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, 1997 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, and Yes XX No --- --- (2) has been subject to such filing requirements for the past 90 days. Yes XX No --- --- On March 10, 1997, there were 2,875,227 shares of the Registrant's Common Stock outstanding.
2 SigmaTron International, Inc. Index PART I. FINANCIAL INFORMATION: Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets--January 31, 1997 and April 30, 1996 3 Consolidated Statements of Income--Three and Nine Months Ended January 31, 1997 and 1996 4 Consolidated Statements of Cash Flow--Nine Months Ended January 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits 10
3 SIGMATRON INTERNATIONAL, INC. Consolidated Balance Sheets <TABLE> <CAPTION> JANUARY 31, April 30, 1997 1996 (UNAUDITED) (Audited) ------------- ---------- <S> <C> <C> ASSETS Current assets: Cash $ 2,500 $ 2,500 Accounts receivable, less allowance for doubtful accounts of $164,126 at January 31, 1997 and $492,126 at April 30, 1996 10,105,157 11,080,485 Inventories 19,825,513 14,854,050 Equipment lease receivables from affiliate 816,293 655,913 Notes receivable from affiliate - 300,000 Prepaid expenses 224,109 167,686 Other assets 1,997,971 744,164 Deferred income taxes 446,871 446,871 ---------- ---------- Total current assets 33,418,414 28,251,669 Machinery and equipment, net 9,236,836 7,230,393 Intangible assets, net of amortization of $172,197 and $154,341 at January 31, 1997 and April 30, 1996, respectively 20,058 37,914 Equipment lease receivables from affiliate, less current portion 1,645,505 1,920,876 Investment and advances with affiliate 549,469 202,524 Other assets 446,984 671,418 ---------- ---------- Total assets $45,317,266 $38,314,794 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable - Bank 166,668 166,668 Notes payable - Related parties 74,543 151,860 Trade accounts payable 8,634,393 6,062,695 Trade accounts payable - Related parties 428,605 794,310 Accrued expenses 1,070,611 1,443,034 Income taxes payable 708,039 66,236 Capital lease obligations 1,088,497 913,566 ---------- ---------- Total current liabilities 12,171,356 9,598,369 Notes payable - Bank, less current portion 14,078,507 12,533,171 Notes payable - Related parties, less current portion 0 42,596 Capital lease obligations, less current portion 2,388,541 2,720,484 Deferred income taxes 651,635 651,635 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, 2,875,227 and 2,737,500 shares issued and 28,752 27,375 outstanding at January 31, 1997 and April 30, 1996, respectively 8,930,212 8,384,089 Capital in excess of par value 7,068,263 4,357,075 ---------- ---------- Retained earnings 16,027,227 12,768,539 ---------- ---------- Total stockholders' equity Total liabilities and stockholders' equity $45,317,266 $38,314,794 ========== ========== </TABLE> See accompanying notes. 3
4 SigmaTron International, Inc. Consolidated Statements of Income (Unaudited) <TABLE> <CAPTION> THREE MONTHS Three Months NINE MONTHS Nine Months ENDED Ended ENDED Ended JANUARY 31, 1997 January 31, 1996 JANUARY 31, 1997 January 31, 1996 ---------------- ---------------- ---------------- ---------------- <S> <C> <C> <C> <C> Net sales Cost of products sold $21,910,286 $20,118,444 $70,086,628 $48,225,397 19,051,065 17,191,061 59,861,218 41,028,899 ----------- ----------- ----------- ----------- 2,859,221 2,927,383 10,225,410 7,196,498 Selling and administrative expenses 1,185,831 1,360,591 4,546,409 3,192,486 ----------- ----------- ----------- ----------- Operating income 1,673,390 1,566,792 5,679,001 4,004,012 Equity in net loss (income) of affiliate 26,841 (10,113) 52,805 202,378 Interest expense - banks and capital lease obligations 483,980 487,358 1,399,110 1,169,979 Interest expense - related party 2,006 6,717 8,699 26,710 Interest income - related party (101,167) (99,467) (300,259) (302,470) ----------- ----------- ----------- ----------- 411,660 384,495 1,160,355 1,096,597 Income before income taxes 1,261,730 1,182,297 4,518,646 2,907,415 Income taxes 504,692 472,919 1,807,458 1,162,966 ----------- ----------- ----------- ----------- Net income $ 757,038 $ 709,378 $ 2,711,188 $ 1,744,449 =========== =========== =========== =========== Net income per common and common equivalent share $ 0.25 $ 0.26 $ 0.93 $ 0.64 =========== =========== =========== =========== Weighted average number of common and common equivalent shares outstanding 2,982,201 2,738,072 2,920,158 2,737,818 =========== =========== =========== =========== Net income per common share - assuming full dilution $ 0.25 $ 0.90 =========== =========== Weighted average number of common shares outstanding - assuming ful dilution 3,026,570 3,026,570 =========== =========== </TABLE> See accompanying notes. 4
