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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 July 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 of Incorporation (I.R.S. Employer
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 September 10, 2001 there were 2,881,227 shares of the Registrant's Common
Stock outstanding.
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SigmaTron International, Inc.
Index
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - July 31, 2001
and April 30, 2001 3
Consolidated Statements of Operations - Three
Months Ended July 31, 2001 and 2000 4
Consolidated Statements of Cash Flow - Three
Months Ended July 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 Risks 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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SIGMATRON INTERNATIONAL, INC.
Consolidated Balance Sheet
JULY 31, April 30,
2001 2001
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ASSETS (UNAUDITED)
Current assets:
Cash $ 2,500 $ 2,500
Accounts receivable, less allowance for doubtful
accounts of $124,782 at July 31, 2001 and
April 30, 2001 10,527,363 10,441,857
Inventories 16,272,780 17,708,733
Prepaid and other assets 664,249 616,870
Refundable income taxes 740,832 680,825
Deferred income taxes 734,289 561,128
Other receivables 354,885 635,942
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Total current assets 29,296,898 30,647,855
Machinery and equipment, net 13,370,616 13,762,439
Due from SMTU:
Investment and advances 1,080,240 977,356
Equipment receivable 3,194,419 3,371,006
Other receivable 761,665 788,649
Other assets 1,360,783 1,388,485
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Total assets $49,064,621 $50,935,790
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 8,171,637 7,803,584
Trade accounts payable - Related parties 155,000 767,075
Accrued expenses 1,647,736 1,930,194
Notes payable- Banks 15,838,825 16,406,414
Other liabilities - Related party 36,180 172,051
Capital lease obligations 1,329,670 1,612,613
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Total current liabilities 27,179,048 28,691,931
Capital lease obligations, less current portion 1,897,477 1,984,921
Deferred income taxes 1,347,563 1,347,563
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Total liabilities 30,424,088 32,024,415
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 July 31, 2001 and April 30, 2001
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 9,175,167 9,446,009
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Total stockholders' equity 18,640,533 18,911,375
Total liabilities and stockholders' equity $49,064,621 $50,935,790
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See accompanying notes.
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SIGMATRON INTERNATIONAL, INC.
Consolidated Statements Of Operations
Unaudited
Three Months
THREE MONTHS Ended
ENDED July 31, 2000
JULY 31, 2001 RESTATED (SEE NOTE E)
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Net sales $17,114,358 $16,824,889
Cost of products sold 15,977,254 16,954,328
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1,137,104 (129,439)
Selling and administrative expenses 1,394,318 1,324,813
Operating (loss) income (257,214) (1,454,252)
Equity in net (income) of SMTU (102,886) (229,141)
Interest expense - Banks and capital lease obligations 405,099 426,413
Interest income - SMTU and LC (115,424) (113,648)
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Loss before income tax benefit (444,003) (1,537,876)
Income tax benefit 173,161 599,772
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Net loss ($270,842) ($938,104)
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Net loss per common share - Basic ($0.09) ($0.33)
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Net loss per common share - Assuming dilution ($0.09) ($0.33)
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See accompanying notes.
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SIGMATRON INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
Unaudited
THREE MONTHS ENDED JULY 31,
2000
2001 RESTATED (SEE NOTE E)
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OPERATING ACTIVITIES:
Net (loss) income ($270,842) ($578,689)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 507,449 474,362
Equity in net (income) loss of SMTU (102,886) (229,141)
Deferred income taxes (173,161) -
Changes in operating assets and liabilities:
Accounts receivable (85,503) 380,339
Inventories 1,435,953 (1,258,443)
Prepaid expenses and other assets 464,952 155,940
Refundable income taxes (60,007) -
Trade accounts payable 368,053 1,491,949
Trade accounts payable - related parties (747,946) 242,479
Accrued expenses (282,458) (325,188)
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Net cash provided by operating activities 1,053,604 353,608
INVESTING ACTIVITIES:
Purchases of machinery and equipment (115,628) (219,326)
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Net cash used in investing activities (115,628) (219,326)
FINANCING ACTIVITIES:
Net payments under capital lease obligations (370,387) (457,859)
Net (payments) proceeds under line of credit (567,589) 323,577
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Net cash used in financing activities (937,976) (134,282)
Change in cash 0 0
Cash at beginning of period 2,500 2,500
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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)
July 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. The Consolidated
Statement of Operations for July 31, 2000 and the Consolidated Statement of Cash
Flow for the period ended July 31, 2000, as restated for fiscal 2001. 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 three-month period ended July 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending April 30,
2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K for the year ended
April 30, 2001.
NOTE B - INVENTORIES
The components of inventory consist of the following:
July 31, April 30,
2001 2001
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Finished products $ 2,862,268 $ 3,428,346
Work-in-process 1,870,466 2,152,894
Raw materials 11,540,046 12,127,493
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$16,272,780 $17,708,733
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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
July 31,
2001 2000
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Revenues $3,959,402 $10,555,543
Cost and expenses 3,717,320 10,003,396
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Pre-tax income $ 242,082 $ 552,147
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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
payments made on behalf of SMTU 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. As of the date of this report SMTU was
in violation of its financial covenants for the period ended April 30, 2001.
