<PAGE> 1
EXHIBIT 13
(a) Exhibits
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Selected Financial Data................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of Operations..... 21
Statement of Financial Responsibility..................................................... 33
Consolidated Balance Sheets............................................................... 34
Consolidated Statements of Operations and Comprehensive Income............................ 35
Consolidated Statements of Stockholders' Equity........................................... 36
Consolidated Statements of Cash Flows..................................................... 37
Notes to the Consolidated Financial Statements............................................ 38
Report of Independent Public Accountants.................................................. 52
</TABLE>
Sanmina and the Sanmina logo are registered trademarks of Sanmina
Corporation. All other names are trademarks and/or registered trademarks of
their respective owners.
19
<PAGE> 2
SAMNINA CORPORATION
SELECTED FINANCIAL DATA
The following selected historical financial information of Sanmina, combined
with Hadco and Essex on a pooling of interests basis, has been derived from the
historical consolidated financial statements and should be read in conjunction
with the consolidated financial statements and the notes included therein.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $3,911,559 $2,393,983 $1,941,454 $1,522,811 $1,006,302
Operating income 331,328 211,113 109,021 91,127 139,248
Income before provision for income taxes 330,239 188,063 87,529 81,170 138,913
Net income before extraordinary charge 197,293 118,267 33,198 15,870 88,334
---------- ---------- ---------- ---------- ----------
Basic net income per share, before extraordinary charge $ 1.34 $ 0.86 $ 0.27 $ 0.14 $ 0.80
========== ========== ========== ========== ==========
Basic net income per share, after extraordinary charge $ 1.31 $ 0.86 $ 0.27 $ 0.14 $ 0.80
========== ========== ========== ========== ==========
Diluted net income per share, before extraordinary charge $ 1.27 $ 0.82 $ 0.26 $ 0.13 $ 0.71
========== ========== ========== ========== ==========
Diluted net income per share, after extraordinary charge $ 1.24 $ 0.82 $ 0.26 $ 0.13 $ 0.71
========== ========== ========== ========== ==========
Shares used in computing diluted per share amount 155,038 144,536 126,704 120,819 128,635
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF YEAR ENDED
------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 992,842 $ 148,754 $ 96,425 $ 68,911 $ 197,831
Net working capital 1,872,770 742,350 412,409 314,172 277,463
Total assets 3,639,470 2,007,441 1,472,509 1,087,975 702,047
Long-term debt 1,143,942 661,277 402,094 214,887 126,154
Stockholders' equity 1,701,482 864,094 688,397 546,624 381,206
</TABLE>
20
<PAGE> 3
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Sanmina Corporation ("Sanmina") was incorporated in Delaware in May 1989 and is
an 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 design and 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, metal
stamping and plating, 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 also manufactures custom
cable and wire harness assemblies.
Sanmina operates in two geographic segments, domestic and international
operations. Sanmina's manufacturing and assembly plants are located in Northern
California, Richardson and San Antonio, Texas, Manchester, New Hampshire,
Durham, North Carolina, Guntersville, Alabama, Dublin, Ireland, Kenosha,
Wisconsin, Salt Lake City, Utah and Nashua, New Hampshire. Sanmina's cable and
harness principal manufacturing facility is located in Carrollton, Texas. As a
result of Sanmina's November 1998 acquisition of 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 acquisition of 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, Sanmina
added an assembly plant in Calgary, Alberta, Canada in October 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 ("Devtek") in October 1999, Sanmina added an enclosure facility in
Toronto, Ontario, Canada. Sanmina also added an enclosure facility in Clinton,
North Carolina through the acquisition of Alcatel's electronic enclosure systems
facility. Sanmina acquired Essex AB ("Essex") in June 2000, which added
engineering design, printed circuit board assembly, system integration and test
capabilities and facilities in Sweden and Finland. As a result of the
acquisition of Hadco Corporation ("Hadco"), which was completed in June 2000,
Sanmina added printed circuit board fabrication facilities in Santa Clara,
California, Owego, New York, Phoenix, Arizona, Derry, Hew Hampshire, Kuching,
Malaysia and Hudson, New Hampshire; quick turn printed circuit board
manufacturing facilities in Haverhill, Massachusetts, Watsonville, California
and Austin, Texas; backplane and system assembly facilities in Salem, New
Hampshire and Santa Clara, California; design and engineering operations in
Salem, New Hampshire, Santa Clara, California and Limerick, Ireland. In June
2000, Sanmina completed a cash purchase of Interworks Computer Products, Inc.
("Interworks"), which increased design and engineering service capabilities and
is located in Southern California. In July 2000, Sanmina acquired Ocean Contract
Manufacturing Ltd. ("Ocean"), which added printed circuit board, subsystem and
system level assembly as well as engineering capabilities through facilities
located in the Shenzhen region of the Peoples' Republic of China. In August
2000, Sanmina acquired a design and engineering group from Nortel Networks. This
acquisition added physical design and test capabilities through facilities
located in Calgary, Canada, Santa Clara, California, Simi Valley, California,
Richardson, Texas and Guyancourt, France. Also in September 2000, Sanmina
acquired the San Jose, California system integration and fulfillment operation
of Lucent Technologies. This acquisition added full system and direct order
fulfillment capabilities through its facility in San Jose, California.
Sanmina recently announced an OEM arrangement with Siemens. Under this
arrangement, we will acquire a 49.9% ownership interest in INBOARD, a wholly
owned subsidiary of Siemens AG. INBOARD is a manufacturer of complex printed
circuit boards.
The acquisitions of Essex and Hadco were structured as a stock for stock
exchange and were accounted for as a pooling of interests. Under the terms of
the agreement with Essex, each share of Essex common stock was converted into
approximately 10.2 shares of Sanmina common stock. Approximately 2.0 million
shares of Sanmina common stock were issued to acquire Essex. Regarding the Hadco
transaction, each outstanding share of Hadco common stock was converted into 1.4
shares of Sanmina common stock. Approximately 19.6 million shares of common
stock were issued to acquire Hadco. As a result of the acquisitions of Essex and
Hadco, Sanmina's historical financial statements have been restated
retroactively to include the financial results of Essex and Hadco. Essex's
results of operations for the years ended December 31, 1999 and 1998 and Hadco's
results of operations for the years ended October 30, 1999 and October 31, 1998
have been combined with Sanmina's results of operations for the years ended
October 2, 1999 and September 30, 1998, respectively. In addition, Essex's
balance sheet as of December 31, 1999 and Hadco's balance sheet as of October
30, 1999 have been combined with Sanmina's balance sheets as of October 2, 1999,
respectively. The fiscal years for Essex and Hadco changed to coincide with
Sanmina's beginning in fiscal 2000. The restated financial information includes
certain adjustments to eliminate the net sales between the combining companies
and certain reclassifications to conform to Sanmina's financial statement
presentation. No adjustments were necessary to conform the accounting policies
of the combining companies.
Sanmina has pursued, and intends to continue to pursue, business acquisition
opportunities, particularly when these opportunities
21
<PAGE> 4
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
have the potential to enable Sanmina to increase its net sales while maintaining
operating margins, to access new geographic markets, to implement Sanmina's
vertical integration strategy and/or to obtain access to new customers,
geographic regions, facilities and equipment on terms more favorable than those
generally available in the market. In particular, Sanmina expects that it will
continue to pursue opportunities to acquire assembly operations being divested
by electronics industry OEMs.
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. Actual events and/or future results of operations may differ materially
from those contemplated by such forward-looking statements, as a result of the
factors described herein, and in the documents incorporated herein by reference,
including, in particular, those factors described under "Factors Affecting
Operating Results."
RESULTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 30, 2000, OCTOBER 2, 1999,
AND SEPTEMBER 30, 1998
The following table sets forth, for the periods indicated, certain statements of
operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------ --------- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 84.0 82.6 82.6
----- ----- -----
Gross profit 16.0 17.4 17.4
----- ----- -----
Operating expenses:
Selling, general and administrative 5.6 6.5 7.3
Amortization of goodwill and intangibles 0.5 0.7 0.7
Write-off of acquired in-process research
and development -- -- 3.2
Write down of long-lived assets 0.2 0.5 0.1
Plant closing, relocation, merger and
restructuring costs 1.2 0.9 0.4
----- ----- -----
Total operating expenses 7.5 8.6 11.7
----- ----- -----
Operating income 8.5 8.8 5.7
Other income (expenses), net (0.1) (1.0) (1.1)
----- ----- -----
Income before provision for income taxes 8.4 7.8 4.6
Provision for income taxes (3.4) (2.9) (2.8)
----- ----- -----
Income before extraordinary charge 5.0 4.9 1.8
Extraordinary charge, net of tax benefit (0.1) -- --
----- ----- -----
Net income 4.9% 4.9% 1.8%
===== ===== =====
</TABLE>
Net Sales. Net sales in fiscal 2000 increased 63.4% to $3,911.6 million from
$2,394.0 million in fiscal 1999, which was an increase of 23.3% from fiscal 1998
sales of $1,941.5 million. The increase in net sales for fiscal 2000 was due
primarily to increased shipments of printed circuit boards and EMS assemblies to
both existing and new customers obtained both through acquisitions and internal
growth. The increase in net sales for fiscal 1999 was the result of increased
shipments of EMS assemblies to both existing and new customers obtained both
through acquisitions and internal growth. Sanmina's printed circuit board
fabrication operations focused increasingly on manufacturing printed circuit
boards used in EMS assemblies manufactured by Sanmina. Growth in EMS assembly
revenues during these periods was influenced by the electronics industry trend
towards outsourcing, expansion of Sanmina's operations, both through
acquisitions and Sanmina-originated expansions, and a generally positive
economic environment in the communications, medical and industrial
instrumentation, and computer sectors of the electronics industry. These
industry sectors continued to experience overall growth during these periods.
Gross Margin. Gross margin was 16.0%, 17.4% and 17.4% in fiscal 2000, 1999, and
1998, respectively. Sanmina expects gross margins to continue to be influenced
by product and customer mix. Gross margin was unchanged between 1999 and 1998.
The 2000 and 1999 gross margin reflects charges related to the write down of
obsolete inventory and other manufacturing related assets. The 2000 and 1999
gross margin also reflects an offsetting increase to the gross margin resulting
from improved mix and capacity utilization from printed circuit boards and
assembly operations from acquired companies. The decrease in margins between
2000 and 1999 was primarily attributable to pricing terms negotiated as part of
OEM divestiture transactions, principally the Nortel Networks transaction that
was completed in the first quarter of fiscal 2000 and transactions with Harris
Corporation ("Harris") and Alcatel, which were completed during 2000. This
decrease was partially offset by the realization of synergies associated with
the Hadco acquisition during the fourth quarter of the fiscal year. Due to
increased competition, product and customer mix, and pricing structures
negotiated in OEM divestiture transactions, including the recent transactions
and possible future transactions, Sanmina may experience decreases in gross
margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 2000, 1999 and 1998, were $218.9 million,
$156.3 million, and $141.1 million respectively. The percentages based upon
sales were 5.6%, 6.5% and 7.3% respectively. The percentage decreases in
selling, general and administrative expenses for fiscal 2000 and 1999 were due
to Sanmina's ability to grow sales while maintaining or reducing operating
expenses as a percentage of net sales, including synergies gained from
acquisitions. The absolute dollar increases in selling, general and
administrative expenses were primarily the result of increased expenditures to
support higher sales volume.
Amortization of Goodwill and Intangibles. Sanmina incurred $21.6 million, $15.8
million, and $13.1 million in amortization expense for fiscal years 2000, 1999
and 1998 respectively. These amortization expenses reflect the amortization of
intangibles and goodwill related to those acquisitions which were accounted for
as purchase transactions.
22
<PAGE> 5
REVENUES
<TABLE>
<CAPTION>
(in thousands of dollars)
<S> <C>
98 1,941,454
99 2,393,983
00 3,911,559
</TABLE>
OPERATING INCOME
<TABLE>
<CAPTION>
(in thousands of dollars)
<S> <C>
98 109,021
99 211,113
00 331,328
</TABLE>
SELLING AND GENERAL ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
(in a percentage of net sales)
<S> <C>
98 7.27%
99 6.53%
00 5.60%
</TABLE>
Provision for plant closing, relocation, merger and restructuring costs. In
fiscal 1998, plant closing, relocation, merger and restructuring costs were
approximately $8.5 million. Charges of $4.6 million were a result of Hadco
consolidating several manufacturing facilities, $2.0 million related to the loss
on abandoned assets, $1.2 million as a result of an approximate 3% reduction in
workforce and $1.4 million related to lease termination costs on abandoned
facilities, of which $0.9 million was outstanding as of the end of fiscal 1998.
In 1998, Sanmina also recorded a charge of $3.9 million related to the
acquisition of Elexsys International Inc. ("Elexsys"), of which $0.6 million was
outstanding as of fiscal year ended 1998. As of the end of fiscal year 1999, all
amounts accrued had been paid.
In fiscal year ended 1999, Sanmina incurred plant closing and other relocation
costs of $16.9 million. The charges were a result of Sanmina's acquisitions and
Sanmina's planned relocation to a new campus facility. Sanmina closed certain
manufacturing plants in Fremont, California and Woburn, Massachusetts and merged
the operations from these facilities into existing manufacturing facilities
within the same regions. These closures were made to eliminate duplicate
facilities and other costs resulting from the merger with Altron. Concurrent
with the plant closures, Sanmina reduced its workforce in the same regions by
approximately 50 people. Plant closing, relocation and severance costs totaled
$12.8 million, of which $10.8 million was paid during fiscal year ended 1999 and
the balance of $2.0 million paid in fiscal year ended 2000. In conjunction with
the closure of manufacturing facilities and Sanmina's planned relocation to its
new campus facility in fiscal 2000, other non-recurring costs include payments
required under lease contracts (less any applicable sublease income) after the
properties are abandoned, any applicable lease buyout costs, restoration costs
associated with certain lease arrangements and the costs to maintain facilities
during the period after abandonment. Asset related write-offs consist of excess
equipment and leasehold improvements to facilities that were abandoned and whose
estimated fair market value is zero. Sanmina's move to the new campus facility
commenced in fiscal 1999 and was completed in the second quarter of fiscal 2000.
Noncancelable lease payments on vacated facilities were paid in full as of the
end of fiscal 2000. Sanmina also discontinued the use of enterprise-wide
software and hardware used internally by the acquired companies, as these were
no longer required post acquisition. The closing of the plants discussed above,
and the costs related to the integration of information systems and hardware,
were all incurred in fiscal 1999. Total other non-recurring charges totaled $4.1
million, of which $0.5 million was paid during fiscal year ended 1999 and the
balance in fiscal year ended 2000. Merger costs of $5.5 million were also
recorded and paid in 1999, consisting of fees for investment bankers, attorneys,
accountants and other direct merger related expenses and relate to those
acquisitions that were accounted for using the pooling of interests method.
Restructuring charges of $27.3 million for 2000 are a result of Sanmina's
acquisitions in June 2000 of Hadco and Essex. These costs represent executive
and other severances related to actual and expected workforce attrition
resulting from redundant activities, announced employee termination plans and
expected synergies with the acquired companies. Sanmina expects attrition in the
acquired companies of approximately 885 people. At the end of fiscal 2000,
Sanmina had recognized attrition of 13 people in the acquired companies' work
forces. Severance costs of approximately $11.8 million were paid out as of the
end of fiscal 2000, of which approximately $11.6 million was deposited into a
trust for executive severance. Merger costs of $19.9 million in 2000 consisted
of fees for investment bankers, attorneys, accountants and other direct merger
related expenses and relate to those acquisitions that were accounted for using
the pooling of interests method. Merger costs of approximately $18.4 million
were paid during fiscal year ended 2000.
