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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-21272
SANMINA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0228183
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2700 N. FIRST ST., SAN JOSE, CA 95134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
408/964-3500
(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. Yes [X] No [ ]
As of January 24, 2000, there were 59,062,805 shares outstanding of the
issuer's common stock, $0.01 par value.
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This 10Q/A is filed for the sole purpose of correcting an error regarding the
allowance for doubtful accounts in the Financial Data Schedule, Exhibit 27.1,
Article 5.
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SANMINA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations............. 3
Condensed Consolidated Balance Sheets....................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6-9
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................... 10-14
Quantitative and Qualitative Disclosures About Market
Item 3. Risk........................................................ 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
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
<S> <C> <C>
Net sales................................................... $459,685 $275,533
Cost of sales............................................... 381,722 223,249
-------- --------
Gross profit.............................................. 77,963 52,284
-------- --------
Operating expenses
Selling, general and administrative....................... 20,907 20,079
Amortization of goodwill.................................. 1,902 751
Provision for plant closing and relocation costs.......... -- 16,875
Write down of long-lived assets........................... -- 11,400
Merger costs.............................................. -- 5,479
-------- --------
Total operating expenses.......................... 22,809 54,584
-------- --------
Operating income (loss)..................................... 55,154 (2,300)
Other income, net........................................... 1,390 1,738
-------- --------
Income (loss) before provision for income taxes........... 56,544 (562)
Provision for income taxes.................................. 20,356 --
-------- --------
Net income (loss)........................................... $ 36,188 $ (562)
======== ========
Earnings (loss) per share:
Basic..................................................... $ 0.61 $ (0.01)
Diluted................................................... $ 0.58 $ (0.01)
Shares used in computing per share amounts:
Basic..................................................... 59,047 57,380
Diluted................................................... 62,722 57,380
</TABLE>
See accompanying notes.
3
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SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 2,
2000 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 52,355 $ 136,145
Short-term investments.................................... 301,960 318,457
Accounts receivable, net.................................. 277,726 191,120
Inventories............................................... 279,849 206,319
Deferred income taxes..................................... 22,934 22,934
Prepaid expenses and other................................ 11,311 10,195
---------- ----------
Total current assets...................................... 946,135 885,170
Property, plant and equipment, net.......................... 219,890 206,804
Long-term investments....................................... 52,850 52,850
Deposits and other.......................................... 80,064 56,889
---------- ----------
$1,298,939 $1,201,713
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 191,380 $ 154,827
Accrued liabilities and other............................. 58,728 53,444
Income taxes payable...................................... 24,250 9,115
---------- ----------
Total current liabilities................................. 274,358 217,386
---------- ----------
Long-term liabilities:
Convertible subordinated notes............................ 355,214 355,259
Other liabilities......................................... 2,676 2,721
---------- ----------
Total long-term liabilities............................... 357,890 357,980
---------- ----------
Stockholders' equity:
Common stock.............................................. 591 589
Additional paid-in capital................................ 296,505 291,435
Accumulated other comprehensive loss...................... (1,965) (1,049)
Retained earnings......................................... 371,560 355,372
---------- ----------
Total stockholders' equity................................ 666,691 626,347
---------- ----------
$1,298,939 $1,201,713
========== ==========
</TABLE>
See accompanying notes.
4
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SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 36,188 $ (562)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation, amortization and other................... 15,599 11,638
Relocation, plant closing, merger costs and other
charges............................................... -- 23,686
Write down of long-lived assets........................ -- 11,400
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (86,605) (27,013)
Inventories.......................................... (55,540) (838)
Prepaid expenses, deposits and other................. 15,519 1,793
Accounts payable and accrued liabilities............. 25,220 2,701
Income tax accounts.................................. 15,371 (5,891)
-------- --------
Cash provided by (used for) operating
activities...................................... (34,248) 16,914
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (26,099) (16,644)
Proceeds from maturity of short-term investments.......... 42,597 41,919
Purchases of long-term investments........................ -- (52,850)
Purchases of property and equipment, net of
acquisitions........................................... (25,973) (11,331)
Cash paid for businesses acquired, net of cash acquired... (44,735) (6,559)
-------- --------
Cash used for investing activities................ (54,210) (45,465)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term liabilities......................... (404) (2,263)
Proceeds from sale of common stock, net of taxes.......... 5,072 4,140
-------- --------
Cash provided by financing activities............. 4,668 1,877
-------- --------
Decrease in cash and cash equivalents....................... (83,790) (26,674)
Cash and cash equivalents at beginning of period............ 136,145 87,978
-------- --------
Cash and cash equivalents at end of period.................. $ 52,355 $ 61,304
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 7,365 $ 286
Income Taxes.............................................. $ 5,793 $ 5,113
</TABLE>
See accompanying notes.
