-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kkkhm/M8p/Soyqgeog7xhQv+FXq7a85hNWen9pwcRhWmEavpz9iWsNWSzjY+Ta6c W1w/YmC8754Z7VJhmYfnUA== 0000891618-99-002275.txt : 19990518 0000891618-99-002275.hdr.sgml : 19990518 ACCESSION NUMBER: 0000891618-99-002275 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANMINA CORP/DE CENTRAL INDEX KEY: 0000897723 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 770228183 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21272 FILM NUMBER: 99624977 BUSINESS ADDRESS: STREET 1: 355 EAST TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4089545500 MAIL ADDRESS: STREET 1: 355 EAST TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: SANMINA HOLDINGS INC DATE OF NAME CHANGE: 19930223 10-Q 1 FORM 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER: 0-21272 ------------------------ SANMINA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0228183 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 355 EAST TRIMBLE ROAD, SAN JOSE, CA 95131 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
408/954-5500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of April 26, 1999, there were 57,119,366 shares outstanding of the issuer's common stock, $0.01 par value. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SANMINA CORPORATION INDEX
PAGE ------- PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements Condensed Consolidated Statements of Operations.................................... 3 Condensed Consolidated Balance Sheets....................... 4 Condensed Consolidated Statements of Cash Flows............. 5 Notes to Interim Condensed Consolidated Financial Statements.................................................. 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 10 - 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 15 Item 4. Submission of Matters to a Vote of Security Holders......... 15 Item 6. Exhibits and Reports on Form 8-K............................ 15 Signature................................................... 16
2 3 SANMINA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS IN THOUSANDS, EXCEPT PER SHARE DATA
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- --------------------- APRIL 3, MARCH 28, APRIL 3, MARCH 28, 1999 1998 1999 1998 -------- --------- -------- --------- (UNAUDITED) Net sales....................................... $281,140 $240,886 $556,673 $461,557 Cost of sales................................... 219,525 189,708 442,774 364,349 -------- -------- -------- -------- Gross profit.................................. 61,615 51,178 113,899 97,208 -------- -------- -------- -------- Operating expenses Selling, general and administrative........... 17,308 16,228 37,387 31,786 Amortization of goodwill...................... 804 703 1,555 1,339 Provision for plant closing and relocation costs...................................... -- -- 16,875 -- Write down of long-lived assets............... -- -- 11,400 -- Merger costs.................................. -- -- 5,479 3,945 -------- -------- -------- -------- Total operating expenses.............. 18,112 16,931 72,696 37,070 -------- -------- -------- -------- Income from operations.......................... 43,503 34,247 41,203 60,138 Other income, net............................... 1,809 315 3,547 71 -------- -------- -------- -------- Income before provision for income taxes............................... 45,312 34,562 44,750 60,209 Provision for income taxes...................... 16,540 11,998 16,540 21,379 -------- -------- -------- -------- Net income...................................... $ 28,772 $ 22,564 $ 28,210 $ 38,830 ======== ======== ======== ======== Earnings per share: Basic......................................... $ 0.50 $ 0.46 $ 0.49 $ 0.79 Diluted....................................... $ 0.47 $ 0.40 $ 0.46 $ 0.69 Shares used in computing per share amounts: Basic......................................... 57,762 49,411 57,568 49,277 Diluted....................................... 61,754 58,327 61,254 58,381
See accompanying notes. 3 4 SANMINA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS IN THOUSANDS ASSETS
APRIL 3, SEPTEMBER 30, 1999 1998 ----------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents................................. $ 71,590 $ 87,978 Short-term investments.................................... 58,441 93,526 Accounts receivable, net.................................. 160,665 133,010 Inventories............................................... 126,037 102,940 Deferred income taxes..................................... 21,348 19,389 Prepaid expenses and other................................ 11,607 8,220 -------- -------- Total current assets.............................. 449,688 445,063 Property, plant and equipment, net.......................... 187,947 191,762 Long-term investments....................................... 52,850 -- Deposits and other.......................................... 21,810 21,542 -------- -------- $712,295 $658,367 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $108,460 $ 89,030 Accrued liabilities....................................... 45,471 44,179 Income taxes payable...................................... 12,449 11,517 -------- -------- Total current liabilities......................... 166,380 144,726 -------- -------- Long-term liabilities: Convertible subordinated notes............................ 5,647 5,767 Other liabilities......................................... 15,082 25,889 -------- -------- Total long-term liabilities....................... 20,729 31,656 -------- -------- Stockholders' equity: Common stock.............................................. 581 564 Additional paid-in capital................................ 255,365 238,656 Accumulated other......................................... (645) 386 comprehensive income Retained earnings.................... 269,885 242,379 -------- -------- Total stockholders' equity........................ 525,186 481,985 -------- -------- $712,295 $658,367 ======== ========