Write-off of acquired in-process R&D. On March 20, 1998, Hadco acquired
Continental Circuits Corp. ("Continental"), further broadening Hadco's product
and service capabilities. The acquisition added a facility for volume production
of multilayer printed circuits in Phoenix, Arizona, a quick-turn prototype
facility in Austin, Texas, a flexible printed circuit facility in California
(which was sold on April 30, 1999) and printed circuit engineering and design
sites in California, Texas and Colorado. Hadco acquired Continental for
23
<PAGE> 6
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
approximately $190.2 million (including acquisition costs) and recorded the
acquisition under the purchase method of accounting. As a result, a purchase
price premium of $165.0 million was recorded on the transaction. A significant
portion of the purchase price was identified in an independent appraisal, using
proven valuation procedures and techniques, as intangible assets. These
intangible assets included approximately $63.1 million for in-process R&D for
projects that did not have future alternative uses. This allocation represents
the estimated fair market value based on risk-adjusted cash flows related to the
in-process R&D projects. At the date of acquisition, the development of these
projects had not yet reached technological feasibility, and the in-process R&D
had no alternative future uses. Accordingly, these costs were written off in
fiscal 1998. The remaining premium of $101.9 million was allocated to
identifiable intangibles and goodwill. The acquisition was financed from
borrowings under a credit facility.
Write Down of 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. During the third quarter of fiscal
2000, such evaluation, with respect to the merger with Hadco, indicated that the
fair value of certain intangible assets related to Hadco were less than their
carrying value. Accordingly, in the third quarter of fiscal 2000, Sanmina
recorded an adjustment to write down $8.75 million of intangible assets. The
fair value of the intangible assets at the time of original acquisition by Hadco
was based on expected future cash flows to be generated from the assets based on
reasonable and supportable assumptions. The existing customer relationships, and
in-place workforce, valued at the time of the original acquisition by Hadco,
however, could not be supported at their current carrying values at the time of
the merger. As a result, based on future expected cash flows from the related
customer base, and from experienced and expected work force attrition, Sanmina
recorded adjustments to the carrying value of these intangible assets in the
amounts of $7.5 million and $1.25 million, respectively.
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 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. During 1998, Sanmina incurred a charge of approximately
$2.5 million, which represented the write down of existing assets to their net
realizable value.
Other Income and Expense, net. In fiscal 2000, net other expense was $1.1
million as compared to net other expense of $23.1 million and $21.5 million for
1999 and 1998, respectively. The components of other income and expense,
comprising the overall net expense, are primarily interest expense on
borrowings, convertible subordinated notes and interest income on cash balances
and short-term investments. For fiscal 2000, the decrease in net other expense
was largely due to interest received from additional cash flow from operations,
cash received from equity offerings, the issuance of convertible debt and the
retirement of subordinated notes. In 1999, the increase in net other expense was
largely due to interest expense on outstanding debt related to the acquisition
of Continental and Zycon. In 1998, $86.3 million of outstanding convertible
subordinated notes, issued by Sanmina in August 1995, were converted into common
stock as a result of a redemption call for such notes.
Provision for Income Taxes. For fiscal 2000, 1999 and 1998, Sanmina's effective
tax rate was 40.3%, 37.1% and 36.1%, respectively. The effective tax rate for
2000 is higher than previous years due largely to the effects of significant
non-deductible charges related to the acquisitions of Hadco and Essex.
Extraordinary Charge. In fiscal 2000, Sanmina recorded an extraordinary charge,
net of tax effect, of approximately $5.0 million. Sanmina was required to offer
to redeem $198.9 million of the Hadco 9 1/2% Senior Subordinated Notes due 2008
("9 1/2% Notes"), as per the terms in the change of control provision when
Sanmina acquired Hadco. The redemption was at 101% of the principal amount of
the 9 1/2% Notes. On August 24, 2000, Sanmina redeemed $187.9 million of the
outstanding 9 1/2% Notes. The redemption premium and deferred debt costs related
to the 9 1/2% Notes were expensed by Sanmina in the fourth quarter of fiscal
2000 as an early extinguishment of debt, and was reflected as an extraordinary
charge. These costs were approximately $8.0 million. All 9 1/2% Notes not
redeemed as part of the offer will remain outstanding. Sanmina may elect to
purchase the remaining outstanding notes through the open market or negotiated
transactions, additional tenders, or exchange offers.
24
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
Sanmina generated cash from operating activities of $87.4 million, $263.4
million and $159.9 million, in fiscal years 2000, 1999 and 1998, respectively.
The decrease in cash provided by operating activities in 2000 from 1999 is
related to the impact from the growth in revenues and related balance sheet
activity, including increases in accounts receivable and inventories offset by
increases in accounts payable and other accrued liabilities, acquisition related
costs and increases in net income. The increases in cash generated from
operations from 1999 compared to 1998 were primarily due to Sanmina's increased
profitability.
Cash used for investing activities included purchases of short-term investments
during fiscal 2000, 1999 and 1998 of $313.5 million, $418.4 million and $101.2
million, respectively. For fiscal 2000, Sanmina paid approximately $515.1
million for short-term and long-term investments as well as capital equipment.
Additionally, Sanmina paid approximately $172.2 million in cash for acquired
businesses. These payments were offset by $366.7 million in maturities of
short-term investments.
Investing activities during 1999 included payments of approximately $607.1
million for short-term and long-term investments and capital equipment.
Additionally, Sanmina paid approximately $75.1 million in cash for acquired
businesses. These payments were partially offset by $194.2 million in maturities
of short-term investments as well as proceeds of $0.3 million from the sale of
assets.
During fiscal 1998, cash used in investing activities included payments of
approximately $250.3 million for short-term investments and equipment. Sanmina
also paid approximately $198.2 million for acquired businesses. These payments
were partially offset by $106.6 million in maturities of short-term investments
as well as proceeds of $2.6 million from the sale of assets.
Net cash provided by financing activities for fiscal 2000 was $1.1 billion and
consisted primarily of $734.9 million in proceeds received from the issuance of
convertible subordinated notes, $605.6 million from proceeds from the sale of
common stock, including the February 2000 offering of 9.55 million shares of
common stock and $68.7 million from the proceeds of other debt financing. This
was offset by $329.0 million of retirements related to the Hadco line of credit,
the 9 1/2% Notes and other debt relating to leases and other maturities.
For 1999, the $278.4 million generated consisted primarily of $340.7 million in
net proceeds from the issuance of convertible subordinated notes. The issuance
proceeds were partly offset by $24.0 million in payments for long-term
liabilities and $77.8 million in payments for usage of line of credits by the
Sanmina's subsidiaries. Proceeds from the sale of common stock were $39.5
million in fiscal 1999.
In 1998, cash provided by financing activities was $205.7 million, which was
largely a result of the issuance of $200.9 million of 9 1/2% Notes. In fiscal
1998, Sanmina paid approximately $7.5 million on a line of credit and $5.7
million for long-term liabilities. Proceeds from exercise of stock options and
stock purchase rights were $17.8 million. In August 1998, Sanmina called for
redemption of an aggregate principal amount of $86.3 million in 5 1/2%
convertible subordinated notes ("5 1/2% Notes") which were originally issued in
August 1995. The 5 1/2% Notes were converted to Sanmina common stock at a price
of $7.05 per share, or 141.84 shares of Sanmina's common stock per $1,000
principal amount of 5 1/2% Notes. Cash was paid in lieu of fractional shares.
In fiscal 1999, Sanmina entered into an operating lease agreement for new
facilities in San Jose, California, where it has established its corporate
headquarters and certain of its assembly operations. In connection with these
transactions, Sanmina pledged $52.9 million of its cash and investments as
collateral for certain obligations of the lease.
In August 2000, Sanmina redeemed $187.9 million of the outstanding 9 1/2% Notes.
The redemption premium and deferred debt costs related to the 9 1/2% Notes was
expensed by Sanmina in the fourth quarter of fiscal 2000 as an early
extinguishment of debt and was reflected as an extraordinary charge.
Sanmina's future needs for financial resources include increases in working
capital to support anticipated sales growth and investment in manufacturing
facilities and equipment. Working capital was $1.9 billion at September 30,
2000. Sanmina has evaluated and will continue to evaluate possible business
acquisitions. In this regard, Sanmina anticipates incurring additional
expenditures during fiscal 2001 in connection with the integrations of its
recently acquired businesses and expenditures associated with the anticipated
growth.
Sanmina believes that its capital resources, together with cash generated from
operations, will be sufficient to meet its working capital and capital
expenditure requirements through at least the next twelve months. Sanmina may
seek to raise additional capital through the 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.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
which amends SFAS No. 133 to be effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair
25
<PAGE> 8
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
value. The statement also requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Sanmina expects that the adoption of SFAS No. 133 will not have a
material impact on its financial position, results of operations or cash flows.
Sanmina will adopt SFAS No. 133 in the first quarter of fiscal 2001.
In December 1999, the Securities and Exchange Commission issued SAB No. 101,
"Revenue Recognition in Financial Statements," which will be effective for
Sanmina in the fourth quarter of fiscal 2001. Sanmina is currently analyzing
this statement and management does not expect the adoption of this statement to
have a material effect on its results of operations or cash flows.
In March 2000, the FASB issued Financial Standards Board Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation -- an
Interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No. 44 addresses the
application of APB No. 25 to clarify, among other issues, (a) the definition of
employee for purposes of applying APB No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1, 2000, but
certain conclusions cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent FIN No. 44 covers events occurring
during the period after applying the interpretation, the events will be
recognized on a prospective basis from July 1, 2000. The adoption of FIN No. 44
did not have a material effect on Sanmina's financial position or results of
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Sanmina's exposure to market risk for changes in interest rates relates
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 its 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 its 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.
The table below presents carrying amounts and related average interest rates by
year of maturity for Sanmina's investment portfolio as of September 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands):
<S> <C> <C> <C> <C> <C> <C> <C>
Cash equivalents, short-term,
and long-term investments $483,968 $118,730 -- -- -- $282 $602,980
Average interest rate 6.3% 6.9% -- -- -- 5.9% 6.4%
</TABLE>
FOREIGN CURRENCY EXCHANGE RISK
Sanmina transacts business in foreign countries. Sanmina's primary foreign
currency cash flows are in certain European countries, Canada and Asia. Sanmina
enters into foreign exchange contracts to hedge certain of its assets and
liabilities denominated in foreign currencies. At September 30, 2000, Sanmina
had forward contracts to exchange various foreign currencies for U.S. dollars in
the gross amount of $14.7 million. Market value gains and losses on forward
exchange contracts are recognized as offsets to the exchange gains and losses on
the hedged transactions.
QUARTERLY RESULTS (UNAUDITED)
The following table contains selected unaudited quarterly financial data for the
eight fiscal quarters in the period ended September 30, 2000. In management's
opinion, the unaudited data has been prepared on the same basis as the audited
information and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the data for the periods
presented. Sanmina's results of operations have varied and may continue to
fluctuate significantly from quarter to quarter. Results of operations in any
period should not be considered indicative of the results to be expected from
any future period. In June 1998, and March 2000, Sanmina effected a two-for-one
stock split in the form of a stock dividend. Accordingly, all share and per
share data has been adjusted to retroactively reflect the stock splits. Common
stock prices reflect high and low reported sales prices, as reported by the
Nasdaq National Market. The acquisitions of Elexsys, Altron, Manu-Tronics, Hadco
and Essex were accounted for as a pooling of interests, and therefore, all prior
periods presented were restated to combine the results of the companies
26
<PAGE> 9
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER
---- ------------- ------------- ------------- -------------
(in thousands, except percentages and per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 763,701 $ 875,247 $ 1,000,632 $ 1,271,979
Gross profit 119,652 136,713 147,366 223,995
Gross margin 15.7% 15.6% 14.7% 17.6%
Operating income 72,009 88,718 17,174 153,427
Operating margin 9.4% 10.1% 1.7% 12.1%
Net income before extraordinary charge $ 42,792 $ 55,562 $ 1,821 $ 97,118
============= ============= ============= =============
Net income $ 42,792 $ 55,562 $ 1,821 $ 92,159
============= ============= ============= =============
Basic net income per share before extraordinary charge
$ 0.31 $ 0.38 $ 0.01 $ 0.64
============= ============= ============= =============
Basic net income per share $ 0.31 $ 0.38 $ 0.01 $ 0.61
============= ============= ============= =============
Diluted net income per share before extraordinary charge
$ 0.29 $ 0.36 $ 0.01 $ 0.59
============= ============= ============= =============
Diluted net income per share $ 0.29 $ 0.36 $ 0.01 $ 0.56
============= ============= ============= =============
Common stock prices:
High $ 54.63 $ 68.00 $ 87.81 $ 119.94
Low $ 37.38 $ 45.00 $ 42.13 $ 80.63
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
---- ------------- ------------- ------------- -------------
(in thousands, except percentages and per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 548,738 $ 576,333 $ 604,622 $ 664,290
Gross profit 85,518 101,013 110,105 120,274
Gross margin 15.6% 17.5% 18.2% 18.1%
Operating income 9,184 59,024 67,550 75,355
Operating margin 1.7% 10.2% 11.2% 11.3%
Net income $ 1,033 $ 33,323 $ 39,465 $ 44,446
=========== =========== =========== ===========
Basic net income per share $ 0.01 $ 0.24 $ 0.29 $ 0.32
=========== =========== =========== ===========
Diluted net income per share $ 0.01 $ 0.23 $ 0.27 $ 0.30
=========== =========== =========== ===========
Common stock prices:
High $ 31.25 $ 37.78 $ 40.63 $ 41.63
Low $ 11.69 $ 24.75 $ 28.06 $ 32.06
</TABLE>
FACTORS AFFECTING OPERATING RESULTS
This annual report contains forward-looking statements, which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
by such forward looking statements as a result of certain factors, including
those set forth below. You should carefully consider the risks described below
in connection with any evaluation of our business and prospects. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations. A holder of securities
issued by Sanmina should be aware of these and other various risks, including
those just described and those described below. The risks set in this annual
report are not the only risks we face. If any of the risks set forth above or if
any of the following risks occur, our business, financial condition and results
of operations could be materially adversely affected. In that case, the trading
price of our common stock and our convertible subordinated notes could decline.
Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this report and in other reports and documents filed by Sanmina
with the Securities and Exchange Commission. These are statements that relate to
our expectations for future events and time periods. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify
forward-looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly
from those anticipated in the forward-looking statements.
Sanmina is heavily dependent on the electronics industry, and changes in the
industry could harm Sanmina's business and operating results. Sanmina's business
is heavily dependent on the health of the electronics industry. Sanmina's
customers are manufacturers in the communications, industrial and medical
instrumentation and high-speed computer systems sectors of the electronics
industry. These industry sectors, and the electronics industry as a whole, are
subject to rapid technological change and product obsolescence. Sanmina's
customers can discontinue or modify products containing components manufactured
by Sanmina. Any discontinuance or modification of orders or commitments could
harm Sanmina's operating results. 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 harm Sanmina's business and operating results.
Sanmina typically does not obtain long-term volume purchase commitments from
customers, and cancellations and rescheduling of purchase orders could harm
Sanmina's operating results and cause its stock price to decline. Sanmina
typically does not obtain long-term volume purchase contracts from its
customers. Customer orders may be canceled and volume levels may be changed or
delayed. For example, Sanmina experienced certain cancellation and rescheduling
of shipment dates of customer orders during the fourth fiscal quarter of 1998.
As a result, Sanmina's results of operations for that quarter failed to meet the
expectations of stock market analysts, and the price of Sanmina common stock
declined. Sanmina cannot assure you that it will be able to replace canceled,
delayed or reduced contracts with new business. As a result, future
cancellations or rescheduling of orders or commitments could cause Sanmina's
operating results to be below expectations, which would likely cause Sanmina's
stock price to decline.
Sanmina's results of operations can be affected by a variety of factors, which
could cause Sanmina's operating results to fail to meet expectations and
Sanmina's stock price to decline. 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 products ordered by and shipped to major customers, including the mix
between backplane assemblies and printed circuit board assemblies;
- the volume of orders as related to Sanmina's capacity;
27
<PAGE> 10
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- pricing and other competitive pressures;
- component shortages, which could cause Sanmina to be unable to meet customer
delivery schedules;
- Sanmina's ability to effectively manage inventory and fixed assets; and
- Sanmina's ability to time expenditures in anticipation of future sales.
