8-K
SANMINA CORP (SANM)
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
(November 6, 2023)
Date of Report (Date of earliest event reported)
SANMINA CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 000-21272 | 77-0228183 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
2700 North First Street
San Jose, California 95134
(Address of principal executive offices, including zip code)
(408) 964-3500
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities<br>Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange<br>Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communication pursuant to Rule 14d-2(b) under<br>the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communication pursuant to Rule 13e-4(c) under<br>the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
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. ¨
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<br> Stock | SANM | NASDAQ<br> Global Select Market |
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On November 6, 2023, Sanmina Corporation (the “Company”) issued the press release attached as Exhibit 99.1 announcing unaudited financial results for its fiscal quarter and year ended September 30, 2023.
The information set forth in this Item 2.02, including the exhibit hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. In addition, the information in this Item 2.02 shall not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
ITEM 8.01 OTHER EVENTS
Stockholders who intend to solicit proxies in support of director nominees (other than the Company’s nominees) for the 2024 Annual Meeting of Stockholders must notify our Corporate Secretary no later than January 13, 2024 and comply with the additional requirements of Rule 14a-19(b) of the Exchange Act. Our definitive Proxy Statement filed in connection with our 2023 Annual Meeting of Stockholders incorrectly stated on page 78 under “Q19: How Do I Nominate Candidates to the Board?” that the deadline is November 28, 2023.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
| (d) | Exhibits. |
|---|---|
| Exhibit No | Description |
| --- | --- |
| 99.1 | Press Release issued by Sanmina Corporation on November 6, 2023 |
| 104 | Cover Page Interactive Data File (embedded within the inline XBRL document) |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
| SANMINA CORPORATION | ||
|---|---|---|
| By: | /s/ Kurt Adzema | |
| Kurt Adzema | ||
| Executive Vice President and Chief Financial Officer | ||
| Date: November 6, 2023 |
3
Exhibit 99.1
FINANCIAL NEWS
SANMINA REPORTS Fourth quarterand fiscal 2023 financial results
San Jose, CA – November 6, 2023. Sanmina Corporation (“Sanmina” or the “Company”) (NASDAQ: SANM), a leading integrated manufacturing solutions company, today reported unaudited financial results for the fourth quarter and fiscal year ended September 30, 2023 and outlook for its fiscal first quarter ending December 30, 2023.
| Fourth Quarter Fiscal 2023 Financial Highlights<br> § Revenue:<br> 2.05 billion<br> § GAAP<br> operating margin: 4.8%<br> § GAAP<br> diluted EPS: 1.04<br> § Non-GAAP(1) operating<br>margin: 5.7%<br> § Non-GAAP<br> diluted EPS: 1.42 |
|---|
| Additional Highlights<br> § Cash<br> flow from operations: Q4 77 million and FY’23 235 million<br> § Free<br> cash flow: 39 million in Q4 and 45 million in FY’23<br> § Share<br> repurchases: 603,776 shares for 33 million in Q4 and 1.58 million shares for 84 million in FY’23<br> § Q4<br> ending cash and cash equivalents: 668 million<br> § Q4<br> non-GAAP pre-tax ROIC: 26.4% |
All values are in US Dollars.
| ^(1)^ | Non-GAAP<br>financial measures exclude charges or gains relating to: stock-based compensation expenses; restructuring costs (including employee severance<br>costs, environmental investigation, remediation and related costs and other charges related to closing and consolidating facilities);<br>acquisition and integration costs (consisting of costs associated with the acquisition and integration of acquired businesses into our<br>operations); impairment charges for goodwill and other assets; amortization expense; and other unusual or infrequent items (e.g. charges<br>or benefits associated with distressed customers, expenses, charges and recoveries relating to certain legal matters, gains and losses<br>on sales of assets, deferred tax adjustments and discrete tax items). See Schedule 1 below for more information regarding<br>our use of non-GAAP financial measures, including the economic substance behind each exclusion, the manner in which management uses non-GAAP<br>measures to conduct and evaluate the business, the material limitations associated with using such measures and the manner in which management<br>compensates for such limitations. A reconciliation of the non-GAAP financial information contained in this release to their most directly<br>comparable GAAP measures is included in the financial statements furnished with this release. |
|---|
“We delivered strong fiscal 2023 financial results. Revenue was up 13 percent, non-GAAP operating margin expanded 80 basis points to 5.8 percent and non-GAAP earnings per share was up 34 percent year-over-year,” stated Jure Sola, Chairman and Chief Executive Officer of Sanmina Corporation. “Revenue for the fourth quarter was down 7 percent sequentially due to ongoing customer inventory adjustments primarily in the communications end-market. Despite lower revenue, we delivered consistent non-GAAP operating margin sequentially and a 40 basis point improvement compared to the same quarter a year ago.”
