SANMINA CORPORATION This report 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 and other strategic transactions, 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 impact of the COVID-19 pandemic on our business, results of operations and financial condition; any statements regarding the potential impact of supply chain shortages and inflation on our business; any statements regarding the future impact of tariffs and export controls on our business; 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 I, 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 theSecurities and Exchange Commission . Investors and others should note that Sanmina announces material financial information to our investors using our investor relations website (http://ir.sanmina.com/investor-relations/overview/default.aspx),SEC filings, press releases, public conference calls and webcasts. We use these channels to communicate with our investors and the public about Sanmina, its products and services and other issues. It is possible that the information we post on our investor relations website could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in Sanmina to review the information we post on our investor relations website. The contents of our investor relations website are not incorporated by reference into this annual report on Form 10-K or in any other report or document we file with theSEC . 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 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 printed circuit boards, backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts. Products include memory solutions from our Viking Technology division; high-performance storage platforms for hyperscale and enterprise solutions from our Viking Enterprise Solutions (VES) division; optical, radio frequency (RF) and microelectronic (microE) design and manufacturing services from Advanced Microsystems Technologies; defense and aerospace products fromSCI Technology ; and cloud-based manufacturing execution software from our 42Q division. Services include design, engineering and logistics and repair. Our only reportable segment for financial reporting purposes is IMS, which represented approximately 80% of our total revenue in 2022. Our CPS business consists of multiple operating segments which do not individually meet the quantitative thresholds for being presented as reportable segments. Therefore, financial information for these operating segments is combined and presented in a single category entitled "Components, Products and Services". 33 -------------------------------------------------------------------------------- Table of Contents All references in this section to years refer to our fiscal years ending on the Saturday nearest toSeptember 30 . Fiscal 2022 and 2021 were each 52-weeks and fiscal 2020 was a 53-week year, with the extra week occurring during the fourth quarter of fiscal 2020. All references to years relate to fiscal years unless otherwise noted. 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. Additionally, the COVID-19 pandemic created a unique and challenging environment in which our revenue and profitability in 2021 and 2020 were significantly and negatively impacted. These impacts arose from rapidly changing market and economic conditions caused by the pandemic, as well as by numerous measures imposed by government authorities to try to limit the spread of the virus. These conditions and measures disrupted our operations and those of our customers, interrupted the supply of components, reduced the capacity of our logistics providers to deliver the components we use and ship the products we manufacture and resulted in temporary closures of manufacturing sites and reduced staffing of our plants. Although conditions have improved in many of the regions in which we operate, we cannot predict when the COVID-19 pandemic will cease to present risks to our business due to a large number of uncertainties, including the duration of ongoing supply chain constraints directly and indirectly caused by the pandemic, the extent of the impact of the pandemic on our customers' businesses, the number of employees who may become infected or exposed to infected persons, the need for temporary plant closures caused by large scale employee infections, the duration of the outbreak, the continued efficacy and availability of COVID-19 vaccines, the geographic locations of any future outbreaks, including outbreaks caused by variants of COVID-19, such as the Omicron variant and its subvariants, and actions that government authorities may take in response. For example,China continues to maintain a "zero tolerance" policy towards COVID-19 infections, which has disrupted and could continue to disrupt our operations and our suppliers' operations there. Thus, we believe the pandemic and related supply chain disruptions could continue to have a negative impact on our business, results of operations and financial condition for the foreseeable future. Separately, over the past three years, we incurred restructuring charges of$31 million under our company-wide restructuring plan adopted inOctober 2019 ("Q1 FY20 Plan"). These charges consist primarily of severance. Substantially all cash payments have occurred. Sales to our ten largest customers typically represent approximately 50% of our net sales in any given year. Sales to Nokia and Motorola each represented 10% or more of our net sales in 2022. Nokia represented 10% or more of our net sales in 2021 and 2020. 