See accompanying notes. 4 5 SANMINA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS IN THOUSANDS
SIX MONTHS ENDED --------------------- APRIL 3, MARCH 28, 1999 1998 -------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 28,210 $ 38,830 Adjustments to reconcile net income to cash provided by operating activities: Adjustment to conform year end of pooled entities...... -- (1,332) Depreciation, amortization and other................... 23,135 16,301 Relocation, other charges, and merger costs............ 23,686 3,945 Write down of long-lived assets........................ 11,400 -- Changes in operating assets and liabilities, net of acquisitions: Accounts receivable.................................. (27,997) (10,156) Inventories.......................................... (17,816) (22,309) Prepaid expenses, deposits and other................. 4,934 (169) Accounts payable and accrued liabilities............. 8,889 12,627 Income tax accounts.................................. (11,067) 6,951 -------- -------- Cash provided by operating activities............. 43,374 40,743 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments....................... (31,072) (62,291) Proceeds from maturity of short-term investments.......... 66,370 60,780 Purchases of long-term investments........................ (52,850) -- Purchases of property and equipment, net of acquisitions........................................... (28,517) (26,251) Cash paid for businesses acquired, net.................... (16,851) (5,666) -------- -------- Cash used for investing activities................ (62,920) (33,428) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on line of credit................................ -- (7,498) Payments of long-term liabilities......................... (10,363) (11,808) Proceeds from sale of common stock, net of taxes.......... 10,029 1,530 -------- -------- Cash used for financing activities................ (334) (17,776) -------- -------- Decrease in cash and cash equivalents....................... (19,880) (10,461) Cash and cash equivalents at beginning of period............ 91,470 54,278 -------- -------- Cash and cash equivalents at end of period.................. $ 71,590 $ 43,817 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Interest.................................................. $ 645 $ 3,696 Income Taxes.............................................. $ 23,517 $ 13,896
See accompanying notes. 5 6 SANMINA CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules or regulations. The interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair presentation. All adjustments are of a normal recurring nature. The results of operations for the three or six months ended April 3, 1999 are not necessarily indicative of the results that may be expected for the year ending October 2, 1999. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended September 30, 1998, included in the Company's annual report on Form 10-K/A. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2 -- ACQUISITIONS In November 1998, the Company merged with Altron, Incorporated ("Altron"). Under the terms of the merger agreement, each share of Altron Common Stock was converted into 0.4545 shares of Sanmina Common Stock. Approximately 7.2 million shares of common stock were issued to acquire Altron. In March 1999, Sanmina merged with Manu-Tronics, Inc ("Manu-Tronics"). Under the terms of the merger agreement, the Company issued common stock for 100% of the outstanding common stock of Manu-Tronics. Both of these transactions were accounted for as poolings of interests. As a result of these pooling transactions, Sanmina has restated its historical results of operations to combine the results of operations of Altron and Manu-Tronics. The financial information presented gives effect to such restatement. A reconciliation of the financial statements for the six months ended April 3, 1999, to previously reported information is as follows (in thousands): Revenue: Sanmina................................................. $331,253 Altron.................................................. 97,727 Manu-Tronics............................................ 32,577 -------- Combined........................................ $461,557 ======== Net Income: Sanmina................................................. $ 29,381 Altron.................................................. 6,739 Manu-Tronics............................................ 2,710 -------- Combined........................................ $ 38,830 ========
On December 28, 1998, the Company merged with Telo Electronics, Incorporated, a California corporation ("Telo"). The Company acquired Telo by issuing shares of Sanmina Common Stock in exchange for 100% of the outstanding common stock of Telo. The merger was accounted for as a pooling of interests. Due to the immateriality of this acquisition to the Company's consolidated financial position and results of operations, Telo has been included in the Company's consolidated results of operations as of the beginning of fiscal 1999 (October 1, 1998), but amounts presented for periods prior to fiscal 1999 have not been restated to include Telo's historical results of operations. 6 7 SANMINA CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) During the six month period ended April 3, 1999, the Company also completed several other smaller acquisitions. These transactions involved the purchase of either stock or assets in exchange for cash and were accounted for as purchase transactions. Pro forma statements of operations reflecting these acquisitions are not shown as they would not differ materially from reported results. NOTE 3 -- PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. NOTE 4 -- INVENTORIES Inventories, stated at the lower of cost (first-in, first-out method) or market, consist of:
