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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 28, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ___________
Commission File Number: 0-21272
Sanmina Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 77-0228183
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
355 EAST TRIMBLE ROAD, SAN JOSE, CA 95131
(Address of principal executive offices) (Zip Code)
408/435-8444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Number of shares outstanding of the issuer's common stock, $0.01 par
value, as of December 28, 1996: 16,943,308.
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SANMINA CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<S)
ITEM 1. Interim Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Interim Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
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SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS EXCEPE PER SHARE DATA
(UNAUDITED)
Three Months Ended
--------------------------------
December 28, December 30,
1996 1995
-------------- ---------------
Net sales $ 88,868 $ $52,170
Cost of sales 67,805 39,544
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Gross profit 21,063 12,626
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Operating expenses:
Selling, general and administrative 5,401 3,385
Amortization of goodwill 501 219
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Total operating expenses 5,902 3,604
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Income from operations 15,161 9,022
Interest income (expense), net (122) 151
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Income before provision for income taxes 15,039 9,173
Provision for income taxes 5,865 3,486
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NET INCOME $ 9,174 $ 5,687
============ =============
Earnings per share:
Primary $ 0.51 $ 0.33
Fully Diluted $ 0.47 $ 0.32
Shares used in computing per share amounts:
Primary 18,076 17,232
Fully Diluted 21,267 20,330
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SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
December 28, September 30,
1996 1996
-------------- --------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 35,205 $ 29,568
Short-term investments 57,606 85,374
Accounts receivable, net 49,828 30,421
Inventories 45,028 32,109
Deferred income taxes 6,852 6,852
Prepaid expenses and other 1,085 999
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Total current assets 195,604 185,323
Property, plant and equipment, net 49,905 34,868
Deposits and other 10,411 10,350
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$ 255,920 $ 230,541
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,133 $ 24,401
Accrued liabilities 12,608 10,209
Income taxes payable 6,990 5,404
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Total current liabilities 55,731 40,014
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Long-term liabilities:
Convertible subordinated notes 86,250 86,250
Other liabilities 592 592
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Total long-term liabilities 86,842 86,842
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Stockholders' equity:
Common stock 170 169
Additional paid-in capital 61,994 61,520
Unrealized gain on investments 32 19
Retained earnings 51,151 41,977
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Total stockholders' equity 113,347 103,685
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$ 255,920 $ 230,541
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See accompanying notes.
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SANMINA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
Three Months Ended
--------------------------------
December 28, December 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,174 $ 5,687
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 2,841 1,647
Loss on disposal of assets - 11
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (14,378) (1,917)
Inventories (3,076) (2,611)
Prepaid expenses, deposits and other (649) 18
Accounts payable and accrued liabilities 14,132 2,069
Income tax accounts 1,586 (1,789)
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Cash provided by operating activities 9,630 3,115
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments 27,781 5
Purchases of property and equipment (4,495) (5,149)
Purchase of certain assets of Comptronix Corporation (17,645) -
Purchase of certain assets of Lucent Technologies'
Custom Manufacturing Operations (10,109) -
------------ -------------
Cash used for investing activities (4,468) (5,144)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term liabilities - (106)
Proceeds from sale of common stock 475 201
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Cash provided by financing activities 475 95
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Increase (decrease) in cash and cash equivalents 5,637 (1,934)
Cash and cash equivalents at beginning of period 29,568 107,290
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Cash and cash equivalents at end of period $ 35,205 $ 105,356
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See accompanying notes.
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SANMINA CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules or
regulations. The interim financial statements are unaudited, but reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation.
The results of operations for the three months ended December 28, 1996
are not necessarily indicative of the results that may be expected for the
entire year ending September 30, 1997.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
September 30, 1996 included in the Company's Annual Report to Shareholders.
Note 2 - Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary in Texas. All intercompany accounts
and transactions have been eliminated.
Note 3 - Inventories
The components of inventories are as follows (in thousands):
December 28, September 30,
1996 1996
----------- -----------
Raw materials $22,988 $13,797
Work-in-process 13,062 10,986
Finished goods 8,978 7,326
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$ 45,028 $ 32,109
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Note 4 - Earnings per Share
Primary earnings per share are computed using the weighted average
number of shares of common and dilutive common stock equivalent shares from
stock options (using the treasury stock method). Fully diluted earnings per
share include the dilutive effect from the assumed conversion of the Company's
outstanding convertible subordinated notes.