“The team continues to demonstrate resilience in a dynamic market environment. Over the last year, we’ve made significant investments to support new programs, further diversify within our end-markets and expand our capabilities, positioning our business to capture future opportunities.”
“Our first quarter outlook is down sequentially, driven by some customers continuing to adjust inventory levels and ongoing macroeconomic uncertainty. We expect headwinds for the next couple of quarters with an improvement in the back half of the year. We remain confident in our strategy and long-term financial performance,” concluded Sola.
First Quarter Fiscal 2024 Outlook
The following outlook is for the fiscal first quarter ending December 30, 2023. These statements are forward-looking and actual results may differ materially.
| § | Revenue between $1.85 billion to $1.95 billion |
|---|---|
| § | GAAP diluted earnings per share between $0.98 to $1.08 |
| --- | --- |
| § | Non-GAAP diluted earnings per share between $1.20 to $1.30 |
| --- | --- |
Safe Harbor Statement
The statements above concerning our financial outlook for the first quarter fiscal 2024 and our expectations for FY24 generally constitute forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these statements as a result of a number of factors, including adverse changes to the key markets we target; significant uncertainties that can cause our future sales and net income to be variable; reliance on a small number of customers for a substantial portion of our sales; risks arising from our international operations; geopolitical uncertainty, including from the war in Ukraine and conflict in the Middle East; and the other risk factors set forth in the Company's annual and quarterly reports filed with the Securities Exchange Commission.
The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the Investor Relations section of our website whether as a result of new information, future events or otherwise, unless otherwise required by law.
Company Conference Call Information
Sanmina will hold a conference call to review its financial results for the fourth quarter and fiscal year 2023 and outlook for the first quarter of fiscal 2024 on Monday, November 6, 2023 at 4:30 p.m. ET (1:30 p.m. PT). The access numbers are: domestic 833-816-1390 and international 412-317-0483. The conference will also be webcast live over the Internet. You can log on to the live webcast at Q4 and FY'23 Webcast. Additional information in the form of a slide presentation is available on Sanmina’s website at www.sanmina.com. A replay of the conference call will be available for 48-hours. The access numbers are: domestic 877-344-7529 and international 412-317-0088, access code is 5486944*.*
About Sanmina
Sanmina Corporation, a Fortune 500 company, is a leading integrated manufacturing solutions provider serving the fastest growing segments of the global Electronics Manufacturing Services (EMS) market. Recognized as a technology leader, Sanmina provides end-to-end manufacturing solutions, delivering superior quality and support to Original Equipment Manufacturers (OEMs) primarily in the industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure markets. Sanmina has facilities strategically located in key regions throughout the world. More information about the Company is available at www.sanmina.com.
Sanmina Contact
Paige Melching
SVP, Investor Communications
408-964-3610
Condensed Consolidated Balance Sheets
(in thousands) (GAAP)
(Unaudited)
