-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WUu9LDnKb3IrL3Oz7UWItzIT2o2vnLGqD7Zz8yVdnk1jQeEVAp/tBX+MUz3GbzjZ Fpd96j+Ylj6vzMRevcev5A== 0000891618-99-005698.txt : 19991216 0000891618-99-005698.hdr.sgml : 19991216 ACCESSION NUMBER: 0000891618-99-005698 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANMINA CORP/DE CENTRAL INDEX KEY: 0000897723 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 770228183 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21272 FILM NUMBER: 99775493 BUSINESS ADDRESS: STREET 1: 355 EAST TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4089545500 MAIL ADDRESS: STREET 1: 355 EAST TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: SANMINA HOLDINGS INC DATE OF NAME CHANGE: 19930223 10-K405 1 FORM 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED OCTOBER 2, 1999. 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 INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.) ORGANIZATION) 2700 NORTH FIRST STREET, SAN JOSE, CA 95134 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 964-3500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate value of voting stock held by non-affiliates of the Registrant was approximately $4,351,055,645 as of October 2, 1999, based upon the average of the high and low prices of the Registrant's Common Stock reported for such date on the Nasdaq National Market. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes. As of October 2, 1999, the Registrant had outstanding 58,891,980 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Certain information is incorporated into Part III of this report by reference to the Proxy Statement for the Registrant's 2000 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K. Certain information is incorporated into Parts II and IV of this report by reference to the Registrant's annual report to stockholders for the year ended October 2, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS THE COMPANY 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 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 plane assemblies, fabrication of complex multi-layered printed circuit boards, electronic enclosure systems and testing and assembly of completed systems. In addition to assembly, turnkey manufacturing management also involves procurement and materials management, as well as consultation on printed circuit board design and manufacturing. Sanmina, through its Sanmina Cable Systems ("SCS") subsidiary (formerly known as Golden Eagle Systems), also manufactures custom cable and wire harness assemblies for electronic industry OEMs. SMT and PTH printed circuit board assemblies are printed circuit boards on which various electronic components, such as integrated circuits, capacitors, microprocessors and resistors, have been mounted. These assemblies are key functional elements of many types of electronic products. Backplane assemblies are large printed circuit boards on which connectors are mounted to interconnect printed circuit boards, integrated circuits and other electronic components. Interconnect products manufactured by Sanmina generally require greater manufacturing expertise and have shorter delivery cycles than mass produced interconnect products, and therefore, typically have higher profit margins. Sanmina's customers include leading OEMs in the communications, medical and industrial instrumentation and high-speed computer sectors. Sanmina's assembly plants are located in Northern California, Richardson, Texas, Manchester, New Hampshire, Durham, North Carolina, Guntersville, Alabama, Calgary, Alberta, Canada and Dublin, Ireland. Sanmina's printed circuit board fabrication facilities are located in Northern California, Southern California, and Nashua, New Hampshire. SCS's manufacturing facility is located in Carrollton, Texas. As a result of Sanmina's November 1998 merger with Altron Inc. ("Altron"), Sanmina has added new fabrication and assembly plants in the Boston, Massachusetts area, Northern California, and Plano, Texas. In addition, as a result of Sanmina's mergers with Telo Electronics Incorporated ("Telo") and Manu-Tronics, Inc. ("Manu-Tronics") in December 1998 and March 1999 respectively, Sanmina has added new assembly plants in San Jose, California and the greater Chicago area. As part of Sanmina's agreement to acquire certain assembly operations from Nortel Networks Corporation, Sanmina added another assembly plant in Calgary, Alberta, Canada and Chateaudun, France on October 1, 1999 and November 3, 1999, respectively. As part of Sanmina's acquisition of Devtek Electronics Packaging Systems Division on October 5, 1999, Sanmina added an enclosure facility in Toronto, Ontario, Canada. 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 assets while maintaining operating margins, to access new geographic markets, to implement Sanmina's vertical integration strategy and/or to obtain facilities and equipment on terms more favorable than those generally available in the market. In particular, Sanmina expects that it will continue to pursue opportunities to acquire assembly operations being divested by electronics industry OEMs. Sanmina was formed in 1989 to acquire the printed circuit board and backplane operations of its predecessor company, which has been in the printed circuit board and backplane business since 1980. Sanmina's principal offices are located at 2700 North First Street, San Jose, California 95134. Sanmina's telephone number is (408) 964-3500. Sanmina and the Sanmina logo are trademarks of Sanmina. Trademarks of other corporations are also referred to in this report. 2 3 This Report on Form 10-K contains certain forward looking statements regarding future events with respect to Sanmina. Actual events and/or future results of operations may differ materially as a result of the factors described herein and in the documents incorporated herein by reference, including, in particular, those factors described under "Factors Affecting Operating Results." INDUSTRY OVERVIEW Sanmina is benefiting from increased market acceptance of the use of manufacturing specialists in the electronics industry. Many electronics OEMs have adopted, and are becoming increasingly reliant upon, manufacturing outsourcing strategies, and Sanmina believes the trend towards outsourcing manufacturing will continue. Electronics industry OEMs use EMS specialists for many reasons including the following: - Reduce Time to Market. Due to intense competitive pressures in the electronics industry, OEMs are faced with increasingly shorter product life cycles and therefore have a growing need to reduce the time required to bring a product to market. OEMs can reduce their time to market by using a manufacturing specialist's established manufacturing expertise and infrastructure. - Reduce Capital Investment. As electronic products have become more technologically advanced, the manufacturing process has become increasingly automated, requiring a greater level of investment in capital equipment. Manufacturing specialists enable OEMs to gain access to advanced manufacturing facilities, thereby reducing the OEMs' overall capital equipment requirements. - Focus Resources. Because the electronics industry is experiencing greater levels of competition and more rapid technological change, many OEMs are increasingly seeking to focus their resources on activities and technologies in which they add the greatest value. By offering comprehensive electronic assembly and turnkey manufacturing services, manufacturing specialists allow OEMs to focus on core technologies and activities such as product development, marketing and distribution. - Access Leading Manufacturing Technology. Electronic products and electronics manufacturing technology have become increasingly sophisticated and complex, making it difficult for OEMs to maintain the necessary technological expertise in process development and control. OEMs are motivated to work with a manufacturing specialist in order to gain access to the specialist's process expertise and manufacturing knowledge. - Improve Inventory Management and Purchasing Power. Electronics industry OEMs are faced with increasing difficulties in planning, procuring and managing their inventories efficiently due to frequent design changes, short product lifecycles, large investments in electronic components, component price fluctuations and the need to achieve economies of scale in materials procurement. By using a manufacturing specialist's volume procurement capabilities and expertise in inventory management, OEMs can reduce production and inventory costs. - Access Worldwide Manufacturing Capabilities. OEMs are increasing their international activities in an effort to lower costs and access foreign markets. Manufacturing specialists with worldwide capabilities are able to offer such OEMs a variety of options on manufacturing locations to better address their objectives regarding cost, shipment location, frequency of interaction with manufacturing specialists and local content requirements of end-market countries. SANMINA BUSINESS STRATEGY Sanmina's objective is to provide OEMs with a total EMS solution. Sanmina's strategy encompasses several key elements: - Concentrate on high value added products and services for leading OEMs. Sanmina focuses on leading manufacturers of advanced electronic products that generally require custom designed, more complex interconnect products and short lead-time manufacturing services. By focusing on complex interconnect products and manufacturing services for leading OEMs, Sanmina is able to realize higher margins than many other participants in the interconnect and EMS industries. 3 4 - Leverage vertical integration. Building on its integrated manufacturing capabilities, Sanmina can provide its customers with a broad range of high value added manufacturing services from fabrication of bare boards, to final system assembly and test. The cable assembly capabilities of Sanmina Cable Systems provide Sanmina with further opportunities to leverage its vertical integration. By manufacturing printed circuit boards, electronic enclosure systems, and custom cable assemblies used in its EMS assemblies, Sanmina, through its vertical integration, is able to provide greater value added and realize additional manufacturing margin. In addition, Sanmina's vertical integration provides greater control over quality, delivery and cost, and enables Sanmina to offer its customers a complete EMS solution. - Focus on high growth customer sectors. Sanmina has focused its marketing efforts on key, fast growing industry sectors. Sanmina's customers include leading OEM companies in communications, industrial and medical instrumentation and computer sectors. Sales efforts will focus on increasing penetration of its existing customer base as well as attracting new customers, thus diversifying its revenue across a wider base. - Geographic expansion of manufacturing facilities. Since 1993, Sanmina has significantly expanded and upgraded its operations through the opening of and acquisition of new facilities in Richardson, Texas, San Jose, California, Manchester, New Hampshire and Durham, North Carolina. In November 1996, Sanmina acquired the former Comptronix Corporation contract manufacturing facilities located in Guntersville, Alabama. In June 1997, Sanmina opened an EMS facility in the Dublin, Ireland area to serve customers in the European market. In November 1997, Sanmina acquired Elexsys, which has facilities in Northern and Southern California, and New Hampshire. In November 1998, Sanmina acquired Altron, which has facilities in the Boston, Massachusetts area. Also in November 1998, Sanmina acquired a facility in Calgary, Alberta, Canada from Harris Corporation. In addition, as a result of Sanmina's acquisitions of Telo and Manu-Tronics in December 1998 and March 1999, Sanmina has added new facilities in San Jose, California and the greater Chicago area. These facilities provide Sanmina with operations in key geographic markets for the electronics industry. Sanmina will continue to aggressively and opportunistically pursue future expansion opportunities in other markets. - Aggressive pursuit of acquisition opportunities. Sanmina's strategy involves the pursuit of 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. These acquisitions have involved both acquisitions of entire companies, such as the June 1995 acquisition of Assembly Solutions in Manchester, New Hampshire, the January 1996 acquisition of Golden Eagle Systems, now known as Sanmina Cable Systems, the November 1997 merger with Elexsys, the November 1998 merger with Altron, the December 1998 merger with Telo and the March 1999 merger with Manu-Tronics. In addition, Sanmina has in other instances acquired selected assets, principally equipment, inventory and customer contracts and, in certain cases, facilities or facility leases. Acquisitions of this nature completed by Sanmina include the November 1996 acquisitions of the Guntersville, Alabama operations of Comptronix Corporation and certain assets of the custom manufacturing services division of Lucent Technologies. In November 1998, Sanmina acquired a facility in Calgary, Alberta, Canada from Harris Corporation. As part of Sanmina's agreement to acquire certain assembly operations from Nortel Networks Corporation, Sanmina added another assembly plant in Calgary, Alberta, Canada and Chateaudun, France on October 1, 1999 and November 3, 1999, respectively. As part of Sanmina's acquisition of Devtek Electronics Packaging Systems Division on October 5, 1999, Sanmina added an enclosure facility in Toronto, Ontario, Canada. Sanmina intends to continue to evaluate and pursue acquisition opportunities on a ongoing basis. - Develop long-term customer relationships. Sanmina seeks to establish "partnerships" with its customers by focusing on state-of-the-art technology, quick-turnaround manufacturing and comprehensive management support for materials and inventory. Sanmina also works closely with its customers to help them manage their manufacturing cycle and reduce their time to market. While Sanmina will continue to emphasize growth with its current customers, it has been successful in attracting new 4 5 clients. To further these efforts, Sanmina intends to continue to expand its direct sales staff. Sanmina believes its direct sales force is one of its key competitive advantages. - Extend technology leadership. Today Sanmina can provide services from the fabrication of circuit boards to complete system assemblies. In providing these services, Sanmina uses a variety of processes and technologies. Sanmina strives for continuous improvement of its processes and has adopted a number of quality improvement and measurement techniques to monitor its performance. Sanmina has also recently made significant capital expenditures to upgrade plant and equipment at its facilities. Sanmina intends to stay on the leading edge of technology development and will evaluate new interconnect and packaging technologies as they emerge. CUSTOMERS, MARKETING AND SALES Sanmina's customers include a diversified base of OEMs in the communications (telecommunications and networking), medical and industrial instrumentation and high-speed computer systems segments of the electronics industry. The following table shows the estimated percentage of Sanmina's fiscal 1999 sales in each of these segments. Communications.............................................. 70% Medical and Industrial Instrumentation...................... 16 High-Speed Computer Systems................................. 14
Sanmina develops relationships with its customers and markets its manufacturing services through a direct sales force augmented by a network of manufacturers' representative firms and a staff of in-house customer support specialists. Sanmina's sales resources are directed at multiple management and staff levels within target accounts. Sanmina's direct sales personnel work closely with the customers' engineering and technical personnel to better understand their requirements. Sanmina's manufacturers' representatives are managed by Sanmina's direct sales personnel, rather than from corporate headquarters, in order to provide for greater accountability and responsiveness. Sanmina has also expanded its customer base through acquisitions. In particular, the acquisition of the Comptronix Guntersville, Alabama operations and certain assets of the former custom manufacturing services division of Lucent Technologies provided Sanmina with several new key customer accounts with significant growth potential. In addition, the November 1997 merger with Elexsys, the November 1998 merger with Altron, the December 1998 merger with Telo, and the March 1999 merger with Manu-Tronics also provided Sanmina with several major new customer accounts. Sanmina's October and November 1999 acquisitions of certain Nortel Networks assembly operations will provide Sanmina with an expanded customer relationship with Nortel. Historically, Sanmina has had substantial recurring sales from existing customers. Sanmina also conducts advertising and public relations activities, as well as receiving referrals from current customers. Although Sanmina seeks to diversify its customer base, a small number of customers are responsible for a significant portion of Sanmina's net sales. During fiscal 1999 and 1998, sales to Sanmina's ten largest customers accounted for 54% and 53%, respectively, of Sanmina's net sales. For fiscal 1999, sales to Cisco Systems represented more than 10% of Sanmina's net sales. For fiscal 1998, sales to Cisco Systems and DSC Communications represented more than 10% of Sanmina's net sales. Although there can be no assurance that Sanmina's principal customers will continue to purchase products and services from Sanmina at current levels, if at all, Sanmina expects to continue to depend upon its principal customers for a significant portion of its net sales. Sanmina's customer concentration could increase or decrease, depending on future customer requirements, which will be dependent in large part on market conditions in the electronics industry segments in which Sanmina's customers participate. The loss of one or more major customers, or declines in sales to major customers, could have a material adverse effect on Sanmina's business, financial condition and results of operations. 5 6 MANUFACTURING SERVICES Sanmina specializes in manufacturing complex printed circuit board assemblies, backplane assemblies and printed circuit boards that are used in the manufacture of sophisticated electronic equipment. Sanmina has been manufacturing backplane assemblies since 1981 and began providing electronic assembly and turnkey manufacturing management services, including the assembly and testing of sophisticated electronic systems, in October 1993. Sanmina seeks to establish "partnerships" with its customers by providing a responsive, flexible total manufacturing services solution. These services include computer integrated manufacturing ("CIM") and engineering services, quick-turnaround manufacturing and prototype and reproduction interconnect products and materials procurement and management. CIM services provided by Sanmina consist of developing manufacturing processes, tooling and test sequences for new products from product designs received from customers. Sanmina also evaluates customer designs for manufacturability and test, and, when appropriate, recommends design changes to reduce manufacturing cost or lead times or to increase manufacturing yields and the quality of the finished product. Once engineering is completed, Sanmina manufactures prototype or preproduction versions of that product on a quick-turnaround basis. Sanmina expects that the demand for engineering and quick-turnaround prototype and preproduction manufacturing services will increase as OEMs' products become more complex and as product life cycles shorten. Materials procurement and handling services provided by Sanmina include planning, purchasing, warehousing and financing of electronic components and enclosures used in the assemblies and systems. Prices of Sanmina's SMT or PTH assemblies, backplane assemblies, printed circuit board assemblies, cable assemblies or systems vary depending upon their size and complexity, the specified manufacturing turnaround time, the extent of design and engineering services provided by Sanmina, the market for the various electronic components used and the quantity ordered. These prices of SMT and PTH assemblies, backplane assemblies, and systems typically range from several hundred dollars to over ten thousand dollars per unit. Prices of printed circuit boards manufactured by Sanmina typically range from several dollars to $10,000 per unit. Prices of custom cable assemblies manufactured by Sanmina typically range from several dollars to $10,000 per unit. MANUFACTURING AND ENGINEERING Facilities. Sanmina manufactures its products in 31 decentralized plants, consisting of 24 assembly facilities and 7 printed circuit board fabrication facilities. Generally, each of Sanmina's decentralized plants has its own production, purchasing, and materials management and quality capabilities located on site. The production expertise of some plants overlaps, which enables Sanmina to allocate production based on product type and available capacity at one or more plants. With assembly facilities located in major electronics industry centers throughout the country, including Silicon Valley, Southern California, the Dallas-Forth Worth area, the Research Triangle Park area, New England, the greater Chicago area and Northern Alabama, Sanmina is also able to allocate production based on geographic proximity to the customer, process capabilities and available capacity. Sanmina believes that this flexible approach differs from that of its competition. Decentralized plants can focus on particular product types and respond quickly to customers' specific requirements. Sanmina believes that decentralized facilities also allow it to achieve improved accountability, quality control and cost control. Each plant is managed as a separate profit center, and each plant manager's compensation depends, in part, upon that plant meeting quality, shipment and gross profit targets. In November 1998, Sanmina entered into a lease with an option to purchase a 330,000 square foot campus facility located in San Jose, California. The facility consists of four buildings on a single site. Sanmina intends to consolidate its corporate headquarters and some of its San Jose area assembly operations at this facility. As of October 2, 1999, approximately 75% of the buildings were occupied. The remaining buildings will be occupied in fiscal year 2000. Sanmina's San Jose area printed circuit board fabrication facilities will not be consolidated at the campus facility and will remain at their current locations. 