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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-21272
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SANMINA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0228183
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
355 EAST TRIMBLE ROAD, SAN JOSE, CA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
408/954-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
As of April 26, 1999, there were 57,119,366 shares outstanding of the
issuer's common stock, $0.01 par value.
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SANMINA CORPORATION
INDEX
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<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements Condensed Consolidated
Statements of Operations.................................... 3
Condensed Consolidated Balance Sheets....................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Interim Condensed Consolidated Financial
Statements.................................................. 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signature................................................... 16
</TABLE>
2
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SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
APRIL 3, MARCH 28, APRIL 3, MARCH 28,
1999 1998 1999 1998
-------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales....................................... $281,140 $240,886 $556,673 $461,557
Cost of sales................................... 219,525 189,708 442,774 364,349
-------- -------- -------- --------
Gross profit.................................. 61,615 51,178 113,899 97,208
-------- -------- -------- --------
Operating expenses
Selling, general and administrative........... 17,308 16,228 37,387 31,786
Amortization of goodwill...................... 804 703 1,555 1,339
Provision for plant closing and relocation
costs...................................... -- -- 16,875 --
Write down of long-lived assets............... -- -- 11,400 --
Merger costs.................................. -- -- 5,479 3,945
-------- -------- -------- --------
Total operating expenses.............. 18,112 16,931 72,696 37,070
-------- -------- -------- --------
Income from operations.......................... 43,503 34,247 41,203 60,138
Other income, net............................... 1,809 315 3,547 71
-------- -------- -------- --------
Income before provision for income
taxes............................... 45,312 34,562 44,750 60,209
Provision for income taxes...................... 16,540 11,998 16,540 21,379
-------- -------- -------- --------
Net income...................................... $ 28,772 $ 22,564 $ 28,210 $ 38,830
======== ======== ======== ========
Earnings per share:
Basic......................................... $ 0.50 $ 0.46 $ 0.49 $ 0.79
Diluted....................................... $ 0.47 $ 0.40 $ 0.46 $ 0.69
Shares used in computing per share amounts:
Basic......................................... 57,762 49,411 57,568 49,277
Diluted....................................... 61,754 58,327 61,254 58,381
</TABLE>
See accompanying notes.
3
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SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
APRIL 3, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 71,590 $ 87,978
Short-term investments.................................... 58,441 93,526
Accounts receivable, net.................................. 160,665 133,010
Inventories............................................... 126,037 102,940
Deferred income taxes..................................... 21,348 19,389
Prepaid expenses and other................................ 11,607 8,220
-------- --------
Total current assets.............................. 449,688 445,063
Property, plant and equipment, net.......................... 187,947 191,762
Long-term investments....................................... 52,850 --
Deposits and other.......................................... 21,810 21,542
-------- --------
$712,295 $658,367
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $108,460 $ 89,030
Accrued liabilities....................................... 45,471 44,179
Income taxes payable...................................... 12,449 11,517
-------- --------
Total current liabilities......................... 166,380 144,726
-------- --------
Long-term liabilities:
Convertible subordinated notes............................ 5,647 5,767
Other liabilities......................................... 15,082 25,889
-------- --------
Total long-term liabilities....................... 20,729 31,656
-------- --------
Stockholders' equity:
Common stock.............................................. 581 564
Additional paid-in capital................................ 255,365 238,656
Accumulated other......................................... (645) 386
comprehensive income Retained earnings.................... 269,885 242,379
-------- --------
Total stockholders' equity........................ 525,186 481,985
-------- --------
$712,295 $658,367
======== ========
</TABLE>
See accompanying notes.
4
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SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
APRIL 3, MARCH 28,
1999 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 28,210 $ 38,830
Adjustments to reconcile net income to cash provided by
operating activities:
Adjustment to conform year end of pooled entities...... -- (1,332)
Depreciation, amortization and other................... 23,135 16,301
Relocation, other charges, and merger costs............ 23,686 3,945
Write down of long-lived assets........................ 11,400 --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (27,997) (10,156)
Inventories.......................................... (17,816) (22,309)
Prepaid expenses, deposits and other................. 4,934 (169)
Accounts payable and accrued liabilities............. 8,889 12,627
Income tax accounts.................................. (11,067) 6,951
-------- --------
Cash provided by operating activities............. 43,374 40,743
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (31,072) (62,291)
Proceeds from maturity of short-term investments.......... 66,370 60,780
Purchases of long-term investments........................ (52,850) --
Purchases of property and equipment, net of
acquisitions........................................... (28,517) (26,251)
Cash paid for businesses acquired, net.................... (16,851) (5,666)
-------- --------
Cash used for investing activities................ (62,920) (33,428)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit................................ -- (7,498)
Payments of long-term liabilities......................... (10,363) (11,808)
Proceeds from sale of common stock, net of taxes.......... 10,029 1,530
-------- --------
Cash used for financing activities................ (334) (17,776)
-------- --------
Decrease in cash and cash equivalents....................... (19,880) (10,461)
Cash and cash equivalents at beginning of period............ 91,470 54,278
-------- --------
Cash and cash equivalents at end of period.................. $ 71,590 $ 43,817
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 645 $ 3,696
Income Taxes.............................................. $ 23,517 $ 13,896
</TABLE>
See accompanying notes.