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 locations in regions such asAsia ,Latin America andEastern 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 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. TheU.S. ,China , the E.U. and several other countries have imposed tariffs impacting certain imported products. Although our customers are generally liable to us for reimbursement of tariffs we pay on components imported for the manufacture of their products, there can be no assurance that we will be successful in recovering all of the tariffs that are owed to us. Unrecovered tariffs paid on behalf of our customers reduce our gross margins. Also, although we are required to pay tariffs upon importation of the components, we may not recover these amounts from customers until sometime later, which adversely impacts our operating cash flow in a given period. However the net impact of tariffs, after recovery from customers, has not been, and is not expected to be, material to us. 34 -------------------------------------------------------------------------------- Table of Contents OnOctober 3, 2022 , subsequent to the end of the fourth quarter of 2022, we completed a joint venture transaction in which we entered into a Share Subscription and Purchase Agreement (the "SSPA") and a Joint Venture and Shareholders' Agreement (the "Shareholders' Agreement") withReliance Strategic Business Ventures Limited ("RSBVL"), a wholly owned subsidiary of Reliance Industries Limited. Pursuant to the SSPA and the Shareholders' Agreement, the parties establishedSanmina SCI India Private Limited ("SIPL"), our existing Indian manufacturing entity, as a joint venture to engage in manufacturing inIndia of telecommunications equipment, data center and internet equipment, medical equipment, clean technology equipment and other high-tech equipment. As a result of the transaction, RSBVL acquired shares of SIPL for approximately$215 million of cash such that immediately after the closing of the transaction, RSBVL holds 50.1% of the outstanding shares of SIPL and Sanmina holds the remaining 49.9% of the outstanding shares of SIPL. The amount received from RSBVL was based on preliminary calculations and is subject to adjustment based on final calculations. Given the terms of the agreements entered into by the parties concerning management of the joint venture, we expect to continue to consolidate SIPL in future periods. 35 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"). We review the accounting policies used in reporting our financial results on 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 were 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, other than the impairments described in Note 5, 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.
We believe the following critical accounting policies reflect the more significant judgments and estimates used by us in preparing our consolidated financial statements:
Revenue Recognition. We derive revenue principally from sales of integrated manufacturing solutions, components and Company-proprietary products. Other sources of revenue include logistic and repair services; design, development and engineering services; defense and aerospace programs; and sales of raw materials to customers whose requirements change after we have procured inventory to fulfill the customer's forecasted demand. For purposes of determining when to recognize revenue, and in what amount, we apply 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) we satisfy a performance obligation. Each of these steps may involve the use of significant judgments. We recognize revenue for the majority of our contracts on an over time basis. This is due to the fact that 1) we do not have an alternative use for the end products we manufacture for our customers and have 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) our customer simultaneously receives and consumes the benefits provided by our 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 we believe best depicts the transfer of control to the customer. Revenue streams for which revenue is recognized on an over time basis include sales of vertically integrated manufacturing solutions (integrated manufacturing solutions and components); logistics and repair services; design, development and engineering services; and defense and aerospace programs. Application of the cost-to-cost method for government contracts in ourDefense 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 combined with eleven other operating segments and reported under CPS. In 2022, CPS revenue and gross profit were$1.5 billion and$194 million , respectively. We update our 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. For contracts for which revenue is required to be recognized at a point-in-time, we recognize revenue when we have transferred control of the related goods, which generally occurs upon shipment or delivery of the goods to the customer. Revenue streams for which revenue is recognized at a point-in-time include Company-proprietary products and sales of raw materials.
