Sanmina-SCI Reports Results for the Second Quarter Fiscal 2011

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Apr 25, 2011, 04:05 ET

SAN JOSE, Calif., April 25, 2011 /PRNewswire/ -- Sanmina-SCI Corporation ("Sanmina-SCI" or the "Company") (NASDAQ GS: SANM) a leading global Electronics Manufacturing Services (EMS) company, today reported financial results for the second quarter ended April 2, 2011.

Second Quarter Fiscal 2011 Highlights

Revenue of $1.57 billion
GAAP operating margin of 2.8 percent
GAAP diluted earnings per share of $0.16
Non-GAAP(1) operating margin of 3.4 percent
Non-GAAP diluted earnings per share of $0.30

Revenue for the second quarter was up 2.7 percent to $1.57 billion, compared to $1.53 billion for the same period of fiscal 2010.

GAAP operating income in the second quarter was $45 million or 2.8 percent of revenue, compared to $45 million or 3.0 percent in the second quarter fiscal 2010. GAAP net income in the second quarter was $13 million, a diluted earnings per share of $0.16, compared to $10 million, a diluted earnings per share of $0.12 for the same period of fiscal 2010.

Non-GAAP operating income in the second quarter was $53 million or 3.4 percent of revenue, compared to $56 million or 3.7 percent in the second quarter fiscal 2010. Non-GAAP net income in the second quarter was $25 million, a diluted earnings per share of $0.30, compared to $24 million, a diluted earnings per share of $0.29 for the same period a year ago.

Cash and cash equivalents increased $106 million over the prior quarter to $655 million. The Company reduced inventory for the third quarter in a row. Cash cycle days were 55 days.

"We are disappointed in our revenue and margin performance for the second quarter fiscal year 2011. Softness was broad based, with a significant impact coming from weakness in the communications market and the delay in defense spending. We believe demand is improving and the second half of fiscal 2011 will be stronger than the first half," stated Jure Sola, Chairman and Chief Executive Officer.

"We are confident we have the right strategy in place and that our focus on market diversification, operational excellence and investments in technology and services will drive growth and margin expansion," concluded Sola.

Third Quarter Fiscal 2011 Outlook

The following forecast is for the third fiscal quarter ending July 2, 2011. These statements are forward-looking and actual results may differ materially.

Revenue between $1.6 billion to $1.7 billion
Non-GAAP diluted earnings per share between $0.33 to $0.37

(1) In the commentary set forth above and/or in the financial statements included in this earnings release, we present the following non-GAAP financial measures: gross profit, gross margin, operating income, operating margin, net income and earnings per share. In computing each of these non-GAAP financial measures, we exclude charges or gains relating to: stock-based compensation expenses, restructuring costs (including employee severance and benefits costs and charges related to excess facilities and assets), acquisition and integration costs (consisting of costs associated with the acquisition and integration of acquired businesses into our operations), impairment charges for goodwill and other assets, amortization expense and other infrequent or unusual items (including charges for customer bankruptcy reorganizations, litigation settlements and discrete tax events), to the extent material or which we consider to be of a non-operational nature in the applicable period. See Schedule 1 below for more information regarding our use of non-GAAP financial measures, including the economic substance behind each exclusion, the manner in which management uses non-GAAP measures to conduct and evaluate the business, the material limitations associated with using such measures and the manner in which management compensates for such limitations. A reconciliation from GAAP to non-GAAP results is included in the financial statements contained in this release and is also available on the Investor Relations section of our website at www.sanmina-sci.com. Sanmina-SCI provides third quarter outlook information only on a non-GAAP basis due to the inherent uncertainties associated with forecasting the timing and amount of acquisitions, restructuring, impairment and other unusual and infrequent items.

Company Conference Call Information

Sanmina-SCI will hold a conference call regarding this announcement on Monday, April 25, 2011 at 5:00 p.m. ET (2:00 p.m. PT). The access numbers are: domestic 877-273-6760 and international 706-634-6605. The conference will also be broadcast live over the Internet. You can log on to the live webcast at www.sanmina-sci.com. Additional information in the form of a slide presentation is available by logging onto Sanmina-SCI's website at www.sanmina-sci.com. A replay of today's conference call will be available for 48-hours. The access numbers are: domestic 800-642-1687 and international 706-645-9291, access code is 59596729.

