Company Quick10K Filing
Sanmina
Price32.45 EPS2
Shares72 P/E16
MCap2,326 P/FCF6
Net Debt-69 EBIT276
TEV2,257 TEV/EBIT8
TTM 2019-09-28, in MM, except price, ratios
10-Q 2021-01-02 Filed 2021-02-04
10-K 2020-10-03 Filed 2020-11-13
10-Q 2020-06-27 Filed 2020-07-31
10-Q 2020-03-28 Filed 2020-04-29
10-Q 2019-12-28 Filed 2020-01-30
10-K 2019-09-28 Filed 2019-11-08
10-Q 2019-06-29 Filed 2019-08-01
10-Q 2019-03-30 Filed 2019-05-02
10-Q 2018-12-29 Filed 2019-02-07
10-K 2018-09-29 Filed 2018-11-15
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-02
10-Q 2017-12-30 Filed 2018-02-02
10-K 2017-09-30 Filed 2017-11-13
10-Q 2017-07-01 Filed 2017-07-28
10-Q 2017-04-01 Filed 2017-04-28
10-Q 2016-12-31 Filed 2017-02-03
10-K 2016-10-01 Filed 2016-11-18
10-Q 2016-07-02 Filed 2016-07-29
10-Q 2016-04-02 Filed 2016-04-29
10-Q 2016-01-02 Filed 2016-01-29
10-K 2015-10-03 Filed 2015-11-19
10-Q 2015-06-27 Filed 2015-07-24
10-Q 2015-03-28 Filed 2015-04-24
10-Q 2014-12-27 Filed 2015-01-30
10-K 2014-09-27 Filed 2014-11-13
10-Q 2014-06-28 Filed 2014-07-25
10-Q 2014-03-29 Filed 2014-04-28
10-Q 2013-12-28 Filed 2014-01-31
10-K 2013-09-28 Filed 2013-11-27
10-Q 2013-06-29 Filed 2013-07-30
10-Q 2013-03-30 Filed 2013-04-30
10-Q 2012-12-29 Filed 2013-02-04
10-K 2012-09-29 Filed 2012-11-21
10-Q 2012-06-30 Filed 2012-07-31
10-Q 2012-03-31 Filed 2012-05-01
10-Q 2011-12-31 Filed 2012-01-26
10-K 2011-10-01 Filed 2011-11-22
10-Q 2011-07-02 Filed 2011-08-01
10-Q 2011-04-02 Filed 2011-04-26
10-Q 2011-01-01 Filed 2011-02-08
10-K 2010-10-02 Filed 2010-11-24
10-Q 2010-07-03 Filed 2010-08-05
10-Q 2010-04-03 Filed 2010-04-30
10-Q 2010-01-02 Filed 2010-02-05
8-K 2020-11-10
8-K 2020-09-04
8-K 2020-08-20
8-K 2020-08-17
8-K 2020-07-29
8-K 2020-04-27
8-K 2020-03-09
8-K 2020-01-27
8-K 2019-12-09
8-K 2019-10-28
8-K 2019-10-14
8-K 2019-10-01
8-K 2019-09-09
8-K 2019-09-09
8-K 2019-07-29
8-K 2019-07-08
8-K 2019-05-31
8-K 2019-04-29
8-K 2019-04-05
8-K 2019-03-11
8-K 2019-01-22
8-K 2018-11-30
8-K 2018-11-15
8-K 2018-10-29
8-K 2018-09-15
8-K 2018-09-14
8-K 2018-09-10
8-K 2018-08-31
8-K 2018-07-30
8-K 2018-06-25
8-K 2018-04-23
8-K 2018-03-26
8-K 2018-03-04
8-K 2018-02-01
8-K 2018-01-29
8-K 2018-01-19
8-K 2018-01-12

SANM 10Q Quarterly Report

Note 1. Basis of Presentation
Note 2. Revenue Recognition
Note 3. Financial Instruments
Note 4. Debt
Note 5. Leases
Note 6. Accounts Receivable Sale Program
Note 7. Contingencies
Note 8. Restructuring
Note 9. Income Tax
Note 10. Stockholder's Equity
Note 11. Business Segment, Geographic and Customer Information
Note 12. Earnings per Share
Note 13. Stock - Based Compensation
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.37 sanmina_ex1037x20210102.htm
EX-31.1 sanmina_ex311x20210102.htm
EX-31.2 sanmina_ex312x20210102.htm
EX-32.1 sanmina_ex321x20210102.htm
EX-32.2 sanmina_ex322x20210102.htm

Sanmina Earnings 2021-01-02

Balance SheetIncome StatementCash Flow
4.43.52.61.80.90.02012201420172020
Assets, Equity
2.21.71.20.80.3-0.22012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 2, 2021
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)
DE77-0228183
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
  
2700 N. First St.,San Jose,CA95134
(Address of principal executive offices)(Zip Code)
(408)964-3500
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]    No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [x]    No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
[X]
Accelerated filer [ ]
Non-accelerated filer [  ]
Smaller reporting company
  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common StockSANMNASDAQ Global Select Market

As of January 27, 2021, there were 64,926,569 shares outstanding of the issuer's common stock, $0.01 par value per share.



SANMINA CORPORATION

INDEX

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.


2




SANMINA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
 As of
 January 2,
2021
 October 3,
2020
(Unaudited)
 (In thousands)
ASSETS 
Current assets: 
Cash and cash equivalents$516,030 $480,526 
Accounts receivable, net of allowances of $8,309 and $8,570 as of January 2, 2021 and October 3, 2020, respectively
1,108,472 1,043,334 
Contract assets350,049 396,583 
Inventories819,474 861,281 
Prepaid expenses and other current assets48,851 37,718 
Total current assets2,842,876 2,819,442 
Property, plant and equipment, net541,188 559,242 
Deferred tax assets269,803 273,470 
Other125,867 120,502 
Total assets$3,779,734 $3,772,656 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$1,143,431 $1,210,049 
Accrued liabilities190,797 171,761 
Accrued payroll and related benefits120,469 122,029 
Short-term debt, including current portion of long-term debt18,750 18,750 
Total current liabilities1,473,447 1,522,589 
Long-term liabilities:  
Long-term debt324,825 329,249 
Other303,514 290,902 
Total long-term liabilities628,339 620,151 
Contingencies (Note 7)
Stockholders' equity1,677,948 1,629,916 
Total liabilities and stockholders' equity$3,779,734 $3,772,656 

See accompanying notes to condensed consolidated financial statements.

3


SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
January 2,
2021
December 28,
2019
(Unaudited)
(In thousands, except per share data)
Net sales$1,755,249 $1,840,171 
Cost of sales1,614,014 1,705,289 
Gross profit141,235 134,882 
Operating expenses:
Selling, general and administrative58,967 63,151 
Research and development4,805 5,200 
Restructuring and other1,904 9,350 
Total operating expenses65,676 77,701 
Operating income75,559 57,181 
Interest income230 310 
Interest expense(4,954)(5,877)
Other income, net1,867 1,318 
Interest and other, net(2,857)(4,249)
Income before income taxes72,702 52,932 
Provision for income taxes24,681 14,587 
Net income$48,021 $38,345 
Net income per share:
Basic$0.74 $0.55 
Diluted$0.72 $0.53 
Weighted average shares used in computing per share amounts:
Basic65,243 70,178 
Diluted66,818 72,598 

See accompanying notes to condensed consolidated financial statements.


4


SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended
January 2,
2021
December 28,
2019
(Unaudited)
(In thousands)
Net income$48,021 $38,345 
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments1,639 717 
Derivative financial instruments:
Change in net unrealized amount3,356 3,380 
Amount reclassified into net income(1,501)(195)
Defined benefit plans:
Changes in unrecognized net actuarial losses and unrecognized transition costs(725)(187)
Amortization of actuarial losses and transition costs506 544 
Total other comprehensive income3,275 4,259 
Comprehensive income$51,296 $42,604 

See accompanying notes to condensed consolidated financial statements.
5


SANMINA CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Three Months Ended
January 2,
2021
December 28,
2019
(Unaudited)
(In thousands)
Common Stock and Additional Paid-in Capital
Balance, beginning of period$6,301,537 $6,267,509 
Issuances under stock plans1,050 4,852 
Stock-based compensation expense8,208 6,906 
Balance, end of period6,310,795 6,279,267 
Treasury Stock
Balance, beginning of period(983,143)(804,118)
Repurchases of treasury stock(12,522)(17,550)
Balance, end of period(995,665)(821,668)
Accumulated Other Comprehensive Income
Balance, beginning of period34,886 42,259 
Other comprehensive income3,275 4,259 
Balance, end of period38,161 46,518 
Accumulated Deficit
Balance, beginning of period(3,723,364)(3,863,077)
Net income48,021 38,345 
Balance, end of period(3,675,343)(3,824,732)
Total stockholders' equity$1,677,948 $1,679,385 
Common Stock Shares Outstanding
Number of shares, beginning of period107,629 105,551 
Issuances under stock plans369 1,290 
Number of shares, end of period107,998 106,841 
Treasury Shares
Number of shares, beginning of period(42,630)(35,831)
Repurchases of treasury stock(482)(553)
Number of shares, end of period(43,112)(36,384)









See accompanying notes to condensed consolidated financial statements.
6


SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
January 2,
2021
 December 28,
2019
(Unaudited)
(In thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income$48,021 $38,345 
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization27,635 28,735 
Stock-based compensation expense8,208 6,906 
Deferred income taxes3,447 3,005 
Other, net(99)(322)
Changes in operating assets and liabilities:
Accounts receivable(64,217)65,449 
Contract assets46,534 (25,560)
Inventories42,282 57,357 
Prepaid expenses and other assets(9,400)2,372 
Accounts payable(66,657)(139,304)
Accrued liabilities26,057 (15,812)
Cash provided by operating activities61,811 21,171 
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of proceeds(11,191)(28,046)
Cash used in investing activities(11,191)(28,046)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments of long-term debt(4,688)(4,688)
Proceeds from revolving credit facility borrowings331,300 717,000 
Repayments of revolving credit facility borrowings(331,300)(717,000)
Net proceeds from stock issuances1,050 4,852 
Repurchases of common stock(12,522)(17,550)
Cash used in financing activities(16,160)(17,386)
Effect of exchange rate changes1,044 84 
Increase (decrease) in cash and cash equivalents35,504 (24,177)
Cash and cash equivalents at beginning of period480,526 454,741 
Cash and cash equivalents at end of period$516,030 $430,564 
Cash paid during the period for:
Interest, net of capitalized interest$1,096 $4,725 
Income taxes, net of refunds$5,205 $4,888 
Unpaid purchases of property, plant and equipment at the end of period$11,635 $15,782 


See accompanying notes to condensed consolidated financial statements.
7


SANMINA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Sanmina Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted pursuant to those rules or regulations. The interim condensed consolidated financial statements are unaudited, but reflect all adjustments, consisting primarily of normal recurring adjustments, that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended October 3, 2020, included in the Company's 2020 Annual Report on Form 10-K.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Due to the COVID-19 pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.