Inventories- We state inventories at the lower of cost (first-in, first-out method) and net realizable value. Cost includes raw materials, labor and manufacturing overhead. We regularly evaluate the carrying value of our inventories and make provisions to reduce excess and obsolete inventories to their estimated net realizable values. The ultimate realization of
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inventory carrying amounts is affected by changes in customer demand for
inventory that customers are not contractually obligated to purchase and
inventory held for specific customers who are experiencing financial
difficulties. Inventory write-downs are recorded based on forecasted demand,
past experience with specific customers, the ability to redistribute inventory
to other programs or return inventories to our suppliers, and whether customers
are contractually obligated and have the ability to pay for the related
inventory. Certain payments received from customers for inventories that have
not been shipped to customers or otherwise disposed of are netted against
inventory.
We generally procure inventory based on specific customer orders and forecasts.
Customers generally have limited rights of modification (for example,
rescheduling or cancellations) with respect to specific orders. Customer
modifications of orders affecting inventory previously procured by us and our
purchases of inventory beyond customer needs may result in excess and obsolete
inventory. Although we may be able to use some excess inventory for other
products we manufacture, a portion of this excess inventory may not be
returnable to vendors or recoverable from customers. Write-offs or write-downs
of inventory could be caused by:
•changes in customer demand for inventory, such as cancellation of orders, and
our purchases of inventory beyond customer needs that result in excess
quantities on hand that we are not able to return to the vendor, use to fulfill
orders from other customers or charge back to the customer;
•financial difficulties experienced by specific customers for whom we hold
inventory; and
•declines in the market value of inventory.
Long-lived Assets-We review property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset or asset group may not be recoverable. An asset group is the unit of
accounting that represents the lowest level for which identifiable cash flows
are largely independent of the cash flows of other groups of assets. An asset or
asset group is considered impaired if its carrying amount exceeds the
undiscounted future net cash flows the asset or asset group is expected to
generate. If an asset or asset group is considered impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
asset or asset group exceeds its fair value. For asset groups for which a
building is the primary asset, we estimate fair value primarily based on data
provided by commercial real estate brokers. For other assets, we estimate fair
value based on projected discounted future net cash flows, which requires
significant judgment.
Income Taxes- We estimate our income tax provision or benefit in each of the
jurisdictions in which we operate, including estimating exposures related to
examinations by taxing authorities. We believe our accruals for tax liabilities
are adequate for all open years based on our assessment of many factors,
including past experience and interpretations of tax law applied to the facts of
each matter. Although we believe our accruals for tax liabilities are adequate,
tax regulations are subject to interpretation and the tax controversy process is
inherently lengthy and uncertain; therefore, our assessments can involve a
series of complex judgments about future events and rely heavily on estimates
and assumptions. To the extent the probable tax outcome of these matters
changes, such changes in estimate will impact our income tax provision in the
period in which such determination is made. We only recognize or continue to
recognize tax positions that meet a "more likely than not" threshold of being
upheld. Interest and penalties related to unrecognized tax benefits are
recognized as a component of income tax expense.
We must also make judgments regarding the realizability of deferred tax assets.
The carrying value of our net deferred tax assets is based on our belief that it
is more likely than not that we will generate sufficient future taxable income
in certain jurisdictions to realize these deferred tax assets. We evaluate
positive and negative evidence each reporting period when assessing the need for
a valuation allowance. A valuation allowance is established for deferred tax
assets if we believe realization of such assets is not more likely than not. Our
judgments regarding future taxable income may change due to changes in market
conditions, new or modified tax laws, tax planning strategies or other factors.
If our assumptions, and consequently our estimates, change in the future, the
valuation allowances we have established may be increased or decreased,
resulting in a respective increase or decrease in income tax expense.
Our effective tax rate is highly dependent upon the amount and geographic
distribution of our worldwide income or losses, the tax regulations, rates and
holidays in each geographic region, the utilization of net operating losses, the
availability of tax credits and carryforwards, and the effectiveness of our tax
planning strategies.
37-------------------------------------------------------------------------------- Table of Contents Results of Operations
Years Ended
The following table presents our key operating results.
