SANMINA-SCI CORP - 10-Q Quarterly Report

SANMINA-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	January 1, 2005			December 27, 2003
	(In thousands)
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,366			$	15,769
Adjustments to reconcile net income to cash provided by operating activities:
Restructuring costs	1,982				(493		)
Depreciation and amortization	47,706				49,676
Provision (benefit) for doubtful accounts	(918		)		3
Deferred compensation	2,790				3,733
Loss on disposal of property and equipment	759				150
Loss from investment in 50% or less owned companies	—				1,843
Other, net	959				(1,065		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(95,214		)		(150,990		)
Inventories	88,901				(85,161		)
Prepaid expenses, deposits and other	(24,957		)		6,559
Income tax accounts	5,294				(13,878		)
Accounts payable and accrued liabilities	480				283,851
Cash provided by operating activities	52,148				109,997
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments	(11,460		)		(12,495		)
Proceeds from maturities of short-term investments	5,234				6,516
Purchases of long-term investments	(314		)		(11,954		)
Purchases of property and equipment	(14,742		)		(11,868		)
Proceeds from sale of property and equipment	7,715				10,754
Cash paid for businesses acquired, net of cash acquired	(77,093		)		(14,661		)
Cash used for investing activities	(90,660		)		(33,708		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt	(12,119		)		(4,456		)
Payments of long-term liabilities	(715		)		—
Proceeds from long-term debt, net of issuance costs	—				64
Payments of notes and credit facilities, net	(1,538		)		(5,172		)
Proceeds from sale of common stock, net of issuance costs	2,244				10,277
Cash provided by (used for) financing activities	(12,128		)		713
Effect of exchange rate changes	(2,129		)		(1,114		)
Increase (decrease) in cash and cash equivalents	(52,769		)		75,888
Cash and cash equivalents at beginning of period	1,116,149				1,043,850
Cash and cash equivalents at end of period	$	1,063,380			$	1,119,738

See accompanying notes.

SANMINA-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1—Basis of Presentation

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 three months ended January 1, 2005 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 October 2, 2004, included in Sanmina-SCI’s annual report on Form 10-K.

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.

Note 2—Summary of Significant Accounting Policies

Fiscal Year. Sanmina-SCI operates on a 52 or 53-week year ending on the Saturday nearest September 30. Accordingly, the 2002 fiscal year ended on September 28, the 2003 fiscal year ended on September 27, the 2004 fiscal year ended on October 2 and the 2005 fiscal year will end on October 1. 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) in the accompanying condensed 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 January 1, 2005, cash and cash equivalents includes $25.5 million of restricted cash and cash equivalents, primarily relating to accounts collateralizing letters of credit.

Exit Costs. Sanmina-SCI recognizes restructuring charges related to its plans to exit certain activities resulting from the identification of excess manufacturing and administrative facilities that it chooses to close or consolidate. In connection with its exit activities, Sanmina-SCI records 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.” 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 January 1, 2005 or October 2, 2004. The recognition of restructuring charges requires Sanmina-SCI’s management 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, Sanmina-SCI evaluates 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 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 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.

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

	As of October 2, 2004		Additions to Goodwill		Adjustments to Goodwill				As of January 1, 2005
Segments:
Domestic	$	1,221,406	$	2,026		$	(293	)	$	1,223,139
International	1,033,573		30,342			5,068			1,068,983
Total	$	2,254,979	$	32,368		$	4,775		$	2,292,122

Additions to goodwill represent the initial allocation of goodwill to businesses acquired in the current period. Adjustments to goodwill primarily represent purchase price allocation adjustments related to business combinations consummated in prior periods.

Sanmina-SCI has certain identifiable intangible assets that are subject to amortization. Intangible assets are included in other assets in the consolidated balance sheets. The components of intangible assets are as follows:

	January 1, 2005								October 2, 2004
	Gross Carrying Amount		Accumulated Amortization				Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization				Net Carrying Amount
Amortizable intangibles	$	74,779		$	(40,927	)	$	33,852	$	74,788		$	(38,897	)	$	35,891

Intangible asset amortization expense for the three months ended January 1, 2005 and December 27, 2003 was approximately $2.0 million and $2.1 million, respectively.

Estimated annual amortization expense for intangible assets at January 1, 2005 is as follows (in thousands):

Fiscal Year:
2005 (remainder)	$	5,917
2006	6,572
2007	6,358
2008	6,358
2009	4,990
2010	3,657
Thereafter	—
	$	33,852

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. Provisions are made for estimated warranty costs, sales returns, and adjustments.

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 January 1, 2005 and October 2, 2004 were less than one percent of total current liabilities.

Earnings Per Share. Basic earnings 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 upon issuance, if dilutive. For the quarters ended January 1, 2005 and December 27, 2003, 20,112,918 and 20,112,918 potentially dilutive shares from the conversion of the convertible subordinated debt and after-tax interest expense of $9.3 million and $8.7 million, respectively, were not included in the computation of diluted earnings per share because to do so would be anti-dilutive. Stock options with exercise prices greater than the average fair market price for a period, which are defined as anti-dilutive, are not included in the diluted earnings per share calculations because of their anti-dilutive effect. For the quarters ended January 1, 2005 and December 27, 2003, 39,556,239 and 8,025,056 stock options, respectively, were anti-dilutive and excluded from the diluted earnings per share calculation due to the exercise prices being greater than the average fair market price. Contingently issuable stock, such as restricted stock, is included in the diluted earnings per share calculations unless anti-dilutive. For the three months ended January 1, 2005, and December 27, 2003, 104,731 and 0 shares, respectively, of restricted stock were anti-dilutive and therefore excluded from

the diluted earnings per share calculation. The following table sets forth the calculation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended
	January 1, 2005		December 27, 2003
Numerator:
Net income	$	24,366		$	15,769
Denominator:
Weighted average shares—basic	519,205			513,379
Effect of dilutive potential common shares	5,803			12,978
Weighted average number of shares—diluted	525,008			526,357
Net income per share—basic	$	0.05		$	0.03
Net income per share—diluted	$	0.05		$	0.03

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 ended January 1, 2005 and December 27, 2003 are presented below:

	Three Months Ended
Stock Options	January 1, 2005			December 27, 2003
Volatility		60	%		75	%
Risk-free interest rate		3.64	%		3.17	%
Dividend yield		0	%		0	%
Expected life of options(1)		4.4 years			1.2 years

	Three Months Ended
Employee Stock Purchase Plan	January 1, 2005			December 27, 2003
Volatility		60	%		75	%
Risk-free interest rate		3.64	%		3.17	%
Dividend yield		0	%		0	%
Expected life		0.5 years			0.5 years

(1) From grant date in fiscal 2005 and from vesting date in fiscal 2004.

Sanmina-SCI has several stock option plans which are described in the Company’s most recent Annual Report on Form 10-K. Sanmina-SCI accounts for its stock option plans and employee stock purchase plan in accordance with 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 and earnings per share would have been the following pro forma amounts (in thousands, except per share data):

	Three Months Ended
	January 1, 2005			December 27, 2003
Net income:
As reported	$	24,366			$	15,769
Stock based employee compensation expense included in reported net income, net of tax	2,036				2,329
Stock-based employee compensation expense determined under fair value method, net of tax	(13,838		)		(15,135		)
Pro forma	$	12,564			$	2,963
Basic earnings per share:
As reported	$	0.05			$	0.03
Pro forma	$	0.02			$	0.01
Diluted earnings per share:
As reported	$	0.05			$	0.03
Pro forma	$	0.02			$	0.01

Note 3—Restructuring Costs

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. The accrued restructuring costs are included in “accrued liabilities” in the condensed consolidated balance sheet. Below is a summary of the activity related to restructuring costs recorded pursuant to SFAS No. 146 and SFAS No. 112 through the first quarter of fiscal year 2005.

	Employee Termination Benefits				Lease and Contract Termination Costs				Other Restructuring Costs				Impairment of Fixed Assets				Total
	(In thousands)
	Cash				Cash				Cash				Non-cash
Balance at September 28, 2002		$	—			$	—			$	—			$	—		$	—
Charges to operations		5,959				10,323				597				8,085			24,964
Charges utilized		(2,089		)		(8,861		)		(597		)		(8,085		)	(19,632		)
Balance at September 27, 2003		3,870				1,462				—				—			5,332
Charges to operations		59,076				11,186				18,890				18,079			107,231
Charges utilized		(45,618		)		(9,677		)		(18,848		)		(18,079		)	(92,222		)
Reversal of accrual		(1,832		)		(1,384		)		—				—			(3,216		)
Balance at October 2, 2004		15,496				1,587				42				—			17,125
Charges to operations		12,660				2,873				1,363				1,224			18,120
Charges utilized		(11,718		)		(1,805		)		(200		)		(1,224		)	(14,947		)
Balance at January 1, 2005		$	16,438			$	2,655			$	1,205			$	—		$	20,298

In fiscal year 2003, Sanmina-SCI approved actions pursuant to SFAS No. 146 to close and consolidate certain of its manufacturing facilities in the United States and Europe as a result of the ongoing slowdown in the electronics industry. During fiscal year 2003, Sanmina-SCI recorded charges to operations of $6.0 million for termination benefits related to the involuntary termination of approximately 1,100 employees, and approximately $2.1 million of the charges had been utilized as of September 27, 2003. A total of 880 employees had been terminated as of September 27, 2003. Sanmina-SCI also recorded charges to operations of $10.3 million for the termination of non-cancelable leases, lease payments for permanently vacated properties and other contract termination costs, and utilized $8.9 million related to these charges. Sanmina-SCI incurred charges to operations of $8.1 million during fiscal 2003 for the impairment of excess equipment at the vacated facilities, all of which were utilized as of September 27, 2003.

During fiscal 2004, Sanmina-SCI recorded restructuring charges of approximately $107.2 million related to restructuring activities initiated after January 1, 2003. With the exception of $7.8 million of restructuring charges associated with phase three restructuring plan announced in July 2004, these restructuring charges were incurred in connection with phase two restructuring plan announced in October 2002. These charges included employee termination benefits of approximately $59.0 million, lease and contract termination costs of approximately $11.2 million, other restructuring costs of approximately $18.9 million, primarily costs incurred to prepare facilities for closure, and impairment of fixed assets of $18.1 million consisting of excess facilities and equipment to be disposed of. The employee termination benefits were related to the involuntary termination of 2,000 employees, the majority of which were involved in manufacturing activities. Approximately $45.6 million of employee termination benefits were utilized during fiscal 2004 for the termination of approximately 1,900 employees. Sanmina-SCI also utilized $9.7 million of lease and contract termination costs and $18.8 million of the other restructuring costs during fiscal 2004. During fiscal 2004, Sanmina-SCI reversed approximately $1.8 million of accrued employee termination benefits and approximately $1.4 million of accrued lease costs due to revisions of estimates.

During the three months ended January 1, 2005, Sanmina-SCI recorded restructuring charges of approximately $18.1 million, of which $16.3 million relates to our phase three restructuring plan and the remainder relates to our phase two restructuring plan. These charges included employee termination benefits of approximately $12.6 million, lease and contract termination costs of approximately $2.9 million, other restructuring costs of approximately $1.4 million, incurred primarily to prepare facilities for closure, and impairment of fixed assets of approximately $1.2 million consisting of excess facilities and equipment to be disposed of. This $1.2 million was fully utilized in the first quarter of 2005. The employee termination benefits were related to the involuntary termination of 673 employees, the majority of which were involved in manufacturing activities. Approximately $11.7 million for employee termination benefits was utilized during the three months ended January 1, 2005. A total of approximately 311 employees were terminated during the three months ended January 1, 2005 pursuant to this restructuring plan. Sanmina-SCI also utilized $1.8 million of lease and contract termination costs and $200,000 of the other restructuring costs during the three months ended January 1, 2005.