Note 5 - Acquisitions
On November 1, 1996, the Company purchased the assets of Comptronix
Corporation, a contract manufacturing company based in Guntersville, Alabama,
for cash consideration of $17.6 million. The assets include Comptronix' plant
and equipment located in Guntersville, its Guaymas, Mexico operations, customer
contracts, inventories and accounts receivable. The acquisition was accounted
for as a purchase. Accordingly, the results of operations for the quarter
ended December 28, 1996 include the results of operations of this business from
the date of acquisition forward.
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The unaudited pro forma financial information for the three months
ended December 30, 1995 and December 30, 1996 are presented below and assume
the acquisition occurred as of the beginning of each of the periods presented
(in thousands):
Three Months Ended
December 28, December 30,
1996 1995
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Revenue $92,213 $74,859
Net income $7,705 $4,598
Net income per share:
Primary $.43 $.27
Fully diluted $.40 $.26
Weighted average common
shares outstanding:
Primary 18,076 17,232
Fully diluted 21,267 20,330
Also in November 1996, Sanmina entered into an agreement to purchase
substantially all of the inventory and fixed assets of the Lucent Technologies'
Custom Manufacturing Services operation in Greensboro, North Carolina. The
total purchase price of this transaction was $10.1 million and was paid in
cash. The acquisition was accounted for as a purchase. Pro forma financial
information has not been presented as the results of operations of the acquired
business are not material to the Company's consolidated financial statements.
Note 6 - 1996 Supplemental Stock Plan
Effective October 1996, the Company's board of directors reserved an
additional 50,000 shares for issuance under the 1996 Supplemental Stock Option
Plan (the "Supplemental Plan") for a total of 300,000 shares authorized. The
Supplemental Plan permits only the grant of nonstatutory options and provides
that options must have an exercise price at least equal to the fair market
value of the Company's Common Stock on the date of grant. Options under the
Supplemental Plan may be granted to employees and consultants, except that
executive officers and directors may not be granted options under the
Supplemental Plan.
At January 31 1997, 292,751 shares were subject to options granted
pursuant to the Supplemental Plan. The Company does not intend to issue
additional options under the Supplemental Plan.
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SANMINA CORPORATION
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Sanmina Corporation ("Sanmina" or the "Company") is a leading
independent provider of customized integrated electronics manufacturing
services ("EMS"), including turnkey electronic assembly and manufacturing
management services, to original equipment manufacturers ("OEM") in the
electronics industry. Sanmina's electronic manufacturing services consist
primarily of the manufacture of complex printed circuit board assemblies using
surface mount ("SMT") and pin through-hole ("PTH") interconnection
technologies, the manufacture of custom designed backplane assemblies,
fabrication of complex multi-layer printed circuit boards, and testing and
assembly of completed systems. In addition to assembly, turnkey manufacturing
management also involves procurement and materials management, as well as
consultation on printed circuit board design and manufacturability. Sanmina,
through its Golden Eagle Systems ("Golden Eagle") subsidiary, which was
acquired in January 1996, also manufactures custom cable assemblies for
electronics industry OEMs.
Sanmina's manufacturing and assembly plants are located in Northern
California, Richardson, Texas, Manchester, New Hampshire, Raleigh, North
Carolina, Guntersville, Alabama and Guaymas, Mexico. Golden Eagle's
manufacturing facility is located in Carrollton, Texas. Sanmina plans to
expand its operations internationally with the opening of an EMS facility in
Dublin, Ireland area. Sanmina expects to open this facility in the first half
of calendar 1997.
Sanmina's operating results are affected by a number of factors,
including timing of orders from major customers, mix of products ordered by and
shipped to major customers, the volume of orders as related to the Company's
capacity, ability to effectively manage inventory and fixed assets, timing of
expenditures in anticipation of future sales, economic conditions in the
electronics industry and the mix of products between backplane assemblies and
printed circuit boards. Operating results can also be significantly influenced
by development and introduction of new products by the Company's customers.
