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, 2002
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 (I.R.S. Employer
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___
On March 12, 2002 there were 2,881,227 shares of the Registrant's Common Stock
outstanding.
SigmaTron International, Inc.
Index
PART 1. FINANCIAL INFORMATION: Page No.
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - January 31, 2002
and April 30, 2001 3
Consolidated Statements of Operations - Three and Nine
Months Ended January 31, 2002 and 2001 4
Consolidated Statements of Cash Flows - Three and Nine
Months Ended January 31, 2002 and 2001 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 and Form 8-KA 11
SIGMATRON INTERNATIONAL, INC.
Consolidated Balance Sheet
Unaudited
JANUARY 31, April 30,
2002 2001
-------------- -------------
Current assets:
Cash $2,500 $2,500
Accounts receivable, less allowance for doubtful
accounts of $124,782 at January 31, 2002 and
April 30, 2001 11,145,240 10,441,857
Inventories 13,342,240 17,708,733
Prepaid and other assets 575,263 616,870
Refundable income taxes 0 680,825
Deferred income taxes 532,873 561,128
Other receivables 109,148 635,942
-------------- -------------
Total current assets 25,707,264 30,647,855
Machinery and equipment, net 12,828,303 13,762,439
Due from SMTU:
Investment and advances 1,091,611 977,356
Equipment receivable 2,861,169 3,371,006
Other receivable 812,603 788,649
Other assets 1,209,296 1,388,485
-------------- -------------
Total assets $44,510,246 $50,935,790
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Trade accounts payable 4,555,082 7,803,584
Trade accounts payable - Related parties 0 767,075
Accrued expenses 2,206,719 1,930,194
Notes payable- Banks 13,795,191 16,406,414
Other liabilities - Related party 0 172,051
Capital lease obligations 1,013,192 1,612,613
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Total current liabilities 21,570,184 28,691,931
Capital lease obligations, less current portion 1,436,756 1,984,921
Deferred income taxes 1,347,563 1,347,563
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Total liabilities 24,354,503 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 January 31, 2002 and April 30, 2001
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 10,690,377 9,446,009
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Total stockholders' equity 20,155,743 18,911,375
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Total liabilities and stockholders' equity $44,510,246 $50,935,790
============== =============
See accompanying notes.
3
SIGMATRON INTERNATIONAL, INC.
Consolidated Statements Of Operations
Unaudited
Three Months Nine Months
THREE MONTHS Ended NINE MONTHS Ended
ENDED January 31, 2001 ENDED January 31, 2001
JANUARY 31, 2002 Restated (see note E) JANUARY 31, 2002 Restated (see note E)
-------------- ----------------- ----------------- -----------------
Net sales $22,665,278 $20,524,857 $65,325,246 $62,169,980
Cost of products sold 19,551,076 18,779,604 57,609,419 58,972,434
-------------- ----------------- ----------------- -----------------
3,114,202 1,745,253 7,715,827 3,197,546
Selling and administrative expenses 1,919,958 1,432,912 4,918,896 4,277,026
Operating income (loss) 1,194,244 312,341 2,796,931 (1,079,480)
Equity in net (income) of SMTU (31,952) (6,372) (114,256) (522,626)
Interest expense - Banks and capital lease
obligations 355,931 554,246 1,190,023 1,499,120
Interest income - SMTU and LC (99,178) (140,821) (318,783) (388,003)
-------------- ----------------- ----------------- -----------------
Income (loss) before income tax expense 969,443 (94,712) 2,039,947 (1,667,971)
Income tax expense (benefit) 378,082 (36,938) 795,579 (650,509)
-------------- ----------------- ----------------- -----------------
Net income (loss) $591,361 ($57,774) $1,244,368 ($1,017,462)
============== ================= ================= =================
Net income (loss) per common share -
Basic $0.21 ($0.02) $0.43 ($0.35)
============== ================= ================= =================
Net income (loss) per common share -
Assuming dilution $0.20 ($0.02) $0.43 ($0.35)
============== ================= ================= =================
Weighted average shares of common
stock outstanding
Basic 2,881,227 2,881,227 2,881,227 2,881,227
============== ================= ================= =================
Diluted 2,907,477 2,881,227 2,894,352 2,881,227
============== ================= ================= =================
See accompanying notes.
4
SIGMATRON INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
Unaudited
NINE MONTHS ENDED JANUARY 31,
2001
Restated
2002 (see note E)
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OPERATING ACTIVITIES:
Net income (loss) $ 1,244,368 ($1,017,462)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Provision for inventory obsolescence 724,900 --
Depreciation 1,462,178 1,475,958
Equity in net (income) loss of SMTU (114,256) (522,626)
Deferred income taxes 28,255 --
Changes in operating assets and liabilities:
Accounts receivable (703,383) (1,744,733)
Inventories 3,641,593 (2,111,720)
Prepaid expenses and other assets 1,233,474 (958,047)
Refundable income taxes 680,825 --
Trade accounts payable (3,248,502) 3,516,958
Trade accounts payable - related parties (939,126) 102,049
Accrued expenses 276,525 221,153
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Net cash provided by (used in) operating activities 4,286,851 (1,038,470)
INVESTING ACTIVITIES:
Purchases of machinery and equipment (528,042) (1,943,498)
Net cash used in investing activities (528,042) (1,943,498)
FINANCING ACTIVITIES:
Net (payments) proceeds under capital lease obligations (1,147,586) 351,952
Net (payments) proceeds under line of credit (2,611,223) 2,630,016
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Net cash (used in) provided by financing activities (3,758,809) 2,981,968
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
=========== ===========
See accompanying notes.
5
SigmaTron International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 31, 2002
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
of America 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 January 31, 2001 and the Consolidated
Statement of Cash Flow for the period ended January 31, 2001, are restated for
fiscal 2001. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended January 31, 2002 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 Annual
Report for the year ended April 30, 2001.