6 7 Manufacturing Processes. Sanmina produces complex, technologically advanced SMT and PTH assemblies, backplane assemblies and multilayer printed circuit boards, custom cable assemblies and full systems that meet increasingly tight tolerances and specifications demanded by OEMs. Multilayering, which involves placing multiple layers of electrical circuitry on a single printed circuit board or backplane, expands the number of circuits and components that can be contained on the interconnect product and increases the operating speed of the system by reducing the distance that electrical signals must travel. Increasing the density of the circuitry in each layer is accomplished by reducing the width of the circuit tracks and placing them closer together on the printed circuit board or backplane. Interconnect products having narrow, closely spaced circuit tracks are known as "fine line" products. Today, Sanmina is capable of efficiently producing commercial quantities of printed circuit boards with up to 52 layers and circuit track widths as narrow as three mils. The manufacture of complex multilayer interconnect products often requires the use of sophisticated circuit interconnections between certain layers (called "blind or buried vias") and adherence to strict electrical characteristics to maintain consistent circuit transmission speeds (referred to as "controlled impedance"). These technologies require very tight lamination and etching tolerances and are especially critical for printed circuit boards with ten or more layers. The manufacture of printed circuit boards involves several steps: etching the circuit image on copper-clad epoxy laminate, pressing the laminates together to form a panel, drilling holes and depositing copper or other conductive material to form the inter-layer electrical connections and, lastly, cutting the panels to shape. Certain advanced interconnect products require additional critical steps, including dry film imaging, photoimageable soldermask processing, computer controlled drilling and routing, automated plating and process controls and achievement of controlled impedance. Manufacture of printed circuit boards used in backplane assemblies requires specialized expertise and equipment because of the larger size of the backplane relative to other printed circuit boards and the increased number of holes for component mounting. The manufacture of SMT and PTH assemblies involves the attachment of various electronic components, such as integrated circuits, capacitors, microprocessors and resistors to printed circuit boards. The manufacture of backplane assemblies involves attachment of electronic components, including printed circuit boards, integrated circuits and other components, to the backplane, which is a large printed circuit board manufactured by Sanmina. Sanmina uses SMT, PTH and press-fit technologies in backplane assembly. All of Sanmina's manufacturing facilities are certified under ISO 9002, a set of standards published by the International Organization of Standardization and used to document, implement and demonstrate quality management and assurance systems in design and manufacturing. As part of the ISO 9002 certification process, Sanmina has developed a quality systems manual and an internal system of quality controls and audits. Although ISO 9002 certification is of particular importance to the companies doing business in the European Community, Sanmina believes that United States electronics manufacturers are increasing their use of ISO 9002 registration as a criteria for suppliers. In addition to ISO 9002 certification, Sanmina is BellCore, British Approval Board for Telecommunications ("BABT") and Underwriters Laboratories ("UL") compliant. These qualifications establish standards for quality, manufacturing process control and manufacturing documentation and are required by many OEMs in the electronics industry, including suppliers to AT&T and the Regional Bell Operating Companies. Sanmina orders materials and components based on purchase orders received and accepted and seeks to minimize its inventory of materials or components that are not identified for use in filling specific orders. Materials used in manufacturing printed circuit boards are readily available in the open market and Sanmina has not to date experienced any significant shortages of such materials. Electronic components used by Sanmina in producing SMT and PTH assemblies and its backplane assemblies are purchased by Sanmina and, in certain circumstances, it may be required to bear the risk of component price fluctuations. In addition, shortages of certain types of electronic components have occurred in the past and may occur in the future. Component shortages or price fluctuations could have an adverse effect on Sanmina's SMT and PTH assemblies and its backplane assembly business, thereby adversely affecting Sanmina's results of operations. Due to the continued expansion of Sanmina's contract manufacturing and backplane assembly businesses as a 7 8 percentage of Sanmina's net sales, component shortages and price fluctuations would adversely affect Sanmina's results of operations to a greater extent than in prior fiscal years. TECHNOLOGY DEVELOPMENT Sanmina's close involvement with its customers at the early stages of their product development positions it at the leading edge of technical innovation in the manufacturing of SMT and PTH assemblies, backplane assemblies, and printed circuit boards. Sanmina selectively seeks orders that require the use of state-of-the-art materials or manufacturing techniques in order to further develop its manufacturing expertise. Current areas of manufacturing process development include reducing circuit widths and hole sizes, establishing new standards for particle contamination and developing new manufacturing processes for the use with new materials and new surface mount connector and component designs. Recent developments in the electronics industry have necessitated improvements in the types of laminate used in the manufacture of interconnect products. New laminate materials may contain new chemical formulations to achieve better control of flow, resin systems with high glass transition temperatures, reduced surface imperfections and greatly improved dimensional stability. Future generations of interconnect products will require ultra fine lines, multilayers of much greater complexity and thickness, and extremely small holes in the 4 to 10 mil range. The materials designed to meet these requirements, such as BT epoxy, cyanate esters, polyamide quartz, and Kevlar epoxy, are beginning to appear in the marketplace. Widespread commercial use of these materials will depend upon statistical process control and improved manufacturing procedures to achieve the required yields and quality. Sanmina has developed expertise and techniques which it uses in the manufacture of circuit boards, backpanels and subsystems. Generally, Sanmina relies on common law trade secret protection and on confidentiality agreements with its employees to protect its expertise and techniques. Sanmina owns five patents and believes that patents have not historically constituted a significant form of intellectual property right in its industry. ENVIRONMENTAL CONTROLS Proper waste disposal is a major consideration for printed circuit board manufacturers because metals and chemicals are used in the manufacturing process. Water used in the printed circuit board manufacturing process must be treated to remove metal particles and other contaminants before it can be discharged into the municipal sanitary sewer system. In addition, although the electronics assembly process generates significantly less waste water than printed circuit board fabrication, maintenance of environmental controls is also important in the electronics assembly process. Each of Sanmina's printed circuit board and electronics assembly plants has personnel responsible for monitoring environmental compliance. These individuals report to Sanmina's director of environmental compliance, who has overall responsibility for environmental matters. Each plant operates under effluent discharge permits issued by the appropriate governmental authority. These permits must be renewed periodically and are subject to revocation in the event of violations of environmental laws. There can be no assurance that violations will not occur in the future as a result of human error, equipment failure or other causes. In the event of a future violation of environmental laws, Sanmina could be held liable for damages and for the costs of remedial actions and could be also subject to revocation of effluent discharge permits. Any such revocation could require Sanmina to cease or limit production at one or more of its facilities, thereby having an adverse impact on Sanmina's results of operations. Sanmina is also subject to environmental laws relating to the storage, use and disposal of chemicals, solid waste and other hazardous materials as well as air quality regulations. Furthermore, environmental laws could become more stringent over time, and the costs of compliance with and penalties associated with violation of more stringent laws could be substantial. In November 1997, Sanmina merged with Elexsys, which, by virtue of such merger, became a wholly owned subsidiary of Sanmina. Several facilities owned or occupied by Elexsys at the time of the merger, or formerly owned or occupied by Elexsys or companies acquired by Elexsys, had either soil contamination or contamination of groundwater underneath or near the facility. Contamination was discovered at Elexsys' 8 9 Irvine, California facility in 1989 and Elexsys voluntarily installed a groundwater remediation system at the facility in 1994. Additional investigation is being undertaken by other parties in the area at the request of the California Regional Water Quality Control Board. It is unknown whether any additional remediation activities will be required as a result of such investigations or whether any third party claims will be brought against Sanmina alleging that they have been damaged in any way by the existence of the contamination at the Irvine facility. Sanmina has been required by the California Department of Toxic Substances Control to undertake investigation of soil and/or groundwater at certain facilities formerly owned or occupied by a predecessor company to Elexsys in Mountain View, California. Depending upon the results of this soil sampling and groundwater testing, Sanmina could be ordered to undertake soil and/or groundwater cleanup. To date, Sanmina has not been ordered to undertake any soil or groundwater cleanup activities at the Mountain View facilities, and does not believe any such activities should be required. Test results received to date are not sufficient to enable Sanmina to determine whether or not such cleanup activities are likely to be mandated. Contamination has also been discovered at other current and former Elexsys facilities and has been reported to the relevant regulatory agencies. No remediation or further investigation of such contamination has been required by regulatory agencies. To date, the cost of the various investigations and the cost of operating the remediation system at the Irvine facility have not been material to Sanmina's financial condition. However, in the event Sanmina is required to undertake additional groundwater or soil cleanup, the costs of such cleanup are likely to be substantial. Sanmina is currently unable to estimate the amount of such soil and groundwater cleanup costs because no soil or groundwater cleanup has been ordered and Sanmina cannot determine from available test results what remediation activities, if any, are likely to be required. Sanmina believes, based on the limited information currently available, that the cost of any groundwater or soil clean-up that may be required would not have a material adverse effect on Sanmina's business, financial condition and results of operations. Nevertheless, the process of remediating contaminated soil and groundwater is costly, and if Sanmina is required to undertake substantial remediation activities at one or more of the former Elexsys facilities, there can be no assurance that the costs of such activities would not have a material adverse effect on Sanmina's business, financial condition and results of operations. Altron was advised in 1993 by Olin Corporation that contamination resulting from activities of prior owners of property owned by Olin Corporation and located close to the Altron manufacturing plant in Wilmington, Massachusetts, had migrated under the Altron plant. Olin has assumed full responsibility for any remediation activities that may be required and has agreed to indemnify and hold Altron harmless from any and all costs, liabilities, fines, penalties, charges and expenses arising from and relating to any action or requirement, whether imposed by statute, ordinance, rule, regulation, order, decree or by general principles of law to remediate, clean up or abate contamination emanating from the Olin site. Although Sanmina believes that Olin's assumption of responsibility will result in no remediation cost to Altron from the contamination, there can be no assurance that Altron will not be subject to some costs regarding this matter. Sanmina does not anticipate that such costs, if any, will be material to its financial condition or results of operations. Sanmina has been named as a potentially responsible party at several contaminated disposal sites as a result of the past disposal of hazardous waste by companies acquired by Sanmina or their corporate predecessors. While liabilities for such historic disposal activities has not been material to Sanmina's financial condition to date, there can be no guarantee that past disposal activities will not result in material liability to Sanmina in the future. BACKLOG Sanmina's backlog was approximately $539 million at October 2, 1999, and approximately $295 million at September 30, 1998. Backlog consists of purchase orders received by Sanmina, including, in certain instances, forecast requirements released for production under customer contracts. Cancellation and postponement charges generally vary depending upon the time of cancellation or postponement, and a certain portion of Sanmina's backlog may be subject to cancellation or postponement without significant penalty. Typically, a substantial portion of Sanmina's backlog is scheduled for delivery within 210 days. 9 10 COMPETITION Significant competitive factors in the market for advanced backplane assemblies and printed circuit boards include product quality, responsiveness to customers, manufacturing and engineering skills, and price. Sanmina believes that competition in the market segments served by Sanmina is based more on product quality and responsive customer service and support than on price, in part because the cost of interconnect products manufactured by Sanmina is usually low relative to the total cost of the equipment for which they are components, and in part because of the greater importance of product reliability and prompt delivery to Sanmina's customers. Sanmina believes that its primary competitive strengths are its ability to provide responsive, flexible, short lead-time manufacturing services, its engineering and manufacturing expertise and its customer service support. Sanmina faces intense competition from a number of established competitors in its various product markets. Certain of Sanmina's competitors have greater financial and manufacturing resources than Sanmina, including significantly greater SMT assembly capacity. During periods of recession in the electronic industry, Sanmina's competitive advantages in the areas of quick-turnaround manufacturing and responsive customer service may be of reduced importance to electronics OEMs, who may become more price sensitive. In addition, captive interconnect product manufacturers may seek orders in the open market to fill excess capacity, thereby increasing price competition. Although Sanmina generally does not pursue high-volume, highly price sensitive interconnect product business, it may be at a competitive disadvantage with respect to price when compared to manufacturers with lower cost structures, particularly those manufacturers with offshore facilities where labor and other costs are lower. EMPLOYEES As of October 2, 1999, Sanmina had approximately 7,220 full-time employees, including approximately 6,800 in manufacturing and engineering, approximately 220 in marketing and sales, and approximately 200 in general administration and finance. None of Sanmina's employees is represented by a labor union and Sanmina has never experienced a work stoppage or strike. Sanmina believes its relationship with its employees is good. Sanmina's success depends to a large extent upon the continued services of key managerial and technical employees. The loss of such personnel could have a material adverse effect on Sanmina. To date, Sanmina has not experienced significant difficulties in attracting or retaining such personnel. Although Sanmina is not aware that any of its key personnel currently intend to terminate their employment, their future services cannot be assured. ITEM 2. PROPERTIES Sanmina's principal facilities comprise an aggregate of approximately 2.5 million square feet. Except for Sanmina's 72,000 square foot Manchester, New Hampshire facility, the 160,000 square foot facility occupied by Sanmina Cable Systems in Carrollton, Texas, a 70,000 square foot facility located in Nashua, New Hampshire, a 200,000 square foot facility located in Wilmington, Massachusetts, a 104,000 square foot facility located in Woburn, Massachusetts, a 44,200 square foot facility located in Irvine, California, a 197,600 square foot facility located in Kenosha, Wisconsin, a 105,000 square foot facility located in Guntersville, Alabama, and Sanmina's 52,000 square foot facility located in Dublin, Ireland, all of the facilities are leased, and the leases for these facilities expire between 1999 and 2006. The leases generally may be extended at Sanmina's option. Sanmina has fourteen principal facilities located in the greater San Jose, California area, with other facilities located in Southern California, Plano, Texas, Richardson, Texas, Manchester, New Hampshire, Guntersville, Alabama, Durham, North Carolina, Wilmington and Woburn, Massachusetts, the greater Chicago area, Calgary, Canada, and Dublin, Ireland. In November 1998, Sanmina entered into a lease with an option to purchase a 330,000 square foot campus facility located in San Jose, California. The facility consists of four buildings on a single site. Sanmina intends to consolidate its corporate headquarters and some of its San Jose area assembly operations at this facility. As of October 2, 1999, approximately 75% of the buildings were occupied. The remaining buildings 10 11 will be occupied in fiscal year 2000. Sanmina's San Jose area printed circuit board fabrication facilities will not be consolidated at the campus facility and will remain at their current locations. Sanmina believes that its facilities are adequate to meet its reasonably foreseeable requirements for at least the next two years. Sanmina continually evaluates its expected future facilities requirements. ITEM 3. LEGAL PROCEEDINGS Sanmina is not currently a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 11 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The information required by this item is incorporated by reference to page 23 of the Registrant's 1999 annual report to stockholders under the caption "quarterly results." ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference to page 18 of the Registrant's 1999 annual report to stockholders under the caption "Selected Financial Data." ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference to pages 19 through 26 of the Registrant's 1999 annual report to stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference to pages 28 through 40 of the Registrant's 1999 annual report to stockholders. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 12 13 PART III Certain information required by Part III is omitted from this Report on Form 10-K in that the Registrant will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A with respect to the 2000 Annual Meeting of Stockholders (the "Proxy Statement") to be held on January 28, 2000 and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item relating to directors is incorporated by reference to the information under the caption "Proposal No. 1 -- Election of Directors" in the Proxy Statement. DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of Sanmina, and certain information about them as of December 1999, are as follows:
NAME AGE POSITION ---- --- -------- Jure Sola................................. 47 Chairman, Chief Executive Officer and Director(1) John Bolger............................... 53 Director(2) Neil Bonke................................ 58 Director(1)(2) Randy W. Furr............................. 45 President, Chief Operating Officer and Director Elizabeth D. Jordan....................... 36 Executive Vice President and Chief Financial Officer Michael J. Landy.......................... 45 Executive Vice President of Sales and Marketing Mario Rosati.............................. 53 Director Joseph Schell............................. 53 Director Bernard Vonderschmitt..................... 76 Director(1)
- --------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Mr. Sola co-founded Sanmina in 1980 and initially held the position of Vice President of Sales and Marketing and was responsible for the development and growth of Sanmina's sales organization. He became Vice President and General Manager in October 1987 with responsibility for all manufacturing operations as well as sales and marketing. Mr. Sola was elected President in October 1989 and has served as Chairman of the Board and Chief Executive Officer since April 1991. Mr. Sola relinquished the title of President when Mr. Furr was appointed to such position in March 1996. Mr. Bolger has been a director of Sanmina since 1994. From June 1989 through April 1992, he served as Vice President of Finance and Administration of Cisco Systems, Inc., a manufacturer of computer networking systems. Mr. Bolger is currently an independent business consultant and serves as a director of Integrated Device Technology, Inc., Integrated Systems, Inc., TCSI, Inc. and Mission West Properties, Inc. Mr. Bonke has been a director of Sanmina since 1995. He also serves on the Board of Directors of Electroglas, Inc., FSI International and SpeedFam International, all semiconductor equipment companies. Mr. Bonke previously served as the Chairman of the Board of Electroglas, Inc. From April 1993 to April 1996, he served as Chief Executive Officer of Electroglas. From September 1990 to April 1993, Mr. Bonke was a Group V.P. and President of Semiconductor Operations of General Signal Corp. Mr. Furr joined Sanmina as Vice President and Chief Financial Officer in August 1992. In March 1996, Mr. Furr was appointed President and Chief Operating Officer. In December 1999, Mr. Furr was appointed to Sanmina's board of directors. From April to August 1992, Mr. Furr was Vice President and Chief Financial Officer of Aquarius Systems Inc. North America ("ASINA"), a manufacturer of personal computers. Prior to working at ASINA, he held numerous positions in both financial and general management for General 13 14 Signal Corporation during a 13 year period, serving most recently as Vice President and General Manager of General Signal Thinfilm Company. Mr. Furr is a Certified Public Accountant. Ms. Jordan became Chief Financial Officer and Executive Vice President at Sanmina in June 1999. Ms. Jordan joined Sanmina in October 1997 as Corporate Controller and was named Vice President of Finance in October 1998. From August 1992 to October 1997, Ms. Jordan worked for Network General Corporation, a network fault and performance management solutions company, serving most recently as Director of Corporate Accounting. Prior to Network General, she served in a variety positions in the banking industry and in public accounting. Mr. Landy became Executive Vice President of Sales and Marketing at Sanmina in October 1997. He was named an Executive Vice President of Sanmina in October 1998. He joined Sanmina in August 1993 as General Manager of Sanmina's Richardson, Texas operations and in 1995 was promoted to Vice President Assembly Operations for the Central Region of the United States. Prior to his employment with Sanmina, Mr. Landy held a senior management position with a telecommunications corporation. Mr. Rosati has been a director of Sanmina since 1997. He has been a member of the law firm Wilson Sonsini Goodrich & Rosati, Professional Corporation since 1971. Mr. Rosati is a director of Aehr Test Systems, a manufacturer of computer hardware testing systems, Genus, Inc., a semiconductor equipment manufacturer, Ross Systems, Inc., a software company, C-ATS Software, Inc., a financial database software company, MyPoints.com, Inc., a web and email-based direct marketing company, Symyx Technologies, Inc., a combinatorial materials science company and The Management Network Group, Inc., a management consulting firm focused on the telecommunications industry, all publicly-held companies. He is also a director of several privately-held companies. Mr. Schell was appointed to the board of directors in December 1999. From 1985 to 1999, he served as Senior Managing Director at Montgomery Securities (recently named Banc of America Securities). Mr. Schell also serves on the board of directors of Dycom Industries, Inc. and the Good Guys, Inc., both publicly traded companies. Mr. Vonderschmitt has been a director of Sanmina since October 1990. He co-founded Xilinx, Inc., a manufacturer of field programmable gate array semiconductor products and related system software, served as its Chief Executive Officer and as a director from its inception in February 1984 through February 1996, and has served as the Chairman of its Board of Directors since February, 1996. He is also a director of International Microelectronic Products, Inc., and Credence Systems Corporation. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information under the caption "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the information under the caption "Record Date and Stock Ownership" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the information under the caption "Certain Transactions" in the Proxy Statement. 14 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following Financial Statements of Sanmina Corporation and Report of Independent Public Accountants are incorporated by reference to pages 28 through 40 of the Registrant's 1999 annual report to stockholders: Report of Independent Public Accountants Consolidated Balance Sheets, As of October 2, 1999 and September 30, 1998 Consolidated Statements of Operations, Years Ended October 2, 1999, September 30, 1998 and 1997 Consolidated Statements of Comprehensive Income, Years Ended October 2, 1999, September 30, 1998 and 1997 Consolidated Statements of Stockholders' Equity, Years Ended October 2, 1999, September 30, 1998 and 1997 Consolidated Statements of Cash Flows, Years Ended October 2, 1999, September 30, 1998 and 1997 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULE The following financial statement schedule of Sanmina Corporation is filed as part of this report on Form 10-K and should be read in conjunction with the Financial Statements of Sanmina Corporation incorporated by reference herein: Schedule II -- Valuation and Qualifying Accounts Report of Independent Public Accountants on Schedule All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto. 3. EXHIBITS Refer to (c) below. (b) REPORTS ON FORM 8-K On December 14, 1998, the Company filed a report on Form 8-K relating to the merger with Altron. On February 10, 1999, the Company filed a report on Form 8-K/A relating to the merger with Altron. On April 29, 1999, the Company filed a report on Form 8-K relating to the merger with Manu-Tronics. On April 30, 1999, the Company filed a report on Form 8-K relating to the offering of convertible subordinated notes. (c) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.2(8) Restated Certificate of Incorporation of Registrant. 3.3(1) Bylaws of Registrant, as amended. 4.2(1) Specimen Stock Certificate. 4.3 Convertible subordinated notes issued in April 1999. 10.2(4) Amended 1990 Incentive Stock Plan.
15 16
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.3(1) 1993 Employee Stock Purchase Plan. .109(k)(2) Amended and Restated Credit Agreement dated as of August 18, 1993 among Sanmina Corporation, Chemical Bank and other lenders. .109(k)(5) Amendment dated July 27, 1995 to Amended and Restated Credit Agreement dated August 18, 1993. .109(1)(2) Revolving Credit Note, $12,000,000.00, Chemical Bank. 10.10(1) Lease for premises at 2109 O'Toole Avenue, Suites A-E, San Jose, California (Portion of Plant I). 10.11(1) Lease for premises at 2101 O'Toole Avenue, San Jose, California (Portion of Plant I). 10.12(1) Lease for premises at 2539 Scott Boulevard, Santa Clara, California (Plant III). 10.14(1) Lease for premises at 2060-2068 Bering Drive, San Jose, California (Plant II). 10.15(1) Lease for premises at 4220 Business Center Drive, Fremont, California (Plant V). 10.16(1) Lease for premises at McCarthy Boulevard, Milpitas, California (Plant VI). 10.17(1) Lease for premises at 2121 O'Toole Avenue, San Jose, California (Corporate Headquarters). 10.19(2) Lease for premises at 1250 American Parkway, Richards, Texas (Plant VII). 10.20(2) Lease for premises at 6453 Kaiser Drive, Fremont, California (Plant VIII). 10.21(3) Asset Purchase Agreement dated September 28, 1994 between Registrant and Comptronix Corporation. 10.22(4) Lease for premises at 355 East Trimble Road, San Jose, California. 10.23(5) Stock Purchase Agreement dated May 31, 1995 between Sanmina Corporation, Assembly Solutions, Inc. and the principal stockholders of Assembly Solutions, Inc. 10.24(6) Indenture dated August 15, 1995 between Registrant and Norwest Bank Minnesota, N.A. as Trustee. 10.25(7) Asset Purchase Agreement dated September 20, 1996 between Registrant and Comptronix Corporation. 10.26(9) Agreement and Plan of Merger dated July 22, 1997 among Registrant, SANM Acquisition Subsidiary, Inc. and Elexsys International, Inc. 10.26(10) Agreement and Plan of Merger dated September 2, 1998 among Registrant, SANM Acquisition Subsidiary, Inc. and Altron, Inc. 10.27(11) Synthetic lease agreement. 10.28(12) Agreement and Plan of Merger dated March 30, 1999 among Registrant, SANM Acquisition Subsidiary, Inc. and Manu-Tronics, Inc. 13 Annual Report 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule
- --------------- (1) Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Registration Statement on Form S-1, No. 33-70700 filed with the Securities and Exchange Commission ("SEC") on February 19, 1993. (2) Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Registration Statement on Form S-1 No. 33-70700 filed with the SEC on October 22, 1993. 16 17 (3) Incorporated by reference to exhibit no. 2 previously filed with Registrant's Report on Form 8-K filed with the SEC on October 28, 1994. (4) Incorporated by reference to the like-numbered exhibits previously filed with Registrant's Report on Form 10-K filed with the SEC on December 29, 1994. (5) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form 10-Q filed with the SEC on July 31, 1995. (6) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form 10-K for the fiscal year ended September 30, 1995. (7) Incorporated by reference to exhibit 2 previously filed with the Registrant's Report on Form 8-K filed with the SEC on November 15, 1996. (8) Incorporated by reference to the like numbered exhibit previously filed with Registrant's Report on Form 10-K for the fiscal year ended September 30, 1997. (9) Incorporated by reference to exhibit 2.1 previously filed with Registrant's Report on Form 8-K filed with the SEC on November 21, 1997. (10) Incorporated by reference to exhibit 2.1 previously filed with Registrant's Report on Form 8-K filed with the SEC on September 4, 1998. (11) Incorporated by reference to the like-numbered exhibit previously filed with Registrant's Report on Form 10-K for the fiscal year ended September 30, 1998. (12) Incorporated by reference to exhibit 2.1 previously filed with Registrant's Report on Form 8-K filed with the SEC on April 29, 1999. 17 18 SIGNATURES 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 By: /s/ JURE SOLA ------------------------------------ Jure Sola Chairman and Chief Executive Officer Date: December 14, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JURE SOLA Chairman, Chief Executive December 14, 1999 - ----------------------------------------------------- Officer and Director Jure Sola (Principal Executive Officer) /s/ RANDY W. FURR President, Chief Operating December 14, 1999 - ----------------------------------------------------- Officer and Director Randy W. Furr /s/ ELIZABETH D. JORDAN Executive Vice President and December 14, 1999 - ----------------------------------------------------- Chief Financial Officer Elizabeth D. Jordan (Principal Financial and Accounting Officer) /s/ NEIL BONKE Director December 14, 1999 - ----------------------------------------------------- Neil Bonke /s/ JOHN BOLGER Director December 14, 1999 - ----------------------------------------------------- John Bolger /s/ MARIO M. ROSATI Director December 14, 1999 - ----------------------------------------------------- Mario M. Rosati /s/ JOSEPH M. SCHELL Director December 14, 1999 - ----------------------------------------------------- Joseph M. Schell /s/ BERNARD VONDERSCHMITT Director December 14, 1999 - ----------------------------------------------------- Bernard Vonderschmitt
18 19 SCHEDULE II SANMINA CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF OF PERIOD EXPENSES DEDUCTIONS PERIOD ---------- ---------- ---------- ---------- Allowance for Doubtful Accounts and Returns Fiscal year ended September 30, 1997.................. $2,730 $2,288 $273 $4,745 Fiscal year ended September 30, 1998.................. $4,745 $1,994 $945 $5,794 Fiscal year ended October 2, 1999..................... $5,794 $4,117 $463 $9,448
S-1 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To the Board of Directors and Stockholders of Sanmina Corporation: We have audited, in accordance with generally accepted auditing standards, the financial statements included in Sanmina Corporation's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated October 22, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule at Item 14(a)2 is the responsibility of Sanmina's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California October 22, 1999 S-2 21 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 13 Annual Report 21 Subsidiaries of the Registrant 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule
EX-13 2 ANNUAL REPORT 1 EXHIBIT 13 FINANCIAL TABLE OF CONTENTS Selected Financial Data {18} Management's Discussion and Analysis {19} Statement of Financial Responsibility {27} Consolidated Balance Sheets {28} Consolidated Statements of Operations and Comprehensive Income {29} Consolidated Statements of Stockholders' Equity {30} Consolidated Statements of Cash Flows {31} Notes to the Consolidated Financial Statements {32} Report of Independent Public Accountants {40}
17 2 SELECTED FINANCIAL DATA S a n m i n a C o r p o r a t i o n
Year Ended ---------------------------------------------------------------- October 2, September 30, ---------- -------------------------------------------------- (in thousands, except per share amounts) 1999 1998 1997 1996 1995 - ---------------------------------------- ---------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA Net sales $1,214,744 $991,821 $803,064 $617,487 $469,394 Cost of sales 962,595 783,949 640,644 484,687 375,238 Gross profit 252,149 207,872 162,420 132,800 94,156 Selling, general and administrative expenses 74,796 67,165 63,856 45,483 36,278 Amortization of goodwill 3,269 3,127 2,283 2,000 568 Provision for plant closing and relocation costs 16,875 -- 8,876 -- -- Write down of long-lived assets 11,400 -- -- -- -- Merger costs 5,479 3,945 -- -- -- Operating income 140,330 133,635 87,405 85,317 57,310 Other income (expense), net 7,549 (272) (1,691) (760) (681) Income before provision for income taxes and extraordinary item 147,879 133,363 85,714 84,557 56,629 Provision for income taxes 54,182 47,734 36,358 29,543 20,965 Gain from exchange of convertible subordinated debentures for common stock, net of expenses -- -- -- -- 1,833 Net income $ 93,697 $ 85,629 $ 49,356 $ 55,014 $ 37,497 ========== ======== ======== ======== ======== Diluted earnings per share: Income before extraordinary item $ 1.52 $ 1.52 $ 0.91 $ 1.04 $ 0.76 Extraordinary item -- -- -- -- 0.04 Net income per share $ 1.52 $ 1.52 $ 0.91 $ 1.04 $ 0.80 Shares used in computing diluted per share amounts 61,662 58,597 57,616 55,666 47,972 ========== ======== ======== ======== ========
As of ---------------------------------------------------------------- October 2, September 30, ---------- -------------------------------------------------- (in thousands) 1999 1998 1997 1996 1995 - --------------------- ---------- -------- -------- -------- -------- BALANCE SHEET DATA Working capital $ 667,784 $300,337 $251,350 $228,620 $200,703 Total assets 1,201,713 658,367 553,478 450,134 368,858 Long-term debt 357,980 19,408 120,307 117,726 113,997 Stockholders' equity 626,347 481,985 297,870 233,959 166,493 ========== ======== ======== ======== ========
18 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS S a n m i n a C o r p o r a t i o n OVERVIEW 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 ("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-layered printed circuit boards, electronic enclosure systems and testing and assembly of completed systems. In addition to assembly, turnkey manufacturing management also involves procurement and materials management, as well as consultation on printed circuit board design and manufacturing. Sanmina, through its Sanmina Cable Systems ("SCS") subsidiary (formerly known as Golden Eagle Systems), also manufactures custom cable and wire harness assemblies for electronic industry OEMs. In addition, as part of the Elexsys International ("Elexsys") merger completed in November 1997, Sanmina acquired and currently operates a metal stamping and plating business. Sanmina's assembly plants are located in Northern California, Richardson, Texas, Manchester, New Hampshire, Durham, North Carolina, Guntersville, Alabama, and Dublin, Ireland. Sanmina's printed circuit board fabrication facilities are located in Northern California, Southern California, and Nashua, New Hampshire. SCS's manufacturing facility is located in Carrollton, Texas. As a result of Sanmina's November 1998 merger with Altron Incorporated ("Altron"), Sanmina has added new fabrication and assembly plants in the Boston, Massachusetts area, Northern California, and Plano, Texas. In addition, as a result of Sanmina's merger with Telo Electronics Incorporated ("Telo") and Manu-Tronics, Inc. ("Manu-Tronics"), Sanmina has added new assembly plants in San Jose, California and in the greater Chicago area. As part of Sanmina's agreement to acquire certain assembly operations of Nortel Networks Corporation, Sanmina added an assembly plant in Calgary, Alberta, Canada on October 1, 1999. In addition, Sanmina also added an assembly plant in Chateaudun, France in November 1999. As part of Sanmina's acquisition of Devtek Electronics Packaging Systems Division on October 5, 1999, Sanmina added an enclosure facility in Toronto, Ontario, Canada. 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 margins, to access new geographic markets, to implement Sanmina's vertical integration strategy and/or to obtain facilities and equipment on terms more favorable than those generally available in the market. In particular, Sanmina expects that it will continue to pursue opportunities to acquire assembly operations being divested by electronics industry OEMs. This report contains forward-looking statements within the meaning of Section 72A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual events and/or future results of operations may differ materially from those contemplated by such forward-looking statements, as a result of the factors described herein, and in the documents incorporated herein by reference, including, in particular, those factors described under "Factors Affecting Operating Results." RESULTS OF OPERATIONS Fiscal Years Ended October 2, 1999, September 30, 1998 and 1997 The following table sets forth, for the periods indicated, certain statements of operations data expressed as a percentage of net sales.