From time to time, the Company experiences changes in the volume of sales to
each of its principal customers, and operating results may be affected on a
period-to-period basis by these changes. The Company's customers generally
require short delivery cycles, and a substantial portion of the Company's
backlog is typically scheduled for delivery within 120 days. Quarterly sales
and operating results therefore depend in large part on the volume and timing
of bookings received during the quarter, which are difficult to forecast. The
Company's backlog also affects its ability to plan production and inventory
levels, which could lead to fluctuations in operating results. In addition, a
significant portion of the Company's operating expenses 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 the
Company's results of operations. Results of operations in any period should
not be considered indicative of the results to be expected for any future
period, and fluctuations in operating results may also result in fluctuations
in the price of the Company's Common Stock.
Sanmina's customers are manufacturers in the telecommunications,
networking (data communications), industrial and medical instrumentation and
computer systems segments of the electronics industry. These industry
segments, and the electronics industry as a whole, are subject to rapid
technological change and product obsolescence. Discontinuance or modification
of products containing components manufactured by the Company could adversely
affect the Company's results of operations.
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The electronics industry is also subject to economic cycles and has in the past
experienced, and is likely in the future to experience, recessionary periods.
A general recession in the electronics industry could have a material adverse
effect on Sanmina's business, financial condition and results in operations.
In addition, the Company has no firm long-term volume commitments from its
customers and over the last few years has experienced reduced lead-time in
customer orders. In addition, customer orders can be canceled and volume
levels can be changed or delayed. The timely replacement of canceled, delayed
or reduced orders with new business cannot be assured. There can be no
assurance that any of the Company's current customers will continue to use the
Company's manufacturing services. The loss of one or more of the Company's
principal customers, or reductions in sales to any of such customers, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Sanmina has pursued, and intends to continue to pursue, business
acquisition opportunities, particularly when these opportunities have the
potential to enable Sanmina to increase its net sales while maintaining
operating margin, access new geographic markets, implement Sanmina's vertical
integration strategy and/or obtain facilities and equipment on terms more
favorable than those generally available in the market. Acquisitions of
companies and businesses and expansion of operations involves certain risks,
including (i) the potential inability to successfully integrate acquired
operations and businesses or to realize anticipated synergies, economies of
scale or other value, (ii) diversion of management's attention, (iii)
difficulties in scaling up productions at new sites and coordinating management
of operations at new sites and (iv) loss of key employees of acquired
operations. No assurance can be given that the Company will not incur problems
in integrating acquired operations, and there can be no assurance that the
Company's recent acquisitions or any other future acquisition will result in a
positive contribution to the Company's results of operations. Furthermore,
there can be no assurance that the Company will realize value from any such
acquisition which equals or exceeds the consideration paid. In addition, there
can be no assurance that the Company will realize anticipated strategic and
other benefits from expansion of existing operations to new sites. Any such
problems could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, future
acquisitions by the Company 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.
This report contains forward-looking statements within the meaning of
Section 72A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's future results from operations could vary
significantly from these contemplated by such forward-looking statements as a
result of the factors described herein. The financial and other information
contained herein should be read in conjunction with the Company's annual report
to stockholders annual report on Form 10-K for the fiscal year ended September
30, 1996.
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RESULTS OF OPERATIONS
The following table sets forth, for the three months ended December
28, 1996 and December 30, 1995, certain items as a percentage of net sales.
The table and the discussion below should be read in connection with the
condensed consolidated financial statements and the notes thereto which appear
elsewhere in this report.
Three Months Ended
12/28/96 12/30/95
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Net sales 100.0% 100.0%
Cost of sales 76.3 75.8
Gross Profit 23.7 24.2
Selling, general and administrative 6.1 6.5
Amortization .5 .4
Operating income 17.1 17.3
Interest income (expense) (.2) .3
Income before income taxes 16.9 17.6
Provision for income taxes 6.6 6.7
Net income 10.3 10.9
Sales for the first quarter of fiscal 1997 ended December 28, 1996
increased by 70% to $88.9 million from $52.2 million in the corresponding
quarter of the prior year. This increase in net sales is due primarily to
increased orders from existing customers, the addition of new customers and
growth in the Company's assembly business. The overall increase in net sales
reflects the continuing trend toward outsourcing within the electronics
industry. For the first quarter of fiscal 1997, approximately 95% of the
Company's net sales represented electronic assembly services with the remaining
portion representing printed circuit board fabrication revenue.
