SANMINA-SCI CORP - 10-Q Quarterly Report

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes þ No o

As of August 7, 2003, there were 510,135,909 shares outstanding of the issuer’s common stock, $0.01 par value per share.

The accompanying condensed consolidated financial statements of Sanmina-SCI Corporation (“Sanmina-SCI”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules or regulations. The interim financial statements are unaudited, but reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation.

The results of operations for the nine months ended June 28, 2003 are not necessarily indicative of the results that may be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended September 28, 2002, included in Sanmina-SCI’s annual report on Form 10-K/A. The consolidated financial statements for fiscal 2002 include the operating results of SCI from December 3, 2001, the close of the accounting period nearest to the acquisition date of December 6, 2001.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Sanmina-SCI’s fiscal year ends on the Saturday nearest September 30. All general references to years relate to fiscal years unless otherwise noted.

Principles of Consolidation — The consolidated financial statements include the accounts of Sanmina-SCI and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Foreign Currency Translation — For foreign subsidiaries using the local currency as their functional currency, assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expenses are translated at average exchange rates. The effects of these translation adjustments are reported as a separate component of stockholders’ equity. Remeasurement adjustments for non-functional currency monetary assets and liabilities are included in other income (expense) net in the accompanying consolidated statements of operations.

Cash and Cash Equivalents — Sanmina-SCI considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At June 28, 2003, cash and cash equivalents includes $118.7 million of restricted cash and cash equivalents, primarily related to accounts collateralizing letters of credit.

Supplemental cash flow information for the nine-month periods ended June 28, 2003 and June 29, 2002 is as follows (in thousands):

Exit Costs — We recognize restructuring charges related to our plans to exit certain activities resulting from the identification of duplicative and excess manufacturing and administrative facilities that we choose to close or consolidate. In connection with our exit activities, we record restructuring charges for employee termination costs, long-lived asset impairments, costs related to leased facilities to be abandoned or subleased, and other exit-related costs. These charges were incurred pursuant to formal plans developed by management and accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit and Disposal Activities,” Emerging Issues Task Force, or EITF, Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” and EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Where applicable, employee termination costs are recorded pursuant to SFAS No. 112, “Employer’s Accounting for Postemployment Benefits.” Fixed assets that are written off or impaired as a result of restructuring plans are typically held for sale or scrapped. The remaining carrying value of such assets was not material at June 28, 2003 or September 28, 2002.

Goodwill and Intangibles — Costs in excess of the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in a purchase business combination are recorded as goodwill. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that companies no longer amortize goodwill, but instead test for impairment at least annually using a two-step approach. Sanmina-SCI adopted SFAS No. 142 in the first quarter of fiscal 2002 and no longer amortizes goodwill. Sanmina-SCI evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. During the fourth quarter of fiscal 2002, we recorded an impairment loss of approximately $2.7 billion in connection with the annual impairment test.

Sanmina-SCI has determined that there are two reporting units: international and domestic. Goodwill information for each reporting unit is as follows (in thousands):

Sanmina-SCI has certain identifiable intangible assets that are subject to amortization. Intangible assets are included in “Deposits and other” in the condensed consolidated balance sheet. The components of intangible assets are as follows (in thousands):

Intangible asset amortization expense for the nine months ended June 28, 2003 and June 29, 2002 was approximately $4.9 million and $4.0 million, respectively.

Revenue Recognition. Sanmina-SCI generally recognizes revenue at the point of shipment to its customers, under the contractual terms which in general are FOB shipping point or when services have been performed. Sanmina-SCI also derives revenues from sales of certain inventory, including raw materials, to customers who reschedule, amend or cancel purchase orders after Sanmina-SCI has procured inventory to fulfill their purchase orders. Title to the product or the inventory transfers upon shipment and the customer’s assumption of the risks and rewards of ownership of the product. In some cases, Sanmina-SCI will recognize revenue upon receipt of shipment by the customer or at its designated location. Except in specific circumstances, there are no formal customer acceptance requirements or further Sanmina-SCI obligations to the product or the inventory subsequent to shipment. In specific circumstances in which there are such customer acceptance requirements or further Sanmina-SCI obligations, revenue is recognized at the point of formal acceptance and upon completion of obligations. Where appropriate, provisions are made for estimated warranty costs and sales returns.

Warranty Reserves — Sanmina-SCI establishes a warranty provision on shipped products based on individual manufacturing contract requirements and past warranty experience. Each period end the balance is reviewed to ensure its adequacy. Accrued warranty reserves at June 28, 2003 and September 28, 2002 were less than one percent of total current liabilities.

Earnings Per Share — Basic earnings (loss) per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share includes dilutive common stock equivalents using the treasury stock method, and assumes that the convertible debt instruments were converted into common stock, if dilutive. For the quarters ended June 28, 2003 and June 29, 2002, 32,004,785 and 40,457,519 potentially dilutive shares from the conversion of the convertible subordinated debt and after-tax interest expense of $9.0 million and $12.3 million, respectively, were not included in the computation of diluted earnings per share because to do so would be anti-dilutive. For the nine months ended June 28, 2003 and June 29, 2002, 32,159,178 and 40,457,519 potentially dilutive shares from the conversion of the convertible subordinated debt and after-tax interest expense of $27.8 million and $32.7 million, respectively, were not included in the computation of diluted earnings per share because to do so would be anti-dilutive. All stock options are anti-dilutive for the three and nine-month periods ended June 28, 2003 and June 29, 2002 due to the net losses for the periods.

Reclassifications — Sanmina-SCI has reclassified certain prior period information to conform to the current period’s presentation.

Stock-Based Compensation — SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations (“APB 25”), and provide pro forma net income and earnings per share disclosures for employee stock compensation as if the fair-value-based method defined in SFAS No. 123 had been applied. Sanmina-SCI continues to apply the provisions of APB 25 and provide the pro forma disclosures with respect to its stock-based compensation plans in accordance with the provisions of SFAS Nos. 123 and 148.

Sanmina-SCI uses the Black-Scholes option-pricing model to determine the pro forma impact under SFAS Nos. 123 and 148 on the company’s net income (loss) and earnings (loss) per share. The model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires, to calculate the fair value of stock options granted. The assumptions used for the three months and nine months ended June 28, 2003 and June 29, 2002 are presented below:

Sanmina-SCI has several stock option plans which are described in the Company’s most recent Annual Report on Form 10-K/ A. Sanmina-SCI accounts for its stock option plans and employee stock purchase plan under APB Opinion No. 25 and related interpretations. Had compensation cost for all plans been determined consistent with SFAS Nos. 123 and 148, Sanmina-SCI’s net income (loss) and net income (loss) per share would have been the following pro forma amounts (in thousands, except per share data):

Recent Accounting Pronouncements — In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement revises the rules as to how companies account for exit and disposal activities under EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity.” Commitment to a plan to exit an activity or dispose of long-lived assets is no longer sufficient to record a charge for most anticipated costs. Instead, companies record exit or disposal costs when they are “incurred” and can be measured at fair value, and subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not restate previously issued financial statements for the effect of the provisions of SFAS No. 146 and liabilities that a company previously recorded under EITF 94-3 are grandfathered. We do not expect SFAS No. 146 to have a significant impact on our financial position, results of operations and cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Sanmina-SCI is required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in its annual financial statements for the year ending September 27, 2003 and provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ended March 29, 2003. The adoption of SFAS No. 148 will not have an effect on Sanmina-SCI’s financial position

or results of operations as we currently do not intend to adopt the fair value method of accounting for stock-based employee compensation pursuant to SFAS No. 148.

In November 2002, the FASB issued Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of Interpretation 45 did not have a material impact on Sanmina-SCI’s financial position or results of operations.

In January 2003, the FASB issued Interpretation 46, Consolidation of Variable Interest Entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Sanmina-SCI believes that the adoption of Interpretation 46 will not have a material impact on its financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material impact on the Company’s financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, many of which were previously classified as equity, as a liability. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. Sanmina-SCI does not expect the adoption of SFAS No. 150 to have a material effect on its financial condition or results of operations.

In January 2003, Sanmina-SCI entered into an agreement with IBM under which IBM agreed to outsource the manufacturing of a portion of its low and midrange servers, workstations and ThinkPad notebooks to Sanmina-SCI and Sanmina-SCI agreed to acquire IBM’s related manufacturing facilities in Greenock, Scotland and Guadalajara, Mexico. The transaction closed in February 2003 for a cash purchase price of $172.8 million. The purchase price was allocated to the fair value of the net assets acquired, including

primarily inventory ($57.2 million), buildings and equipment ($50.4 million) and goodwill ($63.8 million). This goodwill is partially deductible for tax purposes. The purchase price allocation is based on management’s estimate of the fair value for purchase accounting purposes at the date of acquisition. The purchase price allocation is subject to revision as management continues to obtain additional information regarding the acquired business, and any corresponding adjustment will be reflected in goodwill. The asset purchase agreement provided for a physical inventory of the assets acquired. The inventory was completed in the third quarter of fiscal 2003 resulting in no significant revision to the purchase price. Sanmina-SCI’s results of operations for fiscal 2003 include the results of this business from the date of acquisition. Pro forma results of operations have not been presented for the IBM transaction because the effect of the acquisition was not material.

During the first three quarters of fiscal 2003 Sanmina-SCI also completed other acquisitions for an aggregate purchase price of $41.7 million, including an Israeli medical systems manufacturing operation and a wireless communication equipment assembly facility in Texas. Pro forma results of operations have not been presented for these transactions because the effects of the acquisitions were not material either on an individual or aggregate basis. The majority of the goodwill resulting from these acquisitions is deductible for tax purposes. The purchase price allocations for these transactions are based on management’s estimate of the fair value for purchase accounting purposes at the date of acquisition. We do not expect significant revisions to the purchase price allocations for the acquired businesses.

Costs associated with restructuring activities initiated on or after January 1, 2003, other than those activities related to purchase business combinations, are accounted for in accordance with SFAS No. 146 and SFAS No. 112 where applicable. Accordingly, costs associated with such plans are recorded as restructuring costs in the consolidated statements of operations when a liability is incurred. Below is a summary of the activity related to restructuring costs recorded pursuant to SFAS No. 146 for the second and third quarters of fiscal 2003.

In the second and third quarters of fiscal 2003, we approved actions pursuant to SFAS No. 146 to close and consolidate certain of our manufacturing facilities in the United States and Europe as a result of the ongoing slowdown in the electronics industry. In the second and third quarters of fiscal 2003, we recorded charges to operations of $1.2 million for termination benefits related to the involuntary termination of 369 employees, and we utilized charges of approximately $496,000 as a result of terminating 229 employees. During this period we also recorded charges to operations of $10.4 million for the termination of non-cancelable leases, lease payments for permanently vacated properties and other contract termination costs, and we utilized charges of $1.6 million related to these charges. We also incurred other restructuring charges to operations of $76,000 in the second quarter of fiscal 2003, primarily for costs to prepare facilities for closure. We incurred charges to operations of $4.4 million during the second and third quarters of fiscal 2003 for the impairment of excess equipment at the vacated facilities, all of which were utilized as of June 28, 2003. We expect the closing of the plants discussed above as well as other activities related to these exit plans to be completed in fiscal 2004.

Costs associated with restructuring activities initiated prior to January 1, 2003, other than those activities related to purchase business combinations, are accounted for in accordance with EITF 94-3. Accordingly, costs associated with such plans are recorded as restructuring costs in the consolidated statements of operations. Below is a summary of the activity related to restructuring costs recorded pursuant to EITF 94-3 for the periods in which activity pursuant to our ongoing restructuring plans has taken place through the third quarter of fiscal 2003.

