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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 2000
Commission File Number 0-23248
SigmaTron International, Inc.
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(Exact Name of Registrant, as Specified in its Charter)
Delaware 36-3918470
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2201 Landmeier Road, Elk Grove Village, Illinois 60007
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (847) 956-8000
No Change
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(Former Name, Address, or Fiscal Year, if Changed Since Last Reports)
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
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On December 11, 2000 there were 2,881,227 shares of the Registrant's Common
Stock outstanding.
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SigmaTron International, Inc.
Index
PART 1. FINANCIAL INFORMATION: Page No.
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--October 31, 2000
and April 30, 2000 3
Consolidated Statements of Operations--Three and Six
Months Ended October 31, 2000 and 1999 4
Consolidated Statements of Cash Flows--Three and Six
Months Ended October 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
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SIGMATRON INTERNATIONAL, INC.
Consolidated Balance Sheets
OCTOBER 31, April 30,
2000 2000
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ASSETS (UNAUDITED)
Current assets:
Cash $ 2,500 $ 2,500
Accounts receivable, less allowance for doubtful
accounts of $932,459 at October 31, 2000 and
April 30, 2000 16,222,349 10,609,481
Inventories 19,770,070 17,775,199
Prepaid and other assets 590,168 494,848
Income tax refund 53,587 -
Deferred income taxes 371,868 371,868
Other receivables 646,103 762,277
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Total current assets 37,656,645 30,016,173
Machinery and equipment, net 13,458,394 13,327,430
Due from SMTU:
Investment and advances 1,375,866 859,612
Equipment receivable 3,042,778 3,312,371
Other receivable 1,625,221 892,709
Other assets 1,672,651 932,597
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Total assets $58,831,555 $49,340,892
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 11,311,937 6,841,875
Trade accounts payable - Related parties 1,161,629 874,169
Accrued expenses 1,910,419 1,916,815
Notes payable - Bank 19,452,910 -
Capital lease obligations 1,931,204 1,893,486
Other liabilities 397,720 -
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Total current liabilities 36,165,819 11,526,345
Notes payable - Bank, less current portion - 14,654,320
Capital lease obligations, less current portion 1,741,502 1,816,073
Deferred income taxes 1,277,015 1,277,015
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Total liabilities 39,184,336 29,273,753
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value; 6,000,000 shares
authorized, 2,881,227 shares issued and outstanding 28,812 28,812
at October 31, 2000 and April 30, 2000
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 10,181,853 10,601,773
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Total stockholders' equity 19,647,219 20,067,139
Total liabilities and stockholders' equity $58,831,555 $49,340,892
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See accompanying notes.
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SIGMATRON INTERNATIONAL, INC.
Consolidated Statements Of Operations
Unaudited
THREE MONTHS Three Months SIX MONTHS Six Months
ENDED Ended ENDED Ended
OCTOBER 31, 2000 October 31, 1999 OCTOBER 31, 2000 October 31, 1999
---------------- ---------------- ---------------- ----------------
Net sales $ 25,120,234 $ 27,185,252 $ 42,586,347 $ 47,371,188
Cost of products sold 23,238,502 23,788,357 40,192,830 41,908,359
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1,881,732 3,396,895 2,393,517 5,462,829
Selling and administrative expenses 1,519,301 1,664,853 2,844,114 3,023,295
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Operating income (loss) 362,431 1,732,042 (450,597) 2,439,534
Equity in net income of affiliate (287,113) (48,356) (516,254) (74,987)
Interest expense - Banks and capital lease obligations 518,461 559,510 944,874 1,045,887
Interest income - Related parties (133,534) (146,784) (247,182) (307,788)
---------------- ---------------- ---------------- ----------------
Income (loss) before income tax expense and
extraordinary item 264,617 1,367,672 (632,035) 1,776,422
Income tax expense (benefit) 105,847 547,068 (212,116) 710,568
---------------- ---------------- ---------------- ----------------
Income (loss) before extraordinary item 158,770 820,604 (419,919) 1,065,854
Extraordinary item - extinguishment of debt, net of
taxes $58,333 - 87,500 - 87,500
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Net income (loss) 158,770 733,104 (419,919) 978,354
================ ================ ================ ================
Net income (loss) per common share - Basic $0.06 $0.25 ($0.15) $0.34