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Sanmina
Corporation (the "Company" or "Sanmina") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations. The
interim financial statements are unaudited, but reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation. All
adjustments are of a normal recurring nature.
The results of operations for the three months ended January 1, 2000 are
not necessarily indicative of the results that may be expected for the year
ending September 30, 2000. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
for the year ended October 2, 1999, included in Sanmina's annual report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Sanmina's fiscal year ends on the Saturday nearest September 30. All
general references to years relate to fiscal years unless otherwise noted.
NOTE 2 -- PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sanmina and
its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
NOTE 3 -- COMPREHENSIVE INCOME
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components. SFAS No. 130
requires companies to report a "comprehensive income" that includes unrealized
holding gains and losses and other items that have previously been excluded from
net income and reflected instead in stockholders' equity. Comprehensive income
for Sanmina consists of net income plus the effect of unrealized holding gains
or losses on investments classified as available-for-sale and foreign currency
translation adjustments. For the three months ended January 1, 2000, the
unrealized holding loss on investments and foreign currency translation
adjustment were ($485,000) and ($432,000), respectively. For the three months
ended January 2, 1999, the unrealized holding loss on investments and foreign
currency translation adjustment were ($75,000) and $14,000, respectively.
Comprehensive income (loss) for the three months ended January 1, 2000 and
January 2, 1999 was $35.6 million and ($601,000), respectively.
NOTE 4 -- ACQUISITIONS
On October 5, 1999, Sanmina completed the acquisition of certain assets and
liabilities of Devtek Electronic Packaging Systems ("DEPS"), a division of
Devtek Electronics Enclosure, Inc. for a purchase price of approximately $26.5
million. The acquisition, which was accounted for as a purchase, included the
payment of cash and the assumption of debt. The purchase price was allocated to
the net assets acquired, which consisted of inventories, equipment, and assumed
liabilities, on a fair value basis and resulted in goodwill of approximately $15
million which is being amortized over a ten year period. The results of
operations for the three months ended January 1, 2000, include the results of
operations of this business from
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the date of acquisition. Pro forma information reflecting the acquisition of
DEPS has not been presented because the operations of DEPS are not material to
Sanmina's consolidated financial statements.
On November 3, 1999, Sanmina completed the acquisition of certain
Chateaudun Electro-Mechanical Subsystem Assembly ("Chateaudun") assets and
liabilities of Nortel Networks Corporation for a cash purchase price of
approximately $14.2 million, which was also accounted for as a purchase. The
purchase price was allocated to the net assets acquired, which consisted of
inventories, equipment, and accrued payroll related expenses, on a fair value
basis and resulted in goodwill of approximately $6.0 million, which will be
amortized over a fifteen year period. The results of operations for the three
months ended January 1, 2000, include the results of operations of this business
from the date of acquisition. Pro forma information reflecting the acquisition
of Chateaudun has not been presented because the operations of Chateaudun are
not material to Sanmina's consolidated financial statements.
On January 5, 2000, Sanmina announced that it has signed a letter of intent
to acquire the Clinton, North Carolina electronic enclosure systems facility
from Alcatel. The facility includes an 84,000 square foot ISO certified metal
fabrication and mechanical assembly facility as well as 26 acres of commercially
zoned land. The transaction, which is expected to close in the first quarter of
calendar 2000 following execution of a definitive agreement and satisfaction of
other closing conditions, also includes a three-year manufacturing service
contract between Sanmina and Alcatel.
On January 10, 2000, Sanmina announced it has signed a three-year strategic
manufacturing agreement with Harris Corporation. Under the terms of the
agreement, Harris Corporation will outsource its commercial printed circuit
board assembly (PCBA) manufacturing to Sanmina. In addition, Sanmina is
acquiring Harris' PCBA manufacturing assets and inventory and will lease Harris'
ISO 9002-certified, state-of-the art manufacturing facility in San Antonio,
Texas. The transaction, which is expected to close in early April, is subject to
regulatory approval and other customary conditions.