Results of operations for the first quarter of 2021 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

The Company operates on a 52 or 53 week year ending on the Saturday nearest September 30. Fiscal 2021 will be a 52-week year and fiscal 2020 was a 53-week year, with the extra week included in the fourth quarter of fiscal 2020. All references to years relate to fiscal years unless otherwise noted.

Recent Accounting Pronouncements Adopted

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance aligns the requirements for capitalizing implementation costs incurred in a cloud-based hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for the Company at the beginning of fiscal 2021, including interim periods within that reporting period. There was no impact upon adoption.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which replaces the existing incurred loss impairment methodology with an expected credit loss methodology and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This new standard is effective for the Company at the beginning of fiscal 2021, including interim periods within that reporting period. The impact of adoption was not material.

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)", which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has not yet applied any of the expedients and exceptions and is currently evaluating the impact of the provisions of ASU 2020-04.

8


Note 2. Revenue Recognition

The Company is a leading global provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. For purposes of determining when to recognize revenue, and in what amount, the Company applies a 5-step model: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. Each of these steps involves the use of significant judgments, as discussed below.
Step 1 - Identify the contract with a customer
A contract is defined as an agreement between two parties that creates enforceable rights and obligations. The Company generally enters into a master supply agreement (“MSA”) with its customers that provides the framework under which business will be conducted, and pursuant to which a customer will issue purchase orders or other binding documents to specify the quantity, price and delivery requirements for products or services the customer wishes to purchase. The Company generally considers its contract with a customer to be a firm commitment, consisting of the combination of an MSA and a purchase order or any other similar binding document.
Step 2 - Identify the performance obligations in the contract
A performance obligation is a promised good or service that is material in the context of the contract and is both capable of being distinct (customer can benefit from the good or service on its own or together with other readily available resources) and distinct within the context of the contract (separately identifiable from other promises). The Company reviews its contracts to identify promised goods or services and then evaluates such items to determine which of those items are performance obligations. The majority of the Company’s contracts have a single performance obligation since the promise to transfer an individual good or service is not separately identifiable from other promises in the contract. The Company’s performance obligations generally have an expected duration of one year or less.
Step 3 - Determine the transaction price
The Company’s contracts with its customers may include certain forms of variable consideration such as early payment discounts, volume discounts and shared cost savings. The Company includes an estimate of variable consideration when determining the transaction price and the appropriate amount of revenue to be recognized. This estimate is limited to an amount which will not result in a significant reversal of revenue in a future period. Factors considered in the Company’s estimate of variable consideration are the potential amount subject to these contract provisions, historical experience and other relevant facts and circumstances.
Step 4 - Allocate the transaction price to the performance obligations in the contract
A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In the event that more than one performance obligation is identified in a contract, the Company is required to allocate a portion of the transaction price to each performance obligation. This allocation would generally be based on the relative standalone price of each performance obligation, which most often would represent the price at which the Company would sell similar goods or services separately.
Step 5 - Recognize revenue when (or as) a performance obligation is satisfied
The Company is required to assess whether control of a product or services promised under a contract is transferred to the customer at a point-in-time or over time as the product is being manufactured or the services are being provided. If the criteria in ASC 606 for recognizing revenue on an over time basis are not met, revenue must be recognized at the point-in-time determined by the Company at which its customer obtains control of a product or service.

The Company has determined that revenue for the majority of its contracts is required to be recognized on an over time basis. This determination is based on the fact that 1) the Company does not have an alternative use for the end products it manufactures for its customers and has an enforceable right to payment, including a reasonable profit, for work-in-progress upon a customer’s cancellation of a contract for convenience or 2) the Company’s customer simultaneously receives and consumes the benefits provided by the Company’s services. For these contracts, revenue is recognized on an over time basis using the cost-to-cost method (ratio of costs incurred to date to total estimated costs at completion) which the Company believes best depicts the transfer of control to the customer. At least 95% of the Company's revenue is recognized on an over time basis, which is as products are manufactured or services are performed. Because of this, and the fact that there is no work-in-process or finished goods inventory associated with contracts for which revenue is recognized on an over-time basis, 99% or more of the Company’s inventory at the end of a given period is in the form of raw materials. For contracts for which revenue is required to be recognized at a point-in-time, the Company recognizes revenue when it has transferred control of the related goods, which generally occurs upon shipment or delivery of the goods to the customer.
9



Application of the cost-to-cost method for government contracts in the Company’s Defense and Aerospace division requires the use of significant judgments with respect to estimated materials, labor and subcontractor costs. This division is an operating segment whose results are aggregated with nine other operating segments and reported under Components, Products and Services ("CPS") for segment reporting purposes. In the first quarter of 2021, CPS revenue and gross profit was $299 million and $40 million, respectively.

The Company updates its estimates of materials, labor and subcontractor costs on a quarterly basis. These updated estimates are reviewed each quarter by a group of employees that includes representatives from numerous functions such as engineering, materials, contracts, manufacturing, program management, finance and senior management. If a change in estimate is deemed necessary, the impact of the change is recognized in the period of change.

Contract Assets

A contract asset is recognized when the Company has recognized revenue, but has not issued an invoice to its customer for payment. Contract assets are classified separately on the condensed consolidated balance sheets and transferred to accounts receivable when rights to payment become unconditional. Because of the Company’s short manufacturing cycle times, the transfer from contract assets to accounts receivable generally occurs within the next fiscal quarter.
Other

Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, and are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of sales.

The Company applies the following practical expedients or policy elections under ASC 606:

The promised amount of consideration under a contract is not adjusted for the effects of a significant financing component because, at inception of a contract, the Company expects the period between when a good or service is transferred to a customer and when the customer pays for that good or service will generally be one year or less.
The Company has elected to not disclose information about remaining performance obligations that have original expected durations of one year or less, which is substantially all of the Company’s remaining performance obligations.
Incremental costs of obtaining a contract are not capitalized if the period over which such costs would be amortized to expense is less than one year.


10


Disaggregation of revenue

In the following table, revenue is disaggregated by segment, market sector and geography.
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands)
Segments:
IMS$1,456,168 $1,535,633 
CPS299,081 304,538 
Total$1,755,249 $1,840,171 
End Markets:
Industrial, Medical, Automotive and Defense$1,032,518 $1,107,547 
Communications Networks and Cloud Infrastructure722,731 732,624 
Total1,755,249 $1,840,171 
Geography:
Americas (1)$831,822 $906,568 
EMEA259,292 261,031 
APAC664,135 672,572 
Total$1,755,249 $1,840,171 
(1) Mexico represents approximately 60% of the Americas revenue and the U.S. represents approximately 35%.

Note 3. Financial Instruments

Fair Value Measurements

Fair Value of Financial Instruments

The fair values of cash equivalents (generally 10% or less of cash and cash equivalents), accounts receivable, accounts payable and short-term debt approximate carrying value due to the short-term duration of these instruments. Additionally, the fair value of variable rate long-term debt approximates carrying value as of January 2, 2021.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company's primary financial assets and financial liabilities measured at fair value on a recurring basis are deferred compensation plan assets and defined benefit plan assets, which are both measured using Level 1 inputs. Deferred compensation plan assets were $45 million and $40 million as of January 2, 2021 and October 3, 2020, respectively. Defined benefit plan assets were $39 million as of October 3, 2020 and are measured at fair value only in the fourth quarter of each year. Other financial assets and financial liabilities measured at fair value on a recurring basis include foreign exchange contracts and interest rate swaps, which are both measured using Level 2 inputs. Foreign exchange contracts were not material as of January 2, 2021 or October 3, 2020. Interest rate swaps had a negative value of $26 million and $29 million as of January 2, 2021 and October 3, 2020, respectively.

Offsetting Derivative Assets and Liabilities

The Company has entered into master netting arrangements with each of its derivative counterparties that allows net settlement of derivative assets and liabilities under certain conditions, such as multiple transactions with the same currency maturing on the same date. The Company presents its derivative assets and derivative liabilities on a gross basis on the unaudited condensed consolidated balance sheets. The amount that the Company had the right to offset under these netting arrangements was not material as of  January 2, 2021 or October 3, 2020.

Non-Financial Assets Measured at Fair Value on a Nonrecurring Basis

11


Other non-financial assets, such as goodwill and other long-lived assets are measured at fair value as of the date such assets are acquired or in the period an impairment is recorded.

Derivative Instruments

Foreign Exchange Rate Risk

The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency exchange risk.

Forward contracts on various foreign currencies are used to manage foreign currency risk associated with forecasted foreign currency transactions and certain monetary assets and liabilities denominated in non-functional currencies. The Company's primary foreign currency cash flows are in certain Asian and European countries, Brazil, Israel and Mexico.