5 SIGMATRON INTERNATIONAL, INC. Consoldiated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED JANUARY 31, OPERATING ACTIVITIES 1997 1996 ----------- --------- <S> <C> <C> Net Income $2,711,188 $1,744,449 Adjustments to reconcile net income to net provided by (cash used) in operating activities: Depreciation 739,836 551,024 Equity in net loss of affiliate 52,805 202,378 Amortization 17,856 19,607 Provision for doubtful accounts - (21,112) Compensation expense related to stock options 75,000 - Changes in operating assets and liabilities: Accounts receivable 975,328 (4,217,913) Notes receivable from affiliates - (200,000) Inventories (4,971,463) (5,142,574) Prepaid expenses (56,423) (23,424) Refundable income taxes - 134,773 Other assets (1,029,373) (845,981) Trade accounts payable 2,571,698 2,972,355 Trade accounts payable - related parties (365,705) (163,793) Accrued expenses (372,423) (50,075) Income taxes payable 641,803 331,693 --------- --------- Net provided by (cash used) in operating activities 990,127 (4,708,593) INVESTING ACTIVITIES: Purchases of machinery and equipment (2,397,566) (1,230,264) Proceeds from sale of investment in affiliate 250 - Proceeds from sale of machinery and equipment - 37,513 Advances to affiliate (100,000) (50,000) Net proceeds from affiliate subleases 370,620 206,966 --------- --------- Net cash used in investing activities (2,126,696) (1,035,785) FINANCING ACTIVITIES: Repayment of term loan and other notes payable (119,913) (313,012) Net payments under capital lease obligations (761,354) (644,508) Issuance of common stock 472,500 - Net proceeds under line of credit 1,545,336 6,701,898 --------- --------- Net cash provided by financing activities 1,136,569 5,744,378 Change in cash 0 0 Cash at beginning of period 2,500 2,500 --------- --------- Cash at end of period $ 2,500 $ 2,500 ========= ========== SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION: Acquisition of machinery and equipment financed under capital leases $ 348,713 $ 432,256 ========= ======== </TABLE> 5 See accompanying notes.
6 SigmaTron International, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) January 31, 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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, 1997 are not necessarily indicative of the results that may be expected for the year ending April 30, 1997. 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, 1996. NOTE B -- INVENTORIES The components of inventory consist of the following: <TABLE> January 31, April 30, 1997 1996 ------------ ----------- <S> <C> <C> Finished products $ 1,341,516 $ 556,157 Work-in-process 1,960,720 1,407,996 Raw materials 16,523,277 12,889,897 ----------- ----------- $19,825,513 $14,854,050 =========== =========== </TABLE> NOTE C -- LINE OF CREDIT On December 5, 1996 the Company amended its credit agreement to allow the maximum borrowing limit under the revolving line-of-credit agreement to be limited to the lesser of: (i) $21,500,000, or (ii) an amount equal to the sum of up to 85% of the receivables borrowing base, as defined, and the lesser of $8,000,000 or the amount of the inventory borrowing base as defined. 6
7 NOTE D -- INVESTMENT IN AFFILIATE During this quarter, the Company made advances to SMT Unlimited L.P. (SMTU) of $100,000 in exchange for subordinated debentures. These debentures bear interest at 12% and are to be repaid on December 31, 2001. The Company also converted $300,000 of promissory notes with SMTU into subordinated debentures. These debentures bear interest at 12% and are to be repaid on December 31, 2001. 7
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTE: To the extent any statements in this Form 10-Q 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 continuing dependence on certain major customers, the anticipated seasonality of its business, the timing of or rescheduling of customer orders and other risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996. Sales to the Company's largest customer are seasonal and may cause the Company's quarterly revenues and earnings to fluctuate significantly. RESULTS OF OPERATIONS: Net sales increased from $20,118,444 for the three month period ended January 31, 1996 to $21,910,286 for the three month period ended January 31, 1997. For the first nine months of fiscal 1997 net sales increased to $70,086,628 from $48,225,397 for the comparable period of the prior year. The increase in net sales was due primarily to sales to Nighthawk Systems, Inc. (NSI), which contributed $23,726,822 in net sales for the nine months ended January 31, 1997 and $11,763,300 for the comparable period in the prior year. The Company began manufacturing for NSI in August 1995, and NSI's market is an emerging market which could lead to volatility in the forecast. The Company anticipates NSI will account for a significant percentage of the Company's net sales in fiscal 1997. Sales to NSI are seasonal due to the nature of the product and generally