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 Sanmina's 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 results may also
result in fluctuations in the price of Sanmina common stock.
Sanmina is dependent on a small number of customers for a large portion of
Sanmina's revenues, and declines in sales to major customers could harm
Sanmina's operating results. A small number of customers are responsible for a
significant portion of Sanmina's net sales. During fiscal year 2000, fiscal year
1999 and fiscal year 1998, sales to Sanmina's ten largest customers accounted
for 55.8%, 48.9% and 43.7%, respectively, of Sanmina's net sales. For fiscal
2000, only sales to one customer, Nortel Networks, represented more than 10.0%
of Sanmina's net sales. For fiscal 1999 and 1998, no single customer exceeded
10.0% of net sales. This customer information gives effect to the restatement of
Sanmina's results of operations to reflect the acquisitions of Hadco and Essex.
Although Sanmina cannot assure you that its principal customers will continue to
purchase products and services from Sanmina at current levels, if at all,
Sanmina expects to continue to depend upon its principal customers for a
significant portion of Sanmina's net sales. Sanmina's customer concentration
could increase or decrease, depending on future customer requirements, which
will be dependent in large part on market conditions in the electronics industry
segments in which Sanmina's customers participate. The loss of one or more major
customers or declines in sales to major customers could significantly harm
Sanmina's business and operating results and lead to declines in the price of
Sanmina common stock.
Sanmina is subject to risks associated with its strategy of acquisitions, and
these risks could harm Sanmina's operating results and cause its stock price to
decline. Sanmina has, for the past several fiscal years, pursued a strategy of
growth through acquisitions. These acquisitions have involved acquisitions of
entire companies, such as the November 1997 acquisition of Elexsys, the
November 1998 acquisition of Altron, the December 1998 acquisition of Telo, the
March 1999 acquisition of Manu-Tronics, the June 2000 acquisition of Essex, the
June 2000 acquisition of Hadco, the June 2000 acquisition of Interworks and the
July 2000 acquisition of Ocean.
In addition, Sanmina has in other instances acquired selected assets,
principally equipment, inventory and customer contracts and, in certain cases,
facilities or facility leases. Acquisitions of this nature completed by Sanmina
include the November 1996 acquisitions of the Guntersville, Alabama operations
of Comptronix Corporation and certain assets of the custom manufacturing
services division of Lucent Technologies. In October and November 1999, Sanmina
acquired the electronics assembly operations of Nortel Networks located in
Calgary, Canada and Chateaudun, France. In October 1999, Sanmina also acquired
the electronics enclosure systems business of Devtek,located in Toronto, Canada.
In March 2000, Sanmina acquired a printed circuit board assembly operation
located principally in San Antonio, Texas from Harris. In March 2000, Sanmina
also acquired an electromechanical assembly operation located in Clinton, North
Carolina from Alcatel USA. In August 2000, Sanmina also acquired a design and
engineering group located in Calgary, Canada, Santa Clara, California, Simi
Valley, California, Richardson, Texas and Guyancourt, France from Nortel
Networks. In September 2000, Sanmina also acquired the San Jose California
system integration and fulfillment operation of Lucent Technologies. Sanmina
also recently announced an OEM arrangement with Siemens. Under this arrangement,
we will acquire 49.9% ownership interest in INBOARD, a wholly owned subsidiary
of Siemens AG. Acquisitions of companies and businesses and expansion of
operations involve certain risks, including the following:
- the potential inability to successfully integrate acquired operations and
businesses or to realize anticipated synergies, economies of scale or other
value;
- diversion of management's attention;
- difficulties in scaling up production at new sites and coordinating
management of operations at new sites;
- the possible need to restructure, modify or terminate customer relationships
of the acquired company; and
- loss of key employees of acquired operations.
Accordingly, Sanmina may experience problems in integrating the recently
acquired operations or operations associated with any future acquisition.
Sanmina therefore cannot assure you that any
28
<PAGE> 11
recent or future acquisition will result in a positive contribution to Sanmina's
results of operations. Furthermore, Sanmina cannot assure you that it will
realize value from any acquisition which equals or exceeds the consideration
paid. In particular, the successful combination of Sanmina and any businesses
Sanmina acquires in the future will require substantial effort from each
company, including the integration and coordination of sales and marketing
efforts. The diversion of the attention of management and any difficulties
encountered in the transition process, including, the interruption of, or a loss
of momentum in, the activities of any future acquisition, problems associated
with integration of management information and reporting systems, and delays in
implementation of consolidation plans, could harm Sanmina's ability to realize
the anticipated benefits of any future acquisition. Any failure of Sanmina to
realize the anticipated benefits of its acquisitions could harm Sanmina's
business and operating results, and could cause the price of its common stock to
decline. 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. These factors could harm Sanmina's business and operating
results and cause the price of Sanmina's common stock to decline.
In addition, Sanmina has pursued and expects to continue 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 acquiror to enter into long-term supply arrangements with the
divesting OEM. Accordingly, Sanmina's future results of operations could be
harmed if it is not successful in attracting a significant portion of the OEM
divestiture transactions Sanmina 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. For example, Sanmina experienced declines in gross margins during
fiscal 2000 due to Sanmina's increase in sales to Nortel Networks under
Sanmina's supply agreement relating to the operations it acquired. As Sanmina
enters into new OEM divestiture transactions, Sanmina may experience further
erosion in gross margins.
Sanmina may experience component shortages, which would cause Sanmina to delay
shipments to customers, resulting in potential declines in revenues and
operating results. Recently, a number of components purchased by Sanmina and
incorporated into assemblies and subassemblies it produces have been the subject
of shortages. These components include application-specific integrated circuits,
capacitors and connectors. Unanticipated component shortages caused Sanmina to
be unable to make certain scheduled shipments to customers during fiscal 2000
and may do so in the future. The inability to make scheduled shipments in the
future could cause Sanmina to experience a shortfall in revenues. Sanmina could
also experience negative customer goodwill due to the delay in shipment.
Component shortages may also increase Sanmina's cost of goods due to premium
charges it must pay to purchase components in short supply and due to changes in
the mix of assemblies shipped to customers. For example, shortages in certain
components negatively affected Sanmina's operating results and contributed to an
increase in inventory levels during fiscal 2000. Accordingly, component
shortages could harm Sanmina's operating results for a particular fiscal period
due to the resulting revenue shortfall or cost increases and could also damage
customer relationships over a longer-term period.
Sanmina is subject to competition and technological change, and its business may
be harmed by competitive pressures and failure to adapt to technological
changes. The electronic interconnect industry is highly fragmented and
characterized by intense competition. Sanmina competes in the technologically
advanced segment of the interconnect market, which is also highly competitive
but is much less fragmented than the industry as a whole. Sanmina's competitors
consist primarily of larger manufacturers of interconnect products, and some of
these competitors have greater manufacturing and financial resources than
Sanmina, as well as greater surface mount assembly capacity. As a participant in
the interconnect industry, Sanmina must continually develop improved
manufacturing processes to accommodate its customers' needs for increasingly
complex products. During periods of recession in the electronics industry,
Sanmina's competitive advantages in the areas of quick turnaround manufacturing
and responsive customer service may be of reduced importance to electronics
OEMs, who may become more price sensitive. In addition, captive interconnect
manufacturers seek orders in the open market to fill excess capacity, thereby
increasing price competition. Sanmina may also be at a competitive disadvantage
with respect to price when compared to manufacturers with lower cost structures,
particularly those with offshore facilities where labor and other costs are
lower.
Environmental matters are a key consideration in Sanmina's business, and failure
to comply with the requirements of environmental laws could harm Sanmina's
business. Sanmina is subject to a variety of local, state and federal
environmental laws and regulations relating to the storage, use, discharge and
disposal of chemicals, solid waste and other hazardous materials used during
their manufacturing processes, as well as air quality regulations and
restrictions on water use. Proper waste disposal is a major consideration for
printed circuit board manufacturers because metals and chemicals are used in the
manufacturing process. Maintenance of environmental controls is also important
in the electronics assembly process. When violations of environmental laws
occur, Sanmina can be held liable for damages and the costs of remedial actions
and can also be subject to revocation of permits necessary to conduct its
businesses. There can be no assurance that violations of environmental laws will
not occur in the future as a result of the inability to obtain permits, human
error, equipment failure or other causes. Any permit revocations could
29
<PAGE> 12
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
require Sanmina to cease or limit production at one or more facilities, which
could seriously harm Sanmina's business, financial condition and results of
operations. Moreover, the failure to comply with present and future regulations
could restrict the combined company's ability to expand facilities or could
require it to acquire costly equipment or to incur other significant expenses to
comply with environmental regulations.
Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with violations.
Sanmina operates in several environmentally sensitive locations and is subject
to potentially conflicting and changing regulatory agendas of political,
business and environmental groups. Changes or restrictions on discharge limits,
emissions levels, permitting requirements or processes, or material storage or
handling might require a high level of unplanned capital investment and/or
relocation. Compliance with new or existing regulations could seriously harm
Sanmina's business, financial condition and results of operations.
Sanmina is subject to environmental contingencies at sites operated by acquired
companies and could incur substantial costs for environmental remediation and
related activities at these sites. Several facilities owned or occupied by
Elexsys at the time of the acquisition, or formerly owned or occupied by Elexsys
or companies acquired by Elexsys, had either soil contamination or contamination
of groundwater underneath or near the facility including the following:
contamination was discovered at Elexsys' Irvine, California facility in 1989 and
Elexsys voluntarily installed a groundwater remediation system at the facility
in 1994. Additional investigation is being undertaken by other parties in the
area at the request of the California Regional Water Quality Control Board. It
is unknown whether any additional remediation activities will be required as a
result of such investigations or whether any third party claims will be brought
against Sanmina alleging that they have been damaged in any way by the existence
of the contamination at the Irvine facility. Sanmina has been required by the
California Department of Toxic Substances Control to undertake investigation of
soil and/or groundwater at certain facilities formerly owned or occupied by a
predecessor company to Elexsys in Mountain View, California. Depending upon the
results of this soil sampling and groundwater testing, Sanmina could be ordered
to undertake soil and/or groundwater cleanup. To date, Sanmina has not been
ordered to undertake any soil or groundwater cleanup activities at the Mountain
View facilities, and Sanmina does not believe any such activities should be
required. Test results received to date are not sufficient to enable Sanmina to
determine whether or not such cleanup activities are likely to be mandated.
Contamination has also been discovered at other current and former Elexsys
facilities and has been reported to the relevant regulatory agencies. No
remediation or further investigation of such contamination has been required by
regulatory agencies. To date, the cost of the various investigations and the
cost of operating the remediation system at the Irvine facility have not been
material to Sanmina's financial condition. However, in the event Sanmina is
required to undertake additional groundwater or soil cleanup, the costs of such
cleanup are likely to be substantial. Sanmina is currently unable to estimate
the amount of such soil and groundwater cleanup costs because no soil or
groundwater cleanup has been ordered and Sanmina cannot determine from available
test results what remediation activities, if any, are likely to be required.
Sanmina believes, based on the limited information currently available, that the
cost of any groundwater or soil clean-up that may be required would not harm
Sanmina's business, financial condition and results of operations. Nevertheless,
the process of remediating contaminated soil and groundwater is costly, and if
Sanmina is required to undertake substantial remediation activities at one or
more of the former Elexsys facilities, there can be no assurance that the costs
of such activities would not harm Sanmina's business, financial condition and
results of operations.
In November 1998, Sanmina acquired Altron, which became a wholly owned
subsidiary of Sanmina. Altron was advised in 1993 by Olin Corporation ("Olin")
that contamination resulting from activities of prior owners of property owned
by Olin and located close to the Altron manufacturing plant in Wilmington,
Massachusetts, had migrated under the Altron plant. Olin has assumed full
responsibility for any remediation activities that may be required and has
agreed to indemnify and hold Altron harmless from any and all costs,
liabilities, fines, penalties, charges and expenses arising from and relating to
any action or requirement, whether imposed by statute, ordinance, rule,
regulation, order, decree or by general principles of law to remediate, clean up
or abate contamination emanating from the Olin site. Although Sanmina believes
that Olin's assumption of responsibility will result in no remediation cost to
Altron from the contamination, there can be no assurance that Altron will not be
subject to some costs regarding this matter, but Sanmina does not anticipate
that such costs, if any, will be material to its financial condition or results
of operations.
Sanmina has been named as a potentially responsible party at several
contaminated disposal sites as a result of the past disposal of hazardous waste
by companies acquired by Sanmina or their corporate predecessors. While
liabilities for such historic disposal activities have not been material to
Sanmina's financial condition to date, there can be no guarantee that past
disposal activities will not result in material liability to Sanmina in the
future.
Hadco, which was recently acquired by Sanmina, is subject to environmental
contingencies at sites currently or formerly operated by it and could incur
substantial costs for environmental remediation and related activities at these
sites. In June 2000, Sanmina completed its acquisition of Hadco, which is now a
wholly-owned subsidiary of Sanmina. Hadco is aware of certain chemicals that
exist in the ground at certain of its facilities. Hadco has notified various
governmental agencies and continues to work with
30
<PAGE> 13
them to monitor and resolve these matters. During March 1995, Hadco received a
Record Of Decision (ROD) from the New York State Department of Environmental
Conservation (NYSDEC), regarding soil and groundwater contamination at its
Owego, New York facility. Based on a Remedial Investigation and Feasibility
Study (RIFS) for apparent on-site contamination at that facility and a Focused
Feasibility Study (FFS), each prepared by environmental consultants of Hadco,
the NYSDEC has approved a remediation program of groundwater withdrawal and
treatment and iterative soil flushing. Hadco has executed a Modification of the
Order on Consent to implement the approved ROD. Capital equipment for this
remediation has already been acquired by Hadco, and future operation and
maintenance costs, which will be incurred and expended over the estimated life
of the program of the next 28 years, are estimated at between $40,000 and
$100,000 per year. In the summer of 1998, NYSDEC took additional samples from a
wetland area near Hadco's Owego facility. Analytical reports of earlier sediment
samples indicated the presence of certain inorganics. The new samples showed
elevated levels of certain metals, but NYSDEC has not made a determination as to
the potential source of such metals, the remedial action to be taken, or the
persons to undertake and/or pay for any remediation. Hadco and/or other third
parties may be required to conduct additional investigations and remediation at
that location, the costs of which are currently indeterminable.
Hadco commenced the operation of a groundwater extraction system at its Derry,
New Hampshire facility to address certain groundwater contamination and
groundwater migration control issues. Further investigation is underway to
determine the extent of the groundwater contaminant plume. Because of the
uncertainty regarding both the quantity of contaminants beneath the building at
the site and the long-term effectiveness of the groundwater migration control
system Hadco has installed, it is not possible to make a reliable estimate of
the length of time remedial activity will have to be performed. However, it is
anticipated that the groundwater extraction system will be operated for at least
30 years. Hadco may be required to conduct additional investigations and
remediation relating to the Derry facility. The total costs of such groundwater
extraction system and of conducting any additional investigations and
remediation relating to the Derry facility are not fully determinable.
Hadco is one of 33 entities which have been named as potentially responsible
parties in a lawsuit pending in the federal district court of New Hampshire
concerning environmental conditions at the Auburn Road, Londonderry, New
Hampshire landfill site. Local, state and federal entities and certain other
parties to the litigation seek contribution for past costs, totaling
approximately $20 million, allegedly incurred to assess and remediate the Auburn
Road site. In December 1996, following publication and comment period, the EPA
amended the ROD to change the remedy at the Auburn Road site from active
groundwater remediation to future monitoring. In June 1999, Hadco entered into a
Consent Decree with 30 of the defendants and third-party defendants. The Consent
Decree was approved by the Court in March 2000. Under the terms of the Consent
Decree, Hadco is a cash-out party and does not have responsibility for
performance of ongoing remedial or monitoring work at the site.