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 and SFAS 112 where applicable. Accordingly, costs associated with such plans are recorded as restructuring costs in the consolidated statements of operations generally at the commitment date. The accrued restructuring costs are included in “accrued liabilities” in the condensed consolidated balance sheet. Below is a summary of the activity related to restructuring costs recorded pursuant to EITF 94-3 and SFAS 112 pursuant to Sanmina-SCI’s ongoing restructuring plans through the first quarter of fiscal year 2005.

	Employee Severance and Related Expenses				Restructuring and Other Expenses				Facilities Shutdown and Consolidation Costs				Write-off Impaired or Redundant Fixed Assets				Total
	(In thousands)
	Cash				Cash				Cash				Non-cash
Balance at September 28, 2002		$	10,344			$	779			$	35,887			$	—		$	47,010
Charges to operations		18,138				(779		)		31,977				38,400			88,515
Charges utilized		(12,476		)		—				(51,906		)		(38,400		)	(103,561		)
Reversal of accrual		(6,267		)		—				(1,468		)		—			(7,735		)
Balance at September 27, 2003		9,739				—				14,490				—			24,229
Charges to operations		8,205				—				35,730				3,500			47,435
Charges utilized		(9,667		)		—				(28,279		)		(3,500		)	(41,446		)
Reversal of accrual		(7,050		)		—				(7,016		)		—			(14,066		)
Balance at October 2, 2004		1,227				—				14,925				—			16,152
Charges to operations		329				—				1,216				760			2,305
Charges utilized		(1,180		)		—				(3,473		)		(760		)	(5,413		)
Balance at January 1, 2005		$	376			$	—			$	12,668			$	—		$	13,044

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.

Fiscal 2002 Plans

September 2002 Restructuring. In September 2002, Sanmina-SCI approved a plan pursuant to EITF 94-3 to close and consolidate certain of its manufacturing facilities in North America, Europe and Asia as a result of the ongoing slowdown in the industry. In fiscal years 2002 and 2003, Sanmina-SCI recorded charges to operations of $10.1 million for planned employee severance expenses related to the involuntary termination of approximately 800 employees, and utilized charges of approximately $5.8 million as a result of terminating approximately 790 employees. In fiscal 2002 and 2003 Sanmina-SCI also recorded charges to operations of $22.3 million for the shutdown of facilities related to non-cancelable lease payments for permanently vacated properties and associated costs, and utilized charges of $17.7 million related to the shutdown of these facilities. Sanmina-SCI also incurred charges to operations of $74.3 million in fiscal years 2002 and 2003 related to the impairment of buildings and excess equipment and leasehold improvements at permanently vacated facilities.

During fiscal 2004, Sanmina-SCI recorded charges to operations of approximately $1.9 million and utilized $2.6 million for employee severance expenses. Approximately 10 employees were terminated during fiscal 2004. During fiscal 2004, Sanmina-SCI also recorded charges to operations of approximately $26.7 million and utilized approximately $16.1 million for non-cancelable lease payments, lease termination costs and related costs for the shutdown of facilities. In addition, in fiscal 2004 Sanmina-SCI reversed approximately $3.6 million of accrued employee severance due to lower than anticipated payments at various plants and approximately $5.8 million of accrued facilities shutdown costs due to a change in use of the facilities or achieving greater sublease income than we anticipated. Sanmina-SCI also

incurred charges to operations of $3.5 million related to the impairment of buildings and leasehold improvements at permanently vacated facilities in fiscal 2004. The closing of the plants discussed above as well as employee terminations and other related activities have been completed, however, the leases of the related facilities expire in 2009; therefore, the remaining accrual will be reduced over time as the lease payments, net of sublease income, are made.

During the first quarter of fiscal year 2005, Sanmina-SCI recorded charges to operations of $46,000 and utilized $46,000 for employee severance costs. No employees were terminated during the three months ending January 1, 2005 pursuant to the September 2002 restructuring plan. In addition, Sanmina-SCI recorded charges of $193,000 and utilization of $857,000 due to shutdown costs for closed facilities. In addition, $400,000 was charged to operations and utilized due to the write-off of impaired fixed assets.

October 2001 Restructuring. In October 2001, Sanmina-SCI approved a plan pursuant to EITF 94-3 to close and consolidate certain of its manufacturing facilities throughout North America and Europe as a result of the continued slowdown in the industry and economy worldwide. In fiscal years 2002 and 2003, Sanmina-SCI recorded net charges to operations of $34.7 million for the expected involuntary termination of approximately 5,400 employees associated with these plant closures, and utilized charges of approximately $24.5 million as a result of terminating approximately 5,000 employees. Sanmina-SCI also incurred net charges to operations of $46.1 million in fiscal years 2002 and 2003 for non-cancelable lease payments for permanently vacated properties and other costs related to the shutdown of facilities, and utilized approximately $44.2 million of these charges in fiscal years 2002 and 2003. In fiscal year 2003, Sanmina-SCI reversed accrued severance charges of $6.3 million and accrued lease cancellation charges of $700,000 due to lower than estimated settlement costs at three European sites. Sanmina-SCI also incurred and utilized charges to operations of $56.4 million in fiscal years 2002 and 2003 related to the write-offs of fixed assets consisting of excess equipment and leasehold improvements to facilities that were permanently vacated.

During fiscal 2004, Sanmina-SCI recorded charges to operations of approximately $5.2 million for employee severance costs and approximately $4.8 million for non-cancelable lease payments and other costs related to the shutdown of facilities. Sanmina-SCI utilized accrued severance charges of approximately $6.6 million and accrued facilities shutdown related charges of $3.7 million during fiscal 2004. During fiscal 2004, Sanmina-SCI reversed approximately $1.3 million of accrued severance and approximately $530,000 of accrued lease costs due to lower than expected payments at various sites. Sanmina-SCI have terminated all employees affected under this plan. The remaining accrued severance at January 1, 2005 is expected to be paid within the next nine months. Manufacturing activities at the facilities affected by this plan ceased in fiscal year 2003 or prior; however, final payments of accrued costs may not occur until later periods.

During the first quarter of fiscal year 2005, Sanmina-SCI recorded charges to operations of $213,000 for employee severance costs and $313,000 for impairment of fixed assets. Sanmina-SCI utilized accrued severance charges of $1.1 million, accrued facilities shutdown related charges of $342,000, and $313,000 for impairment of fixed assets during the first quarter of fiscal year 2005.

Fiscal 2001 Plans

Segerström Restructuring. In March 2001, Sanmina-SCI acquired Segerström in a pooling of interests business combination and announced the restructuring plan. During fiscal years 2001 and 2002, Sanmina-SCI recorded net charges to operations of $5.7 million for the involuntary termination of 470 employee positions, and utilized $5.4 million of these charges in fiscal years 2001, 2002 and 2003. During those periods Sanmina-SCI also recorded charges to operations of $5.2 million related to the consolidation of facilities, of which $1.3 million was utilized in fiscal years 2001, 2002 and 2003. During fiscal 2004, Sanmina-SCI utilized approximately $300,000 of accrued severance charges. In addition, during fiscal 2004

Sanmina-SCI recorded charges to operations of approximately $103,000 and utilized approximately $818,000 with respect to the shutdown and consolidation of facilities. Sanmina-SCI also reversed $642,000 of accrued facilities shutdown costs in fiscal 2004 due to lower than expected payments. During the first quarter of fiscal year 2005, Sanmina-SCI utilized $327,000 with respect to the shutdown and consolidation of facilities.

July 2001 Restructuring. In July 2001, Sanmina-SCI 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 years 2001 and 2002, Sanmina-SCI recorded charges to operations of $24.0 million for severance costs for involuntary employee terminations, of which $22.7 million was utilized for the termination of approximately 3,800 employees during fiscal years 2001, 2002 and 2003. During those periods Sanmina-SCI 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 $37.9 million was utilized during fiscal years 2001, 2002 and 2003. Also during fiscal years 2001 and 2002, Sanmina-SCI recorded and utilized $7.3 million of asset related write-offs of equipment and leasehold improvements to permanently vacated properties. During fiscal year 2003 Sanmina-SCI reversed accrued facilities costs of $768,000 due to the early termination of the related lease.

During fiscal 2004, Sanmina-SCI recorded approximately $4.1 million and utilized approximately $7.7 million of accrued costs related to the shutdown of facilities. In addition, Sanmina-SCI recorded charges to operations of approximately $1.1 million, utilized $164,000 and reversed approximately $2.1 million of accrued severance due to lower than anticipated payments during fiscal 2004. Manufacturing activities at the plants affected by this plan had ceased by the fourth quarter of fiscal 2002; however, the leases of the related facilities expire between 2005 and 2010, therefore, the remaining accrual will be reduced over time as the lease payments, net of sublease income, are made.

During the first quarter of fiscal year 2005, Sanmina-SCI recorded approximately $1.0 million and utilized approximately $1.9 million of accrued costs related to the shutdown of facilities. In addition, Sanmina-SCI recorded charges to operations of approximately $70,000 and utilized $70,000 related to employee severance. During the first quarter of fiscal year 2005, Sanmina-SCI recorded and utilized $47,000 for the write-off of impaired assets.

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. The accrued restructuring costs are included in “accrued liabilities” in the condensed consolidated balance sheet. Below is a summary of the activity related to restructuring costs recorded pursuant to EITF 95-3 for the periods in which restructuring activities have taken place through the first quarter of fiscal 2005.

	Employee Severance and Related Expenses				Facilities Shutdown and Consolidation Costs				Write-off Impaired or Redundant Fixed Assets				Total
	(In thousands)
	Cash				Cash				Non-cash
Balance at September 28, 2002		$	39,954			$	23,559			$	4,081		$	67,594
Additions to restructuring accrual		30,540				7,224				3,251			41,015
Accrual utilized		(36,516		)		(16,164		)		(7,332		)	(60,012		)
Reversal of accrual		(23,968		)		(1,007		)		—			(24,975		)
Balance at September 27, 2003		10,010				13,612				—			23,622
Additions to restructuring accrual		10,858				—				6,024			16,882
Accrual utilized		(20,826		)		(11,434		)		(6,024		)	(38,284		)
Balance at October 2, 2004		42				2,178				—			2,220
Additions to restructuring accrual		—				—				—			—
Accrual utilized		(42		)		(568		)		—			(610		)
Balance at January 1, 2005		$	—			$	1,610			$	—		$	1,610

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. In fiscal 2003, as part of an insignificant business acquisition completed in December 2002, Sanmina-SCI closed an acquired manufacturing facility in Texas as of the acquisition date and transferred the business to an existing Sanmina-SCI plant. Sanmina-SCI recorded and utilized 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. In fiscal 2003, Sanmina-SCI also recorded charges to the restructuring liability of $7.5 million related to a manufacturing facility in Germany acquired in fiscal 2002. The charges consisted of severance costs for involuntary employee terminations of approximately 210 employees. Sanmina-SCI utilized $897,000 and $6.6 million of the accrued severance in fiscal 2003 and 2004 to terminate 145 and 60 employees, respectively. In addition, during fiscal 2004, Sanmina-SCI recorded charges to the restructuring liability of $10.9 million, and utilized $10.8 million, related to employee terminations at manufacturing facilities in Europe and Mexico acquired in fiscal 2003 due to the transfer of a portion of the manufacturing activities to existing Sanmina-SCI plants. The charges were related to the elimination of approximately 340 employees. Sanmina-SCI also recorded and utilized charges to the restructuring liability of approximately $6.0 million related to excess machinery and equipment to be disposed of. In the three months ended January 1, 2005, Sanmina-SCI utilized $42,000 relating to employee severance.

2002 and 2003 Sanmina-SCI also incurred net charges to the restructuring liability of $41.0 million for restructuring costs related to lease payments for permanently vacated properties and other costs, and utilized approximately $26.3 million of these charges. Sanmina-SCI also incurred charges to the restructuring liability of $24.9 million of asset related write-offs consisting of excess equipment and leasehold improvements to facilities that were permanently vacated. During fiscal year 2003, Sanmina-SCI 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. Sanmina-SCI also reversed $1.0 million of accrued facilities shutdown costs due to lower than estimated costs at various sites. During fiscal 2004, Sanmina-SCI utilized a total of approximately $11.4 million of facilities-related accruals and $3.4 million of accrued severance. During the three months ended January 1, 2005, Sanmina-SCI utilized $568,000 related to employee severance.

