-----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, DjaspgqmJu9GfhZRiNTAE2d2gCmpwPCjkMsMVohkKK+gp1T6KbjcQqezPTwg4lDO JPsnJj/SErwdm/crOVgADQ== 0000891618-00-005300.txt : 20001219 0000891618-00-005300.hdr.sgml : 20001219 ACCESSION NUMBER: 0000891618-00-005300 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001218 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-K405 SEC ACT: SEC FILE NUMBER: 000-21272 FILM NUMBER: 791280 BUSINESS ADDRESS: STREET 1: 2700 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089545500 MAIL ADDRESS: STREET 1: 2700 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134 FORMER COMPANY: FORMER CONFORMED NAME: SANMINA HOLDINGS INC DATE OF NAME CHANGE: 19930223 10-K405 1 f67787e10-k405.txt FORM 10-K405 FISCAL YEAR ENDED SEPTEMBER 30, 2000 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER: 0-21272 SANMINA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0228183 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2700 NORTH FIRST STREET, SAN JOSE, CA 95134 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 964-3500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate value of voting stock held by non-affiliates of the Registrant was approximately $14,458,431,810 as of September 30, 2000, based upon the average of the high and low prices of the Registrant's Common Stock reported for such date on the Nasdaq National Market. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes. As of September 30, 2000, the Registrant had outstanding 152,259,383 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Certain information is incorporated into Part III of this report by reference to the Proxy Statement for the Registrant's 2001 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K. Certain information is incorporated into Parts II and IV of this report by reference to the Registrant's annual report to stockholders for the year ended September 30, 2000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS Sanmina is a leading independent provider of customized integrated electronic manufacturing services, known as EMS, including turnkey electronic assembly and manufacturing management services, to original equipment manufacturers, or OEMs, in the electronics industry. Our electronics manufacturing services consist primarily of the design and 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 cables and wire harness assemblies, the manufacture of electronic enclosure systems that house large electronic systems and subsystems, testing and assembly of completed systems, and global order fulfillment. In addition to the services above, turnkey manufacturing management also involves procurement and materials management, as well as consultation on printed circuit board design and manufacturing. As a result of these services, Sanmina can offer an end to end total EMS solution to its customers. Surface mount and pin-through-hole printed circuit board assemblies are printed circuit boards on which various electronic components, such as integrated circuits, capacitors, microprocessors and resistors, are mounted. These assemblies are key functional elements of many types of electronic products. Backplane assemblies are large printed circuit boards on which connectors are mounted to interconnect printed circuit boards, integrated circuits and other electronic components. Interconnect products manufactured by us generally require greater manufacturing expertise and have shorter delivery cycles than mass produced interconnect products, and therefore, typically have higher profit margins. Our customers include leading OEMs in the communications, medical and industrial instrumentation and high-speed computer sectors. Our principal customers include Alcatel, Cisco Systems, Lucent Technologies, Motorola, Nokia, Nortel Networks and Tellabs. We locate our manufacturing facilities near our customers and, increasingly, our customers' end users. Our assembly plants are located in Northern California; Richardson, San Antonio and Plano, Texas; the greater Boston, Massachusetts area; Manchester, New Hampshire; Durham, North Carolina; Guntersville, Alabama; Salt Lake City, Utah; Kenosha, Wisconsin; Calgary, Alberta, Canada; Dublin, Ireland and Chateaudun, France. Our printed circuit board fabrication facilities are located in Northern California, Southern California, the greater Boston, Massachusetts area and Nashua, New Hampshire. Sanmina's cable and harness principal manufacturing facility is located in Carrollton, Texas. Our principal enclosure manufacturing facilities are located in Clinton, North Carolina and Toronto, Canada. Through our June 2000 acquisition of Hadco Corporation ("Hadco"), we added printed circuit board fabrication facilities in the greater Boston, Massachusetts area; Northern California; Phoenix, Arizona; Owego, New York; Austin, Texas; Derry and Hudson, New Hampshire and Kuching, Malaysia. We also obtained backplane and assembly facilities in Salem, New Hampshire and Santa Clara, California as well as an engineering facility in Limerick, Ireland. In June 2000, we also acquired Essex AB ("Essex"), an EMS company with operations in Sweden and Finland. In July 2000, we acquired an EMS operation in the Shenzhen region of the Peoples' Republic of China. In August 2000, Sanmina acquired a design and engineering group from Nortel Networks. Also in September 2000, Sanmina acquired the San Jose, California system integration and fulfillment operation of Lucent Technologies. 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. We have pursued and intend to continue to pursue business acquisition opportunities, particularly when these opportunities have the potential to enable us to increase our net sales while maintaining operating margins, to access new customers, technologies or geographic markets, to implement our end to end total manufacturing solution strategy and to increase capacity and obtain facilities and equipment. In particular, we 2 3 expect that we will continue to pursue opportunities to acquire assembly operations being divested by electronics industry OEMs, particularly those in the communications sector. This Report on Form 10-K contains certain forward-looking statements regarding future events with respect to Sanmina. Actual events and/or future results of operations may differ materially 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." INDUSTRY OVERVIEW We are benefiting from increased market acceptance of the use of manufacturing specialists in the electronics industry. Many electronics OEMs have adopted, and are becoming increasingly reliant upon, manufacturing outsourcing strategies, and we believe the trend towards outsourcing manufacturing will continue. Electronics industry OEMs use EMS specialists for many reasons including the following: - Reduce Time to Market. Due to intense competitive pressures in the electronics industry, OEMs are faced with increasingly shorter product life cycles and, therefore, have a growing need to reduce the time required to bring a product to market. OEMs can reduce their time to market by using a manufacturing specialist's established manufacturing expertise, global presence and infrastructure. - Reduce Capital Investment. As electronic products have become more technologically advanced, the manufacturing process has become increasingly automated, requiring a greater level of investment in capital equipment. Manufacturing specialists enable OEMs to gain access to advanced manufacturing facilities, thereby reducing the OEMs' overall capital equipment requirements. - Focus Resources. Because the electronics industry is experiencing greater levels of competition and more rapid technological change, many OEMs are increasingly seeking to focus their resources on activities and technologies in which they add the greatest value. By offering comprehensive electronic assembly and turnkey manufacturing services, manufacturing specialists allow OEMs to focus on core technologies and activities such as product development, marketing and distribution. - Access Leading Manufacturing Technology. Electronic products and electronics manufacturing technology have become increasingly sophisticated and complex, making it difficult for OEMs to maintain the necessary technological expertise in process development and control. OEMs are motivated to work with a manufacturing specialist in order to gain access to the specialist's process expertise and manufacturing knowledge. - Improve Inventory Management and Purchasing Power. Electronics industry OEMs are faced with increasing difficulties in planning, procuring and managing their inventories efficiently due to frequent design changes, short product lifecycles, large investments in electronic components, component price fluctuations and the need to achieve economies of scale in materials procurement. By using a manufacturing specialist's volume procurement capabilities and expertise in inventory management, OEMs can reduce production and inventory costs. - Access