From 1974 to 1980, Hadco operated a printed circuit manufacturing facility in
Florida as a lessee. This property is the subject of a pending lawsuit in the
circuit court for Broward County, Florida (the "Florida Lawsuit") and an
investigation by the Florida Department of Environmental Protection ("FDEP"). In
connection with the investigation, Hadco and others have participated in
alternative dispute resolution regarding the site with an independent mediator.
Mediation sessions began in 1992 and continued over the next several years
through May 1998. In June 1995, Hadco and Gould, Inc., another prior lessee of
the site, were joined as third-party defendants in the pending Florida lawsuit
by a party who had previously been named as a defendant when the Florida lawsuit
was commenced in 1993 by the FDEP. As a result of the mediation, a Settlement
Agreement was entered into among Hadco, Gould and the FDEP in March 1999. The
third-party complaints against Hadco and Gould in the pending Florida lawsuit
were dismissed. The Settlement Agreement provides that Hadco and Gould will
undertake remedial action based on a Supplemental Contamination Assessment
Report and a later Feasibility Study, which has been prepared by a consultant to
Hadco and Gould and approved by FDEP. The estimated cost of the recommended
source removal described in the Feasibility Study is approximately $165,000, and
for ongoing monitoring and remediation is approximately $2.1 million. Actual
remedial activities have not yet commenced but are expected to begin in the near
future.
In March 1993, the EPA notified Hadco Santa Clara of its potential liability for
maintenance and remediation costs in connection with a hazardous waste disposal
facility operated by Casmalia Resources, a California Limited Partnership, in
Santa Barbara County, California. The EPA identified Hadco Santa Clara as one of
the 65 generators which had disposed of the greatest amounts of materials at the
site. Based on the total tonnage contributed by all generators, Hadco Santa
Clara's share is estimated at approximately 0.48% of the total weight.
The Casmalia site was regulated by the EPA during the period when the material
was accepted. There is no allegation that Hadco Santa Clara violated any law in
the disposal of material at the sites. Rather the EPA's actions stemmed from the
fact that Casmalia Resources may not have the financial means to implement a
closure plan for the site and because of Hadco Santa Clara's status as a
generator of hazardous waste.
In June 1997, the United States District Court in Los Angeles, California
approved and entered a Consent Decree among the EPA and 49 entities (including
Hadco Santa Clara) acting through the Casmalia Steering Committee (CSC). The
Consent Decree sets forth the terms and conditions under which the CSC will
carry out work aimed at final closure of the site. Certain closure activities
will be performed by the CSC. Later work will be performed by the CSC, if funded
by other parties. Under the Consent Decree, the settling parties will work with
the EPA to pursue the non-settling parties to ensure they participate in
contributing to the closure and long-term operation and maintenance of the
facility. The EPA will
31
<PAGE> 14
SANMINA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continue as the lead regulatory agency during the final closure work. Because
long-term maintenance plans for the site will not be determined for a number of
years, it has not yet been decided which regulatory agency will oversee this
phase of the work plan or how the long-term costs will be funded. However, the
Consent Decree provides a mechanism for ensuring that an appropriate federal,
state or local agency will assume regulatory responsibility for long-term
maintenance.
Sanmina has been notified by the City of Santa Clara, California ("City") of a
number of alleged wastewater discharge and other violations of environmental
laws by one of Sanmina's plants. The City is seeking recovery for past costs
incurred by the City in monitoring the plant's operations in the amount of
approximately $200,000. The notice from the City sets forth that the penalties
for the alleged violations could exceed $1,600,000. Sanmina has been cooperating
with the City to review the plant's operations to determine if violations have
occurred and to address concerns of the City with respect to plant operations.
The City has notified Sanmina that it could file a civil action to address the
violations, but no civil suit has been filed to date.
Failure to manage Sanmina's growth may seriously harm its business. Sanmina's
business has grown in recent years through both internal expansion and
acquisitions, and continued growth may cause a significant strain on Sanmina's
infrastructure and internal systems. To manage its growth effectively, Sanmina
must continue to improve and expand its management information systems. Sanmina
will face additional growth management challenges, particularly as a result of
its recent acquisitions in Europe and Asia. Future acquisitions, both in the
United States and internationally, could place additional strains on Sanmina's
management infrastructure. If Sanmina is unable to manage growth effectively,
its results of operations could be harmed.
Sanmina's existing international operations and plans to expand international
operations involve additional risks, and failure to effectively expand
internationally could harm Sanmina's operating results. Sanmina opened its first
overseas facility, located in Dublin, Ireland, in June 1997. During June 2000
and July 2000, Sanmina acquired operations in Sweden, Finland and China. By
virtue of the Hadco acquisition, Sanmina acquired operations in Ireland and
Malaysia. A number of risks are inherent in international operations and
transactions. International sales and operations may be limited or disrupted by
the imposition of government controls, export license requirements, political
and economic instability, trade restrictions, changes in tariffs, labor unrest
and difficulties in staffing, coordinating communications among and managing
international operations. Additionally, Sanmina's business and operating results
may be harmed by fluctuations in international currency exchange rates as well
as increases in duty rates, difficulties in obtaining export licenses,
misappropriation of intellectual property, constraints on Sanmina's ability to
maintain or increase prices, and competition. Sanmina cannot assure you that it
will realize the anticipated strategic benefits of its international expansion
or that international operations will contribute positively to Sanmina's
business and operating results. In addition, to respond to competitive pressures
and customer requirements, Sanmina plans to further expand internationally in
lower cost locations, particularly additional locations in Asia and Latin
America. As a result of this proposed expansion, Sanmina could encounter
difficulties in scaling up production at overseas facilities or in coordinating
Sanmina's United States and international operations. In addition, Sanmina may
not realize anticipated revenue growth at new international operations. Sanmina
may elect to establish start-up operations rather than acquiring existing
businesses, which would require Sanmina to recruit management and other
personnel and build a customer base at a completely new operation. Accordingly,
unanticipated problems Sanmina encounters in establishing new international
operations could harm its business and operating results and cause its stock
price to decline.
Sanmina is subject to risks related to intellectual property rights held by
third parties. Sanmina is subject to risks related to intellectual property
rights held by third parties. In certain cases, Sanmina may find it necessary or
desirable to license or otherwise acquire rights to intellectual property rights
held by others. In July 2000, Sanmina settled one such dispute through a
licensing arrangement with the Lemelson Foundation. Other such disputes, which
could involve Sanmina in litigation or in administrative proceedings before the
United States Patent and Trademark Office or patent authorities in foreign
countries, could arise in the future. These proceedings could be costly to
conduct and could also result in the diversion of management time and attention.
In addition, adverse determinations in any proceedings of this nature could
require Sanmina to pay monetary damages and could also result in the loss of
intellectual property rights. In the event Sanmina were able to settle disputes
through licensing or similar arrangements, the costs of these licenses could be
substantial. Accordingly, future disputes regarding intellectual property rights
could harm Sanmina's business, financial condition and results of operations.
Sanmina depends on certain key personnel, and the loss of key personnel may harm
Sanmina's business. Sanmina's future success depends in large part on the
continued service of its key technical and management personnel and on its
ability to continue to attract and retain qualified employees, particularly
those highly skilled design, process and test engineers involved in the
manufacture of existing products and the development of new products and
processes. The competition for such personnel is intense, and the loss of key
employees, none of whom is subject to an employment agreement for a specified
term or a post-employment non-competition agreement, could harm Sanmina's
business.
32
<PAGE> 15
SANMINA CORPORATION
STATEMENT OF FINANCIAL RESPONSIBILITY
TO THE STOCKHOLDERS:
The management of Sanmina is responsible for the preparation of the accompanying
consolidated financial statements. They have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances and,
as such, include estimates and judgments of management. Management also prepared
the other information in the annual report and is responsible for its accuracy
and consistency with the financial statements. The consolidated financial
statements for the years ended September 30, 2000, October 2, 1999 and September
30, 1998 were audited by Arthur Andersen LLP, independent public accountants.
Sanmina maintains an accounting system and related internal controls that it
believes are sufficient to provide reasonable assurance that assets are
safeguarded, that transactions are executed and recorded in accordance with
management's authorization, and that the financial records are reliable for
preparing financial statements. The concept of reasonable assurance is based on
the recognition that the cost of the system of internal control must be related
to the benefits derived and that balancing of those factors requires estimates
and judgments. The system is monitored regularly by Sanmina for compliance. In
addition, solely for the purposes of planning and performing its audit of
Sanmina's consolidated financial statements, Arthur Andersen LLP obtained an
understanding of, and selectively tested, certain aspects of Sanmina's system of
internal control.
The Board of Directors has an Audit Committee comprised solely of outside
directors. The Committee meets with management and the independent public
accountants in connection with its review of matters relating to the annual
financial statements, Sanmina's system of internal accounting controls and the
services of the independent public accountants. Arthur Andersen LLP has full and
free access to meet with the Committee, with or without management
representatives present, to discuss the results of its audits, the adequacy of
internal accounting controls and the quality of financial reporting.
December 7, 2000
/s/ JURE SOLA /s/ RANDY W. FURR /s/ RICK R. ACKEL
------------------------- ----------------------- ------------------------
Jure Sola Randy W. Furr Rick R. Ackel
Chairman of the Board and President and Executive Vice President
Chief Executive Officer Chief Operating Officer and Chief Financial
Officer
33
<PAGE> 16
SANMINA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
------------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
----------- -----------
(in thousands)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 992,842 $ 148,754
Short-term investments 265,308 318,457
Accounts receivable, net of allowance for doubtful
accounts of $27,832 and $10,940 644,236 335,288
Inventories, net 572,102 299,261
Deferred income taxes 85,427 34,414
Prepaid expenses and other 25,350 19,959
----------- -----------
Total current assets 2,585,265 1,156,133
----------- -----------
Property, plant and equipment, net 655,942 549,434
Goodwill and intangibles 318,512 229,070
Long-term investments 55,917 53,056
Deposits and other 23,834 19,748
----------- -----------
Total assets $ 3,639,470 $ 2,007,441
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 11,728 $ 4,071
Accounts payable 488,806 280,914
Accrued liabilities 122,121 52,921
Accrued payroll and related benefits 43,838 65,789
Income taxes payable 46,002 10,088
----------- -----------
Total current liabilities 712,495 413,783
----------- -----------
Long-term liabilities:
Long-term debt, net of current portion 1,143,942 661,277
Deferred income tax liability 61,734 59,058
Other 19,817 9,229
----------- -----------
Total long-term liabilities 1,225,493 729,564
----------- -----------
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000 shares,
none outstanding -- --
Common stock, $.01 par value, authorized 500,000 shares,
outstanding 152,259 and 138,857 shares 1,522 1,389
Additional paid-in capital 1,139,763 479,878
Deferred compensation (3,625) --
Accumulated other comprehensive income (loss) (6,754) (1,680)
Retained earnings 570,576 384,507
----------- -----------
Total stockholders' equity 1,701,482 864,094
----------- -----------
Total liabilities and stockholders' equity $ 3,639,470 $ 2,007,441
=========== ===========
</TABLE>
See accompanying notes
34
<PAGE> 17
SANMINA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 3,911,559 $ 2,393,983 $ 1,941,454
Cost of sales 3,283,833 1,977,073 1,604,172
----------- ----------- -----------
Gross profit 627,726 416,910 337,282
----------- ----------- -----------
Operating expenses:
Selling, general and administrative 218,896 156,280 141,136
Amortization of goodwill and intangibles 21,551 15,763 13,078
Write-off of acquired in-process research and
development -- -- 63,050
Write down of long-lived assets 8,750 11,400 2,516
Plant closing, relocation, merger and
restructuring costs 47,201 22,354 8,481
----------- ----------- -----------
Total operating expenses 296,398 205,797 228,261
----------- ----------- -----------
Operating income 331,328 211,113 109,021
Other income (expense), net (1,089) (23,050) (21,492)
----------- ----------- -----------
Income before provision for income taxes 330,239 188,063 87,529
Provision for income taxes 132,946 69,796 54,331
----------- ----------- -----------
Income before extraordinary charge 197,293 118,267 33,198
Extraordinary charge, net of tax benefit
of $3,039, $-- and $-- 4,959 -- --
----------- ----------- -----------
Net income $ 192,334 $ 118,267 $ 33,198
=========== =========== ===========
Earnings per share: Basic
Net income before extraordinary charge $ 1.34 $ 0.86 $ 0.27
Extraordinary charge 0.03 -- --
----------- ----------- -----------
Net income $ 1.31 $ 0.86 $ 0.27
=========== =========== ===========
Earnings per share: Diluted
Net income before extraordinary charge $ 1.27 $ 0.82 $ 0.26
Extraordinary charge 0.03 -- --
----------- ----------- -----------
Net income $ 1.24 $ 0.82 $ 0.26
=========== =========== ===========
Shares used in computing per share amounts:
Basic 146,734 136,851 120,964
Diluted 155,038 144,536 126,704
</TABLE>
See accompanying notes
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------ --------- ------------
(in thousands)
<S> <C> <C> <C>
Net income $ 192,334 $ 118,267 $ 33,198
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (5,776) (1,836) 1,255
Unrealized holding gain (loss) on investments 702 (638) 146
--------- --------- ---------
Comprehensive income $ 187,260 $ 115,793 $ 34,599
========= ========= =========
</TABLE>
See accompanying notes
35
<PAGE> 18
SANMINA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK AND
ADDITIONAL ACCUMULATED
PAID-IN-CAPITAL OTHER
------------------------- COMPREHENSIVE
NUMBER INCOME DEFERRED RETAINED
OF SHARES AMOUNT (LOSS) COMPENSATION EARNINGS TOTAL
----------- ----------- ----------- ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 118,101 $ 306,672 $ (607) $ -- $ 240,559 $ 546,624
Exercise of common stock options 2,413 7,893 -- -- -- 7,893
Sale of common stock 174 4,726 -- -- -- 4,726
Issuance of common stock under employee
stock purchase plan 449 5,224 -- -- -- 5,224
Conversion of subordinated debt 12,238 86,250 -- -- -- 86,250
Adjustment to conform year end of pooled
entity -- -- -- -- (3,169) (3,169)
Cumulative translation adjustment -- -- 1,255 -- -- 1,255
Unrealized holding gain on investments -- -- 146 -- -- 146
Income tax benefit of disqualified
dispositions -- 9,895 -- -- -- 9,895
Distributions by Manu-Tronics -- -- -- -- (3,645) (3,645)
Net income -- -- -- -- 33,198 33,198
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1998 133,375 420,660 794 -- 266,943 688,397
Exercise of common stock options 2,836 27,050 -- -- -- 27,050
Issuance of common stock under employee
stock purchase plan 779 12,037 -- -- -- 12,037
Director and executive officer stock grants 17 401 -- -- -- 401
Conversion of subordinated debt 14 398 -- -- -- 398
Issuance of common stock for businesses
acquired 1,836 3,763 -- -- 832 4,595
Cumulative translation adjustment -- -- (1,836) -- -- (1,836)
Unrealized holding loss on investments -- -- (638) -- -- (638)
Income tax benefit of disqualified
dispositions -- 16,958 -- -- -- 16,958
Distributions by Manu-Tronics -- -- -- -- (1,535) (1,535)
Net income -- -- -- -- 118,267 118,267
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT OCTOBER 2, 1999 138,857 481,267 (1,680) -- 384,507 864,094
Exercise of common stock options 2,985 42,676 -- -- -- 42,676
Issuance of common stock under employee
stock purchase plan 763 15,649 -- -- -- 15,649
Director and executive officer stock grants 31 1,022 -- -- -- 1,022
Conversion of subordinated debt 73 2,373 -- -- -- 2,373
Cumulative translation adjustment -- -- (5,776) -- -- (5,776)
Unrealized holding loss on investments -- -- 702 -- -- 702
Income tax benefit of disqualified
dispositions -- 54,186 -- -- -- 54,186
Adjustment to conform year end of pooled
entity -- -- -- -- (6,265) (6,265)
Deferred compensation -- 3,934 -- (3,625) -- 309
Sale of common stock 9,550 540,178 -- -- -- 540,178
Net income -- -- -- -- 192,334 192,334
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2000 152,259 $ 1,141,285 $ (6,754) $ (3,625) $ 570,576 $ 1,701,482
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes
36
<PAGE> 19
SANMINA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 192,334 $ 118,267 $ 33,198
Adjustments to reconcile net income to cash provided by operating
activities:
Adjustment to conform year end of pooled entities (6,265) -- (3,169)
Depreciation, amortization, and other 157,256 124,717 104,996
Restructuring, plant closing, merger and other non-recurring
charges 47,201 23,686 1,429
Provision for doubtful accounts 15,974 3,017 1,478
Deferred income taxes (48,337) (2,043) (1,955)
Tax benefit from exercise of stock options 54,186 16,958 9,895
(Gain) loss on disposal of fixed assets (63) (21) 1,092
Write-off of acquired in-process research and development -- -- 63,050
Writedown of long-lived assets 8,750 11,400 2,516
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (308,484) (72,009) (29,063)
Inventories (221,036) (97,354) (28,589)
Prepaid expenses, deposits and other (13,250) 18,711 848
Accounts payable and accrued liabilities 173,182 113,790 11,367
Income tax accounts 35,934 4,307 (7,226)
----------- ----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 87,382 263,426 159,867
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (313,523) (418,396) (101,169)
Proceeds from maturity of short-term investments 366,672 194,192 106,591
Purchases of long-term investments (2,861) (53,056) --
Purchase of property, plant and equipment (198,667) (135,611) (149,138)
Cash paid for businesses acquired, net (172,194) (75,108) (198,198)
Proceeds from sale of assets -- 309 2,591
----------- ----------- -----------
CASH USED FOR INVESTING ACTIVITIES (320,573) (487,670) (339,323)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (140,000) -- (7,498)
Proceeds from notes and credit facilities, net 68,679 (77,844) 200,865
Issuance (repurchase) of convertible notes, net of issuance costs 734,882 340,742 (5,681)
Payments of long-term liabilities, net 2,867 (23,977) 186
Payments of long-term debt (189,021) -- --
Proceeds from sale of common stock, net of issuance costs 605,648 39,488 17,843
----------- ----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 1,083,055 278,409 205,715
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (5,776) (1,836) 1,255
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 844,088 52,329 27,514
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 148,754 96,425 68,911
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 992,842 $ 148,754 $ 96,425
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest $ 43,370 $ 31,494 $ 19,922
=========== =========== ===========
Income taxes, net $ 91,669 $ 57,618 $ 51,026
=========== =========== ===========
NON-CASH FINANCING INFORMATION:
Conversion of subordinated notes to equity $ 2,373 $ 398 $ 86,250
=========== =========== ===========
</TABLE>
See accompanying notes
37
<PAGE> 20
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION OF SANMINA
Sanmina Corporation ("Sanmina") was incorporated in Delaware in 1989 and is an
independent provider of customized integrated electronics manufacturing
services, including turnkey electronic assembly and manufacturing management
services to original equipment manufacturers. Sanmina's services consist
primarily of the manufacture of complex printed circuit board assemblies using
surface mount and pin-through hole interconnection technologies, the manufacture
of custom-designed backplane assemblies, fabrication of complex multi-layered
printed circuit boards, the manufacture of custom cable and wire harness
assemblies, and testing and assembly of completed systems. In addition, Sanmina
provides procurement and materials management, as well as consultation on board
design and manufacturing. Sanmina has manufacturing plants located in
California, Arizona, Massachusetts, Texas, New Hampshire, New York, North
Carolina, Wisconsin, Alabama, Utah, Canada, France, China, Finland, Sweden,
Mexico, Malaysia and Ireland.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year -- Effective October 1, 1998, Sanmina changed its fiscal year end
from September 30 to a 52 or 53-week year ending on the Saturday nearest
September 30. Accordingly, the 1999 fiscal year, which was a 53 week year, ended
on October 2, whereas the previous and current year ended on September 30. All
general references to years relate to fiscal years unless otherwise noted.