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge foreign currency exposures:
 As of
January 2,
2021
 October 3,
2020
Derivatives Designated as Accounting Hedges:
   Notional amount (in thousands)$123,396 $113,300 
   Number of contracts48 48 
Derivatives Not Designated as Accounting Hedges:
   Notional amount (in thousands)$350,896 $352,062 
   Number of contracts40 45 

The Company utilizes foreign currency forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. Such exposures generally result from (1) forecasted non-functional currency sales and (2) forecasted non-functional currency materials, labor, overhead and other expenses. These contracts are designated as cash flow hedges for accounting purposes and are generally one to two months in duration but, by policy, may be up to twelve months in duration.

For derivative instruments that are designated and qualify as cash flow hedges, the Company excludes time value from its assessment of hedge effectiveness and recognizes the amount of time value in earnings over the life of the derivative instrument. Gains or losses on the derivative not caused by changes in time value are recorded in Accumulated Other Comprehensive Income ("AOCI"), a component of equity, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The amount of gain or loss recognized in Other Comprehensive Income on derivative instruments and the amount of gain or loss reclassified from AOCI into income were not material for any period presented herein.

The Company enters into short-term foreign currency forward contracts to hedge currency exposures associated with certain monetary assets and liabilities denominated in non-functional currencies. These contracts have maturities of up to two months and are not designated as accounting hedges. Accordingly, these contracts are marked-to-market at the end of each period with unrealized gains and losses recorded in other income, net, in the condensed consolidated statements of income. The amount of gains or losses associated with these forward contracts was not material for any period presented herein. From an economic perspective, the objective of the Company's hedging program is for gains and losses on forward contracts to substantially offset gains and losses on the underlying hedged items. In addition to the contracts disclosed in the table above, the Company has numerous contracts that have been closed from an economic and financial accounting perspective and will settle early in the first month of the following quarter. Since these offsetting contracts do not expose the Company to risk of fluctuations in exchange rates, these contracts have been excluded from the above table.

12


Interest Rate Risk

The Company enters into forward interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in the benchmark interest rate (LIBOR) associated with anticipated variable rate borrowings. These interest rate swaps have a maturity date of December 1, 2023 and effectively convert the Company's variable interest rate obligations to fixed interest rate obligations. These swaps are accounted for as cash flow hedges under ASC Topic 815, Derivatives and Hedging. Interest rate swaps with an aggregate notional amount of $350 million were outstanding as of January 2, 2021 and October 3, 2020. The aggregate effective interest rate of these swaps as of January 2, 2021 was approximately 4.3%. Due to a decline in interest rates since the time the swaps were put in place, these interest rate swaps had a negative value of $26 million as of January 2, 2021, of which $9 million is included in accrued liabilities and the remaining amount is included in other long-term liabilities on the condensed consolidated balance sheets.

Note 4. Debt

Long-term debt consisted of the following:
 As of
 January 2,
2021
October 3,
2020
 (In thousands)
Term loan due 2023 ("Term Loan"), net of issuance costs$343,575 $347,999 
Current portion of Term Loan18,750 18,750 
Long-term debt$324,825 $329,249 

Term Loan maturities as of January 2, 2021 by fiscal year are as follows:
(In Thousands)
Remainder of 2021$14,063 
202218,750 
202314,062 
2024300,000 
$346,875 

As of January 2, 2021, there were no borrowings and $8 million of letters of credit outstanding under the Fourth Amended and Restated Credit Agreement (the "Amended Cash Flow Revolver").

As of January 2, 2021, certain foreign subsidiaries of the Company had a total of $69 million of short-term borrowing facilities available, under which no borrowings were outstanding.

Debt covenants

The Company's Amended Cash Flow Revolver requires the Company to comply with certain financial covenants, namely a maximum leverage ratio and a minimum interest coverage ratio, in both cases measured on the basis of a trailing 12 month look-back period. In addition, the Company's debt agreements contain a number of restrictive covenants, including restrictions on incurring additional debt, making investments and other restricted payments, selling assets and paying dividends, subject to certain exceptions. The Company was in compliance with these covenants as of January 2, 2021.

Note 5. Leases

The Company's leases consist primarily of operating leases for buildings and land. These leases have initial lease terms of up to 44 years and, upon adoption of ASC 842, are recorded on the Company's balance sheet as lease liabilities and corresponding right-of-use ("ROU") assets. Certain of these leases contain an option to extend the lease term for additional periods or to terminate the lease after an initial non-cancelable term. Renewal options are considered in the measurement of the Company's initial lease liability and corresponding ROU asset only if it is reasonably certain that the Company will exercise such options. Leases with lease terms of twelve months or less are not recorded on the Company's balance sheet.

ROU assets and lease liabilities recorded in the condensed consolidated balance sheet are as follows:
13


 As of
 January 2,
2021
October 3,
2020
 (In thousands)
Other assets (1)$53,407 $52,552 
 
Accrued liabilities17,334 16,659 
Other long-term liabilities38,263 37,015 
Total lease liabilities
$55,597 $53,674 
 
Weighted average remaining lease term (in years)6.666.88
Weighted average discount rate3.02 %3.13 %

(1)    Net of accumulated amortization of $19 million and $16 million as of January 2, 2021 and October 3, 2020, respectively.

Cash paid for operating lease liabilities was $5 million for the three months ended January 2, 2021 and December 28, 2019. Operating lease expense, which includes an immaterial amount for short-term leases, variable lease costs and sublease income, was $5 million for the three months ended January 2, 2021 and December 28, 2019.

Future lease payments under non-cancelable operating leases as of January 2, 2021, by fiscal year, are as follows:
Operating Leases
 (In thousands)
Remainder of 2021$14,346 
202215,573 
20238,824 
20245,299 
20254,127 
20262,397 
Thereafter11,179 
Total lease payments
61,745 
Less: imputed interest6,148 
Total
$55,597 

Note 6. Accounts Receivable Sale Program

The Company has entered into a Receivable Purchase Agreement (the “RPA”) with certain third-party banking institutions for the sale of trade receivables generated from sales to certain customers, subject to acceptance by, and a funding commitment from, the banks that are party to the RPA. Trade receivables sold pursuant to the RPA are serviced by the Company.

In addition to the RPA, the Company has the option to participate in trade receivables sales programs that have been implemented by certain of the Company's customers, as in effect from time to time. The Company does not service trade receivables sold under these other programs.

14


Under each of the programs noted above, the Company sells its entire interest in a trade receivable for 100% of face value, less a discount. During the three months ended January 2, 2021 and December 28, 2019, the Company sold approximately $263 million and $538 million, respectively, of accounts receivable under these programs. Upon sale, these receivables are removed from the condensed consolidated balance sheets and cash received is presented as cash provided by operating activities in the condensed consolidated statements of cash flows. Discounts on sold receivables were not material for any period presented. As of January 2, 2021 and October 3, 2020, $52 million and $97 million, respectively, of accounts receivable sold under the RPA and subject to servicing by the Company remained outstanding and had not yet been collected. The Company's sole risk with respect to receivables it services is with respect to commercial disputes regarding such receivables. Commercial disputes include billing errors, returns and similar matters. To date, the Company has not been required to repurchase any receivable it has sold due to a commercial dispute. Additionally, the Company is required to remit amounts collected as servicer under the RPA on a weekly basis to the financial institutions that purchased the receivables. As of January 2, 2021 and October 3, 2020, $44 million and $39 million, respectively, had been collected but not yet remitted. This amount is classified in accrued liabilities on the condensed consolidated balance sheets.

Note 7. Contingencies

From time to time, the Company is a party to litigation, claims and other contingencies, including environmental, regulatory and employee matters and examinations and investigations by governmental agencies, which arise in the ordinary course of business. The Company records a contingent liability when it is probable that a loss has been incurred and the amount of loss is reasonably estimable in accordance with ASC Topic 450, Contingencies, or other applicable accounting standards. As of January 2, 2021 and October 3, 2020, the Company had reserves of $39 million and $37 million, respectively, for environmental matters, warranty, litigation and other contingencies (excluding reserves for uncertain tax positions), which the Company believes are adequate. However, there can be no assurance that the Company's reserves will be sufficient to settle these contingencies. Such reserves are included in accrued liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets.

Legal Proceedings

Environmental Matters

The Company is subject to various federal, state, local and foreign laws and regulations and administrative orders concerning environmental protection, including those addressing the discharge of pollutants into the environment, the management and disposal of hazardous substances, the cleanup of contaminated sites, the materials used in products, and the recycling, treatment and disposal of hazardous waste. As of January 2, 2021, the Company had been named in a lawsuit and several administrative orders alleging certain of its current and former sites contributed to groundwater contamination. One such order demands that the Company and other alleged defendants remediate groundwater contamination at four landfills located in Northern California to which the Company may have sent wastewater in the past. The Company is participating in a working group of other alleged defendants to better understand its potential exposure in this action and has reserved its estimated exposure for this matter as of January 2, 2021. However, there can be no assurance that the Company's reserve will ultimately be sufficient.

In June 2008, the Company was named by the Orange County Water District in a suit alleging that its actions contributed to polluted groundwater managed by the plaintiff. The complaint seeks recovery of compensatory and other damages, as well as declaratory relief, for the payment of costs necessary to investigate, monitor, remediate, abate and contain contamination of groundwater within the plaintiff’s control. In April 2013, all claims against the Company were dismissed. The plaintiff appealed this dismissal and the appellate court reversed the judgment in August 2017. In November 2017, the California Supreme Court denied the Company’s petition to review this decision and, in December 2017, the Court of Appeal remanded the case back to the Superior Court for further proceedings. The first part of a multi-phase trial is scheduled to commence on April 12, 2021. The Company intends to contest the plaintiff’s claims vigorously.