Note 4—Comprehensive Income

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.

The components of other comprehensive income were as follows:

	Three Months Ended
	January 1, 2005			December 27, 2003
	(In thousands)
Net income		$	24,366		$	15,769
Other comprehensive income (loss):
Foreign currency translation adjustment		17,356			15,047
Unrealized holding gain (loss) on investments		299			(1,115		)
Minimum pension liability		74			—
Comprehensive income		$	42,095		$	29,701

Accumulated other comprehensive income consists of the following:

	As of
	January 1 , 2005				October 2 , 2004
	(In thousands)
Foreign currency translation adjustment		$	55,766			$	38,410
Unrealized holding gains on investments		338				39
Minimum pension liability		(5,685		)		(5,759		)
Total accumulated other comprehensive income		$	50,419			$	32,690

Note 5—Inventories

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:

	As of
	January 1, 2005		October 2, 2004
	(In thousands)
Raw materials	$	658,547	$	673,815
Work-in-process	220,292		189,077
Finished goods	124,273		201,626
	$	1,003,112	$	1,064,518

Note 6—Business Segment and Customer Information

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 its 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):

	Three Months Ended
	January 1, 2005			December 27 , 2003
Net sales:
Domestic	$	734,100			$	785,383
International	2,518,606				2,184,898
Intersegment	533,014				439,208
Less: Intersegment	(533,014		)		(439,208		)
Total	$	3,252,706			$	2,970,281
Operating income (loss):
Domestic	$	(7,546	)		$	25,223
International	67,145				20,966
Total	$	59,599			$	46,189

	As of
	January 1, 2005		October 2, 2004
Long-lived assets (excludes goodwill, intangibles and deferred tax assets):
Domestic	$	332,789	$	372,463
International	555,166		508,719
Total	$	887,955	$	881,182

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 January 1, 2005 and December 27, 2003 net sales to Sanmina-SCI’s ten largest customers accounted for 69.3% and 71.6%, respectively, of Sanmina-SCI’s net sales. In the three months ended January 1, 2005 and December 27, 2003, two customers individually represented 10% or more of Sanmina-SCI’s net sales.

Note 7—Business Combinations

On October 26, 2004, Sanmina-SCI completed the acquisition of 100% of the voting equity interests in Pentex-Schweizer Circuits Limited, or Pentex, a printed circuit board fabrication provider with operations in China and Singapore. The acquisition of Pentex provides Sanmina-SCI with manufacturing facilities to support its customers’ requirements in this region and with the opportunity to leverage its vertical integration strategy. The total purchase price was approximately $77.2 million, paid in cash. The purchase price was initially allocated to the assets acquired, including goodwill, and the liabilities assumed based on management’s estimate of the fair value for purchase accounting purposes at the date of acquisition. Management is currently gathering additional information with respect to the assets acquired and liabilities assumed, which may result in revisions to the purchase price allocation in future periods. The results of Pentex were included in the Company’s consolidated statements of operations from the date of acquisition.

Pro forma results of operations have not been presented for the Pentex acquisition because the effect of the acquisition was not material to Sanmina-SCI’s operating results or financial condition.

Note 8—Supplemental Guarantors Condensed Consolidating Financial Information

On December 23, 2002, Sanmina-SCI issued $750.0 million of its 10.375% Notes, which are more fully described in Sanmina-SCI’s most recent Annual Report on Form 10-K.

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 January 1, 2005 (unaudited) and October 2, 2004, and the unaudited condensed consolidating statements of operations for the three months ended January 1, 2005 and December 27, 2003, and the unaudited condensed consolidating statements of cash flows for the three months ended January 1, 2005 and December 27, 2003, 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.

CONDENSED CONSOLIDATING BALANCE SHEET
As of January 1, 2005

	Sanmina-SCI			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
	(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents		$	545,046	$	58,537		$	459,797	$	—		$	1,063,380
Short-term investments		19,042		—			—		—			19,042
Accounts receivable, net		118,855		228,984			1,455,023		—			1,802,862
Accounts receivable—intercompany		188,925		110,458			—		(299,383		)	—
Inventories		90,701		263,325			649,086		—			1,003,112
Deferred income taxes		160,523		78,122			68,029		—			306,674
Prepaid expenses and other		38,558		20,222			50,080		—			108,860
Total current assets		1,161,650		759,648			2,682,015		(299,383		)	4,303,930
Property, plant and equipment, net		142,731		122,381			536,386		—			801,498
Goodwill		28,925		1,194,214			1,068,983		—			2,292,122
Intercompany accounts		695,382		164,670			—		(860,052		)	—
Investment in subsidiaries		3,048,297		1,419,039			—		(4,467,336		)	—
Other assets		190,947		59,046			118,824		(140,519		)	228,298
Total assets		$	5,267,932	$	3,718,998		$	4,406,208	$	(5,767,290	)	$	7,625,848
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Current portion of long-term debt		$	614,162	$	337		$	1,295	$	—		$	615,794
Accounts payable		187,026		345,096			1,092,477		—			1,624,599
Accounts payable—intercompany		—		—			299,383		(299,383		)	—
Accrued liabilities		239,914		29,133			139,357		—			408,404
Accrued payroll and related benefits		43,242		20,514			101,011		—			164,767
Total current liabilities		1,084,344		395,080			1,633,523		(299,383		)	2,813,564
Long-term liabilities:
Long-term debt, net of current portion		741,627		521,257			27,176		—			1,290,060
Intercompany accounts noncurrent		—		—			860,052		(860,052		)	—
Deferred income tax liability		—		140,519			—		(140,519		)	—
Other		40,147		53,637			26,626		—			120,410
Total long-term liabilities		781,774		715,413			913,854		(1,000,571		)	1,410,470
Stockholders’ equity:
Common stock		5,426		70,557			332,633		(403,190		)	5,426
Other stockholders’ equity accounts		3,396,388		2,537,948			1,526,198		(4,064,146		)	3,396,388
Total stockholders’ equity		3,401,814		2,608,505			1,858,831		(4,467,336		)	3,401,814
Total liabilities and stockholders’ equity		$	5,267,932	$	3,718,998		$	4,406,208	$	(5,767,290	)	$	7,625,848

CONDENSED CONSOLIDATING BALANCE SHEET
As of October 2, 2004

	Sanmina-SCI			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Eliminations			Consolidated Total
	(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents		$	481,126	$	68,963		$	566,060	$	—		$	1,116,149
Short-term investments		12,518		—			—		—			12,518
Accounts receivable, net		169,105		207,392			1,292,476		—			1,668,973
Accounts receivable—intercompany		151,181		188,657			1,242		(341,080		)	—
Inventories		121,131		286,494			656,893		—			1,064,518
Deferred income taxes		159,598		78,121			66,246		—			303,965
Prepaid expenses and other		17,873		21,681			56,969		—			96,523
Total current assets		1,112,532		851,308			2,639,886		(341,080		)	4,262,646
Property, plant and equipment, net		178,013		113,154			491,475		—			782,642
Goodwill		27,226		1,194,180			1,033,573		—			2,254,979
Intercompany accounts		695,549		305,779			—		(1,001,328		)	—
Investment in subsidiaries		2,975,063		1,355,746			—		(4,330,809		)	—
Other assets		196,383		60,179			128,498		(138,691		)	246,369
Total assets		$	5,184,766	$	3,880,346		$	4,293,432	$	(5,811,908	)	$	7,546,636
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Current portion of long-term debt		$	608,092	$	534		$	1,120	$	—		$	609,746
Accounts payable		197,357		343,881			1,089,595		—			1,630,833
Accounts payable—intercompany		—		198,077			143,003		(341,080		)	—
Accrued liabilities		198,149		46,370			136,604		—			381,123
Accrued payroll and related benefits		43,401		31,726			89,230		—			164,357
Total current liabilities		1,046,999		620,588			1,459,552		(341,080		)	2,786,059
Long-term liabilities:
Long-term debt, net of current portion		762,986		520,818			27,573		—			1,311,377
Intercompany accounts noncurrent		—		—			1,001,328		(1,001,328		)	—
Deferred income tax liability		—		138,691			—		(138,691		)	—
Other		20,070		51,179			23,240		—			94,489
Total long-term liabilities		783,056		710,688			1,052,141		(1,140,019		)	1,405,866
Stockholders’ equity:
Common stock		5,420		70,558			310,186		(380,744		)	5,420
Other stockholders’ equity accounts		3,349,291		2,478,512			1,471,553		(3,950,065		)	3,349,291
Total stockholders’ equity		3,354,711		2,549,070			1,781,739		(4,330,809		)	3,354,711
Total liabilities and stockholders’ equity		$	5,184,766	$	3,880,346		$	4,293,432	$	(5,811,908	)	$	7,546,636

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended January 1, 2005

	Sanmina-SCI				Guarantor Subsidiaries			Non-Guarantor Subsidiaries				Consolidating Eliminations				Consolidated Total
	(In thousands)
	(Unaudited)
Net sales		$	196,709		$	1,012,395			$	2,597,410			$	(553,808	)	$	3,252,706
Cost of sales		194,762			966,134				2,468,651				(553,808		)	3,075,739
Gross profit		1,947			46,261				128,759				—			176,967
Operating expenses:
Selling, general and administrative and research and development		6,392			35,229				53,178				—			94,799
Amortization of intangibles		847			1,183				—				—			2,030
Integration costs		—			28				86				—			114
Restructuring costs		7,576			4,499				8,350				—			20,425
Total operating expenses		14,815			40,939				61,614				—			117,368
Operating income (loss)		(12,868		)	5,322				67,145				—			59,599
Interest income		1,309			121				10,624				—			12,054
Interest expense		(24,206		)	(4,505		)		(9,892		)		—			(38,603		)
Intercompany income (expense)		14,133			(7,788		)		(6,345		)		—			—
Other income (expense)		(8,970		)	9,211				29				—			270
Other income (expense), net		(17,734		)	(2,961		)		(5,584		)		—			(26,279		)
Income (loss) before provision (benefit) for income taxes and equity in income of subsidiaries		(30,602		)	2,361				61,561				—			33,320
Provision (benefit) for income taxes		(11,899		)	918				19,935				—			8,954
Equity in income of subsidiaries		43,069			60,064				—				(103,133		)	—
Net income		$	24,366		$	61,507			$	41,626			$	(103,133	)	$	24,366

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended December 27, 2003

					Guarantor				Non-Guarantor				Consolidating				Consolidated
	Sanmina-SCI				Subsidiaries				Subsidiaries				Eliminations				Total
	(In thousands)
	(Unaudited)
Net sales		$	255,638			$	916,595			$	2,262,730			$	(464,682	)	$	2,970,281
Cost of sales		246,932				854,188				2,192,652				(464,682		)	2,829,090
Gross profit		8,706				62,407				70,078				—			141,191
Operating expenses:
Selling, general and administrative and research and development		11,925				26,735				45,285				—			83,945
Amortization of intangibles		940				1,180				—				—			2,120
Integration costs		—				1,035				696				—			1,731
Restructuring costs		127				3,946				3,133				—			7,206
Total operating expenses		12,992				32,896				49,114				—			95,002
Operating income (loss)		(4,286		)		29,511				20,964				—			46,189
Interest income		935				878				1,625				—			3,438
Interest expense		(20,841		)		(4,534		)		(2,830		)		—			(28,205		)
Intercompany income (expense)		4,910				2,852				(7,762		)		—			—
Other income (expense)		1,613				4,035				(8,296		)		—			(2,648		)
Other income (expense), net		(13,383		)		3,231				(17,263		)		—			(27,415		)
Income (loss) before provision (benefit) for income taxes and equity in loss of subsidiaries		(17,669		)		32,742				3,701				—			18,774
Provision (benefit) for income taxes		(6,829		)		12,655				(2,821		)		—			3,005
Equity in income (loss) of Subsidiaries		26,609				(16,509		)		—				(10,100		)	—
Net income		$	15,769			$	3,578			$	6,522			$	(10,100	)	$	15,769

