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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
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(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 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 OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2700 N. FIRST ST., SAN JOSE, CA 95134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
408/964-3500
(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. Yes [X] No [ ]
As of February 8, 2001, there were 306,406,941 shares outstanding of the
issuer's common stock, $0.01 par value.
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SANMINA CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Interim Financial Statements
Condensed Consolidated Statements of Operations............. 1
Condensed Consolidated Balance Sheets....................... 2
Condensed Consolidated Statements of Cash Flows............. 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 2. Changes in Securities....................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signature................................................... 15
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PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
Net sales................................................... $1,390,343 $763,701
Cost of sales............................................... 1,144,394 644,049
---------- --------
Gross profit.............................................. 245,949 119,652
---------- --------
Operating expenses
Selling, general and administrative....................... 68,921 42,623
Amortization of goodwill and intangibles.................. 6,317 5,020
---------- --------
Total operating expenses.......................... 75,238 47,643
---------- --------
Operating income............................................ 170,711 72,009
Other income (expense), net................................. 7,824 (4,905)
---------- --------
Income before provision for income taxes.......... 178,535 67,104
Provision for income taxes.................................. 67,843 24,312
---------- --------
Net income.................................................. $ 110,692 $ 42,792
========== ========
Earnings per share:
Basic..................................................... $ 0.36 $ 0.15
Diluted................................................... $ 0.34 $ 0.15
Shares used in computing per share amounts:
Basic..................................................... 304,922 278,370
Diluted................................................... 337,830 293,752
See accompanying notes.
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SANMINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
ASSETS
DECEMBER 30, SEPTEMBER 30,
2000 2000
------------ -------------
(UNAUDITED)
Current assets:
Cash and cash equivalents................................. $ 968,248 $ 992,842
Short-term investments.................................... 250,995 265,308
Accounts receivable, net.................................. 752,953 644,236
Inventories............................................... 600,546 572,102
Deferred income taxes..................................... 85,427 85,427
Prepaid expenses and other................................ 26,209 25,350
---------- ----------
Total current assets.............................. 2,684,378 2,585,265
Property, plant and equipment, net.......................... 683,312 655,942
Long-term investments....................................... 66,519 55,917
Goodwill, intangibles and other............................. 333,361 342,346
---------- ----------
$3,767,570 $3,639,470
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 458,271 $ 488,806
Accrued liabilities and other............................. 182,974 177,687
Income taxes payable...................................... 71,068 46,002
---------- ----------
Total current liabilities......................... 712,313 712,495
---------- ----------
Long-term liabilities:
Long-term debt, net of current portion.................... 1,147,632 1,143,942
Other liabilities......................................... 82,506 81,551
---------- ----------
Total long-term liabilities....................... 1,230,138 1,225,493
---------- ----------
Stockholders' equity:
Common stock.............................................. 3,054 3,044
Additional paid-in capital................................ 1,148,319 1,138,241
Accumulated other comprehensive loss...................... (7,522) (10,379)
Retained earnings......................................... 681,268 570,576
---------- ----------
Total stockholders' equity........................ 1,825,119 1,701,482
---------- ----------
$3,767,570 $3,639,470
========== ==========
See accompanying notes.