Gross margin decreased from 24.2% in the first quarter of fiscal 1996
to 23.7% in the first quarter of the current year. The decrease in gross
margin for the first quarter of 1997 is a result of normal changes in the mix
of products shipped to certain customers as well as normal changes in customer
mix. The Company expects gross margins to fluctuate based on product mix and
customer mix.
In absolute dollars, operating expenses increased from $3.6 million in
the first quarter of fiscal 1996 to $5.9 million in the first quarter of fiscal
1997. However, as a percentage of sales, operating expenses decreased to 6.6%
in the first quarter of the current year from 6.9% in the first quarter of
1996. The dollar increase in selling and general and administrative expenses
was primarily the result of increased expenditures to support higher sales
volume. Further contributing to the absolute dollar increase in operating
expenses for the first quarter of the current year is the amortization of
goodwill incurred in the Golden Eagle acquisition. The first quarter of fiscal
1996 reflects goodwill amortization expense related to the Assembly Solutions,
Inc. ("ASI") acquisition only, whereas the first quarter of the current year
reflects amortization of goodwill for both the ASI and Golden Eagle
acquisitions. The Company anticipates that operating expenses will increase in
absolute dollars during the next few quarters due to projected additions to the
sales force and other administrative expenditures to support higher sales
volume. However, operating expenses as a percentage of sales are anticipated
to remain relatively constant or decrease depending upon sales volume.
For the first quarter of fiscal 1997 the Company reported net interest
expense of $122,000 compared to net interest income of $151,000 for the
corresponding quarter of last year. The decrease in net interest income during
the current quarter was a result of a decrease in cash investments due
primarily to the two acquisitions the Company made in November 1996 and, to a
lesser extent, to the investment made by the Company during the first quarter
of 1997 in manufacturing and assembly equipment and facilities.
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The Company's effective tax rates for the first quarter of fiscal 1997
increased to 39% from 38% for the corresponding period of the prior year. This
increase primarily results from the smaller impact that the Company's tax
credits have on taxable income as a result of the overall absolute dollar
increase in the Company's pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations for the three months ending December
28, 1996 was $9.6 million compared to $3.1 million for the first quarter of
1996. The increase between years primarily relates to an increase in net
income between periods. Investing activities for the first quarter of the
fiscal year 1997 primarily related to the November acquisition of certain
assets of Lucent Technologies' Custom Manufacturing Services operation, as well
as, the assets of Comptronix Corporation for which it paid a total of
approximately $27.8 million in cash. Additionally, the Company purchased $4.5
million in equipment and leasehold improvements in the first three months of
fiscal 1997. As a result of these transactions, working capital decreased to
$139.9 million as of December 28, 1996 compared to $145.3 million at September
30, 1996.
The Company anticipates that its working capital requirements will
increase in order to support the anticipated higher volume of business.
Additionally, the Company expects to make additional capital expenditures
relating to facility and equipment enhancements in existing facilities. The
Company has and will continue to evaluate potential acquisition opportunities.
The Company currently has no pending agreements, commitments or understandings
regarding any specific acquisition.
The Company believes that existing cash resources and cash generated
from operations will be sufficient to satisfy its working capital requirements
through at least the end of the current fiscal year.
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SANMINA CORPORATION
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
The Company is not currently a party to any material pending
legal proceedings.
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
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27.1 Financial Data Schedule
b) Reports on Form 8-K
On November 15, 1996, the Company filed a report on
Form 8-K relating to its acquisition of the assets of
Comptronix Corporation. On January 15, 1997, the
company filed an amendment to this report on Form 8-K
containing certain pro forma and other financial
information required by Items 2 and 7 of Form 8-K.
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SANMINA CORPORATION
SIGNATURE
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sanmina Corporation
(Registrant)
Date: February 6, 1997
By: /s/ RANDY FURR
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President,
Chief Operating Officer and
Acting Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27.1 Financial Data Schedule