sanm-20220101

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended January 1, 2022


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

For the transition period from to .

Commission File Number 0-21272

Sanmina Corporation

(Exact name of registrant as specified in its charter)

77-0228183

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

2700 N. First St.,

San Jose,

95134

(Address of principal executive offices)

(Zip Code)

(408)

964-3500

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer

[X]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	SANM	NASDAQ Global Select Market

As of January 25, 2022, there were 63,556,479 shares outstanding of the issuer's common stock, $0.01 par value per share.

SANMINA CORPORATION

INDEX


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Interim Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	43
Signatures		44

SANMINA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of
	January 1, 2022		October 2, 2021
	(Unaudited)
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	627,717	$	650,026
Accounts receivable, net of allowances of approximately $7 million as of January 1, 2022 and October 2, 2021	1,298,327		1,192,434
Contract assets	364,407		348,741
Inventories	1,242,440		1,036,511
Prepaid expenses and other current assets	59,188		53,952
Total current assets	3,592,079		3,281,664
Property, plant and equipment, net	525,159		532,985
Deferred tax assets	227,239		235,117
Other	157,533		156,953
Total assets	$	4,502,010	$	4,206,719
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,694,592	$	1,464,693
Accrued liabilities	236,227		161,896
Accrued payroll and related benefits	115,738		117,648
Short-term debt, including current portion of long-term debt	18,750		18,750
Total current liabilities	2,065,307		1,762,987
Long-term liabilities:
Long-term debt	307,160		311,572
Other	248,326		253,532
Total long-term liabilities	555,486		565,104
Contingencies (Note 7)
Stockholders' equity	1,881,217		1,878,628
Total liabilities and stockholders' equity	$	4,502,010	$	4,206,719

See accompanying notes to condensed consolidated financial statements.

SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended
	January 1, 2022		January 2, 2021
	(Unaudited)
	(In thousands, except per share data)
Net sales	$	1,757,325	$	1,755,249
Cost of sales	1,612,836		1,614,014
Gross profit	144,489		141,235

Operating expenses:
Selling, general and administrative	61,475		58,967
Research and development	4,777		4,805
Restructuring and other	1,414		1,904
Gain on sale of long-lived assets	(4,610)		—
Total operating expenses	63,056		65,676

Operating income	81,433		75,559

Interest income	309		230
Interest expense	(4,877)		(4,954)
Other income, net	2,072		1,867
Interest and other, net	(2,496)		(2,857)

Income before income taxes	78,937		72,702
Provision for income taxes	20,303		24,681
Net income	$	58,634	$	48,021

Net income per share:
Basic	$	0.91	$	0.74
Diluted	$	0.89	$	0.72

Weighted average shares used in computing per share amounts:
Basic	64,399		65,243
Diluted	66,233		66,818

See accompanying notes to condensed consolidated financial statements.

SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended
	January 1, 2022		January 2, 2021
	(Unaudited)
	(In thousands)
Net income	$	58,634	$	48,021
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments	(2,047)		1,639
Derivative financial instruments:
Change in net unrealized amount	1,964		3,356
Amount reclassified into net income	2,063		(1,501)
Defined benefit plans:
Changes in unrecognized net actuarial losses and unrecognized transition costs	478		(725)
Amortization of actuarial losses and transition costs	238		506
Total other comprehensive income	2,696		3,275
Comprehensive income	$	61,330	$	51,296

See accompanying notes to condensed consolidated financial statements.

SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	Three Months Ended
	January 1, 2022		January 2, 2021
	(Unaudited)
	(In thousands)
Common Stock and Additional Paid-in Capital
Balance, beginning of period	$	6,339,506	$	6,301,537
Issuances under stock plans	1,050		1,050
Stock-based compensation expense	9,032		8,208
Balance, end of period	6,349,588		6,310,795
Treasury Stock
Balance, beginning of period	(1,047,202)		(983,143)
Repurchases of treasury stock	(68,823)		(12,522)
Balance, end of period	(1,116,025)		(995,665)
Accumulated Other Comprehensive Income
Balance, beginning of period	40,690		34,886
Other comprehensive income	2,696		3,275
Balance, end of period	43,386		38,161
Accumulated Deficit
Balance, beginning of period	(3,454,366)		(3,723,364)
Net income	58,634		48,021
Balance, end of period	(3,395,732)		(3,675,343)
Total stockholders' equity	$	1,881,217	$	1,677,948

Common Stock Shares Outstanding
Number of shares, beginning of period	108,734		107,629
Issuances under stock plans	784		369
Number of shares, end of period	109,518		107,998
Treasury Shares
Number of shares, beginning of period	(44,427)		(42,630)
Repurchases of treasury stock	(1,771)		(482)
Number of shares, end of period	(46,198)		(43,112)

See accompanying notes to condensed consolidated financial statements.