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended January 1, 2005

	Sanmina-SCI				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Eliminations			Consolidated Total
	(In thousands)
	(Unaudited)
Cash provided by (used for) operating activities		$	124,383			$	(28,057	)		$	(44,178	)		$	—		$	52,148
Cash flows from investing activities:
Purchases of short-term investments		(11,460		)		—				—				—			(11,460		)
Proceeds from maturities of short-term investments		5,234				—				—				—			5,234
Purchases of long-term investments		(314		)		—				—				—			(314		)
Purchases of property and equipment		(1,593		)		(1,919		)		(11,230		)		—			(14,742		)
Proceeds from sale of property and equipment		21				2,928				4,766				—			7,715
Cash paid for businesses acquired, net of cash acquired		(2,526		)		—				(74,567		)		—			(77,093		)
Cash provided by (used for) investing activities		(10,638		)		1,009				(81,031		)		—			(90,660		)
Cash flows from financing activities:
Payment of notes and credit facilities, net		—				(197		)		(1,341		)		—			(1,538		)
Payments of long-term debt		—				—				(12,119		)		—			(12,119		)
Payments of long-term liabilities		(344		)		(371		)		—				—			(715		)
Proceeds from sale of common stock, net of issuance costs		2,244				—				—				—			2,244
Proceeds from (repayment of) intercompany debt		(51,725		)		17,190				34,535				—			—
Cash provided by (used for) financing activities		(49,825		)		16,622				21,075				—			(12,128		)
Effect of exchange rate changes		—				—				(2,129		)		—			(2,129		)
Increase (decrease) in cash and cash equivalents		63,920				(10,426		)		(106,263		)		—			(52,769		)
Cash and cash equivalents at beginning of period		481,126				68,963				566,060				—			1,116,149
Cash and cash equivalents at end of period		$	545,046			$	58,537			$	459,797			$	—		$	1,063,380

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended December 27, 2003

					Guarantor				Non-Guarantor				Consolidating			Consolidated
	Sanmina-SCI				Subsidiaries				Subsidiaries				Eliminations			Total
	(In thousands)
	(Unaudited)
Cash provided by (used for) operating activities		$	(28,153	)		$	90,170			$	47,980			$	—	$	109,997
Cash flows from investing activities:
Purchases of short-term investments		(12,495		)		—				—				—		(12,495		)
Proceeds from maturities of short-term investments		6,516				—				—				—		6,516
Purchases of long-term investments		(199		)		—				(11,755		)		—		(11,954		)
Purchases of property and equipment		(2,524		)		(6,734		)		(2,610		)		—		(11,868		)
Proceeds from sale of property and equipment		11				9,229				1,514				—		10,754
Cash paid for businesses acquired, net of cash acquired		(496		)		(10,346		)		(3,819		)		—		(14,661		)
Cash used for investing activities		(9,187		)		(7,851		)		(16,670		)		—		(33,708		)
Cash flows from financing activities:
Proceeds from the long term debt, net of issuance costs		—				64				—				—		64
Payment of notes and credit facilities, net		—				(242		)		(4,930		)		—		(5,172		)
Payments of long-term debt		—				(150		)		(4,306		)		—		(4,456		)
Payments of long-term liabilities		—				—				—				—		—
Proceeds from sale of common stock, net of issuance costs		10,277				—				—				—		10,277
Proceeds from (repayment of) intercompany debt		49,741				(98,473		)		48,732				—		—
Cash provided by (used for) financing activities		60,018				(98,801		)		39,496				—		713
Effect of exchange rate changes		—				—				(1,114		)		—		(1,114		)
Increase (decrease) in cash and cash equivalents		22,678				(16,482		)		69,692				—		75,888
Cash and cash equivalents at beginning of period		391,116				112,162				540,572				—		1,043,850
Cash and cash equivalents at end of period		$	413,794			$	95,680			$	610,264			$	—	$	1,119,738

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

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including any statements regarding trends in future revenues or results of operations, gross margin or operating margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning developments, performance or industry ranking; any statements regarding future economic conditions or performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Generally, the words “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” “may,” “will,” “should,” “estimate,” “predict,” “potential,” “continue” and similar expressions identify forward-looking statements. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect. As a result of the factors described herein, including, in particular, those factors described under “Factors Affecting Operating Results,” we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission.

Overview

We are a leading independent global provider of customized, integrated electronics manufacturing services, or EMS. Our revenue is generated from sales of our services primarily to original equipment manufacturers, or OEMs, in the communications, personal and business computing, enterprise computing and storage, multimedia, industrial and semiconductor capital equipment, defense and aerospace, medical and automotive industries. We also generate sales from our original design manufacturing, or ODM, products where we design and develop servers and storage systems targeted to major OEMs. Our engineering services mainly focus on high-end products and we provide end-to-end design capacities for printed circuit board design, backplane design, enclosure design, full system and final system design.

As a result of the downturn in the electronics industry, demand for our manufacturing services declined significantly during our 2001, 2002, and 2003 fiscal years. The decrease in demand for manufacturing services by OEMs resulted primarily from reduced capital spending by communications service providers. Consequently, our operating results were adversely affected as a result of the deterioration in the communications market and the other markets that we serve. In fiscal 2004 and the first quarter of fiscal 2005, we began to see evidence of a recovery in certain markets that we serve and while we expect to see growth in these markets in future quarters, we cannot determine if this recovery will be sustained or if other markets that we serve will also recover. We expect sales to customers in many of the markets we serve to decline in the second quarter of fiscal 2005 as compared to the first quarter of fiscal 2005 due to normal seasonality. We expect the declines in net sales to customers in these markets to range from five percent in certain markets to 20% in other markets, which will be offset partially by increased sales to customers in other sectors, particularly customers in the multimedia sector for which we expect a 15 to 20% increase in sales.

In response to the downturn in the electronics industry described above, we have initiated restructuring plans in recent years. Although we have begun to see evidence of a recovery in certain sectors of the electronics industry, in July 2004 we announced our phase three restructuring plan to further refine our overall cost structure and reduce operating costs in high cost locations. In January 2005, we announced an increase to planned restructuring costs under our phase three restructuring plan from $100 million to approximately $175 million. This additional charge is to further reduce manufacturing capacity in high cost regions and leverage expanded capacity and technical capabilities in more cost-efficient regions. As of January 1, 2005, we have incurred $24.1 million of restructuring costs pursuant to our phase three

restructuring plan. We expect to incur approximately 50 to 75% of the total phase three restructuring costs in fiscal 2005 and substantially all of the remainder in fiscal 2006. Our restructuring plans were designed to reduce excess capacity and affect facilities across all services offered in our vertically integrated manufacturing organization. The majority of the restructuring charges recorded and expected to be recorded as a result of these plans relate to facilities located in North America and Europe, and in general, manufacturing activities at these plants were or are expected to be transferred to other facilities.

A relatively small number of customers historically have been responsible for a significant portion of our net sales. Sales to our ten largest customers accounted for 69.3% and 71.6% of our net sales in the quarters ended January 1, 2005 and December 27, 2003, respectively, and our two largest customers, IBM and HP, each accounted for 10% or more of our net sales during those periods.

In recent fiscal years, we have generated a more significant portion of our net sales from international operations. During fiscal 2004, 2003 and 2002, 72.7%, 69.6% and 55.8%, respectively, of our consolidated net sales were derived from non-U.S. operations. During the three months ended January 1, 2005, 77.4% of our consolidated net sales were derived from non-U.S. operations. The continued shift toward international operations has resulted from overseas acquisitions and a desire on the part of many of our customers to move production to lower cost locations in regions such as Asia, Latin America and Eastern Europe. We expect this trend to continue.

We generally recognize revenue at the point of shipment to our customers. We generally determine the point of shipment to occur either at the freight on board, or FOB, shipping point or when services have been performed under our contract terms. We also derive revenue from sales of certain inventory, including raw materials, to customers that reschedule, amend or cancel purchase orders from us after we have procured inventory to fulfill their orders.

Historically, we have had substantial recurring sales from existing customers. We have also expanded our customer base through acquisitions. We typically enter into supply agreements with our major OEM customers. These agreements generally have terms ranging from three to five years and cover the manufacture of a range of products. Under these agreements, a customer typically agrees to purchase its requirements for particular products in particular geographic areas from us. These agreements generally do not obligate the customer to purchase minimum quantities of products. In some circumstances our supply agreements with customers provide for cost reduction objectives during the term of the agreement.

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

· greater competition in the EMS industry requiring us to reduce prices for our services;

· changes in the mix of our high and low margin products demanded by our customers;

· changes in customer demand and sales volumes, including demand for our vertically integrated key system components and subassemblies;

· pricing pressures from OEMs due to the greater cost reduction focus of global OEMs;

· charges or write offs of excess and obsolete inventory that we are not able to charge back to a customer;

· pricing pressure on electronic components resulting from a downturn in the economic conditions in the electronics industry, with EMS companies competing more aggressively on cost to obtain new or maintain existing business; and

· our ability to transition manufacturing and assembly operations to lower cost regions in an efficient manner.

We procure inventory based on specific customer orders and forecasts. Customers have certain rights of modification with respect to these orders and forecasts, and can change, reschedule or cancel orders upon notice and subject, in some cases, to cancellation and rescheduling charges. Order cancellation charges typically vary by product type and depend upon how far in advance of shipment a customer notifies us of the cancellation of an order. In addition, the customer generally remains liable for the cost of any materials and components that we have ordered to meet the customer’s production forecast but which are not used, provided that the material was ordered in accordance with an agreed-upon procurement plan and depending, in some cases, on the nature of the materials and components involved. As a result, customer modifications to orders and forecasts affecting inventory previously procured by us 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 of these excess components and raw materials in other products we manufacture, a portion of the cost of this excess inventory may not be returned to the vendors or recoverable from customers. We also may not be able to recover the cost of obsolete inventory from vendors or customers.

Write offs or write-downs of inventory arise from:

· 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 and that we are not able to return to the vendor or charge back to the customer.

Summary Results of Operations

Net sales for the first quarter of fiscal 2005 increased by 9.5% to $3.3 billion from $3.0 billion in the first quarter of fiscal 2004. The increase in sales was primarily due to an increase in the sales to customers in the communications, personal computing and medical and industrial instrumentation sectors of the electronic industry.

The following table sets forth, for the periods indicated, key operating results:

	Three Months Ended
	January 1, 2005		December 27, 2003
	(In thousands)
Net sales	$	3,252,706		$	2,970,281
Gross profit	176,967			141,191
Operating income	59,599			46,189
Net income	24,366			15,769

Key performance measures

The following table sets forth, for the periods indicated, certain key performance measures that management utilizes to assess operating results:

	Three Months Ended
	January 1, 2005		October 2, 2004		December 27, 2003
Days sales outstanding(1)		48		45		50
Inventory turns(2)		12.3		11.7		10.6
Accounts payable days(3)		48		48		58
Cash cycle days(4)		30		29		26

(1) Days sales outstanding is calculated as the ratio of average accounts receivable, net, for the quarter divided by average daily net sales for the quarter.

(2) Inventory turns are calculated as the ratio of four times our cost of sales for the quarter divided by inventory, net, at period end.

(3) Accounts payable days is calculated as the ratio of 365 days divided by accounts payable turns, in which accounts payable turns is calculated as the ratio of four times our cost of sales for the quarter divided by accounts payable at period end.