APRIL 3, SEPTEMBER 30, 1999 1998 -------- ------------- (IN THOUSANDS) Raw materials....................................... $ 66,750 $ 57,641 Work-in-process..................................... 42,009 30,222 Finished goods...................................... 17,278 15,077 -------- -------- $126,037 $102,940 ======== ========
NOTE 5 -- EARNINGS PER SHARE Basic EPS was computed by dividing net income by the weighted average number of shares of common stock outstanding during the second quarters and the first six months of fiscal 1999 and 1998. Diluted EPS for the second quarters and first six months of fiscal 1999 and 1998 includes dilutive common stock equivalents, using the treasury stock method, and assumes that the convertible debt instruments were converted into common stock, if dilutive. A reconciliation of the net income and weighted average number of shares used for the diluted earnings per share computations for the first six months of fiscal 1999 and 1998 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ------------------ 4/3/99 3/28/98 4/3/99 3/28/98 ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income.................................. $28,772 $22,564 $28,210 $38,830 Add back after-tax interest expense for convertible subordinated debt............. 0 807 0 1,614 ------- ------- ------- ------- Income for calculating earnings per share... $28,772 $23,371 $28,210 $40,444 ======= ======= ======= ======= Weighted average number of shares outstanding during the period............. 57,762 49,411 57,568 49,277 Applicable number of shares for stock options outstanding for the period........ 3,992 2,797 3,686 2,985 Weighted average number of shares if convertible subordinated debt were converted................................. 0 6,119 0 6,119 ------- ------- ------- ------- Weighted average number of shares......... 61,754 58,327 61,254 58,381 ======= ======= ======= ======= Diluted earnings per share.................. $ 0.47 $ 0.40 $ 0.46 $ 0.69
NOTE 6 -- COMMITMENTS In November 1998, the Company entered into an operating lease agreement for a new corporate headquarters and new facilities for its principal Northern California assembly facilities. This campus facility, 7 8 SANMINA CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) which comprises approximately 330,000 square feet, is located in San Jose, California. A condition of this operating lease is that the Company pledges $52.9 million to the administrative agent until the end of the lease's initial term. The Company has classified this amount as a long term investment in the accompanying consolidated balance sheets. NOTE 7 -- WRITE DOWN OF LONG-LIVED ASSETS The Company continually evaluates whether long-lived assets have been impaired in value. This process includes evaluating whether projected results of operations of acquired businesses would support the carrying value of related assets including the future amortization of the remaining unamortized balance of goodwill. In the first quarter of fiscal 1999, such evaluation with respect to the acquisition of Pragmatech, Incorporated ("Pragmatech"), indicated the fair value of assets related to Pragmatech were less than the carrying value of the Pragmatech assets. Accordingly, in the first quarter of fiscal 1999, the Company has written down the remaining $11.4 million in unamortized goodwill arising from the acquisition. The fair value of Pragmatech was based on estimated future cash flows to be generated from those assets based on reasonable and supportable assumptions. Financial projections prepared at the time of the acquisition of Pragmatech reflected the Company's belief that the Company would continue to provide electronics manufacturing services to existing Pragmatech customers and would grow the Pragmatech business at Pragmatech's existing facilities. However, the existing Pragmatech customer relationships could not be restructured to conform to the Company's pricing and revenue models, and as a result, the relationships with the former Pragmatech customers have terminated. In addition, the Company has closed several of the former Pragmatech facilities. As a result of these operational factors, the Company's analysis of projected revenues, results of operations, and cash flows attributable to the few remaining Pragmatech customers did not support the carrying value of Pragmatech assets, including the unamortized goodwill. NOTE 8 -- COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130") in fiscal 1999. SFAS 130 requires companies to report a "comprehensive income" that includes unrealized gains and losses and other items that have previously been excluded from net income and reflected instead in stockholders' equity. A summary of comprehensive income for the first six months of fiscal 1999 and 1998 is as follows (in thousands):
SIX MONTHS ENDED --------------------- APRIL 3, MARCH 28, 1999 1998 -------- --------- Net income.............................................. $28,210 $38,830 Other comprehensive income: Unrealized holding gain (losses) on available-for-sale securities,........................................ 66 (9) Foreign currency translation.......................... (711) (72) ------- ------- Comprehensive income.................................... $27,565 $38,749 ======= =======