SANMINA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	January 1, 2022		January 2, 2021
	(Unaudited)
	(In thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	58,634	$	48,021
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization	27,465		27,635
Stock-based compensation expense	9,032		8,208
Deferred income taxes	6,707		3,447




Other, net	(3,638)		(99)
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable	(106,972)		(64,217)
Contract assets	(15,666)		46,534
Inventories	(207,300)		42,282
Prepaid expenses and other assets	(2,939)		(9,400)
Accounts payable	234,525		(66,657)
Accrued liabilities	68,452		26,057
Cash provided by operating activities	68,300		61,811

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(25,376)		(11,343)
Proceeds from sales of property, plant and equipment	8,014		152



Cash used in investing activities	(17,362)		(11,191)

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments of long-term debt	(4,688)		(4,688)

Proceeds from revolving credit facility borrowings	16,000		331,300
Repayments of revolving credit facility borrowings	(16,000)		(331,300)

Net proceeds from stock issuances	1,050		1,050
Repurchases of common stock	(68,823)		(12,522)

Cash used in financing activities	(72,461)		(16,160)

Effect of exchange rate changes	(786)		1,044
Increase (decrease) in cash and cash equivalents	(22,309)		35,504
Cash and cash equivalents at beginning of period	650,026		480,526
Cash and cash equivalents at end of period	$	627,717	$	516,030

Cash paid during the period for:
Interest, net of capitalized interest	$	2,479	$	1,096
Income taxes, net of refunds	$	5,569	$	5,205
Unpaid purchases of property, plant and equipment at the end of period	$	17,431	$	11,635

See accompanying notes to condensed consolidated financial statements.

SANMINA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Sanmina Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted pursuant to those rules or regulations. The interim condensed consolidated financial statements are unaudited, but reflect all adjustments, consisting primarily of normal recurring adjustments, that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended October 2, 2021, included in the Company's 2021 Annual Report on Form 10-K.

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

Results of operations for the first quarter of 2022 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

The Company operates on a 52 or 53 week year ending on the Saturday nearest September 30. Fiscal 2022 and 2021 are each 52-week years. All references to years relate to fiscal years unless otherwise noted.

Recent Accounting Pronouncement Not Yet Adopted

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

Note 2. Revenue Recognition

The Company is a leading global provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. For purposes of determining when to recognize revenue, and in what amount, the Company applies a 5-step model: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. Each of these steps may involve the use of significant judgments, as discussed below.

Step 1 - Identify the contract with a customer

A contract is defined as an agreement between two parties that creates enforceable rights and obligations. The Company generally enters into a master supply agreement (“MSA”) with its customers that provides the framework under which business will be conducted, and pursuant to which a customer will issue purchase orders or other binding documents to specify the quantity, price and delivery requirements for products or services the customer wishes to purchase. The Company generally considers its contract with a customer to be a firm commitment, consisting of the combination of an MSA and a purchase order or any other similar binding document.

Step 2 - Identify the performance obligations in the contract

A performance obligation is a promised good or service that is material in the context of the contract and is both capable of being distinct (customer can benefit from the good or service on its own or together with other readily available resources) and distinct within the context of the contract (separately identifiable from other promises). The Company reviews its contracts to identify promised goods or services and then evaluates such items to determine which of those items are performance obligations. The majority of the Company’s contracts have a single performance obligation since the promise to transfer an individual good or service is not separately identifiable from other promises in the contract. The Company’s performance obligations generally have an expected duration of one year or less.

Step 3 - Determine the transaction price

The Company’s contracts with its customers may include certain forms of variable consideration such as early payment discounts, volume discounts and shared cost savings. The Company includes an estimate of variable consideration when determining the transaction price and the appropriate amount of revenue to be recognized. This estimate is limited to an amount which will not result in a significant reversal of revenue in a future period. Factors considered in the Company’s estimate of variable consideration are the potential amount subject to these contract provisions, historical experience and other relevant facts and circumstances.