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SANMINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 110,692 $ 42,792
Adjustments to reconcile net income to cash provided by
(used for) operating activities:
Adjustment to conform year end of pooled entities...... -- (6,265)
Depreciation, amortization and other................... 55,017 30,185
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (121,821) (77,320)
Inventories.......................................... (28,444) (59,178)
Prepaid expenses, deposits and other................. 3,340 (3,801)
Accounts payable and accrued liabilities............. (16,753) (3,409)
Income tax accounts.................................. 25,066 14,706
--------- --------
Cash provided by (used for) operating
activities...................................... 27,097 (62,290)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (57,674) (26,100)
Proceeds from maturity of short-term investments.......... 71,987 42,597
Purchases of long-term investments........................ (11,102) --
Purchases of property and equipment, net of
acquisitions........................................... (63,019) (11,522)
Cash paid for businesses acquired, net of cash acquired... -- (44,735)
--------- --------
Cash used for investing activities................ (59,808) (39,760)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) of long-term liabilities.............. (3,782) 9,410
Proceeds from sale of common stock, net of taxes.......... 10,088 6,212
--------- --------
Cash provided by financing activities............. 6,306 15,622
--------- --------
Effect of exchange rate changes............................. 1,811 (485)
--------- --------
Decrease in cash and cash equivalents....................... (24,594) (86,913)
Cash and cash equivalents at beginning of period............ 992,842 148,754
--------- --------
Cash and cash equivalents at end of period.................. $ 968,248 $ 61,841
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 8,207 $ 18,050
Income taxes.............................................. $ 46,821 $ 10,616
See accompanying notes.
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Sanmina
Corporation ("Sanmina") 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 months ended December 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending September 29, 2001. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
for the year ended September 30, 2000, included in Sanmina's annual report on
Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Sanmina's fiscal year ends on the Saturday nearest September 30. All
general references to years relate to fiscal years unless otherwise noted.
NOTE 2 -- 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.
NOTE 3 -- COMPREHENSIVE INCOME
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components. SFAS No. 130
requires companies to report a "comprehensive income" that includes unrealized
holding gains and losses and other items that have previously been excluded from
net income and reflected instead in stockholders' equity. 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. For the three months ended December 30, 2000, the
unrealized holding gain on investments and foreign currency translation
adjustment were $859,000 and $1.8 million, respectively. For the three months
ended January 1, 2000, the unrealized holding loss on investments and foreign
currency translation adjustment were $485,000 and $431,000, respectively.
Comprehensive income for the three months ended December 30, 2000 and January 1,
2000 was approximately $113.4 million and $41.9 million, respectively.
NOTE 4 -- INVENTORIES
Inventories, stated at the lower of cost or market (first-in, first-out
method), consist of (in thousands):
AS OF
-----------------------------
DECEMBER 30, SEPTEMBER 30,
2000 2000
------------ -------------
Raw materials.............................. $395,052 $343,734
Work-in-process............................ 138,560 145,483
Finished goods............................. 66,934 82,885
-------- --------
$600,546 $572,102
======== ========
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 -- EARNINGS PER SHARE ("EPS")
Basic EPS was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the first quarter of fiscal
2001 and 2000. Diluted EPS for the first quarter of fiscal 2001 and 2000
includes dilutive common stock equivalents using the treasury stock method, and
assumes that the convertible debt instruments were converted into common stock,
if dilutive. Reconciliations of the net income and weighted average number of
shares used for the diluted earnings per share computations for the first
quarter of fiscal 2001 and 2000 are as follows (in thousands, except per share
amounts):
AS OF
--------------------------
DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
Net income.................................................. $110,692 $ 42,792
Interest expense, net of tax, related to convertible
subordinated debt......................................... 2,602 46
-------- --------
Income for calculating earnings per share................... $113,294 $ 42,838
======== ========
Weighted average number of shares outstanding during the
period.................................................... 304,922 278,370
Weighted average number of shares for stock options
outstanding for the period................................ 16,928 15,034
Weighted average number of shares for subordinated debt for
the period................................................ 15,980 348
-------- --------
Weighted average number of shares........................... 337,830 293,752
======== ========
Diluted earnings per share.................................. $ 0.34 $ 0.15
======== ========
NOTE 6 -- COMMITMENTS
In fiscal 1999, Sanmina entered into an operating lease agreement for a new
corporate headquarters and new facilities for its principal Northern California
assembly facilities. 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. Sanmina has classified this amount as a
long term investment in the accompanying condensed consolidated balance sheets.