(4) Cash cycle days is calculated as the ratio of 365 days divided by inventory turns plus days sales outstanding minus accounts payable days.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. 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 reflect 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, allowances for bad debt, and other adjustments related to current period net sales to establish related allowances. In making these estimates, we analyze the creditworthiness of our customers, 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 or operating expenses 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. Our largest customers represented 10% or more of our gross accounts receivable as of January 1, 2005. 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. 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 or 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 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 property, plant and 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 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. 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 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 impairment analysis is then performed to measure the amount of impairment loss. The process of determining the fair value of our reporting units is subjective and requires management to exercise judgment in making assumptions and estimates related to cash flows and discount rates, among other things. The goodwill recorded on the Condensed Consolidated Balance Sheet as of January 1, 2005 and October 2, 2004 was $2.3 billion. In response to changes in industry and market conditions, we could strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could change our estimates of the fair values of our reporting units, and, consequently, affect the outcome of our goodwill impairment tests.

Impairment of Long-Lived Assets—We review long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. We assess the recoverability of our long-lived and intangible assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash flows using a discount rate reflecting Sanmina-SCI’s average cost of capital, or other appropriate method of determining fair value. The process of evaluating the potential impairment is subjective and requires management to exercise judgment in making assumptions related to future cash flows and discount rates. We may experience impairment charges in the future as a result of adverse changes in the electronics industry, customer demand and other market conditions, which may have a material adverse effect on our results of operations.

Income Taxes—We estimate our income tax provision or benefit in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities. We 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, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowances we have established may be increased or decreased, impacting future income tax expense. On a quarterly basis, we record an income tax provision or benefit based upon an estimated annual effective tax rate. The effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or loss, tax regulations in each geographic region, the availability of tax credits and carryforwards, and the effectiveness of our tax planning strategies. We regularly monitor the assumptions used in estimating our annual effective tax rate and adjust our estimates accordingly. If actual results differ from our estimates, future income tax expense could be materially affected.

Results of Operations

The following table sets forth, for the three months ended January 1, 2005 and December 27, 2003, certain items in the condensed consolidated statement of operations expressed as a percentage of net sales.

The table and the discussion below should be read in conjunction with the condensed consolidated financial statements and the notes thereto, which appear elsewhere in this report.

	Three Months Ended
	January 1, 2005			December 27, 2003
Net sales		100.0	%		100.0	%
Cost of sales		94.6			95.2
Gross margin		5.4			4.8
Operating expenses:
Selling, general and administrative		2.7			2.6
Research and development		0.2			0.2
Amortization of intangibles		0.1			0.1
Integration costs		—			0.1
Restructuring costs		0.6			0.2
Total operating expenses		3.6			3.2
Operating income		1.8			1.6
Interest income		0.4			0.1
Interest expense		(1.2	)		(1.0	)
Other income (expense)		—			(0.1	)
Other income (expense), net		(0.8	)		(1.0	)
Income before provision for income taxes		1.0			0.6
Provision for income taxes		0.3			0.1
Net income		0.7	%		0.5	%

Net Sales

Net sales for the first quarter of fiscal 2005 increased by 9.5% to $3.3 billion from $3.0 billion in the corresponding quarter of the prior year due primarily to an increase in the sale of communications, personal computing and medical and industrial instrumentation products, which was partially offset by a decrease in net sales to customers in the high end computing sector. Net sales to customers in the communications and medical and industrial instrumentation sectors increased primarily due to increases in sales to existing customers and purchase business combinations, while sales to customers in the personal computing sector increased primarily due to increases in sales to existing customers.

The following summarizes financial information by geographic segment:

	Three Months Ended
	January 1, 2005				December 27, 2003
	(In thousands)
Net sales:
Domestic	$	734,100	22.6	%	$	785,383	26.4	%
International	2,518,606		77.4		2,184,898		73.6
Total	$	3,252,706	100.0	%	$	2,970,281	100.0	%

Domestic sales for the first quarter of fiscal 2005 decreased by 6.5% to $734.1 million from $785.4 million and international sales increased by 15.3% to $2.5 billion from $2.2 billion in the corresponding quarter of the prior year. The decrease in domestic net sales was primarily due to our restructuring activities to consolidate and move certain of our manufacturing operations to lower cost regions. Net sales from our international operations, as a percentage of consolidated net sales, increased to 77.4% in the first quarter of fiscal 2005 from 73.6% in first quarter of fiscal 2004. The increase was primarily attributable to increased sales to existing international customers and the impact of the movement of manufacturing activities to lower cost international regions.

Gross Margin

Gross margin increased from 4.8% in the first quarter of fiscal 2004 to 5.4% in the first quarter of fiscal 2005 attributable primarily to increased sales of products to customers in the communications sector as well as increases in gross margin for customers in various other market sectors. 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.

Operating Expenses

Selling, general and administrative expenses

Selling, general and administrative expenses increased from $77.0 million in the first quarter of fiscal 2004 to $87.3 million in the first quarter of fiscal 2005. Selling, general and administrative expenses increased as a percentage of net sales, from 2.6% in the first quarter of fiscal 2004 to 2.7% in the first quarter of fiscal 2005. The increase in selling, general, and administrative expenses in the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 was attributable to a number of factors including increased sales commissions as a result of the increase in net sales, additional information technology expenses, professional fees related to Sarbanes-Oxley Act Section 404 activities as well as the inclusion of selling, general and administrative expenses associated with recently acquired businesses. Selling, general and administrative expenses as a percentage of sales are anticipated to remain relatively constant as a percentage of net sales, depending on sales volume and our business acquisition activity.

Restructuring costs

In recent periods we have initiated restructuring plans as a result of the slowdown in the global electronics industry and the worldwide economy. These plans were designed to reduce excess capacity and affected facilities across all services offered in our vertically integrated manufacturing organization. The majority of the restructuring charges recorded as a result of these plans related to facilities located in North America and Europe, and in general, the majority of the manufacturing activities at these plants were transferred to other facilities.

	Employee Termination Benefits				Lease and Contract Termination Costs				Other Restructuring Costs				Impairment of Fixed Assets				Total
	(In thousands)
	Cash				Cash				Cash				Non-cash
Balance at September 28, 2002		$	—			$	—			$	—			$	—		$	—
Charges to operations		5,959				10,323				597				8,085			24,964
Charges utilized		(2,089		)		(8,861		)		(597		)		(8,085		)	(19,632		)
Balance at September 27, 2003		3,870				1,462				—				—			5,332
Charges to operations		59,076				11,186				18,890				18,079			107,231
Charges utilized		(45,618		)		(9,677		)		(18,848		)		(18,079		)	(92,222		)
Reversal of accrual		(1,832		)		(1,384		)		—				—			(3,216		)
Balance at October 2, 2004		15,496				1,587				42				—			17,125
Charges to operations		12,660				2,873				1,363				1,224			18,120
Charges utilized		(11,718		)		(1,805		)		(200		)		(1,224		)	(14,947		)
Balance at January 1, 2005		$	16,438			$	2,655			$	1,205			$	—		$	20,298

In fiscal year 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. During fiscal year 2003, we recorded charges to operations of $6.0 million for termination benefits related to the involuntary termination of approximately 1,100 employees, and approximately $2.1 million of the charges had been utilized as of September 27, 2003. A total of 880 employees had been terminated as of September 27, 2003. We also recorded charges to operations of $10.3 million for the termination of non-cancelable leases, lease payments for permanently vacated properties and other contract termination costs, and utilized $8.9 million related to these charges. We incurred charges to operations of $8.1 million during fiscal 2003 for the impairment of excess equipment at the vacated facilities, all of which were utilized as of September 27, 2003.

During fiscal 2004, we recorded restructuring charges of approximately $107.2 million related to restructuring activities initiated after January 1, 2003. With the exception of $7.8 million of restructuring charges associated with our phase three restructuring plan announced in July 2004, these restructuring charges were incurred in connection with our phase two restructuring plan announced in October 2002. These charges included employee termination benefits of approximately $59.0 million, lease and contract termination costs of approximately $11.2 million, other restructuring costs of approximately $18.9 million, primarily costs incurred to prepare facilities for closure, and impairment of fixed assets of $18.1 million consisting of excess facilities and equipment to be disposed of. The employee termination benefits were related to the involuntary termination of 2,000 employees, the majority of which were involved in manufacturing activities. Approximately $45.6 million of employee termination benefits were utilized during fiscal 2004 for the termination of approximately 1,900 employees. We also utilized $9.7 million of lease and contract termination costs and $18.8 million of the other restructuring costs during fiscal 2004.

During fiscal 2004, we reversed approximately $1.8 million of accrued employee termination benefits and approximately $1.4 million of accrued lease costs due to revisions of estimates.

During the three months ended January 1, 2005, we recorded restructuring charges of approximately $18.1 million, of which $16.3 million relates to our phase three restructuring plan and the remainder relates to our phase two restructuring plan. These charges included employee termination benefits of approximately $12.6 million, lease and contract termination costs of approximately $2.9 million, other restructuring costs of approximately $1.4 million, incurred primarily to prepare facilities for closure, and impairment of fixed assets of approximately $1.2 million consisting of excess facilities and equipment to be disposed of. This $1.2 million was fully utilized in the first quarter of 2005. The employee termination benefits were related to the involuntary termination of 673 employees, the majority of which were involved in manufacturing activities. Approximately $11.7 million for employee termination benefits was utilized during the three months ended January 1, 2005. A total of approximately 311 employees were terminated during the three months ended January 1, 2005 pursuant to this restructuring plan. We also utilized $1.8 million of lease and contract termination costs and $200,000 of the other restructuring costs during the three months ended January 1, 2005.

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 and SFAS 112 where applicable. Accordingly, costs associated with such plans are recorded as restructuring costs in the consolidated statements of operations generally at the commitment date. The accrued restructuring costs are included in “accrued liabilities” in the condensed consolidated balance sheet. Below is a summary of the activity related to restructuring costs recorded pursuant to EITF 94-3 and SFAS 112 pursuant to our ongoing restructuring plans through the first quarter of fiscal year 2005.

	Employee Severance and Related Expenses				Restructuring and Other Expenses				Facilities Shutdown and Consolidation Costs				Write-off Impaired or Redundant Fixed Assets				Total
	(In thousands)
	Cash				Cash				Cash				Non-cash
Balance at September 28, 2002		$	10,344			$	779			$	35,887			$	—		$	47,010
Charges to operations		18,138				(779		)		31,977				38,400			88,515
Charges utilized		(12,476		)						(51,906		)		(38,400		)	(103,561		)
Reversal of accrual		(6,267		)		—				(1,468		)		—			(7,735		)
Balance at September 27, 2003		9,739				—				14,490				—			24,229
Charges to operations		8,205				—				35,730				3,500			47,435
Charges utilized		(9,667		)		—				(28,279		)		(3,500		)	(41,446		)
Reversal of accrual		(7,050		)		—				(7,016		)		—			(14,066		)
Balance at October 2, 2004		1,227				—				14,925				—			16,152		)
Charges to operations		329				—				1,216				760			2,305
Charges utilized		(1,180		)		—				(3,473		)		(760		)	(5,413		)
Balance at January 1, 2005		$	376			$	—			$	12,668			$	—		$	13,044

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.

Fiscal 2002 Plans

September 2002 Restructuring. In September 2002, we approved a plan pursuant to EITF 94-3 to close and consolidate certain of its manufacturing facilities in North America, Europe and Asia as a result of the ongoing slowdown in the industry. In fiscal years 2002 and 2003, we recorded charges to operations of $10.1 million for planned employee severance expenses related to the involuntary termination of approximately 800 employees, and utilized charges of approximately $5.8 million as a result of terminating approximately 790 employees. In fiscal 2002 and 2003 we also recorded charges to operations of $22.3 million for the shutdown of facilities related to non-cancelable lease payments for permanently vacated properties and associated costs, and utilized charges of $17.7 million related to the shutdown of these facilities. We also incurred charges to operations of $74.3 million in fiscal years 2002 and 2003 related to the impairment of buildings and excess equipment and leasehold improvements at permanently vacated facilities.