Year Ended
October 1, October 2, October 3,
2022 2021 2020
(In thousands)
Net sales $ 7,890,475 $ 6,756,643 $ 6,960,370
Gross profit $ 640,514 $ 551,805 $ 525,707
Gross margin 8.1 % 8.2 % 7.6 %
Operating expenses $ 272,727 $ 270,505 $ 298,020
Operating income $ 367,787 $ 281,300 $ 227,687
Operating margin 4.7 % 4.2 % 3.3 %
Net income $ 256,121 $ 268,998 $ 139,713
Net Sales
Net sales increased from
Year Ended 2022 vs. 2021 2021 vs. 2020
October 1, 2022 October 2, 2021 October 3, 2020 Increase/(Decrease) Increase/(Decrease)
(Dollars in thousands)
Industrial, Defense, Medical and
Automotive $ 4,714,941 $ 3,890,041 $ 4,127,720 $ 824,900 21.2 % $ (237,679) (5.8) %
Communications Networks and Cloud
Infrastructure 3,175,534 2,866,602 2,832,650 308,932 10.8 % 33,952 1.2 %
Total $ 7,890,475 $ 6,756,643 $ 6,960,370 $ 1,133,832 16.8 % $ (203,727) (2.9) %
Comparison of 2022 to 2021 by End Market
The increase in sales was primarily due to three factors. First, there was stronger demand overall in each of our end markets, driven in part by the continued stabilization of lead times for supply constrained parts. Secondly, we were able to pass to our customers the vast majority of the increased cost of components caused by supply constraints. Lastly, we added several new programs that contributed to increased sales in 2022.
Comparison of 2021 to 2020 by End Market
The decrease in sales in our industrial, defense, medical and automotive end
market was caused primarily by the continuing negative impact of the COVID-19
pandemic in 2021, which resulted in supply shortages, restrictions on the types
of products we could manufacture and disruptions to our operations and those of
our customers. In particular, there was a shortage of components in our
industrial segment starting in the second half of 2021 that prevented us from
shipping all of the product for which we had demand. The slight increase in
sales in our communications networks and cloud infrastructure end market was
primarily due to a more significant impact from the COVID-19 pandemic in 2020
than in 2021.
Gross Margin
Gross margin was 8.1%, 8.2% and 7.6% in 2022, 2021 and 2020, respectively. IMS
gross margin increased to 7.2% in 2022 from 7.1% in 2021. Despite an increase in
revenue, IMS gross margin increased only slightly because there was little to no
markup on the increased cost of components that we were able to pass on to our
customers. Despite higher revenues, CPS gross margin decreased to 11.9% in 2022
from 12.7% in 2021, primarily due to a less favorable mix of revenue between the
individual businesses in CPS.
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IMS gross margin increased to 7.1% in 2021 from 6.7% in 2020, primarily due to
increased operational efficiencies and the benefit of cost reduction and
containment efforts implemented in 2020, some of which were in response to the
COVID-19 pandemic. CPS gross margin increased to 12.7% in 2021 from 11.5% in
2020, primarily due to increased volume, operational efficiencies, favorable
product mix and the benefit of cost reduction and containment efforts described
above.
We have experienced fluctuations in gross margin in the past and may continue to
do so in the future. Fluctuations in our gross margin may be caused by a number
of factors, including:
•the ongoing impacts of the COVID-19 pandemic and related supply chain constraints 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;
•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; 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 were$244.6 million ,$234.5 million and$240.9 million in 2022, 2021 and 2020, respectively. As a percentage of net sales, selling, general and administrative expenses were 3.1%, 3.5% and 3.5% for 2022, 2021 and 2020, respectively. The increase in absolute dollars in 2022 was primarily due to higher incentive compensation, partially offset by a decrease in our deferred compensation liability resulting from a decline in the market value of participant investment accounts in 2022. The decrease in absolute dollars in 2021 was primarily attributable to reduced headcount in 2021 resulting from continued actions under our Q1 FY20 Plan and reduced travel and certain other expenses in 2021 in continued response to the COVID-19 pandemic.