| September 30, | October 1, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 667,570 | $ | 529,857 |
| Accounts receivable, net | 1,230,771 | 1,138,894 | ||
| Contract assets | 445,757 | 475,721 | ||
| Inventories | 1,477,223 | 1,684,099 | ||
| Prepaid expenses and other current assets | 58,249 | 62,044 | ||
| Total current assets | 3,879,570 | 3,890,615 | ||
| Property, plant and equipment, net | 632,836 | 575,170 | ||
| Deferred tax assets | 177,597 | 209,554 | ||
| Other | 183,965 | 160,192 | ||
| Total assets | $ | 4,873,968 | $ | 4,835,531 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 1,612,833 | $ | 2,041,434 |
| Accrued liabilities | 267,148 | 281,599 | ||
| Accrued payroll and related benefits | 127,406 | 130,892 | ||
| Short-term debt, including current portion of long-term debt | 25,945 | 17,500 | ||
| Total current liabilities | 2,033,332 | 2,471,425 | ||
| Long-term liabilities: | ||||
| Long-term debt | 312,327 | 329,237 | ||
| Other | 209,684 | 215,333 | ||
| Total long-term liabilities | 522,011 | 544,570 | ||
| Stockholders' equity | 2,318,625 | 1,819,536 | ||
| Total liabilities and stockholders' equity | $ | 4,873,968 | $ | 4,835,531 |
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(GAAP)
(Unaudited)
| **** | Three Months Ended | **** | Twelve Months Ended | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | October 1, | September 30, | October 1, | |||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Net sales | $ | 2,052,019 | $ | 2,224,865 | $ | 8,935,048 | $ | 7,919,622 | ||||
| Cost of sales | 1,878,591 | 2,052,636 | 8,191,837 | 7,297,416 | ||||||||
| Gross profit | 173,428 | 172,229 | 743,211 | 622,206 | ||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 62,124 | 59,771 | 255,072 | 244,569 | ||||||||
| Research and development | 7,715 | 6,023 | 26,427 | 21,343 | ||||||||
| Restructuring and other costs | 4,323 | 3,085 | 6,054 | 6,815 | ||||||||
| Total operating expenses | 74,162 | 68,879 | 287,553 | 272,727 | ||||||||
| Operating income | 99,266 | 103,350 | 455,658 | 349,479 | ||||||||
| Interest income | 3,910 | 430 | 13,595 | 1,628 | ||||||||
| Interest expense | (8,257 | ) | (7,111 | ) | (36,290 | ) | (22,473 | ) | ||||
| Other expense, net | (8,168 | ) | (19,204 | ) | (20,156 | ) | (26,314 | ) | ||||
| Interest and other, net | (12,515 | ) | (25,885 | ) | (42,851 | ) | (47,159 | ) | ||||
| Income before income taxes | 86,751 | 77,465 | 412,807 | 302,320 | ||||||||
| Provision for income taxes | 21,396 | 19,101 | 85,294 | 61,936 | ||||||||
| Net income before noncontrolling interest in subsidiary<br> earnings | 65,355 | 58,364 | 327,513 | 240,384 | ||||||||
| Noncontrolling interest in subsidiary earnings | 3,514 | - | 17,543 | - | ||||||||
| Net income attributable to common shareholders | $ | 61,841 | $ | 58,364 | $ | 309,970 | $ | 240,384 | ||||
| Basic income per share | $ | 1.08 | $ | 1.01 | $ | 5.36 | $ | 3.92 | ||||
| Diluted income per share | $ | 1.04 | $ | 0.98 | $ | 5.18 | $ | 3.81 | ||||
| Weighted-average shares used in computing per share amounts: | ||||||||||||
| Basic | 57,406 | 58,023 | 57,847 | 61,310 | ||||||||
| Diluted | 59,178 | 59,844 | 59,815 | 63,117 |
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | July 1, | October 1, | September 30, | October 1, | |||||||||||
| 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||
| GAAP Operating income | $ | 99,266 | $ | 107,365 | $ | 103,350 | $ | 455,658 | $ | 349,479 | |||||
| GAAP Operating margin | 4.8 | % | 4.9 | % | 4.6 | % | 5.1 | % | 4.4 | % | |||||