September 2002 Restructuring. In September 2002, we approved a plan pursuant to EITF 94-3 to close and consolidate certain of our manufacturing facilities in North America, Europe and Asia as a result of the ongoing slowdown in the industry. In fiscal 2002, we recorded charges to operations of $3.1 million for planned employee severance expenses related to the involuntary termination of 540 employees, and we utilized charges of approximately $1.7 million as a result of terminating 144 employees. In fiscal 2002 we also recorded charges to operations of $4.2 million for the shutdown of facilities related to non-cancelable lease payments for permanently vacated properties and associated costs, and we utilized charges of $110,000 related to the shutdown of these facilities. We also incurred charges to operations of $38.3 million in fiscal 2002 related to asset write-offs for excess equipment and leasehold improvements at facilities that were permanently vacated. In the first three quarters of fiscal 2003, we recorded charges to operations of $6.9 million for employee severance expenses related to the expected termination of 261 employees, and $13.2 million for non-cancelable lease payments and related costs for the shutdown of facilities. In the first three quarters of fiscal 2003, we also incurred charges to operations of $31.1 million related to the impairment of buildings and excess equipment and leasehold improvements at permanently vacated facilities. We utilized $3.9 million of accrued severance charges and $12.0 million of accrued facilities related charges in the first three quarters of fiscal 2003. As of June 28, 2003, 778 employees have been terminated under this exit plan. We expect the closing of the plants discussed above as well as other activities related to this exit plan to be completed in the first half of fiscal 2004.

vacated, all of which were utilized in fiscal 2002. In the first three quarters of fiscal 2003, we recorded charges to operations of $9.9 million for employee severance costs related to the expected involuntary termination of 2,460 employees, and $13.4 million for non-cancelable lease payments and other costs related to the shutdown of facilities. We utilized accrued severance charges of $5.4 million and accrued facilities shutdown related charges of $15.5 million during the first three quarters of fiscal 2003. During the third quarter of fiscal 2003 we reversed accrued severance charges of $3.6 million and accrued lease cancellation charges of $700,000 due to lower than estimated settlement costs at two European sites. We also incurred charges of $4.5 million during the first three quarters of fiscal 2003 related to write-offs of fixed assets consisting of excess equipment and leasehold improvements to facilities that were permanently vacated. As of June 28, 2003, 4,810 employees have been terminated under this exit plan. We expect the closing of the plants discussed above as well as employee terminations and other related activities to be substantially completed by the end of fiscal 2003, although final payments of certain accrued costs may not occur until later periods.

Segerström Restructuring. In March 2001, we acquired Segerström in a pooling of interests business combination and announced our restructuring plan. During fiscal 2001 and 2002, we recorded net charges to operations of $5.7 million for the involuntary termination of 470 employee positions, and utilized $4.8 million of these charges. During those periods we also recorded charges to operations of $5.2 million related to the consolidation of facilities, of which $1.3 million was utilized. In the first three quarters of fiscal 2003, we utilized accrued charges of $600,000 with respect to employee severance and $1.4 million with respect to the shutdown and consolidation of facilities.

July 2001 Restructuring. In July 2001, we approved a plan to close and merge manufacturing facilities throughout North America and Europe as a result of the ongoing slowdown in the EMS industry. During fiscal 2001 and 2002, we recorded charges to operations of $24.0 million for severance costs for involuntary employee terminations, of which $21.8 million was utilized for the termination of 3,779 employees. During those periods we recorded net charges to operations of $45.2 million for lease payments for permanently vacated properties and other costs related to the shutdown of facilities, of which $23.1 million was utilized. Also during fiscal 2001 and fiscal 2002, we recorded and utilized $7.3 million of asset related write-offs of equipment and leasehold improvements to permanently vacated properties. During the first three quarters of fiscal 2003, we utilized $914,000 of accrued severance costs related to the termination of 12 employees, $11.2 million of accrued costs related to the shutdown of facilities and $779,000 of other accrued restructuring costs. Manufacturing activities at the plants affected by this plan ceased in the fourth quarter of fiscal 2002; however, the leases of the related facilities expire between 2003 and 2010, therefore the remaining accrual will be reduced over time as the lease payments, net of sublease income, are made.

Costs associated with restructuring activities related to a purchase business combination are accounted for in accordance with EITF 95-3. Accordingly, costs associated with such plans are recorded as a liability assumed as of the consummation date of the purchase business combination and included in the cost of the acquired entity. Below is a summary of the activity related to restructuring costs recorded pursuant to EITF 95-3 for fiscal 2002 and the first three quarters of fiscal 2003:

The following sections separately present the charges to the restructuring liability and charges utilized that are set forth in the above table on an aggregate basis.

Other Acquisition-Related Restructuring Actions. As part of an insignificant business acquisition completed in December 2002, we closed the acquired manufacturing facility in Texas as of the acquisition date and transferred the business to an existing Sanmina-SCI plant. In the second quarter of fiscal 2003 we recorded total charges to the restructuring liability of $2.4 million relating the closure of this plant. The charge consisted of $311,000 for salary related costs for employees participating in the closure of the plant and $2.1 million for excess equipment. All charges were utilized during the second quarter of fiscal 2003.

SCI Acquisition Restructuring. In December 2001, we merged with SCI in a purchase business combination. As part of the acquisition of SCI, we recorded an assumed liability, based on SCI management’s plan prior to the acquisition in accordance with EITF 94-3, for expected involuntary employee termination costs of approximately $7.4 million for 158 employee positions. As of September 28, 2002, we had utilized approximately $5.5 million of these charges in connection with the termination of 100 employees during the period. In fiscal 2002, we also incurred charges of $2.3 million related to plant consolidations and closures, of which $354,000 was paid during fiscal 2002. In the first three quarters of fiscal 2003, we utilized the remaining $1.9 million of accrued severance, and utilized the remaining $1.9 million of accrued shutdown costs related to plant consolidations and closures. We do not expect any further activity under this exit plan.

utilized $58.7 million in charges with respect to the termination of 6,446 employees during fiscal 2002. During fiscal 2002 we also incurred net charges to the restructuring liability of $33.8 million for restructuring costs related to lease payments for permanently vacated properties and other costs, and utilized approximately $12.1 million of these charges. We incurred charges to restructuring liability of $23.7 million of asset related write-offs consisting of excess equipment and leasehold improvements to facilities that were permanently vacated, of which $19.6 million were utilized in fiscal 2002. In the first three quarters of fiscal 2003, we recorded restructuring charges of $22.8 million for severance costs related to the involuntary termination of 777 employees, and utilized $26.2 million for 1,877 employee terminations. In the first quarter of fiscal 2003, we reversed a total of $24.0 million of accrued severance costs, approximately $18.4 million of which was due to lower than anticipated settlement costs at a major European manufacturing site, and approximately $5.6 million of which related to two plants that were not closed as initially planned due to a change in business requirements. As of June 28, 2003, 8,323 employees had been terminated under this exit plan. In the first three quarters of fiscal 2003, we also recorded restructuring charges of $7.2 million for lease payments for permanently vacated properties and other costs, and we utilized approximately $12.4 million of these charges during the period. We also reversed $1.0 million of accrued facilities shutdown costs due to lower than estimated costs at various sites. During the quarter ended March 29, 2003, we also recorded costs of $1.2 million for the impairment of excess equipment at closed plants. We expect the closing and consolidation of the plants discussed above as well as involuntary employee terminations to be substantially completed by the end of fiscal 2003, although final payments of certain accrued costs may not occur until later periods.

SFAS No. 130 “Reporting Comprehensive Income” establishes standards for reporting and display of comprehensive income and its components. SFAS No. 130 requires companies to report “comprehensive income” that includes unrealized holding gains and losses and other items that have previously been excluded from net income and reflected instead in stockholders’ equity. Comprehensive income (loss) for Sanmina-SCI consists of net income (loss) plus the effect of unrealized holding gains or losses on investments classified as available-for-sale and foreign currency translation adjustments, net of tax effects. Comprehensive income (loss) adjustments were $6.5 million and $14.2 million, for the three months ended June 28, 2003 and June 29, 2002, respectively and $16.8 million and $6.5 million, for the nine months ended June 28, 2003 and June 29, 2002, respectively. Comprehensive income (loss) for the three months ended June 28, 2003 and June 29, 2002 was $(5.7) million and $9.2 million, respectively, and for the nine months ended June 28, 2003 and June 29, 2002 was $(34.7) million and $(83.1) million, respectively. As of June 28, 2003, the cumulative unrealized holding gain on investments and cumulative foreign currency translation adjustments were $(0.1) million and $14.8 million, respectively. As of September 28, 2002, the cumulative unrealized holding gain on investments and cumulative foreign currency translation adjustments was $0.7 million and $(11.0) million, respectively.

Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes labor, material and manufacturing overhead. Provisions when required are made to reduce excess inventories to their estimated net realizable values. It is possible that estimates of net realizable values can change in the near term. The components of inventories, net of provisions, are as follows (in thousands):

Refinancing — On December 23, 2002, Sanmina-SCI issued $750.0 million of 10.375% Senior Secured Notes due January 15, 2010 (the “Original Notes”) in a private placement to qualified investors as part of a refinancing transaction pursuant to which Sanmina-SCI also entered into a $275.0 million senior secured credit facility (the “Credit Facility”). A portion of the net proceeds of the Original Notes and Credit Facility was used to repay all outstanding amounts under our three-year revolving credit facility and to repurchase all outstanding receivables sold under our receivables securitization facility. These transactions are referred to collectively as the Refinancing. In July 2003, Sanmina-SCI completed an exchange offer pursuant to which substantially all of the Original Notes were exchanged for notes registered under the Securities Act of 1933, or the 10.375% Notes. The 10.375% Notes evidence the same debt as the Original Notes and are issued under and entitled to the benefits of the same indenture that governs the Original Notes except that they are not subject to transfer restrictions.

The 10.375% Notes are fully and unconditionally guaranteed by substantially all of Sanmina-SCI’s United States subsidiaries and are secured by a second priority security interest in the same collateral securing our obligations under the credit facility which includes substantially all of the personal property assets of Sanmina-SCI and its United States subsidiaries located in the United States, a pledge of the capital stock of substantially all of Sanmina-SCI’s United States subsidiaries, a pledge of 65% of the capital stock of certain of Sanmina-SCI’s first-tier foreign subsidiaries, and mortgages on certain domestic real estate. Sanmina-SCI may redeem the 10.375% Notes, in whole or in part, at anytime beginning on January 15, 2007 at a redemption price initially of 105.188%, declining to 102.594% on January 15, 2008 and 100.000% on January 15, 2009. Sanmina-SCI may also redeem the 10.375% Notes, in whole or in part, at any time prior to January 15, 2007 at a redemption price equal to the principal amount plus accrued interest to the redemption date plus a make-whole premium specified in the indenture. In the event of a change of control of Sanmina-SCI, Sanmina-SCI will be required to offer to repurchase the 10.375% Notes at a repurchase price of 101% of the principal amount plus accrued interest to the repurchase date. The indenture includes covenants that, among other things, limit in certain respects Sanmina-SCI and its restricted subsidiaries from incurring debt, making investments and other restricted payments, paying dividends on capital stock, redeeming capital stock or subordinated obligations and creating liens. In the event that Sanmina-SCI obtains the investment grade rating specified in the indenture and certain other conditions are met, the collateral securing the 10.375% Notes will be permanently released, and Sanmina-SCI will no longer be required to comply with certain of the indenture covenants specified above for as long as Sanmina-SCI retains the investment grade rating specified in the indenture.

The Credit Facility currently bears interest at an annual rate equal to a reserve adjusted eurodollar rate plus 4.0% (the reserve adjusted eurodollar rate was 1.11% at June 28, 2003). The principal amount of the Credit Facility is repayable in quarterly installments of $687,500 from March 31, 2003 through December 31, 2005, $13.75 million from March 31, 2006 through December 31, 2006, and $52.94 million from March 31, 2007 through December 23, 2007, plus interest. The Credit Facility is guaranteed by substantially all of Sanmina-SCI’s United States subsidiaries (the “Guarantors”) and is secured by a first priority security interest in substantially all of the personal property assets of Sanmina-SCI and the Guarantors, a pledge of the capital stock of the Guarantors, a pledge of 65% of the capital stock of certain of Sanmina-SCI’s first-tier foreign subsidiaries and mortgages on certain domestic real estate. The Credit Facility is prepayable at Sanmina-SCI’s option at 103% through December 22, 2003, 102% from December 23, 2003 through December 22, 2004, 101% from December 23, 2004 through December 22, 2005, and 100% thereafter. The Credit Facility provides for various operational and financial covenants, including limitations on incurring indebtedness and creating liens, restrictions on the payment of dividends and other restricted payments, restrictions on sales of assets, restrictions on acquisitions, maintenance of a minimum interest coverage ratio and a maximum secured leverage ratio and limits on capital expenditures.