Step 4 - Allocate the transaction price to the performance obligations in the contract

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In the event that more than one performance obligation is identified in a contract, the Company is required to allocate a portion of the transaction price to each performance obligation. This allocation would generally be based on the relative standalone price of each performance obligation, which most often would represent the price at which the Company would sell similar goods or services separately.

Step 5 - Recognize revenue when (or as) a performance obligation is satisfied

The Company is required to assess whether control of a product or services promised under a contract is transferred to the customer at a point-in-time or over time as the product is being manufactured or the services are being provided. If the criteria in ASC 606 for recognizing revenue on an over time basis are not met, revenue must be recognized at the point-in-time determined by the Company at which its customer obtains control of a product or service.

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

Application of the cost-to-cost method for government contracts in the Company’s Defense and Aerospace division requires the use of significant judgments with respect to estimated materials, labor and subcontractor costs. This division is an operating segment whose results are aggregated with eleven other operating segments and reported under Components, Products and Services ("CPS") for segment reporting purposes. During the first quarter of 2022, CPS revenue and gross profit was $340 million and $43 million, respectively.

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

Contract Assets

A contract asset is recognized when the Company has recognized revenue, but has not issued an invoice to its customer for payment. Contract assets are classified separately on the condensed consolidated balance sheets and transferred to

accounts receivable when rights to payment become unconditional. Because of the Company’s short manufacturing cycle times, the transfer from contract assets to accounts receivable generally occurs within the next fiscal quarter.

Other

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

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

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

•The promised amount of consideration under a contract is not adjusted for the effects of a significant financing component because, at inception of a contract, the Company expects the period between when a good or service is transferred to a customer and when the customer pays for that good or service will generally be one year or less.

•The Company has elected to not disclose information about remaining performance obligations that have original expected durations of one year or less, which is substantially all of the Company’s remaining performance obligations.

•Incremental costs of obtaining a contract are not capitalized if the period over which such costs would be amortized to expense is less than one year.

Disaggregation of revenue

In the following table, revenue is disaggregated by segment, market sector and geography.


	Three Months Ended
	January 1, 2022		January 2, 2021
	(In thousands)
Segments:
IMS	$	1,416,911	$	1,452,120
CPS	340,414		303,129
Total	$	1,757,325	$	1,755,249

End Markets:
Industrial, Medical, Automotive and Defense	$	1,054,971	$	1,032,518
Communications Networks and Cloud Infrastructure	702,354		722,731
Total	$	1,757,325	$	1,755,249

Geography:
Americas (1)	$	797,020	$	831,822
EMEA	269,234		259,292
APAC	691,071		664,135
Total	$	1,757,325	$	1,755,249

(1) Mexico represents approximately 60% of the Americas revenue and the U.S. represents approximately 40%.

Note 3. Financial Instruments

Fair Value Measurements

Fair Value of Financial Instruments

The fair values of cash equivalents (generally 10% or less of cash and cash equivalents), accounts receivable, accounts payable and short-term debt approximate carrying value due to the short-term duration of these instruments. Additionally, the fair value of variable rate long-term debt approximates carrying value as of January 1, 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company's primary financial assets and financial liabilities measured at fair value on a recurring basis are deferred compensation plan assets and defined benefit plan assets, which are both measured using Level 1 inputs. Deferred compensation plan assets were $52 million and $46 million as of January 1, 2022 and October 2, 2021, respectively. Defined benefit plan assets were $40 million as of October 2, 2021 and are measured at fair value only in the fourth quarter of each year. Other financial assets and financial liabilities measured at fair value on a recurring basis include foreign exchange contracts and interest rate swaps, which are both measured using Level 2 inputs. Foreign exchange contracts were not material as of January 1, 2022 or October 2, 2021. Interest rate swaps had a negative value of $13 million and $19 million as of January 1, 2022 and October 2, 2021, respectively.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

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

Offsetting Derivative Assets and Liabilities

The Company has entered into master netting arrangements with each of its derivative counterparties that allows net settlement of derivative assets and liabilities under certain conditions, such as multiple transactions with the same currency maturing on the same date. The Company presents its derivative assets and derivative liabilities on a gross basis on the unaudited condensed consolidated balance sheets. The amount that the Company had the right to offset under these netting arrangements was not material as of January 1, 2022 or October 2, 2021.