About Sanmina-SCI

Sanmina-SCI Corporation is a leading electronics contract manufacturer serving the fastest-growing segments of the global Electronics Manufacturing Services (EMS) market. Recognized as a technology leader, Sanmina-SCI provides end-to-end manufacturing solutions and delivers superior quality and support to OEMs primarily in the communications, defense and aerospace, industrial and medical instrumentation, multimedia, enterprise computing and storage, clean-tech and automotive technology sectors. Sanmina-SCI has facilities strategically located in key regions throughout the world. More information regarding the company is available at http://www.sanmina-sci.com.

Sanmina-SCI Safe Harbor Statement

Certain statements contained in this press release, including the Company's expectations for future demand and growth and the Company's outlook for future revenue and earnings per share, constitute forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these statements as a result of a number of factors, including a deterioration in the markets for the Company's customers' products and a resulting decrease in the Company's customers' ability to pay for the Company's products and which therefore could reduce the Company's revenue; customer bankruptcy filings, which could cause the Company to record charges to its earnings; the sufficiency of the Company's cash position and other sources of liquidity to operate and expand its business; component shortages, including those arising from the natural disaster in Japan; impact of the restrictions contained in the Company's credit agreements and indentures upon the Company's ability to operate and expand its business; competition negatively impacting the Company's revenues and margins; any failure of the Company to effectively assimilate acquired businesses and achieve the anticipated benefits of its acquisitions; the need to adopt future restructuring plans as a result of changes in the Company's business, which would increase the Company's costs and decrease its net income; and the other factors set forth in the Company's annual and quarterly reports filed with the Securities Exchange Commission ("SEC").

The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the Investor Relations section of our website whether as a result of new information, future events or otherwise, unless otherwise required by law.

SANMF

Sanmina-SCI Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(GAAP)
			April 2,	October 2,
			2011	2010

			(Unaudited)
ASSETS

Current assets:
	Cash and cash equivalents		$ 654,745	$ 592,812
	Accounts receivable, net		965,216	1,018,612
	Inventories		820,117	844,347
	Prepaid expenses and other current assets		75,700	81,191
	Assets held for sale		60,238	53,047
		Total current assets	2,576,016	2,590,009

Property, plant and equipment, net			561,249	570,258
Other non-current assets			125,484	141,529
		Total assets	$ 3,262,749	$ 3,301,796

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$ 854,364	$ 923,038
	Accrued liabilities		125,260	140,371
	Accrued payroll and related benefits		108,418	122,934
	Short-term debt		61,900	65,000
		Total current liabilities	1,149,942	1,251,343

Long-term liabilities:
	Long-term debt		1,239,993	1,240,666
	Other		141,618	148,186
		Total long-term liabilities	1,381,611	1,388,852

Total stockholders' equity			731,196	661,601
		Total liabilities and stockholders' equity	$ 3,262,749	$ 3,301,796

Sanmina-SCI Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(GAAP)
(Unaudited)

		Three Months Ended		Six Months Ended

		April 2,	April 3,	April 2,	April 3,
		2011	2010	2011	2010

Net sales		$ 1,569,058	$ 1,527,451	$ 3,231,509	$ 3,005,753
Cost of sales		1,452,227	1,409,974	2,986,631	2,778,589
	Gross profit	116,831	117,477	244,878	227,164

Operating expenses:
	Selling, general and administrative	62,212	63,557	120,683	125,972
	Research and development	4,914	3,252	9,080	6,350
	Amortization of intangible assets	959	1,059	1,917	2,237
	Restructuring and integration costs	4,510	3,871	9,549	7,209
	Asset impairment	-	500	85	500
	Gain on sales of long-lived assets	(398)	-	(2,025)	-
	Total operating expenses	72,197	72,239	139,289	142,268

Operating income		44,634	45,238	105,589	84,896

	Interest income	562	597	1,134	978
	Interest expense	(26,269)	(26,580)	(52,930)	(53,357)
	Other income, net	2,061	120	3,278	39,775
Interest and other, net		(23,646)	(25,863)	(48,518)	(12,604)

