selected unaudited quarterly financial data
for the eight fiscal quarters in the period ended September 30, 1998. In
management's opinion, the unaudited data has been prepared on the same basis as
the audited information and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the data for the
periods presented. The Company's results of operations have varied and may
continue to fluctuate significantly from quarter to quarter. Results of
operations in any period should not be considered indicative of the results to
be expected from any future period. In June 1998, the Company effected a
two-for-one stock split in the form of a stock dividend. Accordingly, all share
and per share data has been adjusted to retroactively reflect the stock split.
Similarly, the mergers with Elexsys, Altron and Manu-Tronics were accounted for
as a pooling of interests, and therefore, all prior periods presented were
restated to combine the results of the companies.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- --------------------------------------------
QUARTER FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $220,671 $240,886 $267,617 $262,647 $181,756 $188,005 $209,166 $224,137
Gross profit.......... 46,030 51,178 56,941 53,723 39,289 39,135 46,506 37,490
Gross margin.......... 20.9% 21.2% 21.3% 20.5% 21.6% 20.8% 22.2% 16.7%
Operating income........ 25,891 34,247 38,454 35,043 25,478 24,339 29,872 7,716
Net income/(loss)....... 16,266 22,564 24,761 22,038 16,133 14,983 19,965 (1,725)
Net income/(loss) per
share (diluted)....... $ 0.29 $ 0.40 $ 0.43 $ 0.40 $ 0.30 $ 0.27 $ 0.36 $ (0.04)
Shares used in computing
per share amounts..... 58,437 58,327 58,921 58,783 56,939 57,448 57,580 49,131
Common stock prices:
High.................. $ 44.00 $ 40.19 $ 46.88 $ 47.56 $ 27.50 $ 32.00 $ 33.00 $ 45.06
Low................... $ 28.72 $ 26.69 $ 33.88 $ 23.50 $ 19.06 $ 20.06 $ 21.88 $ 30.55
</TABLE>
FACTORS AFFECTING BUSINESS AND RESULTS OF OPERATIONS
Sanmina is heavily dependent on the electronics industry. Sanmina's
business is heavily dependent on the health of the electronics industry.
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. Sanmina's customers can discontinue or modify
products containing components manufactured by Sanmina. Such discontinuance or
modification could adversely affect Sanmina'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.
Sanmina typically does not obtain long-term volume purchase contracts from its
customers and has recently experienced reduced lead times in customer orders.
Customer orders may be canceled and volume levels may be changed or delayed. In
particular, Sanmina experienced certain
16
<PAGE> 18
cancellation and rescheduling of shipment dates of customer orders during the
fourth fiscal quarter of 1998. The timely replacement of canceled, delayed or
reduced contracts with new business cannot be assured.
Sanmina's results of operations can be affected by a variety of
factors. 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. These factors
include timing of orders from major customers, mix of product ordered by and
shipped to major customers, the volume of orders as related to Sanmina's
capacity, the ability of Sanmina to effectively manage inventory and fixed
assets, and the ability of Sanmina to time expenditures in anticipation of
future sales. Sanmina's results are also affected by the mix of products between
backplane assemblies and printed circuit boards. Sanmina's results are also
affected by general economic conditions in the electronics industry. Sanmina's
results can also be significantly influenced by development and introduction of
new products by Sanmina's customers. From time to time, Sanmina 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. Sanmina's
customers generally require short delivery cycles, and a substantial portion of
Sanmina'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.
Sanmina'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 Sanmina's operating expenses are 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 Sanmina'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. In
addition, fluctuations in operating results may also result in fluctuations in
the price of Sanmina Notes and Common Stock.
Sanmina experiences customer concentration. A small number of customers are
responsible for a significant portion of Sanmina's net sales. During fiscal 1998
and 1997, sales to Cisco Systems and DSC Communications each accounted for more
than 10% of Sanmina's net sales. In fiscal 1996, sales to DSC Communications and
Alcatel each accounted for more than 10% of Sanmina's net sales. In addition,
during fiscal 1998 and 1997, Sanmina's ten largest customers accounted for
approximately 53% and 43%, respectively, of Sanmina's net sales. Although there
can be no assurance that Sanmina's principal customers will continue to purchase
products and services from Sanmina at current levels, if at all, Sanmina expects
to continue to depend upon its principal customers for a significant portion of
its net sales. Sanmina's customer concentration could increase or decrease,
depending on future customer requirements, which will be dependent in large part
on market conditions in the electronics industry segments in which Sanmina's
customers participate. The loss of one of more major customers or declines in
sales to major customers could have a material adverse effect on Sanmina's
business, financial condition and results of operations.
Sanmina is subject to risks associated with its strategy of acquisitions
and expansions. Sanmina has, for the past several fiscal years, pursued a
strategy of growth. This growth has come in part through acquisitions. These
acquisitions have involved both acquisitions of entire companies, such as the
June 1995 acquisition of Assembly Solutions in Manchester, New Hampshire, the
January 1996 acquisition of Golden Eagle Systems, now known as Sanmina Cable
Systems, the November 1997 merger with Elexsys, the February 1998 acquisition of
Pragmatech, the November 1998 merger with Altron, the December 1998 merger with
Telo and the March 1999 merger with Manu-Tronics. In addition, Sanmina has in
other instances acquired selected assets, principally equipment, inventory and
customer contracts and, in certain cases, facilities or facility leases.
Acquisitions of this nature completed by Sanmina include the November 1996
acquisitions of the Guntersville, Alabama operations of Comptronix Corporation
and certain assets of the custom manufacturing services division of Lucent
Technologies. In addition to these acquisitions, Sanmina has also grown its
operations through internal expansion, such as the opening of its Richardson,
Texas assembly facility, its
17
<PAGE> 19
Durham, North Carolina assembly facility and its Dublin, Ireland assembly
facility. Acquisitions of companies and businesses and expansion of operations
involves certain risks, including the following:
- the potential inability to successfully integrate acquired operations and
businesses or to realize anticipated synergies, economies of scale or
other value,
- diversion of management's attention,
- difficulties in scaling up production at new sites and coordinating
management of operations at new sites,loss of key employees of acquired
operations.
Accordingly, Sanmina may experience problems in integrating the recently
acquired operations or operations associated with any future acquisition.
Accordingly, there can be no assurance that any recent or future acquisition
will result in a positive contribution to Sanmina's results of operations.
Furthermore, there can be no assurance that Sanmina will realize value from any
such acquisition which equals or exceeds the consideration paid. In particular,
the successful combination of Sanmina and any future acquisition will require
substantial effort from each company, including the integration and coordination
of sales and marketing efforts. The diversion of the attention of management and
any difficulties encountered in the transition process, including, the
interruption of, or a loss of momentum in, the activities of any future
acquisition, problems associated with integration of management information and
reporting systems, and delays in implementation of consolidation plans, could
have an adverse impact on Sanmina's ability to realize the anticipated benefits
of any future acquisition. In addition, there can be no assurance that Sanmina
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 Sanmina's business, financial condition and results of operations. In
addition, future acquisitions by Sanmina 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. These factors could have a material adverse effect on
Sanmina's business, financial condition and results of operations.
Sanmina is subject to competition and technological change. The electronic
interconnect product industry is highly fragmented and it is characterized by
intense competition. Sanmina competes in the technologically advanced segment of
the interconnect product market, which is also highly competitive but is much
less fragmented than the industry as a whole. Sanmina's competitors consist
primarily of larger manufacturers of interconnect products, and some of these
competitors have greater manufacturing and financial resources than Sanmina as
well as greater SMT assembly capacity. As a participant in the interconnect
industry, Sanmina must continually develop improved manufacturing processes to
accommodate its customers' needs for increasingly complex products. During
periods of recession in the electronics industry, Sanmina's competitive
advantages in the areas of quick turnaround manufacturing and responsive
customer service may be of reduced importance to electronics OEMs, who may
become more price sensitive. In addition, captive interconnect product
manufacturers seek orders in the open market to fill excess capacity, thereby
increasing price competition. Sanmina may be at a competitive disadvantage with
respect to price when compared to manufacturers with lower cost structures,
particularly those with offshore facilities where labor and other costs are
lower.
