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 October 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 (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 8, 1997, there were 2,881,227 shares of the Registrant's Common Stock outstanding.
2 SigmaTron International, Inc. Index <TABLE> <CAPTION> PART 1. FINANCIAL INFORMATION: Page No. -------- <S> <C> Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets--October 31, 1997 and April 30, 1997 3 Condensed Consolidated Statements of Income--Three and 4 Six Months Ended October 31, 1997 and 1996 Condensed Consolidated Statements of Cash Flows--Six Months Ended October 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risks 8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits 9 </TABLE>
3 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Balance Sheets <TABLE> <CAPTION> OCTOBER 31, April 30, 1997 1997 (UNAUDITED) (Audited) ------------- ------------- <S> <C> <C> ASSETS Current assets: Cash $ 192,663 $ 323,223 Accounts receivable, less allowance for doubtful accounts of $ 170,000 at October 31, 1997 and $80,000 at April 30, 1997 16,084,953 8,770,457 Inventories 17,655,671 17,665,600 Equipment lease receivables from affiliate 1,175,867 892,435 Prepaid expenses 434,942 225,780 Refundable income taxes 0 98,666 Deferred incomes taxes 231,245 231,245 Other assets 955,862 512,206 ------------ ------------ Total current assets 36,731,203 28,719,612 Machinery and equipment, net 10,386,744 10,343,060 Intangible assets, net of amortization of $189,061 and $178,119 at October 31, 1997 and April 30, 1997, respectively 3,194 14,136 Equipment lease receivables from affiliate, less current portion 1,781,893 1,467,336 Investment and advances with affiliate 515,816 527,238 Other assets 1,981,482 1,017,057 ------------ ------------ Total assets $51,400,332 $42,088,439 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - Bank 166,668 166,668 Notes payable - Related parties 0 42,596 Trade accounts payable 7,478,122 3,244,537 Trade accounts payable - Related parties 439,149 736,893 Accrued expenses 1,726,839 1,680,721 Income taxes payable 33,086 0 Capital lease obligations 1,748,579 1,199,212 ------------ ------------ Total current liabilities 11,592,443 7,070,627 Notes payable - Banks, less current portion 17,851,449 14,714,943 Capital lease obligations, less current portion 3,619,251 2,469,372 Deferred income taxes 818,853 818,853 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 500,000 shares authorized, none issued and outstanding 0 0 Common stock, $.01 par value; 6,000,000 shares authorized, 2,881,227 and 2,875,227 shares issued and outstanding at October 31, 1997 and April 30, 1997, respectively 28,812 28,752 Capital in excess of par value 9,415,699 9,373,759 Retained earnings 8,073,825 7,612,133 ------------ ------------ Total stockholders' equity 17,518,336 17,014,644 ------------ ------------ Total liabilities and stockholders' equity $51,400,332 $42,088,439 ============ ============ </TABLE> See accompanying notes. 3
4 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Statements of Income ( Unaudited) <TABLE> <CAPTION> THREE MONTHS Three Months SIX MONTHS Six Months ENDED Ended ENDED Ended OCTOBER 31, 1997 October 31, 1996 OCTOBER 31, 1997 October 31, 1996 ---------------- ---------------- ---------------- ----------------- <S> <C> <C> <C> <C> Net sales $25,746,874 $29,696,006 $42,902,192 $48,176,341 Cost of products sold 23,376,367 25,185,242 38,647,382 40,810,153 --------------- ---------------- --------------- ----------------- 2,370,507 4,510,764 4,254,810 7,366,188 Selling and administrative expenses 1,516,859 1,910,613 2,772,046 3,360,578 --------------- ---------------- --------------- ----------------- Operating income 853,648 2,600,151 1,482,764 4,005,610 Equity in net (income) loss of affiliate 15,904 22,681 11,422 25,964 Interest expense - banks and capital lease obligations 504,612 490,267 913,403 915,130 Interest expense - related party 0 2,873 523 6,694 Interest income - related party (117,452) (97,110) (213,780) (199,092) --------------- ---------------- --------------- ----------------- 387,160 396,030 700,146 722,732 --------------- ---------------- --------------- ----------------- Income before income taxes 450,584 2,181,440 771,196 3,256,914 Income taxes 180,234 872,576 309,504 1,302,765 --------------- ---------------- --------------- ----------------- Net income $270,350 $1,308,864 $461,692 $1,954,149 =============== ================ =============== ================= Net income per common and common equivalent share $0.09 $0.45 $0.15 $0.68 =============== ================ =============== ================= Weighted average number of common and common equivalent shares outstanding 3,036,347 2,892,889 3,020,752 2,889,137 =============== ================ =============== ================= Net income per common share - assuming full dilution $0.09 $0.45 $0.15 $0.67 =============== ================ =============== ================= Weighted average number of common shares outstanding - assuming full dilution 3,036,347 2,903,391 3,020,752 2,903,391 =============== ================ =============== ================= </TABLE> See accompanying notes. 4