Sanmina-SCI entered into an interest rate swap to hedge its mix of short-term and long-term interest rate exposures resulting from certain of Sanmina-SCI’s outstanding debt obligations. During the first quarter of fiscal 2003, Sanmina-SCI entered into an interest rate swap transaction related to the 10.375% Notes pursuant to which we pay a variable rate and receive a fixed rate. The interest rate swap has a total notional amount of $525.0 million. Under the swap agreement, as of June 28, 2003, Sanmina-SCI pays an interest rate equal to the six-month LIBOR rate plus 6.125%, determined semi-annually in arrears. In exchange, Sanmina-SCI receives a fixed interest rate of 10.375%. The swap agreement effectively replaces the fixed interest rate that Sanmina-SCI pays on $525.0 million principal amount of its 10.375% Notes with a variable interest rate. The swap was designated as fair value hedge under SFAS No. 133. Management believes that the interest rate swap meets the criteria established by SFAS No. 133 for short cut accounting; therefore, there is no gain or loss related to the interest rate swap recognized in the statement of operations.

Revolving Credit Agreements — In December 2001, Sanmina-SCI entered into two separate facilities consisting of a $250.0 million 364-day credit facility and a $500.0 million three-year credit facility with a syndicate of banks. As of September 28, 2002, $400.0 million was outstanding under these credit facilities. The 364-day credit facility terminated in accordance with its terms on December 4, 2002. The balance outstanding under the three-year credit facility was repaid and the facility was terminated in December 2002 in connection with the Refinancing.

Asset Securitization — We were a party to an asset securitization agreement that gave us the option to periodically transfer undivided percentage ownership interests, of up to $200.0 million, in a revolving pool of eligible trade receivables to conduit and bank purchasers. The net accounts receivables sold under the program at September 28, 2002 were included in the accounts receivable balance and the associated debt was recorded as current portion of long-term debt on the consolidated balance sheet. The asset securitization agreement was terminated, and the accounts receivable sold thereunder were repurchased, in December 2002 in connection with the Refinancing.

Repurchase of Convertible Debt — During the nine months ended June 28, 2003, Sanmina-SCI repurchased, through unsolicited privately negotiated transactions, $50.0 million aggregate principal amount of the 3% Convertible Subordinated Notes due 2007 of SCI Systems, Inc., one of our wholly-owned subsidiaries, $27.5 million aggregate principal amount of the 4 1/4% Convertible Subordinated Notes due 2004, and $210.6 million aggregate principal amount at maturity (having an accreted value of $104.4 million) of the Zero Coupon Convertible Subordinated Debentures due 2020, resulting in a net gain of $25.7 million, which is reflected as other income in the accompanying statement of operations.

Redemption of 4 1/4% Convertible Subordinated Notes due 2004 — On July 8, 2003, Sanmina-SCI called for redemption on August 7, 2003, all of its 4 1/4% Convertible Subordinated Notes due 2004, or the 4 1/4% Notes. The aggregate principal amount outstanding of the 4 1/4% Notes at June 28, 2003 was $263.6 million. Prior to August 7, 2003, holders may convert their 4 1/4% Notes into shares of Sanmina-SCI common stock at a price of $22.167 per share, and 4 1/4% Notes not converted will be redeemed on August 7, 2003 at a price of $1,008.50 per $1000 principal amount of 4 1/4% notes plus accrued and unpaid interest to August 7, 2003.

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

Sanmina-SCI’s chief operating decision maker is the Chief Operating Officer. Based on the evaluation of financial information by the Chief Operating Officer, Sanmina-SCI operates in two segments, domestic (United States of America) and international operations. Revenues are attributable to the country in which the product is manufactured. Each segment manufactures, tests and services a full spectrum of complex printed circuit boards, custom backplane interconnect devices, and electronic assembly services. The chief operating decision maker evaluates performance based upon each segment’s operating income. Operating income is defined as income before interest income (expense), other income (expense) and income taxes.

The following summarizes financial information by geographic segment (in thousands):

Although Sanmina-SCI seeks to diversify its customer base, a small number of customers are responsible for a significant portion of Sanmina-SCI’s net sales. During the three months ended June 28, 2003 and June 29, 2002, sales to Sanmina-SCI’s ten largest customers accounted for 70.5% and 69.5%, respectively, of Sanmina-SCI’s net sales. For the nine months ended June 28, 2003 and June 29, 2002, sales to Sanmina-SCI’s ten largest customers accounted for 67.7% and 65.3%, respectively, of Sanmina-SCI’s net sales. In the three and nine months ended June 28, 2003, two customers individually represented 10% or more of Sanmina-SCI’s net sales. In the three and nine months ended and June 29, 2002, two of Sanmina-SCI’s customers individually represented 10% or more of net sales.

In fiscal 1999, we entered into an operating lease agreement for facilities in San Jose, California, which house our corporate headquarters and certain of our assembly operations. Management had determined that the lease facility met the criteria for off-balance sheet treatment and therefore we accounted for the lease facility as an operating lease. The lease agreement terminated on December 19, 2002 and we purchased the land and improvements subject to the lease on that date for approximately $53.2 million, primarily with $52.9 million of investments previously held by the lender as collateral for certain obligations under the lease. The previously pledged investments were classified as long-term investments.

We and certain of our subsidiaries, namely Hadco Corporation, or Hadco, and SCI, are involved in various administrative proceedings related to environmental matters. Although we could incur significant costs relating to these matters, we believe, based on the limited information that is currently available, that the cost of any remediation that may be required at these facilities would not materially harm our business, financial condition or results of operations.

We are a party to certain other legal proceedings that have arisen in the ordinary course of our business. We believe that the resolution of these proceedings will not have a material adverse effect on our business, financial condition or results of operations.

Note 10 — Supplemental Guarantors Condensed Consolidating Financial Information

On December 23, 2002, Sanmina-SCI issued $750.0 million of its 10.375% Notes as part of a refinancing transaction. See Note 7 for a more complete description of the 10.375% Notes.

The condensed consolidating financial statements are presented below and should be read in connection with the Consolidated Financial Statements of Sanmina-SCI. Separate financial statements of the Guarantors are not presented because (i) the Guarantors are wholly-owned and have fully and unconditionally guaranteed the 10.375% Notes on a joint and several basis, and (ii) Sanmina-SCI’s management has determined such separate financial statements are not material to investors. There are no significant restrictions on the ability of Sanmina-SCI or any Guarantor to obtain funds from its subsidiaries by dividend or loan.

The following condensed consolidating financial information presents: condensed consolidating balance sheets as of June 28, 2003 (unaudited) and September 28, 2002, and the unaudited condensed consolidating statements of operations for the three and nine months ended June 28, 2003 and June 29, 2002, and the unaudited condensed consolidating statements of cash flows for the nine months ended June 28, 2003 and June 29, 2002, of (a) Sanmina-SCI, the parent; (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate Sanmina-SCI with the guarantor subsidiaries and the non-guarantor subsidiaries; and (e) Sanmina-SCI, the guarantor subsidiaries and the non-guarantor subsidiaries on a consolidated basis.

Investments in subsidiaries are accounted for on the equity method. The principal elimination entries eliminate investments in subsidiaries, intercompany balances and intercompany sales.

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. Actual events and/or future results of operations may differ materially from those contemplated by such forward-looking statements, as a result of the factors described herein, and in the documents incorporated herein by reference, including, in particular, those factors described under “Factors Affecting Operating Results.”

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 in the United States of America. 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 assets and liabilities. On an ongoing basis, we evaluate the process used to develop estimates, including those related to product returns, accounts receivable, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in preparing our consolidated financial statements:

Accounts Receivable and Other Related Allowances — We estimate product returns, warranty costs, and other adjustments related to current period net sales to establish related allowances. In making these estimates, we analyze past experience, changes in customer demand, and the overall economic climate in industries that we serve. If actual product returns, warranty claims or other adjustments differ significantly from our estimates, the amount of revenue we report would be affected. One of our most significant credit risks is the ultimate realization of our accounts receivable. This risk is mitigated by (i) sales to well established companies, (ii) ongoing credit evaluation of our customers, and (iii) frequent contact with our customers, especially our most significant customers, thus enabling us to monitor current changes in business operations and to respond accordingly. To establish our allowance for doubtful accounts, we regularly estimate the credit risk associated with accounts receivable and consider concentrations of credit risks. We evaluate credit risk related to specific customers based on the current economic environment and are not able to predict the inability of our customers to meet their financial obligations to us. We believe the allowances that we have established are adequate under the circumstances; however, a change in the economic environment or a customer’s financial condition could cause our estimates of allowances, and consequently the provision for doubtful accounts, to change.

Inventories — We state inventories at the lower of cost (first-in, first-out method) or market value. We regularly evaluate the carrying value of our inventories. Cost includes labor, material and manufacturing overhead incurred for finished goods and work-in-process. The market value of our inventories is based on the projected average selling prices of the products we manufacture, less the estimated cost to complete and distribute such products, at the time we expect to sell these products. The process of determining the estimated cost to complete and distribute products requires that we estimate the completion percentage of work in process inventories and the per unit manufacturing costs in the period that the units are expected to be completed. We estimate average selling prices for products based on current contract prices, industry information with respect to pricing trends, expected product introductions, analysis of additional industry capacity expected to be brought on-line, seasonal factors, general economic trends and other information. Estimating these average selling prices is a highly subjective process. Industry forecasts of future average selling prices have been unreliable at times, and we have difficulty accurately predicting future prices. We determine expected inventory usage based on demand forecasts received from our customers. When required, provisions are made to reduce excess inventories to their estimated net realizable values. Differences in

forecasted average selling prices used in calculating adjustments based on the lower of cost and market price of the products we manufacture can have a significant effect on the estimated net realizable value of product inventories and consequently the amount of write down recorded. In addition, the ultimate realization of inventory carrying amounts is affected by our exposure related to changes in customer demand for inventory that they are not contractually obligated to purchase and raw materials held for specific customers who are experiencing financial difficulty. Inventory reserves are established based on forecasted demand, past experience with the specific customers, the ability to redistribute inventory to other programs or back to our suppliers, and the presence of contractual language obligating the customers to pay for the related inventory.

Exit Costs — We recognize restructuring charges related to our plans to exit certain activities resulting from the identification of duplicative and excess manufacturing and administrative facilities that we choose to close or consolidate. In connection with our exit activities, we record restructuring charges for employee termination costs, long-lived asset impairments, costs related to leased facilities to be abandoned or subleased, and other exit-related costs. These charges were incurred pursuant to formal plans developed by management and accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” Emerging Issues Task Force, or EITF, Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” and EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Where applicable, employee termination costs are recorded pursuant to SFAS No. 112, “Employer’s Accounting for Postemployment Benefits.” The recognition of restructuring charges requires us to make judgments and estimates regarding the nature, timing, and amount of costs associated with the planned exit activity, including estimating sublease income and the fair value, less sales costs, of equipment to be disposed of. Management’s estimates of future liabilities may change, requiring us to record additional restructuring charges or reduce the amount of liabilities already recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure their adequacy, that no excess accruals are retained, and the utilization of the provisions are for their intended purposes in accordance with developed exit plans.

Goodwill — Costs in excess of the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded as goodwill. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that companies no longer amortize goodwill, but instead test for impairment at least annually using a two-step approach. We adopted SFAS No. 142 in the first quarter of fiscal 2002 and no longer amortize goodwill. We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income, or discounted cash flows, approach and a market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired, and a second step impairment analysis is then performed to measure the amount of impairment loss, if any. The process of determining the fair value of our reporting units is subjective and requires management to exercise judgment in making assumptions related to cash flows and discount rates, among other things. During the fourth quarter of fiscal 2002, we recorded an impairment loss of approximately $2.7 billion in connection with the annual impairment test pursuant to SFAS No. 142. As of June 28, 2003, the remaining carrying value of goodwill was approximately $2.2 billion. We cannot assure you that future goodwill impairment tests will not result in further impairment charges.

Income Taxes — We estimate our income tax provision in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the realizability of deferred tax assets. The carrying value of our net deferred tax asset 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. A valuation allowance has been established for deferred tax assets which we do not believe meet the more likely than not criteria established by SFAS No. 109, “Accounting for Income Taxes.” Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, or other factors. If our assumptions and consequently our estimates,

In January 2003, we entered into an agreement with IBM under which IBM agreed to outsource the manufacturing of a portion of its low and midrange servers, workstations and ThinkPad notebooks to Sanmina-SCI and Sanmina-SCI agreed to acquire IBM’s related manufacturing facilities in Greenock, Scotland and Guadalajara, Mexico. The transaction closed in February 2003 for a cash purchase price of $172.8 million. The purchase price was allocated to the fair value of the net assets acquired, including primarily inventory ($57.2 million), buildings and equipment ($50.4 million) and goodwill ($63.8 million).