Environmental matters are a key consideration in Sanmina's business. Proper
waste disposal is a major consideration for printed circuit board manufacturers
because metals and chemicals are used in the manufacturing process. Water used
in the printed circuit board manufacturing process must be treated to remove
metal particles and other contaminants before it can be discharged into the
municipal sanitary sewer system. In addition, although the electronics assembly
process generates significantly less waste water than printed circuit board
fabrication, maintenance of environmental controls is also important in the
electronics assembly process. Each of Sanmina's printed circuit board and
electronics assembly plants has personnel responsible for monitoring
environmental compliance. These individuals report to Sanmina's Director of
Environmental Compliance, who has overall responsibility for environmental
matters. Each plant operates under effluent discharge permits issued by the
appropriate governmental authority. These permits must be renewed periodically
and are subject to revocation in the event of violations of environmental laws.
There can be no assurance that violations will not occur in the future as a
result of human error, equipment failure or
18
<PAGE> 20
other causes. In the event of a future violation of environmental laws, Sanmina
could be held liable for damages and for the costs of remedial actions and could
be also subject to revocation of effluent discharge permits. Any such revocation
could require Sanmina to cease or limit production at one or more of its
facilities, thereby having an adverse impact on Sanmina's results of operations.
Sanmina is also subject to environmental laws relating to the storage, use and
disposal of chemicals, solid waste and other hazardous materials as well as air
quality regulations. Furthermore, environmental laws could become more stringent
over time, and the costs of compliance with and penalties associated with
violation of more stringent laws could be substantial.
Sanmina is subject to certain environmental contingencies at sites operated
by acquired companies. In November 1997, Sanmina acquired Elexsys International,
Inc. which, by virtue of such acquisition, became a wholly-owned subsidiary of
Sanmina. Several facilities owned or occupied by Elexsys at the time of the
acquisition, or formerly owned or occupied by Elexsys or companies acquired by
Elexsys, had either soil contamination or contamination of groundwater
underneath or near the facility including the following: contamination was
discovered at Elexsys' Irvine, California facility in 1989 and Elexsys
voluntarily installed a groundwater remediation system at the facility in 1994.
The California Regional Water Quality Control Board has requested that Sanmina
extend the investigation of the groundwater contamination at the Irvine facility
to off-site areas. It is unknown what the results of this additional
investigation will be and whether any additional remediation activities will be
required. Sanmina has been required by the California Department of Toxic
Substances Control to undertake investigation of soil and/or groundwater at
certain facilities formerly owned or occupied by a predecessor company to
Elexsys in Mountain View, California. Depending upon the results of this soil
sampling and groundwater testing, Sanmina could be ordered to undertake soil
and/or groundwater cleanup. To date, Sanmina has not been ordered to undertake
any soil or groundwater cleanup activities at the Mountain View facilities, and
does not believe any such activities should be required. Test results received
to date are not sufficient to enable Sanmina to determine whether or not such
cleanup activities are likely to be mandated.
Contamination has also been discovered at other current and former Elexsys
facilities and has been reported to the relevant regulatory agencies. No
remediation or further investigation of such contamination has been required by
regulatory agencies. To date, the cost of the various investigations and the
cost of operating the remediation system at the Irvine facility have not been
material to Sanmina's financial condition. However, in the event Sanmina is
required to undertake additional groundwater or soil cleanup, the costs of such
cleanup are likely to be substantial. Sanmina is currently unable to estimate
the amount of such soil and groundwater cleanup costs because no soil or
groundwater cleanup has been ordered and Sanmina cannot determine from available
test results what remediation activities, if any, are likely to be required.
Sanmina believes, based on the limited information currently available, that the
cost of any groundwater or soil clean-up that may be required would not have a
material adverse effect on Sanmina's business, financial condition and results
of operations. Nevertheless, the process of remediating contaminated soil and
groundwater is costly, and if Sanmina is required to undertake substantial
remediation activities at one or more of the former Elexsys facilities, there
can be no assurance that the costs of such activities costs would not have a
material adverse effect on Sanmina's business, financial condition and results
of operations.
In November, 1998, Sanmina merged with Altron Incorporated which, by virtue
of such merger, became a wholly owned subsidiary of Sanmina. Altron was advised
in 1993 by Olin Corporation that contamination resulting from activities of
prior owners of property owned by Olin Corporation and located close to the
Altron manufacturing plant in Wilmington, Massachusetts, had migrated under the
Altron plant. Olin has assumed full responsibility for any remediation
activities that may be required and has agreed to indemnify and hold Altron
harmless from any and all costs, liabilities, fines, penalties, charges and
expenses arising from and relating to any action or requirement, whether imposed
by statute, ordinance, rule, regulation, order, decree or by general principles
of law to remediate, clean up or abate contamination emanating from the Olin
site. Although Sanmina believes that Olin's assumption of responsibility will
result in no remediation cost to Altron from the contamination, there can be no
assurance that Altron will not be subject to some costs regarding this matter,
but Sanmina does not anticipate that such costs, if any, will be material to its
financial condition or results of operations.
19
<PAGE> 21
Sanmina's international operations involve additional risks. Sanmina opened
its first overseas facility, located in Dublin, Ireland, in June 1997. A number
of risks are inherent in international operations and transactions.
International sales and operations may be limited or disrupted by the imposition
of government controls, export license requirements, political instability,
trade restrictions, changes in tariffs, and difficulties in staffing,
coordinating communications among and managing international operations.
Additionally, Sanmina's business, financial condition and results of operations
may be adversely affected by fluctuations in international currency exchange
rates as well as increases in duty rates, difficulties in obtaining export
licenses, constraints on its ability to maintain or increase prices, and
competition. There can be no assurance that Sanmina will realize the anticipated
strategic benefits of its expansion in Ireland or that Sanmina's international
operations will contribute positively to Sanmina's business, financial condition
and results of operations. Furthermore, difficulties encountered in scaling up
production at overseas facilities or in coordinating Sanmina's United States and
international operations, as well as any failure of the international operations
to realize anticipated revenue growth, could, individually or in the aggregate,
have a material adverse effect on Sanmina's business, financial condition and
results of operations.
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 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 June 30, 1999, and intends to complete
compliance testing by September 24, 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.
20
<PAGE> 22
Sanmina's stock price may be volatile. The trading price of the Sanmina
Common Stock has been and could in the future be subject to significant
fluctuations in response to variations in quarterly operating results,
developments in the electronics industry, general economic conditions, changes
in securities analysts' recommendations regarding Sanmina's securities and other
factors. In addition, the stock market in recent years has experienced
significant price and volume fluctuations which have affected the market prices
of technology companies and which have often been unrelated to or
disproportionately impacted by the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of
Sanmina's Common Stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
21
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 87,978 $ 54,278
Short-term investments.................................... 93,526 98,242
Accounts receivable, net of allowance for doubtful
accounts of $5,794 and $4,745.......................... 133,010 112,414
Inventories............................................... 102,940 93,564
Deferred income taxes..................................... 19,389 9,115
Prepaid expenses.......................................... 8,220 9,701
-------- --------
Total current assets.............................. 445,063 377,314
-------- --------
Property and Equipment:
Machinery and equipment................................... 279,277 223,119
Furniture and fixtures.................................... 5,695 4,380
Leasehold improvements.................................... 49,247 45,630
Land and buildings........................................ 21,636 23,289
-------- --------
355,855 296,418
Less:
Accumulated depreciation and amortization................. 164,093 133,706
-------- --------
Net property and equipment........................ 191,762 162,712
-------- --------
Other Assets:
Intangibles, net of accumulated amortization of $8,093 and
$5,063................................................. 19,030 10,628
Deposits and other........................................ 2,512 2,824
-------- --------
Total assets...................................... $658,367 $553,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 5,865 $ 9,795
Accounts payable.......................................... 89,030 79,825
Accrued liabilities....................................... 38,314 34,127
Income taxes payable...................................... 11,517 2,217
-------- --------
Total current liabilities......................... 144,726 125,964
-------- --------
Long-term Liabilities:
Convertible subordinated debt............................. 5,767 98,250
Other liabilities......................................... 25,889 31,394
-------- --------
Total long-term liabilities....................... 31,656 129,644
-------- --------
Commitments and Contingencies (notes 5 and 7)
Stockholders' Equity:
Preferred stock, $.01 par value:
Authorized: 5,000 shares; outstanding: none............ -- --
Common stock, $.01 par value:
Authorized: 75,000 shares; outstanding: 56,380 shares
and 48,998 shares..................................... 564 490
Additional paid-in capital................................ 238,933 134,012
Unrealized holding gain on investments and foreign
currency translation adjustment........................ 386 81
Retained earnings......................................... 242,379 163,564
-------- --------
482,262 298,147
Less treasury stock at cost............................ 277 277
-------- --------
Total stockholders' equity........................ 481,985 297,870
-------- --------
Total liabilities and stockholders' equity........ $658,367 $553,478
======== ========
</TABLE>
See accompanying notes.
