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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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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 APRIL 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
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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)
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 May 16, 2000, there were 128,912,826 shares outstanding of the
issuer's common stock, $0.01 par value.
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SANMINA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Condensed Consolidated Statements of Operations............. 3
Condensed Consolidated Balance Sheets....................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10-14
Item 3. Quantitative and Qualitative Disclosure about Market 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 SIX MONTHS ENDED
-------------------- ----------------------
APRIL 1, APRIL 3, APRIL 1, APRIL 3,
2000 1999 2000 1999
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $555,312 $281,140 $1,014,997 $556,673
Cost of sales................................. 467,948 219,525 849,670 442,774
-------- -------- ---------- --------
Gross profit................................ 87,364 61,615 165,327 113,899
-------- -------- ---------- --------
Operating expenses
Selling, general and administrative......... 21,464 17,308 42,372 37,387
Amortization of goodwill.................... 1,992 804 3,893 1,555
Provision for plant closing and relocation
costs.................................... -- -- -- 16,875
Write down of long-lived assets............. -- -- -- 11,400
Merger costs................................ -- -- -- 5,479
-------- -------- ---------- --------
Total operating expenses............ 23,456 18,112 46,265 72,696
-------- -------- ---------- --------
Operating income.............................. 63,908 43,503 119,062 41,203
Other income, net............................. 4,702 1,809 6,092 3,547
-------- -------- ---------- --------
Income before provision for income
taxes............................. 68,610 45,312 125,154 44,750
Provision for income taxes.................... 24,700 16,540 45,056 16,540
-------- -------- ---------- --------
Net income.................................... $ 43,910 $ 28,772 $ 80,098 $ 28,210
======== ======== ========== ========
Earnings per share:
Basic....................................... $ 0.35 $ 0.25 $ 0.66 $ 0.25
Diluted..................................... $ 0.33 $ 0.23 $ 0.62 $ 0.23
Shares used in computing per share amounts:
Basic....................................... 124,343 115,524 121,219 115,136
Diluted..................................... 131,899 123,509 128,672 122,509
</TABLE>
See accompanying notes.
3
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SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 1, OCTOBER 2,
2000 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 504,159 $ 136,145
Short-term investments.................................... 352,127 318,457
Accounts receivable, net.................................. 332,172 191,120
Inventories............................................... 309,272 206,319
Deferred income taxes..................................... 22,934 22,934
Prepaid expenses and other................................ 13,269 10,195
---------- ----------
Total current assets.............................. 1,533,933 885,170
Property, plant and equipment, net.......................... 262,464 206,804
Long-term investments....................................... 52,850 52,850
Deposits and other.......................................... 84,688 56,889
---------- ----------
$1,933,935 $1,201,713
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 232,886 $ 154,827
Accrued liabilities and other............................. 65,316 53,444
Income taxes payable...................................... 17,935 9,115
---------- ----------
Total current liabilities......................... 316,137 217,386
---------- ----------
Long-term liabilities:
Convertible subordinated notes............................ 355,020 355,259
Other liabilities......................................... 2,249 2,721
---------- ----------
Total long-term liabilities....................... 357,269 357,980
---------- ----------
Stockholders' equity:
Common stock.............................................. 1,286 589
Additional paid-in capital................................ 846,756 291,435
Accumulated other comprehensive loss...................... (2,983) (1,049)
Retained earnings......................................... 415,470 335,372
---------- ----------
Total stockholders' equity........................ 1,260,529 626,347
---------- ----------
$1,933,935 $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>
SIX MONTHS ENDED
---------------------
APRIL 1, APRIL 3,
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 80,098 $ 28,210
Adjustments to reconcile net income to cash provided by
(used for) operating activities:
Depreciation, amortization and other................... 32,593 23,135
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.................................. (143,702) (27,997)
Inventories.......................................... (72,263) (17,816)
Prepaid expenses, deposits and other................. 13,484 4,934
Accounts payable and accrued liabilities............. 73,119 8,889
Income tax accounts.................................. 9,022 (11,067)
--------- --------
Cash provided by (used for) operating
activities...................................... (7,649) 43,374
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (169,270) (31,072)
Proceeds from maturity of short-term investments.......... 135,600 66,370
Purchases of long-term investments........................ -- (52,850)
Purchases of property and equipment, net of
acquisitions........................................... (75,503) (28,517)
Cash paid for businesses acquired, net of cash acquired... (70,195) (13,359)
--------- --------
Cash used for investing activities................ (179,368) (59,428)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term liabilities......................... (987) (10,363)
Proceeds from sale of common stock, net................... 556,018 10,029
--------- --------
Cash provided by (used for) financing
activities...................................... 555,031 (334)
--------- --------
Increase (decrease) in cash and cash equivalents............ 368,014 (16,388)
Cash and cash equivalents at beginning of period............ 136,145 87,978
--------- --------
Cash and cash equivalents at end of period.................. $ 504,159 $ 71,590
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 7,618 $ 645
Income Taxes.............................................. $ 35,992 $ 23,517
</TABLE>
See accompanying notes.