During the first three quarters of fiscal 2003, we also completed other acquisitions for an aggregate purchase price of $41.7 million, including an Israeli medical systems manufacturing operation and a wireless communication equipment assembly facility in Texas.

Pro forma results of operations have not been presented for these transactions because the effects of the acquisitions were not material either on an individual or aggregate basis.

The following table sets forth, for the three months and nine months ended June 28, 2003 and June 29, 2002, certain items as a percentage of net sales. The consolidated financial statements include the operating results of SCI from December 3, 2001, the close of the accounting period nearest to the acquisition date of December 6, 2001. The net revenues for this three-day period between December 3 and December 6 were $91 million. The table and the discussion below should be read in connection with the condensed consolidated financial statements and the notes thereto, which appear elsewhere in this report.

Net sales for the third quarter of fiscal 2003 increased by 1.2% to $2.65 billion from $2.62 billion in the corresponding quarter of the prior year. For the nine months ended June 28, 2003, net sales increased by 23.9% to $7.6 billion from $6.2 billion in the nine months ended June 29, 2002. The increase in sales for the third quarter was primarily the result of increased sales to major customers resulting from purchase business combinations. In particular, the third quarter was the first full quarter of sales to IBM under the recently completed acquisition of IBM’s server manufacturing operations. As a result of sales attributable to this

transaction as well as the January 2002 acquisition of IBM’s NetVista desktop personal computer manufacturing operations, sales to IBM increased as a percentage of our consolidated net sales in the first three quarters of fiscal 2003 as compared to the corresponding period in fiscal 2002. The increase in sales for the nine months ended June 28, 2003 as compared to the corresponding period of the prior year was due to the inclusion of a full three quarters of sales resulting from the acquisition of SCI Systems, which was completed in December 2001, in the 2003 period as well as from sales resulting from other purchase business combinations. Also contributing to increased sales during the three- and nine-month periods of 2003 were sales to new customers under new manufacturing programs. The increases in net sales resulting from purchase business combinations and new customers and programs were offset in part by the impact of the continuing downturn in economic conditions worldwide, in the electronics industry in general and in the communications sector in particular during both the three and nine month periods of 2003. This downturn has had a significant impact on our customers and their end markets. These economic conditions have led to reduced demand for services provided by Sanmina-SCI and other EMS companies.

The following summarizes financial information by geographic segment (in thousands):

Domestic sales for the third quarter of fiscal 2003 decreased by 40.6% to $694.7 million from $1.2 billion and international sales increased by 34.9% to $2.0 billion from $1.4 billion in the corresponding quarter of the prior year. The shift in net sales from domestic to international operations in the third quarter of fiscal 2003 as compared to the third quarter of fiscal 2002 is primarily due to increases in international sales as a result of purchase business combinations as described above, the movement of manufacturing operations to lower cost regions and the general decline in the domestic electronics market. The increase in international net sales for the nine months ended June 28, 2003 over the same period in fiscal 2002 was primarily the result of the SCI merger in December 2001 and other purchase business combinations, with further increases in international net sales and decreases in domestic net sales as a result of the factors discussed above.

The following unaudited pro forma financial information presents the combined results of operations of Sanmina-SCI and SCI as if the merger had occurred as of the beginning of fiscal 2002, after giving effect to certain adjustments and related income tax effects.

The pro forma financial information above includes infrequent charges of $163.8 million related to restructuring and $29.8 million in merger costs incurred by SCI during the first quarter of 2002 prior to its merger with Sanmina-SCI.

Gross profit increased from 4.2% in the third quarter of fiscal 2002 to 4.5% in the third quarter of fiscal 2003 and increased from 4.3% for the nine months ended June 29, 2002 to 4.4% for the nine months ended June 28, 2003. We expect gross margins to continue to fluctuate based on overall production and shipment volumes as well as changes in the mix of products ordered by and shipped to major customers. The variations in gross profit for the three and nine months ended June 28, 2003 as compared to the three and nine months ended June 29, 2002 were primarily attributable to the positive effects of cost reductions and changes in product and customer mix. Fluctuations in our gross margins may be caused by a number of factors. Increased competition in the EMS industry may require us to reduce prices for our services. Changes in the types of products required by our customers could affect our overall gross margins depending on the mix of high or low margin products demanded by them, and whether we are providing our customers with our vertically integrated key system components and subassemblies. We have experienced fluctuations in our gross margins in the past and may continue to in the future.

The pricing of manufacturing services in OEM divestiture transactions may be less favorable to us than in typical contractual relationships because of the long-term nature of these supply arrangements or an OEM’s desire to reduce manufacturing costs. Changes in customer demand and sales volumes could also result in fluctuations in gross margin. Gross margin may be impacted by charges or write offs of excess and obsolete inventory and other manufacturing related assets. Our practice is to dispose of excess and obsolete inventory written off as soon as practicable after such inventory has been identified as having no value. No significant sales of such inventory have occurred to date. These write offs could relate to:


	•	declines in the market value of inventory,

	•	raw materials held for specific customers who are experiencing financial difficulty, and

	•	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.

Current economic conditions in the electronics industry are resulting in continued downward pressure on pricing of electronics components and electronics manufacturing services as OEMs are continually seeking to reduce their costs. In addition, due to slowing growth in the electronics industry, EMS companies are in many cases competing more aggressively on price to obtain new or maintain existing business. These conditions are likely to continue to impact our gross margins.

We procure inventory based on specific customer orders and forecasts. Customers have limited rights of modification with respect to these orders. Correspondingly, customer modifications to orders affecting inventory previously procured by us (for example, cancellations or rescheduling of orders, as well as inventory that is highly customized and therefore not available for use by other customers) and our purchases of inventory beyond customer needs may result in excess and obsolete inventory for the related customers. Although we may be able to use some excess components and raw materials in our inventory for other products we manufacture, a portion of the cost of this excess inventory may not be returned to the vendors or recovered from customers. We also may not be able to recover the cost of obsolete inventory from vendors or customers. Due to increased competition, changes in product and customer mix, and product pricing terms negotiated as part of OEM divestiture transactions, we may continue to experience fluctuations in gross margins.

Selling, general and administrative expenses increased from $78.6 million in the third quarter of fiscal 2002 to $81.3 million in the third quarter of fiscal 2003. Selling, general and administrative expenses remained flat as a percentage of sales, at 3.0% of net sales in the third quarter of fiscal 2002 and 2003. For the nine months ended June 28, 2003, selling, general, and administrative expenses increased in absolute dollars to $241.9 million from $209.2 million for the nine months ended June 29, 2002; however, as a percentage of

sales, selling, general and administrative expenses decreased to 3.2% from 3.4% for the respective periods. The decrease in selling, general and administrative expense as a percentage of sales for the nine month periods was primarily due to our focus on controlling costs and our ability to cost effectively scale our operations to market conditions, as well as having a higher sales base. During the third quarter of fiscal 2003, we recorded selling, general and administrative expenses of $1.7 million relating to the reaudit of our 2001 and 2000 fiscal years, which did not occur in the comparable period of fiscal 2002 and is not expected to recur. The reaudit was necessary in order for us to meet the requirement to provide audited historical consolidating guarantor financial information for these periods in connection with the exchange of our privately placed notes for registered notes pursuant to our recently completed exchange offer. The reaudit was necessary because our auditors during those years, Arthur Andersen LLP, have ceased operations. Selling, general and administrative expenses as a percentage of sales are anticipated to remain relatively constant or decrease slightly as a percentage of net sales, depending on sales volume and our business acquisition activity. In addition, we expect to continue to achieve operating synergies as a result of the integration of acquired businesses and Sanmina-SCI’s continued focus on controlling operating expenses.

October 2001 Restructuring. In October 2001, we approved a plan pursuant to EITF 94-3 to close and consolidate certain of our manufacturing facilities throughout North America and Europe as a result of the continued slowdown in the industry and economy worldwide. In fiscal 2002, we recorded net charges to operations of $23.6 million for the expected involuntary termination of 2,762 employees associated with these plant closures, and utilized charges of approximately $17.7 million. We also incurred net charges to operations of $32.3 million in fiscal 2002 for the shutdown of facilities associated with non-cancelable lease payments for permanently vacated properties, and we utilized approximately $25.7 million of these charges in fiscal 2002. We also incurred charges to operations of $54.0 million in fiscal 2002 related to the write-offs of fixed assets consisting of excess equipment and leasehold improvements to facilities that were permanently vacated, all of which were utilized in fiscal 2002. In the first three quarters of fiscal 2003, we recorded charges to operations of $9.9 million for employee severance costs related to the expected involuntary termination of 2,460 employees, and $13.4 million for non-cancelable lease payments and other costs related to the shutdown of facilities. We utilized accrued severance charges of $5.4 million and accrued facilities shutdown related charges of $15.5 million during the first three quarters of fiscal 2003. During the third quarter of fiscal 2003 we reversed accrued severance charges of $3.6 million and accrued lease cancellation charges of $700,000 due to lower than estimated settlement costs at two European sites. We also incurred charges of $4.5 million during the first three quarters of fiscal 2003 related to write-offs of fixed assets consisting of excess equipment and leasehold improvements to facilities that were permanently vacated. As of June 28, 2003, 4,810 employees have been terminated under this exit plan. We expect the closing of the plants discussed above as well as employee terminations and other related activities to be substantially completed by the end of fiscal 2003, although final payments of certain accrued costs may not occur until later periods.

The following sections separately present the charges to the restructuring liability and charges utilized that are set forth in the above table on an aggregate basis.

As part of the acquisition of SCI, we also recorded charges to the restructuring liability of $96.8 million during fiscal 2002 consisting of planned involuntary employee termination costs for 7,143 employees. We utilized $58.7 million in charges with respect to the termination of 6,446 employees during fiscal 2002. During fiscal 2002 we also incurred net charges to the restructuring liability of $33.8 million for restructuring costs related to lease payments for permanently vacated properties and other costs, and utilized approximately $12.1 million of these charges. We incurred charges to restructuring liability of $23.7 million of asset related write-offs consisting of excess equipment and leasehold improvements to facilities that were permanently vacated, of which $19.6 million were utilized in fiscal 2002. In the first three quarters of fiscal 2003, we recorded restructuring charges of $22.8 million for severance costs related to the involuntary termination of 777 employees, and utilized $26.2 million for 1,877 employee terminations. In the first quarter of fiscal 2003,

we reversed a total of $24.0 million of accrued severance costs, approximately $18.4 million of which was due to lower than anticipated settlement costs at a major European manufacturing site, and approximately $5.6 million of which related to two plants that were not closed as initially planned due to a change in business requirements. As of June 28, 2003, 8,323 employees had been terminated under this exit plan. In the first three quarters of fiscal 2003, we also recorded restructuring charges of $7.2 million for lease payments for permanently vacated properties and other costs, and we utilized approximately $12.4 million of these charges during the period. We also reversed $1.0 million of accrued facilities shutdown costs due to lower than estimated costs at various sites. During the quarter ended March 29, 2003, we also recorded costs of $1.2 million for the impairment of excess equipment at closed plants. We expect the closing and consolidation of the plants discussed above as well as involuntary employee terminations to be substantially completed by the end of fiscal 2003, although final payments of certain accrued costs may not occur until later periods.

We continue to rationalize manufacturing facilities and headcount to better scale capacity to current market and operating conditions. In connection therewith, we will incur additional restructuring charges in the fourth quarter of fiscal year 2003 and in fiscal 2004 pursuant to our phase two restructuring plan which was approved by management in the fourth quarter of fiscal 2002. We expect to incur up to approximately $250.0 million of restructuring costs pursuant to this plan, of which approximately $50.0 million was incurred in the fourth quarter of fiscal 2002 and approximately $69.8 million was incurred in the first three quarters of fiscal 2003, as more fully described in the preceding paragraphs. The costs will consist of both cash and non-cash charges. As a result of our phase two restructuring plan, we expect to achieve reductions in non-cash and cash costs, including depreciation, payroll and related benefits, and rent expense. We expect our annual savings from this phase two restructuring plan to aggregate approximately $100-200 million, affecting cost of sales and selling, general and administrative expense. We began to benefit from such savings in the fourth quarter of fiscal 2002 and expect to fully realize the estimated annual savings before the end of fiscal 2004. We plan to fund cash restructuring costs with cash flows generated by operating activities.