22
<PAGE> 24
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $991,821 $803,064 $617,487
Cost of sales.............................................. 783,949 640,644 484,687
-------- -------- --------
Gross profit..................................... 207,872 162,420 132,800
-------- -------- --------
Operating Expenses:
Selling, general and administrative...................... 67,165 63,856 45,483
Amortization of goodwill................................. 3,127 2,283 2,000
Provision for plant closing costs........................ -- 8,876 --
Merger costs............................................. 3,945 -- --
-------- -------- --------
Total operating expenses......................... 74,237 75,015 47,483
-------- -------- --------
Operating income........................................... 133,635 87,405 85,317
Other income (expense), net................................ (272) (1,691) (760)
-------- -------- --------
Income before provision for income taxes................... 133,363 85,714 84,557
Provision for income taxes................................. 47,734 36,358 29,543
-------- -------- --------
Net income....................................... $ 85,629 $ 49,356 $ 55,014
======== ======== ========
Earnings per share:
Basic.................................................... $ 1.70 $ 1.02 $ 1.17
Diluted.................................................. 1.52 0.91 1.04
Shares used in computing per share amounts:
Basic.................................................... 50,301 48,301 47,138
Diluted.................................................. 58,597 57,616 55,666
</TABLE>
See accompanying notes.
23
<PAGE> 25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY
--------------- PAID-IN RETAINED STOCK
SHARES AMOUNT CAPITAL EARNINGS OTHER(1) AT COST TOTAL
------ ------ ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995........... 46,549 $465 $106,451 $ 59,876 $(22) (277) $166,493
Exercise of common stock options...... 713 7 3,046 -- -- -- 3,053
Issuance of common stock under
employee stock purchase plan........ 213 2 1,746 -- -- -- 1,748
Issuance of common stock for
businesses acquired................. 378 5 5,562 -- -- -- 5,567
Unrealized holding gain on
investments......................... -- -- -- -- 19 -- 19
Income tax benefit of disqualified
dispositions........................ -- -- 2,451 -- -- -- 2,451
Distributions by Manu-Tronics......... (386) (386)
Net income............................ -- -- -- 55,014 -- -- 55,014
------ ---- -------- -------- ---- ---- --------
BALANCE AT SEPTEMBER 30, 1996........... 47,853 479 119,256 114,504 (3) (277) 233,959
Exercise of common stock options...... 924 9 6,672 -- -- -- 6,681
Issuance of common stock under
employee stock purchase plan........ 221 2 3,161 -- -- -- 3,163
Cumulative translation adjustment..... -- -- -- -- 42 -- 42
Unrealized holding gain on
investments......................... -- -- -- -- 42 -- 42
Income tax benefit of disqualified
dispositions........................ -- -- 4,923 -- -- -- 4,923
Distributions by Manu-Tronics......... (296) (296)
Net income............................ -- -- -- 49,356 -- -- 49,356
------ ---- -------- -------- ---- ---- --------
BALANCE AT SEPTEMBER 30, 1997........... 48,998 490 134,012 163,564 81 (277) 297,870
Exercise of common stock options...... 1,081 11 6,800 -- -- -- 6,811
Issuance of common stock under
employee stock purchase plan........ 182 2 4,036 -- -- -- 4,038
Conversion of subordinated debt....... 6,119 61 86,189 -- -- -- 86,250
Cumulative translation adjustment..... -- -- -- -- 159 -- 159
Adjustment to conform year end of
pooled entity....................... -- -- -- (3,169) -- -- (3,169)
Unrealized holding gain on
investments......................... -- -- -- -- 146 -- 146
Income tax benefit of disqualified
dispositions........................ -- -- 7,896 -- -- -- 7,896
Distributions by Manu-Tronics......... (3,645) (3,645)
Net income............................ -- -- -- 85,629 -- -- 85,629
------ ---- -------- -------- ---- ---- --------
BALANCE AT SEPTEMBER 30, 1998........... 56,380 $564 $238,933 $242,379 $386 (277) $481,985
====== ==== ======== ======== ==== ==== ========
</TABLE>
- ---------------
(1) Unrealized holding gain on investments and foreign currency translation
adjustment.
See accompanying notes.
24
<PAGE> 26
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 85,629 $ 49,356 $ 55,014
Adjustments to reconcile net income to cash provided
by operating activities:
Adjustment to conform year end of pooled
entities......................................... (1,332) -- --
Depreciation and amortization...................... 37,052 29,114 19,851
Provision for plant closing costs.................. -- 8,876 --
Provision for doubtful accounts.................... 2,001 505 525
Deferred Taxes..................................... -- 2,345 1,189
(Gain) loss on disposal of fixed assets............ (748) 205 (12)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.............................. (16,998) (20,493) (12,180)
Inventories...................................... (5,996) (22,268) (10,377)
Prepaid expenses, deposits and other............. (366) (570) (117)
Accounts payable and accrued liabilities......... (2,792) 32,417 4,733
Income tax accounts.............................. 9,727 (2,106) (248)
--------- --------- ---------
Cash provided by operating activities......... 106,177 77,381 58,378
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments................... (101,169) (138,351) (205,501)
Proceeds from maturity of short-term investments...... 106,591 149,605 124,613
Cash paid for property and equipment.................. (55,288) (70,706) (51,669)
Cash paid for businesses acquired..................... (5,666) (18,879) (6,687)
Proceeds from sale of assets.......................... 2,591 332 68
--------- --------- ---------
Cash used for investing activities............ (52,941) (77,999) (139,176)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt........................ -- 8,033 118
Proceeds (payments) on line of credit, net............ (7,498) (1,543) 370
Repurchase of convertible subordinated debt........... (5,681) -- --
Payments of long-term liabilities..................... (17,417) (7,788) (1,860)
Proceeds from sale of common stock, net of issuance
costs.............................................. 11,060 10,594 5,950
--------- --------- ---------
Cash provided by (used for) financing
activities.................................. (19,536) 9,296 4,578
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 33,700 8,678 (76,220)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......... 54,278 45,600 121,820
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 87,978 $ 54,278 $ 45,600
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year:
Interest........................................... $ 7,311 $ 7,964 $ 7,666
Income taxes....................................... $ 37,822 $ 35,728 $ 27,914
NON-CASH FINANCING INFORMATION:
Conversion of subordinated debt to equity............. $ 86,250 $ -- $ --
</TABLE>
See accompanying notes.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION OF THE COMPANY
Sanmina Corporation (the "Company") was incorporated in Delaware in 1989
and is a leading independent provider of customized integrated electronics
manufacturing services, including turnkey electronic assembly and manufacturing
management services to original equipment manufacturers. Sanmina's services
consist primarily of the manufacture of complex printed circuit board assemblies
using surface mount and pin-through hole inter-connection technologies, the
manufacture of custom-designed backplane assemblies, fabrication of complex
multi-layered printed circuit boards, the manufacture of custom cable and wire
harness assemblies, and testing and assembly of completed systems. In addition,
Sanmina provides procurement and materials management, as well as consultation
on board design and manufacturing. The Company's manufacturing plants are
located in California, Massachusetts, Texas, New Hampshire, North Carolina,
Wisconsin, Alabama, Ireland, and England.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Short Term Investments -- The Company's investments are classified as
available for sale and are recorded at their fair value, as determined by quoted
market prices, with any unrealized gains or losses classified as a separate
component of stockholders' equity. Upon sale of the investments, any previously
unrealized gains or losses are recognized in results of operations. The specific
identification method is used to determine the cost of securities sold. Realized
gains and losses have not been material to date. As of September 30, 1998, the
difference between the aggregate fair value and cost basis was a net unrealized
gain of $207,336. The Company has the intent and ability to liquidate the
investments prior to the maturity period and, as such, has classified its
investments as short-term investments. The value of the Company's investments by
major security type is as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE UNREALIZED UNREALIZED
COST FAIR VALUE GAIN LOSS
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1998
U.S. government and agency securities........... $ 35,912 $ 35,990 $ 79 $(1)
State and municipal securities.................. 55,247 55,301 55 (1)
U.S. corporate and bank debt.................... 33,292 33,367 77 (2)
-------- -------- ---- ---
$124,451 $124,658 $211 $(4)
======== ======== ==== ===
AS OF SEPTEMBER 30, 1997
U.S. government and agency securities........... $ 27,379 $ 27,396 $ 17 --
State and municipal securities.................. 53,568 53,591 23 --
U.S. corporate and bank debt.................... 36,689 36,710 22 (1)
-------- -------- ---- ---
$117,636 $117,697 $ 62 $(1)
======== ======== ==== ===
</TABLE>
Approximately $31.1 million and $19.5 million of the total investments in
debt securities as of September 30, 1998 and 1997 respectively, are included in
cash and cash equivalents; the remaining balance is
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
classified as short-term investments. As of September 30, 1998, debt securities
with a fair value of $63.2 million mature within one year and $61.4 million
mature beyond one year.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market. Cost includes labor, material and manufacturing
overhead. The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Raw materials............................................... $ 55,179 $53,376
Work-in-process............................................. 34,528 27,430
Finished goods.............................................. 13,233 12,758
-------- -------
$102,940 $93,564
======== =======
</TABLE>
Property and Equipment -- Property and equipment are stated at cost or, in
the case of property and equipment acquired through business combinations, at
fair value based upon the allocated purchase price at the acquisition date.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the related assets (three to five years, or
twenty-five years in the case of buildings) or, in the case of leasehold
improvements, over the remaining term of the related lease, if shorter.