5
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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 and/or six months ended
April 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
Statement of Financial Accounting Standards ("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 six months ended April 1, 2000, the net unrealized holding
loss on investments and foreign currency translation adjustment were ($250,141)
and ($988,326), respectively. For the six months ended April 3, 1999, the net
unrealized holding loss on investments and foreign currency translation
adjustment were ($89,085) and ($561,007), respectively. Comprehensive income for
the six months ended April 1, 2000 and April 3, 1999 was $78.9 million and $27.6
respectively.
NOTE 4 -- ACQUISITIONS
On March 1, 2000, Sanmina acquired certain printed circuit board assembly
(PCBA) manufacturing assets from Harris Corporation ("Harris") for a cash
purchase price of approximately $1.7 million. This transaction was accounted for
as a purchase. Under the terms of the agreement, Sanmina acquired Harris' PCBA
manufacturing assets and inventory and will lease Harris' ISO 9002-certified,
state-of-the art manufacturing facility in San Antonio, Texas. The agreement
also includes a three-year strategic manufacturing partnership agreement for
Harris to outsource its commercial PCBA manufacturing to Sanmina. With the new
operation, Sanmina will be able to provide its customers full systems
integration, box build and all levels of system test, thus expanding the
company's EMS capabilities in the important telecommunications corridor
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
in the south central region of the U.S. The results of operations for the three
months ended April 1, 2000, include the results of operations of this business
from the date of acquisition. Pro forma information reflecting the acquisition
of Harris has not been presented as the operations of Harris are not material to
Sanmina's consolidated financial statements.
On March 6, 2000, Sanmina acquired Alcatel's Clinton, North Carolina
electronic enclosure systems facility for a purchase price of approximately
$23.8 million. This transaction 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, based on fair
market value, resulting in goodwill of approximately $8 million, which will be
amortized over a period of 10 years. 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 also includes a three-year
manufacturing service contract between Sanmina and Alcatel. The results of
operations for the three months ended April 1, 2000, include the results of
operations of this business from the date of acquisition. Pro forma information
reflecting the acquisition of Alcatel has not been presented as the operations
of Alcatel are not material to Sanmina's consolidated financial statements.
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.