Worldwide Manufacturing Capabilities. OEMs are increasing their international activities in an effort to lower costs and access foreign markets. Manufacturing specialists with worldwide capabilities are able to offer such OEMs a variety of options on manufacturing locations to better address their objectives regarding cost, shipment location, frequency of interaction with manufacturing specialists and local content requirements of end-market countries. SANMINA BUSINESS STRATEGY Our objective is to provide OEMs with a total EMS solution. Our strategy encompasses several key elements: - Concentrate on high value added products and services for leading OEMs. We focus on leading manufacturers of advanced electronic products that generally require custom designed, more complex interconnect products and short lead-time manufacturing services. By focusing on complex intercon- 3 4 nect products and manufacturing services for leading OEMs, we are able to realize higher margins than many other participants in the interconnect and EMS industries. - Leverage vertical integration. Building on our integrated manufacturing capabilities, we can provide our customers with a broad range of high value added manufacturing services from design to fabrication of bare boards, to final system assembly and test. The cable assembly capabilities of Sanmina provide us with further opportunities to leverage our vertical integration. By manufacturing printed circuit boards, electronic enclosure systems, and custom cable assemblies used in our EMS assemblies, we, through our vertical integration, are able to add greater value and realize additional manufacturing margin. In addition, our vertical integration provides greater control over quality, delivery and cost, and enables us to offer our customers a complete EMS solution. - Focus on high growth customer sectors. We have focused our marketing efforts on key, fast growing industry sectors. Our customers include leading OEM companies in communications, industrial and medical instrumentation and computer sectors. Sales efforts will focus on increasing penetration of our existing customer base as well as attracting new customers, thus diversifying our revenue across a wider base. - Geographic expansion of manufacturing facilities. Since 1993, we have significantly expanded and upgraded our operations through the opening of and acquisition of new facilities and operations in various locations throughout the United States, including Northern California, Southern California, the Dallas-Fort Worth area, the greater Boston area, the greater Chicago area and other locations. These facilities provide us with operations in key geographic markets for the electronics industry. We will continue to aggressively and opportunistically pursue future expansion opportunities in other markets. In particular, through two recent acquisitions, we have established operations in Sweden, Finland and the Peoples' Republic of China. - Aggressive pursuit of acquisition opportunities. Our strategy involves the pursuit of business acquisition opportunities, particularly when these opportunities have the potential to enable us to increase our net sales while maintaining operating margin, access new customers, technologies and geographic markets, implement our vertical integration strategy and obtain facilities and equipment on terms more favorable than those generally available in the market. These acquisitions have involved both acquisitions of entire companies as well as acquisitions of selected assets, principally equipment, inventory and customer contracts and, in certain cases, facilities or facility leases. We intend to continue to evaluate and pursue acquisition opportunities on an ongoing basis. - Develop long-term customer relationships. We seek to establish "partnerships" with our customers by focusing on early stage involvement in product design, state-of-the-art technology, quick-turnaround manufacturing and comprehensive management support for materials and inventory. We also work closely with our customers to help them manage their manufacturing cycle and reduce their time to market. While we will continue to emphasize growth with our current customers, we have been successful in attracting new customers. To further these efforts, we intend to continue to expand our direct sales and support staff. We believe our direct sales force and support staff are two of our key competitive advantages. - Extend technology leadership. Today we can provide a total EMS solution with services ranging from design services to fabrication of circuit boards and complete system assemblies. In providing these services, we use a variety of processes and technologies. We strive for continuous improvement of our processes and have adopted a number of quality improvement and measurement techniques to monitor our performance. We have also recently made significant capital expenditures to upgrade plant and equipment at our facilities. We intend to stay on the leading edge of technology development and will evaluate new interconnect and packaging technologies as they emerge. 4 5 CUSTOMERS, MARKETING AND SALES Our customers include a diversified base of OEMs in the communications, medical and industrial instrumentation and high-speed computer systems segments of the electronics industry. Our principal customers include Alcatel, Cisco Systems, Lucent Technologies, Motorola, Nokia, Nortel Networks and Tellabs. The following table shows the approximate percentage of our fiscal 2000 sales in each of these industry sectors. Communications.............................................. 71.6% Medical and Industrial Instrumentation...................... 12.3% High-Speed Computer Systems................................. 16.1%
We develop relationships with our customers and market our manufacturing services through a direct sales force augmented by a network of manufacturers' representative firms and a staff of in-house customer support specialists. Our sales resources are directed at multiple management and staff levels within target accounts. Our direct sales personnel work closely with the customers' engineering and technical personnel to better understand their requirements. Our manufacturers' representatives are managed by our direct sales personnel, rather than from corporate headquarters, in order to provide for greater accountability and responsiveness. We also conduct advertising and public relations activities, as well as receiving referrals from current customers. Historically, we have had substantial recurring sales from existing customers. We have also expanded our customer base through acquisitions. In particular, the acquisition of the Guntersville, Alabama operations of Comptronix Corporation and certain assets of the former custom manufacturing services division of Lucent Technologies provided us with several new key customer accounts with significant growth potential. In addition, the November 1997 acquisition of Elexsys International Inc. ("Elexsys"), the November 1998 acquisition of Altron Incorporated ("Altron"), the December 1998 acquisition of Telo Electronics, Inc. ("Telo"), and the March 1999 acquisition of Manu-Tronics, Inc. ("Manu-Tronics") provided us with several major new customer accounts. Our October and November 1999 acquisitions of certain Nortel Networks assembly operations have expanded our customer relationship with Nortel Networks. This relationship was enhanced by our acquisition of a Nortel Networks design engineering group in August 2000. Our recent transactions with Alcatel, Avaya, Harris and Lucent will provide us with the opportunity to significantly expand our relationship with these customers. Finally, our acquisitions of Hadco and Essex and our acquisition of EMS operations in China will enable us to broaden our customer base as well our geographic base. Although we seek to diversify our customer base, a small number of customers are responsible for a significant portion of our net sales. During fiscal 2000, fiscal year 1999 and fiscal year 1998, sales to our ten largest customers accounted for 55.8%, 48.9% and 43.7%, respectively, of our net sales. For fiscal 2000, only sales to one customer, Nortel Networks, represented more than 10.0% of our net sales. For fiscal year 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, which occurred in fiscal 2000. Although we cannot assure you that our principal customers will continue to purchase products and services from us at current levels, if at all, we expect to continue to depend upon our principal customers for a significant portion of our net sales. Our 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 our customers participate. The loss of one or more major customers, or declines in sales to major customers, could harm our business and operating results. MANUFACTURING SERVICES We specialize in manufacturing complex printed circuit board assemblies, backplane assemblies and printed circuit boards that are used in the