Year Ended ------------------------------------------ October 2, September 30, September 30, 1999 1998 1997 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales 79.2 79.0 79.8 Gross profit 20.8 21.0 20.2 Operating expenses: Selling, general and administrative 6.2 6.8 7.9 Amortization of goodwill 0.3 0.3 0.3 Provision for plant closing and relocation costs 1.4 -- 1.1 Write down of long-lived assets 0.9 -- -- Merger costs 0.4 0.4 -- Total operating expenses 9.2 7.5 9.3 Operating income 11.6 13.5 10.9 Other income (expenses), net 0.6 (0.1) (0.2) Provision for income taxes (4.5) (4.8) (4.5) Net income 7.7% 8.6% 6.2% ===== ===== =====
Net Sales Net sales in fiscal 1999 increased 22.5% to $1,214.7 million from $991.8 million in fiscal 1998, which was an increase of 23.5% from fiscal 1997 sales of $803.1 million. The increase in net sales for fiscal 1999 was due primarily to increased shipments of EMS assemblies to both existing and new customers obtained both through acquisitions and internal growth. The increase in net sales for fiscal 1998 was the result of increased volumes of business from established customers, the addition of several new major customers during the year and the addition of customers resulting from acquisitions completed during the year. Sanmina's printed circuit board fabrication operations focused increasingly on manufacturing printed circuit boards used in EMS assemblies manufactured by Sanmina, rather than manufacturing "bare" boards for sale to third parties. Growth in EMS assembly revenues during these periods was influenced by the electronics industry trend 19 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) S a n m i n a C o r p o r a t i o n Net Sales (in millions of dollars) 1997 803.1 1998 991.8 1999 1,214.7
Selling, General and Administrative Expenses (as a percentage of net sales) 1997 7.9% 1998 6.8% 1999 6.2%
Gross Margins (as a percentage of net sales) 1997 20.2% 1998 21.0% 1999 20.8%
towards outsourcing, expansion of Sanmina's operations, both through acquisitions and Company-originated expansions, and a generally positive economic environment in the communications, medical and industrial instrumentation, and computer segments of the electronics industry. These segments continued to experience overall growth during these periods. Gross Margin Gross margin was 20.8%, 21.0%, and 20.2% in fiscal 1999, 1998, and 1997, respectively. Sanmina expects gross margins to continue to fluctuate based on product and customer mix. The decrease in gross margin for fiscal 1999 was primarily attributable to charges recorded in the first quarter of fiscal 1999 related to the write down of obsolete inventory and other manufacturing related assets from acquired companies. In the fourth quarter of fiscal 1999, Sanmina experienced increased competition, different product and customer mix which resulted in decreases in gross margins. The increase in gross margin for fiscal 1998 was due to Sanmina's ability to realize synergies associated with the Elexsys acquisition. As the integration of these operations is complete, Sanmina does not anticipate achieving incremental gross margin improvements in future periods as a result of synergies achieved in connection with these acquisitions. Due to increased competition, product and customer mix, and pricing structures negotiated in OEM divestiture transactions, including the recent Nortel Networks transactions and possible future transactions, Sanmina may experience decreases in gross margins. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal 1999, 1998, and 1997 were $74.8 million, $67.2 million, and $63.9 million, respectively. The percentage decreases in selling, general and administrative expenses for fiscal 1999 were due to Sanmina's ability to grow sales while maintaining or reducing operating expenses as a percentage of net sales. The absolute dollar increases in selling, general and administrative expenses were primarily the result of increased expenditures to support higher sales volume. Amortization of Goodwill Sanmina incurred $3.3 million, $3.1 million, and $2.3 million in amortization expense for fiscal years 1999, 1998, and 1997, respectively. These amortization expenses reflect the amortization of goodwill related to acquisitions, which were accounted for as purchase transactions. Plant Closing and Relocation Costs Plant closing and other non-recurring charges of $16.9 million are a result of Sanmina's acquisitions in the first quarter of fiscal 1999 and Sanmina's planned relocation to a new campus facility. Sanmina closed certain manufacturing plants in Fremont, California and Woburn, Massachusetts and merged the operations from these facilities into existing manufacturing facilities within the same regions. These closures were made to eliminate duplicate facilities and other costs resulting from the merger with Altron. Concurrent with the plant closures, Sanmina reduced its workforce in the same regions by approximately 50 people. Plant closing, relocation and severance costs totaled $12.8 million, of which $2.0 million was unpaid as of fiscal year end 1999. In conjunction with the closure of manufacturing facilities and Sanmina's planned relocation to its new campus facility in fiscal 2000, other non-recurring costs include payments required under lease contracts (less any applicable sublease income) after the properties are abandoned, any applicable lease buyout costs, restoration costs associated with certain lease arrangements and the costs to maintain facilities during the period after abandonment. Asset related write-offs consist of excess equipment and leasehold improvements to facilities that were abandoned and whose estimated fair market value is zero. Sanmina's move to the new campus facility commenced in fiscal 1999 and is expected to be completed in the second quarter of fiscal 2000. Noncancelable lease payments on vacated facilities will be paid out through most of fiscal 2000. Sanmina also discontinued the use of enterprise-wide software and hardware used internally by the acquired companies, as these were no longer required post acquisition. The closing of the plants discussed above, and the costs related to the integration of information systems and hardware, were all incurred in fiscal 1999. Total other non-recurring charges totaled $4.1 million. 20 5 Write Down of Long-Lived Assets Sanmina continually evaluates whether long- lived assets have been impaired in value. This process includes evaluating whether projected results of operations of acquired businesses would support the carrying value of related assets including the future amortization of the remaining unamortized balance of goodwill. In the first quarter of fiscal 1999, such evaluation with respect to the acquisition of Pragmatech, Incorporated ("Pragmatech"), indicated the fair value of assets related to Pragmatech were less than the carrying value of the Pragmatech assets. Accordingly, in the first quarter of fiscal 1999, Sanmina recorded an adjustment to write down the remaining $11.4 million of unamortized goodwill arising from the acquisition. The fair value of Pragmatech at the acquisition date was based on the estimated future cash flows to be generated from the assets based on reasonable and supportable assumptions. Financial projections prepared at the time of the acquisition of Pragmatech reflected Sanmina's belief that Sanmina would continue to provide electronics manufacturing services to existing Pragmatech customers and would grow the Pragmatech business at Pragmatech's existing facilities. However, the existing Pragmatech customer relationships could not be restructured to conform to Sanmina's pricing and revenue models, and as a result, the relationships with the former Pragmatech customers have terminated. In addition, Sanmina closed several of the former Pragmatech facilities in fiscal 1998. As a result of these operational factors, Sanmina's analysis of projected revenues, results of operations, and cash flows attributable to the few remaining Pragmatech customers did not support the carrying value of Pragmatech assets, including the unamortized goodwill. Merger costs of $5.5 million consisted of fees for investment bankers, attorneys, accountants, and other direct merger related expenses, all of which have been paid in fiscal 1999 and relate to those mergers that were accounted for using the pooling-of-interests method. In 1998, Sanmina recorded a charge of $3.9 million related to the merger with Elexsys. Other Income and Expense In fiscal 1999, net other income was $7.5 million as compared to net other expense of $272,000 and $1.7 million in fiscal 1998 and 1997, respectively. For fiscal 1999, the increase in net other income was the result of a decrease in outstanding debt. In addition, there was interest income from the higher cash balances available following the $341.1 million (net of issuance costs) issuance of convertible subordinated notes. The interest income was slightly offset by the interest expense associated with the convertible subordinated notes. In the first quarter of fiscal 1998, Sanmina repaid approximately $12.8 million of outstanding Elexsys debt. In addition, in August 1998, $86.3 million of outstanding convertible subordinated notes, issued by Sanmina in August 1995, were converted into Common Stock as a result of a redemption call for such notes issued by Sanmina. Provision for Income Taxes For fiscal 1999, 1998, and 1997, Sanmina's effective tax rate was 36.6%, 35.8%, and 42.4%, respectively. The provision for income taxes for fiscal year 1999 is based upon Sanmina's estimate of an effective tax rate of 36.5%. In the first quarter of fiscal 1999, Sanmina did not record a provision for income taxes due to a net loss. For fiscal 1998, the rate decreased as utilization of net operating loss carryforwards of Elexsys were recognized. Also, the lower rate in fiscal 1998 represents the benefit of foreign operations and merged companies taxed at a reduced rate. LIQUIDITY AND CAPITAL RESOURCES Sanmina generated cash from operating activities of $115.1 million, $106.2 million, and $77.4 million in fiscal years 1999, 1998, 1997, respectively. These increases in cash generated from operations each year were primarily due to Sanmina's increase in profitability. Cash used for investing activities included net purchases of short-term investments during fiscal 1999, 1998, and 1997 of $418.1 million, $52.9 million, and $78.0 million, respectively. For fiscal 1999, Sanmina paid approximately $537.2 million for short-term and long-term investments as well as equipment. Additionally, Sanmina paid approximately $75.1 million in cash for acquired business. These payments were offset by $194.2 million in maturities of short-term investments. Investing activities during 1998 included $55.3 million in property, plant and equipment. Additionally, on February 23, 1998, Sanmina paid approximately $5.7 million in cash to acquire Pragmatech. During fiscal 1997, investing activities included the November 1996 acquisition of the assets of the former Comptronix Corporation for which Sanmina paid cash of approximately $17.6 million, as well as investments in property, plant and equipment of $70.7 million. Net cash provided by financing activities for fiscal 1999 consisted primarily of $341.1 million in net proceeds from the issuance of convertible subordinated notes. The issuance proceeds were partly offset by $22.3 million in payments for long-term notes and liabilities. Proceeds from the exercise of stock options and stock purchase rights were $32.6 million in fiscal 1999. Cash used for financing activities was $19.5 million in fiscal 1998. In fiscal 1998, Sanmina paid approximately $7.5 million in outstanding debt. The payments for other long-term liabilities of $25.4 million, which included the $12.8 million of outstanding Elexsys debt, were offset by the proceeds from exercise of stock options and stock purchase rights of $11.1 million. In August 1998, Sanmina called for redemption an aggregate principal amount of $86.3 million in convertible subordinated notes which were originally issued in August 1995. The notes were converted to Sanmina Common Stock at a price of $14.09 per share, or 70.94 shares of Sanmina's Common Stock per $1,000 principal amount of Notes. Cash was paid in lieu of fractional shares. 21 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) S a n m i n a C o r p o r a t i o n Cash provided by financing activities was $9.3 million in fiscal 1997. Financing activities in fiscal 1997 consisted primarily of receipt of proceeds from exercise of stock options and stock purchase rights. 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 $667.8 million at October 2, 1999. Sanmina has evaluated and will continue to evaluate possible business acquisitions. In this regard, Sanmina anticipates incurring facilities related expenditures during fiscal 2000 in connection with the relocation of its San Jose, California area assembly facilities and its corporate headquarters to a new campus facility. Sanmina has entered into an operating lease agreement for new facilities in San Jose, California, where it will establish its corporate headquarters and certain of its assembly operations. In connection with these transactions, Sanmina pledged $52.9 million of its cash and investments as collateral for certain obligations of the lease. Sanmina believes that its capital resources, together with cash generated from operations, will be sufficient to meet its working capital and capital expenditure requirements through at least the next twelve months. Sanmina may seek to raise additional capital through the issuance of either debt or equity securities. Debt financing may require Sanmina to pledge assets as collateral and comply with financial ratios and covenants. Equity financing may result in dilution to stockholders. YEAR 2000 Sanmina Corporation is subject to potential risks related to Year 2000 problems. Many computer systems and software products are unable to distinguish years beginning with "19" from those beginning with "20." As a result, computer systems and/or software products used by many companies may need to be upgraded to comply with such Year 2000 requirements. Sanmina Corporation is currently expending resources to review its products and services, as well as its internal business and manufacturing systems in order to identify and modify those products, services and systems that are not Year 2000 compliant. There can be no assurance, however, that Sanmina will be able to solve all potential Year 2000 issues. Sanmina's reliance on its key suppliers, and therefore on the proper functioning of their information systems and software, is increasing, and there can be no assurance that another company's failure to address Year 2000 issues could not have an adverse effect on Sanmina. Sanmina initiated formal communications with each of its significant suppliers and customers to determine the extent to which Sanmina is vulnerable to those third parties' failure to remediate their own Year 2000 issues. Based on inquiries to date, the Company believes satisfactory progress has been made by its major vendors and customers on Year 2000 readiness. However, in the event a product manufactured by Sanmina contained Year 2000 problems attributable to a design or product development flaw, it is likely that sales of such product would be adversely affected, which would adversely affect Sanmina's manufacturing services revenues attributable to such product. Such a situation could have a material adverse effect on Sanmina's business, financial condition and results of operations. The Company has updated much of its existing software for Year 2000 compliance by acquiring new or upgraded third party software packages, and by modifying existing internally developed software. The possibility exists, however, that the Company may fail to correct an internal Year 2000 issue in its software or manufacturing equipment. The Company believes this possibility would not significantly impact its operations, as it should be able to effectively conduct its business using Year 2000 compliant software and equipment currently installed. Other Year 2000-related problems such as disruptions in the delivery of materials, power, heat or water to Sanmina's facilities, could prevent Sanmina from being able to manufacture and ship its products. Not only could the Company's production be disrupted if one of its utility providers fails to be fully Year 2000 ready, but also indirectly if a parts supplier's utility provider is not Year 2000 ready. A prolonged utility outage could significantly adversely affect the Company until production is shifted to other facilities or to suppliers not impacted by utility outages. To date, Year 2000 costs are not considered by Sanmina to be material to its financial condition. Sanmina has estimated the cost of its Year 2000 project is approximately $1.7 million. Through October 2, 1999, approximately $1.5 million of this amount has been expended. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards requiring every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires changes in the derivative's fair value be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. The Company does not expect SFAS No. 133 to have a material impact on its financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 22 7 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 October 2, 1999 (in thousands):
Year Ended --------------------------------------------------------------------------------------- (in thousands) 2000 2001 2002 2003 2004 Thereafter Total --------------------------------------------------------------------------------------- Cash equivalents, short-term, and long-term investments 365,505 11,670 - 937 52,850 2,414 433,376 Average interest rate 5.1% 5.7% - 7.6% 5.2% 5.9% 5.1%
FOREIGN CURRENCY EXCHANGE RISK Sanmina transacts business in foreign countries. Sanmina's primary foreign currency cash flows are in certain European countries. Currently, Sanmina does not employ a foreign currency hedge program with respect to transactions and expenditures originating in these or any other foreign countries. Sanmina believes that its foreign currency exchange risk is immaterial. QUARTERLY RESULTS (UNAUDITED) The following table contains selected unaudited quarterly financial data for the eight fiscal quarters in the period ended October 2, 1999. In management's opinion, the unaudited data has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the data for the periods presented. Sanmina's results of operations have varied and may continue to fluctuate significantly from quarter to quarter. Results of operations in any period should not be considered indicative of the results to be expected from any future period. In June 1998, Sanmina effected a two-for-one stock split in the form of a stock dividend. Accordingly, all share and per share data has been adjusted to retroactively reflect the stock split. Common stock prices reflect high and low reported sales prices, as reported by the Nasdaq National Market. The mergers with Elexsys, Altron and Manu-Tronics were accounted for as a pooling of interests, and therefore, all prior periods presented were restated to combine the results of the companies.