Restructuring
Restructuring costs were
The following table is a summary of restructuring costs:
Year Ended
October 1, October 2, October 3,
2022 2021 2020
(In thousands)
Severance costs $ 319 $ 9,405 $ 17,919
Other exit costs (recognized as incurred) 1,500 1,834 71
Total - Q1 FY20 Plan 1,819 11,239 17,990
Costs incurred for other plans 9,606 3,818 8,793
Total - all plans $ 11,425 $ 15,057 $ 26,783
Q1 FY20 Plan
On
Other plans
Other plans include a number of plans for which costs are not expected to be material individually or in the aggregate.
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All Plans
Our Integrated Manufacturing Solutions ("IMS") segment incurred costs of $1
million and $9 million for the year ended October 1, 2022 and October 2, 2021 ,
respectively. Our CPS segment incurred costs of $10 million and $5 million for
the years ended October 1, 2022 and October 2, 2021 , respectively. In addition,
we incurred costs of $1 million for the year ended October 2, 2021 for corporate
headcount reductions that were not allocated to our IMS and CPS segments. We had
accrued liabilities of $6 million as of October 1, 2022 and October 2, 2021 for
restructuring costs (exclusive of long-term environmental remediation
liabilities).
We expect to incur restructuring costs, which could be material, in future periods primarily relating to vacant facilities and former sites for which we are or may be responsible for environmental remediation.
Goodwill And Other Impairments
We recorded an impairment charge of
During the second quarter of 2020, commodity prices in the oil and gas market experienced a sharp decline due to a combination of an oversaturated supply and a decrease in demand caused by the COVID-19 pandemic. This commodity price decline negatively impacted the projected cash flows of our oil and gas reporting unit, which is part of our CPS operating segment. Therefore, we performed a goodwill impairment test for this particular reporting unit and concluded that the fair value of the reporting unit was below its carrying value, resulting in an impairment charge of$7 million . The fair value of the reporting unit was estimated based on the present value of future discounted cash flows. We had no such charge in 2022 and 2021.
Gain on Sale of Long-lived Assets
During the first quarter of 2022, we recognized a gain of
Interest Expense
Interest expense was$22.5 million ,$19.6 million and$28.9 million in 2022, 2021 and 2020, respectively. Interest expense increased$3 million in 2022 primarily due to higher daily average borrowings under our revolving credit facility. Interest expense decreased$9 million in 2021 compared to 2020 due primarily to lower daily average borrowings under our revolving credit facility in 2021. Other Income (Expense), net
Other income (expense), net was
Other income (expense), net of$(26.3) million in 2022 consists primarily of a$7 million allowance that was provided for a note receivable from the 2021 sale of certain intellectual property assets based on our expectation that we will incur credit losses with the counterparty, a$6 million decline in the market value of participant investment accounts in our deferred compensation plan in 2022,$5 million in fees for sales of accounts receivable, a pension settlement charge of$2 million for the termination of our frozenU.S. defined benefit plan and a loss on extinguishment of debt of$1 million consisting of a write-off of unamortized debt issuance costs. Other income (expense), net of$44.3 million in 2021 consists primarily of receipt of payments of$16 million in connection with settlements of certain anti-trust class action matters, a$15 million gain from the sale of certain intellectual property assets and an$8 million gain on liquidation of a foreign entity. Provision for Income Taxes We recorded income tax expense of$64.5 million ,$38.0 million and$61.0 million in 2022, 2021 and 2020, respectively. Our effective tax rate was 20.1%, 12.4% and 30.4% for 2022, 2021 and 2020, respectively.
