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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 June 28, 1997
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 July 26, 1997: 17,177,353.
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SANMINA CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Interim Condensed Consolidated Financial Statements 6 - 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, except per share data
(unaudited)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
----------------------------- -----------------------------
Net sales $ 105,406 $ 71,182 $ 290,974 $ 186,574
Cost of sales 80,833 54,158 222,633 141,744
----------------------------- -----------------------------
Gross profit 24,573 17,024 68,341 44,830
----------------------------- -----------------------------
Operating expenses
Selling, general and administrative 6,250 4,462 17,446 11,838
Amortization of goodwill 501 501 1,504 1,221
----------------------------- -----------------------------
Total operating expenses 6,751 4,963 18,950 13,059
----------------------------- -----------------------------
Operating income 17,822 12,061 49,391 31,771
Interest income (expense), net (85) (46) (366) 71
----------------------------- -----------------------------
Income before provision for income taxes 17,737 12,015 49,025 31,842
Provision for income taxes 6,917 4,563 19,118 12,098
----------------------------- -----------------------------
NET INCOME $ 10,820 $ 7,452 $ 29,907 $ 19,744
============================= =============================
Earnings per share:
Primary $ 0.59 $ 0.42 $ 1.64 $ 1.13
Fully Diluted $ 0.54 $ 0.40 $ 1.51 $ 1.07
Shares used in computing per share amounts:
Primary 18,354 17,730 18,214 17,472
Fully Diluted 21,547 20,790 21,362 20,584
See accompanying notes.
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SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
in thousands
June 28, September 30,
1997 1996
----------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 34,754 $ 29,568
Short-term investments 68,054 85,374
Accounts receivable, net 51,484 30,421
Inventories 50,466 32,109
Deferred income taxes 6,852 6,852
Prepaid expenses and other 903 999
-------- --------
Total current assets 212,513 185,323
Property, plant and equipment, net 60,215 34,868
Deposits and other 8,577 10,350
-------- --------
$281,305 $230,541
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,011 $ 24,401
Accrued liabilities 15,606 10,209
Income taxes payable 2,716 5,404
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Total current liabilities 57,333 40,014
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Long-term liabilities
Convertible subordinated notes 86,250 86,250
Other liabilities 250 592
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Total long-term liabilities 86,500 86,842
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Stockholders' equity:
Common stock 172 169
Additional paid-in capital 65,384 61,520
Unrealized gain 32 19
Retained earnings 71,884 41,977
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Total stockholders' equity 137,472 103,685
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$281,305 $230,541
======== ========
See accompanying notes.
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SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands
(unaudited)
Nine Months Ended
-----------------------------
June 28, June 29,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,907 $ 19,744
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 9,333 5,778
Loss on disposal of assets 123 25
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (16,034) (4,572)
Inventories (8,514) (11,734)
Prepaid expenses, deposits and other 364 458
Accounts payable and accrued liabilities 20,008 4,894
Income tax accounts (2,688) 3,715
--------- ---------
Cash provided by operating activities 32,499 18,308
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities (purchases) of short-term investments 17,333 (64,370)
Purchases of property and equipment (20,417) (18,211)
Purchase of Golden Eagle Systems, Inc. net of cash acquireed -- (5,287)
Purchase of certain assets of Comptronix Corporation (17,645) --
Purchase of certain assets of Lucent Technologies'
custom manufacturing operations (10,109) --
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Cash used for investing activities (30,838) (87,868)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on line of credit -- (1,529)
Payment of long-term liabilities (342) (367)
Proceeds from sale of common stock 3,867 1,783
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Cash provided by financing activities 3,525 (113)
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Increase in cash and cash equivalents 5,186 (69,673)
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Cash and cash equivalents at beginning of period 29,568 107,290
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Cash and cash equivalents at end of period $ 34,754 $ 37,617
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest -- --
Income Taxes -- --
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. All adjustments are of a normal recurring nature.
The results of operations for the three or nine months ended June 28,
1997 are not necessarily indicative of the results that may be expected for the
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):
June 28, September 30,
1997 1996
------- -------
Raw materials $28,977 $13,797
Work-in-process 10,982 10,986
Finished goods 10,507 7,326
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$50,466 $32,109
======= =======
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.
In February 1997, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share," which is required to be adopted by the Company in its first quarter of
fiscal 1998. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating earnings per share, primary earnings
per share will be replaced with basic earnings per share and fully diluted
earnings will be replaced with diluted earnings per share. Under basic
earnings per share, the dilutive effect of stock options will be excluded. The
Company has not yet quantified the effect of adopting SFAS 128.