(in thousands, except Year Ended percentages and per ------------------------------------------------------------------------------------------------- share amounts) OCTOBER 2, 1999 SEPTEMBER 30, 1998 ---------------------------------------------- ----------------------------------------------- Quarter First Second Third Fourth First Second Third Fourth - ------- ----- ------ ----- ------ ----- ------ ----- ------ Net sales $ 275,533 $281,140 $309,496 $348,575 $220,671 $240,886 $267,617 $262,647 Gross profit 52,284 61,615 66,374 71,876 46,030 51,178 56,941 53,723 Gross margin 19.0% 21.9% 21.4% 20.6% 20.9% 21.2% 21.3% 20.5% Operating income/(loss) (2,300) 43,503 47,595 51,532 25,891 34,247 38,454 35,043 Net income/(loss) (562) 28,772 31,358 34,129 16,266 22,564 24,761 22,038 Net income/(loss) per share (diluted) $ (0.01) $ 0.47 $ 0.51 $ 0.55 $ 0.29 $ 0.40 $ 0.43 $ 0.40 Shares used in computing per share amounts 57,380 61,754 61,847 62,306 58,437 58,327 58,921 58,783 Common stock prices: High $ 62.50 $ 75.56 $ 81.22 $ 83.24 $ 44.00 $ 40.19 $ 46.88 $ 47.56 Low $ 23.88 $ 49.50 $ 57.31 $ 64.13 $ 28.72 $ 26.69 $ 33.88 $ 23.50
FACTORS AFFECTING BUSINESS AND RESULTS OF OPERATIONS This annual report contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated by such forward looking statements as a result of certain factors, including those set forth below. You should carefully consider the risks described below in connection with any evaluation of our business and prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operation could be materially adversely affected. In that case, the trading price of our common stock and our convertible subordinated notes could decline. Sanmina is heavily dependent on the electronics industry. Sanmina's business is heavily dependent on the health of the electronics industry. Sanmina's customers are manufacturers in the telecommunications, networking (data communications), industrial and medical instrumentation and high-speed 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. Sanmina's customers can discontinue or modify products containing components manufactured by Sanmina. Such discontinuance or modification could adversely affect Sanmina's results of operations. The electronics industry is 23 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) S a n m i n a C o r p o r a t i o n 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 of operations. Sanmina typically does not obtain long-term volume purchase contracts from its customers and has recently experienced reduced lead times in customer orders. Customer orders may be canceled and volume levels may be changed or delayed. In particular, Sanmina experienced certain cancellation and rescheduling of shipment dates of customer orders during the fourth fiscal quarter of 1998. The timely replacement of canceled, delayed or reduced contracts with new business cannot be assured. Sanmina's results of operations can be affected by a variety of factors 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, 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 back-plane 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 210 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. 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 Notes and Common Stock. Sanmina experiences customer concentration A small number of customers are responsible for a significant portion of Sanmina's net sales. During fiscal 1999 and 1998, sales to Sanmina's ten largest customers accounted for 54% and 53%, respectively, of Sanmina's net sales. For fiscal 1999, sales to Cisco Systems represented more than 10% of Sanmina's net sales. For fiscal 1998, sales to Cisco Systems and DSC Communications represented more than 10% of Sanmina's net sales. Although there can be no assurance that Sanmina's principal customers will continue to purchase products and services from Sanmina at current levels, if at all, Sanmina expects to continue to depend upon its principal customers for a significant portion of its net sales. Sanmina's customer concentration could increase or decrease, depending on future customer requirements, which will be dependent in large part on market conditions in the electronics industry segments in which Sanmina's customers participate. The loss of one of more major customers or declines in sales to major customers could have a material adverse effect on Sanmina's business, financial condition and results of operations. Sanmina is subject to risks associated with its strategy of acquisitions and expansions Sanmina has, for the past several fiscal years, pursued a strategy of growth. This growth has come in part through acquisitions. These acquisitions have involved both acquisitions of entire companies, such as the January 1996 acquisition of Golden Eagle Systems, now known as Sanmina Cable Systems, the November 1997 merger with Elexsys, the February 1998 acquisition of Pragmatech, the November 1998 merger with Altron, the December 1998 merger with Telo and the March 1999 merger with Manu-Tronics. In addition, Sanmina has in other instances acquired selected assets, principally equipment, inventory and customer contracts and, in certain cases, facilities or facility leases. Acquisitions of this nature completed by Sanmina include the November 1996 acquisitions of the Guntersville, Alabama operations of Comptronix Corporation and certain assets of the custom manufacturing services division of Lucent Technologies. In October and November 1999, Sanmina acquired certain assembly operations of Nortel Networks.In addition to these acquisitions, Sanmina has also grown its operations through internal expansion, such as the opening of its Richardson, Texas assembly facility, its Durham, North Carolina assembly facility and its Dublin, Ireland assembly facility. Acquisitions of companies and businesses and expansion of operations involves certain risks, including the following: - - the potential inability to successfully integrate acquired operations and businesses or to realize anticipated synergies, economies of scale or other value, - - diversion of management's attention, - - difficulties in scaling up production at new sites and coordinating management of operations at new sites, loss of key employees of acquired operations. Accordingly, Sanmina may experience problems in integrating the recently acquired operations or operations associated with any future acquisition. Accordingly, there can be no assurance that any recent or 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 24 9 paid. In particular, the successful combination of Sanmina and any future acquisition will require substantial effort from each company, including the integration and coordination of sales and marketing efforts. The diversion of the attention of management and any difficulties encountered in the transition process, including, the interruption of, or a loss of momentum in, the activities of any future acquisition, problems associated with integration of management information and reporting systems, and delays in implementation of consolidation plans, could have an adverse impact on Sanmina's ability to realize the anticipated benefits of any future acquisition. 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 by Sanmina may result in dilutive issuances of equity securities, the incurrence of additional debt, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense. These factors could have a material adverse effect on Sanmina's business, financial condition and results of operations. 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. Sanmina is subject to competition and technological change The electronic interconnect product industry is highly fragmented and it is characterized by intense competition. Sanmina competes in the technologically advanced segment of the interconnect product market, which is also highly competitive but is much less fragmented than the industry as a whole. Sanmina's competitors consist primarily of larger manufacturers of interconnect products, and some of these competitors have greater manufacturing and financial resources than Sanmina as well as greater SMT assembly capacity. As a participant in the interconnect industry, Sanmina must continually develop improved manufacturing processes to accommodate its customers' needs for increasingly complex products. During periods of recession in the electronics industry, Sanmina's competitive advantages in the areas of quick turnaround manufacturing and responsive customer service may be of reduced importance to electronics OEMs, who may become more price sensitive. In addition, captive interconnect product manufacturers seek orders in the open market to fill excess capacity, thereby increasing price competition. Sanmina may be at a competitive disadvantage with respect to price when compared to manufacturers with lower cost structures, particularly those with offshore facilities where labor and other costs are lower. Environmental matters are a key consideration in Sanmina's business Proper waste disposal is a major consideration for printed circuit board manufacturers because metals and chemicals are used in the manufacturing process. Water used in the printed circuit board manufacturing process must be treated to remove metal particles and other contaminants before it can be discharged into the municipal sanitary sewer system. In addition, although the electronics assembly process generates significantly less waste water than printed circuit board fabrication, maintenance of environmental controls is also important in the electronics assembly process. Each of Sanmina's printed circuit board and electronics assembly plants has personnel responsible for monitoring environmental compliance. These individuals report to Sanmina's Director of Environmental Compliance, who has overall responsibility for environmental matters. Each plant operates under effluent discharge permits issued by the appropriate governmental authority. These permits must be renewed periodically and are subject to revocation in the event of violations of environmental laws. There can be no assurance that violations will not occur in the future as a result of human error, equipment failure or other causes. In the event of a future violation of environmental laws, Sanmina could be held liable for damages and for the costs of remedial actions and could be also subject to revocation of effluent discharge permits. Any such revocation could require Sanmina to cease or limit production at one or more of its facilities, thereby having an adverse impact on Sanmina's results of operations. Sanmina is also subject to environmental laws relating to the storage, use and disposal of chemicals, solid waste and other hazardous materials as well as air quality regulations. Furthermore, environmental laws could become more stringent over time, and the costs of compliance with and penalties associated with violation of more stringent laws could be substantial. Sanmina is subject to certain environmental contingencies at sites operated by acquired companies In November 1997, Sanmina merged with Elexsys International, Inc. which, by virtue of such a merger, became a wholly-owned subsidiary of Sanmina. Several facilities owned or occupied by Elexsys at the time of the merger, or formerly owned or occupied by Elexsys or companies acquired by Elexsys, had either soil contamination or contamination of groundwater underneath or near the facility including the following: contamination was discovered at Elexsys' Irvine, California facility in 1989 and Elexsys voluntarily installed a groundwater remediation system at the facility in 1994. Additional investigation is being undertaken by other parties in the area at the request of the California Regional Water Quality Control Board. It is unknown whether any additional remediation activities will be required as a result of such 25 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) S a n m i n a C o r p o r a t i o n investigations or whether any third party claims will be brought against Sanmina alleging that they have been damaged in any way by the existence of the contamination at the Irvine facility. Sanmina has been required by the California Department of Toxic Substances Control to undertake investigation of soil and/or groundwater at certain facilities formerly owned or occupied by a predecessor company to Elexsys in Mountain View, California. Depending upon the results of this soil sampling and groundwater testing, Sanmina could be ordered to undertake soil and/or groundwater cleanup. To date, Sanmina has not been ordered to undertake any soil or groundwater cleanup activities at the Mountain View facilities, and does not believe any such activities should be required. Test results received to date are not sufficient to enable Sanmina to determine whether or not such cleanup activities are likely to be mandated. Contamination has also been discovered at other current and former Elexsys facilities and has been reported to the relevant regulatory agencies. No remediation or further investigation of such contamination has been required by regulatory agencies. To date, the cost of the various investigations and the cost of operating the remediation system at the Irvine facility have not been material to Sanmina's financial condition. However, in the event Sanmina is required to undertake additional groundwater or soil cleanup, the costs of such cleanup are likely to be substantial. Sanmina is currently unable to estimate the amount of such soil and groundwater cleanup costs because no soil or groundwater cleanup has been ordered and Sanmina cannot determine from available test results what remediation activities, if any, are likely to be required. Sanmina believes, based on the limited information currently available, that the cost of any groundwater or soil clean-up that may be required would not have a material adverse effect on Sanmina's business, financial condition and results of operations. Nevertheless, the process of remediating contaminated soil and groundwater is costly, and if Sanmina is required to undertake substantial remediation activities at one or more of the former Elexsys facilities, there can be no assurance that the costs of such activities costs would not have a material adverse effect on Sanmina's business, financial condition and results of operations. In November, 1998, Sanmina merged with Altron Incorporated which, by virtue of such merger, became a wholly owned subsidiary of Sanmina. Altron was advised in 1993 by Olin Corporation that contamination resulting from activities of prior owners of property owned by Olin Corporation and located close to the Altron manufacturing plant in Wilmington, Massachusetts, had migrated under the Altron plant. Olin has assumed full responsibility for any remediation activities that may be required and has agreed to indemnify and hold Altron harmless from any and all costs, liabilities, fines, penalties, charges and expenses arising from and relating to any action or requirement, whether imposed by statute, ordinance, rule, regulation, order, decree or by general principles of law to remediate, clean up or abate contamination emanating from the Olin site. Although Sanmina believes that Olin's assumption of responsibility will result in no remediation cost to Altron from the contamination, there can be no assurance that Altron will not be subject to some costs regarding this matter, but Sanmina does not anticipate that such costs, if any, will be material to its financial condition or results of operations. Sanmina has been named as a potentially responsible party at several contaminated disposal sites as a result of the past disposal of hazardous waste by companies acquired by Sanmina or their corporate predecessors. While liabilities for such historic disposal activities have not been material to Sanmina's financial condition to date, there can be no guarantee that past disposal activities will not result in material liability to Sanmina in the future. Sanmina's international operations involve additional risks Sanmina opened its first overseas facility, located in Dublin, Ireland, in June 1997. A number of risks are inherent in international operations and transactions. International sales and operations may be limited or disrupted by the imposition of government controls, export license requirements, political instability, trade restrictions, changes in tariffs, and difficulties in staffing, coordinating communications among and managing international operations. Additionally, Sanmina's business, financial condition and results of operations may be adversely affected by fluctuations in international currency exchange rates as well as increases in duty rates, difficulties in obtaining export licenses, constraints on its ability to maintain or increase prices, and competition. There can be no assurance that Sanmina will realize the anticipated strategic benefits of its expansion in Ireland or that Sanmina's international operations will contribute positively to Sanmina's business, financial condition and results of operations. Furthermore, difficulties encountered in scaling up production at overseas facilities or in coordinating Sanmina's United States and international operations, as well as any failure of the international operations to realize anticipated revenue growth, could, individually or in the aggregate, have a material adverse effect on Sanmina's business, financial condition and results of operations. Sanmina's stock price and convertible note price may be volatile. The trading price of the Sanmina Common Stock has been and could in the future be subject to significant fluctuations in response to variations in quarterly operating results, developments in the electronics industry, general economic conditions, changes in securities analysts' recommendations regarding Sanmina's securities and other factors. The trading price of Sanmina's outstanding convertible notes could also be volatile and could be subject to significant fluctuations based on these factors. In addition, the stock market in recent years has experienced significant price and volume fluctuations which have affected the market prices of technology companies and which have been unrelated to or disproportionately impacted by the operating performance of such companies. These broad market fluctuations may adversely affect the market price of Sanmina's Common Stock and Sanmina's convertible subordinated notes. 