15


Other Matters

In October 2018, a contractor who had been retained by the Company through a third party temporary staffing agency from November 2015 to March 2016 filed a lawsuit against the Company in the Santa Clara County Superior Court on behalf of himself and all other similarly situated Company contractors and employees in California, alleging violations of California Labor Code provisions governing overtime, meal and rest periods, wages, wage statements and reimbursement of business expenses. The complaint seeks certification of a class of all non-exempt employees, whether employed directly or through a temporary staffing agency, employed from four years before the filing of the initial complaint to the time of trial. Additionally, on November 1, 2019, another contractor retained through a temporary staffing agency filed a lawsuit against the Company in the Santa Clara County Superior Court. The complaint, which includes a single cause of action under California’s Private Attorneys General Act of 2004 ("PAGA"), alleges Labor Code violations substantially similar to those alleged in the October 2018 class action lawsuit and seeks penalties on behalf of the State of California and other “aggrieved employees” (defined to be current and former hourly, non-exempt employees employed by the Company between August 22, 2018 and the present). Although the Company continues to deny any wrongdoing, on November 19, 2020, the Company reached an agreement in principle to resolve all claims (the “Settlement”). Under the Settlement, which remains subject to court approval, the Company’s total payout will depend on the number and value of claims submitted by members of the settlement class to the claims administrator, and cannot exceed $5 million (but could be as low as approximately $3.5 million), inclusive of plaintiffs’ attorneys’ fees, costs, and certain other items. On December 3, 2020, in connection with and in order to effect the Settlement, plaintiffs dismissed the PAGA complaint pending in Santa Clara County Superior Court and refiled it as a class and PAGA action in Kern County Superior Court.

In December 2019, the Company sued a former customer, Dialight plc (“Dialight”), in the United States District Court for the Southern District of New York to collect approximately $10 million in unpaid accounts receivable and net obsolete inventory obligations. Later the same day, Dialight commenced its own action in the same court. Dialight’s complaint, which asserts claims for fraudulent inducement, breach of contract, and gross negligence/willful misconduct, alleges that the Company fraudulently misrepresented its capabilities to induce Dialight to enter into a Manufacturing Services Agreement (the “Dialight MSA”), and then breached its obligations contained in the Dialight MSA relating to quality, on-time delivery and supply chain management. Dialight seeks an unspecified amount of compensatory and punitive damages. The Company intends to vigorously prosecute its claim against Dialight. Further, the Company strongly disagrees with Dialight’s allegations and intends to defend against them vigorously.

For each of the matters noted above, with the exception of the alleged violations of the California Labor Code described above, the Company is unable to reasonably estimate a range of possible loss at this time.

Note 8. Restructuring

The following table is a summary of restructuring costs:
Restructuring Expense
Three Months Ended
January 2, 2021December 28, 2019
(In thousands)
Severance costs (approximately 45 and 1,450 employees for the three months ended January 2, 2021 and December 28, 2019, respectively)
$835 $6,728 
Other exit costs (recognized as incurred) 8 
Total - Q1 FY20 Plan835 6,736 
Costs incurred for other plans1,069 2,424 
Total - all plans$1,904 $9,160 
Q1 FY20 Plan
On October 28, 2019, the Company adopted a Company-wide restructuring plan ("Q1 FY20 Plan"). Under this plan, the Company expects to incur restructuring charges of up to $20 million, consisting primarily of cash severance costs. As of January 2, 2021, the Company had incurred restructuring charges of approximately $19 million, consisting of severance costs, under the Q1 FY20 Plan. Additional actions under this plan are expected to be implemented through the second quarter of fiscal 2021 and cash payments of severance are expected to occur through the fourth quarter of fiscal 2021.

Other Plans
16


Other plans include a number of plans for which costs are not expected to be material individually or in the aggregate.

All Plans
The Company’s Integrated Manufacturing Solutions ("IMS") segment incurred costs of $0.6 million and $7 million for the three months ended January 2, 2021 and December 28, 2019, respectively. The Company’s CPS segment incurred costs of $1 million and $2 million for the three months ended January 2, 2021 and December 28, 2019, respectively. In addition, $0.3 million of costs were incurred during the three months ended January 2, 2021 for corporate headcount reductions that were not allocated to the Company's IMS and CPS segments. The Company had accrued liabilities of $7 million and $9 million as of January 2, 2021 and October 3, 2020, respectively, for restructuring costs (exclusive of long-term environmental remediation liabilities).

In addition to costs expected to be incurred under the Q1 FY20 Plan, the Company expects to incur restructuring costs in future periods primarily for vacant facilities and former sites for which the Company is or may be responsible for environmental remediation.

Note 9. Income Tax

The Company estimates its annual effective income tax rate at the end of each quarterly period. The estimate takes into account the geographic mix of expected pre-tax income (loss), expected total annual pre-tax income (loss), enacted changes in tax laws, implementation of tax planning strategies and possible outcomes of audits and other uncertain tax positions. To the extent there are fluctuations in any of these variables during a period, the provision for income taxes may vary.

The Company's provision for income taxes for the three months ended January 2, 2021 and December 28, 2019 was $25 million (34% of income before taxes) and $15 million (28% of income before taxes), respectively. Income tax expense for the three months ended January 2, 2021 increased primarily as a result of an increase in income before tax and $4 million of discrete tax items.

It is reasonably possible that the Company's liability for uncertain tax positions could decrease significantly in the next 12 months upon the resolution of audits and expiration of statutes of limitations, resulting in a decrease in income tax expense at that time.

Note 10. Stockholder's Equity

Accumulated Other Comprehensive Income
Accumulated other comprehensive income, net of tax as applicable, consisted of the following:
As of
January 2,
2021
October 3,
2020
(In thousands)
Foreign currency translation adjustments$86,982 $85,343 
Unrealized holding losses on derivative financial instruments(20,347)(22,202)
Unrecognized net actuarial losses and transition costs for benefit plans(28,474)(28,255)
    Total$38,161 $34,886 

Unrealized holding losses on derivative financial instruments includes losses from interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in the benchmark interest rate (LIBOR) associated with anticipated variable rate borrowings. These swaps are accounted for as cash flow hedges under ASC Topic 815, Derivatives and Hedging. Interest rate swaps with an aggregate notional amount of $350 million were outstanding as of January 2, 2021 and October 3, 2020. The aggregate effective interest rate of these swaps as of January 2, 2021 was approximately 4.3%. Due to a decline in interest rates since the time the swaps were put in place, these interest rate swaps had a negative value of $26 million as of January 2, 2021, of which $9 million is included in accrued liabilities and the remaining amount is included in other long-term liabilities on the condensed consolidated balance sheets.

Stock Repurchase Program

17


During the three months ended January 2, 2021 and December 28, 2019, the Company repurchased 0.4 million and 0.3 million shares of its common stock for $9 million and $9 million, respectively, under a stock repurchase program authorized by the Board of Directors. As of January 2, 2021, an aggregate of $125 million remains available under such repurchase program. This authorization has no expiration date.

In addition to the repurchases discussed above, the Company repurchased 0.1 million and 0.3 million shares of its common stock during the three months ended January 2, 2021 and December 28, 2019, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock units. The Company paid $3 million and $8 million, respectively, to applicable tax authorities in connection with these repurchases.

Note 11. Business Segment, Geographic and Customer Information

ASC Topic 280, Segment Reporting, establishes standards for reporting information about operating segments, products and services, geographic areas of operations and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance.

The Company's operations are managed as two businesses: IMS and CPS. The Company's CPS business consists of multiple operating segments which do not meet the quantitative threshold for being presented individually as reportable segments. Therefore, financial information for these operating segments is presented in a single category entitled "CPS" and the Company has only one reportable segment - IMS.

The following table presents revenue and a measure of segment gross profit used by management to allocate resources and assess performance of operating segments:
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands)
Gross sales:
IMS$1,462,100 $1,543,935 
CPS319,416 336,431 
Intersegment revenue (26,267)(40,195)
Net sales$1,755,249 $1,840,171 
Gross profit:
IMS$106,566 $101,182 
CPS39,638 36,612 
Total146,204 137,794 
Unallocated items (1)(4,969)(2,912)
Total$141,235 $134,882 

(1)    For purposes of evaluating segment performance, management excludes certain items from its measure of gross profit. These items consist of stock-based compensation expense, charges or credits resulting from distressed customers and litigation settlements.

18


Net sales by geographic segment, determined based on the country in which a product is manufactured, were as
follows:
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands)
Net sales:
Americas (1)$831,822 $906,568 
EMEA259,292 261,031 
APAC664,135 672,572 
Total
$1,755,249 $1,840,171 

(1)    Mexico represents approximately 60% of the Americas revenue and the U.S. represents approximately 35%.
Percentage of net sales represented by ten largest customers58 %55 %
Number of customers representing 10% or more of net sales1 2 

Note 12. Earnings Per Share
 
Basic and diluted per share amounts are calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period, as follows:
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands, except per share data)
Numerator:
Net income$48,021 $38,345 
Denominator:
Weighted average common shares outstanding65,243 70,178 
Effect of dilutive stock options and restricted stock units1,575 2,420 
Denominator for diluted earnings per share66,818 72,598 
Net income per share:
Basic$0.74 $0.55 
Diluted$0.72 $0.53 

Note 13. Stock-Based Compensation

Stock-based compensation expense was attributable to:
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands)
Stock options$ $(1,145)
Restricted stock units, including performance based awards8,208 8,051 
  Total$8,208 $6,906 

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Stock-based compensation expense was recognized as follows:
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands)
Cost of sales$3,421 $2,912 
Selling, general and administrative4,717 3,925 
Research and development70 69 
  Total$8,208 $6,906 

As of January 2, 2021, an aggregate of 7.2 million shares were authorized for future issuance under the Company's stock plans, of which 4.0 million of such shares were issuable upon exercise of outstanding options and delivery of shares upon vesting of restricted stock units and 3.2 million shares of common stock were available for future grant.

