| Restatement of Condensed Consolidated Financial Statements | Note 1. Restatement of Condensed Consolidated Financial Statements Sanmina Corporation (the “Company”) identified misstatements in the unaudited condensed consolidated financial statements for the comparative periods of 2022 in conjunction with an independent investigation conducted by the Audit Committee of the Board of Directors, as further disclosed in the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 11, 2023. The comparative periods have been amended and restated to correct for such misstatements. More detailed information related to the amendment and restatement is contained in Amendment No. 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2022 and Amendment No. 1 to the Company’s Form 10-Q for the quarter ended December 31, 2022 as filed with the Securities and Exchange Commission on May 19, 2023. During the preparation of its unaudited consolidated financial statements for the fiscal quarter ended April 1, 2023, the Company determined that certain personnel in one of its divisions had failed to properly substantiate and update cost estimates for materials and other costs over the life of certain contracts. As a result, the Company conducted an independent investigation (the “Investigation”) under the direction of the Audit Committee of the Company’s Board of Directors (the “Audit Committee”). The division, like other Company divisions, has a stand-alone finance organization, which reports directly to the Company finance organization and indirectly to the management of the division. References in the findings below refer solely to this division unless otherwise noted. The Investigation found that: ● In connection with the preparation and review of quarterly contract cost and other estimates, an internal control in the Company’s accounting process for the division’s contracts with customers, certain division personnel made inappropriate and unsupported adjustments to reduce certain cost estimates and failed to appropriately evaluate and increase other cost estimates to reflect cost overruns and other costs associated with delays in completing certain contracts. ● The division had a culture that did not recognize or emphasize the importance of rigor in the division’s quarterly contract estimate review process or its significance to the Company’s internal control over financial reporting and accounting and financial reporting determinations with respect to the division’s contracts with customers. Instead, the division’s tone at the top and other control weaknesses enabled participants in the quarterly contract estimate review process to tolerate, place undue reliance on or otherwise fail to challenge unsupported adjustments and assumptions to contract cost estimates that had been made based on unsubstantiated optimism and/or a desire to avoid adverse outcomes. ● The division had an ineffective finance function that did not provide sufficient oversight on financial accounting and reporting matters or effectively challenge adjustments or other improper practices in the quarterly contract estimate review process. ● Certain division personnel lacked sufficient understanding of the division’s policies and procedures for the quarterly contract estimate review process as well as the relevant cost and contract accounting practices and requirements. ● Certain division personnel provided materially inaccurate and incomplete information to, including in response to inquiries from, Company management and the Company’s internal and independent auditors concerning contract cost estimates and related items. The “Previously Reported” amounts in the following tables are amounts derived from the Form 10-Q for the period ended April 2, 2022. The amounts in columns labeled “Investigation Adjustments” represent the effect of adjustments resulting from an independent investigation conducted by the Audit Committee of the Board of Directors and the amounts in columns labeled “Other Adjustments” represent the effect of uncorrected misstatements in previously filed financial statements that were not material, individually or in the aggregate, to those previously filed financial statements. The effects of the restatement, including the related income tax effects, have been corrected in all impacted tables and footnotes throughout these condensed consolidated financial statements. The only impact to the Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Stockholders’ Equity was to net income. Investigation Adjustments correct misstatements that resulted primarily from 1) increases to estimated costs at completion of a contract that previously did not properly reflect estimated costs remaining to be incurred to complete a contract, 2) reductions in the amount