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. - -------------------------------------------------------------------------------- (Exact Name of Registrant, as Specified in its Charter) Delaware 36-3918470 - -------------------------------------------------------------------------------- (State or other Jurisdiction of Incorporation (I.R.S. Employer 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 December 10, 2001 there were 2,881,227 shares of the Registrant's Common Stock outstanding.
SigmaTron International, Inc. Index <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION Page No. -------- <S> <C> 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 </TABLE>
SIGMATRON INTERNATIONAL, INC. Consolidated Balance Sheets Unaudited <TABLE> <CAPTION> OCTOBER April 30, 2001 2001 ----------- ----------- <S> <C> <C> 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 ----------- ----------- 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 ----------- ----------- 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 ----------- ----------- Total stockholders' equity 19,564,382 18,911,375 Total liabilities and stockholders' equity $52,897,740 $50,935,790 =========== =========== </TABLE> See accompanying notes. 3
SIGMATRON INTERNATIONAL, INC. Consolidated Statements Of Operations Unaudited <TABLE> <CAPTION> Three Months THREE MONTHS Ended ENDED October 31, 2000 OCTOBER 31, 2001 Restated (see note E) ---------------- --------------------- <S> <C> <C> Net sales $ 25,545,610 $ 24,820,234 Cost of products sold 22,081,089 23,238,502 ------------ ------------ 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) ------------ ----------- Income (loss) before income tax expense 1,514,507 (35,383) Income tax expense (benefit) 590,658 (13,799) ------------ ------------ Net income (loss) $ 923,849 $ (21,584) ------------ ----------- Net income (loss) per common share - Basic $ 0.32 $ (0.01) ------------ ----------- Net income (loss) per common share - Assuming dilution $ 0.32 $ (0.01) ============ =========== <Caption> <CAPTION> Six Months SIX MONTHS Ended ENDED October 31, 2000 OCTOBER 31, 2001 Restated (see note E) ---------------- --------------------- <S> <C> <C> 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) ------------ ------------ Net income (loss) per common share - Basic $ 0.23 $ (0.33) ------------ ------------ Net income (loss) per common share - Assuming dilution $ 0.23 $ (0.33) ============ ============ </TABLE> See accompanying notes. 4
SIGMATRON INTERNATIONAL, INC. Consolidated Statements of Cash Flow Unaudited <TABLE> <CAPTION> SIX MONTHS ENDED OCTOBER 31, 2000 2001 Restated (see note E) <S> <C> <C> 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) ----------- ----------- 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) ----------- ----------- 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 ----------- ----------- 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 ----------- ----------- Cash at end of period $ 2,500 $ 2,500 =========== =========== </TABLE> 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 ------------- ------------- 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 ------------- ------------- $ 17,230,659 $ 17,708,733 ============= ============= 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
<TABLE> <CAPTION> Three Months Ended Six Months Ended October 31, October 31, 2001 2000 2001 2000 ------------- ------------- ------------- -------------- <S> <C> <C> <C> <C> 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 ------------- ------------- ------------- -------------- Pre-tax income $ (48,424) $ 552,147 $ 193,658 $ 1,214,716 ============= ============= ============= ============== </TABLE> 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 - ----------------------------------------------- --------------------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 12/12/01 - ----------------------------------------------- --------------------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)