NOTE 5 -- LONG-LIVED ASSETS
Sanmina 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, Sanmina
recorded an adjustment to write down the remaining $11.4 million of unamortized
goodwill arising from the acquisition. The fair value of Pragmatech at the
acquisition date was based on the estimated future cash flows to be generated
from the assets based on reasonable and supportable assumptions. Financial
projections prepared at the time of the acquisition of Pragmatech reflected
Sanmina's belief that Sanmina 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
Sanmina's pricing and revenue models, and as a result, the relationships with
the former Pragmatech customers have terminated. In addition, Sanmina closed
several of the former Pragmatech facilities in fiscal 1998. As a result of these
operational factors, Sanmina'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.
7
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 -- INVENTORIES
Inventories, stated at the lower of cost or market (first-in, first-out
method), consist of:
<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 2,
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $180,995 $134,042
Work-in-process........................................ 76,864 58,498
Finished goods......................................... 21,990 13,779
-------- --------
$279,849 $206,319
======== ========
</TABLE>
NOTE 7 -- EARNINGS PER SHARE ("EPS")
Basic EPS was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the first three months of
fiscal 2000 and 1999. Diluted EPS for the first three months of fiscal 2000
includes dilutive common stock equivalents, using the treasury stock method, and
assumes that the convertible debt instruments were converted into common stock,
if dilutive. For the three months ended January 2, 1999, potentially dilutive
shares and after-tax interest expense were not included in the computation of
diluted earnings per share because to do so would increase the profit per share.
A reconciliation of the net income and weighted average number of shares used
for the diluted earnings per share computations for the first three months of
fiscal 2000 is as follows:
<TABLE>
<CAPTION>
JANUARY 1,
2000
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Net income................................................. $36,188
Add back after-tax interest expense for convertible
subordinated debt........................................ 46
-------
Income for calculating earnings per share.................. $36,234
=======
Weighted average number of shares outstanding during the
period................................................... 59,047
Applicable number of shares for stock options outstanding
for the period........................................... 3,588
Weighted average number of shares if convertible
subordinated debt were converted......................... 87
-------
Weighted average number of shares........................ 62,722
=======
Diluted earnings per share................................. $ 0.58
=======
</TABLE>
NOTE 8 -- COMMITMENTS
In November 1998, Sanmina entered into an operating lease agreement for a
new corporate headquarters and new facilities for its principal Northern
California assembly facilities. This campus facility, which comprises
approximately 330,000 square feet, is located in San Jose, California. A
condition of this operating lease is that Sanmina pledges $52.9 million to the
administrative agent until the end of the lease's initial term. Sanmina has
classified this amount as a long term investment in the accompanying
consolidated balance sheets.
8
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 -- SUBSEQUENT EVENT
On January 27, 2000, Sanmina announced that its Board of Directors has
approved a two-for-one stock split payable in the form of a 100 percent stock
dividend. This stock split will be effective for shareholders of record on March
1, 2000, and certificates reflecting the stock split will be issued on or about
March 22, 2000. Share and per share data have not been adjusted to give effect
to the split. Upon completion of the stock split, the number of shares
outstanding will be approximately 120 million.
NOTE 10 -- BUSINESS SEGMENT AND CONCENTRATION OF CREDIT RISK
Sanmina adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during fiscal 1999. SFAS No. 131 established standards
for reporting information about operating segments in financial statements and
requires selected information about operating segments in interim financial
reports issued to stockholders. It also established standards for related
disclosures about product and services and geographic areas. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision makers, or decision making group, in deciding how to allocate resources
and in assessing performance. Sanmina's chief operating decision maker is the
Chief Operating Officer. Based on the evaluation of financial information by the
Chief Operating Officer, Sanmina operates in one business segment -- the
manufacture, testing and servicing of a full spectrum of complex printed circuit
boards, custom back plane interconnect devices, and electronic assembly
services. Revenue is principally derived from customers in the United States.
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 the first quarter of fiscal 2000 and fiscal 1999, sales to our ten
largest customers accounted for 62% and 54%, respectively of our net sales. For
the first quarter of fiscal 2000, sales to two separate customers represented
more than 10% of our net sales. For the first quarter of fiscal 1998, sales to
one of the same customers represented more than 10% of our net sales.