Income before income taxes		20,988	19,375	57,071	72,292

Provision for income taxes		7,923	9,284	15,647	2,819

Net income		$ 13,065	$ 10,091	$ 41,424	$ 69,473


	Basic income per share	$ 0.16	$ 0.13	$ 0.52	$ 0.88
	Diluted income per share	$ 0.16	$ 0.12	$ 0.50	$ 0.85

	Weighted-average shares used in computing
	per share amounts:
	Basic	80,242	79,001	80,044	78,808
	Diluted	83,940	82,782	83,338	81,773

Sanmina-SCI Corporation
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
(Unaudited)

		Three Months Ended			Six Months Ended
		April 2,	January 1,	April 3,	April 2,	April 3,
		2011	2011	2010	2011	2010



GAAP Gross Profit		$ 116,831	$ 128,047	$ 117,477	$ 244,878	$ 227,164
	GAAP gross margin	7.4%	7.7%	7.7%	7.6%	7.6%
Adjustments
	Stock compensation expense (2)	1,013	1,039	2,040	2,052	4,106
	Amortization of intangible assets	157	157	-	314	-
	Customer bankruptcy reorganization (1)	(759)	-	-	(759)	-
Non-GAAP Gross Profit		$ 117,242	$ 129,243	$ 119,517	$ 246,485	$ 231,270
	*Non-GAAP gross margin*	*7.5%*	*7.8%*	*7.8%*	*7.6%*	*7.7%*


GAAP operating income		$ 44,634	$ 60,955	$ 45,238	$ 105,589	$ 84,896
	GAAP operating margin	2.8%	3.7%	3.0%	3.3%	2.8%
Adjustments
	Stock compensation expense (2)	4,237	3,687	5,352	7,924	10,004
	Amortization of intangible assets	1,116	1,115	1,059	2,231	2,237
	Customer bankruptcy reorganization (1)	(759)	-	-	(759)	-
	Restructuring, acquisition and integration costs	4,510	5,039	3,871	9,549	7,209
	Gain on sales of long-lived assets	(398)	(1,627)	-	(2,025)	-
	Asset impairment	-	85	500	85	500
Non-GAAP operating income		$ 53,340	$ 69,254	$ 56,020	$ 122,594	$ 104,846
	*Non-GAAP operating margin*	*3.4%*	*4.2%*	*3.7%*	*3.8%*	*3.5%*


GAAP net income		$ 13,065	$ 28,359	$ 10,091	$ 41,424	$ 69,473

Adjustments:
	Operating income adjustments (see above)	8,706	8,299	10,782	17,005	19,950
	Gain on sale of business	-	-	-	-	(3,710)
	Loss on repurchase of debt (3)	-	-	-	-	828
	Gain from litigation settlement (4)	-	-	-	-	(35,556)
	Nonrecurring tax items	3,157	623	3,164	3,780	(8,480)
Non-GAAP net income		$ 24,928	$ 37,281	$ 24,037	$ 62,209	$ 42,505


GAAP Income Per Share:
	Basic	$ 0.16	$ 0.36	$ 0.13	$ 0.52	$ 0.88
	Diluted	$ 0.16	$ 0.34	$ 0.12	$ 0.50	$ 0.85

Non-GAAP Income Per Share:
	Basic	$ 0.31	$ 0.47	$ 0.30	$ 0.78	$ 0.54
	Diluted	$ 0.30	$ 0.45	$ 0.29	$ 0.75	$ 0.52

Weighted-average shares used in computing per share amounts:
	Basic	80,242	79,846	79,001	80,044	78,808
	Diluted	83,940	82,825	82,782	83,338	81,773


(1) Relates to revenue reversal and inventory and bad debt reserves associated with customer bankruptcy reorganization announcements.

(2) Stock compensation expense was as follows:

		Three Months Ended			Six Months Ended
		April 2,	January 1,	April 3,	April 2,	April 3,
		2011	2011	2010	2011	2010

	Cost of sales	$ 1,013	$ 1,039	$ 2,040	$ 2,052	$ 4,106
	Selling, general and administrative	3,184	2,605	3,208	5,789	5,695
	Research and development	40	43	104	83	203
	Stock compensation expense - total company	$ 4,237	$ 3,687	$ 5,352	$ 7,924	$ 10,004

(3) Represents gain or loss, including write-off of unamortized debt issuance costs, on debt redeemed or repurchased prior to maturity.
(4) Represents cash received in connection with a litigation settlement.