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
AS OF
-----------------------------
DECEMBER 30, SEPTEMBER 30,
2000 2000
------------ -------------
Convertible Subordinated Notes due 2004.................... $ 350,000 $ 350,000
9 1/2% Senior Subordinated Notes due 2008.................. 12,118 12,118
Convertible Subordinated Notes due 2012.................... 2,851 2,886
Zero Coupon Convertible Subordinated Notes due 2020........ 760,902 753,385
Revolving Credit Agreements................................ 4,851 4,851
Obligations under capital leases with interest rates
ranging from 7.0% to 7.75%............................... 6,175 8,045
Bank loans due through August 2010, at rates ranging from
4.63% to 6.10%........................................... 19,034 22,644
Variable Rate Mortgages.................................... 1,536 1,741
---------- ----------
Total...................................................... 1,157,467 1,155,670
Less: current portion...................................... (9,835) (11,728)
---------- ----------
Total Long-term debt....................................... $1,147,632 $1,143,942
========== ==========
NOTE 8 -- STOCK SPLIT
On December 13, 2000, Sanmina announced that its Board of Directors had
approved a two-for-one stock split payable in the form of a 100 percent stock
dividend. This stock split was effective for shareholders of record on December
18, 2000, and certificates reflecting the stock split were issued on January 8,
2001. Share and per share data have been retroactively adjusted to give effect
to the split.
NOTE 9 -- BUSINESS SEGMENT AND CONCENTRATION OF CREDIT RISK
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 products 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 by the Chief Operating Officer,
management currently believes that Sanmina operates in two geographic segments,
domestic (U.S.A.) and international operations. Revenues are attributable to the
country in which the product is manufactured. During the three months ended
December 30, 2000 and January 1, 2000, 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, electronic assembly services and integrated enclosure
systems. 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 the three months ended December 30, 2000 and January 1,
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2000, sales to Sanmina's ten largest customers accounted for 55.9% and 54.1%
respectively, of Sanmina's net sales. In the three months ended December 30,
2000 and January 1, 2000, Sanmina's only customer over 10% represented 11.5% and
14.2% of net sales, respectively.
The following summarizes financial information by geographic segment (in
thousands):
THREE MONTHS ENDED
-----------------------------
DECEMBER 30, JANUARY 1,
2000 2000
------------ -------------
Net Sales
Domestic......................................... $1,150,619 $607,866
International.................................... 264,441 176,379
Intersegment..................................... (24,717) (20,544)
---------- --------
Total.................................... $1,390,343 $763,701
========== ========
Operating Income
Domestic......................................... $ 151,368 $ 61,587
International.................................... 19,343 10,422
Intersegment..................................... -- --
---------- --------
Total.................................... $ 170,711 $ 72,009
========== ========
AS OF
-----------------------------
DECEMBER 30, SEPTEMBER 30,
2000 2000
------------ -------------
Long Lived Assets (excludes goodwill and
intangibles)
Domestic......................................... $ 663,346 $631,139
International.................................... 109,324 104,554
---------- --------
Total.................................... $ 772,670 $735,693
========== ========
NOTE 10 -- 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. The adoption of SFAS No. 133 in the first
quarter of fiscal 2001 did not have a material impact on Sanmina's financial
position, results of operations or cash flows.
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.
NOTE 11 -- SUBSEQUENT EVENT
On January 26, 2001, Sanmina announced its intention to acquire all of the
shares of AB Segerstrom & Svensson (a company listed on the OM Stockholm
Exchange), a leading global supplier of integrated enclosure systems to the
communications sector. The transaction will be accounted for as a pooling of
interests. The total purchase price is approximately $511 million. The
transaction, which is subject to several
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SANMINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
conditions, is expected to close March 2001. Principal closing conditions
include acceptance of the offer by the holders of at least 90% of Segerstrom &
Svensson's outstanding shares and receipt of necessary regulatory approvals and
clearances, including clearance by the European Commission. The European
Commission clearance is similar to the United States Hart-Scott-Rodino
pretransaction notification process.