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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 transaction was accounted for as
a purchase. 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 three and nine months ended June
28, 1997 include the results of operations of this business from the date of
acquisition.
The unaudited pro forma financial information for the nine months
ended June 28, 1997 and June 29, 1996 is presented below and assume the
acquisition occurred as of the beginning of each of the periods presented (in
thousands):
Nine Months Ended
June 28, June 29,
1997 1996
-------- --------
Revenue $294,319 $250,528
Net income $ 28,507 $ 15,314
Net income per share:
Primary $ 1.57 $ 0.88
Fully diluted $ 1.45 $ 0.86
Weighted average common
shares outstanding:
Primary 18,214 17,472
Fully diluted 21,362 20,584
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 - Subsequent Event
On July 22, 1997, Sanmina entered into a definitive agreement to merge
with Elexsys International, Inc. ("Elexsys"). The merger is subject to several
conditions, including approval of Elexsys shareholders. The agreement calls for
an exchange of Elexsys stock for Sanmina stock with a current fair market value
of approximately $220 million.
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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 electronics manufacturing services consist
primarily of the manufacture of complex printed circuit board assemblies using
surface mount ("SMT") and pin through-hole ("PTH") interconnection
technologies, the manufacture of custom designed backplane assemblies,
fabrication of complex multi-layer printed circuit boards, and testing and
assembly of completed systems. In addition to assembly, turnkey manufacturing
management also involves procurement and materials management, as well as
consultation on printed circuit board design and manufacturability. Sanmina,
through its 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 has expanded
its operations internationally with the opening of a new facility in Dublin,
Ireland in June 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 and the economic conditions in the
electronics industry. Operating results can also be significantly influenced
by development and introduction of new products by the Company's customers.
From time to time, the Company experiences changes in the volume of sales to
each of its principal customers, and operating results may be affected on a
period- to-period basis by these changes. The Company's customers generally
require short delivery cycles, and a substantial portion of the Company's
backlog is typically scheduled for delivery within 120 days. Quarterly sales
and operating results therefore depend in large part on the volume and timing
of bookings received during the quarter, which are difficult to forecast. The
Company's backlog also affects its ability to plan production and inventory
levels, which could lead to fluctuations in operating results. In addition, a
significant portion of the Company's operating expenses 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 eing manufactured by the Company could adversely affect the
Company's results of operations. The electronics industry is also subject to
economic cycles and has in the past experienced, and is likely in the future to
experience, recessionary periods. A general recession in the electronics
industry could have a material adverse effect on Sanmina's business, financial
condition and results in operations. In addition, the Company has no firm
long-term volume commitments from its customers and over the last few years
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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. In this regard, on
July 22, 1997, Sanmina entered into an Agreement and Plan of Merger with
Elexsys International, Inc. ("Elexsys") providing for the acquisition of
Elexsys by Sanmina in a stock-for-stock merger transaction under which each
share of Elexsys Common Stock would be converted into 0.33 shares of Sanmina
Common Stock. The acquisition is subject to approval by stockholders of
Elexsys, expiration of applicable federal Hart-Scott-Rodino pre-merger
notification waiting periods and certain other conditions. Accordingly, there
can be no assurance that the acquisition of Elexsys will be completed as
scheduled or at all. 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, the planned
acquisition of Elexsys 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 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 and nine months ended
June 28, 1997 and June 29, 1996, 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 Nine Months Ended
6/28/97 6/29/96 6/28/97 6/29/96
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100 .0
Cost of sales 76.7 76.1 76.5 76.0
Gross Profit 23.3 23.9 23.5 24.0
Selling, general and administrative 5.9 6.3 6.0 6 .3
Amortization .5 .7 .5 .7
Operating income 16.9 16.9 17.0 17.0
Interest income (expense) (.1) -- (.1) .1
Income before income taxes 16.8 16.9 16.9 17.1
Provision for income taxes 6.5 6.4 6.6 6.5
Net income 10.3 10.5 10.3 10.6
Sales for the third quarter ended June 28, 1997 increased by 48% to
$105.4 million from $71.2 million in the corresponding quarter of the prior
year. Sales for the nine months ended June 28, 1997 increased by 56% to $291.0
million from $186.6 million in the same period of the prior year. The increases
in net sales were due primarily to increased shipments of EMS assemblies to
both existing and new customers. The overall increase in net sales reflects
the continuing trend toward outsourcing within the electronics industry. Also
contributing to the increase in sales for the third quarter and the first nine
months ended June 28, 1997, were revenues from customers obtained as a result
of the Comptronix and Lucent Technologies CMS acquisitions, both of which were
completed in November 1996. For both the third quarter of fiscal 1997, and the
nine months ended June 28, 1997, approximately 95% of the Company's net sales
represented value-added assembly shipments with the remaining portion
consisting of printed circuit board fabrication shipments.