8 9 SANMINA CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9 -- SUBSEQUENT EVENT On April 29, 1999, the company announced that it has entered into an agreement to offer qualified institutional investors $300 million (this was increased by an additional $50 million pursuant to an over-allotment option exercised on May 6, 1999) 4.25% Convertible Subordinated notes due 2004 ("New Notes"). The New Notes will be convertible at the option of the holder, at any time on or before May 1, 2004. The New Notes will be convertible into shares of common stock at $88.67. At any time on or after May 6, 2002, the New Notes will be redeemable at the Company's option. Interest will be payable semi-annually on May 1 and November 1 of each year, commencing November 1, 1999. The New Notes are subordinated to existing and future indebtedness, as defined. 9 10 SANMINA CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Sanmina Corporation ("Sanmina" or the "Company") is a leading independent provider of customized integrated electronics manufacturing services ("EMS"), including turnkey electronic assembly and manufacturing management services, to original equipment manufacturers ("OEM's") in the electronics industry. Sanmina's electronics manufacturing services consist primarily of the manufacture of complex printed circuit board assemblies using surface mount ("SMT") and pin through-hole ("PTH") interconnection technologies, the manufacture of custom designed backplane assemblies, fabrication of complex multi-layer printed circuit boards, and testing and assembly of completed systems. In addition to assembly, turnkey manufacturing management also involves procurement and materials management, as well as consultation on printed circuit board design and manufacturability. Sanmina, through its Sanmina Cable Systems ("SCS") subsidiary (formerly known as "Golden Eagle Systems"), also manufactures custom cable assemblies for electronics industry OEMs. In addition, the Company operates a metal stamping and plating business. Sanmina's assembly plants are located in Northern California, Richardson and Plano, Texas, Manchester, New Hampshire, Durham, North Carolina, Guntersville, Alabama, and Dublin, Ireland. Sanmina's printed circuit board fabrication facilities are located in Northern California, Southern California, and Nashua, New Hampshire. SCS's manufacturing facility is located in Carrollton, Texas. As a result of Sanmina's merger with Altron Inc. ("Altron"), Sanmina has added new fabrication and assembly plants in the Boston Massachusetts area, Northern California, and Richardson, Texas. In addition, as a result of Sanmina's recent mergers with Telo Electronics Incorporated and Manu-Tronics, Inc. ("Manu-Tronics"), Sanmina has added new assembly plants in San Jose and in Kenosha, Wisconsin. Sanmina's results of operations have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis. Sanmina's operating results are affected by a number of factors, including timing of orders from major customers, mix of products ordered by and shipped to major customers, the volume of orders as related to the Company's capacity, ability to effectively manage inventory and fixed assets, timing of expenditures in anticipation of future sales and the economic conditions in the electronics industry. Operating results can also be significantly influenced by development and introduction of new products by the Company's customers. From time to time, the Company experiences changes in the volume of sales to each of its principal customers, and operating results may be affected on a period-to-period basis by these changes. The Company's customers generally require short delivery cycles, and a substantial portion of the Company's backlog is typically scheduled for delivery within 120 days. Quarterly sales and operating results, therefore, depend in large part on the volume and timing of bookings received during the quarter, which are difficult to forecast. The Company's backlog also affects its ability to plan production and inventory levels, which could lead to fluctuations in operating results. In addition, a significant portion of the Company's operating expenses is relatively fixed in nature and planned expenditures are based in part on anticipated orders. Any inability to adjust spending quickly enough to compensate for any revenue shortfall may magnify the adverse impact of such revenue shortfall on the Company's results of operations. Results of operations in any period should not be considered indicative of the results to be expected for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company's common stock. Sanmina's customers are manufacturers in the communications (voice and data), industrial and medical instrumentation and high-speed computer systems segments of the electronics industry. These industry segments, and the electronics industry as a whole, are subject to rapid technological change and product obsolescence. Discontinuance or modification of products being manufactured by the Company could adversely affect the Company's results of operations. The electronics industry is also subject to economic cycles and has in the past experienced, and is likely in the future to experience, recessionary periods. A general recession in the electronics industry could have a material adverse effect on Sanmina's business, financial condition and results of operations. In addition, the Company has no firm long-term volume commitments from its customers and over the last few years has experienced reduced lead-time in customer orders. In 10 11 addition, customer orders can be canceled and volume levels can be changed or delayed. The timely replacement of canceled, delayed or reduced orders with new business cannot be assured. There can be no assurance that any of the Company's current customers will continue to use the Company's manufacturing services. The loss of one or more of the Company's principal customers, or reductions in sales to any of such customers, could have a material adverse effect on the Company's business, financial condition and results of operations. Sanmina has pursued, and intends to continue to pursue, business acquisition opportunities, particularly when these opportunities have the potential to enable Sanmina to increase its net sales while maintaining operating margin, access new geographic markets, implement Sanmina's vertical integration strategy and/or obtain facilities and equipment on terms more favorable than those generally available in the market. Acquisitions of companies and businesses and expansion of operations involves certain risks, including (i) the potential inability to successfully integrate acquired operations and businesses or to realize