manufacture of sophisticated electronic equipment. We began manufacturing backplane assemblies in 1981 and began providing electronic assembly and turnkey manufac- 5 6 turing management services, including the assembly and testing of sophisticated electronic systems, in October 1993. We seek to establish "partnerships" with our customers by providing a responsive, flexible total manufacturing services solution. These services include computer integrated manufacturing, known as CIM, and design and engineering services, quick-turnaround manufacturing of prototype and preproduction assemblies, and materials procurement and management. CIM services provided by us consist of developing manufacturing processes, tooling and test sequences for new products from customer designs. We also evaluate customer designs for manufacturability and test, and, when appropriate, recommend design changes to reduce manufacturing cost or lead times or to increase manufacturing yields and the quality of the finished product. Once engineering is completed, we manufacture prototype or preproduction versions of that product on a quick-turnaround basis. We expect that the demand for engineering and quick-turnaround prototype and preproduction manufacturing services will increase as OEMs' products become more complex and as product life cycles shorten. Materials procurement and handling services provided by us include planning, purchasing, warehousing and financing of electronic components and enclosures used in the assemblies and systems. MANUFACTURING AND ENGINEERING Manufacturing Processes. We produce complex, technologically advanced surface mount and pin-through-hole assemblies, backplane assemblies and multilayer printed circuit boards, custom cable assemblies, enclosures and full systems that meet increasingly tight tolerances and specifications demanded by OEMs. Multilayering, which involves placing multiple layers of electrical circuitry on a single printed circuit board or backplane, expands the number of circuits and components that can be contained on the interconnect product and increases the operating speed of the system by reducing the distance that electrical signals must travel. Increasing the density of the circuitry in each layer is accomplished by reducing the width of the circuit tracks and placing them closer together on the printed circuit board or backplane. Today, we are capable of efficiently producing commercial quantities of printed circuit boards with up to 60 layers and circuit track widths as narrow as three mils. The manufacture of complex multilayer interconnect products often requires the use of sophisticated circuit interconnections between certain layers (called "blind or buried vias") and adherence to strict electrical characteristics to maintain consistent circuit transmission speeds (referred to as "controlled impedance"). These technologies require very tight lamination and etching tolerances and are especially critical for printed circuit boards with ten or more layers. The manufacture of printed circuit boards involves several steps: etching the circuit image on copper-clad epoxy laminate, pressing the laminates together to form a panel, drilling holes and depositing copper or other conductive material to form the inter-layer electrical connections and, lastly, cutting the panels to shape. Certain advanced interconnect products require additional critical steps, including dry film imaging, photoimageable soldermask processing, computer controlled drilling and routing, automated plating and process controls and achievement of controlled impedance. Manufacture of printed circuit boards used in backplane assemblies requires specialized expertise and equipment because of the larger size of the backplane relative to other printed circuit boards and the increased number of holes for component mounting. In addition to volume fabrication of printed circuit boards, Sanmina has facilities which specialize in prototype and pre-production manufacturing. Prototypes typically require lead times of three to seven days, and often as short as 24 hours. Prototype development at these facilities has included multilayer printed circuit boards of up to 60 layers, embedded discrete components, heavy copper substrates, sequential lamination, cavity substrates, thermal management products, single chip carriers, planar magnetics, advanced surface finishes and various high performance substrates for the high frequency microwave market. These facilities also support advanced attachment technologies such as Direct Chip Attach (DCA) and High Density Interconnect (HDI). In combining the design of a printed circuit with the manufacture of the prototype, Sanmina can reduce the length of the design/manufacture cycle. By working closely with customers at the design and prototype stage, Sanmina believes it strengthens long-term relationships with its customers and gains an advantage in securing a preferred vendor status when customers begin volume production. Pre-production is the manufacture of limited quantities of electronic interconnects during the transition period from prototype to volume production. Pre-production generally requires quick-turn delivery to accommodate 6 7 time-to-volume pressures or as a temporary solution for unforeseen customer demands. Pre-production is done both in the quick-turn prototype and volume production facilities. The manufacture of surface mount and pin-through-hole assemblies involves the attachment of various electronic components, such as integrated circuits, capacitors, microprocessors and resistors to printed circuit boards. The manufacture of backplane assemblies involves attachment of electronic components, including printed circuit boards, integrated circuits and other components, to the backplane, which is a large printed circuit board that we also manufacture. We use surface mount, pin-through-hole and press-fit technologies in backplane assembly. The integration of all these processes allows us to offer an end to end total EMS solution. Substantially all of our manufacturing facilities are certified under ISO 9002, a set of standards published by the International Organization of Standardization and used to document, implement and demonstrate quality management and assurance systems in design and manufacturing. As part of the ISO 9002 certification process, we have developed a quality systems manual and an internal system of quality controls and audits. Although ISO 9002 certification is of particular importance to the companies doing business in the European Community, we believe that United States electronics manufacturers are increasing their use of ISO 9002 registration as a criteria for suppliers. In addition to ISO 9002 certification, the majority of our facilities are BellCore, British Approval Board for Telecommunications, or BABT, and Underwriters Laboratories, or UL, compliant. These qualifications establish standards for quality, manufacturing process control and manufacturing documentation and are required by many OEMs in the electronics industry, including suppliers to AT&T and the Regional Bell Operating Companies. Facilities. We manufacture our products in 56 decentralized plants, consisting of 29 electronics assembly facilities, 18 printed circuit board fabrication facilities, 3 cable assembly facilities, 3 enclosure assembly facilities and 3 other manufacturing facilities. Generally, each of our decentralized plants has its own production, purchasing, and materials management and quality capabilities located on site. The production expertise of some plants overlaps, which enables us to allocate production based on product type and available capacity at one or more plants. With assembly facilities located in major electronics industry centers throughout the country, including Silicon Valley, Southern California, the Dallas-Forth Worth area, the Research Triangle Park area, New England, the greater Chicago area and Northern Alabama, as well as international locations including Ireland, China, France, Canada, Malaysia, Finland and Sweden, we are also able to allocate production based on geographic proximity to the customer, process capabilities and available capacity. Decentralized plants can focus on particular product types and respond quickly to customers' specific requirements. We believe that decentralized facilities also allow us to achieve improved accountability, quality control and cost control. In November 1998, we entered into a lease with an option to purchase a 330,000 square foot campus facility located in San Jose, California. The facility consists of four buildings on a single site. We consolidated our corporate headquarters and some of our San Jose area assembly operations at this facility. As of July 2, 2000, this campus site was fully occupied. We believe that our existing facilities, together with facilities expansion and upgrades that are in process or that we are currently evaluating, are adequate to meet our reasonably foreseeable