Gross margin decreased from 23.9% in the third quarter of fiscal 1996
to 23.3% in the third quarter of the current year. Gross margin decreased from
24.0% for the first nine months of fiscal 1996 to 23.5% for the first nine
months of the current year. The decrease in gross margins for the third
quarter and the first nine months of fiscal 1997 are a result of normal changes
in the mix of products shipped to certain customers, normal changes in customer
mix, and the timing of expenditures for start-up operations for the Company's
new facility in the Dublin, Ireland area. The Company expects gross margins to
fluctuate based on product mix and customer mix.
In absolute dollars, operating expenses increased from $5.0 million in
the third quarter of fiscal 1996 to $6.8 million in the third quarter of fiscal
1997. However, as a percentage of sales, operating expenses decreased from
7.0% in the third quarter of 1996 to 6.4% in the third quarter of the current
year. For the nine months, operating expenses in absolute dollars increased
from $13.1 million in fiscal 1996 to $19.0 million in fiscal 1997 and operating
expenses as a percentage of sales decreased from 7.0% for the first nine months
of fiscal 1996 to 6.5% for the first nine months of fiscal 1997. Operating
margins remained the same as a percentage of sales at 16.9% for both the third
quarter of fiscal 1996 and the third quarter of the current year, and the
operating margins also remained consistent as a percentage of sales at 17.0%
for the first nine months of fiscal 1996 and for the first nine months of
fiscal 1997. These relatively constant operating margins, notwithstanding the
small percentage decrease in gross margins during these periods, reflect the
Company's strategy of seeking to grow revenues while maintaining operating
margins at relatively constant levels. The dollar increase in selling and
general and administrative expenses was primarily the result of increased
expenditures to support higher sales volume. Further contributing to the
absolute dollar increase in operating expenses for the first nine months of the
current year is the amortization of goodwill incurred in the Golden Eagle
acquisition. The first nine months of fiscal 1996 reflects goodwill
amortization expense related to the Assembly Solution, Inc.
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("ASI") acquisition and six months of goodwill amortization relating to Golden
Eagle, whereas, the first nine months of the current year reflects nine months
of 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 third quarter of fiscal 1997 the Company reported net interest
expense of $85,000 compared to net interest expense of $46,000 for the
corresponding quarter of last year. For the first nine months of fiscal 1997
the Company reported net interest expense of $366,000 compared to a net
interest income of $71,000 for the first nine months of fiscal 1996. The
additional net interest expense during the current quarter and the change from
net interest income to net interest expense for the nine month period 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 fiscal 1997 in manufacturing and assembly equipment
and facilities.
The Company's effective tax rates for the third quarter and first nine
months of fiscal 1997 increased to 39% from 38% for the corresponding periods
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 nine months ending June 28,
1997 was $32.5 million compared to $18.3 million for the same period of fiscal
1996. The increase between years primarily relates to an increase in net
income between periods. Investing activities for the first nine months of the
fiscal year 1997 primarily related to the November 1996 acquisitions of certain
assets of Lucent Technologies CMS operations, and Comptronix Corporation for
which the Company paid a total of approximately $27.8 million in cash.
Additionally, the Company purchased $20.4 million in equipment and leasehold
improvements in the first nine months of fiscal 1997. Working capital
increased to $155.2 million as of June 28, 1997, compared to $145.3 million at
September 30, 1996.
The Company anticipates that its working capital requirements will
increase in order to support anticipated volumes of business. Additionally,
the Company expects to make additional capital expenditures relating to
facility and equipment enhancements in existing facilities. Future liquidity
needs will be dependent upon, among other factors, the extent of capital
investments made by the Company in plant and equipment, working capital needs
of acquired businesses, levels of shipments by the Company and changes in
volumes of business and other factors. The Company believes that its existing
cash resources, together with cash generated from operations, will be
sufficient to meet the Company's liquidity and working capital requirements
through at least the 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
10.0 Agreement and Plan of Merger dated July 22,
1997, among Registrant, Sanmina Acquisition
Subsidiary, Inc. and Elexsys International,
Inc.
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
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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: July 29, 1997
By: _____________________________
Randy Furr
President,
Chief Operating Officer and
Acting Chief Financial Officer
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
----------- -----------
10.0 Agreement and Plan of Merger dated July
22, 1997, among Registrant, Sanmina
Acquisition Subsidiary, Inc. and Elexsys
International, Inc.
27.1 Financial Data Schedule