The consideration for the shares and convertible debentures in Segerstrom &
Svensson will be made in shares in Sanmina. The number of Sanmina shares offered
for each share and for each convertible debenture of Segerstrom & Svensson has
been determined by a measurement period that started and included January 23,
2001 and ended and included January 30, 2001. The average share price of Sanmina
during the measurement period, based on the closing prices on NASDAQ National
Market, was $49.6146. The shareholders and holders of convertible debentures in
Segerstrom & Svensson will receive 0.38149 Sanmina shares for each share and
convertible debenture of Segerstrom & Svensson for a total approximate value of
$511 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") was incorporated in Delaware in May 1989 to
acquire its predecessor company, which had been in the printed circuit board and
backplane business since 1980. Sanmina is a leading independent provider of
customized integrated electronic manufacturing services ("EMS"), including
turnkey electronic assembly and manufacturing management services, to original
equipment manufacturers ("OEMs") in the electronics industry. Sanmina's
electronic 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, subsystem assembly, testing, and assembly of completed
systems and direct order fulfillment. 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 has 55 facilities and 10 global technology solution centers,
located both domestically and internationally. Sanmina has assembly,
fabrication, enclosure, cable, other and global technology solution centers;
domestically in Alabama, Arizona, California, Colorado, Massachusetts, New
Hampshire, New York, North Carolina, Texas, Utah and Wisconsin; and
internationally in Canada, China, Finland, France, Ireland, Malaysia, Mexico and
Sweden.
In addition to the above facilities, Sanmina has a 49.9% ownership interest
in INBOARD, a wholly owned subsidiary of Siemens AG. INBOARD is a manufacturer
of complex printed circuit boards, with a facility in Germany.
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 product ordered by and shipped to
major customers, the volume of orders as related to Sanmina's capacity, the
ability of Sanmina to effectively manage inventory and fixed assets, pricing and
competitive pressures, component shortages, which could cause Sanmina to be
unable to meet customer delivery schedules, and the ability of Sanmina to time
expenditures in anticipation of future sales. Sanmina's results are also
affected by the mix of products between backplane assemblies and printed circuit
boards. Sanmina's results are also affected by general economic conditions in
the electronics industry. 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 its
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's convertible subordinated notes and Common Stock.
Sanmina's customers include a diversified base of OEMs in the
communications (telecommunications and networking), industrial and medical
instrumentation and high-speed computer systems sectors of the
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electronics industry. These industry sectors, and the electronics industry as a
whole, are subject to rapid technological change and product obsolescence.
Discontinuance or modification of products being manufactured by Sanmina could
adversely affect Sanmina'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. From time to time the EMS
industry experiences increases and decreases in demand as a result of the
economy. These changes in demand and in economic conditions may result in
customer rescheduling of orders and shipments, which could affect Sanmina's
future results of operations. A general recession in the electronics industry
could have a material adverse effect on Sanmina's business, financial condition
and results of operations. In addition, Sanmina 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 Sanmina's current customers will continue to use
Sanmina's manufacturing services. The loss of one or more of Sanmina's principal
customers, or reductions in sales to any of such customers, could have a
material adverse effect on Sanmina'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, to access new geographic markets, to 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 Sanmina will not incur problems with
integrating acquired operations, and there can be no assurance that Sanmina's
recent acquisitions, or any future acquisition will result in a positive
contribution to Sanmina's results of operations. Furthermore, there can be no
assurance that Sanmina will realize value from any such acquisition which equals
or exceeds the consideration paid. In addition, there can be no assurance that
Sanmina 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 Sanmina'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.
In addition, Sanmina expects 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 because 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 adversely affected if Sanmina is
not successful in attracting a significant portion of the OEM divestiture
transactions it 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.
Accordingly, as Sanmina enters into new OEM divestiture transactions, Sanmina
may experience erosion in gross margins.