Our effective tax rates for 2022 and 2021 were lower than the expected
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Liquidity and Capital Resources
Year Ended
October 1, October 2, October 3,
2022 2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities $ 330,854 $ 338,342 $ 300,555
Investing activities (132,214) (91,325) (64,409)
Financing activities (314,299) (77,318) (210,280)
Effect of exchange rate changes (4,510) (199) (81)
Increase (decrease) in cash and cash equivalents $ (120,169) Key Working Capital Management Measures
As of
October 1, October 2,
2022 2021
Days sales outstanding (1) 48 64
Contract asset days (2) 20 19
Inventory turns (3) 4.9 6.3
Days inventory on hand (4) 74 58
Accounts payable days (5) 90 83
Cash cycle days (6) 52 58
(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 to 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 minus accounts payable days. Cash and cash equivalents were$530 million atOctober 1, 2022 and$650 million atOctober 2, 2021 . Our cash levels vary during any given period depending on the timing of collections from customers and payments to suppliers, borrowings under credit facilities, sales of accounts receivable under numerous programs we utilize, repurchases of capital stock and other factors. Our working capital was approximately$1.5 billion as ofOctober 1, 2022 andOctober 2, 2021 . Net cash provided by operating activities was$331 million ,$338 million and$301 million for 2022, 2021 and 2020, respectively. Cash flows from operating activities consists of: (1) net income adjusted to exclude non-cash items such as depreciation and amortization, deferred income taxes 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, and payment terms with customers and suppliers. These fluctuations can significantly affect our cash flows from operating activities. 41
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During 2022, we generated$446 million of cash from earnings, excluding non-cash items, and used$115 million of cash because of an increase in our net operating assets and liabilities, resulting primarily from increases in inventories and contract assets of$663 million and$155 million , respectively, partially offset by increases in accounts payable and accrued liabilities of$554 million and$134 million , respectively. The increase in inventories is primarily due to shortages of certain components that prevented us from shipping all products for which we had both demand and the other components necessary to build such products. The increase in contract assets is primarily due to an increase in overall demand in 2022, which resulted in a higher level of services performed for which revenue has been recognized, but products had not been delivered to the customer. The increase in accounts payable is primarily attributable to an increase in inventory. The increase in accrued liabilities is primarily due to an increase in advance payments from customers and an increase in amounts collected under our accounts receivable sales program that had not been remitted as of the end of the quarter to the financial institutions that purchased the receivables. DSO decreased from 64 days as of 2021 to 48 days as of 2022 due primarily to an increase in accounts receivable factoring. Net cash used in investing activities was$132 million ,$91 million and$64 million for 2022, 2021 and 2020, respectively. In 2022, we used$139 million of cash for capital expenditures, purchased$2 million of long-term investments and received$8 million primarily from the sale of a certain property. In 2021, we used$73 million of cash for capital expenditures, paid$21 million in connection with a business combination, purchased$3 million of long-term investments and received$5 million from the sale of certain intellectual property assets. Net cash used in financing activities was$314 million ,$77 million and$210 million for 2022, 2021 and 2020, respectively. In 2022, we repurchased$331 million of common stock (including$14 million in settlement of employee tax withholding obligations), repaid an aggregate of$333 million of long-term debt using$350 million of proceed from the issuance of a term loan, incurred$3 million of costs in connection with the amendment of the Fourth Amended and Restated Loan Agreement, dated as ofNovember 30, 2018 (the "Existing Credit Agreement") and received$2 million of proceeds from issuances of common stock pursuant to stock option exercises. In 2021, we repurchased$64 million of common stock (including$10 million in settlement of employee tax withholding obligations), repaid an aggregate of$19 million of long-term debt, received$3 million of proceeds from issuances of common stock pursuant to stock option exercises and received$3 million of installment payments from the sale of certain intellectual property assets. Revolving Credit Facility. During the fourth quarter of 2022, we entered into a Fifth Amended and Restated Credit Agreement ("Credit Agreement") that amended and restated the Existing Credit Agreement. The Credit Agreement provides for an$800 million revolving credit facility and a$350 million secured term loan ("Term Loan Due 2027"), together with an accordion feature by which we can obtain, subject to the satisfaction of specified conditions and commitment of the lenders, additional revolving commitments in an aggregate amount of up to$200 million .