5
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules or
regulations. The interim financial statements are unaudited, but reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation. All adjustments are of a normal recurring nature.
The results of operations for the three or six months ended April 3, 1999
are not necessarily indicative of the results that may be expected for the year
ending October 2, 1999. These condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto for the
year ended September 30, 1998, included in the Company's annual report on Form
10-K/A.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
NOTE 2 -- ACQUISITIONS
In November 1998, the Company merged with Altron, Incorporated ("Altron").
Under the terms of the merger agreement, each share of Altron Common Stock was
converted into 0.4545 shares of Sanmina Common Stock. Approximately 7.2 million
shares of common stock were issued to acquire Altron. In March 1999, Sanmina
merged with Manu-Tronics, Inc ("Manu-Tronics"). Under the terms of the merger
agreement, the Company issued common stock for 100% of the outstanding common
stock of Manu-Tronics. Both of these transactions were accounted for as poolings
of interests. As a result of these pooling transactions, Sanmina has restated
its historical results of operations to combine the results of operations of
Altron and Manu-Tronics. The financial information presented gives effect to
such restatement. A reconciliation of the financial statements for the six
months ended April 3, 1999, to previously reported information is as follows (in
thousands):
<TABLE>
<S> <C>
Revenue:
Sanmina................................................. $331,253
Altron.................................................. 97,727
Manu-Tronics............................................ 32,577
--------
Combined........................................ $461,557
========
Net Income:
Sanmina................................................. $ 29,381
Altron.................................................. 6,739
Manu-Tronics............................................ 2,710
--------
Combined........................................ $ 38,830
========
</TABLE>
On December 28, 1998, the Company merged with Telo Electronics,
Incorporated, a California corporation ("Telo"). The Company acquired Telo by
issuing shares of Sanmina Common Stock in exchange for 100% of the outstanding
common stock of Telo. The merger was accounted for as a pooling of interests.
Due to the immateriality of this acquisition to the Company's consolidated
financial position and results of operations, Telo has been included in the
Company's consolidated results of operations as of the beginning of fiscal 1999
(October 1, 1998), but amounts presented for periods prior to fiscal 1999 have
not been restated to include Telo's historical results of operations.
6
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the six month period ended April 3, 1999, the Company also completed
several other smaller acquisitions. These transactions involved the purchase of
either stock or assets in exchange for cash and were accounted for as purchase
transactions. Pro forma statements of operations reflecting these acquisitions
are not shown as they would not differ materially from reported results.
NOTE 3 -- PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
NOTE 4 -- INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or
market, consist of:
<TABLE>
<CAPTION>
APRIL 3, SEPTEMBER 30,
1999 1998
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials....................................... $ 66,750 $ 57,641
Work-in-process..................................... 42,009 30,222
Finished goods...................................... 17,278 15,077
-------- --------
$126,037 $102,940
======== ========
</TABLE>
NOTE 5 -- EARNINGS PER SHARE
Basic EPS was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the second quarters and the
first six months of fiscal 1999 and 1998. Diluted EPS for the second quarters
and first six months of fiscal 1999 and 1998 includes dilutive common stock
equivalents, using the treasury stock method, and assumes that the convertible
debt instruments were converted into common stock, if dilutive. A reconciliation
of the net income and weighted average number of shares used for the diluted
earnings per share computations for the first six months of fiscal 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
4/3/99 3/28/98 4/3/99 3/28/98
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income.................................. $28,772 $22,564 $28,210 $38,830
Add back after-tax interest expense for
convertible subordinated debt............. 0 807 0 1,614
------- ------- ------- -------
Income for calculating earnings per share... $28,772 $23,371 $28,210 $40,444
======= ======= ======= =======
Weighted average number of shares
outstanding during the period............. 57,762 49,411 57,568 49,277
Applicable number of shares for stock
options outstanding for the period........ 3,992 2,797 3,686 2,985
Weighted average number of shares if
convertible subordinated debt were
converted................................. 0 6,119 0 6,119
------- ------- ------- -------
Weighted average number of shares......... 61,754 58,327 61,254 58,381
======= ======= ======= =======
Diluted earnings per share.................. $ 0.47 $ 0.40 $ 0.46 $ 0.69
</TABLE>
NOTE 6 -- COMMITMENTS
In November 1998, the Company entered into an operating lease agreement for
a new corporate headquarters and new facilities for its principal Northern
California assembly facilities. This campus facility,
7
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
which comprises approximately 330,000 square feet, is located in San Jose,
California. A condition of this operating lease is that the Company pledges
$52.9 million to the administrative agent until the end of the lease's initial
term. The Company has classified this amount as a long term investment in the
accompanying consolidated balance sheets.