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RESULTS OF OPERATIONS
The following table sets forth, for the three months ended December 30,
2000 and January 1, 2000, 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
--------------------------
DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
Net sales............................................ 100.0% 100.0%
Cost of sales........................................ 82.3 84.3
----- -----
Gross profit....................................... 17.7 15.7
----- -----
Operating expenses:
Selling, general and administrative................ 5.0 5.6
Amortization of goodwill and intangibles........... 0.4 0.7
----- -----
Total operating expenses................... 5.4 6.3
----- -----
Operating income..................................... 12.3 9.4
Other income (expenses), net......................... 0.5 (0.6)
----- -----
Income before provision for income taxes............. 12.8 8.8
Provision for income taxes........................... (4.8) (3.2)
----- -----
Net income........................................... 8.0% 5.6%
===== =====
Sales for the first quarter of fiscal 2001 increased by 82.1% to $1.4
billion from $763.7 million in the corresponding quarter of the prior year. The
increase in net sales for the first quarter of fiscal 2001 was due primarily to
increased shipments of EMS assemblies to both existing and new customers
obtained both through acquisitions and internal growth. 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 internally-originated expansions, and a generally positive
economic environment in the communications, medical and industrial
instrumentation, and high-speed computer segments of the electronics industry.
These industry sectors continued to experience overall growth during these
periods.
Gross margin increased from 15.7% in the first quarter of fiscal 2000 to
17.7% in the first quarter of fiscal 2001. Sanmina expects gross margins to
continue to fluctuate based on the mix of products ordered by and shipped to
major customers. The increase in gross margins for the first quarter was
primarily attributable to improved mix and capacity utilization from printed
circuit boards and assembly operations from acquired companies. This increase
was offset partially by pricing terms negotiated as part of OEM divestiture
transactions. Due to increased competition, changes in product and customer mix,
and pricing terms negotiated as part of OEM divestiture transactions, Sanmina
may continue to experience fluctuations in gross margins.
Selling, general and administrative expenses increased from $42.6 million
in the first quarter of fiscal 2000 to $68.9 million in the first quarter of
fiscal 2001. The absolute dollar increase in selling and general and
administrative expenses was primarily the result of increased expenditures to
support higher sales volume. Sanmina anticipates that operating expenses will
continue to increase in absolute dollars due to projected additions to the sales
force and other administrative expenditures to support higher sales volume.
However, operating expenses as a percentage of sales are anticipated to remain
relatively constant or decrease depending upon sales volume and Sanmina's
ability to achieve expected operating synergies as a result of the integration
of acquired businesses.
Amortization expense increased from $5.0 million in the first quarter of
fiscal 2000 to $6.3 million in the first quarter of fiscal 2001. These
amortization expenses reflect the amortization of intangibles and goodwill
related to those acquisitions which were accounted for as purchase transactions.
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For the first quarter of fiscal 2001, Sanmina reported net other income of
$7.8 million compared to net other expense of $4.9 million for the corresponding
quarter of last year. The components of other income and expense, comprising the
overall net income or expense, are primarily interest expense on borrowings and
convertible subordinated notes and interest income on cash balances and
short-term investments. For the first quarter of fiscal 2001, the increase in
net other income was largely due to interest received from additional cash flow
from operations and higher cash balances.
Sanmina's provision for income taxes for the first quarter of fiscal 2001
is based upon Sanmina's estimate of the effective tax rate for fiscal 2001 of
38.0%. For the first quarter of fiscal 2000, the effective tax rate was
estimated at 36.2%.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments as of December 30, 2000
were $1.2 billion as compared to $1.3 billion at September 30, 2000. For the
first quarter of fiscal 2001, cash provided by operations was $27.1 million,
which was primarily due to net income and activity in balance sheet accounts.
Working capital increased to $2.0 billion as of December 30, 2000 compared to
$1.9 billion at September 30, 2000. This increase was primarily due to increases
in receivables and inventories.