26 11 STATEMENT OF FINANCIAL RESPONSIBILITY To the Stockholders: The management of Sanmina is responsible for the preparation of the accompanying consolidated financial statements. They have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, as such, include estimates and judgments of management. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. The consolidated financial statements for the years ended October 2, 1999, September 30, 1998, and 1997 were audited by Arthur Andersen LLP, independent public accountants. Sanmina maintains an accounting system and related internal controls that it believes are sufficient to provide reasonable assurance that assets are safeguarded, that transactions are executed and recorded in accordance with management's authorization, and that the financial records are reliable for preparing financial statements. The concept of reasonable assurance is based on the recognition that the cost of the system of internal control must be related to the benefits derived and that the balancing of those factors requires estimates and judgments. The system is monitored regularly by Sanmina for compliance. In addition, solely for the purposes of planning and performing its audit of Sanmina's consolidated financial statements, Arthur Andersen LLP obtained an understanding of, and selectively tested, certain aspects of Sanmina's system of internal control. The Board of Directors has an Audit Committee comprised solely of outside directors. The Committee meets with management and the independent public accountants in connection with its review of matters relating to the annual financial statements, Sanmina's system of internal accounting controls and the services of the independent public accountants. Arthur Andersen LLP has full and free access to meet with the Committee, with or without management representatives present, to discuss the results of its audits, the adequacy of internal accounting controls and the quality of financial reporting. November 30, 1999 /s/ Jure Sola /s/ Randy W. Furr /s/ Elizabeth D. Jordan Jure Sola Randy W. Furr Elizabeth D. Jordan Chairman of the Board and President and Executive Vice President and Chief Executive Officer Chief Operating Officer Chief Financial Officer
27 12 CONSOLIDATED BALANCE SHEETS S a n m i n a C o r p o r a t i o n
As of --------------------------------- October 2, September 30, (in thousands, except per share amounts) 1999 1998 ------------ --------------- ASSETS Current Assets: Cash and cash equivalents $ 136,145 $ 87,978 Short-term investments 318,457 93,526 Accounts receivable, net of allowance for doubtful accounts of $9,448 and $5,794 191,120 133,010 Inventories 206,319 102,940 Deferred income taxes 22,934 19,389 Prepaid expenses and other 10,195 8,220 Total current assets 885,170 445,063 Property and Equipment: Machinery and equipment 322,321 279,277 Furniture and fixtures 5,911 5,695 Leasehold improvements 33,315 49,247 Land and buildings 54,070 21,636 415,617 355,855 Less: Accumulated depreciation and amortization 208,813 164,093 Net property and equipment 206,804 191,762 Other Assets: Intangibles, net of accumulated amortization of $9,447 and $8,093 45,712 19,030 Long-term investments 52,850 - Deposits and other 11,177 2,512 ----------- -------- Total assets $ 1,201,713 $658,367 =========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,556 $ 5,865 Accounts payable 154,827 89,030 Accrued liabilities 26,958 16,711 Accrued payroll and related benefits 24,930 21,603 Income taxes payable 9,115 11,517 ----------- -------- Total current liabilities $ 217,386 $144,726 =========== ======== Long-term Liabilities: Convertible subordinated debt 355,259 5,767 Other liabilities 2,721 25,889 ----------- -------- Total long-term liabilities $ 357,980 $ 31,656 =========== ======== Commitments and Contingencies (notes 5 and 7) Stockholders' Equity: Preferred stock, $.01 par value: Authorized: 5,000 shares; outstanding: none - - Common stock, $.01 par value: Authorized: 200,000 shares; outstanding: 58,892 shares and 56,380 shares 589 564 Additional paid-in capital 291,435 238,933 Accumulated other comprehensive income (loss) (1,049) 386 Retained earnings 335,372 242,379 626,347 482,262 Less treasury stock at cost - 277 Total stockholders' equity 626,347 481,985 ----------- -------- Total liabilities and stockholders' equity $ 1,201,713 $658,367 =========== ========
See accompanying notes. 28 13 CONSOLIDATED STATEMENTS OF OPERATIONS S a n m i n a C o r p o r a t i o n
Year Ended ------------------------------------------ October 2, September 30, September 30, (in thousands, except per share amounts) 1999 1998 1997 ------------ ------------- ------------- Net sales $1,214,744 $ 991,821 $ 803,064 Cost of sales 962,595 783,949 640,644 Gross profit 252,149 207,872 162,420 Operating Expenses: Selling, general and administrative 74,796 67,165 63,856 Amortization of goodwill 3,269 3,127 2,283 Provision for plant closing and relocation costs 16,875 - 8,876 Write down of long-lived assets 11,400 - - Merger costs 5,479 3,945 - Total operating expenses 111,819 74,237 75,015 Operating income 140,330 133,635 87,405 Other income (expense), net 7,549 (272) (1,691) Income before provision for income taxes 147,879 133,363 85,714 Provision for income taxes 54,182 47,734 36,358 ---------- --------- --------- Net income $ 93,697 $ 85,629 $ 49,356 ========== ========= ========= Earnings per share: Basic $ 1.62 $ 1.70 $ 1.02 Diluted 1.52 1.52 0.91 Shares used in computing per share amounts: Basic 57,974 50,301 48,301 Diluted 61,662 58,597 57,616
See accompanying notes. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended ------------------------------------------ October 2, September 30, September 30, (in thousands, except per share amounts) 1999 1998 1997 ----------- ------------- ------------- Net income $ 93,697 $85,629 $49,356 Other comprehensive income (loss), net of tax Foreign currency translation adjustment (505) 102 24 Unrealized holding gain (loss) on investments (404) 94 24 Comprehensive income $ 92,788 $85,825 $49,404
See accompanying notes. 29 14 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY S a n m i n a C o r p o r a t i o n
Common Stock and Accumulated Additional Paid in Capital Other -------------------------- Comprehensive Treasury Number Retained Income Stock (in thousands) of Shares Amount Earnings (Loss) at Cost Total -------------- --------- --------- ----------- ---------- -------- ------- BALANCE AT SEPTEMBER 30, 1996 47,853 $ 119,735 $ 114,504 $ (3) $ (277) $233,959 Exercise of common stock options 924 6,681 - - - 6,681 Issuance of common stock under employee stock purchase plan 221 3,163 - - - 3,163 Cumulative translation adjustment - - - 42 - 42 Unrealized holding gain on investments - - - 42 - 42 Income tax benefit of disqualified dispositions - 4,923 - - - 4,923 Distributions by Manu-Tronics - - (296) - - (296) Net income - - 49,356 - - 49,356 BALANCE AT SEPTEMBER 30, 1997 48,998 134,502 163,564 81 (277) 297,870 Exercise of common stock options 1,081 6,811 - - - 6,811 Issuance of common stock under employee stock purchase plan 182 4,038 - - - 4,038 Conversion of subordinated debt 6,119 86,250 - - - 86,250 Adjustment to conform year end of pooled entity - - (3,169) - - (3,169) Cumulative translation adjustment - - - 159 - 159 Unrealized holding gain on investments - - - 146 - 146 Income tax benefit of disqualified dispositions - 7,896 - - - 7,896 Distributions by Manu-Tronics - - (3,645) - - (3,645) Net income - - 85,629 - - 85,629 BALANCE AT SEPTEMBER 30, 1998 56,380 239,497 242,379 386 (277) 481,985 Exercise of common stock options 1,336 26,430 - - - 26,430 Issuance of common stock under employee stock purchase plan 251 6,472 - - - 6,472 Conversion of subordinated debt 7 398 - - - 398 Retirement of treasury stock - (277) - - 277 - Issuance of common stock for businesses acquired 918 3,763 832 - - 4,595 Cumulative translation adjustment - - - (797) - (797) Unrealized holding loss on investments - - - (638) - (638) Income tax benefit of disqualified dispositions - 15,741 - - - 15,741 Distributions by Manu-Tronics - - (1,536) - - (1,536) Net income - - 93,697 - - 93,697 ------- --------- --------- -------- ------- --------- BALANCE AT OCTOBER 2, 1999 58,892 $ 292,024 $ 335,372 $(1,049) $ - $ 626,347 ======= ========= ========= ======== ======= ==========
See accompanying notes 30 15 CONSOLIDATED STATEMENTS OF CASH FLOWS S a n m i n a C o r p o r a t i o n
Year Ended -------------------------------------------------- October 2, September 30, September 30, (in thousands) 1999 1998 1997 ----------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 93,697 $ 85,629 $ 49,356 Adjustments to reconcile net income to cash provided by operating activities: Adjustment to conform year end of pooled entities - (1,332) - Depreciation and amortization 45,487 37,052 29,114 Relocation, plant closing, merger costs, and other charges 23,686 3,945 8,876 Write down of long-lived assets 11,400 - - Provision for doubtful accounts 3,654 2,001 505 Deferred taxes - - 2,345 (Gain) loss on disposal of fixed assets 30 (748) 205 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (59,519) (16,998) (20,493) Inventories (98,099) (5,996) (22,268) Prepaid expenses, deposits and other 23,422 (366) (570) Accounts payable and accrued liabilities 72,153 (6,737) 32,417 Income tax accounts (769) 9,727 (2,106) --------- --------- --------- Cash provided by operating activities 115,142 106,177 77,381 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (419,123) (101,169) (138,351) Proceeds from maturity of short-term investments 194,192 106,591 149,605 Purchases of long-term investments (52,850) - - Cash paid for property and equipment (65,275) (55,288) (70,706) Net cash paid for businesses acquired (75,108) (5,666) (18,879) Proceeds from sale of assets 78 2,591 332 --------- --------- --------- Cash used for investing activities (418,086) (52,941) (77,999) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt - - 8,033 Payments on line of credit, net - (7,498) (1,543) Issuance (repurchase) of convertible subordinated debt, net of issuance costs 340,742 (5,681) - Payments of long-term liabilities (22,256) (17,417) (7,788) Proceeds from sale of common stock, net of issuance costs 32,625 11,060 10,594 Cash provided by (used for) financing activities 351,111 (19,536) 9,296 INCREASE IN CASH AND CASH EQUIVALENTS 48,167 33,700 8,678 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 87,978 54,278 45,600 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 136,145 $ 87,978 $ 54,278 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year: Interest $ 1,054 $ 7,311 $ 7,964 Income taxes $ 48,086 $ 37,822 $ 35,728 NON-CASH FINANCING INFORMATION: Conversion of subordinated debt to equity $ 398 $ 86,250 $ -
See accompanying notes. 31 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS S a n m i n a C o r p o r a t i o n NOTE 1. ORGANIZATION OF THE COMPANY Sanmina Corporation ("Sanmina") was incorporated in Delaware in 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 electronics manufacturing services, including turnkey electronic assembly and manufacturing management services to original equipment manufacturers. Sanmina's services consist primarily of the manufacture of complex printed circuit board assemblies using surface mount and pin-through hole inter-connection technologies, the manufacture of custom-designed backplane assemblies, fabrication of complex multi-layered printed circuit boards, the manufacture of custom cable and wire harness assemblies, and testing and assembly of completed systems. In addition, Sanmina provides procurement and materials management, as well as consultation on board design and manufacturing. Sanmina's manufacturing plants are located in California, Massachusetts, Texas, New Hampshire, North Carolina, Wisconsin, Alabama, Utah, Canada and Ireland. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year Effective October 1, 1998, Sanmina changed its fiscal year end from September 30 to a 52 or 53-week year ending on the Saturday nearest September 30. Accordingly, the 1999 fiscal year ended on October 2, whereas the previous two years ended on September 30. All general references to years relate to fiscal years unless otherwise noted. Principles of Consolidation The consolidated financial statements include the accounts of Sanmina and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash Equivalents Sanmina considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Short Term Investments Sanmina's investments are classified as available for sale and are recorded at their fair value, as determined by quoted market prices, with any unrealized holding gains or losses classified as a separate component of stockholders' equity. Upon sale of the investments, any previously unrealized holding gains or losses are recognized in results of operations. The specific identification method is used to determine the cost of securities sold. Realized gains and losses have not been material to date. As of October 2, 1999, the difference between the aggregate fair value and cost basis was a net unrealized loss of $431,000. Sanmina has the intent and ability to liquidate the investments prior to the maturity period and, as such, has classified its investments as short-term investments. The value of Sanmina's investments by major security type is as follows (in thousands):
Amortized Aggregate Unrealized Unrealized Cost Fair Value Gain Loss --------- ---------- ---------- ---------- AS OF OCTOBER 2, 1999 U.S. government and agency securities $149,169 $148,951 $ 2 $(220) State and municipal securities 68,510 68,462 4 (52) U.S. corporate and bank debt 160,767 160,602 34 (199) -------- -------- ----- ----- $378,446 $378,015 $ 40 $(471) ======== ======== ===== =====
Amortized Aggregate Unrealized Unrealized Cost Fair Value Gain Loss --------- ---------- ---------- ---------- AS OF SEPTEMBER 30, 1998 U.S. government and agency securities $ 35,912 $ 35,990 $ 79 $(1) State and municipal securities 55,247 55,301 55 (1) U.S. corporate and bank debt 33,292 33,367 77 (2) -------- -------- ----- --- $124,451 $124,658 $ 211 $(4) ======== ======== ===== ===
Approximately $59.6 million and $31.1 million of the total investments in debt securities as of October 2, 1999 and September 30, 1998 respectively, are included in cash and cash equivalents; the remaining balance is classified as short-term investments. As of October 2, 1999, debt securities with a fair value of $352.6 million mature within one year and $25.4 million mature beyond one year. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes labor, material and manufacturing overhead. The components of inventories are as follows (in thousands):
As of -------------------------- October 2, September 30, 1999 1998 ---------- ------------ Raw materials $ 134,042 $ 55,179 Work-in-process 58,498 34,528 Finished goods 13,779 13,233 --------- --------- $ 206,319 $ 102,940 ========= =========