NOTE B - INVENTORIES
The components of inventory consist of the following:
January 31, April 30,
2002 2001
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Finished products 2,183,956 $3,428,346
Work-in-process 2,018,703 2,152,894
Raw materials 9,139,581 12,127,493
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13,342,240 $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 Nine Months Ended
January 31, January 31,
2002 2001 2002 2001
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Revenues 4,704,251 11,323,695 13,396,237 34,923,362
Cost and expenses 4,629,072 11,308,701 13,127,400 33,693,652
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Pre-tax income 75,179 14,994 268,837 1,229,710
========= ========== ========== ==========
The results of operations for SMTU for the nine month period ended January 31,
2002 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
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. SMTU was in violation of its financial
covenants for the period ended April 30, 2001 and as of the day of this report
the violation has not been waived.
NOTE D - LINE OF CREDIT
In August 1999, the Company entered into a two year credit arrangement for a $25
million revolving loan facility. The terms of the credit arrangement have been
extended several times since inception and the line of credit has been reduced
to $20 million. In December 2001 the credit arrangement was 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. As
of January 31, 2002 the Company was in compliance with its financial covenants.
The outstanding loan balance of $13,795,191 and 16,406,414 has been classified
as a short-term liability in the Company's balance sheet at January 31, 2002 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 nine months ended January 2001. This
restatement corrects the timing and the amount of revenue recognized in
connection with customer agreements.
7
The adjustment resulted in a reduction in revenue recognized in connection with
customer agreements. The adjustment resulted in a reduction in revenue of
$191,001 and $1,132,224, gross margin of $142,851 and 682,642 and net loss per
share of $0.05 and 0.24 for the three and nine months ended January 31, 2001,
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 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 increased for the three month period ended January 31, 2002 to
$22,665,278 from $20,524,857 for the three month period ended January 31, 2001,
as restated. Net sales for the nine months ended January 31, 2002 increased to
$65,325,246 from $62,169,980 for the same period in the prior year, as restated.
Sales increased for the three and nine months ended January 31, 2002 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 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.
8
Gross profit increased during the three month period ended January 31, 2002 to
$3,114,202 or 13.7% of net sales, compared to $1,745,253, or 8.5 % of net sales
for the same period in the prior fiscal year, as restated. Gross profit
increased for the nine month period ended January 31, 2002 to $7,715,827 or
11.8% of net sales, compared to $3,197,546 or 5.1% 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 nine month periods ended January 31, 2002 is the
result of a number of factors. These factors which can vary from period to
period include labor cost and efficiencies, component pricing and capacity
utilization. Management has taken steps to align its overhead structure with
current customer demands, including workforce reductions. While the Company's
focus remains on expanding its customer base and increasing gross margins, there
can be no assurance that gross margins will remain stable or increase in future
quarters.
Selling and administrative expenses increased to $1,919,958 or 8.5% of net sales
for the three month period ended January 31, 2002 compared to $1,432,912 or 7.0%
of net sales in the same period last year, as restated. Selling and
administrative expenses for the nine months ended January 31, 2002 and 2001 was
$4,918,896 and $4,277,026, as restated, respectively. The increase is due to an
increase in commission, insurance, consulting and bonus expenses for the three
and nine month periods ended January 31, 2002.
Interest expense for bank debt and capital lease obligations for the three month
period ended January 31, 2002 was $355,931 compared to $554,246 for the same
period in the prior year. Interest expense for bank debt and capital lease
obligations for the nine months ended January 31, 2002 and 2001 were $1,190,023
and $1,499,120 respectively. This decrease was attributable to a decrease in
interest rates and a decrease in the balance outstanding on the Company's line
of credit.
As a result of the factors described above, net income increased to $591,361 for
the three month period ended January 31, 2002 compared to net loss of $57,774
for the same period in the prior year, as restated. Basic and dilutive earnings
per share for the third fiscal quarter of 2002 were $0.20 compared to $<0.02>
for the same period in the prior year, as restated. For the first nine months of
fiscal 2002 the Company generated net income of $1,244,368 compared to a net
loss of $1,017,462 for the nine month period ended January 31, 2001, as
restated. Basic and diluted earnings per share for the nine month period ended
January 31, 2002 and 2001 were $0.43 and $<0.35>, respectively, as restated.
LIQUIDITY AND CAPITAL RESOURCES:
For the nine months ended January 31, 2002 the primary source of liquidity was
cash provided by operations. Cash provided by operating activities was
$4,286,851 compared to cashed used in operations of $1,038,470 in the comparable
period in fiscal 2001, as restated. Cash provided by operating activities was
due to a decrease in inventory and positive operating results for the nine
months ended January 31, 2002.
Cash flow used in investing activities for machinery and equipment totaled
$465,105 for the nine months ended January 31, 2002.
9
In August 1999, the Company entered into a two year credit arrangement for a $25
million revolving loan facility. The terms of the credit arrangement have been
extended several times since inception and the line of credit has been reduced
to $20 million. In December 2001 the credit arrangement was 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. As
of January 31, 2002 the Company was in compliance with its financial covenants.
The outstanding loan balance of $13,795,191 and 16,406,414 has been classified
as a short-term liability in the Company's balance sheet at January 31, 2002 and
April 30, 2001, respectively. The Company is currently negotiating with its
lender to extend the agreement for twelve months.
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 RISK
Not applicable
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-KA
(a) None
(b) A report on Form 8-K reflecting a Changes in Registrant's
Certifying Accountant dated October 31, 2001 was filed on
November 7, 2001 and amended on November 14, 2001 and November
21, 2001
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 3/13/02
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 3/13/02
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Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)