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, 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 December 10, 2001 there were 2,881,227 shares of the Registrant's Common
Stock outstanding.
SigmaTron International, Inc.
Index
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - October 31, 2001
and April 30, 2001 3
Consolidated Statements of Operations - Three and
Six Months Ended October 31, 2001 and 2000 4
Consolidated Statements of Cash Flow - Three and
Six Months Ended October 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 and Form 8-KA 11
SIGMATRON INTERNATIONAL, INC.
Consolidated Balance Sheets
Unaudited
OCTOBER April 30,
2001 2001
----------- -----------
ASSETS
Current assets:
Cash $ 2,500 $ 2,500
Accounts receivable, less allowance for doubtful
accounts of $124,782 at October 31, 2001 and
April 30, 2001 14,841,967 10,441,857
Inventories 17,230,659 17,708,733
Prepaid and other assets 366,050 616,870
Income tax refund - 680,825
Deferred income taxes 532,873 561,128
Other receivables 377,364 635,942
----------- -----------
Total current assets 33,351,413 30,647,855
Machinery and equipment, net 13,046,471 13,762,439
Due from SMTU:
Investment and advances 1,059,660 977,356
Equipment receivable 3,194,419 3,371,006
Other receivable 676,232 788,649
Other assets 1,569,545 1,388,485
----------- -----------
Total assets $52,897,740 $50,935,790
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 10,193,384 7,803,584
Trade accounts payable - Related parties - 767,075
Accrued expenses 2,325,448 1,930,194
Notes payable - Banks 16,697,796 16,406,414
Other liabilities - Related party - 172,051
Capital lease obligations 1,110,894 1,612,613
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Total current liabilities 30,327,522 28,691,931
Notes payable - Bank, less current portion - -
Capital lease obligations, less current portion 1,658,273 1,984,921
Deferred income taxes 1,347,563 1,347,563
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Total liabilities 33,333,358 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 October 31, 2001 and April 30, 2001
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 10,099,016 9,446,009
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Total stockholders' equity 19,564,382 18,911,375
Total liabilities and stockholders' equity $52,897,740 $50,935,790
=========== ===========
See accompanying notes.
3
SIGMATRON INTERNATIONAL, INC.
Consolidated Statements Of Operations
Unaudited
Three Months
THREE MONTHS Ended
ENDED October 31, 2000
OCTOBER 31, 2001 Restated (see note E)
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Net sales $ 25,545,610 $ 24,820,234
Cost of products sold 22,081,089 23,238,502
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Contribution margin 3,464,521 1,581,732
Selling and administrative expenses 1,604,620 1,519,301
Operating income (loss) 1,859,901 62,431
Equity in SMTU net loss (income) 20,582 (287,113)
Interest expense - Banks and capital lease obligations 428,993 518,461
Interest income - SMTU and LC (104,181) (133,534)
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Income (loss) before income tax expense 1,514,507 (35,383)
Income tax expense (benefit) 590,658 (13,799)
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Net income (loss) $ 923,849 $ (21,584)
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Net income (loss) per common share - Basic $ 0.32 $ (0.01)
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Net income (loss) per common share - Assuming dilution $ 0.32 $ (0.01)
============ ===========
<Caption>
Six Months
SIX MONTHS Ended
ENDED October 31, 2000
OCTOBER 31, 2001 Restated (see note E)
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Net sales $ 42,659,968 $ 41,645,123
Cost of products sold 38,058,343 40,192,830
------------ ------------
Contribution margin 1,452,293
4,601,625
Selling and administrative expenses 2,844,114
2,998,938
Operating income (loss) (1,391,821)
1,602,687
Equity in SMTU net loss (income) (516,254)
Interest expense - Banks and capital lease obligations (82,304) 944,874
Interest income - SMTU and LC 834,092 (247,182)
(219,605) ------------
Income (loss) before income tax expense ------------ (1,573,259)
1,070,504
Income tax expense (benefit) (613,571)
417,497 ------------
------------
Net income (loss) $ 653,007 $ (959,688)
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Net income (loss) per common share - Basic $ 0.23 $ (0.33)
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Net income (loss) per common share - Assuming dilution $ 0.23 $ (0.33)
============ ============
See accompanying notes.
4
SIGMATRON INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
Unaudited
SIX MONTHS ENDED OCTOBER 31,
2000
2001 Restated (see note E)
OPERATING ACTIVITIES:
Net income (loss) $ 653,007 $ (959,688)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 958,818 970,145
Equity in SMTU net (income) (82,304) (516,254)
Changes in operating assets and liabilities:
Accounts receivable (4,400,110) (4,671,664)
Inventories 478,074 (1,994,871)
Prepaid expenses and other assets 617,342 (1,235,706)
Trade accounts payable 2,389,800 4,470,062
Liabilities - related parties (939,126) 287,460
Accrued expenses 395,254 (6,396)
Deferred Taxes 28,255 397,720
Income tax refund 680,825 (401,435)
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Net cash provided by (used in) operating activities 779,835 (3,660,627)
INVESTING ACTIVITIES:
Purchases of machinery and equipment (242,850) (1,101,110)
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Net cash used in investing activities (242,850) (1,101,110)
FINANCING ACTIVITIES:
Net payments under capital lease obligations (828,367) (36,852)
Net proceeds underline of credit 291,382 4,798,589
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Net cash (provided by) used in financing activities (536,985) 4,761,737
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.