Restricted and Performance Stock Units

The Company grants restricted stock units and restricted stock units with performance conditions ("PSUs") to executive officers, directors and certain other employees. These units vest over periods ranging from one year to four years and/or upon achievement of specified performance criteria and are automatically exchanged for shares of common stock at the vesting date. If performance metrics are not met within specified time limits, the award will be canceled. Compensation expense associated with restricted stock units and PSUs is recognized ratably over the vesting period, subject to probability of achievement for PSUs.

During 2021 and 2020, the Company granted 373,000 and 304,500 PSU shares, respectively, for which vesting is contingent on cumulative non-GAAP earnings per share measured over three fiscal years. If a minimum threshold is not achieved, no shares will vest. If the minimum threshold is achieved or exceeded, the number of shares of common stock that will be issued will range from 80% to 120% of the number of PSUs granted, depending on the extent of performance. Additionally, the number of shares that vest may be adjusted up or down by up to 15% based on the Company's total shareholder return relative to that of its peer group over this same period. These PSUs will be cancelled if such performance conditions have not been met during the measurement period.
    
Activity with respect to the Company's restricted stock awards was as follows:
Number of
Shares
Weighted-
Average Grant Date
Fair Value
($)
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
($)
(In thousands)(In thousands)
Outstanding as of October 3, 20202,568 29.67 1.2371,571 
Granted824 33.63 
Vested/Forfeited/Cancelled(341)27.70 
Outstanding as of January 2, 20213,051 30.96 1.5999,285 
Expected to vest as of January 2, 20212,605 30.99 1.5684,762 

As of January 2, 2021, unrecognized compensation expense of $55 million is expected to be recognized over a weighted average period of 1.5 years. Additionally, as of January 2, 2021, unrecognized compensation expense related to performance-based restricted stock units for which achievement of the performance criteria was not currently considered probable is $1 million.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including any statements regarding trends in future revenue or results of operations, gross margin, operating margin, expenses, earnings or losses from operations, or cash flow; any statements of the plans, strategies and objectives of management for future operations and the anticipated benefits of such plans, strategies and objectives; any statements regarding future economic conditions or performance; any statements regarding litigation or pending investigations, claims or disputes; any statements regarding the timing of closing of, future cash outlays for, and benefits of acquisitions; any statements regarding expected restructuring costs and benefits; any statements concerning the adequacy of our current liquidity and the availability of additional sources of liquidity; any statements regarding the potential or expected impact of the COVID-19 pandemic on our business, results of operations and financial condition; any statements regarding the impact of future potential tariffs on our business; any statements regarding the impact of changes in tax laws; any statements relating to the expected impact of accounting pronouncements not yet adopted; any statements regarding future repurchases of our common stock; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Generally, the words “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” “may,” “will,” “should,” “estimate,” “predict,” “potential,” “continue” and similar expressions identify forward-looking statements. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks and uncertainties, including those contained in Part II, Item 1A of this report. As a result, actual results could vary materially from those suggested by the forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission. Investors and others should note that the Company announces material financial information to its investors using its investor relations website (http://ir.sanmina.com/investor-relations/overview/default.aspx), SEC filings, press releases, public conference calls and webcasts. The Company uses these channels to communicate with its investors and the public about the Company, its products and services and other issues. It is possible that the information the Company posts on its investor relations website could be deemed to be material information. Therefore, the Company encourages investors, the media, and others interested in the Company to review the information it posts on its investor relations website. The contents of our investor relations website are not incorporated by reference into this quarterly report on Form 10-Q or in any other report or document we file with the SEC.

Sanmina Corporation and its subsidiaries (the “Company”, “we” or “us”) operate on a 52 or 53 week year ending on the Saturday nearest September 30. Fiscal 2021 will be a 52-week year and fiscal 2020 was a 53-week year, with the extra week included in the fourth quarter of fiscal 2020. All references to years relate to fiscal years unless otherwise noted.

Overview

We are a leading global provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. Our revenue is generated from sales of our products and services primarily to original equipment manufacturers (OEMs) that serve the industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure solutions industries.

Our operations are managed as two businesses:

1.Integrated Manufacturing Solutions ("IMS"). Our IMS segment consists of printed circuit board assembly and test, high-level assembly and test, and direct-order-fulfillment.

2.Components, Products and Services ("CPS"). Components include interconnect systems (printed circuit board fabrication, backplane, cable assemblies and plastic injection molding) and mechanical systems (enclosures and precision machining). Products include memory from our Viking Technology division; enterprise solutions from our Viking Enterprise Solutions division; RF, optical and microelectronic; defense and aerospace products from SCI Technology; and cloud-based manufacturing execution software from our 42Q division. Services include design, engineering, logistics and repair services.

Our only reportable segment for financial reporting purposes is IMS, which represented approximately 80% of our total revenue in the first quarter of 2021. Our CPS business consists of multiple operating segments, which do not individually meet the quantitative thresholds for being presented as reportable segments under the accounting rules for segment reporting.
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Therefore, financial information for these operating segments is aggregated and presented in a single category entitled “Components, Products and Services”.

Our strategy is to leverage our comprehensive product and service offerings, advanced technologies and global capabilities to further penetrate diverse end markets that we believe offer significant growth opportunities and have complex products that require higher value-added services. We believe this strategy differentiates us from our competitors and will help drive more sustainable revenue growth and provide opportunities for us to ultimately achieve operating margins that exceed industry standards.

There are many challenges to successfully executing our strategy. For example, we compete with a number of companies in each of our key end markets. This includes companies that are much larger than we are and smaller companies that focus on a particular niche. Although we believe we are well-positioned in each of our key end markets and seek to differentiate ourselves from our competitors, competition remains intense and profitably growing our revenues has been challenging. In addition, the COVID-19 pandemic has created a unique and challenging environment in which our revenue and profitability have been impacted and will likely continue to be negatively impacted in at least the near term.

In March 2020, the World Health Organization declared COVID-19 to be a pandemic. Our results of operations have been negatively impacted by rapidly changing market and economic conditions caused by the COVID-19 outbreak, as well as by numerous measures imposed by government authorities to try to contain the virus. These conditions and measures disrupted our operations and those of our customers, interrupted the supply of components, limited the types of products we could manufacture and the capacity of our logistics providers to deliver those products, and resulted in temporary closures of manufacturing sites and reduced staffing as mandated by government orders. Although employee infections have not yet had a significant impact on our operations, these conditions and measures require us to perform contact tracing, exclude potentially infected employees from the workplace and clean work areas used by infected employees. Should employee infections become widespread, they would have a significant and negative impact on our ability to sustain production at desired levels. We are unable to accurately predict the full impact that COVID-19 will have on us due to a number of uncertainties, including the impact of the pandemic on our customers' businesses, the number of employees who may become infected or exposed to infected persons whom we would then be required to exclude from our plants, the imposition of government restrictions on staffing and the types of products we are permitted to build, the need for temporary plant closures, supply chain shortages and other interruptions, the capacity of our logistic providers, the duration of the outbreak, the distribution of COVID-19 vaccines, the geographic locations of any future outbreaks, and actions that government authorities may take. However, it is likely that the pandemic will continue to have a negative impact on our business, results of operations and financial condition for the foreseeable future.

Separately, we incurred restructuring charges of approximately $19 million, consisting of severance costs, under our company-wide restructuring plan adopted in October 2019 ("Q1 FY20 Plan"). Additional actions under the Q1 FY20 Plan are expected to be implemented through the second quarter of 2021 and cash payments of severance are expected to occur through the fourth quarter of 2021.

A small number of customers have historically generated a significant portion of our net sales. Sales to our ten largest customers have typically represented approximately 55% of our net sales. One customer represented 10% or more of our net sales for the three months ended January 2, 2021 and two customers each represented 10% or more of our net sales for the three months ended December 28, 2019.

We typically generate about 80% of our net sales from products manufactured in our foreign operations. The concentration of foreign operations has resulted primarily from a desire on the part of many of our customers to manufacture in lower cost regions such as Asia, Latin America and Eastern Europe.

Historically, we have had substantial recurring sales to existing customers. We typically enter into supply agreements with our major OEM customers. These agreements generally have terms ranging from three to five years and can cover the manufacture of a range of products. Under these agreements, a customer typically purchases its requirements for specific products in particular geographic areas from us. However, these agreements generally do not obligate the customer to purchase minimum quantities of products, which can have the effect of reducing revenue and profitability. In addition, some customer contracts contain cost reduction objectives, which can also have the effect of reducing revenue from such customers.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). We review the accounting policies used in reporting our financial results on
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a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosure of contingent liabilities. On an ongoing basis, we evaluate the process used to develop estimates related to accounts receivable, inventories, income taxes, environmental matters, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Due to the COVID-19 pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. We have considered information available to us as of the date of issuance of these financial statements and are not aware of any specific events or circumstances that would require an update to our estimates or judgments, or a revision to the carrying value of our assets or liabilities. Our estimates may change as new events occur and additional information becomes available. Our actual results may differ materially from these estimates.

A complete description of our critical accounting policies and estimates is contained in our Annual Report on Form 10-K for the fiscal year ended October 3, 2020 filed with the Securities and Exchange Commission.

Results of Operations

Key Operating Results
Three Months Ended
January 2,
2021
December 28,
2019
(In thousands)
Net sales$1,755,249 $1,840,171 
Gross profit$141,235 $134,882 
Operating income$75,559 $57,181 
Net income $48,021 $38,345 

Net Sales

Sales by end market were as follows (dollars in thousands):
Three Months Ended
January 2,
2021
December 28,
2019
Increase/(Decrease)
Industrial, Medical, Defense and Automotive$1,032,518 $1,107,547 $(75,029)(6.8)%
Communications Networks and Cloud Infrastructure722,731 732,624 (9,893)(1.4)%
Total$1,755,249 $1,840,171 $(84,922)(4.6)%

Net sales decreased from $1.84 billion in the first quarter of 2020 to $1.76 billion in the first quarter of 2021, a decrease of 4.6%. This decrease was primarily due to reduced demand from end customers in our industrial market.