During fiscal 2004, we recorded charges to operations of approximately $1.9 million and utilized $2.6 million for employee severance expenses. Approximately 10 employees were terminated during fiscal 2004. During fiscal 2004, we also recorded charges to operations of approximately $26.7 million and utilized approximately $16.1 million for non-cancelable lease payments, lease termination costs and related costs for the shutdown of facilities. In addition, in fiscal 2004 we reversed approximately $3.6 million of accrued employee severance due to lower than anticipated payments at various plants and approximately $5.8 million of accrued facilities shutdown costs due to a change in use of the facilities or achieving greater sublease income than we anticipated. We also incurred charges to operations of $3.5 million related to the impairment of buildings and leasehold improvements at permanently vacated facilities in fiscal 2004. The closing of the plants discussed above as well as employee terminations and other related activities have been completed, however, the leases of the related facilities expire in 2009; therefore, the remaining accrual will be reduced over time as the lease payments, net of sublease income, are made.

During the first quarter of fiscal year 2005, we recorded charges to operations of $46,000 and utilized $46,000 for employee severance costs. No employees were terminated during the three months ending January 1, 2005 pursuant to the September 2002 restructuring plan. In addition, we recorded charges of $193,000 and utilization of $857,000 due to shutdown costs for closed facilities. In addition, $400,000 was charged to operations and utilized due to the write-off of impaired fixed assets.

October 2001 Restructuring. In October 2001, we approved a plan pursuant to EITF 94-3 to close and consolidate certain of its manufacturing facilities throughout North America and Europe as a result of the continued slowdown in the industry and economy worldwide. In fiscal years 2002 and 2003, we recorded net charges to operations of $34.7 million for the expected involuntary termination of approximately 5,400 employees associated with these plant closures, and utilized charges of approximately $24.5 million as a result of terminating approximately 5,000 employees. We also incurred net charges to operations of $46.1 million in fiscal years 2002 and 2003 for non-cancelable lease payments for permanently vacated properties and other costs related to the shutdown of facilities, and utilized approximately $44.2 million of these charges in fiscal years 2002 and 2003. In fiscal year 2003, we reversed accrued severance charges of $6.3 million and accrued lease cancellation charges of $700,000 due to lower than estimated settlement costs at three European sites. We also incurred and utilized charges to operations of $56.4 million in fiscal years 2002 and 2003 related to the write-offs of fixed assets consisting of excess equipment and leasehold improvements to facilities that were permanently vacated.

During fiscal 2004, we recorded charges to operations of approximately $5.2 million for employee severance costs and approximately $4.8 million for non-cancelable lease payments and other costs related

to the shutdown of facilities. We utilized accrued severance charges of approximately $6.6 million and accrued facilities shutdown related charges of $3.7 million during fiscal 2004. During fiscal 2004, we reversed approximately $1.3 million of accrued severance and approximately $530,000 of accrued lease costs due to lower than expected payments at various sites. We have terminated all employees affected under this plan. The remaining accrued severance at January 1, 2005, is expected to be paid within the next nine months. Manufacturing activities at the facilities affected by this plan ceased in fiscal year 2003 or prior; however, final payments of accrued costs may not occur until later periods.

During the first quarter of fiscal year 2005, we recorded charges to operations of $213,000 for employee severance costs and $313,000 for impairment of fixed assets. We utilized accrued severance charges of $1.1 million, accrued facilities shutdown related charges of $342,000, and $313,000 for impairment of fixed assets during the first quarter of fiscal year 2005.

Fiscal 2001 Plans

Segerström Restructuring. In March 2001, We acquired Segerström in a pooling of interests business combination and announced the restructuring plan. During fiscal years 2001 and 2002, we recorded net charges to operations of $5.7 million for the involuntary termination of 470 employee positions, and utilized $5.4 million of these charges in fiscal years 2001, 2002 and 2003. 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 fiscal years 2001, 2002 and 2003. During fiscal 2004, we utilized approximately $300,000 of accrued severance charges. In addition, during fiscal 2004 we recorded charges to operations of approximately $103,000 and utilized approximately $818,000 with respect to the shutdown and consolidation of facilities. We also reversed $642,000 of accrued facilities shutdown costs due to lower than expected payments during fiscal 2004. During the first quarter of fiscal year 2005, we utilized $327,000 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 years 2001 and 2002, we recorded charges to operations of $24.0 million for severance costs for involuntary employee terminations, of which $22.7 million was utilized for the termination of approximately 3,800 employees during fiscal years 2001, 2002 and 2003. 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 $37.9 million was utilized during fiscal years 2001, 2002 and 2003. Also during fiscal years 2001 and 2002, we recorded and utilized $7.3 million of asset related write-offs of equipment and leasehold improvements to permanently vacated properties. During fiscal year 2003 we reversed accrued facilities costs of $768,000 due to the early termination of the related lease.

During fiscal 2004, we recorded approximately $4.1 million and utilized approximately $7.7 million of accrued costs related to the shutdown of facilities. In addition, we recorded charges to operations of approximately $1.1 million, utilized $164,000 and reversed approximately $2.1 million of accrued severance due to lower than anticipated payments during fiscal 2004. Manufacturing activities at the plants affected by this plan had ceased by the fourth quarter of fiscal 2002; however, the leases of the related facilities expire between 2005 and 2010, therefore, the remaining accrual will be reduced over time as the lease payments, net of sublease income, are made.

During the first quarter of fiscal year 2005, we recorded approximately $1.0 million and utilized approximately $1.9 million of accrued costs related to the shutdown of facilities. In addition, we recorded charges to operations of approximately $70,000 and utilized $70,000 related to employee severance. During the first quarter of fiscal year 2005, we recorded and utilized $47,000 for the write-off of impaired assets.

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. The accrued restructuring costs are included in “accrued liabilities” in the condensed consolidated balance sheet. Below is a summary of the activity related to restructuring costs recorded pursuant to EITF 95-3 for the periods in which restructuring activities have taken place through the first quarter of fiscal 2005.

	Employee Severance and Related Expenses				Facilities Shutdown and Consolidation Costs				Write-off Impaired or Redundant Fixed Assets				Total
	(In thousands)
	Cash				Cash				Non-cash
Balance at September 28, 2002		$	39,954			$	23,559			$	4,081		$	67,594
Additions to restructuring accrual		30,540				7,224				3,251			41,015
Accrual utilized		(36,516		)		(16,164		)		(7,332		)	(60,012		)
Reversal of accrual		(23,968		)		(1,007		)		—			(24,975		)
Balance at September 27, 2003		10,010				13,612				—			23,622
Additions to restructuring accrual		10,858				—				6,024			16,882
Accrual utilized		(20,826		)		(11,434		)		(6,024		)	(38,284		)
Balance at October 2, 2004		42				2,178				—			2,220
Additions to restructuring accrual		—				—				—			—
Accrual utilized		(42		)		(568		)		—			(610		)
Balance at January 1, 2005		$	—			$	1,610			$	—		$	1,610

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. In fiscal 2003, as part of an insignificant business acquisition completed in December 2002, we closed an acquired manufacturing facility in Texas as of the acquisition date and transferred the business to one of our existing plants. We recorded and utilized 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. In fiscal 2003, we also recorded charges to the restructuring liability of $7.5 million related to a manufacturing facility in Germany acquired in fiscal 2002. The charges consisted of severance costs for involuntary employee terminations of approximately 210 employees. We utilized $897,000 and $6.6 million of the accrued severance in fiscal 2003 and 2004 to terminate 145 and 60 employees, respectively. In addition, during fiscal 2004, we recorded charges to the restructuring liability of $10.9 million, and utilized $10.8 million, related to employee terminations at manufacturing facilities in Europe and Mexico acquired in fiscal 2003 due to the transfer of a portion of the manufacturing activities to one of our existing plants. The charges were related to the elimination of approximately 340 employees. We also recorded and utilized charges to the restructuring liability of approximately $6.0 million related to excess machinery and equipment to be disposed of. In the three months ended January 1, 2005, we utilized $42,000 relating to employee severance.

SCI Acquisition Restructuring. In December 2001, Sanmina merged with SCI in a purchase business combination and formally changed its name to Sanmina-SCI Corporation. As part of the merger with SCI, we also recorded charges to the restructuring liability of $119.6 million during fiscal years 2002 and 2003 consisting of planned involuntary employee termination costs for approximately 7,900 employees and utilized $92.1 million in charges with respect to the termination of those employees. During fiscal years 2002 and 2003 we also incurred net charges to the restructuring liability of $41.0 million for restructuring costs related to lease payments for permanently vacated properties and other costs, and utilized approximately $26.3 million of these charges. we also incurred charges to restructuring liability of $24.9

million of asset related write-offs consisting of excess equipment and leasehold improvements to facilities that were permanently vacated. During fiscal year 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. We also reversed $1.0 million of accrued facilities shutdown costs due to lower than estimated costs at various sites. During fiscal 2004, we utilized a total of approximately $11.4 million of facilities-related accruals and $3.4 million of accrued severance. During the three months ended January 1, 2005, we utilized $568,000 related to employee severance.

Ongoing Restructuring Activities

We continue to rationalize manufacturing facilities and headcount to better scale capacity to current market and operating conditions. In July 2004, we announced our phase three restructuring plan, which we initially expected to result in restructuring charges of up to approximately $100 million. In January 2005, we announced an increase to planned restructuring costs under our phase three restructuring plan from $100 million to approximately $175 million. This additional charge is to further reduce manufacturing capacity in high cost regions and leverage expanded capacity and technical capabilities in more cost-efficient regions. We undertook this smaller scale restructuring plan to further refine our overall cost structure and reduce operating costs in high cost locations. We expect to incur approximately 50 to 75% of the total phase three restructuring costs in fiscal 2005 and substantially all of the remainder in fiscal 2006. We expect approximately 65 to 70% of the charges to be cash charges and the remainder to be non-cash. At the conclusion of our phase three restructuring activities, we expect to achieve reductions in non-cash and cash costs, including primarily depreciation and payroll and related benefits, totaling approximately $35 to 40 million per quarter.

We also anticipate incurring restructuring charges in the remainder of fiscal 2005 under our phase two restructuring plan which was approved by management in the fourth quarter of fiscal year 2002. Total restructuring costs under this plan are expected to be approximately $275.0 million, of which an aggregate of approximately $264.7 million was incurred in fiscal 2002, 2003, 2004 and the first quarter of fiscal 2005. The costs consist of both cash and non-cash charges. As of October 2, 2004, we had completed or commenced all restructuring actions contemplated under our phase two restructuring plan. However, certain costs cannot be recorded until future quarters in accordance with generally accepted accounting principles. 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 to $200 million, affecting cost of sales and selling, general and administrative expense. We began to realize benefits from these savings in the fourth quarter of fiscal 2002 and fully realized the annual savings by the end of fiscal 2004.

We plan to fund cash restructuring costs with cash flows generated by operating activities.

Interest Expense

Interest expense increased to $38.6 million in the first quarter of fiscal 2005 compared to $28.2 million in the first quarter of fiscal 2004. In the first quarter of fiscal 2005, interest expense related to the 10.375% Notes increased to $17.0 million compared to $14.7 million in the first quarter of fiscal 2004, primarily due to a higher interest rate resulting from the interest rate swap transaction discussed below.

We entered into an interest rate swap transaction with an independent third party to effectively convert the fixed interest rate on our 10.375% Notes to a variable rate. Under the terms of the swap agreement, we pay the independent third party an interest rate equal to the six-month LIBOR rate plus 6.2162%. In exchange, we receive a fixed rate of 10.375%.

Provision for Income Taxes

The provision for income taxes for the three months ended January 1, 2005 is based upon our estimate of the annual effective tax rate for fiscal 2005 of 27.0%. For the three months ended December 27, 2003, the estimated annual effective tax rate was 16.0%. The increase in the effective rate in fiscal 2005 is due primarily to the effective rate in fiscal 2004 being lower than statutory rates due to certain losses and restructuring costs expected to be incurred by non-U.S. operations during that year for which no tax benefit was expected to be recognized.