NOTE 7 -- WRITE DOWN OF LONG-LIVED ASSETS
The Company continually evaluates whether long-lived assets have been
impaired in value. This process includes evaluating whether projected results of
operations of acquired businesses would support the carrying value of related
assets including the future amortization of the remaining unamortized balance of
goodwill. In the first quarter of fiscal 1999, such evaluation with respect to
the acquisition of Pragmatech, Incorporated ("Pragmatech"), indicated the fair
value of assets related to Pragmatech were less than the carrying value of the
Pragmatech assets. Accordingly, in the first quarter of fiscal 1999, the Company
has written down the remaining $11.4 million in unamortized goodwill arising
from the acquisition. The fair value of Pragmatech was based on estimated future
cash flows to be generated from those assets based on reasonable and supportable
assumptions. Financial projections prepared at the time of the acquisition of
Pragmatech reflected the Company's belief that the Company would continue to
provide electronics manufacturing services to existing Pragmatech customers and
would grow the Pragmatech business at Pragmatech's existing facilities. However,
the existing Pragmatech customer relationships could not be restructured to
conform to the Company's pricing and revenue models, and as a result, the
relationships with the former Pragmatech customers have terminated. In addition,
the Company has closed several of the former Pragmatech facilities. As a result
of these operational factors, the Company's analysis of projected revenues,
results of operations, and cash flows attributable to the few remaining
Pragmatech customers did not support the carrying value of Pragmatech assets,
including the unamortized goodwill.
NOTE 8 -- COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130") in fiscal 1999. SFAS 130 requires
companies to report a "comprehensive income" that includes unrealized gains and
losses and other items that have previously been excluded from net income and
reflected instead in stockholders' equity. A summary of comprehensive income for
the first six months of fiscal 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
APRIL 3, MARCH 28,
1999 1998
-------- ---------
<S> <C> <C>
Net income.............................................. $28,210 $38,830
Other comprehensive income:
Unrealized holding gain (losses) on available-for-sale
securities,........................................ 66 (9)
Foreign currency translation.......................... (711) (72)
------- -------
Comprehensive income.................................... $27,565 $38,749
======= =======
</TABLE>
8
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 -- SUBSEQUENT EVENT
On April 29, 1999, the company announced that it has entered into an
agreement to offer qualified institutional investors $300 million (this was
increased by an additional $50 million pursuant to an over-allotment option
exercised on May 6, 1999) 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.
9
<PAGE> 10
SANMINA CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Sanmina Corporation ("Sanmina" or the "Company") is a leading independent
provider of customized integrated electronics manufacturing services ("EMS"),
including turnkey electronic assembly and manufacturing management services, to
original equipment manufacturers ("OEM's") in the electronics industry.
Sanmina's electronics manufacturing services consist primarily of the
manufacture of complex printed circuit board assemblies using surface mount
("SMT") and pin through-hole ("PTH") interconnection technologies, the
manufacture of custom designed backplane assemblies, fabrication of complex
multi-layer printed circuit boards, and testing and assembly of completed
systems. In addition to assembly, turnkey manufacturing management also involves
procurement and materials management, as well as consultation on printed circuit
board design and manufacturability. Sanmina, through its Sanmina Cable Systems
("SCS") subsidiary (formerly known as "Golden Eagle Systems"), also manufactures
custom cable assemblies for electronics industry OEMs. In addition, the Company
operates a metal stamping and plating business.