Sanmina'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 Sanmina to monitor current changes in business operations and to
respond accordingly.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Sanmina Corporation ("Sanmina") was incorporated in Delaware in May 1989 to
acquire its predecessor company which had been in the printed circuit board and
backplane business since 1980. 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, electronic enclosure systems 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, Sanmina 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 Plano, Texas. In addition, as a result of Sanmina's
merger with Telo Electronics Incorporated ("Telo") and Manu-Tronics, Inc.
("Manu-Tronics"), Sanmina has added new assembly plants in San Jose, California
and in the greater Chicago area. As part of Sanmina's agreement to acquire
certain assembly operations of Nortel Networks Corporation, Sanmina added an
assembly plant in Calgary, Alberta, Canada on October 1, 1999. In addition,
Sanmina also added an assembly plant in Chateaudun, France in November 1999. As
part of Sanmina's acquisition of Devtek Electronics Packaging Systems Division
on October 5, 1999, Sanmina added an enclosure facility in Toronto, Ontario,
Canada.
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, pricing and
competitive pressures, component shortages, which could cause us to be unable to
meet customer delivery schedules, 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 six months. 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
10
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results may also result in fluctuations in the price of Sanmina's convertible
subordinated notes and Common Stock.
Sanmina's customers include a diversified base of OEMs in the
communications (telecommunications and networking), 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 Sanmina 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. In addition, Sanmina has no firm long-term
volume commitments from its customers and over the last few years has
experienced reduced lead-time in customer orders. In addition, customer orders
can be canceled and volume levels can be changed or delayed. The timely
replacement of canceled, delayed or reduced orders with new business cannot be
assured. There can be no assurance that any of Sanmina's current customers will
continue to use Sanmina's manufacturing services. The loss of one or more of
Sanmina's principal customers, or reductions in sales to any of such customers,
could have a material adverse effect on Sanmina'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, to access new geographic markets, to 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 Sanmina will not incur problems with
integrating acquired operations, and there can be no assurance that Sanmina's
recent acquisitions, or any 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 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 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.
In addition, Sanmina expects to pursue opportunities to acquire assembly
operations being divested by electronics industry OEMs. Sanmina expects that
competition for these opportunities among electronics manufacturing services
firms will be intense because these transactions typically enable the acquiror
to enter into long-term supply arrangements with the divesting OEM. Accordingly,
Sanmina's future results of operations could be adversely affected if Sanmina is
not successful in attracting a significant portion of the OEM divestiture
transactions it pursues. In addition, due to the large scale and long-term
nature of supply arrangements typically entered into in OEM divestiture
transactions and because cost reductions are generally a major reason why the
OEM is divesting operations, pricing of manufacturing services may be less
favorable to the manufacturer than in standard contractual relationships.
Accordingly, as Sanmina enters into new OEM divestiture transactions, Sanmina
may experience erosion in gross margins.
Sanmina is subject to potential risks related to Year 2000 problems. Many
computer systems and software products were 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 were upgraded to comply
with such Year 2000 requirements.
11
<PAGE> 13
Sanmina completed 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. Based
on these inquiries, Sanmina believes satisfactory progress was made by its major
vendors and customers on Year 2000 readiness. Sanmina updated much of its
existing software for Year 2000 compliance by acquiring new or upgraded third
party software packages, and by modifying existing internally developed
software.
Sanmina did not experience any interruption to its business activities or
incur any impairment to its financial condition or results of operations as a
result of passing into calendar year 2000. Sanmina will continue to monitor its
own internal systems and products to determine the impact, if any, of problems
associated with the Year 2000.
To date, Year 2000 costs are not considered by Sanmina to be material to
its financial condition nor has Sanmina incurred any significant unplanned
expenditures to address or remediate Year 2000 problems. Sanmina estimated the
cost of its Year 2000 project at approximately $1.7 million. Through January 2,
2000, approximately $1.6 million of this amount was 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. Sanmina'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 Sanmina's annual report on
Form 10-K for the fiscal year ended October 2, 1999.