NOTE 6 -- INVENTORIES
Inventories, stated at the lower of cost or market (first-in, first-out
method), consist of:
<TABLE>
<CAPTION>
APRIL 1, OCTOBER 2,
2000 1999
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $179,181 $134,042
Work-in-process........................................ 101,246 58,498
Finished goods......................................... 28,845 13,779
-------- --------
$309,272 $206,319
======== ========
</TABLE>
7
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 second quarter and first
six months of fiscal 2000 and 1999. Diluted EPS for the second quarter and first
six months of fiscal 2000 and 1999 includes dilutive common stock equivalents
using the treasury stock method, and assumes that the convertible debt
instruments were converted into common stock, if dilutive. Reconciliations of
the net income and weighted average number of shares used for the diluted
earnings per share computations for the second quarter and first three months of
fiscal 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
APRIL 1, APRIL 3, APRIL 1, APRIL 3,
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income...................................... $ 43,910 $ 28,772 $ 80,098 $ 28,210
Add back after-tax interest expense for
convertible subordinated debt................. 46 -- 92 --
-------- -------- -------- --------
Income for calculating earnings per share....... $ 43,956 $ 28,772 $ 80,190 $ 28,210
======== ======== ======== ========
Weighted average number of share outstanding
during the period............................. 124,343 115,524 121,219 115,136
Applicable number of shares for stock options
outstanding for the period.................... 7,388 7,985 7,282 7,373
Weighted average number of shares if convertible
subordinated debt were converted.............. 168 -- 171 --
-------- -------- -------- --------
Weighted average number of shares............. 131,899 123,509 128,672 122,509
======== ======== ======== ========
Diluted earnings per share...................... $ 0.33 $ 0.23 $ 0.62 $ 0.23
======== ======== ======== ========
</TABLE>
NOTE 8 -- EQUITY OFFERING
On February 8, 2000, Sanmina completed a public offering of 9,550,000
shares of Common Stock at $59.00 per share. The net proceeds will be used for
working capital and other general corporate purposes.
NOTE 9 -- STOCK SPLIT
On March 22, 2000, Sanmina effected a two-for-one stock split in the form
of a 100 percent stock dividend. Shareholders of record as of March 1, 2000
received one additional share of common stock for every share owned. Share and
per share data for all periods presented herein have been adjusted to give
effect to the stock split.
NOTE 10 -- 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 11 -- SUBSEQUENT EVENT
On April 17, 2000, Sanmina announced that it had signed a definitive
agreement to merge with Hadco Corporation ("Hadco"). The merger will be
accounted for as a pooling of interests. Under the terms of the merger agreement
each outstanding share of Hadco common stock will be converted into 1.4 shares
of Sanmina common stock, upon the closing of the merger. The merger is subject
to certain conditions including the approval of Hadco's shareholders.
Headquartered in Salem, New Hampshire, Hadco Corporation is a leading developer
and supplier of advanced electronic interconnect products and services and is
recognized for its leading-edge circuit fabrication technology.
NOTE 12 -- 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.
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.
NOTE 13 -- RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Sanmina does not believe that SAB 101 will
have a material effect on the financial statements.
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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 electronics manufacturing services, including turnkey
electronic assembly and turnkey manufacturing management services, to original
equipment manufacturers ("OEMs") in the electronics industry. Sanmina's
electronic 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 multilayer printed circuit
boards, electronic enclosure systems manufacture, 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 also manufactures
custom cable and wire harness assemblies for electronics industry OEMs. These
manufacturing services are provided by Sanmina personnel at Sanmina's
facilities.
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 agreement to acquire certain manufacturing assets of Harris,
Sanmina added an assembly plant in San Antonio, Texas. 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. In addition,
Sanmina also added an enclosure facility in Clinton, North Carolina in March
2000, with the acquisition of Alcatel's electronic enclosure systems facility.
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, supplier component shortages, which could cause Sanmina
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 to obtain facilities and equipment on terms
more favorable than those generally available in the market place. 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 experience such issues
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 issues 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 as these transactions typically enable the acquirer 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.