Sanmina's assembly plants are located in Northern California, Richardson
and Plano, Texas, Manchester, New Hampshire, Durham, North Carolina,
Guntersville, Alabama, and Dublin, Ireland. Sanmina's printed circuit board
fabrication facilities are located in Northern California, Southern California,
and Nashua, New Hampshire. SCS's manufacturing facility is located in
Carrollton, Texas. As a result of Sanmina's merger with Altron Inc. ("Altron"),
Sanmina has added new fabrication and assembly plants in the Boston
Massachusetts area, Northern California, and Richardson, Texas. In addition, as
a result of Sanmina's recent mergers with Telo Electronics Incorporated and
Manu-Tronics, Inc. ("Manu-Tronics"), Sanmina has added new assembly plants in
San Jose and in Kenosha, Wisconsin.
Sanmina's results of operations have varied and may continue to fluctuate
significantly from period to period, including on a quarterly basis. Sanmina's
operating results are affected by a number of factors, including timing of
orders from major customers, mix of products ordered by and shipped to major
customers, the volume of orders as related to the Company's capacity, ability to
effectively manage inventory and fixed assets, timing of expenditures in
anticipation of future sales and the economic conditions in the electronics
industry. Operating results can also be significantly influenced by development
and introduction of new products by the Company's customers. From time to time,
the Company experiences changes in the volume of sales to each of its principal
customers, and operating results may be affected on a period-to-period basis by
these changes. The Company's customers generally require short delivery cycles,
and a substantial portion of the Company's backlog is typically scheduled for
delivery within 120 days. Quarterly sales and operating results, therefore,
depend in large part on the volume and timing of bookings received during the
quarter, which are difficult to forecast. The Company's backlog also affects its
ability to plan production and inventory levels, which could lead to
fluctuations in operating results. In addition, a significant portion of the
Company's operating expenses is relatively fixed in nature and planned
expenditures are based in part on anticipated orders. Any inability to adjust
spending quickly enough to compensate for any revenue shortfall may magnify the
adverse impact of such revenue shortfall on the Company's results of operations.
Results of operations in any period should not be considered indicative of the
results to be expected for any future period, and fluctuations in operating
results may also result in fluctuations in the price of the Company's common
stock.
Sanmina's customers are manufacturers in the communications (voice and
data), industrial and medical instrumentation and high-speed computer systems
segments of the electronics industry. These industry segments, and the
electronics industry as a whole, are subject to rapid technological change and
product obsolescence. Discontinuance or modification of products being
manufactured by the Company could adversely affect the Company's results of
operations. The electronics industry is also subject to economic cycles and has
in the past experienced, and is likely in the future to experience, recessionary
periods. A general recession in the electronics industry could have a material
adverse effect on Sanmina's business, financial condition and results of
operations. In addition, the Company has no firm long-term volume commitments
from its customers and over the last few years has experienced reduced lead-time
in customer orders. In
10
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addition, customer orders can be canceled and volume levels can be changed or
delayed. The timely replacement of canceled, delayed or reduced orders with new
business cannot be assured. There can be no assurance that any of the Company's
current customers will continue to use the Company's manufacturing services. The
loss of one or more of the Company's principal customers, or reductions in sales
to any of such customers, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Sanmina has pursued, and intends to continue to pursue, business
acquisition opportunities, particularly when these opportunities have the
potential to enable Sanmina to increase its net sales while maintaining
operating margin, access new geographic markets, implement Sanmina's vertical
integration strategy and/or obtain facilities and equipment on terms more
favorable than those generally available in the market. Acquisitions of
companies and businesses and expansion of operations involves certain risks,
including (i) the potential inability to successfully integrate acquired
operations and businesses or to realize anticipated synergies, economies of
scale or other value, (ii) diversion of management's attention, (iii)
difficulties in scaling up productions at new sites and coordinating management
of operations at new sites and (iv) loss of key employees of acquired
operations. No assurance can be given that the Company will not incur problems
with integrating acquired operations, and there can be no assurance that the
Company's recent acquisitions, or any future acquisition will result in a
positive contribution to the Company's results of operations. Furthermore, there
can be no assurance that the Company will realize value from any such
acquisition which equals or exceeds the consideration paid. In addition, there
can be no assurance that the Company will realize anticipated strategic and
other benefits from expansion of existing operations to new sites. Any such
problems could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, future acquisitions
may result in dilutive issuances of equity securities, the incurrence of
additional debt, large one-time write-offs and the creation of goodwill or other
intangible assets that could result in amortization expense.