================ ================ ================ ================
Net income (loss) per common share - Assuming dilution $0.06 $0.25 ($0.15) $0.34
================ ================ ================ ================
Weighted average number of common shares
outstanding - basic and diluted 2,881,227 2,881,227 2,881,227 2,881,227
================ ================ ================ ================
See accompanying notes
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SIGMATRON INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
(Unaudited)
SIX MONTHS ENDED OCTOBER 31,
2000 1999
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OPERATING ACTIVITIES:
Net (loss) income $ (419,919) $ 978,354
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 970,145 867,551
Equity in net income of affiliate (516,254) (74,987)
Provision for doubtful accounts - 75,000
Provision for inventory obsolescence - 50,000
Changes in operating assets and liabilities:
Accounts receivable (5,612,868) (7,287,243)
Inventories (1,994,871) (2,475,164)
Prepaid expenses (95,320) 67,662
Other assets (1,140,386) 872,011
Trade accounts payable 4,470,062 1,940,060
Trade accounts payable - related parties 287,460 907,203
Accrued expenses (6,396) (127,071)
Other liabilities 397,720
Receivable from flood insurance proceeds - 2,453,235
Income tax payable - 533,430
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Net cash used in operating activities (3,660,627) (1,219,959)
INVESTING ACTIVITIES:
Purchases of machinery and equipment (1,101,110) (889,833)
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Net cash used in investing activities (1,101,110) (889,833)
FINANCING ACTIVITIES:
Net payments under capital lease obligations (36,852) (1,342,399)
Net proceeds under line of credit 4,798,589 3,323,577
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Net cash provided by financing activities 4,761,737 1,981,178
Change in cash - (128,614)
Cash at beginning of period 2,500 280,071
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Cash at end of period $ 2,500 $ 151,457
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See accompanying notes.
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SigmaTron International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 31, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended October 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending April 30, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report for the year ended April 30, 2000.
NOTE B - INVENTORIES
The components of inventory consist of the following:
October 31, April 30,
2000 2000
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Finished products $ 4,106,578 $ 2,837,452
Work-in-process 1,089,282 1,713,691
Raw materials 14,574,208 13,224,056
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$19,770,068 $17,775,199
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NOTE C - SMT, UNLIMITED L.P.
The Company owns 42.5% of SMT Unlimited L.P. ("SMTU"), an affiliate located in
Fremont, California. SMTU is a electronic manufacturing services provider.
The following is the summarized income statement information for SMTU:
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Three Months Ended Six Months Ended
October 31, October 31,
2000 1999 2000 1999
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Revenues 10,555,542 5,290,199 23,599,667 10,763,331
Cost and expenses 10,003,395 5,223,621 22,384,951 10,575,466
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Pre-tax income 552,147 66,578 1,214,716 187,865
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In August 1999, the Company entered into a guaranty agreement with SMTU's lender
to guaranty the obligation of SMTU under its revolving line of credit to a
maximum of $2,000,000 plus interest and related costs associated with the
enforcement of the guaranty. In connection with the guaranty agreement, one of
the limited partners of SMTU and Vice President of SMTU have each executed a
guaranty to the lender to reimburse the Company for up to $500,000 of payments
made by the Company under its guaranty to the lender in excess of $1,000,000. In
addition, the limited partner has agreed to indemnify the Company for 50% of all
of SMTU's payments to the lender. The limited partner's obligation to the
Company under the indemnity is reduced dollar for dollar to the extent the
limited partner would otherwise be obligated to pay more than $1,000,000 as a
result of his guaranty to the lender.
NOTE D - LIGHTING COMPONENTS
The Company has an equity interest of 12% in Lighting Components L.P. ("Lighting
Components"). The Company has amounts due from Lighting Components of
approximately $1,861,000 at October 31, 2000. In prior periods the Company had
adjusted the carrying value of the Lighting Components assets to net realizable
value leaving approximately $1,065,000 of assets in the accompanying balance
sheet at October 31, 2000. The Company has a security interest in substantially
all of Lighting Components assets.