Derivative Instruments

Foreign Exchange Rate Risk

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

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

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge foreign currency exposures:


	As of
	January 1, 2022		October 2, 2021
Derivatives Designated as Accounting Hedges:
Notional amount (in thousands)	$	109,775	$	110,098
Number of contracts	50		48
Derivatives Not Designated as Accounting Hedges:
Notional amount (in thousands)	$	285,555	$	353,108
Number of contracts	39		46

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

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

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

Interest Rate Risk

The Company enters into forward interest rate swap agreements with independent counterparties to partially hedge the variability in cash flows due to changes in the benchmark interest rate (LIBOR) associated with anticipated variable rate borrowings. These interest rate swaps have a maturity date of December 1, 2023 and effectively convert the Company's variable interest rate obligations to fixed interest rate obligations. These swaps are accounted for as cash flow hedges under ASC Topic 815, Derivatives and Hedging. Interest rate swaps with an aggregate notional amount of $350 million were outstanding as of January 1, 2022 and October 2, 2021. The aggregate effective interest rate of these swaps as of January 1, 2022 was approximately 4.3%. Due to a decline in interest rates since the time the swaps were put in place, these interest rate swaps had a negative value of $13 million as of January 1, 2022, of which $8 million is included in accrued liabilities and the remaining amount is included in other long-term liabilities on the condensed consolidated balance sheets.

Note 4. Debt

Long-term debt consisted of the following:


	As of
	January 1, 2022		October 2, 2021
	(In thousands)
Term loan due 2023 ("Term Loan"), net of issuance costs	$	325,910	$	330,322



Less: Current portion of Term Loan	18,750		18,750
Long-term debt	$	307,160	$	311,572

Term Loan maturities as of January 1, 2022 by fiscal year are as follows:


	(In Thousands)
Remainder of 2022	$	14,063
2023	14,062
2024	300,000
	$	328,125

As of January 1, 2022, there were no borrowings and $8 million of letters of credit outstanding under the Fourth Amended and Restated Credit Agreement (the "Amended Cash Flow Revolver").

As of January 1, 2022, certain foreign subsidiaries of the Company had a total of $70 million of short-term borrowing facilities available, under which no borrowings were outstanding.

Debt Covenants

The Company's Amended Cash Flow Revolver requires the Company to comply with certain financial covenants, namely a maximum leverage ratio and a minimum interest coverage ratio, in both cases measured on the basis of a trailing 12 month look-back period. In addition, the Company's debt agreements contain a number of restrictive covenants, including restrictions on incurring additional debt, making investments and other restricted payments, selling assets and paying dividends, subject to certain exceptions. The Company was in compliance with these covenants as of January 1, 2022.

Note 5. Leases

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

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


	As of
	January 1, 2022			October 2, 2021
	(In thousands)
Other assets	$	63,658		$	68,012

Accrued liabilities	$	16,826		$	17,219
Other long-term liabilities	34,764			38,587
Total lease liabilities	$	51,590		$	55,806

Weighted average remaining lease term (in years)	14.94			14.46
Weighted average discount rate	2.71		%	2.72		%

Lease expense and supplemental cash flow information related to operating leases are as follows:


	Three Months Ended
	January 1, 2022		January 2, 2021
	(In thousands)
Operating lease expense (1)	$	5,910	$	5,344
Cash paid for operating lease liabilities	$	4,809	$	4,940

(1) Includes immaterial amounts of short term leases, variable lease costs and sublease income.

Future lease payments under non-cancelable operating leases as of January 1, 2022, by fiscal year, are as follows:


	Operating Leases
	(In thousands)
Remainder of 2022	$	13,841
2023	12,704
2024	8,449
2025	6,464
2026	4,161
2027	1,601
Thereafter	9,791
Total lease payments	57,011
Less: imputed interest	5,421
Total	$	51,590