Sanmina is subject to risks related to Year 2000 problems. Many currently
installed computer systems and software products are unable to distinguish years
beginning with "19" from those beginning with "20." As a result, computer
systems and/ or software products used by many companies may need to be upgraded
to comply with such Year 2000 requirements. Sanmina is currently expending
resources to review its products and services, as well as its internal use
software in order to identify and modify those products, services and systems
that are not Year 2000 compliant. Additionally, Sanmina is in the process of
evaluating the need for contingency plans with respect to Year 2000
requirements. The necessity of any contingency plan must be evaluated on a
case-by-case basis and will vary considerably in nature depending on the Year
2000 issue it may need to address. There can be no assurance however, that
Sanmina will be able to solve all potential Year 2000 issues. Sanmina's reliance
on its key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address Year 2000 issues could not have an
adverse effect on Sanmina. Sanmina has initiated formal communications with each
of its significant suppliers and customers to determine the extent to which
Sanmina is vulnerable to those third parties' failure to remediate their own
Year 2000 issues. In particular, in the event a product manufactured by Sanmina
contained Year 2000 problems attributable to a design or product development
flaw, it is likely that sales of such product would be adversely affected, which
would adversely affect Sanmina's manufacturing services revenues attributable to
such product. Such a situation could have a material adverse effect on Sanmina's
business, financial condition and results of operations.
Sanmina is requesting that third party vendors represent their products and
services to be Year 2000 compliant and that they have a program to test for Year
2000 compliance. However, the response of those third parties is beyond
Sanmina's control. To the extent that Sanmina does not receive adequate
responses by May 30, 1999, it is prepared to develop contingency plans, with
completion of these plans scheduled for no later than June 30, 1999. At this
time, Sanmina cannot estimate the additional cost, if any, that might develop
from such contingency plans. Breakdowns in Sanmina's computer systems and
applications, such as its manufacturing application software, its bar-coding
systems, and the computer chips embedded in its plant equipment, as well as
other Year 2000-related problems such as disruptions in the delivery of
materials, power, heat or water to Sanmina's facilities, could prevent Sanmina
from being able to manufacture and ship its
11
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products. Sanmina plans to replace or upgrade or otherwise work around any of
its date driven systems that are not Year 2000 compliant. Sanmina's Year 2000
Project Team will have compliance solutions or work arounds planned by 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.
This report contains forward-looking statements within the meaning of
Section 72A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's future results from operations could vary
significantly from these contemplated by such forward-looking statements as a
result of the factors described herein. The financial and other information
contained herein should be read in conjunction with the Company's annual report
on Form 10-K/A for the fiscal year ended September 30, 1998.
RESULTS OF OPERATIONS
In November 1998, the Company acquired Altron in a merger transaction that
was accounted for as a pooling of interests. In March 1999, Sanmina acquired
Manu-Tronics in a merger transaction that was also accounted for as a pooling of
interests. Accordingly, results for the second quarter and first six months of
fiscal 1998 have been restated to combine the results of operations of Sanmina,
Altron and Manu-Tronics.
The following table sets forth, for the three and six months ended April 3,
1999 and March 28, 1998, certain items as a percentage of net sales. The table
and the discussion below should be read in connection with the condensed
consolidated financial statements and the notes thereto, which appear elsewhere
in this report.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
APRIL 3, 1999 MARCH 28, 1998 APRIL 3, 1999 MARCH 28, 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales......................... 100% 100% 100% 100%
Cost of sales..................... 78.1 78.8 79.5 78.9
Gross Profit.................... 21.9 21.2 20.5 21.1
Selling, general and
administrative.................. 6.1 6.7 6.7 6.9
Amortization of goodwill.......... .3 .3 .3 .3
Provision for plant closing and
relocation...................... -- -- 3.0 --
Write down of long-lived assets... -- -- 2.1 --
Merger costs...................... -- -- 1.0 .9
Operating income................ 15.5 14.2 7.4 13.0
Other income, net................. .6 .2 .6 --
Income before income taxes...... 16.1 14.4 8.0 13.0
Provision for income taxes........ 5.9 5.0 3.0 4.6
Net income........................ 10.2 9.4 5.0 8.4
</TABLE>
Sales for the second quarter of fiscal 1999 ended April 3, 1999 increased
by 17% to $281.1 million from $240.9 million in the corresponding quarter of the
prior year. Sales for the first six months of fiscal 1999 increased by 21% to
$556.7 million from $461.6 million in the first six months of fiscal 1998. The
increase in net sales was due primarily to increased shipments of EMS assemblies
to both existing and new customers. The Company experienced growth across the
customer base and its three key target markets of communications, industrial and
medical instrumentation and high-speed computer systems. The overall increase in
net sales reflects the continuing trend toward outsourcing within the
electronics industry. For the second quarter of fiscal 1999, and the six months
ended April 3, 1999, approximately 87% of the Company's net sales represented
value-added EMS assembly shipments with the remaining portion consisting of
printed circuit
12
<PAGE> 13
board fabrication shipments. For fiscal 1998, EMS assembly revenues comprised
84% of Sanmina's revenues. The increase in the percentage of revenues
represented by EMS assembly revenues was mainly due to the increased shipments
of EMS assemblies to both existing and new customers.