Lighting Components distributes a variety of electronic and molded plastic
components for use in the sign and lighting industries. Recent Lighting
Components' products have been well received in the market and have attracted
the interest of third parties, which has resulted in negotiations with Lighting
Components for the purchase of its business.
NOTE E - LINE OF CREDIT
In August 1999, the Company entered into a two year credit arrangement which is
comprised of a revolving loan facility and a term loan. The revolving loan
facility is collateralized under a loan and security agreement by substantially
all of the domestically located assets and inventory located in Mexico. The
agreement contains certain financial covenants pertaining to the maintenance of
tangible net worth, pre-tax income and other financial covenants as defined in
the credit agreement. As of October 31, 2000 the Company was in violation of its
pre-tax income and interest coverage ratio covenants. As of the date of this
report the
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violation of those covenants has not been waived by the bank. The outstanding
loan balance of $19,452,910 has been classified as a short term liability on the
Company's balance sheet. The Company is negotiating with its lender for a one
year extension of the revolving loan facility with revised financial covenants
and a waiver for covenant violations for the period ended October 31, 2000. The
Company believes it will be successful negotiating with its lender.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NOTE: To the extent any statements in this quarterly statement may be deemed to
be forward looking, such statements should be evaluated in the context of the
risks and uncertainties inherent in the Company's business, including the
Company's continued dependence on certain significant customers; the continued
market acceptance of products and services offered by the Company and its
customers; the activities of competitors, some of which may have greater
financial or other resources than the Company; the variability of the Company's
operating results; the availability and cost of necessary components; the
continued availability and sufficiency of the Company's credit arrangements;
changes in U.S. or Mexican regulations affecting the Company's business; the
continued stability of the Mexican economic, labor and political conditions and
the ability of the Company to manage its growth and secure financing. These and
other factors which may affect the Company's future business and results of
operations are identified throughout the Company's Annual Report on Form 10-K
and risk factors contained therein and may be detailed from time to time in the
Company's filings with the Securities and Exchange Commission. These statements
speak as of the date of this report and the Company undertakes no obligation to
update such statements in light of future events or otherwise.
RESULTS OF OPERATIONS:
Net sales decreased for the three month period ended October 31, 2000 to
$25,120,234 from $27,185,252 for the three month period ended October 31, 1999.
Net sales for the six months ended October 31, 2000 decreased to $42,586,347
from $47,371,188 for the same period in prior year. The decrease in sales is
primarily attributable to a decline in sales to one of the Company's key
customers. The Company remains dependent upon continued sales to a few of its
largest customers. Any material change in orders could have a material impact on
the Company's results of operations. Historically the Company has experienced
significant fluctuation in its revenues and results of operations, and the
Company expects such fluctuations to continue. In the Electronic Manufacturing
Services industry the sales level can be misleading as an indication of the
Company's profitability. Sales levels can fluctuate due to labor only orders
compared to turnkey orders. Turnkey orders require the Company to procure the
necessary components for assembly, which increases the selling price compared to
labor only services. A turnkey order may have a higher selling price but may not
be as profitable as a labor only order.
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Gross profit decreased during the three month period ended October 31, 2000 to
$1,881,732 or 7.5% of net sales, compared to $3,396,895 or 12.5% of net sales
for the same period in the prior fiscal year. The gross profit for the six
months ended October 31, 2000 decreased to $2,393,517 from $5,462,829. The
decrease in the Company's gross margin reflects a number of factors which can
vary from period to period, including component pricing and shortages,
consignment and turnkey business, price erosion within the industry, the mix of
labor costs and manufacturing efficiencies. The Company's Elk Grove Village
operation completed its conversion from batch processing to continuous flow late
November 2000. The conversion process has negatively impacted the operation's
gross margin for the quarter ended October 31, 2000. The Company believes the
continuous flow manufacturing will have a positive impact on the operation's
gross margins in future quarters. The Company's overall gross margins continue
to be effected by reduced sales volume, which may continue until the cost
structure is aligned with the reduced sales volume, or until sales volumes
increase. The Company has continued to migrate work to Mexico, thereby providing
customers with cost reductions and increasing margins. While the Company's focus
remains on expanding its customer base and expanding gross margins, there can be
no assurance that revenues and gross margins will increase in future quarters.