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.
Foreign Currency Translation -- For foreign subsidiaries using the local
currency as their functional currency, assets and liabilities are translated at
exchange rates in effect at the balance sheet date and income and expenses are
translated at average exchange rates. The effects of these translation
adjustments are reported in accumulated other comprehensive income (loss).
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved and remeasurement
adjustments for foreign operations where the U.S. dollar is the functional
currency are included in income.
Management Estimates and Uncertainties -- The preparation of consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Significant estimates made in preparing the consolidated financial statements
include depreciation and amortization periods, the allowance for doubtful
accounts, and inventory and environmental reserves. Actual results could differ
from these estimates.
Financial Instruments and Concentration of Credit Risk -- Financial instruments
consist of cash equivalents, short-term investments, accounts receivable,
accounts payable and long-term debt obligations. The fair value of these
financial instruments approximates their carrying amount except for the 9 1/2%
Senior Subordinated Notes due 2008 ("the 9 1/2% Notes"), respectively at
September 30, 2000. The fair market value of the 9 1/2% Notes was $12.3 million
with a carrying amount of $12.1 million at September 30, 2000. Although the fair
market value of the 9 1/2% Notes is less than the carrying amount, settlement at
the reported fair value was not possible due to redemption premiums (Note 4).
As of September 30, 2000, Sanmina had no significant off balance sheet
concentrations of credit risk such as foreign currency exchange contracts or
other hedging arrangements. Financial instruments that subject Sanmina to credit
risk consist of cash and cash equivalents, short-term investments and trade
accounts receivable. Sanmina maintains the majority of its cash, cash
equivalents and short-term investment balances with financial institutions.
Sanmina has not experienced any significant losses on these investments to date.
The 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.
Cash Equivalents -- Sanmina considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
Short Term Investments -- Sanmina's investments are classified as available for
sale and are recorded at their fair value, as determined by quoted market
prices, with any unrealized holding gains or losses classified as a separate
component of stockholders' equity. Upon sale of the investments, any previously
unrealized holding gains or losses are recognized in results of operations. The
specific identification method is used to determine the cost of securities sold.
Realized gains and losses have not been material to date. As of September 30,
2000, the difference between the aggregate fair value and cost basis was a net
unrealized gain of $269,000. Sanmina has the intent and ability to liquidate the
investments prior to the maturity period and, as such, has classified its
investments as short-term investments. The value of Sanmina's investments by
major security type is as follows:
38
<PAGE> 21
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-----------------------------------------------------------
AMORTIZED AGGREGATE UNREALIZED UNREALIZED
COST FAIR VALUE GAIN LOSS
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. government and agency securities $ 59,798 $ 59,867 $ 83 $ (14)
State and municipal securities 95,309 95,304 63 (68)
U.S. corporate and bank debt 972,046 972,251 292 (87)
---------- ---------- ---- -----
$1,127,153 $1,127,422 $438 $(169)
========== ========== ==== =====
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 2, 1999
-----------------------------------------------------
AMORTIZED AGGREGATE UNREALIZED UNREALIZED
COST FAIR VALUE GAIN LOSS
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. government and agency securities $149,169 $148,951 $ 2 $(220)
State and municipal securities 68,510 68,462 4 (52)
U.S. corporate and bank debt 160,767 160,602 34 (199)
-------- -------- ---- -----
$378,446 $378,015 $ 40 $(471)
======== ======== ==== =====
</TABLE>
Approximately $862.1 million and $59.6 million of the total investments in debt
securities as of September 30, 2000 and October 2, 1999 respectively, are
included in cash and cash equivalents; the remaining balance is classified as
short-term investments. As of September 30, 2000, securities with a fair value
of $943.4 million mature within one year and $184.0 million mature beyond one
year.
Inventories -- Inventories are stated at the lower of cost (first-in, first-out
method) or market. Cost includes labor, material and manufacturing overhead.
Provisions when required are made to reduce excess inventories to their
estimated net realizable values. It is possible that estimates of net realizable
values can change in the near term. The components of inventories are as
follows:
<TABLE>
<CAPTION>
AS OF
----------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(in thousands)
<S> <C> <C>
Raw materials $343,734 $175,249
Work-in-process 145,483 85,505
Finished goods 82,885 38,507
-------- --------
$572,102 $299,261
======== ========
</TABLE>
Property, Plant and Equipment, net -- Property, plant, and equipment are stated
at cost or, in the case of property and equipment acquired through business
combinations accounted for as a purchase, at fair value based upon the allocated
purchase price at the acquisition date. Depreciation and amortization are
provided on a straight-line basis over three to ten years, (ten to forty years
for buildings) or in the case of leasehold improvements, over the remaining term
of the related lease, if shorter. Property, plant and equipment consists of the
following:
<TABLE>
<CAPTION>
AS OF
------------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Machinery and equipment $ 986,864 $ 819,997
Furniture and fixtures 18,977 51,476
Leasehold improvements 191,416 93,331
Land and buildings 87,003 146,738
----------- -----------
1,284,260 1,111,542
Less: Accumulated depreciation and amortization (751,157) (598,775)
----------- -----------
533,103 512,767
Construction in progress 122,839 36,667
----------- -----------
Net Property, Plant and Equipment $ 655,942 $ 549,434
=========== ===========
</TABLE>
Impairment of Long-Lived Assets -- Sanmina assesses the realizability of
long-lived and intangible assets in accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." Under SFAS No. 121, Sanmina is required to assess the valuation of its
long-lived assets, including intangible assets, based on the estimated cash
flows to be generated by such assets. The realizability of intangible assets,
including goodwill, is evaluated periodically as events or circumstances
indicate a possible inability to recover the net carrying amount. Such
evaluation is based on various analyses, including cash flow and profitability
projections that incorporate, as applicable, the impact of recent business
combinations. The analyses involve a significant level of management judgment in
order to evaluate the ability of Sanmina to perform within projections.
During fiscal year end September 30, 2000, an evaluation under SFAS No. 121
indicated that the fair value of certain intangible assets related to Hadco
Corporation ("Hadco") were less than their carrying value. Accordingly, Sanmina
recorded an adjustment to write down $8.8 million of intangible assets. The fair
value of the intangible assets at the time of the original acquisition by Hadco
was based on expected future cash flows to be generated from the assets based on
reasonable and supportable assumptions. The existing customer relationships, and
in-place workforce, valued at the time of the original acquisition, could not be
supported at their current carrying values at the time of the merger in June
2000. As a result, based on future expected cash flows from the related customer
base, and from experienced and expected work force attrition, Sanmina has
recorded an adjustment to the carrying value of these intangible assets in the
amounts of $7.5 million and $1.3 million, respectively, in the third quarter of
fiscal 2000.
Goodwill and Intangibles -- Costs in excess of tangible assets acquired and
liabilities assumed are recorded as goodwill and intangibles. Goodwill and
intangibles are amortized on a straight-line basis over the estimated useful
lives of five to thirty years. Intangibles relate to goodwill, customer lists,
developed technology, workforce, trademarks and other intangibles arising from
Sanmina's acquisitions accounted for as a purchase.
39
<PAGE> 22
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill and intangibles are as follows:
<TABLE>
<CAPTION>
AS OF
-----------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(in thousands)
<S> <C> <C>
Goodwill $ 273,609 $ 155,352
Intangibles 103,398 111,690
--------- ---------
377,007 267,042
Less: Accumulated amortization (58,495) (37,972)
--------- ---------
Net Goodwill and Intangibles $ 318,512 $ 229,070
========= =========
</TABLE>
Revenue Recognition -- Sanmina recognizes revenue from manufacturing services at
the time of product shipment. Where appropriate, provisions are made at that
time for estimated warranty and return costs.
Comprehensive Income -- 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. As of
September 30, 2000, the cumulative unrealized holding gain on investments and
cumulative foreign currency translation adjustments was $269,000 and $7.0
million, respectively. As of October 2, 1999, the cumulative unrealized holding
loss on investments and cumulative foreign currency translation adjustment was
$431,000 and $1.2 million, respectively.
Stock-Based Compensation -- Sanmina has adopted the disclosure provisions of
SFAS 123, "Accounting for Stock Based Compensation." In accordance with the
provisions of SFAS 123, Sanmina applies Accounting Principles Board ("APB")
Opinion 25 and related interpretations in accounting for its employee stock
option plans. See Note 11 for a summary of the pro forma effects on reported net
income and earnings per share for fiscal years 2000, 1999 and 1998 based on the
fair value of options and shares granted as prescribed by SFAS 123.
Reclassification -- Sanmina has reclassified certain prior year information to
conform to the current year's presentation.
Recent Accounting Pronouncements -- In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
which amends SFAS No. 133 to be effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Sanmina expects that
the adoption of SFAS No. 133 will not have a material impact on its financial
position, results of operations or cash flows. Sanmina will adopt SFAS No. 133
in the first quarter of fiscal 2001.
In December 1999, the Securities and Exchange Commission issued SAB No. 101,
"Revenue Recognition in Financial Statements," which will be effective for
Sanmina in the fourth quarter of fiscal 2001. Sanmina is currently analyzing
this statement and management does not expect the adoption of this statement to
have a material effect on its results of operations or cash flows.
In March 2000, the FASB issued Financial Standards Board Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation -an
Interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No. 44 addresses the
application of APB No. 25 to clarify, among other issues, (a) the definition of
employee for purposes of applying APB No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1, 2000, but
certain conclusions cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent FIN No. 44 covers events occurring
during the period after applying the interpretation, the events will be
recognized on a prospective basis from July 1, 2000. The adoption of FIN No. 44
did not have a material effect on Sanmina's financial position or results of
operations.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share includes dilutive common stock equivalents, using the
treasury stock method, and assumes that the convertible debt instruments were
converted into common stock upon issuance, if dilutive. For the years ended
September 30, 2000, October 2, 1999, and September 30, 1998, 8,176,064,
4,969,823 and 11,154,751 potentially dilutive shares from the conversion of the
convertible subordinated debt and after-tax interest expense of $10.9 million,
$4.6 million and $4.2 million, respectively, were not included in the
computation of diluted earnings per share because to do so would be
anti-dilutive. A reconciliation of the net income and weighted average number of
shares used for the diluted earnings per share computations follows:
40
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------- ---------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net income $192,334 $118,267 $ 33,198
Interest expense, net of tax, related to convertible
subordinated debt 156 -- --
-------- -------- --------
Net income $192,490 $118,267 $ 33,198
======== ======== ========
Weighted average number of shares outstanding
during the period 146,734 136,851 120,964
Weighted average number of shares for stock
options outstanding for the period 8,153 7,685 5,740
Weighted average number of shares for subordinated
debt for the period 151 -- --
-------- -------- --------
Weighted average number of shares 155,038 144,536 126,704
======== ======== ========
Diluted earnings per share $ 1.24 $ 0.82 $ 0.26
======== ======== ========
</TABLE>
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF
--------------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(in thousands)
<S> <C> <C>
Convertible Subordinated Notes due 2004 $ 350,000 $ 350,000
9 1/2% Senior Subordinated Notes due 2008 12,118 199,422
Convertible Subordinated Notes due 2012 2,886 5,259
Zero Coupon Convertible Subordinated Notes due 2020 753,385 --
Revolving Credit Agreements (Note 6) 4,851 99,988
Obligations under capital leases with interest rates ranging
from 7.0% to 7.75% 8,045 10,039
Bank loans due through August 2010, at rates ranging from
4.63% to 6.10% 22,644 --
Variable Rate Mortgages 1,741 640
----------- ---------
Total 1,155,670 665,348
Less: current portion (11,728) (4,071)
----------- ---------
Total Long-term debt $ 1,143,942 $ 661,277
=========== =========
</TABLE>
Convertible Subordinated Notes due 2004 -- On May 1, 1999, Sanmina issued $350.0
million of 4 1/4% convertible subordinated notes (the "4 1/4% Notes") due on May
1, 2004. The 4 1/4% Notes are convertible into common stock, at the option of
the note holder, at a conversion price of approximately $44.33 per share,
subject to adjustments in certain events. The 4 1/4% Notes are subordinated in
right of payment to all existing and future senior indebtedness, as defined, of
Sanmina. The 4 1/4% Notes are redeemable at the option of Sanmina on or after
May 6, 2002. Interest is payable semi-annually on May 1 and November 1.
