⁽¹⁾

In the commentary set forth above and/or in the financial statements included in this earnings release, we present the following non-GAAP financial measures: operating income, operating margin, net income and diluted earnings per share.  In computing each of these non-GAAP financial measures, we exclude charges or gains relating to: stock-based compensation expenses, restructuring costs (including employee severance and benefits costs and charges related to excess facilities and assets), acquisition and integration costs (consisting of costs associated with the acquisition and integration of acquired businesses into our operations), impairment charges for goodwill and other assets, amortization expense and other infrequent or unusual items (including charges associated with distressed customers, litigation settlements, gains and losses on sales of assets and redemptions of debt, discrete tax events and deferred tax changes), to the extent material or which we consider to be of a non-operational nature in the applicable period. See Schedule 1 below for more information regarding our use of non-GAAP financial measures, including the economic substance behind each exclusion, the manner in which management uses non-GAAP measures to conduct and evaluate the business, the material limitations associated with using such measures and the manner in which management compensates for such limitations. A reconciliation from GAAP to non-GAAP results is included in the financial statements contained in this release and is also available on the Investor Relations section of our website at www.sanmina.com.  Sanmina provides third quarter fiscal 2014 outlook only on a non-GAAP basis due to the inherent uncertainties associated with forecasting the timing and amount of acquisitions, restructuring activities, asset impairments and other unusual and infrequent items.

Sanmina Corporation

Condensed Consolidated Balance Sheets

(In thousands)

(GAAP)

March 29,

September 28,

2014

2013

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$    390,622

$       402,875

Accounts receivable, net

953,347

944,816

Inventories

799,663

781,560

Prepaid expenses and other current assets

88,218

75,337

Total current assets

2,231,850

2,204,588

Property, plant and equipment, net

546,366

540,151

Other

241,995

251,109

Total assets

$ 3,020,211

$    2,995,848

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$    917,780

$       956,488

Accrued liabilities 

108,445

109,363

Accrued payroll and related benefits

113,986

118,572

Short-term debt

85,682

22,301

Total current liabilities

1,225,893

1,206,724

Long-term liabilities:

Long-term debt

557,241

562,512

Other

133,560

135,048

Total long-term liabilities

690,801

697,560

Stockholders' equity

1,103,517

1,091,564

Total liabilities and stockholders' equity

$ 3,020,211

$    2,995,848

Sanmina Corporation

Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(GAAP)

(Unaudited)

Three Months Ended

Six Months Ended

Mar. 29,

Mar. 30,

Mar. 29,

Mar. 30,

2014

2013

2014

2013

Net sales

$ 1,476,712

$ 1,427,642

$ 2,924,210

$ 2,922,587

Cost of sales

1,357,745

1,327,338

2,694,458

2,725,355

Gross profit

118,967

100,304

229,752

197,232

Operating expenses:

Selling, general and administrative

62,332

58,954

121,514

118,822

Research and development

8,829

6,020

16,734

11,415

Amortization of intangible assets

474

474

948

948

Restructuring and integration costs 

2,565

6,925

6,269

10,872

Asset impairments

-

1,100

-

1,100

Gain on sales of long-lived assets

(530)

(18,967)

(530)

(23,185)

     Total operating expenses

73,670

54,506

144,935

119,972

Operating income

45,297

45,798

84,817

77,260

Interest income

174

246

980

444

Interest expense 

(7,482)

(10,416)

(14,955)

(23,500)

Other income (expense), net

626

(1,477)

1,504

(16,399)

Interest and other, net

(6,682)

(11,647)

(12,471)

(39,455)

Income before income taxes

38,615

34,151

72,346

37,805

Provision for income taxes 

17,775

12,960

28,405

15,993

Net income

$      20,840

$      21,191

$      43,941

$      21,812

Basic income per share

$          0.25

$          0.26

$          0.53

$          0.27

Diluted income per share

$          0.24

$          0.25

$          0.51

$          0.26

Weighted-average shares used in computing per share amounts:

  Basic

82,728

82,543

83,247

82,226

  Diluted

86,144

84,683

86,723

84,369

Sanmina Corporation

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share amounts)

(Unaudited)

Three Months Ended

Six Months Ended

Mar. 29,

Mar. 30,

Mar. 29,

Mar. 30,

2014

2013

2014

2013

GAAP Operating Income

$      45,297

$      45,798

$      84,817

$      77,260

GAAP operating margin

3.1%

3.2%

2.9%

2.6%

Adjustments

Stock compensation expense (1)

4,757

4,342

9,032

9,008

Amortization of intangible assets

1,251

474

1,725

948

Distressed customer charges (2)

(290)

321

383

5,412

Restructuring, acquisition and integration costs

2,565

6,925

6,269

10,872

Contingency item expected to reverse in a future period (3)

124

-

124

-

Gain on sales of long-lived assets

(530)

(18,967)

(530)

(23,185)

Asset impairments

-

1,100

-

1,100

Non-GAAP Operating Income

$      53,174

$      39,993

$    101,820

$      81,415

Non-GAAP operating margin

3.6%

2.8%

3.5%

2.8%

GAAP Net Income

$      20,840

$      21,191

$      43,941

$      21,812

Adjustments:

Operating income adjustments (see above)

7,877

(5,805)

17,003

4,155

Loss on repurchases of debt (4)

-

1,401

-

1,401

Loss on dedesignation of interest rate swap (5)

-

-

-

14,903

Litigation settlements (6)

(261)

-

(261)

-

Nonrecurring tax items

9,823

8,498

13,082

7,253

Non-GAAP Net Income

$      38,279

$      25,285

$      73,765

$      49,524

GAAP Net Income Per Share:

Basic

$          0.25

$          0.26

$          0.53

$          0.27

Diluted

$          0.24

$          0.25

$          0.51

$          0.26

Non-GAAP Net Income Per Share:

Basic

$          0.46

$          0.31

$          0.89

$          0.60

Diluted

$          0.44

$          0.30

$          0.85

$          0.59

Weighted-average shares used in computing per share amounts:

Basic

82,728

82,543

83,247

82,226

Diluted

86,144

84,683

86,723

84,369

Stock compensation expense was as follows: 

Three Months Ended

Six Months Ended

Mar. 29,

Mar. 29,

Mar. 30,

2014

2013

2014

2013

Cost of sales

$        1,364

$        1,291

$        2,566

$        2,631

Selling, general and administrative

3,382

3,004

6,453

6,299

Research and development

11

47

13

78

  Total

$        4,757

$        4,342

$        9,032

$        9,008

(2)

Relates to inventory and bad debt reserves / recoveries associated with distressed customers.

(3)

Represents a non-recurring contingency that the Company expects to resolve favorably in future periods.  However, there can be no assurance of the exact amount or timing of this recovery.

(4)

Represents a loss, including write-off of unamortized debt issuance costs, on debt redeemed or repurchased prior to maturity.

(5)

Represents a non-cash loss resulting from dedesignation of an interest rate swap.

(6)

Represents cash received in connection with a litigation settlement.

The commentary and financial information above includes non-GAAP measures of operating income, operating margin, net income and earnings per share. Management excludes from these measures stock-based compensation, restructuring, acquisition and integration expenses, impairment charges, amortization charges and other infrequent items, to the extent material or which we consider to be of a non-operational nature in the applicable period, and as more fully described below.

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

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

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

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

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

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

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