Operating expenses increased from $91.5 million in the third quarter of fiscal 2002 to $101.6 million in the third quarter of 2003. As a percentage of sales, operating expenses increased from 3.5% to 3.8% in the third quarter of 2002 compared to the third quarter of fiscal 2003. For the nine month period, operating expenses in absolute dollars increased from $339.4 million in fiscal 2002 to $345.8 million in fiscal 2003 and operating expenses as a percentage of sales decreased from 5.5% in fiscal 2002 to 4.6% in fiscal 2003. The increase in operating expenses for the third quarter of fiscal 2003 as compared to the third quarter in fiscal 2002 was mainly attributable to higher restructuring costs of $16.8 million in the third quarter of 2003 as compared to $11.6 million in the third quarter of 2002, $1.9 million of integration costs in the third quarter of fiscal 2003 that did not occur in the third quarter of 2002, and incremental selling, general and administrative expenses as discussed above. The decrease in operating expenses as a percentage of sales for the nine month period in fiscal 2003 as compared to the nine month period in fiscal 2002 was mainly attributable to having a larger base of net sales and lower restructuring costs of $90.8 million as compared to $126.2 million in 2002.

For the third quarter of fiscal 2003, Sanmina-SCI reported net other expense of $36.2 million compared to net other expense of $24.8 million for the corresponding quarter of last year. For the nine months ended June 28, 2003, Sanmina-SCI reported net other expense of $64.4 million compared to net other expense of $56.0 million for the nine months ended June 29, 2002. The components of net other income or expense are primarily interest income on cash balances and short-term investments, interest expense on borrowings and convertible subordinated notes, and gains from repurchases of convertible debt (see discussion below). For the third quarter of fiscal 2003, the increase in net other expense was largely due to increased interest expense as a result of the Refinancing (see discussion below). In the nine months ended June 28, 2003, net other expense increased by $8.4 million as compared to the same period in the prior year primarily due to decreased interest

Sanmina-SCI’s benefit for income taxes for the three and nine months ended June 28, 2003 is based upon Sanmina-SCI’s estimate of the effective tax rate for fiscal 2003 of 33.0%. For the three and nine months ended June 29, 2002, the effective tax rate was 28.1% and 31.5%, respectively. The increase in the effective benefit rate in fiscal 2003 is due primarily to an increased tax benefit for U. S. export sales and the tax benefit of certain losses and restructuring costs incurred by non-U.S. operations.

Cash, cash equivalents, and short-term investments as of June 28, 2003 and September 28, 2002 were $1.6 billion and $1.2 billion, respectively. For the nine months ending June 28, 2003, cash provided by operations was $461.9 million, which was primarily due to decreases in inventory and income tax accounts and increases in accounts payable and accrued liabilities, offset by increases in accounts receivable. Working capital increased to $2.6 billion as of June 28, 2003 compared to $2.1 billion at September 28, 2002. This increase in working capital was primarily due to increased cash and cash equivalents balances as a result of the Refinancing (see discussion below) in late December 2002 and increases in accounts receivable due to a higher concentration of sales at the end of the June quarter.

Net cash used for investing activities of $230.2 million for the nine months ended June 28, 2003, primarily related to net cash paid for business acquisitions of $214.5 million and purchases of property, plant, and equipment of $46.7 million, offset by net proceeds from short-term investing activities of $14.9 million and $16.7 million in net proceeds from the sale of property and equipment. Net cash provided by investing activities of $285.4 million for the nine months ended June 29, 2002 primarily related to $627.1 million in net proceeds from maturities of short-term investments, which was offset by cash paid for business acquisitions net of cash acquired of $265.9 million and purchases of property, plant, and equipment of $80.9 million.

Net cash provided by financing activities of $189.3 million for the nine months ended June 28, 2003, was related to proceeds received from long-term debt of $1.0 billion and proceeds from the sale of common stock from the exercise of stock options and the employee stock purchase plan of $10.3 million, offset by payments of notes and credit facilities of $607.4 million, payments of long-term debt of $40.3 million and repurchases of convertible notes of $176.1 million. For the nine months ended June 29, 2002, net cash used for financing activities of $484.8 million included payments of long-term debt of $1.5 billion and repurchases of common stock of $95.0 million offset by proceeds received from revolving credit facilities of $1.1 billion and proceeds from the sale of common stock from the exercise of stock options and the employee stock purchase plan of $17.0 million.

On December 23, 2002, we issued $750.0 million of 10.375% Senior Secured Notes due January 15, 2010 (the “Original Notes”) in a private placement to qualified investors as part of a refinancing transaction pursuant to which Sanmina-SCI also entered into a $275.0 million senior secured credit facility (the “Credit Facility”). A portion of the net proceeds of the Original Notes and Credit Facility was used to repay all outstanding amounts under our three-year revolving credit facility and to repurchase all outstanding receivables sold under our receivables securitization facility. These transactions are referred to collectively as the Refinancing. In July 2003, we completed an exchange offer pursuant to which substantially all of the Original Notes were exchanged for notes registered under the Securities Act of 1933, or the 10.375% Notes. The 10.375% Notes evidence the same debt as the Original Notes and are issued under and entitled to the benefits of the same indenture that governs the Original Notes except that they are not subject to transfer restrictions.

Sanmina-SCI and its United States subsidiaries located in the United States, a pledge of the capital stock of substantially all of Sanmina-SCI’s United States subsidiaries, a pledge of 65% of the capital stock of certain of Sanmina-SCI’s first-tier foreign subsidiaries, and mortgages on certain domestic real estate. Sanmina-SCI may redeem the 10.375% Notes, in whole or in part, at anytime beginning on January 15, 2007 at a redemption price initially of 105.188%, declining to 102.594% on January 15, 2008 and 100.000% on January 15, 2009. Sanmina-SCI may also redeem the 10.375% Notes, in whole or in part, at any time prior to January 15, 2007 at a redemption price equal to the principal amount plus accrued interest to the redemption date plus a make-whole premium specified in the indenture. In the event of a change of control of Sanmina-SCI, Sanmina-SCI will be required to offer to repurchase the 10.375% Notes at a repurchase price of 101% of the principal amount plus accrued interest to the repurchase date. The indenture includes covenants that, among other things, limit in certain respects Sanmina-SCI and its restricted subsidiaries from incurring debt, making investments and other restricted payments, paying dividends on capital stock, redeeming capital stock or subordinated obligations and creating liens. In the event that Sanmina-SCI obtains the investment grade rating specified in the indenture and certain other conditions are met, the collateral securing the 10.375% Notes will be permanently released, and Sanmina-SCI will no longer be required to comply with certain of the indenture covenants specified above for as long as Sanmina-SCI retains the investment grade rating specified in the indenture.

We entered into an interest rate swap to hedge our mix of short-term and long-term interest rate exposures resulting from certain of our outstanding debt obligations. During the first quarter of fiscal 2003, we entered into an interest rate swap transaction related to the 10.375% Notes due 2010 pursuant to which we pay a variable rate and receive a fixed rate. The interest rate swap has a total notional amount of $525.0 million. Under the swap agreement, as of June 28, 2003, we pay an interest rate equal to the six-month LIBOR rate plus 6.125%, determined semi-annually in arrears. In exchange, we receive a fixed interest rate of 10.375%. The swap agreement effectively replaces the fixed interest rate that we pay on $525.0 million of our 10.375% Notes with a variable interest rate. The swap was designated as fair value hedge under SFAS No. 133. Management believes that the interest rate swap meets the criteria established by SFAS No. 133 for short cut accounting; therefore, there is no ineffectiveness of the interest rate swap.

In December 2001, we entered into two separate facilities consisting of a $250.0 million 364-day credit facility and a $500.0 million three-year credit facility with a syndicate of banks. As of September 28, 2002, $400.0 million was outstanding under these credit facilities. The 364-day credit facility terminated in accordance with its terms on December 4, 2002. The balance outstanding under the three-year credit facility was repaid and the facility was terminated in December 2002 in connection with the Refinancing.

We were a party to an asset securitization agreement that gave us the option to periodically transfer undivided percentage ownership interests, of up to $200.0 million, in a revolving pool of eligible trade receivables to conduit and bank purchasers. The net accounts receivables sold under the program at September 28, 2002 were included in the accounts receivable balance and the associated debt was recorded as

During the nine months ended June 28, 2003, we repurchased, through unsolicited privately negotiated transactions, $50.0 million aggregate principal amount of our 3% Convertible Subordinated Notes due 2007 of SCI Systems, Inc., one of our wholly-owned subsidiaries, $27.5 million aggregate principal amount of our 4 1/4% Convertible Subordinated Notes due 2004, and $210.6 million aggregate principal amount at maturity (having an accreted value of $104.4 million) of our Zero Coupon Convertible Subordinated Debentures due 2020, resulting in a net gain of $25.7 million, which is reflected as other income in the accompanying statement of operations.

On July 8, 2003, Sanmina-SCI called for redemption on August 7, 2003, all of its 4 1/4% Convertible Subordinated Notes due 2004, or the 4 1/4% Notes. The aggregate principal amount outstanding of the 4 1/4% Notes at June 28, 2003 was $263.6 million. Prior to August 7, 2003, holders may convert their 4 1/4% Notes into shares of Sanmina-SCI common stock at a price of $22.167 per share, and 4 1/4% Notes not converted will be redeemed on August 7, 2003 at a price of $1,008.50 per $1000 principal amount of 4 1/4% notes plus accrued and unpaid interest to August 7, 2003. The redemption of the 4 1/4% Notes is expected to result in an insignificant loss, consisting of the redemption premium and the accelerated write-off of unamortized deferred financing costs, to be included in other expense in the fourth quarter of fiscal 2003. We plan to fund the redemption of the 4 1/4% Notes with existing cash and cash equivalents balances.

The aggregate principal amount of outstanding long-term debt maturing during each of our next five fiscal years and thereafter, including capital lease obligations, is as follows as of June 28, 2003:


(1)	Includes $263.6 aggregate principal amount of 4 1/4% Notes to be redeemed on August 7, 2003.

In fiscal 2005, we will be required to repurchase up to $631.5 million accreted value of Zero Coupon Subordinated Debentures due 2020 if submitted for repurchase by the holders of these debentures at their option on the repurchase date of September 12, 2005.

We lease facilities under operating leases expiring at various dates through 2021. We are responsible for utilities, maintenance, insurance and property taxes under the leases. Future minimum lease payments required to be made during each of our next five fiscal years and thereafter under operating leases are as follows:

Our future needs for financial resources include increases in working capital to support anticipated sales growth, investments in manufacturing facilities and equipment, and repayments of outstanding indebtedness. We expect fiscal 2003 purchases of property, plant and equipment to decline slightly from those in fiscal 2002. We have evaluated and will continue to evaluate possible business acquisitions within the parameters of the restrictions set forth in the agreements governing certain of our debt obligations. These possible business acquisitions could require substantial cash payments. Additionally, we anticipate incurring additional expenditures in connection with the integration of our recently acquired businesses and our restructuring activities.

We believe that our existing cash resources, together with cash generated from operations, will be sufficient to meet our working capital requirements through at least the next 12 months. Should demand for our products increase or decrease over the next 12 months the available cash provided by operations could be negatively impacted. We may also seek to raise additional capital through the issuance of either debt or equity securities. In addition to existing collateral and covenant requirements, future debt financing may further require us to pledge assets as collateral and comply with financial ratios and covenants. Equity financing may result in dilution to stockholders.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement revises the rules as to how companies account for exit and disposal activities under EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity.” Commitment to a plan to exit an activity or dispose of long-lived assets is no longer sufficient to record a charge for most anticipated costs. Instead, companies record exit or disposal costs when they are “incurred” and can be measured at fair value, and subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Earlier adoption is encouraged. Companies may not restate previously issued financial statements for the effect of the provisions of SFAS No. 146 and liabilities that a company previously recorded under EITF 94-3 are grandfathered. We do not expect SFAS No. 146 to have a significant impact on our financial position, results of operations and cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We are required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in its annual financial statements for the year ending September 27, 2003 and must also provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the current quarterly period. The adoption of SFAS No. 148 will not have an effect on our financial position or results of operations as we currently do not intend to adopt the fair value method of accounting for stock-based employee compensation pursuant to SFAS No. 148.

As a result of the downturn in the electronics industry, in general, and the communications sector in particular, demand for our manufacturing services has declined significantly. The decrease in demand for manufacturing services by OEMs has resulted primarily from reduced capital spending by communications service providers. Until the recent downturn in the communications sector, we had depended on OEMs in this sector for a significant portion of our net sales and earnings. Consequently, our operating results have been adversely affected as a result of the deterioration in the communications market and the other markets that we serve. If capital spending in the end markets we serve continues to decline or if these markets do not improve, or improve at a slower pace than we anticipate, our revenue and profitability will continue to be adversely affected.