are greater in the Company's second and third quarter. Gross profit decreased during the three month period ended January 31, 1997 to $2,859,221 from $2,927,383 for the same period of the prior fiscal year. For the nine months ended January 31, 1997 gross profit increased to $10,225,410 as compared to $7,196,498 for the same period in 1996. The increase in absolute dollars is due to a higher sales volume. Gross profit decreased as a percent of net sales for the nine months ended January 31, 1997 to 14.6% from 14.9% for the same period in the prior year, which is primarily due to product mix. Selling and administrative expenses decreased for the three month period ended 1/31/96 from $1,360,591 to $1,185,831 for the three months ended January 31, 1997. Selling and administrative expenses as a percentage of net sales for the nine months ended January 31, 1997 were 6.5% or $4,546,409 compared to 6.6% or $3,192,486 in the same period in the prior year. The increase in absolute dollars for the nine months ended January 31, 1997 was primarily due to an increase in commission expense related to the higher sales volume. 8
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - cont'd Interest expense for bank debt and capital lease obligations for the three month period ended January 31, 1997 was $483,980 compared to $487,358 for the same period in the prior year. For the nine months ended January 31, 1997 interest expense increased to $1,399,110 from $1,169,979 in the same period for the prior fiscal year. This increase is primarily attributable to a higher outstanding balance on the line of credit and interest expense associated with increased capital lease obligations. As a result of the foregoing, income before taxes increased from $1,182,297 in the three month period ended January 31, 1996 to $1,261,730 for the same period in fiscal year 1997. Net income increased from $709,378 for the three month period ended January 31, 1996 to $757,038 for the three month period ended January 31, 1997. Earnings per share were $ .26 and $ .25 for the three months ended January 31, 1996 and 1997, respectively. For the nine months ended January 31, 1997 primary earnings per share were $ .93 compared to $ .64 for the same period in the prior year. LIQUIDITY AND CAPITAL RESOURCES: The Company's primary source of liquidity has been cash provided by net income and borrowings from its secured lender. The Company had working capital of $21,247,057 at January 31, 1997 and $20,622,238 at January 31, 1996. This represents a current ratio of 2.75 and 3.34 for these periods, respectively. For the nine month period ended January 31, 1997, the primary use of cash from operations was an increase in inventories. The net cash used for investing activities for the same period was $2,126,696, which was primarily attributable to machinery and equipment purchases. To the extent that the Company provides the funds necessary to operate its Mexican operations, the amount of funds available for use in the Company's domestic operations may be depleted. The funds, which ordinarily derive from the Company's cash from operations and borrowings under its revolving credit facility, equal approximately $1,649,500 for the three month period ended January 31, 1997 and $4,387,500 for the nine month period ended January 31, 1997. Net cash provided by financing activities totaled $1,136,570 for the nine months ended January 31, 1997 compared to $5,744,378 in the prior year. Net proceeds under the line of credit decreased from $6,701,898 for the nine months ended January 31, 1996 to $1,545,336 for the nine months ended January 31, 1997. 9
10 SIGMATRON INTERNATIONAL, INC. PART II - OTHER INFORMATION January 31, 1997 ITEM 6 (A) EXHIBITS 10.38 Lease Agreement between the Company and International Financial Services 96-129 dated September 20, 1996. 10.39 Lease Agreement between the Company and International Financial Services 96-127 dated August 20, 1996. 10.40 Tenth Amendment to Amended and Restated Loan and Security Agreement between SigmaTron International, Inc. and HSBC Midland Business Loans Inc. dated December 5, 1996. 10.41 Amended and Restated Agreement between SigmaTron International, Inc. and Nighthawk Systems, Incorporated dated November 15, 1996. 10.42 Lease Agreement between SigmaTron International, Inc. and Industrias Irvin DeMexico S.A. DE C.V. dated January 15, 1997. 11.0 Statement RE: Computation of Earnings Per Share. Item 6(a) Exhibits 27 - Financial Data Schedule (EDGAR version only) (b) No report on Form 8-K was filed for the quarter ended January 31, 1997. 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 3/11/97 - ----------------------------------------------- --------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 3/11/97 - ---------------------------------------------- --------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) 11