requirements for at least the next two years. We continually evaluate our expected future facilities requirements. TECHNOLOGY DEVELOPMENT Our close involvement with our customers at the early stages of their product development positions us at the leading edge of technical innovation in the manufacturing of SMT and PTH assemblies, backplane assemblies, and printed circuit boards. We selectively seek orders that require the use of state-of-the-art materials or manufacturing techniques in order to further develop our manufacturing expertise. Current areas of manufacturing process development include reducing circuit widths and hole sizes, establishing new 7 8 standards for particle contamination and developing new manufacturing processes for the use with new materials and new surface mount connector and component designs. Recent developments in the electronics industry have necessitated improvements in the types of laminate used in the manufacture of interconnect products. New laminate materials may contain new chemical formulations to achieve better control of flow, resin systems with high glass transition temperatures, reduced surface imperfections and greatly improved dimensional stability. Future generations of interconnect products will require ultra fine lines, multilayers of much greater complexity and thickness, and extremely small holes in the 3 to 10 mil range. The materials designed to meet these requirements, such as BT epoxy, cyanate esters, polyamide quartz, and Kevlar epoxy, are beginning to appear in the marketplace. Widespread commercial use of these materials will depend upon statistical process control and improved manufacturing procedures to achieve the required yields and quality. In addition, Hadco has developed a material known as Buried Capacitance as well as various other microvia processes which are designed to provide improved electrical performance and greater interconnect densities on printed circuit boards. We have developed expertise and techniques, which we use in the manufacture of circuit boards, backpanels and subsystems. Generally, we rely on common law trade secret protection and on confidentiality agreements with our employees to protect our expertise and techniques. Although we hold several patents, we believe that patents and other intellectual property rights are not of fundamental importance to our business. SUPPLIER RELATIONSHIPS We order materials and components based on purchase orders received and accepted and seek to minimize our inventory of materials or components that are not identified for use in filling specific orders. Historically, the majority of raw materials used in Sanmina's manufacture of printed circuit boards and components used in backplane and system assemblies have been readily available. However, recent shortages of electronic components have become increasingly prevalent and have affected the ability of Sanmina and other manufacturers to complete and ship assemblies on a timely basis. Component shortages can force Sanmina to delay shipments to customers, which could harm Sanmina's results of operations for a particular fiscal period and could also expose Sanmina to contractual penalties for failure to complete deliveries as scheduled. Accordingly, component shortages could harm Sanmina's business, financial condition and results of operations. INTELLECTUAL PROPERTY Sanmina holds various United States and foreign patents directed to printed circuit boards and methods of manufacturing printed circuit boards. Although Sanmina seeks to protect certain proprietary technology and other intangible assets through patents and trademark filings, it has relatively few patents and relies primarily on trade secret protection. There can be no assurance that Sanmina will be able to protect its trade secrets or that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to Sanmina's trade secrets. The future success of Sanmina will depend on the continued development of processes and capabilities. Sanmina believes that its accumulated experience with respect to materials and process technology is also important to its operations. ENVIRONMENTAL CONTROLS Proper waste disposal is a major consideration for printed circuit board manufacturers because metals and chemicals are used in the manufacturing process. Water used in the printed circuit board manufacturing process must be treated to remove metal particles and other contaminants before it can be discharged into municipal sanitary sewer systems. In addition, although the electronics assembly process generates significantly less wastewater than printed circuit board fabrication, maintenance of environmental controls is also important in the electronics assembly process. Each of our printed circuit board and electronics assembly plants has personnel responsible for monitoring environmental compliance. 8 9 Each plant operates under effluent discharge permits issued by the appropriate governmental authority. These permits must be renewed periodically and are subject to revocation in the event of violations of environmental laws. There can be no assurance that violations will not occur in the future as a result of human error, equipment failure or other causes. In the event of a future violation of environmental laws, we could be held liable for damages and for the costs of remedial actions and could be also subject to revocation of effluent discharge permits. Any such revocation could require us to cease or limit production at one or more of our facilities, thereby having an adverse impact on our results of operations. We are also subject to environmental laws relating to the storage, use and disposal of chemicals, solid waste and other hazardous materials as well as air quality regulations. Furthermore, environmental laws could become more stringent over time, and the costs of compliance with and penalties associated with violation of more stringent laws could be substantial. In November 1997, we acquired Elexsys, which, by virtue of such acquisition, became our wholly owned subsidiary. 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. 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 will bring claims against us alleging that they have been damaged in any way by the existence of the contamination at the Irvine facility. We have 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, we could be ordered to undertake soil and/or groundwater cleanup. To date, we have not been ordered to undertake any soil or groundwater cleanup activities at the Mountain View facilities, and do not believe any such activities should be required. Test results received to date are not sufficient to enable us 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 our financial condition. However, in the event we are required to undertake additional groundwater or soil cleanup, the costs of such cleanup are likely to be substantial. We are currently unable to estimate the amount of such soil and groundwater cleanup costs because no soil or groundwater cleanup has been ordered and we cannot determine from available test results what remediation activities, if any, are likely to be required. We believe, based on the limited information currently available, that the cost of any groundwater or soil clean-up that may be required would not harm our business, financial condition and results of operations. Nevertheless, the process of remediating contaminated soil and groundwater is costly, and if we are 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 our business, financial condition and results of operations. 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 we believe 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. We do not anticipate that such costs, if any, will be material to our financial condition or results of operations. 9 10 We have been named as a potentially responsible party at several contaminated disposal sites as a result of the past disposal of hazardous waste by companies we acquired or their corporate predecessors. While liabilities for such historic disposal activities has not been material to our financial condition to date, there can be no guarantee that past disposal activities will not result in material liability to us in the future. Hadco, which we acquired in June 2000, has several facilities that have soil and/or groundwater contamination. These matters are described in greater detail under "Factors Affecting Operating Results." We believe, based on the limited information currently available, that the cost of any groundwater or soil clean-up that may be required at these facilities would not materially harm our business, financial condition and results of operations. Nevertheless, the process of remediating contaminated soil and groundwater is costly, and there can be no assurance that the costs of such activities would not harm our business, financial condition and results of operations. 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 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. 