Gross margin increased from 21.2% in the second quarter of fiscal 1998 to
21.9% in the second quarter of the current year. The increase in gross margins
for the second quarter and the first six months of fiscal 1999 is a result of
normal changes in the mix of products shipped to certain customers and normal
changes in customer mix. Gross margin decreased from 21.1% for the first six
months of fiscal 1998 to 20.5% in the first six months of the current year. The
decrease in gross margins for the first six months of fiscal 1999 was primarily
attributable to charges recorded in the first quarter of fiscal 1999 related to
the write down of obsolete inventory and assets from acquired companies. Due to
increased competition, product and customer mix, the Company may experience
decreases in gross margins.
In absolute dollars, operating expenses increased from $16.9 million in the
second quarter of fiscal 1998 to $18.1 million in the second quarter of fiscal
1999. As a percentage of sales, operating expenses decreased from 7.0% in the
second quarter of 1998 to 6.4% in the second quarter of the current year. For
the six months, operating expenses in absolute dollars increased from $37.1
million in fiscal 1998 to $72.7 million in fiscal 1999, and operating expenses
as a percentage of sales increased from 8.1% for the first six months of fiscal
1998 to 13.1% for the first six months of fiscal 1999. The increase in operating
expenses for the first six months of fiscal 1999 was mainly attributable to
certain charges recorded in the first six months of fiscal 1999. These charges
of $36.1 million related to plant closing and relocation costs, write down of
long lived assets, merger and other costs. The first quarter of fiscal 1998
included a charge of $3.9 million for merger related costs associated with the
acquisition of Elexsys International, Inc. Operating margins increased from
14.2% in the second quarter of 1998 to 15.5% in the second quarter of the
current year. The quarter-over-quarter increase in operating margin reflects
higher sales volume and Sanmina's strategy of focusing on growth in revenues and
operating income while maintaining control over expenses.
The operating margins reflect the Company's strategy of seeking to grow
revenues while maintaining operating margins at relatively constant levels. The
dollar increase in selling and general and administrative expenses was primarily
the result of increased expenditures to support higher sales volume. The Company
anticipates that operating expenses will increase in absolute dollars during the
next few quarters due to projected additions to the sales force and other
administrative expenditures to support higher sales volume. However, operating
expenses as a percentage of sales are anticipated to remain relatively constant
or decrease depending upon sales volume and the Company's ability to achieve
expected operating efficiencies as a result of the integration of the merged
Altron and Manu-Tronics operations.
For the second quarter of fiscal 1999, the Company reported net other
income of $1.8 million compared to net other income of $315,000 for the
corresponding quarter of last year. In the first quarter of fiscal 1998, the
Company repaid approximately $12.8 million of outstanding Elexsys debt. In
addition, in August 1998, $86.3 million of outstanding convertible subordinated
notes were converted into Common Stock as a result of a redemption call for such
notes issued by the Company. The decrease in outstanding debt resulted in the
reduction of interest expense for the first six months of fiscal 1999.
The Company's provision for income taxes for the three month period ended
April 3, 1999 is based upon the Company's estimate of the effective tax rate for
fiscal 1999 of 36.5%. For the quarter ended March 28, 1998, the Company's
effective tax rate was 34.7%. The lower rate in the prior year represents the
benefit of foreign operations taxed at a reduced rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments as of April 3, 1999 were
$130.0 million as compared to $181.5 million at September 30, 1998. The decrease
was mainly attributable to a long-term cash deposit made in connection with the
Company's operating lease for its new campus facility. For the six months ending
April 3, 1999, cash generated from operations was $43.4 million compared to
$40.7 million for the same period of fiscal 1998. The increase between years
primarily relates to the timing for receivables and payables.