anticipated synergies, economies of scale or other value, (ii) diversion of management's attention, (iii) difficulties in scaling up productions at new sites and coordinating management of operations at new sites and (iv) loss of key employees of acquired operations. No assurance can be given that the Company will not incur problems with integrating acquired operations, and there can be no assurance that the Company's recent acquisitions, or any future acquisition will result in a positive contribution to the Company's results of operations. Furthermore, there can be no assurance that the Company will realize value from any such acquisition which equals or exceeds the consideration paid. In addition, there can be no assurance that the Company will realize anticipated strategic and other benefits from expansion of existing operations to new sites. Any such problems could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, future acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense. Sanmina is subject to risks related to Year 2000 problems. Many currently installed computer systems and software products are unable to distinguish years beginning with "19" from those beginning with "20." As a result, computer systems and/ or software products used by many companies may need to be upgraded to comply with such Year 2000 requirements. Sanmina is currently expending resources to review its products and services, as well as its internal use software in order to identify and modify those products, services and systems that are not Year 2000 compliant. Additionally, Sanmina is in the process of evaluating the need for contingency plans with respect to Year 2000 requirements. The necessity of any contingency plan must be evaluated on a case-by-case basis and will vary considerably in nature depending on the Year 2000 issue it may need to address. There can be no assurance however, that Sanmina will be able to solve all potential Year 2000 issues. Sanmina's reliance on its key suppliers, and therefore on the proper functioning of their information systems and software, is increasing, and there can be no assurance that another company's failure to address Year 2000 issues could not have an adverse effect on Sanmina. Sanmina has initiated formal communications with each of its significant suppliers and customers to determine the extent to which Sanmina is vulnerable to those third parties' failure to remediate their own Year 2000 issues. In particular, in the event a product manufactured by Sanmina contained Year 2000 problems attributable to a design or product development flaw, it is likely that sales of such product would be adversely affected, which would adversely affect Sanmina's manufacturing services revenues attributable to such product. Such a situation could have a material adverse effect on Sanmina's business, financial condition and results of operations. Sanmina is requesting that third party vendors represent their products and services to be Year 2000 compliant and that they have a program to test for Year 2000 compliance. However, the response of those third parties is beyond Sanmina's control. To the extent that Sanmina does not receive adequate responses by May 30, 1999, it is prepared to develop contingency plans, with completion of these plans scheduled for no later than June 30, 1999. At this time, Sanmina cannot estimate the additional cost, if any, that might develop from such contingency plans. Breakdowns in Sanmina's computer systems and applications, such as its manufacturing application software, its bar-coding systems, and the computer chips embedded in its plant equipment, as well as other Year 2000-related problems such as disruptions in the delivery of materials, power, heat or water to Sanmina's facilities, could prevent Sanmina from being able to manufacture and ship its 11 12 products. Sanmina plans to replace or upgrade or otherwise work around any of its date driven systems that are not Year 2000 compliant. Sanmina's Year 2000 Project Team will have compliance solutions or work arounds planned by June 30, 1999, and intends to complete compliance testing by September 24, 1999. If Sanmina fails to correct a material Year 2000 problem, its normal business activities and operations could be interrupted. Such interruptions could materially and adversely affect Sanmina's results of operations, liquidity and financial condition. To date, Year 2000 costs are not considered by Sanmina to be material to its financial condition. Sanmina currently estimates that, in order to complete Year 2000 compliance, Sanmina will be required to incur expenditures of approximately $1.7 million. Through January 2, 1999, approximately $600,000 of this amount has been expended. This report contains forward-looking statements within the meaning of Section 72A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's future results from operations could vary significantly from these contemplated by such forward-looking statements as a result of the factors described herein. The financial and other information contained herein should be read in conjunction with the Company's annual report on Form 10-K/A for the fiscal year ended September 30, 1998. RESULTS OF OPERATIONS In November 1998, the Company acquired Altron in a merger transaction that was accounted for as a pooling of interests. In March 1999, Sanmina acquired Manu-Tronics in a merger transaction that was also accounted for as a pooling of interests. Accordingly, results for the second quarter and first six months of fiscal 1998 have been restated to combine the results of operations of Sanmina, Altron and Manu-Tronics. The following table sets forth, for the three and six months ended April 3, 1999 and March 28, 1998, certain items as a percentage of net sales. The table and the discussion below should be read in connection with the condensed consolidated financial statements and the notes thereto, which appear elsewhere in this report.
