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. - -------------------------------------------------------------------------------- (Exact Name of Registrant, as Specified in its Charter) Delaware 36-3918470 - -------------------------------------------------------------------------------- (State or other Jurisdiction of (I.R.S. Employer 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 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. -------- 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 <TABLE> <CAPTION> JANUARY 31, April 30, 2002 2001 -------------- ------------- <S> <C> <C> 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 -------------- ------------- 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 -------------- ------------- 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 -------------- ------------- Total stockholders' equity 20,155,743 18,911,375 -------------- ------------- Total liabilities and stockholders' equity $44,510,246 $50,935,790 ============== ============= </TABLE> See accompanying notes. 3
SIGMATRON INTERNATIONAL, INC. Consolidated Statements Of Operations Unaudited <TABLE> <CAPTION> 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) -------------- ----------------- ----------------- ----------------- <S> <C> <C> <C> <C> 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 ============== ================= ================= ================= </TABLE> See accompanying notes. 4
SIGMATRON INTERNATIONAL, INC. Consolidated Statements of Cash Flow Unaudited <TABLE> <CAPTION> NINE MONTHS ENDED JANUARY 31, 2001 Restated 2002 (see note E) ----------- ----------- <S> <C> <C> 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 ----------- ----------- 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 ----------- ----------- 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 ----------- ----------- Cash at end of period $ 2,500 $ 2,500 =========== =========== </TABLE> 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 --------- ---------- 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 ---------- ----------- 13,342,240 $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
Three Months Ended Nine Months Ended January 31, January 31, 2002 2001 2002 2001 ---- ---- ---- ---- 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 --------- ---------- ---------- ---------- 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 - ----------------------------------------------- ------------------ Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 3/13/02 - ----------------------------------------------- ------------------ Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)