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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 January 31, 2001
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 March 14, 2001 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 - January 31, 2001
and April 30, 2000 3
Consolidated Statements of Operations - Three and Nine
Months Ended January 31, 2001 and 2000 4
Consolidated Statements of Cash Flows - Three and Nine
Months Ended January 31, 2001 and 2000 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 6. Exhibits and Reports on Form 8-K 10
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SigmaTron International, Inc.
Consolidated Balance Sheets
JANUARY 31, APRIL 30,
2001 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 January 31, 2001 and
April 30, 2000 12,354,214 10,609,481
Inventories 19,886,889 17,775,199
Prepaid and other assets 1,203,968 494,848
Income tax refund 110,127 -
Deferred income taxes 371,868 371,868
Other receivables 869,821 762,277
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Total current assets 34,799,387 30,016,173
Machinery and equipment, net 13,794,969 13,327,430
Due from SMTU:
Investment and advances 1,382,238 859,612
Equipment receivable 3,579,328 3,312,371
Other receivable 895,383 892,709
Other assets 1,376,872 932,597
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Total assets $55,828,177 $49,340,892
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 10,358,833 6,841,875
Trade accounts payable - Related parties 976,218 874,169
Accrued expenses 1,811,171 1,916,815
Notes payable - Bank 17,284,337 -
Capital lease obligations 1,867,534 1,893,486
Other liabilities - due to related party 326,797
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Total current liabilities 32,624,890 11,526,345
Notes payable - Bank, less current portion - 14,654,320
Capital lease obligations, less current portion 2,193,976 1,816,073
Deferred income taxes 1,277,015 1,277,015
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Total liabilities 36,095,881 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 January 31, 2001 and April 30, 2000
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 10,266,930 10,601,773
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Total stockholders' equity 19,732,296 20,067,139
Total liabilities and stockholders' equity $55,828,177 $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 Nine Months Nine Months
Ended Ended Ended Ended
January 31, 2001 January 31, 2000 January 31, 2001 January 31, 2000
---------------- ---------------- ----------------- ----------------
Net sales $20,715,857 $24,972,991 $63,302,204 $72,344,179
Cost of products sold 18,779,604 23,146,272 58,972,434 65,054,631
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1,936,253 1,826,719 4,329,770 7,289,548
Selling and administrative expenses 1,432,912 1,411,479 4,277,026 4,493,107
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Operating income 503,341 415,240 52,744 2,796,441
Equity in net income of affiliate (6,372) (178,200) (522,626) (253,187)
Interest expense - Banks and capital
lease obligations 554,246 572,779 1,499,120 1,618,666
Interest income - Related parties (140,821) (158,564) (388,003) (466,352)
---------------- ---------------- ----------------- ----------------
Income (loss) before income tax expense
and extraordinary item 96,288 179,225 (535,747) 1,897,314
Income tax expense (benefit) 11,211 (363,751) (200,905) 288,484
---------------- ---------------- ----------------- ----------------
Income (loss) before extraordinary item 85,077 542,976 (334,842) 1,608,830
Extraordinary item - extinguishment of debt,
net of taxes $58,333 - - - 87,500
---------------- ---------------- ----------------- ----------------
Net income (loss) 85,077 542,976 (334,842) 1,521,330
================ ================ ================= ================
Net income (loss)
per common share - Basic $0.03 $0.19 ($0.12) $0.53
================ ================ ================= ================
Net income (loss)
per common share - Assuming dilution $0.03 $0.19 ($0.12) $0.53
================ ================ ================= ================
Weighted average number of common shares
outstanding - basic 2,881,227 2,881,227 2,881,227 2,881,227
================ ================ ================= ================
Weighted average number of common shares
outstanding - diluted 2,881,227 2,883,921 2,881,227 2,881,227
================ ================ ================= ================
See accompanying notes.
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SigmaTron International, Inc.
Consolidated Statements of Cash Flow
(Unaudited)
NINE MONTHS ENDED JANUARY 31,
2001 2000
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OPERATING ACTIVITIES:
Net (loss) income ($334,842) $1,521,330
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation 1,475,958 1,341,703
Equity in net income of affiliate (522,626) (253,187)
Provision for doubtful accounts - 96,960
Provision for inventory obsolescence - 50,000
Changes in operating assets and liabilities:
Accounts receivable (1,744,733) (5,351,633)
Inventories (2,111,690) (1,596,480)
Prepaid expenses (709,120) (204,041)
Other assets (931,577) 1,318,012
Trade accounts payable 3,516,958 766,148
Trade accounts payable - related parties 102,049 20,327
Accrued expenses (105,644) (104,432)
Other liabilities 326,797 -
Receivable from flood insurance proceeds - 2,453,235
Income tax payable - (628,577)
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Net cash used in operating activities (1,038,470) (570,635)
Investing activities:
Purchases of machinery and equipment (1,943,498) (1,208,685)
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Net cash used in investing activities (1,943,498) (1,208,685)
Financing activities:
Net payments under capital lease obligations 351,952 (1,828,975)
Net proceeds under line of credit 2,630,016 3,330,724
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Net cash provided by financing activities 2,981,968 1,501,749
Change in cash - (277,571)
Cash at beginning of period 2,500 280,071
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Cash at end of period $2,500 $2,500
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See accompanying notes.