5 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> SIX MONTHS ENDED OCTOBER 31, 1997 1996 ------------- ------------- <S> <C> <C> OPERATING ACTIVITIES: Net income $461,692 $1,954,149 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 604,709 471,810 Equity in net loss of affiliate 11,422 25,964 Amortization 10,942 11,935 Compensation expense related to stock options 0 75,000 Changes in operating assets and liabilities: Provision for doubtful accounts 90,000 0 Accounts receivable (7,404,496) (9,459,250) Inventories 9,929 (4,647,796) Prepaid expenses (209,162) (143,960) Other assets (1,309,415) (578,494) Trade accounts payable 4,233,585 7,674,181 Trade accounts payable - related parties (297,744) 384,287 Accrued expenses 46,118 42,589 Income tax payable 33,086 496,637 ------------- ------------- Net cash used in operating activities (3,719,334) (3,692,948) INVESTING ACTIVITIES: Purchases of machinery and equipment (528,046) (1,790,179) Proceeds from sale of investment in affiliate 0 250 Proceeds from sale and leaseback of machinery and equipment 1,429,899 0 Advances to affiliate 0 (120,000) Proceeds from affiliate subleases 263,999 223,958 ------------- ------------- Net cash provided by (used in) investing activities 1,165,852 (1,685,971) FINANCING ACTIVITIES: Repayment of term loan and other notes payable (42,596) (87,966) Net payments under capital lease obligations (712,988) (496,579) Issuance of common stock 42,000 53,375 Net proceeds under line of credit 3,136,506 5,910,089 ------------- ------------- Net cash provided by financing activities 2,422,922 5,378,919 Change in cash (130,560) 0 Cash at beginning of period 323,223 2,500 ------------- ------------- Cash at end of period $192,663 $2,500 ============= ============= </TABLE> See accompanying notes. 5
6 SigmaTron International, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) October 31, 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed 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 six-month period ended October 31, 1997 are not necessarily indicative of the results that may be expected for the year ending April 30, 1998. 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, 1997. NOTE B -- INVENTORIES The components of inventory consist of the following: <TABLE> <CAPTION> October 31, April 30, 1997 1997 ----------- ----------- <S> <C> <C> Finished products $ 2,420,809 $ 2,966,415 Work-in-process 1,658,261 1,079,985 Raw materials 13,576,601 13,619,200 ----------- ----------- $17,655,671 $17,665,600 =========== =========== </TABLE> 6
7 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 periodic reports filed with the Securities and Exchange Commission including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended April 30, 1997. RESULTS OF OPERATIONS: Net sales decreased from $29,696,006 for the three month period ended October 31, 1996 to $25,746,874 for the three month period ended October 31, 1997. During the first six months of fiscal 1998 net sales decreased 11% to $42,902,192 from $48,176,341 compared to the same period in the prior year. The decrease in net sales was a function of continued softer demand from our customer base. Several of our customers anticipated stronger sales in the second quarter that did not materialize. The Company has not lost any significant customers. Historically, the Company's highest levels of revenues are achieved in its second and third quarters due to seasonal trends. Timing and rescheduling of customer orders has caused the Company to experience significant quarterly fluctuations in its revenues and earnings. However, based on current customer schedules revenues for the third fiscal quarter of 1998 are expected to be soft. Gross profit decreased during the three month period ended October 31, 1997 to $2,370,507 from $4,510,764 for the same period of the prior fiscal year. For the six month period ended October 31, 1997 gross profit decreased 42% from $7,366,188 in fiscal 1997 to $4,254,810. The decrease in gross profit is due to lower sales volume and increased overhead cost. The Company has increased capacity to attract new customers and to support existing customers. The expansion has caused the Company to incur a higher level of expenses, which will continue for the next few quarters. Selling and administrative expenses