Selling and administrative expenses decreased to $1,519,301 or 6.0% of net sales
for the three month period ended October 31, 2000 compared to $1,664.853 or 6.1%
of net sales in the same period last year. Selling and administrative expenses
for the six months ended October 31, 2000 and 1999 were $2,844,114 and
$3,023,295 respectively. The decrease is primarily due to a decrease in
commission expense.
Interest expense for bank debt and capital lease obligations for the three month
period ended October 31, 2000 was $384,927 compared to $412,726 for the same
period in the prior year. Interest expense for bank debt and capital lease
obligations for the six months ended October 31, 2000 and 1999 were $697,692 and
$738,099 respectively. This decrease was attributable to a decrease in interest
expense for capital lease obligations.
As a result of the factors described above, net income decreased to $158,770 for
the three month period ended October 31, 2000 compared to net income of $733,104
for the same period in the prior year. Basic and dilutive earnings per share for
the second fiscal quarter of 2001 were $0.06 compared to $0.25 for the same
period in the prior year. For the first six months of fiscal 2001 the Company
incurred a net loss of $419,919 compared to net income of $978,354 for the six
month period ended October 31, 1999. Basic and diluted earnings per share for
the six month period ended October 31, 2000 and 1999 were ($0.15) and $0.34
respectively.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended October 31, 2000 the primary source of liquidity was
$4,798,589 of cash provided by borrowings from the Company's secured lender.
Cash flow used in operating activities was $3,660,627 compared to $1,219,959 in
the comparable period in fiscal
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1999. Cash used in operating activities was primarily due to an increase in
accounts receivables and inventories offset by an increase in accounts payable.
Cash flow used in investing activities totaled $1,101,110 for the six months
ended October 31, 2000 which was used for the purchase of machinery and
equipment.
In August 1999, the Company entered into a two year credit arrangement which is
comprised of a revolving loan facility and a term loan. The revolving loan
facility is collateralized under a loan and security agreement by substantially
all of the domestically located assets and inventory located in Mexico. The
agreement contains certain financial covenants pertaining to the maintenance of
tangible net worth, pre-tax income and other financial covenants as defined in
the credit agreement. At the October 31, 2000 the Company was in violation of
its pre-tax income and interest coverage ratio covenants. As of the date of this
report the violation of those covenants has not been waived by the bank. The
outstanding loan balance of $19,452,910 has been classified as a short term
liability on the Company's balance sheet. The Company is negotiating with its
lender for a one year extension of the revolving loan facility with revise
financial covenants and a waiver for covenant violations for the period ended
October 31, 2000. The Company believes it will be successful negotiating with
its lender.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS:
Not applicable
SIGMATRON INTERNATIONAL, INC.
PART II - OTHER INFORMATION
October 31, 2000
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 25, 2000, the Company held its 2000 Annual Meeting of Stockholders.
The following persons were elected as directors to hold office until the 2003
Annual Meeting of Stockholders: William C. Mitchell, Thomas W. Rieck and Steven
A. Rothstein. The number of shares cast for, withheld and abstained with respect
to each of the nominees were as follows:
Nominee For Against Abstained
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William C. Mitchell 2,648,296 133,030 0
Thomas W. Rieck 2,648,296 133,030 0
Steven A. Rothstein 2,648,296 133,030 0
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The stockholders ratified the 2000 Directors Stock Option Plan, 1,430,847 were
in favor of the ratification and 559,680 were opposed. In addition, the
shareholders ratified the 2000 Employee Stock Option Plan, 1,446,542 were in
favor of the ratification and 543,860 votes were opposed. The stockholders also
voted to approve the ratification of the selection of Ernst & Young LLP as
independent auditors for the Company for the fiscal year April 30, 2001.
2,755,491 shares were cast for such selection, 9,950 shares were opposed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data schedule (EDGAR version only)
(b) 10.27 Lease Agreement # 00-190 between SigmaTron International, Inc.
and International Financial Services dated July 18, 2000, filed as
Exhibit 10.27 to the Company's Form 10-Q for the quarter ended October
31, 2000.
(c) No report on Form 8-K was filed during the quarter ended October 31,
2000.
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SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGMATRON INTERNATIONAL, INC.
/s/ Gary R. Fairhead 12/15/00
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 12/15/00
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Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)