Property and Equipment Property and equipment are stated at cost or, in the case of property and equipment acquired through business combinations, at fair value based upon the allocated purchase price at the acquisition date. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the related assets (three to five years, or twenty-five years in the case of buildings) or, in the case of leasehold improvements, over the remaining term of the related lease, if shorter. 32 17 Intangibles Intangibles relate to goodwill arising from Sanmina's acquisitions. Goodwill is amortized on a straight-line basis over the estimated useful life of five to fifteen years. These intangibles consist of goodwill and non-compete agreements. The realizability of intangible assets which are included in Other Assets, net, in the accompanying consolidated balance sheets, is evaluated periodically as events or circumstances indicate a possible inability to recover the net carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate, as applicable, the impact of recent business combinations. The analyses involve a significant level of management judgment in order to evaluate the ability of Sanmina to perform within projections. During the year ended October 2, 1999, Sanmina determined that an impairment loss had occurred related to the intangibles associated with the acquisition of Pragmatech (see Note 6). Revenue Recognition Sanmina recognizes revenue from manufacturing services at the time of product shipment. Where appropriate, provisions are made at that time for estimated warranty and return costs. Comprehensive Income 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 year ended October 2, 1999, the cumulative unrealized holding loss on investments and cumulative foreign currency translation adjustment was ($638,000) and ($797,000), respectively. For the year ended September 30, 1998, the cumulative unrealized holding gain on investments and cumulative foreign currency translation adjustments was $146,000 and $159,000, respectively. New Accounting Standards In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires that derivative instruments be recorded in the balance sheet at their fair market value, with changes in the fair value recorded in the income statement unless specific hedging criteria is met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000 and cannot be applied retroactively. Management does not believe the adoption of SFAS No. 133 will have a material impact on Sanmina's financial statement disclosures. Note 3. EARNINGS PER SHARE In fiscal 1998, Sanmina adopted the provisions of SFAS No. 128, "Earnings Per Share." Basic EPS was computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS includes dilutive common stock equivalents, using the treasury stock method, and assumes that the convertible debt instruments were converted into common stock upon issuance, if dilutive. A reconciliation of the net income and weighted average number of shares used for the diluted earnings per share computations follows:
Year Ended ---------------------------------------- (in thousands, October 2, September 30, September 30, except per share amounts) 1999 1998 1997 ---------- ------------- ------------ Net income $93,697 $85,629 $49,356 Add back after-tax interest expense for convertible subordinated debt - 3,676 3,101 --------- --------- -------- Income for calculating diluted earnings per share $93,697 $89,305 $52,457 ========= ========= ======== Weighted average number of shares outstanding during the period 57,974 50,301 48,301 Applicable number of shares for stock options outstanding for the period 3,688 2,870 3,196 Weighted average number of shares if convertible subordinated debt were converted - 5,426 6,119 Weighted average number of shares 61,662 58,597 57,616 --------- --------- -------- Diluted earnings per share $ 1.52 $ 1.52 $ 0.91 ========= ========= ========
For the year ended October 2, 1999, 4,035,000 potentially dilutive shares and after-tax interest expense were not included in the computation of diluted earnings per share because to do so would increase the profit per share. NOTE 4. CONVERTIBLE SUBORDINATED DEBT On May 1, 1999, Sanmina issued $350 million of 4.25% convertible subordinated notes (the "New Notes") due on May 1, 2004. The New Notes are convertible into common stock, at the option of the note holder, at a conversion price of approximately $88.67 per share, subject to adjustments in certain events. The New Notes are subordinated in right of payment to all existing and future senior indebtedness, as defined, of Sanmina. The New Notes are redeemable at the option of Sanmina on or after May 6, 2002. Interest is payable semi-annually on May 1 and November 1. In 1995, Sanmina issued $86.3 million of 5.5% convertible subordinated notes (the "Notes") which were due in 2002. The Notes were convertible into common stock, at the option of the note holder, and were redeemable at the option of Sanmina on or after August 15, 1998, initially at 103.143% of the face value and at decreasing prices thereafter to 100% at maturity, in each case together with accrued interest. On August 19, 1998, 33 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) S a n m i n a C o r p o r a t i o n Sanmina called for redemption of the notes which represented $86.3 million in debt. All note holders elected to convert their notes to equity. In 1987, Elexsys issued $32 million of 5.5% convertible subordinated debentures (the "Debentures") due on March 1, 2012. The Debentures are currently convertible into shares of common stock at $59.85, subject to adjustment under certain conditions. The Debentures are redeemable by Sanmina at declining premiums prior to March 1, 1997 and thereafter at 100 percent of the principal amount. The Debentures are also redeemable through the operation of a sinking fund at 100 percent of the principal amount. Interest is payable semi-annually on September 1 and March 1 of each year. Mandatory annual sinking fund payments, sufficient to retire 5 percent of the aggregate principal amount of the Debentures issued, were to be made on each March 1 commencing in 1997. As a result of two exchanges of common stock for $16 million and $4 million of the Debentures in fiscal 1994 and fiscal 1995, respectively, Sanmina now has sinking fund credits available to offset these obligations for twelve and one-half years, thus no sinking fund payments will be required until 2009. In addition, Sanmina repurchased approximately $0.1 million (including premiums) of Debentures during fiscal 1998. The Debentures are subordinated to all senior indebtedness of Sanmina. As of October 2, 1999, $5.3 million of the Debentures remain outstanding. NOTE 5. COMMITMENTS Sanmina leases its facilities under operating leases expiring at various dates through August 2007. Sanmina is responsible for utilities, maintenance, insurance and property taxes under the leases. Minimum future lease payments under operating leases are approximately as follows (in thousands): Fiscal Years Ending 2000 $10,392 2001 8,560 2002 7,514 2003 6,422 2004 2,022 Thereafter 4,029 ------- $38,939 =======
Rent expense under operating leases was approximately $11.7 million, $6.4 million and $6.1 million for the years ended October 2, 1999, September 30, 1998, and 1997, respectively. In November 1998, Sanmina entered into an operating lease agreement for a new corporate headquarters and new facilities for its principal Northern California assembly operations. This campus facility, which comprises approximately 330,000 square feet, is located in San Jose, California. A condition of this operating lease is that Sanmina pledges $52.9 million to the administrative agent until the end of the lease's initial term, which is included in long-term investments in the accompanying balance sheet. NOTE 6. ACQUISITIONS In November 1997, Sanmina merged with Elexsys International, Inc. ("Elexsys"). Under the terms of the merger agreement, Sanmina's common stock was exchanged for all of Elexsys' outstanding common stock. Approximately 3.3 million shares of common stock were issued to acquire Elexsys. The merger was accounted for as a pooling-of-interests, and therefore, all prior periods presented were restated to combine the results of the two companies. In November 1998, Sanmina merged with Altron, Incorporated ("Altron"). Under the terms of the merger agreement, each share of Altron common stock was converted into 0.4545 shares of Sanmina common stock. Approximately 7.2 million shares of common stock were issued to acquire Altron. The merger was accounted for as a pooling-of-interests, and therefore, all prior periods presented were restated to combine the results of the companies. Altron's year end was December 31. For purposes of the restatement, Altron's restated year ended September 30, 1998 was combined with Sanmina's year ended September 30, 1998 and Altron's years ended December 31, 1997 and December 31, 1996 were combined with Sanmina's years' ended September 30, 1997 and September 30, 1996 respectively. As a result, the net sales and net income of Altron for the quarter ended December 31, 1997, have been included in both fiscal 1998 and 1997. An adjustment of $3.2 million to account for the duplication of net income has been made to retained earnings in fiscal 1998. On December 28, 1998, Sanmina merged with Telo Electronics, Incorporated, a California corporation ("Telo"). Sanmina issued approximately 950,000 shares of Sanmina common stock in exchange for 100% of the outstanding common stock of Telo. The merger was accounted for as a pooling of interests. Due to the immateriality of this acquisition to Sanmina's consolidated financial position and results of operations, Telo has been included in Sanmina's consolidated results of operations as of the beginning of fiscal 1999 (October 1, 1998), and therefore, amounts presented for periods prior to fiscal 1999 have not been restated to include Telo's historical results of operations. In March 1999, Sanmina merged with Manu-Tronics, Incorporated, a Wisconsin corporation ("Manu-Tronics"). Sanmina issued approximately 868,000 shares of Sanmina common stock in exchange for 100% of the outstanding common stock of Manu-Tronics. The merger was accounted for as a pooling-of-interests, and therefore, all prior periods presented were restated to combine the results of the two companies. 34 19 A reconciliation of the Revenue and Net income (loss) for the year ended September 30, 1998 and 1997, to previously reported information, is as follows (in thousands):
Year Ended --------------------------------- September 30, September 30, 1998 1997 ------------- ------------- Revenue: Sanmina $722,581 $ 405,212 Elexsys - 164,575 Altron 201,207 172,428 Manu-Tronics 68,033 60,849 -------- --------- Combined $991,821 $ 803,064 ======== ========= Net income (loss): Sanmina $ 68,151 $ 40,902 Elexsys - (10,377) Altron 13,088 14,667 Manu-Tronics 4,390 4,164 -------- --------- Combined $ 85,629 $ 49,356 ======== =========
On February 23, 1998, Sanmina acquired Pragmatech, Inc. ("Pragmatech") in a stock purchase transaction. The purchase price was approximately $5.7 million. The acquisition, which was accounted for as a purchase, included the payment of cash and the assumption of liabilities. Accordingly, the results of operations for the year ended September 30, 1998, include the results of operations of this business from the date of acquisition. The purchase price was allocated to the net liabilities assumed on a fair value basis. The acquisition resulted in goodwill of $11.5 million which was to be amortized over a ten year period. During fiscal 1999, Sanmina recorded an adjustment to write down the remaining $11.4 million of unamortized goodwill arising from the acquisition. The fair value of Pragmatech at the acquisition date was based on the estimated future cash flows to be generated from the assets based on reasonable and supportable assumptions. Financial projections prepared at the time of the acquisition of Pragmatech reflected Sanmina's belief that Sanmina would continue to provide electronics manufacturing services to existing Pragmatech customers and would grow the Pragmatech business at Pragmatech's existing facilities. However, the existing Pragmatech customer relationships could not be restructured to conform to Sanmina's pricing and revenue models, and as a result, the relationships with the former Pragmatech customers have terminated. In addition, Sanmina closed several of the former Pragmatech facilities in fiscal 1998. As a result of these operational factors, Sanmina's analysis of projected revenues, results of operations, and cash flows attributable to the few remaining Pragmatech customers did not support the carrying value of Pragmatech assets, including the unamortized goodwill. The unaudited pro forma financial information for the years ended September 30, 1998 and 1997 is presented below as if Pragmatech had been acquired on October 1, 1996:
Year Ended (Unaudited) -------------------------------- (in thousands, September 30, September 30, except per share data) 1998 1997 ------------- ------------- Revenue $1,018,817 $857,618 Net Income 83,074 47,478 Net income per share - diluted $ 1.48 $ 0.88 Diluted shares used in calculating per share amounts 58,597 57,616
In the first quarter of fiscal 1999, Sanmina incurred plant closing and other non-recurring charges of $16.9 million. The charges were a result of Sanmina's acquisitions and Sanmina's planned relocation to a new campus facility. Sanmina closed certain manufacturing plants in Fremont, California and Woburn, Massachusetts and merged the operations from these facilities into existing manufacturing facilities within the same regions. These closures were made to eliminate duplicate facilities and other costs resulting from the merger with Altron. Concurrent with the plant closures, Sanmina reduced its workforce in the same regions by approximately 50 people. Plant closing, relocation and severance costs totaled $12.8 million, of which $2.0 million was unpaid as of fiscal year ended 1999. In conjunction with the closure of manufacturing facilities and Sanmina's planned relocation to its new campus facility in fiscal 2000, other non-recurring costs include payments required under lease contracts (less any applicable sublease income) after the properties are abandoned, any applicable lease buyout costs, restoration costs associated with certain lease arrangements and the costs to maintain facilities during the period after abandonment. Asset related write-offs consist of excess equipment and leasehold improvements to facilities that were abandoned and whose estimated fair market value is zero. Sanmina's move to the new campus facility commenced in fiscal 1999 and is expected to be completed in the second quarter of fiscal 2000. Noncancelable lease payments on vacated facilities will be paid out through most of fiscal 2000. Sanmina also discontinued the use of enterprise-wide software and hardware used internally by the acquired companies, as these were no longer required post acquisition. The closing of the plants discussed above, and the costs related to the integration of information systems and hardware, were all incurred in fiscal 1999. Total other non-recurring charges totaled $4.1 million. Merger costs of $5.5 million consisted of fees for investment bankers, attorneys, accountants, and other direct merger related expenses, all of which have been paid in fiscal 1999 and relate to those acquisitions that were accounted for using the pooling-of-interests method. In 1998, Sanmina recorded a charge of $3.9 million related to the merger with Elexsys. 35 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) S a n m i n a C o r p o r a t i o n On August 4, 1999 Sanmina announced the agreement to acquire certain operations of Nortel Networks Corporation's Wireless Electro-Mechanical Subsystem Assembly ("EMSS"). As part of the agreement, Sanmina would acquire certain assets of Nortel's EMSS operations in Calgary, Alberta, Canada, and Chateaudun, France. On October 1, 1999, Sanmina completed the acquisition of certain Calgary EMSS assets and liabilities for a purchase price of approximately $47.2 million which was accounted for as a purchase. The purchase price was allocated to the net assets acquired, which consisted of inventories, equipment, and accrued payroll related expenses, on a fair value basis. The results of operations for the year ended October 2, 1999, include the results of operations of this business from the date of acquisition. The acquisition resulted in goodwill of $29.6 million which is being amortized over a fifteen year period. The unaudited pro forma financial information for the years ended October 2, 1999 and September 30, 1998 is presented below as if the Calgary EMSS operations had been acquired on October 1, 1997:
Year Ended (Unaudited) ------------------------------ (in thousands, October 2, September 30, except per share data) 1999 1998 ----------- ------------- Revenue $1,345,744 $1,119,021 Net income 93,728 85,623 Net income per share - diluted $ 1.52 $ 1.52 Diluted shares used in calculating per share amounts 61,662 58,597