NOTE D - 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 $25
million facility line was decreased to $20 million in August 2001. 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
financial covenants for the quarters ended July 31, 2000, October 31, 2000,
January 31, 200l, and April 30, 2001. On February 1, 200l, the Company entered
into a forbearance agreement with its lenders. Under the terms of the
forbearance agreement the credit arrangement has been extended until October 31,
2001, and the Company is required to pay additional interest of 1.50 basis
points on prime-based borrowings. The outstanding loan balance of $15,838,825
and $16,406,414 has been classified as short-term in the Company's balance sheet
at July 31, 2001 and April 30, 2001, respectively. The Company is seeking
alternative financing although there can be no assurance it will be obtained.
NOTE E - RESTATEMENT
The Company is restating its Consolidated Statement of Operations and
Consolidated Statement of Cash Flow for the three months ended July, 2000. This
restatement corrects the timing and the amount of revenue recognized in
connection with a customer agreement. The adjustment resulted in a reduction in
revenue, gross margin, net loss per share of $641,224, $359,415 and $0.13,
respectively in the first quarter.
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NOTE F - FINANCIAL CONDITION
Due to the recent downturn in the economy, which has significantly affected the
electronic industry, the Company experienced significantly lower sales and
increased losses for the last several months of fiscal 2001. In an effort to
mitigate some of its losses, the Company substantially downsized its work force
and reduced overhead expenses during fiscal 2001.
The Company has not complied with certain covenants of loan agreements with
banks and has begun a search for a new secured lender but has been unsuccessful
to date. In addition, the Company has entered into discussions with third
parties regarding a potential merger or sale of the Company or an equity
investment in the Company. Talks are ongoing and, while significant levels of
interest have been shown it is too early to determine if any of the Company's
discussions will result in a transaction.
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 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 its Form 10-K and
in the prospectus issued in connection with the Company's February 1994 initial
public offering of securities (Registration No. 33-72100), 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 increased for the three month period ended July 31, 2001 to
$17,114,358 from $16,824,889 for the three month period ended July 31, 2000 as
restated, a year ago. Sales can be misleading as an indication of the Company's
financial performance. Gross profit margins can vary considerably among
customers and products depending on the type of services rendered by the
Company, specifically the variation of orders for turnkey services versus
consignment services. Variations in the number of turnkey orders compared to
consignment
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orders can lead to significant fluctuations in the Company's revenue levels and
margins. Further, generally customers' orders can be delayed, rescheduled or
canceled at any time, which can significantly impact the operating results of
the Company. In addition, the ability to replace such delayed or lost sales in a
short period of time cannot be assured.
Gross profit increased during the three month period ended July 31, 2001 to
$1,137,104 or 6.6% of net sales, compared to a loss of $129,439 for the same
period in the prior fiscal year, as restated in 2000. The increase in the
Company's gross margin for the three months ended July 31, 2001 reflects a
number of factors, which can vary from period to period, labor cost and
inefficiencies, component pricing and capacity utilization. Management has taken
steps to align its overhead structure with current customer demands, including
workforce reductions. The Company continues to evaluate its current
manufacturing issues, which could result in additional workforce and overhead
reductions.
Selling and administrative expenses increased to $1,394,318 or 8.1% of net sales
for the three month period ended July 31, 2001 compared to $1,324,813 or 7.6% of
net sales in the same period last year. The increase is primarily due to the
addition of an information technology department.
Interest expense for bank debt and capital lease obligations for the three month
period ended July 31, 2001 was $405,099 compared to $426,413 for the same period
in the prior year. This decrease was attributable to a decrease in interest
expense for the credit facility.
As a result of the factors described above, the net loss decreased to $270,842
for the three month period ended July 31, 2001 compared to a net loss of
$938,104 for the same period in the prior year, as restated in 2000. Basic and
dilutive earnings per share for the first fiscal quarter of 2001 were $0.09
compared to $0.33 for the same period in the prior year, as restated in 2000.
LIQUIDITY AND CAPITAL RESOURCES:
For the three months ended July 31, 2001 the primary source of liquidity was
cash provided by operations. Cash provided by operating activities was
$1,053,604 compared to $353,608 in the comparable period in fiscal 2001. Cash
provided by operating activities was primarily due to a decrease in inventory.
Cash flow used in investing activities totaled $115,628 for the three months
ended July 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 $25
million facility line was decreased to $20 million in August 2001. 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
financial covenants for the quarters ended July 31, 2000, October 31, 2000,
January 31, 200l,
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and April 30, 2001. On February 1, 200l, the Company entered into a forbearance
agreement with its lenders. Under the terms of the forbearance agreement, the
credit arrangement has been extended until October 31, 2001, and the Company is
required to pay additional interest of 1.50 basis points on prime-based
borrowings. The outstanding loan balance of $15,838,825 and $16,406,414 has been
classified as short-term in the Company's balance sheet at July 31, 2001 and
April 30, 2001, respectively. The Company is seeking alternative financing
although there can be no assurance it will be obtained.
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) No report on Form 8-K was filed during the quarter ended July 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 9/13/01
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 9/13/01
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Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)