9 1/2% Senior Subordinated Notes due 2008 -- On May 18, 1998, Hadco issued
$200.9 million aggregate principal amount of its 9 1/2% Senior Subordinated
Notes due 2008 (the "9 1/2% Notes"). Interest on the 9 1/2% Notes is payable
semi-annually on each June 15 and December 15 and commenced December 15, 1998.
The 9 1/2% Notes are redeemable at the option of Hadco, in whole or in part, at
any time on or after June 15, 2003, at 104.75% of their principal amount, plus
accrued interest, with such percentages declining ratably to 100% of their
principal amount, plus accrued interest. At any time on or prior to June 15,
2001 and subject to certain conditions, up to 35% of the aggregate principal
amount of the 9 1/2% Notes may be redeemed, at the option of Hadco. In addition,
at any time prior to June 15, 2003, Hadco may redeem the 9 1/2% Notes, at its
option, in whole or in part, at a price equal to the principal amount thereof,
together with accrued interest, plus the applicable premium (as defined in the
Indenture governing the 9 1/2% Notes). The 9 1/2% Notes are guaranteed, on a
senior subordinated basis, by each of certain Hadco subsidiaries. The net
proceeds of $193.8 million received by Hadco from the issuance of the 9 1/2%
Notes, was used to repay outstanding indebtedness incurred to, among other
things, finance acquisitions.
In July 2000, Sanmina initiated an offer to purchase the 9 1/2% Notes. The offer
to redeem was required by the terms of the Indenture under which the 9 1/2%
Notes were issued as a result of a change in control provision when Sanmina
acquired Hadco. The redemption was at 101% of the principal amount of the 9 1/2%
Notes. On August 24, 2000, Sanmina redeemed $187.9 million of the outstanding 9
1/2% Notes. The redemption premium and deferred debt costs related to the 9 1/2%
Notes were expensed by Sanmina in the fourth quarter of fiscal 2000. Costs of
approximately $5.0 million net of tax are reflected as an extraordinary charge.
All 9 1/2% Notes not redeemed as part of the offer are outstanding. Sanmina may
elect to purchase the remaining outstanding 9 1/2% Notes through the open market
or negotiated transactions, additional tenders, or exchange offers.
Convertible Subordinated Notes due 2012 -- In 1987, Elexsys International, Inc.
("Elexsys") issued $32.0 million of 5 1/2% convertible subordinated debentures
(the "Debentures") due on March 1, 2012. The Debentures are currently
convertible into shares of common stock at $29.93, subject to adjustment under
certain conditions. The Debentures are redeemable by Sanmina at declining
premiums prior to March 1, 1997 and thereafter at 100 percent of the principal
amount. The Debentures are also redeemable through the operation of a sinking
fund at 100 percent of the principal amount. Interest is payable semi-annually
on September 1 and March 1 of each year. Mandatory annual sinking fund payments,
sufficient to retire 5 percent of the aggregate principal amount of the
Debentures issued, were to be made on each March 1 commencing in 1997. As a
result of two exchanges of common stock for $16.0 million and $4.0 million of
the Debentures in fiscal 1994 and fiscal 1995, respectively, Sanmina now has
sinking fund credits available to offset these obligations for twelve and
one-half years, thus no sinking fund payments will be required until 2009. The
Debentures are subordinated to all senior indebtedness of Sanmina.
Zero Coupon Convertible Subordinated Notes due 2020 -- On September 12, 2000,
Sanmina issued $1.66 billion of zero-coupon 4% convertible notes (the "Zero
Coupon 4% Notes"), due on September 12, 2020, to qualified institutional
investors in a private
41
<PAGE> 24
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
placement at an issue price of $452.89 per note, resulting in gross proceeds of
$751.8 million. The Zero Coupon 4% Notes are subordinated to the prior payment
of all senior indebtedness, as defined. There will be no cash interest payments
prior to maturity. The issue discount is amortized using the effective interest
method over the term of the notes. The Zero Coupon 4% notes are convertible into
common stock, at the option of the note holder, at the conversion ratio of
approximately 3.24:1. The Zero Coupon 4% Notes are redeemable at the option of
Sanmina on or after September 12, 2005. The Zero Coupon 4% Notes may also be
subject to repurchase, at the option of the holder, on September 12, 2005,
September 12, 2010, and September 12, 2015 at $552.08, $672.98, and $820.35,
respectively per note. Sanmina has filed with the Securities Exchange Commission
a registration statement for resale of the notes and the common stock issuable
upon conversion.
Maturities of long-term debt, including capital lease obligations, are as
follows as of September 30, 2000.
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
-------------------
(in thousands)
<S> <C>
2001 $ 11,728
2002 1,130
2003 5,148
2004 358,151
2005 308
Thereafter 779,205
----------
Total $1,155,670
==========
</TABLE>
NOTE 5. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF
---------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(in thousands)
<S> <C> <C>
Environmental reserves (Note 7) $13,342 $9,229
Other 6,475 --
------- ------
Total non-current liabilities $19,817 $9,229
======= ======
</TABLE>
NOTE 6. REVOLVING CREDIT AGREEMENTS
Sanmina's revolving line of credit with various banks is related to Hadco's
Amended and Restated Revolving Credit Agreement, as amended (the "Credit
Facility"). The Credit Facility provided, among other things, for direct
borrowings for up to the lesser of $198.8 million or the Borrowing Base, as
defined in the Credit Facility, and was to expire January 8, 2002. Interest on
loans outstanding under the Credit Facility was payable at Sanmina's option at
either (i) the Base Rate (as defined in the Credit Facility) or (ii) the
Eurodollar Rate, plus the Applicable Eurodollar Rate Margin (both as defined in
the Credit Facility). At September 30, 2000 and October 2, 1999, borrowings of
none and $75.0 million, respectively, were outstanding under the Credit
Facility. The weighted average interest rates for the years ending September 30,
2000 and October 2, 1999 were 6.18% and 6.31%, respectively. The Credit Facility
was closed as of September 30, 2000.
Sanmina also has lines of credit arrangements with a Malaysian bank denominated
in Malaysian ringgits and U.S. dollars for aggregate borrowings of approximately
$3.6 million for the purpose of acquiring land, facilities and equipment for the
Malaysian subsidiary. The arrangement is renewable annually. At September 30,
2000 and October 2, 1999 there were no amounts outstanding under this
arrangement.
Essex AB ("Essex") has a line of credit arrangement with a Swedish bank
denominated in Swedish Krona (SEK) for aggregate borrowings of up to SEK
300,000,000 (approximately $30 million). Borrowings outstanding on this line of
credit arrangement are secured by all of the assets of Essex, accrues interest
at the STIBOR (Stockholm InterBank Offered Rate) of 4.63% as of September 30,
2000, requires that Essex maintain certain financial ratios over a period of
five years and is renewable annually. Essex was in compliance with these
financial ratios as of fiscal years ended 2000 and 1999, respectively. As of
September 30, 2000 and October 2, 1999, $4.9 million and $25.0 million,
respectively, was outstanding under this line of credit.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Operating Leases -- Sanmina leases its facilities under operating leases
expiring at various dates through 2009. Sanmina is responsible for utilities,
maintenance, insurance and property taxes under the leases. Future minimum lease
payments under operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
-------------------
(in thousands)
<S> <C>
2001 $ 23,482
2002 21,702
2003 19,867
2004 14,432
2005 8,041
Thereafter 17,944
--------
Future minimum lease payments $105,468
========
</TABLE>
Rent expense under operating leases was approximately $25.3 million, $23.1
million and $17.4 million for the years ended September 30, 2000, October 2,
1999 and September 30, 1998, respectively.
In November 1998, Sanmina entered into an operating lease agreement for a new
corporate headquarters and new facilities for its principal Northern California
assembly operations. This campus facility, which comprises approximately 330,000
square feet, is located in San Jose, California. A condition of this operating
lease is that Sanmina pledges $52.9 million to the administrative agent until
the end of the lease's initial term, which is included in long-term investments
in the accompanying consolidated balance sheet.
Environmental Matters -- In March 1995, Hadco received a Record of Decision
("ROD") from the New York State Department of Environmental Conservation
("NYSDEC"), regarding soil and groundwater contamination at its Owego, New York
facility. Based on a Remedial Investigation and Feasibility Study for apparent
on-site
42
<PAGE> 25
contamination at that facility and a Focused Feasibility Study each prepared by
environmental consultants of Hadco, the NYSDEC has approved a remediation
program of groundwater withdrawal and treatment and iterative soil flushing.
Hadco has executed a Modification of the Order on Consent to implement the
approved ROD. Capital equipment for this remediation has already been acquired
by Hadco, and future operation and maintenance costs, which will be incurred and
expended over the estimated life of the program of the next 28 years, are
estimated at between $40,000 and $100,000 per year. In the summer of 1998,
NYSDEC took additional samples from a wetland area near Hadco's Owego facility.
Analytical reports of earlier sediment samples indicated the presence of certain
inorganics. The new samples showed elevated levels of certain metals, but NYSDEC
has not made a determination as to the potential source of such metals, the
remedial action to be taken, or the persons to undertake and/or pay for any
remediation. There can be no assurance that Hadco and/or other third parties
will not be required to conduct additional investigations and remediation at
that location, the costs of which are currently indeterminable.
Hadco has commenced the operation of a groundwater extraction system at its
Derry, New Hampshire facility to address certain groundwater contamination and
migration control issues. It is not possible to make a reliable estimate of the
length of time remedial activity will have to be performed. However, it is
anticipated that the groundwater extraction system will be operated for at least
30 years. There can be no assurance that Hadco will not be required to conduct
additional investigations and remediation relating to the Derry facility. The
total costs of such groundwater extraction system and of conducting any
additional investigations and remediation relating to the Derry facility are not
fully determinable.
Several facilities owned or occupied by Elexsys at the time of its acquisition
by Sanmina, or formerly owned or occupied by Elexsys or companies acquired by
Elexsys, had either soil contamination or contamination of groundwater
underneath or near the facility including contamination discovered at Elexsys'
Irvine, California facility in 1989. Elexsys voluntarily installed a groundwater
remediation system at the Irvine facility in 1994. Additional investigation is
being undertaken by other parties in the area at the request of the California
Regional Water Quality Control Board. It is unknown whether any additional
remediation activities will be required as a result of such investigations or
whether any third party claims will be brought against Sanmina alleging that
they have been damaged in any way by the existence of the contamination at the
Irvine facility. Sanmina has been required by the California Department of Toxic
Substances Control to undertake investigation of soil and/or groundwater at
certain facilities formerly owned or occupied by a predecessor company to
Elexsys in Mountain View, California. Depending upon the results of this soil
sampling and groundwater testing, Sanmina could be ordered to undertake soil
and/or groundwater cleanup. To date, Sanmina has not been ordered to undertake
any soil or groundwater cleanup activities at the Mountain View facilities, and
management does not believe any such activities should be required. Test results
received to date are not sufficient to enable Sanmina to determine whether or
not such cleanup activities are likely to be mandated. Contamination has also
been discovered at other current and former Elexsys facilities and has been
reported to the relevant regulatory agencies. No remediation or further
investigation of such contamination has been required by regulatory agencies. To
date, the cost of the various investigations and the cost of operating the
remediation system at the Irvine facility have not been material to Sanmina's
financial condition or consolidated statement of operations. However, in the
event Sanmina is required to undertake additional groundwater or soil cleanup,
the costs of such cleanup are likely to be substantial. Management is currently
unable to estimate the amount of such soil and groundwater cleanup costs because
no soil or groundwater cleanup has been ordered and Sanmina cannot determine
from available test results what remediation activities, if any, are likely to
be required. Management believes, based on the limited information currently
available, that the cost of any groundwater or soil clean-up that may be
required would not harm Sanmina's business, financial condition and results of
operations.
In November 1998, Sanmina acquired Altron Incorporated ("Altron"). Altron was
advised in 1993 by Olin Corporation ("Olin") that contamination resulting from
activities of prior owners of property owned by Olin and located close to the
Altron manufacturing plant in Wilmington, Massachusetts, had migrated under the
Altron plant. Olin has assumed full responsibility for any remediation
activities that may be required and has agreed to indemnify and hold Altron
harmless from any and all costs, liabilities, fines, penalties, charges and
expenses arising from and relating to any action or requirement, whether imposed
by statute, ordinance, rule, regulation, order, decree or by general principles
of law to remediate, clean up or abate contamination emanating from the Olin
site. Although management believes that Olin's assumption of responsibility will
result in no remediation cost to Altron from the contamination, there can be no
assurance that Altron will not be subject to some costs regarding this matter,
but management does not anticipate that such costs, if any, will be material to
its financial condition or results of operations.
Sanmina and its subsidiaries and predecessors have been named as potentially
responsible parties at several other contaminated disposal sites as a result of
the past disposal of hazardous waste by companies acquired by Sanmina or their
corporate predecessors. Sanmina accrues estimated costs associated with known
environmental matters, when such costs can be reasonably estimated.
Sanmina has been notified by the City of Santa Clara, California ("City") of a
number of alleged wastewater discharge and other violations of environmental
laws by one of Sanmina's plants. The City is seeking recovery for past costs
incurred by the City in monitoring the plant's operations in the amount of
approximately $200,000. The notice from the City sets forth that the penalties
for the alleged violations could exceed $1,600,000. Sanmina has been cooperating
with the City to review the plant's operations to determine if violations have
occurred and to address concerns of the City with respect to plant operations.
The City has notified
43
<PAGE> 26
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sanmina that it could file a civil action to address the violations, but no
civil suit has been filed to date.
From 1974 to 1980, Hadco operated a printed circuit manufacturing facility in
Florida as a lessee. This property is the subject of a pending lawsuit in the
circuit court for Broward County, Florida (the "Florida Lawsuit") and an
investigation by the Florida Department of Environmental Protection ("FDEP"). In
connection with the investigation, Hadco and others have participated in
alternative dispute resolution regarding the site with an independent mediator.
Mediation sessions began in 1992 and continued through May 1998. In June 1995,
Hadco and Gould, Inc. ("Gould"), another prior lessee of the site, were joined
as third-party defendants in the pending Florida Lawsuit by a party who had
previously been named as a defendant when the Florida Lawsuit was commenced in
1993 by the FDEP. As a result of the mediation, a Settlement Agreement was
entered into among Hadco, Gould and the FDEP in March 1999. The third-party
complaints against Hadco and Gould in the pending Florida Lawsuit were
dismissed. The Settlement Agreement provides that Hadco and Gould will undertake
remedial action based on a Supplemental Contamination Assessment Report and a
later Feasibility Study, which has been prepared by a consultant to Hadco and
Gould and approved by the FDEP. The estimated cost of the recommended source
removal described in the Feasibility Study is approximately $165,000, and for
ongoing monitoring and remediation is approximately $2.1 million. Actual
remedial activities have not yet commenced.
In March 1993, the EPA notified Hadco of its potential liability for maintenance
and remediation costs in connection with a hazardous waste disposal facility
operated by Casmalia Resources, a California Limited Partnership, in Santa
Barbara County, California. The EPA identified Hadco as one of the 65 generators
that had disposed the greatest amounts of materials at the site. Based on the
total tonnage contributed by all generators, Hadco Santa Clara's share is
estimated at approximately 0.48% of the total weight.