of transaction consideration expected to be received under a contract, and 3) segmentation of contracts that had previously been combined. The adjustments primarily affected net sales, cost of sales, contract assets and inventory. Other Adjustments primarily correct balance sheet misstatements related to inventory cut-off and advance payments from customers. The following table presents the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Statements of Income for the three and six months ended April 2, 2022. Three Months Ended Six Months Ended April 2, 2022 April 2, 2022 (Unaudited) (Unaudited) Previously Investigation Other Previously Investigation Other Reported Adjustments Adjustments As Restated Reported Adjustments Adjustments As Restated (In thousands, except per share data) Net sales $ 1,911,530 $ 3,540 $ — $ 1,915,070 $ 3,668,855 $ 2,541 $ — $ 3,671,396 Cost of sales 1,759,083 9,492 — 1,768,575 3,371,919 11,685 — 3,383,604 Gross profit 152,447 (5,952) — 146,495 296,936 (9,144) — 287,792 Operating expenses: Selling, general and administrative 61,817 — — 61,817 123,292 — — 123,292 Research and development 5,472 — — 5,472 10,249 — — 10,249 Restructuring and other 2,932 — — 2,932 4,346 — — 4,346 Gain on sale of long-lived assets — — — — (4,610) — — (4,610) Total operating expenses 70,221 — — 70,221 133,277 — — 133,277 Operating income 82,226 (5,952) — 76,274 163,659 (9,144) — 154,515 Interest income 349 — — 349 658 — — 658 Interest expense (4,870) — — (4,870) (9,747) — — (9,747) Other income (expense), net (1,408) — — (1,408) 664 — — 664 Interest and other, net (5,929) — — (5,929) (8,425) — — (8,425) Income before income taxes 76,297 (5,952) — 70,345 155,234 (9,144) — 146,090 Provision for income taxes 23,077 (1,353) — 21,724 43,380 (2,088) — 41,292 Net Income $ 53,220 $ (4,599) — $ 48,621 $ 111,854 $ (7,056) $ — $ 104,798 Net income per share: Basic $ 0.85 $ (0.08) $ — $ 0.77 $ 1.76 $ (0.11) $ — $ 1.65 Diluted $ 0.83 $ (0.07) $ — $ 0.76 $ 1.71 $ (0.11) $ — $ 1.60 Weighted average shares used in computing per share amounts: Basic 62,845 — — 62,845 63,622 — — 63,622 Diluted 64,271 — — 64,271 65,365 — — 65,365 The following table presents the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Balance Sheet as of October 1, 2022. As of October 1, 2022 (Unaudited) Previously Investigation Other Reported Adjustments Adjustments As Restated (In thousands) ASSETS Current assets: Cash and cash equivalents $ 529,857 $ — $ — $ 529,857 Accounts receivable, net of allowances 1,138,894 — — 1,138,894 Contract assets 503,674 (27,953) — 475,721 Inventories 1,691,081 (21,705) 14,723 1,684,099 Prepaid expenses and other current assets 62,044 — — 62,044 Total current assets 3,925,550 (49,658) 14,723 3,890,615 Property, plant and equipment, net 575,170 — — 575,170 Deferred tax assets 198,588 10,966 — 209,554 Other 160,192 — — 160,192 Total assets $ 4,859,500 $ (38,692) $ 14,723 $ 4,835,531 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,029,534 $ — $ 11,900 $ 2,041,434 Accrued liabilities 275,735 1,441 4,423 281,599 Accrued payroll and related benefits 130,892 — — 130,892 Short-term debt, including current portion of long-term debt 17,500 — — 17,500 Total current liabilities 2,453,661 1,441 16,323 2,471,425 Long-term liabilities: Long-term debt 329,237 — — 329,237 Other 215,333 — — 215,333 Total long-term liabilities 544,570 — — 544,570 Contingencies (Note 8) Stockholders’ equity 1,861,269 (40,133) (1,600) 1,819,536 Total liabilities and stockholders’ equity $ 4,859,500 $ (38,692) $ 14,723 $ 4,835,531 The following table presents the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Statements of Cash Flows for the six month period ended April 2, 2022. There were no adjustments to cash flows provided by (used in) investing or financing activities for the six month period ended April 2, 2022. Six Months Ended April 2, 2022 (Unaudited) Previously Investigation Other Reported Adjustments Adjustments As Restated (In thousands) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income before noncontrolling interest $ 111,854 $ (7,056) $ — $ 104,798 Adjustments to reconcile net income before noncontrolling interest to cash provided by (used in) operating activities: Depreciation and amortization 55,032 — — 55,032 Stock-based compensation expense 18,362 — — 18,362 Deferred income taxes 11,071 (1,898) — 9,173 Other, net (1,903) — — (1,903) Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable (79,705) — 397 (79,308) Contract assets (68,545) 4,804 (3,351) (67,092) Inventories (403,396) 4,628 (5,015) (403,783) Prepaid expenses and other assets (11,334) — — (11,334) Accounts payable 357,176 — 5,015 362,191 Accrued liabilities 158,661 (478) 2,954 161,137 Cash provided by operating activities $ 147,273 $ — $ — $ 147,273 |