Intangibles -- Intangibles arising from the Company's acquisitions (see
Note 6) are amortized on a straight-line basis over the estimated useful life of
five to ten years. The Company continually evaluates whether long-lived assets
have become impaired in value.
Revenue Recognition -- The Company recognizes revenue from manufacturing
services at the time of product shipment. Where appropriate, provisions are made
at that time for estimated warranty and return costs.
Net Income Per Share -- Basic earnings per share was computed by dividing
net income by the weighted average number of shares of common stock outstanding.
Diluted earnings per share includes dilutive common stock equivalents, using the
treasury stock method, and assumes that the convertible debt instruments were
converted into common stock, if dilutive. As a result of the adoption of SFAS
No. 128, the Company's reported earnings per share were restated for all periods
presented (see Note 3).
Stock Based Compensation -- Effective October 1, 1996, the Company adopted
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS 123, the Company
continues to apply Accounting Principals Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock option plans.
New Accounting Standards -- In February 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 129, "Disclosure of Information about
Capital Structure," which will be adopted by the Company in fiscal 1999. SFAS
129 requires companies to disclose certain information about their capital
structure. SFAS 129 will not have a material impact on the Company's financial
statement disclosures.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components. SFAS 130 is effective for fiscal year 1999.
Management does not believe the adoption of SFAS 130 will have a material impact
on the Company's financial statement disclosures.
In June 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 introduces a new model for segment
reporting, called the "management approach." SFAS 131 is effective for fiscal
year 1999. Management believes the adoption of SFAS 131 will increase its
disclosure requirements of operations of the Company.
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 requires that derivative
instruments be recorded in the balance sheet at their fair market value, with
changes in the fair value recorded in the income statement unless specific
hedging criteria is met. Management does not believe the adoption of SFAS 133
will have a material impact on the Company's financial statement disclosures.
NOTE 3. EARNINGS PER SHARE
In the first quarter of fiscal 1998, the Company adopted the provisions of
SFAS No. 128, "Earnings Per Share." SFAS 128 requires the replacement of
previously reported primary and fully diluted earnings per share (EPS) as
required by APB Opinion No. 15 (APB 15) with basic earnings per share and
diluted earnings per share.
Basic EPS was computed by dividing net income by the weighted average
number of shares of common stock outstanding during fiscal 1998, 1997, and 1996.
Diluted EPS includes dilutive common stock equivalents, using the treasury stock
method, and assumes that the convertible debt instruments were converted into
common stock upon issuance, if dilutive. A reconciliation of the net income and
weighted average number of shares used for the diluted earnings per share
computations follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income................................................ $85,629 $49,356 $55,014
Add back after-tax interest expense for convertible
subordinated debt....................................... 3,676 3,101 3,152
------- ------- -------
Income for calculating earnings per share................. $89,305 $52,457 $58,166
======= ======= =======
Weighted average number of shares outstanding during the
period.................................................. 50,301 48,301 47,138
Applicable number of shares for stock options outstanding
for the period.......................................... 2,870 3,196 2,409
Weighted average number of shares if convertible
subordinated debt were converted........................ 5,426 6,119 6,119
------- ------- -------
Weighted average number of shares......................... 58,597 57,616 55,666
------- ------- -------
Diluted earnings per share................................ $ 1.52 $ 0.91 $ 1.04
======= ======= =======
</TABLE>
NOTE 4. CONVERTIBLE SUBORDINATED DEBT
In 1995, the Company issued $86.3 million of 5.5% convertible subordinated
notes (the "Notes") due in 2002. The notes were convertible into common stock,
at the option of the note holder, and were redeemable at the option of the
Company on or after August 15, 1998, initially at 103.143% of the face value and
at decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest. On August 19, 1998, the Company called for redemption of the
notes which represented $86.3 million in debt. All note holders elected to
convert their notes to equity.
In 1987, Elexsys issued $32 million of 5.5% convertible subordinated
debentures (the "Debentures") due on March 1, 2012. The Debentures are currently
convertible into shares of common stock at $59.85, subject to adjustment under
certain conditions. The Debentures are redeemable by the Company at declining
premiums prior to March 1, 1997 and thereafter at 100 percent of the principal
amount. The Debentures are also redeemable through the operation of a sinking
fund at 100 percent of the principal amount. Interest is payable semi-annually
on September 1 and March 1 of each year. Mandatory annual sinking fund payments,
sufficient to retire 5 percent of the aggregate principal amount of the
Debentures issued, were to be made on each March 1 commencing in 1997. As a
result of two exchanges of common stock for $16 million and $4 million of the
Debentures in fiscal 1994 and fiscal 1995, respectively, the Company now has
sinking fund credits available to offset these obligations for twelve and
one-half years, thus no sinking fund payments will be required until 2009. In
addition, the Company repurchased approximately $5.7 million (including
premiums)
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of Debentures during fiscal 1998. The Debentures are subordinated to all senior
indebtedness of the Company. As of September 30, 1998, $5.8 million of the
Debentures remain outstanding.
On April 29, 1999, the company announced that it has entered into an
agreement to offer qualified institutional investors $300 million (this may be
increased by up to an additional $50 million pursuant to an over-allotment
option) 4.25% Convertible Subordinated notes due 2004 ("New Notes"). The New
Notes will be convertible at the option of the holder, at any time on or before
May 1, 2004. The New Notes will be convertible into shares of common stock at
$88.67. At any time on or after May 6, 2002, the New Notes will be redeemable at
the Company's option. Interest will be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1999. The New Notes are
subordinated to existing and future indebtedness, as defined.
NOTE 5. COMMITMENTS
The Company leases its facilities under operating leases expiring at
various dates through October 2010. The Company is responsible for utilities,
maintenance, insurance and property taxes under the leases. Minimum future lease
payments under non-cancelable operating leases are approximately as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
--------------------------
<S> <C>
1999............................................... $ 7,761
2000............................................... 6,805
2001............................................... 5,173
2002............................................... 4,150
2003............................................... 3,174
Thereafter......................................... 6,316
-------
$33,379
=======
</TABLE>
Rent expense under operating leases was approximately $6.4 million, $6.1
million and $5.9 million for the years ended September 30, 1998, 1997 and 1996,
respectively.
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.
NOTE 6. ACQUISITIONS
In November 1997, the Company merged with Elexsys International, Inc.
("Elexsys"). Under the terms of the merger agreement, the Company's common stock
was exchanged for all of Elexsys' outstanding common stock. Approximately 3.3
million shares of common stock were issued to acquire Elexsys. 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.
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. The merger was accounted
for as a pooling of interests, and therefore, all prior periods presented were
restated to combine the results of the companies. Altron's year end was December
31. For purposes of the restatement, Altron's year ended September 30, 1998 was
combined with the Company's year ended September 30, 1998 and Altron's years
ended December 31, 1997 and December 31, 1996 were combined with the Company's
years' ended September 30, 1997 and September 30, 1996 respectively. As a
result, the net sales and net income of Altron
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the quarter ended December 31, 1997, have been included in both fiscal 1998
and 1997. An adjustment of $3.2 million to account for the duplication of net
income has been made to retained earnings in fiscal 1998.
On December 28, 1998, the Company merged with Telo Electronics,
Incorporated, a California corporation ("Telo"). The Company issued 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.