Schedule I

The commentary above includes non-GAAP measures of gross profit, gross margin, operating income, operating margin, net income and earnings per share. Management excludes from these measures stock-based compensation, restructuring, acquisition and integration expenses, impairment charges, amortization charges and other infrequent items, including customer bankruptcy impacts, to the extent material or which we consider to be of a non-operational nature in the applicable period.

Management excludes these items principally because such charges are not directly related to the Company's ongoing core business operations. We use such non-GAAP measures in order to (1) make more meaningful period-to-period comparisons of Company's operations, both internally and externally, (2) guide management in assessing performance of the business, internally allocating resources and making decisions in furtherance of Company's strategic plan, (3) provide investors with a better understanding of how management plans and measures the business and (4) provide investors with a better understanding of the ongoing, core business. The material limitations to management's approach include the fact that the charges and expenses excluded are nonetheless charges required to be recognized under GAAP. Management compensates for these limitations primarily by using GAAP results to obtain a complete picture of the Company's performance and by including a reconciliation of non-GAAP results back to GAAP in its earnings releases.

Additional information regarding the economic substance of each exclusion, management's use of the resultant non-GAAP measures, the material limitations of management's approach and management's methods for compensating for such limitations is provided below.

Stock-based Compensation Expense, which consists of non-cash charges for the estimated fair value of stock options and unvested restricted stock units granted to employees, is excluded in order to permit more meaningful period-to-period comparisons of the Company's results since the Company grants different amounts and value of stock options in each quarter. In addition, given the fact that competitors grant different amounts and types of equity award and may use different option valuation assumptions, excluding stock-based compensation permits more accurate comparisons of the Company's core results with those of its competitors.

Restructuring, Acquisition and Integration Expenses, which consist of severance, lease termination, exit costs and other charges primarily related to closing and consolidating manufacturing facilities and those associated with the acquisition and integration of acquired businesses, are excluded because such charges (1) can be driven by the timing of acquisitions which are difficult to predict, (2) are not directly related to ongoing business results and (3) do not reflect expected future operating expenses. In addition, given the fact that the Company's competitors complete acquisitions and adopt restructuring plans at different times and in different amounts than the Company, excluding these charges permits more accurate comparisons of the Company's core results with those of its competitors. Items excluded by the Company may be different from those excluded by the Company's competitors and restructuring and integration expenses include both cash and non-cash expenses. Cash expenses reduce the Company's liquidity. Therefore, management also reviews GAAP results including these amounts.

Impairment Charges, which consist of non-cash charges, are excluded because such charges are non-recurring and do not reduce the Company's liquidity. In addition, given the fact that the Company's competitors may record impairment charges at different times, excluding these charges permits more accurate comparisons of the Company's core results with those of its competitors.

Amortization Charges, which consist of non-cash charges impacted by the timing and magnitude of acquisitions of businesses or assets, are also excluded because such charges do not reduce the Company's liquidity or availability under its credit facilities. In addition, such charges can be driven by the timing of acquisitions, which is difficult to predict. Excluding these charges permits more accurate comparisons of the Company's core results with those of its competitors because the Company's competitors complete acquisitions at different times and for different amounts than the Company.

Other Items, which consist of other infrequent or unusual items (including charges for customer bankruptcy reorganizations, litigation settlements, gains and losses on sales of assets and discrete tax events), to the extent material or non-operational in nature, are excluded because such items are typically non-recurring, difficult to predict and generally not directly related to the Company's ongoing core operations. However, items excluded by the Company may be different from those excluded by the Company's competitors. In addition, these expenses include both cash and non-cash expenses. Cash expenses reduce the Company's liquidity. Management compensates for these limitations by reviewing GAAP results including these amounts.

SOURCE Sanmina-SCI Corporation

Sanmina-SCI Reports Results for the Second Quarter Fiscal 2011

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