Business Context and Reporting Period
Company: Sanmina Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended June 28, 1997
Industry: Electronics Manufacturing Services (EMS), providing turnkey assembly, printed circuit board fabrication, and system testing to OEMs in telecommunications, networking, and industrial sectors.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended 6/28/97 | 9 Months Ended 6/28/97 | 9 Months Ended 6/29/96 |
|---|---|---|---|
| Net Sales | $105,406 | $290,974 | $186,574 |
| Gross Profit | $24,573 | $68,341 | $44,830 |
| Operating Income | $17,822 | $49,391 | $31,771 |
| Net Income | $10,820 | $29,907 | $19,744 |
| Diluted EPS | $0.54 | $1.51 | $1.07 |
| Cash from Operations (9mo) | N/A | $32,499 | $18,308 |
| Cash & Equivalents (End Period) | $34,754 | $34,754 | $37,617 |
| Working Capital | $155,180 | $155,180 | $145,309 |
| Long-Term Debt | $86,250 | $86,250 | $86,250 |
Note: Working capital calculated as Total Current Assets ($212,513) minus Total Current Liabilities ($57,333). Long-term debt consists of convertible subordinated notes.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 48% year-over-year for the quarter and 56% for the nine-month period, driven by increased EMS assembly shipments and contributions from the Comptronix and Lucent Technologies acquisitions completed in November 1996.
- Margin Compression: Gross margin decreased slightly from 23.9% to 23.3% (quarter) and 24.0% to 23.5% (nine months) due to product mix changes and start-up costs for a new facility in Dublin, Ireland.
- Operating Efficiency: Despite absolute increases in operating expenses, operating margins remained stable at 16.9% (quarter) and 17.0% (nine months) as a percentage of sales.
- Interest Expense: Net interest expense increased to $85,000 for the quarter (from $46,000) and $366,000 for the nine months (from $71,000 income), primarily due to reduced cash investments following recent acquisitions.
- Balance Sheet: Accounts receivable increased significantly to $51.5 million from $30.4 million, and inventories rose to $50.5 million from $32.1 million, reflecting higher sales volume.
Outlook, Risks, and Unusual Items
- Merger Activity: On July 22, 1997, Sanmina entered into a definitive agreement to merge with Elexsys International, Inc. in a stock-for-stock transaction valued at approximately $220 million. Completion is subject to shareholder approval and regulatory conditions.
- Future Expenses: Management anticipates operating expenses will increase in absolute dollars to support higher sales volumes and sales force expansion, though they expect expense ratios to remain constant or decrease.
- Liquidity: The company believes existing cash resources and operating cash flow are sufficient to meet liquidity needs through the end of the fiscal year. Working capital requirements are expected to increase to support business volume.
- Risks: Key risks include dependence on major customers with no long-term volume commitments, rapid technological obsolescence, and the potential inability to successfully integrate acquired operations (Comptronix, Lucent, and potentially Elexsys).
- Accounting Changes: The company notes the upcoming adoption of SFAS 128 (Earnings Per Share) in fiscal 1998, which will require restating prior periods and changing calculation methods, though the specific impact has not yet been quantified.
Investor Verification Checklist
- Verify the status and regulatory approval timeline for the proposed merger with Elexsys International, Inc.
- Monitor the integration progress and financial contribution of the Comptronix and Lucent Technologies acquisitions.
- Assess the impact of the new Dublin, Ireland facility on future gross margins and operating expenses.
- Review customer concentration risks and the stability of order volumes from principal OEMs.
- Confirm the company's ability to manage increased accounts receivable and inventory levels without straining working capital.