13
<PAGE> 14
Working capital decreased to $283.3 million as of April 3, 1999 compared to
$300.3 million at September 30, 1998. This was mainly due to the use of cash for
the long-term deposit.
In May 1999, Sanmina completed an offering of $350.0 million of convertible
subordinated notes. The notes bear interest at 4 1/4% per annum and are
convertible into shares of Sanmina Common Stock at a conversion price of $88.668
per share. The notes mature in May 2004.
Net cash used for investing activities for the first six months of fiscal
1999 primarily related to the net purchases of short-term and long-term
investments and equipment for which the Company paid a total of approximately
$46.1 million in cash. Additionally, in the second quarter of fiscal 1999, the
Company paid approximately $16.9 million in cash for acquisitions.
Net cash used for financing activities for the first six months of fiscal
year 1999 related to the payment of long-term liabilities of $10.4 million. The
payments were offset by $10.0 million in proceeds from sale of common stock.
The Company has entered into an operating lease agreement for new
facilities in San Jose, California, where it will establish its corporate
headquarters and certain of its assembly operations. In connection with these
transactions, the Company pledged $52.9 million of its cash and investments as
collateral for certain obligations of the leases.
The Company anticipates that its working capital requirements will increase
in order to support anticipated volumes of business. Additionally, the Company
expects to make additional capital expenditures relating to facility and
equipment enhancements as well as information systems upgrades in existing
facilities. Future liquidity needs will be dependent upon, among other factors,
the extent of capital investments made by the Company in plant and equipment,
working capital needs of acquired businesses, levels of shipments by the Company
and changes in volumes of business and other factors. The Company believes that
its existing cash resources, together with cash generated from operations, will
be sufficient to meet the Company's liquidity and working capital requirements
through at least the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. Currently, the Company does not
use derivative financial instruments in its investment portfolio. The Company
invests in high credit quality issuers and, by policy, limits the amount of
principal exposure to any one issuer. As stated in the Company's policy, the
Company seeks to ensure the safety and preservation of its invested principal
funds by limiting default and market risk.
The Company seeks to mitigate default risk by investing in high-credit
quality securities and by positioning its investment portfolio to respond to a
significant reduction in a credit rating of any investment issuer, guarantor or
depository. The Company seeks to mitigate market risk by limiting the principal
and investment term of funds held with any one issuer and by investing funds in
marketable securities with active secondary or resale markets.
Foreign Currency Exchange Risk
The Company transacts business in foreign countries. The Company's primary
foreign currency cash flows are in certain European countries. Currently, the
Company does not employ a foreign currency hedge program with respect to
transactions and expenditures originating in these or any other foreign
countries. The Company believes that its foreign currency exchange risk is
immaterial.
14
<PAGE> 15
SANMINA CORPORATION
PART II. OTHER INFORMATION
ITEM 1. 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
On January 29, 1999, the Company held its 1999 Annual Meeting of
Stockholders. The matters voted upon at the meeting and the vote with respect to
each such matter are set forth below:
1. Election of Jure Sola, John Bolger, Neil Bonke, Bernard Vonderschmitt,
Mario Rosati, and Samuel Altschuler as Directors of the Company:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Jure Sola............................................... 47,213,184 116,573
John Bolger............................................. 47,211,869 117,888
Neil Bonke.............................................. 47,211,904 117,853
Bernard Vonderschmitt................................... 47,204,669 125,088
Mario Rosati............................................ 47,208,930 120,827
Samuel Altschuler....................................... 47,204,620 125,137
</TABLE>
2. Approval of an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common
Stock:
<TABLE>
<S> <C>
For: 32,446,399 Against: 14,867,520 Abstain: 15,838
</TABLE>
3. Approval of the adoption of the Company's 1999 Stock Plan:
<TABLE>
<S> <C>
For: 23,072,168 Against: 18,816,117 Abstain: 27,270
</TABLE>
4. Approval of an amendment to the Company's 1993 Employee Stock Purchase
Plan to increase the number of shares reserved for issuance thereunder:
<TABLE>
<S> <C>
For: 41,120,504 Against: 761,877 Abstain 33,174
</TABLE>
5. Ratification of the appointment of Arthur Andersen LLP as the
independent public accountants of the Company for the fiscal year ending
October 2, 1999:
<TABLE>
<S> <C>
For: 47,305,310 Against: 14,672 Abstain: 9,775
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule for the six month period ended April
3, 1999.
