10-Q 1 c60832e10-q.txt QUARTERLY REPORT 1 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. -------------------------------------------------------------------------------- (Exact Name of Registrant, as Specified in its Charter) Delaware 36-3918470 -------------------------------------------------------------------------------- (State or other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) 2201 Landmeier Road, Elk Grove Village, Illinois 60007 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (847) 956-8000 No Change -------------------------------------------------------------------------------- (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 14, 2001 there were 2,881,227 shares of the Registrant's Common Stock outstanding. 2 SigmaTron International, Inc. Index PART 1. FINANCIAL INFORMATION: Page No. -------- 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 3 SigmaTron International, Inc. Consolidated Balance Sheets JANUARY 31, APRIL 30, 2001 2000 ------------ --------- 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 ----------- ----------- 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 ----------- ----------- 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 ----------- ----------- 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 ----------- ----------- 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 ----------- ----------- Total stockholders' equity 19,732,296 20,067,139 Total liabilities and stockholders' equity $55,828,177 $49,340,892 ----------- ----------- See accompanying notes. 3 4 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 ---------------- ---------------- ----------------- ---------------- 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 ---------------- ---------------- ----------------- ---------------- 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. 4 5 SigmaTron International, Inc. Consolidated Statements of Cash Flow (Unaudited) NINE MONTHS ENDED JANUARY 31, 2001 2000 ---------- ---------- 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) ---------- ---------- Net cash used in operating activities (1,038,470) (570,635) Investing activities: Purchases of machinery and equipment (1,943,498) (1,208,685) ---------- ---------- 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 ---------- ---------- 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 ---------- ---------- Cash at end of period $2,500 $2,500 ========== ========== See accompanying notes. 5 6 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 ----------- ----------- 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 ----------- ----------- $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: 6 7 Three Months Ended Nine Months Ended January 31, January 31, 2001 2000 2001 2000 ---------------------------------------------------- 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 ---------- --------- ---------- ---------- Pre-tax income 14,994 436,076 1,229,710 623,941 ========== ========= =========== ========== 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 7 8 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 8 9 $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 9 10 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. 10 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 3/14/01 -------------------------------------------------- ------------------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 3/14/01 -------------------------------------------------- ------------------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)