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. BACKLOG Our backlog was approximately $2.6 billion at September 30, 2000 and approximately $688 million at October 2, 1999. Backlog consists of purchase orders we received, including, in certain instances, forecast requirements released for production under customer contracts. Cancellation and postponement charges generally vary depending upon the time of cancellation or postponement, and a certain portion of our backlog may be subject to cancellation or postponement without significant penalty. Typically, a substantial portion of our backlog is scheduled for delivery within the next six months. 10 11 COMPETITION Significant competitive factors in the market for advanced backplane assemblies and printed circuit boards include product quality, responsiveness to customers, manufacturing and engineering skills, and price. We believe that competition in the market sectors we serve is based more on product quality and responsive customer service and support than on price, in part because the cost of interconnect products we manufacture is usually low relative to the total cost of the equipment for which they are components, and in part because of the greater importance of product reliability and prompt delivery to our customers. We believe that our primary competitive strengths are our ability to provide an end to end total EMS solution which includes responsive, flexible, short lead-time manufacturing services, our engineering and manufacturing expertise and our customer service support. We face intense competition from a number of established competitors in our various product markets. Certain of our competitors have greater financial and manufacturing resources than we do, including significantly greater surface mount assembly capacity. During periods of recession in the electronic industry, our 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 product manufacturers may seek orders in the open market to fill excess capacity, thereby increasing price competition. Although we generally do not pursue high-volume, highly price sensitive interconnect product business, we may be at a competitive disadvantage with respect to price when compared to manufacturers with lower cost structures, particularly those manufacturers with more extensive offshore facilities where labor and other costs are lower. EMPLOYEES As of September 2000, we had approximately 24,000 full-time employees, including approximately 23,500 in manufacturing and engineering, approximately 250 in marketing and sales and approximately 250 in general administration and finance. None of our U.S. employees are represented by a labor union and we have never experienced a work stoppage or strike. We believe our relationship with our employees is good. ITEM 2. PROPERTIES Our principal facilities comprise an aggregate of approximately 5.6 million square feet. Except for our 72,000 square foot Manchester, New Hampshire facility, the 160,000 square foot facility occupied by Sanmina Cable Systems in Carrollton, Texas, a 70,000 square foot facility located in Nashua, New Hampshire, a 200,000 square foot facility located in Wilmington, Massachusetts, a 104,000 square foot facility located in Woburn, Massachusetts, a 44,200 square foot facility located in Irvine, California, a 197,600 square foot facility located in Kenosha, Wisconsin, a 105,000 square foot facility located in Guntersville, Alabama, a 52,000 square foot facility located in Dublin, Ireland, a 282,000 square foot facility in Owego, New York, a 139,000 square foot facility in Phoenix, Arizona, a 210,000 square foot facility in Derry, New Hampshire, a 32,000 square foot facility in Hudson, New Hampshire, a 50,000 square foot facility in Mountain View, California, a 180,000 square foot facility in Kuching, Malaysia, a 411,000 square foot facility in Shenzhen, Peoples' Republic of China and a 87,000 square foot facility in Clinton, North Carolina, all of the facilities are leased, and the leases for these facilities expire between 2000 and 2009. The leases generally may be extended at our option. We have 17 principal facilities located in the greater San Jose, California area, with other facilities located in Southern California, Plano, Texas, Richardson, Texas, San Antonio, Texas, Manchester, New Hampshire, Derry, New Hampshire, Hudson, New Hampshire, the greater Boston, Massachusetts area, Guntersville, Alabama, Durham, North Carolina, Clinton, North Carolina, Salt Lake City, Utah, Kenosha, Wisconsin, Wilmington and Woburn, Massachusetts, the greater Chicago area, Calgary, Canada, Toronto, Canada, Dublin, Ireland, Kuching, Malaysia, Shenzhen, Peoples' Republic of China, Neuva Rosita, Cachuila, Mexico, Chateaudun, France, Ornskoldsvik, Sweden, Sundsvall, Sweden, Tikkaklaski, Finland and Aanekiski, Finland. In November 1998, we entered into a lease with an option to purchase a 330,000 square foot campus facility located in San Jose, California. The facility consists of four buildings on a single site. We consolidated 11 12 our corporate headquarters and some of our San Jose area assembly operations at this facility. As of July 2, 2000, these buildings were fully occupied. We believe that our existing facilities, together with facilities expansions and upgrades that are in process or that we are currently evaluating, are adequate to meet our reasonably foreseeable requirements for at least the next two years. We continually evaluate our expected future facilities requirements. ITEM 3. LEGAL PROCEEDINGS Sanmina and certain of its subsidiaries, namely Hadco, Elexsys and Altron, are involved in various administrative proceedings related to environmental matters. These matters are described in greater detail under "Factors Affecting Operating Results." Although Sanmina could incur significant costs relating to these matters, Sanmina believes, on the limited information currently available, that the cost of any remediation that may be required at these facilities would not materially harm our business, financial condition or results of operations. 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. Sanmina is not currently a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 12 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The information required by this item is incorporated by reference to pages 26 and 27 of the Registrant's 2000 annual report to stockholders under the caption "quarterly results." ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference to page 20 of the Registrant's 2000 annual report to stockholders under the caption "Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference to pages 21 through 32 of the Registrant's 2000 annual report to stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference to pages 34 through 51 of the Registrant's 2000 annual report to stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 13 14 PART III Certain information required by Part III is omitted from this Report on Form 10-K in that the Registrant will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A with respect to the 2001 Annual Meeting of Stockholders (the "Proxy Statement") to be held on January 29, 2001 and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item relating to directors is incorporated by reference to the information under the caption "Proposal No. 1 -- Election of Directors" in the Proxy Statement. DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of Sanmina, and certain information about them as of December 2000, are as follows:
NAME AGE POSITION ---- --- -------- Jure Sola............................. 49 Chairman, Chief Executive Officer and Director(1) Randy W. Furr......................... 46 President, Chief Operating Officer and Director Rick R. Ackel......................... 47 Executive Vice President and Chief Financial Officer Michael J. Landy...................... 46 President of European Operations John Bolger........................... 54 Director(2) Neil Bonke............................ 59 Director(1)(2)(3) Mario Rosati.......................... 54 Director Joseph Schell......................... 54 Director(2) Bernard Vonderschmitt................. 77 Director(1)(3)