Costs incurred in connection with the Credit Agreement of
The Term Loan Due 2027 was fully drawn on the Closing Date and proceeds were used to repay the term loan outstanding under the Existing Credit Agreement. Upon repayment, we recorded a loss on extinguishment of debt of$1 million consisting of a write-off of unamortized debt issuance costs for the Existing Credit Agreement. Loans under the Credit Agreement bear interest, at our option, at either the Secured Overnight Financing Rate benchmark interest rate ("SOFR") or a base rate, in each case plus a spread determined based on our credit rating. Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three-month intervals if the interest period exceeds three months) in the case of SOFR loans. The outstanding principal amount of all loans under the Credit Agreement, including the Term Loan Due 2027, together with accrued and unpaid interest, is due onSeptember 27, 2027 . We are required to repay a portion of the principal amount of the Term Loan Due 2027 equal to 1.25% of the principal in quarterly installments. Our and our subsidiary guarantors' obligations under the Credit Agreement are secured by substantially all of the assets (excluding real property) of Sanmina and its subsidiary guarantors, including cash, accounts receivable, inventory and the shares of certain of our subsidiaries, subject to certain exceptions. As ofOctober 1, 2022 , no borrowings and$9 million of letters of credit were outstanding under the Credit Agreement, under which$791 million was available to borrow. There were no borrowings outstanding under the Credit Agreement as ofOctober 2, 2021 . 42 -------------------------------------------------------------------------------- Table of Contents Short-term Borrowing Facilities. As ofOctober 1, 2022 , certain of our foreign subsidiaries had a total of$70 million of short-term borrowing facilities available, under which no borrowings were outstanding. These facilities expire at various dates through the second quarter of 2024.
Debt Covenants
The Credit Agreement requires us to comply with a minimum consolidated interest coverage ratio, measured at the end of each fiscal quarter, and at all times a maximum consolidated leverage ratio. The Credit Agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. Further, the Credit Agreement contains customary negative covenants limiting our ability and that of our subsidiaries to, among other things, incur debt, grant liens, make investments, make acquisitions, make certain restricted payments and sell assets, subject to certain exceptions.
As of
Other Liquidity Matters
During 2022 and 2021 we repurchased 8.0 million shares and 1.5 million shares of our common stock for$317 million and$54 million (including commissions), respectively, under stock repurchase programs authorized by the Board of Directors. These programs have no expiration dates and the timing of repurchases will depend upon capital needs to support the growth of our business, market conditions and other factors. Although stock repurchases are intended to increase stockholder value, purchases of shares reduce our liquidity. As a result, the timing of future repurchases depends upon our future capital needs, market conditions and other factors. As ofOctober 1, 2022 , an aggregate of$164 million remains available under these programs. We are party to a Receivables 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 ofOctober 1, 2022 , a maximum of$539 million of sold receivables can be outstanding at any point in time under this program, as amended, subject to limitations under our Existing Credit Agreement. Additionally, the amount available under the RPA is uncommitted and, as such, is available at the discretion of our third-party banking institutions. Under the Credit Agreement, the percentage of our total accounts receivable that can be sold and outstanding at any time is 50%. 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. For the years endedOctober 1, 2022 andOctober 2, 2021 , we sold$1.9 billion and$0.5 billion , respectively, of accounts receivable under these programs. Upon sale, these receivables are removed from the consolidated balance sheets and cash received is presented as cash provided by operating activities in the consolidated statements of cash flows. Discounts on sold receivables were not material for any period presented. As ofOctober 1, 2022 andOctober 2, 2021 ,$194 million and$7 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 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 by us as servicer on a weekly basis to the financial institutions that purchased the receivables. As ofOctober 1, 2022 andOctober 2, 2021 ,$49 million and$18 million , respectively, had been collected but not yet remitted. This amount is classified in accrued liabilities on the consolidated balance sheets. 