We cannot accurately predict future levels of demand for our customers’ electronics products. As a result of this uncertainty, we cannot accurately predict if and when the electronics industry, and in particular the communications sector, will improve. Consequently, our past operating results, earnings and cash flows may not be indicative of our future operating results, earnings and cash flows.

Before the recent economic downturn in the communications sector, sales of our services to OEMs in this sector accounted for a substantially greater portion of our net sales and earnings than in recent periods. As a result of reduced sales to OEMs in the communications sector, our gross margins have declined because the services that we provided to these OEMs often were more complex, thereby generating higher margins, than those that we provided to OEMs in other sectors of the electronics industry. For example, a greater percentage of our net sales in recent periods has been derived from sales of personal computers. Margins on personal computers are typically lower than margins that we have historically realized in communication products. OEMs are continuing to seek price decreases from us and other EMS companies and competition for this business remains intense. This price competition could adversely affect our gross margins. If demand for our higher-end, higher margin manufacturing services does not improve in the future, our gross margins and operating results in future periods may be lower than expected.

Our operating results are subject to significant uncertainties, including the following:


	•	economic conditions in the electronics industry;

	•	the timing of orders from major customers and the accuracy of their forecasts;

	•	the timing of expenditures in anticipation of increased sales, customer product delivery requirements and shortages of components or labor;

	•	the 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;

	•	the degree to which we are able to utilize our available manufacturing capacity;

	•	our ability to effectively plan production and manage our inventory and fixed assets;

	•	pricing and other competitive pressures;

	•	seasonality in customers’ product requirements;

	•	fluctuations in component prices;


	•	component shortages, which could cause us to be unable to meet customer delivery schedules; and

	•	new product development by our customers.

A significant portion of our operating expenses is relatively fixed in nature, and planned expenditures are based, in part, on anticipated orders, which are difficult to estimate because of the current downturn in the electronics industry. If we do not receive anticipated orders as expected, our operating results will be adversely impacted. Moreover, our ability to reduce our costs as a result of current or future restructuring efforts may be limited because consolidation of operations can be costly and a lengthy process to complete.

The agreements governing our existing debt contain, and those governing our future debt may contain, various covenants that limit our ability to, among other things:


	•	Incur additional debt, including guarantees by us or our restricted subsidiaries;

	•	Make investments, pay dividends on our capital stock, redeem or repurchase our capital stock or subordinate obligations, subject to certain exceptions;

	•	Create specified liens;

	•	Make capital expenditures;

	•	Sell assets;

	•	Make acquisitions;

	•	Create or permit restrictions on ability of our restricted subsidiaries to pay dividends or make other distributions to us;

	•	Engage in transactions with affiliates;

	•	Engage in sale and leaseback transactions; and

	•	Consolidate or merge with or into other companies or sell all or substantially all of our assets.

Our ability to comply with covenants contained in the agreements governing debt to which we are or may become a party may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Our new secured credit facility requires us to comply with limits on capital expenditures, a maximum senior leverage ratio and a maximum net interest expense ratio. Additionally, the new secured credit facility contains numerous affirmative covenants, including covenants regarding payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. Further, the new senior secured credit facility contains negative covenants limiting our ability and the ability of our subsidiaries, among other things, to incur debt, grant liens, make acquisitions, make certain restricted payments, sell assets and enter into sale and leaseback transactions. Additional debt we incur in the future may subject us to further covenants.

Our failure to comply with these covenants could result in a default under the agreements governing the relevant debt. In addition, if any such default is not cured or waived, the default could result in an acceleration of debt under our other debt instruments that contain cross acceleration or cross-default provisions, which could require us to repay or repurchase debt, together with accrued interest, prior to the date it otherwise is due and that could adversely affect our financial condition. Upon a default or cross-default, holders of our secured obligations could proceed against the collateral securing the obligations. Even if we are able to comply with all the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.

We generally do not obtain firm, long-term purchase commitments from our customers. Customers may cancel their orders, reduce production quantities or delay production for a number of reasons. Many of our customers recently have experienced significant decreases in demand for their products and services. The uncertain economic conditions in several of the markets in which our customers operate have prompted some of our customers to cancel orders, delay the delivery of some of the products that we manufacture or place purchase orders for fewer products than we previously anticipated. Even when our customers are contractually obligated to purchase products from us, we may be unable or, for other business reasons, choose not to enforce our contractual rights. Cancellations, reductions or delays of orders by customers would:


	•	adversely affect our operating results by reducing the volumes of products that we manufacture for our customers;

	•	delay or eliminate recoupment of our expenditures for inventory purchased in preparation for customer orders; and

	•	lower our asset utilization, which would result in lower gross margins.

In addition, customers may require that we transfer the manufacture of their products from one facility to another to achieve cost reductions and other objectives. These transfers may result in increased costs to us due to resulting facility downtime or less than optimal utilization of our manufacturing capacity.

Sales to our 10 largest customers accounted for 67.7% of our net sales in the nine-month period ended June 28, 2003 and our two largest customers, IBM and HP, each accounted for 10% or more of our net sales for that period. We depend upon the continued growth, viability and financial stability of our customers, substantially all of which operate in an environment characterized by rapid technological change, short product life cycles, consolidation, and pricing and margin pressures. We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenue. Consolidation among our customers may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a small number of customers. In addition, a significant reduction in sales to any of our large customers or significant pricing and margin pressures exerted by a key customer, would adversely affect our operating results. In the past, some of our large customers have significantly reduced or delayed the volume of manufacturing services ordered from us. We cannot assure you that present or future large customers will not terminate their manufacturing arrangements with us or significantly change, reduce or delay the amount of manufacturing services ordered from us, any of which would adversely affect our operating results.

In recent periods, we have announced two major restructuring plans as a result of the slowdown in the global electronics industry and the worldwide economy, as well as in connection with a number of our acquisitions. Prior to the end of fiscal 2002, we announced a phase one restructuring plan that contemplated aggregate cash and non-cash restructuring costs totaling approximately $730.0 million. Activities pursuant to our phase one restructuring plan are essentially complete. In October 2002, we announced a phase two restructuring plan, which was approved by management in the fourth quarter of fiscal 2002, of up to $250.0 million of both cash and non-cash restructuring charges as a result of the continued slowdown in the EMS industry. We expect to incur up to approximately $130.0 million of restructuring costs pursuant to this phase two restructuring plan in future periods. We cannot be certain as to the actual amount of these restructuring charges or the timing of their recognition for financial reporting purposes. We may need to take

additional restructuring charges in the future if our business does not improve or declines or if the expected benefits of recently completed and currently planned restructuring activities do not materialize. These benefits may not materialize if we incur unanticipated costs in closing facilities or transitioning operations from closed facilities to other facilities or if customers cancel orders as a result of facility closures. If we are unsuccessful in implementing our restructuring plans, we may experience disruptions in our operations and higher ongoing costs, which may adversely affect our operating results.

To continue to expand our business, we expect to pursue opportunities to acquire operations being divested by OEMs. We expect that competition for these divestiture transactions among EMS companies will be intense because these transactions typically enable the acquirer to enter into significant long-term supply arrangements with the divesting OEM. The pricing of manufacturing services in OEM divestiture transactions may be less favorable to us than in typical contractual relationships because of the long-term nature of these supply arrangements or an OEM’s desire to reduce manufacturing costs. In addition, because these transactions often involve existing customers, they can present difficult managerial and organizational challenges, particularly with respect to excess inventory, excess capacity and other aspects of our customer relationships. If we enter into new OEM asset divestiture transactions, our gross and operating margins may be reduced as a result of both the pricing structure as well as costs associated with excess inventory and capacity. Our future operating results could be adversely affected if we do not obtain a significant portion of the divestiture transactions that we pursue.

The EMS industry is highly competitive. We compete on a worldwide basis to provide electronics manufacturing services to OEMs in the communications, high-end computing, personal computing, aerospace and defense, medical, industrial controls and multimedia sectors. Our competitors include major global EMS providers such as Celestica, Inc., Flextronics International Ltd., Jabil Circuit, Inc., and Solectron Corporation, as well as smaller EMS companies that often have a regional or product, service or industry specific focus. Some of these companies have greater manufacturing and financial resources than we do. We also face competition from current and potential OEM customers, who may elect to manufacture their own products internally rather than outsource the manufacturing to EMS providers.

In addition to EMS companies, we also compete, with respect to certain of the EMS services we provide, with original design manufacturers, or ODMs. These companies, typically based in Asia, design products and product platforms that are then sold to OEMs, system integrators and others who configure and resell them to end users. To date, ODM penetration has been greatest in the personal computer, including both desktop and notebook computers, and server markets.

We expect competition to intensify further as more companies enter markets in which we operate and the OEMs we serve continue to consolidate. To remain competitive, we must continue to provide technologically advanced manufacturing services, high quality service, flexible and reliable delivery schedules, and competitive prices. Our failure to compete effectively could adversely affect our business and results of operations.

In the current economic climate, consolidation in the electronics industry may increase as companies combine to achieve further economies of scale and other synergies. Consolidation in the electronics industry could result in an increase in excess manufacturing capacity as companies seek to divest manufacturing operations or eliminate duplicative product lines. Excess manufacturing capacity has increased, and may continue to increase, pricing and competitive pressures for the EMS industry as a whole and for us in particular. Consolidation could also result in an increasing number of very large electronics companies offering products in multiple sectors of the electronics industry. The significant purchasing power and market power of

these large companies could increase pricing and competitive pressures for us. If one of our customers is acquired by another company that does not rely on us to provide services and has its own production facilities or relies on another provider of similar services, we may lose that customer’s business. Any of the foregoing results of industry consolidation could adversely affect our business.

We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances and wastes in the ordinary course of our manufacturing operations. We also are subject to laws and regulations governing the recyclability of products, the materials that may be included in products, and the obligations of a manufacturer to dispose of these products after end users are done using them. If we violate environmental laws, we may be held liable for damages and the costs of remedial actions and may be subject to revocation of permits necessary to conduct our businesses. We cannot assure you that we will not violate environmental laws and regulations in the future as a result of our inability to obtain permits, human error, equipment failure or other causes. Any permit revocations could require us to cease or limit production at one or more of our facilities, which could adversely affect our business, financial condition and operating results. Although we estimate our potential liability with respect to violations or alleged violations and reserve for such liability, we cannot assure you that any reserves will be sufficient to cover the actual costs that we incur as a result of these violations or alleged violations. Our failure to comply with applicable environmental laws and regulations could limit our ability to expand facilities or could require us to acquire costly equipment or to incur other significant expenses to comply with these laws and regulations.

Over the years, environmental laws have become, and in the future may become, more stringent, imposing greater compliance costs and increasing risks and penalties associated with violations. We operate in several environmentally sensitive locations and are subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes in or restrictions on discharge limits, emissions levels, permitting requirements and material storage or handling could require a higher than anticipated level of operating expenses and capital investment or, depending on the severity of the impact of the foregoing factors, costly plant relocation.

We are potentially liable for contamination at our current and former facilities, including those of the companies we have acquired. These liabilities include ongoing investigation and remediation activities at a number of sites, including our facilities located in Irvine, California, (acquired as part of our acquisition of Elexsys), Owego, New York (a current facility of our Hadco subsidiary), Derry, New Hampshire (a current facility of our Hadco subsidiary), and Fort Lauderdale, Florida (a former facility of our Hadco subsidiary). Currently, we are unable to anticipate whether any third-party claims will be brought against us for the existence of such contamination. There can be no assurance that third-party claims will not arise and will not result in material liability to us. In addition, there are several sites, including our facilities in Wilmington, Massachusetts, Clinton, North Carolina, Brockville, Ontario, and Gunzenhausen, Germany that are known to have groundwater contamination caused by a third party, and that third party has provided indemnity to us for the liability. Although we cannot guarantee you that we will not incur liability for clean-up costs or expenses at any of these sites, we have no reason to believe that such liability will occur and that it will be material to our business and operating results in the future.

Our success depends upon the continued service of our executive officers and other key personnel. Generally, these employees are not bound by employment or non-competition agreements. We cannot assure you that we will retain our officers and key employees, particularly our highly skilled design, process and test engineers involved in the manufacture of existing products and development of new products and processes.