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
11
<PAGE> 12
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 April 1,
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 and six months ended April 1,
2000 and April 3, 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 SIX MONTHS ENDED
------------------------------ ------------------------------
APRIL 1, 2000 APRIL 3, 1999 APRIL 1, 2000 APRIL 3, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................. 100% 100% 100% 100%
Cost of sales............................. 84.3 78.1 83.7 79.5
Gross Profit............................ 15.7 21.9 16.3 20.5
Selling, general and administrative....... 3.9 6.1 4.2 6.7
Amortization of goodwill.................. 0.3 0.3 0.4 0.3
Provision for plant closing and
relocation.............................. -- -- -- 3.0
Write down of long-lived assets........... -- -- -- 2.1
Merger costs.............................. -- -- -- 1.0
Operating income........................ 11.5 15.5 11.7 7.4
Other income, net......................... 0.9 0.6 0.6 0.6
Income before income taxes.............. 12.4 16.1 12.3 8.0
Provision for income taxes................ 4.5 5.9 4.4 3.0
Net income................................ 7.9 10.2 7.9 5.0
</TABLE>
Sales for the second quarter of fiscal 2000 increased by 97.5% to $555.3
million from $281.1 million in the corresponding quarter of the prior year. The
increase in net sales for the second quarter of fiscal 2000 was due primarily to
increased shipments of EMS assemblies to both existing and new customers
obtained through internal growth and strategic acquisitions, including the
recent manufacturing partnership agreement with Harris to outsource its
commercial PCBA manufacturing to Sanmina. Sales to Nortel Networks continued to
increase substantially in the second quarter of fiscal 2000 due to the purchase
of certain manufacturing facilities from Nortel Networks by Sanmina in the first
quarter of fiscal 2000. The overall growth in EMS assembly revenues during the
first six months of fiscal 2000 was influenced by the expansion of Sanmina's
existing operations, through acquisitions and a generally positive economic
environment in the communications, 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.
12
<PAGE> 13
Gross margin decreased from 21.9% in the second quarter of fiscal 1999 to
15.7% in the second quarter of fiscal 2000. The decrease in gross margins for
the second quarter was attributable to pricing terms negotiated as part of OEM
divestiture transactions, specifically the Nortel Networks transaction, and
product and customer mix. Sanmina expects gross margins to continue to fluctuate
based on the mix of products ordered by and shipped to major customers,
increased competition, and pricing terms negotiated as part of OEM divestiture
transactions.
Operating expenses increased from $18.1 million in the second quarter of
fiscal 1999 to $23.5 million in the second quarter of fiscal 2000. As a
percentage of sales, operating expenses decreased from 6.4% to 4.2% in the
second quarter of fiscal 2000. For the six months ended, operating expenses in
absolute dollars decreased from $72.7 million in fiscal 1999 to $46.3 million in
fiscal 2000 and operating expenses as a percentage of sales decreased from 13.1%
in fiscal 1999 to 4.6% in fiscal 2000. The decrease in operating expenses for
the first six months of fiscal 2000 as compared to the first six months ended in
fiscal 1999 was mainly attributable to certain charges recorded in 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. Excluding the charges
from the first six months of fiscal 1999, operating expenses as a percentage of
sales decreased from 6.6% in the first six months of fiscal 1999 to 4.6% in the
first six months of fiscal 2000. The quarter-over-quarter decrease in operating
expenses as a percentage of sales reflects Sanmina's strategy to leverage its
operating margin by growing the top line at a faster rate than its operating
expenses.
Selling, general and administrative expenses increased from $17.3 million
in the second quarter of fiscal 1999 to $21.5 million in the second quarter of
fiscal 2000. As a percentage of sales, selling, general and administrative
expenses declined from 6.1% in the second quarter of fiscal 1999 to 3.9% for the
second quarter of fiscal 2000. The absolute 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 second quarter of fiscal 2000, Sanmina reported net other income of
$4.7 million compared to net other income of $1.8 million for the corresponding
quarter of the prior year. The increase was primarily attributable to the
interest earned on the higher cash balances available following the $540.2
million net proceeds from the issuance of common stock completed February 8,
2000.
Sanmina's provision for income taxes for the second quarter of fiscal 2000
is based upon Sanmina's estimate of the effective tax rate for fiscal year 2000
of 36.0%. For the second quarter of fiscal 1999, Sanmina's effective tax rate
was 36.5%. The lower rate in the current 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 1, 2000 were
$856.3 million as compared to $454.6 million at October 2, 1999. For the six
months ending April 1, 2000, cash used by operations was $7.6 million, which was
primarily due to increases in receivables resulting from increased sales volume
and higher inventory levels required to meet current demand and in part due to
certain component shortages. Working capital increased to $1,217.8 million as of
April 1, 2000 compared to $667.8 million at October 2, 1999. Primarily due to
the proceeds received from the issuance of common stock in February 2000 and
increases in receivables and inventories.