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------ ------------------------------ APRIL 3, 1999 MARCH 28, 1998 APRIL 3, 1999 MARCH 28, 1998 ------------- -------------- ------------- -------------- Net sales......................... 100% 100% 100% 100% Cost of sales..................... 78.1 78.8 79.5 78.9 Gross Profit.................... 21.9 21.2 20.5 21.1 Selling, general and administrative.................. 6.1 6.7 6.7 6.9 Amortization of goodwill.......... .3 .3 .3 .3 Provision for plant closing and relocation...................... -- -- 3.0 -- Write down of long-lived assets... -- -- 2.1 -- Merger costs...................... -- -- 1.0 .9 Operating income................ 15.5 14.2 7.4 13.0 Other income, net................. .6 .2 .6 -- Income before income taxes...... 16.1 14.4 8.0 13.0 Provision for income taxes........ 5.9 5.0 3.0 4.6 Net income........................ 10.2 9.4 5.0 8.4
Sales for the second quarter of fiscal 1999 ended April 3, 1999 increased by 17% to $281.1 million from $240.9 million in the corresponding quarter of the prior year. Sales for the first six months of fiscal 1999 increased by 21% to $556.7 million from $461.6 million in the first six months of fiscal 1998. The increase in net sales was due primarily to increased shipments of EMS assemblies to both existing and new customers. The Company experienced growth across the customer base and its three key target markets of communications, industrial and medical instrumentation and high-speed computer systems. The overall increase in net sales reflects the continuing trend toward outsourcing within the electronics industry. For the second quarter of fiscal 1999, and the six months ended April 3, 1999, approximately 87% of the Company's net sales represented value-added EMS assembly shipments with the remaining portion consisting of printed circuit 12 13 board fabrication shipments. For fiscal 1998, EMS assembly revenues comprised 84% of Sanmina's revenues. The increase in the percentage of revenues represented by EMS assembly revenues was mainly due to the increased shipments of EMS assemblies to both existing and new customers. Gross margin increased from 21.2% in the second quarter of fiscal 1998 to 21.9% in the second quarter of the current year. The increase in gross margins for the second quarter and the first six months of fiscal 1999 is a result of normal changes in the mix of products shipped to certain customers and normal changes in customer mix. Gross margin decreased from 21.1% for the first six months of fiscal 1998 to 20.5% in the first six months of the current year. The decrease in gross margins for the first six months of fiscal 1999 was primarily attributable to charges recorded in the first quarter of fiscal 1999 related to the write down of obsolete inventory and assets from acquired companies. Due to increased competition, product and customer mix, the Company may experience decreases in gross margins. In absolute dollars, operating expenses increased from $16.9 million in the second quarter of fiscal 1998 to $18.1 million in the second quarter of fiscal 1999. As a percentage of sales, operating expenses decreased from 7.0% in the second quarter of 1998 to 6.4% in the second quarter of the current year. For the six months, operating expenses in absolute dollars increased from $37.1 million in fiscal 1998 to $72.7 million in fiscal 1999, and operating expenses as a percentage of sales increased from 8.1% for the first six months of fiscal 1998 to 13.1% for the first six months of fiscal 1999. The increase in operating expenses for the first six months of fiscal 1999 was mainly attributable to certain charges recorded in the first six months of fiscal 1999. These charges of $36.1 million related to plant closing and relocation costs, write down of long lived assets, merger and other costs. The first quarter of fiscal 1998 included a charge of $3.9 million for merger related costs associated with the acquisition of Elexsys International, Inc. Operating margins increased from 14.2% in the second quarter of 1998 to 15.5% in the second quarter of the current year. The quarter-over-quarter increase in operating margin reflects higher sales volume and Sanmina's strategy of focusing on growth in revenues and operating income while maintaining control over expenses. The operating margins reflect the Company's strategy of seeking to grow revenues while maintaining operating margins at relatively constant levels. The dollar increase in selling and general and administrative expenses was primarily the result of increased expenditures to support higher sales volume. The Company anticipates that operating expenses will increase in absolute dollars during the next few quarters due to projected additions to the sales force and other administrative expenditures to support higher sales volume. However, operating expenses as a percentage of sales are anticipated to remain relatively constant or decrease depending upon sales volume and the Company's ability to achieve expected operating efficiencies as a result of the integration of the merged Altron and Manu-Tronics operations. For the second quarter of fiscal 1999, the Company reported net other income of $1.8 million compared to net other income of $315,000 for the corresponding quarter of last year. In the first quarter of fiscal 1998, the Company repaid approximately $12.8 million of outstanding Elexsys debt. In addition, in August 1998, $86.3 million of outstanding convertible subordinated notes were converted into Common Stock as a result of a redemption call for such notes issued by the Company. The decrease in outstanding debt resulted in the reduction of interest expense for the first six months of fiscal 1999. The Company's provision for income taxes for the three month period ended April 3, 1999 is based upon the Company's estimate of the effective tax rate for fiscal 1999 of 36.5%. For the quarter ended March 28, 1998, the Company's effective tax rate was 34.7%. The lower rate in the prior year represents the benefit of foreign operations taxed at a reduced rate. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents, and short-term investments as of April 3, 1999 were $130.0 million as compared to $181.5 million at September 30, 1998. The decrease was mainly attributable to a long-term cash deposit made in connection with the Company's operating lease for its new campus facility. For the six months ending April 3, 1999, cash generated from operations was $43.4 million compared to $40.7 million for the same period of fiscal 1998. The increase between years primarily relates to the timing for receivables and payables. 13 14 Working capital decreased to $283.3 million as of April 3, 1999 compared to $300.3 million at September 30, 1998. This was mainly due to the use of cash for the long-term deposit. In May 1999, Sanmina completed an offering of $350.0 million of convertible subordinated notes. The notes bear interest at 4 1/4% per annum and are convertible into shares of Sanmina Common Stock at a conversion price of $88.668 per share. The notes mature in May 2004. Net cash used for investing activities for the first six months of fiscal 1999 primarily related to the net purchases of short-term and long-term investments and equipment for which the Company paid a total of approximately $46.1 million in cash. Additionally, in the second quarter of fiscal 1999, the Company paid approximately $16.9 million in cash for acquisitions. Net cash used for financing activities for the first six months of fiscal year 1999 related to the payment of long-term liabilities of $10.4 million. The payments were offset by $10.0 million in proceeds from sale of common stock. The Company has entered into an operating lease agreement for new facilities in San Jose, California, where it will establish its corporate headquarters and certain of its assembly operations. In connection with these transactions, the Company pledged $52.9 million of its cash and investments as collateral for certain obligations of the leases. The Company anticipates that its working capital requirements will increase in order to support anticipated volumes of business. Additionally, the Company expects to make additional capital expenditures relating to facility and equipment enhancements as well as information systems upgrades in existing facilities. Future liquidity needs will be dependent upon, among other factors, the extent of capital investments made by the Company in plant and equipment, working capital needs of acquired businesses, levels of shipments by the Company and changes in volumes of business and other factors. The Company believes that its existing cash resources, together with cash generated from operations, will be sufficient to meet the Company's liquidity and working capital requirements through at least the next twelve months. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company's exposure to market risk for changes in interest rates relate primarily to the Company's investment portfolio. Currently, the Company does not use derivative financial instruments in its investment portfolio. The Company invests in high credit quality issuers and, by policy, limits the amount of principal exposure to any one issuer. As stated in the Company's policy, the Company seeks to ensure the safety and preservation of its invested principal funds by limiting default and market risk. The Company seeks to mitigate default risk by investing in high-credit quality securities and by positioning its investment portfolio to respond to a significant reduction in a credit rating of any investment issuer, guarantor or depository. The Company seeks to mitigate market risk by limiting the principal and investment term of funds held with any one issuer and by investing funds in marketable securities with active secondary or resale markets. Foreign Currency Exchange Risk The Company transacts business in foreign countries. The Company's primary foreign currency cash flows are in certain European countries. Currently, the Company does not employ a foreign currency hedge program with respect to transactions and expenditures originating in these or any other foreign countries. The Company believes that its foreign currency exchange risk is immaterial. 14 15 SANMINA CORPORATION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not currently a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On January 29, 1999, the Company held its 1999 Annual Meeting of Stockholders. The matters voted upon at the meeting and the vote with respect to each such matter are set forth below: 1. Election of Jure Sola, John Bolger, Neil Bonke, Bernard Vonderschmitt, Mario Rosati, and Samuel Altschuler as Directors of the Company:
FOR WITHHELD ---------- -------- Jure Sola............................................... 47,213,184 116,573 John Bolger............................................. 47,211,869 117,888 Neil Bonke.............................................. 47,211,904 117,853 Bernard Vonderschmitt................................... 47,204,669 125,088 Mario Rosati............................................ 47,208,930 120,827 Samuel Altschuler....................................... 47,204,620 125,137
2. Approval of an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock: For: 32,446,399 Against: 14,867,520 Abstain: 15,838
3. Approval of the adoption of the Company's 1999 Stock Plan: For: 23,072,168 Against: 18,816,117 Abstain: 27,270
4. Approval of an amendment to the Company's 1993 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder: For: 41,120,504 Against: 761,877 Abstain 33,174
5. Ratification of the appointment of Arthur Andersen LLP as the independent public accountants of the Company for the fiscal year ending October 2, 1999: For: 47,305,310 Against: 14,672 Abstain: 9,775
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 27.1 Financial Data Schedule for the six month period ended April 3, 1999. 27.2 Financial Data Schedule for the six month period ended March 28, 1998. 27.3 Financial Data Schedule for the nine month period ended June 27, 1998. 27.4 Financial Data Schedule for the twelve month period ended September 30, 1998.