The competition for these employees is intense. In addition, if Jure Sola, co-chairman and chief executive officer, Randy Furr, president and chief operating officer, or one or more of our other executive officers or key employees, were to join a competitor or otherwise compete directly or indirectly with us or otherwise be unavailable to us, our business, operating results and financial condition could be adversely affected.

We conduct our international operations in Asia, Latin America, Canada and Europe and we continue to consider additional opportunities to make foreign acquisitions and construct new foreign facilities. We generated 67.7% of our net sales from non-U.S. operations during the first three quarters of fiscal 2003, and a significant portion of our manufacturing material was provided by international suppliers during this period. During the first three quarters of fiscal 2002, we generated 55.6% of our net sales from non-U.S. operations. As a result of our international operations, we are affected by economic and political conditions in foreign countries, including:


	•	the imposition of government controls;

	•	export license requirements;

	•	political and economic instability;

	•	trade restrictions;

	•	changes in tariffs;

	•	labor unrest and difficulties in staffing;

	•	coordinating communications among and managing international operations;

	•	fluctuations in currency exchange rates;

	•	increases in duty rates;

	•	earnings expatriation restrictions;

	•	difficulties in obtaining export licenses;

	•	misappropriation of intellectual property; and

	•	constraints on our ability to maintain or increase prices.

To respond to competitive pressures and customer requirements, we may further expand internationally in lower cost locations, particularly in Asia, Eastern Europe and Latin America. If we pursue expansion in these locations, we may incur additional capital expenditures. We cannot assure you that we will realize the anticipated strategic benefits of our international operations or that our international operations will contribute positively to, and not adversely affect, our business and operating results.

In addition, the continuing threat of severe acute respiratory syndrome (“SARS”) may adversely impact our business, particularly in China and Southeast Asia. To date, SARS has not had a material adverse effect on our business. However, future spreading of SARS as well as travel and other restrictions imposed to combat SARS may adversely affect us.

For the past several years, we have pursued a strategy of growth through acquisitions. These transactions have involved acquisitions of entire companies and acquisitions of selected assets from electronics industry OEMs. These assets typically consist primarily of equipment, inventory and, in certain cases, facilities or


	•	integrating acquired operations and businesses;

	•	allocating management resources;

	•	scaling up production and coordinating management of operations at new sites;

	•	managing and integrating operations in geographically dispersed locations;

	•	maintaining customer, supplier or other favorable business relationships of acquired operations and restructuring or terminating unfavorable relationships;

	•	integrating the acquired company’s systems into our management information systems;

	•	addressing unforeseen liabilities of acquired businesses;

	•	lack of experience operating in the geographic market or industry sector of the business acquired;

	•	improving and expanding our management information systems to accommodate expanded operations; and

	•	losing key employees of acquired operations.

Any of these factors could prevent us from realizing the anticipated benefits of the acquisition or expansion, including operational synergies, economies of scale and increases in the value of our business. Our failure to realize the anticipated benefits of acquisitions or expansions could adversely affect our business and operating results.

Future acquisitions may also result in dilutive issuances of equity securities, the incurrence of additional debt, restructuring charges relating to consolidation of operations and the creation of goodwill and other intangible assets that could result in amortization expense or impairment charges, any of which could adversely affect our operating results.

We rely on a combination of copyright, patent, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology. Our inability to protect our intellectual property rights could diminish or eliminate the competitive advantages that we derive from our proprietary technology.

We may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringe on their intellectual property. These claims and any resulting lawsuit could subject us to significant liability for damages and invalidate our proprietary rights. In addition, these lawsuits, regardless of their merits, likely would be time consuming and expensive to resolve and would divert management’s time and attention. Any potential intellectual property litigation alleging our infringement of a third-party’s intellectual property also could force us or our customers to:


	•	stop producing products that use the challenged intellectual property;

	•	obtain from the owner of the infringed intellectual property a license to sell the relevant technology at an additional cost, which license may not be available on reasonable terms, or at all; and

	•	redesign those products or services that use the infringed technology.

Our customers are primarily OEMs in the communications, high-end computing, personal computing, aerospace and defense, medical, industrial controls and multimedia sectors. These industry sectors, and the electronics industry as a whole, are subject to rapid technological change and product obsolescence. If our

customers are unable to develop products that keep pace with the changing technological environment, our customers’ products could become obsolete, and the demand for our services could decline significantly. In addition, our customers may discontinue or modify products containing components that we manufacture, or develop products requiring new manufacturing processes. If we are unable to offer technologically advanced, easily adaptable and cost effective manufacturing services in response to changing customer requirements, demand for our services will decline. If our customers terminate their purchase orders with us or do not select us to manufacture their new products, our operating results could be adversely affected.

In the past from time to time, a number of components purchased by us and incorporated into assemblies and subassemblies produced by us have been subject to shortages. These components include application-specific integrated circuits, capacitors and connectors. Unanticipated component shortages have prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause us to experience a shortfall in revenue, increase our costs and adversely affect our relationship with the affected customer and our reputation generally as a reliable service provider. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. As a result, component shortages could adversely affect our operating results for a particular period due to the resulting revenue shortfall and increased manufacturing or component costs.

We manufacture products to our customers’ specifications, and, in some cases, our manufacturing processes and facilities may need to comply with applicable statutory and regulatory requirements. For example, medical devices that we manufacture, as well as the facilities and manufacturing processes that we use to produce them, are regulated by the Food and Drug Administration. In addition, our customers’ products and the manufacturing processes that we use to produce them often are highly complex. As a result, products that we manufacture may at times contain design or manufacturing defects, and our manufacturing processes may be subject to errors or not in compliance with applicable statutory and regulatory requirements. Defects in the products we manufacture, whether caused by a design, manufacturing or component failure or error, or deficiencies in our manufacturing processes, may result in delayed shipments to customers or reduced or cancelled customer orders. If these defects or deficiencies are significant, our business reputation may also be damaged. The failure of the products that we manufacture or our manufacturing processes and facilities to comply with applicable statutory and regulatory requirements may subject us to legal fines or penalties and, in some cases, require us to shut down or incur considerable expense to correct a manufacturing program or facility. In addition, these defects may result in liability claims against us. The magnitude of such claims may increase as we expand our medical, automotive, and aerospace and defense manufacturing services because defects in medical devices, automotive components, and aerospace and defense systems could seriously harm users of these products. Even if our customers are responsible for the defects, they may not, or may not have the resources to, assume responsibility for any costs or liabilities arising from these defects.

Our exposures to market risk for changes in interest rates relate primarily to Sanmina-SCI’s investment portfolio and certain debt obligations. Currently, we do not use derivative financial instruments in our investment portfolio. Sanmina-SCI invests in high credit quality issuers and, by policy, limits the amount of principal exposure to any one issuer. As stated in our policy, we seek to ensure the safety and preservation of our invested principal funds by limiting default and market risk.

We seek to mitigate default risk by investing in high-credit quality securities and by positioning our investment portfolio to respond to a significant reduction in a credit rating of any investment issuer, guarantor or depository. We seek to mitigate market risk by limiting the principal and investment term of funds held with any one issuer and by investing funds in marketable securities with active secondary or resale markets.

The table below presents carrying amounts and related average interest rates by year of maturity for our investment portfolio as of June 28, 2003 (dollars in thousands):

We also have exposure to interest rate risk with certain variable rate debt obligations. Refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources for a discussion of our interest rate swap arrangement that effectively converts $525.0 million of our fixed rate debt obligations to a variable interest rate. We also have an amortizing $275.0 million credit facility maturing in 2007 that bears interest at a reserve adjusted eurodollar rate plus 4.0% (the reserve adjusted eurodollar rate was 1.11% at June 28, 2003).

Sanmina-SCI transacts business in foreign countries. Sanmina-SCI’s primary foreign currency cash flows are in certain Asian and European countries, Australia, Brazil, Canada, and Mexico. Sanmina-SCI enters into short-term foreign currency forward contracts to hedge only those currency exposures associated with certain assets and liabilities denominated in foreign currencies. At June 28, 2003, Sanmina-SCI had forward contracts to exchange various foreign currencies for U.S. dollars in the aggregate notional amount of $443.2 million. The net unrealized loss on the contracts at June 28, 2003 is not material and is recorded in accrued liabilities on the balance sheet. Market value gains and losses on forward exchange contracts are recognized in the Consolidated Statement of Operations as offsets to the exchange gains and losses on the hedged transactions. The impact of these foreign exchange contracts was not material to the results of operations for the three and nine months ended June 28, 2003 and June 29, 2002.

Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We and certain of our subsidiaries, namely Hadco Corporation and SCI Systems, Inc., are involved in various administrative proceedings related to environmental matters. Although we could incur significant costs relating to these matters, we believe, based on the limited information that is currently available, that the cost of any remediation that may be required at these facilities would not materially harm our business, financial condition or results of operations.

On April 21, 2003, Sanmina-SCI filed a current report on Form 8-K to furnish, pursuant to Item 9, “Regulation FD Disclosure” and Item 12, “Disclosure of Results of Operations and Financial Condition,” the press release issued by Sanmina-SCI on April 21, 2003, announcing financial results for its second fiscal quarter.


(1)	Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 10-K for the fiscal year ended September 30, 1996, SEC File No. 000-21272, filed with the Securities and Exchange Commission (“SEC”) on December 24, 1996.

(2)	Incorporated by reference to Exhibit 3.1(a) to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001, filed with SEC on May 11, 2001.

(3)	Incorporated by reference to Exhibit 3.1.3 to the Registrant’s Report on Form 10-K for the fiscal year ended September 30, 2001, filed with SEC on December 21, 2001.

(4)	Incorporated by reference to Exhibit 3.1.2 to the Registrant’s Registration Statement on Form S-4, filed with SEC on August 10, 2001.

(5)	Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 10-K for the fiscal year ended September 28, 2002, filed with SEC on December 4, 2002.

(6)	Incorporated by reference to Exhibit 4.6 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 2002, filed with the SEC on February 11, 2003.

Pursuant to the Requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	By:	/s/ RICK R. ACKEL



	Rick R. Ackel
	Executive Vice President and
	Chief Financial Officer


(1)	Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 10-K for the fiscal year ended September 30, 1996, SEC File No. 000-21272, filed with the Securities and Exchange Commission (“SEC”) on December 24, 1996.

(2)	Incorporated by reference to Exhibit 3.1(a) to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001, filed with SEC on May 11, 2001.

(3)	Incorporated by reference to Exhibit 3.1.3 to the Registrant’s Report on Form 10-K for the fiscal year ended September 30, 2001, filed with SEC on December 21, 2001.

(4)	Incorporated by reference to Exhibit 3.1.2 to the Registrant’s Registration Statement on Form S-4, filed with SEC on August 10, 2001.

(5)	Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 10-K for the fiscal year ended September 28, 2002, filed with SEC on December 4, 2002.

(6)	Incorporated by reference to Exhibit 4.6 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 2002, filed with the SEC on February 11, 2003.