Net cash used for investing activities for the first six months of fiscal
2000 primarily related to the purchase of short-term investments of $169.3
million, and the purchase of property, plant, and equipment of $75.5 million
required to meet customer demand. In addition, Sanmina paid approximately $70.2
million in cash for businesses acquired. In connection with the purchase of
equipment and inventory from Harris, Sanmina has additional cash commitments of
approximately $28 million to purchase two facilities principally fixed assets
and inventory of Harris and an additional facility at an amount to be determined
at a later date.
13
<PAGE> 14
Net cash provided by financing activities for the first six months of
fiscal year 2000 primarily related to the proceeds from the issuance of common
stock.
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 lease.
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.
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 its 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
Sanmina transacts business in foreign countries. Our primary foreign
currency cash flows are in certain European countries and Canada. During April
2000, Sanmina implemented a hedging program to mitigate the risk of currency
fluctuation in these areas.
14
<PAGE> 15
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 held its 2000 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 John Bolger, Neil Bonke, Randy Furr, Joseph Schell,
Jure Sola, Mario Rosati, and Bernard Vonderschmitt as Directors of Sanmina.
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
John Bolger........................................... 53,125,695 127,489
Neil Bonke............................................ 53,125,695 127,489
Randy Furr............................................ 53,125,668 127,516
Joseph Schell......................................... 53,125,695 127,489
Jure Sola............................................. 53,125,621 127,563
Mario Rosati.......................................... 53,125,695 127,489
Bernard Vonderschmitt................................. 53,125,695 127,489
</TABLE>
2. Approval of an amendment to Sanmina's Restated Certificate of
Incorporation to increase the number of authorized shares of common stock:
FOR: 48,402,978 AGAINST: 4,781,426 ABSTAIN: 68,780
3. Ratification of the appointment of Arthur Andersen LLP as the
independent public accountants of Sanmina for the fiscal year ending
September 30, 2000:
FOR: 53,204,318 AGAINST: 17,103 ABSTAIN: 31,763
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 April
1, 2000.
</TABLE>
(b) Reports on Form 8-K
None.
15
<PAGE> 16
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 16, 2000
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> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule for three month period ended April
1, 2000.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000897723
<NAME> SANMINA CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-2000
<PERIOD-START> OCT-03-1999 OCT-03-1999
<PERIOD-END> JAN-01-2000 APR-01-2000
<EXCHANGE-RATE> 1 1
<CASH> 52,355 504,159
<SECURITIES> 301,960 352,127
<RECEIVABLES> 288,366 343,921
<ALLOWANCES> 10,640 11,749
<INVENTORY> 279,849 309,272
<CURRENT-ASSETS> 946,135 1,533,933
<PP&E> 439,825 494,466
<DEPRECIATION> 219,935 232,002
<TOTAL-ASSETS> 1,298,939 1,933,935
<CURRENT-LIABILITIES> 274,358 316,137
<BONDS> 357,890 357,269
0 0
0 0
<COMMON> 591 1,286
<OTHER-SE> 666,100 1,259,243
<TOTAL-LIABILITY-AND-EQUITY> 1,298,939 1,933,935
<SALES> 459,685 1,014,997
<TOTAL-REVENUES> 459,685 1,014,997
<CGS> 381,722 849,670
<TOTAL-COSTS> 381,722 849,670
<OTHER-EXPENSES> 22,809 46,265
<LOSS-PROVISION> 1,857 2,651
<INTEREST-EXPENSE> 1,390<F1> 6,092<F1>
<INCOME-PRETAX> 56,544 125,154
<INCOME-TAX> 20,356 45,056
<INCOME-CONTINUING> 36,188 80,098
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 36,188 80,098
<EPS-BASIC> 0.31<F2> 0.66<F2>
<EPS-DILUTED> 0.29<F3> 0.62<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>