- --------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee (3) Member of the Officer Stock Committee Mr. Sola co-founded Sanmina in 1980 and initially held the position of Vice President of Sales and Marketing and was responsible for the development and growth of Sanmina's sales organization. He became Vice President and General Manager in October 1987 with responsibility for all manufacturing operations as well as sales and marketing. Mr. Sola was elected President in October 1989 and has served as Chairman of the Board and Chief Executive Officer since April 1991. Mr. Sola relinquished the title of President when Mr. Furr was appointed to such position in March 1996. Mr. Furr joined Sanmina as Vice President and Chief Financial Officer in August 1992. In March 1996, Mr. Furr was appointed President and Chief Operating Officer. In December 1999, Mr. Furr was appointed to Sanmina's board of directors. From April to August 1992, Mr. Furr was Vice President and Chief Financial Officer of Aquarius Systems Inc. North America ("ASINA"), a manufacturer of personal computers. Prior to working at ASINA, he held numerous positions in both financial and general management for General Signal Corporation during a 13 year period, serving most recently as Vice President and General Manager of General Signal Thinfilm Company. Mr. Furr is a Certified Public Accountant. Mr. Ackel became Chief Financial Officer and Executive Vice President at Sanmina on June 29, 2000. Mr. Ackel joined Sanmina after 25 years of experience with Arthur Andersen LLP. As a partner for Arthur Andersen LLP, Mr. Ackel worked with a number of high technology and manufacturing clients. He has a Bachelor of Science Degree from California State University at Hayward, is a Certified Public Accountant and a member of the California State Society of CPA's and the AICPA. Mr. Landy was promoted to President of European Operations in March 2000. He was formerly Executive Vice President of Sales and Marketing at Sanmina in October 1997 until his European assignment. He was named an Executive Officer of Sanmina in October 1998. He joined Sanmina in August 1993 as 14 15 General Manager of Sanmina's Richardson, Texas operations and in 1995 was promoted to Vice President Assembly Operations for the Central Region of the United States. Prior to his employment with Sanmina, Mr. Landy held a number of senior management positions in the operations and quality departments with a North American telecommunications corporation. Mr. Bolger has been a director of Sanmina since 1994. He is a retired Vice President of Finance and Administration of Cisco Systems, Inc., a manufacturer of computer networking systems. Mr. Bolger is currently an independent business consultant and serves as a director of Wind River Systems, Inc., TCSI, Inc., JNI Corporation, Integrated Device Technology, Inc. and Mission West Properties, Inc. Mr. Bonke has been a director of Sanmina since 1995. He also serves on the Board of Directors of Electroglas, Inc., Boxer Cross Inc. and SpeedFam International, all semiconductor equipment companies. He is also on the board for San Jose State University Foundation. Mr. Bonke previously served as the Chairman of the Board and Chief Executive Officer of Electroglas, Inc. from April 1993 to April 1996. Mr. Rosati has been a director of Sanmina since 1997. He has been a member of the law firm Wilson Sonsini Goodrich & Rosati, Professional Corporation since 1971. Mr. Rosati is a director of Aehr Test Systems, a manufacturer of computer hardware testing systems, Genus, Inc., a semiconductor equipment manufacturer, Ross Systems, Inc., a software company, Vivus, Inc., a pharmaceutical company, MyPoints.com, Inc., a web and email-based direct marketing company, Symyx Technologies, Inc., a combinatorial materials science company and The Management Network Group, Inc., a management consulting firm focused on the telecommunications industry, all publicly-held companies. He is also a director of several privately-held companies. Mr. Schell was appointed to the board of directors in December 1999. He is currently Chairman of Global Technology Investment Banking of Merrill Lynch & Co. in Palo Alto, California. From 1985 to 1999, he served as Senior Managing Director at Montgomery Securities. Mr. Schell also serves on the board of directors of Dycom Industries, Inc. and the Good Guys, Inc., both publicly traded companies. Mr. Vonderschmitt has been a director of Sanmina since October 1990. He co-founded Xilinx, Inc., a manufacturer of field programmable gate array semiconductor products and related system software, served as its Chief Executive Officer and as a director from its inception in February 1984 through February 1996, and has served as the Chairman of its Board of Directors since February, 1996. He is also a director of Credence Systems Corporation, a publicly held company. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information under the caption "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the information under the caption "Record Date and Stock Ownership" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the information under the caption "Certain Transactions" in the Proxy Statement. 15 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. FINANCIAL STATEMENTS The following Financial Statements of Sanmina Corporation and Report of Independent Public Accountants are incorporated by reference to pages 34 through 52 of the Registrant's 2000 annual report to stockholders: Report of Independent Public Accountants Consolidated Balance Sheets, As of September 30, 2000 and October 2, 1999 Consolidated Statements of Operations, Years Ended September 30, 2000, October 2, 1999 and September 30, 1998 Consolidated Statements of Comprehensive Income, Years Ended September 30, 2000, October 2, 1999 and September 30, 1998 Consolidated Statements of Stockholders' Equity, Years Ended September 30, 2000, October 2, 1999 and September 30, 1998 Consolidated Statements of Cash Flows, Years Ended September 30, 2000, October 2, 1999 and September 30, 1998 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULE The following financial statement schedule of Sanmina Corporation is filed as part of this report on Form 10-K and should be read in conjunction with the Financial Statements of Sanmina Corporation incorporated by reference herein: Schedule II -- Valuation and Qualifying Accounts Report of Independent Public Accountants on Schedule All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto. 3. EXHIBITS (a) Refer to (c) below. (b) Reports on Form 8-K On July 7, 2000, Sanmina Corporation filed a report on Form 8-K relating to the merger with Hadco. On September 5, 2000, Sanmina Corporation filed a report on Form 8-K relating to the restatement for the mergers with Hadco and Essex. On September 15, 2000, Sanmina Corporation filed a report on Form 8-K relating to the offering of zero coupon convertible subordinated notes. 16 17 (c) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Incorporation(14). 3.2 Bylaws(15). 10.2(4) Amended 1990 Incentive Stock Plan. 10.3(1) 1993 Employee Stock Purchase Plan. 10.9(k)(2) Amended and Restated Credit Agreement dated as of August 18, 1993 among Sanmina Corporation, Chemical Bank and other lenders. 10.9(k)(5) Amendment dated July 27, 1995 to Amended and Restated Credit Agreement dated August 18, 1993. 10.9(1)(2) Revolving Credit Note, $12,000,000.00, Chemical Bank. 10.10(1) Lease for premises at 2109 O'Toole Avenue, Suites A - E, San Jose, California (Portion of Plant I). 10.11(1) Lease for premises at 2101 O'Toole Avenue, San Jose, California (Portion of Plant I). 10.12(1) Lease for premises at 2539 Scott Boulevard, Santa Clara, California (Plant III). 10.14(1) Lease for premises at 2060-2068 Bering Drive, San Jose, California (Plant II). 10.15(1) Lease for premises at 4220 Business Center Drive, Fremont, California (Plant V). 10.16(1) Lease for premises at McCarthy Boulevard, Milpitas, California (Plant VI). 10.17(1) Lease for premises at 2121 O'Toole Avenue, San Jose, California (Corporate Headquarters). 10.19(2) Lease for premises at 1250 American Parkway, Richards, Texas (Plant VII). 10.20(2) Lease for premises at 6453 Kaiser Drive, Fremont, California (Plant VIII). 10.21(3) Asset Purchase Agreement dated September 28, 1994 between Registrant and Comptronix Corporation. 10.22(4) Lease for premises at 355 East Trimble Road, San Jose, California. 10.23(5) Stock Purchase Agreement dated May 31, 1995 between Sanmina Corporation, Assembly Solutions, Inc. and the principal stockholders of Assembly Solutions, Inc. 10.24(6) Indenture dated August 15, 1995 between Registrant and Norwest Bank Minnesota, N.A. as Trustee. 10.25(7) Asset Purchase Agreement dated September 20, 1996 between Registrant and Comptronix Corporation. 10.26(9) Agreement and Plan of Merger dated July 22, 1997 among Registrant, SANM Acquisition Subsidiary, Inc. and Elexsys International, Inc. 10.26(10) Agreement and Plan of Merger dated September 2, 1998 among Registrant, SANM Acquisition Subsidiary, Inc. and Altron, Inc. 10.27(11) Synthetic lease agreement. 10.28(12) Agreement and Plan of Merger dated March 30, 1999 among Registrant, SANM Acquisition Subsidiary, Inc. and Manu-Tronics, Inc. 10.29(13) 1999 Stock Plan and form of agreement thereunder. 10.30(16) Agreement and Plan of Merger dated as of April 17, 2000 Among the Registrant, Hadco Corporation and SANM Acquisition Subsidiary, Inc., as amended.
17 18
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.31(17) Indenture dated September 13, 2000 between Registrant and Wells Fargo Bank, National Association as Trustee. 13 Annual Report. 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP, independent public accountants. 27 Financial Data Schedule.