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 28, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		77-0228183
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2700 N. First St., San Jose, CA		95134
(Address of principal executive offices)		(Zip Code)


SANMINA-SCI CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SANMINA-SCI CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
SANMINA-SCI CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	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 2. Changes in Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 4.11
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


		Page

	PART I FINANCIAL INFORMATION
Item 1.	Interim Financial Statements
	Condensed Consolidated Statements of Operations		2
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Cash Flows		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		52
Item 4.	Controls and Procedures		52
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings		53
Item 2.	Changes in Securities		53
Item 4.	Submission of Matters to a Vote of Security Holders		53
Item 6.	Exhibits and Reports on Form 8-K		53
Signatures			55



			Three Months Ended						Nine Months Ended

			June 28,			June 29,			June 28,			June 29,
			2003			2002			2003			2002


			(In thousands, except per share data)

			(Unaudited)
Net sales			$	2,648,907		$	2,617,626		$	7,629,421		$	6,159,328
Cost of sales				2,529,271			2,508,300			7,296,105			5,894,712

	Gross profit			119,636			109,326			333,316			264,616

Operating expenses:
	Selling, general and administrative			81,348			78,608			241,865			209,203
	Amortization of intangibles			1,626			1,296			4,863			4,025
	Integration costs			1,889			—			8,248			—
	Restructuring costs			16,776			11,566			90,818			126,154

		Total operating expenses		101,639			91,470			345,794			339,382

Operating income (loss)				17,997			17,856			(12,478	)		(74,766	)
	Interest income			4,515			3,894			15,341			25,344
	Interest expense			(36,817	)		(23,898	)		(98,678	)		(72,298	)
	Other income (expense)			(3,865	)		(4,799	)		18,944			(9,037	)

Other income (expense), net				(36,167	)		(24,803	)		(64,393	)		(55,991	)

Income (loss) before provision for income taxes				(18,170	)		(6,947	)		(76,871	)		(130,757	)
Provision (benefit) for income taxes				(5,996	)		(1,953	)		(25,367	)		(41,226	)

	Net income (loss)		$	(12,174	)	$	(4,994	)	$	(51,504	)	$	(89,531	)

Earnings (loss) per share:
	Basic		$	(0.02	)	$	(0.01	)	$	(0.10	)	$	(0.19	)
	Diluted			(0.02	)		(0.01	)		(0.10	)		(0.19	)
Shares used in computing per share amounts:
	Basic			510,372			520,029			509,891			472,225
	Diluted			510,372			520,029			509,891			472,225


			June 28,			September 28,
			2003			2002

						(Derived from
			(Unaudited)			Audited Financials)


			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	1,487,530		$	1,064,534
	Short-term investments			83,491			99,140
	Accounts receivable, net			1,579,542			1,394,515
	Inventories			1,059,093			1,123,016
	Deferred income taxes			243,418			312,184
	Prepaid expenses and other			125,504			165,649

		Total current assets		4,578,578			4,159,038

Property, plant and equipment, net				1,033,957			1,084,454
Long-term investments				17,232			73,955
Goodwill				2,160,937			2,101,650
Deposits and other				123,678			98,960

		Total assets	$	7,914,382		$	7,518,057

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	5,129		$	265,899
	Accounts payable			1,459,538			1,279,451
	Accrued liabilities and other			370,325			366,500
	Accrued payroll and related benefits			151,772			142,139

		Total current liabilities		1,986,764			2,053,989

Long-term liabilities:
	Long-term debt, net of current portion			2,436,817			1,975,331
	Deferred income tax liability			21,900			17,184
	Other liabilities			66,014			56,838

		Total long-term liabilities		2,524,731			2,049,353

Stockholders’ equity:
	Common stock			5,296			5,254
	Additional paid-in capital			5,688,466			5,675,401
	Treasury stock			(188,715	)		(190,261	)
	Accumulated other comprehensive income (loss)			14,718			(10,305	)
	Retained earnings (deficit)			(2,116,878	)		(2,065,374	)

		Total stockholders’ equity		3,402,887			3,414,715

		Total liabilities and stockholders’ equity	$	7,914,382		$	7,518,057


		June 28, 2003			June 29, 2002

Cash paid (refunded) during the period for:
	Interest	$	46,832		$	64,634
	Income taxes	$	(165,548	)	$	(28,614	)
Stock issued for acquisitions, net of acquisition costs		$	—		$	4,393,991
Acquisition of property, plant and equipment with long-term investments		$	52,850		$	—


		As of		Additions		Adjustments			As of
		September 28,		to		to			June 28,
		2002		Goodwill		Goodwill			2003

Segments:
	Domestic	$	1,213,205	$	4,621	$	(17,253	)	$	1,200,573
	International		888,445		82,456		(10,537	)		960,364

Total		$	2,101,650	$	87,077	$	(27,790	)	$	2,160,937


Fiscal Year:

2003 (remainder)	$	1,627
2004		6,512
2005		6,512
2006		5,426
2007		5,212
2008		5,112
Thereafter		12,391

	$	42,792



	For the						For the
	Three Months Ended						Nine Months Ended

	June 28,			June 29,			June 28,			June 29,
Stock Options	2003			2002			2003			2002

Volatility		67	%		95	%		71	%		95	%
Risk-free interest rate		1.97	%		3.35	%		2.05	%		3.34	%
Dividend yield		0	%		0	%		0	%		0	%
Expected lives (management and directors) beyond vesting		0.94			0.94			0.94			0.94
Expected lives (employees) beyond vesting		0.64			0.64			0.64			0.64


	One-Time			Lease and
	Employee			Contract			Other			Impairment
	Termination			Termination			Restructuring			of
	Benefits			Costs			Costs			Fixed Assets			Total


	(In thousands)
	Cash			Cash			Cash			Non-cash
Balance at December 28, 2002	$	—		$	—		$	—		$	—		$	—
Charges to operations		805			448			76			2,099			3,428
Charges utilized		(203	)		(433	)		(76	)		(2,099	)		(2,811	)

Balance at March 29, 2003		602			15			—			—			617
Charges to operations		428			9,924			—			2,308			12,660
Charges utilized		(293	)		(1,164	)		—			(2,308	)		(3,765	)

Balance at June 28, 2003	$	737		$	8,775		$	—		$	—		$	9,512


	Employee						Facilities			Write-off
	Severance and			Restructuring			Shutdown and			Impaired or
	Related			and Other			Consolidation			Redundant
	Expenses			Expenses			Costs			Fixed Assets			Total


	(In thousands)
	Cash			Cash			Cash			Non-cash
Balance at September 30, 2000	$	14,742		$	832		$	—		$	—		$	15,574
Charges to operations		12,628			4,064			42,487			99,953			159,132
Charges utilized		(19,639	)		(4,057	)		(5,942	)		(99,953	)		(129,591	)

Balance at September 29, 2001		7,731			839			36,545			—			45,115
Charges to operations		31,100			10,101			31,009			99,585			171,795
Charges utilized		(28,487	)		(10,161	)		(31,667	)		(99,585	)		(169,900	)


							Non-
					Guarantor		Guarantor		Consolidating			Consolidated
			Sanmina-SCI		Subsidiaries		Subsidiaries		Eliminations			Total


			(In thousands)

			(Unaudited)
Assets:
Current assets:
	Cash and cash equivalents		$	792,877	$	209,103	$	485,550	$	—		$	1,487,530
	Short-term investments			83,484		—		7		—			83,491
	Accounts receivable, net			121,911		197,655		1,259,976		—			1,579,542
	Accounts receivable — intercompany			637,593		—		—		(637,593	)		—
	Inventories			142,262		239,390		677,441		—			1,059,093
	Deferred income taxes			89,577		123,679		30,162		—			243,418
	Prepaid expenses and other			64,296		27,369		81,935		(48,096	)		125,504

		Total current assets		1,932,000		797,196		2,535,071		(685,689	)		4,578,578
Property, plant and equipment, net				219,116		214,467		600,374		—			1,033,957
Long term investments				1,714		5,003		10,515		—			17,232
Goodwill				21,015		1,179,558		960,364		—			2,160,937
Intercompany accounts				568,175		666,831		—		(1,235,006	)		—
Investment in subsidiaries				2,752,612		1,377,924		—		(4,130,536	)		—
Deposits and other				57,324		59,971		75,922		(69,539	)		123,678

		Total assets	$	5,551,956	$	4,300,950	$	4,182,246	$	(6,120,770	)	$	7,914,382

Liabilities and Stockholders’ Equity:
Current liabilities:
	Current portion of long-term debt		$	3,219	$	938	$	972	$	—		$	5,129
	Accounts payable			131,900		367,327		960,311		—			1,459,538
	Accounts payable — intercompany			—		541,834		95,759		(637,593	)		—
	Accrued liabilities			94,246		164,977		159,198		(48,096	)		370,325
	Accrued payroll and related benefits			37,627		31,336		82,809		—			151,772

		Total current liabilities		266,992		1,106,412		1,299,049		(685,689	)		1,986,764
Long-term liabilities:
	Long-term debt, net of current portion			1,863,915		518,690		54,212		—			2,436,817
	Intercompany accounts — noncurrent			—		—		1,235,006		(1,235,006	)		—
	Deferred income tax liability			10,332		81,107		—		(69,539	)		21,900
	Other			7,830		43,456		14,728		—			66,014

		Total long-term liabilities		1,882,077		643,253		1,303,946		(1,304,545	)		2,524,731
Stockholders’ equity:
	Common stock			5,296		15,681		429,951		(445,632	)		5,296
	Other stockholders’ equity accounts			3,397,591		2,535,604		1,149,300		(3,684,904	)		3,397,591

		Total stockholders’ equity		3,402,887		2,551,285		1,579,251		(4,130,536	)		3,402,887

		Total liabilities and stockholders’ equity	$	5,551,956	$	4,300,950	$	4,182,246	$	(6,120,770	)	$	7,914,382


						Guarantor			Non-Guarantor			Consolidating			Consolidated
			Sanmina-SCI			Subsidiaries			Subsidiaries			Eliminations			Total


			(In thousands)

			(Unaudited)
Net sales			$	190,938		$	704,998		$	2,151,388		$	(398,417	)	$	2,648,907
Cost of sales				174,237			671,955			2,081,496			(398,417	)		2,529,271

	Gross profit			16,701			33,043			69,892			—			119,636

Operating expenses:
	Selling, general and administrative			28,145			21,982			31,221			—			81,348
	Amortization of intangibles			325			1,301			—			—			1,626
	Integration costs			—			1,334			555			—			1,889
	Restructuring costs			2,588			15,506			(1,318	)		—			16,776

		Total operating expenses		31,058			40,123			30,458			—			101,639
Operating income (loss)				(14,357	)		(7,080	)		39,434			—			17,997
	Interest income			2,110			498			1,907			—			4,515
	Interest expense			(30,604	)		(4,453	)		(1,760	)		—			(36,817	)
	Intercompany interest income (expense)			4,865			2,158			(7,023	)		—			—
	Other income (expense)			(8,171	)		9,147			(4,841	)		—			(3,865	)

Other income (expense), net				(31,800	)		7,350			(11,717	)		—			(36,167	)

Income (loss) before provision (benefit) for income taxes and equity in loss of subsidiaries				(46,157	)		270			27,717			—			(18,170	)
Provision (benefit) for income taxes				(14,044	)		(944	)		8,992			—			(5,996	)
Equity in income (loss) of subsidiaries				19,939			(4,252	)		—			(15,687	)		—

		Net income (loss)	$	(12,174	)	$	(3,038	)	$	18,725		$	(15,687	)	$	(12,174	)


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


	*SFAS No. 146*


	*EITF 94-3*


	Fiscal 2002 Plans


	Fiscal 2001 Plans


	Nine Months
	Ended
	June 29, 2002

	(In thousands,
	except per
	share data)
Revenue	$	7,435,094
Net (loss) income		(235,541	)
Basic earnings (loss) per share	$	(0.02	)
Diluted earnings (loss) per share	$	(0.02	)


Fiscal Year Ending

		(In thousands)
2003 (remainder)(1)		$	265,042
2004			9,772
2005			10,205
2006			37,361
2007			652,911
Thereafter			1,466,655

	Total	$	2,441,946


	If the markets for our customers’ products decline further, or improve at a slower pace than we anticipate, demand for our services may be adversely affected and, therefore, our operating results could be adversely affected


	*If demand for our higher-end, higher margin manufacturing services does not improve, our future gross margins and operating results may be lower than expected*


	*Our operating results are subject to significant uncertainties*


	*We may not be able to finance future needs or adapt our business plan to change because of restrictions placed on us by the instruments governing our debt*


	We generally do not obtain long-term volume purchase commitments from customers, and, therefore, cancellations, reductions in production quantities and delays in production by our customers could adversely affect our operating results


	*We rely on a small number of customers for a substantial portion of our net sales, and declines in sales to these customers could adversely affect our operating results*


	*If our business does not improve or declines, we may further restructure our operations, which may adversely affect our financial condition and operating results*


	If we are unable to purchase the operations of electronics industry OEMs or negotiate favorable long-term supply agreements with the divesting OEMs, our business may be adversely affected


	*We are subject to intense competition in the EMS industry, and our business may be adversely affected by these competitive pressures*


	*Consolidation in the electronics industry may adversely affect our business*


	*Our failure to comply with applicable environmental laws could adversely affect our business*


	*Our key personnel are critical to our business, and we cannot assure you that they will remain with us*


	*We are subject to risks arising from our international operations*


	*We may encounter difficulties completing or integrating our acquisitions and expanding our operations, which could adversely affect our operating results*


	*If we are unable to protect our intellectual property or infringe or are alleged to infringe another person’s intellectual property, our operating results may be adversely affected*


	*We and the customers we serve are vulnerable to technological changes in the electronics industry*


	*We may experience component shortages, which could cause us to delay shipments to customers and reduce our revenue and operating results*


	If we manufacture products containing design or manufacturing defects, or if our manufacturing processes do not comply with applicable statutory and regulatory requirements, demand for our services may decline and we may be subject to liability claims