43 -------------------------------------------------------------------------------- Table of Contents 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 (Term SOFR) associated with anticipated variable rate borrowings. These interest rate swaps have a maturity date ofDecember 1, 2023 , and effectively converts a portion of our variable interest rate obligations under our Amended Cash Flow Revolver 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 ofOctober 1, 2022 andOctober 2, 2021 . The aggregate effective interest rate of these swaps as ofOctober 1, 2022 was approximately 4.1%. Given the recent rise in interest rates and the continued likelihood of additional rate increases, these interest rate swaps had a positive value of$6 million as ofOctober 1, 2022 , of which the majority is included in prepaid expenses and other current assets and the remaining amount is included in other assets on the consolidated balance sheets. In the ordinary course of business, we are or may become party to legal proceedings, claims and other contingencies, including environmental, warranty and employee matters and examinations by government agencies. As ofOctober 1, 2022 , we had accrued liabilities of$38 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 ofOctober 1, 2022 , we had a liability of$65 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 is 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. In 2022, we generated$331 million of cash from operations. Our primary sources of liquidity as ofOctober 1, 2022 consisted of (1) cash and cash equivalents of$530 million ; (2) our Credit Agreement, under which$791 million , net of outstanding borrowings and letters of credit, was available; (3) our foreign short-term borrowing facilities of$70 million , all of which was available; (4) proceeds from the sale of accounts receivable under our receivables sales 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 Credit Agreement 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, should we be unable to recover on inventory obligations owed to us by our customers or should we experience significant increases in delinquent or uncollectible accounts receivable for any reason, 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 ofOctober 1, 2022 , approximately 50% of our cash balance was held inthe United States . Should we choose or need to remit cash tothe United States from our foreign locations, we may incur tax obligations which would reduce the amount of cash ultimately available tothe United States . We believe that cash held inthe United States , together with liquidity available under our Amended Cash Flow Revolver and cash from foreign subsidiaries that could be remitted tothe United States without tax consequences, will be sufficient to meet ourUnited States liquidity needs for at least the next twelve months.
Contractual Obligations
As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. Our estimated future obligations consist of leases, the Term Loan, pension plan funding obligations and unrecognized tax benefits as ofOctober 1, 2022 . A summary of our operating lease obligations as ofOctober 1, 2022 can be found in Note 8, "Leases", to the Consolidated Financial Statements contained in this report. 44 -------------------------------------------------------------------------------- Table of Contents A summary of our long-term debt obligations as ofOctober 1, 2022 can be found in Note 7, "Debt", to the Consolidated Financial Statements contained in this report. We have defined benefit pension plans with an underfunded amount of$34 million as ofOctober 1, 2022 . We will be required to provide additional funding to these plans in the future if our returns on plan assets are not sufficient to meet our funding obligations. Additionally, as ofOctober 1, 2022 , we were unable to reliably estimate when cash settlements or closure of audits with taxing authorities may occur with respect to our long-term liabilities arising from unrecognized tax benefits of$65 million . The statutes of limitations for these matters range up to 10 years, and unsettled liabilities are released upon expiration of the statutes. We also have outstanding firm purchase orders with certain suppliers for the purchase of inventory, which are not included in the table above. These purchase orders are generally short-term in nature. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty. Our policy regarding non-standard or customized items dictates that such items are only ordered specifically for customers who have contractually assumed liability for the inventory, although exceptions are made to this policy in certain situations. Accordingly, our liability from purchase obligations under these purchase orders is not expected to be significant. Lastly, pursuant to arrangements under which vendors consign inventory to us, we may be required to purchase such inventory after a certain period of time. To date, we have not been required to purchase a significant amount of inventory pursuant to these time limitations.
Off-Balance Sheet Arrangements
As ofOctober 1, 2022 , we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by theSEC , that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. 45
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