Results of Operations
The following table sets forth, for the three months ended January 1, 2000
and January 2, 1999, certain items as a percentage of net sales. The table and
the discussion below should be read in connection with the condensed
consolidated financial statements and the notes thereto, which appear elsewhere
in this report.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
<S> <C> <C>
Net sales................................................... 100.0% 100.0%
Cost of sales............................................... 83.0 81.0
----- -----
Gross Profit.............................................. 17.0 19.0
----- -----
Selling, general and administrative......................... 4.5 7.3
Amortization of goodwill.................................... 0.5 0.3
Provision for plant closing and relocation costs............ -- 6.1
Write down of long-lived assets............................. -- 4.1
Merger costs................................................ -- 2.0
----- -----
Operating income (loss)................................... 12.0 (0.8)
Other income, net........................................... 0.3 0.6
----- -----
Income (loss) before provision for income taxes........... 12.3 (0.2)
Provision for income taxes.................................. 4.4 --
----- -----
Net income (loss)........................................... 7.9 (0.2)
===== =====
</TABLE>
Sales for the first quarter of fiscal 2000 increased by 66.8% to $459.7
million from $275.5 million in the corresponding quarter of the prior year. The
increase in net sales for the first quarter of fiscal 2000 was due primarily to
increased shipments of EMS assemblies to both existing and new customers
obtained both through acquisitions and internal growth. Sales to Nortel Networks
increased substantially in the first quarter of fiscal 2000 due to our recently
completed OEM divestiture transaction. Growth in EMS assembly revenues during
these periods was influenced by expansion of Sanmina's operations, both through
acquisitions and internally-originated expansions, and a generally positive
economic environment in the communications,
12
<PAGE> 14
medical and industrial instrumentation, and high-speed computer segments of the
electronics industry. Revenue growth was also influenced by the electronics
industry trend towards outsourcing.
Gross margin decreased from 19.0% in the first quarter of fiscal 1999 to
17.0% in the first quarter of fiscal 2000. Sanmina expects gross margins to
continue to fluctuate based on the mix of products ordered by and shipped to
major customers. The decrease in gross margins for the first quarter was
primarily attributable to pricing terms negotiated as part of OEM divestiture
transactions, specifically the Nortel Networks transaction, and product and
customer mix. Due to increased competition, changes in product and customer mix,
and pricing terms negotiated as part of OEM divestiture transactions, we may
continue to experience decreases in gross margins.
In absolute dollars, operating expenses decreased from $54.6 million in the
first quarter of fiscal 1999 to $22.8 million in the first quarter of fiscal
2000. The decrease in operating expenses for the first three months of fiscal
2000 was mainly attributable to certain charges recorded in the first three
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.
As a percentage of sales, operating expenses decreased from 19.8% in the first
quarter of 1999 to 5.0% in the first quarter of the current year. Excluding the
charges from the first quarter of fiscal 1999, operating expenses as a
percentage of sales decreased from 6.7% in the first quarter of fiscal 1999 to
5.0% in the first quarter of fiscal 2000. 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.
Selling, general and administrative expenses increased slightly from $20.1
million in the first quarter of fiscal 1999 to $20.9 million in the first
quarter of fiscal 2000. The dollar increase in selling, general and
administrative expenses was primarily the result of increased expenditures to
support higher sales volume. Sanmina anticipates that operating expenses will
continue to increase in absolute dollars 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 Sanmina's
ability to achieve expected operating efficiencies as a result of the
integration of acquired businesses.
For the first quarter of fiscal 2000, Sanmina reported net other income of
$1.4 million compared to net other income of $1.7 million for the corresponding
quarter of last year. The decrease was a result of lower interest expense in the
first quarter of fiscal 1999. For the first three months of fiscal 2000, the
interest income from the higher cash balances available following the $350
million ($341.1 million net of issuance costs) issuance of convertible
subordinated notes was slightly offset by the interest expense associated with
the convertible subordinated notes. In the first quarter of fiscal 1998, Sanmina
repaid approximately $12.8 million of outstanding debt assumed in connection
with the acquisition of Elexsys. 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 Sanmina. The decrease in
outstanding debt resulted in the reduction of interest expense for the first
three months of fiscal 1999.
Sanmina's provision for income taxes for the three month period ended
January 2, 2000 is based upon Sanmina's estimate of the effective tax rate for
fiscal 2000 of 36.0%. As there was a net loss for the three months ended January
2, 1999, Sanmina did not record an income tax provision.
Liquidity and Capital Resources
Cash, cash equivalents, and short-term investments as of January 1, 2000
were $354.3 million as compared to $454.6 million at October 2, 1999. For the
three months ending January 1, 2000, cash used by operations was $34.2 million
which was primarily due to increases in receivables resulting from increased
sales and higher levels of inventories resulting in part from component
shortages. Working capital increased to $671.8 million as of January 1, 2000
compared to $667.8 million at October 2, 1999. This increase was primarily due
to increases in receivables and inventories.