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SigmaTron International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 31, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States 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
nine-month period ended January 31, 2001 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:
January 31, April 30,
2001 2000
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Finished products $ 4,213,042 $ 2,837,452
Work-in-process 1,672,355 1,713,691
Raw materials 14,001,492 13,224,056
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$19,886,889 $17,775,199
NOTE C - SMT, UNLIMITED L.P.
The Company owns 42.5% of SMT Unlimited L.P. ("SMTU"), an affiliate with
manufacturing facilities in Fremont and Hollister, 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 Nine Months Ended
January 31, January 31,
2001 2000 2001 2000
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Revenues 11,323,695 6,729,579 34,923,362 17,492,910
Cost and expenses 11,308,701 6,293,503 33,693,652 16,868,969
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Pre-tax income 14,994 436,076 1,229,710 623,941
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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 a 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 $1,965,000 at January 31, 2001. In prior periods the Company had
adjusted the carrying value of the Lighting Components assets to net realizable
value leaving approximately $1,178,000 of assets in the accompanying balance
sheet at January 31, 2001. 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. Interest of a third
party has resulted in negotiations for the purchase of the business of Lighting
Components.
NOTE E - LINE OF CREDIT
In August 1999, the Company entered into a two year credit arrangement which is
comprised of a $25 million 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. As of the date of this report the Company was in violation of its
pre-tax income and interest coverage ratio covenants for the quarters ended July
31, 2000, October 31, 2000 and January 31, 2001. Discussions are in process
among the banks and the Company with regard to revision of covenants, waivers
and other terms of the
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agreement. The Company is seeking alternative financing although there can be
no assurance it will be obtained. The outstanding loan balance of $17,284,337
has been classified as a short term liability on the Company's balance sheet.
ITEM 2. 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 January 31, 2001 to
$20,715,857 from $24,972,991 for the three month period ended January 31, 2000.
Net sales for the nine months ended January 31, 2001 decreased to $63,302,204
from $72,344,179 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.
Gross profit increased during the three month period ended January 31, 2001 to
$1,936,253 or 9.3% of net sales, compared to $1,826,719 or 7.3% of net sales for
the same period in the prior fiscal year. The gross profit for the nine months
ended January 31, 2001 decreased to
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$4,329,770 from $7,289,548. The decrease in the Company's gross margin for the
nine months ended January 31, 2001 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 overall gross margins continue to
be effected by reduced sales volume, which may continue until the overhead 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 increased to $1,432,912 or 6.9% of net sales
for the three month period ended January 31, 2001 compared to $1,411,479 or 5.7%
of net sales in the same period last year. Selling and administrative expenses
for the nine months ended January 31, 2001 and 2000 were $4,277,026 and
$4,493,107, 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 January 31, 2001 was $554,246 compared to $572,779 for the same
period in the prior year. Interest expense for bank debt and capital lease
obligations for the nine months ended January 31, 2001 and 2000 were $1,499,120
and $1,618,666 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 $85,077 for
the three month period ended January 31, 2001 compared to net income of $542,976
for the same period in the prior year. Basic and dilutive earnings per share for
the third fiscal quarter of 2001 were $0.03 compared to $0.19 for the same
period in the prior year. For the first nine months of fiscal 2001 the Company
incurred a net loss of $334,842 compared to net income of $1,521,330 for the
nine month period ended January 31, 2000. Basic and diluted earnings per share
for the nine month periods ended January 31, 2001 and 2000 were ($0.12) and
$0.53, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
For the nine months ended January 31, 2001 the primary source of liquidity was
$2,630,016 of cash provided by borrowings from the Company's secured lender.
Cash flow used in operating activities was $1,038,470 compared to $570,635 in
the comparable period in fiscal 2000. Cash used in operating activities was due
to an increase in accounts receivables and inventories, which is offset by an
increase in accounts payable.
Cash flow used in investing activities totaled $1,943,498 for the nine months
ended January 31, 2001 which relates to purchases of machinery and equipment.
In August 1999, the Company entered into a two year credit arrangement which is
comprised of a $25 million revolving loan facility and a term loan. The
revolving loan facility is
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collateralized under a loan and security agreement by substantially all of the
domestically located assets and inventory located in Mexico. As of the date of
the report the Company was in violation of its pre-tax income and interest
coverage ratio covenants for the quarters ended July 31, 2000, October 31, 2000
and January 31, 2001. Discussions are in process among the banks and the Company
with regard to revision of covenants, waivers and other terms of the agreement.
The Company is seeking alternative financing although there can be no assurance
it will be obtained. The outstanding loan balance of $17,284,337 has been
classified as a short term liability on the Company's balance sheet.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.28 Lease Agreement # 00-190 between SigmaTron International, Inc.
and General Electric Capital Corporation dated December 21, 2000,
filed as Exhibit 10.28 to the Company's Form 10-Q for the quarter
ended January 31, 2001.
(b) No report on Form 8-K was filed during the quarter ended January 31,
2001.
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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 3/14/01
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 3/14/01
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Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)