In June 1997, the United States District Court in Los Angeles, California
approved and entered a Consent Decree among the EPA and 49 entities (including
Hadco) acting through the Casmalia Steering Committee ("CSC"). The Consent
Decree sets forth the terms and conditions under which the CSC will carry out
work aimed at final closure of the site. Certain closure activities will be
performed by the CSC. Later work will be performed by the CSC, if funded by
other parties. Under the Consent Decree, the settling parties will work with the
EPA to pursue the non-settling parties to ensure they participate in
contributing to the closure and long-term operation and maintenance of the
facility.
The cost estimates relating to future environmental clean-up are subject to
numerous variables, the effects of which can be difficult to measure, including
the stage of the environmental investigations, the nature of potential remedies,
possible joint and several liability, the magnitude of possible contamination,
the difficulty of determining future liability, the time over which remediation
might occur, and the possible effects of changing laws and regulations. The
total reserve for environmental matters currently identified by Sanmina amounted
to $17.9 million at September 30, 2000 and $15.4 million at October 2, 1999, of
which $13.3 million and $9.2 million, respectively, are recorded as long term
liabilities (Note 5). Management's estimates of reserves for environmental
matters are based on assessments made by environmental consultants. Management
believes the ultimate disposition of the above known environmental matters will
not have a material adverse effect on the liquidity, capital resources, business
or consolidated financial position of Sanmina. However, one or more of such
environmental matters could have a significant negative impact on the
consolidated financial results for a particular reporting period.
The future costs in connection with the lawsuits described in the above
paragraphs are currently indeterminable due to such factors as the unknown
timing and extent of any future remedial actions which may be required, the
extent of any liability of Sanmina and its acquired entities and of other
potentially responsible parties, and the financial resources of the other
potentially responsible parties. Management currently believes, based on the
facts currently known to it, that it is probable that the ultimate dispositions
of the above lawsuits will not have a material adverse effect on Sanmina's
business and financial condition; however, there can be no assurance that this
will be the case.
From time to time, Sanmina is a party to litigation which arises in the ordinary
course of business. Sanmina believes that the resolution of this litigation will
not materially harm Sanmina's business, financial condition or results of
operations.
Litigation -- Refer to Environmental Matters (above) for description of
Litigation matters
NOTE 8. RETIREMENT PLANS
Sanmina has various retirement plans that cover the majority of its employees.
Sanmina's retirement plans permit participants to elect to have contributions
made to the retirement plans in the form of reductions in salary under Section
401(k) of the Internal Revenue Code. Under the Sanmina retirement plans, Sanmina
matches a portion of employee contributions. The amounts contributed by Sanmina
and its acquired businesses as 401(k) matches against employee contributions
were approximately $7.6 million, $6.4 million and $4.2 million during the fiscal
years ended September 30, 2000, October 2, 1999 and September 30, 1998,
respectively.
NOTE 9. ACQUISITIONS
On March 20, 1998, Hadco acquired all of the outstanding common stock of
Continental Circuits Corp. ("Continental"). The acquisition was financed by
Hadco's unsecured senior revolving credit facility with a group of banks. Hadco
borrowed approxi-
44
<PAGE> 27
mately $220.0 million upon consummation of the Continental acquisition. The
acquisition was accounted for as a purchase and, accordingly, Continental's
operating results since the respective date of acquisition is included in the
accompanying consolidated financial statements. The purchase price of the
Continental acquisition was based on the fair value of the assets acquired and
liabilities assumed at the acquisition date. A significant portion of the
purchase price was identified in independent appraisals, using proven valuation
procedures and techniques, as intangible assets. These intangible assets include
approximately $63.1 million for Continental's acquired in-process research and
development ("in-process R&D") for projects that did not have future alternative
uses. This allocation represents the estimated fair value based on risk-adjusted
cash flows related to the in-process R&D projects. At the date of the
acquisition, the development of these projects had not yet reached technological
feasibility, and the in-process R&D had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date.
The aggregate purchase price of $190.2 million, including acquisition costs, for
the Continental acquisition was allocated as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Current assets $ 24,056
Property, plant and equipment 67,144
Acquired intangibles 46,190
In-process R&D 63,050
Other assets 233
Goodwill 55,864
Liabilities assumed (66,381)
---------
$ 190,156
=========
</TABLE>
Unaudited pro forma operating results of Sanmina for the year ended September
30, 1998, assuming the Continental acquisition occurred on October 1, 1997, are
as follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
<S> <C>
Revenue $1,994,817
Net income 88,827
Diluted net income per share $ 0.70
Shares used in calculating per share amounts 126,704
</TABLE>
For purposes of these pro forma operating results, the in-process R&D for
Continental of approximately $63.1 million, was assumed to have been written off
prior to September 30, 1997, so that the operating results presented include
only recurring costs.
In November 1997, Sanmina acquired Elexsys. Under the terms of the acquisition
agreement, Sanmina's common stock was exchanged for all of Elexsys' outstanding
common stock. Approximately 6.6 million shares of common stock were issued to
acquire Elexsys. The acquisition was accounted for as a pooling-of-interests,
and therefore, all prior periods presented were restated to combine the results
of the two companies. In 1998, Sanmina recorded merger costs of $3.9 million
related to the acquisition of Elexsys, of which $0.6 million was outstanding as
of fiscal ended 1998. As of the end of fiscal year 1999, all amounts accrued for
had been paid.
On February 23, 1998, Sanmina acquired Pragmatech, Inc. ("Pragmatech") in a
stock purchase transaction. The purchase price was approximately $5.7 million.
The acquisition, which was accounted for as a purchase, included the payment of
cash and the assumption of liabilities. Accordingly, the results of operations
for the year ended September 30, 1998, include the results of operations of this
business from the date of acquisition. The purchase price was allocated to the
net liabilities assumed on a fair value basis. The acquisition resulted in
goodwill of $11.5 million, which was to be amortized over a ten year period.
During 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.
The unaudited pro forma financial information for the year ended September 30,
1998 is presented below as if Pragmatech had been acquired on October 1, 1997:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
<S> <C>
Revenue $1,968,450
Net income 30,643
Diluted net income per share $ 0.24
Shares used in calculating per share amounts 126,704
</TABLE>
In November 1998, Sanmina acquired Altron. Under the terms of the acquisition
agreement, each share of Altron common stock was converted into 0.909 shares of
Sanmina common stock. Approximately 14.4 million shares of common stock were
issued to acquire Altron. The acquisition was accounted for as a
pooling-of-interests, and therefore, all prior periods presented were restated
to combine the results of the companies. Altron's year end was December 31. For
purposes of the restatement, Altron's restated year ended September 30, 1998 was
combined with Sanmina's year ended September 30, 1998 and Altron's years ended
December 31, 1997 and December 31, 1996 were combined with Sanmina's year ended
September 30, 1997 and September 30, 1996 respectively. As a result, the net
sales and net income of Altron for the quarter ended December 31, 1997, have
been included in both fiscal 1998 and
45
<PAGE> 28
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997. An adjustment of $3.2 million to account for the duplication of net income
has been made to retained earnings in fiscal 1998. On December 28, 1998, Sanmina
acquired Telo Electronics, Incorporated, a California corporation ("Telo").
Sanmina issued approximately 1.9 million shares of Sanmina common stock in
exchange for 100% of the outstanding common stock of Telo. The acquisition was
accounted for as a pooling of interests. Due to the immateriality of this
acquisition to Sanmina's consolidated financial position and results of
operations, Telo has been included in Sanmina's consolidated results of
operations as of the beginning of fiscal 1999 (October 1, 1998), and therefore,
amounts presented for periods prior to fiscal 1999 have not been restated to
include Telo's historical results of operations.
In March 1999, Sanmina acquired Manu-Tronics, Incorporated, a Wisconsin
corporation ("Manu-Tronics"). Sanmina issued approximately 1.7 million shares of
Sanmina common stock in exchange for 100% of the outstanding common stock of
Manu-Tronics. The acquisition was accounted for as a pooling-of-interests, and
therefore, all prior periods presented were restated to combine the results of
the two companies.
On August 4, 1999, Sanmina announced the agreement to acquire certain operations
of Nortel Networks' Wireless Electro-Mechanical Subsystem Assembly ("EMSS"). As
part of the agreement, Sanmina would acquire certain assets of Nortel Networks'
EMSS operations in Calgary, Alberta, Canada, and Chateaudun, France. On October
1, 1999, Sanmina completed the acquisition of certain Calgary EMSS assets and
liabilities for a purchase price of approximately $47.2 million, which was
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. The results of operations for the year ended
October 2, 1999, include the results of operations of this business from the
date of acquisition. The acquisition resulted in goodwill of $29.6 million,
which is being amortized over a fifteen year period.
The unaudited pro forma financial information for the years ended October 2,
1999 and September 30, 1998 is presented below as if the Calgary EMSS operations
had been acquired on October 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
OCTOBER 2, SEPTEMBER, 30
1999 1998
---------- -------------
(in thousands, except
per share amounts)
<S> <C> <C>
Revenue $2,528,124 $2,068,654
Net income 118,298 33,192
Diluted net income per share $ 0.82 $ 0.26
Shares used in calculating per share amounts 144,536 126,704
</TABLE>
On June 1, 2000, Sanmina acquired Essex, an electronics manufacturing services
("EMS") supplier in Scandinavia. The transaction was structured as a
stock-for-stock exchange and was accounted for as a pooling of interests. Under
the terms of the acquisition agreement, each share of Essex common stock was
converted into approximately 10.2 shares of Sanmina common stock. Approximately
2.0 million shares of Sanmina common stock were issued to acquire Essex. On June
23, 2000, Sanmina completed its acquisition of Hadco, a manufacturer of advanced
electronic interconnect products. The acquisition was accounted for as a pooling
of interests. Under the terms of the acquisition agreement, each outstanding
share of Hadco common stock was converted into 1.4 shares of Sanmina common
stock. Approximately 19.6 million shares of Sanmina common stock were issued to
acquire Hadco.
As a result of the acquisitions of Essex and Hadco, Sanmina's historical
financial statements have been restated retroactively to include the financial
results of Essex and Hadco. Essex's results of operations for the years ended
December 31, 1999 and 1998 and Hadco's results of operations for the years ended
October 30, 1999 and October 31, 1998 have been combined with Sanmina's results
of operations for the years ended October 2, 1999 and September 30, 1998,
respectively. In addition, Essex's balance sheet as of December 31, 1999 and
Hadco's balance sheet as of October 30, 1999 have been combined with Sanmina's
balance sheet as of October 2, 1999. The fiscal years for Essex and Hadco were
changed to coincide with Sanmina's year end beginning in fiscal 2000.
Accordingly, an adjustment was made to retained earnings to eliminate the
duplication of $6.3 million of net income for both Hadco and Essex, for the one
month of Hadco operations and three months of Essex operations ended October 31,
1999 and December 31, 1999, respectively. Revenues for the one month of Hadco
operations and the three months of Essex operations ended October 31,1999 and
December 31, 1999, respectively, totaled approximately $163.2 million The
restated financial information includes certain adjustments to eliminate the net
sales between the combining companies and certain reclassifications to conform
to Sanmina's financial statement presentation. No adjustments were necessary to
conform the accounting policies of the combining companies.
As a result of the recent pooling of interests accounting for Essex and Hadco,
and the prior pooling of interests accounting for Elexsys, Altron and
Manu-Tronics, Sanmina has retroactively restated its historical results of
operations to include the results of operations of all entities. The financial
information presented gives effect to such restatement. A reconciliation of the
net sales and net income for the year ended October 2, 1999 and September 30,
1998, to previously reported information, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
----------- --------------
(in thousands)
<S> <C> <C>
Net Sales:
Sanmina $ 1,214,744 $ 722,581
Elexsys -- --
Altron -- 201,207
Manu-Tronics -- 68,033
Hadco 1,005,970 826,359
Essex 176,409 124,685
Eliminations (3,140) (1,411)
----------- -----------
Combined $ 2,393,983 $ 1,941,454
=========== ===========
</TABLE>
46
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(in thousands)
<S> <C> <C>
Net Income:
Sanmina $ 93,697 $ 68,151
Elexsys -- --
Altron -- 13,088
Manu-Tronics -- 4,390
Hadco 21,964 (54,110)
Essex 2,606 1,679
-------- --------
Combined $118,267 $ 33,198
======== ========
</TABLE>
Included within plant closing, relocation, and merger costs are merger costs of
$19.9 million and $5.5 million in 2000 and 1999, respectively. Merger costs of
$19.9 million in 2000, consisted of fees for investment bankers, attorneys,
accountants and other direct merger related expenses and relate to those
acquisitions that were accounted for using the pooling of interests method.
Merger costs of approximately $18.5 million were paid during fiscal year ended
2000. Merger costs of $5.5 million were also recorded and paid in 1999 and
consisted of fees for investment bankers, attorneys, accountants and other
direct merger related expenses and relate to those acquisitions that were
accounted for using the pooling of interests method.
Sanmina has also completed several other smaller acquisitions. These
transactions (see below) involved the purchase of either stock or assets in
exchange for cash and were accounted for as purchase transactions. Pro forma
statements of operations reflecting these acquisitions are not shown, as, in
aggregate, they would not differ materially from reported results.
On October 5, 1999, Sanmina acquired Devtek Electronic Packaging Systems
Division ("DEPS") of Devtek Electronics Enclosure, Inc.. The purchase price was
approximately $26.5 million. The acquisition, which was accounted for as a
purchase, included the payment of cash and the assumption of debt.
On November 3, 1999, Sanmina completed the acquisition of certain Chateaudun
EMSS assets and liabilities of Nortel Networks for a purchase price of
approximately $14.2 million, which was 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. The
acquisition resulted in goodwill of $6.0 million, which will be amortized over
fifteen years.
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.
On March 6, 2000, Sanmina acquired Alcatel's North Carolina electronic enclosure
systems facility for a purchase price of approximately $23.8 million. This
transaction was 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
transaction also includes a three-year manufacturing service contract between
Sanmina and Alcatel.
On June 27, 2000, Sanmina acquired Interworks Computer Products, Inc.
("Interworks") for a cash purchase price of approximately $45.0 million.
Interworks is a designer and manufacturer of standard and custom modular
subsystems, focused on meeting the growing needs of the networking equipment and
communications sectors. This transaction was accounted for as a purchase.
Interworks designs, manufactures, tests and distributes a complete line of
Digital Signal Processor modular solutions and advanced memory products to
leading electronics original equipment manufacturers serving the networking and
telecommunications markets.
On July 10, 2000, Sanmina acquired a PCB assembly and system assembly facility
located in Shenzhen, Guangdong province in China. The acquisition, was
accounted for as a purchase, also includes administrative offices in Hong Kong
and a branch procurement office in Taiwan. The purchase price was approximately
$65.0 million in cash. The facilities in China include a manufacturing facility
with administrative and dormitory buildings.
On August 4, 2000, Sanmina acquired certain Electronics Computer-Aided Design
("ECAD"), Electronics Systems Packaging Design ("ESP") and Product Integrity
("PI") operations from Nortel Networks. The agreement calls for the acquisition
of test facilities and related equipment and would involve the transfer of
employees in several expert physical design teams. The transaction was accounted
for as a purchase. The purchase price for this acquisition was approximately
$6.5 million in cash.
On September 30, 2000, Sanmina acquired the San Jose system integration and
fulfillment operation of Lucent Technologies. The acquisition included the
purchase of a manufacturing facility and related equipment and would involve the
transfer of employees to Sanmina.
NOTE 10. PLANT CLOSING, RELOCATION, MERGER AND RESTRUCTURING COSTS
Plant closing, relocation, merger and restructuring costs consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------- ---------- -------------
<S> <C> <C> <C>
Plant closing, relocation and restructuring costs
$27,338 $16,875 $4,536
Merger costs (Note 9) 19,863 5,479 3,945
------- ------- ------
Total $47,201 $22,354 $8,481
======= ======= ======
</TABLE>
47
<PAGE> 30
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 1998, plant closing, relocation, merger and restructuring costs were
approximately $8.5 million. Charges of $4.6 million were a result of Hadco
consolidating several manufacturing facilities, $2.0 million related to the loss
on abandoned assets, $1.2 million as a result of an approximate 3% reduction in
workforce and $1.4 million related to lease termination costs on abandoned
facilities, of which $0.9 million was outstanding as of the end of fiscal 1998.