Note 6. Accounts Receivable Sale Program

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

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

Under each of the programs noted above, the Company sells its entire interest in a trade receivable for 100% of face value, less a discount. During the three months ended January 1, 2022 and January 2, 2021, the Company sold approximately $93 million and $263 million, respectively, of accounts receivable under these programs. Upon sale, these receivables are removed from the condensed consolidated balance sheets and cash received is presented as cash provided by operating activities in the condensed consolidated statements of cash flows. Discounts on sold receivables were not material for any period presented. As of January 1, 2022 and October 2, 2021, $8 million and $7 million, respectively, of accounts receivable sold under the RPA and subject to servicing by the Company remained outstanding and had not yet been collected. The Company's sole risk with respect to receivables it services is with respect to commercial disputes regarding such receivables. Commercial disputes include billing errors, returns and similar matters. To date, the Company has not been required to repurchase any receivable it has sold due to a commercial dispute. Additionally, the Company is required to remit amounts collected as servicer under the RPA on a weekly basis to the financial institutions that purchased the receivables. As of January 1, 2022 and October 2, 2021, $17 million and $18 million, respectively, had been collected but not yet remitted. The unremitted amount was included in accrued liabilities on the condensed consolidated balance sheets.

Note 7. Contingencies

From time to time, the Company is a party to litigation, claims and other contingencies, including environmental, regulatory and employee matters and examinations and investigations by governmental agencies, which arise in the ordinary course of business. The Company records a contingent liability when it is probable that a loss has been incurred and the amount of loss is reasonably estimable in accordance with ASC Topic 450, Contingencies, or other applicable accounting standards. As of January 1, 2022 and October 2, 2021, the Company had reserves of $33 million and $37 million, respectively, for environmental matters, warranty, litigation and other contingencies (excluding reserves for uncertain tax positions), which the Company believes are adequate. However, there can be no assurance that the Company's reserves will be sufficient to settle these contingencies. Such reserves are included in accrued liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets.

Legal Proceedings

Environmental Matters

The Company is subject to various federal, state, local and foreign laws and regulations and administrative orders concerning environmental protection, including those addressing the discharge of pollutants into the environment, the management and disposal of hazardous substances, the cleanup of contaminated sites, the materials used in products, and the recycling, treatment and disposal of hazardous waste. As of January 1, 2022, the Company had been named in a lawsuit and several administrative orders alleging certain of its current and former sites contributed to groundwater contamination. One such order demands that the Company and other alleged defendants remediate groundwater contamination at four landfills located in Northern California to which the Company may have sent wastewater in the past. The Company is participating in a working group of other alleged defendants to better understand its potential exposure in this action and has reserved its estimated exposure for this matter as of January 1, 2022. However, there can be no assurance that the Company's reserve will ultimately be sufficient.

In June 2008, the Company was named by the Orange County Water District in a suit alleging that its actions contributed to polluted groundwater managed by the plaintiff. The complaint seeks recovery of compensatory and other damages, as well as declaratory relief, for the payment of costs necessary to investigate, monitor, remediate, abate and contain contamination of groundwater within the plaintiff’s control. In April 2013, all claims against the Company were dismissed. The plaintiff appealed this dismissal and the appellate court reversed the judgment in August 2017. In November 2017, the California Supreme Court denied the Company’s petition to review this decision and, in December 2017, the Court of Appeal remanded the case back to the Superior Court for further proceedings. The first phase of a multi-phase trial against the Company and several other defendants commenced on April 12, 2021 and is expected to last for several more months. Subsequent trial phases, if necessary, likely would occur in the 2022/2023 timeframe. The Company is contesting the plaintiff’s claims vigorously.

Other Matters

In October 2018, a contractor who had been retained by the Company through a third party temporary staffing agency filed a lawsuit against the Company in the Santa Clara County Superior Court on behalf of himself and all other similarly situated Company contractors and employees in California, alleging violations of California Labor Code provisions governing overtime, meal and rest periods, wages, wage statements and reimbursement of business expenses. The complaint sought certification of a class of all non-exempt employees. Although the Company continued to deny any wrongdoing, on November 19, 2020, the Company reached an agreement to resolve all claims, including claims under California's Private Attorneys General Act of 2004 (the “Settlement”), which also resulted in the dismissal of a suit alleging substantially similar claims filed in the Santa Clara County Superior Court in June 2021. The final amount of the judicially approved settlement was approximately $3.9 million and was paid during the first quarter of fiscal 2022.