In March 1999, the Company merged with Manu-Tronics, Incorporated
("Manu-Tronics"). 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 twelve months ended
September 30, 1998, 1997 and 1996, to previously reported information, is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Sanmina.......................................... $722,581 $405,212 $265,076
Elexsys.......................................... -- 164,575 126,906
Altron........................................... 201,207 172,428 165,248
Manu-Tronics..................................... 68,033 60,849 60,257
-------- -------- --------
Combined......................................... $991,821 $803,064 $617,487
======== ======== ========
Net Income (loss):
Sanmina.......................................... $ 68,151 $ 40,902 $ 28,095
Elexsys.......................................... -- (10,377) 8,470
Altron........................................... 13,088 14,667 17,715
Manu-Tronics..................................... 4,390 4,164 734
-------- -------- --------
Combined......................................... $ 85,629 $ 49,356 $ 55,014
======== ======== ========
</TABLE>
On February 23, 1998, the Company acquired Pragmatech, Inc. ("Pragmatech")
in a stock purchase transaction. The purchase price was approximately $5.7
million. The acquisition, which was accounted for as a purchase, included the
payment of cash and the assumption of liabilities. Accordingly, the results of
operations for the year ended September 30, 1998, include the results of
operations of this business from the date of acquisition. The purchase price was
allocated to the net liabilities assumed on a fair value basis. The acquisition
resulted in goodwill of $11.5 million which was to be amortized over a ten year
period. Subsequent to September 30, 1998, the Company recorded an adjustment to
write down certain long-lived assets of Pragmatech to take account of an
impairment in value of those assets.
The unaudited pro forma financial information for the years ended September
30, 1998, 1997, and 1996 is presented below as if Pragmatech had been acquired
on October 1, 1995:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(UNAUDITED)
-------------------------------------
1998 1997 1996
----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue........................................... $1,018,817 $857,618 $649,713
Net Income........................................ 83,074 47,478 52,823
Net income per share -- diluted................... $ 1.48 $ 0.88 $ 1.01
Diluted shares used in calculating per share
amounts......................................... 58,597 57,616 55,666
</TABLE>
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has also completed several other smaller acquisitions
subsequent to September 30, 1998. 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 7. CONTINGENCIES
In the normal course of business, the Company may be subject to litigation
matters. The Company does not believe the ultimate resolution of any such
pending or threatened litigation matters would have a material adverse effect on
the Company's financial position or results of operations.
NOTE 8. STOCKHOLDERS' EQUITY
Common Stock -- In June 1998, the Company effected a two-for-one stock
split payable in the form of a dividend. Accordingly, all share and per share
data has been adjusted to retroactively reflect the stock split.
SANMINA STOCK OPTION PLANS
Stock Option Plans -- The 1990 Incentive Stock Plan (the "Plan") provides
for the grant of incentive stock options, non-statutory stock options, and stock
purchase rights to employees and other qualified individuals to purchase shares
of the Company's Common Stock at amounts not less than 100% of the fair market
value of the shares on the date of the grant.
The 1995 Director Option Plan (the "Director Plan") provides for the
automatic grant of stock options to outside directors of the Company or any
subsidiary of the Company at amounts not less than 100% of the fair market value
of the shares on the date of grant.
The 1996 Supplemental Stock Option Plan (the "Supplemental Plan") permits
only the grant of non-statutory options and provides that options must have an
exercise price at least equal to the fair market value of the Company's Common
Stock on the date of the grant. Options under the Supplemental Plan may be
granted to employees and consultants, but executive officers and directors may
not be granted options under the Supplemental Plan.
Options under the three plans vest as determined by the Board of Directors
and in no event may an option have a term exceeding ten years from the date of
the grant. Total shares authorized for issuance under all Sanmina plans are
9,900,000 at September 30, 1998.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Option activity under the Sanmina plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVG.
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1995...................... 3,398,861 $ 5.46
Granted.......................................... 1,662,723 $11.53
Exercised........................................ (521,917) $ 3.18
Cancelled........................................ (383,713) $ 6.03
---------- ------
BALANCE AT SEPTEMBER 30, 1996...................... 4,155,954 $ 8.12
Granted.......................................... 1,764,790 $20.83
Exercised........................................ (735,292) $ 6.64
Cancelled........................................ (235,310) $11.43
---------- ------
BALANCE AT SEPTEMBER 30, 1997...................... 4,950,142 $12.69
Granted.......................................... 1,835,700 $34.09
Exercised........................................ (1,039,179) $ 7.87
Cancelled........................................ (258,789) $21.06
---------- ------
BALANCE AT SEPTEMBER 30, 1998...................... 5,487,874 $20.39
========== ======
</TABLE>
The following table summarizes information regarding stock options
outstanding under Sanmina option plans at September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS VESTED AND EXERCISABLE
WEIGHTED ---------------------------------
NUMBER AVERAGE WEIGHTED NUMBER VESTED WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE AND EXERCISABLE AVERAGE
EXERCISE PRICES AS OF 9/30/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 9/30/98 EXERCISE PRICE
--------------- ------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.50 - $ 8.69.. 1,385,889 5.48 $ 5.96 985,763 $ 5.51
$ 9.63 - $20.07.. 1,527,749 7.48 $14.95 643,210 $14.53
$20.13 - $32.32.. 1,534,439 8.80 $28.00 317,883 $27.33
$32.38 - $45.94.. 1,039,797 9.32 $36.27 122,453 $36.34
--------------- --------- ---- ------ --------- ------
$ 0.50 - $45.94.. 5,487,874 7.70 $20.39 2,069,309 $13.49
=============== ========= ==== ====== ========= ======
</TABLE>
Sanmina Employee Stock Purchase Plan -- The Company's employee stock
purchase plan (the "Purchase Plan") provides for the issuance of up to 1,700,000
shares of common stock. Under the Purchase Plan, employees may purchase, on a
periodic basis, a limited number of shares of common stock through payroll
deductions over a six-month period. The per share purchase price is 85% of the
fair market value of the stock at the beginning or end of the offering period,
whichever is lower. As of September 30, 1998, 1,374,498 shares had been issued
under the Purchase Plan.
ALTRON OPTION PLANS
Altron, prior to its merger with Sanmina, had stock option plans. These
plans and the activity therein are separately discussed below. In connection
with the merger of Sanmina and Altron, options are no longer granted from the
Altron plans and any options outstanding that were initially granted under the
Altron plans are exercisable into Sanmina common stock. Any forfeitures of
Altron options are returned to the Sanmina stock option plans. The following
Altron plan information reflects the merger exchange ratio of 0.4545 shares of
Sanmina common stock for each share of Altron common stock.
The Altron 1989 Nonqualified Stock Option Plan for Non-Employee Directors
provided for options exercisable over five years commencing 12 months from the
date of grant and expiring 10 years from the date of grant.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Altron 1991 Stock Option Plan provided for incentive stock options
granted at fair market value at the date of grant and nonqualified stock options
granted at prices determined by a committee of the Board of Directors. All
options are exercisable over a five-year period, commencing 12 months from the
date of grant unless accelerated and expire 10 years from the date of grant.
The Altron 1992, 1993 and 1995 Stock Option Plans for Non-Employee
Directors provided for options exercisable over a two-year period from the date
of grant and expiring 10 years from the date of grant.
The Altron 1996 Stock Option Plan for Non-Employee Directors provided for
options exercisable over a three-year period commencing 12 months from the date
of grant and expiring 10 years from the date of grant.
The following table summarizes information about Altron's stock options
outstanding and exercisable at September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER OF REMAINING AVERAGE EXERCISE NUMBER OF AVERAGE EXERCISE
PRICE RANGE OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
----------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2.68 - 3.59 43,723 2.3 years $ 3.03 43,723 $ 3.03
$ 4.73 1,841 4.3 $ 4.73 1,841 $ 4.73
$10.36 - $14.79 136,549 5.0 $11.42 127,550 $11.24
$19.32 - $28.05 361,716 7.2 $22.97 208,369 $23.15
$29.44 - $43.19 422,617 8.6 $34.02 71,758 $37.14
------- -------
966,446 453,241
======= =======
</TABLE>
The following table summarizes the stock option activity for the period
ended September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
WEIGHTED
AVG.
