Business Context and Reporting Period
Company: Sanmina Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended April 3, 1999 (Fiscal Year 1999)
Business Overview: Sanmina is a leading independent provider of customized integrated electronics manufacturing services (EMS), including turnkey electronic assembly, printed circuit board fabrication, and cable assembly. The company serves OEMs in communications, industrial, medical instrumentation, and high-speed computer systems sectors.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Apr 3, 1999 |
3 Months Ended Mar 28, 1998 |
6 Months Ended Apr 3, 1999 |
6 Months Ended Mar 28, 1998 |
|---|---|---|---|---|
| Net Sales | $281,140 | $240,886 | $556,673 | $461,557 |
| Gross Profit | $61,615 | $51,178 | $113,899 | $97,208 |
| Gross Margin % | 21.9% | 21.2% | 20.5% | 21.1% |
| Operating Income | $43,503 | $34,247 | $41,203 | $60,138 |
| Net Income | $28,772 | $22,564 | $28,210 | $38,830 |
| Diluted EPS | $0.47 | $0.40 | $0.46 | $0.69 |
| Cash from Operations (6mo) | $43,374 (1999) vs $40,743 (1998) | |||
| Cash & Equivalents (Apr 3, 1999) | $71,590 | |||
| Working Capital (Apr 3, 1999) | $283,308 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 17% in the second quarter and 21% in the first six months compared to the prior year, driven by increased EMS assembly shipments to existing and new customers.
- Operating Expenses: While operating expenses increased slightly in the second quarter ($18.1M vs $16.9M), they surged in the first six months to $72.7M (from $37.1M). This increase was primarily due to one-time charges totaling $36.1M, including plant closing/relocation costs ($16.9M), write-down of long-lived assets ($11.4M), and merger costs ($5.5M).
- Profitability: Operating margin improved to 15.5% in the second quarter from 14.2% in the prior year. However, six-month operating income declined to $41.2M from $60.1M due to the aforementioned one-time charges.
- Acquisitions: The company completed mergers with Altron (Nov 1998) and Manu-Tronics (Mar 1999), accounted for as pooling of interests, requiring restatement of prior period results.
Guidance, Outlook, and Risks
- Outlook: Management anticipates operating expenses will increase in absolute dollars to support higher sales volume but expects expenses as a percentage of sales to remain constant or decrease due to integration efficiencies.
- Liquidity: The company believes existing cash resources and operating cash flow are sufficient to meet liquidity needs for the next 12 months. A $52.9M cash deposit was pledged as collateral for a new corporate headquarters lease.
- Capital Markets: Subsequent to the period end, the company announced an offering of $350 million in 4.25% Convertible Subordinated Notes due 2004.
- Risks:
- Year 2000 Compliance: Estimated total cost is $1.7M; $0.6M expended as of Jan 2, 1999. Risks include system failures and supplier non-compliance.
- Customer Concentration: No firm long-term volume commitments; results depend on order timing and mix.
- Integration Risks: Potential inability to realize synergies from recent acquisitions.
Investor Verification Checklist
- Verify the sustainability of the 17% revenue growth rate absent the impact of recent acquisitions.
- Confirm the integration progress and cost synergies realized from the Altron and Manu-Tronics mergers.
- Assess the impact of the $36.1M in one-time charges on the true underlying operating performance.
- Monitor the status of Year 2000 compliance projects and associated costs.
- Review the terms and dilution impact of the $350M convertible note offering announced post-period.