In December 2019, the Company sued a former customer, Dialight plc (“Dialight”), in the United States District Court for the Southern District of New York to collect approximately $10 million in unpaid accounts receivable and net obsolete inventory obligations. Later the same day, Dialight commenced its own action in the same court. Dialight’s complaint, which asserts claims for fraudulent inducement, breach of contract, and gross negligence/willful misconduct, alleges that the Company fraudulently misrepresented its capabilities to induce Dialight to enter into a Manufacturing Services Agreement (the “Dialight MSA”), and then breached its obligations contained in the Dialight MSA relating to quality, on-time delivery and supply chain management. Dialight seeks compensatory and punitive damages that it contends exceed $200 million, but which the Company believes are vastly overstated and are subject to a contractual limitation of liability that limits any Dialight recovery to less than $2 million. The Company continues to vigorously prosecute its claim against Dialight. Further, the Company strongly disagrees with Dialight’s allegations and intends to defend against them vigorously. No trial date has been set in this matter.

For each of the pending matters noted above, the Company is unable to reasonably estimate a range of possible loss at this time.

Note 8. Income Tax

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

The Company's provision for income taxes for the three months ended January 1, 2022 and January 2, 2021 was $20 million (26% of income before taxes) and $25 million (34% of income before taxes), respectively. The tax rate was higher for the three months ended January 2, 2021 due to approximately $4 million of unfavorable tax discrete items.

Note 9. Stockholders' Equity

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, net of tax as applicable, consisted of the following:


	As of
	January 1, 2022		October 2, 2021
	(In thousands)
Foreign currency translation adjustments	$	74,073	$	76,120
Unrealized holding losses on derivative financial instruments	(10,278)		(14,305)
Unrecognized net actuarial losses and transition costs for benefit plans	(20,409)		(21,125)
Total	$	43,386	$	40,690

Stock Repurchase Program

During the three months ended January 1, 2022 and January 2, 2021, the Company repurchased 1.5 million and 0.4 million shares of its common stock for $60 million and $9 million, respectively, under a stock repurchase program authorized by the Board of Directors in October 2019. During the first quarter of 2022, the Board of Directors approved a new $200 million stock repurchase program. These programs have no expiration dates and the timing of repurchases will depend upon capital needs to support the growth of the Company's business, market conditions and other factors. Although stock repurchases are intended to increase stockholder value, purchases of shares reduce the Company's liquidity. As of January 1, 2022, an aggregate of $221 million remains available under these programs.

In addition to the repurchases discussed above, the Company withheld 0.2 million and 0.1 million shares of its common stock during the three months ended January 1, 2022 and January 2, 2021, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock units. The Company paid $9 million and $3 million for the three months ended January 1, 2022 and January 2, 2021, respectively, to applicable tax authorities in connection with these repurchases.

Note 10. Business Segment, Geographic and Customer Information

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

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

During the first quarter of 2021, the Company's Viking Technology operating segment was aggregated and reported in the Company's IMS reportable segment. The Company began reporting Viking Technology under its CPS segment during the fourth quarter of 2021. Accordingly, the data presented in the table below reflects this change in segment reporting for all periods presented. The change in segment reporting does not affect the Company’s previously reported consolidated financial statements.

The following table presents revenue and a measure of segment gross profit used by management to allocate resources and assess performance of operating segments:


	Three Months Ended
	January 1, 2022		January 2, 2021
	(In thousands)
Gross sales:
IMS	$	1,425,010	$	1,457,914
CPS	367,277		323,938
Intersegment revenue	(34,962)		(26,603)
Net sales	$	1,757,325	$	1,755,249

Gross profit:
IMS	$	106,629	$	105,920
CPS	42,738		40,284
Total	149,367		146,204
Unallocated items (1)	(4,878)		(4,969)
Total	$	144,489	$	141,235

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

Net sales by geographic segment, determined based on the country in which a product is manufactured, were as

follows:


	Three Months Ended
	January 1, 2022		January 2, 2021
	(In thousands)
Net sales:
Americas (1)	$	797,020	$	831,822
EMEA	269,234		259,292
APAC	691,071		664,135
Total	$	1,757,325	$	1,755,249

(1) Mexico represents approximately 60% of the Americas revenue and the U.S. represents approximately 40%.


Percentage of net sales represented by ten largest customers	48	%	58	%
Number of customers representing 10% or more of net sales	1		1

Note 11. Earnings Per Share

Basic and diluted per share amounts are calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period, as follows:

Three Months Ended

January 1,
2022

January 2,
2021

(In thousands, except per share data)

Numerator:

Net income

58,634

48,021

Denominator:

Weighted average common shares outstanding

64,399

SEC Form 10-Q filed by Sanmina Corporation