5
SigmaTron International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 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 of America for complete financial statements. The
Consolidated Statement of Operations for October 31, 2000 and the Consolidated
Statement of Cash Flow for the period ended October, 2000, are 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 and six-month period ended
October 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:
October 31, April 30,
2001 2001
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Finished products $ 2,400,417 $ 3,428,346
Work-in-process 1,538,834 2,152,894
Raw materials 13,291,408 12,127,493
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$ 17,230,659 $ 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:
6
Three Months Ended Six Months Ended
October 31, October 31,
2001 2000 2001 2000
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Revenues $4,732,585 $10,555,542 $ 8,691,986 $ 23,599,667
Cost and expenses 4,781,009 10,003,395 8,498,328 22,384,951
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Pre-tax income $ (48,424) $ 552,147 $ 193,658 $ 1,214,716
============= ============= ============= ==============
The results of operations for SMTU for the six month period ended October 31,
2001 included a contract cancellation payment to cover inventory and other
costs.
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. 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. The Company
operated under a forbearance agreement from February 1, 2001 to November 30,
2001. On December 4, 2001 the original credit arrangement was amended and
extended to April 30, 2002. The agreement contains certain financial covenants
pertaining to the maintenance of pre-tax income, leverage ratio and other
financial covenants. The outstanding loan balance of $16,697,796 and $16,406,414
has been classified as short-term in the Company's balance sheet at October 31,
2001 and April 30, 2001, respectively.
NOTE E - RESTATEMENT
The Company is restating its Consolidated Statement of Operations and
Consolidated Statement of Cash Flow for the three and six months ended October,
2000. This restatement corrects the timing and the amount of revenue recognized
in connection with customer agreements. The adjustment resulted in a reduction
in revenue of $300,000 and $941,224,
7
gross margin of $180,374 and $539,789 and net loss per share of $0.06 and $0.19
for the three and six months ended October 31, 2000, respectively.
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.
The Company is restating its Consolidated Statement of Operations and
Consolidated Statement of Cash Flow for the three and six months ended October,
2000. This restatement corrects the timing and the amount of revenue recognized
in connection with customer agreements. The adjustment resulted in a reduction
in revenue of $300,000 and $941,224, gross margin of $180,374 and $539,789 and
net loss per share of $0.06 and $0.19 for the three and six months ended October
31, 2000, respectively.
RESULTS OF OPERATIONS:
Net sales increased for the three month period ended October 31, 2001 to
$25,545,610 from $24,820,234 for the three month period ended October 31, 2000,
as restated. Net sales for the six months ended October 31, 2001 increased to
$42,659,968 from $41,645,123 as restated for the same period in the prior fiscal
year. Sales increased for the three and six months ended October 31, 2001
primarily due to an increase and acceleration of orders from existing customers
and the addition of several new customers.
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
8
consignment 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 October 31, 2001 to
$3,464,521 or 13.6% of net sales, compared to $1,581,732, or 6.4% of net sales
for the same period in the prior fiscal year, as restated. Gross profit
increased for the six month period ended October 31, 2001 to $4,601,625 or 10.8%
of net sales, compared to $1,452,293 or 3.5% of net sales, for the same period
in the prior fiscal year, as restated. The increase in the Company's gross
margin for the three and six month period ended October 31, 2001 is the result
of a number of factors. These factors which can vary from period to period
include 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 $1,604,620 or 6.3% of net sales
for the three month period ended October 31, 2001 compared to $1,519,301 or 6.1%
of net sales in the same period last year, as restated. Selling and
administrative expenses increased to $2,998,938 or 7.0% of net sales for the six
month period ended October 31, 2001 compared to $2,844,114 or 6.8% of net sales,
as restated. 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 October 31, 2001 was $428,993 compared to $518,461 for the same
period in the prior year, as restated. Interest expense for the six month period
ended October 31, 2001 decreased to $834,092 from $944,874 compared to the same
period in the prior year, as restated. This decrease was attributable to a
decrease in interest rates and the amount outstanding under the credit facility.
As a result of the factors described above, net income increased to $923,849 for
the three month period ended October 31, 2001 compared to a net loss of $21,584
for the same period in the prior year, as restated in 2000. Basic and dilutive
earnings per share for the second fiscal quarter of 2001 were $0.32 compared to
$(0.01) for the same period in the prior year, as restated. For the six month
ended of fiscal 2002 the Company recorded net income of $653,007 compared to a
net loss of $959,688 for the same period in the prior fiscal year, as restated.
Basic and dilutive earnings per share for the six month period ended October 31,
2001 were $0.23 compared to $(0.33) for the same period in the prior year, as
restated.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended October 31, 2001 the primary source of liquidity was
cash provided by operations. Cash provided by operating activities was $779,835
in fiscal 2002 compared to cash used in operations of $3,660,627 in fiscal 2001,
as restated. Cash provided by operating
9
activities for the six month period ended October 31, 2001 was primarily due to
an increase in net income.
Cash flow used in investing activities totaled $242,850 for the six months ended
October 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. 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. The Company
operated under a forbearance agreement from February 1, 2001 to November 30,
2001. On December 4, 2001 the original credit arrangement was amended and
extended to April 30, 2002. The agreement contains certain financial covenants
pertaining to the maintenance of pre-tax income, leverage ratio and other
financial covenants. The outstanding loan balance of $16,697,796 and $16,406,414
has been classified as short-term in the Company's balance sheet at October 31,
2001 and April 30, 2001, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS:
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS 141) Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001, and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
- All business combinations initiated after June 30, 2001, must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001.
- Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective May 1, 2002, all
previously recognized goodwill and intangible assets with indefinite
lives will no longer be subject to amortization.
- Effective May 1, 2002 goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator.
The Company does not expect this to have any effect on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-KA
(a) Exhibit 10.29 - Form 8-K filed October 31, 2001, Changes in
Registrant's Certifying Accountant and hereby incorporated by
reference.
11
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 12/12/01
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 12/12/01
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Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)