- --------------- (1) Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Registration Statement on Form S-1, No. 33-70700 filed with the Securities and Exchange Commission ("SEC") on February 19, 1993. (2) Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Registration Statement on Form S-1 No. 33-70700 filed with the SEC on October 22, 1993. (3) Incorporated by reference to Exhibit No. 2 previously filed with Registrant's Report on Form 8-K filed with the SEC on October 28, 1994. (4) Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Report on Form 10-K filed with the SEC on December 29, 1994. (5) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form 10-Q filed with the SEC on July 31, 1995. (6) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form 10-K for the fiscal year ended September 30, 1995. (7) Incorporated by reference to Exhibit 2 previously filed with the Registrant's Report on Form 8-K filed with the SEC on November 15, 1996. (8) Incorporated by reference to the like numbered exhibit previously filed with Registrant's Report on Form 10-K for the fiscal year ended September 30, 1997. (9) Incorporated by reference to Exhibit 2.1 previously filed with Registrant's Report on Form 8-K filed with the SEC on November 21, 1997. (10) Incorporated by reference to Exhibit 2.1 previously filed with Registrant's Report on Form 8-K filed with the SEC on September 4, 1998. (11) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form 10-K for the fiscal year ended September 30, 1998. (12) Incorporated by reference to Exhibit 2.1 previously filed with Registrant's Report on Form 8-K filed with the SEC on April 29, 1999. (13) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form S-8 filed with the SEC on May 25, 1999. (14) Incorporated by reference to Exhibit 3.2 previously filed with the Registrant's Report on Form 10-K for the fiscal year ended September 30, 1998. (15) Incorporated by reference to Exhibit 3.3 previously filed with the Registrant's Registration Statement on Form S-1, No. 33-70700 filed with the Securities and Exchange Commission on February 19, 1993. (16) Incorporated by reference to Exhibit 2.1 previously filed with Registrant's Registration Statement on Form S-4, No. 333-37526 filed with the SEC on May 22, 2000. (17) Incorporated by reference to Exhibit 4.1 previously filed with Registrant's Registration Statement on Form S-3, No. 333-50282 filed with the SEC on November 20, 2000. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: December 14, 2000 SANMINA CORPORATION (Registrant) By /s/ RANDY W. FURR ------------------------------------ Randy W. Furr President and Chief Operating Officer By /s/ RICK R. ACKEL ------------------------------------ Rick R. Ackel Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JURE SOLA Chairman, Chief Executive December 14, 2000 - ----------------------------------------------------- Officer and Director Jure Sola (Principal Executive Officer) /s/ RANDY W. FURR President, Chief Operating December 14, 2000 - ----------------------------------------------------- Officer and Director Randy W. Furr /s/ RICK R. ACKEL Executive Vice President and December 14, 2000 - ----------------------------------------------------- Chief Financial Officer Rick R. Ackel (Principal Financial and Accounting Officer) /s/ NEIL BONKE Director December 14, 2000 - ----------------------------------------------------- Neil Bonke /s/ JOHN BOLGER Director December 14, 2000 - ----------------------------------------------------- John Bolger /s/ MARIO M. ROSATI Director December 14, 2000 - ----------------------------------------------------- Mario M. Rosati /s/ JOSEPH M. SCHELL Director December 14, 2000 - ----------------------------------------------------- Joseph M. Schell /s/ BERNARD VONDERSCHMITT Director December 14, 2000 - ----------------------------------------------------- Bernard Vonderschmitt
19 20 FINANCIAL STATEMENT SCHEDULE The financial statement Schedule II -- VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Form 10-K. SANMINA CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF PERIOD EXPENSES DEDUCTIONS PERIOD ------------ ---------- ---------- ---------- Allowance for Doubtful Accounts Fiscal year ended September 30, 1998...... $ 6,445 $ 2,822 $ 1,344 $ 7,923 Fiscal year ended October 2, 1999......... 7,923 5,388 2,371 10,940 Fiscal year ended September 30, 2000...... 10,940 20,595 3,703 27,832 Plant closing, Relocation, Merger and Restructuring Reserve Fiscal year ended September 30, 1998...... $ -- $ 8,481 $ 7,025 $ 1,456 Fiscal year ended October 2, 1999......... 1,456 22,354 18,322 5,488 Fiscal year ended September 30, 2000...... 5,488 47,201 35,767 16,922
S-1 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To the Board of Directors and Stockholders of Sanmina Corporation: We have audited, in accordance with generally accepted auditing standards, the financial statements included in Sanmina Corporation's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated October 20, 2000. Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. The schedule at Item 14(a)2 is the responsibility of Sanmina's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP San Jose, California October 20, 2000 S-2 22 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 13 Annual Report 21 Subsidiaries of the Registrant 23 Consent of Arthur Andersen LLP, Independent Public Accountants 27 Financial Data Schedule
EX-13 2 f67787ex13.txt EXHIBIT 13 1 EXHIBIT 13 (a) Exhibits
DESCRIPTION PAGE - ----------- ---- 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
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 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:
FISCAL YEAR ENDED ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (in thousands, except per share data) 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
CONSOLIDATED BALANCE SHEET DATA:
AS OF YEAR ENDED ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (in thousands) 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
20 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 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.
YEAR ENDED ---------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------ --------- ------------- 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% ===== ===== =====
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 5 REVENUES
(in thousands of dollars) 98 1,941,454 99 2,393,983 00 3,911,559
OPERATING INCOME
(in thousands of dollars) 98 109,021 99 211,113 00 331,328
SELLING AND GENERAL ADMINISTRATIVE EXPENSES
(in a percentage of net sales) 98 7.27% 99 6.53% 00 5.60%
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 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 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 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
YEAR ENDED ------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 THEREAFTER TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- (in thousands): 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%
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 9
FIRST SECOND THIRD FOURTH 2000 QUARTER QUARTER QUARTER QUARTER - ---- ------------- ------------- ------------- ------------- (in thousands, except percentages and per share amounts) 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
FIRST SECOND THIRD FOURTH 1999 QUARTER QUARTER QUARTER QUARTER - ---- ------------- ------------- ------------- ------------- (in thousands, except percentages and per share amounts) 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
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 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 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 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 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 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 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 16 SANMINA CORPORATION CONSOLIDATED BALANCE SHEETS
AS OF ------------------------------ SEPTEMBER 30, OCTOBER 2, 2000 1999 ----------- ----------- (in thousands) 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 =========== ===========
See accompanying notes 34 17 SANMINA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED ----------------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ----------- ----------- ----------- (in thousands, except per share amounts) 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
See accompanying notes CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED --------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------ --------- ------------ (in thousands) 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 ========= ========= =========
See accompanying notes 35 18 SANMINA CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK AND ADDITIONAL ACCUMULATED PAID-IN-CAPITAL OTHER ------------------------- COMPREHENSIVE NUMBER INCOME DEFERRED RETAINED OF SHARES AMOUNT (LOSS) COMPENSATION EARNINGS TOTAL ----------- ----------- ----------- ------------ ----------- ----------- (in thousands) 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 =========== =========== =========== =========== =========== ===========
See accompanying notes 36 19 SANMINA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ------------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ----------- ----------- ----------- (in thousands) 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 =========== =========== ===========
See accompanying notes 37 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 21
AS OF SEPTEMBER 30, 2000 ----------------------------------------------------------- AMORTIZED AGGREGATE UNREALIZED UNREALIZED COST FAIR VALUE GAIN LOSS ---------- ---------- ---------- ---------- (in thousands) 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) ========== ========== ==== =====
AS OF OCTOBER 2, 1999 ----------------------------------------------------- AMORTIZED AGGREGATE UNREALIZED UNREALIZED COST FAIR VALUE GAIN LOSS --------- ---------- ---------- ---------- (in thousands) 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) ======== ======== ==== =====
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:
AS OF ---------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------- ---------- (in thousands) Raw materials $343,734 $175,249 Work-in-process 145,483 85,505 Finished goods 82,885 38,507 -------- -------- $572,102 $299,261 ======== ========
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:
AS OF ------------------------------ SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------ ------------ (in thousands) 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 =========== ===========
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 22 SANMINA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill and intangibles are as follows:
AS OF ----------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------- ---------- (in thousands) 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 ========= =========
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 23
YEAR ENDED ----------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------- ---------- ------------- (in thousands, except per share amounts) 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 ======== ======== ========
NOTE 4. LONG-TERM DEBT Long-term debt consists of the following:
AS OF -------------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------- ---------- (in thousands) 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 =========== =========
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 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.