| Adjustments: | |||||||||||||||
| Stock compensation expense (1) | 12,942 | 13,317 | 10,563 | 50,402 | 39,608 | ||||||||||
| Amortization of intangible assets | 1,342 | 669 | 234 | 2,493 | 1,010 | ||||||||||
| Legal and other (2) | - | 4,475 | - | 5,170 | 2,033 | ||||||||||
| Restructuring and others costs | 4,323 | 296 | 3,085 | 6,054 | 6,815 | ||||||||||
| Non-GAAP Operating income | $ | 117,873 | $ | 126,122 | $ | 117,232 | $ | 519,777 | $ | 398,945 | |||||
| Non-GAAP Operating margin | 5.7 | % | 5.7 | % | 5.3 | % | 5.8 | % | 5.0 | % | |||||
| GAAP Net income attributable to common shareholders | $ | 61,841 | $ | 76,494 | $ | 58,364 | $ | 309,970 | $ | 240,384 | |||||
| Adjustments: | |||||||||||||||
| Operating income adjustments (see above) | 18,607 | 18,757 | 13,882 | 64,119 | 49,466 | ||||||||||
| Reversal of gain on sale of IP | - | - | - | - | 7,000 | ||||||||||
| Legal and other (2) | - | - | 10,750 | (3,630 | ) | 3,640 | |||||||||
| Adjustments for taxes (3) | 3,526 | (3,093 | ) | (737 | ) | 3,771 | (5,231 | ) | |||||||
| Non-GAAP Net income attributable to common shareholders | $ | 83,974 | $ | 92,158 | $ | 82,259 | $ | 374,230 | $ | 295,259 | |||||
| GAAP Net income attributable to common shareholders per share: | |||||||||||||||
| Basic | $ | 1.08 | $ | 1.32 | $ | 1.01 | $ | 5.36 | $ | 3.92 | |||||
| Diluted | $ | 1.04 | $ | 1.28 | $ | 0.98 | $ | 5.18 | $ | 3.81 | |||||
| Non-GAAP<br> Net income attributable to common shareholders per share: | |||||||||||||||
| Basic | $ | 1.46 | $ | 1.59 | $ | 1.42 | $ | 6.47 | $ | 4.82 | |||||
| Diluted | $ | 1.42 | $ | 1.55 | $ | 1.37 | $ | 6.26 | $ | 4.68 | |||||
| Weighted-average shares used in computing per share amounts: | |||||||||||||||
| Basic | 57,406 | 57,987 | 58,023 | 57,847 | 61,310 | ||||||||||
| Diluted | 59,178 | 59,592 | 59,844 | 59,815 | 63,117 | ||||||||||
| (1) Stock<br>compensation expense was as follows: | |||||||||||||||
| Cost of sales | $ | 3,978 | $ | 4,518 | $ | 3,610 | $ | 16,763 | $ | 14,065 | |||||
| Selling, general and administrative | 8,747 | 8,588 | 6,807 | 32,781 | 25,037 | ||||||||||
| Research and development | 217 | 211 | 146 | 858 | 506 | ||||||||||
| Total | $ | 12,942 | $ | 13,317 | $ | 10,563 | $ | 50,402 | $ | 39,608 | |||||
| (2) Represents expenses, charges and recoveries<br> associated with certain legal and other matters. | |||||||||||||||
| (3) GAAP Provision for income taxes | $ | 21,396 | $ | 17,267 | $ | 19,101 | $ | 85,294 | $ | 61,936 | |||||
| Adjustments: | |||||||||||||||
| Tax impact of operating income adjustments | 2,645 | 1,817 | 879 | 7,736 | 1,926 | ||||||||||
| Discrete tax items | 1,210 | 6,957 | 2,415 | 12,930 | 16,899 | ||||||||||
| Deferred tax adjustments | (7,381 | ) | (5,681 | ) | (2,557 | ) | (24,437 | ) | (13,594 | ) | |||||
| Subtotal - adjustments for taxes | (3,526 | ) | 3,093 | 737 | (3,771 | ) | 5,231 | ||||||||
| Non-GAAP Provision for income taxes | $ | 17,870 | $ | 20,360 | $ | 19,838 | $ | 81,523 | $ | 67,167 |
Q1 FY24 Earnings Per Share Outlook*:
| Q1 FY24 EPS Range | ||||
|---|---|---|---|---|
| Low | High | |||
| GAAP Diluted earnings per share | $ | 0.98 | $ | 1.08 |
| Stock compensation expense | $ | 0.22 | $ | 0.22 |
| Non-GAAP Diluted earnings per share | $ | 1.20 | $ | 1.30 |
* Due to uncertainty regarding the timing of recognition of restructuring charges, impairment charges and other unusual or infrequent items, if any, that could be incurred during the first quarter of FY24, an estimate of such items is not included in the outlook for Q1 FY24 GAAP EPS.