13
<PAGE> 15
Net cash used for investing activities for the first three months of fiscal
2000 primarily related to the purchase of property, plant, and equipment of
$26.0 million. In addition, Sanmina paid approximately $44.7 million in cash for
acquisitions.
Net cash provided by financing activities for the first three months of
fiscal year 2000 primarily related to the proceeds from the sale of common stock
upon exercise of stock options.
Sanmina has entered into an operating lease agreement for new facilities in
San Jose, California which house its corporate headquarters and certain assembly
operations. In connection with these transactions, Sanmina pledged $52.9 million
as collateral for certain obligations of the leases.
Sanmina 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 Sanmina in plant and
equipment, working capital needs of acquired businesses, levels of shipments by
Sanmina and changes in volumes of business and other factors. Sanmina believes
that its existing cash resources, together with cash generated from operations,
will be sufficient to meet Sanmina's liquidity and working capital requirements
through at least the next 12 months. Sanmina has recently filed a registration
statement with the Securities and Exchange Commission for an offering of
5,000,000 shares of its common stock. In addition, Sanmina may seek to raise
additional capital through the future issuance of either debt or equity
securities. Debt financing may require Sanmina to pledge assets as collateral
and comply with financial ratios and covenants. Equity financing may result in
dilution to stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has not been a material change in our exposure to interest rate and
foreign currency risks since the date of our report on Form 10-K for the fiscal
year ended October 2, 1999.
Interest Rate Risk
Sanmina's exposure to market risk for changes in interest rates relate
primarily to Sanmina's investment portfolio. Currently, Sanmina does not use
derivative financial instruments in our investment portfolio. Sanmina invests in
high credit quality issuers and, by policy, limits the amount of principal
exposure to any one issuer. As stated in Sanmina's policy, Sanmina seeks to
ensure the safety and preservation of our invested principal funds by limiting
default and market risk.
Sanmina seeks to mitigate default risk by investing in high-credit quality
securities and by positioning our investment portfolio to respond to a
significant reduction in a credit rating of any investment issuer, guarantor or
depository. Sanmina 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
We transact business in foreign countries. Our primary foreign currency
cash flows are in certain European countries. Currently, we do not employ a
foreign currency hedge program with respect to transactions and expenditures
originating in these or any other foreign countries. We believe that our foreign
currency exchange risk is immaterial.
14
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Sanmina is not currently a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 28, 2000, Sanmina will hold its 2000 Annual Meeting of
Stockholders. The matters to be voted upon at the meeting are set forth below:
1. To elect directors of Sanmina.
2. To approve amendment to Sanmina's Restated Certificate of
Incorporation to increase the number of authorized shares of common stock.
3. To confirm the appointment of Arthur Andersen LLP as the
independent public accountants of Sanmina for the fiscal year ending
September 30, 2000.
4. To transact such other business as may properly come before the
meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule for three month period ended January
1, 2000.
</TABLE>
(b) Reports on Form 8-K
None.
15
<PAGE> 17
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.
Date: January 27, 2000 SANMINA CORPORATION
(Registrant)
By: /s/ RANDY W. FURR
------------------------------------
Randy W. Furr
President and Chief Operating
Officer
By: /s/ ELIZABETH D. JORDAN
------------------------------------
Elizabeth D. Jordan
Executive Vice President and
Chief Financial Officer
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27.1 Financial Data Schedule for three month period ended January
1, 2000.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 52,355
<SECURITIES> 301,960
<RECEIVABLES> 288,366
<ALLOWANCES> 10,640
<INVENTORY> 279,849
<CURRENT-ASSETS> 946,135
<PP&E> 439,825
<DEPRECIATION> 219,935
<TOTAL-ASSETS> 1,298,939
<CURRENT-LIABILITIES> 274,358
<BONDS> 357,890
0
0
<COMMON> 591
<OTHER-SE> 666,100
<TOTAL-LIABILITY-AND-EQUITY> 1,298,939
<SALES> 459,685
<TOTAL-REVENUES> 459,685
<CGS> 381,722
<TOTAL-COSTS> 381,722
<OTHER-EXPENSES> 22,809
<LOSS-PROVISION> 1,857
<INTEREST-EXPENSE> 1,390<F1>
<INCOME-PRETAX> 56,544
<INCOME-TAX> 20,356
<INCOME-CONTINUING> 36,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,188
<EPS-BASIC> 0.61<F2>
<EPS-DILUTED> 0.58<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>