27.2 Financial Data Schedule for the six month period ended March
28, 1998.
27.3 Financial Data Schedule for the nine month period ended June
27, 1998.
27.4 Financial Data Schedule for the twelve month period ended
September 30, 1998.
</TABLE>
(b) REPORTS ON FORM 8-K
On December 14, 1998, the Company filed a report on Form 8-K relating
to the acquisition of Altron.
On April 29, 1999, the Company filed a report on Form 8-K relating to
the acquisition of Manu-Tronics.
On April 30, 1999, the Company filed a report on Form 8-K relating to
an offering of convertible subordinated notes.
15
<PAGE> 16
SANMINA CORPORATION
SIGNATURE
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sanmina Corporation
(Registrant)
Date: May 14, 1999
By:
------------------------------------
Randy W. Furr
President and Chief Operating
Officer
By:
------------------------------------
Bernard J. Whitney
Executive Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27.1 Financial Data Schedule for three month period ended January
2, 1999
27.2 Financial Data Schedule for three month period ended
December 27, 1997
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-28-1998
<CASH> 43,816
<SECURITIES> 100,492
<RECEIVABLES> 128,170
<ALLOWANCES> 4,883
<INVENTORY> 119,253
<CURRENT-ASSETS> 408,178
<PP&E> 332,437
<DEPRECIATION> 148,685
<TOTAL-ASSETS> 617,164
<CURRENT-LIABILITIES> 159,077
<BONDS> 123,297
0
0
<COMMON> 497
<OTHER-SE> 334,293
<TOTAL-LIABILITY-AND-EQUITY> 617,164
<SALES> 461,557
<TOTAL-REVENUES> 461,557
<CGS> 364,349
<TOTAL-COSTS> 364,349
<OTHER-EXPENSES> 37,070
<LOSS-PROVISION> 205
<INTEREST-EXPENSE> 71<F1>
<INCOME-PRETAX> 60,209
<INCOME-TAX> 21,379
<INCOME-CONTINUING> 38,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,830
<EPS-PRIMARY> 0.79<F2>
<EPS-DILUTED> 0.69<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-27-1998
<CASH> 38,302
<SECURITIES> 124,429
<RECEIVABLES> 132,331
<ALLOWANCES> 5,603
<INVENTORY> 111,635
<CURRENT-ASSETS> 423,039
<PP&E> 361,774
<DEPRECIATION> 169,947
<TOTAL-ASSETS> 637,955
<CURRENT-LIABILITIES> 149,717
<BONDS> 125,554
0
0
<COMMON> 502
<OTHER-SE> 362,182
<TOTAL-LIABILITY-AND-EQUITY> 637,955
<SALES> 729,174
<TOTAL-REVENUES> 729,174
<CGS> 575,025
<TOTAL-COSTS> 575,025
<OTHER-EXPENSES> 55,557
<LOSS-PROVISION> 1,216
<INTEREST-EXPENSE> (174)<F1>
<INCOME-PRETAX> 98,418
<INCOME-TAX> 34,827
<INCOME-CONTINUING> 63,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,591
<EPS-PRIMARY> 1.29<F2>
<EPS-DILUTED> 1.13<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>
<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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> APR-03-1999
<CASH> 71,590
<SECURITIES> 58,441
<RECEIVABLES> 160,665
<ALLOWANCES> 8,014
<INVENTORY> 126,037
<CURRENT-ASSETS> 449,688
<PP&E> 371,934
<DEPRECIATION> 183,987
<TOTAL-ASSETS> 712,295
<CURRENT-LIABILITIES> 166,380
<BONDS> 20,729
0
0
<COMMON> 581
<OTHER-SE> 524,605
<TOTAL-LIABILITY-AND-EQUITY> 712,295
<SALES> 556,673
<TOTAL-REVENUES> 556,673
<CGS> 442,774
<TOTAL-COSTS> 442,774
<OTHER-EXPENSES> 72,696
<LOSS-PROVISION> 346
<INTEREST-EXPENSE> 3,547<F1>
<INCOME-PRETAX> 44,750
<INCOME-TAX> 16,540
<INCOME-CONTINUING> 28,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,210
<EPS-PRIMARY> 0.49<F2>
<EPS-DILUTED> 0.46<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>