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
Outstanding at December 30, 1995.................... 699,526 $13.97
Granted........................................... 260,202 $30.65
Exercised......................................... (109,194) $ 7.85
Canceled.......................................... (5,863) $26.69
-------- ------
Outstanding at December 28, 1996.................... 844,671 $19.82
Granted........................................... 305,652 $33.38
Exercised......................................... (103,874) $ 7.92
Canceled.......................................... (50,458) $29.28
-------- ------
Outstanding at January 3, 1998...................... 995,991 $24.73
======== ======
Outstanding at September 30, 1997................... 777,830 $21.76
Granted........................................... 363,373 $31.66
Exercised......................................... (83,433) $13.46
Canceled.......................................... (91,324) $32.06
-------- ------
Outstanding at September 30, 1998................... 966,446 $25.26
======== ======
Exercisable at September 30, 1998................... 453,240 $20.00
======== ======
</TABLE>
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 1998, the Company has reserved the following shares of
authorized but unissued common stock:
<TABLE>
<S> <C>
Convertible subordinated debt............................. 96,360
Stock option plans -- Sanmina............................. 6,835,636
Stock option plans -- Altron.............................. 966,446
Employee stock purchase plan.............................. 325,502
---------
8,223,944
=========
</TABLE>
Stock-based Compensation -- The Company accounts for its stock option plans
and employee stock purchase plan under APB Opinion No. 25 and related
interpretations, under which no compensation cost has been recognized as the
exercise price per share for stock options was equal to the fair market value of
the stock on the date of grant and the Purchase Plan qualified as a
non-compensatory plan. Had compensation cost for these Plans been determined
consistent with SFAS No. 123, the Company's net income and net income per share
would have been reduced to the following pro forma amounts (in thousands, except
per share data):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported................................. $85,629 $49,356 $55,014
Pro forma................................... 63,207 37,020 48,138
Basic EPS:
As reported................................. $ 1.70 $ 1.02 $ 1.17
Pro forma................................... 1.26 0.77 1.02
Diluted EPS:
As reported................................. $ 1.52 $ 0.91 $ 1.04
Pro forma................................... 1.08 0.64 0.86
</TABLE>
The weighted average fair values of options granted by Sanmina during
fiscal 1998, 1997, 1996 was $18.50, $12.24, and $7.64 per share, respectively.
The weighted average for values of options granted by Altron during fiscal 1998,
1997 and 1996 was $17.76, $20.46, and $18.66, respectively. The fair value of
each stock option granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Volatility.................... 52% - 75% 53% - 78% 48% - 78%
Risk-free interest rate....... 4.81% - 5.72% 5.83% - 6.66% 5.97% - 6.73%
Dividend yield................ 0% 0% 0%
Sanmina expected lives
(management and directors)
beyond vesting.............. 0.6 1.0 1.0
Sanmina expected lives
(employees) beyond
vesting..................... 0.3 0.6 0.6
Altron expected lives......... 7.0 4.0 - 7.0 4.0 - 7.5
</TABLE>
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Federal:
Current..................................... $48,797 $28,641 $25,046
Deferred.................................... (7,728) (153) (1,163)
------- ------- -------
41,069 28,488 23,883
======= ======= =======
State:
Current..................................... 7,617 7,207 5,955
Deferred.................................... (952) 663 (295)
------- ------- -------
6,665 7,870 5,660
------- ------- -------
Total provision for income taxes.............. $47,734 $36,358 $29,543
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount estimated by
applying the statutory Federal income tax rate to income before taxes as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Federal tax at statutory rate................ $ 45,147 $35,194 $29,839
State income taxes, net of federal benefit... 6,148 4,905 4,128
Foreign subsidiary loss...................... 410 -- 303
Effect of non-deductible goodwill
amortization............................... 672 692 493
Tax exempt interest income................... (713) (436) (359)
FSC benefit.................................. (179) (530) (355)
Tax credits.................................. (792) (412) (507)
Change in valuation allowance................ (11,598) (3,168) (3,636)
Other........................................ 8,639 113 (363)
-------- ------- -------
Total provision for income taxes... $ 47,734 $36,358 $29,543
======== ======= =======
</TABLE>
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1998 1997
------- --------
<S> <C> <C>
Cumulative temporary differences:
State taxes............................................. $ 1,726 $ 1,128
Accrued vacation........................................ 1,232 1,081
Allowance for doubtful accounts......................... 1,772 1,438
Depreciation............................................ 8,862 7,166
Inventory reserve....................................... 6,255 5,489
Accrued bonuses......................................... 2,251 58
General reserve......................................... 1,645 605
Environmental reserve................................... 2,216 2,381
Accrued plant closing costs............................. 450 3,482
Net operating loss carryforwards........................ 4,245 7,381
Tax credit carryforwards................................ 405 961
Other................................................... 2,459 3,294
------- --------
Total deferred income tax asset............... 33,518 34,464
Valuation allowance..................................... (5,267) (16,865)
------- --------
Net deferred income tax asset........................... $28,251 $ 17,599
======= ========
</TABLE>
The valuation allowance provides a reserve against deferred tax assets that
may expire or become unutilized by the Company. In accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," the
Company believes it is more likely than not the Company will not realize a
portion of the benefits of these deferred tax assets, and accordingly, has
provided a valuation allowance for them. Federal net operating loss
carryforwards of $6.9 million will expire at various dates from the year 2007
through 2010. State net operating loss carryforwards of $3.9 million will expire
in 1999. Foreign net operating loss carryforwards of $6.0 million will
carryforward indefinitely.
NOTE 10. BUSINESS SEGMENT AND CONCENTRATION OF CREDIT RISK
The Company operates in one business segment -- the manufacture, testing
and servicing of a full spectrum of complex printed circuit boards, custom
backplane interconnect devices, and electronic assembly services. Revenue is
principally derived from customers in the United States.
Sales to major customers who accounted for more than 10% of net sales were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 1997 1996
------------------------- ---- ---- ----
<S> <C> <C> <C>
Customer A................................. 14.8% * *
Customer B................................. 13.9% 12.6% *
</TABLE>
- ---------------
* less than 10% of net sales
The Company's most significant credit risk is the ultimate realization of
its accounts receivable. This risk is mitigated by (i) sales to well established
companies, (ii) ongoing credit evaluation of its customers, and (iii) frequent
contact with its customers, especially its most significant customers, thus
enabling the Company to monitor current changes in business operations and to
respond accordingly.
36
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Sanmina Corporation:
We have audited the accompanying consolidated balance sheets of Sanmina
Corporation (a Delaware Corporation) and its subsidiaries as of September 30,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sanmina Corporation and its
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
San Jose, California
April 30, 1999
37
<PAGE> 39
STATEMENT OF FINANCIAL RESPONSIBILITY
To the Stockholders:
The management of Sanmina is responsible for the preparation of the
accompanying consolidated financial statements. They have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances and, as such, include estimates and judgments of management.
Management also prepared the other information in the annual report and is
responsible for its accuracy and consistency with the financial statements. The
consolidated financial statements for the years ended September 30, 1998, 1997,
and 1996 were audited by Arthur Andersen LLP, independent public accountants.
The Company maintains an accounting system and related internal controls
that it believes are sufficient to provide reasonable assurance that assets are
safeguarded, that transactions are executed and recorded in accordance with
management's authorization, and that the financial records are reliable for
preparing financial statements. The concept of reasonable assurance is based on
the recognition that the cost of the system of internal control must be related
to the benefits derived and that the balancing of those factors requires
estimates and judgments. The system is monitored regularly by the Company for
compliance. In addition, solely for the purposes of planning and performing its
audit of the Company's consolidated financial statements, Arthur Andersen LLP
obtained an understanding of, and selectively tested, certain aspects of the
Company's system of internal control.
The Board of Directors has an Audit Committee comprised solely of outside
directors. The Committee meets with management and the independent public
accountants in connection with its review of matters relating to the annual
financial statements, the Company's system of internal accounting controls and
the services of the independent public accountants. Arthur Andersen LLP has full
and free access to meet with the Committee, with or without management
representatives present, to discuss the results of its audits, the adequacy of
internal accounting controls and the quality of financial reporting.
April 30, 1999
/s/ JURE SOLA
--------------------------------------
Jure Sola
Chairman of the Board and Chief
Executive Officer
/s/ RANDY W. FURR
--------------------------------------
Randy W. Furr
President and Chief Operating Officer
/s/ BERNARD J. WHITNEY
--------------------------------------
Bernard J. Whitney
Executive Vice President and Chief
Financial Officer
May 3, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
38
<PAGE> 40
PART III
Certain information required by Part III is omitted from this Report on
Form 10-K/A in that the Registrant has filed a definitive proxy statement with
respect to the 1999 Annual Meeting of Stockholders (the "Proxy Statement") held
on January 29, 1999 and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item relating to directors is incorporated
by reference to the information under the caption "Proposal No. 1 -- Election of
Directors" in the Proxy Statement.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and certain
information about them as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------------------------------------------
<S> <C> <C>
Jure Sola.................................. 46 Chairman, Chief Executive Officer and
Director(1)
Randy W. Furr.............................. 43 President and Chief Operating Officer
Bernard J. Whitney......................... 41 Executive Vice President and Chief
Financial Officer
Michael J. Landy........................... 43 Executive Vice President of Sales and
Marketing
Samuel Altschuler.......................... 71 Executive Vice President and Director
Neil Bonke................................. 57 Director(1)(2)
John Bolger................................ 52 Director(2)
Bernard Vonderschmitt...................... 75 Director(1)
Mario Rosati............................... 52 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Sola co-founded Sanmina in 1980 and initially held the position of Vice
President of Sales and Marketing and was responsible for the development and
growth of the Company's sales organization. He became Vice President and General
Manager in October 1987 with responsibility for all manufacturing operations as
well as sales and marketing. Mr. Sola was elected President in October 1989 and
has served as Chairman of the Board and Chief Executive Officer since April
1991. Mr. Sola relinquished the title of President when Mr. Furr was appointed
to such position in March 1996.