(b) REPORTS ON FORM 8-K On December 14, 1998, the Company filed a report on Form 8-K relating to the acquisition of Altron. On April 29, 1999, the Company filed a report on Form 8-K relating to the acquisition of Manu-Tronics. On April 30, 1999, the Company filed a report on Form 8-K relating to an offering of convertible subordinated notes. 15 16 SANMINA CORPORATION SIGNATURE Pursuant to the Requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sanmina Corporation (Registrant) Date: May 14, 1999 By: ------------------------------------ Randy W. Furr President and Chief Operating Officer By: ------------------------------------ Bernard J. Whitney Executive Vice President and Chief Financial Officer 16 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule for three month period ended January 2, 1999 27.2 Financial Data Schedule for three month period ended December 27, 1997
EX-27.1 2 FINANCIAL DATA SCHEDULE FOR PE 4/3/99
5 1,000 6-MOS SEP-30-1998 OCT-01-1997 MAR-28-1998 43,816 100,492 128,170 4,883 119,253 408,178 332,437 148,685 617,164 159,077 123,297 0 0 497 334,293 617,164 461,557 461,557 364,349 364,349 37,070 205 71 60,209 21,379 38,830 0 0 0 38,830 0.79 0.69 Interest Expense is net of Interest Income, the positive amount is income and the negative is interest expense. EPS is reported as "Basic EPS" as prescribed by SFAS 128. EPS is reported as "Diluted EPS" as prescribed by SFAS 128.
EX-27.2 3 FINANCIAL DATA SCHEDULE FOR PE 3/28/98
5 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-27-1998 38,302 124,429 132,331 5,603 111,635 423,039 361,774 169,947 637,955 149,717 125,554 0 0 502 362,182 637,955 729,174 729,174 575,025 575,025 55,557 1,216 (174) 98,418 34,827 63,591 0 0 0 63,591 1.29 1.13 Interest Expense is net of Interest Income, the positive amount is income and the negative is interest expense. EPS is reported as "Basic EPS" as prescribed by SFAS 128. EPS is reported as "Diluted EPS" as prescribed by SFAS 128.
EX-27.3 4 FINANCIAL DATA SCHEDULE FOR PE 6/27/98
5 1,000 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 87,978 93,526 133,010 5,794 102,940 445,063 355,855 164,093 658,367 144,726 31,656 0 0 564 481,421 658,367 991,821 991,821 783,949 783,949 74,237 2,094 (272) 133,363 47,734 85,629 0 0 0 85,629 1.70 1.52 Interest Expense is net of Interest Income, the positive amount is income and the negative is interest expense. EPS is reported as "Basic EPS" as prescribed by SFAS 128. EPS is reported as "Diluted EPS" as prescribed by SFAS 128.
EX-27.4 5 FINANCIAL DATA SCHEDULE FOR PE 9/30/98
5 1,000 6-MOS OCT-02-1999 OCT-01-1998 APR-03-1999 71,590 58,441 160,665 8,014 126,037 449,688 371,934 183,987 712,295 166,380 20,729 0 0 581 524,605 712,295 556,673 556,673 442,774 442,774 72,696 346 3,547 44,750 16,540 28,210 0 0 0 28,210 0.49 0.46 INTEREST EXPENSE IS NET OF INTEREST INCOME, THE POSITIVE AMOUNT IS INCOME AND THE NEGATIVE IS INTEREST EXPENSE. EPS IS REPORTED AS "BASIC EPS" AS PRESCRIBED BY SFAS 128. EPS IS REPORTED AS "DILUTED EPS" AS PRESCRIBED BY SFAS 128.
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