Business Context and Reporting Period
Company: Sanmina Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended June 27, 1998
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 assemblies. The company serves OEMs in telecommunications, data communications, industrial, medical, and computer systems sectors.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 27, 1998 |
3 Months Ended June 28, 1997 |
9 Months Ended June 27, 1998 |
9 Months Ended June 28, 1997 |
|---|---|---|---|---|
| Net Sales | $197,139 | $150,198 | $528,392 | $409,195 |
| Gross Profit | $43,431 | $32,894 | $115,734 | $88,781 |
| Gross Margin | 22.0% | 21.9% | 21.9% | 21.7% |
| Operating Income | $30,820 | $21,149 | $77,423 | $57,356 |
| Operating Margin | 15.6% | 14.1% | 14.6% | 14.0% |
| Net Income | $19,381 | $13,419 | $48,762 | $35,913 |
| Diluted EPS | $0.40 | $0.29 | $1.02 | $0.78 |
| Cash from Operations (9mo) | N/A | $58,398 | $37,562 | |
| Working Capital | N/A | $196,049 | $181,971 | |
| Long-Term Debt | N/A | $95,607 | $98,250 |
Note: Working capital calculated as Total Current Assets ($313,325) minus Total Current Liabilities ($117,276). Long-term debt refers to Convertible subordinated notes.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 31% for the quarter and 29% for the nine-month period compared to the prior year, driven by increased EMS assembly shipments to existing and new customers.
- Margin Expansion: Gross margins improved slightly (22.0% vs 21.9% for the quarter) due to product mix changes and synergies from the Elexsys acquisition. Operating margins expanded to 15.6% from 14.1% as revenue growth outpaced operating expense increases.
- Acquisitions: The company acquired Elexsys International (Nov 1997, pooling of interests) and Pragmatech, Inc. (Feb 1998, purchase method for $5.7 million). Prior year results were restated to include Elexsys.
- Debt Reduction: Net interest expense decreased significantly (from $681k to $298k for the quarter) following the repayment of approximately $12.8 million of Elexsys debt in the first quarter of fiscal 1998.
- Stock Split: A two-for-one stock split was effected on June 10, 1998; all share and per-share data have been adjusted.
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. The company believes existing cash resources and operating cash flow are sufficient to meet liquidity needs through the end of the fiscal year.
- Subsequent Event: On July 17, 1998, the company called for the redemption of its 5.5% convertible subordinated notes due 2002, expected to occur on August 19, 1998.
- Risks:
- Results are sensitive to the timing of orders and product mix from major customers.
- High fixed costs may magnify the impact of revenue shortfalls.
- Integration risks associated with recent acquisitions (Elexsys, Pragmatech).
- Customer concentration and lack of long-term volume commitments.
- Year 2000 issues are being addressed, but management does not anticipate material adverse effects or significant upgrade costs.
Investor Verification Checklist
- Debt Redemption: Verify the final terms and cash impact of the August 19, 1998, redemption of the 5.5% convertible notes.
- Acquisition Integration: Monitor the realization of synergies from the Elexsys and Pragmatech acquisitions to ensure projected margin improvements materialize.
- Customer Concentration: Review subsequent filings for details on sales concentration among principal customers, given the risk of order cancellations or volume reductions.
- Capital Expenditures: Track future capital spending related to facility enhancements and information systems upgrades against cash flow generation.
- EPS Dilution: Confirm the impact of the convertible note conversion option on future share count and diluted earnings per share.