Mr. Furr joined Sanmina as Vice President and Chief Financial Officer in
August 1992. In March 1996, Mr. Furr was appointed President and Chief Operating
Officer. From April to August 1992, Mr. Furr was Vice President and Chief
Financial Officer of Aquarius Systems Inc. North America ("ASINA"), a
manufacturer of personal computers. Prior to working at ASINA, he held numerous
positions in both financial and general management for General Signal
Corporation during a 13 year period, serving most recently as Vice President and
General Manager of General Signal Thinfilm Company. Mr. Furr is a Certified
Public Accountant.
Mr. Whitney joined Sanmina as Vice President and Chief Financial Officer in
August 1997. He was named an Executive Vice President of the Company in October
1998. From June 1995 to July 1997, he worked for Network General Corporation, a
network fault and performance management solutions company, serving first as
Corporate Controller, then in May 1996, he was named Vice President of Finance.
Prior to joining Network General, he worked for Conner Peripherals serving in a
variety of positions in corporate finance from February 1987 to June 1995.
Mr. Landy became Vice President of Sales and Marketing at Sanmina in
October 1997. He was named an Executive Vice President of the Company in October
1998. He joined Sanmina in August 1993 as General
39
<PAGE> 41
Manager of the Company's Richardson, Texas operations and in 1995 was promoted
to Vice President Assembly Operations for the Central Region of the United
States. Prior to his employment with Sanmina, Mr. Landy held a senior management
position with a telecommunications corporation.
Mr. Altschuler was president and a director of Altron Incorporated, an
electronic manufacturing services company, since Altron's founding in 1970 and
Chairman of the Board of Directors of that company since 1983. Mr. Altschuler
became a director and an Executive Vice President of the Company in November
1998, upon the consummation of the merger between Altron Incorporated and the
Company. Mr. Altschuler is also a director of Massbank Corp., a bank holding
company.
Mr. Bonke has been a director of the Company since 1995. He also serves on
the Board of Directors of Electroglas, Inc., FSI International and SpeedFam
International, all semiconductor equipment companies. Mr. Bonke previously
served as the Chairman of the Board of Electroglas, Inc. From April 1993 to
April 1996, he served as Chief Executive Officer of Electroglas. From September
1990 to April 1993, Mr. Bonke was a Group V.P. and President of Semiconductor
Operations of General Signal Corp.
Mr. Bolger has been a director of the Company since 1994. From June 1989
through April 1992, he served as Vice President of Finance and Administration of
Cisco Systems, Inc., a manufacturer of computer networking systems. Mr. Bolger
is currently an independent business consultant and serves as a director of
Integrated Device Technology, Inc., Integrated Systems, Inc., TCSI, Inc. and
Mission West Properties, Inc.
Mr. Vonderschmitt has been a director of the Company since October 1990. He
co-founded Xilinx, Inc., a manufacturer of field programmable gate array
semiconductor products and related system software, served as its Chief
Executive Officer and as a director from its inception in February 1984 through
February 1996, and has served as the Chairman of its Board of Directors since
February, 1996. He is also a director of International Microelectronic Products,
Inc., and Credence Systems Corporation.
Mr. Rosati has been a member of the law firm Wilson Sonsini Goodrich &
Rosati, Professional Corporation since 1971. Mr. Rosati is a director of Aehr
Test Systems, a manufacturer of computer hardware testing systems, Genus, Inc.,
a semiconductor equipment manufacturer, and Ross Systems, Inc., a software
company. He has been a director of the Company since 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information under the caption "Record Date and Stock Ownership" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information under the caption "Certain Transactions" in the Proxy Statement.
40
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following Financial Statements of Sanmina Corporation and Report of
Independent Public Accountants are included in Item 8.
2. FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of Sanmina Corporation and the
related report of independent public accountants is filed as part of this report
incorporated by reference herein:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the notes
thereto.
3. EXHIBITS
Refer to (c) below.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fiscal quarter
ended September 30, 1998.
41
<PAGE> 43
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.2(8) Restated Certificate of Incorporation of Registrant.
3.3(1) Bylaws of Registrant, as amended.
4.2(1) Specimen Stock Certificate.
10.4(1) Form of Indemnification Agreement.
10.2(4) Amended 1990 Incentive Stock Plan.
10.3(1) 1993 Employee Stock Purchase Plan.
10.9(k)(2) Amended and Restated Credit Agreement dated as of August 18,
1993 among Sanmina Corporation, Chemical Bank and other
lenders.
10.9(k)(5) Amendment dated July 27, 1995 to Amended and Restated Credit
Agreement dated August 18, 1993.
10.9(1)(2) Revolving Credit Note, $12,000,000.00, Chemical Bank.
10.10(1) Lease for premises at 2109 O'Toole Avenue, Suites A-E, San
Jose, California (Portion of Plant I).
10.11(1) Lease for premises at 2101 O'Toole Avenue, San Jose,
California (Portion of Plant I).
10.12(1) Lease for premises at 2539 Scott Boulevard, Santa Clara,
California (Plant III).
10.14(1) Lease for premises at 2060-2068 Bering Drive, San Jose,
California (Plant II).
10.15(1) Lease for premises at 4220 Business Center Drive, Fremont,
California (Plant V).
10.16(1) Lease for premises at McCarthy Boulevard, Milpitas,
California (Plant VI).
10.17(1) Lease for premises at 2121 O'Toole Avenue, San Jose,
California (Corporate Headquarters).
10.19(2) Lease for premises at 1250 American Parkway, Richards, Texas
(Plant VII).
10.20(2) Lease for premises at 6453 Kaiser Drive, Fremont, California
(Plant VIII).
10.21(3) Asset Purchase Agreement dated September 28, 1994 between
Registrant and Comptronix Corporation.
10.22(4) Lease for premises at 355 East Trimble Road, San Jose,
California.
10.23(5) Stock Purchase Agreement dated May 31, 1995 between Sanmina
Corporation, Assembly Solutions, Inc. and the principal
stockholders of Assembly Solutions, Inc.
10.24(6) Indenture dated August 15, 1995 between Registrant and
Norwest Bank Minnesota, N.A. as Trustee.
10.25(7) Asset Purchase Agreement dated September 20, 1996 between
Registrant and Comptronix Corporation.
10.26(9) Agreement and Plan of Merger dated July 22, 1997 among
Registrant, SANM Acquisition Subsidiary, Inc. and Elexsys
International, Inc.
10.26(10) Agreement and Plan of Merger dated September 2, 1998 among
Registrant, SANM Acquisition Subsidiary, Inc. and Altron,
Inc.
10.27(11) Synthetic lease agreement.
11.1 Statement of Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the Fiscal Year ended September
30, 1998.
27.2 Financial Data Schedule for the Fiscal Year ended September
30, 1997.
27.3 Financial Data Schedule for the Fiscal Year ended September
30, 1996.
</TABLE>
42
<PAGE> 44
- ---------------
(1) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-70700 filed
with the Securities and Exchange Commission ("SEC") on February 19, 1993.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1 No. 33-70700 filed
with the SEC on October 22, 1993.
(3) Incorporated by reference to exhibit no. 2 previously filed with
Registrant's Report on Form 8-K filed with the SEC on October 28, 1994.
(4) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Report on Form 10-K filed with the SEC on December 29,
1994.
(5) Incorporated by reference to the like-numbered exhibit previously filed
with Registrant's Report on Form 10-Q filed with the SEC on July 31, 1995.
(6) Incorporated by reference to the like-numbered exhibit previously filed
with Registrant's Report on Form 10-K for the fiscal year ended September
30, 1995.