On October 5, 1999, Sanmina acquired Devtek Electronic Packaging Systems Division ("DEPS") of Devtek Electronics Enclosure, Inc.. The purchase price was approximately $26.5 million. The acquisition, which was accounted for as a purchase, included the payment of cash and the assumption of debt. Sanmina has also completed several other smaller acquisitions during fiscal 1999. These transactions involved the purchase of either stock or assets in exchange for cash and were accounted for as purchase transactions. Pro forma statements of operations reflecting these acquisitions are not shown, as they would not differ materially from reported results. NOTE 7. CONTINGENCIES In the normal course of business, Sanmina is subject to certain litigation matters. Sanmina does not believe the ultimate resolution of any such pending or threatened litigation matters would have a material adverse effect on Sanmina's financial position or results of operations. NOTE 8. STOCKHOLDERS' EQUITY Common Stock In June 1998. Sanmina effected a two-for-one stock split payable in the form of a dividend. Accordingly, all share and per share data has been adjusted to retroactively reflect the stock split. SANMINA STOCK OPTION PLANS Stock Option Plans The 1990 Incentive Stock Plan (the "Plan") provides for the grant of incentive stock options, non-statutory stock options, and stock purchase rights to employees and other qualified individuals to purchase shares of Sanmina's Common Stock at amounts not less than 100% of the fair market value of the shares on the date of the grant. On January 29, 1999, shareholders approved an amendment to adopt Sanmina's 1999 Stock Plan (the "1999 Plan"). The 1999 Plan provides for the grant of incentive stock options, non-statutory stock options, and stock purchase rights to employees and other qualified individuals to purchase shares of Sanmina's Common Stock at amounts not less than 100% of the fair market value of the shares on the date of the grant. The 1995 Director Option Plan (the "Director Plan") provides for the automatic grant of stock options to outside directors of Sanmina or any subsidiary of Sanmina at amounts not less than 100% of the fair market value of the shares on the date of grant. The 1996 Supplemental Stock Option Plan (the "Supplemental Plan") permits only the grant of non-statutory options and provides that options must have an exercise price at least equal to the fair market value of Sanmina's Common Stock on the date of the grant. Options under the Supplemental Plan may be granted to employees and consultants, but executive officers and directors may not be granted options under the Supplemental Plan. Altron, prior to its merger with Sanmina, had stock option plans. In connection with the merger of Sanmina and Altron, any options outstanding that were initially granted under the Altron plans are exercisable into Sanmina common stock. Any forfeitures of Altron options are returned to the Sanmina stock option plans. Options vest as determined by the Board of Directors and in no event may an option have a term exceeding ten years from the date of the grant. Total shares authorized but unissued under all Sanmina option plans are 11,930,114 at October 2, 1999. 36 21 Option activity under the Sanmina option plans is as follows:
Options Outstanding -------------------------------- Weighted Avg. Shares Exercise Price ------ ----------------- BALANCE AT SEPTEMBER 30, 1996 4,155,954 $ 8.12 Granted 1,764,790 $ 20.83 Exercised (735,292) $ 6.64 Cancelled (235,310) $ 11.43 BALANCE AT SEPTEMBER 30, 1997 4,950,142 $ 12.69 Granted 1,835,700 $ 34.09 Exercised (1,039,179) $ 7.87 Cancelled (258,789) $ 21.06 BALANCE AT SEPTEMBER 30, 1998 5,487,874 $ 20.39 Altron Plan 966,446 $ 25.26 Granted 1,980,061 $ 46.49 Exercised (1,247,124) $ 19.66 Cancelled (616,732) $ 35.65 BALANCE AT OCTOBER 2, 1999 6,570,525 $ 27.57
The following table summarizes information regarding stock options outstanding under Sanmina option plans at October 2, 1999:
Options Outstanding Options Vested and Exercisable ----------------------------------------------------- ---------------------------------- Weighted Number Average Weighted Number Vested Weighted Range of Outstanding Remaining Average And Exercisable Average Exercise Prices As of 10/2/99 Contractual Life Exercise Price As of 10/2/99 Exercise Price - --------------- ------------- ---------------- -------------- --------------- -------------- $ 0.50 - $ 12.19 1,758,960 5.29 $ 8.22 1,480,205 $ 7.82 $ 12.94 - $ 23.88 1,780,363 7.50 $ 20.71 726,295 $ 19.46 $ 25.00 - $ 40.84 1,745,708 7.62 $ 32.80 567,347 $ 32.16 $ 41.43 - $ 80.63 1,285,494 9.35 $ 56.41 90,588 $ 49.51 $ 0.50 - $ 80.63 6,570,525 7.31 $ 27.57 2,864,435 $ 16.91
The number of exercisable options and the weighted average exercise price as of September 30, 1998 and 1997 was 2,275,307 at $14.08 per share and 1,832,211 at $8.65 per share, respectively. Sanmina Employee Stock Purchase Plan Sanmina's employee stock purchase plan (the "Purchase Plan") provides for the issuance of up to 2,300,000 shares of common stock. Under the Purchase Plan, employees may purchase, on a periodic basis, a limited number of shares of common stock through payroll deductions over a six-month period. The per share purchase price is 85% of the fair market value of the stock at the beginning or end of the offering period, whichever is lower. As of October 2, 1999, 1,615,303 shares had been issued under the Purchase Plan. ALTRON OPTION PLANS Altron, prior to its merger with Sanmina, had stock option plans. These plans and the activity therein are separately discussed below for prior period informational purposes. All outstanding Altron options for fiscal 1999 are included in the table above. In connection with the merger of Sanmina and Altron, any options outstanding that were initially granted under the Altron plans are exercisable into Sanmina common stock. Any forfeitures of Altron options are returned to the Sanmina stock option plans. The following Altron plan information reflects the merger exchange ratio of 0.4545 shares of Sanmina common stock for each share of Altron common stock. The Altron 1989 Nonqualified Stock Option Plan for Non-Employee Directors provided for options exercisable over five years commencing 12 months from the date of grant and expiring 10 years from the date of grant. The Altron 1991 Stock Option Plan provided for incentive stock options granted at fair market value at the date of grant and nonqualified stock options granted at prices determined by a committee of the Board of Directors. All options are exercisable over a five-year period, commencing 12 months from the date of grant unless accelerated and expire 10 years from the date of grant. The Altron 1992, 1993 and 1995 Stock Option Plans for Non-Employee Directors provided for options exercisable over a two-year period from the date of grant and expiring 10 years from the date of grant. The Altron 1996 Stock Option Plan for Non-Employee Directors provided for options exercisable over a three-year period commencing 12 months from the date of grant and expiring 10 years from the date of grant. 37 22 The following table summarizes the stock option activity for the period ended September 30, 1998:
Options Outstanding -------------------------------- Weighted Avg. Shares Exercise Price -------- ------------------ OUTSTANDING AT DECEMBER 30, 1995 699,526 $ 13.97 Granted 260,202 $ 30.65 Exercised (109,194) $ 7.85 Cancelled (5,863) $ 26.69 OUTSTANDING AT DECEMBER 28, 1996 844,671 $ 19.82 Granted 305,652 $ 33.38 Exercised (103,874) $ 7.92 Cancelled (50,458) $ 29.28 OUTSTANDING AT JANUARY 3, 1998 995,991 $ 24.73 ------- --------- OUTSTANDING AT SEPTEMBER 30, 1997(*) 777,830 $ 21.76 Granted 363,373 $ 31.66 Exercised (83,433) $ 13.46 Cancelled (91,324) $ 32.06 Outstanding at September 30, 1998 966,446 $ 25.26
(*) - Because Altron had a different fiscal year end, the above table was modified to reflect information based on Sanmina's fiscal year end September 30, 1998. The following table summarizes information about Altron's stock options outstanding and exercisable at September 30, 1998:
Options Outstanding Options Exercisable ------------------------------------------------------ --------------------------------- Weighted Weighted Weighted Exercise Average Number Remaining Average Number of Average Price Range of Options Contractual Life Exercise Price Options Exercise Price - ----------- -------------- ---------------- -------------- --------- --------------- $ 2.68 - $ 3.59 43,723 2.3 $ 3.03 43,723 $ 3.03 $ 4.73 1,841 4.3 $ 4.73 1,841 $ 4.73 $ 10.36 - $ 14.79 136,549 5.0 $ 11.42 127,550 $ 11.24 $ 19.32 - $ 28.05 361,716 7.2 $ 22.97 208,369 $ 23.15 $ 29.44 - $ 43.19 422,617 8.6 $ 34.02 71,758 $ 37.14 -------- ------- 966,446 453,241 ======== =======
As of October 2, 1999, Sanmina has reserved the following shares of authorized but unissued common stock: Convertible subordinated debt 4,035,181 Stock option plans 11,930,114 Employee stock purchase plan 684,697 ---------- 16,649,992 ==========
Stock-based Compensation Sanmina accounts for its stock option plans and employee stock purchase plan under APB Opinion No. 25 and related interpretations, under which no compensation cost has been recognized as the exercise price per share for stock options was equal to the fair market value of the stock on the date of grant and the Purchase Plan qualified as a non-compensatory plan. Had compensation cost for these Plans been determined consistent with SFAS No. 123, Sanmina's net income and net income per share would have been reduced to the following pro forma amounts (in thousands, except per share data):
Year Ended ---------------------------------------------- October 2, September 30, September 30, 1999 1998 1997 ----------- ------------- -------------- Net income: As reported $ 93,697 $ 85,629 $ 49,356 Pro forma 53,906 63,207 37,020 Basic EPS: As reported $ 1.62 $ 1.70 $ 1.02 Pro forma 0.93 1.26 0.77 Diluted EPS: As reported $ 1.52 $ 1.52 $ 0.91 Pro forma 0.87 1.14 0.70
The weighted average fair values of options granted by Sanmina during fiscal 1999, 1998, and 1997 was $46.53, $18.50, and $12.24 per share, respectively. The weighted average for values of options granted by Altron during fiscal 1998 and 1997 was $17.76 and $20.46, respectively. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the fol- 38 23 lowing weighted-average assumptions used for grants in fiscal 1999, 1998 and 1997, respectively.
Year Ended ----------------------------------------- October 2, September 30, September 30, 1999 1998 1997 ---------- ------------- ------------- Volatility 64% 52% - 75% 53%- 78% Risk-free interest rate 5.20% 4.81%- 5.72% 5.83%- 6.66% Dividend yield 0% 0% 0% Sanmina expected lives (management and directors) beyond vesting 0.8 0.6 1.0 Sanmina expected lives (employees) beyond vesting. 0.3 0.3 0.6
NOTE 9. INCOME TAXES The provision for income taxes consists of the following (in thousands):
Year Ended ------------------------------------------------ October 2, September 30, September 30, 1999 1998 1997 ---------- ------------- ------------- Federal: Current $ 49,139 $ 48,797 $ 28,641 Deferred (8,094) (7,728) (153) 41,045 41,069 28,488 State: Current 14,366 7,617 7,207 Deferred (1,229) (952) 663 13,137 6,665 7,870 -------- -------- -------- Total provision for income taxes $ 54,182 $ 47,734 $ 36,358 ======== ======== ========
The provision for income taxes differs from the amount estimated by applying the statutory Federal income tax rate to income before taxes as follows (in thousands):
Year Ended --------------------------------------------- October 2, September 30, September 30, 1999 1998 1997 ---------- ------------- ------------ Federal tax at statutory rate $ 51,758 $ 45,147 $ 35,194 State income taxes, net of federal benefit 8,275 6,148 4,905 Foreign subsidiary loss 358 410 - Effect of non-deductible goodwill amortization 870 672 692 Tax exempt interest income (718) (713) (436) FSC benefit (1,428) (179) (530) Tax credits (361) (792) (412) Change in valuation allowance (2,740) (11,598) (3,168) Other (1,832) 8,639 113 -------- -------- -------- Total provision for income taxes $ 54,182 $ 47,734 $ 36,358 ======== ======== =========
The components of the net deferred income tax asset are as follows (in thousands):
As of ------------------------------ October 2, September 30, 1999 1998 ---------- ------------- Cumulative temporary differences: State income taxes $ 3,778 $ 1,726 Accrued vacation 1,585 1,232 Allowance for doubtful accounts 3,824 1,772 Depreciation 908 (511) Inventory reserve 7,869 6,255 Accrued bonuses 1,285 2,251 General reserve 1,742 1,645 Environmental reserve 1,622 2,216 Accrued plant closing costs 162 450 Net operating loss carryforwards 2,159 4,245 Tax credit carryforwards 368 405 Other 159 2,459 -------- -------- Total deferred income tax asset 25,461 24,145 -------- -------- Valuation allowance (2,527) (5,267) -------- -------- Net deferred income tax asset $ 22,934 $ 18,878 ======== ========
The valuation allowance provides a reserve against deferred tax assets that may expire or become unutilized by Sanmina. In accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," Sanmina believes it is more likely than not Sanmina will not realize a portion of the benefits of these deferred tax assets, and accordingly, has provided a valuation allowance for them. Foreign net operating loss carryforwards of $8.8 million will carryforward indefinitely. Federal minimum tax credit carryforwards of $0.37 million will also carryforward indefinitely. NOTE 10. 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 product and services and geographic areas. 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, Sanmina operates in one business segment -- the manufacture, testing and servicing of a full spectrum of complex printed circuit boards, custom backplane interconnect devices, and electronic assembly services. Revenue is principally derived from customers in the United States. Although Sanmina seeks to diversify its customer base, a small number of customers are responsible for a significant portion 39 24 of Sanmina's net sales. During fiscal 1999, 1998, and 1997 sales to Sanmina's ten largest customers accounted for 54% and 53%, and 43% respectively, of Sanmina's net sales. Sales to major customers who accounted for more than 10% of net sales were as follows:
Year Ended --------------------------------------- October 2, September 30, September 30, 1999 1998 1997 ---------- ------------- ------------- Customer A 14.2% 14.8% (*) Customer B (*) 13.9% 12.6%
(*) less than 10% of net sales Sanmina's most significant credit risk is the ultimate realization of its accounts receivable. This risk is mitigated by (i) sales to well established companies, (ii) ongoing credit evaluation of its customers, and (iii) frequent contact with its customers, especially its most significant customers, thus enabling Sanmina to monitor current changes in business operations and to respond accordingly. NOTE 11. SUBSEQUENT EVENT (UNAUDITED) On November 3, 1999, Sanmina completed the acquisition of certain Chateaudun EMSS assets and liabilities of Nortel Networks Corporation for a purchase price of approximately $14.2 million, which was also accounted for as a purchase. The purchase price was allocated to the net assets acquired, which consisted of inventories, equipment, and accrued payroll related expenses, on a fair value basis. The acquisition resulted in goodwill of $6.0 million, which will be amortized over fifteen years. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Sanmina Corporation: We have audited the accompanying consolidated balance sheets of Sanmina Corporation (a Delaware Corporation) and its subsidiaries as of October 2, 1999 and September 30, 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended October 2, 1999, September 30, 1998, and September 30, 1997. These financial statements are the responsibility of Sanmina's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sanmina Corporation and its subsidiaries as of October 2, 1999 and September 30, 1998, and the results of their operations and their cash flows for the years ended October 2, 1999, September 30, 1998, and September 30, 1997 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP San Jose, California Arthur Andersen LLP October 22, 1999 40 EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 LIST OF SUBSIDIARIES SUBSIDIARY JURISDICTION OF INCORPORATION ---------- ----------------------------- Sanmina Cable Systems Texas Elexsys International Delaware Neutronic Stamping & Plating subsidiary of Elexsys International Symtron Corporation subsidiary of Elexsys International Anetec Technology, Inc. subsidiary of Elexsys International Pritec Corporation subsidiary of Elexsys International Symtron Systems, Inc. subsidiary of Elexsys International Elxi Acquisition, Inc. subsidiary of Elexsys International Elexsys International UK subsidiary of Elexsys International TELO Electronics, Inc. California Manu-Tronics, Inc. Wisconsin Sanmina B.V. Netherlands Sanmina Canada Holding Co. Canada Sanmina Canada(1) Canada Sanmina Ireland Ltd(2) Ireland Sanmina United Kingdom United Kingdom Altron Systems Corporation(3) Massachusetts Altron Securities Corporation(3) Massachusetts Sanmina Foreign Sales Corporation Barbados Sanmina Canada ULC Canada Sanmina International AG Switzerland
(1) A subsidiary of Sanmina Canada Holding Company. (2) A subsidiary of Sanmina B.V. (3) A subsidiary of Altron Incorporated. EX-23 4 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated October 22, 1999 included in this Form 10-K, into Sanmina's previously filed Registration Statements on Form S-8 File Nos. 333-23565, 33-66554, and 33-90244. ARTHUR ANDERSEN LLP San Jose, California December 14, 1999 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS OCT-02-1999 OCT-01-1998 OCT-02-1999 136,145 318,457 191,120 9,448 206,319 885,170 415,617 208,813 1,201,713 217,386 357,980 0 0 589 625,758 1,201,713 1,214,744 1,214,744 962,595 962,595 111,819 2,587 7,549 147,879 54,182 93,697 0 0 0 93,697 1.62 1.52 Interest Expense is net of Interest Income, the positive amount is income and the negative is interest expense. EPS is reported as "Basic EPS" as prescribed by SFAS 128. EPS is reported as "Diluted EPS" as prescribed by SFAS 128.
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