FISCAL YEARS ENDING - ------------------- (in thousands) 2001 $ 11,728 2002 1,130 2003 5,148 2004 358,151 2005 308 Thereafter 779,205 ---------- Total $1,155,670 ==========
NOTE 5. OTHER NON-CURRENT LIABILITIES Other non-current liabilities consist of the following:
AS OF --------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------- ---------- (in thousands) Environmental reserves (Note 7) $13,342 $9,229 Other 6,475 -- ------- ------ Total non-current liabilities $19,817 $9,229 ======= ======
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:
FISCAL YEARS ENDING - ------------------- (in thousands) 2001 $ 23,482 2002 21,702 2003 19,867 2004 14,432 2005 8,041 Thereafter 17,944 -------- Future minimum lease payments $105,468 ========
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 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 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 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:
(in thousands) 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 =========
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:
(in thousands, except per share amounts) Revenue $1,994,817 Net income 88,827 Diluted net income per share $ 0.70 Shares used in calculating per share amounts 126,704
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:
(in thousands, except per share amounts) Revenue $1,968,450 Net income 30,643 Diluted net income per share $ 0.24 Shares used in calculating per share amounts 126,704
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 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:
YEAR ENDED ----------------------------- OCTOBER 2, SEPTEMBER, 30 1999 1998 ---------- ------------- (in thousands, except per share amounts) 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
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:
YEAR ENDED --------------------------------- OCTOBER 2, SEPTEMBER 30, 1999 1998 ----------- -------------- (in thousands) 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 =========== ===========
46 29
YEAR ENDED ------------------------------ OCTOBER 2, SEPTEMBER 30, 1999 1998 ---------- ------------- (in thousands) 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 ======== ========
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:
YEAR ENDED ---------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------- ---------- ------------- 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 ======= ======= ======
47 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 31
OPTIONS OUTSTANDING ---------------------------------- WEIGHTED AVERAGE SHARES EXERCISE PRICE ----------- ---------------- 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 =========== ======
The following table summarizes information regarding stock options outstanding under the Sanmina option plans at September 30, 2000:
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 - ----------------- ----------- ---------------- -------------- --------------- --------------- $ 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 ========== =========
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:
Convertible subordinated debt 13,383,668 Stock option plans 7,907,897 Employee stock purchase plan 755,797 ---------- 22,047,362 ==========
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:
YEAR ENDED ----------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------- ---------- ------------- (in thousands, except per share data) 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
49 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.
YEAR ENDED ----------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------- -------------- -------------- 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
NOTE 12. INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED ------------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------- ------------ ------------- (in thousands) 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 ========= ======== ========
The components of the deferred income tax assets and liabilities are as follows:
AS OF ----------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------- ---------- (in thousands) 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) ======== ========
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:
YEAR ENDED ---------------------------------- 2000 1999 1998 ------ ------ ------ 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% ====== ====== ======
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 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:
YEAR ENDED ---------------------------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 2000 1999 1998 ------------- ---------- ------------- (in thousands) 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 ========== ========== ===========
AS OF ------------------------------------ 2000 1999 1998 -------- -------- -------- (in thousands) 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 ======== ======== ========
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 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 EX-21 3 f67787ex21.txt EXHIBIT 21 1 EXHIBIT 21 LIST OF SUBSIDIARIES
SUBSIDIARY JURISDICTION OF INCORPORATION - ---------- ----------------------------- Sanmina Texas LP Texas Elexsys International Delaware Neutronic Stampings, Inc.(4) California Symtron Corporation(4) California Symtron Systems, Inc.(4) California Symtron Services, Inc.(4) California Anetec Technology, Inc.(4) California Pritec Corporation(4) California Elxi Acquisition, Inc.(4) Delaware Sanmina International (UK) Ltd.(4) United Kingdom Altron Corporation Massachusetts Altron Systems Corporation(3) California Altron Securities Corporation(3) Massachusetts TEL-O Electronics, Inc. California Manu-Tronics, Inc. Wisconsin Skytruck Inc. Aero Precision California Randcor International Inc. California Accurate Metal & Framing California Sanmina B.V. Netherlands Sanmina Ireland Ltd.(2) Ireland Sanmina Canada Holdings, Inc. Delaware Sanmina Canada ULC(1) Canada Sanmina Enclosure Systems Inc.(1) Canada Sanmina Enclosure Systems (USA) Inc.(12) North Carolina Sanmina SAS France Sanmina Foreign Sales Corporation Barbados Sanmina International AG Switzerland Interworks Computer Products California Hadco Corporation Massachusetts Hadco Santa Clara(5) Delaware Hadco Malaysia(6) Malaysia Hadco Phoenix Inc.(5) Delaware CCIR of Texas(7) Delaware CCIR of California(7) California CCIR International Inc.(7) Barbados Hadco Foreign Sales Corporation(5) US Virgin Island Hadco Ireland Limited(5) Ireland Hadco Scotland Limited(5) Scotland Sanmina (B.V.I.) Limited British Virgin Island Sanmina (H.K.) Limited(8) Hong Kong Sanmina (China) Limited(8) Hong Kong Sanmina Asia Limited(8) Hong Kong Ocean Manufacturing (Shenzhen)Co., Ltd.(9) China Sanmina (Taiwan) Limited(10) Hong Kong Sanmina Holding Company Sweden Sanmina AB(11) Sweden Sanmina Medical AB(11) Sweden Sanmina OY(11) Finland
(1) A subsidiary of Sanmina Canada Holdings Inc. (2) A subsidiary of Sanmina B.V. (3) A subsidiary of Altron Incorporated. (4) A subsidiary of Elexsys International Inc. (5) A subsidiary of Hadco Corporation (6) A subsidiary of Hadco Santa Clara (7) A subsidiary of Hadco Phoenix Inc. (8) A subsidiary of Sanmina (B.V.I.) Limited (9) A subsidiary of Sanmina (China) Limited (10) A subsidiary of Sanmina Asia Limited (11) A subsidiary of Sanmina Holding Company (12) A subsidiary of Sanmina Enclosure Systems, Inc. EX-23 4 f67787ex23.txt EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated October 20, 2000 included in this Form 10-K, into Sanmina's previously filed Registration Statements on Form S-8 File Nos. 333-39930, 333-23565, 33-66554, and 33-90244. /s/ ARTHUR ANDERSEN LLP San Jose, California December 14, 2000 EX-27 5 f67787ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-2000 OCT-03-1999 SEP-30-2000 992,842 265,308 644,236 27,832 572,102 2,585,265 655,942 (751,157) 3,639,470 712,495 1,143,942 0 0 1,522 1,699,960 3,639,470 3,911,559 3,911,559 3,283,833 3,283,833 296,398 20,595 (1,089) 330,239 132,946 197,293 0 4,959 0 192,334 1.31 1.24
-----END PRIVACY-ENHANCED MESSAGE-----