In fiscal year ended 1999, Sanmina incurred plant closing and other relocation
costs of $16.9 million. The charges were a result of Sanmina's acquisitions and
Sanmina's planned relocation to a new campus facility. Sanmina closed certain
manufacturing plants in Fremont, California and Woburn, Massachusetts and merged
the operations from these facilities into existing manufacturing facilities
within the same regions. These closures were made to eliminate duplicate
facilities and other costs resulting from the merger with Altron. Concurrent
with the plant closures, Sanmina reduced its workforce in the same regions by
approximately 50 people. Plant closing, relocation and severance costs totaled
$12.8 million, of which $10.8 million was paid during fiscal year ended 1999 and
the balance of $2.0 million paid in fiscal year ended 2000. In conjunction with
the closure of manufacturing facilities and Sanmina's planned relocation to its
new campus facility in fiscal 2000, other non-recurring costs include payments
required under lease contracts (less any applicable sublease income) after the
properties are abandoned, any applicable lease buyout costs, restoration costs
associated with certain lease arrangements and the costs to maintain facilities
during the period after abandonment. Asset related write-offs consist of excess
equipment and leasehold improvements to facilities that were abandoned and whose
estimated fair market value is zero. Sanmina's move to the new campus facility
commenced in fiscal 1999 and was completed in the second quarter of fiscal 2000.
Noncancelable lease payments on vacated facilities were paid in full as of the
end of fiscal 2000. Sanmina also discontinued the use of enterprise-wide
software and hardware used internally by the acquired companies, as these were
no longer required post acquisition. The closing of the plants discussed above,
and the costs related to the integration of information systems and hardware,
were all incurred in fiscal 1999. Total other non-recurring charges totaled $4.1
million, of which $0.5 million was paid during fiscal year ended 1999 and the
balance in fiscal year ended 2000.
Restructuring charges of $27.3 million for 2000 are a result of Sanmina's
acquisitions in June 2000 of Hadco and Essex. These costs represent executive
and other severances related to actual and expected workforce attrition
resulting from redundant activities, announced employee termination plans and
expected synergies with the acquired companies. Sanmina expects attrition in the
acquired companies of approximately 885 people. At the end of fiscal 2000,
Sanmina had recognized attrition of 13 people in the acquired companies' work
forces. Severance costs of approximately $11.8 million were paid out as of the
end of fiscal 2000, of which approximately $11.6 million was deposited into a
trust for executive severance.
NOTE 11. STOCKHOLDERS' EQUITY
Common Stock -- In June 1998 and March 2000, Sanmina effected a two-for-one
stock split payable in the form of a dividend. Accordingly, all share and per
share data has been adjusted to retroactively reflect the stock splits. On
February 8, 2000, Sanmina completed a public offering of 9,550,000 shares of
common stock at $59.00 per share for the aggregate gross proceeds of $563.5
million.
SANMINA STOCK OPTION PLANS
Stock Option Plans -- The 1990 Incentive Stock Plan (the "Plan") provides for
the grant of incentive stock options, non-statutory stock options, and stock
purchase rights to employees and other qualified individuals to purchase shares
of Sanmina's Common Stock at amounts not less than 100% of the fair market value
of the shares on the date of the grant.
On January 29, 1999, shareholders approved an amendment to adopt Sanmina's 1999
Stock Plan (the "1999 Plan"). The 1999 Plan provides for the grant of incentive
stock options, non-statutory stock options, and stock purchase rights to
employees and other qualified individuals to purchase shares of Sanmina's Common
Stock generally at amounts not less than 100% of the fair market value of the
shares on the date of the grant. In the event a grant is priced at a level below
the, then current market value on the date of grant, Sanmina records the
corresponding deferred compensation.
The 1995 Director Option Plan (the "Director Plan") provides for the automatic
grant of stock options to outside directors of Sanmina or any subsidiary of
Sanmina at amounts not less than 100% of the fair market value of the shares on
the date of grant.
The 1996 Supplemental Stock Option Plan (the "Supplemental Plan") permits only
the grant of non-statutory options and provides that options must have an
exercise price at least equal to the fair market value of Sanmina's Common Stock
on the date of the grant. Options under the Supplemental Plan may be granted to
employees and consultants, but executive officers and directors may not be
granted options under the Supplemental Plan.
Options vest as determined by the Board of Directors and in no event may an
option have a term exceeding ten years from the date of the grant. Option
activity under the Sanmina option plans is as follows:
48
<PAGE> 31
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Balance at September 30, 1997 9,900,284 6.35
Granted 3,671,400 17.05
Exercised (2,078,358) 3.94
Cancelled (517,578) 10.53
----------- ------
Balance at September 30, 1998 10,975,748 10.20
----------- ------
Altron Plan 1,932,892 12.63
Granted 3,960,122 23.25
Exercised (2,494,248) 9.83
Cancelled (1,233,464) 17.83
----------- ------
Balance at October 2, 1999 13,141,050 13.79
----------- ------
Hadco Plan 1,548,491 29.18
Granted 4,739,200 54.70
Exercised (2,727,967) 14.46
Cancelled (1,088,947) 27.74
----------- ------
Balance at September 30, 2000 15,611,827 $26.62
=========== ======
</TABLE>
The following table summarizes information regarding stock options outstanding
under the Sanmina option plans at September 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND EXERCISABLE
---------------------------------------------------- --------------------------------------------------
WEIGHTED
RANGE AVERAGE WEIGHTED NUMBER
OF WEIGHTED NUMBER REMAINING AVERAGE NUMBER VESTED VESTED
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE AND EXERCISABLE EXERCISE PRICE
----------------- ----------- ---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.25 -- $ 7.13 3,178,500 4.51 $ 4.75 3,060,939 $ 4.68
$ 8.75 -- $ 16.16 3,860,296 6.91 $12.74 2,172,242 $12.50
$16.23 -- $ 30.57 3,426,506 7.49 $23.07 1,541,159 $22.57
$30.75 -- $ 50.94 3,450,455 8.92 $40.94 1,156,980 $37.70
$51.47 -- $113.13 1,696,070 9.71 $77.18 1,744 $62.23
---------- ---------
$ 0.25 -- $113.13 15,611,827 7.30 $26.62 7,933,064 $15.12
========== =========
</TABLE>
The number of exercisable options and the weighted average exercise price as of
October 2, 1999 and September 30, 1998 were 5,728,870 at $8.46 per share and
4,550,614 at $7.04 per share, respectively.
Sanmina Employee Stock Purchase Plan -- Sanmina's employee stock purchase plan
(the "Purchase Plan") provides for the issuance of up to 4,600,000 shares of
common stock. Under the Purchase Plan, employees may purchase, on a periodic
basis, a limited number of shares of common stock through payroll deductions
over a six-month period. The per share purchase price is 85% of the fair market
value of the stock at the beginning or end of the offering period, whichever is
lower. As of September 30, 2000, 3,844,203 shares had been issued under the
Purchase Plan.
Hadco Employee Stock Purchase Plan -- Hadco's Employee Stock Purchase Plan ("ESP
Plan") was approved by the stockholders in March 1998 to allow eligible
employees, as defined in the ESP Plan, to purchase shares of common stock during
one or more six-month periods through payroll deductions. Shares were purchased
at 85% of fair value, as defined. A total of 700,000 shares of common stock were
reserved for purchase under the ESP Plan. During fiscal 2000, 1999 and 1998,
Hadco issued 148,496, 189,882 and 80,116 shares, respectively, under the ESP
Plan. At September 30, 2000, Sanmina has closed the plan. Shares that were
available for purchase under the ESP Plan have expired.
As of September 30, 2000, Sanmina has reserved the following shares of
authorized but unissued common:
<TABLE>
<CAPTION>
<S> <C>
Convertible subordinated debt 13,383,668
Stock option plans 7,907,897
Employee stock purchase plan 755,797
----------
22,047,362
==========
</TABLE>
Stock-based Compensation -- Sanmina accounts for its stock option plans and
employee stock purchase plan under APB Opinion No. 25 and related
interpretations. In fiscal 2000, Sanmina recorded deferred compensation related
to stock options granted below the fair market value at the measurement date.
This amount will be amortized over the five year vesting period. Had
compensation cost for all plans been determined consistent with SFAS No. 123,
Sanmina's net income and net income per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------- ---------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income:
As reported $192,334 $118,267 $ 33,198
Pro forma 85,681 72,719 7,452
Basic EPS:
As reported $ 1.31 $ 0.86 $ 0.27
Pro forma 0.58 0.53 0.06
Diluted EPS:
As reported $ 1.24 $ 0.82 $ 0.26
Pro forma 0.55 0.50 0.06
</TABLE>
49
<PAGE> 32
SANMINA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair values of options granted by Sanmina during fiscal
2000, 1999 and 1998 was $54.70, $23.27 and $9.25 per share, respectively. The
weighted average for values of options granted by Altron during fiscal 1998 was
$8.88. The weighted average fair values of options granted by Hadco during
fiscal 1999 and 1998 was $13.55 and $24.17 per share, respectively. The fair
value of each stock option granted or stock issued under the employee stock
purchase plans is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants or
issuances in fiscal 2000, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------- -------------- --------------
<S> <C> <C> <C>
Volatility............................................. 67% 53% -- 64% 47% -- 75%
Risk-free interest rate................................ 5.75% 5.20% -- 6.00% 4.81% -- 6.08%
Dividend yield......................................... 0% 0% 0%
Expected lives (management and directors) beyond
vesting.............................................. 1.1 years 0.8 years 0.6 years
Expected lives (employees) beyond vesting.............. 0.5 years 0.3 years 0.3 years
</TABLE>
NOTE 12. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------- ------------ -------------
(in thousands)
<S> <C> <C> <C>
Federal
Current $ 145,377 $ 62,634 $ 55,414
Deferred (44,314) (8,774) (9,409)
--------- -------- --------
101,063 53,860 46,005
--------- -------- --------
State
Current 27,829 16,094 8,924
Deferred (4,023) (1,281) (1,298)
--------- -------- --------
23,806 14,813 7,626
--------- -------- --------
Foreign 8,077 1,123 700
--------- -------- --------
Total provision for income taxes before
extraordinary items 132,946 69,796 54,331
Less tax benefit of extraordinary
items (3,039) -- --
--------- -------- --------
Total provision for income taxes $ 129,907 $ 69,796 $ 54,331
========= ======== ========
</TABLE>
The components of the deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
AS OF
-----------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible $ 55,481 $ 25,072
State income taxes 5,954 3,778
Accruals 17,190 3,032
Depreciation 2,722 908
Net operating loss carryforwards 1,851 2,159
Tax credit carryforwards -- 368
Deferred compensation 2,229 1,465
Other -- 159
-------- --------
Total deferred income tax asset 85,427 36,941
Valuation allowance -- (2,527)
-------- --------
Net deferred income tax asset $ 85,427 $ 34,414
======== ========
Deferred Tax Liabilities:
Acquisition related intangibles $(42,755) $(39,713)
Depreciation differences (18,979) (17,629)
Other -- (1,716)
-------- --------
Total gross deferred tax liability $(61,734) $(59,058)
======== ========
</TABLE>
As of October 2, 1999, the valuation allowance provided a reserve against
deferred tax assets that may have expired or became unutilized by Sanmina. In
accordance with SFAS No. 109 "Accounting for Income Taxes," Sanmina believed it
was more likely than not that Sanmina would not realize a portion of the
benefits of these deferred tax assets, and accordingly, had provided a valuation
allowance for them. As of September 30, 2000, Sanmina now believes that it that
it is more likely than not that Sanmina will utilize its foreign net operating
loss carryforwards and as such has removed the valuation allowance previously
booked against them.
The tax rate used in the computation of the provision for federal and state
income taxes differs from the statutory federal and state rates due to the
following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Federal tax at statutory rate 35.00% 35.00% 35.00%
State income taxes, net of federal benefit 5.06 5.23 4.50
Foreign subsidiary loss 0.29 0.19 0.27
Effect of non-deductible goodwill amortization 0.97 0.63 1.30
Tax exempt interest income (0.19) (0.44) (0.48)
Foreign sales corporation benefit (0.75) (0.89) (0.71)
Tax credits (0.46) (0.19) (0.53)
Change in valuation allowance (0.67) (1.46) (7.70)
Other 1.05 (0.96) 4.43
------ ------ ------
Provision for income taxes 40.30% 37.11% 36.08%
====== ====== ======
</TABLE>
The provision for income taxes in 1998 is calculated on income before provision
for taxes without taking into account the write-off of acquired in-process R&D.
This write-off was $63.1 million for 1998. Income before the provision for
income taxes excluding the write-off would have been $150.6 million for 1998.
50
<PAGE> 33
NOTE 13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
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 annual 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, geographic areas and major customers.
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, including the financial information
related to Hadco and Essex, by the Chief Operating Officer, management currently
believes that Sanmina operates in two geographic segments, domestic (U.S.A.) and
foreign operations. Revenues are attributable to the country in which the
product is manufactured. During fiscal 2000, 1999 and 1998, there were no
material assets or revenues from any individual foreign country. Each segment
manufactures, tests and services a full spectrum of complex printed circuit
boards, custom backplane interconnect devices, and electronic assembly services.
The chief operating decision maker evaluates performance based upon each
segment's operating income. Operating income is defined as income before
interest income or interest expense and taxes.
Although Sanmina seeks to diversify its customer base, a small number of
customers are responsible for a significant portion of Sanmina's net sales.
During fiscal 2000, 1999 and 1998, sales to Sanmina's ten largest customers
accounted for 55.8%, 48.9% and 43.7% respectively, of Sanmina's net sales. In
2000, sales to Sanmina's largest customer represented 12.3% of net sales. In
1999 and 1998, no single customer accounted for more than 10.0% of net sales.
The following summarizes financial information by geographic segment:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30,
2000 1999 1998
------------- ---------- -------------
(in thousands)
<S> <C> <C> <C>
Net Sales
Domestic $3,181,949 $2,136,525 $ 1,769,365
International 729,610 257,458 172,089
---------- ---------- -----------
Total $3,911,559 $2,393,983 $ 1,941,454
========== ========== ===========
Operating Income
Domestic $ 301,389 $ 208,140 $ 113,021
International 29,939 2,973 (4,000)
---------- ---------- -----------
Total $ 331,328 $ 211,113 $ 109,021
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Long Lived Assets (excludes goodwill and intangibles)
Domestic $631,139 $547,308 $464,774
International 104,554 74,930 78,478
-------- -------- --------
Total $735,693 $622,238 $543,252
======== ======== ========
Depreciation and amortization
Domestic $144,418 $111,582 $ 95,406
International 12,838 13,135 9,590
-------- -------- --------
Total $157,256 $124,717 $104,996
======== ======== ========
Capital expenditures
Domestic $150,927 $126,181 $128,269
International 47,740 9,430 20,869
-------- -------- --------
Total $198,667 $135,611 $149,138
======== ======== ========
</TABLE>
NOTE 14. SUBSEQUENT EVENTS (UNAUDITED)
In October 2000, Sanmina entered into an arrangement to acquire a 49.9% equity
ownership in INBOARD, a wholly owned subsidiary of Siemens AG. INBOARD is a
manufacturer of complex printed circuit boards.
On December 13, 2000, Sanmina's Board of Directors approved a two-for-one split
of Sanmina's common stock. The split is payable, on or about January 8, 2001,
in the form of a 100% stock dividend to shareholders of record on
December 18, 2000.
51
<PAGE> 34
SANMINA CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Sanmina Corporation:
We have audited the accompanying consolidated balance sheets of Sanmina
Corporation (a Delaware Corporation) and subsidiaries as of September 30, 2000
and October 2, 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sanmina Corporation
and subsidiaries as of September 30, 2000 and October 2, 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
-----------------------------------------
Arthur Andersen LLP
San Jose, California
October 20, 2000
52