Gross Margin

Gross margin increased to 8.0% for the first quarter of 2021 from 7.3% for the first quarter of 2020. IMS gross margin increased to 7.3% for the first quarter of 2021, from 6.6% for the first quarter of 2020 primarily due to increased operational efficiencies and cost reduction and containment efforts implemented in 2020, some of which were in response to the COVID-19 pandemic. CPS gross margin increased to 12.4% for the first quarter of 2021, from 10.9% for the first quarter of 2020, primarily due to continued benefits of certain plant closures during the past two years and the factors described above with respect to the IMS gross margin.

We have experienced fluctuations in gross margin in the past and may continue to do so in the future. Fluctuations in our gross margins may also be caused by a number of other factors, including:

the ongoing impacts of the COVID-19 pandemic on our operations, the operations of our suppliers and on our customers' businesses;
capacity utilization which, if lower, results in lower margins due to fixed costs being absorbed by lower volumes;
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changes in the mix of high and low margin products demanded by our customers;
competition in the EMS industry and pricing pressures from OEMs due to greater focus on cost reduction;
the amount of our provisions for excess and obsolete inventory, including those associated with distressed customers;
levels of operational efficiency and production yields;
customer design changes that may increase our costs and delay or reduce our production of products; and
our ability to transition the location of and ramp manufacturing and assembly operations when requested by a customer in a timely and cost-effective manner.

Selling, General and Administrative

Selling, General and Administrative expenses decreased $4.2 million, from $63.2 million, or 3.4% of net sales, in the first quarter of 2020 to $59.0 million, or 3.4% of net sales, in the first quarter of 2021. The decrease in dollars was primarily due to reduced headcount as a result of actions under our Q1 FY20 restructuring plan and reduced travel and certain other expenses in response to the COVID-19 pandemic.

Research and Development

Research and Development expenses decreased $0.4 million, from $5.2 million, or 0.3% of net sales, in the first quarter of 2020 to $4.8 million, or 0.3% of net sales, in the first quarter of 2021.

Restructuring

The following table provides a summary of restructuring costs:
Restructuring Expense
Three Months Ended
January 2, 2021December 28, 2019
(In thousands)
Severance costs (approximately 45 and 1,450 employees for the three months ended January 2, 2021 and December 28, 2019, respectively)
$835 $6,728 
Other exit costs— 
Total - Q1 FY20 Plan835 6,736 
Costs incurred for other plans1,069 2,424 
Total - all plans$1,904 $9,160 
Q1 FY20 Plan
On October 28, 2019, we adopted a Company-wide restructuring plan ("Q1 FY20 Plan"). Under this plan, we expect to incur restructuring charges of up to $20 million, consisting primarily of cash severance costs. As of January 2, 2021, we incurred restructuring charges of approximately $19 million, consisting of severance costs, under the Q1 FY20 Plan. Additional actions under this plan are expected to be implemented through the second quarter of fiscal 2021 and cash payments of severance are expected to occur through the fourth quarter of fiscal 2021.

Other Plans
Other plans include a number of plans for which costs are not expected to be material individually or in the aggregate.
All Plans

Our IMS segment incurred costs of $0.6 million and $7 million for the three months ended January 2, 2021 and December 28, 2019, respectively. Our CPS segment incurred costs of $1 million and $2 million for the three months ended January 2, 2021 and December 28, 2019, respectively. In addition, $0.3 million of costs were incurred during the three months ended January 2, 2021 for corporate headcount reductions that were not allocated to our IMS and CPS segments. We had
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accrued liabilities of $7 million and $9 million as of January 2, 2021 and October 3, 2020, respectively, for restructuring costs (exclusive of long-term environmental remediation liabilities).

In addition to costs expected to be incurred under the Q1 FY20 Plan, we expect to incur restructuring costs in future periods primarily for vacant facilities and former sites for which we are or may be responsible for environmental remediation.

Provision for Income Taxes

Our provision for income taxes for the three months ended January 2, 2021 and December 28, 2019 was $25 million (34% of income before taxes) and $15 million (28% of income before taxes), respectively. Income tax expense for the three months ended January 2, 2021 increased primarily as a result of an increase in income before tax and $4 million of discrete tax items.

It is reasonably possible that our liability for uncertain tax positions could decrease significantly in the next 12 months upon the resolution of audits and expiration of statutes of limitations, resulting in a decrease in income tax expense at that time.
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Liquidity and Capital Resources
 Three Months Ended
 January 2,
2021
 December 28,
2019
 (In thousands)
Net cash provided by (used in):
Operating activities$61,811 $21,171 
Investing activities(11,191)(28,046)
Financing activities(16,160)(17,386)
Effect of exchange rate changes on cash and cash equivalents1,044 84 
Increase (Decrease) in cash and cash equivalents$35,504 $(24,177)

Key Working Capital Management Measures
As of
January 2,
2021
October 3,
2020
Days sales outstanding (1)5554
Contract asset days (2)1920
Inventory turns (3)7.77.3
Days inventory on hand (4)4850
Accounts payable days (5)6770
Cash cycle days (6)5554

(1)    Days sales outstanding (a measure of how quickly we collect our accounts receivable), or "DSO", is calculated as the ratio of average accounts receivable, net, to average daily net sales for the quarter.

(2)    Contract asset days (a measure of how quickly we transfer contract assets to accounts receivable) are calculated as the ratio of average contract assets to average daily net sales for the quarter.

(3)    Inventory turns (annualized) (a measure of how quickly we sell inventory) are calculated as the ratio of four times our cost of sales for the quarter to average inventory.

(4)    Days inventory on hand (a measure of how quickly we turn inventory into sales) is calculated as the ratio of average inventory for the quarter to average daily cost of sales for the quarter.

(5)    Accounts payable days (a measure of how quickly we pay our suppliers), or "DPO", is calculated as the ratio of 365 days divided by accounts payable turns, in which accounts payable turns is calculated as the ratio of four times our cost of sales for the quarter to average accounts payable.

(6)    Cash cycle days (a measure of how quickly we convert investments in inventory to cash) is calculated as days inventory on hand plus days sales outstanding and contract assets days minus accounts payable days.

Cash and cash equivalents were $516 million at January 2, 2021 and $481 million at October 3, 2020. Our cash levels vary during any given quarter depending on the timing of collections from customers and payments to suppliers, borrowings under our credit facilities, sales of accounts receivable under numerous programs we utilize, repurchases of capital stock and other factors. Our working capital was $1.4 billion and $1.3 billion as of January 2, 2021 and October 3, 2020, respectively.
 
Net cash provided by operating activities was $62 million and $21 million for the three months ended January 2, 2021 and December 28, 2019, respectively. Cash flows from operating activities consist of: (1) net income adjusted to exclude non-cash items such as depreciation and amortization, deferred income taxes, impairments and stock-based compensation expense and (2) changes in net operating assets, which are comprised of accounts receivable, contract assets, inventories, prepaid expenses and other assets, accounts payable, accrued liabilities and other long-term liabilities. Our working capital metrics tend to fluctuate from quarter-to-quarter based on factors such as the linearity of our shipments to customers and purchases from suppliers, customer and supplier mix, the extent to which we factor customer receivables and the negotiation of payment terms with customers and suppliers. These fluctuations can significantly affect our cash flows from operating activities.
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During the three months ended January 2, 2021, we generated $87 million of cash primarily from earnings, excluding non-cash items, and consumed $25 million of cash due primarily to a decrease in accounts payable and an increase in accounts receivable, partially offset by decreases in contract assets and inventories and an increase in accrued liabilities. The decreases noted above were primarily due to decreased business volume. Individual components of operating assets and liabilities fluctuate for a number of reasons, including linearity of purchases and sales, the mix of customer and supplier payment terms within our accounts receivable and accounts payable, and the amount and timing of sales of accounts receivable. The decrease in accounts payable attributable to reduced business volume as discussed above was partially offset by a decrease in our DPO from 70 days as of October 3, 2020 to 67 days as of January 2, 2021 due primarily to an unfavorable shift in the linearity of material receipts and unfavorable supplier payment terms mix.

Net cash used in investing activities was $11 million and $28 million for the three months ended January 2, 2021 and December 28, 2019, respectively. During the three months ended January 2, 2021 and December 28, 2019, we used $11 million and $28 million, respectively, of cash for capital expenditures.

Net cash used in financing activities was $16 million and $17 million for the three months ended January 2, 2021 and December 28, 2019, respectively. During the three months ended January 2, 2021, we used $13 million of cash to repurchase common stock (including $3 million related to employee tax withholding on vested restricted stock units), repaid an aggregate of $5 million of long-term debt and received $1 million of net proceeds from issuances of common stock pursuant to stock option exercises. During the three months ended December 28, 2019, we repaid $5 million of the Term Loan due 2023 ("Term Loan"), used $17 million of cash to repurchase common stock (including $8 million related to employee tax withholding on vested restricted stock units) and received $4 million net proceeds from issuances of common stock pursuant to stock option exercises.

Other Liquidity Matters

Our Board of Directors has authorized us to repurchase shares of our common stock, subject to a dollar limitation. The timing of repurchases depends upon capital needs to support the growth of our business, market conditions and other factors. We repurchased 0.4 million and 0.3 million shares of our common stock for $9 million and $9 million during the three months ended January 2, 2021 and December 28, 2019, respectively. As of January 2, 2021, $125 million remains available under the stock repurchase program authorized by the Board of Directors, which does not have an expiration date. Although stock repurchases are intended to increase stockholder value and to offset the dilution that results from the issuance of shares under our equity plans, repurchases of shares also reduce our liquidity. As a result, the timing of future repurchases depends upon our future capital needs, market conditions and other factors.