Sanmina Corporation
Condensed ConsolidatedCash Flow
($ in thousands)
(GAAP)
(unaudited)
| Three Month Periods | Twelve Month Periods | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | Q4'23 | Q3'23 | Q2'23 | Q1'23 | Q4'22 | FY23 | FY22 | ||||||||||||||
| GAAP Net income before noncontrolling interest | $ | 65,355 | $ | 81,737 | $ | 85,307 | $ | 95,114 | $ | 58,364 | $ | 327,513 | $ | 240,384 | |||||||
| Depreciation and amortization | 30,521 | 29,898 | 29,282 | 28,536 | 26,686 | 118,237 | 108,783 | ||||||||||||||
| Other, net | 21,947 | 21,174 | 17,075 | 20,727 | 33,886 | 80,923 | 77,626 | ||||||||||||||
| Net change in net working capital | (40,966 | ) | (76,300 | ) | (67,086 | ) | (107,153 | ) | (37,038 | ) | (291,505 | ) | (95,939 | ) | |||||||
| Cash provided by operating activities | 76,857 | 56,509 | 64,578 | 37,224 | 81,898 | 235,168 | 330,854 | ||||||||||||||
| Purchases of long-term investments | (500 | ) | (500 | ) | (700 | ) | (800 | ) | (300 | ) | (2,500 | ) | (2,000 | ) | |||||||
| Net purchases of property& equipment | (37,803 | ) | (52,167 | ) | (63,458 | ) | (36,530 | ) | (48,155 | ) | (189,958 | ) | (130,214 | ) | |||||||
| Cash used in investing activities | (38,303 | ) | (52,667 | ) | (64,158 | ) | (37,330 | ) | (48,455 | ) | (192,458 | ) | (132,214 | ) | |||||||
| Contingent consideration paid in connection with previous business combination | - | (8,558 | ) | - | - | - | (8,558 | ) | - | ||||||||||||
| Net share repurchases | (30,397 | ) | (52,072 | ) | (13,376 | ) | (7,836 | ) | (23,438 | ) | (103,681 | ) | (328,722 | ) | |||||||
| Net borrowing activities | 4,070 | (4,375 | ) | (4,375 | ) | (4,375 | ) | 27,987 | (9,055 | ) | 13,923 | ||||||||||
| Proceeds from collection of notes receivable | - | - | - | - | - | - | 500 | ||||||||||||||
| Proceeds from sale of noncontrolling interest | - | - | - | 215,799 | - | 215,799 | - | ||||||||||||||
| Cash provided by (used for) financing activities | (26,327 | ) | (65,005 | ) | (17,751 | ) | 203,588 | 4,549 | 94,505 | (314,299 | ) | ||||||||||
| Effect of exchange rate changes | (1,245 | ) | (452 | ) | 220 | 1,975 | (1,440 | ) | 498 | (4,510 | ) | ||||||||||
| Net change in cash& cash equivalents | $ | 10,982 | $ | (61,615 | ) | $ | (17,111 | ) | $ | 205,457 | $ | 36,552 | $ | 137,713 | $ | (120,169 | ) | ||||
| Free cash flow: | |||||||||||||||||||||
| Cash provided by operating activities | $ | 76,857 | $ | 56,509 | $ | 64,578 | $ | 37,224 | $ | 81,898 | $ | 235,168 | $ | 330,854 | |||||||
| Net purchases of property& equipment | (37,803 | ) | (52,167 | ) | (63,458 | ) | (36,530 | ) | (48,155 | ) | (189,958 | ) | (130,214 | ) | |||||||
| Proceeds from sale of intellectual property | - | - | - | - | - | - | 500 | ||||||||||||||
| $ | 39,054 | $ | 4,342 | $ | 1,120 | $ | 694 | $ | 33,743 | $ | 45,210 | $ | 201,140 |
Sanmina Corporation
Pre-Tax Return on investedCapital (ROIC)
($ in thousands)
(unaudited)
| Three Month Periods | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ( in thousands) | Q4 FY23 | Q3 FY23 | Q2 FY23 | Q1 FY23 | Q4 FY22 | ||||||||||
| GAAP Operating income | $ | 99,266 | $ | 107,365 | $ | 120,601 | $ | 128,426 | $ | 103,350 | |||||
| 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | |||||||||||
| Annualized GAAP Operating income | 397,064 | 429,460 | 482,404 | 513,704 | 413,400 | ||||||||||
| Average invested capital (1) | 1,783,744 | 1,698,819 | 1,592,563 | 1,485,054 | 1,398,566 | ||||||||||
| GAAP Pre-tax ROIC | 22.3 | % | 25.3 | % | 30.3 | % | 34.6 | % | 29.6 | % | |||||
| Non-GAAP Operating income | $ | 117,873 | $ | 126,122 | $ | 134,883 | $ | 140,899 | $ | 117,232 | |||||
| 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | |||||||||||
| Annualized non-GAAP Operating income | 471,492 | 504,488 | 539,532 | 563,596 | 468,928 | ||||||||||
| Average invested capital (1) | 1,783,744 | 1,698,819 | 1,592,563 | 1,485,054 | 1,398,566 | ||||||||||
| Non-GAAP Pre-tax ROIC | 26.4 | % | 29.7 | % | 33.9 | % | 38.0 | % | 33.5 | % |
All values are in US Dollars.
(1) Invested capital is defined as total assets (not including cash and cash equivalents and deferred tax assets) less total liabilities (excluding short-term and long-term debt).