decreased from $1,910,613 or 6.4% of net sales during the three month period ended October 31, 1996 to $1,516,859 or 5.9% of net sales. Selling and administrative expenses for the six month period ended October 31, 1997 decreased as a percent of net sales to 6.5% from 7.0% as compared to the same period in the prior year. This decrease is due to a reduction in bonus accruals and a decrease in commission expense related to the lower revenue volume. Interest expense for bank debt and capital lease obligations for the three month period ended October 31, 1997 was $504,612 compared to $490,267 for the same period in the prior year. This increase was attributable to a higher outstanding balance on the line of credit and interest expense for increased capital lease obligations. 7
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -con't As a result of the foregoing, net income decreased from $1,308,864 for the three month period ended October 31, 1996 to $270,350. Net earnings per share for the quarter ended October 31, 1997 were $ .09 compared to $ .45 for the same period in the prior year. For the first six months of fiscal 1998, net income decreased to $461,692 compared to $1,954,149 for the same period in the prior year. Net earnings per share were $.15 for the six months ended October 31, 1997 compared to $.68 for the comparable period in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES: The Company's primary source of liquidity has been cash provided by borrowings from its secured lender. The Company had working capital of $25,138,760 at October 31, 1997 and $25,253,127 at October 31, 1996, resulting in a current ratio of 3.17 and 2.38 for these periods, respectively. For the six months ended October 31, 1997 the primary use of cash from operations was for increases in accounts receivable, which was partially offset by the increase in accounts payable. The net cash used for operations equaled $3,719,334 compared to $3,692,948 for the six months ended October 31, 1996. The net cash provided by investing activities for the period was attributable primarily to proceeds received in connection with a machinery and equipment sale/leaseback. Net cash provided by financing activities totaled $2,422,922 in the six months ended October 31, 1997 compared to $5,378,919 in the prior year. Net proceeds under the line of credit decreased to $3,136,506 for the six months ended October 31, 1997 from $5,910,089 for the six months ended October 31, 1996. To the extent 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 $1,175,000 for the three month period ended October 31, 1997 and $3,435,679 for the six month period ended October 31, 1997. ITEM 3. Quantitative and Qualitative Disclosures About Market Risks - Not applicable 8
9 SIGMATRON INTERNATIONAL, INC. PART II - OTHER INFORMATION October 31, 1997 ITEM 4. Submission of Matters to a Vote of Security Holders On September 19, 1997, the Company held its 1997 Annual Meeting of Stockholders. The following persons were elected as directors to hold office until the 2000 Annual Meeting of Stockholders: William C. Mitchell, Thomas W. Rieck and Steven A. Rothstein. The number of shares cast for, withheld and abstained with respect to each of the nominees were as follows: <TABLE> <CAPTION> Nominee For Against Abstained ------- --- ------- --------- <S> <C> <C> <C> William C. Mitchell 1,814,581 19,610 -- Thomas W. Rieck 1,814,581 19,610 -- Steven A. Rothstein 1,814,581 19,610 -- </TABLE> The stockholders also voted to approve the ratification of the selection of Ernst & Young LLP as independent auditors for the Company for the fiscal year April 30, 1998. 2,778,917 shares were cast for such selection, 8,625 shares were cast against such selection, and 7,475 shares abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10.35 Lease agreement 97-054, between SigmaTron International, Inc. and International Financial Services dated June 6, 1997. Exhibit 10.36 Lease agreement 97-087, between SigmaTron International, Inc. and International Financial Services dated June 26, 1997. Exhibit 10.37 Lease agreement 97-097, between SigmaTron International, Inc. and International Financial Services dated August 11, 1997. Exhibit 11 Statement RE: Computation of Earnings Per Share. Exhibit 27 Financial Data Schedule (EDGAR version only) (b) No report on Form 8-K was filed during the quarter ended October 31, 1997. 9
10 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. Gary R. Fairhead 12/10/97 - ---------------------------------------------- ------------------ Gary R. Fairhead Date President and CEO (Principal Executive Officer) Linda K. Blake 12/10/97 - ---------------------------------------------- ------------------ Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) 10