We entered into a Receivable Purchase Agreement (the “RPA”) with certain third-party banking institutions for the sale of trade receivables generated from sales to certain customers, subject to acceptance by, and a funding commitment from, the banks that are party to the RPA. As of January 2, 2021, a maximum of $555 million of sold receivables can be outstanding at any point in time under this program, as amended, subject to limitations under our Fourth Amended and Restated Credit Agreement (the "Amended Cash Flow Revolver"). Additionally, the amount available under the RPA is uncommitted and, as such, is available at the discretion of our third-party banking institutions. On January 16, 2019, we entered into an amendment to our Amended Cash Flow Revolver which increased the percentage of our total accounts receivable that can be sold and outstanding at any time from 30% to 40%. Trade receivables sold pursuant to the RPA are serviced by us.

In addition to the RPA, we have the option to participate in trade receivables sales programs that have been implemented by certain of our customers, as in effect from time to time. We do not service trade receivables sold under these other programs.

The sale of receivables under all of these programs is subject to the approval of the banks or customers involved and there can be no assurance that we will be able to sell the maximum amount of receivables permitted by these programs when desired.

Under each of the programs noted above, we sell our entire interest in a trade receivable for 100% of face value, less a discount. During the three months ended January 2, 2021 and December 28, 2019, we sold approximately $263 million and $538 million, respectively, of accounts receivable under these programs. Upon sale, these receivables are removed from the condensed consolidated balance sheets and cash received is presented as cash provided by operating activities in the condensed consolidated statements of cash flows. Discounts on sold receivables were not material for any period presented. As of January 2, 2021 and October 3, 2020, $52 million and $97 million, respectively, of accounts receivable sold under the RPA and subject to servicing by us remained outstanding and had not yet been collected. Our sole risk with respect to receivables we service is with respect to commercial disputes regarding such receivables. Commercial disputes include billing errors, returns
27


and similar matters. To date, we have not been required to repurchase any receivable we have sold due to a commercial dispute. Additionally, we are required to remit amounts collected as servicer on a weekly basis to the financial institutions that purchased the receivables. As of January 2, 2021 and October 3, 2020, $44 million and $39 million, respectively, had been collected but not yet remitted. This amount is classified in accrued liabilities on the condensed consolidated balance sheets.

We enter into forward interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in the benchmark interest rate (LIBOR) associated with anticipated variable rate borrowings. These interest rate swaps have a maturity date of December 1, 2023, and effectively convert our variable interest rate obligations to fixed interest rate obligations. These swaps are accounted for as cash flow hedges under ASC Topic 815, Derivatives and Hedging. Interest rate swaps with an aggregate notional amount of $350 million were outstanding as of January 2, 2021 and October 3, 2020. The aggregate effective interest rate under these swaps as of January 2, 2021 was approximately 4.3%. As of January 2, 2021, due to a decline in interest rates since the time the swaps were put in place, these interest rate swaps had a negative value of $26 million as of January 2, 2021, of which $9 million is included in accrued liabilities and the remaining amount is included in other long-term liabilities on the condensed consolidated balance sheets.

In the ordinary course of business, we are or may become party to legal proceedings, claims and other contingencies, including environmental, regulatory, warranty and employee matters and examinations by government agencies. As of January 2, 2021, we had accrued liabilities of $39 million related to such matters. We cannot accurately predict the outcome of these matters or the amount or timing of cash flows that may be required to defend ourselves or to settle such matters or that these reserves will be sufficient to fully satisfy our contingent liabilities.

As of January 2, 2021, we had a liability of $122 million for uncertain tax positions. Our estimate of liabilities for uncertain tax positions is based on a number of subjective assessments, including the likelihood of a tax obligation being assessed, the amount of taxes (including interest and penalties) that would ultimately be payable, and our ability to settle any such obligations on favorable terms. Therefore, the amount of future cash flows associated with uncertain tax positions may be significantly higher or lower than our recorded liability and we are unable to reliably estimate when cash settlement may occur.

Our liquidity needs are largely dependent on changes in our working capital, including sales of accounts receivable under our receivables sales programs and the extension of trade credit by our suppliers, investments in manufacturing inventory, facilities and equipment, repayments of obligations under outstanding indebtedness and repurchases of common stock. We generated $62 million of cash from operations in the first quarter of 2021. Our primary sources of liquidity as of January 2, 2021 consisted of (1) cash and cash equivalents of $516 million; (2) our Amended Cash Flow Revolver, under which $692 million, net of outstanding borrowings and letters of credit, was available; (3) our foreign short-term borrowing facilities of $69 million, all of which was available; (4) proceeds from the sale of accounts receivable under our receivables sales programs, if accepted by the counterparties to such programs; and (5) cash generated from operations. Subject to satisfaction of certain conditions, including obtaining additional commitments from existing and/or new lenders, we may increase the revolver commitments under the Amended Cash Flow Revolver by an additional $200 million.

We believe our existing cash resources and other sources of liquidity, together with cash generated from operations, will be sufficient to meet our working capital requirements through at least the next 12 months. However, should demand for our services decrease significantly over the next 12 months or should we experience significant increases in delinquent or uncollectible accounts receivable for any reason, including in particular continued or worsening economic conditions caused by the COVID-19 pandemic, our cash provided by operations could decrease significantly and we could be required to seek additional sources of liquidity to continue our operations at their current level.

We distribute our cash among a number of financial institutions that we believe to be of high quality. However, there can be no assurance that one or more of such institutions will not become insolvent in the future, in which case all or a portion of our uninsured funds on deposit with such institutions could be lost.

As of January 2, 2021, 49% of our cash balance was held in the United States. Should we choose or need to remit cash to the United States from our foreign locations, we may incur tax obligations which would reduce the amount of cash ultimately available to the United States. We believe that cash held in the United States, together with liquidity available under our Amended Cash Flow Revolver and cash from foreign subsidiaries that could be remitted to the United States without tax consequences, will be sufficient to meet our United States liquidity needs for at least the next twelve months.

Off-Balance Sheet Arrangements

As of January 2, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial
28


condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our primary exposure to market risk for changes in interest rates relates to our Term Loan of $347 million under our Amended Cash Flow Revolver for which the interest rate we pay is determined at the time of borrowing based on a floating index. As of January 2, 2021, we had interest rate swaps with an aggregate notional amount of $350 million that effectively convert $350 million of our outstanding floating rate debt to fixed rate debt. An immediate 10 percent change in interest rates would not have a significant impact on our results of operations.

Foreign Currency Exchange Risk

We transact business in foreign currencies. Our foreign exchange policy requires that we take certain steps to limit our foreign exchange exposures resulting from certain assets and liabilities and forecasted cash flows. However, our policy does not require us to hedge all foreign exchange exposures. Furthermore, our foreign currency hedges are based on forecasted transactions and estimated balances, the amount of which may differ from that actually incurred. As a result, we can experience foreign exchange gains and losses in our results of operations.

Our primary foreign currency cash flows are in certain Asian and European countries, Israel, Brazil and Mexico. We enter into short-term foreign currency forward contracts to hedge currency exposures associated with certain monetary assets and liabilities denominated in non-functional currencies. These contracts generally have maturities of up to two months. Accordingly, these forward contracts are not designated as part of a hedging relationship for accounting purposes. All outstanding foreign currency forward contracts are marked-to-market at the end of the period with unrealized gains and losses included in other income, net, in the condensed consolidated statements of income. From an economic perspective, the objective of our hedging program is for gains or losses on forward contracts to substantially offset gains and losses on the underlying hedged items. As of January 2, 2021, we had outstanding foreign currency forward contracts to exchange various foreign currencies for U.S. dollars in an aggregate notional amount of $351 million.

We also utilize foreign currency forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. Such exposures result from (1) forecasted non-functional currency sales and (2) forecasted non-functional currency materials, labor, overhead and other expenses. These contracts may be up to twelve months in duration and are designated as cash flow hedges for accounting purposes. The effective portion of changes in the fair value of the contracts is recorded in stockholders' equity as a separate component of accumulated other comprehensive income and recognized in earnings when the hedged item affects earnings. We had forward contracts related to cash flow hedges in various foreign currencies in the aggregate notional amount of $123 million as of January 2, 2021.

The net impact of an immediate 10 percent change in exchange rates would not be material to our unaudited condensed consolidated financial statements, provided we accurately forecast and estimate our foreign currency exposure. If such forecasts are materially inaccurate, we could incur significant gains or losses.


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Item 4. Controls and Procedures

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") that occurred during the quarter ended January 2, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that their objectives are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits of disclosure controls and procedures must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of disclosure controls and procedures can provide absolute assurance that all disclosure control issues and instances of fraud, if any, have been detected. Nonetheless, our Chief Executive Officer and Chief Financial Officer have concluded that, as of January 2, 2021, (1) our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, and (2) our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.


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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In June 2008, the Company was named by the Orange County Water District in a suit alleging that its actions contributed to polluted groundwater managed by the plaintiff. The complaint seeks recovery of compensatory and other damages, as well as declaratory relief, for the payment of costs necessary to investigate, monitor, remediate, abate and contain contamination of groundwater within the plaintiff’s control. In April 2013, all claims against the Company were dismissed. The plaintiff appealed this dismissal and the appellate court reversed the judgment in August 2017. In November 2017, the California Supreme Court denied the Company’s petition to review this decision and, in December 2017, the Court of Appeals remanded the case back to the Superior Court for further proceedings. The first part of a multi-phase trial is scheduled to commence on April 12, 2021. The Company intends to contest the plaintiff’s claims vigorously.