Schedule 1
The statements above and financial information provided in this earnings release include non-GAAP measures of operating income, operating margin, net income, diluted earnings per share and pre-tax return on invested capital (ROIC). Management excludes from these measures stock-based compensation, restructuring, acquisition and integration expenses, impairment charges, amortization charges and other unusual or infrequent items, as adjusted for taxes, as more fully described below.
Management excludes these items principally because such charges or benefits are not directly related to the Company’s ongoing core business operations. We use such non-GAAP measures in order to (1) make more meaningful period-to-period comparisons of the Company’s operations, both internally and externally, (2) guide management in assessing the performance of the business, internally allocating resources and making decisions in furtherance of Company’s strategic plan, (3) provide investors with a better understanding of how management plans and measures the business and (4) provide investors with a better understanding of our ongoing, core business. The material limitations to management’s approach include the fact that the charges, benefits and expenses excluded are nonetheless charges, benefits and expenses required to be recognized under GAAP and, in some cases, consume cash which reduces the Company’s liquidity. Management compensates for these limitations primarily by reviewing GAAP results to obtain a complete picture of the Company’s performance and by including a reconciliation of non-GAAP results to GAAP results in its earnings releases.
Additional information regarding the economic substance of each exclusion, management’s use of the resultant non-GAAP measures, the material limitations of management’s approach and management’s methods for compensating for such limitations is provided below.
Stock-based Compensation Expense, which consists of non-cash charges for the estimated fair value of equity awards granted to employees and directors, is excluded in order to permit more meaningful period-to-period comparisons of the Company’s results since the Company grants different amounts and value of equity awards each quarter. In addition, given the fact that competitors grant different amounts and types of equity awards and may use different valuation assumptions, excluding stock-based compensation permits more accurate comparisons of the Company’s core results with those of its competitors.
Restructuring, Acquisition and Integration Expenses, which consist of severance, lease termination costs, exit costs, environmental investigation, remediation and related costs and other charges primarily related to closing and consolidating manufacturing facilities and those associated with the acquisition and integration of acquired businesses, are excluded because such charges (1) can be driven by the timing of acquisitions and exit activities which are difficult to predict, (2) are not directly related to ongoing business results and (3) generally do not reflect expected future operating expenses. In addition, given the fact that the Company’s competitors complete acquisitions and adopt restructuring plans at different times and in different amounts than the Company, excluding these charges or benefits permits more accurate comparisons of the Company’s core results with those of its competitors. Items excluded by the Company may be different from those excluded by the Company’s competitors and restructuring and integration expenses include both cash and non-cash expenses. Cash expenses reduce the Company’s liquidity. Therefore, management also reviews GAAP results including these amounts.
Impairment Charges, which consist of non-cash charges, are excluded because such charges are non-recurring and do not reduce the Company’s liquidity. In addition, given the fact that the Company’s competitors may record impairment charges at different times, excluding these charges permits more accurate comparisons of the Company’s core results with those of its competitors.
Amortization Charges, which consist of non-cash charges impacted by the timing and magnitude of acquisitions of businesses or assets, are also excluded because such charges do not reduce the Company’s liquidity. In addition, such charges can be driven by the timing of acquisitions, which is difficult to predict. Excluding these charges permits more accurate comparisons of the Company’s core results with those of its competitors because the Company’s competitors complete acquisitions at different times and for different amounts than the Company.
Other Unusualor Infrequent Items, such as charges or benefits associated with distressed customers, expenses, charges and recoveries relating to certain legal matters, gains and losses on sales of assets, deferred tax adjustments and discrete tax items, are excluded because such items are typically non-recurring, difficult to predict or not directly related to the Company’s ongoing or core operations and are therefore not considered by management in assessing the current operating performance of the Company and forecasting earnings trends. However, items excluded by the Company may be different from those excluded by the Company’s competitors. In addition, these items include both cash and non-cash expenses. Cash expenses reduce the Company’s liquidity. Management compensates for these limitations by reviewing GAAP results including these amounts.
Adjustments for Taxes, which consist of the tax effects of the various adjustments that we exclude from our non-GAAP measures, and adjustments related to deferred tax and discrete tax items. Including these adjustments permits more accurate comparisons of the Company's core results with those of its competitors*.* We determine the tax adjustments based upon the various applicable effective tax rates. In those jurisdictions in which we do not expect to realize a tax cost or benefit (due to a history of operating losses or other factors), a reduced tax rate is applied.