As of January 1, 2005, we have a significant amount of deferred tax assets on our balance sheet, which primarily relate to losses in the U.S. and Canada that could not be carried back to prior years. We have recorded a tax benefit for these losses based on forecasted future profitability in the U.S. and Canada. We currently expect that our U.S. and Canadian operations will be profitable in fiscal 2005 and that the deferred tax assets are more likely than not to be realized based on our projections, including our tax planning strategies. However, our expanded restructuring activities discussed above or an adverse change in economic conditions or industry demand or other factors could result in our U.S. and Canadian operations incurring a loss in fiscal 2005 and affect our assessment of the realizability of our deferred tax assets. We are currently monitoring this situation. In accordance with SFAS No. 109, if our assessment of the realizability of these deferred tax assets change, we will be required to record a valuation allowance against these deferred tax assets, which could result in a charge to income tax expense of up to $400 to $500 million in the period we make such a determination.

Liquidity and Capital Resources

Cash, cash equivalents, and short-term investments as of January 1, 2005 were $1.1 billion, including $25.5 million of restricted cash. Cash provided by operating activities was $52.1 million and $110.0 million during the three months ended January 1, 2005 and December 27, 2003, respectively. The decrease in cash provided by operating activities in the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 is primarily the result of a decease in accounts payable days in the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 (see Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview). Working capital was $1.5 billion as of January 1, 2005 and October 2, 2004.

Net cash used for investing activities was $90.7 million for the three months ended January 1, 2005. For the three months ended December 27, 2003, net cash used for investing activities of $33.7 million. The increase in net cash used for investing activities in the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 was due primarily to an increase in cash paid for business acquisitions; particularly the Pentex-Schweizer Circuits Limited, or Pentex, acquisition.

Net cash used for financing activities was $12.1 million in the three months ended January 1, 2005 as compared to net cash provided by financing activities of $713,000 for the three months ended December 27, 2003. In the first quarter of fiscal 2005, we repaid $4.0 million more of long-term debt and notes and credit facilities than in the first quarter of fiscal 2004. In addition, in the first quarter of fiscal 2005, proceeds from the sale of common stock were $8.0 million less than in the first quarter of fiscal 2004, primarily due to the timing of employee stock purchase plan common stock purchases.

Currently, borrowings under our senior secured credit facility are limited to $100.0 million and letters of credit are limited to $150.0 million until such time as we have raised at least $300 million in gross proceeds from the issuance of equity, debt or other securities and, upon such issuance, either applied at least $300 million in net proceeds (or the entire amount of net proceeds if less than $300 million) to repurchase, redeem, exchange or repay the Zero Coupon Debentures or deposited such proceeds in an account maintained by us and designated for the repurchase of the Zero Coupon Debentures on September 12, 2005, the designated put date. Once these conditions are met, we will have the capacity to borrow up to $500 million under the senior secured credit facility (with a $150 million letter of credit sub-limit).

Contractual Obligations

The following is a summary of our obligations and commitments as of January 1, 2005:

			Fiscal Year(s)
Dollars in thousands	Total		Nine Months 2005			2006 — 2007			2008 — 2009			After 2009
Long-term debt and capital lease obligations(1)	$	1,905,853		$	615,563		$	530,546		$	2,022	$	757,722
Operating leases(2)	119,553			28,658			44,733			18,030		28,132
Total contractual obligations	$	2,025,406		$	644,221		$	575,279		$	20,052	$	785,854

(1) In September 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. Accordingly, the accreted value of our Zero Coupon Subordinated Debentures due 2020 as of January 1, 2005 of $614.2 million is included in the fiscal 2005 maturities in the table above.

(2) Future operating lease payments include the obligations for closed facilities (totaling approximately $17.8 million) which have been fully or partially accrued in restructuring costs.

We also have outstanding firm purchase orders with certain suppliers for the purchase of inventory. These purchase orders are generally short-term in nature. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty. Our policy regarding non-standard or customized items dictates that such items are only ordered specifically for customers who have contractually assumed liability for the inventory. In addition, a substantial portion of the catalog items covered by our purchase orders were procured for specific customers based on their purchase orders or a forecast under which the customer has contractually assumed liability for such material. Accordingly, the amount of liability from purchase obligations under these purchase orders is not significant or meaningful.

Certain acquisition agreements that we entered into in connection with purchase business combinations may require us to pay additional consideration determined by future performance of the acquired entity. The amount and likelihood of the payments are not determinable as of January 1, 2005.

We provided guarantees to various third parties in the form of letters of credit totaling $25.5 million as of January 1, 2005. The letters of credit cover various guarantees including interest rate swap agreements, workers’ compensation claims and customs duties.

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 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 expect to incur cash costs of approximately $100 million in future periods pursuant to our phase three restructuring plan announced in July 2004 and revised in January 2005.

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 decrease over the next 12 months, the available cash provided by operations could be negatively impacted. We may seek to raise additional capital through the issuance of either debt or equity securities. Our senior secured credit facility and the indenture governing our 10.375% Notes include covenants that, among other things, limit in certain respects us and our 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 addition to existing collateral and covenant requirements, future debt financing may require us to pledge assets as collateral and comply with financial ratios and covenants. Equity financing may result in dilution to stockholders.

In September 2005, we will be required to repurchase up to $631.5 million accreted value of Zero Coupon Subordinated Debentures due 2020, or Zero Coupon Debentures, if submitted for repurchase by the holders of these debentures at their option on the repurchase date of September 12, 2005. We may choose to pay the repurchase price in cash, in shares of our common stock valued at market price or in any combination of the two. We may redeem all or a portion of the Zero Coupon Debentures for cash at any time after September 12, 2005 at the issue price plus accrued original issue discount through the date of redemption. Management is currently considering financing alternatives that include, but are not limited to, refinancing or restructuring a portion of our existing debt obligations through a variety of possible financing alternatives and issuing equity securities. We cannot assure you that we will be able to refinance or restructure our existing debt obligations or issue equity securities on favorable terms, if at all.

Factors Affecting Operating Results

We are exposed to general market conditions in the electronics industry which could have a material adverse impact on our business, operating results and financial condition.

As a result of the downturn in the electronics industry, demand for our manufacturing services declined significantly during our 2001, 2002, and 2003 fiscal years. The decrease in demand for manufacturing services by OEMs resulted primarily from reduced capital spending by communications service providers. Consequently, our operating results were adversely affected as a result of the deterioration in the communications market and the other markets that we serve. Although we have begun to see evidence of a recovery in several markets that we serve, if capital spending in these markets does not continue to improve, or improves at a slower pace than we anticipate, our revenue and profitability will be adversely affected. In addition, even as many of these markets begin to recover, OEMs are likely to continue to be highly sensitive to costs and will likely continue to place pressure on EMS companies to minimize costs. This will likely result in continued significant price competition among EMS companies, and this competition will likely continue to affect our results of operations.

We cannot accurately predict future levels of demand for our customers’ electronics products. As a result of this uncertainty, we cannot accurately predict if the improvement in the electronics industry will continue. Consequently, our past operating results, earnings and cash flows may not be indicative of our future operating results, earnings and cash flows. In particular, if the economic recovery in the electronics industry does not demonstrate sustained momentum, and if price competition for EMS services continues to be intense, our operating results may 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.

Before the economic downturn in the communications sector and before our merger with SCI Systems, Inc., sales of our services to OEMs in the communications 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 on communication products. OEMs are continuing to seek price decreases from us and other EMS companies and competition for this business remains intense. Although the electronics industry has begun to show indications of a recovery, pricing pressure on EMS companies continues to be strong and there continues to be intense price competition for EMS services. 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 adversely affected.

Our operating results are subject to significant uncertainties.

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;

· our ability to efficiently move manufacturing activities to lower cost regions without adversely affecting customer relationships;

· pricing and other competitive pressures;

· seasonality in customers’ product requirements;

· fluctuations in component prices;

· political and economic developments in countries in which we have operations;

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

· new product development by our customers.

A 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. 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.

If we receive other than an unqualified opinion on the adequacy of our internal control over financial reporting as of October 1, 2005 and future year-ends as required by Section 404 of the Sarbanes-Oxley Act of 2002 or we identify other issues in our internal controls, or if we are unable to deliver accurate and timely financial information, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the market price of our common stock and other securities.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K that contains an assessment by management of the effectiveness of the company’s internal control over financial reporting. In addition, the independent registered public accounting firm auditing the company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting. For example, in connection with the audit of our financial statements as of and for the year ended October 2, 2004, management and our independent registered public accounting firm identified a material weakness in our system of internal controls. This matter is discussed in additional detail in Item 4, Controls and Procedures, and in our most recent Annual Report on Form 10-K. We have undertaken a rigorous review of our internal control over financial reporting in order to improve our internal controls, assure compliance with the Section 404 requirements, and ensure the delivery of accurate and timely financial information. We are currently implementing a number of measures intended to meet these objectives. We will need to make significant improvements in our internal controls on an ongoing basis. We will also need to complete and test necessary controls prior to the end of our current fiscal year in order to meet our Section 404 requirements. We cannot assure you that our review will not identify additional control deficiencies or that we will be able to implement improvements to our internal controls in a timely manner. As a result of these reviews or otherwise, we cannot assure you that we will not need to make adjustments to current period operating results or to operating results that have been previously publicly announced or otherwise experience an adverse affect on our operating results, financial condition or business. Moreover, if our independent auditors interpret the Section 404 requirements and the related rules and regulations differently from us or if our independent auditors are not satisfied with our internal control over financial reporting or with the level at which it is documented, operated or reviewed, they may decline to attest to management’s assessment or issue a qualified report. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our common stock and other securities to decline.

We may not be able to finance future needs or adapt our business plan to changes because of restrictions contained in the terms of our 10.375% Notes and our senior secured credit facility.

Our senior secured credit facility and the indenture for the 10.375% Notes 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, or redeem or repurchase our capital stock or subordinated obligations, subject to certain exceptions;

· create specified liens;

· make capital expenditures;

· sell assets;

· make acquisitions;

· create or permit restrictions on the 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;

· incur layered indebtedness; 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 10.375% Notes, the senior secured credit facility and agreements governing other 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. The senior secured credit facility requires us to comply with a fixed charge coverage ratio and a leverage ratio. 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. If a default occurs under our senior secured credit facility, we would be unable to borrow under our revolving credit facility and the lenders could cause all of the outstanding debt obligations under the senior secured credit facility to become due and payable, which could result in a default under the 10.375% Notes and could lead to an acceleration of these respective obligations. Upon a default or cross-default, the collateral agent, at the direction of the lenders under the senior secured credit facility could proceed against the collateral. Even if we are able to comply with all of 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.

An adverse change in the interest rates for our borrowings could adversely affect our financial condition.

Interest to be paid by us on any borrowings under any of our credit facilities and other long-term debt obligations may be at interest rates that fluctuate based upon changes in various base interest rates. An adverse change in the base rates upon which our interest rates are determined could have a material adverse effect on our financial position, results of operations and cash flows.

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 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. In the event our customers experience significant decreases in demand for their products and services, our customers may 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.

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.

Sales to our 10 largest customers accounted for 69.3% of our net sales in the three months ended January 1, 2005 and our two largest customers, IBM and HP, each accounted for 10% or more of our net sales for that period. We depend on 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 December 2004, IBM announced that it was selling its personal computer business to Lenovo Group, Ltd., or Lenovo, a China-based manufacturer of personal computers. A substantial portion of our sales to IBM relate to personal computer products. In the event that we are unable to enter into new supply agreements with Lenovo for the former IBM personal computer business that was sold to Lenovo, our net sales and operating results could be adversely affected. In the past, some of our large customers have significantly reduced or delayed the volume of manufacturing services ordered from us as a result of changes in their business, consolidations or divestitures or for other reasons. 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.

If our business declines or improves at a slower pace than we anticipate, we may further restructure our operations, which may adversely affect our financial condition and operating results.