Net cash used for investing activities for the first three months of fiscal
2001 primarily related to the purchase of property, plant, and equipment of
$63.0 million and short and long-term investments of $68.8 million. These
payments were offset by $72.0 million in maturities of short-term investments.
Net cash provided by financing activities for the first three months of
fiscal year 2001 was related to the proceeds from the sale of common stock upon
exercise of stock options of $10.1 million offset by net payments of long-term
liabilities of $3.8 million.
In fiscal 1999, Sanmina has entered into an operating lease agreement for
new facilities in San Jose, California which houses its corporate headquarters
and certain 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.
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 $2.0 billion at December 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 existing cash resources, together with cash
generated from operations, will be sufficient to meet its working capital
requirements through at least the next 12 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
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. The adoption of SFAS No. 133 in the first
quarter of fiscal 2001 did not have a material impact on Sanmina's financial
position, results of operations or cash flows.
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.
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has not been a material change in our exposure to interest rate and
foreign currency risks since the date of our report on form 10-K for the fiscal
year ended September 30, 2000.
Interest Rate Risk
Sanmina's exposure to market risk for changes in interest rates relate
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 December 30,
2000 (in thousands):
YEAR ENDED
---------------------------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL
-------- ------- ---- ---- ---- ---------- --------
(IN THOUSANDS)
Cash equivalents,
short-term, and long-term
investments.............. $689,061 $81,475 -- -- -- $1,081 $771,617
Average interest rate...... 6.3% 7.1% -- -- -- 5.8% 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 December 30, 2000, Sanmina had
forward contracts to exchange various foreign currencies for U.S. dollars in the
gross amount of $27.4 million. Market value gains and losses on forward exchange
contracts are recognized as offsets to the exchange gains and losses on the
hedged transactions.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Sanmina is not currently a party to any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES
On December 13, 2000, Sanmina announced a two-for-one stock split that
became effective on January 8, 2001 for stockholders of record on December 18,
2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 29, 2001, Sanmina held its 2001 Annual Meeting of Stockholders.
The matters voted upon at the meeting, for shareholders of record as of December
18, 2000, and the vote with respect to each such matter, on a pre-split basis,
are set forth below:
1. To elect directors of Sanmina.
FOR WITHHELD
----------- ----------
John Bolger.................................. 129,929,826 957,552
Neil Bonke................................... 129,929,757 957,621
Randy Furr................................... 129,929,676 957,702
Joseph Schell................................ 129,929,028 958,350
Jure Sola.................................... 106,245,234 24,642,144
Mario Rosati................................. 128,695,208 2,192,170
Bernard Vonderschmitt........................ 129,732,170 1,155,208
2. To approve amendment to Sanmina's Restated Certificate of
Incorporation to increase the number of authorized shares of common
stock.
For: 107,569,598 Against: 22,957,316 Abstain: 360,464
3. To approve an amendment to the Company's 1993 Employee Stock
Purchase Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 1,000,000 shares to a new total
of 5,600,000 shares.
For: 128,962,816 Against: 1,514,552 Abstain: 410,010
4. To confirm the appointment of Arthur Andersen LLP as the
independent public accountants of Sanmina for the fiscal year
ending September 29, 2001.
For: 130,494,580 Against: 22,131 Abstain: 370,667
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
On January 26, 2001, Sanmina filed a report on Form 8-K relating to the
announcement of its intention to acquire the outstanding shares of AB Segerstrom
& Svensson.
On January 31, 2001, Sanmina filed a report on Form 8-K relating to the
announcement of the exchange ratio for each outstanding share of AB Segerstrom &
Svensson.
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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)
By: /s/ RANDY W. FURR
------------------------------------
Randy W. Furr
President and Chief Operating
Officer
Date: February 12, 2001
By: /s/ RICK R. ACKEL
------------------------------------
Rick R. Ackel
Executive Vice President and
Chief Financial Officer
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