In October 2018, a contractor who had been retained by the Company through a third party temporary staffing agency from November 2015 to March 2016 filed a lawsuit against the Company in the Santa Clara County Superior Court on behalf of himself and all other similarly situated Company contractors and employees in California, alleging violations of California Labor Code provisions governing overtime, meal and rest periods, wages, wage statements and reimbursement of business expenses. The complaint seeks certification of a class of all non-exempt employees, whether employed directly or through a temporary staffing agency, employed from four years before the filing of the initial complaint to the time of trial. Additionally, on November 1, 2019, another contractor retained through a temporary staffing agency filed a lawsuit against the Company in the Santa Clara County Superior Court. The complaint, which includes a single cause of action under California’s Private Attorneys General Act of 2004 (“PAGA”), alleges Labor Code violations substantially similar to those alleged in the October 2018 class action lawsuit and seeks penalties on behalf of the State of California and other “aggrieved employees” (defined to be current and former hourly, non-exempt employees employed by the Company between August 22, 2018 and the present). Although the Company continues to deny any wrongdoing, on November 19, 2020, the Company reached an agreement in principle to resolve all claims (the “Settlement”). Under the Settlement, which remains subject to court approval, the Company’s total payout will depend on the number and value of claims submitted by members of the settlement class to the claims administrator, and cannot exceed $5 million (but could be as low as approximately $3.5 million), inclusive of plaintiffs’ attorneys’ fees, costs, and certain other items. On December 3, 2020, in connection with and in order to effect the Settlement, plaintiffs dismissed the PAGA complaint pending in Santa Clara County Superior Court and refiled it as a class and PAGA action in Kern County Superior Court.

On December 20, 2019, the Company sued its former customer, Dialight plc (“Dialight”), in the United States District Court for the Southern District of New York to collect approximately $10 million in unpaid accounts receivable and net obsolete inventory obligations. Later the same day, Dialight commenced its own action in the same court. Dialight’s complaint, which asserts claims for fraudulent inducement, breach of contract and gross negligence/willful misconduct, alleges that Sanmina fraudulently misrepresented its capabilities to induce Dialight to enter into a Manufacturing Services Agreement (“Dialight MSA”), and then breached its obligations under the Dialight MSA relating to quality, on-time delivery and supply chain management. Dialight seeks an unspecified amount of compensatory and punitive damages. The Company intends to vigorously prosecute its claim against Dialight. Further, the Company strongly disagrees with Dialight’s allegations and intends to defend against them vigorously.

In addition, from time to time, we may become involved in routine legal proceedings, demands, claims, threatened litigation and regulatory inquiries and investigations, that arise in the normal course of our business. We record liabilities for such matters when a loss becomes probable and the amount of loss can be reasonably estimated. The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on us as a result of incurrence of litigation costs, diversion of management resources, and other factors.

Refer also to Note 7 to Condensed Consolidated Financial Statements.


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Item 1A. Risk Factors

End Market and Operational Risks

The COVID-19 pandemic has had, and will likely continue to have, a significant impact on our results of operations and financial condition by reducing demand from our customers, interrupting the flow of components needed for our customers’ products, limiting the operations or productivity of our manufacturing facilities, restricting the types of products we can build for our customers and creating health risks to our employees.

Our global operations expose us to the effects of the COVID-19 pandemic, which has now spread across the globe and is impacting economic activity worldwide. In particular, the pandemic:

Resulted in the temporary closure of our facilities in China during the second quarter of 2020;
Reduced the amount of staffing we are permitted to maintain at certain of our plants;
Required us in some cases to pay staff who are not able to work due to government orders or illness;
Limited the capacity of logistics providers to deliver components for and the products we manufacture;
Reduced demand for certain of our customers’ products, particularly in the automotive end market;
Prevented us from building certain products not deemed as essential under local, state and national public health orders covering the locations of our plants during portions of the second and third quarters of 2020; and
Resulted in interruptions of supply of components, either because our suppliers have themselves been prevented from operating or because major distribution channels (e.g., sea transport) have been disrupted by the pandemic.

Collectively, these conditions reduced our revenue during the last 12 months and it is unclear when these impacts will be fully resolved.

Further, although we have implemented infection control measures recommended or required by the applicable public health authorities, and have not to date experienced a significant number of COVID-19 infections among our employees, should infections among our employees increase significantly, our operations could be impacted if we become required to temporarily exclude significant numbers of employees from our plants due to either infection or exposure to an infected person and/or close impacted plants in order to clean them or as a result of government orders. Furthermore, as a result of government orders, a large number of our employees have been working remotely since the end of the second quarter of fiscal 2020. Although these restrictions have been relaxed in some geographies, and we have not experienced any significant disruptions to date as a result of remote work arrangements, should a substantial number of our employees supporting general and administrative functions, particularly at our California headquarters location, continue to be required to work remotely for an extended period of time, we could experience disruptions and reduced efficiencies. Furthermore, various local, state and national governments and agencies have recently enacted safety regulations intended to help prevent the transmission of COVID-19 in the workplace. These regulations are complex, costly to implement, subject to frequent change and to audit and investigation by governmental authorities, including the Occupational Health and Safety Administration (OSHA), their state counterparts and local health departments. Any failure by the Company to materially comply with COVID-19-related safety rules and regulations in any of its facilities could result in sanctions, fines, as well as negative publicity for the Company.

More generally, the COVID-19 pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which could affect demand for our products and services and impact our results and financial condition even after the pandemic is contained and the business restrictions are lifted. In particular, the pandemic also increases the risk that our customers and suppliers will face financial difficulties, which could impact their ability or willingness to satisfy their payment or delivery obligations to us. Although we have not experienced any significant increase in customer defaults as a result of the pandemic to date, the risk of such defaults will increase if pandemic conditions continue indefinitely or if commercial and social restrictions originally put in place in response to them by local, state and national governments increase. For example, the U.K. has recently restored restrictions on activity that had been lifted after the first phase of the pandemic.

We are unable to accurately predict the full impact that COVID-19 will have on us due to a number of uncertainties, including the impact of the pandemic on our customers’ businesses, the number of employees who may become infected or exposed to infected persons whom we would then be required to temporarily exclude from our plants, the imposition of government restrictions on staffing and the types of products we are permitted to build, the need for temporary plant closures,
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supply chain shortages and other interruptions, the capacity of our logistics providers, the duration of the outbreak, the distribution of COVID-19 vaccines, the geographic locations of any future outbreaks, and actions that government authorities may take. However, we believe it is likely that the pandemic will continue to have a negative impact on our business, results of operations and financial condition for the foreseeable future.

Adverse changes in the key end markets we target could harm our business by reducing our sales.

We provide products and services to companies that serve the industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure industries. Adverse changes in any of these end markets could reduce demand for our customers' products or make these customers more sensitive to the cost of our products and services, either of which could reduce our sales, gross margins and net income. A number of factors could affect these industries in general and our customers in particular, leading to reductions in net sales. These factors include:

intense competition among our customers and their competitors, leading to reductions in prices for their products and increases in pricing pressure placed on us;
failure of our customers' products to gain widespread commercial acceptance, which could decrease the volume of orders customers place with us. For example, our sales and margins have been negatively impacted in the past by the slower than expected ramp of 5G programs by our communications customers;
changes in regulatory requirements affecting the products we build for our customers, leading to product redesigns or obsolescence and potentially causing us to lose business; and
recessionary periods in our customers' markets, which decrease orders from affected customers, such as the currently depressed conditions due to the COVID-19 pandemic.

We realize a substantial portion of our revenues from communications equipment customers. This market is highly competitive, particularly in the area of price. Should any of our larger customers in this market fail to effectively compete with their competitors, they could reduce their orders to us or experience liquidity difficulties, either of which could have the effect of substantially reducing our revenue and net income. There can be no assurance that we will not experience declines in demand in this or in other end markets in the future.

Our operating results are subject to significant uncertainties, which can cause our future sales, net income and cash generated from operations to be variable.

Our operating results can vary due to a number of significant uncertainties, including:

our ability to replace declining sales from end-of-life programs and customer disengagements with new business wins;
conditions in the economy as a whole and in the industries we serve, which are being significantly impacted by the current COVID-19 pandemic;
fluctuations in component prices, component shortages and extended component lead times caused by high demand, natural disasters, epidemics or pandemics, such as the COVID-19 pandemic, or otherwise;
timing and success of new product developments and ramps by our customers, which create demand for our services, but which can also require us to incur start-up costs relating to new tooling and processes;
levels of demand in the end markets served by our customers;
timing of orders from customers and the accuracy of their forecasts;
inventory levels of customers, which if high relative to their normal sales volume, could cause them to reduce their orders to us;
customer payment terms and the extent to which we factor customer receivables during the quarter;
increasing labor costs in the regions in which we operate;
mix of products ordered by and shipped to major customers, as high volume and low complexity manufacturing services typically have lower gross margins than more complex and lower volume services;
our ability to pass tariffs through to our customers;
resolution of claims with our customers;
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the degree to which we are able to fully utilize our available manufacturing capacity, including due to restrictions under local, state and national public health orders covering the locations of our plants as a result of the COVD-19 pandemic;
customer insolvencies resulting in bad debt or inventory exposures that are in excess of our reserves;
our ability to efficiently move manufacturing operations to lower cost regions when required;
changes in our tax provision due to changes in our estimates of pre-tax income in the jurisdictions in which we operate, uncertain tax positions, and our ability to utilize our deferred tax assets; and
political and economic developments in countries in which we have operations, which could restrict our operations or those of our suppliers and/or customers or increase our costs.

Variability in our operating results may also lead to variability in cash generated by operations, which can adversely affect our ability to make capital expenditures, engage in strategic transactions and repurchase stock.

We are subject to risks arising from our international operations.

The substantial majority of our net sales are generated through our non-U.S. operations. As a result, we are affected by economic, political and other conditions in the foreign countries in which we do business, including:

changes in trade and tax laws that may result in us or our customers being subjected to increased taxes, duties and tariffs, which could increase our costs and/or reduce our customers’ willingness to use our services in countries in which we are currently manufacturing their products;
rising labor costs;
compliance with foreign laws, including labor laws which generally provide for increased notice, severance and consultation requirements compared to U.S. laws;
labor unrest, including strikes;