In July 2004, we announced our phase three restructuring plan, which we initially expected to result in restructuring charges of up to approximately $100 million. In January 2005, we announced an increase to planned restructuring costs under our phase three restructuring plan from $100 million to approximately $175 million. During the fourth quarter of fiscal 2004 and the first quarter of fiscal 2005, we incurred $24.1 million of restructuring costs associated with this plan and expect to incur 50-75% of the total estimated costs by the end of fiscal 2005, with the remainder occurring in fiscal 2006. In addition, we anticipate incurring additional restructuring charges in the first half of fiscal 2005 under our phase two restructuring plan, which was approved by management in the fourth quarter of fiscal 2002. Our phase two restructuring plan is expected to total approximately $275.0 million of both cash and non-cash restructuring charges, of which an aggregate of approximately $264.7 million was incurred in fiscal 2002, 2003 and 2004 and the first quarter of fiscal 2005. 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 declines or improves at a slower pace than we anticipate 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.

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

The EMS industry is highly competitive. We compete on a worldwide basis to provide electronics manufacturing services to OEMs in the communications, personal and business computing, enterprise computing and storage, multimedia, industrial and semiconductor capital equipment, defense and aerospace, medical and automotive industries. Our competitors include major global EMS providers such as Celestica, Inc., Flextronics International Ltd., Hon Hai (FoxConn), Jabil Circuit, Inc., and Solectron Corporation, as well as other 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.

Consolidation in the electronics industry may adversely affect our business.

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.

Our failure to comply with applicable environmental laws 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 have finished 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 accruals 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.

In addition to environmental laws and regulations that affect our own operations, recently a number of initiatives directed at reducing the use of hazardous materials in electronic devices and other products have begun to proliferate. Our customers will be required to comply with these initiatives, and we in turn will need to implement manufacturing processes that facilitate such compliance. We may incur additional costs that we are unable to pass on to our customers in order to meet the requirements of these initiatives.

We are potentially liable for contamination of our current and former facilities, including those of the companies we have acquired, which could adversely affect our business and operating results in the future.

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, (a non-operating facility acquired as part of our acquisition of Elexsys); Owego, New York (a current facility of our Hadco subsidiary); Derry, New Hampshire (a non-operating 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 this contamination. We cannot assure you 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 do not currently expect to incur liability for clean-up costs or expenses at any of these sites, we cannot assure you that we will not incur such liability or that any such liability would not be material to our business and operating results in the future.

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

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, 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.

Unanticipated changes in our tax rates or in our assessment of the realizability of our deferred tax assets or exposure to additional income tax liabilities could affect our operating results and financial condition.

We are subject to income taxes in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and, in the ordinary course

of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws as well as other factors. The carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our ability to generate future taxable income in the United States. In accordance with SFAS No. 109, if our assessment of the realizability of these deferred tax assets change, we will be required to record a valuation allowance against these deferred tax assets, which could result in a charge to income tax expense of up to $400 to $500 million in the period we make such a determination. Further, our tax determinations are regularly subject to audit by tax authorities and developments in those audits could adversely affect our income tax provision. Should our ultimate tax liability exceed our estimates, our income tax provision and operating results could be affected.

We are subject to risks arising from our international operations.

We conduct our international operations primarily 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 77.4% of our net sales from non-U.S. operations during the three months ended January 1, 2005, and a significant portion of our manufacturing material was provided by international suppliers during this period. During fiscal 2004, we generated 72.7% 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 and/or income tax rates;

· earnings repatriation 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, during fiscal 2004, the decline in the value of the U.S. dollar as compared to the Euro and many other currencies has resulted in foreign exchange losses. To date, these losses have not been material

to our results of operations. However, continued fluctuations in the value of the U.S. dollar as compared to the Euro and other currencies in which we transact business could adversely affect our operating results.

We are subject to risks of currency fluctuations and related hedging operations.

A portion of our business is conducted in currencies other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect our cost of sales, operating margins and revenues. We cannot predict the impact of future exchange rate fluctuations. In addition, certain of our subsidiaries that have non-U.S. dollar functional currencies transact business in U.S. dollars. We use financial instruments, primarily short-term foreign currency forward contracts, to hedge U.S. dollar and other currency commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations. If these hedging activities are not successful or we change or reduce these hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates.

We may not be successful in implementing strategic transactions, including business acquisitions, and we may encounter difficulties in completing and integrating acquired businesses or in realizing anticipated benefits of strategic transactions, which could adversely affect our operating results.

We seek to undertake strategic transactions that give us the opportunity to access new customers, manufacturing and service capabilities, technologies and geographic markets, to lower our manufacturing costs and improve the margins on our product mix, and to further develop existing customer relationships. For example, we recently completed the acquisition of Pentex in order to provide lower cost printed circuit board manufacturing capacity in China. In addition, we will continue to pursue OEM divestiture transactions. Strategic transactions may involve difficulties, including the following:

· 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 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 a strategic transaction, and our failure to realize these benefits could adversely affect our business and operating results. In addition, we may not be successful in identifying future strategic opportunities or in consummating any strategic transactions that we pursue on favorable terms, if at all. Although our goal is to improve our business and maximize stockholder value, any transactions that we complete may impair stockholder or debtholder value or otherwise adversely affect our business and the market price of our stock. Moreover, any such transaction may require us to incur related charges, and may pose significant integration challenges and/or management and business disruptions, any of which could harm our operating results and business.

If we are unable to protect our intellectual property or infringe or are alleged to infringe upon intellectual property of others, our operating results may be adversely affected.

We rely on a combination of copyright, patent, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. As ODM services assume a greater degree of importance to our business, the extent to which we rely on intellectual property rights will increase. 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. The likelihood of any such claims may increase as we increase the ODM aspects of our business. These claims and any resulting lawsuits 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.

Any costs we incur from having to take any of these actions could be substantial.

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

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.

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

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. As our business begins to improve following the economic downturn, we may experience component shortages from time to time. 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. In addition, we may purchase components in advance of our requirements for those components as a result of a threatened or

anticipated shortage. In this event, we will incur additional inventory carrying costs, for which we may not be compensated, and have a heightened risk of exposure to inventory obsolescence. 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.

If we manufacture or design defective products, 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.

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 or design 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. In addition, we are also involved in product and component design, and as we seek to grow our original design manufacturer business, this activity as well as the risk of design defects will increase. Defects in the products we manufacture or design 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 design or of 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.

Recently enacted changes in the securities laws and regulations are likely to increase our costs.

The Sarbanes-Oxley Act of 2002 that became law in July 2002 has required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of that Act, the Securities and Exchange Commission and the Nasdaq National Market have promulgated new rules on a variety of subjects. Compliance with these new rules, particularly Section 404 of The Sarbanes-Oxley Act of 2002 regarding management’s assessment of our internal control over financial reporting, has increased our legal and financial and accounting costs, and we expect these increased costs to continue indefinitely. We also expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be forced to accept reduced coverage or incur substantially higher costs to obtain coverage. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors or qualified executive officers.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposures to market risk for changes in interest rates relate primarily to our investment portfolio and certain debt obligations. Currently, we do not use derivative financial instruments in our investment portfolio. We invest in high credit quality issuers and, by policy, limit 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 January 1, 2005 (dollars in thousands):

	2005			2006			Total
	(In thousands, except percentages)
Cash equivalents and short-term investments	$	498,254		$	1,273		$	499,527
Average interest rate	2.17		%	2.77		%	2.17		%

We have issued the 10.375% Notes with a principal balance of $750.0 million due in 2010. We entered into an interest rate swap transaction with an independent third party to effectively convert the fixed interest rate to variable rates. The swap agreement, which expires in 2010, is accounted for as a fair value hedge under SFAS No. 133. The aggregate notional amount of the swap transaction is $750.0 million. Under the terms of the swap agreement, we pay the independent third party an interest rate equal to the six-month LIBOR rate plus 6.2162%. In exchange, we receive a fixed rate of 10.375%. At January 1, 2005 and October 2, 2004 respectively, ($8.4) million and $13.0 million have been recorded in other assets (long-term liabilities) to record the fair value of the interest rate swap transactions, with a corresponding increase (decrease) to the carrying value of the 10.375% Notes on the Consolidated Balance Sheet.

As of January 1, 2005, we also have $13.0 million of revolving credit agreements and $8.1 million of other term loans at interest rates that fluctuate. The average interest rates for the quarter ended January 1, 2005 were 4.25% for the revolving credit agreements and 3.93% for other term loans.

Foreign Currency Exchange Risk

We transact business in foreign countries. Our primary foreign currency cash flows are in certain Asian and European countries, Australia, Brazil, Canada, and Mexico. We enter into short-term foreign currency forward contracts to hedge those currency exposures associated with certain assets and liabilities denominated in foreign currencies. At January 1, 2005, we had forward contracts to exchange various foreign currencies for U.S. dollars in the aggregate notional amount of $446.6 million. The net unrealized loss on the contracts at January 1, 2005 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 months ended January 1, 2005 and December 27, 2003. we also utilize foreign currency forward and option contracts to hedge certain forecasted foreign currency sales and cost of sales (“cash flow hedges”). Gains and losses on these contracts related to the effective portion of the hedges are recorded in other comprehensive income until the forecasted transactions occur. Gains and losses related to the ineffective portion of the hedges are immediately recognized in the Consolidated Statement of Operations. At January 1, 2005, we had forward and option contracts related to cash flow hedges in various foreign currencies in the aggregate notional amount of $179.6 million. The net unrealized gain on the contracts at January 1, 2005 is not material and is recorded in prepaid expenses and other on the consolidated balance sheet. The impact of these foreign exchange contracts was not material to the results of operations for the three months ended January 1, 2005 and December 27, 2003.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. As reported in our most recent Annual Report on Form 10-K for the fiscal year ended October 2, 2004, in connection with the audit of our consolidated financial statements for the year ended October 2, 2004, and in light of new, recently issued interpretative guidance in relation to the assessment of the operating effectiveness of a company’s internal controls, our management and our independent registered public accounting firm, KPMG LLP, reported to our audit committee the identification of a “material weakness” (as such term is defined under Public Company Accounting Oversight Board Auditing Standard No. 2) in our internal controls. Although the Company has commenced corrective actions to remediate on an ongoing basis the material weakness as described in our most recent Annual Report on Form 10-K, the material weakness continues to exist as of January 1, 2005. The Company’s management, including the CEO and CFO, has concluded that, except for the material weakness described above, and taking into account the efforts to address the material weakness, that as of January 1, 2005 our disclosure controls and procedures were designed and were functioning effectively so as to provide reasonable assurance that material information about us and our subsidiaries required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 are 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

Other than the changes noted in our most recent Annual Report on Form 10-K, there have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

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)

		Page
PART I FINANCIAL INFORMATION
Item 1.	Interim Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51
Item 4.	Controls and Procedures	53
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 4.	Submission of Matters to a Vote of Security Holders	54
Item 6.	Exhibits	54
Signatures		55

Exhibit Number		Description
3.1	(1)	Restated Certificate of Incorporation of the Registrant, dated January 31, 1996.
3.1.1	(2)	Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, dated March 9, 2001.
3.1.2	(3)	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Registrant, dated May 31, 2001
3.1.3	(4)	Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, dated December 7, 2001.
3.2	(5)	Amended and Restated Bylaws of the Registrant, dated December 1, 2003.
31.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

	SANMINA-SCI CORPORATION
	(Registrant)
	By:	/s/ JURE SOLA
		Jure Sola
		Chief Executive Officer
Date: February 9, 2005
	By:	/s/ DAVID L. WHITE
		Executive Vice President and
		Chief Financial Officer
Date: February 9, 2005

Exhibit Number		Description
3.1	(1)	Restated Certificate of Incorporation of the Registrant, dated January 31, 1996.
3.1.1	(2)	Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, dated March 9, 2001.
3.1.2	(3)	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Registrant, dated May 31, 2001
3.1.3	(4)	Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, dated December 7, 2001.
3.2	(5)	Amended and Restated Bylaws of the Registrant, dated December 1, 2003.
31.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).