(7) Incorporated by reference to exhibit 2 previously filed with the
Registrant's Report on Form 8-K filed with the SEC on November 15, 1996.
(8) Incorporated by reference to the like numbered exhibit previously filed
with Registrant's Report on Form 10-K for the fiscal year ended September
30, 1997.
(9) Incorporated by reference to exhibit 2.1 previously filed with Registrant's
Report on Form 8-K filed with the SEC on November 21, 1997.
(10) Incorporated by reference to exhibit 2.1 previously filed with Registrant's
Report on Form 8-K filed with the SEC on September 4, 1998.
(11) Incorporated by reference to the like-numbered exhibit previously filed
with Registrant's Report on Form 10-K for the fiscal year ended September
30, 1998.
43
<PAGE> 45
SIGNATURES
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
By:
------------------------------------
Jure Sola
Chairman and Chief Executive Officer
Date: May 3, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JURE SOLA Chairman, Chief Executive Officer and May 3, 1999
- --------------------------------------------- Director (Principal Executive
Jure Sola Officer)
/s/ BERNARD J. WHITNEY Executive Vice President and Chief May 3, 1999
- --------------------------------------------- Financial Officer (Principal
Bernard J. Whitney Financial and Accounting Officer)
/s/ SAMUEL ALTSCHULER* Director May 3, 1999
- ---------------------------------------------
Samuel Altschuler
/s/ NEIL BONKE* Director May 3, 1999
- ---------------------------------------------
Neil Bonke
/s/ JOHN BOLGER* Director May 3, 1999
- ---------------------------------------------
John Bolger
/s/ BERNARD VONDERSCHMITT* Director May 3, 1999
- ---------------------------------------------
Bernard Vonderschmitt
/s/ MARIO M. ROSATI* Director May 3, 1999
- ---------------------------------------------
Mario M. Rosati
By: /s/ JURE SOLA
----------------------------------------
Jure Sola, Attorney-in-fact
</TABLE>
44
<PAGE> 46
SCHEDULE II
SANMINA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts and Returns
Fiscal year ended September 30, 1996............ $2,387 $ 699 $356 $2,730
Fiscal year ended September 30, 1997............ $2,730 $2,288 $273 $4,745
Fiscal year ended September 30, 1998............ $4,745 $1,994 $945 $5,794
</TABLE>
S-1
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders
of Sanmina Corporation:
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in this Form 10-K/A, and have issued our
report thereon dated April 30, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule at Item
14(a)2 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
April 30, 1999
S-2
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11.1 Statement of Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule for the Fiscal Year ended September
30, 1998.
27.2 Financial Data Schedule for the Fiscal Year ended September
30, 1997.
27.3 Financial Data Schedule for the Fiscal Year ended September
30, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 11.1
SANMINA CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BASIC DILUTED
------- -------
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998
Net income.................................................. $85,629 $85,629
Add interest expense on convertible subordinated debentures,
net of tax................................................ -- 3,676
------- -------
$85,629 $89,305
======= =======
Weighted average shares outstanding......................... 50,301 50,301
Net effect of dilutive stock options........................ -- 2,870
Assumed conversion of subordinated debentures............... -- 5,426
------- -------
Common and common equivalent shares used in computing per
share amounts............................................. 50,301 58,597
======= =======
Net income per share........................................ $ 1.70 $ 1.52
======= =======
YEAR ENDED SEPTEMBER 30, 1997
Net income.................................................. $49,356 $49,356
Add interest expense on convertible subordinated debentures,
net of tax................................................ -- 3,101
------- -------
$49,356 $52,457
======= =======
Weighted average shares outstanding......................... 48,301 48,301
Net effect of dilutive stock options........................ -- 3,196
Assumed conversion of subordinated debentures............... -- 6,119
------- -------
Common and common equivalent shares used in computing per
share amounts............................................. 48,301 57,616
======= =======
Net income per share........................................ 1.02 0.91
======= =======
YEAR ENDED SEPTEMBER 30, 1996
Net income.................................................. 55,014 55,014
Add interest expense on convertible subordinated debentures,
net of tax................................................ -- 3,152
------- -------
$55,014 $58,166
======= =======
Weighted average shares outstanding......................... 47,138 47,138
Net effect of dilutive stock options........................ -- 2,409
Assumed conversion of subordinated debentures............... -- 6,119
------- -------
Common and common equivalent shares used in computing per
share amounts............................................. 47,138 55,666
======= =======
Net income per share........................................ $ 1.17 $ 1.04
======= =======
</TABLE>
1
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION
---------- -----------------------------
<S> <C>
Sanmina Cable Systems Texas
Comptronix Corporation N/A
Elexsys International Delaware
Neutronic Stamping & Plating subsidiary of Elexsys International
Sanmina B.V. Netherlands
Sanmina Canada Holding Co. Canada
Sanmina Canada(1) Canada
Sanmina Ireland Ltd(2) Ireland
Sanmina United Kingdom United Kingdom
Altron Systems Corporation(3) Massachusetts
Altron Securities Corporation(3) Massachusetts
</TABLE>
- ---------------
(1) A subsidiary of Sanmina Canada Holding Company.
(2) A subsidiary of Sanmina B.V.
(3) A subsidiary of Altron Incorporated.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K/A, into the Company's previously filed
Registration Statements on Form S-8 File Nos. 333-23565, 33-66554, and 33-90244.
ARTHUR ANDERSEN LLP
San Jose, California
April 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<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> 87,978
<SECURITIES> 93,526
<RECEIVABLES> 133,010
<ALLOWANCES> 5,794
<INVENTORY> 102,940
<CURRENT-ASSETS> 445,063
<PP&E> 355,855
<DEPRECIATION> 164,093
<TOTAL-ASSETS> 658,367
<CURRENT-LIABILITIES> 144,726
<BONDS> 31,656
0
0
<COMMON> 564
<OTHER-SE> 481,421
<TOTAL-LIABILITY-AND-EQUITY> 658,367
<SALES> 991,821
<TOTAL-REVENUES> 991,821
<CGS> 783,949
<TOTAL-COSTS> 783,949
<OTHER-EXPENSES> 74,237
<LOSS-PROVISION> 2,094
<INTEREST-EXPENSE> (272)<F1>
<INCOME-PRETAX> 133,363
<INCOME-TAX> 47,734
<INCOME-CONTINUING> 85,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,629
<EPS-PRIMARY> 1.70<F2>
<EPS-DILUTED> 1.52<F3>
<FN>
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000897723
<NAME> SANMINA CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 54,278
<SECURITIES> 98,242
<RECEIVABLES> 112,414
<ALLOWANCES> 4,745
<INVENTORY> 93,564
<CURRENT-ASSETS> 377,314
<PP&E> 296,418
<DEPRECIATION> 133,706
<TOTAL-ASSETS> 553,478
<CURRENT-LIABILITIES> 125,964
<BONDS> 129,644
0
0
<COMMON> 490
<OTHER-SE> 297,380
<TOTAL-LIABILITY-AND-EQUITY> 553,478
<SALES> 803,064
<TOTAL-REVENUES> 803,064
<CGS> 640,644
<TOTAL-COSTS> 640,644
<OTHER-EXPENSES> 75,015
<LOSS-PROVISION> 2,015
<INTEREST-EXPENSE> (1,691)<F1>
<INCOME-PRETAX> 85,714
<INCOME-TAX> 36,358
<INCOME-CONTINUING> 49,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,356
<EPS-PRIMARY> 1.02<F2>
<EPS-DILUTED> 0.91<F3>
<FN>
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000897723
<NAME> SANMINA CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 45,600
<SECURITIES> 109,469
<RECEIVABLES> 86,253
<ALLOWANCES> 2,730
<INVENTORY> 66,345
<CURRENT-ASSETS> 319,910
<PP&E> 112,143
<DEPRECIATION> 0
<TOTAL-ASSETS> 450,134
<CURRENT-LIABILITIES> 91,290
<BONDS> 124,885
0
0
<COMMON> 479
<OTHER-SE> 233,480
<TOTAL-LIABILITY-AND-EQUITY> 450,134
<SALES> 617,487
<TOTAL-REVENUES> 617,487
<CGS> 484,687
<TOTAL-COSTS> 484,687
<OTHER-EXPENSES> 47,483
<LOSS-PROVISION> 343
<INTEREST-EXPENSE> (760)<F1>
<INCOME-PRETAX> 84,557
<INCOME-TAX> 29,543
<INCOME-CONTINUING> 55,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,014
<EPS-PRIMARY> 1.17<F2>
<EPS-DILUTED> 1.04<F3>
<FN>
<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>
